<PAGE> 1
As filed with the Securities and Exchange Commission on November 7, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SYNOPSYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 56-154236
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
</TABLE>
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
(650) 962-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
AART J. DE GEUS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SYNOPSYS, INC.
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
(650) 962-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C> <C>
THOMAS C. DEFILIPPS, ESQ. PAUL LIPPE JOHN A. BURGESS, ESQ.
WILSON SONSINI GOODRICH & ROSATI SENIOR VICE PRESIDENT, HALE AND DORR LLP
PROFESSIONAL CORPORATION BUSINESS AND MARKET 60 STATE STREET
650 PAGE MILL ROAD DEVELOPMENT AND SECRETARY BOSTON, MASSACHUSETTS 02104
PALO ALTO, CALIFORNIA 94304-1050 SYNOPSYS, INC. (617) 526-6000
(650) 493-9300 700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
(650) 962-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT AND THE SATISFACTION OR WAIVER OF CERTAIN CONDITIONS
UNDER THE AGREEMENT AND PLAN OF MERGER DESCRIBED HEREIN.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
==================================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(1) FEE(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value per share... 13,703,882 $38.81 $531,847,660 $161,165.96
==================================================================================================================================
</TABLE>
(1) Based upon an estimate of the maximum number of shares of the Common Stock
of the Registrant, $0.01 par value per share, issuable in connection with
the Merger of the Registrant and Viewlogic Systems, Inc. ("Viewlogic")
described herein, consisting of shares (the "Registrant Shares") issuable
upon the conversion of the Common Stock of Viewlogic.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Section 6(b) under the Securities Act of 1933
as amended (the "Securities Act"). The proposed maximum offering price is
based on the average of the high and low sales prices of the Registrant's
Common Stock on the Nasdaq National Market on October 31, 1997.
(3) A fee of $80,910.63 was previously paid by the Registrant pursuant to Rule
14a-6 promulgated under the Securities Exchange Act of 1934, as amended, in
connection with the filing of the preliminary Joint Proxy
Statement/Prospectus on October 29, 1997. Pursuant to Rule 457(b) under the
Securities Act, such fee is being credited against the registration fee, and
accordingly, an additional $80,255.33 is being paid in connection with this
Registration Statement.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
[SYNOPSYS, INC. LOGO]
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
November 10, 1997
Dear Stockholder:
A Special Meeting of the Stockholders (the "Synopsys Special Meeting") of
Synopsys, Inc., a Delaware corporation ("Synopsys"), will be held at 9:00 a.m.,
local time, on Thursday, December 4, 1997 at the offices of Synopsys located at
700 East Middlefield Road, Mountain View, California 94043.
At the Synopsys Special Meeting, you will be asked to consider and approve
the issuance of shares of Synopsys Common Stock in connection with Synopsys'
acquisition of Viewlogic Systems, Inc., a Delaware corporation ("Viewlogic").
Pursuant to an Agreement and Plan of Merger, dated as of October 14, 1997 (the
"Merger Agreement"), by and among Synopsys, Viewlogic, and Post Acquisition
Corp. ("Sub"), a wholly-owned subsidiary of Synopsys, Synopsys and Viewlogic
agreed to a business combination in which Viewlogic will become a wholly-owned
subsidiary of Synopsys (the "Merger") and Viewlogic stockholders will become
stockholders of Synopsys. The completion of the Merger is subject to a number of
conditions set forth in the Merger Agreement, including the approval by Synopsys
stockholders of the issuance of Synopsys Common Stock in connection with the
Merger.
Both Synopsys and Viewlogic stockholders must vote on the transactions
contemplated by the Merger Agreement. The issuance of Synopsys Common Stock in
connection with the Merger will require the affirmative vote of the holders of a
majority of the shares of Synopsys Common Stock present in person or represented
at the Synopsys Special Meeting. Holders of record of Synopsys Common Stock at
the close of business on November 4, 1997 are entitled to notice of and to vote
at the Synopsys Special Meeting. Completion of the Merger is also subject to
approval by Viewlogic stockholders of the Merger Agreement.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE ISSUANCE OF SHARES OF SYNOPSYS COMMON STOCK IN CONNECTION WITH THE MERGER
AND BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, SYNOPSYS
AND ITS STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE ISSUANCE OF SYNOPSYS COMMON STOCK IN CONNECTION WITH THE MERGER.
Synopsys believes that the Merger will enable it to provide a more complete
high-level integrated circuit design solution to its customers by integrating
Viewlogic's expertise in integrated circuit verification, timing and test with
Synopsys' own expertise in high-level integrated circuit design. Moreover,
Viewlogic's strengths in the development of high-level design tools and its
technical, research and development and applications teams will enhance
Synopsys' ability to meet the demands of its customers for solutions to the
challenges they face in designing the next generation of integrated circuits.
Details of the proposed Merger and other important information concerning
Synopsys and Viewlogic appear in the accompanying Notice of Special Meeting of
Stockholders and Joint Proxy Statement/Prospectus. Please read this material
carefully before you vote.
After reading the Joint Proxy Statement/Prospectus, please promptly mark,
sign and return the enclosed proxy card in the prepaid envelope to assure that
your shares will be represented. Your shares cannot be voted unless you date,
sign and return the enclosed proxy card or attend the Special Meeting in person.
Regardless of the number of shares you own, your careful consideration of,
and vote on, the issuance of shares of Synopsys Common Stock in connection with
the Merger and related matters is important. Your prompt attention to this
matter is appreciated.
Very truly yours,
/s/ HARVEY C. JONES, JR.
HARVEY C. JONES, JR.
Chairman of the Board of Directors
<PAGE> 3
SYNOPSYS, INC.
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 4, 1997
------------------------
To the Stockholders of SYNOPSYS, INC.:
PLEASE TAKE NOTICE that a Special Meeting of Stockholders (the "Synopsys
Special Meeting") of Synopsys, Inc., a Delaware corporation ("Synopsys"), will
be held on Thursday, December 4, 1997 at Synopsys' principal executive offices
at 700 East Middlefield Road, Mountain View, California 94043, commencing at
9:00 a.m., local time, for the following purposes:
1. To approve the issuance of shares of Common Stock, par value $0.01
per share, of Synopsys ("Synopsys Common Stock"), pursuant to the Agreement
and Plan of Merger, dated as of October 14, 1997, by and among Synopsys,
Post Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Synopsys ("Sub"), and Viewlogic Systems, Inc., a Delaware
corporation ("Viewlogic"), pursuant to which, among other things, (a) Sub
will be merged with and into Viewlogic, which will be the surviving
corporation, and Viewlogic will become a wholly-owned subsidiary of
Synopsys (the "Merger") and (b) each outstanding share of Common Stock,
$0.01 par value per share, of Viewlogic will be converted into the right to
receive 0.6521 of a share of Synopsys Common Stock.
2. To transact such other business as may properly come before the
Synopsys Special Meeting, including any motion to adjourn to a later date
to permit further solicitation of proxies, if necessary, to establish a
quorum or to obtain additional votes in favor of the issuance of Synopsys
Common Stock in connection with the Merger, or any postponement or
adjournment thereof.
The accompanying Joint Proxy Statement/Prospectus contains further
information with respect to these matters.
Stockholders of record at the close of business on November 4, 1997 are
entitled to notice of, and to vote at, the Synopsys Special Meeting and any
adjournment or postponement thereof. The list of stockholders entitled to vote
at the Synopsys Special Meeting will be available for examination ten days prior
to the Synopsys Special Meeting at the principal executive offices of Synopsys
located at 700 East Middlefield Road, Mountain View, California 94043.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign and return the enclosed proxy card as promptly as possible in the
enclosed postage-prepaid envelope.
By Order of the Board of Directors
/s/ HARVEY C. JONES, JR.
HARVEY C. JONES, JR.
Chairman of the Board of Directors
Mountain View, California
November 10, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR PROXY MAY BE WITHDRAWN BY YOU AT ANY
TIME BEFORE IT IS VOTED. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR
APPROVAL OF THE ISSUANCE OF SHARES IN CONNECTION WITH THE MERGER.
<PAGE> 4
[Viewlogic Systems, Inc. LOGO]
293 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752
November 10, 1997
Dear Stockholder:
A Special Meeting of the Stockholders (the "Viewlogic Special Meeting") of
Viewlogic Systems, Inc., a Delaware corporation ("Viewlogic"), will be held at
9:00 a.m., local time, on Thursday, December 4, 1997, at the offices of
Viewlogic located at 293 Boston Post Road West, Marlboro, Massachusetts 01752.
At the Viewlogic Special Meeting, you will be asked to consider and vote
upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as
of October 14, 1997 (the "Merger Agreement"), by and among Viewlogic, Synopsys,
Inc., a Delaware corporation ("Synopsys"), and Post Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Synopsys ("Sub"), and the
transactions contemplated thereunder, including a merger pursuant to which Sub
will be merged with and into Viewlogic (the "Merger"), whereby, among other
things, Viewlogic will survive the Merger and become a wholly-owned subsidiary
of Synopsys. Approval of the Merger Agreement requires the affirmative vote of
the holders of a majority of the outstanding shares of Viewlogic Common Stock.
In connection with the Merger, each share of Viewlogic Common Stock, $0.01
par value ("Viewlogic Common Stock"), issued and outstanding as of the time the
Merger becomes effective, which will occur upon the filing of required
documentation with the Secretary of State of the State of Delaware (the
"Effective Time"), will be converted into 0.6521 of a share (the "Exchange
Ratio") of Synopsys' common stock, par value $0.01 per share ("Synopsys Common
Stock"). Based upon the number of shares of Synopsys Common Stock and Viewlogic
Common Stock outstanding at September 30, 1997, an aggregate of approximately
11,137,059 shares of Synopsys Common Stock would be issued in connection with
the Merger, representing approximately 17.4% of the total number of shares of
Synopsys Common Stock outstanding after giving effect to such issuance. To
receive their Synopsys Common Stock, Viewlogic stockholders holding certificated
shares must, after the Merger, deliver their Viewlogic Common Stock certificates
(or a bond in respect thereof) in the manner described in the attached Joint
Proxy Statement/Prospectus. VIEWLOGIC STOCKHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES AT THIS TIME.
In addition, at the Effective Time, each outstanding option to purchase
shares of Viewlogic Common Stock (each, a "Viewlogic Option"), will be assumed
by Synopsys and become an option to acquire, on substantially the same terms and
conditions as were applicable under such Viewlogic Option, the number of whole
shares of Synopsys Common Stock (rounded down to the nearest whole number) that
the holder of such Viewlogic Option would have been entitled to receive pursuant
to the Merger had such holder exercised such Viewlogic Option in full, including
as to unvested shares, immediately prior to the Effective Time (the "Synopsys
Option"). The exercise price per share (rounded up to the nearest whole cent) of
the Synopsys Option will equal (i) the aggregate exercise price for the shares
of Viewlogic Common Stock otherwise purchasable pursuant to the Viewlogic Option
divided by (ii) the number of whole shares of Synopsys Common Stock purchasable
pursuant to the Synopsys Option. Based upon the number of Viewlogic Options
outstanding at September 30, 1997, approximately 2,891,742 additional shares of
Synopsys Common Stock would be reserved for issuance to holders of Viewlogic
Options in connection with Synopsys' assumption of such options.
Both Synopsys stockholders and Viewlogic stockholders must vote on the
transactions contemplated by the Merger Agreement. The holders of the Synopsys
Common Stock must vote, pursuant to the rules of the Nasdaq National Market, on
the issuance of shares of Synopsys Common Stock in connection with the Merger.
The Viewlogic stockholders must approve the Merger Agreement. Synopsys'
stockholders will consider the issuance of shares pursuant to the Merger at a
separate meeting to be held on December 4, 1997.
THE VIEWLOGIC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE
FAIR TO, AND THAT THE MERGER IS IN THE BEST INTERESTS OF, VIEWLOGIC AND ITS
STOCKHOLDERS AND, THEREFORE, UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
VIEWLOGIC COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
At a meeting of the Viewlogic Board of Directors on October 14, 1997,
Wessels, Arnold & Henderson, L.L.C., Viewlogic's financial advisor, rendered its
oral opinion, subsequently confirmed in writing, that as of such date, based
upon
<PAGE> 5
and subject to the various considerations set forth in the opinion, the
consideration to be received by the holders of Viewlogic Common Stock was fair,
from a financial point of view, to Viewlogic and the holders of shares of
Viewlogic Common Stock. A complete copy of such opinion is attached to the
accompanying Joint Proxy Statement/Prospectus as Annex B.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by stockholders at the Viewlogic Special Meeting and a proxy
card. The Joint Proxy Statement/Prospectus, which you should read carefully,
more fully describes the terms of the Merger Agreement and the Merger and
includes information about Synopsys and Viewlogic. The Merger Agreement is
attached as Annex A to the Joint Proxy Statement/Prospectus.
All stockholders are cordially invited to attend the Viewlogic Special
Meeting in person. If you attend the Viewlogic Special Meeting, you may vote in
person if you wish, even though you have previously returned your proxy card.
Sincerely,
/s/ WILLIAM J. HERMAN
WILLIAM J. HERMAN
President, Chief Executive Officer
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE VIEWLOGIC
SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR PROXY MAY BE WITHDRAWN
BY YOU AT ANY TIME BEFORE IT IS VOTED. EXECUTED BUT UNMARKED PROXIES WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. PLEASE
DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE> 6
VIEWLOGIC SYSTEMS, INC.
293 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 4, 1997
------------------------
To the Stockholders of VIEWLOGIC SYSTEMS, INC.:
PLEASE TAKE NOTICE that a Special Meeting of Stockholders (the "Viewlogic
Special Meeting") of Viewlogic Systems, Inc., a Delaware corporation
("Viewlogic"), will be held on Thursday, December 4, 1997, at the principal
executive offices of Viewlogic located at 293 Boston Post Road West, Marlboro,
Massachusetts 01752 commencing at 9:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of October
14, 1997, by and among Synopsys, Inc., a Delaware corporation ("Synopsys"),
Post Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Synopsys ("Sub"), and Viewlogic, pursuant to which, among
other things, (a) Sub will be merged with and into Viewlogic, whereby
Viewlogic will be the surviving corporation and will become a wholly-owned
subsidiary of Synopsys (the "Merger") and (b) each outstanding share of
common stock, $0.01 par value per share, of Viewlogic ("Viewlogic Common
Stock") will be converted into the right to receive 0.6521 of a share of
common stock, $0.01 par value, of Synopsys ("Synopsys Common Stock"); and
2. To transact such other business as may properly come before the
Viewlogic Special Meeting, including any motion to adjourn to a later date
to permit further solicitation of proxies, if necessary, to establish a
quorum or to obtain additional votes in favor of the Merger, or any
postponement or adjournment thereof.
The Merger and related transactions are more fully described in the Joint
Proxy Statement/Prospectus and the annexes thereto, including the Merger
Agreement, accompanying this Notice. Any action may be taken on any of the
foregoing proposals at the Viewlogic Special Meeting on the date specified above
or on any date to which the Viewlogic Special Meeting may be properly postponed
or adjourned. Stockholders of record at the close of business on November 4,
1997, are entitled to notice of and to vote at the Viewlogic Special Meeting and
any adjournment or postponement thereof. Approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of Viewlogic Common Stock. The list of stockholders entitled to vote at
the Viewlogic Special Meeting will be available for examination ten days prior
to the Viewlogic Special Meeting at the principal executive offices of
Viewlogic, 293 Boston Post Road West, Marlboro, Massachusetts 01752.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to complete
and sign the enclosed proxy card and return it as promptly as possible in the
enclosed postage-prepaid envelope.
By Order of the Board of Directors
/s/ WILLIAM J. HERMAN
WILLIAM J. HERMAN
President, Chief Executive Officer
Marlboro, Massachusetts
November 10, 1997
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE VIEWLOGIC
SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR PROXY MAY BE WITHDRAWN
BY YOU AT ANY TIME BEFORE IT IS VOTED. EXECUTED BUT UNMARKED PROXIES WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. PLEASE
DO NOT SEND ANY VIEWLOGIC STOCK CERTIFICATES IN YOUR PROXY ENVELOPE.
<PAGE> 7
SYNOPSYS, INC.
AND
VIEWLOGIC SYSTEMS, INC.
------------------------
JOINT PROXY STATEMENT
------------------------
SYNOPSYS, INC. PROSPECTUS
------------------------
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") relates to the transactions contemplated by the Agreement
and Plan of Merger (the "Merger Agreement"), dated as of October 14, 1997, by
and among Synopsys, Inc., a Delaware corporation ("Synopsys"), Post Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Synopsys ("Sub"),
and Viewlogic Systems, Inc., a Delaware corporation ("Viewlogic"), which
provides for Viewlogic to become a wholly-owned subsidiary of Synopsys by means
of a merger with Sub (the "Merger") and for the stockholders of Viewlogic to
become stockholders of Synopsys. Synopsys and Viewlogic are referred to
collectively herein as the "Companies." Synopsys and Viewlogic are referred to
herein, after the consummation of the Merger and the transactions contemplated
thereby, as the "Combined Company."
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, par value $0.01 per share ("Synopsys Common Stock"), of Synopsys
in connection with the solicitation of proxies by the Board of Directors of
Synopsys (the "Synopsys Board") for use at a Special Meeting of Synopsys
stockholders (the "Synopsys Special Meeting") to be held on Thursday, December
4, 1997, at the principal executive offices of Synopsys located at 700 East
Middlefield Road, Mountain View, California 94043, commencing at 9:00 a.m.,
local time, and at any adjournment or postponement thereof. At the Synopsys
Special Meeting, the Synopsys stockholders will be asked to vote (i) to approve
the issuance of Synopsys Common Stock in connection with the Merger and (ii) to
transact such other matters as may properly come before the Synopsys Special
Meeting, including any motion to adjourn to a later date to permit further
solicitation of proxies, if necessary, or any postponement or adjournment
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, $0.01 par value per share ("Viewlogic Common Stock"), of
Viewlogic, in connection with the solicitation of proxies by the Board of
Directors of Viewlogic (the "Viewlogic Board") for use at a Special Meeting of
Viewlogic stockholders (the "Viewlogic Special Meeting") to be held on Thursday,
December 4, 1997, at the principal executive offices of Viewlogic located at 293
Boston Post Road West, Marlboro, Massachusetts 01752, commencing at 9:00 a.m.,
local time, and at any adjournment or postponement thereof. The Viewlogic
Special Meeting and the Synopsys Special Meeting are referred to collectively
herein as the "Special Meetings." At the Viewlogic Special Meeting, the
Viewlogic stockholders will be asked to vote (i) to consider and vote upon a
proposal to approve and adopt the Merger Agreement and (ii) to transact such
other matters as may properly come before the Viewlogic Special Meeting,
including any motion to adjourn to a later date to permit further solicitation
of proxies if necessary, to establish a quorum or to obtain additional votes in
favor of the Merger or any postponement or adjournment thereof.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Synopsys for use in connection with the offer and issuance of shares of Synopsys
Common Stock pursuant to the Merger. Upon the consummation of the Merger, which
will occur upon the filing of required documentation with the Secretary of State
of the State of Delaware (the "Effective Time"), each outstanding share of
Viewlogic Common Stock (other than treasury shares and shares owned by Synopsys
or its subsidiaries) will be converted into the right to receive 0.6521 of a
share of Synopsys Common Stock (the "Exchange Ratio"). At the Effective Time,
each outstanding option to purchase shares of Viewlogic Common Stock (each, a
"Viewlogic Option") will be assumed by Synopsys and become an option (a
"Synopsys Option") to acquire on the same terms and conditions as were
applicable under such Viewlogic Option, the same number of shares of Synopsys
Common Stock (rounded down to the nearest whole number) that the holder of such
Viewlogic Option would have been entitled to receive pursuant to the Merger had
such holder exercised such Viewlogic Option in full, including as to unvested
shares, immediately prior to the Effective Time. The exercise price per share
(rounded up to the nearest whole cent) of the Synopsys Option will equal (i) the
aggregate exercise price for the shares of Viewlogic Common Stock otherwise
purchasable pursuant to the Viewlogic Option divided by (ii) the number of whole
shares of Synopsys Common Stock purchasable pursuant to the Synopsys Option.
Based upon the number of shares of Synopsys Common Stock and Viewlogic Common
Stock outstanding at September 30, 1997, an aggregate of approximately
11,137,059 shares of Synopsys Common Stock would be issued in connection with
the Merger, representing approximately 17.4% of the total number of shares of
Synopsys Common Stock outstanding after giving effect to such issuance. Based
upon the number of
<PAGE> 8
Viewlogic Options outstanding at September 30, 1997, approximately 2,891,742
additional shares of Synopsys Common Stock would be reserved for issuance to
holders of Viewlogic Options in connection with Synopsys' assumption of such
Viewlogic Options. All information contained in this Joint Proxy
Statement/Prospectus relating to Synopsys has been supplied by Synopsys, and all
information relating to Viewlogic has been supplied by Viewlogic.
The outstanding shares of Synopsys Common Stock are listed on the Nasdaq
National Market under the symbol "SNPS," and it is a condition to the
obligations of Synopsys and Viewlogic to consummate the Merger that the shares
of Synopsys Common Stock to be issued in the Merger be approved for listing on
the Nasdaq National Market, upon official notice of issuance. The last reported
sale price of Synopsys Common Stock on the Nasdaq National Market on November 5,
1997 was $42.00 per share. Based on such last reported sale price, the Exchange
Ratio would equal a purchase price for the Viewlogic Common Stock of $27.39 per
share. Because the Exchange Ratio is fixed, a change in the market price of
Synopsys Common Stock before the Merger will affect the market value of the
Synopsys Common Stock to be received by the stockholders of Viewlogic in the
Merger. The trading price of Synopsys Common Stock is subject to volatility. See
"Risk Factors -- Risks Relating to the Merger -- Fixed Exchange Ratio." Neither
Viewlogic nor Synopsys is entitled to terminate the Merger Agreement based on
changes in the per share trading price of Synopsys Common Stock or Viewlogic
Common Stock.
------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 13, FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY SYNOPSYS STOCKHOLDERS AND VIEWLOGIC STOCKHOLDERS.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Synopsys and Viewlogic on or about
November 10, 1997.
------------------------
The date of this Joint Proxy Statement/Prospectus is November 10, 1997.
------------------------
NO PERSON HAS BEEN AUTHORIZED BY SYNOPSYS OR VIEWLOGIC TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SYNOPSYS OR
VIEWLOGIC. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS JOINT
PROXY STATE MENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 1
TRADEMARKS............................................................................ 2
FORWARD LOOKING STATEMENTS............................................................ 2
SUMMARY............................................................................... 3
Introduction........................................................................ 3
The Companies....................................................................... 3
The Proposed Merger................................................................. 4
Date and Place of Meetings.......................................................... 4
Stockholders Entitled to Vote....................................................... 5
Purpose of the Special Meetings..................................................... 5
Votes Required; Voting Agreements................................................... 5
Recommendations of the Boards of Directors.......................................... 6
Reasons for the Merger.............................................................. 6
Opinion of Viewlogic's Financial Advisor............................................ 7
Interests of Certain Persons in the Merger.......................................... 7
No Solicitation..................................................................... 7
Representations and Warranties; Covenants........................................... 8
Conditions to the Merger............................................................ 8
Amendment and Waiver................................................................ 9
Termination......................................................................... 9
Termination Fee..................................................................... 9
Stock Option Agreement.............................................................. 9
Form S-8 or Form S-3 Registration Statement......................................... 10
Transfer of Viewlogic Stock Certificates............................................ 10
No Appraisal Rights................................................................. 10
Certain Federal Income Tax Consequences............................................. 10
Accounting Treatment................................................................ 10
Governmental and Regulatory Matters................................................. 10
Restrictions on Resale of Synopsys Common Stock..................................... 11
Comparison of Stockholder Rights.................................................... 11
Risk Factors........................................................................ 11
RISK FACTORS.......................................................................... 13
Risks Relating to the Merger........................................................ 13
Risks Relating to Synopsys.......................................................... 15
Risks Relating to Viewlogic......................................................... 17
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA................... 20
COMPARATIVE PER SHARE DATA............................................................ 22
MARKET PRICE AND DIVIDEND INFORMATION................................................. 23
Synopsys............................................................................ 23
Viewlogic........................................................................... 23
Recent Share Prices................................................................. 23
Dividends........................................................................... 24
THE MEETINGS.......................................................................... 25
General............................................................................. 25
Matters To Be Considered at the Meetings............................................ 25
Voting at the Meetings; Record Dates................................................ 25
Adjournment of the Synopsys Special Meeting or the Viewlogic Special Meeting........ 27
Proxies............................................................................. 27
</TABLE>
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THE MERGER............................................................................ 29
Background of the Merger............................................................ 29
Reasons for the Merger; Recommendations of the Boards of Directors.................. 32
Opinion of Viewlogic's Financial Advisor............................................ 37
Interests of Certain Persons in the Merger.......................................... 40
Accounting Treatment................................................................ 41
Voting Agreements................................................................... 41
Certain Federal Income Tax Consequences............................................. 41
Regulatory Approvals................................................................ 43
Restrictions on Resale of Synopsys Common Stock..................................... 43
Nasdaq National Market Quotation.................................................... 44
No Appraisal Rights................................................................. 44
THE MERGER AGREEMENT.................................................................. 44
The Merger.......................................................................... 44
Conversion of Securities............................................................ 44
Representations and Warranties...................................................... 45
Certain Covenants and Agreements.................................................... 46
No Solicitation..................................................................... 47
Related Matters At and After the Merger............................................. 48
Indemnification and Insurance....................................................... 48
Conditions.......................................................................... 49
Stock Option and Benefit Plans...................................................... 50
Termination......................................................................... 50
Termination Fees and Expenses....................................................... 52
Amendment and Waiver................................................................ 53
Stock Option Agreement.............................................................. 53
SYNOPSYS, INC......................................................................... 55
Business............................................................................ 55
Product Groups and Products......................................................... 57
Consulting.......................................................................... 61
Technical Support................................................................... 61
Customer Education Services......................................................... 61
Product Warranties.................................................................. 61
Support for Industry Standards...................................................... 61
Employees........................................................................... 64
Properties.......................................................................... 65
Legal Proceedings................................................................... 65
Synopsys Selected Unaudited Quarterly Financial Data................................ 66
Synopsys Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 67
SYNOPSYS MANAGEMENT................................................................... 72
Executive Compensation and Other Matters............................................ 75
Stock Ownership of Certain Beneficial Owners and Management of Synopsys............. 79
VIEWLOGIC SYSTEMS, INC. .............................................................. 81
Business............................................................................ 81
Organization and Products........................................................... 81
Product Licensing and Pricing....................................................... 82
Sales............................................................................... 83
Product Development................................................................. 84
Service and Support................................................................. 84
Customers........................................................................... 85
Competition......................................................................... 85
</TABLE>
ii
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Proprietary Rights.................................................................. 86
Backlog............................................................................. 86
Employees........................................................................... 86
Properties.......................................................................... 86
Legal Proceedings................................................................... 87
Viewlogic Selected Financial Data................................................... 88
Viewlogic Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 89
VIEWLOGIC MANAGEMENT.................................................................. 97
Employment Contracts, Termination of Employment Arrangements and Change of Control
Agreements....................................................................... 98
Stock Ownership of Certain Beneficial Owners and Management of Viewlogic............ 99
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 101
COMPARISON OF RIGHTS OF HOLDERS OF SYNOPSYS COMMON STOCK AND HOLDERS OF VIEWLOGIC
COMMON STOCK........................................................................ 108
DESCRIPTION OF SYNOPSYS CAPITAL STOCK................................................. 109
Common Stock........................................................................ 109
Preferred Stock..................................................................... 109
Rights Agreement.................................................................... 110
Certain Charter Provisions.......................................................... 110
LEGAL MATTERS......................................................................... 110
EXPERTS............................................................................... 110
INDEX TO SYNOPSYS, INC. CONSOLIDATED FINANCIAL STATEMENTS............................. F-1
INDEX TO VIEWLOGIC SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS.................... F-20
</TABLE>
ANNEX A -- AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 14, 1997, AMONG
SYNOPSYS, INC., POST ACQUISITION CORP. AND
VIEWLOGIC SYSTEMS, INC.
ANNEX B -- OPINION OF WESSELS, ARNOLD & HENDERSON, L.L.C.
iii
<PAGE> 12
AVAILABLE INFORMATION
Synopsys and Viewlogic are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The Registration
Statement (as defined below), the exhibits and schedules forming a part thereof,
and the additional reports, proxy statements and other information filed by
Synopsys and Viewlogic with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at 7 World Trade Center, Suite 1300, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Synopsys Common Stock and the
Viewlogic Common Stock are both presently traded on the Nasdaq National Market.
Reports and other information concerning Synopsys and Viewlogic can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. In addition,
certain of the documents filed by Synopsys and Viewlogic with the Commission are
available through the Commission's Electronic Data Gathering and Retrieval
System ("EDGAR") on the Commission's World Wide Web site at http://www.sec.gov.
After the consummation of the Merger, Viewlogic will no longer file reports,
proxy statements or other information with the Commission or the Nasdaq National
Market. The information provided in such filings will be contained, to the
extent required under the rules and regulations of the Commission, in filings
made by Synopsys.
Synopsys has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Synopsys Common Stock to be issued in connection with the transactions
contemplated by the Merger Agreement. This Joint Proxy Statement/Prospectus does
not contain all the information set forth in the Registration Statement. Certain
portions of the Registration Statement are omitted from this Joint Proxy
Statement/Prospectus in accordance with the rules and regulations of the
Commission. Copies of the Registration Statement, including the exhibits to the
Registration Statement and other material that is not included herein, may be
inspected without charge at the regional offices of the Commission referred to
above, or obtained at prescribed rates from the Public Reference Section of the
Commission set forth above. The omitted portions of the Joint Proxy
Statement/Prospectus may also be obtained through EDGAR at http://www.sec.gov.
Statements contained in this Joint Proxy Statement/Prospectus or in any
document incorporated by reference in this Joint Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents and reports subsequently filed by Synopsys and Viewlogic
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Joint Proxy Statement/Prospectus and prior to the termination of the
offering under this Joint Proxy Statement/Prospectus shall be deemed to be
incorporated by reference in this Joint Proxy Statement/Prospectus and to be
part hereof from the date of filing of such documents or reports. Any statement
contained in a document deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement/Prospectus.
1
<PAGE> 13
TRADEMARKS
Synopsys, the Synopsys logo, Arcadia, COSSAP, DesignPower, DesignWare,
EPIC, Logic Modeling, PathMill, RailMill, Smart Model, SOLV-IT, Source Model
Library and TimeMill are registered trademarks, and AMPS, Behavioral Compiler,
CBA Design System, Cedar, Cyclone, DelayMill, Design Compiler, DesignTime,
DesignWare Developer, Direct Silicon Access, FPGA Compiler, FPGA Express,
Floorplan Manager, HDL Advisor, HDL Compiler, ModelSource, Power Compiler,
PowerArc, PowerGate, PowerMill, RailMill, Silicon Architects, Test Compiler,
VHDL System Simulator and Venture are trademarks of Synopsys or its
subsidiaries.
Viewlogic, Powerview, Workview Office, ViewScript, ViewPLD, ViewDraw,
ViewBase, ViewPlace, ViewFPGA, ViewSynthesis, ViewFlow, WorkViewPLUS, The Total
Workday System, ViewDesign, ViewFault, ViewTest, ProVHDL, Retargeter, Viewsim,
Viewsys, ViewText, ViewArchitect, Simbus, ViewData, ViewState, ViewTerm,
WorkView, Silerity, Eagle Design Automation and Vantage are registered
trademarks, and AnalogView, ASIC Innovator, Aurora, Design Exchange, DX
Datebook, DX Datamanager, Eagle, Eaglei, EagleV, Fusion, HTX, Intelliflow, Isis,
Isis Prevue, Isis Scratchpad, ProSeries, ProAnalog, ProArchitect, ProCapture,
ProChip, ProDeveloper, ProEDIF, ProExpert, ProFitter, ProFPGA, Programmable
Architect, Programmable Expert, ProPLD, ProSIM, ProSpice, ProSpicelink,
ProSynthesis, ProTrace, ProWave, ProWorkview, QualityView, Quiet Expert,
Speedwave, Timing Driven Design, ViewDatapath, ViewFSM, ViewSchedule, VMC,
Vwaves, Speedwave Optium, Chronologic, VCS, VCSi, Sunrise, Testgen, Motive,
Quiet, TLC, PDQ and XTK are trademarks of Viewlogic or its subsidiaries.
This Joint Proxy Statement/Prospectus also includes other trademarks and
trade names which are the property of their respective owners.
FORWARD LOOKING STATEMENTS
OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS MADE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO
RESULT FROM THE MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE AND THE ANALYSES
PERFORMED BY THE FINANCIAL ADVISOR TO VIEWLOGIC AND THE PROJECTIONS RELIED UPON
BY SUCH FINANCIAL ADVISOR, ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 12 HEREIN, WHICH STOCKHOLDERS OF SYNOPSYS AND
VIEWLOGIC SHOULD CAREFULLY REVIEW.
Neither Synopsys nor Viewlogic makes any express or implied representation
or warranty as to the attainability of the projected or estimated financial
information referenced or set forth herein under "The Merger -- Opinion of
Viewlogic's Financial Advisor" or elsewhere herein or as to the accuracy or
completeness of the assumptions from which such projected or estimated
information is derived. Projections or estimations of Synopsys' and Viewlogic's
future performance are necessarily subject to a high degree of uncertainty and
may vary materially from actual results. Reference is made to the particular
discussions set forth under "Risk Factors," "Synopsys Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Viewlogic
Management's Discussion and Analysis of Financial Condition and Results of
Operation."
2
<PAGE> 14
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. This summary does not contain a complete
description of the Merger Agreement, a copy of which is attached hereto as Annex
A. Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained in this Joint Proxy Statement/Prospectus and
the Annexes hereto. Stockholders of Synopsys and stockholders of Viewlogic are
urged to read carefully this Joint Proxy Statement/Prospectus and the Annexes in
their entirety.
Information contained in this Joint Proxy Statement/Prospectus contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, which can be identified by the use of
forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "project," "continue," "potential" or "opportunity" or the negative
thereof or other variations thereon or comparable terminology. See "FORWARD
LOOKING STATEMENTS." The matters set forth under the caption "RISK FACTORS" in
this Joint Proxy Statement/Prospectus constitute cautionary statements
identifying important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements.
With respect to Synopsys, references to any fiscal year refer to Synopsys'
fiscal year ended September 30. With respect to Viewlogic, references to any
fiscal year refer to Viewlogic's fiscal year ended December 31.
INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Viewlogic Board of proxies from holders of Viewlogic Common
Stock for use at the Viewlogic Special Meeting and by the Synopsys Board in
connection with the solicitation of proxies from holders of Synopsys Common
Stock for use at the Synopsys Special Meeting. At the Viewlogic Special Meeting,
the holders of Viewlogic Common Stock will be asked to approve and adopt the
Merger Agreement by and among Viewlogic, Synopsys and Sub and to approve the
Merger. At the Synopsys Special Meeting, the holders of Synopsys Common Stock
will be asked to approve the issuance of shares of Synopsys Common Stock in
connection with the Merger. As a result of the Merger, Viewlogic will become a
wholly-owned subsidiary of Synopsys.
THE COMPANIES
Synopsys. Synopsys develops, markets and supports electronic design
automation ("EDA") software and hardware products for designers of integrated
circuits ("ICs") and electronic systems. Synopsys offers a range of design
tools, verification tools and systems, design reuse products and physical design
tools that significantly improve designers' productivity by offering improved
time to market, reduced development and manufacturing costs, and enhanced design
quality of results when compared to earlier generations of EDA products.
Synopsys also provides training, support and consulting services for its
customers. Synopsys markets its products on a worldwide basis, primarily through
its direct sales force. Synopsys has licensed its products to many of the
world's leading semiconductor, computer, communications and electronics
companies.
Synopsys was incorporated in Delaware in May 1987. Synopsys' principal
executive offices are located at 700 East Middlefield Road, Mountain View,
California 94043-4033. Its telephone number at that address is (650) 962-5000.
Viewlogic. Viewlogic was founded in 1984 and is a leading supplier of EDA
software which is used to accelerate and automate the design and verification of
advanced application specific integrated circuits ("ASICs"), printed circuit
boards ("PCBs") and electronic systems. Viewlogic develops and markets a
comprehensive family of software products and consulting services to help its
customers optimize their design processes and deliver high quality products to
market sooner. Viewlogic markets its products to many of the world's largest and
most sophisticated IC and electronic system manufacturers in industries such as
semiconductors, computers, communications, automotives and consumer electronics.
The Company sells its products worldwide through a broad distribution channel
consisting of direct sales, distributors, value added resellers ("VARs") and
telesales.
3
<PAGE> 15
Viewlogic was organized in October 1984 as a Massachusetts limited
partnership, incorporated in Massachusetts in June 1985, and reincorporated in
Delaware in August 1988. Viewlogic's principal executive offices are located at
293 Boston Post Road West, Marlboro, Massachusetts 01752. Its telephone number
at that address is (508) 480-0881.
Sub. Sub, a Delaware corporation, is a newly-formed, wholly-owned
subsidiary of Synopsys formed solely for the purpose of the Merger. Sub has no
material assets or liabilities and has not engaged in any material operations
since its incorporation. Sub's principal executive offices are located at
Synopsys, 700 East Middlefield Road, Mountain View, California 94043-4033.
Synopsys' telephone number at that address is (650) 962-5000.
THE PROPOSED MERGER
At the Effective Time, pursuant to the Merger Agreement, (i) Sub will be
merged with and into Viewlogic, whereupon Viewlogic will be the surviving
corporation and will become a wholly-owned subsidiary of Synopsys, and (ii) each
issued and outstanding share of Viewlogic Common Stock will be converted into
the right to receive 0.6521 of a share of Synopsys Common Stock. Fractional
shares of Synopsys Common Stock will not be issued in connection with the
Merger. Cash (without interest) will be paid in lieu of fractional shares in an
amount equal to such fraction multiplied by the average of the last reported
sale prices of Synopsys Common Stock, as reported on the Nasdaq National Market,
on each of the ten trading days immediately preceding the Effective Time. See
"The Merger Agreement -- The Merger."
At the Effective Time, each outstanding Viewlogic Option will be assumed by
Synopsys and become a Synopsys Option to acquire, on the same terms and
conditions as were applicable under such Viewlogic Option, the same number of
shares of Synopsys Common Stock (rounded down to the nearest whole number) that
the holder of such Viewlogic Option would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full, including as to
unvested shares, immediately prior to the Effective Time. The exercise price per
share (rounded up to the nearest whole cent) of the Synopsys Option will equal
(i) the aggregate exercise price for the shares of Viewlogic Common Stock
otherwise purchasable pursuant to the Viewlogic Option divided by (ii) the
number of shares of Synopsys Common Stock purchasable pursuant to the Synopsys
Option.
Based upon the capitalization of Synopsys and Viewlogic as of September 30,
1997, an aggregate of approximately 11,137,059 shares of Synopsys Common Stock
will be issued in connection with the Merger, representing approximately 17.4%
of the outstanding shares of Synopsys Common Stock outstanding after giving
effect to such issuance.
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite stockholder approvals have been obtained and all
other conditions to the Merger have been satisfied or waived (if allowed by
applicable law). If the Merger is not consummated on or before April 30, 1998,
Viewlogic and Synopsys each has the right (subject to certain limitations) to
terminate the Merger Agreement unless the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), has not expired, in which event either party may terminate the Merger
Agreement if the Merger is not consummated on or before July 31, 1998. See "The
Merger -- Regulatory Approvals" and "The Merger Agreement -- Termination."
Following the Merger, the directors of Synopsys prior to the Merger will be
the officers and directors of the Combined Company. Certain officers of
Viewlogic will become officers of Synopsys following the Closing Date (as
defined in the Merger Agreement).
DATE AND PLACE OF MEETINGS
The Synopsys Special Meeting will be held on Thursday, December 4, 1997 at
Synopsys' principal executive offices at 700 East Middlefield Road, Mountain
View, California 94043, commencing at 9:00 a.m., local time.
The Viewlogic Special Meeting will be held on Thursday, December 4, 1997 at
Viewlogic's principal executive offices located at 293 Boston Post Road West,
Marlboro, Massachusetts 01752, commencing at 9:00 a.m., local time.
4
<PAGE> 16
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Synopsys Common Stock at the close of
business on November 4, 1997 (the "Synopsys Record Date") are entitled to notice
of and to vote at the Synopsys Special Meeting. At such date, there were
53,097,413 shares of Synopsys Common Stock outstanding, each of which will be
entitled to one vote on each matter to be acted upon or which may properly come
before the Synopsys Special Meeting.
Holders of record of shares of Viewlogic Common Stock at the close of
business on November 4, 1997 (the "Viewlogic Record Date"), are entitled to
notice of and to vote at the Viewlogic Special Meeting. At such date, there were
17,229,030 shares of Viewlogic Common Stock outstanding, each of which will be
entitled to one vote on each matter to be acted upon or which may properly come
before the Viewlogic Special Meeting.
PURPOSE OF THE SPECIAL MEETINGS
Synopsys Special Meeting. The purposes of the Synopsys Special Meeting are
for holders of Synopsys Common Stock (i) to approve the issuance of shares of
Synopsys Common Stock pursuant to the Merger Agreement and in connection with
the Merger and (ii) to transact such other business as may properly come before
the Synopsys Special Meeting, including any motion to adjourn to a later date to
permit further solicitation of proxies, if necessary, to establish a quorum or
to obtain additional votes in favor of the issuance of Synopsys Common Stock in
connection with the Merger, or any adjournment or postponement thereof. See "The
Meetings."
Viewlogic Special Meeting. The purposes of the Viewlogic Special Meeting
are for holders of Viewlogic Common Stock (i) to consider and vote upon a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereunder and (ii) to transact such other business as may properly
come before the Viewlogic Special Meeting, including any motion to adjourn to a
later date to permit further solicitation of proxies, if necessary, to establish
a quorum or to obtain additional votes in favor of the Merger, or any
postponement or adjournment thereof. See "The Meetings."
VOTES REQUIRED; VOTING AGREEMENTS
Synopsys. The approval of the issuance of Synopsys Common Stock in
connection with the Merger will require the affirmative vote of the holders of a
majority of the shares of Synopsys Common Stock present in person or represented
by proxy at the Synopsys Special Meeting and entitled to vote. The approval of
the issuance of Synopsys Common Stock in connection with the Merger is required
by the rules of The Nasdaq Stock Market governing corporations with securities
listed on the Nasdaq National Market. As of September 30, 1997, directors and
executive officers of Synopsys and their respective affiliates may be deemed to
be beneficial owners of approximately 3.0% of the outstanding shares (excluding
shares subject to stock options) of Synopsys Common Stock. Each of the directors
and executive officers of Synopsys has advised Synopsys that he or she intends
to vote or direct the vote of all the outstanding shares of Synopsys Common
Stock over which he or she has voting control in favor of approval of the
issuance of Synopsys Common Stock in connection with the Merger. As of September
30, 1997, directors and officers of Viewlogic and their respective affiliates
beneficially owned less than 1% of the outstanding shares of Synopsys Common
Stock, and Viewlogic owned no shares of Synopsys Common Stock.
Viewlogic. The approval and adoption of the Merger Agreement by Viewlogic
stockholders will require the affirmative vote of the holders of a majority of
the outstanding shares of Viewlogic Common Stock entitled to vote. In accordance
with the terms of the Merger Agreement, directors and officers of Viewlogic have
executed and delivered agreements and irrevocable proxies to Synopsys (the
"Voting Agreements") obligating them, among other things, to vote their shares
of Viewlogic Common Stock in favor of approval and adoption of the Merger
Agreement. As a result, all of the approximately 726,448 shares of Viewlogic
Common Stock (which excludes shares subject to Viewlogic Options) beneficially
owned by directors and executive officers of Viewlogic and their respective
affiliates at the Viewlogic Record Date (representing approximately 4.3% of the
total number of shares of Viewlogic Common Stock outstanding at such date) will
be voted for approval of and adoption of the Merger Agreement. As of September
30, 1997, directors and executive officers of Synopsys and their respective
affiliates beneficially owned less than 1% of the outstanding shares of
Viewlogic Common Stock, and Synopsys owned no shares of Viewlogic Common Stock.
See "The Meetings."
5
<PAGE> 17
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Synopsys Board has unanimously approved the Merger Agreement and the
issuance of shares of Synopsys Common Stock in connection with the Merger and
believes that the Merger is fair to, and in the best interests of, Synopsys and
its stockholders and, therefore, unanimously recommends that the stockholders of
Synopsys vote for the issuance of such shares of Synopsys Common Stock. See "The
Merger -- Reasons for the Merger; Recommendations of the Boards of Directors."
The Viewlogic Board has unanimously approved the Merger Agreement and the
Merger and believes that the terms of the Merger Agreement are fair to, and that
the Merger is in the best interests of, Viewlogic and its stockholders and,
therefore, unanimously recommends that the holders of Viewlogic Common Stock
vote for approval and adoption of the Merger Agreement. See "The
Merger -- Reasons for the Merger; Recommendations of the Boards of Directors."
REASONS FOR THE MERGER
Certain statements made in the following paragraphs regarding the potential
benefits that could result from the Merger are forward-looking statements based
on current expectations and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements. Such risks and uncertainties are set forth under
"Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus.
Joint Reasons. The Synopsys Board and the Viewlogic Board concluded that
(i) the goals and philosophies of the Companies are compatible and consistent,
(ii) the products of the Companies are complementary, (iii) the Combined Company
has the potential to offer customers a more comprehensive EDA solution than
either could independently, (iv) the Merger would be positively received by
customers of each of the Companies, and (v) the Companies' respective
stockholders would benefit by the enhanced ability of the Combined Company to
compete in the rapidly-evolving EDA industry.
Synopsys. In addition to the reasons described above, the Synopsys Board
believes that the Merger will be beneficial to Synopsys and Synopsys'
stockholders for the following additional reasons: (i) Viewlogic's products are
complementary to Synopsys' products, particularly in the areas of simulation and
testing, giving Synopsys an opportunity to offer a more complete high-level IC
design solution to its customers and to compete more successfully against its
principal competitors in the face of evolving industry requirements; (ii)
Viewlogic's technical, management, research and development, and applications
teams have significant expertise in the development of high-level design tools,
which may enhance Synopsys' efforts to develop products that address the
increasing complexity of the design environment and, in particular, the needs of
its customers for solutions that permit the design of system-on-a-chip ICs;
(iii) the Merger will strengthen Synopsys' competitive position in the markets
for simulation, timing and test analysis software and will enhance its ability
to develop new products serving the high-level IC verification market; (iv)
Viewlogic's expertise in both board-level and high-level timing analysis will
accelerate Synopsys' ability to develop tools for static timing sign-off; (v)
integration of Viewlogic's expertise in the partial scan test environment with
Synopsys' own expertise on IC test issues will enable Synopsys to provide a more
complete IC test solution for its customers; (vi) Viewlogic's growth rate in its
ASIC design tools business, combined with operating efficiencies resulting from
the Merger, may have long-term positive effects on the overall performance of
the Combined Company; (vii) the combination of Viewlogic's and Synopsys'
professional services groups should permit Synopsys to expand its offering of
consulting services and to offer a greater range of customized high-level design
support for IC and systems designs and to compete more effectively with other
significant vendors; (viii) Viewlogic's printed circuit board business may
provide an additional distribution channel for the sale of Synopsys' FPGA
Express and other present and future products that run on the Windows NT
platform; and (ix) in an increasingly competitive and consolidating industry,
Synopsys must continue to invest in industry-leading technology, and the
Combined Company may be in an improved competitive position to effectively meet
the EDA industry's technological challenges and customer demands.
Viewlogic. The Viewlogic Board believes that the Merger will be beneficial
to Viewlogic and Viewlogic's stockholders for the following additional reasons:
(i) Viewlogic believes that Synopsys' products and customer base offer a
significant opportunity to leverage sales of Viewlogic's own ASIC products; (ii)
Viewlogic
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believes that the combination of Synopsys' market-leading synthesis product and
Viewlogic's verification solutions will create a more complete high-level design
solution that will better compete against new technology offerings from
competitors; (iii) the research investment resources enabled by a large entity
should allow new technologies to be created more rapidly; (iv) Synopsys' FPGA
Express synthesis technology could help leverage Viewlogic's current position in
field programmable gate array ("FPGA") development and PCB design; (v) the
Merger permits the sale of Viewlogic as a single entity, without disposition of
the systems business which would have been required in connection with other
transactions considered by the Viewlogic Board, thereby avoiding the dislocation
attendant upon a spin-off or disposition of a corporate division; (vi) Viewlogic
believes that the nature of Synopsys' business and the long-term vision of its
management team provides a better opportunity for implementing Viewlogic's
long-term strategy than a combination with other companies in the EDA industry;
and (vii) Viewlogic believes that in light of the current economic, competitive
and business environment in the EDA industry, a business combination with
Synopsys offers better opportunities than continuing to operate as a stand-alone
entity.
See "The Merger -- Background of the Merger" and "-- Reasons for the
Merger; Recommendations of the Boards of Directors."
OPINION OF VIEWLOGIC'S FINANCIAL ADVISOR
At a meeting of the Viewlogic Board on October 14, 1997, Wessels, Arnold &
Henderson, L.L.C. ("Wessels") rendered its oral opinion, subsequently confirmed
in writing, that, as of such date based upon and subject to the various
considerations set forth in the opinion, the consideration to be received by the
holders of Viewlogic Common Stock pursuant to the Merger Agreement was fair,
from a financial point of view, to Viewlogic and the holders of shares of
Viewlogic Common Stock. The full text of the opinion of Wessels, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Annex B to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. Viewlogic
stockholders are urged to, and should, read the opinion in its entirety. See
"The Merger -- Opinion of Viewlogic's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of September 30, 1997, the executive officers and directors of Viewlogic
beneficially owned an aggregate of 1,554,275 shares of Viewlogic Common Stock
(including 1,397,000 shares of Viewlogic Common Stock subject to Viewlogic
Options exercisable within 60 days of September 30, 1997 after giving effect to
certain acceleration rights).
Pursuant to the Merger Agreement, Synopsys has agreed to indemnify each
person who was an officer, director or employee of Viewlogic against certain
liabilities. In addition, Synopsys has agreed to maintain, with certain
limitations, the policies of directors' and officers' liability insurance
maintained by Viewlogic or to provide comparable coverage.
Viewlogic has entered into retention agreements with certain of its
executive officers providing that if the executive's employment with Viewlogic
is terminated for certain specified reasons following a change of control of
Viewlogic, including the Merger, the executive will receive a cash payment and
certain other benefits. In connection with the Merger, certain executive
officers of Viewlogic have agreed to waive their rights under their respective
retention agreements. In addition, all outstanding options to acquire Viewlogic
Common Stock held by members of Viewlogic's Executive Committee will become
fully vested in connection with the Merger. See "Viewlogic
Management -- Employment Contracts, Termination of Employment Arrangements and
Change of Control Agreements."
The foregoing interests of the directors and certain members of management
of Viewlogic in the Merger may mean that such persons have personal interests in
the Merger which may not be identical to the interests of other Viewlogic
stockholders. See "The Merger -- Interests of Certain Persons in the Merger."
NO SOLICITATION
Under the terms of the Merger Agreement, Viewlogic has agreed that it will
not engage in certain activities relating to, or which could result in, a
proposal to be acquired by a third party, except under certain
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limited circumstances related to the performance by the Viewlogic Board of its
fiduciary obligations under Delaware law. See "The Plan of Merger -- No
Solicitation."
REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Merger Agreement, Synopsys and Viewlogic made a number of
representations regarding their respective capital structures, operations,
financial condition and other matters. Each party agreed as to itself and its
subsidiaries that, until consummation of the Merger or the earlier termination
of the Merger Agreement, it will, among other things, maintain its business,
conduct its operations in the ordinary course, provide the other with reasonable
access to its financial, operating and other information, and use all reasonable
efforts to consummate the Merger. See "The Merger Agreement -- Representations
and Warranties" and "-- Certain Covenants and Agreements."
CONDITIONS TO THE MERGER
The respective obligations of Synopsys, Sub and Viewlogic to effect the
Merger are subject to the following conditions, among others: (a) the Merger
Agreement shall have been approved and adopted by the stockholders of Viewlogic,
and the issuance of Synopsys Common Stock in connection with the Merger shall
have been approved by the stockholders of Synopsys; (b) the waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated and no action shall have been instituted by the
Antitrust Division of the Department of Justice (the "Antitrust Division") or
Federal Trade Commission (the "FTC") challenging or seeking to enjoin the
consummation of the Merger, which action shall not have been withdrawn or
terminated; (c) all governmental authorizations, consents, orders or approvals
shall have been obtained except where the failure to obtain such consents,
orders or approvals would not have a Synopsys Material Adverse Effect or a
Viewlogic Material Adverse Effect (as such terms are defined in the Merger
Agreement), as the case may be; (d) the Registration Statement shall have become
effective under the Securities Act and shall not be the subject of a stop order
or proceedings seeking a stop order; (e) no temporary restraining order,
preliminary or permanent injunction or other order shall be in effect nor shall
there be any proceeding seeking any of the foregoing that prevents, or seeks to
prevent, the consummation of the Merger; (f) no action shall be taken, nor any
statute, rule, regulation, or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal or
prevents or prohibits the Merger, (g) the receipt of letters from the
independent accountants of Synopsys and Viewlogic, respectively, dated the
Closing Date stating that the independent accountants concur with the
conclusions of management of the Companies that the Merger will qualify as a
pooling of interests transaction under Accounting Principles Board Opinion No.
16 and applicable regulations of the Commission, if the Merger is consummated in
accordance with the Merger Agreement (see "The Merger -- Accounting Treatment");
(h) the Synopsys Common Stock to be issued, or reserved for future issuance, in
the Merger shall have been approved for quotation on the Nasdaq National Market;
(i) Synopsys shall have received a written opinion from Wilson Sonsini Goodrich
& Rosati, Professional Corporation ("WSGR"), counsel to Synopsys, and Viewlogic
shall have received a written opinion from Hale and Dorr LLP ("Hale and Dorr"),
counsel to Viewlogic, each such opinion to the effect that the Merger will be
treated for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code") (see "The Merger -- Certain Federal Income Tax Consequences"); (j) the
representations and warranties of the other party set forth in the Merger
Agreement shall have been true and correct at the time of signing the Merger
Agreement and shall be true and correct as of the Effective Time, except for
changes contemplated by the Merger Agreement or where failure to be true and
correct would not be reasonably likely to have a Synopsys Material Adverse
Effect or a Viewlogic Material Adverse Effect, as the case may be; (k) Synopsys
or ViewLogic as the case may be shall have performed in all material respects
all obligations required to be performed by it under the Merger Agreement; and
(l) no Material Adverse Effect with respect to either party shall have occurred
since the date of the Merger Agreement. In addition, it is a condition to the
obligations of Synopsys and Sub that Affiliate Agreements in the form attached
to the Merger Agreement as Exhibit C shall have been executed and delivered to
Synopsys by each director, officer and applicable affiliate of Viewlogic, and
that each Affiliate Agreement shall be in full force and effect. See "The Merger
Agreement -- Conditions."
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AMENDMENT AND WAIVER
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto. The Merger Agreement may be
amended by the parties thereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Viewlogic
and Synopsys, but, after any such approval, no amendment shall be made which by
law requires further approval by such stockholders without such further
approval.
At any time prior to the Effective Time, either Synopsys or Viewlogic, by
action taken or authorized by their respective Boards of Directors, as the case
may be, to the extent legally allowed, (i) extend the time for the performance
of any of the obligations or other acts of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
in the Merger Agreement or delivered pursuant to the Merger Agreement, and (iii)
waive compliance by the other party with any condition or agreement contained in
the Merger Agreement.
TERMINATION
The Merger Agreement is subject to termination by mutual written consent of
Synopsys and Viewlogic and at the option of either Synopsys or Viewlogic if the
Merger is not consummated before April 30, 1998, unless the waiting period
pursuant to the HSR Act has not expired, in which event Synopsys or Viewlogic
may terminate the Merger Agreement if the Merger is not consummated before July
31, 1998. The Merger Agreement is also subject to termination by Synopsys or
Viewlogic upon the occurrence of any of the following: a court order permanently
restraining, enjoining or otherwise prohibiting the Merger, failure of the other
party to obtain stockholder approval or, under certain circumstances, a breach
by the other party of a representation, warranty, covenant or agreement of the
other party contained in the Merger Agreement. In addition, Synopsys may
terminate the Merger Agreement if (i) the Viewlogic Board withdraws or adversely
modifies its recommendation of the Merger Agreement; (ii) the Viewlogic Board
approves one of a limited number of certain types of alternative transactions;
or (iii) the Viewlogic Board fails to recommend against a tender offer or
exchange offer for 20% or more of the outstanding shares of Viewlogic Common
Stock within a specified time period (each, a "Synopsys Termination Trigger").
Viewlogic may terminate the Merger Agreement in the event of (i) a merger or
consolidation to which Synopsys is a party, if the stockholders of Synopsys
immediately prior to the effective date of such merger or consolidation have
beneficial ownership of less than 50% of the total combined voting power for
election of directors of the surviving corporation following the effective date
of such merger or consolidation; (ii) the acquisition or direct or indirect
beneficial ownership of securities of Synopsys representing in the aggregate
more than 50% the total combined voting power of Synopsys' then issued and
outstanding voting securities by any person, entity or group; or (iii) the sale
of all or substantially all of the assets of Synopsys to any person or entity
that is not a subsidiary of Synopsys (each, a "Viewlogic Termination Trigger").
See "The Merger Agreement -- Termination."
TERMINATION FEE
The Merger Agreement provides that upon the occurrence of a Synopsys
Termination Trigger or the termination of the Merger Agreement by Synopsys due
to the failure of the Viewlogic stockholders to approve the Merger Agreement
under certain circumstances, Viewlogic may be required to pay Synopsys a cash
termination fee of $10,000,000. Pursuant to the Merger Agreement, Synopsys also
agreed to pay Viewlogic a cash termination fee of $10,000,000 upon the
termination of the Merger Agreement by Viewlogic pursuant to a Viewlogic
Termination Trigger or the termination of the Merger Agreement by Viewlogic due
to the failure of the Synopsys stockholders to approve the Merger Agreement
under certain circumstances. See "The Merger Agreement -- Termination" and
"-- Termination Fees."
STOCK OPTION AGREEMENT
Viewlogic and Synopsys have entered into a Stock Option Agreement, dated as
of October 14, 1997 (the "Stock Option Agreement"), pursuant to which Synopsys
has the right, under certain circumstances and subject to certain limitations,
to acquire shares of authorized and unissued Viewlogic Common Stock representing
approximately 19.9% of the outstanding Viewlogic Common Stock prior to such
issuance at a
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price per share of $28.00 (the "Synopsys Option"). See "The Merger and Related
Transactions -- Related Agreements -- Stock Option Agreement."
FORM S-8 OR FORM S-3 REGISTRATION STATEMENT
As soon as practicable after the Effective Time, Synopsys will file a
registration statement on Form S-8 or Form S-3, as the case may be, or other
appropriate form for the Synopsys Common Stock issuable with respect to the
Viewlogic Stock Options assumed or substituted by Synopsys pursuant to the
Merger Agreement and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements for so long as such
Viewlogic Stock Options remain outstanding. See "The Plan of Merger -- Stock
Option and Benefit Plans."
TRANSFER OF VIEWLOGIC STOCK CERTIFICATES
If the Merger becomes effective, Synopsys, acting through Boston EquiServe,
LP as its exchange agent (the "Exchange Agent"), will as soon as reasonably
practicable deliver a letter of transmittal with instructions to all holders of
record of Viewlogic Common Stock immediately prior to the Merger for use in
surrendering their stock certificates in exchange for certificates representing
shares of Synopsys Common Stock and a cash payment in lieu of fractional shares,
if any. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF VIEWLOGIC
COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT. OPTION AGREEMENTS NEED NOT BE SURRENDERED. See "The Merger
Agreement -- Conversion of Securities."
NO APPRAISAL RIGHTS
Viewlogic stockholders who dissent from the Merger will not be entitled to
rights of appraisal under Section 262 of the Delaware General Corporation Law
(the "DGCL"). See "The Merger and Related Transactions -- No Appraisal Rights."
Accordingly, Viewlogic stockholders who do not wish to receive Synopsys Common
Stock in exchange for their shares of Viewlogic Common Stock must liquidate
their investment by selling their Viewlogic Common Stock in the market prior to
consummation of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss would generally be recognized by Synopsys
or Viewlogic and no gain or loss would generally be recognized by Viewlogic
stockholders, except with respect to cash received in lieu of fractional shares.
Viewlogic stockholders are urged to consult their own tax advisors as to the
specific tax consequences of the Merger to the individual stockholder. It is a
condition to the Merger that Synopsys and Viewlogic shall have each received an
opinion of their respective counsel to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
For a further discussion of federal income tax consequences of the Merger, see
"The Merger -- Certain Federal Income Tax Consequences." See also "The Merger
Agreement -- Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. The obligations of Synopsys and Viewlogic to
consummate the Merger are conditioned upon the receipt by Synopsys from KPMG
Peat Marwick LLP and by Viewlogic from Deloitte & Touche LLP, their independent
accountants, respectively, of letters dated as of the Closing Date stating their
concurrence with the conclusions of management of the Companies that the Merger
will qualify as a pooling of interests transaction under Accounting Principles
Board Opinion No. 16 and applicable regulations of the Commission if the Merger
is closed and consummated in accordance with the Merger Agreement. See "The
Merger -- Accounting Treatment" and "The Merger Agreement -- Conditions."
GOVERNMENTAL AND REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Synopsys and
Viewlogic
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have filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division. These filings commenced a 30-day waiting period under the
HSR Act which is scheduled to expire on or before the date of the Special
Meetings. If, prior to the expiration of such period, the FTC or the Antitrust
Division should request additional information or documentary material under the
HSR Act, consummation of the Merger could be delayed until after the Companies
have substantially complied with the request. At any time before or after the
Effective Time of the Merger, the Antitrust Division, the FTC or any state or
foreign government may take such action under the federal, state or foreign
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger, seeking divestiture
of substantial assets of Synopsys or Viewlogic or seeking to impose conditions
on Synopsys with respect to the business operations of the Combined Company.
Private parties may also seek to take legal action under the antitrust laws
under certain circumstances.
The Merger must also satisfy the requirements of federal and certain state
securities laws.
See "The Merger -- Governmental and Regulatory Matters."
RESTRICTIONS ON RESALE OF SYNOPSYS COMMON STOCK
The shares of Synopsys Common Stock issuable to stockholders of Viewlogic
upon consummation of the Merger have been registered under the Securities Act.
Such shares will be freely tradable without restriction by those stockholders
who are not deemed to be "affiliates" of Synopsys or Viewlogic, as that term is
defined in the rules under the Securities Act.
Shares of Synopsys Common Stock received by those stockholders of Viewlogic
who are deemed to be affiliates of Viewlogic may be resold without registration
under the Securities Act only as permitted by Rule 145 under the Securities Act
or as otherwise permitted under the Securities Act. Each affiliate of Viewlogic
has agreed not to offer, sell, pledge, transfer or otherwise dispose of any
shares of Synopsys Common Stock distributed pursuant to the Merger, except in
compliance with Rule 145 under the Securities Act, or in a transaction that is
otherwise exempt from the registration requirements of the Securities Act and
provided that an opinion of counsel, satisfactory to Synopsys, has been provided
to Synopsys to the effect that no such registration is required in connection
with the proposed transaction, or in an offering that is registered under the
Securities Act. In addition, each affiliate of Viewlogic has agreed not to sell,
transfer or otherwise dispose of, or reduce such person's interest in or risk
relating to (i) any shares of Synopsys Common Stock or Viewlogic Common Stock
owned or subject to vested options as of the date of the Merger Agreement or
(ii) any shares of Synopsys Common Stock issued to such person in the Merger or
otherwise beneficially owned by such person, except in each case for amounts of
Synopsys Common Stock and Viewlogic Common Stock not more than the de minimis
amount permitted by the rules and releases of the Commission relating to pooling
of interests accounting treatment, until Synopsys has publicly released combined
financial results of Synopsys and Viewlogic for a period of at least 30 days of
combined operations. See "The Merger Restrictions on Resale of Synopsys Common
Stock."
COMPARISON OF STOCKHOLDER RIGHTS
See "Comparison of Rights of Holders of Viewlogic Common Stock and Holders
of Synopsys Common Stock" for a summary of the material differences between the
rights of holders of Viewlogic Common Stock and Synopsys Common Stock.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors pertaining to the
Merger and the businesses of Synopsys and Viewlogic. Risks related to the Merger
include (i) market risks associated with a fixed exchange ratio; (ii) dilution
in earnings per share of Synopsys Common Stock; (iii) risks associated with
restructuring Viewlogic's operations and risks that anticipated synergies
between the Companies will not occur; (iv) management distraction resulting from
the need to integrate the businesses of the Companies; (v) risks associated with
the integration of other acquired businesses of Synopsys or Viewlogic; (vi)
substantial expenses associated with the Merger; and (vii) the risk that the
Merger will have an adverse effect on customer buying patterns as a result of
uncertainties resulting from the Merger. Risks related to Synopsys include (i)
intense competition; (ii) uncertainty of market acceptance of new Synopsys
products;
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(iii) Synopsys' reliance on the semiconductor industry; (iv) Synopsys' ability
to manage growth; (v) fixed operating expenses that may result in adverse
effects on net income if anticipated future revenues are not realized; (vi)
exchange rate fluctuations and foreign economic conditions; (vii) uncertainties
related to Synopsys' joint development efforts, particularly with International
Business Machines Corporation ("IBM"); and (viii) Synopsys' dependence on key
personnel. Risks related to Viewlogic include (i) potential fluctuations in
quarterly operating results; (ii) intense competition; (iii) Viewlogic's
dependence on new products; (iv) risks associated with Viewlogic's product
development efforts; (v) risk of technological obsolescence; (vi) risks
associated with intellectual property rights; (vii) Viewlogic's dependence on
key personnel; and (viii) risks associated with international operations.
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RISK FACTORS
The following factors should be considered carefully by each Viewlogic
stockholder in connection with voting upon the Merger and the Merger Agreement
and by each Synopsys stockholder in connection with approving the issuance of
shares of Synopsys Common Stock in connection with the Merger. The following
discussion contains "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, which can be
identified by the use of forward-looking terminology, such as "may," "will,"
"expect," "anticipate," "estimate," "project" or "continue," "potential" or
"opportunity" or the negative thereof or other variations thereon or comparable
terminology. See "FORWARD LOOKING STATEMENTS." The matters set forth below
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.
RISKS RELATING TO THE MERGER
Fixed Exchange Ratio. As a result of the Merger, each outstanding share of
Viewlogic Common Stock will be converted into the right to receive 0.6521 of a
share of Synopsys Common Stock. Accordingly, the market value of the
consideration to be received by the stockholders of Viewlogic upon the Merger
will depend entirely on the market price of Synopsys Common Stock at the
Effective Time. The closing price for Synopsys Common Stock on the Nasdaq
National Market on October 14, 1997, the last trading day prior to public
announcement of the Merger, was $42.94, and on November 5, 1997, the latest
practicable trading day before the printing of this Joint Proxy
Statement/Prospectus, was $42.00. There can be no assurance that the market
price of Synopsys Common Stock on and after the Effective Time will not be lower
than such prices. See "-- Risks Relating to Synopsys" and "Market Price and
Dividend Information."
Volatility of Trading Price. The trading price of the Combined Company's
shares may be affected by the risk factors set forth herein, as well as
prevailing economic and financial trends and conditions in the public securities
markets. During recent periods, share prices of companies in technology
businesses, and particularly smaller and medium-sized publicly traded companies
such as the Combined Company, have exhibited a high degree of volatility.
Shortfalls in revenues or earnings from the levels anticipated by the public
markets could have an immediate and significant adverse effect on the trading
price of the Combined Company's shares in any given period. Such shortfalls may
result from events that are beyond the Combined Company's immediate control, can
be unpredictable and, since a significant proportion of the Combined Company's
sales during each fiscal quarter may tend to occur in the latter stages of the
quarter, may not be discernible until the end of a financial reporting period,
which may contribute to the volatility of the trading value of the Combined
Company's shares regardless of its long-term prospects. The trading price of the
Combined Company's shares may also be affected by developments, including
reported financial results and fluctuations in trading prices of the shares of
other publicly held companies in the EDA industry generally, which may not have
any direct relationship with the Combined Company's business or prospects.
Effect of Pre-Merger Period on Quarterly Results. The merger of two
companies can be unsettling to customers, distracting for management and
disruptive to employees of both companies. These risks are discussed
individually below. The October-December quarter is Synopsys' first fiscal
quarter and typically the only quarter without a positive book-to-bill ratio,
and Viewlogic's fourth fiscal quarter, typically its strongest. Viewlogic and
Synopsys believe that a number of their customers have put their purchase
decisions on hold until they have the opportunity to learn more about the
product plans of the Combined Company. As a result, the quarterly results of one
or both of the Companies could fail to meet analysts' expectations. Such failure
could have a material adverse effect on the price of the Synopsys Common Stock
and, consequently, Viewlogic Common Stock. The failure to meet such expectations
is not, in and of itself, a termination event under the Merger Agreement.
Potential Dilution of Interest. A number of shares equal to approximately
17.4% of Synopsys' outstanding Common Stock after giving effect to the Merger
will be issued to the stockholders of Viewlogic upon consummation of the Merger
and an additional approximately 2,891,742 shares of Synopsys Common Stock (4.5%
of the outstanding Common Stock after giving effect to the Merger) will be
reserved for issuance upon the exercise of options to purchase Viewlogic Common
Stock assumed by Synopsys in connection with the
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Merger. The issuance of Synopsys Common Stock in the Merger and upon the
exercise of Viewlogic Options assumed by Synopsys may cause a dilution of
earnings per share which may negatively impact the price of Synopsys Common
Stock. There can be no assurance that Synopsys' stock price will not be
negatively impacted, or that the pro forma financial information presented
herein will be indicative of future results. See "Selected Historical and
Unaudited Pro Forma Combined Financial Data."
Restructuring of Viewlogic Operations; Risk of Failure to Achieve
Synergy. The Synopsys Board and the Viewlogic Board have each approved the
Merger Agreement with the expectation that the Merger will result in cost
savings and beneficial product synergy. See "The Merger -- Reasons for the
Merger; Recommendations of the Boards of Directors." Following the Merger, in
order to maintain and increase profitability the Combined Company will need to
successfully integrate and streamline overlapping functions. Viewlogic's
business will be restructured so that its products serving the IC market, and
the related sales, marketing and research and development efforts will be
integrated with Synopsys' business, while its operations relating to its
products serving the PCB market will not be integrated. There can be no
assurance that the desired cost savings will be achieved or that the anticipated
restructuring of Viewlogic's business will be accomplished smoothly,
expeditiously or successfully. The difficulties of such restructuring may be
increased by the need to integrate operations in multiple locations and to
combine two corporate cultures. The inability to successfully integrate the
operations of the Companies could have a material adverse effect on the
business, financial condition and results of operations of the Combined Company.
Management Resources; Retention of Key Employees. The integration of the
Companies' businesses following the Merger will require the dedication of
management resources, which may distract management's attention from the
day-to-day business of the Combined Company. The business of the Combined
Company may also be disrupted by employee uncertainty and lack of focus during
integration. The retention by Viewlogic and Synopsys of key employees is
critical to ensure continued advancement, development and support of the
Companies' technologies as well as on-going sales and marketing efforts. As
commonly occurs with mergers of technology companies, during the pre-merger and
integration phases, competitors may intensify their efforts to recruit key
employees. There can be no assurance that the Combined Company will be able to
retain key technical, sales or marketing personnel after the Merger.
Integration of Other Acquired Businesses. Each of Synopsys and Viewlogic
has consummated several business combinations in recent years, and the Merger,
if approved, would be the largest such combination for either company. The
difficulties of integrating Synopsys' and Viewlogic's businesses may be
exacerbated by the size and number of prior business combinations. There can be
no assurance that products, technologies, distribution channels, key personnel
and businesses of previously acquired companies will be effectively integrated
into the Combined Company's business or product offerings, or that such
integration will not adversely affect the Combined Company's business, financial
condition or results of operations. There can also be no assurance that any
acquired products, technologies or businesses will contribute at anticipated
levels to the combined company's sales or earnings, or that the sales and
earnings from combined businesses will not be adversely affected by the
integration process. The failure to integrate such acquisitions successfully
could have a material adverse effect on the business, financial condition and
results of operations of the Combined Company. See "Synopsys,
Inc. -- Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Mergers and Acquisitions."
Transaction Charges. Synopsys and Viewlogic estimate that they will
collectively incur direct transaction costs of approximately $6.5 million
associated with the Merger, which will be charged to operations upon
consummation of the Merger. In addition, it is expected that after the Merger,
the Combined Company will incur an additional significant charge to operations,
which is not currently reasonably estimable, to reflect costs associated with
integrating the Companies. Although Synopsys expects that the elimination of
duplicative expenses as well as other efficiencies related to the integration of
the businesses may offset the direct transaction costs and other
integration-related charges over time, there can be no assurance that such net
benefit will be achieved in the near term, if at all. See "Selected Historical
and Unaudited Pro Forma Combined Financial Information."
Customers. There can be no assurance that present and prospective customers
of Synopsys and Viewlogic will continue their current buying patterns without
regard to the announced Merger. Certain
14
<PAGE> 26
customers may defer purchasing decisions as they evaluate Synopsys' plans for
integrating or separately supporting the Companies' product offerings,
particularly their timing and test products. Any such deferrals could have a
material adverse effect on the business, financial condition and results of
operations of Synopsys, Viewlogic and/or the Combined Company both in the
near-term and the long-term.
RISKS RELATING TO SYNOPSYS
Competition. The EDA industry is highly competitive. Synopsys' products and
services compete with similar products and services from other EDA vendors and
with other EDA products and services for a share of the EDA budgets of their
customers. Synopsys' products also compete with customers' internally-developed
design tools and design capabilities. Synopsys' competitors include companies
that offer a broad range of products and services, such as Cadence Design
Systems, Inc. ("Cadence"), Mentor Graphics, Inc. ("Mentor") and Avant!
Corporation ("Avant!"), as well as companies, including numerous start-up
companies, that offer products focused on a discrete phase of the IC design
process. In order to remain successful against such competition, Synopsys will
have to continue to enhance its current products and to develop and introduce
new products on a timely and cost-effective basis that are based on
industry-leading technology and that address the increasingly sophisticated
needs of its customers. The failure to achieve such product enhancement and
development would have a material adverse effect on Synopsys' business,
financial condition and results of operations.
Technology advances and customer requirements are fueling a change in the
nature of competition among EDA vendors. Advances in semiconductor technology
have created a need for tighter integration between logic design and physical
design and for technologies which permit systematic reuse of design blocks in
multiple ICs. As a result, Synopsys expects that competition will increasingly
center on "design flows" involving a broad range of products (including both
logic and physical design tools) and services rather than individual design
tools. No single EDA company currently offers its customers industry-leading
products for a complete design flow. Synopsys offers a wide range of logic
design tools but currently offers a relatively limited range of physical design
tools, a field which is dominated by Cadence and Avant! In addition, Synopsys
has less capacity than Cadence to offer design consulting services.
Uncertainty of Market Acceptance of New Products. Historically, much of
Synopsys' growth has been attributable to the strength of its logic synthesis
products. Opportunities for growth in market share in this area are limited and
overall rates of growth appear to be declining. Synopsys is seeking to add new
products to its portfolio. Among the most important new products offered by
Synopsys are its Behavioral Compiler, Cell-Based Array, PrimeTime timing
estimator and Cyclone simulation accelerator products. These products have
achieved initial customer acceptance, but Synopsys will only derive significant
revenue from these products if they are accepted by a broad range of customers.
The development of new products involves significant risks and uncertainties and
success cannot be assumed. In June 1997, Synopsys sold its hardware emulator
business, based on technology acquired by Synopsys in June 1995, as a result of
uncertainties over the long-term competitiveness of such technology. There can
be no assurance that Synopsys' other new products will be competitive or gain
customer acceptance, and the failure of such products to prove competitive or to
gain customers' acceptance would have a material adverse effect on Synopsys'
business, financial condition and results of operations.
Reliance on the Semiconductor Industry. Synopsys' business has benefited
from the rapid worldwide growth of the semiconductor industry. Purchases of
Synopsys' products are largely dependent upon the commencement of new design
projects by semiconductor manufacturers and their customers. The semiconductor
industry has experienced moderate growth in 1997 and the outlook for the
remainder of 1997 and for 1998 is uncertain. Slower growth in the semiconductor
industry, and/or a reduced number of design starts, could have a material
adverse effect on Synopsys' business, financial condition and results of
operations.
Management of Growth. Synopsys attempts to manage its business to achieve
quarter-to-quarter revenue and earnings growth. In recent years, achieving
predictable revenue and earnings growth has become more difficult. Quarterly
revenue and earnings are affected by a number of factors, including customer
product demand, product license terms, the size of Synopsys' backlog, and the
timing of revenue recognition. In recent years, Synopsys' orders have become
more seasonal, with the first quarter of Synopsys' fiscal year traditionally
15
<PAGE> 27
being the weakest and with higher volumes in the second and fourth quarters.
Synopsys increasingly receives a disproportionate volume of orders in the last
month of the quarter, a trend which has grown more pronounced in recent quarters
and is expected to continue. Synopsys also has become more dependent upon large
orders. In addition, an increasing amount of Synopsys' orders involve products
and services which yield revenue over multiple quarters (often extending beyond
the current fiscal year) or upon completion of performance rather than at the
time of sale, including time-based product licenses, consulting services,
development contracts and royalties. Because of these trends, Synopsys' ability
to convert orders, particularly those received late in a quarter, or backlog to
revenue in any quarter is less certain, and Synopsys is more vulnerable to
delays in individual large orders, than it historically has been. It is
therefore possible for Synopsys to fall short in its revenue and/or earnings
plan for a given quarter even while orders and backlog remain on plan.
Ultimately, long-term revenue and earnings growth is dependent upon the
successful development and sale of Synopsys' products and services over a
sustained period of time.
Fixed Operating Expenses. Synopsys' operating expenses are based in part on
its expectations of future revenue, and expense levels are generally committed
in advance of revenue. Synopsys expects to continue to increase operating
expenses in order to generate and support continued growth in revenue. If
Synopsys is unsuccessful in generating such revenue, Synopsys' business,
financial condition and results of operations are likely to be materially
adversely affected. Net income in a given quarter or fiscal year may be
disproportionately affected by a reduction in revenue growth because only a
small portion of Synopsys' expenses varies with its revenue.
Exchange Rate Fluctuations; Foreign Economic Conditions. In recent years,
international revenue has accounted for approximately 50% of Synopsys' revenue.
Synopsys expects that international revenue will continue to account for a
significant portion of its revenue in the future. As a result, changes in
foreign currency exchange rates and changes in regional or worldwide economic or
political conditions could have a material adverse effect on Synopsys' business,
financial condition and results of operations. In particular, revenue from sales
in Japan during fiscal 1997 was adversely affected by the weakness of the yen
against the dollar. Continued weakness of the yen could adversely affect revenue
from Japan during fiscal 1998. In addition, recent instability in several Asian
currency and stock markets economies could adversely affect the economic health
of the entire region and could have an adverse effect on Synopsys' results of
operations.
Uncertainties of Joint Development Efforts. In February 1996, Synopsys
entered into a six-year joint development and license agreement with IBM,
pursuant to which Synopsys and IBM agreed to develop certain new products that
Synopsys believes are important to the long-term growth of its business. The
first joint product resulting from the alliance, PrimeTime, was introduced in
June 1997. Synopsys has not previously entered into a joint development
agreement of this scope. Joint development of products is subject to risks and
uncertainties over and above those affecting internal development, and there can
be no assurance that Synopsys' joint development efforts will be successful.
Other Income and Expenses. As of September 30, 1997, Synopsys held 674,000
shares of Cadence common stock, which were acquired as a result of Synopsys'
investments in Cooper & Chyan Technology, Inc. ("CCT") in May 1996 and April
1997 and CCT's subsequent acquisition by Cadence. The average basis of these
shares is $17.11 per share. Following announcement of the Cadence-CCT merger,
Synopsys commenced a program of selling its CCT (now Cadence) shares in an
amount per quarter sufficient to generate a profit of $2 million per quarter.
The price of Cadence stock, and thus the value of Synopsys' investment, is
subject to significant fluctuation. The number of Cadence shares Synopsys is
required to sell in order to generate $2 million in profit in any fiscal
quarter, the number of quarters that Synopsys will be able to generate such
profits, and the total gain that Synopsys may be able to realize on sales of its
Cadence shares depends upon the price of Cadence Common Stock at the time of
sale.
Dependence on Key Personnel. Synopsys' success is dependent on technical
and other contributions of key employees, including individuals who joined
Synopsys in connection with the acquisition of EPIC Design Technology, Inc.
("EPIC") and individuals who will join Synopsys in connection with the Merger.
In particular, there is a limited number of qualified EDA engineers, and the
competition for such individuals is intense. There can be no assurance that
Synopsys can continue to recruit and retain such key personnel.
16
<PAGE> 28
Failure to successfully recruit and retain such personnel could have a material
adverse effect on Synopsys' business, financial condition and results of
operation.
Anti-takeover Provisions. Synopsys has adopted a number of provisions that
could have antitakeover effects. In September 1997, the Synopsys Board adopted a
Preferred Shares Rights Plan, commonly referred to as a "poison pill." In
addition, the Synopsys Board has the authority, without further action by its
stockholders, to fix the rights and preferences of, and issue shares of,
authorized but undesignated shares of Preferred Stock. This provision and other
provisions of Synopsys' Restated Certificate of Incorporation (the "Restated
Certificate") and Bylaws and the DGCL may have the effect of deterring hostile
takeovers or delaying or preventing changes in control or management of
Synopsys, including transactions in which the stockholders of Synopsys might
otherwise receive a premium for their shares over then current market prices.
Financial Statement Assumptions. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the recorded amounts of assets and
liabilities, disclosure of those assets and liabilities at the date of the
financial statements and the recorded amounts of expenses during the reporting
period. A change in the facts and circumstances surrounding these estimates
could result in a change to the estimates and impact future operating results.
RISKS RELATING TO VIEWLOGIC
Potential Fluctuations in Quarterly Operating Results. Viewlogic's
quarterly revenues, expenses and operating results are likely to vary
considerably in the future. Such fluctuations can be traced to many factors,
including the timing and terms of large transactions, delays in customer
acceptance, the length of sales cycles, changes in the level of operating
expenses, demand for Viewlogic's products and services, the introduction of new
products and product enhancements by Viewlogic and its competitors, changes in
customer budgets, competitive conditions in the EDA industry and general
economic conditions. Viewlogic budgets its product development and other
expenses anticipating future revenues. If revenues fall below expectations,
Viewlogic's business, operating results and financial condition are likely to be
materially and adversely affected because a proportionately smaller amount of
Viewlogic's expenses vary with its revenues. As a result, Viewlogic believes
that period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon to predict future performance. As is
common in the software industry, Viewlogic frequently ships more product in the
third month of each quarter than in either of the first two months of the
quarter, and shipments in the third month are higher at the end of that month.
This pattern is likely to continue. The concentration of sales in the last month
of the quarter makes Viewlogic's quarterly financial results difficult to
predict. Due to the foregoing factors, it is likely that, in some future
quarters, Viewlogic's operating results will fall below the market's or
investors' expectations.
Competition. Intense competition and rapid technological changes are
inherent in the EDA industry. Viewlogic's competitors consist of large,
established companies; emerging companies with new and innovative technology;
and customers who develop their own EDA tools. Many of these companies have
stronger brand recognition, greater financial, marketing, manufacturing,
technological and distribution resources, broader product lines and larger
installed customer bases than does Viewlogic. Principal competitive factors
include product performance, quality and reliability, customer service and
support, marketing and distribution capabilities and price. There can be no
assurance that Viewlogic will be able to maintain or improve its current
position with respect to any of these or other competitive factors. This intense
competition could result in loss of customers or pricing pressures, which would
negatively affect Viewlogic's results of operations.
Viewlogic's ability to compete favorably is dependent, in significant part,
upon its ability to control costs, react timely and appropriately to short and
long-term trends and competitively price its products while preventing erosion
of its margins, and there is no assurance that Viewlogic will be able to do so.
Many of Viewlogic's competitors can devote greater managerial and financial
resources than Viewlogic can to develop, promote and distribute products and
provide related consulting and training services. Some of Viewlogic's
competitors have established, or may establish, cooperative arrangements or
strategic alliances among themselves or with third parties, thus enhancing their
ability to compete with Viewlogic. There can be no assurance that Viewlogic will
be able to compete successfully against current or future competitors or that
the
17
<PAGE> 29
competitive pressures faced by Viewlogic will not materially and adversely
affect its business, operating results and financial condition.
Dependence on New Products. Viewlogic's future success will be highly
dependent upon its ability to develop, produce and market products that
incorporate new technology, are priced competitively and achieve significant
market acceptance. There can be no assurance that Viewlogic's products will be
technically advanced or commercially successful due to the rapid improvements in
computer technology and resulting product obsolescence. There is also no
assurance that Viewlogic will be able to deliver commercial quantities of new
products in a timely manner. The success of new product introductions is
dependent on a number of factors, including market acceptance and Viewlogic's
ability to anticipate and manage risks associated with product transitions. The
failure of Viewlogic to develop, produce and market commercially viable products
could result in Viewlogic's business, operating results and financial condition
being materially and adversely affected.
Product Development Risks. Viewlogic's product development efforts will
continue to require substantial investments by Viewlogic for research,
refinement and testing, and there can be no assurance that Viewlogic will have
the resources sufficient to make such investments. Participants in the EDA
industry generally rely on the creation and implementation of technology
standards to win the broadest market acceptance for their products. Viewlogic
must successfully manage and participate in the development of standards while
continuing to differentiate its products in a manner valued by customers. While
industry participants generally accept, and may encourage, the use of their
intellectual property by third parties under license, when intellectual property
owned by competitors or suppliers becomes accepted as an industry standard,
Viewlogic must obtain a license, purchase components utilizing such technology
from the owners of such technology or their licensees, or otherwise acquire
rights to use such technology. The failure of Viewlogic to license, purchase or
otherwise acquire rights to such technologies could result in Viewlogic's
business, operating results and financial condition being materially and
adversely affected.
Risk of Technological Obsolescence. There can be no assurance that products
or technologies of Viewlogic's competitors will not render Viewlogic's products
or technologies non-competitive or obsolete. Although Viewlogic's product lines
have been designed to forestall such obsolescence, there can be no assurance
that Viewlogic's products will be competitive with products offered by other
manufacturers. In addition, delays in access to technology developed by
competitors and suppliers could slow Viewlogic's design and manufacture of
components and subsystems that distinguish its products. If Viewlogic is unable
for technological or other reasons to develop and introduce new or enhanced
products and services in a timely and effective manner, Viewlogic's business,
operating results and financial condition would be materially and adversely
affected.
Uncertainty Regarding Intellectual Property Rights. Viewlogic's success is
dependent, in part, upon its proprietary technology and other intellectual
property rights. There can be no assurance that Viewlogic's competitors will not
independently develop or otherwise acquire substantially equivalent techniques
or otherwise gain access to Viewlogic's proprietary technology or disclose such
technology or that Viewlogic can ultimately protect its rights to such
proprietary technology. Viewlogic also relies on confidentiality agreements with
its collaborators, employees, advisors, vendors and consultants to protect its
proprietary technology. There can be no assurance that these agreements will not
be breached, that Viewlogic would have adequate remedies for any breach or that
Viewlogic's trade secrets will not otherwise become known or be independently
developed by competitors. Failure to obtain or maintain patent and trade secret
protection, for any reason, could have a material adverse effect on Viewlogic's
business, financial condition and results of operations.
Potential Infringement of Proprietary Technology. Although Viewlogic
believes that its products do not infringe patents or other proprietary rights
of third parties, there can be no assurance that Viewlogic is aware of all
patents or other proprietary rights that may be infringed by Viewlogic's
products, that any infringement does not exist or that infringement may not be
alleged by third parties in the future. If infringement is alleged, there can be
no assurance that the necessary licenses would be available on acceptable terms,
if at all, or that Viewlogic would prevail in any related litigation. Patent
litigation can be extremely protracted and expensive even if Viewlogic
ultimately prevails, and involvement in such litigation could have a material
adverse effect on the business, results of operations and financial condition of
Viewlogic.
18
<PAGE> 30
Dependence on Key Personnel. Viewlogic's future success depends, to a
significant extent, on certain key personnel, including its executive officers
and certain technical, managerial, consulting, sales and marketing personnel.
The loss of the services of any of these individuals or group of individuals
could have a material adverse effect on Viewlogic's business, operating results
and financial condition. Viewlogic does not have, and is not contemplating
securing, any significant amount of key-man life insurance on any of its
executive officers or other key employees.
Risks Associated With International Operations. A substantial portion of
Viewlogic's revenue is derived from its international operations. There are
certain risks inherent in doing business in international markets, such as
unexpected changes in regulatory requirements, export restrictions, tariffs and
other trade barriers, difficulties in staffing and managing foreign operations,
political instability, fluctuations in currency exchange rates, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world and potentially adverse tax consequences, which could
adversely impact the success of Viewlogic's international operations. There can
be no assurance that one or more of such factors will not have a material
adverse effect on Viewlogic's future international operations and, consequently,
on Viewlogic's business, financial condition or operating results.
19
<PAGE> 31
SELECTED HISTORICAL AND UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA
The following selected historical financial information of Synopsys and
Viewlogic has been derived from their respective historical consolidated
financial statements, and should be read in conjunction with such consolidated
financial statements and the notes thereto, included elsewhere in this Joint
Proxy Statement/Prospectus. The selected pro forma combined financial
information is derived from the unaudited pro forma combined condensed financial
statements, which give effect to the Merger as a pooling of interests, and
should be read in conjunction with such unaudited pro forma combined condensed
financial statements and the notes thereto included elsewhere in this Joint
Proxy Statement/Prospectus. For pro forma purposes, Synopsys' consolidated
statement of income for the year ended September 30, 1995 has been combined with
Viewlogic's consolidated statement of income for the year ended December 31,
1995; Synopsys' consolidated statement of income for the year ended September
30, 1996 has been combined with Viewlogic's consolidated statement of income for
the year ended December 31, 1996; and Synopsys' consolidated statement of income
for the year ended September 30, 1997 has been combined with Viewlogic's
consolidated statement of income for the twelve months ended September 30, 1997,
giving effect to the Merger as if it had occurred on October 1, 1994. For pro
forma purposes, Synopsys' consolidated balance sheet as of September 30, 1997
has been combined with the consolidated balance sheet of Viewlogic as of
September 30, 1997, giving effect to the Merger as if it had occurred on
September 30, 1997. No cash dividends have been declared or paid on Synopsys
Common Stock or Viewlogic Common Stock. The pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the Merger
had been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of future operating results or financial position.
SYNOPSYS SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue............................................... $148,235 $210,539 $290,503 $397,419 $499,145
Merger-related costs.................................. -- 7,400 -- -- 11,400
In-process research and development................... -- 5,900 12,461 58,506 --
Operating income...................................... 23,302 23,430 45,258 23,430 97,061
Net income............................................ 15,604 15,443 31,290 14,022 72,394
Earnings per share.................................... $ 0.35 $ 0.33 $ 0.62 $ 0.28 $ 1.34
Shares used in per share computation.................. 43,980 46,261 50,199 50,917 54,039
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term investments....................... $ 95,885 $145,187 $237,902 $276,094 $362,770
Working capital....................................... 65,619 96,618 170,843 188,140 280,378
Total assets.......................................... 147,734 219,856 333,352 463,758 629,687
Long-term debt........................................ -- -- -- 15,970 8,996
Total stockholders' equity............................ 91,527 127,365 209,227 269,801 411,773
</TABLE>
20
<PAGE> 32
VIEWLOGIC SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue............................... $70,964 $97,926 $118,580 $120,960 $132,919 $95,726 $110,618
Operating income (loss)............... 9,774 18,376 (2,879) 6,234 12,126 6,726 7,202
Income (loss) before extraordinary
item and cumulative effect of change
in accounting for income taxes...... 7,633 13,702 (6,317) 2,861 11,276 5,775 5,086
Net income (loss)..................... 7,833 13,702 (6,317) 2,861 11,276 5,775 5,086
PER SHARE DATA:
Primary:
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for income
taxes............................. $ 0.47 $ 0.79 $ (0.36) $ 0.17 $ 0.66 $ 0.33 $ 0.29
Net income (loss)................... $ 0.48 $ 0.79 $ (0.36) $ 0.17 $ 0.66 $ 0.33 $ 0.29
Weighted average number of common
and common equivalent shares
outstanding....................... 16,092 16,759 17,391 17,249 17,104 17,250 17,805
Fully Diluted:
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for income
taxes............................. $ 0.47 $ 0.78 $ (0.36) $ 0.17 $ 0.66 $ 0.33 $ 0.27
Net income (loss)................... $ 0.48 $ 0.78 $ (0.36) $ 0.17 $ 0.66 $ 0.33 $ 0.27
Weighted average number of common
and common equivalent shares
outstanding....................... 16,092 16,930 17,393 17,250 17,113 17,259 18,841
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents and
marketable securities........... $37,973 $44,899 $ 54,151 $ 57,768 $ 61,779 $ 72,060
Working capital................... 43,974 56,227 52,302 56,437 57,241 62,757
Total assets...................... 72,835 95,263 116,157 118,983 131,209 145,497
Total stockholders' equity........ 51,774 70,042 72,352 77,291 82,474 92,962
</TABLE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995(A) 1996(B) 1997(C)
-------- -------- --------
<S> <C> <C> <C>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME DATA:
Revenue.............................................................. $411,463 $530,338 $646,956
Merger-related costs................................................. -- -- 11,400
In-process research and development.................................. 18,484 58,506 5,500
Operating income..................................................... 51,492 35,556 109,663
Net income........................................................... 34,151 25,298 82,981
Earnings per share................................................... $ 0.56 $ 0.41 $ 1.27
Shares used in per share computation................................. 61,447 62,071 65,486
</TABLE>
- ---------------
(A) Year ended September 30, 1995 and December 31, 1995 for Synopsys and
Viewlogic, respectively.
(B) Year ended September 30, 1996 and December 31, 1996 for Synopsys and
Viewlogic, respectively.
(C) Year and twelve months ended September 30, 1997 for Synopsys and Viewlogic,
respectively.
21
<PAGE> 33
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and short-term investments.......................................................... $ 434,830
Working capital.......................................................................... 336,635
Total assets............................................................................. 775,184
Long-term obligations.................................................................... 9,191
Total stockholders' equity............................................................... 498,235
</TABLE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Synopsys and Viewlogic and combined per share data on an unaudited pro forma
basis after giving effect to the Merger as a pooling of interests. This data
should be read in conjunction with the selected historical consolidated and
unaudited pro forma combined financial data and the unaudited pro forma combined
condensed financial statements of Synopsys and Viewlogic and notes thereto,
included elsewhere in this Joint Proxy Statement/Prospectus. The pro forma
combined per share data are not necessarily indicative of the operating results
or financial position that would have occurred if the Merger had been
consummated at the beginning of the periods indicated, nor is it necessarily
indicative of future operating results or financial position.
<TABLE>
<CAPTION>
AS OF AS OF
1995(A) 1996(B) 1997(C) DECEMBER 31, 1996 SEPTEMBER 30, 1997
------- ------- ------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
HISTORICAL -- SYNOPSYS
Earnings per share.................. $0.62 $0.28 $1.34 $ -- $ --
Book value per share(1)............. -- -- -- -- 7.81
HISTORICAL -- VIEWLOGIC
Net income per share................ 0.17 0.66 0.60 -- --
Book value per share(1)............. -- -- -- 5.03 5.44
PRO FORMA COMBINED EARNINGS PER
SHARE(2)
Per Synopsys share.................. 0.56 0.41 1.27 -- --
Equivalent per Viewlogic share(3)... 0.37 0.27 0.83 -- --
PRO FORMA COMBINED BOOK VALUE PER
SHARE(2)(4)
Per Synopsys share.................. -- -- -- -- 7.80
Equivalent per Viewlogic share(3)... -- -- -- -- 5.09
</TABLE>
- ---------------
(A) Year ended September 30, 1995 and December 31, 1995 for Synopsys and
Viewlogic, respectively.
(B) Year ended September 30, 1996 and December 31, 1996 for Synopsys and
Viewlogic, respectively.
(C) Year and twelve months ended September 30, 1997, for Synopsys and Viewlogic,
respectively.
- ---------------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock and preferred stock, on an
as-if-converted basis, outstanding at the end of each period.
(2) Synopsys and Viewlogic estimate they will incur direct transaction costs of
approximately $6.5 million associated with the Merger, which will be charged
to operations upon consummation of the Merger. In addition, it is expected
that after the Merger, the Combined Company will incur an additional
significant charge to operations, which is not currently reasonably
estimable, to reflect costs associated with integrating the Companies. The
pro forma combined book value per share data gives effect to the estimated
direct transaction costs, as if such costs had been incurred as of the
respective balance sheet date. The pro forma combined book value per share
data does not include the additional significant charge relating to
integrating the Companies. The direct transaction costs and
integration-related charges are not included in the pro forma combined
earnings per share data. See "Unaudited Pro Forma Combined Condensed
Financial Statements" and accompanying notes thereto.
(3) The Viewlogic equivalent pro forma combined per share amounts are calculated
by multiplying the Synopsys combined pro forma share amounts by the Exchange
Ratio of 0.6521 of a share of Synopsys Common Stock for each share of
Viewlogic Common Stock.
(4) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding as of September 30, 1997.
22
<PAGE> 34
MARKET PRICE AND DIVIDEND INFORMATION
SYNOPSYS
As of November 4, 1997, there were approximately 292 holders of record of
the Synopsys Common Stock. The Synopsys Common Stock is traded on the Nasdaq
National Market under the symbol "SNPS." The following table sets forth for the
periods indicated the range of high and low closing prices reported on the
Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended September 30, 1996:
First Quarter.................................................... $38.50 $23.00
Second Quarter................................................... 37.75 27.50
Third Quarter.................................................... 46.75 29.75
Fourth Quarter................................................... 50.50 30.75
Fiscal Year Ended September 30, 1997:
First Quarter.................................................... $50.00 $39.75
Second Quarter................................................... 46.25 24.25
Third Quarter.................................................... 38.00 21.75
Fourth Quarter................................................... 45.19 29.50
Fiscal Year Ended September 30, 1998:
First Quarter (through November 5, 1997)......................... $44.94 $35.75
</TABLE>
VIEWLOGIC
As of November 4, 1997, there were approximately 654 holders of record of
the Viewlogic Common Stock. The Viewlogic Common Stock is traded on the Nasdaq
National Market under the symbol "VIEW." The following table sets forth for the
periods indicated the range of high and low closing prices reported on the
Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended December 31, 1995:
First Quarter.................................................... $10.63 $ 8.00
Second Quarter................................................... 13.38 8.56
Third Quarter.................................................... 15.13 11.75
Fourth Quarter................................................... 13.50 9.75
Fiscal Year Ended December 31, 1996:
First Quarter.................................................... $11.25 $ 9.63
Second Quarter................................................... 17.23 11.63
Third Quarter.................................................... 14.50 10.50
Fourth Quarter................................................... 11.50 8.63
Fiscal Year Ending December 31, 1997:
First Quarter.................................................... $16.00 $11.00
Second Quarter................................................... 16.38 13.00
Third Quarter.................................................... 23.81 14.50
Fourth Quarter (through November 5, 1997)........................ 26.63 21.63
</TABLE>
RECENT SHARE PRICES
The following table sets forth the closing prices per share of Synopsys
Common Stock and Viewlogic Common Stock on the Nasdaq National Market on October
14, 1997, the last full trading date prior to the execution and delivery of the
Merger Agreement and the public announcement thereof, and on November 5, 1997,
the latest practicable trading day before the printing of this Joint Proxy
Statement/Prospectus; and the
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<PAGE> 35
equivalent per share prices for Viewlogic Common Stock as of such dates based on
the Synopsys Common Stock prices multiplied by the Exchange Ratio of 0.6521:
<TABLE>
<CAPTION>
SYNOPSYS VIEWLOGIC VIEWLOGIC
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ----------
<S> <C> <C> <C>
October 14, 1997............................. $42.94 $22.50 $28.00
November 5, 1997............................. $42.00 $26.63 $27.39
</TABLE>
No assurance can be given as to the market prices of Synopsys Common Stock
or Viewlogic Common Stock at any time before the Effective Time or as to the
market price of Synopsys Common Stock at any time thereafter. The Exchange Ratio
is fixed and will not be adjusted to compensate Viewlogic stockholders for
decreases in the market price of Synopsys Common Stock which could occur before
the Merger becomes effective. In the event the market price of Synopsys Common
Stock decreases or increases prior to the Effective Time, the market value at
the Effective Time of the Synopsys Common Stock to be received in the Merger in
exchange for Viewlogic Common Stock would correspondingly decrease or increase.
VIEWLOGIC STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION OF THE
VIEWLOGIC COMMON STOCK AND THE SYNOPSYS COMMON STOCK.
Following the Merger, Viewlogic Common Stock will no longer be listed on
the Nasdaq National Market.
DIVIDENDS
Neither Synopsys nor Viewlogic has ever paid cash dividends. Following the
Merger, Synopsys does not anticipate paying cash dividends in the foreseeable
future. Pursuant to the Merger Agreement, Viewlogic and Synopsys have agreed not
to pay cash dividends pending the consummation of the Merger. If the Merger is
not completed, the Viewlogic Board presently intends to continue a policy of
retaining all earnings to finance the expansion of its business.
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<PAGE> 36
THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Synopsys Common Stock in connection with the solicitation of proxies by the
Synopsys Board for use at the Synopsys Special Meeting to be held on Thursday,
December 4, 1997, at Synopsys' principal executive offices located at 700 East
Middlefield Road, Mountain View, California 94043, commencing at 9:00 a.m.,
local time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Viewlogic Common Stock in connection with the solicitation of proxies by the
Viewlogic Board for use at the Viewlogic Special Meeting to be held on Thursday,
December 4, 1997, at Viewlogic's principal executive offices located at 293
Boston Post Road West, Marlboro, Massachusetts 01752, commencing at 9:00 a.m.,
local time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy
are first being mailed to stockholders of Synopsys and stockholders of Viewlogic
on or about November 10, 1997.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Synopsys Special Meeting. The purposes of the Synopsys Special Meeting are
for holders of Synopsys Common Stock (i) to approve the issuance of shares of
Synopsys Common Stock pursuant to the Merger Agreement and in connection with
the Merger and (ii) to transact such other business as may properly come before
the Synopsys Special Meeting, including any motion to adjourn to a later date to
permit further solicitation of proxies, if necessary, to establish a quorum or
to obtain additional votes in favor of the issuance of Synopsys Common Stock in
connection with the Merger, or any adjournment or postponement thereof.
Viewlogic Special Meeting. The purposes of the Viewlogic Special Meeting
are for holders of Viewlogic Common Stock (i) to consider and vote upon a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereunder and (ii) to transact such other business as may properly
come before the Viewlogic Special Meeting, including any motion to adjourn to a
later date to permit further solicitation of proxies, if necessary, to establish
a quorum or to obtain additional votes in favor of the Merger, or any
postponement or adjournment thereof.
Board of Directors' Recommendations. The Synopsys Board has unanimously
approved the Merger Agreement and the issuance of shares of Synopsys Common
Stock in connection with the Merger and believes that the Merger is fair to, and
in the best interests of, Synopsys and its stockholders and, therefore,
unanimously recommends a vote FOR the issuance of Synopsys Common Stock in
connection with the Merger.
The Viewlogic Board has unanimously approved the Merger Agreement and the
Merger and believes that the terms of the Merger Agreement are fair to, and that
the Merger is in the best interests of, Viewlogic and its stockholders and,
therefore, unanimously recommends a vote FOR approval and adoption of the Merger
Agreement.
VOTING AT THE MEETINGS; RECORD DATES
Synopsys. Holders of record of Synopsys Common Stock on the Synopsys Record
Date will be entitled to notice of and to vote at the Synopsys Special Meeting.
As of the Synopsys Record Date, there were 53,097,413 shares of Synopsys Common
Stock outstanding and entitled to vote, which shares were held by approximately
292 holders of record. Each holder of record of shares of Synopsys Common Stock
on the Synopsys Record Date is entitled to cast one vote per share, exercisable
in person or by properly executed proxy, at the Synopsys Special Meeting. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Synopsys Common Stock entitled to vote at the
Synopsys Special Meeting is necessary to constitute a quorum at the Synopsys
Special Meeting.
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<PAGE> 37
The approval of the issuance of Synopsys Common Stock in connection with
the Merger will require the affirmative vote of the holders of a majority of the
shares of Synopsys Common Stock present in person or represented by proxy at the
Synopsys Special Meeting. The approval of the issuance of Synopsys Common Stock
in connection with the Merger is required by the rules of The Nasdaq Stock
Market governing corporations with securities listed on the Nasdaq National
Market.
As of September 30, 1997, directors and executive officers of Synopsys and
their affiliates may be deemed to be beneficial owners of approximately 3.0% of
the outstanding shares (excluding shares subject to stock options) of Synopsys
Common Stock. Each of the directors and executive officers of Synopsys has
advised Synopsys that he or she intends to vote or direct the vote of all shares
of Synopsys Common Stock over which he or she has voting control for approval of
the issuance of Synopsys Common Stock in connection with the Merger.
As of the Synopsys Record Date the directors and executive officers of
Viewlogic and their affiliates owned less than 1% of the outstanding shares of
Synopsys Common Stock and Viewlogic owned no shares of Synopsys Common Stock.
Viewlogic. Holders of record of shares of Viewlogic Common Stock on the
Viewlogic Record Date will be entitled to notice of and to vote at the Viewlogic
Special Meeting. As of the Viewlogic Record Date, there were 17,229,030 shares
of Viewlogic Common Stock outstanding and entitled to vote, which shares were
held by approximately 654 holders of record. Each holder of record of shares of
Viewlogic Common Stock on the Viewlogic Record Date is entitled to cast one vote
per share on each proposal submitted for the vote of the Viewlogic stockholders,
exercisable in person or by properly executed proxy, at the Viewlogic Special
Meeting. The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares of Viewlogic Common Stock entitled to
vote is necessary to constitute a quorum at the Viewlogic Special Meeting.
The approval and adoption of the Merger Agreement by Viewlogic stockholders
will require the affirmative vote of the holders of a majority of the
outstanding shares of Viewlogic Common Stock entitled to vote.
In accordance with the terms of the Merger Agreement, directors and
officers of Viewlogic have executed and delivered the Voting Agreements and
irrevocable proxies to Synopsys obligating them, among other things, to vote
their shares of Viewlogic Common Stock in favor of approval and adoption of the
Merger Agreement. As a result, all of the approximately 726,448 shares of
Viewlogic Common Stock (which excludes shares subject to Viewlogic Options)
beneficially owned by directors and executive officers of Viewlogic and their
respective affiliates at the Viewlogic Record Date (representing approximately
4.3% of the total number of shares of Viewlogic Common Stock outstanding at such
date) will be voted for approval of and adoption of the Merger Agreement.
As of the Viewlogic Record Date, the directors and executive officers of
Synopsys and their affiliates owned less than 1% of the outstanding shares of
Viewlogic Common Stock and Synopsys owned no shares of Viewlogic Common Stock.
Effects of Abstentions and "Broker Non-Votes." At the Synopsys Special
Meeting, in determining whether the issuance of Synopsys Common Stock in
connection with the Merger has received the requisite number of affirmative
votes, (i) abstentions will be counted and will have the same effect as a vote
against the issuance of Synopsys Common Stock in connection with the Merger and
(ii) broker non-votes will have no effect on the outcome of the vote on the
issuance of Synopsys Common Stock in connection with the Merger. At the
Viewlogic Special Meeting, in determining whether the proposal to approve and
adopt the Merger Agreement has received the requisite number of affirmative
votes, abstentions and broker non-votes will have the same effect as a vote
against such proposal. At both the Synopsys Special Meeting and the Viewlogic
Special Meeting, abstentions and broker non-votes will be counted for purposes
of determining the presence of a quorum. A "broker non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a proposal
because, for such proposal, the nominee does not have discretionary voting power
and has not received instructions from such beneficial owner.
26
<PAGE> 38
ADJOURNMENT OF THE SYNOPSYS SPECIAL MEETING OR THE VIEWLOGIC SPECIAL MEETING
In the event that there are not sufficient votes to approve the issuance of
shares of Synopsys Common Stock in connection with the Merger at the time of the
Synopsys Special Meeting, such proposal could not be approved unless the
Synopsys Special Meeting was adjourned to permit further solicitation of proxies
from Synopsys stockholders. Proxies that are being solicited by the Synopsys
Board grant the discretionary authority to vote for any such adjournment, if
necessary. If it is necessary to adjourn the Synopsys Special Meeting, and the
adjournment is for a period of less than 30 days, no notice of the time and
place of the adjourned meeting is required to be given to stockholders other
than the announcement of such time and place at the Synopsys Special Meeting. A
majority of the voting power represented and voting at the Synopsys Special
Meeting is required to approve such adjournment whether or not a quorum is
present at the Synopsys Special Meeting.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement at the time of the Viewlogic Special Meeting, such proposal
could not be approved unless the Viewlogic Special Meeting was adjourned in
order to permit further solicitation of proxies from Viewlogic stockholders.
Proxies that are being solicited by the Viewlogic Board grant the discretionary
authority to vote for any such adjournment, if necessary. If it is necessary to
adjourn the Viewlogic Special Meeting, and the adjournment is for a period of
less than 30 days, no notice of the time and place of the adjourned meeting is
required to be given to stockholders other than an announcement of such time and
place at the Viewlogic Special Meeting. A majority of the voting power
represented and voting at the Viewlogic Special Meeting is required to approve
any such adjournment, whether or not a quorum is present at the Viewlogic
Special Meeting.
An adjournment of either the Synopsys Special Meeting or Viewlogic Special
Meeting, or both, may be necessary because the short time between the mailing of
the Joint Proxy Statement/Prospectus and the Special Meetings may result in the
lack of a quorum at either or both Special Meetings. In addition, an absolute
majority of all outstanding shares of Viewlogic Common Stock is required to
approve the Merger, and not merely a majority of the shares present and voting
in person or by proxy.
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Synopsys
stockholders and Viewlogic stockholders in connection with the solicitation of
proxies by and on behalf of the Synopsys Board and the Viewlogic Board for use
at the Synopsys Special Meeting and the Viewlogic Special Meeting, respectively.
All shares of Synopsys Common Stock and Viewlogic Common Stock which are
entitled to vote and are represented at the relevant Special Meeting by properly
executed proxies received prior to or at the relevant Special Meeting, and are
not revoked, will be voted at such Special Meeting in accordance with the
instructions indicated on such proxies. If no instructions are indicated, such
proxies will be voted:
(i) in the case of the Synopsys Special Meeting, FOR approval of the
issuance of shares of Synopsys Common Stock in connection with the Merger;
and
(ii) in the case of the Viewlogic Special Meeting, FOR approval and
adoption of the Merger Agreement.
If any other matters are properly presented at the Special Meetings for
consideration, including, among other things, consideration of a motion to
adjourn a Special Meeting (including, without limitation, for purposes of
soliciting additional votes for approval of the issuance of shares of Synopsys
Common Stock in connection with the Merger or for approval and adoption of the
Merger Agreement, as applicable) to another time and/or place, the persons named
in the enclosed form of proxy and acting thereunder will have discretion to vote
on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Synopsys or Viewlogic, as the case may be, at or before
the taking of the vote at the relevant Special Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a later
dated proxy relating to the same shares and delivering it to the Secretary of
Synopsys or Viewlogic, as the case may be, before the taking of the vote at the
relevant Special
27
<PAGE> 39
Meeting or (iii) attending the relevant Special Meeting and voting in person
(although attendance at a Special Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered, in the case of Synopsys stockholders, to
Synopsys, Inc., 700 East Middlefield Road, Mountain View, California,
94043-4033, Attention: Secretary, and in the case of Viewlogic stockholders, to
Viewlogic Systems, Inc., 293 Boston Post Road West, Marlboro, Massachusetts
01752, Attention: Secretary, or hand delivered to the Secretary of Synopsys or
Viewlogic, as the case may be, at or before the taking of the vote at the
relevant Special Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Joint Proxy Statement/Prospectus, will be borne by Synopsys and
Viewlogic. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers and employees of Synopsys and Viewlogic in
person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Viewlogic intends to retain a proxy solicitation firm for
assistance in connection with its Special Meeting at a cost of not more than
$15,000, plus reasonable out-of-pocket expenses. Arrangements will also be made
with custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Synopsys and Viewlogic will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
VIEWLOGIC STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
28
<PAGE> 40
THE MERGER
BACKGROUND OF THE MERGER
Synopsys' goal is to be the leading provider of technologies and tools
required by semiconductor manufacturers and end users to design and produce
"system-on-a-chip" ICs capable of performing the functions currently performed
by individual ICs on a printed circuit board. Synopsys has identified logic
synthesis, verification, timing and test tools as key design technologies
required by customers seeking to produce such ICs. Synopsys is one of the
leading providers of logic synthesis tools and in recent years has sought to
expand its offerings of verification, timing and test products. Synopsys has
developed many new products internally, and, on a case-by-case basis, has sought
to fill gaps in its product offerings through external sources. Synopsys'
external efforts have involved a number of parallel strategies toward this end,
including entering into technology partnerships, making venture-type investments
in selected companies and acquiring companies with complementary products and
skills. To this end, Synopsys continually monitors conditions in the EDA
industry and evaluates prospective alliances and other business combinations.
The Merger offers Synopsys the opportunity to enhance its verification, timing
and test product offerings, and thereby to offer its customers a more integrated
IC design solution.
In recent years, Viewlogic has experienced revenues and earnings growth
principally in the ASIC line of its business. Viewlogic has periodically
evaluated the best overall strategy to achieve targeted growth rates in the
rapidly evolving EDA marketplace while enhancing returns to its stockholders.
During the course of 1997, Viewlogic has reviewed a number of strategic
alternatives, including remaining independent while aligning its corporate
structure to better support both its ASIC and systems businesses, acquiring
complementary businesses, disposing of its systems business and combining with
another company in the EDA industry. In connection with its review of those
alternatives, Viewlogic management has periodically consulted with Wessels for
financial advice.
In addition, over the last several years, representatives of Viewlogic and
Synopsys have from time to time had conversations regarding the possibility of a
business combination between Viewlogic and Synopsys. All such conversations were
exploratory in nature and did not progress beyond the preliminary stage.
Viewlogic has also from time to time engaged in discussions with other companies
in the EDA industry regarding a possible strategic business combination.
During July and August 1997, Viewlogic continued to evaluate alternative
strategies for enhancing the growth and profitability of its business and, in
connection with that review, evaluated several potential acquisition
transactions and had exploratory discussions with a number of companies
regarding either the disposition of its systems division or the possibility of a
business combination.
On September 16, 1997, Wessels received a specific expression of interest
from a third party (the "Initial Party") regarding a possible stock transaction
with Viewlogic at a proposed value of $25 per share. In light of that expression
of interest, Viewlogic requested that Wessels contact Synopsys and another
industry participant (the "Third Party") regarding their possible interest in a
business combination or other strategic transaction.
On September 18, 1997, William J. Herman, Viewlogic's President and Chief
Executive Officer, reported to the Viewlogic Board at a regularly scheduled
Board meeting regarding the status of Viewlogic's strategic initiatives. The
Viewlogic Board authorized Mr. Herman and Viewlogic management to continue to
pursue a possible business combination or other strategic transaction.
On September 24, 1997, Ronald R. Benanto, Viewlogic's Chief Financial
Officer, met with the Chief Financial Officer of the Initial Party to review
Viewlogic's financial condition and results of operations. On the same day, Mr.
Herman met with representatives of the Third Party regarding a possible
strategic transaction.
On September 25, 1997, Viewlogic formally engaged Wessels to advise it
regarding a potential business combination and, if appropriate, to render a
fairness opinion.
29
<PAGE> 41
On September 25, Mr. Herman also met with representatives of Synopsys,
including Aart de Geus, Chief Executive Officer, Paul Lippe, Senior Vice
President, Business and Market Development, Chi-Foon Chan, Executive Vice
President and Chief Operating Officer, Daniel Miranda, Business Development
Manager, and Dwight Morita, Business Strategist, to discuss a possible business
combination.
On September 26, 1997, Synopsys and Viewlogic entered into a Mutual
Non-Disclosure Agreement.
On September 28, 1997, Mr. Herman and Dr. de Geus had a telephone
conversation further exploring the possibility of a transaction.
During the last two weeks of September, Viewlogic also received expressions
of interest regarding the acquisition of its systems division from other
companies in the EDA industry, at valuations that Viewlogic's management did not
believe would justify a current disposition of that portion of its business.
During the same period, Mr. Herman periodically kept members of the
Viewlogic Board informed concerning the status of the foregoing discussions.
On September 29, 1997, Mr. Herman, Mr. Benanto, Richard G. Lucier,
Viewlogic Group Vice President, Systems Group, and David Burow, Viewlogic Group
Vice President, ASIC Group, met with representatives of Synopsys, including
David Bullis, Senior Vice President, to discuss the products and sales
organizations of the Companies.
During the week of September 29, 1997, Dr. de Geus informed members of the
Synopsys Board individually of Viewlogic's interest in a possible transaction,
and discussed related issues with them, including the strategic fit between the
Companies and the interest of other bidders.
On October 1, 1997, Mr. Herman met with representatives of Synopsys,
including Dr. de Geus, Mr. Bullis and Dr. Chan, at Dr. de Geus' home to discuss
organizational matters raised by a potential business combination.
On October 2, 1997, Mr. Herman again met with Dr. de Geus and Messrs.
Bullis and Lippe. The parties also discussed strategic opportunities presented
by a merger of the Companies as well as issues relating to customer reaction and
employee retention. At that time, Synopsys indicated its interest in proceeding
with a possible strategic merger in which stockholders of Viewlogic would
receive Synopsys Common Stock with an implied valuation of $24 per share.
On October 3, 1997, the Viewlogic Board held a telephone conference call
during which, among other matters, Mr. Herman advised the Viewlogic Board
regarding the status of the foregoing discussions.
Between September 22 and October 5, 1997, a number of discussions were also
held with the Third Party regarding a possible transaction, at the conclusion of
which the Third Party advised Viewlogic that it would only be interested in
acquiring Viewlogic's systems business and its subsidiary, Eagle Design
Automation ("Eagle"), a provider of hardware/software co-verification solutions.
On October 6, 1997, the Initial Party contacted Wessels, and revised its
proposal to contemplate a stock merger at a proposed implied value of $27 per
share (based upon the then-current market value of its common stock).
During the week of October 6, 1997, Dr. de Geus discussed the status of the
transaction individually with members of the Synopsys Board, informing them of
Synopsys' bid and discussing various scenarios for the bidding process. Dr. de
Geus also informed members of the Synopsys Board as to the potential need for a
special meeting of the Synopsys Board during the following week.
On October 7, 1997, the Viewlogic Board held a special meeting by telephone
conference call to discuss the status of discussions regarding a possible
transaction, including a possible combination with Synopsys or with the Initial
Party. The Viewlogic Board directed Viewlogic management to expedite certain due
diligence and related activities concerning the Initial Party. In addition, a
telephone conversation took place between Dr. de Geus and Mr. Herman in which
they discussed potential employment and employee retention issues in connection
with any business combination between Synopsys and Viewlogic.
30
<PAGE> 42
On October 9, 1997, the Viewlogic Board held a special meeting by telephone
conference call to further discuss the possibility of a business combination.
Hale and Dorr, Viewlogic's outside counsel, advised the Viewlogic Board
regarding its legal duties, and Wessels presented financial information
regarding Synopsys, the Initial Party and the Third Party. The Viewlogic Board
concluded that Viewlogic management should pursue further discussions with the
managements of Synopsys and the Initial Party regarding their proposals. After
the meeting, Viewlogic's management indicated to the Third Party that Viewlogic
was not interested in pursuing a discussion regarding the sale of only its
systems business and Eagle.
On October 9, 1997 Dr. de Geus called Mr. Herman to propose that the
exchange ratio for each share of Viewlogic Common Stock be increased to yield an
implied value per share, at the close of business on October 9, 1997, of $26. At
the same time, the Third Party revised its offer to purchase Viewlogic's systems
business and Eagle.
On October 10, 1997, the Viewlogic Board held a special meeting by
telephone conference call to hear Viewlogic management's report on the recent
discussions regarding a proposed business combination. Viewlogic's management
indicated that, although a definitive agreement had not yet been reached, the
implied value of the transaction proposed by Synopsys was $26 a share (based
upon the October 9, 1997 market value of the Synopsys Common Stock). Viewlogic
management also reviewed with the Viewlogic Board the acquisition proposal from
the Initial Party, which at such time resulted in an implied valuation for
Viewlogic of $27 per share. The Viewlogic Board was provided a due diligence
update with respect to the Initial Party, and Wessels updated its financial
analysis regarding Synopsys, the Initial Party and the Third Party and their
respective proposals. The Viewlogic Board discussed at length the various
advantages and disadvantages of the proposed business combination with Synopsys,
the proposed business combination with the Initial Party, and the proposal by
the Third Party to purchase Viewlogic's systems business and Eagle. At the
conclusion of the meeting, it was the consensus of the Viewlogic Board that
Viewlogic management and its financial and legal advisers should pursue further
discussions with Synopsys, with a view to achieving a definitive agreement. It
was further agreed that the proposal of the Third Party offered limited value to
stockholders and raised significant structural and operational issues that made
its viability questionable. The Viewlogic Board based its preliminary decision
to pursue the Synopsys offer, among other factors, on the financial terms of the
Synopsys offer, the report by Viewlogic's management regarding the strategic fit
of the Companies, the complementary nature of the products of the Companies, the
prospects for long-term appreciation of the Combined Company, the risks raised
by published information concerning outstanding civil and criminal litigation
associated with the Initial Party, and the integrity and quality of Synopsys'
management.
On October 10, Hale and Dorr received a draft of the Merger Agreement from
WSGR, counsel to Synopsys, and the firms, working with the managements of
Viewlogic and Synopsys, engaged in negotiations concerning the terms of the
Merger Agreement on October 12 and 13.
On October 12, 1997, a draft form of merger agreement was also submitted by
counsel for the Initial Party.
On October 13, 1997, the Viewlogic Board held a special meeting by
telephone conference call to consider the status of Synopsys' offer. Hale and
Dorr reviewed with the Viewlogic Board the terms of the proposed Synopsys
agreement, indicating that Synopsys had been advised that inclusion of a
provision permitting the Viewlogic Board to consider a superior offer after
execution of a merger agreement (a so-called "fiduciary out") was essential to
proceeding with the transaction. Hale and Dorr also reviewed other material
terms of the Merger Agreement and the option contemplated by the Merger
Agreement granting Synopsys the right to acquire shares of Viewlogic Common
Stock under certain circumstances. Wessels provided an updated financial
analysis of the proposed transaction. At the conclusion of the Viewlogic Board
meeting, Wessels was directed to contact the Initial Party and advise it that a
determination had been made to proceed with the Synopsys transaction, while
providing the Initial Party with an opportunity to make a final proposal.
On the evening of October 13, 1997, Wessels was advised that the Initial
Party would propose a stock transaction with an implied value of $29 per share
of Viewlogic Common Stock and a collar (based on the current value of the
Initial Party's common stock). Hale and Dorr was advised by counsel to the
Initial Party
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<PAGE> 43
that such proposal included an option to acquire shares of Viewlogic Common
Stock under certain circumstances.
Between October 10 and 13, 1997, Mr. Herman had a number of conversations
with the Third Party, which was given the opportunity to make a proposal for an
overall business combination but declined to do so.
On the morning of October 14, 1997, the Viewlogic Board held a telephone
conference call during which Wessels reported to the Viewlogic Board its
conversations with the Initial Party. At the Viewlogic Board's direction, Mr.
Herman contacted Synopsys, and Synopsys amended its proposal to include an
exchange ratio of 0.6521 (yielding an implied value of $28 per share based on
the closing price of Synopsys Common Stock on October 14), which Mr. Herman
reported to the Viewlogic Board by telephone conference call at 3:00 p.m.
At 6:00 p.m. on October 14, 1997, the Viewlogic Board held a special
meeting by telephone conference call to consider the Synopsys offer. The
Viewlogic Board was advised that a "fiduciary out" had been added to the Merger
Agreement, and the terms of the proposed Merger Agreement were reviewed by
counsel with the Viewlogic Board. Wessels reported to the Viewlogic Board that
the Synopsys transaction would be fair to Viewlogic and its stockholders from a
financial point of view, as described in more detail below. See "Opinion of
Viewlogic's Financial Adviser." The Viewlogic Board concluded that it was in the
best interests of Viewlogic and its stockholders to proceed with the Synopsys
transaction in light of the considerations described in more detail under
"Reasons for the Merger" below. The Viewlogic Board therefore unanimously
authorized the Merger Agreement, the Merger and the transactions contemplated by
the Merger Agreement and its recommendation to the stockholders of Viewlogic.
On October 14, 1997, the Synopsys Board held a special meeting to discuss
the terms of the Merger. The meeting began with a review of the history of the
transaction and a discussion of Synopsys' business strategy, led by Dr. de Geus.
Dr. de Geus and other members of Synopsys' senior management then reviewed
Viewlogic's products and personnel, and described the strategic fit with
Synopsys. Senior management also described the financial model prepared to
analyze the transaction, the technical and financial due diligence conducted on
Viewlogic, management's plans for structuring the Combined Company and retention
of key Viewlogic employees. WSGR reviewed with the Synopsys Board the terms of
the proposed Merger Agreement and also reviewed the legal and fiduciary
obligations of the Synopsys Board arising in connection with the Merger. Members
of the Synopsys Board were already familiar with Viewlogic. The Synopsys Board
concluded that it was in the best interests of Synopsys and its stockholders to
proceed with the Viewlogic transaction in light of the considerations described
in more detail under "Reasons for the Merger" below. The Synopsys Board
therefore unanimously approved the Merger, the Merger Agreement and its
recommendation that the stockholders of Synopsys approve the issuance of shares
of Synopsys Common Stock in connection with the Merger and authorized senior
management to proceed with the transactions contemplated thereby, subject to
final negotiation of an acceptable exchange ratio by Dr. de Geus, which was
agreed to by Mr. Herman in a subsequent telephone call.
Following such meetings, Viewlogic, Synopsys and Sub executed the Merger
Agreement.
On October 14, 1997, the Companies issued a joint press release announcing
the Merger.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Certain statements made in the following paragraphs regarding the potential
benefits that could result from the Merger are forward-looking statements based
on current expectations and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements. See "Forward Looking Statements." Such risks and
uncertainties are set forth under "Risk Factors" and elsewhere in this Joint
Proxy Statement/Prospectus.
Joint Reasons for the Merger
In reaching their decisions to approve the Merger Agreement, the Merger and
the transactions contemplated by the Merger Agreement, the Synopsys Board and
the Viewlogic Board consulted with their respective management teams and
advisors and independently considered the proposed Merger Agreement
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and the transactions contemplated thereunder. Based on their respective
independent reviews of the proposed transactions and the business and operations
of the other party, the respective Boards each unanimously approved the Merger
Agreement, the Merger and the transactions contemplated thereby. The Board of
Directors of each of the Companies concluded that (i) the goals and philosophies
of the Companies are compatible and consistent, (ii) the products of the
Companies are complementary, (iii) the Combined Company has the potential to
offer customers a more comprehensive EDA solution than either could offer
independently, (iv) the Merger would be positively received by customers of each
of the Companies, and (v) the Companies' respective stockholders would benefit
by the enhanced ability of the Combined Company to compete in the rapidly
evolving EDA industry.
In particular, the Companies believe that their customers require an
articulated, comprehensive solution for the design of systems-on-a-chip,
including software to perform critical synthesis, verification, timing and test
functions. Synopsys has long held a strong position as a supplier of synthesis
technology, while Viewlogic has in recent years become a leading verification
vendor. The Companies therefore believe that the Merger will allow the Combined
Company to provide a product line which addresses the exacting requirements of
their customers as those requirements evolve. The Companies also believe that
the Merger will provide opportunities for the Combined Company to develop and
introduce new generations of complementary EDA products, providing the Combined
Company with a range of products and services better able to meet the needs of
its customers in the future.
Each of the Synopsys Board and the Viewlogic Board has identified
additional potential benefits of the Merger that they believe will contribute to
the success of the Combined Company. These potential benefits principally
include the following:
Synopsys' Reasons for the Merger
In addition to the joint reasons described above, the Synopsys Board
believes that the Merger will be beneficial to Synopsys and Synopsys'
stockholders for the following additional reasons:
- Viewlogic's products are complementary to Synopsys' products,
particularly in the areas of simulation and testing, giving Synopsys an
opportunity to offer a more complete high-level IC design solution to its
customers and to compete more successfully against its principal
competitors in the face of evolving industry requirements.
- Viewlogic's technical management, research and development, and
applications teams have significant expertise in the development of
high-level design tools, which may enhance Synopsys' efforts to develop
products that address the increasing complexity of the design environment
and, in particular, the needs of its customers for solutions that permit
the design of system-on-a-chip ICs.
- The Merger will strengthen Synopsys' competitive position in the markets
for simulation, timing and test analysis software and will enhance its
ability to develop new products serving the high-level IC verification
market.
- Viewlogic's expertise in both board-level and high-level timing analysis
will accelerate Synopsys' ability to develop tools for static timing
sign-off.
- Integration of Viewlogic's expertise in the partial scan test environment
with Synopsys' own expertise on IC test issues will enable Synopsys to
provide a more complete IC test solution for its customers.
- Viewlogic's growth rate in its ASIC design tools business, combined with
operating efficiencies resulting from the Merger, may have long-term
positive effects on the overall performance of the Combined Company.
- The combination of Viewlogic's and Synopsys' professional services groups
should permit Synopsys to expand its capacity to offer consulting
services. The Combined Company is expected to be able to offer a greater
range of customized high-level design support for IC and systems designs
and to compete more effectively with other significant providers of
professional services to the IC design market.
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- Viewlogic's printed circuit board business may provide an additional
distribution channel for the sale of Synopsys' FPGA express and other
present and future products that run on the Windows NT platform.
- In an increasingly competitive and consolidating industry, Synopsys must
continue to invest in industry-leading technology, and the Combined
Company may be in an improved competitive position to effectively meet
the industry's technological challenges and customer demands.
In reaching its decision to approve the Merger Agreement and the issuance
of shares of Synopsys Common Stock in connection with the Merger, the Synopsys
Board also considered, among other things, the following factors, both positive
and potentially negative:
(i) The effect on stockholder value of a combination with Viewlogic,
in light of the financial condition and prospects of Synopsys and the
current economic and EDA industry environment, including, but not limited
to, (A) other possible strategic alternatives for Synopsys and (B) the
possibility of synergy from combining Synopsys' and Viewlogic's product
lines, research and development programs and sales and marketing
organizations;
(ii) The reports and opinions of Synopsys' management, including those
resulting from management's due diligence investigations concerning the
business, technology, products, operations, financial condition and
prospects of Viewlogic;
(iii) The business, operations, properties, assets, financial
condition and operating results of Synopsys;
(iv) Synopsys' future prospects and whether such prospects were likely
to be enhanced as a result of the Merger;
(v) The terms and conditions of the Merger Agreement, which were the
product of extensive arms-length negotiations as described under "The
Merger Agreement;"
(vi) The difficulties associated with integrating companies with
diverse product offerings and facilities in multiple locations, and the
risk that the operations of the Companies would not be successfully
integrated or that anticipated efficiencies would not materialize;
(vii) The compatibility of the respective business philosophies and
corporate cultures of Viewlogic and Synopsys, which the Synopsys Board
believed was important for the successful integration of the Companies;
(viii) The impact of the Merger on the interests of Synopsys'
customers, suppliers, employees and the communities in which Synopsys has
operated; and
(ix) The other risks associated with Synopsys' and Viewlogic's
businesses described under "Risk Factors."
In view of the variety of factors, both positive and negative, considered
by the Synopsys Board in connection with its evaluation of the Merger, the
Synopsys Board did not find it practicable to and did not quantify or otherwise
assign relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the Synopsys Board may have
given different weight to different factors. The foregoing discussion of the
information and factors considered by the Synopsys Board is not intended to be
exhaustive but is believed to include all material factors considered by the
Synopsys Board.
Recommendation of the Synopsys Board
THE SYNOPSYS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
ISSUANCE OF SHARES OF SYNOPSYS COMMON STOCK IN CONNECTION WITH THE MERGER AND
BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, SYNOPSYS AND
ITS STOCKHOLDERS, AND THEREFORE, UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
SYNOPSYS VOTE FOR THE ISSUANCE OF SUCH SHARES.
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Viewlogic's Reasons for the Merger
The Viewlogic Board unanimously voted to recommend to the holders of
Viewlogic Common Stock that the Merger Agreement be approved and adopted. In
addition to the anticipated joint reasons described above, the Viewlogic Board
believes that the Merger will be beneficial to Viewlogic and Viewlogic's
stockholders for the following additional reasons:
- Synopsys' products and customer base offer a significant opportunity to
leverage sales of Viewlogic's own ASIC products.
- Viewlogic believes that the combination of Synopsys' synthesis product
and Viewlogic's verification solutions will create a more complete high
level design solution that will better compete against new technologies.
- The research investment resources enabled by a large entity should allow
new technologies to be created more rapidly.
- Synopsys' FPGA Express synthesis technology could help leverage
Viewlogic's current position in FPGA development and PCB design.
- The Merger permits the sale of the Company as a single entity, without
disposition of the systems business which would have been required in
connection with alternative transactions considered by the Viewlogic
Board, thereby avoiding the dislocation attendant upon a spinoff or
disposition of a corporate division.
- Viewlogic believes that the nature of Synopsys' business, and the
long-term vision of its management team, provide a better opportunity for
implementing Viewlogic's long-term growth strategy than a combination
with other companies in the EDA industry.
In reaching its decision to approve the Merger Agreement and the Merger,
the Viewlogic Board also considered, among other things, the following factors
(including those described under the caption "Joint Reasons for the Merger"),
both positive and potentially negative:
(i) The benefits of the Merger in implementing and accelerating
Viewlogic's long-term strategy;
(ii) The financial performance and condition, businesses and prospects
of Viewlogic and Synopsys, including, but not limited to, information with
respect to their respective recent and historical stock prices and earning
performance. The Viewlogic Board took into account the detailed financial
analysis prepared by Wessels as well as its own knowledge, and that of
Viewlogic management, regarding the EDA industry;
(iii) Synopsys' lack of material litigation uncertainties (with
attendant risks regarding stock price and management continuity), which,
based on public information, could reasonably be associated with the
Initial Party;
(iv) The oral opinion of Wessels, subsequently confirmed in writing,
that, as of October 14, 1997, the consideration to be received by Viewlogic
stockholders in the Merger was fair to Viewlogic's stockholders from a
financial point of view. See "Opinion of Viewlogic's Financial Advisor;"
(v) The fact that the Merger would provide holders of Viewlogic Common
Stock with shares of Synopsys Common Stock having a value that represents a
premium over the price at which Viewlogic Common Stock had been trading
over the several months prior to execution of the Merger Agreement and
would permit Viewlogic's stockholders to retain an equity interest in the
Combined Company and benefit from the strategic advantages expected to
result from the Merger;
(vi) The terms of the Merger Agreement, including the limits on
Viewlogic's ability to solicit or engage in discussions with respect to
alternative transactions, subject to a "fiduciary out," the grant to
Synopsys of an option to acquire up to 19.9% of the Common Stock of
Viewlogic under certain circumstances and subject to certain limitations,
and the limited rights of both Viewlogic and Synopsys to
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terminate the Merger Agreement, as well as the termination fees payable by
Viewlogic to Synopsys, and by Synopsys to Viewlogic, under certain
circumstances. See "Terms of the Merger;"
(vii) Synopsys' technology, product cycle and market opportunities, as
well as the technology, product cycle and market opportunities of other EDA
industry companies, including the Initial Party and the Third Party;
(viii) The effect on Viewlogic's stockholders of Viewlogic's
continuation as a stand-alone entity compared to the effect of Viewlogic's
merging with Synopsys, in light of the factors summarized above with
respect to the financial condition and prospects of Viewlogic on a
stand-alone basis and as the Combined Company, and the current economic,
competitive and business environment in the EDA industry;
(ix) The ability of Viewlogic's management to work together with
Synopsys' management in order to maximize the potential for the Combined
Company to achieve its strategic goals, both in the context of the Combined
Company and in comparison with management of other companies in the EDA
industry;
(x) The likelihood that the Merger would be approved by appropriate
regulatory authorities, both on a stand-alone basis and in comparison with
potential combinations with other companies in the EDA industry;
(xi) The expectation that the Merger would be a tax-free transaction
to Viewlogic stockholders; and
(xii) The effect of the Merger on Viewlogic's other constituencies,
including its employees, customers and communities served by Viewlogic.
The Viewlogic Board also identified and considered a number of potential
risks relating to the Merger, including:
(a) The difficulty and management distraction inherent in integrating
two geographically dispersed operations;
(b) The risk that the benefits and synergies sought in the Merger
would not be fully achieved;
(c) The risk that the Combined Company would not be able to achieve
growth rates required in order to meet its strategic goals;
(d) The accounting charges expected to be incurred by the Combined
Company in connection with the Merger;
(e) The risk that the Merger would not be consummated and the effect
of public announcement of the Merger on each Company's sales and operating
results; and
(f) Certain other factors listed above under "Risk Factors."
The Board concluded that these risks were outweighed by the potential
benefits to be gained by the Merger.
In view of the variety of factors, both positive and negative, considered
by the Viewlogic Board, the Viewlogic Board did not find it practicable to, and
did not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Viewlogic Board may have given different weight to different factors.
The foregoing discussion of the information and factors considered by the
Viewlogic Board is not intended to be exhaustive but is believed to include all
material factors considered by the Viewlogic Board. In the course of its
deliberations, the Viewlogic Board did not establish a range of values for
Viewlogic; however, based on the factors outlined above and on the opinion of
its financial advisor, the Viewlogic Board determined that the Merger is fair
to, and in the best interests of, Viewlogic and its stockholders.
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Recommendation of the Viewlogic Board
THE VIEWLOGIC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT
THE MERGER IS IN THE BEST INTERESTS OF, VIEWLOGIC AND ITS STOCKHOLDERS AND
THEREFORE UNANIMOUSLY RECOMMENDS THAT HOLDERS OF VIEWLOGIC COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF VIEWLOGIC'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated September 25, 1997 (the "Wessels
Engagement Letter"), Wessels has acted as financial advisor to the Viewlogic
Board in connection with the Merger. As part of this assignment, Wessels was
asked to render an opinion as to the fairness, from a financial point of view,
to Viewlogic and Viewlogic's stockholders of the financial terms of the Merger.
On October 14, 1997, Wessels delivered certain written analyses and its oral
opinion to the Viewlogic Board, subsequently confirmed in writing as of the same
date, to the effect that, as of such date, the financial terms of the Merger
were fair, from a financial point of view, to Viewlogic and the holders of
Viewlogic Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF WESSELS, DATED OCTOBER 14, 1997
(THE "WESSELS OPINION"), IS ATTACHED AS ANNEX B TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. VIEWLOGIC
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS
ENTIRETY IN CONJUNCTION WITH THIS JOINT PROXY STATEMENT/PROSPECTUS FOR THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, AND OTHER MATTERS CONSIDERED AND THE
LIMITS OF WESSELS' REVIEW. THE SUMMARY OF THE WESSELS OPINION SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
The Wessels Opinion applies only to the fairness, from a financial point of
view, of the consideration to be paid to the Viewlogic stockholders as provided
by the terms of the Agreement and should not be understood to be a
recommendation by Wessels to vote in favor of any matter presented in this Joint
Proxy Statement/Prospectus. Viewlogic stockholders should note that the Wessels
Opinion was provided solely for the information of the Viewlogic Board in its
evaluation of the Merger and was not prepared on behalf of, and was not intended
to confer rights or remedies upon, Synopsys, Viewlogic or any stockholder of
Viewlogic or Synopsys, or any persons other than the Viewlogic Board. The
Viewlogic Board did not impose any limitations on the scope of the investigation
of Wessels with respect to rendering its opinion.
Wessels assumed and relied upon the accuracy and completeness of the
financial, legal, tax, operating and other information provided by Viewlogic and
Synopsys (including, without limitation, the financial statements and related
notes thereto of Viewlogic and Synopsys) and certain other publicly available
information and did not independently verify such information. Additionally,
Wessels was not asked and did not consider the possible effects of any
litigation, other legal claims or any other contingent matters. Wessels did not
perform any independent evaluation or appraisal of any of the respective assets
or liabilities of Viewlogic or Synopsys, nor was Wessels furnished with any such
evaluations or appraisals. The Wessels Opinion is based on the conditions as
they existed and the information available to Wessels on the date of the Wessels
Opinion. Events occurring after the date of the Wessels Opinion may materially
affect the assumptions used in preparing the Wessels Opinion.
In connection with its review of the Merger, and in arriving at its
opinion, Wessels has (i) reviewed and analyzed the financial terms of the Merger
Agreement; (ii) reviewed and analyzed certain publicly available financial and
other data with respect to Viewlogic and Synopsys and certain other historical
relevant operating data relating to Viewlogic and Synopsys made available to
Wessels from published sources and from the internal records of Viewlogic and
Synopsys; (iii) conducted discussions with members of the senior management of
Viewlogic with respect to the business and prospects of Viewlogic relative to
published industry analyst estimates; (iv) conducted discussions with members of
the senior management of Synopsys with respect to the business and prospects of
Synopsys relative to published industry analyst estimates; (v) reviewed the
reported prices and trading activity for Synopsys Common Stock and Viewlogic
Common Stock; (vi) compared the financial performance of Synopsys and Viewlogic
and the prices of Synopsys Common Stock and Viewlogic Common Stock with that of
certain other comparable publicly traded companies and their securities; and
(vii) reviewed the financial terms, to the extent publicly available, of
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certain comparable transactions. In addition, Wessels has conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as it has deemed necessary in arriving at its opinion, including
the review of an alternative merger proposal.
The following is a summary of the financial analyses performed by Wessels
in connection with the delivery of the Wessels Opinion and made available to the
Viewlogic Board:
Comparable Company Analysis
Wessels used a comparable company analysis to analyze Viewlogic's operating
performance relative to a group of publicly traded companies that Wessels deemed
to be comparable to Viewlogic for purposes of its analysis. In such analysis,
Wessels compared the value to be achieved by the Viewlogic stockholders in the
Merger, expressed as a multiple of certain operating data, to the market trading
values of the comparable companies, expressed as a multiple of the comparable
operating results. Wessels compared multiples of selected financial data for
Viewlogic with those of the following publicly traded companies in the EDA
industry: Avant!, Cadence, IKOS Systems, Mentor, OrCAD, Inc. and Quickturn
Design Systems ("Quickturn") (collectively referred to herein as the "Comparable
Companies"). Although such companies were considered comparable to Viewlogic for
the purpose of this analysis based on certain characteristics of their
respective businesses, none of such companies possesses characteristics
identical to those of Viewlogic. Wessels calculated the following valuation
multiples based on an implied value of $28.00 per share of Viewlogic Common
Stock based on Synopsys' last reported sale price on the Nasdaq National Market
on October 14, 1997 and, as to the Comparable Companies, on market prices and
other information available as of the same date. Multiples of future earnings
were based on projected earnings as estimated publicly by First Call Consensus.
The mean and median price per share as a multiple of each of the indicated
statistics for Viewlogic as compared to those of the Comparable Companies were
as follows: (a) projected calendar year 1997 earnings per share, 34.1x for
Viewlogic, as compared to a mean of 31.2x (23.6x excluding Mentor and Quickturn
due to restructuring) and a median of 25.9x (24.7x excluding Mentor and
Quickturn) for the Comparable Companies; and (b) projected calendar year 1998
earnings per share, 26.9x for Viewlogic, compared to a mean of 19.3x and a
median of 20.8x for the Comparable Companies. The mean and median market
capitalization as a multiple of each of the indicated statistics for Viewlogic
as compared to those of the Comparable Companies were as follows: (c) trailing
twelve months revenue, 3.8x for Viewlogic, as compared to a mean of 3.8x and a
median of 2.8x for the Comparable Companies; and (d) annualized last quarter
revenue, 3.6x for Viewlogic, as compared to a mean of 3.5x and median of 2.5x
for the Comparable Companies. In each of the comparisons of the value to be
achieved by the Viewlogic stockholders in the Merger as compared to the mean and
median of the multiples of operating results realized by the stockholders of the
Comparable Companies, the multiples of operating results achieved by the
Viewlogic stockholders were equal or superior to those realized by the
Comparable Companies.
Comparable Transactions
Wessels compared multiples of selected financial data and other financial
data relating to the Merger with multiples paid in, and other financial data
from, 25 selected business combinations (the "Comparable Transactions") since
1992 of publicly traded companies in the software industry with aggregate
transaction values between $100 million and $1 billion. The Comparable
Transactions were selected primarily on the aggregate transaction value of the
business acquired and the target companies' involvement in the software
industry. Wessels noted that none of the target companies involved in these
transactions had a business that was directly comparable to Viewlogic. This
analysis produced multiples of transaction value to latest 12-month revenues for
the Comparable Transactions ranging from 0.8x to 23.6x, with a mean and median
of 7.9x and 5.9x, respectively, compared with 3.8x for Viewlogic. The multiple
of transaction value to latest 12-month operating income for the Comparable
Transactions ranged from 25.8x to 64.6x, for companies with operating income,
with a mean and median of 39.5x and 38.6x, respectively, compared with 35.4x for
Viewlogic. The multiple of transaction value to latest 12-month net income for
the Comparable Transactions ranged from 20.1x to 76.8x, for companies with net
income, with a mean and median of 46.6x and 45.2x, respectively, compared with
48.6x for Viewlogic. In each of the comparisons of the value to be achieved by
the Viewlogic
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stockholders in the Merger as compared to the mean and median of the multiples
of operating results realized by the stockholders of the Comparable
Transactions, the multiples of operating results achieved by the Viewlogic
stockholders was comparable to those realized by the Comparable Transactions.
Wessels also compared the premium of the equity value per share over the target
stock price four weeks and one day prior to the announcement of the transaction.
The premium of the equity value per share over the stock price of the target
four weeks prior to the announcement of the transaction ranged from 1.0% to
59.9%, with a mean and a median of 35.8% and 39.5%, respectively, compared with
29.5% for Viewlogic. The premium of the equity value per share over the stock
price of the target one day prior to the announcement of the transaction ranged
from -5.5% to 61.4%, with a mean and a median of 24.3% and 25.5%, respectively,
compared with 24.4% for Viewlogic. In each of the comparisons of the value to be
achieved by the Viewlogic stockholders in the Merger as compared to the mean and
median of the premium of the equity value per share over the stock price of the
target four weeks and one day prior to the announcement of the transaction, the
premiums of equity value per share achieved by the Viewlogic stockholders was
comparable to those realized by the Comparable Transactions.
Discounted Cash Flow Analysis
Wessels estimated present values of Viewlogic using a discounted cash flow
analysis using projections of future operations based, in part, on information
provided by Viewlogic's management. Wessels calculated present values of
projected operating cash flows after net changes to working capital over the
period between December 31, 1996 and December 31, 2001 using a discount rate
estimated by Wessels to be 23.9%. Wessels calculated an approximate terminal
value of Viewlogic as of December 31, 1997 of 21.2x Viewlogic's projected
calendar year 2001 operating income. Wessels determined this multiple by
analyzing the current market multiple of operating income for the Comparable
Companies and applying this relationship to estimated future operating income as
of calendar year 2001. The terminal value was discounted to present value using
the same discount rate as the cash flows. Wessels calculated an implied
valuation of Viewlogic by adding the present value of the cash flows and the
terminal value. The implied value of Viewlogic based on this analysis was $500.9
million. Wessels determined that, at the time of the Wessels Opinion, the value
of the consideration to be received by the Viewlogic stockholders in the Merger
of approximately $541.1 million was greater than the present value of Viewlogic
cash flows under the discounted cash flow valuation discussed above.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Wessels
believes that its analyses must be considered as a whole and that selecting
portions of the analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete or misleading
view of the processes underlying its opinion. In arriving at its fairness
determination, Wessels considered the results of all such analyses. In view of
the wide variety of factors considered in connection with its evaluation of the
fairness of the Merger consideration, Wessels did not find it practicable to
assign relative weights to the factors considered in reaching its opinion. No
company or transaction used in the above analyses as a comparison is identical
to Viewlogic or Synopsys or the proposed Merger. The analyses were prepared
solely for purposes of Wessels providing its opinion as to the fairness of the
Merger consideration, from a financial point of view, pursuant to the Merger
Agreement to Viewlogic stockholders and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not indicative of
actual future results, which may be significantly more or less favorable than
suggested by such analyses. As described above, the Wessels Opinion and
presentation to the Viewlogic Board of Directors was one of the many factors
taken into consideration by the Viewlogic Board of Directors in making its
determination to approve the Agreement.
Wessels is a nationally recognized investment banking firm and it is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations of
corporations. Wessels is familiar with Viewlogic, having acted as a managing
underwriter of the initial public offering of Viewlogic Common Stock in December
1991 and having provided advisory services for Viewlogic from time to time in
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the past. Viewlogic selected Wessels to render the fairness opinion based on
Wessels's familiarity with Viewlogic, its knowledge of the EDA industry and its
experience in mergers and acquisitions and in securities valuation generally.
In the ordinary course of business, Wessels acts as a market maker and
broker in the publicly traded securities of Viewlogic and Synopsys and receives
customary compensation in connection therewith, and also provides research
coverage of Viewlogic and Synopsys. In the ordinary course of business, Wessels
actively trades in the publicly traded securities of Viewlogic and Synopsys for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities which positions, on
occasion, may be material in size or relative to the volume of trading activity.
On the close of trading on October 14, 1997 (the day before the announcement of
the Merger Agreement), Wessels held short positions of (268) shares of Synopsys
Common Stock and (3,011) shares of Viewlogic Common Stock.
Pursuant to the Wessels Engagement Letter, Viewlogic paid Wessels a
non-refundable fee (the "Opinion Fee") of $500,000 upon the delivery of the
Wessels Opinion. In addition, pursuant to the Wessels Engagement Letter,
Viewlogic has agreed to pay Wessels, upon the consummation of the Merger
pursuant to the Merger Agreement, a transaction fee (the "Transaction Fee") of
approximately $5,000,000, less the amount of the Opinion Fee. Payment of the
Transaction Fee is contingent upon the consummation of the Merger. Viewlogic has
also agreed to reimburse Wessels for its reasonable out-of-pocket expenses and
to indemnify Wessels against certain liabilities relating to or arising out of
services performed by Wessels in connection with the Merger. The terms of the
Wessels Engagement Letter, which are customary for transactions of this nature,
were negotiated at arm's length between Viewlogic and Wessels, and the Viewlogic
Board was aware of such fee arrangement at the time of its approval of the
Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Interests in Viewlogic Common Stock and Options
As of September 30, 1997, the executive officers and directors of Viewlogic
beneficially owned an aggregate of 1,554,275 shares of Viewlogic Common Stock
(including 1,397,000 shares of Viewlogic Common Stock subject to Viewlogic
Options exercisable within 60 days of September 30, 1997 after giving effect to
certain acceleration rights).
Indemnification and Insurance
Pursuant to the Merger Agreement, Synopsys has agreed to indemnify each
person who was an officer, director or employee of Viewlogic against certain
liabilities. In addition, Synopsys has agreed to maintain, with certain
limitations, the policies of directors' and officers' liability insurance
maintained by Viewlogic or to provide comparable coverage. See "The Merger
Agreement -- Indemnification and Insurance."
Retention Agreements and Stock Option Acceleration
Viewlogic has entered into retention agreements with each of its executive
offers providing that if the executive's employment with Viewlogic is terminated
for certain specified reasons following a change in control of Viewlogic,
including the Merger, the executive will receive a cash payment and certain
other benefits. In connection with the Merger, certain executive officers of
Viewlogic have agreed to waive their rights under their respective retention
agreements. See "Employment Contracts, Termination of Employment Arrangements
and Change of Control Agreements -- Retention Agreements."
In addition, all Viewlogic stock options held by members of Viewlogic's
Executive Committee contain a provision which provides that all such stock
options become fully vested in the event of the acquisition of Viewlogic.
Accordingly, all Viewlogic's stock options held by such members will become
fully vested upon the consummation of the Merger. See "Employment Contracts,
Termination of Employment Arrangements and Change of Control Agreements -- Stock
Option Acceleration."
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The foregoing interests of the directors and certain members of management
of Viewlogic in the Merger may mean that such persons have personal interests in
the Merger which may not be identical to the interests of other Viewlogic
stockholders.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to the Merger that Synopsys
shall have received a letter from KPMG Peat Marwick LLP, its independent
accountants, and that Viewlogic shall have received a letter from Deloitte &
Touche LLP, its independent accountants, stating their concurrence with the
conclusions of management of the Companies that the Merger will qualify as a
pooling of interests transaction under Accounting Principles Board Opinion No.
16 and applicable regulations of the Commission if closed and consummated in
accordance with the Merger Agreement. Under this method of accounting, the
recorded assets and liabilities of Synopsys and Viewlogic will be carried
forward to the Combined Company at their recorded amounts, income of the
Combined Company will include income of Synopsys and Viewlogic for the entire
fiscal year in which the combination occurs and the reported income or loss of
the separate companies for prior periods will be combined and restated as income
of the Combined Company. See "The Merger Agreement -- Conditions" and "Unaudited
Pro Forma Combined Condensed Financial Statements."
To help ensure that Synopsys and Viewlogic meet the prerequisites for
pooling of interests accounting treatment, the affiliates of Viewlogic have each
executed a letter agreement to the effect that such person will not sell,
transfer or otherwise dispose of, or reduce such person's interest in or risk
relating to, any shares of Synopsys Common Stock or Viewlogic Common Stock from
the date of the Merger Agreement until the Effective Time (or the termination of
the Merger Agreement), and thereafter will not sell any shares of Synopsys
Common Stock received in the Merger or otherwise beneficially owned by such
person, except in each case for amounts of Viewlogic Common Stock and Synopsys
Common Stock not more than the de minimis amount permitted by the rules and
releases of the Commission relating to pooling of interests accounting treatment
until Synopsys publicly releases combined financial results which reflect 30
days of combined operations of Synopsys and Viewlogic. See "-- Restrictions on
Resale of Synopsys Common Stock."
VOTING AGREEMENTS
In accordance with the terms of the Merger Agreement, directors and
officers of Viewlogic have executed and delivered the Voting Agreements and
irrevocable proxies to Synopsys obligating them, among other things, to vote
their shares of Viewlogic Common Stock in favor of approval of the Merger
Agreement and the Merger. As of October 28, 1997, Voting Agreements had been
executed and delivered to Synopsys covering an aggregate of approximately
726,448 shares of Viewlogic Common Stock, representing approximately 4.3% of the
shares of Viewlogic Common Stock outstanding as of such date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
considerations of the Merger that are generally applicable to holders of
Viewlogic Common Stock. This discussion reflects the opinions of Hale and Door
and WSGR attached as Exhibits 8.1 and 8.2 to the Registration Statement of which
this Joint Proxy Statement and Prospectus is a part (the "Exhibit Opinions").
The Exhibit Opinions each include an opinion to the effect that the Merger will
constitute a "reorganization" (a "Reorganization") within the meaning of Section
368(a) of the Code. The Exhibit Opinions are based on certain assumptions and
subject to certain limitations and qualifications as noted in the opinions.
Viewlogic stockholders should be aware that the following discussion does not
deal with all federal income tax considerations that may be relevant to
particular Viewlogic stockholders in light of their particular circumstances,
such as stockholders who are dealers in securities, who are foreign persons or
who acquired their Viewlogic Common Stock through stock option or stock purchase
programs or in other compensatory transactions. In addition, the following
discussion does not address the foreign, state or local tax laws or tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger) including, without
limitation,
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the exercise of options or rights to purchase Viewlogic Common Stock in
anticipation of the Merger. ACCORDINGLY, VIEWLOGIC STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the interpretation by the Companies'
respective counsel of the Code, applicable Treasury Regulations, judicial
authority and administrative ruling and practice, all as of the date hereof. The
Internal Revenue Service (the "IRS") is not precluded from adopting a contrary
position. In addition, there can be no assurance that future legislative,
judicial or administrative changes or interpretations will not adversely affect
the accuracy of the statements and conclusions set forth herein. Any such
changes or interpretations could be applied retroactively and could affect the
tax consequences of the Merger to Synopsys, Viewlogic and/or their respective
stockholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the Companies' respective
counsel are of the opinion that:
(a) No gain or loss will be recognized by the holders of Viewlogic
Common Stock upon the receipt of Synopsys Common Stock solely in exchange
for such Viewlogic Common Stock in the Merger (except to the extent of cash
received in lieu of fractional shares);
(b) The aggregate tax basis of the Synopsys Common Stock so received
by Viewlogic stockholders in the Merger (including any fractional share of
Synopsys Common Stock not actually received) will be the same as the
aggregate tax basis of the Viewlogic Common Stock surrendered in exchange
therefor;
(c) The holding period of the Synopsys Common Stock so received by
each Viewlogic stockholder in the Merger will include the period for which
the Viewlogic Common Stock surrendered in exchange therefor was considered
to be held, provided that the Viewlogic Common Stock so surrendered is held
as a capital asset at the Effective Time;
(d) Cash payments received by holders of Viewlogic Common Stock in
lieu of receipt of a fractional share of Synopsys Common Stock will be
treated as if such fractional share of Synopsys Common Stock had been
issued in the Merger and then redeemed by Synopsys and a Viewlogic
stockholder receiving such cash will generally recognize gain or loss, upon
such payment, measured by the difference (if any) between the amount of
cash received and the basis in such fractional share; and
(e) None of Synopsys, Sub or Viewlogic will recognize gain or loss
solely as a result of the Merger.
Neither Synopsys nor Viewlogic has requested a ruling from the IRS in
connection with the Merger. As a condition to the consummation of the Merger,
Synopsys and Viewlogic will receive opinions from their respective counsel, WSGR
and Hale and Dorr (the "Tax Opinions") to the effect that, for federal income
tax purposes, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. The Tax Opinions neither bind the IRS nor preclude
the IRS from adopting a contrary position. The Tax Opinions are subject to
certain assumptions and qualifications and will be based on the truth and
accuracy of certain representations of Synopsys, Viewlogic and Sub, including
representations in certain certificates of the respective managements of
Synopsys, Viewlogic and Sub, as well as representations from certain Viewlogic
stockholders.
A successful IRS challenge to the Reorganization status of the Merger would
result in a Viewlogic stockholder recognizing gain or loss with respect to each
share of Viewlogic Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time, of the Synopsys Common Stock received in exchange therefor. In such event,
a Viewlogic stockholder's aggregate basis in the Synopsys Common Stock so
received would equal its fair market value, and the stockholder's holding period
for such stock would begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Synopsys Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Viewlogic Common Stock). All or a portion of such gain may be taxable as
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ordinary income. Gain would also have to be recognized to the extent that a
Viewlogic stockholder was treated as receiving (directly or indirectly)
consideration other than Synopsys Common Stock in exchange for the Viewlogic
Common Stock.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Synopsys and
Viewlogic have filed notification and report forms under the HSR Act with the
FTC and Antitrust Division. These filings commenced a 30-day waiting period
under the HSR Act which is scheduled to expire prior to the Special Meetings.
If, prior to the expiration of such period the FTC or the Antitrust Division
should request additional information or documentary material under the HSR Act,
consummation of the Merger could be delayed until after the Companies have
substantially complied with the request. At any time before or after the
Effective Time of the Merger, the Antitrust Division, the FTC or any state or
foreign government may take such action under the federal, state or foreign
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger, seeking divestiture
of substantial assets of Synopsys or Viewlogic or seeking to impose conditions
on Synopsys with respect to the business operations of the Combined Company.
Private parties may also seek to take legal action under the antitrust laws
under certain circumstances.
Based on information available to them, Synopsys and Viewlogic believe that
the Merger can be effected in compliance with federal, state and foreign
antitrust laws. However, there can be no assurance that a challenge to the
consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, Synopsys and Viewlogic would prevail or would not be
required to accept certain conditions, possibly including certain divestitures,
in order to consummate the Merger. In this regard, the Merger Agreement requires
Synopsys and Viewlogic to use all reasonable efforts to defeat any challenge to
the Merger under the HSR Act or to settle such challenge on terms that permit
the consummation of the Merger. However, the Merger Agreement provides that
neither Synopsys nor Viewlogic will be required to agree to divest or hold
separate any portion of its business or to take other action that could
reasonably be expected to have a material adverse effect on such party.
RESTRICTIONS ON RESALE OF SYNOPSYS COMMON STOCK
The shares of Synopsys Common Stock issuable to stockholders of Viewlogic
upon consummation of the Merger have been registered under the Securities Act.
Such shares will be freely tradeable without restriction by those stockholders
who are not deemed to be "affiliates" of Synopsys or Viewlogic, as that term is
defined under the Securities Act.
Shares of Synopsys Common Stock received by those stockholders of Viewlogic
who are deemed to be affiliates of Viewlogic may be resold without registration
under the Securities Act only as permitted by Rule 145 under the Securities Act
or as otherwise permitted under the Securities Act. Each person deemed to be an
affiliate of Viewlogic has agreed not to offer, sell, pledge, transfer or
otherwise dispose of any shares of Synopsys Common Stock distributed to them
pursuant to the Merger, except in compliance with Rule 145 under the Securities
Act, or in a transaction that is otherwise exempt from the registration
requirements of the Securities Act and provided an opinion of counsel,
satisfactory to Synopsys, has been provided to Synopsys to the effect that no
such registration is required in connection with the proposed transaction, or in
an offering that is registered under the Securities Act. In addition, each
affiliate of Viewlogic has agreed not to sell, transfer or otherwise dispose of,
or reduce such person's interest in or risk relating to, (i) any shares of
Synopsys Common Stock or Viewlogic Common Stock from the date of the Merger
Agreement until the Effective Time (or the termination of the Merger Agreement)
and (ii) any shares of Synopsys Common Stock issued to such person in the Merger
or otherwise beneficially owned by such person, except in each case for amounts
of Viewlogic Common Stock and Synopsys Common Stock not more than the de minimis
amount permitted by the rules and releases of the Commission relating to pooling
of interests accounting
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treatment, until Synopsys publicly releases combined financial results of
Synopsys and Viewlogic for a period of at least 30 days of combined operations.
This Joint Proxy Statement/Prospectus does not cover any resales of
Synopsys Common Stock received by persons who are deemed to be affiliates of
Viewlogic.
NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the Merger that the shares of Synopsys Common Stock to
be issued in connection with the Merger be approved for quotation on the Nasdaq
National Market. A notice of listing has been filed for listing such shares of
Synopsys Common Stock on the Nasdaq National Market.
NO APPRAISAL RIGHTS
Section 262 of the DGCL provides appraisal rights (sometimes referred to as
"dissenters' rights") to stockholders of Delaware corporations in certain
situations. However, Section 262 appraisal rights are not available to
stockholders of a corporation, such as Viewlogic, (a) whose securities are
listed on a national securities exchange or are designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. ("NASD") and (b) whose stockholders are not required
to accept in exchange for their stock anything other than stock of another
corporation listed on a national securities exchange or on an interdealer
quotation system by the NASD and cash in lieu of fractional shares. Because
Viewlogic's Common Stock is traded on the Nasdaq National Market and because the
Viewlogic stockholders are being offered stock of Synopsys, which is also traded
on the Nasdaq National Market, and cash in lieu of fractional shares,
stockholders of Viewlogic will not have appraisal rights with respect to the
Merger. The DGCL does not provide appraisal rights to stockholders of a
corporation, such as Synopsys which issues shares in connection with a merger
but is not itself a constituent corporation in the Merger.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
Viewlogic and Synopsys are urged to read the Merger Agreement in its entirety
for a more complete description of the Merger. In case of any conflict between
the Merger Agreement and the summary set forth herein, the Merger Agreement will
control.
THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the stockholders of Viewlogic, the approval of the
issuance of shares of Synopsys Common Stock in connection with the Merger by the
stockholders of Synopsys, and the satisfaction or waiver of the other conditions
to the Merger, Sub will be merged with and into Viewlogic, with Viewlogic
continuing as the surviving corporation (the "Surviving Corporation") and
becoming a wholly-owned subsidiary of Synopsys.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the later of (a) the date and time of the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware or
(b) such later date and time as is agreed in writing by Synopsys and Viewlogic.
CONVERSION OF SECURITIES
Upon consummation of the Merger, each issued and outstanding share of
Viewlogic Common Stock (other than shares owned by Viewlogic as treasury stock
or by Synopsys, Sub or any other wholly-owned subsidiary of Synopsys, all of
which will be canceled), will be converted into the right to receive 0.6521 of a
share of fully paid and non-assessable Synopsys Common Stock. Based upon the
number of shares of Synopsys Common Stock and Viewlogic Common Stock outstanding
at September 30, 1997, an aggregate of
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approximately 11,137,059 shares of Synopsys Common Stock would be issued in
connection with the Merger, representing approximately 17.4% of the total number
of shares of Synopsys Common Stock outstanding after giving effect to such
issuance. In lieu of fractional shares (after taking account of all certificates
delivered by a given holder), holders of Viewlogic Common Stock will receive
cash in an amount equal to the fractional amount of the Synopsys Common Stock
multiplied by the average of the last reported sale price of Synopsys Common
Stock, as reported on the Nasdaq National Market, on each of the ten trading
days immediately preceding the date of the Effective Time. Each share of Sub
common stock issued and outstanding immediately prior to the Effective Time will
be converted into one share of common stock of the Surviving Corporation.
If the Merger becomes effective, Synopsys, acting through the Exchange
Agent, will as soon as reasonably practicable deliver a letter of transmittal
and transmittal forms with instructions to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Viewlogic Common Stock (the "Viewlogic
Certificates"). After receipt of such transmittal forms, each holder of
Viewlogic Common Stock will be able to surrender his or her Viewlogic
Certificates to the Exchange Agent, and each such holder will receive in
exchange therefor certificates evidencing the number of whole shares of Synopsys
Common Stock to which such holder is entitled and any cash which may be payable
in lieu of fractional shares. Such transmittal forms will be accompanied by
instructions specifying other details of the exchange. VIEWLOGIC CERTIFICATES
SHOULD NOT BE SURRENDERED UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL
FROM THE EXCHANGE AGENT. OPTION AGREEMENTS NEED NOT BE SURRENDERED.
After the Effective Time, Viewlogic Certificates, until so surrendered and
exchanged, will be deemed, for all purposes, to evidence only the right to
receive the number of whole shares of Synopsys Common Stock which the holder of
the Viewlogic Certificates is entitled to receive and the right to receive any
cash payment in lieu of a fractional share. The holder of any unexchanged
Viewlogic Certificate will not be entitled to receive any dividends or other
distributions payable by Synopsys with respect to Synopsys Common Stock until
the Viewlogic Certificate has been surrendered. Subject to applicable laws, such
dividends and distributions, together with any cash payment in lieu of a
fractional share of Synopsys Common Stock, will be paid without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains statements that various representations and
warranties contained therein are true and correct, except (i) as disclosed or
incorporated by reference in filings with the Commission by either Synopsys or
Viewlogic, as the case may be, made prior to the date of the Merger Agreement,
(ii) where the failure of such a representation or warranty to be true and
correct would not have a Material Adverse Effect (as defined below) on either
Synopsys or Viewlogic and their respective subsidiaries, taken as a whole, as
the case may be, with respect to items (a), (d) to (o), and (q) listed below, or
(iii) as disclosed in a separate disclosure schedule delivered by each of
Synopsys and Viewlogic to the other. In particular, both Viewlogic and Synopsys
provided representations and warranties relating to, among other things, (a) the
due organization, valid existence and good standing of each of Synopsys,
Viewlogic and each of their respective subsidiaries; (b) the capital structure
of each of Synopsys and Viewlogic; (c) each party's authorization to execute and
deliver the Merger Agreement and that the Merger Agreement constitutes a valid
and binding obligation of each party enforceable in accordance with its terms,
and each party's authority to consummate the transactions contemplated by the
Merger Agreement; (d) the absence of conflicts under charters or bylaws,
required consents or approvals (other than (i) the filing of a pre-merger
notification under the HSR; (ii) the filing by Synopsys of the Registration
Statement; (iii) the filing of the required merger documents with the Secretary
of State of the State of Delaware; (iv) the filing of proxy statements with the
Commission by Viewlogic and Synopsys; and (v) any other consents that are not
reasonably likely to have a Material Adverse Effect on the ability to consummate
the transactions contemplated by the Merger), and violations of any instruments
or law; (e) the accuracy and completeness in all material respects of documents
and financial statements filed by each of Synopsys and Viewlogic with the
Commission; (f) the absence of undisclosed liabilities; (g) the absence of
certain material adverse changes or events; (h) the accurate preparation and
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timely filing of all returns and payment of taxes owed and the absence of any
material liability for unpaid taxes that have not been accrued or reserved for
by the respective parties; (i) title to properties; (j) title to intellectual
property; (k) the absence of a breach or the cancellation of material
agreements, contracts and commitments; (l) the absence of litigation; (m)
compliance with environmental regulations, the absence of conduct of activities
involving hazardous materials and absence of any actions against either party
regarding environmental matters or hazardous materials; (n) certain employment
tax, labor and employee benefit matters; (o) compliance with laws; (p) the
absence of circumstances adversely affecting the availability of pooling of
interests accounting; (q) the absence of material interested party transactions;
and (r) the accuracy of information supplied by each of Synopsys and Viewlogic
in connection with the Registration Statement and this Joint Proxy
Statement/Prospectus. In addition, the Merger Agreement contains a
representation and warranty by Synopsys as to (s) the interim operations of Sub,
and representations and warranties by Viewlogic as to (t) the absence of
payments resulting from the Merger, (u) receipt of an opinion of Viewlogic's
financial advisor as to the fairness of the Merger, from a financial standpoint,
to Viewlogic's stockholders, and (v) actions taken regarding restrictions
applicable to "business combinations" under the DGCL.
For purposes of the Merger Agreement, a Material Adverse Effect means any
change, event or effect that is materially adverse to the business, operations
or results of operations of Viewlogic or Synopsys, as the case may be, and such
party's subsidiaries taken as a whole; provided, however that any of the
following are not deemed to constitute a Material Adverse Effect: (i) adverse
changes in or effect on the financial condition, revenues or gross margins of
the party (or the direct consequences thereof) to the extent attributable to a
delay of, reduction in or cancellation or change in the terms of product
licenses by the party's customers, to the extent attributable to a slowdown in a
party's sales organization; to the extent attributable to the loss of any key
officer or employee of a party to the extent attributable directly and primarily
to the transactions contemplated by the Merger Agreement; (ii) adverse changes
in the market prices for the party's common stock between the date of the Merger
Agreement and the Closing Date; (iii) the failure of the party's quarterly
results of operations for any quarter ending during the period starting on the
date of the Merger Agreement and ending at the Closing Date to meet generally
analysts' expectations as reflected in the First Call Consensus estimate; or
(iv) the outcome of certain litigation pending against Viewlogic and disclosed
to Synopsys.
CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Merger Agreement, Viewlogic has agreed that, during the
period from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement or the Effective Time, except as otherwise
consented to in writing by Synopsys or as contemplated by the Merger Agreement,
Viewlogic and its subsidiaries have agreed to: (a) carry on Viewlogic's business
in the ordinary course in substantially the same manner as previously conducted,
including the use of reasonable efforts consistent with past practices and
policies of Viewlogic to (i) preserve intact its present business organization,
(ii) keep available the services of its present officers and key employees and
(iii) preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it; (b) not
accelerate, amend or change the period of exercisability of Viewlogic Options,
except as required pursuant to the plan or any related agreement; (c) not
transfer or license or otherwise extend, amend or modify any rights to its
intellectual property, other than in the ordinary course of business consistent
with past practice; (d) not declare or pay any dividends on or make other
distributions in respect of any of its capital stock, not effect certain other
changes in its capitalization, and not purchase or otherwise acquire, directly
or indirectly, any shares of its capital stock except under certain
circumstances; (e) not issue, or authorize or propose the issuance of, any
shares of its capital stock or securities convertible into shares of its capital
stock, or any subscriptions, rights, warrants, or options to acquire, or other
agreements obligating it to issue any such shares or other convertible
securities, subject to certain exceptions; (f) not agree to engage or engage in
material acquisitions; (g) not sell, lease, license or otherwise dispose of
material properties or assets, except in the ordinary course of business; (h)
not increase the compensation or severance payable to its officers or employees
(except for increases in accordance with agreements entered into prior to the
Merger Agreement and increases consistent with past practices), enter into any
collective bargaining agreement or establish, adopt, enter into or amend in any
material respect any plan for the benefit of its directors, officers, or
employees, subject to certain exceptions;
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(i) not amend its Certificate of Incorporation or Bylaws, except as contemplated
by the Merger Agreement; and (j) not take any action that would or is reasonably
likely to result in any of its representations and warranties becoming untrue.
In addition Viewlogic has agreed to confer on a regular basis with Synopsys on
material operational matters.
Pursuant to the Merger Agreement, Synopsys has agreed that, during the
period from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement or the Effective Time, except as otherwise
consented to in writing by Viewlogic or as contemplated by the Merger Agreement,
Synopsys will not, without the prior written consent of Viewlogic: (a) declare
or pay any dividends on or make any other distributions in respect of any of its
capital stock, or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock (other than stock splits of Synopsys Common
Stock or stock dividends payable in shares of Synopsys Common Stock), or
purchase or otherwise acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants under certain
circumstances; (b) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities convertible
into shares of its capital stock, or subscriptions, rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, subject to certain
exceptions; (c) amend or propose to amend its Certificate of Incorporation or
Bylaws, except as contemplated by the Merger Agreement; (d) acquire or agree to
acquire by merger or consolidation with, or by purchase of a substantial equity
interest in or substantial portion of the assets of any business or any
corporation, partnership or other business organization or division, for
consideration having a fair market value (at the time of the public announcement
of such acquisition or agreement) in excess of $100,000,000; (e) sell, lease,
license or otherwise dispose of any of its properties or assets which are
material, individually or in the aggregate, to the business of Synopsys and its
subsidiaries, taken as a whole, except for transactions entered into in the
ordinary course of business; and (f) not take any action that would be
reasonably likely to result in any of its representations and warranties
becoming untrue. In addition, Synopsys has agreed to confer on a regular basis
with Viewlogic on material operational matters.
NO SOLICITATION
The Merger Agreement provides that Viewlogic will not, directly or
indirectly, through any officer, director, employee, representative or agent (i)
solicit, initiate or encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, share exchange, business combination, sale of substantial assets,
sale of shares of capital stock (including, without limitation, pursuant to a
tender offer) or similar transactions or series of transactions involving
Viewlogic, other than the transactions contemplated by the Merger Agreement (any
of the foregoing inquiries or proposals being referred to as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
any non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal;
provided, however, that nothing contained in the Merger Agreement shall prevent
Viewlogic or the Viewlogic Board from (A) furnishing non-public information to,
or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Acquisition Proposal by such
person or entity (including a new and unsolicited Acquisition Proposal received
by Viewlogic after the execution of the Merger Agreement from a person or entity
whose initial contact with Viewlogic may have been solicited by Viewlogic prior
to the execution of the Merger Agreement) or recommending such an unsolicited
bona fide written Acquisition Proposal to the stockholders of Viewlogic, if and
only to the extent that (1) the Viewlogic Board believes in good faith (after
consultation with and based upon the advice of its financial advisor) that such
Acquisition Proposal would, if consummated, result in a transaction more
favorable to Viewlogic's stockholders from a financial point of view than the
transaction contemplated by the Merger Agreement (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal") and the
Viewlogic Board determines in good faith after consultation with and based upon
the advice of outside legal counsel that such action is necessary for Viewlogic
to comply with its fiduciary duties to stockholders under applicable law and (2)
prior to furnishing such non-public information to, or entering into discussions
or negotiations with, such person or entity, the Viewlogic Board receives from
such person or entity an executed confidentiality agreement with terms no
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more favorable to such party than those contained in the Non-Disclosure
Agreement dated September 26, 1997 between Synopsys and Viewlogic; or (B)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
Upon compliance with the foregoing, following receipt of a Superior
Proposal, Viewlogic shall be entitled to (i) withdraw, modify or refrain from
making its recommendation in favor of the Merger Agreement and the Merger and
approve and recommend to the stockholders of Viewlogic a Superior Proposal and
(ii) enter into an agreement with such third party concerning a Superior
Proposal provided that Viewlogic shall concurrently make payment in full to
Synopsys of certain termination fees. See "-- Termination Fees."
Viewlogic is required to notify Synopsys (orally and in writing) within 24
hours after receiving any Acquisition Proposal, learning of a third party's
intent to make an Acquisition Proposal, or receiving any request for non-public
information or access to its properties, books or records in connection with an
Acquisition Proposal.
RELATED MATTERS AT AND AFTER THE MERGER
At the Effective Time, Sub will be merged with and into Viewlogic, and
Viewlogic will be the Surviving Corporation and a wholly-owned subsidiary of
Synopsys. Each share of Sub common stock issued and outstanding immediately
prior to the Effective Time will be converted into and exchanged for one validly
issued, fully paid and nonassessable share of Common Stock of the Surviving
Corporation. Each stock certificate of Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of Viewlogic Common
Stock.
At the Effective Time the Certificate of Incorporation and Bylaws of Sub,
as in effect immediately prior to the Effective Time, will be the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
The directors and officers of Sub immediately prior to the Effective Time
will be the initial officers and directors of the Surviving Corporation.
After the Effective Time, all shares of Viewlogic Common Stock will cease
to be quoted on the Nasdaq National Market, and the Surviving Corporation will
undertake to terminate registration of Viewlogic Common Stock under the Exchange
Act.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that Viewlogic shall and, from and after the
Effective Time, Synopsys and the Surviving Corporation shall, indemnify, defend
and hold harmless each person who was an officer, director or employee of
Viewlogic or any of its subsidiaries as of the date of the Merger Agreement or
has been at any time prior to the date thereof (or who becomes a director,
officer or employee of Viewlogic or any of its subsidiaries prior to the
Effective Time) against all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld or delayed) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on, or arising in whole or
in part out of, the fact that such person is or was a director, officer or
employee of Viewlogic or any Viewlogic subsidiary, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including, without limitation, all Indemnified Liabilities based
in whole or in part on, or arising in whole or in part out of, or pertaining to
the Merger Agreement or the transactions contemplated thereby, in each case to
the full extent that a corporation is permitted under the DGCL to indemnify its
own directors, officers or employees, as the case may be.
After the Effective Time, Synopsys and the Surviving Corporation will
fulfill, assume and honor in all respects the obligations of Viewlogic pursuant
to Viewlogic's Certificate of Incorporation, as amended, and any indemnification
agreements existing and in force as of the date of the Merger Agreement with
Viewlogic's directors and officers.
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Synopsys and the Surviving Corporation shall, until the sixth anniversary
of the Effective Time or such earlier date as may be mutually agreed upon by the
interested parties, cause to be maintained in effect, to the extent available,
the policies of directors' and officers' liability insurance maintained by
Viewlogic and its subsidiaries as of the date of the Merger Agreement (or
policies of at least the same coverage and amounts containing terms that are no
less advantageous to the insured parties) with respect to claims arising from
facts or events that occurred on or prior to the Effective Time. In lieu of the
purchase of such insurance by Synopsys or the Surviving Corporation, Viewlogic
may purchase a six-year extended reporting period endorsement under its existing
directors' and officers' liability insurance coverage. In no event shall
Synopsys or the Surviving Corporation be obligated to expend any amount per year
in excess of 150% of the aggregate premiums paid by Viewlogic and its
subsidiaries in the fiscal year ending December 31, 1997 for directors' and
officers' liability insurance in order to maintain or procure such insurance
coverage.
CONDITIONS
The respective obligations of Synopsys, Sub and Viewlogic to effect the
Merger are subject to the following conditions: (a) the Merger Agreement shall
have been approved and adopted by the stockholders of Viewlogic and the issuance
of Synopsys Common Stock in connection with the Merger shall have been approved
by the Synopsys stockholders; (b) the waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and no action shall have been instituted by the Antitrust Division
or FTC challenging or seeking to enjoin the consummation of the Merger, which
action shall not have been withdrawn or terminated; (c) all authorizations,
consents, orders or approvals of any governmental entity required to consummate
the Merger shall have been obtained and be in effect, the absence of which would
be reasonably likely to have a Material Adverse Effect on either Synopsys or
Viewlogic, as the case may be; (d) the Registration Statement shall have become
effective under the Securities Act and shall not be the subject of a stop order
or proceedings seeking a stop order; (e) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction, legal or regulatory restraint or prohibition preventing
the consummation of the Merger or limiting or restricting Synopsys' conduct or
operation of the business of Synopsys or Viewlogic after the Merger shall have
been issued and be in effect, nor shall there be any proceeding brought by any
governmental entity seeking any of the foregoing be pending; (f) no action shall
be taken, nor any statute, rule, regulation, or order enacted, entered, enforced
or deemed applicable to the Merger which makes the consummation of the Merger
illegal or prevents or prohibits the Merger; (g) the receipt of letters, in form
and substance reasonably acceptable to Viewlogic and Synopsys, from the
independent accountants of Synopsys and Viewlogic, respectively, dated the
closing date stating that the independent accountants concur with the
conclusions of management of the Companies that the Merger will qualify as a
pooling of interests transaction under Accounting Principles Board Opinion No.
16 and applicable regulations of the Commission, if the Merger is consummated in
accordance with the Merger Agreement; (h) the Synopsys Common Stock to be issued
in the Merger, or reserved for future issuance, shall have been approved for
quotation on the Nasdaq National Market; (i) receipt by Synopsys of a written
opinion from WSGR and receipt by Viewlogic of an opinion of Hale and Dorr both
to the effect that the Merger will be treated as a tax-free reorganization
within the meaning of Section 368(a) of the Code; (j) the accuracy in all
material respects of the representations and warranties of the other party set
forth in the Merger Agreement, except for changes contemplated by the Merger
Agreement or where the failure to be true and correct would not be reasonably
likely to have a Material Adverse Effect on Viewlogic or Synopsys, as the case
may be; (k) the performance by the other party in all material respects of all
obligations required to be performed by such party under the Merger Agreement;
and (l) no Material Adverse Effect with respect to the other party shall have
occurred since the date of the Merger Agreement. In addition, it is a condition
to the obligations of Synopsys and Sub that Affiliate Agreements in the form
attached to the Merger Agreement as Exhibit C shall have been executed and
delivered to Synopsys by each director, officer and applicable affiliate of
Viewlogic, and that each Affiliate Agreement shall be in full force and effect.
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STOCK OPTION AND BENEFIT PLANS
At the Effective Time, each outstanding option to purchase Viewlogic Common
Stock issued under the Viewlogic 1991 Restated Stock Option Plan, the Viewlogic
1991 Outside Directors' Option Plan or the 1996 Outside Directors' Option Plan
(together the "Viewlogic Option Plans") will be assumed by Synopsys.
Accordingly, each Viewlogic Option shall be deemed to constitute a Synopsys
Option to acquire, on the same terms and conditions as were applicable under
such Viewlogic Option, the same number of shares of Synopsys Common Stock as the
holder of such Viewlogic Option would have been entitled to receive pursuant to
the Merger had such holder exercised the Viewlogic Option in full including as
to unvested shares, immediately prior to the Effective Time (rounded down to the
nearest whole number), at a price per share (rounded up to the nearest whole
cent) equal to (i) the aggregate purchase price for the shares of Viewlogic
Common Stock otherwise purchasable pursuant to such Viewlogic Option divided by
(ii) the number of shares of Synopsys Common Stock deemed purchasable pursuant
to such Synopsys Option as determined by the method described in the preceding
sentence. However, with respect to any Viewlogic Option to which Section 422 of
the Code applies ("incentive stock options"), the option price, the number of
shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with Section
424(a) of the Code. As of September 30, 1997, options to acquire 4,434,507
shares of Viewlogic Common Stock were outstanding under the Viewlogic Option
Plans.
Synopsys has agreed to reserve for issuance a sufficient number of shares
of Synopsys Common Stock for delivery under the Viewlogic Options assumed as
described above. As soon as practicable after the Effective Time, Synopsys shall
file a registration statement on Form S-3 or Form S-8 or another appropriate
form, as the case may be, with respect to the shares of Synopsys Common Stock
subject to such Viewlogic Options and shall use its best efforts to maintain the
effectiveness of such registration statement(s)(and the current status of the
prospectus(es) contained therein) for so long as such Viewlogic Options remain
outstanding. With respect to those individuals who subsequent to the Merger will
be subject to the reporting requirements under Section 16(a) of the Exchange
Act, Synopsys has agreed to administer the Viewlogic Option Plans assumed in the
Merger in a manner that complies with Rule 16b-3 promulgated under the Exchange
Act.
At the Effective Time, each outstanding option to acquire shares of
Viewlogic Common Stock issued under the Viewlogic 1996 Employee Stock Purchase
Plan (the "Viewlogic Purchase Plan") will be assumed by Synopsys. Accordingly,
each such option will be deemed an option to acquire, under the terms and
conditions of the Viewlogic Purchase Plan, shares of Synopsys Common Stock. On
February 1, 1998, the termination date of the current offering period under the
Viewlogic Purchase Plan, participants thereunder will be entitled to purchase
shares of Synopsys Common Stock at a purchase price per share adjusted to
reflect the Exchange Ratio and determined in accordance with the Viewlogic
Purchase Plan. The Viewlogic Purchase Plan will be terminated upon such February
1, 1998 purchase date.
Synopsys has also agreed that subsequent to the Effective Time, Viewlogic
employees will participate in Synopsys employee benefit programs or comparable
programs under substantially the same terms and conditions as all other Synopsys
employees.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Synopsys or the stockholders of
Viewlogic:
(a) by mutual written consent of Synopsys and Viewlogic; or
(b) by either Synopsys or Viewlogic if the Merger shall not have been
consummated by April 30, 1998, provided that if the Merger shall not have
been consummated due to the waiting period (or any extension thereof) under
the HSR Act not having expired or been terminated, or due to an action
having been instituted by the Antitrust Division or the FTC challenging or
seeking to enjoin the consummation of the Merger, then such date shall be
extended to July 31, 1998, and provided further that the right to terminate
the Merger Agreement under this provision is not available to any party
whose failure to fulfill
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any obligation under the Merger Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date; or
(c) by either Synopsys or Viewlogic if a court of competent
jurisdiction or other Governmental Entity (as defined in the Merger
Agreement) shall have issued a nonappealable final order, decree or ruling
or taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, except, if the
party relying on such order, decree or ruling or other action has not
complied with its obligations under Section 6.7 (Legal Conditions to the
Merger) or Section 6.16 (Additional Agreements; Reasonable Efforts) of the
Merger Agreement; or
(d) by either Synopsys or Viewlogic if the required approvals of the
stockholders of Synopsys or stockholders of Viewlogic contemplated by the
Merger Agreement shall not have been obtained by reason of the failure to
obtain the required vote upon a vote taken at a meeting of such
stockholders duly convened therefor or at any adjournment thereof (provided
that the right to terminate the Merger Agreement under this provision is
not available to any party where the failure to obtain approval of such
party's stockholders or stockholders shall have been caused by the action
or failure to act of such party in breach of the Merger Agreement); or
(e) by Synopsys, if (i) the Viewlogic Board shall have withdrawn or
modified its recommendation of the Merger Agreement in a manner adverse to
Synopsys or shall have publicly announced its intention to do any of the
foregoing; (ii) an Alternative Transaction (as defined below) shall have
taken place (including execution of an agreement to engage in the same) or
the Viewlogic Board shall have recommended to the stockholders of Viewlogic
an Alternative Transaction; (iii) a tender offer or exchange offer for 20%
or more of the outstanding shares of Viewlogic Common Stock is commenced
(other than by Synopsys or an Affiliate of Synopsys) and the Viewlogic
Board has not recommended that the stockholders of Viewlogic not tender
their shares in such tender or exchange offer within the time period
prescribed by Rule 14e-2 promulgated under the Exchange Act; or
(f) by Synopsys or Viewlogic, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, which breach causes the conditions
set forth in Sections 7.2(a) or 7.2(b) of the Merger Agreement (in the case
of termination by Synopsys) or 7.3(a) or 7.3(b) (in the case of termination
by Viewlogic) not to be satisfied as of the time of such breach, provided
that if such breach by such party is curable by such party through the
exercise of its reasonable efforts and for so long as such party continues
to exercise such reasonable efforts, the other party may not terminate the
Merger Agreement under this provision; or
(g) by Viewlogic, in the event of (i) a merger or consolidation to
which Synopsys is a party, if the stockholders of Synopsys immediately
prior to the effective date of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of less than 50
percent of the total combined voting power for election of directors of the
surviving corporation following the effective date of such merger or
consolidation, (ii) the acquisition or direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) in the
aggregate of securities of Synopsys representing more than 50% of the total
combined voting power of Synopsys' then issued and outstanding voting
securities by any person, entity or group, as shown on a Schedule 13D filed
with the SEC pursuant to the Exchange Act; or (iii) the sale of all or
substantially all of the assets of Synopsys to any person or entity that is
not a Subsidiary of Synopsys.
In the event of any termination of the Merger Agreement pursuant to clause
(a) above, there will be no liability or obligation on the part of any party to
the Merger Agreement or its officers, directors, stockholders or affiliates,
except as set forth in Section 8.3 of the Merger Agreement (Fees and Expenses),
provided that the provisions of Sections 6.14 (Brokers and Finders), 8.3 and
Article IX (Miscellaneous) of the Merger Agreement and the Non-Disclosure
Agreement shall remain in full force and effect and survive any such
termination. In the event of any termination of the Merger Agreement pursuant to
Sections 8.1(b) to 8.1(g), the Merger Agreement shall be of no further force and
effect, except that Sections 8.2 (Effect of Termination) and 8.3 and Article IX
of the Merger Agreement and the Non-Disclosure Agreement shall
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remain in full force and effect and survive any termination of the Merger
Agreement and nothing in the Merger Agreement shall relieve any party from
liability for any breach of the Merger Agreement.
Except as described below, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such expenses, whether or not the Merger is
consummated, provided that Synopsys and Viewlogic shall share equally all fees
and expenses, other than attorneys' fees, incurred in relation to the printing
and filing of this Proxy Statement/Prospectus (including any related preliminary
materials) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements.
TERMINATION FEES AND EXPENSES
Section 8.3 of Merger Agreement provides for Viewlogic to pay to Synopsys a
cash termination fee of $10,000,000 upon the earliest to occur of the following
events:
(i) the termination of the Merger Agreement by Synopsys pursuant to
Section 8.1(e) of the Merger Agreement; or
(ii) the termination of the Merger Agreement by Synopsys pursuant to
Section 8.1(d) of the Merger Agreement as a result of the failure to
receive the requisite vote for approval of the Merger Agreement and the
Merger by the stockholders of Viewlogic at the Viewlogic Special Meeting
if, at the time of such failure,
(A) there shall have been announced or commenced an Alternative
Transaction (as defined in clauses (i), (ii) or (iii) of Section 8.3(d)
but excluding clause (iv) contained in such definition) or Viewlogic
shall have executed an agreement to engage in the same and the Viewlogic
Board shall not have recommended against such Alternative Transaction
affirmatively or, if the Viewlogic Board has recommended against such
Alternative Transaction, the Viewlogic Board shall have withdrawn such
recommendation against such Alternative Transaction or modified such
recommendation in a manner adverse to Synopsys, or
(B) there shall have been announced an Alternative Transaction
(including, but not limited to, the definition contained in clause (iv)
of Section 8.3(d)) and Viewlogic shall have engaged in any merger,
consolidation, share exchange, business combination, or similar
transaction with, or shall have sold, leased, exchanged, or otherwise
transferred Material Assets (as defined in Section 8.3(d)(iii)) to the
Third Party (as defined in Section 8.3(d)) or any affiliate thereof
proposing such Alternative Transaction (or entered into an agreement
with such Third Party or any affiliate thereof to engage in the same)
within six months after the date of the Viewlogic Special Meeting or the
Viewlogic Board shall have recommended an Alternative Transaction (as
defined in clause (i) of Section 8.3(d)) with the Third Party proposing
such Alternative Transaction or any affiliate thereof within six months
after the date of the Viewlogic Special Meeting.
As used in the Merger Agreement, "Alternative Transaction" means either (i)
a transaction pursuant to which any person (or group of persons) other than
Synopsys or its affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of Viewlogic Common Stock, pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving Viewlogic pursuant to which any Third Party acquires more than 20% of
the outstanding equity securities of Viewlogic or the entity surviving such
merger or business combination, (iii) any other transaction pursuant to which
any Third Party acquires control of assets (including for this purpose the
outstanding equity securities of subsidiaries of Viewlogic, and the entity
surviving any merger or business combination including any of them) of Viewlogic
having a fair market value (as determined by the Viewlogic Board in good faith)
equal to more than 20% of the fair market value of all the assets of Viewlogic
immediately prior to such transaction ("Material Assets"), or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
Notwithstanding the foregoing, in no event is Viewlogic required to pay any
termination fees to Synopsys if, immediately prior to the termination of the
Merger Agreement, Synopsys was in breach of any of its
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material obligations under the Merger Agreement. Payment of the fees described
above shall not be in lieu of damages incurred in the event of breach of the
Merger Agreement.
Pursuant to the Merger Agreement, Synopsys also agreed to pay Viewlogic a
cash termination fee of $10,000,000 upon the earlier to occur of (i) the
termination of the Merger Agreement by Viewlogic pursuant to Section 8.1(g) or
(ii) the termination of the Merger Agreement by Viewlogic pursuant to Section
8.1(d) following the failure of Synopsys to receive the required approval of its
stockholders at the Synopsys Special Meeting. The termination fee, if
applicable, will be paid within one business day after the occurrence of the
event resulting in Synopsys' obligation to pay the fee, but Synopsys will not be
required to pay the termination fee if, immediately prior to the termination of
the Merger Agreement, Viewlogic was in breach of any of its material obligations
under the Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto. The Merger Agreement may be
amended by the parties thereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Viewlogic
and Synopsys, but, after any such approval, no amendment shall be made which by
law requires further approval by such stockholders without such further
approval.
At any time prior to the Effective Time, either Synopsys or Viewlogic, by
action taken or authorized by their respective Board of Directors, as the case
may be, to the extent legally allowed, (i) extend the time for the performance
of any of the obligations or other acts of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
in the Merger Agreement or delivered pursuant to the Merger Agreement, and (iii)
waive compliance by the other party with any condition or agreement contained in
the Merger Agreement.
STOCK OPTION AGREEMENT
Pursuant to the Stock Option Agreement, Synopsys was granted the right,
under certain circumstances, to acquire shares of authorized but unissued
Viewlogic Common Stock (the "Viewlogic Shares") constituting approximately 19.9%
of the outstanding shares of Viewlogic Common Stock (the "Synopsys Option") at a
price, payable in cash, of $28.00 per share (the "Exercise Price"). Pursuant to
the terms of the Stock Option Agreement, the type and number of securities
subject to the Synopsys Option, and the price per share, shall be adjusted in
the event of any change in Viewlogic Common Stock by reason of certain events,
including recapitalizations, combinations, exchange of shares and the like. The
Stock Option Agreement could have the effect of making an acquisition of
Viewlogic by a third party more difficult.
The Stock Option Agreement is exercisable by Synopsys, in whole or in part,
at any time or from time to time (i) in the event that (A) the Viewlogic Board
shall have withdrawn or modified its recommendation of the Merger Agreement in a
manner adverse to Synopsys or shall have publicly announced its intention to do
any of the foregoing; (B) an Alternative Transaction shall have taken place
(including execution of an agreement to engage in the same) or the Viewlogic
Board shall have recommended to the stockholders of Viewlogic an Alternative
Transaction; (C) a tender offer or exchange offer for 20% or more of the
outstanding shares of Viewlogic Common Stock is commenced (other than by
Synopsys or an affiliate of Synopsys) and the Viewlogic Board has not
recommended that the stockholders of Viewlogic not tender their shares in such
tender or exchange offer within the time period prescribed by Rule 14e-2
promulgated under the Exchange Act; or (ii) the termination of the Merger
Agreement by Synopsys as a result of the failure to receive the requisite vote
for approval of the Merger Agreement and the Merger by the stockholders of
Viewlogic if, at the time of such failure there shall have been announced or
commenced an Alternative Transaction or Viewlogic shall have executed an
agreement to engage in the same and the Viewlogic Board shall not have
recommended against such Alternative Transaction affirmatively or, if the
Viewlogic Board has recommended against such Alternative Transaction, the
Viewlogic Board shall have withdrawn such recommendation against such
Alternative Transaction or modified such recommendation in a manner adverse to
Synopsys. If an event
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occurs which would permit Synopsys to exercise its stock option such event would
also permit the termination of the Agreement and payment to Synopsys of the
termination fee described in "The Merger -- Termination Fees and Expenses." The
Synopsys Option will terminate upon the earlier of: (i) the Effective Time; (ii)
the termination of the Merger Agreement pursuant to its terms (other than a
termination whereby the Viewlogic Board shall have withheld, withdrawn or
modified in a manner adverse to Synopsys its recommendation in favor of adoption
and approval of the Merger and approval of the Merger after receipt of and in
connection with an Alternative Transaction or upon the commencement of a tender
or exchange offer for 20% or more on any class of Viewlogic's capital stock); or
(iii) 180 days following any termination of the Merger Agreement (or, if at the
expiration of such 180-day period, the Synopsys Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten (10)
business days after such impediment to exercise shall have been removed or shall
have become final and not subject to appeal). Notwithstanding the foregoing, (i)
the Synopsys Option cannot be exercised if Synopsys is in material breach of any
of its representations, warranties, covenants or agreements contained in the
Stock Option Agreement or in the Merger Agreement, and (ii) in the event
Synopsys receives more than the sum of (x) $23,000,000 and (y) the Exercise
Price multiplied by the number of Viewlogic Shares purchased by Synopsys
pursuant to the Synopsys Option, in connection with a sale of such Viewlogic
Shares, all proceeds in excess of such amount shall be remitted to Viewlogic.
Subsequent to the termination of the Merger Agreement, Synopsys may by
written notice ("Registration Notice") request Viewlogic to register under the
Securities Act all or any part of the shares of Viewlogic Common Stock acquired
pursuant to the Stock Option Agreement. Viewlogic may, at its option, purchase
these shares ("Registrable Shares") at their market price (the per share average
of the closing sale price of Viewlogic's Common Stock on the Nasdaq National
Market for the twenty (20) trading days immediately preceding the Registration
Notice) within ten (10) business days after the receipt of the Registration
Notice. If Viewlogic does not elect to exercise its option to purchase the
Registrable Shares, it shall use its best efforts to register the unpurchased
Registrable Shares; provided, however, (a) Synopsys shall not be entitled to
more than an aggregate of two effective registration statements and (b)
Viewlogic will not be required to file any such registration statement for a
certain period of time when (i) Viewlogic is in possession of material non-
public information which it reasonably believes would be detrimental to be
disclosed at such time and, in the written opinion of counsel to Viewlogic, such
information would have to be disclosed if a registration statement were filed at
such time; (ii) Viewlogic is required under the Securities Act to include
audited financial statements for any period in such registration statement and
such financial statements are not yet available for inclusion in such
registration statement; or (iii) Viewlogic determines, in its reasonable
judgment, that such registration would interfere with any financing, acquisition
or other material transaction involving Viewlogic.
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SYNOPSYS, INC.
BUSINESS
Introduction
Synopsys develops, markets, and supports EDA products for designers of ICs
and electronic systems. Synopsys offers a range of design tools, verification
tools and systems, design reuse products and physical design tools that
significantly improve designers' productivity by offering improved time to
market, reduced development and manufacturing costs, and enhanced design quality
of results when compared to earlier generations of EDA products. Synopsys also
provides training, support and consulting services for its customers.
The foundation of Synopsys' design methodology is logic synthesis. Logic
synthesis allows designers to use a high-level language to describe a chip, then
automatically convert and optimize this high-level description into a gate-level
format that can be manufactured by a semiconductor company. Synopsys' design
tools also include test and timing analysis products.
Synopsys' verification systems products are used by IC designers in several
stages of system design to help ensure that their ICs will work before they are
manufactured. Synopsys is a leading provider of software and hardware models,
which are used to test IC designs within the context of the system into which
they will be designed or to simulate the performance of an entire system or
subset of a system before manufacturing. Synopsys' simulation products permit
engineers to simulate their designs at various stages of the design process
(behavioral, register-transfer and gate-levels).
Synopsys' design reuse products are intended to reduce design time by
permitting the straightforward reuse of previously-proven circuit "blocks."
Synopsys believes design reuse will be a key to increased productivity of IC
designers as the density and complexity of ICs increase. Synopsys' design reuse
products include its DesignWare library of synthesizable standard parts and its
proprietary Cell-Based Array ("CBA") IC architecture, libraries and compilers,
which are licensed to semiconductor manufacturers.
Synopsys' physical design tools include a family of software tools that
assist designers in addressing at the transistor level the timing, power and
reliability requirements of an IC. As semiconductor technology advances and IC
complexity increases, transistor-level verification is becoming an increasingly
important phase of the IC design process.
Synopsys markets its products on a worldwide basis and offers comprehensive
customer service, education, consulting, and support as integral components of
its product offerings. Products primarily are marketed through its direct sales
force. Synopsys has licensed its products to many of the world's leading
semiconductor, computer, communications and electronics companies.
Industry Background
EDA products have played a critical role in accelerating the dramatic
advances in the electronics industry over the past two decades.
For the past 26 years, IC complexity (as measured by the number of
transistors on a chip) has increased by a factor of 10 every six years -- a
formula known in the semiconductor industry as Moore's Law (for the founder of
Intel Corporation). The need for EDA resulted from this increasing complexity,
as well as increased complexity of the electronic systems in which ICs are used
and the scarcity of skilled IC design engineers. Increased IC complexity
lengthened the product design and development cycles while, at the same time,
competition shortened product life cycles. The objectives of EDA are to (a)
reduce time to market, (b) reduce the costs associated with product design and
development, (c) improve the performance and density of complex IC designs, and
(d) improve the predictability of IC manufacture and testing.
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The electronic design process encompasses five basic stages:
- Determine the architecture of the system (system design);
- Develop behavioral descriptions of various system elements (behavioral
design);
- Specify the desired architecture of an IC (functional design);
- Develop schematic diagrams of logic gates that implement this
functionality (logic or gate-level design); and
- Lay out the individual transistors and interconnect wires that implement
the logic, which results in mask sets used to manufacture the IC (layout
or device design).
Prior to EDA, this entire process was manual, time consuming, prone to
error, and costly, thus limiting design complexity. In the 1960s and early
1970s, "complex" IC designs consisted of a few hundred logic gates (one logic
gate is equal to approximately four transistors). The EDA industry has evolved
over the past twenty years to automate a significant portion of the design
process, resulting in dramatic productivity increases. Each new generation of
design methods has been based on an enabling technology that provided an
automated linkage between design stages and raised the level of design
abstraction at which designers worked, thus facilitating the design of more
complex ICs by a broader range of designers.
The first generation of EDA, computer-aided design ("CAD"), automated the
layout process using dedicated mainframe or high-powered minicomputer systems,
allowing circuit designers to create ICs of several thousand logic gates. In the
late 1970s and early 1980s, computer-aided engineering ("CAE") emerged as the
second generation of EDA, with electronic design capture at the logic gate-level
instead of the layout or device level. By the mid-1980s, most IC design was
accomplished using workstation-based CAE tools for schematic capture, gate-level
simulation, and automated placement and routing. In the late 1980s, as
semiconductor process technology advanced, it became possible to manufacture ICs
with hundreds of thousands of gates. Consequently, a new generation of EDA tools
was required that let designers work at even higher levels of abstraction.
Logic synthesis provided the means for working at a functional level rather
than gate level, and thereby became the focal point of the third generation of
IC design. Using hardware description languages ("HDLs") that permit the
expression of design ideas and functionality at a level independent of silicon
implementation, logic synthesis employs advanced computational algorithms for
Boolean logic manipulation and optimization, timing analysis, and technology
mapping.
Logic synthesis offers significant reductions in circuit area and
improvements in critical path timing compared to results achieved by designers
using traditional CAE tools. In addition, logic synthesis supports technology
independent design, giving designers a wide array of options in choosing
semiconductor suppliers. Due to the automated nature of the synthesis process,
logic synthesis also allows designers to efficiently explore architectural
alternatives by merely changing the high-level description or reusing high-level
descriptions from one design to another. Synthesis also can be used to migrate
designs from one technology to another (e.g., CMOS 0.5-micron to CMOS
0.25-micron technology) or retarget from one implementation approach to another
(e.g., FPGA to ASIC (application specific IC)).
Semiconductor process technology has continued to advance into the 1990s.
Chip complexity and density have continued to increase accordingly. Functions
that historically have been implemented in separate ICs and integrated on a
printed circuit board are increasingly being implemented and integrated on a
single chip, a so-called "system-on-a-chip." At the same time, the competitive
pressures faced by computer, telecommunications, electronics, automotive and
appliance companies and other designers and consumers of ICs have made design
productivity and time-to-market even more critical factors in selecting IC
design methods and tools.
Strategy
Synopsys' strategy is to lead the evolution of electronic design by
providing methodologies, products and services that maximize the productivity of
its customers. In order to execute this strategy, Synopsys seeks to
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develop a balanced portfolio of design tools that continue to raise the level of
abstraction at which IC developers work and perform superior optimization of IC
design for speed, size and power, provide superior tools to assist in the
verification of IC designs early in the design cycle, enable the large-scale
reuse of intellectual property, including system-on-a-chip ICs, assist in
meeting the design challenges created by deep submicron and nanometer technology
and provide high quality support, education and consulting services that meet
the needs of its customers.
PRODUCT GROUPS AND PRODUCTS
Design Tools Group
Synopsys' design tools consist principally of its core logic synthesis
product, Design Compiler, and a suite of high-level design and verification
products. Logic synthesis automates the creation of IC logic from a high-level
circuit description, thereby reducing design time, and permits IC designers to
optimize designs for size, speed and power consumption, and allows exploration
of architectural tradeoffs early in the design process, thereby improving
quality of results. Verification is the process of ensuring that an IC meets the
functional specifications and timing requirements of its design, and that it
will work with the other components of a system, before it is manufactured. As
IC complexity grows, the importance of verification to the chip design process
also grows. Without adequate verification tools, verification can be a serious
bottleneck in the design process.
Design Compiler is the market-leading logic synthesis tool and is currently
used by a broad range of companies engaged in the design of ICs and field
programmable gate arrays (FPGAs) to optimize their designs for performance and
chip area. Design Compiler was introduced in 1988 and has been updated regularly
since then. In fiscal year 1997 Synopsys released "Synopsys 97," a significant
upgrade to the Design Compiler product family. Synopsys 97 includes over 100
performance enhancements initiated by requests from Synopsys' customers, plus a
new capability for handling engineering change orders late in the design
process.
Synopsys' Behavioral Compiler, which runs "on top" of Design Compiler,
permits designers to create complex circuits in a high-level shorthand and then
helps them explore design tradeoffs and pick the best architecture, thereby
permitting them to work at a higher level of abstraction than does Design
Compiler. Behavioral Compiler was introduced in 1994 and was embraced by only a
handful of early adopters. It has gained market acceptance as designers have
gradually begun to explore the benefits of behavioral synthesis. Users of
Behavioral Compiler have reported significant reductions in architecture design
time (an important component of overall design time), while achieving
improvements in performance and area.
In fiscal year 1997, Synopsys introduced PrimeTime, a full-chip static
timing analysis tool that provides customers with essential design verification
capabilities. PrimeTime ensures that as a design advances from synthesis
(high-level design) to transistor-level implementation, all timing-critical
paths can be clearly understood and verified. The ability to coherently track
timing progress throughout a design is critical to meeting project goals.
PrimeTime has been very well received by initial users and has been adopted by
several ASIC vendors for static timing sign-off.
Power Compiler, introduced in fiscal year 1996 to address customers'
concerns regarding IC power consumption, continued to gain market acceptance in
fiscal year 1997 and has become the market-leading power optimization synthesis
tool. Power Compiler permits IC designers to optimize their designs for power
consumption, which is especially important in the design of portable,
battery-powered devices such as laptop computers and cellular telephones.
During fiscal year 1997 Synopsys continued to expand the distribution
channel for its FPGA Express product. FPGA Express, introduced in fiscal year
1996, is Synopsys' logic synthesis tool for high-density FPGAs and complex
programmable logic devices ("CPLDs") and is Synopsys' first product to run on
the Windows 95 and Windows NT operating systems, reflecting the fact that
personal computers are the predominant platform for FPGA and CPLD designs.
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Synopsys' other design tools are integrated with Design Compiler to offer a
comprehensive design environment. RTL Analyzer lets IC designers analyze and
improve their source code before synthesis and simulation runs. Synopsys' test
synthesis software permits designers to generate high-quality test patterns and
moves IC design testing from the final stages of the design process to the
high-level design process, thus permitting earlier detection of design defects.
Synopsys' floor-planning management product acts as a high-level link to the
layout process by taking physical design data into consideration during
synthesis.
Synopsys' COSSAP product is a second-generation digital signal processing
("DSP") design system targeted at designers of digital communications devices
such as cellular telephones. COSSAP can simulate large, complex, high-level
systems that would be hard to model with standard cycle-based or event-driven
simulators, and includes a library of DSP building blocks.
Synopsys' high-level verification products include Cyclone, introduced in
September 1996, and VHDL System Simulator ("VSS"). Cyclone is "cycle-based"
simulation software, which permits IC designers to simulate their designs using
high-level algorithms at the register-transfer level, which is faster and
requires less memory than current tools. VSS is used at various stages in the
high-level design process to simulate a system or subsystem or to simulate the
performance of an IC within a system. VSS and Cyclone are both tightly linked to
Synopsys' synthesis products.
In order to address the challenges posed by increasing IC complexity and
advances in IC technology, in fiscal year 1996 Synopsys and IBM formed an
alliance to jointly develop products in the areas of design planning, timing,
test and synthesis, and Synopsys acquired a license to use certain IBM
technology. PrimeTime, Synopsys' recently-introduced timing analysis software,
is the first product to be developed under the IBM relationship. In addition,
Synopsys was selected by SEMATECH, a consortium of the leading U.S.
semiconductor manufacturers, as the prime contractor on a $6 million contract to
deliver next generation tools for designing complex ICs at 0.25-micron and
below. Work on the SEMATCH project continued in fiscal year 1997.
Logic Modeling Group
Since Synopsys' February 1994 merger with Logic Modeling Corporation,
Synopsys has offered a full range of hardware and software modeling solutions.
Synopsys' ModelSource 3000 series is a family of hardware modeling systems for
ASIC and board level design which provide a flexible means for designers to
model complex devices. ModelSource 3000 systems use the actual integrated
circuit to model its own behavior. Synopsys' SmartModel Libraries offer models
for more than 13,000 commercially available ICs, including a wide range of
microprocessors, controllers, DSPs, FPGAs, CPLDs, peripherals, memories and
standard logic. Synopsys' bus interface models are used to verify that designs
comply with established industry standards. Models are available for most
popular standards. In addition, Synopsys offers modeling technologies to allow
designers to create models of both standard and proprietary devices. These
models support all major EDA simulation environments and a wide range of EDA
platforms, giving designers access to a broad range of models to assist them
with verification of their designs.
Success in the modeling business depends, in part, upon making a wide range
of models and model types. Synopsys continues to focus its modeling development
efforts on enhancing its ability to quickly and efficiently produce and
distribute new models to meet rising verification needs. Synopsys seeks to
maintain close relationships with leading semiconductor vendors to ensure model
accuracy and the earliest possible availability. Synopsys believes that future
design verification methodologies, including those for system-on-a chip, will
require the availability of accurate, high performance models of complex
components and intellectual property blocks.
Design Architects Group
As the number of logic gates on ICs continues to grow, and as ICs
themselves become capable of hosting entire systems rather than single
functions, the reuse of proven design modules will become increasingly important
to IC designers. Synopsys' Design Architects Group offers products that enable
reuse of designs and
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integration of complex blocks on a single piece of silicon, known as the
"system-on-a-chip". The Design Architects group contains two business units,
Silicon Architects and Design Reuse.
Silicon Architects
Since Synopsys' acquisition of Silicon Architects in May 1995, it has
offered a proprietary IC architecture, known as Cell-Based Array ("CBA"),
compilers for high-level memories and data path elements and other tools. The
CBA architecture offers semiconductor vendors the customization advantages of
gate array architecture with the density, performance and power advantages of
standard cell design. The CBA Macrocell Libraries consists of optimized
libraries of low level elements in an IC. Macrocell and datapath compilers
generate optimized general purpose functions for an IC and permit optimization
for size, performance and power consumption. Tools are also available to
facilitate porting of complex IC blocks from one process technology to another
and to embed functional blocks into complex system-on-a-chip designs.
Synopsys licenses CBA technology and tools to ASIC manufacturers and adapts
the libraries for use in the manufacturer's particular production process. The
CBA libraries are then used in lieu of the manufacturer's proprietary library.
Replacing vendor-specific libraries with optimized CBA libraries can provide
cost benefits to ASIC vendors by reducing the silicon area required for a given
design and can provide improved performance and power consumption levels
compared to other IC architectures. The CBA architecture also offers Synopsys'
customers a link between synthesis-based high-level design and the physical
implementation of designs. Synopsys has entered into CBA license agreements with
many of the world's leading ASIC vendors. In addition to licensing semiconductor
manufacturers, Synopsys also licenses a CBA design system to independent design
houses and end users in order to facilitate and increase the number of designs
that target the CBA technology.
In June 1997 Synopsys entered into an agreement with Mentor pursuant to
which the two companies will work together on developing an industry-standard
methodology for the development of reusable IC cores. Under the agreement, the
companies will produce a reuse methodology manual which is based on Synopsys
synthesis tools for the creation of such blocks and targets CBA as the IC
technology of choice. In addition, Mentor's Inventra business unit will prove
its soft cores in CBA and make such CBA-proven soft cores available to its
customers.
Design Reuse
The Design Reuse Group offers a wide range of reusable design modules,
tools for creating reusable design blocks and design reuse consulting services.
Synopsys' DesignWare products provide IC designers with libraries of
pre-designed and pre-verified off-the-shelf design modules to incorporate into
their own designs. DesignWare libraries include commonly used functions ranging
from simple modules, such as multipliers, to more complex functions. DesignWare
libraries are flexible, ready-to-use digital components that are
technology-independent, parameterizable and synthesizable (i.e., usable by
Synopsys' design tools in optimizing a design). By providing these building
blocks and making them synthesizable, DesignWare helps reduce the overall design
time for complex ICs. The reuse of these building blocks represents a
significant shift from traditional IC design, in which designs have been
intimately tied to a particular process technology or design methodology and not
easily transferred from one chip design to the next. By the end of fiscal year
1997, over 100 design modules were available in DesignWare libraries. Synopsys
intends to make more modules available and to increase the size and functions of
the available modules.
In addition to the DesignWare libraries of basic functions, Synopsys offers
DesignWare Macrocells -- complex, reusable, ready-to-use digital components that
are technology-independent, parameterizable and synthesizable. These include
functions like the 8051 microcontroller and PCI 2.1 bus interface blocks. Like
the DesignWare libraries, these macrocells are tightly coupled to Synopsys'
high-level design environment.
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DesignWare Developer helps customers develop their own DesignWare
components from which they can build an inventory of design knowledge that can
be leveraged across multiple development teams or in subsequent design cycles.
EPIC Technology Group
As ICs themselves are becoming more powerful and more complex, the size of
the transistors and wires contained on those ICs is getting smaller. At the
"deep submicron" scale (i.e., wire widths of 0.25 micron and below), the
electrical characteristics of an IC begin to change, which imposes new
challenges on IC designers and increases the importance of analysis and
verification tools that operate at the transistor level of the IC design
process. Since Synopsys' February 1997 merger with EPIC, Synopsys has offered
its customers a family of characterization, simulation, analysis, extraction and
physical verification software tools and services to assist in meeting these
design challenges. Together the products permit designers to address at the
transistor level the timing, power and reliability requirements of an IC. EPIC
release 5.1, which began shipping in August 1997, includes improvements in
accuracy, capacity and runtime: three critical areas to customers engaged in
high-density transistor-level design. The EPIC Tools Group's principal products
include:
TimeMill is a transistor-level simulator and dynamic timing analyzer. Used
interactively in the prelayout phase, TimeMill helps designers optimize the
performance of transistor level blocks, memories and datapaths. TimeMill allows
the designer to quickly explore changes in voltage levels, temperature or
process parameters to improve design quality. After layout, TimeMill detects
problems such as charge sharing and race conditions which are more prevalent in
advanced silicon IC design.
PowerMill simulates block and full chip current and power behavior,
providing fast and accurate current and power analysis and power diagnostics.
PowerMill offers static and dynamic diagnostics to identify design flaws that
cause unnecessary power consumption. After layout, PowerMill helps designers
confirm that power consumption is acceptable before committing the design to
silicon.
The Analog Circuit Engine ("ACE"), introduced in fiscal 1997, is an analog
simulation option available for TimeMill and PowerMill tools (versions 5.0 and
later). When used with TimeMill or PowerMill, ACE provides a mixed A/D circuit
simulation solution for IC designers to develop improved designs for next-
generation deep submicron and nanometer devices.
PathMill is a static timing tool that provides a detailed critical path
analysis and static timing verification capability. PathMill provides accurate
and flexible modeling for mixed level static timing analysis. PathMill's
behavioral, gate and transistor level models allow accurate analysis at each
level of the design hierarchy, allowing the user to mix top-down design and
bottom-up implementation.
Arcadia, introduced in November 1995, provides full chip and net-by-net RC
extraction, and thereby permits designers to invest analysis time on critical
paths and spend less time on the segments that do not require in-depth analysis.
Arcadia is specifically designed for the advanced silicon designer working on
complex, high-performance custom, structured custom or ASIC projects. In fiscal
1997, Synopsys released a significant update to Arcadia, which offers twice the
speed and three times more capacity than the previous version and permits
distributed processing, which makes it possible for customers to significantly
shorten runtimes.
AMPS, introduced in January 1996, simultaneously optimizes power, delay and
area in digital CMOS circuits. AMPS automatically resizes transistors, making
individual transistors larger or smaller to find the combination that will best
meet user-defined power, speed and area goals without changing the functionality
of the design.
DelayMill, introduced in fiscal 1997, enables accurate timing verification
at the transistor level. DelayMill is an advanced delay calculation system for
IC, which calculates layout parasitics and interconnect delay effects, and is
specially useful for IC designers working with multi-million transistor designs
in nanometer silicon. PowerArc and PowerGate, also introduced in fiscal 1997,
are complementary products which together provide power analysis capabilities at
both the gate- and transistor- level of IC design.
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Customer Service and Support
Synopsys devotes substantial resources to providing customers with
technical support, customer education, and consulting services. Synopsys
believes that a high level of customer service and support is critical to the
adoption and successful utilization of its high-level design automation
methodology.
As a result of the continued growth of Synopsys' installed base, as well as
customer requests for education, support and consulting services, Synopsys'
service revenue has increased as a percentage of total revenue, representing
31%, 33% and 36% of total revenue in fiscal 1995, 1996 and 1997, respectively.
CONSULTING
Synopsys provides consulting services through its Professional Services
Group, which offers customized high-level design support for IC and systems
designs. Synopsys consultants are experienced designers who provide customers
with in-depth technical expertise in the use of Synopsys' HLDA methodology and
tools. Synopsys offers both methodology and project consulting. Methodology
consulting is aimed at increasing customer productivity, promoting the adoption
of Synopsys' HLDA methodology and solving immediate needs of customers' design
teams. Project consulting involves Synopsys experts working with customer design
teams from design implementation through simulation, synthesis and tapeout.
TECHNICAL SUPPORT
Technical support for Synopsys products is provided through both field and
corporate-based technical application engineering groups. Synopsys provides
customers with software updates and a formal problem identification and
resolution process through Synopsys Technical Support Center. Synopsys' central
entry point of all customer inquiries is SOLV-IT!, a direct-access service
available worldwide, 24 hours per day, through electronic mail and the World
Wide Web that lets customers quickly seek answers to design questions or more
insight into design problems. SOLV-IT! combines Synopsys' complete design
knowledge database with sophisticated information retrieval technology. Updated
daily, it includes documentation, design tips and answers to user questions.
CUSTOMER EDUCATION SERVICES
Synopsys offers a number of workshops focused on high-level design,
simulation, behavioral synthesis, logic synthesis and test. Regularly scheduled
workshops are offered in Mountain View, California; Austin, Texas; Burlington,
Massachusetts; Reading, England; Rungis, France; Munich, Germany; Tokyo and
Osaka, Japan; and Seoul, Korea. On-site workshops are available on a worldwide
basis at customers' facilities. To date, over 15,000 design engineers have been
trained in the use of Synopsys' products through participation in Synopsys
workshops.
PRODUCT WARRANTIES
Synopsys generally warrants its products to be free from defects in media
and to substantially conform to material specifications for a period of 90 days.
Synopsys has not experienced significant returns to date.
SUPPORT FOR INDUSTRY STANDARDS
Synopsys actively supports standards that it believes will help its
customers increase productivity and solve design problems, including support for
key standards that promote system-on-chip design and facilitate interoperability
of tools from different vendors.
Synopsys' products support the two most commonly used hardware description
languages, VHDL and Verilog HDL, and industry standard data formats for the
exchange of data between Synopsys' tools and other EDA products. Synopsys
donated its SWIFT modeling interface to the Open Modeling Forum to establish a
common simulator interface for models written in various formats.
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Synopsys is the prime contractor for SEMATECH's Chip Hierarchical Design
System, which is predicated on open standards and tool interoperability.
Synopsys is a member of the Virtual Socket Interface Alliance ("VSIA"), an
industry group formed to promote standards that facilitate the integration and
reuse of functional blocks of intellectual property, and has representatives on
the VSIA's Steering Working Group and several Development Working Groups. A
representative of Synopsys is on the Board of Directors of the standards groups
Open Verilog International, VHDL International, OMF, and Silicon Integration
Initiative and participates in standards activities conducted by these and other
leading EDA industry bodies.
Synopsys' products are written mainly in the C language and utilize the
Motif and X11 standards for graphical user interfaces. Synopsys' software runs
principally under the UNIX operating system and is offered on the most widely
used workstation platforms, including those from Sun Microsystems,
Hewlett-Packard, IBM, Digital Equipment Corporation and Sony. Certain of
Synopsys' software modeling products and its FPGA Express product run on the
Windows 95 and Windows NT operating systems.
Sales, Distribution and Backlog
Synopsys markets its products and services primarily through its direct
sales and service force in over 30 offices in the United States and principal
international markets. Synopsys employs highly skilled engineers and technically
proficient sales persons capable of serving the sophisticated needs of the
customers' engineering and management staffs.
For fiscal years 1995, 1996 and 1997, international sales represented 51%,
48% and 45%, respectively, of Synopsys' total revenue. Additional information
relating to domestic and foreign operations is contained in Note 7 of Notes to
Synopsys Consolidated Financial Statements.
As of September 30, 1997, Synopsys' direct sales and service force
consisted of 563 management, technical and administrative employees. Synopsys
has 18 sales/support centers throughout the United States. Internationally,
Synopsys has sales/support offices in Canada, Finland, France, Germany, Hong
Kong, Israel, Italy, Japan, Korea, the People's Republic of China, Singapore,
Sweden, Taiwan and the United Kingdom, including regional headquarters offices
in Germany, Japan and Singapore. On a limited basis, Synopsys also utilizes
manufacturer's representatives and distributors. Synopsys has established such
relationships in Australia, Brazil, Hong Kong, India, Korea, Malaysia and
Singapore.
Synopsys' backlog was approximately $207.2 million on November 1, 1997, as
compared to $185.9 million on November 2, 1996. In fiscal 1996, Synopsys'
backlog included orders for customer training and consulting services which were
expected to be completed within one year, orders for system and software
products sold under long-term licenses with customer requested ship dates within
twelve months, and time-based licenses, subscription services, maintenance and
support which are expected to be recognized as revenue within fifteen months.
Effective at the beginning of fiscal year 1997, Synopsys amended its order
acceptance policy relative to system and software products sold under long-term
licenses and currently includes in backlog only those orders with customer
requested ship dates within three months rather than twelve months. This
amendment to the order acceptance policy was implemented prospectively and the
backlog number for fiscal 1996 has not been adjusted. Upon consummation of
Synopsys' merger with EPIC, the EPIC backlog was added to that of Synopsys. The
backlog at November 2, 1996, noted above, has been restated to reflect the
combined Synopsys and EPIC backlog and has not been adjusted for differences in
the two companies' methods of backlog calculation. EPIC orders received
subsequent to the merger were accepted under the current order acceptance
policy. Synopsys has not historically experienced significant cancellations of
orders. Customers frequently reschedule or revise the requested ship dates of
orders, however, which can have the effect of deferring recognition of revenue
for these orders beyond the expected time period.
Research and Development
Synopsys believes that its future performance will depend in large part on
its ability to maintain and enhance its current product lines, develop new
products, maintain technological competitiveness, and meet an expanding range of
customer requirements. In addition to product development teams, Synopsys
maintains an advanced research group that is responsible for exploring new
directions and applications of its core
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technologies, migrating new technologies into the existing product lines, and
maintaining strong research relationships outside Synopsys both within industry
and academia. Relationships are maintained with third-party software and
hardware vendors to broaden the product lines without direct investment and with
all major hardware vendors on whose platforms Synopsys' products operate.
During fiscal 1995, 1996 and 1997, research and development expenses were
$64.6 million, $94.8 million and $115.0 million, respectively, net of
capitalized software development costs. Synopsys capitalized software
development costs of approximately $1.0 million in each of fiscal 1995, 1996 and
1997. Synopsys anticipates that it will continue to commit substantial resources
to research and development in the future.
Manufacturing
Synopsys' manufacturing operations consist of assembling, testing,
packaging and shipping its system and software products and documentation needed
to fulfill each order. Manufacturing is currently performed in Synopsys'
Mountain View, California and Beaverton, Oregon, facilities. Outside vendors
provide tape and CD-ROM duplication, printing of documentation and manufacturing
of packaging materials. The manufacturing and test of system products is done by
Synopsys employees, with some sub-assembly performed by outside vendors.
Synopsys typically ships its software products, with either a permanent or
temporary access key, within 10 days of acceptance of customer purchase orders
and execution of software license agreements, unless the customer has requested
otherwise. For its system products, Synopsys buys components in anticipation of
orders and builds units to match orders, typically shipping within four to
twelve weeks of order acceptance, unless the customer has requested otherwise.
Competition
The EDA industry is highly competitive. The other principal companies in
the EDA industry are Cadence, Mentor, Avant! and Quickturn Design Systems, Inc.
There are many other companies in the EDA industry and frequent new entrants,
including businesses targeted at Synopsys' product areas.
Synopsys' products compete with similar products from other vendors and
compete with other EDA products and services for a share of the EDA budgets of
their customers. Synopsys' products also compete with customers' internally
developed design tools and design capabilities. Synopsys believes that the
principal competitive factors in the EDA industry are product performance,
technology leadership, methodology support, technical support, support of
industry standards, price and reputation. Synopsys believes that it currently
competes favorably with respect to these factors.
To date, the majority of Synopsys' revenue has resulted from sales of
synthesis and synthesis-related HLDA tools, and modeling products, both areas in
which Synopsys is currently the leading provider. As Synopsys' business evolves,
it expects to continue to face competition in the core product areas of
synthesis and modeling and to face competition both in new product areas and
from competing alternatives for its customers' EDA dollars (e.g., internal
spending, services, out-sourcing of design or other tools). Although Synopsys
has maintained its leadership in synthesis and modeling, a loss of market share
or price/margin reduction resulting from increased competition could have a
significant adverse effect on Synopsys' business, financial condition and
results of operations.
More generally, the EDA industry as a whole is experiencing rapid change.
Technology advances and industry requirements are fueling a change in the nature
of competition among EDA vendors. Advances in semiconductor technology are
expected to create a need for tighter integration between logic design and
physical design, and companies will increasingly compete over "design flows"
involving a broad range of products and services rather than individual design
tools.
No single EDA company currently offers its customers industry leading
products for a complete design flow. Synopsys offers a wide range of logic
design tools but currently offers a limited range of physical design tools, a
field which is currently dominated by Cadence and Avant!. In addition, Synopsys
has less capacity than Cadence to offer design services.
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In order to increase the breadth of its product offerings, Synopsys has
entered into a number of strategic relationships. In February 1996, Synopsys
entered into a six-year joint development and license agreement with IBM
pursuant to which Synopsys and IBM will jointly develop, among other products, a
design planning product. In May 1996, Synopsys entered into a strategic
relationship with CCT involving a link between Synopsys' existing synthesis
products and the design planning product under development and CCT's routing
technology. CCT merged with Cadence in May 1997. Cadence has informed Synopsys
that it does not intend to comply with certain of CCT's obligations under
Synopsys' agreements with CCT. Synopsys and Cadence are currently discussing the
basis on which the two companies might continue to cooperate on linking
Synopsys' synthesis/design planning tools with Cadence's routing technology.
To meet competition, Synopsys will continue to enhance its product line and
promote the adoption of new products and methodologies. However, there can be no
assurance that Synopsys will be able to compete successfully against current and
future competitors or that competitive pressure faced by Synopsys will not
materially adversely affect its business, operating results and financial
condition.
Product Sales and Licensing Agreements
Synopsys offers its system products for sale or lease. Synopsys typically
licenses its software to customers under non-exclusive license agreements that
transfer title to the media only and that restrict use of the software to
internal purposes at specified sites. Synopsys currently licenses the majority
of its software as a network license that allows a number of individual users to
access the software on a defined network. Software is available under both a
perpetual license or a time-based license. License fees are dependent on the
type of license, product mix and number of copies of each product required. On
certain software products Synopsys will collect royalty payments in addition to
license fees.
Proprietary Rights
Synopsys primarily relies upon a combination of copyright, patent,
trademark and trade secret laws and license and nondisclosure agreements to
establish and protect proprietary rights in its products. The source code for
Synopsys' products is protected both as a trade secret and as an unpublished
copyrighted work. However, it may be possible for third parties to develop
similar technology independently, provided they have not violated any
contractual agreements or intellectual property laws. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries. Because the EDA industry is characterized by rapid
technological change, Synopsys believes that factors such as the technological
and creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance, coupled with
the various forms of legal protection that are available for its technology,
provide an effective means for Synopsys to establish and maintain a technology
leadership position. Synopsys currently holds several U.S. and foreign patents
on some of the technologies included in its products and will continue to pursue
additional patents in the future.
Although Synopsys believes that its products, trademarks and other
proprietary rights do not infringe on the proprietary rights of third parties,
and although to date Synopsys has received no communications from third parties
alleging the infringement of the proprietary rights of such parties, there can
be no assurance that infringement claims will not be asserted against Synopsys
in the future or that any such claims will not require Synopsys to enter into
royalty arrangements or result in costly and time-consuming litigation.
EMPLOYEES
As of September 30, 1997, Synopsys had a total of 1,961 employees, of whom
1,527 were based in the United States and 434 were based internationally. Of the
total, 950 were engaged in marketing, sales and related customer support
services, 607 were in research and development, 118 were in operations and 286
were in administration and finance. Synopsys' future financial results depend,
in part, upon the continued service of its key technical and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense
and there can be no assurance that Synopsys can retain its key managerial and
technical employees or that it can attract, assimilate
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<PAGE> 76
or retain other highly qualified technical and managerial personnel in the
future. None of Synopsys' employees is represented by a labor union. Synopsys
has not experienced any work stoppages and considers its relations with its
employees to be good.
PROPERTIES
Synopsys' principal administrative, sales, marketing, research and
development facilities are located in five adjacent buildings in Mountain View,
California, which together provide approximately 415,000 square feet of
available space, and two adjacent buildings approximately one-half mile away in
Sunnyvale, California, which together provide 200,000 square feet of space. The
Mountain View buildings are leased through February 2003 and the Sunnyvale
buildings are leased through April 2007.
Through its merger with EPIC, Synopsys acquired approximately 53,000 square
feet of leased office space in Sunnyvale. The EPIC Tools Group is expected to
relocate to other Synopsys facilities in fall 1997 and the space, leased through
December 2000, may be sublet to unaffiliated tenants at market rates or used to
accommodate growth or relocations.
Synopsys leases approximately 67,000 square feet in Beaverton, Oregon for
administrative, marketing, research and development and support activities. This
facility is leased through March 2002.
Synopsys currently leases eighteen other domestic sales offices throughout
the United States. Synopsys currently leases international sales and/or service
offices in Canada, Finland, France, Germany, Hong Kong, India, Israel, Italy,
Japan, Korea, the People's Republic of China, Singapore, Sweden, Taiwan, and the
United Kingdom. Synopsys also leases a research and development facility in
India.
Synopsys believes that its existing facilities are adequate for its current
needs and that additional space will be available as needed on commercially
acceptable terms.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against Synopsys.
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<PAGE> 77
SYNOPSYS SELECTED UNAUDITED QUARTERLY FINANCIAL DATA(A)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1997
------------------------------------------- --------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product..................... $61,037 $ 65,512 $ 67,872 $ 72,810 $ 77,400 $ 79,514 $ 80,432 $ 81,257
Service..................... 27,402 30,010 34,559 38,217 39,310 44,686 44,568 51,978
------- ------- ------- ------- ------- ------- ------- -------
Total revenue............. 88,439 95,522 102,431 111,027 116,710 124,200 125,000 133,235
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Product..................... 4,047 4,236 4,849 5,049 6,148 5,799 6,375 6,709
Service..................... 5,111 5,694 6,683 6,576 6,939 8,893 9,819 9,754
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue..... 9,158 9,930 11,532 11,625 13,087 14,692 16,194 16,463
------- ------- ------- ------- ------- ------- ------- -------
Gross margin.................. 79,281 85,592 90,899 99,402 103,623 109,508 108,806 116,772
Operating expenses:
Research and development
.......................... 20,267 22,906 24,757 26,884 28,512 29,310 29,356 27,860
Sales and marketing......... 33,448 35,851 37,285 40,787 41,347 43,579 44,686 48,127
General and
administrative............ 7,085 7,243 7,859 8,866 9,073 9,619 8,264 10,515
Merger-related costs........ -- -- -- -- -- 11,400 -- --
In-process research and
development............... -- 39,700 -- 18,806 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................ 60,800 105,700 69,901 95,343 78,932 93,908 82,306 86,502
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... 18,481 (20,108) 20,998 4,059 24,691 15,600 26,500 30,270
Other income, net............. 2,132 1,980 1,970 2,021 4,054 4,000 4,100 4,151
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... 20,613 (18,128) 22,968 6,080 28,745 19,600 30,600 34,421
Income tax provision
(benefit)................... 7,096 (6,078) 7,922 8,571 9,669 9,200 10,400 11,703
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $13,517 $(12,050) $ 15,046 $ (2,491) $ 19,076 $ 10,400 $ 20,200 $ 22,718
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share..... $ 0.26 $ (0.25) $ 0.28 $ (0.05) $ 0.35 $ 0.19 $ 0.38 $ 0.42
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common shares
and equivalents where
dilutive.................... 51,854 48,937 52,923 49,954 54,022 53,720 53,763 54,652
AS A PERCENTAGE OF TOTAL
REVENUE
Revenue:
Product..................... 69% 69% 66% 66% 66% 64% 64% 61%
Service..................... 31% 31% 34% 34% 34% 36% 36% 39%
------- ------- ------- ------- ------- ------- ------- -------
Total revenue............. 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenue:
Product..................... 5% 4% 5% 5% 5% 5% 5% 5%
Service..................... 5% 6% 6% 5% 6% 7% 8% 7%
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue..... 10% 10% 11% 10% 11% 12% 13% 12%
------- ------- ------- ------- ------- ------- ------- -------
Gross margin.................. 90% 90% 89% 90% 89% 88% 87% 88%
Operating expenses:
Research and development.... 23% 24% 24% 24% 24% 23% 23% 21%
Sales and marketing......... 38% 38% 36% 37% 36% 35% 36% 36%
General and
administrative............ 8% 8% 8% 8% 8% 8% 7% 8%
Merger-related costs........ -- -- -- -- -- 9% -- --
In-process research and
development............... -- 41% -- 17% -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................ 69% 111% 68% 86% 68% 75% 66% 65%
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... 21% (21)% 21% 4% 21% 13% 21% 23%
Other income, net............. 2% 2% 2% 2% 3% 3% 3% 3%
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... 23% (19)% 23% 6% 24% 16% 24% 26%
Income tax provision
(benefit)................... 8% (6)% 8% 8% 8% 8% 8% 9%
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. 15% (13)% 15% (2)% 16% 8% 16% 17%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(A) See Note 3 of Notes to Consolidated Financial Statements regarding Synopsys'
mergers.
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<PAGE> 78
SYNOPSYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth operating results as a percentage of total
revenue for fiscal 1995, 1996 and 1997 and the percentage change of such results
compared to the prior year.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
REVENUE PERCENTAGE CHANGE
---------------------- -----------------------
1995 1996 1997 1995-1996 1996-1997
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Product......................................... 69% 67% 64% 33% 19%
Service......................................... 31 33 36 46 39
--- --- ---
Total revenue........................... 100 100 100 37 26
--- --- ---
Cost of revenue:
Product......................................... 6 5 5 8 38
Service......................................... 6 6 7 50 47
--- --- ---
Total cost of revenue................... 12 11 12 28 43
Gross margin...................................... 88 89 88 38 24
Operating expenses:
Research and development........................ 22 24 23 47 21
Sales and marketing............................. 38 37 36 33 21
General and administrative...................... 8 8 8 26 21
Merger-related costs............................ -- -- 2 -- --
In-process research and development............. 4 14 -- 370 --
--- --- ---
Total operating expenses................ 72 83 69 56 3
--- --- ---
Operating income.................................. 16 6 19 (48) 314
Other income, net................................. 2 2 4 41 101
--- --- ---
Income before income taxes........................ 18 8 23 (38) 260
Income tax provision.............................. 7 4 8 (11) 134
--- --- ---
Net income........................................ 11% 4 % 15% (55)% 416%
=== === ===
</TABLE>
Except for the historical information presented, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Synopsys' actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "RISK FACTORS -- Risks Relating to Synopsys."
Corporate Agreements and Relationships
In February 1996, Synopsys and IBM entered into a six-year Joint
Development and License Agreement Concerning EDA Software and Related
Intellectual Property (the "IBM Agreement"). Pursuant to the IBM Agreement,
Synopsys acquired certain in-process research and development technology and a
non-exclusive license to sublicense and to use certain existing IBM EDA
technology and the underlying intellectual property, and licensed certain of its
EDA-related intellectual property to IBM. In addition, Synopsys and IBM are
jointly developing new EDA products in the areas of synthesis, design planning,
and static timing sign-off. PrimeTime, timing analysis software that is the
first product under the alliance, was introduced in fiscal 1997. Synopsys will
have sole ownership of synthesis products and the exclusive right to market
design planning and static timing products (subject to certain rights of IBM
upon termination of the IBM Agreement). In accordance with the IBM Agreement,
Synopsys paid IBM $11.0 million in cash and issued $30.0 million in notes, which
bear interest at three percent, and are payable to IBM upon the earlier of
achievement of scheduled milestones or at maturity in 2006. The notes were
recorded at fair value of $28.5 million, using a discount rate commensurate with
the risks involved. Synopsys will also pay royalties on revenues from the sale
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<PAGE> 79
of new products developed pursuant to the IBM Agreement. As a result of the
transaction, Synopsys incurred an in-process research and development charge of
$39.7 million in fiscal year 1996.
In May 1996, Synopsys purchased 1.2 million shares, approximately 9.9
percent of the outstanding shares of CCT, for $14.50 per share, pursuant to a
strategic relationship between the companies. In April 1997, Synopsys purchased
an additional 86,000 shares for $15.00 per share. In accordance with Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the investment has been classified
as available-for-sale. In May 1997, CCT and Cadence consummated a merger,
whereby each share of CCT was converted to 0.85 shares of Cadence Common Stock.
It is currently Synopsys' intent to dispose of the investment over time,
however, there can be no assurance that Synopsys will be successful in doing so.
Accordingly, the investment has been classified as a long-term asset. During
fiscal year 1997, Synopsys sold 457,000 shares of Cadence Common Stock and
realized a gain of approximately $8.0 million.
During fiscal 1997, Synopsys made investments of $3.2 million, $4.0 million
and $0.6 million in three privately-held companies. All of these investments are
carried at cost and are included in long-term investments.
Mergers and Acquisitions
In June 1995, Synopsys acquired all the outstanding equity securities of
ARKOS Design, Inc. ("ARKOS") for approximately $9.3 million in cash and notes.
The acquisition was accounted for by the purchase method of accounting, and the
results of operations of ARKOS are included in Synopsys' consolidated results
since the date of the acquisition. In June 1997, Synopsys sold the ARKOS
business to Quickturn Design Systems, Inc. Under the terms of the agreement,
Synopsys provided Quickturn with the technology required to create a
register-transfer level front-end for its current and future design verification
products and the ARKOS emulation technology in exchange for $5.0 million in cash
and $9.5 million in Quickturn warrants and Common Stock. There was no gain or
loss recorded as a result of this transaction.
In February 1997, Synopsys issued approximately 10.3 million shares of its
Common Stock in exchange for all the outstanding shares of Common Stock of EPIC
Design Technology, Inc. ("EPIC"), a developer of design automation tools for
deep submicron design in the area of integrated circuit power, timing, and
reliability analysis. In addition, options to acquire EPIC's Common Stock were
exchanged for options to acquire approximately 1.5 million shares of Synopsys
Common Stock. The EPIC merger was accounted for as a pooling of interests, and
accordingly, Synopsys' consolidated financial statements have been restated to
include the financial position and results of EPIC for all periods presented.
In September 1996, EPIC acquired CIDA Technology, Inc. ("CIDA"), a
development stage company formed to develop and market IC verification and
extraction tools for use by design engineers. EPIC exchanged a total of 729,000
shares of its Common Stock, options to acquire 101,000 shares of its Common
Stock, and cash of $3.4 million for all the outstanding shares of the Common
Stock and options to purchase Common Stock of CIDA for a total purchase price of
$17.9 million. The acquisition was accounted for by the purchase method of
accounting. The purchase price, acquisition costs and net liabilities assumed
totaled an investment of $20.1 million, of which $18.8 million was allocated to
in-process research and development and taken as a one-time charge to operating
expenses in fiscal 1996. The remaining $1.3 million was allocated to various
intangibles, including goodwill, and other assets. Goodwill is amortized on a
straight-line basis over a five year period.
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
Revenue
Revenue consists of fees for licenses and subscriptions of Synopsys'
software products, sales of system products, maintenance and support, customer
training, and consulting. Product revenue is recognized upon shipment or upon
fulfillment of non-standard acceptance terms, if any. If Synopsys ships products
with a temporary access key for software usage, revenue is deferred until
Synopsys provides a production key and
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<PAGE> 80
collectibility is reasonably assured. Revenue from subscriptions is deferred and
recognized ratably over the term that subscription services are provided,
generally twelve months. Maintenance and support revenue is deferred and
recognized ratably over the term of the maintenance agreement, which is
typically twelve months. Revenue from customer training and consulting is
recognized as the service is performed.
Synopsys' revenue increased by 37% from $290.5 million in fiscal 1995 to
$397.4 million in fiscal 1996 and by 26% from fiscal 1996 to $499.1 million in
fiscal 1997. The percentage of Synopsys' total revenue attributable to software
and system products decreased from 69% in fiscal 1995 to 67% in fiscal 1996 and
to 64% in fiscal 1997, primarily due to an increase in Synopsys' base of
installed software and the associated increase in maintenance and support,
customer training, and consulting revenue. To date, price increases have not
been a material factor in Synopsys' revenue growth.
Product revenue increased by 33% from $201.6 million in fiscal 1995 to
$267.2 million in fiscal 1996 and by 19% from fiscal 1996 to $318.6 million in
fiscal 1997. These increases were primarily due to increased worldwide licensing
and sales of Synopsys' software products.
Service revenue increased by 46% from $88.9 million in fiscal 1995 to
$130.2 million in fiscal 1996 and by 39% from fiscal 1996 to $180.5 million in
fiscal 1997. These increases were primarily attributable to continued growth of
the installed customer base and the renewal of maintenance and support
contracts, and growth in customer training and consulting.
Revenue from international operations was $148.8 million, $190.6 million
and $225.1 million, or 51%, 48% and 45% of total revenue in fiscal 1995, 1996
and 1997, respectively. The fiscal 1996 and 1997 decrease in international
revenue as a percentage of total revenue was due primarily to decreased revenue
in Japan as a percentage of total revenue, which was attributable to a decline
in the value of the yen versus the dollar.
Cost of Revenue
Cost of product revenue includes cost of production personnel, product
packaging, documentation, amortization of capitalized software development
costs, and costs of Synopsys' system products. The cost of internally developed
capitalized software is amortized based on the greater of the ratio of current
product revenue to the total of current and anticipated product revenue or the
straight-line method over the software's estimated economic life of
approximately two years. Cost of product revenue was 6% of total revenue in
fiscal 1995 and 5% of total revenue in both fiscal 1996 and fiscal 1997. Cost of
service revenue includes personnel and the related costs associated with
providing such service. Although service revenue increased as a percentage of
total revenue in each fiscal year presented, cost of service revenue as a
percentage of total revenue remained relatively flat at 6% of total revenue in
both fiscal 1995 and 1996, and 7% in fiscal 1997.
Research and Development
Synopsys believes that significant investment for product research and
development is essential to product and technical leadership. Research and
development expenses increased by 47% from $64.6 million in fiscal 1995 to $94.8
million in fiscal 1996 and by 21% from fiscal 1996 to $115.0 million in fiscal
1997, net of capitalized software development costs. Research and development
expenses represented 22%, 24% and 23% of total revenue in fiscal 1995, 1996 and
1997, respectively. The increases in research and development expenses were
attributable primarily to increases in personnel and personnel-related costs
associated with the development of new products and enhancement of existing
products. Synopsys anticipates that it will continue to commit substantial
resources to research and development in the future, provided that Synopsys is
able to continue to hire and retain a sufficient number of qualified personnel.
Synopsys expects that for fiscal 1998, research and development expenses as a
percentage of total revenue will be at or slightly below the fiscal 1997 level.
Synopsys capitalizes software development costs after technological
feasibility of the product has been established in accordance with SFAS No. 86.
Synopsys capitalized software development costs of approximately $1.0 million in
each of fiscal 1995, 1996 and 1997, which represented approximately 2%, 1% and
1% of
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total research and development expenses in fiscal 1995, 1996 and 1997,
respectively. See Note 1 of Notes to Consolidated Financial Statements.
Sales and Marketing
Sales and marketing expenses increased by 33% from $110.8 million in fiscal
1995 to $147.4 million in fiscal 1996 and by 21% from fiscal 1996 to $177.7
million in fiscal 1997. Sales and marketing expenses represented 38%, 37% and
36% of total revenue in fiscal 1995, 1996 and 1997, respectively. Total expenses
increased in each fiscal year due to the expansion of Synopsys' worldwide sales
and marketing organizations, higher incentive compensation associated with
increased revenue, and participation in conferences and trade shows. Synopsys
expects that for fiscal 1998, sales and marketing expenses as a percentage of
total revenue will be at or slightly below the fiscal 1997 level.
General and Administrative
General and administrative expenses increased by 26% from $24.6 million in
fiscal 1995 to $31.1 million in fiscal 1996 and by 21% from fiscal 1996 to $37.5
million in fiscal 1997. General and administrative expenses represented 8% of
total revenue in each of the three years presented. Expenses increased in each
year primarily due to an increase in personnel and personnel-related expenses.
In addition, in fiscal 1997, Synopsys recorded additional reserves for
receivables from customers considered potentially uncollectible. Synopsys
expects that for fiscal 1998, general and administrative expenses as a
percentage of total revenue will be at or slightly below the fiscal 1997 level.
Merger-Related Costs
In fiscal 1997, in connection with the EPIC merger, Synopsys recorded
related costs of $11.4 million, which included direct transaction fees for
investment bankers, attorneys, accountants, and other related costs of $4.7
million, and costs associated with integrating the operations of the two
companies of $6.7 million. Included in integration charges were redundant
facility costs, computer and other equipment abandonment costs, contract
termination charges and other related expenses. Of the $11.4 million of
merger-related costs, approximately $8.3 million related to cash expenditures
while approximately $3.1 million related to noncash reductions of recorded
assets. As of September 30, 1997, there was a balance of $1.2 million in accrued
liabilities for future cash expenditures. Synopsys anticipates that these
expenditures will be made in the first quarter of fiscal year 1998.
Other Income
Other income consists of interest income, interest expense, and
miscellaneous income and expense items. Other income was $5.7 million, $8.1
million and $16.3 million in fiscal 1995, 1996 and 1997, respectively. Other
income increased in each fiscal year as a result of earnings on higher cash and
short-term investment balances. In addition, in fiscal 1997, other income
increased as a result of the gain realized upon the sale of Cadence stock.
Income Tax Provision
The provision for income taxes was $19.7 million, $17.5 million and $41.0
million in fiscal 1995, 1996 and 1997, respectively. The provision for income
taxes as a percentage of pretax income was 39%, 56% and 36% in fiscal 1995, 1996
and 1997, respectively. The tax rate in fiscal 1996 was higher than the rates in
fiscal 1995 and 1997 primarily due to non-deductible items related to mergers
and acquisitions.
Net Income
Synopsys reported net income of $31.3 million, $14.0 million and $72.4
million, or 11%, 4% and 15% of total revenue in fiscal 1995, 1996 and 1997,
respectively.
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Liquidity and Capital Resources
As of September 30, 1997, Synopsys had $362.8 million of cash and
short-term investments available to finance future growth. In fiscal 1997, cash
and short-term investments increased by $86.7 million primarily attributable to
cash flows from operations of $109.6 million, and proceeds from the sale of
Synopsys Common Stock and a long-term investment of $41.3 million and $15.2
million, respectively. These positive cash flows were partially off-set by
capital expenditures of $54.5 million, cash paid on debt obligations of $10.2
million, the repurchase of common stock of $9.5 million, and purchases of
long-term investments of $9.0 million.
In May 1996, the Synopsys Board authorized the repurchase of up to 2.0
million shares of Synopsys' outstanding Common Stock in the open market over the
following 24 months. The repurchased shares were used for issuance under
Synopsys' employee stock plans and for other corporate purposes. During fiscal
1996, Synopsys purchased approximately 361,000 shares at an average price of $41
per share. During fiscal 1997, Synopsys purchased approximately 205,000 shares
at an average price of $46 per share. All repurchased shares were reissued prior
to Synopsys' merger with EPIC in February 1997, at which time Synopsys announced
that it had rescinded its stock repurchase program in order to comply with
pooling-of-interests accounting guidance provided in SEC Staff Accounting
Bulletin No. 96.
Synopsys has three foreign exchange lines of credit totaling $102.5 million
which expire in October 1997, June 1998, and June 1999. Synopsys enters into
forward exchange contracts to hedge foreign currency denominated intercompany
balances. Gains and losses on these contracts are recognized as incurred and
offset the resulting gains and losses on the foreign currency denominated
intercompany balances. At September 30, 1997, Synopsys had outstanding forward
contracts in yen and European currencies totaling approximately $18.5 million.
The forward exchange contracts are valued at prevailing market rates.
Synopsys believes that its current cash balances, anticipated cash flows
from operations and the existing credit facilities will be sufficient to fund
Synopsys' cash needs for at least the next twelve months.
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SYNOPSYS MANAGEMENT
The executive officers and directors of Synopsys and their ages, as of
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ----- ----------------------------------------------------------------------------------
<S> <C> <C>
Harvey C. Jones, Jr.... 44 Chairman of the Board of Directors
Aart J. de Geus........ 43 President, Chief Executive Officer and Director
Chi-Foon Chan.......... 48 Executive Vice President and Chief Operating Officer
William W. Lattin...... 57 Executive Vice President and Director
David C. Bullis........ 45 Senior Vice President
Raul Camposano......... 42 Senior Vice President and General Manager, Design Tools Group
Kurt Keutzer........... 41 Chief Technical Officer and Senior Vice President of Research
Gary A. Larsen......... 64 Senior Vice President and Co-General Manager, EPIC Technology Group
Paul Lippe............. 39 Senior Vice President, Business and Market Development and Corporate Secretary
Robert Russo........... 52 Senior Vice President, Sales and Services for the Americas and Europe
Faysal Sohail.......... 33 Senior Vice President and General Manager, Design Architects Group
David Sugishita........ 49 Senior Vice President, Finance and Operations and Chief Financial Officer
Sang Wang.............. 52 Senior Vice President and Co-General Manager, EPIC Technology Group and Director
Deborah A. Coleman..... 45 Director
A. Richard Newton...... 46 Director
Steven C. Walske....... 45 Director
</TABLE>
Harvey C. Jones, Jr. joined Synopsys in December 1987 and has served as
Chairman of the Board since December 1992. He served as Chief Executive Officer
from December 1987 until January 1994. Prior to joining Synopsys, Mr. Jones
served as President and Chief Executive Officer of Daisy Systems Corporation, a
company he co-founded in 1981. From 1974 to 1981, Mr. Jones was employed by
Calma Company where his last position was Vice President, Business Development.
Mr. Jones holds a B.S. in mathematics and computer sciences from Georgetown
University and an M.S. in management from the Massachusetts Institute of
Technology. Mr. Jones is a Director of Remedy Corporation, a developer of
client-server software.
Dr. Aart J. de Geus co-founded Synopsys and currently serves as President
and Chief Executive Officer. From the inception of Synopsys in December 1986, he
has held a variety of positions ranging from Senior Vice President of
Engineering to Senior Vice President of Marketing. From 1986 to 1992, Dr. de
Geus served as Chairman of the Board. He has served as President since 1992 and
has held the additional title of Chief Executive Officer since January 1994. He
has served as a Director since 1986. From 1982 to 1986, Dr. de Geus was employed
by General Electric Corporation, where he was the Manager of the Advanced
Computer-Aided Engineering Group. Dr. de Geus holds an M.S.E.E. from the Swiss
Federal Institute of Technology in Lausanne, Switzerland and a Ph.D. in
electrical engineering from Southern Methodist University.
Dr. Chi-Foon Chan joined Synopsys in May 1990. Since September 1996, he has
served as Executive Vice President, Office of the President and since May 1997
he has served as Chief Operating Officer. From February 1994 until May 1997 he
served as Senior Vice President, Design Tools Group and from October 1996 until
April 1997 as Acting Senior Vice President, Design Reuse Group. Prior to
February 1994, Dr. Chan served as Vice President, Engineering and General
Manager, DesignWare Operations, and prior to October 1993, he served as Vice
President, Application Engineering and Services. From March 1987 to May 1990,
Dr. Chan was employed by NEC Electronics, where his last position was General
Manager, Microprocessor Division. Dr. Chan holds an M.S. and a Ph.D. in computer
engineering from Case Western Reserve University.
Dr. William W. Lattin is an Executive Vice President of Synopsys and has
been a Director of Synopsys since July 1995. Dr. Lattin joined Synopsys in
February 1994 in connection with Synopsys' merger with Logic Modeling
Corporation ("LMC"). He has served as Executive Vice President since July 1995.
From October 1994 to July 1995 he served as Senior Vice President, Corporate
Marketing, and from February 1994
72
<PAGE> 84
until October 1994 as Senior Vice President, Logic Modeling Group. From December
1992 to February 1994, Dr. Lattin served as President, Chief Executive Officer
and Director of LMC, and from May 1992 to December 1992 he served as Chairman of
the Board and Chief Executive Officer of LMC. From 1986 to 1992, Dr. Lattin
served as Chairman of the Board of Directors, President and Chief Executive
Officer of Logic Automation Inc., a predecessor of LMC. Dr. Lattin holds a
B.S.E.E. and an M.S.E.E. from the University of California at Berkeley, and a
Ph.D. in electrical engineering from Arizona State University. Dr. Lattin is a
Director of RadiSys Corporation, a supplier of embedded computers, as well as a
Trustee of the Oregon Graduate Institute.
David C. Bullis joined Synopsys in February 1994 in conjunction with the
merger of Synopsys and LMC, and currently serves as Senior Vice President. Prior
to 1994, Mr. Bullis served as Vice President, SmartModel Division of LMC. From
May 1993 to February 1994, Mr. Bullis served as Vice President and General
Manager, SmartModel Division and from May 1992 to May 1993, he served as Vice
President, Sales. From 1991 to May 1992, he served as Vice President, Sales for
Logic Automation, Inc. From 1984 to 1991, he was employed by Summation, Inc., a
manufacturer of systems for board testing, most recently as Chief Executive
Officer. Mr. Bullis holds a B.S.E.E. from Iowa State University and an M.S.E.E.
from Colorado State University.
Dr. Raul Camposano joined Synopsys in January 1993 and currently serves as
Senior Vice President and General Manager of the Design Tools Group. From May
1996 until January 1997 he served as Vice President, Engineering, Design Tools
Group. From January 1996 until May 1996 he served as General Manager and Senior
Director, Design Planning Group, and from January 1994 until January 1996 as
Director of Engineering, Design Environment Group. Prior to joining Synopsys,
Dr. Camposano concurrently served as the Design Technology Director for the
German National Research Center for Computer Science and as Professor of
Computer Science at the University of Paderborn, Germany. Between 1986 and 1991,
Dr. Camposano led the project on high-level synthesis at the IBM T.J. Watson
Research Center. Dr. Camposano holds a B.S.E.E. from the University of Chile,
and a Ph.D. in computer science from the University of Karlsruhe.
Dr. Kurt Keutzer joined Synopsys in January 1991 and currently serves as
Chief Technical Officer and Senior Vice President of Research. From September
1994 until March 1997 he served as Chief Scientist, and from September 1996
until March 1997 as Vice President, Research. From January 1991 until September
1994 he served as Director, Research and Development. Prior to joining Synopsys,
Dr. Keutzer held various positions at AT&T Bell Laboratories. Dr. Keutzer serves
on the Technical Advisory Board of C-Cube Microsystems. In 1996, he was named a
Fellow of the IEEE. Dr. Keutzer received his B.S. degree in mathematics from
Maharishi International University, and M.S. and Ph.D. degrees in computer
science from Indiana University.
Gary A. Larsen has served as Senior Vice President and Co-General Manager,
EPIC Technology Group since July 1997. From August 1994 to February 1997, Mr.
Larsen served as Vice President, Worldwide Sales of EPIC and from February 1997,
when Synopsys and EPIC merged, to July 1997 as Vice President, Sales, of the
EPIC Technology Group. From 1984 to April 1994, he served in a variety of
managerial positions at Cadence, most recently as Vice President of the ASIC
Solutions Group. Mr. Larsen holds a B.A. in economics from Stanford University.
Paul Lippe joined Synopsys in October 1992 and currently serves as Senior
Vice President, Business and Market Development (since May 1997) and as
Corporate Secretary (since 1992). From November 1996 until May 1997 he served as
Senior Vice President, Business Development and Legal, and from January 1995
until November 1996 as Vice President, Business Development and Legal. Prior to
1992, Mr. Lippe was employed by Solbourne Computer as Vice President, Corporate
Development, General Counsel and Secretary, and also served as Chairman of the
Colorado Air Quality Control Commission. Mr. Lippe holds a B.A. from Yale
College and a J.D. from Harvard Law School.
Robert Russo joined Synopsys in April 1993 and since June 1997 has served
as Senior Vice President, Sales and Services for the Americas and (since October
1997) Europe. From April 1993 until June 1997 Mr. Russo served as Vice
President, North America Sales. Prior to joining Synopsys Mr. Russo held senior-
73
<PAGE> 85
level management positions in sales and marketing with Cray Research, Stardent
Computers and Votan. Mr. Russo holds degrees in mechanical and aeronautical
engineering from New York Institute of Technology.
Faysal Sohail serves as Senior Vice President and General Manager, Design
Architects Group. From June 1996 to January 1997 he served as Vice President and
General Manager of the Design Reuse Group. Mr. Sohail is one of the founders of
Silicon Architects, acquired by Synopsys in 1995. Prior to the acquisition, he
was Director of Marketing for Silicon Architects. Prior to founding Silicon
Architects, Mr. Sohail held various managerial positions in development and
marketing at Actel from 1986 to 1990 and LSI Logic from 1985 to 1986. Mr. Sohail
holds a B.S. in computer engineering from the University of Illinois.
David Sugishita joined Synopsys in June 1997 and currently serves as Senior
Vice President, Finance and Operations and Chief Financial Officer. From 1995 to
1997 he served as Senior Vice President of Finance and Administration and Chief
Financial Officer for Actel, and from 1994 to 1995 Mr. Sugishita was Senior Vice
President of Finance and Administration, Chief Financial Officer and Treasurer
for Micro Component Technology. From 1991 to 1994, he was Vice President and
Corporate Controller and Chief Accounting Officer for Applied Materials. From
1982 to 1991 he served as Vice President of Finance, Semiconductor Group for
National Semiconductor. He holds a B.S. in finance from San Jose State
University and a M.B.A. from Santa Clara University. Mr. Sugishita currently
serves as a Director for Micro Component Technology.
Dr. Sang Wang joined Synopsys in connection with Synopsys' merger with EPIC
in February 1997. Since the merger, he has served as a Director and Senior Vice
President and Co-General Manager, EPIC Technology Group. Dr. Wang, a co-founder
of EPIC, served as Chief Executive Officer of EPIC from 1991 to February 1997,
as President from 1986 to 1991 and as Chairman of the Board from 1986 to 1997
when the merger took place. He concurrently served as Chief Financial Officer
from 1986 to 1993. Prior to founding EPIC, Dr. Wang was a manager of
computer-aided design at Advanced Micro Devices. Dr. Wang holds a B.S.E.E. from
National Taiwan University, an M.S. in physics from Ohio State University, and a
Ph.D. in electrical engineering from Stanford University.
Deborah A. Coleman has been a Director of Synopsys since November 1995. Ms.
Coleman has been Chairman and Chief Executive Officer of Merix Corporation, a
manufacturer of printed circuit boards, since May 1994, when it was spun off
from Tektronix, Inc., and has been President since March 1997. Ms. Coleman
joined Merix from Tektronix, a diversified electronics corporation, where she
served as Vice President of Materials Operations, responsible for worldwide
procurement, distribution, component engineering and component manufacturing
operation. Prior to joining Tektronix in November 1992, Ms. Coleman was with
Apple Computer, Inc. for eleven years, where she held several executive
positions, including Chief Financial Officer, Chief Information Officer and Vice
President of Operations. She is a Director of Applied Materials, a manufacturer
of fabrication equipment.
Dr. A. Richard Newton has been a Director of Synopsys since January 1995.
Previously, Dr. Newton was a Director of Synopsys from January 1987 to June
1991. Dr. Newton has been a Professor of Electrical Engineering and Computer
Sciences at the University of California at Berkeley since 1979. Since 1988, Dr.
Newton has acted as a Venture Partner with Mayfield Fund, a venture capital
organization. From November 1994 to July 1995, he was acting President and Chief
Executive Officer of Silicon Light Machines, a private company which is
developing display systems based on the application of micromachined silicon
light-valves.
Steven C. Walske has been a Director of Synopsys since December 1991. Mr.
Walske has been Chairman and Chief Executive Officer and a Director of
Parametric Technology Corporation, a supplier of software products for
mechanical computer-aided engineering, since August 1994. From December 1986 to
July 1994, Mr. Walske was President and Chief Executive Officer of Parametric.
Mr. Walske is a Director of Videoserver, Inc., a supplier of network conference
servers, and Object Design Inc., which makes object data management software.
There are no family relationships among any executive officers or directors
of Synopsys.
74
<PAGE> 86
EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation
The following table sets forth the compensation earned by Synopsys' Chief
Executive Officer and each of the other four most highly compensated executive
officers who will serve as executive officers of Synopsys after the Merger and
whose compensation for fiscal year 1997 exceeded $100,000 (the "Named Executive
Officers"), for services rendered in all capacities to Synopsys during the last
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES ALL OTHER
FISCAL --------------------- OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS# ($)(2)
- --------------------------- ------ --------- ------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Aart J. de Geus............ 1997 299,231 150,363 -- 200,000 1,870
President and Chief 1996 260,000 240,000 -- 120,000 2,517
Executive Officer 1995 230,000 190,277 -- -- 1,488
Chi-Foon Chan.............. 1997 281,914 144,441 -- 165,000(3) 2,494
Executive Vice President 1996 224,138 153,930 -- 35,000 3,122
and Chief Operating 1995 200,000 146,199 -- 24,000 2,082
Officer
Robert Russo............... 1997 191,327 78,475 72,872 82,000 3,144
Senior Vice President, 1996 145,000 98,695 234,659 -- 2,902
Sales and Services 1995 130,000 15,156 93,448 -- 2,198
for the Americas and
Europe
Harvey C. Jones, Jr........ 1997 241,379 182,113 -- 16,000 2,061
Chairman of the Board 1996 241,379 -- -- 50,000 2,061
1995 230,000 50,277 -- -- 1,686
Paul Lippe................. 1997 194,750 118,717 -- 65,000 1,870
Senior Vice President, 1996 165,000 81,789 -- 17,000 2,505
Business and Market 1995 152,000 78,771 -- 16,000 1,460
Development, and
Secretary
</TABLE>
- ---------------
(1) "Other Annual Compensation" includes the following: (i) commissions of
$65,949, $227,182 and $86,248 earned by Mr. Russo for fiscal years 1997,
1996 and 1995, respectively and (ii) car allowances of $6,923, $7,477 and
$7,200 provided to Mr. Russo for fiscal years 1997, 1996 and 1995,
respectively.
(2) Amounts in this column reflect premiums paid for group term life insurance
and Synopsys 401(k) contributions.
(3) Includes 35,000 shares originally granted in fiscal year 1996, which were
canceled and regranted in fiscal year 1997 in connection with an option
repricing.
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<PAGE> 87
Option Grants
The following table sets forth further information regarding individual
grants of options for Synopsys' Common Stock during fiscal 1997 for each of the
Named Executive Officers. All grants for each of the Named Executive Officers
were made pursuant to Synopsys' 1992 Stock Option Plan (the "1992 Plan"). In
accordance with the rules of the Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
end of their respective ten-year terms based on assumed annualized rates of
compound stock price appreciation of 0%, 5%, and 10% from the dates the options
were granted to the end of the respective option terms. Actual gains, if any, on
option exercises are dependent on the future performance of Synopsys Common
Stock and overall market conditions. There can be no assurance that the
potential realizable values shown in this table will be achieved. No stock
appreciation rights were granted to such officers during fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM($)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL 1997(%)(2) ($/SHARE) DATE 0% 5% 10%
- ----------------------------- ----------- ----------------- ----------- ---------- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Aart J. de Geus.............. 150,000 2.34 35.5000 09/04/07 0 3,348,864 8,486,679
50,000 0.78 44.6250 10/03/06 0 1,403,221 3,556,038
Chi-Foon Chan................ 60,000 0.94 35.5000 09/04/07 0 1,339,546 3,394,671
8,500(3) 0.13 28.1875 04/28/07 0 150,679 381,851
40,000(3) 0.63 28.1875 04/28/07 0 709,079 1,796,945
26,500(3) 0.41 28.1875 04/28/07 0 469,765 1,190,476
7,308 0.11 35.6250 07/02/07 0 163,731 414,927
22,692 0.35 35.6250 07/02/07 0 508,400 1,288,385
Robert Russo................. 40,000 0.63 35.5000 09/04/07 0 893,030 2,263,114
10,000(3) 0.16 28.1875 04/28/07 0 177,270 449,236
2,000(3) 0.03 28.1875 04/28/07 0 35,454 89,847
3,977 0.06 35.6250 07/02/07 0 89,102 225,802
26,023 0.41 35.6250 07/02/07 0 583,029 1,477,510
Harvey C. Jones, Jr.......... 16,000 0.25 44.6250 10/30/06 0 449,031 1,137,932
Paul Lippe................... 30,000 0.47 35.5000 09/04/07 0 669,773 1,697,336
8,500(3) 0.13 28.1875 04/28/07 0 150,679 381,851
11,500(3) 0.18 28.1875 04/28/07 0 203,860 516,622
6,943 0.11 35.6250 07/02/07 0 155,554 394,203
8,057 0.13 35.6250 07/02/07 0 180,512 457,453
</TABLE>
- ---------------
(1) These options become exercisable ratably in a series of monthly installments
over a four-year period from the grant date, assuming continued service to
Synopsys, subject to acceleration under certain circumstances involving
change in control of Synopsys. Each option has a maximum term of 10 years,
subject to earlier termination upon the optionee's cessation of service.
(2) Based on options to acquire 6,399,482 shares of Synopsys Common Stock
granted in fiscal 1996, including certain options which were subsequently
cancelled and regranted for an equivalent number of shares in connection
with an option repricing.
(3) Represents option cancelled and regranted for an equivalent number of shares
in connection with an option repricing.
In April 1997, the Synopsys Board adopted a resolution offering employees
the opportunity to exchange their existing stock options for new incentive stock
options. The exchange allowed employees other than the Chairman of the Board and
the Chief Executive Officer to receive options for the same number of shares at
$28.19 per share, the current market price at the exchange date. The new options
generally vest over 48 months; new options issued in the exchange to executive
officers were subject to a one-year vesting "cliff" (i.e., no options vest for
the first twelve months following the date of grant). Option holders elected to
exchange 2,456,568 shares under this program.
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<PAGE> 88
Option Exercises and Year-End Values
The following table sets forth, for each of the Named Executive Officers,
each exercise of stock options during fiscal 1997 and the year-end value of
unexercised options.
No stock appreciation rights were exercised during such fiscal year by the
Named Executive Officers, and except for limited stock appreciation rights
granted to certain executive officers prior to fiscal year 1997 which form part
of the outstanding stock options held by those officers, no stock appreciation
rights were outstanding at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
SHARES OPTIONS AT FY-END: OPTIONS AT FY-END:($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Aart J. de Geus............... -- -- 128,916 277,084 1,753,078 1,696,484
Chi-Foon Chan................. 55,000 1,790,095 79,166 173,334 1,924,731 1,618,813
Robert Russo.................. 28,200 676,283 9,817 94,448 108,879 686,282
Harvey C. Jones, Jr........... -- -- 79,149 62,251 1,564,029 662,946
Paul Lippe.................... 6,000 128,394 21,986 81,564 352,980 695,476
</TABLE>
- ---------------
(1) Market value at exercise less exercise price.
(2) Market value of underlying securities at September 27, 1997 ($41.00) minus
the exercise price.
Directors' Compensation
During fiscal 1997, each non-employee Synopsys Board member was paid $3,000
plus certain expenses for each Synopsys Board meeting attended. No compensation
was paid for attending meetings of Synopsys Board Committees. Effective for
fiscal 1998, each Board member will be paid $8,000 and $1,000 for each Board or
Board Committee meeting attended, plus certain expenses.
In addition, non-employee Synopsys Board members receive automatic option
grants under the 1994 Non-Employee Directors Stock Option Plan (the "Directors
Plan"). As of the date of this Joint Proxy Statement/Prospectus three
non-employee Synopsys Board members were eligible to participate in the
Directors Plan. Under the Directors Plan each eligible non-employee Synopsys
Board member is automatically granted, at the time of his or her initial
election or appointment to the Synopsys Board, a non-statutory option to
purchase 20,000 shares of Synopsys Common Stock (unless such member was
previously an employee of Synopsys). On the date of each annual stockholders
meeting each individual reelected as a non-employee Synopsys Board member at the
annual meeting automatically will be granted a non-statutory option to purchase
8,000 of Common Stock. The annual grant was for 5,000 shares prior to the 1997
Annual Meeting, at which time stockholders approved an increase to 8,000 shares.
Subject to stockholder approval at Synopsys' 1998 Annual Meeting, the annual
automatic grant will be increased to 10,000 shares and will be made to all
members, including members in their first year of service (pro-rated for
individuals who join the Synopsys Board mid-year). In addition, subject to
stockholder approval at the 1998 Annual Meeting, each non-employee director
member of a Synopsys Board committee automatically will be issued an option to
purchase 5,000 shares of Common Stock (pro-rated for individuals who join a
Committee mid-year) for service on certain committees.
A total of 250,000 shares has been reserved for issuance under the
Directors Plan, of which 156,000 shares are reserved for issuance in respect of
options that have yet to be issued. The exercise price per share of Synopsys
Common Stock subject to each automatic option grant is equal to 100% of the fair
market value per share on the automatic grant date. The options have a maximum
term of 10 years, measured from the grant date, subject to earlier termination
upon cessation of service as a director. Subject to stockholder approval at the
1998 Annual Meeting, the annual automatic grant and the grants relating to
service on a Sunopsys Board committee will vest in full on the date immediately
prior to the 1999 Annual Meeting.
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<PAGE> 89
Options granted under the Directors Plan are immediately exercisable for
shares, but any shares purchased are subject to repurchase by Synopsys at the
exercise price until the recipient's right in such shares vests. The initial
automatic grant for 20,000 shares made to each non-employee Synopsys Board
member vests, and Synopsys' repurchase right relating thereto lapses, in a
series of four successive equal installments on the date immediately prior to
each of the first four annual meetings of stockholders following the grant date
of that option, provided the optionee continues in Board service through each
such vesting date. Each annual automatic grant vests in full, and Synopsys'
repurchase right relating thereto lapses, on the date immediately prior to the
fourth annual meeting of stockholders following the grant date of that option,
provided the optionee continues in Synopsys Board service through such vesting
date.
Notwithstanding the preceding paragraph, options granted under the
Directors Plan shall automatically vest upon the occurrence of certain corporate
transactions, including certain mergers or changes in control of Synopsys or the
sale of all or substantially all of Synopsys' assets. In the event of a hostile
tender offer for securities possessing more than 50% of Synopsys' outstanding
voting power, options granted under the Directors Plan and held for more than
six months may be surrendered for a cash distribution equal to the excess of the
tender offer price over the exercise price of the options.
During fiscal year 1997, Mr. Walske, Dr. Newton and Ms. Coleman each
received automatic grants of options to purchase 8,000 shares of Synopsys Common
Stock, at an exercise price of $35.6975.
During fiscal year 1997, Dr. Newton earned $17,000 for consulting services
provided to Synopsys. Under Synopsys' agreement with Dr. Newton, at Synopsys'
request, Dr. Newton provides advice as to industry and competitive developments
and market conditions. In October 1997 Synopsys and Dr. Newton entered into a
revised agreement pursuant to which Dr. Newton will be paid up to $120,000 for
consulting services during fiscal year 1998.
Employment Contracts, Termination of Employment Arrangements and Change of
Control Agreements
Synopsys has entered into Employment Agreements, effective October 1, 1997,
with its President and Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer. Each Employment Agreement provides that if the
executive is terminated involuntarily other than for cause within 24 months of a
change of control, (a) the executive will be paid an amount equal to two times
the sum of the executive's annual base pay plus target cash incentive, plus the
cash value of the executive's health benefits for the next 18 months and (b) all
stock options held by the executive will immediately vest in full. If the
executive is terminated involuntarily other than for cause in any other
situation, the executive will receive a cash payment equal to the sum of the
executive's annual base pay for one year plus target cash incentive for such
year, plus the cash value of the executive's health benefits for twelve months.
The terms "involuntary termination", "cause" and "change of control" are defined
in the Employment Agreement.
Under the 1992 Plan, in the event of certain changes in the ownership or
control of Synopsys involving a "Corporate Transaction," which includes an
acquisition of Synopsys by merger or asset sale, all outstanding options under
the 1992 Plan will automatically become exercisable, unless the option is
assumed by the successor corporation (or parent thereof) or replaced by a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof).
In addition, in the event of a successful hostile tender offer for more
than 50% of Synopsys' outstanding Common Stock or a change in the majority of
the Synopsys Board as a result of one or more contested elections for Board
membership, the Compensation Committee has the authority to provide for the
acceleration of vesting of the shares of Common Stock subject to outstanding
options under the 1992 Plan.
Committee Interlocks and Insider Participation
None of the members of the Compensation Committee was at any time during
fiscal 1997 or at any other time an officer or employee of Synopsys. As
described in "Directors' Compensation," Dr. Newton served as a consultant to
Synopsys during fiscal year 1997.
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<PAGE> 90
No executive officer of Synopsys serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as members of the Synopsys Board or the Compensation
Committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Synopsys' directors, officers
and ten percent stockholders to file reports of ownership and changes in
ownership with the Commission. Directors, officers and greater than ten percent
stockholders are required by Commission regulations to furnish Synopsys with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of the Forms 3, 4 and 5 received
by Synopsys and/or written representations from certain reporting persons that
no Form 5's were required for such persons, Synopsys believes that each of its
directors, officers and greater than ten percent beneficial owners during the
fiscal 1997 have complied with all filing requirements applicable to such
person.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SYNOPSYS
The following table sets forth certain information with respect to the
beneficial ownership of Synopsys Common Stock as of November 4, 1997 by (i) each
person known by Synopsys to own beneficially more than five percent of the
outstanding shares of Synopsys Common Stock of 53,097,413 shares, (ii) each
director of Synopsys, (iii) each of the Named Executive Officers and (iv) all
directors and current executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF SYNOPSYS COMMON
STOCK
BENEFICIALLY OWNED
------------------------------
PERCENTAGE
DIRECTORS, EXECUTIVE OFFICERS AND FIVE PERCENT STOCKHOLDERS NUMBER OWNERSHIP
- --------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Fidelity Management and Research Corp.......................... 5,409,600(1) 10.19%
Boston, Massachusetts 02109
Massachusetts Financial Services Company....................... 5,282,350(2) 9.95%
Boston, Massachusetts 02116-3741
T. Rowe Price Associates, Inc.................................. 5,185,013(2) 9.77%
Baltimore, Maryland 21202-1008
Putnam Investment Management................................... 4,145,934(2) 7.81%
Boston, Massachusetts 02109-2137
J. & W. Seligman & Co., Inc.................................... 3,060,484(2) 5.76%
New York, New York 10017-5598
Aart J. de Geus................................................ 485,918(3) *
Robert Russo................................................... 20,965(4) *
Chi-Foon Chan.................................................. 95,159(5) *
Harvey C. Jones, Jr............................................ 144,483(6) *
Paul Lippe..................................................... 36,789(7) *
A. Richard Newton.............................................. 33,078(8) *
Deborah A. Coleman............................................. 33,000(9) *
Steven C. Walske............................................... 27,783(10) *
William Lattin................................................. 192,056(11) *
Sang Wang...................................................... 374,448(12) *
All directors and executive officers as a group (16 persons)... 1,656,332(13) 3.12%
</TABLE>
- ---------------
* Less than 1%
(1) Based on information obtained from a Schedule 13G filed with the Commission
on October 9, 1997.
(2) Based on information obtained from publicly available filings with the
Commission as of June 1997.
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<PAGE> 91
(3) Includes options to purchase 159,958 shares of Synopsys Common Stock
exercisable by Dr. de Geus within 60 days of November 4, 1997. Excludes
11,000 shares held by Dr. de Geus' spouse and for which he disclaims
beneficial ownership.
(4) Includes options to purchase 19,666 shares of Synopsys Common Stock
exercisable by Mr. Russo within 60 days of November 4, 1997.
(5) Includes options to purchase 88,999 shares of Synopsys Common Stock
exercisable by Dr. Chan within 60 days of November 4, 1997.
(6) Includes options to purchase 92,149 shares of Synopsys Common Stock
exercisable by Mr. Jones within 60 days of November 4, 1997.
(7) Includes options to purchase 30,789 shares of Synopsys Common Stock
exercisable by Mr. Lippe within 60 days of November 4, 1997.
(8) Includes options to purchase 33,000 shares of Synopsys Common Stock
exercisable by Dr. Newton within 60 days of November 4, 1997.
(9) Includes options to purchase 33,000 shares of Synopsys Common Stock
exercisable by Ms. Coleman within 60 days of November 4, 1997.
(10) Includes options to purchase 27,583 shares of Synopsys Common Stock
exercisable by Mr. Walske within 60 days of November 4, 1997.
(11) Includes options to purchase 90,470 shares of Synopsys Common Stock
exercisable by Dr. Lattin within 60 days of November 4, 1997.
(12) Includes options to purchase 21,272 shares of Synopsys Common Stock
exercisable by Dr. Wang within 60 days of November 4, 1997.
(13) Includes options to purchase 709,671 shares of Synopsys Common Stock
exercisable by directors and executive officers within 60 days of November
4, 1997. Excludes 11,000 shares held by Dr. de Geus' spouse, and for which
he disclaims beneficial ownership.
80
<PAGE> 92
VIEWLOGIC SYSTEMS, INC.
BUSINESS
Introduction
Viewlogic was founded in 1984 and is a leading supplier of EDA software
which is used to accelerate and automate the design and verification of advanced
ASICs, PCBs and electronic systems. Viewlogic develops and markets a
comprehensive family of software products and consulting services to help its
customers optimize their design processes and deliver high quality products to
market sooner. Viewlogic markets its products to many of the world's largest and
most sophisticated IC and electronic system manufacturers in industries such as
semiconductor, computer, communication, automotive and consumer electronics.
Viewlogic sells its products worldwide through a broad distribution channel
consisting of direct sales, distributors, VARs and telesales.
ORGANIZATION AND PRODUCTS
Viewlogic develops and sells EDA software to companies whose end product
may be a single IC, an ASIC, FPGA, a PCB or an entire electronic system. To best
address the diverse needs of its broad customer base, Viewlogic is organized
into four business groups. The four business groups are: ASIC Group, Systems
Group, Software Group and Advanced Development Group. Each group delivers
products and solutions which address the specific design challenges of its
particular customer segment. Technology is shared wherever possible to fully
leverage Viewlogic's research and development investment.
ASIC Group. The ASIC market has evolved rapidly, driven by advances in
silicon manufacturing technology. The complexity of semiconductor technology has
increased dramatically for the last fifteen years. With each new generation of
technology came a new set of design challenges. While it was possible to
successfully design a high-end ASIC two to three years ago with average design
tools, this is no longer the case. Complex ASIC design now requires an
integrated suite of advanced tools and design methodologies which consider both
the logical and physical aspects of the design.
Viewlogic's ASIC Group develops state-of-the-art software and methodologies
required to design today's most complex ASIC's. Viewlogic today offers some of
the leading products used in the complex ASIC design flow process. These
products include the Chronologic VCS simulator, Quad Motive static timing
analyzer and Sunrise TestGen design-for-test tool. In 1996, Viewlogic initiated
the ASIC 2000 Project which will combine Viewlogic's best-in-class tools with
strategic third-party tools and support from leading ASIC vendors. The project
is designed to address the new challenges of deep submicron silicon technology,
which require designers to consider the co-dependencies of the logical and
physical implementation of the design process. Most of the ASIC Group's products
operate on the Windows NT and UNIX operating systems.
Systems Group. The Systems Group develops products and services which
enable the design of FPGA's, PCBs and complete electronic systems. This group
also develops much of Viewlogic's integration technology, such as data storage
mechanisms, design management and interoperability technology, which is required
to produce complete solutions. The Systems Group develops and supports complete
solutions for the Windows NT and UNIX operating systems.
The FPGA market has historically been very strong for Viewlogic. In the
early 1990's, Viewlogic established strategic relationships with many of the
leading FPGA vendors under which the vendors licensed and shipped Viewlogic
design software as part of an original equipment manufacturer ("OEM")
relationship to offer a complete solution. The vendors added their placement and
routing software which allowed users to create an optimal physical
implementation. These relationships created a customer base to which Viewlogic
may sell other, complementary software.
The FPGA market is currently going though significant change. Driven by the
same silicon manufacturing advances seen in the ASIC market, the density of
FPGA's has grown significantly over the past few years. Devices with 100,000
gates of available logic are now being shipped requiring changes in design
methodology similar to those seen in ASIC more than five years ago.
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The PCB market is undergoing significant change as well. The speed of PCBs
is increasing rapidly and the number of components on the board is decreasing
due to the use of more ASICs and FPGAs. The PCB design problem has changed from
one of verifying the logic design to making sure that the interconnect between
components meets rigid timing and physical constraints. To address these
problems, Viewlogic introduced ISIS in 1996. ISIS is a suite of tools, including
Viewlogic's Quad XTK and Prevue high speed board analysis technology, for
electronic design engineers involved in high speed PCB and systems design. ISIS
provides the tools needed to concurrently design both high speed logic and PCB
interconnect.
The traditional offerings of the Systems Group have been solutions
optimized for the CAE portion of the board design process. These solutions
include design entry and analysis, simulation, library and data management and
interfaces to physical design implementation. These phases are where at least
50% of the board design process takes place. Viewlogic offers two product lines
targeted at this segment: Powerview and Workview Office. The Powerview product
family consists of a broad range of tools integrated into a comprehensive CAE
solution and is based on an open, standards-based environment. Powerview
operates on the UNIX operating system and most major industry hardware
platforms. Workview offers a similar set of capabilities integrated in the
Windows environment.
Software Group. Viewlogic's Software Group was founded in October 1996 and
strengthened in February 1997 with the acquisition of Eagle. Eagle was the first
company to deliver hardware ("HW")/ software ("SW") co-verification solutions
and continues to be a leader in this technology. HW/SW co-verification is the
process of simulating the HW and SW components of the electronic system
together, before developing a prototype. The group's charter is to provide
tools, services and integration to shorten the development time of embedded
systems through HW/SW co-development. The term "embedded systems" describes
electronic designs, either boards or ICs, which include a microprocessor or
microcontroller. With the growing software component in embedded systems and the
growing size of software programs, HW/SW integration is becoming a larger part
of the overall design cycle. An estimated 50% of the overall embedded systems
design time is spent in HW/SW design and debug, and prototype debug. Hardware
and software development are becoming more interdependent making it necessary to
consider their interaction earlier in the design cycle. This problem is expected
to worsen with the migration toward 32 bit and 64 bit embedded processors.
Another emerging trend in embedded systems is the use of embedded
processors in system ASICs. System Level Integration ("SLI") ASICs, as market
research firm Dataquest refers to them, are defined as ASICs that include
100,000 gates of logic, memory and at least one processor. When a processor is
embedded within an ASIC, designers must perform HW/SW co-development. The high
dollar cost of multiple SLI iterations, in addition to the time to market
penalty, will make hardware/software co-verification of system level ASIC's
essential. Viewlogic believes addressing this market is a significant strategic
opportunity. Major products developed by the Software Group include Eaglei which
is used for full system integration testing and EagleV which is used for
verification of embedded processors within an ASIC.
Advanced Development Group. Viewlogic's Advanced Development Group was
formed in October of 1996. It is chartered with investigating which new
technologies will be required in the next two to five years and then performing
the initial technical feasibility study and preliminary research and development
for such technologies. The Advanced Development Group is not charged with
specific product development and delivery, but is responsible for developing
algorithms and new technology. These technologies will then be incorporated into
new products developed and supported by Viewlogic's product groups. The Advanced
Development Group does primary research on-site and also works with leading
research groups and individuals within academia and industry.
PRODUCT LICENSING AND PRICING
Viewlogic generally licenses its products for use on a single computer or
network for a one-time fee. The end-user license fee depends on the exact
configuration and features selected by the customer. Viewlogic offers individual
tools and solution packages specifically tailored for each of several electronic
design categories including ASIC, FPGA, PCB, system and software design. For
UNIX-based systems, each of these
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solutions bundles the design framework with a collection of tools and library
support targeted at solving a particular design problem.
A range of capabilities is offered from basic design entry to advanced
solutions packages for sophisticated design needs. For example, Powerview
pricing ranges from $12,000 to $150,000. Workview Office pricing ranges from
$2,000 to $55,000. Motive and XTK pricing on UNIX Workstations range from
$24,000 to $55,000. TestGen licenses for a single computer range from $95,000 to
$150,000. Prices for the Chronologic VCS(TM) Simulator range from $20,000 to
$40,000.
SALES
Viewlogic has developed multiple distribution channels, including a direct
sales organization, telesales, independent distributors, VARs, and strategic
sales alliances with certain significant semiconductor and PCB layout software
vendors.
Direct Sales Organization. Viewlogic markets its products in North America,
Europe and Japan primarily through a direct sales organization, which consisted
of 223 salespersons and applications engineers as of September 30, 1997.
Viewlogic currently has 30 sales offices located throughout North America,
Europe, Japan, India and the Far East.
Direct sales teams, consisting of one salesperson and one applications
engineer, focus on large accounts in assigned territories. These sales teams are
responsible for all sales activities within their assigned territories and
coordinate the activities of distributors, VARs and Silicon Design Alliance
("SDA") and PCB Design Alliance ("PDA") partners. Applications engineers
specializing in certain products are assigned to each sales territory and
support individual sales teams. Each member of Viewlogic's direct sales and
support teams is assigned sales quotas and has a significant portion of his or
her compensation based on sales performance. Approximately 50% and 30% of
expected compensation for salespersons and application engineers, respectively,
are typically based on sales performance.
A telesales channel was established in 1993 to complement the sales
activities of the direct sales organization and the North American based VAR
channel. The telesales channel consists of telesales representatives covering
assigned geographic territories in North America. These representatives are an
inside counterpart to the field, focusing on upgrading and servicing the
installed customer base. They provide sales support for renewal maintenance,
handle all sales operations of Viewlogic's University Program and otherwise
upgrade existing customers by selling additional seats and "after market"
components. Approximately 45% of expected compensation for a telesales
representative is based on sales performance.
Distributors. Viewlogic appoints independent distributors to market its
products to customers not served by Viewlogic's direct sales organization.
Viewlogic uses distributors as its principal distribution channel in much of
Asia, and currently has distributors covering Israel, Taiwan, Korea, Australia,
Singapore, China and India. Distributors are also appointed in the United
States, Japan and Europe to supplement Viewlogic's direct sales efforts by
focusing on customers not served by direct sales teams.
VAR. Viewlogic has established a broad-based VAR distribution network. This
group primarily focuses on selling Viewlogic's Workview Office tools to the
small and medium size accounts of electronic engineers in North America.
Strategic Sales Alliances. Viewlogic has established strategic
relationships with certain significant semiconductor suppliers who resell
Viewlogic products along with their own proprietary design kits as part of
Viewlogic's SDA. These partners include Actel Corporation, Altera Corporation,
Motorola Inc., Xilinx Inc., American Telephone & Telegraph Company, Atmel Corp.,
NEC Corporation, Lattice Semiconductor Corporation and Matsushita Electric
Corporation. Viewlogic believes that the SDA program has promoted the adoption
of Workview Office in the FPGA design area. The SDA program has also facilitated
the creation of a significant installed base of Viewlogic's products by
utilizing the sales organizations of Viewlogic's partners, many of which have
greater sales and marketing resources than Viewlogic. Viewlogic has established
a similar alliance called Viewlogic's PDA, with certain major PCB CAD companies,
including Harris EDA, Inc. and Zuken-Redac Ltd., who resell a range of Viewlogic
products along with their CAD design tools. Additionally,
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Viewlogic is an OEM supplier to PADS Software and Anacad, a subsidiary of Mentor
Graphics. The Anacad partnership also includes Viewlogic supply of VCS Verilog
simulator to Anacad. Certain Viewlogic Quad products are resold on an OEM basis
through Intergraph Corporation, Racal-Redac and Mentor Graphics who sell these
tools in conjunction with their own design automation solutions.
PRODUCT DEVELOPMENT
Viewlogic's product development efforts are focused on enhancing and
broadening its current line of products, including the development of new
products and the release of improved versions of existing products on a regular
basis. Most of Viewlogic's new products to date have represented the evolution
of its core Workview Office and Powerview product lines, plus ongoing
developments leveraging resources and technologies gained in recent acquisitions
and partnerships. Viewlogic also maintains research programs in a number of
advanced technical areas including logic synthesis, simulation technology, VHDL
simulation, timing analysis, signal integrity, test, database development and
frameworks, which may generate future EDA software products and consulting
services. As of September 30, 1997, Viewlogic's product development and customer
support staff consisted of 280 persons. Viewlogic's product development staff
receives support from both Viewlogic's engineering services personnel and its
product and industry marketing organization to enable it to develop products
that satisfy market requirements.
Viewlogic maintains cooperative relationships with most major hardware
vendors on which Viewlogic's products operate, as well as with new hardware
vendors who desire Viewlogic to port its products to their systems. Viewlogic
believes that these relationships allow it to design products that respond to
emerging trends in computing, graphics and networking technologies. In certain
instances, these relationships include joint marketing agreements which
primarily outline a procedure for communication between Viewlogic and the vendor
with respect to technology and possible sales leads.
During 1994, 1995, 1996 and the nine months ended September 30, 1997
Viewlogic's research and development expenses were $20,255,000, $22,644,000,
$27,412,000 and $24,234,000, respectively. Viewlogic believes that it must
continue to commit substantial resources to enhance and extend its product line
to remain competitive. Viewlogic intends to continue to devote substantial
resources to its internally-funded product development and, if appropriate, to
enter into development agreements with third parties.
SERVICE AND SUPPORT
A key part of Viewlogic's strategy to help make its customers successful is
to provide a wide range of support services including on-site and hot-line
support for designers, in-house and on-site training on all products and
consulting services for specialized tool development, tool and methodology
training and design work. Viewlogic believes its focus on customer service has
helped it achieve a high degree of customer satisfaction.
Product support is provided pursuant to maintenance agreements which extend
for one year after the expiration of the product warranty, which is generally
thirty days, and are renewable annually thereafter. The annual standard
maintenance fee charged to end-user customers is currently 15% of the
then-current list price for the product. Viewlogic's distributors and strategic
sales partners charge their end-user customers for maintenance and remit a
negotiated portion to Viewlogic. Historically, approximately 90% of Viewlogic's
customers have renewed their maintenance agreements annually. Training and
consulting services are generally not included in Viewlogic's software license
or maintenance fees and are usually provided on a separately negotiated basis.
Product Revisions and Upgrades. Customers with maintenance agreements
receive all product revisions without additional charge. Product upgrades, which
add significant new product functionality, are provided to customers for a fee
equal to the difference between the list price for such upgrade and the license
fee previously paid by the customer for the applicable product. Viewlogic also
provides a credit to customers of its SDA and PDA partners, who desire to
upgrade to full-functionality Workview Office or Powerview systems.
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On-Site and Hot Line Support. Support is available to Viewlogic's software
users on both a pre- and post-sale basis. Application engineers work directly
with Viewlogic's direct sales force to provide on-site support that is often
needed during critical stages of the user's evaluation and design process.
The majority of Viewlogic's customers requiring support contact Viewlogic
through Viewlogic's toll-free hotlines, which put users directly in touch with
engineers who are knowledgeable in the use of the product. Support is available
from 8:30 a.m. to 8:00 p.m., eastern time, Monday through Friday. In addition to
the Viewlogic hotline, questions or suggestions can be submitted by fax, an
electronic bulletin board or the Internet network mail system.
In addition, post-sales product application support is provided to
customers through a series of automated support channels, including:
- quarterly Technical Support Newsletter providing answers to common
questions;
- electronic bulletin board system providing a forum for exchanging data
and ideas; and
- fax-on-demand system enabling customers to retrieve faxes of technical
application notes.
An automatic call distribution system transparently connects North American
support callers with technical support engineers based in Marlboro,
Massachusetts and Fremont, California. Additionally, technical support engineers
based in California, Massachusetts, the United Kingdom and Japan have immediate
access to shared, problem-solving technical information via a sophisticated
on-line software support system.
Customer Training. Viewlogic offers a variety of training programs for
users ranging from introductory, broadbased courses to advanced and specialized
courses. Training is offered at Viewlogic's facilities in Marlboro,
Massachusetts, Fremont, California, London, Marseilles, Munich and Tokyo.
On-site training is also available.
Viewlogic Consulting Services. The Viewlogic Consulting Services Group
("VCSG") is a global consulting organization staffed by experts in electronic
design. VCSG's goal is to meet the diverse and demanding needs of customers
designing today's complex ICs, boards, and systems. VCSG provides a complete
line of consulting services including training, product jumpstart programs,
methodology assessment and re-engineering, custom software development and
partial or full design implementation. Other specialized services include
systems integration, design database translation and custom library development.
CUSTOMERS
Over 51,000 Viewlogic products have been sold to approximately 3,500
customers. End users of Viewlogic's products range from small companies to some
of the world's largest manufacturing organizations. Industries represented
include computers, consumer electronics, semiconductors, telecommunications,
military/defense, aerospace, industrial, medical equipment and universities.
COMPETITION
The EDA software industry is intensely competitive and is characterized by
rapidly advancing technology. Viewlogic's competitors consist of large,
established companies; emerging companies with new and innovative technology;
and customers who develop their own EDA tools. Many of these companies have
stronger brand recognition, greater financial, marketing, manufacturing,
technological and distribution resources, broader product lines and larger
installed customer bases than does Viewlogic. Principal competitive factors
include product performance, quality and reliability, customer service and
support, marketing and distribution capabilities and price.
Viewlogic's ability to compete favorably is dependent, in significant part,
upon its ability to continually enhance its current products and develop and
introduce new products in response to the rapidly changing needs of the
marketplace, control costs, react timely and appropriately to short- and
long-term trends and competitively price its products while preventing erosion
of its margins, and there is no assurance that
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Viewlogic will be able to do so. Many of Viewlogic's competitors can devote
greater managerial and financial resources than Viewlogic can to develop,
promote and distribute products and provide related consulting and training
services. Some of Viewlogic's competitors have established, or may establish,
cooperative arrangements or strategic alliances among themselves or with third
parties, thus enhancing their ability to compete with Viewlogic.
Viewlogic believes that it competes effectively in the EDA market on the
basis of product functionality, price/performance characteristics, product
portability, ease of product use and support services. However, there can be no
assurance that Viewlogic will be able to continue to compete effectively in the
EDA market or that its profitability or financial performance will not be
adversely affected by increased competition.
PROPRIETARY RIGHTS
Viewlogic relies on a combination of contracts, patents, copyright and
trade secret laws to establish and protect proprietary rights in its technology.
Viewlogic licenses and distributes its products under written agreements
providing for non-exclusive licenses. The licensed software may be used solely
for internal operations on designated computers or networks at specified sites.
The source code of Viewlogic's products is protected both as a trade secret and
as an unpublished copyrighted work and is not made available to third parties.
Despite these precautions, it may be possible to unlawfully copy or otherwise
obtain and use Viewlogic's products or technology without authorization.
Viewlogic believes that, due to the rapid pace of innovation within the CAE
software industry, factors such as the technological and creative skills of its
personnel are more important to establishing and maintaining a technology
leadership position than are the various legal protections of its technology.
Viewlogic currently has three patents and eight pending patent
applications.
Viewlogic has registered Viewlogic, Powerview, Workview Office, ViewScript,
ViewPLD, ViewDraw, ViewBase, ViewPlace, ViewFPGA, ViewSynthesis, ViewFlow,
WorkViewPLUS, The Total Workday System, ViewDesign, ViewFault, ViewTest,
ProVHDL, Retargeter, Viewsim, Viewsys, ViewText, ViewArchitect, Simbus,
ViewData, ViewState, ViewTerm, WorkView, Silerity, Eagle Design Automation and
Vantage and other trademarks in the United States and in various foreign
countries. Viewlogic's United States trademark registrations have terms of ten
to twenty years and are renewable indefinitely for additional ten-year terms so
long as Viewlogic continues to use the trademarks subject to such registrations.
Viewlogic also asserts common law trademark protection for certain of its
products.
BACKLOG
Viewlogic generally ships its products within 30 days after acceptance of a
customer purchase order and execution of a license agreement. Accordingly,
Viewlogic does not believe that its backlog at any particular point in time is
indicative of future sales levels.
EMPLOYEES
As of September 30, 1997, Viewlogic had 730 employees, including 282 in
marketing and sales, 209 in product research and development, 132 in customer
support, consulting and training, 35 in manufacturing and sales administration
and 72 in general and administrative activities. None of Viewlogic's employees
is represented by a labor union or is subject to a collective bargaining
agreement. Viewlogic has never experienced a work stoppage and believes that its
employee relations are excellent.
PROPERTIES
Viewlogic occupies 101,634 square feet of space at its headquarters in
Marlboro, Massachusetts under a lease expiring in 2002, subject to Viewlogic's
right to extend for up to six additional years. Viewlogic also leases 57,567
square feet in Fremont, California for its ASIC Group, 10,547 square feet in
Cupertino, California for its Chronologic subsidiary, 16,965 square feet in San
Jose, California for its Western Sales operations, 21,000 square feet in
Camarillo, California for the Advanced Development Group, 13,829 square
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feet of office space in the United Kingdom, 9,800 square feet in India and a
number of small sales and support offices in 27 additional locations in North
America, Europe and Asia.
LEGAL PROCEEDINGS
From time to time, Viewlogic is involved in litigation that arises in the
ordinary course of its business. On or about April 25, 1997, Deutsch Technology
Research ("Deutsch") filed a Demand for Arbitration under the Commercial
Arbitration Rules of the American Arbitration Association pursuant to the terms
of the OEM Agreement dated June 16, 1993 between Deutsch and the Company (the
"OEM Agreement"). Under the terms of the OEM Agreement, the arbitration must be
held in San Jose, California before a single arbitrator. The arbitration was
scheduled to begin on November 3, 1997. The Demand for Arbitration alleges
infringement of copyright, misappropriation of trade secrets and failure to pay
royalties and other sums under the OEM Agreement. Recently, Deutsch's
accountants, hired in connection with this dispute, submitted a report stating
that, based on assumptions provided by Deutsch, royalties in excess of
$53,000,000 are due. Viewlogic denies these allegations, disputes the
assumptions on which the accountants' report is based and intends to defend
these claims vigorously. Viewlogic has also asserted counterclaims in this
arbitration seeking damages in excess of $500,000. The ultimate outcome of this
matter is not determinable, and an adverse outcome could have a material adverse
effect on Viewlogic's financial position and results of operations.
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VIEWLOGIC SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- --------------------
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue........................ $132,919 $120,960 $118,580 $97,926 $70,964 $110,618 $95,726
Income (loss) from operations........ 12,126 6,234(1) (2,879)(2) 18,376(3) 9,774(4) 7,202(5) 6,726
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for income
taxes.............................. 11,276 2,861 (6,317) 13,702 7,633 5,086 5,775
Net income (loss).................... 11,276 2,861(1) (6,317)(2) 13,702(3) 7,833(4) 5,086(5) 5,775
Income (loss) from operations as a
percentage of total revenue........ 9.1% 5.2% (2.4%) 18.8% 13.8% 6.5% 7.0%
PER SHARE DATA:
Primary:
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for income
taxes............................ $ 0.66 $ 0.17 $ (0.36) $ 0.79 $ 0.47 $ 0.29 $ 0.33
Net income (loss).................. $ 0.66 $ 0.17(1) $ (0.36)(2) $ 0.79(3) $ 0.48(4) $ 0.29(5) $ 0.33
Weighted average number of common
and common equivalent shares
outstanding...................... 17,104 17,249 17,391 16,759 16,092 17,805 17,250
Fully Diluted:
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for income
taxes............................ $ 0.66 $ 0.17 $ (0.36) $ 0.78 $ 0.47 $ 0.27 $ 0.33
Net income (loss).................. $ 0.66 $ 0.17(1) $ (0.36)(2) $ 0.78(3) $ 0.48(4) $ 0.27(5) $ 0.33
Weighted average number of common
and common equivalent shares
outstanding...................... 17,113 17,250 17,393 16,930 16,092 18,841 17,259
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------- AS OF SEPTEMBER 30,
1996 1995 1994 1993 1992 1997
-------- ---------- ------- ------- ------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable $ 61,779 $ 57,768 $54,151 $44,899 $37,973 $ 72,060
securities...........................
Working capital........................ 57,241 56,437 52,302 56,227 43,974 62,757
Property and equipment, net............ 13,749 12,039 11,252 9,685 6,728 15,376
Total assets........................... 131,209 118,983 116,157 95,263 72,835 145,497
Stockholders' equity................... 82,474 77,291 72,352 70,042 51,774 92,962
</TABLE>
- ---------------
(1) Includes net effect of $6,023 in non-recurring costs associated with the
merger with Silerity, Inc.
(2) Includes net effect of $17,609 in non-recurring costs associated with the
merger with Chronologic Simulation and purchase of Sunrise Test Systems,
Inc.
(3) Includes net effect of $520 in non-recurring costs associated with the
merger with Quad Design Technology, Inc.
(4) Includes net effect of $1,238 in non-recurring costs associated with the
merger with Vantage Analysis Systems, Inc. and credit associated with the
adoption of SFAS 109, Accounting for Income Taxes.
(5) Includes net effect of $5,500 in non-recurring costs associated with the
merger with Eagle.
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VIEWLOGIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Results of Operations
The Company's revenue and net income increased 17.5% and 33.2% to
$40,437,000 and $4,161,000, respectively, for the quarter ended September 30,
1997 as compared to the quarter ended September 30, 1996. Net income increased
73.2% from the third quarter of 1996 to the same period in 1997 after excluding
$1,173,000 pre-tax gains from the sale of an investment in the third quarter of
1996. Revenue increased 15.6% to $110,618,000 and net income decreased 11.9% to
$5,086,000 for the nine months ended September 30, 1997, both as compared to the
same period of the previous year. Excluding the non-recurring charge for in-
process research and development of $5,500,000 associated with the first quarter
1997 acquisition of Eagle and $2,431,000 pre-tax gains from the sales of an
investment in 1997, net income for the nine months ended September 30, 1997 was
$9,091,000, or $0.51 per share. This represents a 79.9% increase over the
$5,054,000 net income in the first nine months of 1996, excluding $1,173,000
pre-tax gains from the sales of an investment in 1996. Operating income before
the non-recurring item, as a percentage of revenue, was 15.1% and 11.5% for the
quarter and nine month periods ended September 30, 1997, as compared to 9.5% and
7.0% for the same periods in 1996. These increases in operating income as a
percentage of revenue were mainly due to the larger increase in revenues over
operating expenses in the third quarter and first nine months of 1997.
On February 19, 1997, the Company acquired Eagle. The acquisition has been
accounted for as a purchase, and accordingly, the condensed consolidated
financial statements and management's discussion and analysis reflect the
combined operations only after the February 19, 1997 closing date.
The following table sets forth, for the periods indicated, the percentage
of revenue of certain items in Viewlogic's Condensed Consolidated Statements of
Income.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue:............................................ 100.0% 100.0% 100.0% 100.0%
Software.......................................... 59.6 61.1 60.2 61.2
Services and other................................ 40.4 38.9 39.8 38.8
Costs and expenses:
Cost of software.................................. 6.7 8.5 7.6 8.4
Cost of services and other........................ 10.3 9.7 10.5 10.4
Selling and marketing............................. 39.9 41.9 41.5 44.2
Research and development.......................... 20.5 20.6 21.9 21.0
Purchased research and development................ 5.0
General and administrative........................ 7.5 9.8 7.0 9.0
----- ----- ----- -----
Total operating expenses....................... 84.9 90.5 93.5 93.0
----- ----- ----- -----
Income from operations.............................. 15.1 9.5 6.5 7.0
Total other income.................................. 1.6 5.3 4.1 2.8
----- ----- ----- -----
Income before income taxes.......................... 16.7 14.8 10.6 9.8
Provision for income taxes.......................... 6.4 5.7 6.0 3.8
----- ----- ----- -----
Net income.......................................... 10.3% 9.1% 4.6% 6.0%
===== ===== ===== =====
</TABLE>
Revenue
Viewlogic's total revenue increased 17.5% to $40,437,000 in the third
quarter of 1997 from $34,427,000 in the third quarter of 1996 and increased
15.6% to $110,618,000 in the first nine months of 1997 from $95,726,000 in the
first nine months of 1996. The increase in total revenue was primarily due to a
54.2% year-over-year increase in revenues from Viewlogic's ASIC verification
solutions, including the Chronologic VCS simulator, Quad Motive timing analysis
tool and Sunrise TestGen tool suite. The ASIC product line
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accounted for 60.0% of Viewlogic's total third quarter 1997 revenues. The growth
in ASIC product sales was partially offset by a 14.8% decline in Viewlogic's
sales of its Systems product line. The Systems segment of the EDA market is the
slower growing segment of that market.
Software product revenue increased 14.7% and 13.6% to $24,103,000 and
$66,581,000 for the third quarter and first nine months of 1997, respectively,
up from $21,023,000 and $58,589,000 for the same periods in 1996. Viewlogic's
percentage of total revenue attributable to software product licenses was 59.6%
and 60.2%, respectively, for the three months and nine months ended September
30, 1997 compared to 61.1% and 61.2%, respectively, for the same periods in
1996. Services and other revenue increased 21.9% to $16,334,000 and 18.6% to
$44,037,000 for the third quarter and first nine months of 1997, respectively.
These increases were due to the increase in maintenance and customer support
revenue from a growing installed base of products, as well as increased
consulting and customization services and training programs.
International revenue, as a percentage of total revenue, increased to 44.6%
and 37.7% for the third quarter and first nine months of 1997, respectively,
from 37.5% and 34.9%, respectively, for the same periods in 1996. The increase
for the quarter was due primarily to a significant sale to a major customer in
Canada in the third quarter of 1997. The increase for the nine months ended
September 30, 1997 was primarily due to strong sales in Europe, where revenues
increased 35.6% from the first nine months of 1996.
Cost of Revenue
Cost of software revenue decreased 7.8% and increased 3.4% to $2,713,000
and $8,339,000 for the three months and nine months ended September 30, 1997,
respectively, as compared to the same periods of the prior year. The decrease in
the third quarter was due primarily to decreased royalty costs. The increase for
the nine month period was primarily due to increased amortization of capitalized
software and purchased research and development, offset by decreased royalty
costs. Cost of software as a percentage of software revenue decreased from 14.0%
and 13.8% in the third quarter and first nine months of 1996, respectively, to
11.3% and 12.5% for the same periods in 1997.
Cost of services and other revenue increased 24.2% to $4,165,000 and 17.2%
to $11,633,000 in the quarter and nine months ended September 30, 1997,
respectively, as compared to the same periods of the prior year. The increases
in both periods were due to higher personnel-related costs incurred in order to
grow Viewlogic's consulting business, partially offset by the absence in 1997 of
subcontracting costs associated with a major outsourcing contract. Cost of
services and other revenue as a percentage of services and other revenue were
25.5% and 26.4% in the third quarter and first nine months of 1997 as compared
to 25.0% and 26.7% for the same periods in 1996.
Selling and Marketing Expenses
Selling and marketing expenses increased 11.9% and 8.4% to $16,116,000 and
$45,938,000 for the three month and nine month periods ended September 30, 1997,
respectively, up from $14,406,000 and $42,360,000 for the same periods of 1996.
The increases in 1997 were primarily due to an increase in commission expense on
higher revenues and the result of higher personnel-related costs due to an
increase in the number of worldwide sales and marketing personnel from 271 in
September 1996 to 298 in September 1997. Selling and marketing expenses, as a
percentage of revenue, decreased from 41.9% and 44.2% in the third quarter and
first nine months of 1996 to 39.9% and 41.5% for the same periods of 1997. The
reduction of selling and marketing expenses, as a percentage of revenue, results
from increasing productivity of Viewlogic's sales force.
Research and Development Expenses
Research and development costs increased 17.3% to $8,308,000 and 20.7% to
$24,234,000 for the third quarter and nine months ended September 30, 1997,
respectively, as compared to the same periods of the prior year. The increases
in research and development expenses for both periods primarily reflect higher
personnel-related costs associated with the development of new products and
enhancement of existing products, including the establishment of a research and
development facility in India in the fourth quarter of 1996. The increase for
the nine months ended September 30, 1997 was also due to the inclusion of
research and
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development costs associated with the Eagle acquisition which closed during the
first quarter of 1997. Research and development expenses as a percentage of
revenues were 20.5% and 21.9% in the third quarter and first nine months of
1997, respectively, compared to 20.6% and 21.0% for the same period of 1996.
Viewlogic capitalized software development costs of $859,000 and $2,527,000
for the third quarter and first nine months of 1997, respectively, as compared
to $685,000 and $2,075,000 for the corresponding periods of 1996 in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." The
amounts capitalized represent 9.4% of total product development costs for both
the three month and nine month periods ended September 30, 1997, respectively,
as compared to 8.8% and 9.4% for the same periods of 1996. Capitalized software
costs are amortized over the estimated life of the product (in most cases four
years.) The amortization of software development costs included in cost of
software revenue was $702,000 and $2,079,000 for the third quarter and first
nine months of 1997, respectively, compared to $578,000 and $1,558,000 for the
same periods of 1996.
Purchased Research and Development Expenses
Viewlogic recorded a non-recurring expense of $5,500,000 in the first
quarter of 1997 for purchased research and development associated with the Eagle
acquisition.
General and Administrative Expenses
General and administrative expenses decreased 10.0% and 9.4% to $3,037,000
and $7,772,000 for the third quarter and nine months ended September 30, 1997,
respectively, as compared to $3,374,000 and $8,578,000 for the same periods of
the previous year. The decrease in both periods was primarily due to the
elimination of Viewlogic's share of losses of Eagle which were recognized under
the equity method of accounting during 1996. General and administrative expenses
as a percentage of revenue decreased from 9.8% and 9.0% in the third quarter and
first nine months of 1996, respectively, to 7.5% and 7.0% in the same periods of
1997.
Income from Operations
Income from operations increased by 86.5% and 7.1% to $6,098,000 and
$7,202,000 for the three months and nine months ended September 30, 1997,
respectively, as compared to the corresponding periods in 1996. Excluding the
non-recurring costs associated with the Eagle acquisition, income from
operations for the nine months ended September 30, 1997 increased 88.8% to
$12,702,000. Both increases in operating income primarily reflect a larger
increase in revenues offset by a lesser increase in operating expenses from 1996
to 1997. Income from operations as a percentage of revenue increased from 9.5%
and 7.0% in the third quarter and first nine months of 1996, respectively, to
15.1% and 11.5% in the same periods of 1997, excluding the non-recurring costs
associated with the Eagle acquisition.
Total Other Income
Total other income decreased 63.1% to $668,000 and increased 69.5% to
$4,512,000 for the three month and nine month periods ended September 30, 1997,
respectively, from $1,810,000 and $2,662,000 for the same periods of 1996. The
decrease from the third quarter of 1996 to the same period in 1997 is primarily
due to the inclusion of $1,173,000 pre-tax gains from the sale of an investment
in the third quarter of 1996, offset by an increase in interest income in the
third quarter of 1997 due to larger cash balances in 1997 compared to 1996. The
increase from the first nine months of 1996 to the same period in 1997 is
primarily due to a larger gain on the sale of an investment in 1997 than in
1996, the impact of foreign exchange gains and an increase in interest income on
higher cash balances.
Income Taxes
The provision for federal and state income taxes increased 33.2% from
$1,956,000 for the third quarter of 1996 to $2,605,000 for the third quarter of
1997, representing effective tax rates of 38.5% in both of those periods. For
the nine months ended September 30 1997, the provision was $6,628,000, an 83.4%
increase from
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$3,613,000 in the same period of 1996, representing effective tax rates of 38.5%
in both of those periods (excluding the non-recurring costs of $5,500,000 in
1997 related to the purchased research and development associated with the Eagle
acquisition, which is not tax deductible.)
Net Income
Net income in the third quarter of 1997 was $4,161,000, or $0.23 per share,
an increase of 73.2% from the $2,403,000, or $0.14 per share, net income earned
in the third quarter of 1996, excluding $1,173,000 pre-tax gains from the sale
of an investment in the third quarter of 1996. For the nine months ended
September 30, 1997 net income was $5,086,000, or $0.29 per share, a decrease of
11.9% from the $5,775,000, or $0.33 per share, net income earned in the same
period of 1996. Excluding the after-tax effect of non-recurring items
($5,500,000 purchased research and development expense and $2,431,000 pre-tax
gains on the sale of an investment, both in 1997, and $1,173,000 pre-tax gains
on the sale of an investment in 1996), net income increased 79.9% from
$5,054,000, or $0.29 per share, for the nine months ended September 30, 1996 to
$9,091,000, or $0.51 per share, for the same period of 1997.
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Viewlogic's revenue increased 9.9% from $120,960,000 in 1995 to
$132,919,000 in 1996 and net income increased 294.1% from $2,861,000 in 1995 to
$11,276,000 in 1996. Excluding the non-recurring expense of $6,023,000 in 1995
associated with the fourth quarter acquisition of Silerity, Inc. ("Silerity")
and net gain from investments of $3,898,000 in 1996, net income was $8,884,000
in 1995 and $8,877,000 in 1996.
On December 19, 1996, Viewlogic acquired The CAE Company B. V. ("TCC") and
Electronic Design Automation Services Europe B. V. ("EDAS"). The acquisitions
have been accounted for as a purchase, and accordingly, the consolidated
financial statements and management's discussion and analysis reflect the
combined operations only after the December 19, 1996 closing date.
The following table sets forth for the periods indicated the percentage of
revenue represented by certain items in Viewlogic's Consolidated Financial
Statements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Revenue:............................................................ 100.0% 100.0% 100.0%
Software.......................................................... 61.4 63.6 73.6
Services and other................................................ 38.6 36.4 26.4
Costs and expenses:
Costs of software................................................. 8.6 9.0 8.1
Costs of services and other....................................... 9.8 9.2 7.9
Selling and marketing............................................. 43.9 45.4 47.4
Research and development.......................................... 20.6 18.7 17.1
Purchased research and development................................ -- 5.0 13.0
General and administrative........................................ 8.0 7.5 8.9
----- ----- -----
Total operating expenses.................................. 90.9 94.8 102.4
----- ----- -----
Income (loss) from operations....................................... 9.1 5.2 (2.4)
Total other income.................................................. 4.7 1.6 1.3
----- ----- -----
Income (loss) before income taxes................................... 13.8 6.8 (1.1)
Provision for income taxes.......................................... 5.3 4.4 4.2
----- ----- -----
Net income (loss)................................................... 8.5% 2.4% (5.3%)
===== ===== =====
</TABLE>
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Revenue
Viewlogic derives revenue primarily from the licensing of its software
products. In addition, Viewlogic derives revenue from the provision of
maintenance, consulting and training services to customers. Maintenance revenue
constitutes the majority of services and other revenue.
Viewlogic's revenue increased by 2.0% from $118,580,000 in 1994 to
$120,960,000 in 1995 and increased by 9.9% to $132,919,000 in 1996. Software
revenue decreased 11.8% from 1994 to 1995 and increased 6.1% from 1995 to 1996.
The increase in the revenue growth rate from 1995 to 1996 was primarily due to
the strong product sales of Viewlogic's ASIC tool suite and increased sales in
Japan. Product revenue from Viewlogic's ASIC tool suite, which includes
Viewlogic's Chronologic VCS(TM), Quad Design Motive(TM) and Sunrise Testgen(TM)
tools, increased over 50% from 1995 to 1996. These increases were offset by less
than expected sales in the European market. The European market has historically
been more oriented toward system design products and offers less opportunity for
Viewlogic's ASIC tool offerings. Services and other revenue increased 40.6% from
1994 to 1995 and increased 16.4% from 1995 to 1996. These increases were due to
the increase in maintenance and customer support revenue from a growing
installed base of customers, as well as increased consulting and customization
services and increased training programs. The larger growth rate in services and
other revenue in 1995 was largely attributable to a significant increase in
consulting revenue in 1995. For the immediate future, Viewlogic anticipates that
the rate of growth of services and other revenue will be at least equal to the
software revenue growth rate. Viewlogic's percentage of revenue attributable to
software product licenses decreased from 73.6% in 1994 to 63.6% in 1995 and to
61.4% in 1996 due to a larger increase in services and other revenue.
International revenue represented 34.5%, 35.1% and 35.1%, respectively, of
total revenue in 1994, 1995 and 1996. International revenues remained constant
in 1996 due to the positive impact of Viewlogic's direct sales operation in
Japan where revenues increased 46.5% from 1995 to 1996, offset by the decrease
in revenues in Europe. Revenue from Europe, including export sales, was
$22,673,000, $22,080,000 and $20,163,000 or 19.1%, 18.3% and 15.2% of total
Company revenue, respectively, in 1994, 1995 and 1996. No customer accounted for
more than 10% of revenue in 1994, 1995 or 1996.
Cost of Software Revenue
Cost of software revenue consists primarily of expenses associated with
product documentation, packaging, royalty costs, amortization of capitalized
software and purchased technology costs, duplication and order administration
costs. Cost of software revenue increased from $9,681,000 in 1994 to $10,887,000
in 1995 and to $11,472,000 in 1996, representing 11.1%, 14.1% and 14.0% of
software revenue, respectively. Cost of software revenue increased in 1996
primarily due to increased amortization of purchased software costs, increased
amortization of capitalized software and increased costs in Europe and Japan.
These amounts are partially offset by decreased documentation costs. The
increase in cost of software revenue as a percentage of software revenue from
11.1% in 1994 to the 14.0% range in 1995 and 1996 is largely attributable to
higher royalty costs paid as a result of increased third-party content in
Viewlogic's product offerings.
Cost of Services and Other Revenue
Cost of services and other revenue consists primarily of customer support
and training expenses and the expense of consulting services provided to
customers. Cost of services and other revenue increased from $9,348,000 in 1994
to $11,102,000 in 1995 and to $12,996,000 in 1996, representing 29.9%, 25.2% and
25.4% of services and other revenue, respectively. The increases in 1995 and
1996 reflect higher personnel-related costs associated with increased customer
support and training costs and an increase in outside consulting fees required
to support Viewlogic's growing customer base. The decrease in the expense as a
percentage of revenue from 1994 to 1995 and 1996 reflects better utilization of
customer support and consulting services.
Selling and Marketing Expenses
Selling and marketing expenses decreased from $56,226,000 in 1994 to
$55,021,000 in 1995 and increased to $58,294,000 in 1996. The decrease in 1995
was due in part to a cost-effective change in sales
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compensation policies and lower bad debt expense. The increase in 1996 is due
primarily to higher personnel-related costs due to the increase in the number of
sales and marketing personnel from 259 in 1995 to 292 in 1996 and increased
selling and marketing costs in Japan required to support the establishment of a
direct sales operation. As a percentage of revenue, selling and marketing
expenses decreased from 47.4% in 1994 to 45.4% in 1995 and to 43.9% in 1996.
Research and Development Expenses
Research and development expenses increased from $20,255,000 in 1994 to
$22,644,000 in 1995 and to $27,412,000 in 1996. Research and development
expenses as a percentage of revenue increased from 17.1% in 1994 to 18.7% in
1995 and to 20.6% in 1996. Increased research and development expenses in 1995
and 1996 resulted primarily from higher personnel-related costs and outside
consulting costs associated with the development of new products and enhancement
of existing products. Viewlogic anticipates that it will continue to devote
substantial resources to product research and development. The increases in
research and development expenses as a percentage of revenue in 1995 and 1996
reflect Viewlogic's commitment to continue to develop new products and enhance
existing products.
Software development costs are accounted for in accordance with SFAS No.
86, under which Viewlogic is required to capitalize software development costs
once technological feasibility has been established. The amount of software
development costs capitalized for 1994, 1995 and 1996 was $2,164,000, $2,349,000
and $2,759,000 respectively, representing 9.7%, 9.4% and 9.1% of total research
and development costs in those years. Viewlogic amortizes such amounts over four
years. See Note 1 of Notes to Viewlogic's Consolidated Financial Statements. The
amortization of capitalized software included in cost of software revenue was
$900,000, $1,837,000 and $2,137,000 in 1994, 1995 and 1996, respectively.
Purchased Research and Development
Viewlogic recorded non-recurring expenses of $15,377,000 in the third
quarter of 1994 and $6,023,000 in the fourth quarter of 1995 for purchased
research and development expenses associated with the Sunrise Test Systems, Inc.
("Sunrise") and Silerity acquisitions, respectively.
General and Administrative Expenses
General and administrative expenses decreased from $10,572,000 in 1994 to
$9,049,000 in 1995 and increased to $10,619,000 in 1996. As a percentage of
revenue, general and administrative expenses decreased from 8.9% to 7.5% and
increased to 8.0% during such periods. Non-recurring costs of $3,100,000
associated with the merger with Chronologic Simulation ("Chronologic") are
included in the 1994 expenses. Excluding this non-recurring item, general and
administrative expenses as a percentage of revenue were 6.3% in 1994. The
increases in 1995 and 1996 are mainly due to increases in recruitment and
employee relocation costs arising from high turnover in Viewlogic's sales and
product development organizations. The 1995 costs also included legal fees
resulting from increased litigation.
Income (Loss) from Operations
Viewlogic's operating income increased from an operating loss of $2,879,000
in 1994 to operating income of $6,234,000 in 1995 and $12,126,000 in 1996.
Operating income (loss) as a percentage of revenue increased from (2.4%) in 1994
to 5.2% in 1995 and 9.1% in 1996. Excluding the non-recurring costs associated
with the Chronologic merger and the Sunrise and Silerity purchases, Viewlogic
reported income from operations in 1994 and 1995 of $15,598,000 and $12,257,000,
respectively. Income from operations as a percentage of revenue, excluding the
non-recurring costs, decreased from 13.2% in 1994 to 10.1% in 1995 and to 9.1%
in 1996. The decreases in 1995 and 1996 are primarily due to lower than
anticipated sales growth in those years on higher fixed expense bases.
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Interest Income, Net
Net interest income increased from $1,538,000 in 1994 to $1,991,000 in 1995
and decreased to $1,982,000 in 1996. The increase in 1995 is primarily due to
higher interest income earned on increased cash and marketable securities
balances. The slight decrease in 1996 is primarily due to lower interest rates
earned on cash and marketable securities in that year.
Other Income (Expense), Net
Other expense, net in 1994 and 1995 was almost entirely attributable to
foreign exchange transaction losses of $25,000 and $400,000, respectively,
offset by a capital gain of $258,000 on the sale of marketable securities in
1995. Other income in 1996 primarily includes a gain of $6,598,000 on the sale
of an investment offset by $2,174,000 of losses recognized under the equity
method of accounting for Viewlogic's investment in Eagle.
Income Taxes
The provision for federal and state income taxes increased from $4,928,000
in 1994 to $5,328,000 in 1995 and $7,056,000 in 1996. These tax provisions
represent effective tax rates of 35.2%, 37.5% and 38.5% in 1994, 1995 and 1996,
respectively, after excluding the non-recurring costs of $15,377,000 in 1994 and
$6,023,000 in 1995 related to purchased research and development associated with
the Sunrise and Silerity acquisitions, respectively, which are not tax
deductible. The effective tax rate increases in 1995 and 1996 primarily reflect
higher tax rates incurred on increased profitability in Japan in both of those
years and non-deductible expenses incurred under the equity method of accounting
for Viewlogic's investment in Eagle for 1996.
Net Income (Loss)
Net income increased from a net loss of $6,317,000 ($0.36 per share) in
1994 to net income of $2,861,000 ($0.17 per share) in 1995 and $11,276,000
($0.66 per share) in 1996. Excluding the after-tax effect of non-recurring items
($17,609,000 in 1994 and $6,023,000 in 1995), net income was $11,292,000 or
$0.65 per share in 1994 and $8,884,000 or $0.52 per share in 1995. After
excluding the after-tax effect of the net gain on investments, net income was
$8,877,000, or $0.52 per share, in 1996. See Note 1 of Notes to Viewlogic's
Consolidated Financial Statements.
Liquidity and Capital Resources
Viewlogic has funded its operations to date primarily through sales of
equity securities, equipment financing leases and positive cash flow from
operations. As of September 30, 1997, Viewlogic had $78,286,000 of cash and
marketable securities compared to $67,344,000 of cash and marketable securities
as of December 31, 1996. These balances included $6,226,000 and $5,565,000 of
non-current marketable securities in 1997 and 1996, respectively. Working
capital as of September 30, 1997 was $62,757,000. As of September 30, 1997,
Viewlogic had $48,187,000 in current liabilities and $195,000 of commitments
under long-term capital lease obligations.
Based on its operating plan, Viewlogic currently believes that its
available cash and cash generated from operations will be sufficient to fund
Viewlogic's operations for the foreseeable future.
On October 22, 1997, Viewlogic purchased all of the capital stock of
Radiant Design Tools, Inc. ("Radiant"). Pursuant to the terms of the purchase,
Viewlogic paid the sole shareholder of Radiant $1,000,000. Viewlogic is also
required to pay that shareholder an additional $500,000 on or before April 22,
1998, and up to an additional $3,500,000 based on future sales of certain of
Viewlogic's products.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" which will become effective for Viewlogic for annual
and interim reporting periods ending after December 15, 1997. SFAS No. 128
replaces the presentation of primary earnings per share with a basic earnings
per share (which excludes dilution) and a diluted earnings per share. Had SFAS
No. 128 been used for the periods presented, basic and diluted earnings per
share would have been $0.25 and $0.23, respectively,
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for the quarter ended September 30, 1997 and $0.19 and $0.18, respectively, for
the quarter ended September 30, 1996. Basic and diluted earnings per share would
have been $0.31 and $0.29, respectively, for the nine months ended September 30,
1997 and $0.35 and $0.33, respectively, for the nine months ended September 30,
1996.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Viewlogic has not determined the effects, if
any, that SFAS No. 130 will have on its consolidated financial statements.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the way
that public companies report selected information about operating segments. SFAS
No. 131 is effective for financial statements for periods beginning after
December 15, 1997. Viewlogic has not determined the effects, if any, that SFAS
No. 131 will have on the disclosures in its consolidated financial statements.
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VIEWLOGIC MANAGEMENT
The executive officers of Viewlogic and their ages as of October 1, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------------------
<S> <C> <C>
William J. Herman 37 President, Chief Executive Officer and Director
David A. Adey 51 Vice President, Human Resources
Ronald R. Benanto 48 Senior Vice President of Finance, Chief Financial
Officer and Treasurer
David P. Burow 45 Group Vice President, ASIC Group
Gordon B. Hoffman 54 Group Vice President, Software Group and Director
Peter T. Johnson 49 Vice President, General Counsel and Secretary
Richard G. Lucier 38 Group Vice President, Systems Group
Lawrence M. Rubin 43 Group Vice President, Advanced Development Group
Shiv Tasker 38 Senior Vice President, Worldwide Sales and Marketing
</TABLE>
William J. Herman, a founder of Viewlogic, has served as the President and
Chief Executive Officer since January 1997, as President and Chief Operating
Officer of Viewlogic from January 1996 to January 1997 and as Executive Vice
President and Chief Operating Officer of Viewlogic from March 1995 to January
1996. He previously served as Senior Vice President of Engineering of Viewlogic
from May 1991 to November 1992 and as Vice President of Engineering of Viewlogic
from 1988 to 1991. From February 1994 to March 1995, Mr. Herman was President of
Silerity, Inc., a computer-aided engineering software company. Mr. Herman served
as President of Scopus Technology, Inc., a computer software company, from 1992
to February 1994.
David A. Adey joined Viewlogic in April 1996 as Vice President, Human
Resources. Previously, he served for 8 years as Senior Vice President,
Administration at LTX Corporation, an automatic test equipment company, where he
was responsible for worldwide Human Resources, Management Information Systems,
and Facilities. From 1978 through 1988, Mr. Adey was Corporate Vice President,
Human Resources for M/A-Com Inc, a global telecommunications company. He has
also held Human Resources positions in Digital Equipment Corporation and
Bethlehem Steel Corporation.
Ronald R. Benanto joined Viewlogic as Senior Vice President of Finance,
Chief Financial Officer and Treasurer in October 1991. Previously, he served for
three years as Vice President, Finance and Operations and Chief Financial
Officer at Symbolics, Inc., an artificial intelligence company. During 1988, Mr.
Benanto was the President, Chief Executive Officer and Chief Financial Officer
of Infoplus, Inc., an electronic publishing company. From September 1985 through
January 1988 he served as Senior Vice President, Finance and Administration, and
Chief Financial Officer of Data Architects, Inc., a financial services software
company.
David P. Burow has served as Group Vice President of Viewlogic's ASIC Group
since October 1996. He joined Viewlogic in August 1995 as the Group Vice
President of the High Level Design Group from the Silicon Architects Group of
Synopsys. Prior to the acquisition by Synopsys in May 1995, he served in several
key management roles from October 1991 at Silicon Architects, a company that
offered ASIC design technology, including its own EDA tools and libraries.
Preceding Silicon Architects, Mr. Burow held other management positions within
the EDA and semiconductor industries including: President of CrossCheck, a test
company from August 1989 to July 1991; General Manager of the Analog Division at
Dazix; and President of Simucad, Inc., a simulation company.
Gordon B. Hoffman joined Viewlogic in February 1997 as Group Vice President
of the Software Group with the acquisition of Eagle, which he co-founded in 1994
and of which he served as President and CEO. He has also served as a Director of
Viewlogic since 1992. Prior to founding Eagle, he was a Partner in Technologies
and Transitions Corp., a consulting firm, from 1991 to 1994. Previously he was
Director of Systems Engineering Programs for Mentor Graphics, which he joined in
1987 with the acquisition of Caedent Corporation, where he was founder, CEO, and
President from 1985 to 1987. Prior to this position he served in senior
management roles at United Technologies Corporation and Mostek Corporation over
a 13-year period.
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Peter T. Johnson joined Viewlogic in June 1995 as Vice President and
General Counsel. From June 1993 to February 1995 he served as General Counsel
and Secretary at Phoenix Technologies LTD. Mr. Johnson was the General Counsel
and Vice President of Finance and Administration at Bitstream, Inc., a software
company, from 1988 to 1993.
Richard G. Lucier joined Viewlogic in 1986 and has held the position of
Group Vice President of the Systems Group since October 1996. From January 1995
to October 1996 he served as the Group Vice President of the PC Group. From 1986
to 1995 he has held numerous positions within Viewlogic including Vice President
of Product Engineering, Director of Viewlogic's Consulting Services Group,
Product Marketing Manager and Engineering Manager of the Systems and Core
groups.
Lawrence M. Rubin has served as Group Vice President of Viewlogic's
Advanced Development Group since October 1996. Previously he served as Group
Vice President of the Quad Design Group. He joined Viewlogic after its 1993
acquisition of Quad Design Technology, Inc. where he was a founder and its
President since its inception in 1987.
Shiv Tasker joined Viewlogic in May 1996 as Senior Vice President of
Corporate Marketing. He was also appointed Senior Vice President of Consulting
Services in October 1996 and was appointed Senior Vice President of Worldwide
Sales and Marketing in July 1997. Before joining Viewlogic, he held various
management positions at Cadence Design Systems, Inc. from 1991 to 1996,
including Vice President -- Practice Development, Vice President and General
Manager, Systems Group and Vice President, Marketing System Design Division.
Prior to that he held various marketing positions at Valid Logic Systems, Inc.
from 1988 to 1991, before Valid was acquired by Cadence. Previously, he worked
for Intergraph Corporation from 1982 to 1988 in various engineering and
marketing roles.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF
CONTROL AGREEMENTS
Retention Agreements
Viewlogic entered into a retention agreement effective July 1, 1997 with
each of its executive officers. The retention agreement provides that if the
executive is terminated by Viewlogic without cause or the executive terminates
his employment for good reason, both as defined in the retention agreement,
within 24 months after a Change in Control, (a) the executive will receive (i) a
payment equal to two times his annual cash compensation, consisting of his base
salary and on-target bonus, (ii) full acceleration of the vesting of company
contributions under Viewlogic's 401(k) plan, (iii) insurance and other fringe
benefits for two years from the date of termination, and (iv) such other
benefits that are normally provided to employees who are terminated; and (b) the
vesting of stock options issued to the executive after the date of the Retention
Agreement will accelerate such that the executive will receive two additional
years of vesting. No stock options have been granted to Viewlogic's executive
officers after the date of the Retention Agreement. "Change in Control" is
defined in the Retention Agreement, and the Merger constitutes a Change in
Control as so defined. In connection with the Merger, certain executive officers
have agreed to waive their rights under their respective retention agreements.
Stock Option Acceleration
In December 1993, the Compensation Committee of Viewlogic's Board of
Directors adopted a resolution by unanimous vote stating that all existing and
future stock options held by members of Viewlogic's Executive Committee contain
a provision which provides that all such stock options become fully vested in
the event of the acquisition of Viewlogic. The Merger constitutes the
acquisition of Viewlogic as defined by the Compensation Committee for that
purpose and all stock options held by the executive officers of Viewlogic will
become fully vested upon the completion of the Merger.
98
<PAGE> 110
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF VIEWLOGIC
The following table sets forth certain information, as of September 30,
1997, with respect to the beneficial ownership of Viewlogic Common Stock by (i)
each director of Viewlogic, (ii) certain executive officers of Viewlogic, (iii)
any person known to Viewlogic to be the beneficial owner of more than five
percent of the Viewlogic Common Stock, and (iv) all directors and executive
officers of Viewlogic as a group.
The number of shares of Viewlogic Common Stock beneficially owned by each
director or executive officer is determined under rules of the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual has
the right to acquire within 60 days after September 30, 1997 through the
exercise of any stock option or other right. Unless otherwise indicated, each
person has sole investment and voting power (or shares such power with his or
her spouse) with respect to the shares set forth in the following table. The
inclusion herein of any shares deemed beneficially owned does not constitute an
admission of beneficial ownership of those shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF VIEWLOGIC VIEWLOGIC
COMMON STOCK COMMON STOCK
NAME BENEFICIALLY OWNED OUTSTANDING
- ---------------------------------------------------- -------------------- -------------
<S> <C> <C>
Gregory T. George**................................. 35,092(1) *
William J. Herman**................................. 413,894(2) 2.42%
Gordon B. Hoffman**................................. 75,366(3) *
Larry E. Reeder**................................... 41,821(4) *
Gregory A. White**.................................. 0 0.00%
Allyn C. Woodward, Jr.**............................ 37,000(5) *
Lawrence M. Rubin................................... 259,315(6) 1.52%
Richard G. Lucier................................... 200,567(7) 1.17%
David L. Babson & Co., Inc.......................... 1,718,100(8) 10.06%
One Memorial Drive
Cambridge, Massachusetts 02142
State of Wisconsin Investment Board................. 1,608,000(9) 9.42%
P. O. Box 7842
Madison, Wisconsin 53707
Geo Capital Corporation............................. 1,249,000(10) 7.31%
767 Fifth Avenue, 45th Floor
New York, New York 10153
Pioneering Management Corporation................... 1,108,000(11) 6.49%
60 State Street
Boston, Massachusetts 02109
J & W Seligman...................................... 856,300(10) 5.01%
130 Liberty Street
New York, New York 10006
All directors and executive officers as a group (13
persons).......................................... 1,554,275(12) 9.10%
</TABLE>
- ---------------
* Represents holdings of less than one percent.
** Director of Viewlogic.
(1) Includes 35,000 shares of Viewlogic Common Stock subject to outstanding
stock options which Mr. George has the right to acquire upon consummation
of the Merger pursuant to certain acceleration provisions, 35,000 of which
shares Mr. George otherwise has the right to acquire within 60 days after
September 30, 1997. Excludes an aggregate of 569,173 shares of Viewlogic
Common Stock held by the Technology Funding Entities, 2000 Alameda De Las
Puelgas, San Mateo, California 94403. Mr. George, a general partner or
executive officer of each of the Technology Funding Entities, may be deemed
to be a beneficial owner of the shares held by the Technology Funding
Entities.
99
<PAGE> 111
(2) Includes 305,000 shares of Viewlogic Common Stock subject to outstanding
stock options which Mr. Herman has the right to acquire upon consummation
of the Merger pursuant to certain acceleration provisions, 96,250 of which
shares Mr. Herman otherwise has the right to acquire within 60 days after
September 30, 1997. Includes an aggregate of 14,914 shares of Viewlogic
Common Stock held by Mr. Herman's spouse and in trust for his children as
to which Mr. Herman disclaims beneficial ownership.
(3) Includes 75,000 shares of Viewlogic Common Stock subject to outstanding
stock options which Mr. Hoffman has the right to acquire upon consummation
of the Merger pursuant to certain acceleration provisions, 25,000 of which
shares Mr. Hoffman otherwise has the right to acquire within 60 days after
September 30, 1997.
(4) Includes 35,000 shares of Viewlogic Common Stock subject to outstanding
stock options which Mr. Reeder has the right to acquire upon consummation
of the Merger pursuant to certain acceleration provisions, 35,000 of which
shares Mr. Reeder otherwise has the right to acquire within 60 days after
September 30, 1997.
(5) Includes 30,000 shares of Viewlogic Common Stock subject to outstanding
stock options which Mr. Woodward has the right to acquire upon consummation
of the Merger pursuant to certain acceleration provisions, 30,000 of which
shares Mr. Woodward otherwise has the right to acquire within 60 days after
September 30, 1997.
(6) Includes 240,000 shares of Viewlogic Common Stock subject to outstanding
stock options which Mr. Rubin has the right to acquire upon consummation of
the Merger pursuant to certain acceleration provisions, 120,000 of which
shares Mr. Rubin otherwise has the right to acquire within 60 days after
September 30, 1997. Includes 3,000 shares of Viewlogic Common Stock held in
trust for Mr. Rubin's children as to which Mr. Rubin disclaims beneficial
ownership.
(7) Includes 200,000 shares of Viewlogic Common Stock subject to outstanding
stock options which Mr. Lucier has the right to acquire upon consummation
of the Merger pursuant to certain acceleration provisions, 67,375 of which
shares Mr. Lucier otherwise has the right to acquire within 60 days after
September 30, 1997.
(8) Based on information obtained from a Schedule 13G/A filed with the
Commission on February 11, 1997. Includes 947,600 shares of Viewlogic
Common Stock with respect to which voting power is shared.
(9) Based on information obtained from a Schedule 13G/A filed with the
Commission on January 24, 1997.
(10) Based on information which the Company believes to be correct but which is
not reflected in filings with the Commission. The Company does not know
whether or not or the extent to which voting or dispositive power with
respect to such shares is shared.
(11) Based on information obtained from a Schedule 13G filed with the Commission
on January 29, 1997. Includes 1,058,000 shares of Viewlogic Common Stock
with respect to which dispositive power is shared.
(12) Includes an aggregate of 1,397,000 shares of Viewlogic Common Stock subject
to outstanding stock options which such executive officers and directors
have the right to acquire upon consummation of the Merger pursuant to
certain acceleration provisions, 579,875 of which shares such executive
officers and directors otherwise have the right to acquire within 60 days
after September 30, 1997.
100
<PAGE> 112
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the Merger, using the pooling of interests
method of accounting. The unaudited pro forma combined condensed financial
statements reflect certain assumptions deemed probable by management regarding
the Merger (e.g., that share information used in the unaudited pro forma
information approximates actual share information at the effective date.) No
adjustments to the unaudited pro forma combined condensed financial statements
have been made to account for different possible results in connection with the
foregoing, as management believes that the impact on such information of varying
outcomes, individually or in the aggregate, would not be materially different.
The unaudited pro forma combined condensed balance sheet as of September
30, 1997 gives effect to the Merger as if it had occurred on September 30, 1997,
and combines the historical consolidated balance sheet of Synopsys and the
historical consolidated balance sheet of Viewlogic as of September 30, 1997.
The unaudited pro forma combined condensed statements of income combine the
historical consolidated statements of income of Synopsys and Viewlogic as if the
Merger had occurred at the beginning of the earliest period presented. The
unaudited pro forma combined condensed statement of income for the year ended
September 30, 1995 combines the historical consolidated statement of income of
Synopsys for the year ended September 30, 1995 with the historical consolidated
statement of income of Viewlogic for the year ended December 31, 1995. The
unaudited pro forma combined condensed statement of income for the year ended
September 30, 1996 combines the historical consolidated statement of income of
Synopsys for the year ended September 30, 1996 with the historical consolidated
statement of income of Viewlogic for the year ended December 31, 1996. The
unaudited pro forma combined condensed statement of income for the year ended
September 30, 1997 combines the historical consolidated statement of income of
Synopsys for the year ended September 30, 1997 with the historical consolidated
statement of income of Viewlogic for the twelve months ended September 30, 1997.
The historical periods combined for purposes of presenting unaudited pro forma
combined financial information herein may not be the historical periods combined
upon consummation of the Merger.
Synopsys and Viewlogic estimate that they will incur direct transaction
costs of approximately $6.5 million associated with the Merger, which will be
charged to operations upon consummation of the Merger. In addition, it is
expected that following the Merger, the Combined Company will incur an
additional significant charge to operations, which is not currently reasonably
estimable, to reflect costs associated with integrating the two companies. There
can be no assurance that the Combined Company will not incur additional charges
to reflect costs associated with the Merger or that management will be
successful in its efforts to integrate the operations of the two companies.
Unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the Merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined condensed financial statements
are based upon the respective historical consolidated financial statements of
Synopsys and Viewlogic and notes thereto, included elsewhere in this Joint Proxy
Statement/Prospectus. These unaudited pro forma combined condensed financial
statements do not incorporate, nor do they assume, any benefits from cost
savings or synergies of operations of the combined company.
101
<PAGE> 113
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
SYNOPSYS VIEWLOGIC ADJUSTMENTS COMBINED
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 78,278 $ 48,136 $ 126,414
Short-term investments................. 284,492 23,924 308,416
-------- -------- -------- --------
Cash and short-term investments..... 362,770 72,060 434,830
Accounts receivable, net............... 87,949 31,081 119,030
Prepaid expenses, deferred taxes and
other............................... 35,372 7,803 43,175
-------- -------- -------- --------
Total current assets........... 486,091 110,944 597,035
Property and equipment, net.............. 76,703 15,376 92,079
Capitalized software development costs,
net.................................... 1,125 6,172 7,297
Long-term investments.................... 54,830 6,226 61,056
Other assets............................. 10,938 6,779 17,717
-------- -------- -------- --------
Total assets................... $629,687 $145,497 $ -- $ 775,184
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 16,150 $ 4,539 $ 20,689
Accrued liabilities.................... 78,211 15,231 93,442
Current portion of long-term
obligations......................... 8,908 56 8,964
Accrued transaction costs.............. -- -- 6,5002(a) 6,500
Income taxes payable................... 30,053 3,229 33,282
Deferred revenue....................... 72,391 25,132 97,523
-------- -------- -------- --------
Total current liabilities...... 205,713 48,187 6,500 260,400
Deferred income taxes.................... -- 4,153 4,153
Long-term obligations.................... 8,996 195 9,191
Deferred compensation.................... 3,205 -- 3,205
Stockholders' equity:
Common stock........................... 527 181 (70)2(c) 638
Additional paid-in capital............. 263,933 80,651 (10,498)2(c) 334,086
Retained earnings...................... 131,356 23,500 (6,500)2(a) 148,356
Cumulative translation adjustment...... (704) (848) (1,552)
Net unrealized gain on investments..... 16,661 46 16,707
Treasury stock, at cost................ -- (10,568) 10,568 --
-------- -------- -------- --------
Total stockholders' equity..... 411,773 92,962 (6,500) 498,235
-------- -------- -------- --------
Total liabilities and
stockholders' equity......... $629,687 $145,497 $ -- $ 775,184
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
102
<PAGE> 114
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SYNOPSYS VIEWLOGIC
YEAR ENDED YEAR ENDED PRO FORMA
SEPTEMBER 30, 1995 DECEMBER 31, 1995 COMBINED
------------------ ----------------- -----------
<S> <C> <C> <C>
Revenue:
Product...................................... $201,605 $ 76,941 $ 278,546
Service...................................... 88,898 44,019 132,917
-------- -------- --------
Total revenue........................ 290,503 120,960 411,463
-------- -------- --------
Cost of revenue:
Product...................................... 16,885 10,887 27,772
Service...................................... 16,026 11,102 27,128
-------- -------- --------
Total cost of revenue................ 32,911 21,989 54,900
-------- -------- --------
Gross margin................................... 257,592 98,971 356,563
Operating expenses:
Research and development .................... 64,559 22,644 87,203
Sales and marketing.......................... 110,751 55,021 165,772
General and administrative................... 24,563 9,049 33,612
In-process research and development.......... 12,461 6,023 18,484
-------- -------- --------
Total operating expenses............. 212,334 92,737 305,071
-------- -------- --------
Operating income............................... 45,258 6,234 51,492
Other income, net.............................. 5,730 1,955 7,685
-------- -------- --------
Income before income taxes..................... 50,988 8,189 59,177
Provision for income taxes..................... 19,698 5,328 25,026
-------- -------- --------
Net income..................................... $ 31,290 $ 2,861 $ 34,151
======== ======== ========
Earnings per share............................. $ 0.62 $ 0.17 $ 0.56
======== ======== ========
Shares used in per share computations.......... 50,199 17,249 61,447
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
103
<PAGE> 115
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SYNOPSYS VIEWLOGIC
YEAR ENDED YEAR ENDED PRO FORMA
SEPTEMBER 30, 1996 DECEMBER 31, 1996 COMBINED
------------------ ----------------- ---------
<S> <C> <C> <C>
Revenue:
Product....................................... $267,231 $ 81,661 $ 348,892
Service....................................... 130,188 51,258 181,446
-------- -------- --------
Total revenue.............................. 397,419 132,919 530,338
-------- -------- --------
Cost of revenue:
Product....................................... 18,181 11,472 29,653
Service....................................... 24,064 12,996 37,060
-------- -------- --------
Total cost of revenue...................... 42,245 24,468 66,713
-------- -------- --------
Gross margin.................................... 355,174 108,451 463,625
Operating expenses:
Research and development ..................... 94,814 27,412 122,226
Sales and marketing........................... 147,371 58,294 205,665
General and administrative.................... 31,053 10,619 41,672
In-process research and development........... 58,506 -- 58,506
-------- -------- --------
Total operating expenses................... 331,744 96,325 428,069
-------- -------- --------
Operating income................................ 23,430 12,126 35,556
Other income, net............................... 8,103 6,206 14,309
-------- -------- --------
Income before income taxes...................... 31,533 18,332 49,865
Provision for income taxes...................... 17,511 7,056 24,567
-------- -------- --------
Net income...................................... $ 14,022 $ 11,276 $ 25,298
======== ======== ========
Earnings per share.............................. $ 0.28 $ 0.66 $ 0.41
======== ======== ========
Shares used in per share computations........... 50,917 17,104 62,071
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
104
<PAGE> 116
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SYNOPSYS VIEWLOGIC
YEAR ENDED TWELVE MONTHS ENDED PRO FORMA
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 COMBINED
------------------ ------------------- -----------
<S> <C> <C> <C>
Revenue:
Product................................... $318,603 $ 89,653 $ 408,256
Service................................... 180,542 58,158 238,700
-------- -------- --------
Total revenue.......................... 499,145 147,811 646,956
-------- -------- --------
Cost of revenue:
Product................................... 25,031 11,746 36,777
Service................................... 35,405 14,703 50,108
-------- -------- --------
Total cost of revenue.................. 60,436 26,449 86,885
-------- -------- --------
Gross margin................................ 438,709 121,362 560,071
Operating expenses:
Research and development.................. 115,038 31,575 146,613
Sales and marketing....................... 177,739 61,872 239,611
General and administrative................ 37,471 9,813 47,284
Merger-related costs...................... 11,400 -- 11,400
In-process research and development....... -- 5,500 5,500
-------- -------- --------
Total operating expenses............... 341,648 108,760 450,408
-------- -------- --------
Operating income............................ 97,061 12,602 109,663
Other income, net........................... 16,305 8,056 24,361
-------- -------- --------
Income before income taxes.................. 113,366 20,658 134,024
Provision for income taxes.................. 40,972 10,071 51,043
-------- -------- --------
Net income.................................. $ 72,394 $ 10,587 $ 82,981
======== ======== ========
Earnings per share.......................... $ 1.34 $ 0.60 $ 1.27
======== ======== ========
Shares used in per share computations....... 54,039 17,554 65,486
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
105
<PAGE> 117
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma combined condensed financial statements reflect
the issuance of 11,137,059 shares of Synopsys Common Stock in exchange for the
aggregate of 17,078,760 shares of Viewlogic Common Stock (outstanding at
September 30, 1997) in connection with the Merger, based on the Exchange Ratio
of 0.6521 set forth in the following table.
<TABLE>
<S> <C>
Viewlogic Common Stock outstanding as of September 30, 1997.............. 17,078,760
Exchange Ratio........................................................... 0.6521
----------
Number of shares of Synopsys Common Stock exchanged...................... 11,137,059
Number of shares of Synopsys Common Stock at September 30, 1997.......... 52,705,520
----------
Number of shares of combined company Common Stock outstanding after
completion of the Merger............................................... 63,842,579
==========
</TABLE>
Additionally at the Effective Time, all outstanding options to purchase
Viewlogic Common Stock will be exchanged for options to purchase Synopsys Common
Stock, based on the Exchange Ratio of 0.6521. As of September 30, 1997,
4,434,507 options to purchase Viewlogic Common Stock were outstanding.
The actual number of shares of Synopsys Common Stock and Synopsys Common
Stock options to be exchanged will be determined at the Effective Time based on
the number of shares of Viewlogic Common Stock and Viewlogic Common Stock
options outstanding on that date.
2. PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) Synopsys and Viewlogic estimated they will incur direct transaction
costs of approximately $6.5 million associated with the Merger consisting of
transaction fees for investment bankers, attorneys, accountants, financial
printing and other related charges. These non-recurring transaction costs will
be charged to operations upon consummation of the Merger.
(b) It is expected that following the Merger, the Combined Company will
incur an additional significant charge to operations, which is not currently
reasonably estimable, to reflect costs associated with integrating the two
companies. This charge has not been reflected in the pro forma combined balance
sheet. There can be no assurance that the combined company will not incur
additional charges to reflect costs associated with the Merger or that
management will be successful in its efforts to integrate the operations of the
two companies.
(c) Reflects the reclassification of additional paid-in capital associated
with the Synopsys Common Stock issued in the combination.
3. PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
The direct transaction costs and additional significant charge discussed in
Notes 2(a) and 2(b) are not reflected in the pro forma combined condensed
statements of income because they are non-recurring.
The historical results of operations of Viewlogic for the three months
ended December 31, 1996 have been included in the unaudited pro forma combined
condensed statements of income for both the year ended September 30, 1997 and
the year ended September 30, 1996. Revenues and net income of Viewlogic for
three months ended December 31, 1996 were $37,193 and $5,501, respectively.
106
<PAGE> 118
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. PRO FORMA EARNINGS (LOSS) PER SHARE
The following table reconciles the number of shares used in the pro forma
per share computations to the numbers set forth in Synopsys' and Viewlogic's
historical statements of income (in thousands except the Exchange Ratio and per
share amounts):
<TABLE>
<CAPTION>
1995(A) 1996(B) 1997(C)
------ ------ ------
<S> <C> <C> <C>
Shares used in per share calculation:
Historical Viewlogic............................. 17,249 17,104 17,554
Exchange Ratio................................... 0.6521 0.6521 0.6521
------ ------ ------
11,248 11,154 11,447
Historical Synopsys.............................. 50,199 50,917 54,039
------ ------ ------
Pro forma combined............................... 61,447 62,071 65,486
====== ====== ======
</TABLE>
- ---------------
(A) Year ended September 30, 1995 and December 31, 1995 for Synopsys and
Viewlogic, respectively.
(B) Year ended September 30, 1996 and December 31, 1996 for Synopsys and
Viewlogic, respectively.
(C) Year and twelve months ended September 30, 1997 for Synopsys and Viewlogic,
respectively.
107
<PAGE> 119
COMPARISON OF RIGHTS OF HOLDERS OF SYNOPSYS
COMMON STOCK AND HOLDERS OF VIEWLOGIC COMMON STOCK
The following is a summary of material differences between the rights of
holders of Synopsys Common Stock and the rights of holders of Viewlogic Common
Stock. As each of Synopsys and Viewlogic is organized under the laws of
Delaware, these differences arise primarily from various provisions of the
certificate of incorporation and bylaws of each of Synopsys and Viewlogic and
the Synopsys' Preferred Shares Rights Agreement (the "Synopsys Rights
Agreement").
Size of the Board of Directors. The Restated Bylaws of Synopsys (the
"Synopsys Bylaws") do not set the exact number of directors on the Synopsys
Board, but rather provide that there shall be no fewer than five and no more
than eight directors. Delaware law provides that the number of directors of a
corporation shall be fixed by, or established in the manner provided in, such
corporation's bylaws, unless the corporation's certificate of incorporation
fixes the number of directors, in which case a change in the number of directors
shall be made only by amendment to such certificate. The Restated Certificate of
Incorporation of Synopsys, as amended (the "Synopsys Certificate"), authorizes
the Synopsys Board to make, alter, or repeal any provisions of Synopsys Bylaws,
including the size of the board of directors. The current number of Synopsys
directors is set at five. The Viewlogic Restated Certificate of Incorporation,
as amended (the "Viewlogic Certificate"), and the Amended and Restated By-laws
of Viewlogic (the "Viewlogic By-laws") do not set the number of directors
constituting the Viewlogic Board but provide that the number shall be not less
than three and further provide that such number will be determined by resolution
of a majority of the Viewlogic Board. The current number of Viewlogic directors
is set at six.
Cumulative Voting. Under Delaware law, cumulative voting in the election of
directors is not mandatory, but may be provided for in a corporation's
certificate of incorporation. The Synopsys Certificate and the Viewlogic
Certificate do not provide for cumulative voting and, as a result, the
stockholders of Synopsys and Viewlogic do not have cumulative voting rights. The
absence of cumulative voting limits the ability of minority stockholders to
obtain representation on the Board of Directors.
Classified Board of Directors. Delaware law permits, but does not require,
a classified board of directors, with staggered terms under which one-half or
one-third of the directors are elected for terms of two or three years,
respectively. This method of electing directors makes a change in the
composition of the board of directors, and a potential change in control of a
corporation, a lengthier and more difficult process. The Synopsys Certificate
and Bylaws do not provide for a classified board of directors. The Viewlogic
Certificate and By-laws provide for a classified board of directors divided into
three separate classes. Each member of the Viewlogic Board is elected for a
three year term. The terms are staggered such that approximately one-third of
the directors stand for re-election each year.
Special Meetings of Stockholders; Stockholder Action by Written
Consent. The Synopsys Bylaws provide that a special meeting of the stockholders
may be called by the Synopsys Board, by the Chairman of the Board, by the
President or by one or more of the Synopsys stockholders holding shares in the
aggregate entitled to cast not less than ten percent of the voting power of the
corporation. The Synopsys Certificate eliminates the ability of stockholders to
act by written consent without a meeting as otherwise permissible under Delaware
law. The Viewlogic By-laws provide that a special meeting of stockholders may be
called by the Chairman of the Viewlogic Board, the President of Viewlogic or two
or more directors of Viewlogic. Amendments of the Viewlogic By-laws require the
affirmative vote of the holders of at least 75% of the votes which all
stockholders would be entitled to cast at any annual election of Viewlogic
directors. The Viewlogic By-laws provide that Viewlogic stockholders may not
take any action by written consent in lieu of a meeting.
Removal of Directors. Under Delaware law, a director of a corporation with
a classified board of directors, such as Viewlogic, may be removed with or
without cause, unless the certificate of incorporation provides for removal only
for cause. The Viewlogic Certificate and By-laws provide that any one or more or
all of Viewlogic's directors may be removed, with or without cause, by the
holders of at least 75% of the shares then entitled to vote at an election of
directors. The Synopsys Certificate does not provide for a classified board of
directors. Accordingly, under Delaware law, directors of Synopsys may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
108
<PAGE> 120
Filling Vacancies on the Board of Directors. Under Delaware law, vacancies
and newly created directorships may be filled by a majority of the corporation's
directors then in office, although less than a quorum or by a sole remaining
director. The Synopsys Bylaws provide that vacancies or newly created
directorships will be filled only by vote of at least two-thirds of the
directors then in office, except that if a director is removed for cause by the
stockholders, then the stockholders will be entitled to fill the vacancy. The
Viewlogic By-laws provide that unless and until filled by the stockholders,
vacancies in the Viewlogic Board, however occurring, may be filled by a vote of
a majority of the directors then in office, although less than a quorum.
Stockholder Voting. Delaware law generally requires that a majority of the
stockholders of both acquiring and target corporations approve statutory
mergers. Delaware law does not require a stockholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation, (b) each share of the surviving
corporation outstanding before the merger is an identical outstanding or
treasury share after the merger and (c) the number of shares to be issued by the
surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to the merger.
Rights Agreement. Synopsys stockholders are entitled to certain rights
under the Synopsys Rights Agreement. See "Description of Synopsys Capital
Stock." Viewlogic does not have a stockholder rights plan.
DESCRIPTION OF SYNOPSYS CAPITAL STOCK
The authorized capital stock of Synopsys consists of 100,000,000 shares of
Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock, $0.01
par value.
COMMON STOCK
As of November 4, 1997, there were approximately 53,097,413 shares of
Synopsys Common Stock outstanding held of record by approximately 292
stockholders.
Subject to preferences that may be applicable to any outstanding Preferred
Stock (no shares of which are outstanding as of the date of this Joint Proxy
Statement/Prospectus), holders of Synopsys Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Synopsys has not paid any cash dividends on its
Common Stock and is prohibited by certain of its borrowing arrangements from
paying cash dividends without prior approval from the lender. Each holder of
Synopsys Common Stock is entitled to one vote for each share held of record by
him or her and may not cumulate votes for the election of directors. In the
event of a liquidation, dissolution or winding up of Synopsys, holders of
Synopsys Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. Holders of Synopsys Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities and there
are no redemption provisions with respect to such shares. All of the outstanding
shares of Synopsys Common Stock are fully paid and non-assessable.
The transfer agent for Synopsys Common Stock is Boston EquiServe, L.P.
PREFERRED STOCK
As of November 4, 1997, there were no shares of Synopsys Preferred Stock
outstanding.
Synopsys has designated a total of 100,000 shares of its Preferred Stock as
Series A Participating Preferred (the "Series A Preferred"). The Series A
Preferred has been designated for use in connection with the Synopsys Rights
Agreement dated October 24, 1997, between Synopsys and BankBoston N.A., as
Rights Agent (the "Synopsys Rights Agreement"). Synopsys's Board of Directors
has the authority to issue up to 2,000,000 shares of Preferred Stock (including
the 100,000 shares of Series A Participating Preferred) in one or more series
and to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of Preferred Stock and to fix
the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. Although it
presently has no intention to do so, Synopsys's Board of Directors, without
stockholder approval, can issue
109
<PAGE> 121
Preferred Stock with voting and conversion rights which could adversely affect
the voting power or other rights of the holders of Synopsys Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of Synopsys. Synopsys has no present plans to
issue Preferred Stock.
RIGHTS AGREEMENT
The Synopsys Board of Directors has declared a dividend of one Preferred
Share Purchase Right (a "Right") under the Synopsys Rights Plan for each share
of Synopsys Common Stock outstanding on November 10, 1997. When exercisable,
each Right initially entitles the holder to purchase one one-thousandth of a
share of Series A Preferred at a specified price. The Rights become exercisable
on the earlier of: (i) the tenth day (or such later date as may be determined by
a majority of the Synopsys Directors not affiliated with the acquiring person or
group (the "Continuing Directors")) after a person or group acquires beneficial
ownership of 15% or more of the outstanding Synopsys Common Stock or (ii) the
tenth business day (or such later date as may be determined by a majority of the
Continuing Directors) after a person or group announces a tender or exchange
offer, the consummation of which would result in ownership by a person or group
of 15% or more of the outstanding Synopsys Common Stock. If an acquiror obtains
15% or more of the outstanding Synopsys Common Stock (other than in certain
permitted transactions), the Rights will thereafter have the additional rights,
preferences, privileges and restrictions specified in the Synopsys Rights
Agreement and the Certificate of Designation for the Series A Preferred filed by
Synopsys with the Delaware Secretary of State. The Rights expire on October 24,
2007 or on their earlier exchange, redemption or expiration in connection with
certain permitted transactions.
CERTAIN CHARTER PROVISIONS
The Synopsys Certificate of Incorporation and Bylaws contain certain
provisions that could have the effect of delaying, deferring or preventing a
change in control of Synopsys. See "Comparison of Rights of Holders of Viewlogic
Common Stock and Holders of Synopsys Common Stock."
LEGAL MATTERS
The validity of the shares of Synopsys Common Stock to be issued in
connection with the Merger will be passed upon for Synopsys by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain
legal matters in connection with the Merger will be passed upon for Viewlogic by
Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and Schedule of Synopsys, Inc. as of
September 30, 1996 and 1997, and for each of the years in the three-year period
ended September 30, 1997, have been included in the Registration Statement and
Joint Proxy Statement/Prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Viewlogic as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996
included in this Joint Proxy Statement/Prospectus have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of EPIC Design Technology, Inc. as of
September 30, 1996 and for each of the two years in the period then ended (none
of which are presented herein) have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
110
<PAGE> 122
INDEX TO SYNOPSYS, INC. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................... F-2
Independent Auditors' Report........................................................... F-3
Consolidated Statements of Income for the years ended September 30, 1995, 1996, 1997... F-4
Consolidated Balance Sheets as of September 30, 1996 and 1997.......................... F-5
Consolidated Statements of Stockholders' Equity for the years ended September 30, 1995,
1996 and 1997........................................................................ F-6
Consolidated Statements of Cash Flows for the years ended September 30, 1995, 1996 and
1997................................................................................. F-7
Notes to Consolidated Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
of Synopsys, Inc.:
We have audited the accompanying consolidated balance sheets of Synopsys,
Inc. and subsidiaries as of September 30, 1996 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the consolidated
financial statements of Epic Design Technology, Inc. and subsidiaries, a company
acquired by Synopsys, Inc. in a business combination accounted for as a pooling
of interests as described in Note 3 to the consolidated financial statements,
which statements reflect total assets constituting 12% as of September 30, 1996,
and total revenues constituting 9% and 11% in fiscal 1995 and 1996,
respectively, of the related consolidated totals. Those consolidated statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Epic Design
Technology, Inc. and subsidiaries, is based solely on 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 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 the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Synopsys, Inc. and subsidiaries as
of September 30, 1996 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended September 30,
1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Palo Alto, California
October 17, 1997
F-2
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
EPIC Design Technology, Inc.:
We have audited the consolidated balance sheet of EPIC Design Technology, Inc.
and subsidiaries as of September 30, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period then ended (none of which are presented herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of EPIC Design Technology, Inc. and
subsidiaries at September 30, 1996, and the results of their operations and
their cash flows for each of the two years in the period then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
October 11, 1996
F-3
<PAGE> 125
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product.................................................. $201,605 $267,231 $318,603
Service.................................................. 88,898 130,188 180,542
-------- -------- --------
Total revenue......................................... 290,503 397,419 499,145
-------- -------- --------
Cost of revenue:
Product.................................................. 16,885 18,181 25,031
Service.................................................. 16,026 24,064 35,405
-------- -------- --------
Total cost of revenue................................. 32,911 42,245 60,436
-------- -------- --------
Gross margin............................................... 257,592 355,174 438,709
Operating expenses:
Research and development................................. 64,559 94,814 115,038
Sales and marketing...................................... 110,751 147,371 177,739
General and administrative............................... 24,563 31,053 37,471
Merger-related costs..................................... -- -- 11,400
In-process research and development...................... 12,461 58,506 --
-------- -------- --------
Total operating expenses.............................. 212,334 331,744 341,648
-------- -------- --------
Operating income........................................... 45,258 23,430 97,061
-------- -------- --------
Other income (expense):
Interest and other income................................ 7,104 9,662 18,385
Interest and other expense............................... (1,374) (1,559) (2,080)
-------- -------- --------
Total other income.................................... 5,730 8,103 16,305
-------- -------- --------
Income before income taxes................................. 50,988 31,533 113,366
Income tax provision....................................... 19,698 17,511 40,972
-------- -------- --------
Net income................................................. $ 31,290 $ 14,022 $ 72,394
======== ======== ========
Earnings per share......................................... $ 0.62 $ 0.28 $ 1.34
======== ======== ========
Weighted average common shares and equivalents
where dilutive........................................... 50,199 50,917 54,039
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 126
SYNOPSYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 47,163 $ 78,278
Short-term investments............................................... 228,931 284,492
-------- --------
Cash and short-term investments................................... 276,094 362,770
Accounts receivable, net of allowances of $3,877 and $6,452,
respectively...................................................... 67,385 87,949
Prepaid expenses, deferred taxes and other........................... 22,648 35,372
-------- --------
Total current assets......................................... 366,127 486,091
Property and equipment, net............................................ 56,033 76,703
Capitalized software development costs, net of accumulated amortization
of $2,805 and $3,826, respectively................................... 1,146 1,125
Long-term investments.................................................. 30,495 54,830
Other assets........................................................... 9,957 10,938
-------- --------
Total assets................................................. $463,758 $629,687
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 12,600 $ 16,150
Accrued liabilities.................................................. 70,408 78,211
Current portion of long-term debt.................................... 11,580 8,908
Income taxes payable................................................. 13,629 30,053
Deferred revenue..................................................... 69,770 72,391
-------- --------
Total current liabilities.................................... 177,987 205,713
Long-term debt......................................................... 15,970 8,996
Deferred compensation.................................................. -- 3,205
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized and no
shares outstanding................................................ -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
50,646,000 and 52,706,000 shares outstanding, respectively........ 506 527
Additional paid-in capital........................................... 196,693 263,933
Retained earnings.................................................... 64,833 131,356
Deferred stock compensation.......................................... (110) --
Cumulative translation adjustment.................................... (402) (704)
Net unrealized gain on investment.................................... 8,281 16,661
-------- --------
Total stockholders' equity........................................ 269,801 411,773
-------- --------
Total liabilities and stockholders' equity................... $463,758 $629,687
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 127
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK CUMULATIVE
----------------- ---------------- PAID-IN RETAINED COMPEN- TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SATION ADJUSTMENT
------- ------- ------- ------ ---------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994.............. 2,982 $1,815 40,470 $405 $ 97,302 $ 28,802 $(347) $(612)
Conversion of preferred stock to common
stock by merged Company................... (2,982) (1,815) 2,982 30 1,785 -- -- --
Issuance of Common Stock in public offering
of merged Company, net of issuance
costs..................................... -- -- 2,246 22 17,358 -- -- --
Issuance of common stock in connection with
acquisition............................... -- -- 138 1 3,616 -- -- --
Net exercise of warrants................... -- -- 7 -- 90 -- -- --
Stock issued under stock option and stock
purchase plans............................ -- -- 2,210 22 20,422 -- -- --
Tax benefit associated with exercise of
stock options............................. -- -- -- -- 8,523 -- -- --
Amortization of deferred stock
compensation.............................. -- -- -- -- -- -- 144 --
Translation adjustment..................... -- -- -- -- -- -- -- 364
Unrealized gain on investments, net........ -- -- -- -- -- -- -- --
Net income................................. -- -- -- -- -- 31,290 -- --
------- ------- ------- ---- -------- -------- ----- -----
Balance at September 30, 1995.............. -- -- 48,053 480 149,096 60,092 (203) (248)
Acquisition of treasury stock.............. -- -- (361) -- -- -- -- --
Issuance of common stock in connection with
acquisition............................... -- -- 545 5 14,506 -- -- --
Stock issued under stock option and stock
purchase plans............................ -- -- 2,409 21 24,484 (9,281) -- --
Tax benefits associated with exercise of
stock options............................. -- -- -- -- 8,607 -- -- --
Amortization of deferred stock
compensation.............................. -- -- -- -- -- -- 93 --
Translation adjustment..................... -- -- -- -- -- -- -- (154)
Unrealized gain on investments, net........ -- -- -- -- -- -- -- --
Net income................................. -- -- -- -- -- 14,022 -- --
------- ------- ------- ---- -------- -------- ----- -----
Balance at September 30, 1996.............. -- -- 50,646 506 196,693 64,833 (110) (402)
Acquisition of treasury stock.............. -- -- (205) -- -- -- -- --
Stock issued under stock option and stock
purchase plans............................ -- -- 2,265 21 37,656 (5,871) -- --
Tax benefits associated with exercise of
stock options............................. -- -- -- -- 29,584 -- -- --
Amortization of deferred stock
compensation.............................. -- -- -- -- -- -- 110 --
Translation adjustment..................... -- -- -- -- -- -- -- (302)
Unrealized gain on investments, net........ -- -- -- -- -- -- -- --
Net income................................. -- -- -- -- -- 72,394 -- --
------- ------- ------- ---- -------- -------- ----- -----
Balance at September 30, 1997.............. -- $ -- 52,706 $527 $263,933 $131,356 $ -- $(704)
======= ======= ======= ==== ======== ======== ===== =====
<CAPTION>
UNREALIZED
GAIN ON TREASURY
INVESTMENTS STOCK TOTAL
----------- -------- --------
<S> <C> <C> <C>
Balance at September 30, 1994.............. $ -- $ -- $127,365
Conversion of preferred stock to common
stock by merged Company................... -- -- --
Issuance of Common Stock in public offering
of merged Company, net of issuance
costs..................................... -- -- 17,380
Issuance of common stock in connection with
acquisition............................... -- -- 3,617
Net exercise of warrants................... -- -- 90
Stock issued under stock option and stock
purchase plans............................ -- -- 20,444
Tax benefit associated with exercise of
stock options............................. -- -- 8,523
Amortization of deferred stock
compensation.............................. -- -- 144
Translation adjustment..................... -- -- 364
Unrealized gain on investments, net........ 10 -- 10
Net income................................. -- -- 31,290
------- -------- --------
Balance at September 30, 1995.............. 10 -- 209,227
Acquisition of treasury stock.............. -- (14,817) (14,817)
Issuance of common stock in connection with
acquisition............................... -- -- 14,511
Stock issued under stock option and stock
purchase plans............................ -- 14,817 30,041
Tax benefits associated with exercise of
stock options............................. -- -- 8,607
Amortization of deferred stock
compensation.............................. -- -- 93
Translation adjustment..................... -- -- (154)
Unrealized gain on investments, net........ 8,271 -- 8,271
Net income................................. -- -- 14,022
------- -------- --------
Balance at September 30, 1996.............. 8,281 -- 269,801
Acquisition of treasury stock.............. -- (9,489) (9,489)
Stock issued under stock option and stock
purchase plans............................ -- 9,489 41,295
Tax benefits associated with exercise of
stock options............................. -- -- 29,584
Amortization of deferred stock
compensation.............................. -- -- 110
Translation adjustment..................... -- -- (302)
Unrealized gain on investments, net........ 8,380 -- 8,380
Net income................................. -- -- 72,394
------- -------- --------
Balance at September 30, 1997.............. $16,661 $ -- $411,773
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 128
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 31,290 $ 14,022 $ 72,394
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 16,689 20,925 30,380
Interest accretion on notes payable................... -- 470 526
Provision for doubtful accounts and sales returns..... 913 848 2,574
Tax benefit associated with stock options............. 8,523 8,607 29,584
Deferred revenue...................................... 11,687 13,179 2,621
Deferred taxes........................................ (2,243) (12,696) (20,813)
Noncash merger-related costs.......................... -- -- 3,084
In-process research and development................... 12,461 58,506 --
Gain on sale of long-term investment.................. -- -- (8,000)
Net changes in operating assets and liabilities:
Accounts receivable................................. (10,358) (22,433) (23,138)
Prepaid expenses and other.......................... (169) (3,420) (5,155)
Other assets........................................ 793 (3,043) (1,514)
Accounts payable.................................... 832 3,148 3,550
Accrued liabilities................................. 7,415 20,263 3,860
Income taxes payable................................ 6,449 3,307 16,424
Deferred compensation............................... -- -- 3,205
-------- -------- --------
Net cash provided by operating activities........ 84,282 101,683 109,582
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of long-term investment............ -- -- 15,248
Proceeds from sale of business unit................... -- -- 5,000
Purchases of long-term investments.................... -- (17,500) (9,019)
Purchases and maturities of short-term investments.... (44,935) (93,499) (55,541)
Purchases of property and equipment................... (22,650) (43,117) (54,486)
Purchase of technology................................ -- (11,500) --
Cash acquired in business acquisition................. (6,201) 67 --
Capitalization of software development costs.......... (1,000) (1,000) (1,000)
-------- -------- --------
Net cash used in investing activities............ (74,786) (166,549) (99,798)
-------- -------- --------
Cash flows from financing activities:
Principal payments on debt obligations................ (4) (5,481) (10,173)
Proceeds from sale of common stock, net............... 37,914 30,041 41,295
Purchases of treasury stock........................... -- (14,817) (9,489)
-------- -------- --------
Net cash provided by financing activities........ 37,910 9,743 21,633
-------- -------- --------
Effect of exchange rate changes on cash.................... 364 (154) (302)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 47,770 (55,277) 31,115
Cash and cash equivalents, beginning of year............... 54,670 102,440 47,163
-------- -------- --------
Cash and cash equivalents, end of year..................... $102,440 $ 47,163 $ 78,278
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... -- $ 685 $ 731
Income taxes..................................... $ 5,078 $ 17,206 $ 15,812
Non-cash transactions:
Purchase of technology for notes................. $ -- $ 28,500 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 129
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Synopsys, Inc. (Synopsys or the Company) is a leading
supplier of electronic design automation (EDA) solutions to the global
electronic market. The Company provides comprehensive design technologies to
creators of advanced integrated circuits, electronic systems, and
system-on-a-chip. The Company also provides consulting services and support to
its customers to streamline overall design process and accelerate
time-to-market.
Fiscal Year End. The Company has a fiscal year that ends on the Saturday
nearest September 30. Fiscal 1995, 1996, and 1997 were 52-week years. For
presentation purposes, the consolidated financial statements and notes refer to
the calendar month end.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Foreign Currencies. The functional currency of Synopsys' foreign
subsidiaries is the local currency. Synopsys translates all assets and
liabilities to U.S. dollars at the current exchange rates as of the applicable
balance sheet date. Revenue and expenses are translated at the average exchange
rates prevailing during the period. Gains and losses resulting from the
translation of the foreign subsidiaries' financial statements are reported as a
separate component of stockholders' equity.
The Company has three foreign exchange lines of credit totaling
$102,500,000, which expire in October 1997, June 1998, and July 1998. The
Company enters into forward exchange contracts to hedge foreign currency
denominated intercompany balances. Gains and losses on these contracts are
recognized as incurred and offset the resulting gains and losses on the foreign
currency denominated intercompany balances. At September 30, 1997, the Company
had outstanding forward contracts in yen and European currencies totaling
approximately $18,462,000. The forward exchange contracts are valued at
prevailing market rates. The unrealized gains and losses and the net realized
gains and losses resulting from hedging intercompany balances were not
significant.
Revenue Recognition. Revenue consists of fees for licenses and
subscriptions of the Company's software products, sales of system products,
maintenance and support, customer training, and consulting. Product revenue is
recognized upon shipment or upon fulfillment of non-standard acceptance terms,
if any. If the Company ships products with a temporary access key for software
usage, revenue is deferred until the Company provides a production key and
collectibility is reasonably assured. Revenue from subscriptions is deferred and
recognized ratably over the term that subscription services are provided,
generally twelve months. Maintenance and support revenue is deferred and
recognized ratably over the term of the maintenance agreement, which is
typically twelve months. Revenue from customer training and consulting is
recognized as the service is performed. Cost of product revenue includes cost of
production personnel, product packaging, documentation, amortization of
capitalized software development costs, and costs of the Company's systems
products. Cost of service revenue includes personnel and the related costs
associated with providing such service.
Accounts receivable include amounts due from customers for which revenue
has been recognized. Deferred revenue includes amounts received from customers
for which revenue has not been recognized.
F-8
<PAGE> 130
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment. Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of property and equipment (three to five years) or
the term of the applicable lease. Property and equipment detail is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer and other equipment........................... $ 80,060 $ 96,067
Furniture and fixtures................................. 11,306 14,757
Land................................................... -- 10,450
Leasehold improvements................................. 9,025 19,701
-------- --------
100,391 140,975
Less accumulated depreciation and amortization......... (44,358) (64,272)
-------- --------
$ 56,033 $ 76,703
======== ========
</TABLE>
Software Development Costs. Capitalization of computer software development
costs begins upon the establishment of technological feasibility. Software
development costs capitalized were approximately $1,000,000 in each of fiscal
1995, 1996, and 1997.
Amortization of computer software development costs is computed as the
greater of the ratio of current product revenue to the total of current and
anticipated product revenue or the straight-line method over the software's
estimated economic life of approximately two years. Amortization amounted to
approximately $879,000, $1,125,000, and $1,021,000 in fiscal 1995, 1996, and
1997, respectively.
Stock Split. On August 14, 1995, the Company announced a two-for-one stock
split of its common stock payable in the form of a stock dividend which was
distributed on September 8, 1995, to holders of record on August 25, 1995. All
share, per share, authorized, common stock, and additional paid-in capital
amounts have been restated for all periods presented to reflect the stock split.
Earnings per Share. Earnings per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of common stock
issuable upon exercise of stock options and warrants using the treasury stock
method.
Cash Equivalents and Investments. The Company considers all highly-liquid
investments with a maturity of less than three months at the time of purchase to
be cash equivalents. Short-term investments include tax-exempt municipal
securities which have underlying maturities of less than one year or contain put
options that are either supported by a letter of credit from a top-rated bank or
insurance company or are over collateralized for redemption at par at the reset
date. Therefore, the underlying maturity for certain items may exceed one year.
At September 30, 1997, the underlying maturities of the short-term investments
are as follows: $106,844,000 within one year, $10,026,000 within five to ten
years, and $167,622,000 after ten years.
F-9
<PAGE> 131
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." All cash equivalents, short-term
investments, and noncurrent investments have been classified as
available-for-sale securities and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------------
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Classified as current assets:
Tax-exempt commercial paper................... $ 6,000 $ -- $ -- $ 6,000
Tax-exempt municipal obligations.............. 134,000 -- (20) 133,980
Money market preferred stock.................. 77,005 -- -- 77,005
Municipal auction rate preferred stock........ 17,946 -- -- 17,946
-------- ------- ---- --------
234,951 -- (20) 234,931
Classified as non-current assets:
Equity securities............................. 17,525 12,970 -- 30,495
-------- ------- ---- --------
Total securities...................... $252,476 $ 12,970 $(20) $ 265,426
======== ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Classified as current assets:
Tax-exempt commercial paper................... $ 37,673 $ -- $ -- $ 37,673
Tax-exempt municipal obligations.............. 191,251 -- -- 191,251
Money market preferred stock.................. 49,823 -- -- 49,823
Municipal auction rate preferred stock........ 43,418 -- -- 43,418
-------- ------- ---- --------
322,165 -- -- 322,165
Classified as non-current assets:
Equity securities............................. 28,797 26,033 -- 54,830
-------- ------- ---- --------
Total securities...................... $350,962 $ 26,033 $ -- $ 376,995
======== ======= ==== ========
</TABLE>
At September 30, 1996, $6,000,000 and $228,931,000 are classified as cash
equivalents and short-term investments, respectively. At September 30, 1997,
$37,673,000 and $284,492,000 are classified as cash equivalents and short-term
investments, respectively. The adjustment to unrealized holding gains on
available-for-sale securities included as a separate component of stockholders'
equity totaled $8,380,000, net of tax, in 1997. Gains and losses on sales of
short-term securities have not been material. During fiscal 1997, the Company
realized gains on sales of long-term investments of $8,000,000, which are
included in interest and other income. See Note 2 of Notes to Consolidated
Financial Statements.
Concentration of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
equivalents, investments, and trade receivables. The Company invests its excess
cash in municipal obligations, commercial paper, and in money market preferred
stock of companies with strong credit ratings. This diversification of risk is
consistent with the Company's policy to ensure safety of principal and maintain
liquidity.
The Company sells its products to a large number of customers in
diversified industries primarily in the United States, Europe, and the Pacific
Rim. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Notes receivable of $4,531,000 have been
sold with
F-10
<PAGE> 132
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recourse to a financial institution. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Accrued Liabilities. The Company makes estimates and assumptions that
affect the reported amounts of accrued liabilities. Actual expenses could differ
from these estimates. Accrued liabilities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Payroll and related benefits............................. $36,309 $46,452
Accrued merger costs..................................... 4,433 1,237
Other accrued liabilities................................ 29,666 30,522
------- -------
$70,408 $78,211
======= =======
</TABLE>
Stock-based Compensation. The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees." In
fiscal 1997, the Company adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," which require the disclosure of pro
forma net income and earnings per share as if the Company adopted the fair
value-based method in measuring compensation expense as of the beginning of
fiscal 1996.
Income Taxes. The Company accounts for income taxes using the
asset-and-liability method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets are recognized for deductible temporary differences, net operating loss
carryforwards, and credit carryforwards if it is more likely than not that the
tax benefits will be realized. To the extent a deferred tax asset cannot be
recognized under the preceding criteria, a valuation allowance must be
established.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the recorded amounts of assets and
liabilities, disclosure of those assets and liabilities at the date of the
financial statements and the recorded amounts of expenses during the reporting
period. A change in the facts and circumstances surrounding these estimates
could result in a change to the estimates and impact future operating results.
Fair Value of Financial Instruments. The Financial Accounting Standards
Board's SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The fair value of the Company's cash, accounts receivable, accounts payable,
long-term debt and foreign currency contracts, approximates the carrying amount.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. On
October 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires long-lived assets to be evaluated for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the asset to future undiscounted cash
flows to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair value. Assets to be disposed of
are reported at the lower of the carrying amount or the fair value less costs to
sell. The adoption of SFAS No. 121 did not have a material effect on the
Company's results of operations.
F-11
<PAGE> 133
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
New Accounting Pronouncements. The Financial Accounting Standards Board
recently issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires the
presentation of basic earnings per share (EPS) and for companies with complex
capital structures or potentially dilutive securities, diluted EPS. SFAS No. 128
is effective for annual and interim periods ending after December 15, 1997. The
Company expects that basic EPS will be higher than earnings per share as
presented in the accompanying consolidated financial statements and that diluted
EPS will not differ materially from earnings per share as presented in the
accompanying consolidated financial statements.
The Financial Accounting Standards Board also has issued SFAS No. 129,
"Disclosure of Information about Capital Structure," which will be effective in
fiscal 1998 and SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be effective in fiscal 1999. These new accounting standards are for
disclosure purposes only.
Reclassifications. Certain amounts reported in previous years have been
reclassified to conform to the fiscal 1997 presentation.
NOTE 2. PURCHASE OF TECHNOLOGY AND STRATEGIC INVESTMENTS
In February 1996, the Company and International Business Machines
Corporation (IBM) entered into a six-year Joint Development and License
Agreement Concerning EDA Software and Related Intellectual Property (the "IBM
Agreement"). Pursuant to the IBM Agreement, the Company acquired certain in-
process research and development technology and a non-exclusive license to
sublicense and to use certain existing IBM electronic design automation (EDA)
technology and the underlying intellectual property, and licensed certain of its
EDA-related intellectual property to IBM. In addition, the Company and IBM are
jointly developing new EDA products in the areas of synthesis, design planning,
and static timing sign-off. PrimeTime, timing analysis software that is the
first product under the alliance, was introduced in fiscal 1997. The Company
will have sole ownership of synthesis products and the exclusive right to
market, design planning, and static timing products (subject to certain rights
of IBM upon termination of the IBM Agreement). In accordance with the IBM
Agreement, the Company paid IBM $11,000,000 in cash and issued $30,000,000 in
notes, which bear interest at three percent, and are payable to IBM upon the
earlier of achievement of scheduled milestones or at maturity in 2006. The notes
were recorded at fair value of $28,500,000, using a discount rate commensurate
with the risks involved. The Company will also pay royalties on revenues from
the sale of new products developed pursuant to the IBM Agreement. As a result of
the transaction, the Company incurred an in-process research and development
charge of $39,700,000 in fiscal year 1996. As of September 30, 1997, the notes
had a balance of $16,996,000, of which $8,996,000 is included in long-term debt.
In May 1996, the Company purchased 1,207,000 shares, approximately 9.9
percent of the outstanding shares of Cooper and Chyan Technology, Inc. (CCT),
for $14.50 per share, pursuant to a strategic relationship between the
companies. In April 1997, the Company purchased an additional 86,000 shares for
$15.00 per share. In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the investment has been classified
as available-for-sale. In May 1997, CCT and Cadence Design Systems, Inc.
consummated a merger, whereby each share of CCT was converted to 0.85 shares of
Cadence stock. It is currently the Company's intent to dispose of the investment
over time, however, there can be no assurance that the Company will be
successful in doing so. Accordingly, the investment has been classified as a
long-term asset. During fiscal year 1997, the Company sold 457,000 shares of
CCT/Cadence stock and realized a gain of $8,000,000.
During fiscal year 1997, the Company made investments of $3,200,000,
$4,000,000 and $600,000 in three privately-held companies. All of these
investments are carried at lower of cost or net realizable value and are
included in long-term investments.
F-12
<PAGE> 134
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. MERGERS AND ACQUISITIONS
In June 1995, the Company acquired all the outstanding securities of ARKOS
Design, Inc. (ARKOS) for approximately $9,300,000 in cash and notes. The
acquisition was accounted for by the purchase method of accounting, and the
results of operations of ARKOS are included in the Company's consolidated
results since the date of the acquisition. In June 1997, the Company sold the
ARKOS business to Quickturn Design Systems, Inc. Under the terms of the
agreement, the Company provided Quickturn with the technology required to create
a register-transfer level front-end for its current and future design
verification products and the ARKOS emulation technology in exchange for
$5,000,000 in cash and $9,500,000 in Quickturn warrants and common stock. The
Quickturn warrants and common stock are classified as available-for-sale
securities and are included in long-term investments. There was no gain or loss
recorded as a result of this transaction.
In February 1997, the Company issued approximately 10,346,000 shares of its
common stock in exchange for all the outstanding shares of common stock of EPIC
Design Technology, Inc. (EPIC), a developer of design automation tools for deep
submicron design in the area of integrated circuit power, timing, and
reliability analysis. In addition, options to acquire EPIC's common stock were
exchanged for options to acquire approximately 1,517,000 shares of the Company's
common stock. The merger was accounted for as a pooling of interests, and
accordingly, the Company's consolidated financial statements have been restated
to include the financial position and results of EPIC for all periods presented.
Total revenue and net income for Synopsys and for EPIC prior to consummation of
the merger are as follows:
<TABLE>
<CAPTION>
SYNOPSYS EPIC COMBINED
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended September 30, 1997
Total revenue................................. $469,277 $29,868 $499,145
Net income.................................... 69,490 2,904 72,394
Year ending September 30, 1996
Total revenue................................. 353,500 43,919 397,419
Net income (loss)............................. 23,700 (9,678) 14,022
Year ending September 30, 1995
Total revenue................................. 265,500 25,003 290,503
Net income.................................... 30,300 990 31,290
</TABLE>
In connection with this merger, the Company recorded related costs of
$11,400,000, which included direct transaction fees for investment bankers,
attorneys, accountants, and other related costs of $4,700,000, and costs
associated with integrating the operations of the two companies of $6,700,000.
Included in integration charges were redundant facility costs of approximately
$680,000, computer and other equipment abandonment and removal costs of
approximately $5,220,000, contract termination charges and other related
expenses of $300,000 and other miscellaneous expenses of approximately $500,000.
Of the $11,400,000 of merger-related costs, approximately $8,300,000 related to
cash expenditures while approximately $3,100,000 related to noncash reductions
of recorded assets. As of September 30, 1997, there was a balance of $1,237,000
in accrued liabilities for future cash expenditures. The Company anticipates
that these expenditures will be made in the first quarter of fiscal year 1998.
In September 1996, EPIC acquired CIDA Technology, Inc., ("CIDA") a
development stage company formed to develop and market IC verification and
extraction tools for use by design engineers. EPIC exchanged a total of 729,000
shares of its Common Stock, options to acquire 101,000 shares of its Common
Stock, and cash of $3,400,000 for all the outstanding shares of the common stock
and options to purchase Common Stock of CIDA for a total purchase price of
$17,869,000. The acquisition was accounted for by the purchase method of
accounting. The purchase price, acquisition costs and net liabilities assumed
total an investment of $20,142,000, of which $18,806,000 was allocated to
in-process research and development and
F-13
<PAGE> 135
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
taken as a one-time charge to operating expenses in fiscal 1996. The remaining
$1,336,000 was allocated to various intangibles, including goodwill, and other
assets. Goodwill is amortized on a straight-line basis over a five year period.
NOTE 4. COMMON STOCK
Stock Repurchase Program. In May 1996, the Board of Directors authorized
the repurchase of up to 2,000,000 shares of the Company's outstanding common
stock in the open market over the following 24 months. The repurchased shares
were used for issuance under the Company's employee stock plans and for other
corporate purposes. During fiscal 1996, the Company purchased approximately
361,000 shares at an average price of $41 per share. During fiscal 1997, the
Company purchased approximately 205,000 shares at an average price of $46 per
share. All repurchased shares were reissued prior to the Company's merger with
EPIC in February 1997, at which time the Company announced that it had rescinded
its stock repurchase program in order to comply with pooling-of-interests
accounting guidance provided in SEC Staff Accounting Bulletin No. 96.
Employee Stock Purchase Plan. Under the Company's 1992 Employee Stock
Purchase Plan, 1,750,000 shares have been reserved for issuance as of September
30, 1997. Under the plan, employees are granted the right to purchase shares of
common stock at a price per share that is 85% of the lesser of: (i) the fair
market value of the shares at the beginning of a rolling two-year offering
period, or: (ii) the end of each semi-annual purchase period. During fiscal
1995, 1996, and 1997, shares totaling 306,440, 376,493, and 345,821,
respectively, were issued under the plan at average prices of $15.32, $17.84,
and $30.00 per share, respectively.
Stock Option Plans. Under the Company's 1992 Stock Option Plan (the Plan),
the Board of Directors may grant options or rights to purchase shares of the
Company's stock to eligible individuals at not less than 100% of the fair market
value of those shares on the grant date. The shares and stock options issued to
new employees typically vest 25% after one year with the remaining shares and
options vesting on a pro rata basis over the following 36 months, and shares and
stock options issued to existing employees typically vest on a pro rata basis
over 48 months or 16 quarters. Options expire ten years from the date of grant.
Under the Company's 1994 Non-Employee Directors Stock Option Plan (the
Directors Plan), a total of 250,000 shares have been reserved for issuance.
Pursuant to the Directors Plan, each non-employee member of the Board of
Directors (the Board) is automatically granted an option to purchase 20,000
shares of the Company's stock upon initial appointment or election to the Board,
and 8,000 shares of the Company's stock upon reelection to the Board at not less
than 100% of the fair market value of those shares at the grant date. Stock
options granted upon appointment or election to the Board vest 25% annually.
Stock options granted upon reelection to the Board vest 100% after the fourth
year of continuous service.
In April 1997, the Board of Directors adopted a resolution offering
employees the opportunity to exchange their existing stock options for new
incentive stock options. The exchange allowed employees other than the Chairman
of the Board and Chief Executive Officer to receive options for the same number
of shares at $28.19 per share, the current market price at the exchange date.
The new options generally vest over 48 months. Option holders elected to
exchange 2,456,568 shares under this program.
The Company has assumed certain option plans in connection with the mergers
discussed in Note 3. These options were granted under terms similar to the terms
of the Plan at prices adjusted to reflect the relative exchange ratios of the
mergers. All former plans were terminated as to future grants upon completion of
each of the mergers.
F-14
<PAGE> 136
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the Company's stock option activity for the three years ended
September 30, 1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balances at September 30, 1994..................... 7,208,378 $11.35
Granted.......................................... 3,906,619 $24.06
Exercised........................................ (1,903,301) $ 8.27
Canceled......................................... (569,775) $18.08
----------
Balances at September 30, 1995..................... 8,641,921 $17.26
Granted.......................................... 3,395,045 $34.30
Exercised........................................ (2,032,078) $11.52
Canceled......................................... (1,184,956) $30.09
----------
Balances at September 30, 1996..................... 8,819,932 $23.42
Granted.......................................... 6,438,452 $33.12
Exercised........................................ (1,921,199) $16.11
Canceled......................................... (3,923,811) $35.84
----------
Balances at September 30, 1997..................... 9,413,374 $26.39
==========
</TABLE>
At September 30, 1997, 20,104,515 shares of common stock were authorized
for grant and 307,832 shares were available for future grant. Options on
2,490,028, 3,174,299, and 3,188,330 shares were exercisable at September 30,
1995, 1996, and 1997, respectively, with a weighted average exercise price of
$10.74, $16.69, and $20.70 per share, respectively.
The following table summarizes information about options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ---------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.11-$22.13 2,021,458 6.13 $13.25 1,535,540 $ 12.45
$22.19-$27.50 1,595,148 7.72 $24.79 759,327 $ 24.53
$27.75-$28.19 2,401,203 9.58 $28.18 156,955 $ 28.18
$28.25-$34.00 1,911,803 8.79 $31.84 507,605 $ 30.62
$34.31-$45.75 1,483,762 9.35 $36.08 228,903 $ 36.20
- -------------- ----------- ----- -------- ----------- -----------
$0.11-$45.75 9,413,374 8.33 $26.39 3,188,330 $ 20.70
============ ========= ========= ======= ======== ========
</TABLE>
Pro Forma Information. As discussed in Note 1, the Company continues to
account for its stock-based awards using the intrinsic value method in
accordance with APB Opinion No. 25 and its related interpretations. Accordingly,
no compensation expense has been recognized in the Company's financial
statements because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant. Pro forma
information regarding the net income and earnings per share is required by SFAS
No. 123 as if the Company had accounted for its employee stock plans under the
fair value method beginning October 1, 1995.
Under SFAS No. 123, the weighted average estimated fair value of employee
stock options granted during fiscal 1996 and 1997 was $19.45 and $13.05 per
share, respectively. The weighted average estimated fair value of purchase
rights granted under the Employee Stock Purchase Plan during fiscal 1996 and
1997 was
F-15
<PAGE> 137
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$10.13 and $11.45 per share, respectively. The fair value of each fixed option
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
STOCK OPTION STOCK
PLANS PURCHASE PLAN
------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected life (in years)................................ 5.4 5.4 1.25 1.25
Risk-free interest rate................................. 6.1% 6.3% 5.6% 5.7%
Volatility.............................................. 47.0% 47.0% 47.0% 47.0%
Dividend yield.......................................... 0.0% 0.0% 0.0% 0.0%
</TABLE>
If the computed fair values of the 1996 and 1997 awards had been amortized
to expense over the vesting period of the awards, pro forma net income and
earnings per share would have been as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net income
As reported............................................ $14,022 $72,394
Pro forma.............................................. $ 4,412 $48,351
Earnings per share
As reported............................................ $ 0.28 $ 1.34
Pro forma.............................................. $ 0.09 $ 0.93
</TABLE>
SFAS No. 123 requires the use of option pricing models which were developed
to estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the Company's
stock option awards. These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. In addition, because the method of accounting
prescribed by SFAS No. 123 has not been applied to options granted prior to
fiscal year 1996, the resulting pro forma compensation cost is not likely to be
representative of the effects on pro forma disclosures in future years.
NOTE 5. LEASE COMMITMENTS
The Company leases its facilities and certain office equipment under
operating lease agreements which expire through calendar year 2007. Certain of
these leases provide for graduated rental payments, and the Company is
amortizing the total rent payments over the lease term on a straight-line basis.
At September 30, 1997 future minimum lease payments under operating leases are:
1998 -- $16,699,000; 1999 -- $15,781,000; 2000 -- $15,238,000; 2001 --
$13,923,000; 2002 -- $13,028,000; and $23,029,000 thereafter. Total rent expense
under operating leases was approximately $13,021,000, $15,137,000, and
$18,677,600 in fiscal 1995, 1996, and 1997, respectively.
NOTE 6. INCOME TAXES
The Company is entitled to a deduction for federal and state tax purposes
with respect to employees' stock option activity. The net reduction in taxes
otherwise payable arising from that deduction has been credited to additional
paid-in capital.
At September 30, 1997, the Company had federal research tax credit
carryforwards of approximately $300,000 expiring in fiscal year 2012, and
alternative minimum tax credit carryforwards of approximately $300,000, which do
not expire.
F-16
<PAGE> 138
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A net deferred tax asset of $11,547,000 and $27,697,000 is included in
prepaid expenses, deferred taxes, and other at September 30, 1996 and 1997,
respectively. The tax effects of temporary differences and carryforwards which
give rise to significant portions of the deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers......................... $ 621 $ --
Tax credit carryovers................................. 4,885 672
Deferred revenue...................................... 10,891 9,645
Joint venture and acquisition costs................... 12,985 7,912
Reserves and other expenses not currently
deductible......................................... 10,996 18,601
Depreciation and amortization......................... -- 599
-------- -------
Total gross deferred tax asset........................ 40,378 37,429
Less valuation allowance.............................. (23,741) --
-------- -------
Deferred tax asset.................................... 16,637 37,429
-------- -------
Deferred tax liabilities:
Unrealized foreign exchange gain...................... -- --
Unrealized gain on securities......................... (4,669) (9,372)
Net capitalized software development costs............ (421) (360)
-------- -------
Deferred tax liability................................ (5,090) (9,732)
-------- -------
Net deferred tax asset.................................. $ 11,547 $27,697
======== =======
</TABLE>
The change in the valuation allowance was a net increase of $7,629,000
during fiscal 1996 and a net decrease of $23,741,000 during fiscal 1997. At
September 30, 1997, the Company believes that it is more likely than not that
the results of future operations will generate sufficient taxable income to
realize the deferred tax assets.
Income before income taxes consisted of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States................................ $45,650 $26,844 $105,546
Foreign...................................... 5,338 4,689 7,820
------- ------- --------
$50,988 $31,533 $113,366
======= ======= ========
</TABLE>
F-17
<PAGE> 139
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................... $ 4,983 $11,139 $ 20,363
State...................................... 1,969 2,086 2,909
Foreign.................................... 3,058 3,706 4,266
------- ------- --------
10,010 16,931 27,538
------- ------- --------
Deferred:
Federal.................................... (415) (7,232) (14,106)
State...................................... (103) (1,120) (2,015)
Foreign.................................... (21) 325 (29)
------- ------- --------
(539) (8,027) (16,150)
------- ------- --------
Reduction in goodwill for the foreign tax
benefit from utilization of acquired
company's tax attributes................... 1,704 -- --
Charge equivalent to the federal and state
tax benefit related to employee stock
options.................................... 8,523 8,607 29,584
------- ------- --------
10,227 8,607 29,584
------- ------- --------
Provision for income taxes................... $19,698 $17,511 $ 40,972
======= ======= ========
</TABLE>
The provision for income taxes differs from the amount obtained by applying
the statutory federal income tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal tax......................... $17,846 $11,037 $39,678
State tax, net of federal benefit............. 1,379 1,817 5,668
Tax benefit from foreign sales corporation.... (971) (1,551) (2,404)
Tax exempt income............................. (2,110) (2,947) (3,487)
Research and development tax credits ......... (1,047) (503) (2,788)
Foreign tax in excess of U.S. statutory tax... 370 377 1,501
Non-deductible merger and acquisition expenses
and other................................... 4,231 9,281 8,239
Change in beginning-of-the-year valuation
allowance................................... -- -- (5,435)
------- ------- -------
$19,698 $17,511 $40,972
======= ======= =======
</TABLE>
NOTE 7. WORLDWIDE OPERATIONS
The Company operates in a single industry segment, the development,
marketing, and support of electronic design automation software and system
products. The Company markets its products through several wholly-owned foreign
subsidiaries.
F-18
<PAGE> 140
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's operations by geographic area were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
North America......................... $ 251,902 $ 351,829 $ 469,347
Europe................................ 55,038 69,829 85,072
Pacific Rim........................... 93,766 120,809 139,999
Transfers between geographic areas.... (110,203) (145,048) (195,273)
--------- --------- ---------
Consolidated............................ $ 290,503 $ 397,419 $ 499,145
========= ========= =========
Operating income:
North America......................... $ 26,563 $ 45,561 $ 51,973
Europe................................ 9,213 9,496 15,695
Pacific Rim........................... 21,943 26,879 40,793
Corporate and other................... (12,461) (58,506) (11,400)
--------- --------- ---------
Consolidated............................ $ 45,258 $ 23,430 $ 97,061
========= ========= =========
Identifiable assets:
North America......................... $ 110,448 $ 194,938 $ 221,191
Europe................................ 20,610 24,596 12,296
Pacific Rim........................... 32,037 27,956 45,650
Corporate assets and eliminations..... 170,257 216,268 350,550
--------- --------- ---------
Consolidated............................ $ 333,352 $ 463,758 $ 629,687
========= ========= =========
</TABLE>
Transfers between geographic areas represent both intercompany product and
service revenue accounted for at prices representative of unaffiliated party
transactions, and export shipments directly to customers. In fiscal 1997,
identifiable assets in the Pacific Rim include $24,143,000 of accounts
receivable from customers located in Japan. Management believes allowances are
adequate to cover any uncollectible amounts. Corporate assets consist primarily
of cash and investments. In fiscal 1995, 1996, and 1997, no customer accounted
for more than ten percent of revenue.
NOTE 8. SUBSEQUENT EVENT
On October 14, 1997, the Company announced a definitive agreement to merge
with Viewlogic Systems, Inc., a worldwide supplier of electronic design
automation software. The transaction will result in 0.6521 shares of Synopsys
Common Stock being issued in exchange for each share of Viewlogic Common Stock
outstanding on the effective date of the merger. Additionally, outstanding
options to purchase Viewlogic Common Stock will be exchanged for options to
purchase Synopsys Common Stock based on the same exchange ratio. As of September
30, 1997, Viewlogic had approximately 17,079,000 shares of Common Stock
outstanding. The transaction is subject to stockholder approval. The merger is
intended to be accounted for as a pooling of interests.
F-19
<PAGE> 141
VIEWLOGIC SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-21
Consolidated Balance Sheets at December 31, 1996 and 1995............................. F-22
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994....................................................................... F-23
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996,
1995 and 1994....................................................................... F-24
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994....................................................................... F-25
Notes to Consolidated Financial Statements............................................ F-26
Condensed Consolidated Statements of Income for the Quarters and Nine Months Ended
September 30, 1997 and 1996 (Unaudited)............................................. F-37
Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996
(Unaudited)......................................................................... F-38
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1997 and 1996 (Unaudited)....................................................... F-39
Notes to Condensed Consolidated Financial Statements (Unaudited)...................... F-40
</TABLE>
F-20
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Viewlogic Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Viewlogic
Systems, Inc. and subsidiaries ("Viewlogic") as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Viewlogic at December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 29, 1997
(February 19, 1997 as to the second paragraph of Note 3)
F-21
<PAGE> 143
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)................................... $ 41,297 $ 34,387
Marketable securities (Notes 1, 4)................................... 20,482 23,381
Accounts receivable (less allowance for doubtful accounts of $1,503
in 1996 and $1,215 in 1995)....................................... 32,507 29,054
Prepaid expenses and other........................................... 6,779 5,494
Deferred income taxes (Notes 1, 7)................................... 302 322
-------- --------
Total current assets......................................... 101,367 92,638
-------- --------
Marketable securities -- non-current (Notes 1, 4)...................... 5,565 3,619
Property and equipment (Note 1):
Equipment............................................................ 25,360 26,213
Furniture and fixtures............................................... 3,625 3,329
-------- --------
Total........................................................ 28,985 29,542
Less accumulated depreciation........................................ 15,236 17,503
-------- --------
Property and equipment -- net................................ 13,749 12,039
Other assets (Note 1):
Capitalized software costs -- net.................................... 5,724 5,102
Purchased technology -- net (Note 2)................................. 2,261 3,127
Goodwill -- net (Note 2)............................................. 1,582 1,177
Deposits and other................................................... 961 1,281
-------- --------
Total other assets........................................... 10,528 10,687
-------- --------
Total........................................................ $131,209 $118,983
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations......................... $ 32 $ 77
Accounts payable..................................................... 3,232 2,926
Accrued compensation................................................. 10,684 7,255
Accrued expenses (Note 1)............................................ 8,551 4,279
Notes payable to Silerity shareholders (Notes 1, 2).................. -- 2,805
Deferred revenue (Note 1)............................................ 20,323 17,447
Deferred income taxes (Notes 1, 7)................................... 1,304 1,412
-------- --------
Total current liabilities.................................... 44,126 36,201
-------- --------
Deferred income taxes (Notes 1, 7)..................................... 4,609 5,453
Capital lease obligations.............................................. 38
Commitments and contingencies (Notes 2, 3, 8)
Stockholders' equity (Notes 1, 6):
Preferred stock, $.01 par value: authorized 5,000,000 shares; issued,
none..............................................................
Common stock, $.01 par value: authorized 40,000,000 shares; issued,
17,403,576 and 17,006,396 shares.................................. 174 170
Additional paid-in capital........................................... 73,944 70,093
Retained earnings.................................................... 18,414 7,138
Unrealized holding gains, net of tax (Note 4)........................ 1,470 3,537
Cumulative translation adjustment.................................... (960) (82)
-------- --------
93,042 80,856
Less: Treasury Stock at cost, 1,000,000 and 320,000 shares........... (10,568) (3,565)
-------- --------
Total stockholders' equity................................... 82,474 77,291
-------- --------
Total........................................................ $131,209 $118,983
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-22
<PAGE> 144
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue (Notes 1, 9):
Software................................................. $ 81,661 $ 76,941 $ 87,270
Services and other....................................... 51,258 44,019 31,310
------- -------- --------
Total revenue.................................... 132,919 120,960 118,580
------- -------- --------
Costs and expenses:
Cost of software......................................... 11,472 10,887 9,681
Cost of services and other............................... 12,996 11,102 9,348
Selling and marketing.................................... 58,294 55,021 56,226
Research and development................................. 27,412 22,644 20,255
Purchased research and development (Note 2).............. 6,023 15,377
General and administrative............................... 10,619 9,049 10,572
------- -------- --------
Total operating expenses......................... 120,793 114,726 121,459
------- -------- --------
Income (loss) from operations.............................. 12,126 6,234 (2,879)
------- -------- --------
Other income (expense):
Interest income.......................................... 2,081 2,143 1,642
Interest expense......................................... (99) (152) (104)
Other, net............................................... 4,224 (36) (48)
------- -------- --------
Other income, net................................ 6,206 1,955 1,490
------- -------- --------
Income (loss) before income taxes.......................... 18,332 8,189 (1,389)
Provision for income taxes (Note 7)........................ 7,056 5,328 4,928
------- -------- --------
Net income (loss).......................................... $ 11,276 $ 2,861 $ (6,317)
======= ======== ========
Net income (loss) per common share (Note 1)................ $ 0.66 $ 0.17 $ (0.36)
======= ======== ========
Weighted average number of common and common equivalent
shares outstanding (Note 1).............................. 17,104 17,249 17,391
======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-23
<PAGE> 145
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL HOLDING CUMULATIVE
------------------- PAID-IN RETAINED DEFERRED GAINS/ TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION (LOSSES) ADJUSTMENT
---------- ------ ---------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.................. 15,928,792 $159 $ 59,167 $11,101 $ (375) $ $ (10)
Issuance of common stock................. 471,519 5 4,865
Issuance of common stock in connection
with merger............................ 299,824 3
Issuance of stock by pooled company...... 550
Tax benefit arising from exercise of
stock options.......................... 1,513
Stock options assumed in connection with
Sunrise Test Systems, Inc.
acquisition............................ 1,430
Deferred compensation.................... 108 375
Dividends paid to pooled company's
shareholders........................... (160)
Redesignation of pooled company's
retained earnings as an S-Corporation
prior to merger........................ 347 (347)
Unrealized holding loss, net of tax...... (69)
Translation adjustment................... 7
Net loss................................. (6,317)
---------- ---- ------- ------- ----- ------- -----
BALANCE, DECEMBER 31, 1994................ 16,700,135 167 67,980 4,277 (69) (3)
Issuance of common stock................. 306,261 3 1,753
Repurchase of common stock...............
Tax benefit arising from exercise of
stock options.......................... 346
Stock options assumed in connection with
Silerity, Inc. acquisition............. 14
Unrealized holding gain, net of tax...... 3,606
Translation adjustment................... (79)
Net income............................... 2,861
---------- ---- ------- ------- ----- ------- -----
BALANCE, DECEMBER 31, 1995................ 17,006,396 170 70,093 7,138 3,537 (82)
Issuance of common stock................. 397,180 4 3,411
Repurchase of common stock...............
Tax benefit arising from exercise of
stock options.......................... 440
Unrealized holding loss, net of tax...... (2,067)
Translation adjustment................... (878)
Net income............................... 11,276
---------- ---- ------- ------- ----- ------- -----
BALANCE, DECEMBER 31, 1996................ 17,403,576 $174 $ 73,944 $18,414 $ 0 $ 1,470 $ (960)
========== ==== ======= ======= ===== ======= =====
<CAPTION>
TREASURY STOCK
--------------------
SHARES AMOUNT TOTAL
--------- -------- ------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1994.................. $ $ 70,042
Issuance of common stock................. 4,870
Issuance of common stock in connection
with merger............................ 3
Issuance of stock by pooled company...... 550
Tax benefit arising from exercise of
stock options.......................... 1,513
Stock options assumed in connection with
Sunrise Test Systems, Inc.
acquisition............................ 1,430
Deferred compensation.................... 483
Dividends paid to pooled company's
shareholders........................... (160)
Redesignation of pooled company's
retained earnings as an S-Corporation
prior to merger........................
Unrealized holding loss, net of tax...... (69)
Translation adjustment................... 7
Net loss................................. (6,317)
--------- -------- -------
BALANCE, DECEMBER 31, 1994................ 72,352
Issuance of common stock................. 1,756
Repurchase of common stock............... 320,000 (3,565) (3,565)
Tax benefit arising from exercise of
stock options.......................... 346
Stock options assumed in connection with
Silerity, Inc. acquisition............. 14
Unrealized holding gain, net of tax...... 3,606
Translation adjustment................... (79)
Net income............................... 2,861
--------- -------- -------
BALANCE, DECEMBER 31, 1995................ 320,000 (3,565) 77,291
Issuance of common stock................. 3,415
Repurchase of common stock............... 680,000 (7,003) (7,003)
Tax benefit arising from exercise of
stock options.......................... 440
Unrealized holding loss, net of tax...... (2,067)
Translation adjustment................... (878)
Net income............................... 11,276
--------- -------- -------
BALANCE, DECEMBER 31, 1996................ 1,000,000 $(10,568) $ 82,474
========= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-24
<PAGE> 146
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ 11,276 $ 2,861 $ (6,317)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Purchased research and development....................... 6,023 15,377
Depreciation............................................. 5,209 4,703 3,964
Gain on sale of investment............................... (6,598)
Amortization of capitalized software and purchased
technology............................................ 3,003 2,660 1,342
Amortization of goodwill................................. 233 234 60
Compensatory stock options and amortization of deferred
compensation expense.................................. 1,033
Deferred income taxes.................................... 2 (319) 1,526
Change in assets and liabilities, net of effects from
purchase of Sunrise Test Systems, Inc., Silerity,
Inc., The CAE Company B.V. and Electronic Design
Automation Services Europe B.V.:
Accounts receivable................................... (2,743) 682 93
Prepaid expense and other............................. (1,010) 715 (1,029)
Accounts payable...................................... (417) (411) 714
Accrued compensation.................................. 3,429 (1,611) 1,241
Accrued expenses...................................... 4,695 796 3,506
Deferred revenue...................................... 2,729 929 4,124
Deferred rent......................................... (34)
------- -------- --------
Net cash provided by operating activities.................. 19,808 17,262 25,600
------- -------- --------
Cash flows from investing activities:
Purchase of marketable securities........................ (22,283) (22,353) (16,551)
Proceeds from sale of marketable securities.............. 26,828 21,446 19,178
Expenditures for property and equipment.................. (6,892) (5,390) (4,997)
Capitalized software costs............................... (2,759) (2,349) (2,164)
Purchased technology..................................... 68
Decrease in deposits and other........................... 320 361 716
Purchase of Sunrise Test Systems, Inc., net of cash...... (3,748) (13,114)
Purchase of Silerity, Inc., net of cash.................. (3,251)
Purchase of The CAE Company B.V. and Electronic Design
Automation Services Europe B.V., net of cash.......... (711)
------- -------- --------
Net cash used in investing activities...................... (5,497) (15,284) (16,864)
------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock................... 1,533 1,395 1,263
Proceeds from exercise of stock options.................. 1,882 361 3,610
Repurchase of common stock............................... (7,003) (3,565)
Principal payment of capital lease obligations........... (85) (313) (476)
Dividends paid by pooled company......................... (160)
Repayment of notes to former Silerity, Inc. shareholders
...................................................... (2,805)
------- -------- --------
Net cash provided by (used in) financing activities ....... (6,478) (2,122) 4,237
------- -------- --------
Effect of exchange rate changes on cash.................... (923) (21) 41
------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 6,910 (165) 13,014
Cash and cash equivalents, beginning of the year........... 34,387 34,552 21,538
------- -------- --------
Cash and cash equivalents, end of the year................. $ 41,297 $ 34,387 $ 34,552
======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-25
<PAGE> 147
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- Viewlogic Systems, Inc. (the "Company") was founded
in 1984. Subsidiaries of the Company operate in the United States, Europe, Japan
and India and include Viewlogic Europe BV, Viewlogic Systems Japan, Viewlogic
Systems India Private Ltd., Quad Design Technology, Inc. ("Quad"), Chronologic
Simulation ("Chronologic"), Sunrise Test Systems, Inc. ("Sunrise"), Silerity,
Inc. ("Silerity"), The CAE Company B.V. ("TCC") and Electronic Design Automation
Services Europe B.V. ("EDAS"). The Company and its subsidiaries develop, market
and support a comprehensive family of software products that aid engineers in
the design of advanced electronic products. The Company markets its products in
the United States, Canada, Europe, Asia, Australia, Africa and South America.
Use of Estimates -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosure of certain assets and liabilities at the balance sheet date.
Actual results may differ from such estimates.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Viewlogic Systems, Inc. and its subsidiaries, all of
which are wholly owned. All significant intercompany balances and transactions
have been eliminated. Investments in affiliates owned 20% or more are accounted
for using the equity method. Investments in affiliates which are less than 20%
owned are recorded under the cost method and are included in deposits and other.
Foreign Currency Translation -- The financial statements of foreign
subsidiaries are translated in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52. Foreign currency gains and (losses) included in other
income and expense were $130, $(354) and $(25) for the years ended December 31,
1996, 1995 and 1994, respectively.
Revenue Recognition --
Software -- Revenue from the sale of software licenses is recognized
upon receipt of a signed order and software license agreement and shipment
of the product, provided that no significant obligations remain and
collection of the receivable is considered probable.
Services and Other -- Revenue from training and consulting is
recognized as the related services are performed. Maintenance revenue is
deferred and recognized ratably over the maintenance period, generally
twelve months.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the related assets (three to five years). Equipment leased under
capital leases is amortized over the lesser of its useful life or the lease
term. During 1996, the Company wrote off $7,391 of fully depreciated assets.
Capitalization of Software Costs -- Certain software costs for products and
product enhancements are capitalized after technological feasibility has been
established. Amortization is provided over estimated lives of four years.
Accumulated amortization was approximately $5,523 and $4,280 at December 31,
1996 and 1995, respectively.
Goodwill -- Goodwill is being amortized on a straight-line basis over 7
years. The carrying value of goodwill is reviewed whenever events or
circumstances occur which indicate that the carrying value may not be
recoverable. Accumulated amortization was $527 and $294 at December 31, 1996 and
1995, respectively.
F-26
<PAGE> 148
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Purchased Technology -- Purchased technology comprises acquired software
and is recorded at cost. Amortization is provided over estimated lives of five
to six years. Accumulated amortization was approximately $3,054 and $2,189 at
December 31, 1996 and 1995, respectively.
Income Taxes -- Deferred income taxes are provided on items recognized in
different periods for financial reporting purposes than for income tax purposes.
Deferred income taxes relate primarily to temporary differences in the
recognition of depreciation expense, capitalized software costs, provisions for
doubtful accounts and the utilization of net operating losses for financial and
tax reporting purposes.
Foreign Exchange Contracts -- The Company enters into foreign exchange
contracts as a hedge against certain foreign accounts receivable. Market value
gains and losses are recognized, and the resulting credit or debit offsets
foreign exchange gains or losses on those receivables. Realized and unrealized
gains and losses on foreign exchange contracts for fiscal year 1996 were
insignificant.
Cash Equivalents and Marketable Securities -- Cash equivalents include
short-term, highly liquid investments, which consist primarily of time deposits,
money market and equity securities, purchased with remaining maturities of three
months or less. Marketable securities consist primarily of municipal bonds,
government debt securities and equity securities. Marketable securities,
classified as available for sale, consist of securities having maturity dates of
more than three months and equity securities and are stated at fair value.
Marketable securities maturing more than one year from the balance sheet date
are classified as non-current. Aggregate unrealized holding gains, net of tax,
of $1,470 and $3,537 at December 31, 1996 and 1995, respectively, have been
included as a separate component of stockholders' equity in the accompanying
consolidated balance sheets.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash paid for interest........................... $ 303 $ 32 $ 121
Cash paid for income taxes....................... 3,975 3,214 1,761
Increase in capital leases....................... 18 20
TCC and EDAS acquisition:
Assumption of liabilities...................... 1,411
Silerity acquisition:
Payable to shareholders of Silerity............ 2,805
Assumption of liabilities...................... 7
Sunrise acquisition:
Payable to shareholders of Sunrise............. 3,748
Conversion of subordinated promissory note..... 1,000
Assumption of liabilities...................... 1,602
Goodwill resulting from recording deferred
taxes....................................... 1,635
</TABLE>
Income (Loss) Per Common Share -- Income (loss) per common share is
computed using the weighted average number of common and common equivalent
shares outstanding during each year. Common stock equivalents consist of stock
options and warrants (using the treasury stock method). Fully diluted and
primary earnings per share are the same for each year.
Fair Value of Financial Instruments -- The estimated fair value of cash,
accounts receivable, accounts payable and debt approximate fair value due to the
short-term nature of these instruments. The fair value of marketable securities
is based on current market values.
F-27
<PAGE> 149
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-Based Compensation -- The Company uses the intrinsic value-based
method of Accounting Principles Board Opinion No. 25, as permitted by SFAS No.
123, "Accounting for Stock-Based Compensation," to account for employee
stock-based compensation plans.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- The Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," as amended by SFAS No. 127, which is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. The Company will adopt SFAS No. 125 in 1997, however
management does not believe that adoption will have a material effect on the
Company's consolidated financial statements.
2. ACQUISITIONS
The CAE Company B.V. and Electronic Design Automation Services Europe
B.V. -- On December 19, 1996, the Company acquired all of the outstanding
capital stock of TCC and EDAS, both companies under common ownership, for $900.
This acquisition was accounted for as a purchase and the total purchase price of
$908 including expenses of $8 was allocated to the assets acquired and the
liabilities assumed based upon their estimated fair values. This allocation
resulted in goodwill of $1,049. If TCC and EDAS had been acquired as of the
beginning of 1995, the effect on the consolidated results of operations would
not have been significant.
Silerity, Inc. -- On December 15, 1995, the Company acquired all of the
outstanding capital stock of Silerity for $6,209 in cash and assumption of stock
options valued at $14, net of $6 in tax benefits plus certain contingent
payments. This acquisition was accounted for as a purchase and the total
purchase price of $6,373, including expenses of $156, was allocated to the
assets acquired and the liabilities assumed based upon their estimated fair
values. Of the total, $6,023 was allocated to purchased research and development
and was charged to expense as of the acquisition date. In addition, the purchase
agreement requires the Company to pay certain employee stockholders on March 31,
1997 and on March 31 of each of the three subsequent years an earnout amount
based on target revenue from certain products. The maximum payout for calendar
years 1997, 1998 and 1999 is $1,125, $1,500 and $1,875, respectively. There was
no payout for 1996.
In connection with the purchase of Silerity, the Chief Executive Officer of
the Company, who was formerly the President of Silerity, received $1,131 for his
20% share of Silerity's common stock. He will not participate in any future
earnout payments.
Sunrise Test Systems, Inc. -- On September 23, 1994, the Company acquired
all of the outstanding capital stock of Sunrise for $16,412 in cash, assumption
of stock options valued at $1,430, net of $576 in tax benefits, and conversion
of a $1,000 convertible subordinated promissory note owed to the Company. This
acquisition was accounted for as a purchase and the total purchase price of
$19,386, including expenses of $1,120, was allocated to the assets acquired and
the liabilities assumed based upon their estimated fair values. Of the total,
$15,377 was allocated to purchased research and development and was charged to
expense as of the acquisition date. This allocation resulted in goodwill of
$1,635 which is being amortized over 7 years and purchased software of $4,088 to
be amortized over 5 years.
Chronologic Simulation -- On March 31, 1994 Viewlogic VMS 3 Corporation, a
wholly owned subsidiary of Viewlogic Systems, Inc., was merged with and into
Chronologic with Chronologic being the surviving corporation pursuant to an
Agreement of Reorganization (the "Reorganization Agreement") dated March 30,
1994. Under the terms of the Reorganization Agreement, the holders of
Chronologic's common stock received 911,593 shares of Viewlogic common stock.
The merger was accounted for as a pooling-of-interests.
In connection with the merger with Chronologic in March 1994 the Company
recorded one-time charges for merger and pooling costs of $3,100 to reflect the
combination of operations of the two companies. Included in these costs are
legal, investment banking and accounting fees associated with the transactions
and costs
F-28
<PAGE> 150
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
associated with combining the operations of previously separate companies and
instituting efficiencies. These costs also include costs associated with the
cancellation of original equipment manufacturer contracts with a competitor of
Chronologic, as well as compensation expense of approximately $960 attributable
to grants of options by Chronologic prior to the merger.
3. OTHER INVESTMENTS
In January 1995, the Company acquired a 20% interest in Eagle Design
Automation, Inc. ("Eagle") for $500 in cash. From 1995 to February 1997, the
Company made additional net advances to Eagle of $2,516. The Company's aggregate
investment in Eagle represents 73% of the capital at risk in Eagle. Accordingly,
the Company has recognized losses of $350 and $2,321 in 1995 and 1996,
respectively, representing 73% of Eagle's operating losses.
On February 19, 1997, the Company purchased the 80% of Eagle capital stock
not previously owned for $5,788 in cash and assumption of net liabilities. The
Company is also required to pay the former shareholders of Eagle additional
payments based on the sale by the Company of Eagle's products over the three
year period beginning after certain sales targets have been met. There are no
minimum or maximum payments based on the sale of Eagle's products; however, if
current sales projections are met, such additional payments could total
approximately $5,500.
A director of the Company was the President, director and principal
shareholder of Eagle. Another director of the Company is the President and Chief
Executive Officer of TTI Partners, the General Partner of Transitions Three,
Limited Partnership. Transitions Three, Limited Partnership also owned 20% of
Eagle.
4. MARKETABLE SECURITIES
Certain additional information with respect to the Company's marketable
securities as of December 31, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
GROSS UNREALIZED
SECURITY TYPE AMORTIZED COST HOLDING GAINS FAIR VALUE
------------------------------------ -------------- ---------------- ----------
<S> <C> <C> <C>
1996
State obligations................... $ 8,148 $ 32 $ 8,180
City, town and other local
obligations....................... 10,271 68 10,339
U.S. Government obligations......... 2,248 5 2,253
Certificate of deposit.............. 2,000 2,000
Corporate annuity................... 1,000 1,000
Equity security..................... 41 2,234 2,275
------- ------ -------
Total............................. $ 23,708 $2,339 $ 26,047
======= ====== =======
1995
State obligations................... $ 7,701 $ 47 $ 7,748
City, town and other local
obligations....................... 13,260 90 13,350
Certificate of deposit.............. 500 500
Equity security..................... 180 5,222 5,402
------- ------ -------
Total............................. $ 21,641 $5,359 $ 27,000
======= ====== =======
</TABLE>
The unrealized holding gains are reflected net of taxes of $883 and $1,822
in the consolidated balance sheets as of December 31, 1996 and 1995,
respectively. In computing realized gains and losses, cost was determined using
the specific identification method.
F-29
<PAGE> 151
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of debt securities as of December 31, 1996, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or repay obligations
with or without call or prepayment penalties.
<TABLE>
<S> <C>
Due in one year or less.......................................... $15,207
Due after one year............................................... 5,565
-------
Total.......................................................... $20,772
=======
</TABLE>
5. LINE OF CREDIT
The Company has a working capital line of credit (unused at December 31,
1996) which allows borrowings up to the lesser of 80% of eligible domestic and
international accounts receivable, or $12.5 million, and expires on February 28,
1997. Interest is charged at the prime rate which was 8.25% at December 31,
1996. The Company does not plan to renew this credit line.
The line of credit agreement requires compliance with certain financial
ratios and, among other terms, requires maintenance of minimum levels of working
capital and tangible net worth.
6. STOCKHOLDERS' EQUITY
Stock Option Plan -- Under the Company's 1991 Restated Stock Option Plan
(the "Plan"), non-qualified and incentive stock options to purchase up to a
maximum of 6,849,000 shares of common stock may be granted to certain employees,
officers, consultants and directors at exercise prices not less than fair market
value at the date of grant. Options become exercisable in installments of 25%
per year on each of the first through the fourth anniversaries of the grant date
and continue for the period determined by the Board of Directors but may not
exceed ten years for incentive stock options and five years for incentive stock
options granted to 10% stockholders. At December 31, 1996, 1,304,026 shares were
available for grant under the Plan.
During 1995, the Company adopted a Stock Exchange Program pursuant to its
1991 Restated Stock Option Plan. The program provided grants to non-executive
officer employees of new stock options with a new vesting schedule in exchange
for the cancellation of one or more of the stock options then held by each
employee. There were 1,325,248 options exchanged under this program in 1995.
Outside Director's Stock Option Plan -- In December 1995, the Company
adopted the 1996 Outside Directors' Stock Option Plan (the "1996 Director Plan")
which permits the granting of non-qualified options to purchase up to a maximum
of 400,000 shares of common stock to non-employee members of the Board of
Directors. The exercise price of the options may not be less than the fair
market value on the date of grant. This 1996 Director Plan replaced a similar
plan established in 1991. Options under the 1996 Director Plan become
exercisable upon grant and continue for the period determined by the Board of
Directors but may not exceed five years. As of December 31, 1996, 340,000 shares
were available for grant under the 1996 Director Plan.
F-30
<PAGE> 152
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of all option activity under the Plan, the 1996
Director Plan and the predecessor plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Outstanding at January 1, 1994............... 2,696,056 $13.13
Granted.................................... 1,319,973 21.00
Exercised.................................. (692,435) 9.18
Forfeited.................................. (301,882) 17.50
---------- ------
Outstanding at December 31, 1994............. 3,021,712 $16.55
Granted.................................... 2,531,652 10.39
Exercised.................................. (138,449) 2.52
Forfeited.................................. (2,193,560) 16.94
---------- ------
Outstanding at December 31, 1995............. 3,221,355 $12.10
Granted.................................... 1,465,692 11.43
Exercised.................................. (225,174) 8.38
Forfeited.................................. (546,784) 12.26
---------- ------
Outstanding at December 31, 1996............. 3,915,089 $12.04
========== ======
Exercisable at December 31, 1994............. 785,310 $12.06
Exercisable at December 31, 1995............. 764,147 $11.13
Exercisable at December 31, 1996............. 1,185,881 $12.26
</TABLE>
The grant date weighted average fair value for options granted in 1996 and
1995 was $4.76 and $4.41, respectively.
The following table sets forth information regarding stock options
outstanding at December 31, 1996 under the Plan, the 1996 Director Plan and the
predecessor plan:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
NUMBER WEIGHTED AVERAGE EXERCISE
NUMBER OF RANGE OF CURRENTLY AVERAGE REMAINING PRICE FOR
OPTIONS EXERCISE PRICES EXERCISABLE EXERCISE PRICE LIFE EXERCISABLE
- --------- --------------- ------------ -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
408,143 $ 1.00 - $ 8.94 153,144 $ 6.59 5.18 $ 3.30
272,806 8.94 - 9.88 52,258 9.40 5.70 9.40
807,278 10.00 - 10.13 178,413 10.12 5.26 10.12
381,900 10.25 - 10.50 15,150 10.49 6.01 10.46
397,842 10.63 - 10.75 1,687 10.74 6.10 10.66
397,245 10.81 - 11.69 269,606 11.08 5.20 11.03
473,925 11.75 - 14.38 84,548 12.85 5.95 12.75
502,200 14.50 - 16.50 336,125 16.19 4.20 16.20
108,750 16.88 - 27.25 80,075 20.67 3.28 20.64
165,000 27.75 - 27.75 14,875 27.75 4.21 27.75
- --------- -------------- ---------- ------ ---- ------
3,915,089 $ 1.00 - $27.75 1,185,881 $12.04 5.28 $ 12.26
========= ============== ========== ====== ==== ======
</TABLE>
Employee Stock Purchase Plan -- In February 1996, the Company adopted the
1996 Employee Stock Purchase Plan (the "1996 Stock Purchase Plan"), which
permits eligible employees to purchase up to a maximum of 600,000 shares of
common stock. Under the terms of the plan, employees can choose semi-annually to
have up to 10% of their annual base earnings withheld to purchase the Company's
common stock. The purchase price of the stock is 85% of the lower of its
beginning-of-period or end-of-period market price.
F-31
<PAGE> 153
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 1996 Stock Purchase Plan replaced a similar plan established in 1994. During
1996, 1995 and 1994, there were 169,290, 174,094 and 78,908 shares,
respectively, issued under the Company's 1994 and 1996 Stock Purchase Plans.
The weighted average fair value of purchase rights granted in 1996 and 1995
was $4.94 and $4.15, respectively.
Stock Repurchase -- In October 1995, the Company's Board of Directors
authorized the Company to repurchase up to 2 million shares of the Company's
common stock from time to time over the next year as market and business
conditions warrant in open market, negotiated and block transactions. This
authorization was later extended to October 1997. The repurchased shares will be
used in the Company's stock option plans and employee stock purchase plans and
for general corporate purposes. During 1996 and 1995, the Company repurchased
680,000 and 320,000 shares of common stock for $7,003 and $3,565, respectively,
which is shown as treasury stock.
Pro forma Disclosures -- As described in Note 1, the Company applies the
intrinsic value method of Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized for its stock option plans
and its stock purchase plan. Had compensation cost been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method of FASB Statement 123, the Company's net income and net income per share
for the years ended December 31, 1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Net income.................................................. $7,119 $ 210
Net income per common and common equivalent share........... $ 0.42 $0.01
</TABLE>
For purposes of the pro forma disclosures, the fair value of the options
granted under the Company's stock option plans during 1996 and 1995 was
estimated on the date of grant using the Black-Scholes option pricing model. The
fair value of employee purchase rights under the Company's stock purchase plans
was also estimated using the Black-Scholes option pricing model. Key assumptions
used to apply this pricing model are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
STOCK OPTION PLANS:
Risk-free interest rate.......................... 5.69% 6.53%
Expected life of option grants................... 2.74 years 2.78 years
Expected volatility of underlying stock.......... 63.01% 60.97%
Expected dividend payment rate................... 0% 0%
EMPLOYEE PURCHASE PLAN:
Risk-free interest rate.......................... 5.46% 6.30%
Expected life of option grants................... 6 months 6 months
Expected volatility of underlying stock.......... 59.78% 55.37%
Expected dividend payment rate................... 0% 0%
</TABLE>
The pro forma disclosures only include the effects of options granted in
1996 and 1995.
F-32
<PAGE> 154
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The components of income (loss) before income taxes comprised the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Domestic....................................... $17,062 $6,865 $(1,080)
Foreign........................................ 1,270 1,324 (309)
------- ------ -------
Total.......................................... $18,332 $8,189 $(1,389)
======= ====== =======
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal........................................ $4,181 $3,380 $ 180
State.......................................... 839 874 294
Foreign........................................ 1,594 1,047 1,415
------ ------ ------
Total.................................. 6,614 5,301 1,889
------ ------ ------
Deferred:
Federal........................................ 1 (254) 1,725
State.......................................... 1 (65) 197
Change in valuation allowance.................. (396)
------ ------ ------
Total.................................. 2 (319) 1,526
------ ------ ------
Tax benefit of disposition of stock options:
Federal........................................ 370 250 1,376
State.......................................... 70 96 137
------ ------ ------
Total.................................. 440 346 1,513
------ ------ ------
Total provision.................................. $7,056 $5,328 $4,928
====== ====== ======
</TABLE>
F-33
<PAGE> 155
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Current Assets:
Accounts receivable...................................... $ 580 $ 465
Deferred compensation.................................... 32 151
Other.................................................... 81
------ ------
693 616
------ ------
Non-Current Assets:
Research and development credits......................... 348 348
Other.................................................... 36
------ ------
384 348
------ ------
Total Assets............................................... $1,077 $ 964
------ ------
Current Liabilities:
Accrued vacation......................................... $ 42 $ 41
Cash-to-accrual basis conversion......................... 120 158
Unrealized foreign exchange gain......................... 106
Other.................................................... 123 95
Foreign tax grant........................................ 1,304 1,412
------ ------
1,695 1,706
------ ------
Non-Current Liabilities:
Capitalized software costs............................... 2,282 2,011
Purchased technology..................................... 1,014 1,362
Depreciation and amortization............................ 814 606
Unrealized holding gain.................................. 883 1,822
------ ------
4,993 5,801
------ ------
Total Liabilities.......................................... $6,688 $7,507
------ ------
Total net deferred tax liability........................... $5,611 $6,543
====== ======
</TABLE>
In 1987, one of the Company's subsidiaries received a tax grant from the
government of The Netherlands. The subsidiary's obligation to repay the grant is
reduced each year until 1997 by the amount of income taxes paid to The
Netherlands government. In January 1997 the grant was repaid. For financial
reporting purposes, the grant was recorded as a deferred tax liability. The
change from 1995 to 1996 results from the effect of foreign exchange rates of
$108.
F-34
<PAGE> 156
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation between statutory and effective federal income tax rates
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- -----
<S> <C> <C> <C>
Statutory tax rate.................................... 35.0% 35.0% (35.0)%
State income taxes -- net of federal income tax
benefit............................................. 3.1 7.2 28.1
Foreign taxes......................................... (1.0) 4.7 22.7
Tax credits........................................... (2.7) (4.2) (32.4)
Change in valuation allowance......................... (28.5)
Tax-exempt income..................................... (1.6) (3.9) (21.1)
Equity method for investment.......................... 4.1
Purchased research and development.................... 25.7 387.5
Foreign sales corporation benefit..................... (2.5) (4.1) (23.6)
Other................................................. 4.1 4.7 57.1
---- ---- -----
Effective tax rate.................................... 38.5% 65.1% 354.8%
==== ==== =====
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases its principal office facilities and certain
computer equipment under noncancelable operating leases expiring on various
dates through 2002. The Company's headquarters office lease includes three
two-year renewal options to extend the lease through 2008. The lease contains a
three-month rental abatement and a rental escalation clause, the effects of
which are being recognized ratably over the lease term. At December 31, 1996,
future minimum lease payments under these noncancelable leases were
approximately as follows: 1997, $4,733; 1998, $3,925; 1999, $2,866; 2000,
$2,463; 2001, $1,751; 2002, $1,403. The Company leases other office facilities
under operating lease agreements for which lease terms are one year or less.
Total rent expense was approximately $6,265, $5,874 and $4,587 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Contingencies -- The Company is involved in certain legal proceedings which
have arisen in the ordinary course of business. Management believes the outcome
of these proceedings will not have a material adverse impact on the Company's
financial condition or operating results.
9. SEGMENT INFORMATION
Summarized information about the Company's operations by geographic area is
as follows:
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE JAPAN ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Total revenue....................... $111,575 $20,163 $11,635 $(10,454) $132,919
Income (loss) from operations....... 11,087 (202) 1,241 12,126
Identifiable assets................. 119,402 13,828 9,455 (11,476) 131,209
</TABLE>
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE JAPAN ELIMINATIONS CONSOLIDATED
-------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Total revenue........................ $102,177 $22,009 $9,221 $(12,447) $120,960
Income (loss) from operations........ 5,125 (155) 1,264 6,234
Identifiable assets.................. 108,386 18,425 6,820 (14,648) 118,983
</TABLE>
F-35
<PAGE> 157
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE JAPAN ELIMINATIONS CONSOLIDATED
-------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Total revenue........................ $103,126 $20,311 $3,396 $ (8,253) $118,580
Income (loss) from operations........ (2,588) 126 (419) 2 (2,879)
Identifiable assets.................. 107,190 15,468 3,003 (9,504) 116,157
</TABLE>
No customer accounted for more than 10% of revenue in 1996, 1995 or 1994.
Export sales, primarily to Europe and Asia, accounted for approximately
11%, 11% and 14% of total revenue for the years ended December 31, 1996, 1995
and 1994, respectively.
10. RETIREMENT SAVINGS PLAN
The Company has a 401(k) retirement savings plan established in 1988
covering substantially all of the Company's domestic employees. Matching Company
contributions are at the discretion of the Board of Directors. The Company
matches 50% of employee contributions, up to 6% of the participants' salaries.
Employer contributions amounted to $906, $851 and $734 for the years ended
December 31, 1996, 1995 and 1994, respectively.
F-36
<PAGE> 158
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
Software......................................... $24,103 $21,023 $ 66,581 $58,589
Services and other............................... 16,334 13,404 44,037 37,137
------- ------- -------- -------
Total revenue................................. 40,437 34,427 110,618 95,726
------- ------- -------- -------
Costs and expenses:
Cost of software................................. 2,713 2,943 8,339 8,065
Cost of services and other....................... 4,165 3,353 11,633 9,926
Selling and marketing............................ 16,116 14,406 45,938 42,360
Research and development......................... 8,308 7,081 24,234 20,071
Purchased research and development............... 5,500
General and administrative....................... 3,037 3,374 7,772 8,578
------- ------- -------- -------
Total operating expenses...................... 34,339 31,157 103,416 89,000
------- ------- -------- -------
Income from operations............................. 6,098 3,270 7,202 6,726
------- ------- -------- -------
Other income:
Interest income, net............................. 662 598 1,791 1,437
Other income, net................................ 6 1,212 2,721 1,225
------- ------- -------- -------
Total other income............................ 668 1,810 4,512 2,662
------- ------- -------- -------
Income before income taxes......................... 6,766 5,080 11,714 9,388
Provision for income taxes......................... 2,605 1,956 6,628 3,613
------- ------- -------- -------
Net income......................................... $ 4,161 $ 3,124 $ 5,086 $ 5,775
======= ======= ======== =======
Income per common share:
Primary:
Net income....................................... $ 0.23 $ 0.18 $ 0.29 $ 0.33
======= ======= ======== =======
Weighted average number of common and common
equivalent shares outstanding................. 18,321 17,403 17,805 17,250
======= ======= ======== =======
Fully diluted:
Net income....................................... $ 0.22 $ 0.18 $ 0.27 $ 0.33
======= ======= ======== =======
Weighted average number of common and common
equivalent shares outstanding................. 19,060 17,403 18,841 17,259
======= ======= ======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-37
<PAGE> 159
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 48,136 $ 41,297
Marketable securities......................................... 23,924 20,482
Accounts receivable (less allowance for doubtful accounts,
$1,761 in 1997 and $1,503 in 1996)......................... 31,081 32,507
Prepaid expenses and other.................................... 7,501 6,779
Deferred Income taxes......................................... 302 302
------- -------
Total current assets.................................. 110,944 101,367
------- -------
Marketable securities -- non-current............................ 6,226 5,565
------- -------
Property and equipment:
Equipment..................................................... 29,677 25,360
Furniture and fixtures........................................ 4,035 3,625
------- -------
Total................................................. 33,712 28,985
Less accumulated depreciation................................. 18,336 15,236
------- -------
Property and equipment -- net.............................. 15,376 13,749
------- -------
Other assets:
Capitalized software costs -- net............................. 6,172 5,724
Purchased technology -- net................................... 2,857 2,261
Goodwill -- net............................................... 2,500 1,582
Deposits and other............................................ 1,422 961
------- -------
Total other assets.................................... 12,951 10,528
------- -------
Total................................................. $ 145,497 $131,209
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations.................. $ 56 $ 32
Accounts payable.............................................. 4,539 3,232
Accrued compensation.......................................... 9,271 10,684
Accrued expenses.............................................. 9,189 8,551
Deferred revenue.............................................. 25,132 20,323
Deferred income taxes......................................... 1,304
------- -------
Total current liabilities............................. 48,187 44,126
------- -------
Deferred income taxes........................................... 4,153 4,609
Capital lease obligations....................................... 195
Stockholders' equity:
Common Stock, $.01 par value.................................. 181 174
Additional paid-in capital.................................... 80,651 73,944
Retained earnings............................................. 23,500 18,414
Unrealized holding gains, net of tax.......................... 46 1,470
Cumulative translation adjustment............................. (848) (960)
------- -------
103,530 93,042
Less: Treasury stock, at cost......................... (10,568) (10,568)
------- -------
Total stockholders' equity............................ 92,962 82,474
------- -------
Total................................................. $ 145,497 $131,209
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-38
<PAGE> 160
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 5,086 $ 5,775
Adjustments to reconcile net income to net cash provided by operating
activities:
Purchased research and development..................................... 5,500
Depreciation........................................................... 4,059 3,812
Gain on sale of investment............................................. (2,431) (1,173)
Amortization of capitalized software and purchased technology.......... 2,818 2,210
Amortization of goodwill............................................... 321 175
Change in assets and liabilities:
Accounts receivable................................................. 1,426 1,035
Prepaid expense and other........................................... (678) (3,184)
Accounts payable.................................................... 1,305 255
Accrued compensation................................................ (1,469) 1,597
Accrued expenses.................................................... 491 3,285
Deferred revenue.................................................... 4,209 2,539
------- -------
Net cash provided by operating activities......................... 20,637 16,326
------- -------
Cash flows from investing activities:
Purchase of marketable securities...................................... (26,720) (17,674)
Proceeds from sale of marketable securities............................ 22,768 17,090
Expenditures for property and equipment................................ (5,266) (5,336)
Capitalized software costs............................................. (2,527) (2,075)
Purchased technology................................................... (335)
Decrease (increase) in deposits and other.............................. (458) 83
Purchase of Eagle Design Automation, Inc., net of cash................. (6,573)
Purchase of Silerity, Inc., net of cash................................ (306)
------- -------
Net cash used in investing activities............................. (19,417) (7,912)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock................................. 1,970 1,533
Proceeds from exercise of stock options................................ 4,744 1,793
Repurchase of common stock............................................. (3,466)
Principal payment of capital lease obligations......................... (77) (70)
Repayment of notes to former Silerity shareholders..................... (2,805)
Repayment of foreign tax grant......................................... (1,304)
------- -------
Net cash provided by (used in) financing activities............... 5,333 (3,015)
------- -------
Effect of exchange rate changes on cash.................................. 286 151
------- -------
Net increase in cash and cash equivalents................................ 6,839 5,550
Cash and cash equivalents, beginning of the period....................... 41,297 34,387
------- -------
Cash and cash equivalents, end of the period............................. $48,136 $39,937
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-39
<PAGE> 161
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Viewlogic Systems, Inc. (the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
annual financial statements and should be read in conjunction with the audited
financial statements included elsewhere in this Joint Proxy
Statement/Prospectus.
In the opinion of management the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the interim
periods presented. The operating results for the interim periods presented are
not necessarily indicative of the results expected for the full fiscal year.
2. INCOME PER COMMON SHARE
Income per common share is computed using the weighted average number of
common and common equivalent shares outstanding during each period presented.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share," which will become effective for the Company
for annual and interim reporting periods ending after December 15, 1997. SFAS
No. 128 replaces the presentation of primary earnings per share with a basic
earnings per share (which excludes dilution) and a diluted earnings per share.
Had SFAS No. 128 been used for the periods presented, basic and diluted earnings
per share would have been $0.25 and $0.23, respectively, for the quarter ended
September 30, 1997 and $0.19 and $0.18, respectively, for the quarter ended
September 30, 1996. Basic and diluted earnings per share would have been $0.31
and $0.29, respectively, for the nine months ended September 30, 1997 and $0.35
and $0.33, respectively, for the nine months ended September 30, 1996.
3. NEW ACCOUNTING PRONOUNCEMENTS
Comprehensive Income
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company has not determined the effects,
if any, that SFAS No. 130 will have on its consolidated financial statements.
Segments of an Enterprise
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the way
that public companies report selected information about operating segments. SFAS
No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Company has not determined the effects, if any, that SFAS
No. 131 will have on the disclosures in its consolidated financial statements.
F-40
<PAGE> 162
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. EAGLE DESIGN AUTOMATION, INC. ACQUISITION
On February 19, 1997, the Company purchased the 80% of the capital stock of
Eagle Design Automation, Inc. ("Eagle") not previously owned for $5,788 in cash
and assumption of net liabilities. This acquisition was accounted for as a
purchase and the total purchase price of $6,597, including acquisition expenses,
was allocated to the assets acquired and the liabilities assumed based on their
estimated fair values. Of the total, $5,500 was allocated to purchased research
and development and was charged to expense as of the acquisition date. This
allocation resulted in goodwill of $907 which is being amortized over seven
years and purchased software of $1,000 to be amortized over five years. In
addition, the Company is required to pay the former shareholders of Eagle
additional payments based on the sale by the Company of Eagle's products over
the three year period beginning after certain sales targets have been met. There
are no minimum or maximum payments based on the sale of Eagle's products,
however, if current sales projections are met, such additional payments could
total approximately $5,500.
The unaudited consolidated results of operations on a pro forma basis as
though the acquisition had occurred as of the beginning of the periods presented
are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
-------- -------
<S> <C> <C>
Revenue............................................. $110,618 $95,726
Net income.......................................... 4,673 4,345
Net income per share -- primary..................... $ 0.26 $ 0.25
Net income per share -- fully diluted............... $ 0.25 $ 0.25
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not indicative of the operating results that would have occurred had
the Eagle acquisition been consummated as of the above dates, nor are they
necessarily indicative of future operating results.
5. LEGAL PROCEEDINGS
On or about April 25, 1997, Deutsch Technology Research ("Deutsch") filed a
Demand for Arbitration under the Commercial Arbitration Rules of the American
Arbitration Association pursuant to the terms of the OEM Agreement dated June
16, 1993 between Deutsch and the Company (the "OEM Agreement"). Under the terms
of the OEM Agreement, the arbitration must be held in San Jose, California
before a single arbitrator. The arbitration is scheduled to begin on November 3,
1997. The Demand for Arbitration alleges infringement of copyright,
misappropriation of trade secrets and failure to pay royalties and other sums
under the OEM Agreement. Recently, Deutsch's accountants, hired in connection
with this dispute, submitted a report stating that, based on assumptions
provided by Deutsch, royalties in excess of $53,000 are due. The Company denies
these allegations, disputes the assumptions on which the accountants' report is
based and intends to defend these claims vigorously. The Company has also
asserted counterclaims in this arbitration seeking damages in excess of $500.
The ultimate outcome of this matter is not determinable, and an adverse outcome
could have a material adverse effect on Viewlogic's financial position and
results of operations.
6. PROPOSED MERGER WITH SYNOPSYS, INC.
On October 14, 1997, the Company entered into the Agreement and Plan of
Merger by and among the Company, Synopsys, Inc. ("Synopsys") and Post
Acquisition Corp. ("Sub"), whereby Sub will be merged with and into Viewlogic
(the "Merger") and, among other things, Viewlogic will survive the Merger and
become a wholly-owned subsidiary of Synopsys. In connection with the Merger, (1)
each share of Viewlogic Common Stock issued and outstanding at the effective
time of the Merger will be converted into 0.6521 (the "Exchange Ratio") of a
share of Synopsys Common Stock and (2) each stock option to purchase shares of
F-41
<PAGE> 163
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Viewlogic Common Stock will be assumed by Synopsys and converted into an option
to purchase Synopsys Common Stock based upon the Exchange Ratio. Consummation of
the Merger is subject to customary conditions to closing including the approval
of the stockholders of Viewlogic and the stockholders of Synopsys and certain
regulatory approvals. The Merger is intended to be treated as a pooling of
interests for accounting purposes and is intended to qualify as a tax-free
reorganization for federal income tax purposes.
7. RADIANT DESIGN TOOLS, INC. ACQUISITION
On October 22, 1997, the Company purchased all of the capital stock of
Radiant Design Tools, Inc. ("Radiant"). Pursuant to the terms of the purchase,
the Company paid the sole shareholder of Radiant $1,000. The Company is also
required to pay that shareholder an additional $500 on or before April 22, 1998,
and up to an additional $3,500 based on future sales of certain of the Company's
products.
F-42
<PAGE> 164
ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
SYNOPSYS, INC.
POST ACQUISITION CORP.
AND
VIEWLOGIC SYSTEMS, INC.
OCTOBER 14, 1997
================================================================================
<PAGE> 165
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I -- THE MERGER................................................................. -1-
Section 1.1 The Merger............................................................. -1-
Section 1.2 Closing; Effective Time of the Merger.................................. -1-
Section 1.3 Effects of Merger...................................................... -2-
Section 1.4 Directors and Officers................................................. -2-
ARTICLE II -- CONVERSION OF SECURITIES.................................................. -2-
Section 2.1 Conversion of Capital Stock............................................ -2-
Section 2.2 Exchange of Certificates............................................... -3-
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF VIEWLOGIC.............................. -3-
Section 3.1 Organization........................................................... -3-
Section 3.2 Viewlogic Subsidiaries and Joint Ventures.............................. -3-
Section 3.3 Viewlogic Capital Structure............................................ -4-
Section 3.4 Authority; No Conflict; Required Filings and Consents.................. -4-
Section 3.5 SEC Filings; Financial Statements...................................... -5-
Section 3.6 Absence of Undisclosed Liabilities..................................... -5-
Section 3.7 Absence of Certain Changes or Events................................... -6-
Section 3.8 Taxes.................................................................. -6-
Section 3.9 Properties............................................................. -6-
Section 3.10 Intellectual Property.................................................. -6-
Section 3.11 Agreements, Contracts and Commitments.................................. -7-
Section 3.12 Litigation............................................................. -7-
Section 3.13 Environmental Matters.................................................. -7-
Section 3.14 Employee Benefit Plans................................................. -8-
Section 3.15 Compliance with Laws................................................... -8-
Section 3.16 Pooling of Interests................................................... -9-
Section 3.17 Interested Party Transactions.......................................... -9-
Section 3.18 Registration Statement; Proxy Statement/Prospectus..................... -9-
Section 3.19 Payments Resulting from Mergers........................................ -9-
Section 3.20 Opinion of Financial Advisor........................................... -9-
Section 3.21 Business Combination................................................... -9-
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SYNOPSYS AND SUB........................ -10-
Section 4.1 Organization........................................................... -10-
Section 4.2 Synopsys Subsidiaries and Joint Ventures............................... -10-
Section 4.3 Synopsys Capital Structure............................................. -10-
Section 4.4 Authority; No Conflict; Required Filings and Consents.................. -11-
Section 4.5 SEC Filings; Financial Statements...................................... -12-
Section 4.6 Absence of Undisclosed Liabilities..................................... -12-
Section 4.7 Absence of Certain Changes or Events................................... -12-
Section 4.8 Taxes.................................................................. -13-
Section 4.9 Properties............................................................. -13-
Section 4.10 Intellectual Property.................................................. -13-
Section 4.11 Agreements, Contracts and Commitments.................................. -13-
Section 4.12 Litigation............................................................. -14-
Section 4.13 Environmental Matters.................................................. -14-
Section 4.14 Employee Benefit Plans................................................. -14-
</TABLE>
i
<PAGE> 166
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.15 Compliance with Laws................................................... -15-
Section 4.16 Pooling of Interests................................................... -15-
Section 4.17 Interested Party Transactions.......................................... -15-
Section 4.18 Registration Statement; Proxy Statement/Prospectus..................... -15-
Section 4.19 Interim Operations of Sub.............................................. -15-
ARTICLE V -- CONDUCT OF BUSINESS........................................................ -16-
Section 5.1 Covenants of Viewlogic................................................. -16-
Section 5.2 Covenants of Synopsys.................................................. -17-
Section 5.3 Cooperation............................................................ -18-
ARTICLE VI -- ADDITIONAL AGREEMENTS..................................................... -18-
Section 6.1 No Solicitation........................................................ -18-
Section 6.2 Proxy Statement/Prospectus; Registration Statement..................... -19-
Section 6.3 Consents............................................................... -19-
Section 6.4 Current Nasdaq Listing................................................. -19-
Section 6.5 Access to Information.................................................. -20-
Section 6.6 Stockholder Meetings................................................... -20-
Section 6.7 Legal Conditions to Merger............................................. -20-
Section 6.8 Public Disclosure...................................................... -21-
Section 6.9 Tax-Free Reorganization................................................ -21-
Section 6.10 Pooling Accounting..................................................... -21-
Section 6.11 Affiliate Agreements................................................... -21-
Section 6.12 Nasdaq Listing......................................................... -21-
Section 6.13 Stock Plans and Options................................................ -22-
Section 6.14 Brokers or Finders..................................................... -23-
Section 6.15 Indemnification........................................................ -23-
Section 6.16 Additional Agreements; Reasonable Efforts.............................. -24-
Section 6.17 Voting Agreements...................................................... -24-
Section 6.18 Notification of Certain Matters........................................ -25-
Section 6.19 Benefit Plans Generally................................................ -25-
ARTICLE VII -- CONDITIONS TO MERGER..................................................... -25-
Section 7.1 Conditions to Each Party's Obligation to Effect The Merger............. -25-
Section 7.2 Additional Conditions to Obligations of Synopsys and Sub............... -26-
Section 7.3 Additional Conditions to Obligations of Viewlogic...................... -26-
ARTICLE VIII -- TERMINATION AND AMENDMENT............................................... -27-
Section 8.1 Termination............................................................ -27-
Section 8.2 Effect of Termination.................................................. -28-
Section 8.3 Fees and Expenses...................................................... -28-
Section 8.4 Amendment.............................................................. -29-
Section 8.5 Extension; Waiver...................................................... -29-
ARTICLE IX -- MISCELLANEOUS............................................................. -29-
Section 9.1 Nonsurvival of Representations, Warranties and Agreements.............. -29-
Section 9.2 Notices................................................................ -29-
Section 9.3 Interpretation; Certain Definitions.................................... -30-
Section 9.4 Counterparts........................................................... -30-
Section 9.5 Entire Agreement; No Third-Party Beneficiaries......................... -31-
Section 9.6 Governing Law.......................................................... -31-
</TABLE>
ii
<PAGE> 167
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 9.7 Specific Performance................................................... -31-
Section 9.8 Assignment............................................................. -31-
Section 9.9 Severability........................................................... -31-
</TABLE>
EXHIBITS
EXHIBIT A -- Exchange Procedures
EXHIBIT B -- Form of Affiliate Agreement
EXHIBIT C -- Form of Voting Agreement
iii
<PAGE> 168
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
14,1997 among Synopsys, Inc., a Delaware corporation ("Synopsys"), Post
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Synopsys ("Sub"), and Viewlogic Systems, Inc., a Delaware corporation
("Viewlogic").
RECITALS
WHEREAS, the Boards of Directors of Synopsys, Sub and Viewlogic (i) deem it
advisable and in the best interests of each corporation and its respective
stockholders that Synopsys and Viewlogic combine in order to advance their
long-term business interests and (ii) have approved this Agreement, the Merger
(as defined below) and the other transactions contemplated by this Agreement;
WHEREAS, the combination of Synopsys and Viewlogic shall be effected by the
terms of this Agreement through a transaction in which Sub will merge with and
into Viewlogic, Viewlogic will become a wholly-owned subsidiary of Synopsys and
the stockholders of Viewlogic will become stockholders of Synopsys (the
"Merger");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, the parties intend that the Merger shall
be accounted for as a pooling of interests;
WHEREAS, in connection with the Merger Synopsys and Viewlogic have entered
into a Non-Disclosure Agreement dated September 26, 1997 (the "Non-Disclosure
Agreement"); and
WHEREAS, concurrently with the execution and delivery of this Agreement by
the parties, Viewlogic has executed and delivered a Stock Option Agreement
granting Synopsys an option to purchase common stock of Viewlogic upon the
occurrence of certain events (the "Company Option Agreement").
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Subject to the provisions of this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), Sub shall be
merged with and into Viewlogic. As a result of the Merger, the outstanding
shares of capital stock of Sub and Viewlogic shall be converted or canceled in
the manner provided in Article II of this Agreement; the separate corporate
existence of Sub shall cease; and Viewlogic shall be the surviving corporation
in the Merger.
SECTION 1.2 Closing; Effective Time of the Merger. Unless this Agreement
shall have been terminated pursuant to Section 8.1, the closing of the Merger
(the "Closing") will take place at 10:00 a.m., California time, on a date to be
specified by Synopsys and Viewlogic (the "Closing Date"), which shall be no
later than the second business day after satisfaction (or waiver in accordance
with Section 8.5) of all conditions set forth in Article VII at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road,
Palo Alto, California 94304, unless another date or place is agreed to in
writing by Synopsys and Viewlogic. Subject to the provisions of this Agreement,
a certificate of merger meeting the applicable requirements of the DGCL (the
"Certificate of Merger") shall be duly prepared, executed and acknowledged by
Viewlogic and simultaneously with or as soon as practicable following the
Closing delivered to the Secretary of State of the State of Delaware for filing.
The Merger shall become effective upon the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware or at
such other date and time as is provided in the Certificate of Merger (the
"Effective Time").
<PAGE> 169
SECTION 1.3 Effects of Merger.
(a) At the Effective Time: (i) the separate existence of Sub shall cease
and Sub shall be merged with and into Viewlogic (Sub and Viewlogic are sometimes
referred to collectively herein as the "Constituent Corporations" and Viewlogic
is sometimes referred to herein as the "Surviving Corporation"); (ii) the
Certificate of Incorporation and Bylaws of Viewlogic as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation and Bylaws
of the Surviving Corporation until amended in accordance with the terms thereof
and in accordance with applicable law; provided, however, that, notwithstanding
the foregoing, Article I of the Certificate of Incorporation of Sub shall be
amended to read as follows: "The name of the Corporation is "Viewlogic Systems,
Inc."
(b) The Merger shall have the effects set forth in this Agreement and in
the DGCL.
SECTION 1.4 Directors and Officers. The directors and officers of Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, and shall hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the Constituent
Corporations or the holder of any shares of Common Stock, $0.01 par value per
share, of Viewlogic ("Viewlogic Common Stock") or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Synopsys-Owned Stock. All
shares of Viewlogic Common Stock that are owned by Viewlogic as treasury
stock or by any Subsidiary of Viewlogic and any shares of Viewlogic Common
Stock owned by Synopsys, Sub or any other wholly-owned Subsidiary (as
defined in Section 9.3) of Synopsys shall be canceled and retired and shall
cease to exist and no stock of Synopsys or other consideration shall be
delivered in exchange therefor. All shares of Common Stock, $0.01 par value
per share, of Synopsys ("Synopsys Common Stock") owned by Viewlogic shall
remain unaffected by the Merger.
(c) Exchange Ratio for Viewlogic Common Stock. Subject to Section 2.2,
each issued and outstanding share of Viewlogic Common Stock (other than
shares to be canceled in accordance with Section 2.1(b)) shall be converted
into the right to receive 0.6521 (the "Conversion Number") of a fully paid
and nonassessable share of Synopsys Common Stock. All such shares of
Viewlogic Common Stock, when so converted, shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
shares of Synopsys Common Stock and any cash in lieu of fractional shares
of Synopsys Common Stock to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 2.2,
without interest.
(d) Viewlogic Stock Options and Employee Stock Purchase Plan. At the
Effective Time, all then-outstanding options to purchase Viewlogic Common
Stock issued under the Viewlogic 1991 Restated Stock Option Plan, as
amended, the Viewlogic 1991 Outside Directors' Stock Option Plan or the
1996 Outside Director's Stock Option Plan (together the "Viewlogic Option
Plans"), will be assumed by Synopsys in accordance with Section 6.13.
Immediately prior to the Effective Time, all then outstanding rights to
acquire shares of Viewlogic Common Stock under the Viewlogic 1996 Employee
Stock Purchase Plan (the "Viewlogic Purchase Plan" and, together with the
Viewlogic Options Plans, the "Viewlogic Stock Plans") will be exercised for
the purchase of shares of Viewlogic Common Stock, as provided in Section
6.13.
-2-
<PAGE> 170
(e) Adjustment of Exchange Ratio. If, between the date of this
Agreement and the Effective Time, the outstanding shares of Synopsys Common
Stock or Viewlogic Common Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, stock dividend, stock combination, exchange of
shares, readjustment or otherwise, then the Conversion Number shall be
correspondingly adjusted; provided, however, that any such changes shall be
subject to Sections 5.1 and 5.2.
SECTION 2.2 Exchange of Certificates. The procedures for exchanging
outstanding shares of Viewlogic Common Stock for Synopsys Common Stock pursuant
to the Merger are set forth in Exhibit A hereto, which is incorporated by
reference as if set forth in full herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VIEWLOGIC
Viewlogic represents and warrants to Synopsys and Sub that the statements
contained in this Article III are true and correct, except (i) as disclosed or
incorporated by reference in the Viewlogic SEC Reports (as defined in Section
3.5(a)) filed prior to the date of this Agreement; (ii) in the case of the
representations and warranties in Sections 3.1, 3.2, 3.4(b), 3.5 through 3.15
and 3.17, where the failure to be true and correct would not, either
individually or in the aggregate, have a Viewlogic Material Adverse Effect (as
defined below), or (iii) as set forth on the disclosure schedule delivered by
Viewlogic to Synopsys prior to execution of this Agreement (the "Viewlogic
Disclosure Schedule"). When used in connection with Viewlogic or any of its
Subsidiaries, the term "Viewlogic Material Adverse Effect" means any change,
event or effect that is materially adverse to the business, assets (including
intangible assets), liabilities, financial condition, operations or results of
operations of Viewlogic and its Subsidiaries taken as a whole; provided,
however, that the following shall not be deemed to constitute an "Viewlogic
Material Adverse Effect": (i) an adverse change in or effect on the financial
condition, revenues or gross margins of Viewlogic (or the direct consequences
thereof) following the date of this Agreement to the extent attributable to (A)
a delay of, reduction in or cancellation or change in the terms of product
licenses by customers of Viewlogic, (B) a slow down in the activity of
Viewlogic's sales organization or (C) the loss of any officer or key employee of
Viewlogic which is directly and primarily attributable to the transactions
contemplated by this Agreement; (ii) an adverse change in or effect on the
market price of Viewlogic Common Stock between the date of this Agreement and
the Closing Date; (iii) a failure of quarterly results of operations for any
quarter ending between the date of this Agreement and the Closing Date to meet
generally analysts' expectations as reflected in the First Call Consensus
estimate; or (iv) the outcome of any litigation disclosed pursuant to Section
3.12.
SECTION 3.1 Organization. Each of Viewlogic and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Viewlogic Material Adverse Effect. Neither Viewlogic nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for any such equity
or similar interest in, any corporation, limited liability company, partnership,
joint venture or other business association or entity, excluding securities of
any publicly traded company held for investment by Viewlogic and comprising less
than five percent of the outstanding stock of such company.
SECTION 3.2 Viewlogic Subsidiaries and Joint Ventures. All of the issued
and outstanding shares of capital stock of each Subsidiary are owned by
Viewlogic or by a Subsidiary of Viewlogic (other than directors' qualifying
shares in the case of foreign Subsidiaries) and are validly issued, fully paid,
and nonassessable, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants with respect to any such
Subsidiary's capital stock, including any right obligating any such Subsidiary
to issue, deliver, or sell additional shares of its capital stock.
-3-
<PAGE> 171
SECTION 3.3 Viewlogic Capital Structure.
(a) The authorized capital stock of Viewlogic consists of 40,000,000 shares
of Viewlogic Common Stock and 5,000,000 shares of Preferred Stock, $0.01 par
value per share ("Viewlogic Preferred Stock"). As of September 30, 1997, (i)
17,078,760 shares of Viewlogic Common Stock and no shares of Viewlogic Preferred
Stock were issued and outstanding, all of which issued and outstanding shares
are validly issued, fully paid and nonassessable; (ii) 1,000,000 shares of
Viewlogic Common Stock and no shares of Viewlogic Preferred Stock were held in
the treasury of Viewlogic or by Subsidiaries of Viewlogic; and (iii) 5,539,572
shares of Viewlogic Common Stock were reserved for issuance under Viewlogic
Stock Plans (including (A) 4,571,410 shares reserved for issuance under the
Viewlogic 1991 Restated Stock Option Plan, 4,294,382 of which were subject to
outstanding options and 277,028 of which were reserved for future option grants,
(B) 140,000 shares of Viewlogic Common Stock reserved for issuance under the
Viewlogic 1991 Outside Directors' Option Plan, 55,000 of which were subject to
outstanding options and 85,000 of which were reserved for future option grants,
(C) 400,000 shares of Viewlogic Common Stock were reserved for issuance under
the 1996 Outside Director's Option Plan, 50,000 of which were subject to
outstanding options and 310,000 of which were reserved for future option grants;
and (D) 428,162 shares of Viewlogic Common Stock were reserved for future
issuance pursuant to the Viewlogic Purchase Plan). All shares of Viewlogic
Common Stock subject to issuance as specified above, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. There
are no obligations, contingent or otherwise, of Viewlogic or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Viewlogic
Common Stock or the capital stock of any Viewlogic Subsidiary or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of debt obligations of
such Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each Subsidiary of Viewlogic are duly
authorized, validly issued, fully paid and nonassessable, and all such shares
(other than directors' qualifying shares in the case of foreign Subsidiaries)
are owned by Viewlogic or another Viewlogic Subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations on
Viewlogic's voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in Section 3.3(a), there are no equity securities
of any class of Viewlogic or any of its Subsidiaries, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. Except as set forth in Section 3.3(a), there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Viewlogic or any of its Subsidiaries is a party or by
which it is bound obligating Viewlogic or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of Viewlogic or any of its Subsidiaries or obligating Viewlogic or
any of its Subsidiaries to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement, and, except for the Voting Agreements and related proxies
contemplated by this Agreement, there are no voting trusts, proxies or other
agreements or understandings with respect to the shares of capital stock of
Viewlogic.
SECTION 3.4 Authority; No Conflict; Required Filings and Consents.
(a) Viewlogic has all requisite corporate power and authority to enter into
this Agreement and the Non-Disclosure Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Non-Disclosure Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate and stockholder action on the part of Viewlogic, subject
only (in the case of this Agreement and certain of the transactions contemplated
hereby) to the approval of the Merger by Viewlogic and Synopsys' stockholders in
accordance with the DGCL. This Agreement and the Non-Disclosure Agreement have
been duly executed and delivered by Viewlogic and constitute the valid and
binding obligations of Viewlogic, enforceable in accordance with their
respective terms.
(b) The execution and delivery of this Agreement and the Non-Disclosure
Agreement by Viewlogic do not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with, or result in any
violation or breach of any provision of the Certificate of Incorporation or
Bylaws of Viewlogic or
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any of its Subsidiaries (in each case as heretofore amended), (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which Viewlogic or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (iii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Viewlogic or any of its Subsidiaries
or any of their respective properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Viewlogic or any of its Subsidiaries in
connection with the execution and delivery of this Agreement or the
Non-Disclosure Agreement or the consummation of the transactions contemplated
hereby or thereby, except for (i) the filing of a premerger notification report
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (ii) the filing by Synopsys of the Registration Statement (as
defined in Section 3.18) with the Securities and Exchange Commission (the "SEC")
in accordance with the Securities Act of 1933, as amended (the "Securities
Act"), (iii) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware in accordance with the DGCL, and (iv) the filing of the
Proxy Statement (as defined in Section 3.18) and related proxy materials with
the SEC in accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
SECTION 3.5 SEC Filings; Financial Statements.
(a) Viewlogic has filed all forms, reports and documents required to be
filed by Viewlogic with the SEC since January 1, 1996 and has made available to
Synopsys all of the same so filed, other than the unredacted version of
documents for which confidential treatment has been granted by the SEC or for
which such treatment has been applied and such application is pending
(collectively, the "Viewlogic SEC Reports"). The Viewlogic SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Viewlogic SEC Reports or necessary in order to
make the statements in such Viewlogic SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Viewlogic's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Viewlogic SEC Reports, including any
Viewlogic SEC Reports filed after the date of this Agreement prior to the
Closing (the "Viewlogic Financial Statements"), complied or will comply as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was or will be prepared in
accordance with U.S. generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q promulgated by the SEC), and fairly
presented or will fairly present in all material respects, the consolidated
financial position of Viewlogic and its Subsidiaries as at the respective dates
and the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount.
SECTION 3.6 Absence of Undisclosed Liabilities. Viewlogic and its
Subsidiaries do not have any liabilities, either accrued or contingent (whether
or not required to be reflected in financial statements, including the notes
thereto, in accordance with GAAP), and whether due or to become due, which
individually or in the aggregate, are or would be reasonably likely to have a
Viewlogic Material Adverse Effect, other than (i) liabilities reflected in the
unaudited consolidated balance sheet of Viewlogic as of September 30, 1997 (the
"Viewlogic Balance Sheet") (which as of the date of this Agreement had not been
filed with the SEC), and (ii) normal or recurring liabilities incurred since
September 30, 1997 in the ordinary course of business consistent with past
practices.
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SECTION 3.7 Absence of Certain Changes or Events. Since the date of the
Viewlogic Balance Sheet, Viewlogic and its Subsidiaries have conducted their
businesses only in the ordinary course, in a manner consistent with past
practice, and there has not been: (i) any Viewlogic Material Adverse Effect;
(ii) any damage, destruction or loss (whether or not covered by insurance) with
respect to Viewlogic or any of its Subsidiaries having a Viewlogic Material
Adverse Effect; (iii) any material change by Viewlogic or any of its
Subsidiaries in its accounting methods, principles or practices to which
Synopsys has not previously consented in writing; (iv) any revaluation by
Viewlogic or any of its Subsidiaries of any of its assets having a Viewlogic
Material Adverse Effect, including writing down the value of capitalized
software or inventory or writing off notes or accounts receivable, other than in
the ordinary course of business consistent with past practice, unless Synopsys
has previously consented in writing thereto; or (v) any other action or event
that would have required the consent of Synopsys pursuant to Section 5.1 had
such action or event occurred after the date of this Agreement and that could
reasonably be expected to result in a Viewlogic Material Adverse Effect.
SECTION 3.8 Taxes.
(a) For purposes of this Agreement, a "Tax" or, collectively, "Taxes" means
any and all material federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, including taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Each of Viewlogic and its Subsidiaries has accurately prepared and
timely filed all material federal, state, local and foreign returns, estimates,
information statements and reports required to be filed at or before the
Effective Time ("Returns") relating to any and all Taxes concerning or
attributable to Viewlogic or any of its Subsidiaries or to their operations, and
such Returns are true and correct in all material respects.
(c) Each of Viewlogic and its Subsidiaries as of the Effective Time: (i)
will have paid all Taxes it is required to pay prior to the Effective Time, and
(ii) will have withheld with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld, except where
any failure to make such payment or withholding would not be reasonably likely
to have a Viewlogic Material Adverse Effect.
(d) There is no Tax deficiency outstanding, proposed or assessed against
Viewlogic or any of its Subsidiaries that is not reflected as a liability on the
Viewlogic Balance Sheet nor has Viewlogic or any of its Subsidiaries executed
any waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax (other than Taxes in the ordinary course of
business in an amount that is not material to Viewlogic and its Subsidiaries
taken together as a whole).
(e) Neither Viewlogic nor any of its Subsidiaries has any material
liability for unpaid Taxes that has not been accrued for or reserved on the
Viewlogic Balance Sheet, whether asserted or unasserted, contingent or
otherwise.
SECTION 3.9 Properties. All material real property leases ("Material
Lease(s)") of Viewlogic and its Subsidiaries are in good standing, valid and
effective in accordance with their respective terms, and neither Viewlogic nor
its Subsidiaries is in default under any of such leases, except where the lack
of such good standing, validity or effectiveness or the existence of such
default would not be reasonably likely to have a Viewlogic Material Adverse
Effect.
SECTION 3.10 Intellectual Property.
(a) Viewlogic and its Subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights and mask works, any applications for and registrations
of such patents, trademarks, trade names, service marks, copyrights and mask
works, and all processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are necessary to conduct the business
of
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Viewlogic and its Subsidiaries as currently conducted, or planned to be
conducted, the absence of which would be reasonably likely to have a Viewlogic
Material Adverse Effect (the "Viewlogic Intellectual Property Rights").
(b) Neither Viewlogic nor any of its Subsidiaries is, or will as a result
of the execution and delivery of this Agreement or the performance of
Viewlogic's obligations under this Agreement or otherwise be, in breach of any
license, sublicense or other agreement relating to the Viewlogic Intellectual
Property Rights, or any material licenses, sublicenses and other agreements as
to which Viewlogic or any of its Subsidiaries is a party and pursuant to which
Viewlogic or any of its Subsidiaries is authorized to use any third party
patents, trademarks or copyrights, including software ("Viewlogic Third Party
Intellectual Property Rights") which is used in the manufacture of, incorporated
in, or forms a part of any product sold by or expected to be sold by Viewlogic
or any of its Subsidiaries, the breach of which would be reasonably likely to
have a Viewlogic Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Viewlogic or any of its Subsidiaries, and which are material to the
business of Viewlogic and its Subsidiaries, taken as a whole, are valid and
subsisting. Viewlogic (i) has not been sued in any suit, action or proceeding
which involves a claim of infringement of any patents, trademarks, service
marks, copyrights or violation of any trade secret or other proprietary right of
any third party; and (ii) has no knowledge that the manufacturing, marketing,
licensing or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would reasonably be expected to have a Viewlogic Material Adverse
Effect.
SECTION 3.11 Agreements, Contracts and Commitments. Neither Viewlogic nor
any of its Subsidiaries has breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any agreement, contract
or commitment that (i) is filed as an exhibit to a Viewlogic SEC Report or (ii)
with respect to agreements, contracts or commitments entered into by Viewlogic
since June 30, 1997, would have been required to be filed as an exhibit to a
Viewlogic SEC Report had they been entered into prior to such date ("Viewlogic
Material Contracts") in such a manner as would permit any other party to cancel
or terminate the same or would permit any other party to collect material
damages from Viewlogic or any of its Subsidiaries under any Viewlogic Material
Contract. Each Viewlogic Material Contract that has not expired or been
terminated in accordance with its terms is in full force and effect and is not
subject to any material default thereunder of which Viewlogic is aware by any
party obligated to Viewlogic or any of its Subsidiaries pursuant to such
Viewlogic Material Contract. To the knowledge of Viewlogic, none of the parties
to the Viewlogic Material Contracts have terminated, or in any way expressed an
intent to materially reduce or terminate the amount of business with Viewlogic
and its Subsidiaries in the future.
SECTION 3.12 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against Viewlogic or any of its Subsidiaries
pending or as to which Viewlogic has received any written notice of assertion,
which, if decided adversely to Viewlogic or any Subsidiary, would be reasonably
expected to have a Viewlogic Material Adverse Effect, or a material adverse
effect on the ability of Viewlogic to consummate the transactions contemplated
by this Agreement.
SECTION 3.13 Environmental Matters. As of the date hereof, to its
knowledge, no underground storage tanks are present under any property that
Viewlogic or any of its Subsidiaries currently occupies or that Viewlogic or any
of its Subsidiaries has at any time owned, operated, occupied or leased and no
amount of any Hazardous Material (as defined in Section 9.3) is present as a
result of the actions of Viewlogic or any of its Subsidiaries, or, to the
knowledge of Viewlogic, any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereon, that Viewlogic or any of its Subsidiaries has at any time
owned, operated, occupied or leased, where the presence of such underground
storage tanks or Hazardous Material would be reasonably likely to have a
Viewlogic Material Adverse Effect. At no time has Viewlogic or any of its
Subsidiaries engaged in any Hazardous Materials Activities (as defined in
Section 9.3) in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity to prohibit, regulate or control Hazardous Materials
or any Hazardous Material Activity, which violation has or would be reasonably
likely to have a Viewlogic Material Adverse Effect. Viewlogic and
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its Subsidiaries hold all Environmental Permits (as defined in Section 9.3), the
absence of which would be reasonably likely to have a Viewlogic Material Adverse
Effect. No action, proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending or, to the knowledge of Viewlogic, threatened
concerning any Environmental Permit or any Hazardous Materials Activity of
Viewlogic or any of its Subsidiaries. Viewlogic is not aware of any fact or
circumstance which could involve Viewlogic or any of its Subsidiaries in any
environmental litigation or impose upon Viewlogic or any of its Subsidiaries any
environmental liability which would be reasonably likely to have a Viewlogic
Material Adverse Effect.
SECTION 3.14 Employee Benefit Plans.
(a) Viewlogic has made available to Synopsys all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
employee benefit plans, and all material unexpired severance agreements
(pursuant to which payments are still payable by Viewlogic), written or
otherwise, for the benefit of, or relating to, any current or former employee of
Viewlogic or any of its Subsidiaries or any trade or business (whether or not
incorporated) which is a member or which is under common control with Viewlogic
within the meaning of Section 414 of the Code (an "ERISA Affiliate") (together,
the "Viewlogic Employee Plans").
(b) With respect to each Viewlogic Employee Plan, Viewlogic has made
available to Synopsys a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the Internal Revenue Service ("IRS") with respect
to a Viewlogic Employee Plan subject to such filing requirement, (ii) each trust
agreement and group annuity contract, if any, relating to such Viewlogic
Employee Plan and (iii) the most recent actuarial report or valuation relating
to a Viewlogic Employee Plan subject to Title IV of ERISA.
(c) With respect to the Viewlogic Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Viewlogic, there
exists no condition or set of circumstances in connection with which Viewlogic
or any of its Subsidiaries could be subject to any liability that would be
reasonably likely to have a Viewlogic Material Adverse Effect under ERISA, the
Code or any other applicable law.
(d) With respect to the Viewlogic Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with GAAP, on the Viewlogic Financial Statements, which
obligations would be reasonably expected to have a Viewlogic Material Adverse
Effect.
(e) Except as provided for in this Agreement, neither Viewlogic nor any of
its Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
Viewlogic or any of its Subsidiaries, the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Viewlogic of the nature contemplated by this Agreement, (iii)
agreement with any officer of Viewlogic or any of its Subsidiaries providing any
term of employment or compensation guarantee extending for a period longer than
one year from the date hereof or for the payment of compensation in excess of
$100,000 per annum, or (iv) agreement or plan, including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement.
SECTION 3.15 Compliance with Laws. Each of Viewlogic and its Subsidiaries
has complied in all material respects with all applicable federal, state, local
and foreign statutes, laws and regulations, and is not in violation of, and has
not received any notices of violation with respect to, any such statute, law or
regulation, with respect to the conduct of its business or the ownership or
operation of its business, including the federal Foreign Corrupt Practices Act
and all United States statutes, laws and regulations as from time to time govern
the license and delivery of technology and products abroad by persons subject to
the jurisdiction of the United States.
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SECTION 3.16 Pooling of Interests. Neither Viewlogic nor, to its
knowledge, any of its Affiliates (as defined in Section 6.11) has, through the
date of this Agreement, taken or agreed to take any action which could affect
the ability of Synopsys to account for the business combination to be effected
by the Merger as a pooling of interests.
SECTION 3.17 Interested Party Transactions. Since the date of Viewlogic's
most recent proxy statement to its stockholders, no event has occurred that
would be required to be reported by Viewlogic as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
SECTION 3.18 Registration Statement; Proxy Statement/Prospectus. The
information supplied to Synopsys by Viewlogic expressly for inclusion in the
registration statement on Form S-4 pursuant to which shares of Synopsys Common
Stock to be issued in the Merger will be registered with the SEC (the
"Registration Statement") does not, and at the time the Registration Statement
is declared effective by the SEC shall not, contain any untrue statement of a
material fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the statements in the
Registration Statement, in light of the circumstances under which they were
made, not misleading. The information supplied to Synopsys by Viewlogic
expressly for inclusion in the proxy statement/prospectus (the "Proxy
Statement") to be sent to the stockholders of Viewlogic in connection with the
special meeting of Viewlogic's stockholders to consider this Agreement and the
Merger (the "Viewlogic Stockholders Meeting") and to the stockholders of
Synopsys in connection with the meeting of Synopsys stockholders to approve the
issuance of Synopsys Common Stock in connection with the transactions
contemplated by this Agreement (the "Synopsys Stockholders Meeting") shall not,
on the date the Proxy Statement is first mailed to stockholders of Viewlogic and
stockholders of Synopsys, at the time of the Viewlogic Stockholders Meeting, the
Synopsys Stockholders Meeting or at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it was made,
is false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Viewlogic Stockholders Meeting or the Synopsys
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Viewlogic or any of its Affiliates,
officers or directors should be discovered by Viewlogic which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement, Viewlogic shall promptly notify Synopsys of such event in reasonable
detail.
SECTION 3.19 Payments Resulting from Mergers. Except as provided in this
Agreement, the consummation or announcement of any transaction contemplated by
this Agreement will not (either alone or upon the occurrence of any additional
or further acts or events) result in any (i) material payment (whether of
severance pay or otherwise) becoming due from Viewlogic or any of its
Subsidiaries to any officer, employee, former employee or director thereof or to
the trustee under any management, employment, deferred compensation, severance
(including any payment, right or benefit resulting from a change in control),
bonus or other contract for personal services with any officer, director or
employee or any plan, agreement or understanding similar to any of the
foregoing, or any "rabbi trust" or similar arrangement, or (ii) material benefit
under any Viewlogic benefit plan being established or becoming accelerated,
vested or payable.
SECTION 3.20 Opinion of Financial Advisor. The financial advisor to
Viewlogic, Wessels, Arnold & Henderson, has delivered to Viewlogic an opinion
dated the date of this Agreement to the effect that the Conversion Number is
fair from a financial point of view to the stockholders of Viewlogic.
SECTION 3.21 Business Combination. The Board of Directors of Viewlogic has
taken all actions so that the restrictions contained in Section 203 of the DGCL
applicable to a "business combination" (as defined in Section 203) will not
apply to the execution, delivery or performance of this Agreement or
consummation of the Merger or other transactions contemplated by this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SYNOPSYS AND SUB
Synopsys and Sub represent and warrant to Viewlogic that the statements
contained in this Article IV are true and correct, except (i) as disclosed or
incorporated by reference in the Synopsys SEC Reports (as defined in Section
4.4(a)) filed prior to the date of this Agreement (ii) in the case of the
representations and warranties in Sections 4.1, 4.2, 4.4(b), 4.5 through 4.15
and 4.17, where the failure to be true and correct would not, either
individually or in the aggregate, have a Synopsys Material Adverse Effect (as
defined below), or (iii) as set forth on the disclosure schedule delivered by
Synopsys to Viewlogic prior to execution of this Agreement (the "Synopsys
Disclosure Schedule"). When used in connection with Synopsys or any of its
Subsidiaries, the term "Synopsys Material Adverse Effect" means any change,
event or effect that is materially adverse to the business, assets (including
intangible assets), liabilities, financial condition, operations or results of
operations of Synopsys and its Subsidiaries, taken as a whole; provided,
however,that the following shall not be deemed to constitute a "Synopsys
Material Adverse Effect": (i) an adverse change in or effect on the financial
condition, revenues or gross margins of Synopsys (or the direct consequences
thereof) following the date of this Agreement to the extent attributable to (A)
a delay of, reduction in or cancellation or change in the terms of product
licenses by customers of Synopsys, (B) a slow down in the activity of Synopsys's
sales organization or (C) the loss of any officer or key employee of Synopsys to
the extent attributable directly and primarily to the transactions contemplated
by this Agreement; (ii) an adverse change in or effect on the market price of
Synopsys Common Stock between the date of this Agreement and the Closing Date;
(iii) a failure of quarterly results of operations for any quarter ending
between the date of this Agreement and the Closing Date to meet generally
analysts' expectations as reflected in the First Call Consensus estimate; or
(iv) the outcome of any litigation disclosed pursuant to Section 4.12.
SECTION 4.1 Organization. Each of Synopsys, Sub and the other Subsidiaries
of Synopsys is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Synopsys
Material Adverse Effect. Neither Synopsys nor any of its Subsidiaries directly
or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any such equity or similar
interest in, any corporation, limited liability company, partnership, joint
venture or other business association or entity, excluding securities of any
publicly traded company held for investment by Synopsys and comprising less than
five percent of the outstanding stock of such company.
SECTION 4.2 Synopsys Subsidiaries and Joint Ventures. All of the issued
and outstanding shares of capital stock of each Subsidiary are owned by Synopsys
or by a Subsidiary of Synopsys and are validly issued, fully paid, and
nonassessable, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants with respect to any such
Subsidiary's capital stock, including any right obligating any such Subsidiary
to issue, deliver, or sell additional shares of its capital stock.
SECTION 4.3 Synopsys Capital Structure.
(a) The authorized capital stock of Synopsys consists of 100,000,000 shares
of Synopsys Common Stock and 2,000,000 shares of Preferred Stock, $0.01 par
value ("Synopsys Preferred Stock"). As of September 27, 1997: (i) 52,721,321
shares of Synopsys Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable; (ii) no shares of Synopsys Common
Stock were held in the treasury of Synopsys or by Subsidiaries of Synopsys;
(iii) 7,935,584 shares of Synopsys Common Stock were reserved for issuance in
respect of outstanding options issued under the Synopsys 1992 Stock Option Plan
and 151,832 shares of Synopsys Common Stock were reserved for issuance in
respect of options authorized for future issuance under the Synopsys 1992 Stock
Option Plan, and (iv) 89,000 shares of Synopsys Common Stock were reserved for
issuance in respect of outstanding options issued under the Synopsys 1994
Non-Employee Directors Plan and 156,000 shares of Synopsys Common Stock were
reserved for future issuance in respect of options authorized for future
issuance under the Synopsys 1994 Non-Employee Directors Plan. (The
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Synopsys 1992 Stock Option Plan and the Synopsys 1994 Non-Employee Directors
Option Plan are hereinafter sometimes referred to as the "Synopsys Option
Plans".) As of September 27, 1997, 361,818 shares of Synopsys Common Stock were
reserved for future issuance pursuant to rights outstanding under the Synopsys
Employee Stock Purchase Plan (the "Synopsys Purchase Plan"). No material change
in such capitalization has occurred between September 30, 1997 and the date of
this Agreement. As of the date of this Agreement, none of the shares of Synopsys
Preferred Stock are issued and outstanding. All shares of Synopsys Common Stock
subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. There
are no obligations, contingent or otherwise, of Synopsys or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Synopsys
Common Stock or the capital stock of any Synopsys Subsidiary or to provide funds
to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
debt obligations of such Subsidiaries entered into in the ordinary course of
business. All of the outstanding shares of capital stock of each Subsidiary of
Synopsys are duly authorized, validly issued, fully paid and nonassessable, and
all such shares (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by Synopsys or another Synopsys Subsidiary free and
clear of all security interests, liens, claims, pledges, agreements, limitations
on the voting rights of Synopsys, charges or other encumbrances of any nature.
(b) Except as contemplated by this Agreement or as reserved for future
grants of options under the Synopsys Option Plans or the Synopsys Purchase Plan,
there are no equity securities of any class of Synopsys or any of its
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except as contemplated
by this Agreement, there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which Synopsys or any of
its Subsidiaries is a party or by which it is bound obligating Synopsys or any
of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock of Synopsys or any of its
Subsidiaries or obligating Synopsys or any of its Subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement, and to the best knowledge of
Synopsys, there are no voting trusts, proxies or other agreements or
understandings with respect to the shares of capital stock of Synopsys.
SECTION 4.4 Authority; No Conflict; Required Filings and Consents.
(a) Synopsys has all requisite corporate power and authority to enter into
this Agreement and the Non-Disclosure Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Non-Disclosure Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate and stockholder action on the part of Synopsys, subject only
to the approval by Synopsys stockholders of the issuance of the shares of
Synopsys Common Stock issuable pursuant to this Agreement. This Agreement and
the Non-Disclosure Agreement have been duly executed and delivered by Synopsys
and constitutes the valid and binding obligation of Synopsys, enforceable in
accordance with the terms hereof and thereof.
(b) The execution and delivery of this Agreement and the Non-Disclosure
Agreement by Synopsys do not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with, or result in any
violation or breach of any provision of the Certificate of Incorporation or
Bylaws of Synopsys or any of its Subsidiaries (in each case as heretofore
amended), (ii) result in any violation or breach of, or constitute (with or
without notice or lapse of time, or both) a default (or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contractor other agreement, instrument or obligation
to which Synopsys or any of its Subsidiaries is a party or by which any of them
or any of their respective properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Synopsys or
any of its Subsidiaries or any of its or their respective properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Synopsys or any of its Subsidiaries in connection with
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the execution and delivery of this Agreement or the Non-Disclosure Agreement or
the consummation of the transactions contemplated hereby and thereby, except for
(i) the filing of a premerger notification report under the HSR Act, (ii) the
filing of the Registration Statement with the SEC in accordance with the
Securities Act, (iii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and the laws of any foreign
country, (v) the filing of the Registration Statement and the Proxy Statement
with the SEC in accordance with the Securities Act and the Exchange Act and (vi)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not be reasonably likely to have a Synopsys
Material Adverse Effect or a material adverse effect on the ability of Synopsys
to consummate the transactions contemplated by this Agreement.
SECTION 4.5 SEC Filings; Financial Statements.
(a) Synopsys has filed all forms, reports and documents required to be
filed by Synopsys with the SEC since January 1, 1996 (collectively, the
"Synopsys SEC Reports") and has made available to Viewlogic all of the same so
filed. The Synopsys SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Synopsys SEC Reports or
necessary in order to make the statements in such Synopsys SEC Reports, in the
light of the circumstances under which they were made, not misleading. No
Synopsys Subsidiary is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Synopsys SEC Reports, including any
Synopsys SEC Reports filed after the date of this Agreement prior to the
Closing, complied or will comply as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
or will be prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q promulgated by the SEC) and fairly presented or will present, in all
material respects, the consolidated financial position of Synopsys and its
Subsidiaries as at the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount.
SECTION 4.6 Absence of Undisclosed Liabilities. Synopsys and its
Subsidiaries do not have any liabilities, either accrued or contingent (whether
or not required to be reflected in financial statements, including the notes
thereto, in accordance with GAAP), and whether due or to become due, which
individually or in the aggregate would be reasonably likely to have a Synopsys
Material Adverse Effect, other than (i) liabilities reflected in the unaudited
consolidated balance sheet of Synopsys as of September 30, 1997 (the "Synopsys
Balance Sheet") (which as of the date of this Agreement has not been filed with
the SEC), and (ii) normal or recurring liabilities incurred since September 30,
1997 in the ordinary course of business consistent with past practices.
SECTION 4.7 Absence of Certain Changes or Events. Since the date of the
Synopsys Balance Sheet, Synopsys and its Subsidiaries have conducted their
businesses only in the ordinary course, in a manner consistent with past
practice, and there has not been: (i) any Synopsys Material Adverse Effect; (ii)
any damage, destruction or loss (whether or not covered by insurance) with
respect to Synopsys or any of its Subsidiaries having a Synopsys Material
Adverse Effect; (iii) any material change by Synopsys in its accounting methods,
principles or practices to which Viewlogic has not previously consented in
writing; (iv) any revaluation by Synopsys of any of its assets having a Synopsys
Material Adverse Effect, including writing down the value of capitalized
software or inventory or writing off notes or accounts receivable other than in
the ordinary course of business consistent with past practice, unless Viewlogic
has previously consented in writing thereto; or (v) any other action or event
that would have required the consent of Viewlogic pursuant to Section 5.2 had
such action or event occurred after the date of this Agreement and that could
reasonably be expected to result in a Synopsys Material Adverse Effect.
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SECTION 4.8 Taxes.
(a) Each of Synopsys and its Subsidiaries has accurately prepared and
timely filed all material required Returns relating to any and all Taxes
concerning or attributable to Synopsys or its operations and such Returns are
true and correct in all material respects.
(b) Each of Synopsys and its Subsidiaries as of the Effective Time: (i)
will have paid all Taxes it is required to pay prior to the Effective Time and
(ii) will have withheld with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld, except where
any failure to make payment or withholding would not be reasonably likely to
have a Synopsys Material Adverse Effect.
(c) There is no Tax deficiency outstanding, proposed or assessed against
Synopsys or any of its Subsidiaries that is not reflected as a liability on the
Synopsys Balance Sheet nor has Synopsys or any of its Subsidiaries executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax (other than Taxes in the ordinary course of
business in an amount that is not material to Synopsys and its Subsidiaries
taken as a whole).
(d) Neither Synopsys nor any of its Subsidiaries has any material liability
for unpaid Taxes that have not been accrued for or reserved on Synopsys Balance
Sheet, whether asserted or unasserted, contingent or otherwise.
SECTION 4.9 Properties. All Material Leases under which Synopsys and its
Subsidiaries lease real property are in good standing, valid and effective in
accordance with their respective terms, and neither Synopsys nor any of its
Subsidiaries is in default under any material provision of such Material Leases,
except where the lack of such good standing, validity and effectiveness or the
existence of such default would not be reasonably likely to have a Synopsys
Material Adverse Effect.
SECTION 4.10 Intellectual Property.
(a) Synopsys and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or material that are necessary to conduct the business of Synopsys
and its subsidiaries as currently conducted or planned to be conducted, the
absence of which would be reasonably likely to have a Synopsys Material Adverse
Effect (the "Synopsys Intellectual Property Rights").
(b) Neither Synopsys nor any of its Subsidiaries has or will it be as a
result of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Synopsys Intellectual Property Rights or any material
license, sublicense or other agreement pursuant to which Synopsys is authorized
to use any third party patents, trademarks or copyrights, including software,
which is used in the manufacture of, incorporated in, or forms a part of any
Synopsys product sold or expected to be sold by Synopsys or any of its
Subsidiaries, the breach of which would be reasonably likely to have a Synopsys
Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Synopsys or any of its Subsidiaries and which are material to the
business of Synopsys and its Subsidiaries, taken as a whole, are valid and
subsisting. Synopsys (i) has not been sued in any suit, action or proceeding
which involves a claim of infringement of any patents, trademarks, service
marks, copyrights or violation of any trade secret or other proprietary right of
any third party; and (ii) has no knowledge that the manufacturing, marketing,
licensing or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would be reasonably likely to have a Synopsys Material Adverse
Effect.
SECTION 4.11 Agreements, Contracts and Commitments. Neither Synopsys nor
any of its Subsidiaries has breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any agreement, contract
or commitment that (i) is filed as an exhibit to a Synopsys SEC Report or (ii)
with
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respect to agreements, contracts or commitments entered into by Synopsys since
June 30, 1997, would have been required to be filed as an exhibit to a Synopsys
SEC Report if they had been entered into prior to such date ("Synopsys Material
Contracts") in such a manner as would permit any other party to cancel or
terminate the same or would permit any other party to collect material damages
from Synopsys under any Synopsys Material Contract. Each Synopsys Material
Contract that has not expired or been terminated in accordance with its terms is
in full force and effect and is not subject to any material default thereunder
of which Synopsys is aware by any party obligated to Synopsys pursuant to such
Synopsys Material Contract. To the knowledge of Synopsys, none of the parties to
the Synopsys Material Contracts have terminated, or in any way expressed an
intent to materially reduce or terminate the amount of business with Synopsys or
its Subsidiaries in the future.
SECTION 4.12 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against Synopsys pending or as to which Synopsys
has received any written notice of assertion, which would be reasonably expected
to have a Synopsys Material Adverse Effect or a material adverse effect on the
ability of Synopsys to consummate the transactions contemplated by this
Agreement.
SECTION 4.13 Environmental Matters. As of the date hereof, to its
knowledge, no underground storage tanks are present under any property that
Synopsys or any of its Subsidiaries currently occupies, or that Synopsys or any
of its Subsidiaries has at anytime owned, operated, occupied or leased. As of
the date hereof, no amount of any Hazardous Material (as defined in Section 9.3)
is present as a result of the actions of Synopsys or any of its Subsidiaries,
or, to the knowledge of Synopsys, as a result of any actions of any third party
or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereon, that Synopsys or any of
its Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such Hazardous Materials would be reasonably likely to have a
Synopsys Material Adverse Effect. At no time has Synopsys or any of its
Subsidiaries engaged in Hazardous Materials Activities (as defined in Section
9.3) in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity which have had or would be reasonably likely to have
a Synopsys Material Adverse Effect. Synopsys and Subsidiaries hold all
Environmental Permits (as defined in Section 9.3), the absence of which would be
reasonably likely to have a Synopsys Material Adverse Effect. No action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending or, to the knowledge of Synopsys, threatened concerning any
Environmental Permit or any Hazardous Materials Activity of Synopsys or any of
its Subsidiaries. Synopsys is not aware of any fact or circumstance which could
involve Synopsys or any of its Subsidiaries in any environmental litigation or
impose upon Synopsys or any of its Subsidiaries any environmental liability,
which would be reasonably likely to have a Synopsys Material Adverse Effect.
SECTION 4.14 Employee Benefit Plans.
(a) Synopsys has made available to Viewlogic all employee benefit plans (as
defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar employee benefit plans, and all material unexpired severance agreements
(pursuant to which payments are still payable by Synopsys), written or
otherwise, for the benefit of, or relating to, any current or former employee of
Synopsys or any ERISA Affiliate of Synopsys (together, the "Synopsys Employee
Plans").
(b) With respect to each Synopsys Employee Plan, Synopsys has made
available to Viewlogic, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS with respect to Synopsys Employee Plan
subject to such filing requirement, (ii) each trust agreement and group annuity
contract, if any, relating to such Synopsys Employee Plan and (iii) the most
recent actuarial report or valuation relating to a Synopsys Employee Plan
subject to Title IV of ERISA.
(c) With respect to the Synopsys Employee Plans, individually and in the
aggregate, no event has occurred, and, to the knowledge of Synopsys, there
exists no condition or set of circumstances in connection with which Synopsys
could be subject to any liability that could reasonably expected to have a
Synopsys Material Adverse Effect, under ERISA, the Code or any other applicable
law.
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(d) With respect to the Synopsys Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with GAAP on the financial statements of Synopsys, which
obligations would be reasonably likely to have a Synopsys Material Adverse
Effect.
(e) Except as provided for in this Agreement, neither Synopsys nor any of
its Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
Synopsys or any of its Subsidiaries, the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Synopsys of the nature contemplated by this Agreement, (iii) agreement
with any officer of Synopsys providing any term of employment or compensation
guarantee extending for a period longer than one year from the date hereof, or
(iv) agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
SECTION 4.15 Compliance with Laws. Each of Synopsys and its Subsidiaries
has complied with all federal, state, local and foreign statutes, laws and
regulations, and, is not in violation of, and has not received any notices of
violation with respect to, any such statute, law or regulation, with respect to
the conduct of its business or the ownership or operation of its business,
including the federal Foreign Corrupt Practices Act and all United States
statutes, laws and regulations as from time to time govern the license and
delivery of technology and products abroad by persons subject to the
jurisdiction of the United States, except for failures to comply or violations
which would not be reasonably likely to have a Synopsys Material Adverse Effect.
SECTION 4.16 Pooling of Interests. Neither Synopsys nor, to its knowledge,
any of its Affiliates (as defined in Section 6.11) has, through the date of this
Agreement, taken or agreed to take any action which would affect the ability of
Synopsys to account for the business combination to be effected by the Merger as
a pooling of interests.
SECTION 4.17 Interested Party Transactions. Since the date of the most
recent proxy statement of Synopsys to its stockholders, no event has occurred
that would be required to be reported by Synopsys as a Certain Relationship or
Related Transaction pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
SECTION 4.18 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Synopsys expressly for inclusion in the Registration
Statement shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied to Viewlogic by Synopsys expressly for inclusion in the Proxy Statement
shall not, on the date the Proxy Statement is first mailed to stockholders of
Viewlogic, at the time of the Viewlogic Stockholders Meeting or at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Proxy Statement not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Viewlogic
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Synopsys or any of its affiliates,
officers or directors should be discovered by Synopsys which should be set forth
in an amendment to the Registration Statement or a supplement to the Proxy
Statement, Synopsys shall promptly inform Viewlogic.
SECTION 4.19 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
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ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.1 Covenants of Viewlogic. Except as expressly contemplated by
this Agreement, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement pursuant to Section 8.1
or the Effective Time, Viewlogic agrees as to itself and its Subsidiaries,
except to the extent that Synopsys shall otherwise consent in writing (which
consent shall not be unreasonably withheld or delayed), to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due, subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and to use all reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and key employees and (iii)
preserve its relationships with customers, suppliers, distributors, licensors,
licensees and others having business dealings with it. Without limiting the
generality of the foregoing, Viewlogic shall not (and shall not permit any of
its Subsidiaries to), without the prior written consent of Synopsys (which
consent shall not be unreasonably withheld or delayed):
(a) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of
Viewlogic, including the Viewlogic Stock Plans, or authorize cash payments
in exchange for any options granted under any of such plans except as
required by the terms of such plans or any related agreements in effect as
of the date of this Agreement or as disclosed in the Viewlogic Disclosure
Schedule;
(b) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Viewlogic Intellectual Property Rights
other than in the ordinary course of business consistent with past
practices;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(d) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities other than (i) the issuance of rights to purchase shares of
Viewlogic Common Stock as and to the extent required under the Viewlogic
Option Plans and the issuance of Viewlogic Common Stock upon exercise
thereof; and (ii) the issuance of Viewlogic Common Stock upon the exercise
of Viewlogic Stock Options (as defined in Section 6.13(a)) outstanding on
the date of this Agreement in accordance with their present terms or
pursuant to the Viewlogic Purchase Plan in accordance with its present
terms, and (iii) the granting, in the ordinary course of business
consistent with past practice, pursuant to Viewlogic Stock Plans in effect
on the date of this Agreement, of Viewlogic Options to purchase up to
270,000 shares of Viewlogic Common Stock, and the issuance of Viewlogic
Common Stock upon exercise thereof;
(e) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, except as set forth
in the Viewlogic Disclosure Schedule;
(f) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Viewlogic and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of Viewlogic's business
consistent with past practice;
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(g) take any action to: (i) increase or agree to increase the
compensation payable or to become payable to its officers or employees,
except for increases in salary or wages of employees in accordance with
agreements entered into before the date of this Agreement or otherwise in
the ordinary course of Viewlogic's business consistent with past practices,
(ii) grant any additional severance or termination pay to, or enter into
any employment or severance agreements with, officers, (iii) grant any
severance or termination pay to, or enter into any employment or severance
agreement, with any employee, except in accordance with agreements entered
into before the date of this Agreement or otherwise in the ordinary course
of Viewlogic's business consistent with past practices, (iv) enter into any
collective bargaining agreement, or (v) establish, adopt, enter into or
amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust,
fund, policy or arrangement for the benefit of any directors, officers or
employees;
(h) amend or propose to amend its Certificate of Incorporation or
Bylaws, except as contemplated by this Agreement; or
(i) take, or agree in writing or otherwise to take, any of the actions
described in the foregoing clauses (a) through (h), or any action which is
reasonably likely to make any of Viewlogic's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
SECTION 5.2 Covenants of Synopsys. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
pursuant to Section 8.1 or the Effective Time, except as expressly contemplated
by this Agreement, Synopsys shall not, without the prior written consent of
Viewlogic (which consent shall not be unreasonably withheld or delayed):
(a) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock (other than stock splits of
the Synopsys Common Stock or stock dividends payable in shares of Synopsys
Common Stock), or purchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service by such party;
(b) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or convertible securities,
other than (i) the issuance of such shares or convertible securities
pursuant to a transaction in which Synopsys acquires or agrees to acquire
by merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or otherwise, any
business or any corporation, partnership or other business organization or
division, for consideration having a fair market value (at the time of the
public announcement of such acquisition or agreement) of less than $100
million, or (ii) the grant to employees, directors or consultants of
options to purchase Synopsys Common Stock in the ordinary course of
business consistent with past practices pursuant to agreements and plans
entered into or established before the date of this Agreement or otherwise
in the ordinary course of business consistent with past practices, or (iii)
as contemplated in this Agreement;
(c) amend or propose to amend its Certificate of Incorporation or
Bylaws, except as contemplated by this Agreement;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or otherwise, any business or any corporation, partnership
or other business organization or division, for consideration having a fair
market value (at the time of the public announcement of such acquisition or
agreement) in excess of $100 million;
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(e) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Synopsys and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business; or
(f) take, or agree in writing or otherwise to take, any of the actions
described in clauses (a) through (e) above, or any action which is
reasonably likely to make any representations or warranties of Synopsys
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
SECTION 5.3 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Synopsys and Viewlogic shall
confer on a regular and frequent basis with one or more representatives of the
other party to report operational matters of materiality and the general status
of ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, Viewlogic shall not, directly or indirectly, through any officer,
director, employee, representative or agent, (i) solicit, initiate or
encourage any inquiries or proposals that constitute, or could reasonably
be expected to lead to, a proposal or offer for a merger, consolidation,
share exchange, business combination, sale of substantial assets, sale of
shares of capital stock (including without limitation pursuant to a tender
offer) or similar transaction or series of transactions involving
Viewlogic, other than the transactions contemplated by this Agreement (any
of the foregoing inquiries or proposals being referred to in this Agreement
as an "Acquisition Proposal"), or (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person
or entity relating to, any Acquisition Proposal, or (iii) agree to, approve
or recommend any Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent Viewlogic or its Board of
Directors from (A) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with
an unsolicited bona fide written Acquisition Proposal by such person or
entity (including a new and unsolicited Acquisition Proposal received by
Viewlogic after the execution of this Agreement from a person or entity
whose initial contact with Viewlogic may have been solicited by Viewlogic
prior to the execution of this Agreement) or recommending such an
unsolicited bona fide written Acquisition Proposal to the shareholders of
Viewlogic, if and only to the extent that (1) the Board of Directors of
Viewlogic believes in good faith (after consultation with and based upon
the advice of its financial advisor) that such Acquisition Proposal would,
if consummated, result in a transaction more favorable to Viewlogic
shareholders from a financial point of view than the transaction
contemplated by this Agreement (any such more favorable Acquisition
Proposal being referred to in this Agreement as a "Superior Proposal") and
the Board of Directors of Viewlogic determines in good faith after
consultation with and based upon the advice of outside legal counsel that
such action is necessary for Viewlogic to comply with its fiduciary duties
to its shareholders under applicable law and (2) prior to furnishing such
non-public information to, or entering into discussions or negotiations
with, such person or entity, such Board of Directors receives from such
person or entity an executed non-disclosure agreement with terms no less
favorable to such party than those contained in the Non-Disclosure
Agreement or (B) complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal.
(b) Upon compliance with the foregoing, following receipt of a
Superior Proposal, Viewlogic shall be entitled to (i) withdraw, modify or
refrain from making its recommendation referred to in Section 6.2 and
approve and recommend to the shareholders of Viewlogic a Superior Proposal
and (ii) enter into an
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agreement with such third party concerning a Superior Proposal provided
that Viewlogic shall concurrently make payment in full to Synopsys of the
fee provided in Section 8.3(b) below.
(c) Viewlogic shall notify Synopsys within 24 hours after receipt by
Viewlogic (or its advisors) of any Acquisition Proposal or any request for
non-public information in connection with an Acquisition Proposal or for
access to the properties, books or records of Viewlogic by any person or
entity that informs Viewlogic that it is considering making, or has made,
an Acquisition Proposal. Such notice shall be made orally and in writing
and shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact. Viewlogic shall
notify Synopsys of any discussions with any such offeror within 24 hours of
such discussions and shall disclose to Synopsys within such 24-hour period
the substance of such discussions in reasonable detail.
(d) Viewlogic shall be entitled to provide copies of this Section 6.1
to third parties who, on an unsolicited basis after the date of this
Agreement, contact Viewlogic regarding an Acquisition Proposal, provided
that Synopsys shall concurrently be notified of such contact and delivery
of such copy.
SECTION 6.2 Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, Synopsys and
Viewlogic shall prepare and file with the SEC a preliminary Proxy Statement in
form and substance satisfactory to each of Viewlogic and Synopsys, and Synopsys
shall prepare and file with the SEC the Registration Statement, in which the
Proxy Statement will be included. Each of Synopsys and Viewlogic shall use its
reasonable efforts to respond to any comments of the SEC, to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing and to cause the Proxy Statement to be mailed
to such company's stockholders at the earliest practicable time. As promptly as
practicable after the date of this Agreement, Synopsys and Viewlogic shall
prepare and file any other filings required under the Exchange Act, the
Securities Act or any other federal or state securities laws relating to the
Merger and the transactions contemplated by this Agreement including under the
HSR Act and state takeover laws (the "Other Filings"). Synopsys shall also take
any action (other than qualifying to do business in any jurisdiction in which it
is not now so qualified or filing a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of Synopsys Common Stock in the Merger, and Viewlogic shall
furnish all information concerning Viewlogic and the holders of Viewlogic Common
Stock as may be reasonably required in connection with any such action. Each of
Synopsys and Viewlogic will notify the other promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff or
any other government officials for amendments or supplements to the Registration
Statement, the Proxy Statement or any Other Filing or for additional
information, and will supply the other with copies of all correspondence between
such company or any of its representatives, on the one hand, and the SEC, or its
staff or any other government officials, on the other hand, with respect to the
Registration Statement, the Proxy Statement, the Merger or any Other Filing. The
Proxy Statement, the Registration Statement and the Other Filings shall comply
in all material respects with all applicable requirements of law. Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Proxy Statement, the Registration Statement or any Other Filing, Synopsys or
Viewlogic, as the case may be, shall promptly inform the other of such
occurrence, provide the other party reasonably opportunity to review and
comment, and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of Synopsys and
stockholders of Viewlogic, such amendment or supplement. The Proxy Statement
shall include the recommendations of the Board of Directors of Synopsys in favor
of the issuance of Synopsys Common Stock in connection with the Merger and of
the Board of Directors of Viewlogic in favor of the Merger and this Agreement.
SECTION 6.3 Consents. Each of Synopsys and Viewlogic shall use all
reasonable efforts to obtain all necessary consents, waivers and approvals, and
to make all necessary notifications or filings under any of Synopsys' or
Viewlogic's material agreements, contracts, licenses or leases as may be
necessary or advisable to consummate the Merger and the other transactions
contemplated by this Agreement.
SECTION 6.4 Current Nasdaq Listing. Each of Synopsys and Viewlogic agrees
to continue the listing of Synopsys Common Stock and Viewlogic Common Stock,
respectively, on the Nasdaq National Market until the Closing or the earlier
termination of this Agreement pursuant to Section 8.1
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SECTION 6.5 Access to Information.
(a) Upon reasonable notice, Viewlogic shall (and shall cause each of its
Subsidiaries to) afford (i) to the officers, employees, independent auditors,
legal counsel (including outside legal counsel) and other representatives of
Synopsys, reasonable access, during normal business hours during the period
prior to the Effective Time, to all of Viewlogic and its Subsidiaries'
properties, books, contracts, commitments and records in order that such
Synopsys representatives have a full opportunity to make such investigation as
they reasonably desire to make of Viewlogic and its Subsidiaries and (ii) to the
independent auditors of Synopsys, reasonable access to the audit work papers and
other records of the independent auditors of Viewlogic and its Subsidiaries.
Additionally, Viewlogic and its Subsidiaries will permit such Synopsys
representatives to make such reasonable inspections of Viewlogic and its
Subsidiaries and their respective operations during normal business hours as
Synopsys may reasonably require and Viewlogic and its Subsidiaries will cause
its officers and the officers of its Subsidiaries to furnish Synopsys with such
financial and operating data and other information with respect to the business
and properties of Viewlogic and its Subsidiaries as Synopsys may from time to
time reasonably request. During the period prior to the Effective Time or the
earlier termination of this agreement pursuant to Section 8.1, Viewlogic shall
(and shall cause each of its Subsidiaries to) furnish promptly to Synopsys (i) a
copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of federal
securities laws and (ii) all other information concerning its business,
properties and personnel as Synopsys may reasonably request.
(b) Upon reasonable notice, Synopsys shall (and shall cause each of its
Subsidiaries to) afford (i) to the officers, employees, independent auditors,
outside legal counsel and other representatives of Viewlogic, reasonable access,
during normal business hours during the period prior to the Effective Date, to
all of Synopsys and its Subsidiaries' properties, books, contracts, commitments
and records in order that such Viewlogic representatives have a full opportunity
to make such investigation as they reasonably desire to make of Synopsys and its
Subsidiaries and, (ii) to the independent accountants of Viewlogic, reasonable
access to the audit work papers and other records of the independent auditors of
Synopsys and its Subsidiaries. Additionally, Synopsys and its Subsidiaries will
permit Viewlogic to make such reasonable inspections of Synopsys and its
Subsidiaries and their respective operations during normal business hours as
Viewlogic may reasonably require and Synopsys and its Subsidiaries will cause
its officers and the officers of its Subsidiaries to furnish Viewlogic with such
financial and operating data and other information with respect to the business
and properties of Synopsys and its Subsidiaries as Viewlogic may from time to
time reasonably request. During the period prior to the Effective Time or
earlier termination of this Agreement pursuant to Section 8.1, Synopsys shall
(and shall cause each of its Subsidiaries to) furnish promptly to Viewlogic (i)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of federal
securities laws and (ii) all other information concerning its business,
properties and personnel as Viewlogic may reasonably request.
(c) The parties will hold any information provided pursuant to Section
6.5(a) and (b) in confidence in accordance with the terms of the Non-Disclosure
Agreement. No information or knowledge obtained in any investigation pursuant to
this Section 6.5 shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the Merger.
SECTION 6.6 Stockholder Meetings. As promptly as practicable after the
date hereof, Viewlogic shall duly call, give notice of, convene and hold a
meeting of its stockholders for the purpose of voting upon the Merger and this
Agreement and Synopsys shall duly call, give notice of, convene and hold a
meeting of its stockholders for the purpose of voting upon the issuance of the
shares of Synopsys Common Stock in connection with the Merger. Viewlogic and
Synopsys shall coordinate and cooperate with respect to the timing of such
meetings and shall use their respective reasonable efforts to hold such meetings
on the same day as soon as practicable after the date hereof.
SECTION 6.7 Legal Conditions to Merger. Each of Synopsys and Viewlogic
will take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include furnishing all information required under the HSR Act and
in connection with approvals of or filings with any other Governmental Entity)
and will promptly cooperate with
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and furnish information to each other in connection with any such requirements
imposed upon any of them or any of their Subsidiaries in connection with the
Merger. Each of Synopsys and Viewlogic will, and will cause its Subsidiaries to,
take all reasonable actions necessary (i) to obtain (and to cooperate with each
other in obtaining) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity or other public third party, required to
be obtained or made by Viewlogic, Synopsys or any of their Subsidiaries in
connection with the Merger or the taking of any action contemplated by this
Agreement, (ii) to lift, rescind or mitigate the effect of any injunction or
restraining order or other order adversely affecting its ability to consummate
the transactions contemplated hereby, (iii) to fulfill all conditions applicable
to Synopsys, Viewlogic or Sub pursuant to this Agreement, and (iv) to prevent,
with respect to a threatened or pending temporary, preliminary or permanent
injunction or other order, decree or ruling or statute, rule, regulation or
executive order, the entry, enactment or promulgation thereof, as the case may
be.
SECTION 6.8 Public Disclosure. Except as otherwise required by law, court
process or the rules of the Nasdaq National Market or as provided elsewhere
herein, prior to the Closing or the earlier termination of this Agreement
pursuant to Section 8.1, neither Viewlogic nor Synopsys shall, or shall permit
any of its Subsidiaries to, issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement without the consent of the other party, which consent shall not
be unreasonably withheld or delayed.
SECTION 6.9 Tax-Free Reorganization. Synopsys and Viewlogic shall take no
action to cause the Merger to fail to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
SECTION 6.10 Pooling Accounting. Synopsys and Viewlogic each agrees not to
take any action after the date of this Agreement that would adversely affect the
ability of Synopsys to treat the business combination to be effected by the
Merger as a pooling of interests, and each of Synopsys and Viewlogic agrees to
take such action as may be reasonably required to negate the impact of any past
actions that would adversely impact the ability of Synopsys to treat the
business combination to be effected by the Merger as a pooling of interests.
Each of Viewlogic and Synopsys shall use all reasonable efforts to cause its
respective Affiliates, as defined in Section 6.11, and Subsidiaries not to take
any action that would adversely affect the ability of Synopsys to account for
the business combination to be effected by the Merger as a pooling of interests.
SECTION 6.11 Affiliate Agreements. As soon as practicable following the
date hereof, Viewlogic will provide Synopsys a list of those persons who are, in
the respective reasonable knowledge and judgment of Viewlogic, after
consultation with legal counsel, "affiliates" of Viewlogic, within the meaning
of Rule 145 (each such person who is an "affiliate" of Viewlogic within the
meaning of Rule 145 is referred to herein as an "Affiliate") promulgated under
the Securities Act ("Rule 145"). Viewlogic shall provide Synopsys such
information and documents as the other shall reasonably request for purposes of
reviewing such list and shall notify Synopsys in writing regarding any change in
the identity of such Affiliates prior to the Closing Date. Viewlogic shall use
its reasonable efforts to deliver or cause to be delivered to Synopsys no later
than 10 days from the date hereof from each of the Affiliates of Viewlogic, an
executed Affiliate Agreement, substantially in the form attached hereto as
Exhibit B, by which each such Affiliate of Viewlogic agrees to, among other
things, comply with the applicable requirements of Rule 145 (an "Affiliate
Agreement"). Synopsys shall be entitled to place appropriate legends on the
certificates evidencing any Synopsys Common Stock to be received by such
Affiliates of Viewlogic pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Synopsys
Common Stock, consistent with the terms of the Affiliate Agreements. Following
the Effective Time, Synopsys shall use all reasonable efforts to cause its
"affiliates" within the meaning of Rule 145 (its "Affiliates") to make any
dispositions of Synopsys Common Stock in accordance with the applicable
provisions of Rule 145 under the Exchange Act.
SECTION 6.12 Nasdaq Listing. Synopsys shall use its best efforts to cause
the shares of Synopsys Common Stock to be issued in the Merger, and those
required to be reserved for issuance in connection with the Merger, to be
approved for listing on the Nasdaq National Market, subject to official notice
of issuance, prior to the Closing Date.
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SECTION 6.13 Stock Plans and Options.
(a) At the Effective Time, each outstanding option to purchase shares of
Viewlogic Common Stock (a "Viewlogic Stock Option") under the Viewlogic Option
Plans, whether vested or unvested, shall be assumed by Synopsys. Accordingly,
each Viewlogic Stock Option shall be deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Viewlogic Stock
Option, the same number of shares of Synopsys Common Stock as the holder of such
Viewlogic Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full including as to unvested
shares, immediately prior to the Effective Time (rounded down to the nearest
whole number), at a price per share (rounded up to the nearest whole cent) equal
to (i) the aggregate exercise price for the shares of Viewlogic Common Stock
otherwise purchasable pursuant to such Viewlogic Stock Option divided by (ii)
the number of full shares of Synopsys Common Stock deemed purchasable pursuant
to such Synopsys Stock Option in accordance with the foregoing; provided,
however, that, in the case of any Viewlogic Stock Option to which Section 422 of
the Code applies ("incentive stock options"), the option price, the number of
shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with Section
424(a) of the Code.
(b) As soon as practicable after the Effective Time, Synopsys shall deliver
to the holders of Viewlogic Stock Options and the participants in the Viewlogic
Option Plans appropriate notice evidencing the foregoing assumption and setting
forth such participants' rights pursuant thereto, and the grants pursuant to the
Viewlogic Option Plans shall continue in effect on the same terms and conditions
as existed on the date of this Agreement (subject to the adjustments required by
this Section 6.13 after giving effect to the Merger). Synopsys shall comply with
the terms of the Viewlogic Option Plans to ensure, to the extent required by,
and subject to the provisions of, such Viewlogic Option Plans, that Viewlogic
Stock Options which qualified as incentive stock options prior the Effective
Time continue to qualify as incentive stock options after the Effective Time.
(c) Synopsys shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Synopsys Common Stock for delivery
under Viewlogic Stock Options assumed in accordance with this Section 6.13. As
soon as practicable after the Effective Time, Synopsys shall file a registration
statement on Form S-3 or Form S-8 as the case may be (or any successor or other
appropriate forms), or another appropriate form with respect to the shares of
Synopsys Common Stock subject to such Viewlogic Stock Options and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Viewlogic Stock options
remain outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of the
Exchange Act, where applicable, Synopsys shall administer the Viewlogic Option
Plans assumed pursuant to this Section 6.13 in a manner that complies with Rule
16b-3 promulgated by the SEC under the Exchange Act.
(d) Subject to Section 6.10, Viewlogic shall take actions as are necessary
to cause the "Purchase Date" (as such term is used in the Viewlogic Purchase
Plan) applicable to the then-current Offering Period (as such term is used in
the Viewlogic Purchase Plan) to be the last trading day on which the Viewlogic
Common Stock is traded on the Nasdaq National Market immediately prior to the
Effective Time (the "Final Viewlogic Purchase Date"); provided, however, that
such change in the Purchase Date shall be conditioned upon the consummation of
the Merger. On the Final Viewlogic Purchase Date, (as defined in the Viewlogic
Purchase Plan) Viewlogic shall apply the funds credited as of such date under
the Viewlogic Purchase Plan within each participant's payroll withholdings
account to the purchase of whole shares of Viewlogic Common Stock in accordance
with the terms of the Viewlogic Purchase Plan. Any such shares purchased under
the Viewlogic Purchase Plan shall be automatically converted on the same basis
as all other shares of Viewlogic Common Stock (other than shares canceled
pursuant to Section 2.1(b)), except that such shares shall be converted
automatically into shares of Synopsys Common Stock without issuance of
certificates representing issued and outstanding shares of Viewlogic Common
Stock to Viewlogic Purchase Plan participants.
(e) Employees of Viewlogic as of the Effective Time shall be permitted to
participate in the Synopsys Purchase Plan commencing on the first enrollment
date of such plan following the Effective Time, subject to
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the terms and conditions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with Viewlogic or
Synopsys).
SECTION 6.14 Brokers or Finders. Each of Synopsys and Viewlogic
represents, as to itself, its Subsidiaries and its affiliates, that no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee in connection with any of the transactions contemplated by this Agreement,
except for Wessels, Arnold & Henderson, whose fees and expenses will be paid by
Viewlogic in accordance with Viewlogic's agreement with such firm (a copy of
which has been delivered by Viewlogic to Synopsys prior to the date of this
Agreement, and each of Synopsys and Viewlogic agrees to indemnify and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other fees, commissions or expenses asserted by any person
on the basis of any act or statement alleged to have been made by such party,
its Subsidiaries or its affiliates.
SECTION 6.15 Indemnification.
(a) Viewlogic shall and, from and after the Effective Time, Synopsys and
the Surviving Corporation shall, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director or employee of
Viewlogic or any of its Subsidiaries (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses, liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld or delayed) of or in connection with
any claim, action, suit, proceeding or investigation based in whole or in part
on or arising in whole or in part out of the fact that such person is or was a
director, officer, or employee of Viewlogic or any of its Subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities") including all losses, claims, damages, costs,
expenses, liabilities or judgments based in whole or in part on, or arising in
whole or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the full extent a corporation is permitted
under the DGCL to indemnify its own directors, officers and employees, as the
case may be (Viewlogic, Synopsys and the Surviving Corporation, as the case may
be, will pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law upon
receipt of any undertaking Party to the full extent permitted by law upon
receipt of any undertaking contemplated by Section 145(e) of the DGCL). Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and Viewlogic (or them and Synopsys and the Surviving
Corporation after the Effective Time), (ii) Viewlogic (or after the Effective
Time, Synopsys and the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefore are received, and (iii) Viewlogic (or after the Effective Time,
Synopsys and the Surviving Corporation) will use all reasonable efforts to
assist in the vigorous defense of any such matter, provided that none of
Viewlogic, Synopsys or the Surviving Corporation shall be liable for any
settlement of any claim effected without its written consent, which consent,
however, shall not be unreasonably withheld or delayed. Any Indemnified Party
wishing to claim indemnification under this Section 6.15, upon learning of any
such claim, action, suit, proceeding or investigation, shall promptly notify
Viewlogic, Synopsys or the Surviving Corporation (but the failure to so notify
an Indemnifying Party shall not relieve it from any liability which it may have
under this Section 6.15 except to the extent such failure prejudices such
party), and shall deliver to Viewlogic (or after the Effective Time, Synopsys
and the Surviving Corporation) the undertaking contemplated by Section 145(e) of
the DGCL. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties. The
obligations of the parties set forth in this Section 6.15(a) shall be in the
furtherance of and not in limitation of the succeeding paragraphs of this
Section 6.15.
(b) From and after the Effective Time, the Surviving Corporation and
Synopsys will fulfill, assume and honor in all respects the obligations of
Viewlogic pursuant to Viewlogic's Certificate of Incorporation, Bylaws
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and any indemnification agreement between Viewlogic and Viewlogic's directors
and officers existing and in force as of the Effective Time.
(c) Synopsys and the Surviving Corporation shall, until the sixth
anniversary of the Effective Time or such earlier date as may be mutually agreed
upon by Synopsys, the Surviving Corporation and the applicable Indemnified
Party, cause to be maintained in effect, to the extent available, the policies
of directors' and officers' liability insurance maintained by Viewlogic and its
Subsidiaries as of the date hereof (or policies of at least the same coverage
and amounts containing terms that are no less advantageous to the insured
parties) with respect to claims arising from facts or events that occurred on or
prior to the Effective Time. In lieu of the purchase of such insurance by
Synopsys or the Surviving Corporation, Viewlogic may purchase a six-year
extended reporting period endorsement ("reporting tail coverage") under its
existing directors' and liability insurance coverage. In no event shall Synopsys
or the Surviving Corporation be obligated to expend in order to maintain or
procure insurance coverage pursuant to this paragraph (c) any amount per year in
excess of 150% of the aggregate premiums paid by Viewlogic and its Subsidiaries
in the fiscal year ended December 31, 1997 for directors' and officers'
liability insurance.
(d) The provisions of this Section 6.15 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) may not be amended or repealed without
the written consent of any affected, indemnified party.
SECTION 6.16 Additional Agreements; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of stockholders of Viewlogic and
stockholders of Synopsys described in Section 6.6, including cooperating fully
with the other party, including by provision of information and making all
necessary filings under the HSR Act. Synopsys and Viewlogic will use their
reasonable best efforts to resolve any competitive issues relating to or arising
under the HSR Act or any other federal or state antitrust or fair trade law
raised by any Governmental Entity. If such offers are not accepted by such
Governmental Entity, Synopsys (with Viewlogic's cooperation) shall pursue all
litigation resulting from such issues. The parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to the HSR Act or any
other federal or state antitrust or fair trade law. In the event of a challenge
to the transactions contemplated by this Agreement pursuant to the HSR Act,
Synopsys and Viewlogic shall use their reasonable best efforts to defeat such
challenge, including by institution and defense of litigation, or to settle such
challenge on terms that permit the consummation of the Merger; provided,
however, that nothing herein shall require either party to agree to divest or
hold separate any portion of its business or otherwise take action that could
reasonably be expected to have a Viewlogic Material Adverse Effect or a Synopsys
Material Adverse Effect. Without limiting the foregoing, in the event that
either the Federal Trade Commission or the Antitrust Division of the United
States Department of Justice should issue a Request for Additional Information
or Documentary Material under 17 C.F.R. sec. 803.20 (a "Second Request"), then
Synopsys and Viewlogic each agree to use their reasonable best efforts to
respond fully to such Second Request within 20 days after its receipt and shall
promptly make any further filings or information submissions and make any
employee available for interview or testimony pursuant to the foregoing (both
before and after any Second Request) that may be necessary, proper or advisable.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement or to vest the Surviving
Corporation with full title to all properties, assets, rights, approvals,
immunities and franchises of either of the Constituent Corporations, the proper
officers and directors of each party to this Agreement shall take all such
necessary action.
SECTION 6.17 Voting Agreements. Viewlogic shall use its reasonable efforts
to deliver or cause to be delivered to Synopsys no later than 10 days from the
date hereof from each of the Affiliates of Viewlogic, an executed Voting
Agreement, substantially in the form attached hereto as Exhibit C, by which each
such Affiliate of Viewlogic agrees to, among other things, vote such Affiliate's
shares of Viewlogic Common Stock in favor of this Agreement and the Merger (a
"Voting Agreement").
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SECTION 6.18 Notification of Certain Matters. Viewlogic shall give prompt
notice to Synopsys, and Synopsys and Sub shall give prompt notice to Viewlogic,
of the occurrence, or failure to occur, of any event, which occurrence or
failure to occur would be likely to cause (a) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date of this Agreement to the Effective Time, or (b) any
material failure of Viewlogic or Synopsys and Sub, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement. The delivery of any notice pursuant to this Section 6.19 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.19 Benefit Plans Generally. Subsequent to the Effective Time,
Viewlogic employees shall participate in Synopsys employee benefit programs or
comparable programs under substantially the same terms and conditions as all
other Synopsys employees.
ARTICLE VII
CONDITIONS TO MERGER
SECTION 7.1 Conditions to Each Party's Obligation to Effect The
Merger. The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of holders of Viewlogic
Common Stock pursuant to the DGCL and the Certificate of Incorporation of
Viewlogic and the issuance of Synopsys Common Stock in connection with the
Merger shall have been approved by the requisite vote of the holders of
Synopsys Common Stock pursuant to the DGCL, the Certificate of
Incorporation of Synopsys and the regulations of the Nasdaq National
Market.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or Federal
Trade Commission challenging or seeking to enjoin the consummation of the
Merger, which action shall not have been withdrawn or terminated.
(c) Approvals. All authorizations, consents, orders or approvals of
any Governmental Entity required to consummate the transactions
contemplated by this Agreement, the absence of which would be reasonably
likely to have a Synopsys Material Adverse Effect or a Viewlogic Material
Adverse Effect, shall have been obtained and be in effect.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting Synopsys' conduct or operation of the business of Synopsys or
Viewlogic after the Merger shall have been issued and be in effect, nor
shall any proceeding brought by a domestic administrative agency or
commission or other domestic Governmental Entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable
to the Merger which makes the consummation of the Merger illegal or
prevents or prohibits the Merger.
(f) Pooling. Synopsys shall have received a letter from its
independent accountants, dated the Closing Date, in form and substance
reasonably satisfactory to Synopsys and Viewlogic, stating that they concur
with the conclusion of Synopsys' management that the Merger will qualify as
a pooling of interests transaction under Accounting Principles Board
Opinion No. 16 and applicable SEC regulations, if the
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Merger is consummated in accordance with this Agreement. Viewlogic shall
have received a letter from its independent accountants, dated the Closing
Date, in form and substance reasonably satisfactory to Viewlogic and
Synopsys, stating that they concur with the conclusion of Viewlogic's
management that the Merger will qualify as a pooling of interests
transaction under Accounting Principles Board Opinion No. 16 and applicable
SEC regulations, if the Merger is consummated in accordance with this
Agreement.
(g) Nasdaq Listing. The shares of Synopsys Common Stock to be issued
in the Merger shall have been approved for listing on the Nasdaq National
Market.
(h) Tax Opinions. Synopsys and Viewlogic shall each have received
written opinions from their respective counsel, Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Hale and Dorr LLP, in form and
substance reasonably satisfactory to them to the effect that the Merger
will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinions, counsel may rely upon, and Synopsys and Viewlogic
shall be required to make, reasonable representations regarding certain
factual matters.
SECTION 7.2 Additional Conditions to Obligations of Synopsys and Sub. The
obligations of Synopsys and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived, in
writing, exclusively by Synopsys:
(a) Representations and Warranties. The representations and warranties
of Viewlogic set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties expressly speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except (i) for changes contemplated by this Agreement or (ii) where the
failure to be true and correct would not be reasonably likely to have a
Viewlogic Material Adverse Effect, and Synopsys shall have received a
certificate signed on behalf of Viewlogic by the chief executive officer
and the chief financial officer of Viewlogic to such effect.
(b) Performance of Obligations. Viewlogic shall have performed all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date; and Synopsys shall have received a certificate signed
on behalf of Viewlogic by the chief executive officer and the chief
financial officer of Viewlogic to such effect.
(c) Affiliate and Other Agreements. An Affiliate Agreement shall have
been executed and delivered to Synopsys by each director and officer and
each applicable Affiliate of Viewlogic; and each Affiliate Agreement shall
be in full force and effect.
(d) Absence of Viewlogic Material Adverse Effect. No Viewlogic
Material Adverse Effect shall have occurred since the date of this
Agreement.
SECTION 7.3 Additional Conditions to Obligations of Viewlogic. The
obligation of Viewlogic to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived, in writing,
exclusively by Viewlogic:
(a) Representations and Warranties. The representations and warranties
of Synopsys and Sub set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to
the extent such representations speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except (i) for
changes contemplated by this Agreement or (ii) where the failure to be true
and correct would not be reasonably likely to have a Synopsys Material
Adverse Effect, and Viewlogic shall have received a certificate signed on
behalf of Synopsys and Sub by the chief executive officer and the chief
financial officer of Synopsys and Sub to such effect.
(b) Performance of Obligations. Synopsys and Sub shall have performed
all obligations required to be performed by them under this Agreement at or
prior to the Closing Date; and Viewlogic shall have received a certificate
signed on behalf of Synopsys and Sub by the chief executive officer and the
chief financial officer of Synopsys and Sub to such effect.
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(c) Absence of Synopsys Material Adverse Effect. No Synopsys Material
Adverse Effect shall have occurred since the date of this Agreement.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(f)), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Synopsys or stockholders of Viewlogic:
(a) by mutual written consent of Synopsys and Viewlogic; or
(b) by either Synopsys or Viewlogic if the Merger shall not have been
consummated by April 30, 1998; provided, however, that if the Merger shall
not have been consummated due to the waiting period (or any extension
thereof) under the HSR Act not having expired or been terminated, or due to
an action having been instituted by the Department of Justice or Federal
Trade Commission challenging or seeking to enjoin the consummation of the
Merger, then such date shall be extended to July 31, 1998; provided
further, however, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date; or
(c) by either Synopsys or Viewlogic if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, except, if the party relying on such order, decree
or ruling or other action has not complied with its obligations under
Section 6.7 or 6.16 of this Agreement; or
(d) by either Synopsys or Viewlogic if the required approvals of the
stockholders of Synopsys or of Viewlogic contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain the
required vote upon a vote taken at a meeting of such stockholders duly
convened therefor or at any adjournment thereof; provided, however, that
the right to terminate this Agreement under this Section 8.1(d) shall not
be available to any party where the failure to obtain approval of such
party's stockholders shall have been caused by the action or failure to act
of such party in breach of this Agreement; or
(e) by Synopsys, if (i) the Board of Directors of Viewlogic shall have
withdrawn or modified its recommendation of this Agreement in a manner
adverse to Synopsys or shall have publicly announced its intention to do
any of the foregoing; (ii) an Alternative Transaction (as defined in
clauses (ii) or (iii) of Section 8.3(d)) shall have taken place (including
execution of an agreement to engage in the same) or the Board of Directors
of Viewlogic shall have recommended to the stockholders of Viewlogic an
Alternative Transaction; (iii) a tender offer or exchange offer for 20% or
more of the outstanding shares of Viewlogic Common Stock is commenced
(other than by Synopsys or an affiliate of Synopsys) and the Board of
Directors of Viewlogic has not recommended that the stockholders of
Viewlogic not tender their shares in such tender or exchange offer within
the time period prescribed by Rule 14e-2 promulgated under the Exchange
Act; or
(f) by Synopsys or Viewlogic, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach causes the conditions set
forth in Section 7.2(a) or 7.2(b) (in the case of termination by Synopsys)
or 7.3(a) or 7.3(b) (in the case of termination by Viewlogic) not to be
satisfied as of the time of such breach, provided that if such breach by
such party is curable by such party through the exercise of its reasonable
efforts and for so long as such party continues to exercise such reasonable
efforts, the other party may not terminate this Agreement under this
Section 8.1(f); or
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(g) by Viewlogic, in the event of (i) a merger or consolidation to
which Synopsys is a party, if the stockholders of Synopsys immediately
prior to the effective date of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of less than 50
percent of the total combined voting power for election of directors of the
surviving corporation following the effective date of such merger or
consolidation, (ii) the acquisition or direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) in the
aggregate of securities of Synopsys representing more than 50 percent of
the total combined voting power of Synopsys' then issued and outstanding
voting securities by any person, entity or group, as shown on a Schedule
13D filed with the SEC pursuant to the Exchange Act; or (iii) the sale of
all or substantially all of the assets of Synopsys to any person or entity
that is not a Subsidiary of Synopsys.
SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1(b) through 8.1(g), this Agreement shall be
of no further force and effect, except Section 8.2, Section 8.3 and Article IX
of this Agreement and the Non-Disclosure Agreement shall remain in full force
and effect and survive any termination of this Agreement and nothing herein
shall relieve any party from liability for any breach of this Agreement. In the
event of termination of this Agreement as provided in Section 8.1(a), there
shall be no liability or obligation on the part of any party hereto, or any of
its officers, directors, stockholders or affiliates except as set forth in
Section 8.3; provided, however, that the provisions of Sections 6.14 and 8.3 and
Article IX of this Agreement and the Non-Disclosure Agreement shall remain in
full force and effect and survive any termination of this Agreement.
SECTION 8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Synopsys and Viewlogic shall share equally
all fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Proxy Statement (including any related preliminary
materials) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements.
(b) Viewlogic shall pay Synopsys a cash termination fee of $10 million upon
the earliest to occur of the following events: (i) the termination of this
Agreement by Synopsys pursuant to Section 8.1(e); or (ii) the termination of
this Agreement by Synopsys pursuant to Section 8.1(d) as a result of the failure
to receive the requisite vote for approval of this Agreement and the Merger by
the stockholders of Viewlogic at the Viewlogic Stockholders Meeting; provided,
however, that there shall have been announced or commenced an Alternative
Transaction specified in clause (i), (ii) or (iii) of Section 8.3(d) or
Viewlogic shall have executed an agreement to engage in such an Alternative
Transaction and the Viewlogic Board of Directors shall not have recommended
against such Alternative Transaction affirmatively, or if the Viewlogic Board of
Directors has recommended against such Alternative Transaction, the Viewlogic
Board of Directors shall have withdrawn such recommendation against such
Alternative Transaction or modified such recommendation in a manner adverse to
Synopsys. The fees, if applicable, payable pursuant to this Section 8.3(b) shall
be paid within one business day after the first to occur of the events
(inclusive of any applicable cure period) described in Section 8.3(b)(i) or (ii)
above; provided, however, that in no event shall Viewlogic be required to pay
any termination fee, if applicable, to Synopsys, if (i) immediately prior to the
termination of this Agreement, Synopsys was in breach of any of its material
obligations under this Agreement or (ii) the Board of Directors of Synopsys
shall have withdrawn or modified its recommendation of this Agreement in a
manner adverse to Viewlogic or shall have publicly announced its intention to do
any of the foregoing.
(c) Synopsys shall pay Viewlogic a cash termination fee of $10 million upon
the earliest to occur of the following events: (i) the termination of this
Agreement by Viewlogic pursuant to Section 8.1(g); or (ii) the termination of
this Agreement by Viewlogic pursuant to Section 8.1(d) following the failure of
Synopsys to receive the required approval of its stockholders at the Synopsys
Stockholders Meeting. The fee, if applicable, payable pursuant to this Section
8.3(c) shall be paid within one business day after the first to occur of the
events (inclusive of any applicable cure period) described in Section 8.3(b)(i)
or (ii); provided, however, that in no event shall Synopsys be required to pay
any termination fee, if applicable, to Viewlogic, if, immediately
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prior to the termination of this Agreement, Viewlogic, if applicable, was in
breach of any of its material obligations under this Agreement.
(d) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than
Synopsys or its affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of Viewlogic Common Stock, pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving Viewlogic pursuant to which any Third Party acquires more than 20% of
the outstanding equity securities of Viewlogic or the entity surviving such
merger or business combination, (iii) any other transaction pursuant to which
any Third Party acquires control of assets (including for this purpose the
outstanding equity securities of Subsidiaries of Viewlogic, and the entity
surviving any merger or business combination including any of them) of Viewlogic
having a fair market value (as determined by the Board of Directors of Viewlogic
in good faith) equal to more than 20% of the fair market value of all the assets
of Viewlogic immediately prior to such transaction ("Material Assets"), or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(e) Payment of the fees described in Section 8.3(b) above shall not be in
lieu of damages incurred in the event of breach of this Agreement.
SECTION 8.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. This
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of
Viewlogic and Synopsys, but, after any such approval, no amendment shall be made
which by law requires further approval by such stockholders without such further
approval.
SECTION 8.5 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing and the Effective Time, except for the agreements contained
in Sections 1.3, 1.4, Article II, 6.13, 6.15, 6.19 and 8.3, the last sentence of
Section 6.16, the last sentence of Section 8.4, and Article IX, and the
agreements of the Affiliates of Viewlogic delivered pursuant to this Agreement.
The Non-Disclosure Agreement shall survive the execution and delivery of this
Agreement.
SECTION 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed), sent by nationally-recognized overnight courier or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
<TABLE>
<S> <C> <C>
(a) if to Synopsys or Sub, to: Synopsys, Inc.
700 East Middlefield Road
Mountain View, California 94043
Attention: Vice President,
Business and Market Development
Telephone: (650) 962-5000
Facsimile: (650) 694-4087
</TABLE>
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<TABLE>
<S> <C> <C>
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Thomas C. DeFilipps, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
(b) if to Viewlogic, to: Viewlogic Systems, Inc.
293 Boston Post Road West
Marlboro, Massachusetts 01752
Attention: President
Telephone: (508) 480-0881
Facsimile: (508) 480-0882
with a copy to: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: John A. Burgess, Esq.
Telephone: (617) 526-6000
Facsimile: (617) 526-5000
</TABLE>
SECTION 9.3 Interpretation; Certain Definitions.
(a) When a reference is made in this Agreement to a section, such reference
shall be to a Section of this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to October 14, 1997.
(b) "Environmental Permits" means environmental approvals, permits,
licenses, clearances and consents.
(c) "Hazardous Material" means substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws.
(d) "Hazardous Materials Activities" means the transportation, storage,
use, manufacture, disposal of, release or exposure of employees or others to
Hazardous Materials.
(e) "Joint Venture" means, with respect to any party, any corporation,
limited liability company, partnership, joint venture or other entity in which
(i) such party, directly or indirectly, owns or control more than five percent
and less than a majority of any class of the outstanding voting securities or
economic interests, or (ii) such party or a Subsidiary of such party is a
general partner.
(f) "Subsidiary" means, with respect to any party, any corporation, limited
liability company, partnership, joint venture, or other business association or
entity, (i) at least a majority of the voting securities or economic interests
of which is directly or indirectly owned or controlled by such party or by
anyone or more of its Subsidiaries, or (ii) of which such party or any other
Subsidiary of such party is a general partner (excluding partnerships, the
general partnership interests of which held by such party or any Subsidiary of
such party do not have a majority of the voting interest in such partnership).
SECTION 9.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the Exhibits hereto, the Non-Disclosure Agreement and other documents
and the instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided in Section 6.15 is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
SECTION 9.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
SECTION 9.7 Specific Performance. Without limiting the rights and remedies
otherwise available to Synopsys, Viewlogic (i) acknowledges that the remedy at
law for damages resulting from its breach of its obligations under this
Agreement is inadequate and (ii) consents to the institution of an action for
specific performance in the event of such a breach.
SECTION 9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 9.9 Severability. It is the desire and intent of the parties that
the provisions of this Agreement be enforced to the fullest extent permissible
under the law and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, in the event that any provision of this
Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
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IN WITNESS WHEREOF, Synopsys, Sub and Viewlogic have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
SYNOPSYS, INC.
By: /s/ Aart J. de Geus
--------------------------------------
Title: President and Chief Executive
Officer
--------------------------------------
POST ACQUISITION CORP.
By: /s/ Aart J. de Geus
--------------------------------------
Title: Chairman
--------------------------------------
VIEWLOGIC SYSTEMS, INC.
By: /s/ William J. Herman
--------------------------------------
Title: President and Chief Executive
Officer
--------------------------------------
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EXHIBIT A TO MERGER AGREEMENT
EXCHANGE PROCEDURES
These Exchange Procedures form Exhibit A to the Agreement and Plan of
Merger dated as of October 14, 1997 (the "Merger Agreement") among Synopsis,
Inc., Post Acquisition Corp. and Viewlogic Systems, Inc. The procedures for
exchanging outstanding shares of Viewlogic Common Stock for Synopsys Common
Stock pursuant to the Merger shall be as set forth in this Exhibit A.
Capitalized terms used but not otherwise defined herein shall have the meanings
given to them in the Merger Agreement.
1. Exchange Agent. As of the Effective Time, Synopsys shall deposit with an
exchange agent designated by Synopsys, reasonably acceptable to Viewlogic (the
"Exchange Agent"), for the benefit of the holders of shares of Viewlogic Common
Stock, for exchange in accordance with Article II of the Merger Agreement and
this Exhibit A, through the Exchange Agent, certificates representing the shares
of Synopsys Common Stock (such shares of Synopsys Common Stock, together with
any dividends or distributions with respect thereto, being hereinafter referred
to as the "Exchange Fund") issuable pursuant to Article II of the Merger
Agreement in exchange for outstanding shares of Viewlogic Common Stock, and cash
in an amount sufficient for payment in lieu of fractional shares as contemplated
by this Exhibit A.
2. Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record
(including holders of record pursuant to purchases made under the Viewlogic
Purchase Plan immediately prior to the Effective Time pursuant to Section 6.13
of the Merger Agreement) of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of Viewlogic Common
Stock (each a "Certificate" and collectively, the "Certificates") whose shares
were converted pursuant to Article II into the right to receive shares of
Synopsys Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Synopsys and Viewlogic may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Synopsys
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents reasonably acceptable to Viewlogic as may
be appointed by Synopsys, together with such letter of transmittal, duly
executed, and such other documents as maybe reasonably required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole shares of Synopsys
Common Stock which such holder has the right to receive pursuant to the
provisions of Article II of the Merger Agreement, and the Certificate so
surrendered shall immediately be canceled. In the event of a transfer of
ownership of Viewlogic Common Stock which is not registered in the transfer
records of Viewlogic, a certificate representing the proper number of shares of
Synopsys Common Stock may be issued to a transferee if the Certificate
representing such Viewlogic Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Exhibit A, each Certificate shall be deemed
at any time after the Effective Time to represent only the right to receive upon
such surrender the certificate representing shares of Synopsys Common Stock and
cash in lieu of any fractional shares of Synopsys Common Stock as contemplated
by this Exhibit A.
3. Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Synopsys
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Synopsys
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 5 below until the
holder of record of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of Synopsys Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Synopsys Common Stock to which such holder is entitled
pursuant to Section 5 and the amount of dividends or other distributions with a
record date after the Effective Time previously paid with respect to such whole
shares of Synopsys Common Stock, and (ii) at the appropriate payment date, the
<PAGE> 201
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Synopsys Common Stock.
4. No Further Ownership Rights in Viewlogic Common Stock. All shares of
Synopsys Common Stock issued upon the surrender for exchange of shares of
Viewlogic Common Stock in accordance with the terms hereof (including any cash
paid pursuant to Section 3 or 5) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Viewlogic Common Stock,
subject, however, to the Surviving Corporation's obligation to pay any dividends
or make any other distributions with a record date prior to the Effective Time
which may have been declared or made by Viewlogic on such shares of Viewlogic
Common Stock in accordance with the terms of this Merger Agreement on or prior
to the date hereof and which remain unpaid at the Effective Time, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Viewlogic Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Exhibit A.
5. No Fractional Shares. No certificate or scrip representing fractional
shares of Synopsys Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Synopsys. Notwithstanding
any other provision of the Merger Agreement, each holder of shares of Viewlogic
Common Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Synopsys Common Stock (after taking
into account all Certificates delivered by such holder) shall receive from
Synopsys, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Synopsys Common Stock multiplied by the average of
the last reported sale prices of Synopsys Common Stock, as reported on the
Nasdaq National Market, on each of the ten trading days immediately preceding
the date of the Effective Time.
6. Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Viewlogic for one year after the
Effective Time shall be delivered to Synopsys, upon demand, and any former
stockholders of Viewlogic who have not previously complied with this Exhibit A
shall thereafter look only to Synopsys for payment of their claim for Synopsys
Common Stock, any cash in lieu of fractional shares of Synopsys Common Stock and
any dividends or distributions with respect to Synopsys Common Stock.
7. No Liability. Neither the Exchange Agent, Synopsys, Sub nor Viewlogic
shall be liable to any holder of shares of Viewlogic Common Stock or Synopsys
Common Stock, as the case may be, for such shares (or dividends or distributions
with respect thereto) delivered to a public official pursuant to any applicable
abandoned property or similar law.
8. Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Synopsys Common
Stock, cash in lieu of fractional shares of Synopsys Common Stock to which such
holder is entitled pursuant to Section 5 and any dividends or other
distributions with respect to Synopsys Common Stock to which such holder is
entitled.
-2-
<PAGE> 202
EXHIBIT B TO MERGER AGREEMENT
AFFILIATE AGREEMENT
This AFFILIATE AGREEMENT (this "Agreement") is entered into as of October
, 1997, among Synopsys, Inc., a Delaware corporation ("Synopsys"), Viewlogic
Systems, Inc., a Delaware corporation ("Viewlogic"), and the undersigned
affiliate ("Affiliate") of Viewlogic.
RECITALS
WHEREAS, Viewlogic, Synopsys and Post Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Synopsys, have entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which
Viewlogic and Synopsys intend to enter into a business combination transaction
to pursue their long term business strategies (the "Merger") (capitalized terms
used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Merger Agreement).
WHEREAS, Pursuant to the Merger, at the Effective Time all outstanding
shares of Viewlogic Common Stock owned by Affiliate will be converted into the
right to receive shares of Synopsys Common Stock as set forth in the Merger
Agreement.
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of Viewlogic, as the term "affiliate" is used (i) for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations of the
Securities and Exchange Commission (the "SEC") and (ii) in the SEC's Accounting
Series Releases 130 and 135, as amended, although nothing contained herein shall
be construed as an admission by Affiliate that Affiliate is in fact an affiliate
of Viewlogic.
WHEREAS, It will be a condition to consummation of the Merger pursuant to
the Merger Agreement that (i) the attorneys for each of Synopsys and Viewlogic
will have delivered written opinions that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and (ii) the independent accounting firms that
audit the annual financial statements of Viewlogic and Synopsys will have
delivered their written concurrences with the conclusions of management of
Viewlogic and Synopsys to the effect that the Merger will be accounted for as a
pooling of interests under Accounting Principles Board Opinion No. 16.
WHEREAS, The execution and delivery of this Agreement by Affiliate is a
material inducement to Synopsys to enter into the Merger Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
will be relied upon by Synopsys, Viewlogic, and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Merger Agreement and has discussed the requirements of this Agreement with
Affiliate's professional advisors, who are qualified to advise Affiliate with
regard to such matters.
2. Compliance with Rule 145 and the Act.
(a) Affiliate has been advised that (i) the issuance of shares of Synopsys
Common Stock in connection with the Merger is expected to be effected pursuant
to a Registration Statement on Form S-4 under the Securities Act of 1933, as
amended (the "Securities Act"), and as such will not be deemed "restricted
securities" within the meaning of Rule 144 promulgated thereunder and resale of
such shares will not be subject to any restrictions other than as set forth in
Rule 145 of the Securities Act unless otherwise transferred pursuant to an
effective registration statement under the Act or an appropriate exemption from
registration, (ii) Affiliate may be deemed to be an affiliate of Viewlogic, and
(iii) no sale, transfer or other disposition by Affiliate of any Synopsys Common
Stock received by Affiliate will be registered under the Securities Act.
Affiliate accordingly agrees not to sell, transfer or otherwise dispose of any
Synopsys Common Stock issued to
<PAGE> 203
Affiliate in the Merger unless (x) such sale, transfer or other disposition is
made in conformity with the requirements of Rule 145(d) promulgated under the
Securities Act, or (y) Affiliate delivers to Synopsys a written opinion of
counsel, reasonably acceptable to Synopsys in form and substance, that such
sale, transfer or other disposition is otherwise exempt from registration under
the Securities Act.
(b) Synopsys will give stop transfer instructions to its transfer agent
with respect to any Synopsys Common Stock received by Affiliate pursuant to the
Merger and there will be placed on the certificates representing such Synopsys
Common Stock, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, APPLIES AND MAY ONLY BE TRANSFERRED IN
CONFORMITY WITH RULE 145(d) UNDER SUCH ACT OR IN ACCORDANCE WITH
A WRITTEN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE
ISSUER IN THE FORM AND SUBSTANCE THAT SUCH TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Synopsys shall so instruct its transfer
agent, if Affiliate delivers to Synopsys (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate will be issued in the name of the transferee), or (ii) an
opinion of counsel, in form and substance reasonably satisfactory to the effect
that public sale of the shares by the holder thereof is no longer subject to
Rule 145.
(c) Synopsys covenants that it will take all such actions as may reasonably
be available to it to permit the sale or other disposition of Synopsys Common
Stock by the undersigned under Rule 145 in accordance with the terms thereof. To
the extent required by applicable securities laws, Synopsys agrees, for a period
of two years from the date of this Agreement, to file with the SEC in a timely
manner all reports and other documents required of Synopsys under the Act and
the Securities Exchange Act of 1934, as amended.
3. Covenants Related to Pooling of Interests. In accordance with SAB 65,
until the second day after the day that Synopsys publicly announces financial
results covering at least 30 days of combined operations of Synopsys and
Viewlogic, Affiliate will not sell, exchange, transfer, pledge, distribute, or
otherwise dispose of or grant any option, establish any "short" or
put-equivalent position with respect to or enter into any similar transaction
(through derivatives or otherwise) intended or having the effect, directly or
indirectly, to reduce its risk relative to any securities, or shares of Synopsys
Common Stock received by Affiliate in connection with the Merger. Synopsys may,
at its discretion, cause a restrictive legend to the foregoing effect to be
placed on Synopsys Common Stock certificates issued to Affiliate in the Merger
and place a stock transfer notice consistent with the foregoing with its
transfer agent with respect to the certificates, provided that such restrictive
legend shall be removed and/or such notice shall be countermanded promptly upon
expiration of the necessity therefor at the request of Affiliate.
Notwithstanding the foregoing, Affiliate will not be prohibited by the foregoing
from selling or disposing of shares, so long as such sale or disposition is in
accordance with the "de minimis" test set forth in SEC Staff Accounting Bulletin
No. 76 and so long as Affiliate has obtained Synopsys' prior written approval of
such sale or disposition.
4. Representations, Warranties and Covenants Related to Tax Effects of the
Merger.
(a) Affiliate is the beneficial owner of the number of shares of Viewlogic
Common Stock (including shares issuable upon exercise of stock options) set
forth on the last page of this Agreement and did not acquire any of the
Viewlogic Common Stock in contemplation of the Merger;
(b) Affiliate has not engaged in a Sale (as defined below) of any shares of
Viewlogic Common Stock in contemplation of the Merger;
(c) Affiliate has no plan or intention (a "Plan") to engage in a sale,
exchange, transfer, redemption or reduction in any way of Affiliate's risk of
ownership by short sale or otherwise, or other disposition, directly or
(2)
<PAGE> 204
indirectly (such actions being collectively referred to herein as a "Sale") of
more than 50% of the shares of Synopsys Common Stock to be received by Affiliate
in the Merger;
(d) If Affiliate is a partnership, then the term "sale" as used in
paragraph (c) above shall be deemed to include any distribution to the partners
of the undersigned unless no recipient of any such distribution will receive
shares of Viewlogic Common Stock representing 1% or more of the shares of
Viewlogic Common Stock currently outstanding;
(e) Affiliate is not aware of, or participating in, any Plan on the part of
the Affiliates of Viewlogic to engage in a Sale or Sales of the Synopsys Common
Stock to be received in the Merger such that the aggregate fair market value, as
of the Effective Date of the Merger, of the shares subject to such Sales would
exceed 50% of the aggregate fair market value of all shares of outstanding
Viewlogic Common Stock immediately prior to the Merger; and
(f) Affiliate understands that Viewlogic, Synopsys and their respective
affiliates, as well as legal counsel to Viewlogic and Synopsys (in connection
with rendering their opinions that the Merger will be a "reorganization" within
the meaning of Section 368(a) of the Code) will be relying on (a) the truth and
accuracy of the representations contained herein and (b) Affiliate's performance
of the obligations set forth herein.
5. Miscellaneous.
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(b) This Agreement shall be enforceable by, and shall inure to the benefit
of and be binding upon, the parties hereto and their respective successors and
assigns. As used herein, the term "successors and assigns" shall mean, where the
context so permits, heirs, executors, administrators, trustees and successor
trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to any conflicts of laws.
(d) If a court of competent jurisdiction determines that any provision of
this Agreement is not enforceable or enforceable only if limited in time and/or
scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
(e) Counsel to and accountants for the parties to the Agreement shall be
entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right hereunder
waived or any obligation excused, except by a written agreement signed by all
parties.
[Remainder of page intentionally left blank; signature page follows
immediately.]
(3)
<PAGE> 205
IN WITNESS WHEREOF, the parties have executed this Affiliates Agreement as
of the date first above written.
SYNOPSYS, INC.
By:
--------------------------------------
Title:
-----------------------------------
VIEWLOGIC SYSTEMS, INC.
By:
------------------------------------
Title:
-----------------------------------
AFFILIATE:
--------------------------------------
(Signature)
--------------------------------------
(Printed Name)
--------------------------------------
(Title if Affiliate is an Entity)
Number of shares of Viewlogic Common
Stock beneficially owned by Affiliate:
- --------------------------------------
Number of shares of Viewlogic Common
Stock subject to options beneficially
owned by Affiliate:
- --------------------------------------
(4)
<PAGE> 206
EXHIBIT C TO MERGER AGREEMENT
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement") is entered into as of October ,
1997, by Synopsys, Inc., a Delaware corporation ("Synopsys"), and the
undersigned ("Stockholder"), a director, officer, or affiliate of Viewlogic
Systems, Inc., a Delaware corporation ("Viewlogic").
RECITALS
Concurrently with the execution of this Agreement, Synopsys, Viewlogic
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Synopsys ("Sub"), and Viewlogic have entered into an Agreement and Plan of
Merger (the "Merger Agreement"), providing for the merger of Sub with and into
Viewlogic (the "Merger"), pursuant to which Viewlogic will become a wholly-owned
subsidiary of Synopsys. The Stockholder is the beneficial holder of record of
the number of shares of the outstanding common stock, par value $0.01 per share,
of Viewlogic ("Viewlogic Common Stock"), as is indicated on the final page of
this Agreement (the "Shares"). In connection with the Merger, Synopsys will
acquire the Stockholder's entire equity interest in Viewlogic and the
Stockholder will receive in exchange an equity interest in Synopsys. In
consideration of and to induce the execution of the Merger Agreement by
Synopsys, the Stockholder agrees not to sell or otherwise dispose of any Shares
and to vote the Shares so as to facilitate consummation of the Merger as more
fully described below.
NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as
follows:
1. Agreement to Retain Shares. The Stockholder agrees not to transfer,
pledge, sell, exchange or offer to transfer or sell or otherwise dispose of or
encumber any of the Shares at any time prior to the Expiration Date. The
"Expiration Date" shall mean the earlier of (i) the date and time on which the
Merger shall become effective in accordance with the terms and provisions of the
Merger Agreement or (ii) the date on which the Merger Agreement shall be
terminated pursuant to Article VIII of the Merger Agreement.
2. Agreement to Vote Shares. At any meeting of the Viewlogic stockholders
called with respect to the Merger and the Merger Agreement, and at any
adjournment thereof, and with respect to any consent solicited with respect the
Merger and the Merger Agreement, the Stockholder shall vote the Shares in favor
of approval of the Merger Agreement and the Merger and any matter that could
reasonably be expected to facilitate the Merger. The Stockholder, as the holder
of voting stock of Viewlogic, shall be present, in person or by proxy, at all
meetings of stockholders of Viewlogic so that all Shares are counted for the
purpose of determining the presence of a quorum at such meetings. This Agreement
is intended to bind the Stockholder only with respect to the specific matters
set forth herein, and shall not prohibit the Stockholder from acting in
accordance with the Stockholder's fiduciary duties as an officer or director of
Viewlogic.
3. Irrevocable Proxy. Concurrently with the execution of this Agreement,
the Stockholder agrees to deliver to Synopsys a proxy in the form attached
hereto as Annex A (the "Proxy"), which shall be irrevocable to the extent
provided therein; provided, however, that the Proxy shall be revoked upon the
Expiration Date.
4. Additional Purchases. For purposes of this Agreement, the term "Shares"
shall include any shares of Viewlogic capital stock which the Stockholder
purchases or otherwise acquires after the execution of this Agreement and prior
to the Expiration Date.
5. Representations, Warranties and Covenants of the Stockholder. The
Stockholder represents, warrants and covenants to Synopsys that, except as
specifically described on Annex B to this Agreement, the Stockholder (i) is the
holder and beneficial owner of the Shares, which at the date hereof and at all
times until the Expiration Date will be free and clear of any liens, claims,
options, charges or other encumbrances, (ii) does not beneficially own any
shares of stock of Viewlogic other than the Shares, and (iii) has full power and
authority to make, enter into, deliver and carry out the terms of this Agreement
and the Proxy.
<PAGE> 207
6. Representations, Warranties and Covenants of Synopsys. Synopsys
represents, warrants and covenants to the Stockholder as follows:
6.1 Due Authorization. This Agreement has been authorized by all
necessary corporate action on the part of Synopsys and has been duly executed by
a duly authorized officer of Synopsys.
6.2 Validity; No Conflict. This Agreement constitutes the legal, valid
and binding obligation of Synopsys. Neither the execution of this Agreement by
Synopsys nor the consummation of the transactions contemplated hereby will
result in a material breach or violation of the terms of any material agreement
by which Synopsys is bound or of any material decree, judgment, order, law or
regulation now in effect of any court or other governmental body applicable to
Synopsys.
7. Additional Documents. The Stockholder and Synopsys covenant and agree to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Synopsys' legal counsel or the Stockholder, as the case
may be, to carry out the intent of this Agreement.
8. Consent and Waiver. The Stockholder hereby gives any consent or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which the Stockholder is a party or pursuant to any rights
the Stockholder may have.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction 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.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties may be assigned by any of the parties
without the prior written consent of the other.
9.3 Amendments and Modifications. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties acknowledge
that Synopsys will be irreparably harmed and that there will be no adequate
remedy at law for a violation of any of the covenants or agreements of the
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies which may be available to Synopsys upon such violation, Synopsys
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to it at law or
in equity.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by commercial overnight courier service, by confirmed facsimile, or sent
by mail (registered or certified mail, postage prepaid, return receipt
requested) to the respective parties as follows:
<TABLE>
<S> <C> <C> <C>
(a) if to Synopsys, to: Synopsys, Inc.
700 East Middlefield Road
Mountain View, California 94043
Attention: Vice President, Business
Market Development
Telephone: (650) 962-5000
Facsimile: (650) 694-4087
</TABLE>
[2]
<PAGE> 208
<TABLE>
<S> <C> <C> <C>
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Thomas C. DeFilipps, Esq.
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
(b) if to Stockholder, to: c/o Viewlogic Systems, Inc.
293 Boston Post Road West
Marlboro, Massachusetts 01752
Telephone: (508) 480-0881
Facsimile: (508) 480-0882
with a copy to: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: John A. Burgess, Esq.
Telephone: (617) 526-6000
Facsimile: (617) 526-5000
</TABLE>
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
9.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to any
conflicts of law.
9.7 Entire Agreement. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
9.8 Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same agreement.
9.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
9.10 Termination. Notwithstanding anything else in this Agreement, this
Agreement and the Proxy, and all obligations of the Stockholder under either of
them, shall automatically terminate as of the Expiration Date.
[Remainder of page intentionally left blank; signature page follows
immediately.]
[3]
<PAGE> 209
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
SYNOPSYS, INC.
By:
--------------------------------------
Title:
--------------------------------------
STOCKHOLDER:
--------------------------------------
Signature
--------------------------------------
Name (Please Print)
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
Shares of Viewlogic Common Stock
beneficially owned:
--------------------------------------
[4]
<PAGE> 210
ANNEX A TO VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned holder of shares of capital stock (the "Stockholder") of
Viewlogic, Inc., a Delaware corporation ("Viewlogic"), hereby irrevocably
appoints and constitutes the members of the Board of Directors of Synopsys,
Inc., a Delaware corporation ("Synopsys"), and each of them (the
"Proxyholders"), the agents and proxies of the undersigned, with full power of
substitution and resubstitution, to the full extent of the undersigned's rights
with respect to the shares of capital stock of Viewlogic beneficially owned by
the undersigned, which shares are listed below (the "Shares"), and any and all
other shares or securities issued or issuable in respect thereof on or after the
date hereof and prior to the date this proxy terminates, to vote the Shares as
follows: The agents and proxies named above are empowered at any time prior to
termination of this proxy to exercise all voting and other rights (including,
without limitation, the power to execute and deliver written consents with
respect to the Shares) of the undersigned at every annual, special or adjourned
meeting of Viewlogic stockholders, and in every written consent in lieu of such
a meeting, or otherwise, in favor of approval of the Merger (as defined in the
Voting Agreement dated the date hereof between the Stockholder and Synopsys (the
"Voting Agreement")) and that certain Agreement and Plan of Merger (the "Merger
Agreement") among Synopsys, Viewlogic, and Viewlogic Acquisition Corp., and any
matter that could reasonably be expected to facilitate the Merger. The
Proxyholders may not exercise this proxy on any other matter. The undersigned
stockholder may vote the Shares on all such other matters. The proxy granted by
the Stockholder to the Proxyholders hereby is granted as of the date of this
Irrevocable Proxy in order to secure the obligations of the Stockholder set
forth in Section 2 of the Voting Agreement, and is irrevocable and coupled with
an interest in such obligations and in the interests in Viewlogic to be
purchased and sold pursuant the Merger Agreement. This proxy will terminate upon
the termination of the Voting Agreement in accordance with its terms. Upon the
execution hereof, all prior proxies given by the undersigned with respect to the
Shares and any and all other shares or securities issued or issuable in respect
thereof on or after the date hereof are hereby revoked and no subsequent proxies
will be given until such time as this proxy shall be terminated in accordance
with its terms. Any obligation of the undersigned hereunder shall be binding
upon the successors and assigns of the undersigned. The undersigned stockholder
authorizes the Proxyholders to file this proxy and any substitution or
revocation of substitution with the Secretary of Viewlogic and with any
Inspector of Elections at any meeting of the stockholders of Viewlogic.
This proxy is irrevocable and shall survive the insolvency, incapacity,
death or liquidation of the undersigned.
Dated: October , 1997 --------------------------------------
Signature of Stockholder
--------------------------------------
Print name of Stockholder
Shares beneficially owned:
shares of
Viewlogic Common Stock
A-1
<PAGE> 211
ANNEX B
[WESSELS, ARNOLD & HENDERSON, L.L.C. LETTERHEAD]
October 14, 1997
The Board of Directors
Viewlogic Systems, Inc.
293 Boston Road West
Marlboro, MA 01752-4615
Attention: Mr. William J. Herman, President and Chief Executive Officer
Mr. Ronald R. Benanto, Senior Vice President of Finance, Chief Financial
Officer and Treasurer
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Viewlogic Systems, Inc., a Delaware corporation
(the "Company"), of the consideration to be received by the stockholders
pursuant to the terms of the Agreement and Plan of Reorganization (the
"Agreement") dated as of October 14, 1997 by and among Synopsys, Inc., a
Delaware corporation (the "Acquiror"), Post Acquisition Corp., a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of the Acquiror and the
Company. Capitalized terms used herein shall have the meanings used in the
Agreement unless otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock, $.01 par
value per share, of the Company is to be converted into and represent the right
to receive such number of share, of the Acquiror's common stock, $.01 par value
per share, as is equal to the Exchange Ratio. The Exchange Ratio is .6521
(subject to adjustment in the event of a stock split or stock dividend effected
between the date hereof and the Effective Time). The Merger is intended to
qualify as a tax-free reorganization for U.S. Federal income tax purposes and to
be accounted for as a pooling-of-interests under applicable accounting
principles. The terms and conditions of the Merger are set forth more fully in
the Agreement.
Wessels, Arnold & Henderson, L.L.C. ("Wessels, Arnold & Henderson"), as
part of its investment banking services, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We will render to the Board of Directors of the Company an
opinion as to the fairness, from a financial point of view, to the stockholders
of the Company of the consideration to be received by the stockholders in
connection with the Merger, and will receive a fee for our service. In the
ordinary course of business, Wessels, Arnold & Henderson acts as a market maker
and broker in the publicly traded securities of the Company and the Acquiror and
receives customary compensation in connection therewith, and also provides
research coverage for the Company and the Acquiror. In the ordinary course of
business, Wessels, Arnold & Henderson actively trades in the publicly traded
securities of the Company and the Acquiror for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
In connection with our review of the Merger, and in arriving at our
opinion, we have: (i) reviewed and analyzed the financial terms of the
Agreement; (ii) reviewed and analyzed certain publicly available financial and
other data with respect to the Company and Acquiror and certain other historical
relevant and operating data relating to the Company and Acquiror made available
to us from published sources and from the internal records of the Company and
Acquiror; (iii) conducted discussions with members of the senior management of
the Company with respect to the business and prospects of the Company relative
to published industry analyst estimates; (iv) conducted discussions with members
of the senior management of the Acquiror with respect to the business and
prospects of the Acquiror relative to published industry analyst estimates; (v)
reviewed the
<PAGE> 212
reported prices and trading activity for the Company's Common Stock and the
Acquiror's Common Stock; (vi) compared the financial performance of the Company
and the Acquiror and the prices of the Company's Common Stock and the Acquiror's
Common Stock with that of certain other comparable publicly-traded companies and
their securities; and (vii) reviewed the financial terms, to the extent publicly
available, of certain comparable transactions. In addition, we have conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as we have deemed necessary in arriving at our
opinion.
We note that we were not provided with any financial forecasts for either
Acquiror or the Company, having been informed by each company's senior
management that it is not their practice to provide financial forecasts.
However, in the course of our discussions with each company's senior management,
we reviewed with them the most recently published analyst earnings estimates for
each company with respect to the third and fourth quarter of each company's 1997
fiscal year and 1998 fiscal year, publicly available information regarding the
size and forecasted growth rates for the markets served by each company's
products, and various trends affecting or expected to affect each company's
future operating results and financial condition.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by the Company and the Acquiror (including, without limitation,
the financial statements and related notes thereto of the Company and Acquiror),
and have not independently verified such information. Additionally, we have not
been asked and did not consider the possible effects of any litigation, other
legal claims or any other contingent matters. Further, our opinion is based on
the assumption that the Merger will be accounted for by the Acquiror as a
pooling-of-interests. We have not performed an independent evaluation or
appraisal of any of the respective assets or liabilities of the Company or the
Acquiror and we have not been furnished with any such valuations or appraisals.
It is understood that this letter is for the information of the Board of
Directors of the Company, and this letter shall not be published or otherwise
used and no public references to Wessels, Arnold & Henderson shall be made
without our prior written consent, which consent shall not be unreasonably
withheld; provided, however,that this letter may be included in its entirety in
the Registration Statement on Form S-4 to be filed by the Acquiror which will
contain the proxy statement to be submitted to the stockholders of the Company
for the purpose of approving the Merger. Further, our opinion speaks only as of
the date hereof, is based on the conditions as they exist and information which
we have been supplied as of the date hereof, and is without regard to any
market, economic, financial, legal or other circumstance or event of any kind or
nature which may exist or occur after such date.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion as of the date hereof, that the consideration to be received by the
holders of the Company's Common Stock pursuant to the Agreement is fair, from a
financial point of view, to the Company and the holders of the Company's Common
Stock.
Very truly yours
WESSELS, ARNOLD & HENDERSON, L.L.C.
By: /s/ MICHAEL P. OGBORNE
--------------------------------------------------------
Mr. Michael P. Ogborne
Managing Director
<PAGE> 213
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Ten of the Synopsys Certificate of Incorporation provides that no
director of Synopsys shall be liable for any breach of fiduciary duty, except to
the extent that the Delaware General Corporation law prohibits the elimination
or limitation of liability of directors for breach of fiduciary duty.
Article Ten of the Synopsys Certificate of Incorporation further provides
that in the event that the Delaware General Corporation Law is amended to expand
the indemnified action permitted to directors or officers, Synopsys must
indemnify those persons to the fullest extent permitted by such law as so
amended.
Section Six of Article Seven of the Synopsys Bylaws provides that Synopsys
shall indemnify its officers and directors to the full extent permitted by the
Delaware General Corporation Law, and further provides that expenses incurred by
a director or officer of Synopsys in defending a civil or criminal action, suit
or proceeding by reason of the fact that he is or was a director or officer of
the corporation (or was serving at Synopsys' request as a director or officer of
another enterprise or corporation) shall be paid by Synopsys in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
Synopsys as authorized by the relevant sections of the Delaware General
Corporation Law.
Section Six of Article Seven of the Synopsys Bylaws further provides that
the indemnification provided therein is not exclusive, and further provides that
the Board of Directors of Synopsys in its discretion shall have power on behalf
of Synopsys to indemnify any person, other than a director or officer, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an employee or agent of the corporation and to
pay the expenses incurred by any such person in defending such action, suit or
proceeding.
Synopsys has obtained liability insurance for the benefit of its directors
and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
*2.1 Agreement and Plan of Merger, dated as of October 14, 1997, among Synopsys, Inc.,
Post Acquisition Corp. and Viewlogic Systems, Inc.
3.1 Third Amended and Restated Certificate of Incorporation.(9)
3.2 Amendment to Restated Certificate of Incorporation.(9)
3.3 Certificate of Designation of Rights, Preferences, and Privileges of Series A
Participating Preferred Stock, as filed with the Delaware Secretary of State on
October 24, 1997.
3.4 Restated Bylaws.(9)
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to Tax
Matters.
8.2 Opinion of Hale and Dorr LLP, as to Tax Matters.
10.1 Lease Agreement, dated August 17, 1990, between the Company and John Arrillaga,
Trustee or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended.(1)
10.2 Lease Agreement, dated March 29, 1991, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended.(1)
10.3 Lease Agreement, dated June 16, 1992, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended.(2)
</TABLE>
II-1
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<S> <C>
10.4 Lease Agreement, dated June 23, 1993, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended.(3)
10.5 Lease Agreement, dated August 24, 1995, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended.(4)
10.6 Amendment No. 5 to Lease, dated October 4, 1995, to Lease Agreement dated August
17, 1990, between Synopsys and John Arrillaga, Trustee, or his successor trustee,
UTA dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust), as
amended.(5)
10.7 Amendment No. 3 to Lease, dated October 4, 1995, to Lease Agreement dated June 16,
1992, between Synopsys and John Arrillaga, Trustee, or his successor trustee, UTA
dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust), as
amended.(5)
10.8 Amendment No. 2 to Lease, dated October 4, 1995, to Lease Agreement dated June 23,
1993, between Synopsys and John Arrillaga, Trustee, or his successor trustee, UTA
dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust), as
amended.(5)
10.9 Lease dated January 2, 1996 between Synopsys and Tarigo-Paul, a California Limited
Partnership.(7)
10.10 Lease dated January 2, 1996 between Synopsys and Tarigo-Paul, a California Limited
Partnership.(7)
10.11 1992 Stock Option Plan, as amended and restated.(8)
10.12 Employee Stock Purchase Plan, as amended and restated.(8)
10.13 International Employee Stock Purchase Plan, as amended and restated.(8)
10.14 Deferred Compensation Plan.(9)
10.15 Form of Indemnification Agreement(1).
10.16 Director and Officer's Insurance and Company Reimbursement Policy(1).
10.17 Preferred Shares Rights Agreement, dated as of October 24, 1997 between Synopsys,
Inc. and BankBoston, N.A., including the Certificate of Determination, the form of
Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and
C, respectively.
21.1 Subsidiaries of Synopsys.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2A Consent of Deloitte & Touche LLP, Independent Auditors.
23.2B Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibits 5.1 and 8.1).
23.4 Consent of Hale and Dorr LLP (included in Exhibit 8.2).
23.5 Consent of Wessels, Arnold & Henderson, L.L.C. (included in Exhibit 99.1).
24.1 Power of Attorney (See page II-5).
*99.1 Opinion of Wessels, Arnold & Henderson, L.L.C.
99.2 Form of Proxy Card of Synopsys, Inc.
99.3 Form of Proxy Card of Viewlogic Systems, Inc.
</TABLE>
- ---------------
* Filed as an annex to the Joint Proxy Statement/Prospectus constituting part
of this Registration Statement and incorporated herein by reference.
(1) Incorporated by reference from Synopsys' Registration Statement on Form S-1
which became effective February 24, 1992.
(2) Incorporated by reference from Synopsys' Report on Form 10-K which became
effective September 30, 1992.
II-2
<PAGE> 215
(3) Incorporated by reference from Synopsys' Report on Form 10-K which became
effective September 30, 1993.
(4) Incorporated by reference from Synopsys' Report on Form 10-K which became
effective September 30, 1995.
(5) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1995.
(6) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1996.
(7) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended March 31, 1996.
(8) Incorporated by reference from Synopsys' Registration Statement on Form S-8
filed on May 3, 1996.
(9) Incorporated by reference from Synopsys' Registration Statement on Form S-4
filed on February 5, 1997.
(b) Financial Statement Schedules
Schedule IIA -- Valuation and Qualifying Accounts and Reserves of Synopsys,
Inc.
Schedule IIB -- Valuation and Qualifying Accounts and Reserves of Viewlogic
Systems, Inc.
ITEM 22. UNDERTAKINGS
(1) Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) Registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) Registrant hereby undertakes to respond to requests for information that
is incorporated by reference into the Proxy/Statement Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(4) Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant, has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer of controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Synopsys, Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Mountain View, State of
California, on the 5th day of November, 1997.
SYNOPSYS, INC.
By: /s/ AART J. DE GEUS
------------------------------------
Aart J. de Geus
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
Each of the officers and directors of Synopsys, Inc. whose signature
appears below hereby constitutes and appoints Aart J. de Geus and David
Sugishita their true and lawful attorney and agent, with full power of
substitution to sign and execute on behalf of the undersigned any amendment or
amendments to this Registration Statement on Form S-4 and to perform any acts
necessary in order to file such amendments, and each of the undersigned does
hereby ratify and confirm any such acts that said attorney and agent, or his
substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 5th day of November, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ AART J. DE GEUS President, Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer and Director)
Aart J. De Geus
/s/ DAVID SUGISHITA Senior Vice President, Finance and
- --------------------------------------------- Operations and Chief Financial Officer
David Sugishita (Principal Financial Officer and Principal
Accounting Officer)
/s/ HARVEY C. JONES, JR. Chairman of the Board of Directors
- ---------------------------------------------
Harvey C. Jones, Jr.
/s/ WILLIAM W. LATTIN Executive Vice President and Director
- ---------------------------------------------
William W. Lattin
/s/ SANG WANG Director
- ---------------------------------------------
Sang Wang
/s/ DEBORAH A. COLEMAN Director
- ---------------------------------------------
Deborah A. Coleman
/s/ A. RICHARD NEWTON Director
- ---------------------------------------------
A. Richard Newton
/s/ STEVEN C. WALSKE Director
- ---------------------------------------------
Steven C. Walske
</TABLE>
II-4
<PAGE> 217
SCHEDULE IIA
SYNOPSYS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED BALANCE AT
BEGINNING CHARGED TO TO OTHER END OF
OF PERIOD EXPENSE(1) ACCOUNTS(2) DEDUCTIONS(3) PERIOD
---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts and
Sales Returns:
1997.................................. $3,877 $4,090 $ (75) $ 1,440 $6,452
------ ------ ----- ------ ------
1996.................................. $2,892 $1,713 $(334) $ 394 $3,877
------ ------ ----- ------ ------
1995.................................. $1,992 $ 737 $ 210 $ 47 $2,892
------ ------ ----- ------ ------
</TABLE>
- ---------------
(1) Includes $688, $1,576, and $830 charged to income in fiscal 1995, 1996, and
1997, respectively.
(2) Translation and other adjustments.
(3) Accounts written off, net of recoveries.
S-1
<PAGE> 218
SCHEDULE IIB
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1994.................................... $ 716 $1,803 $ -- $(1,657)(a) $ 862
------ ------ ----- ------ ------
1995.................................... $ 862 $ 589 $ -- $ (236)(a) $1,215
------ ------ ----- ------ ------
1996.................................... $1,215 $ 372 $ -- $ (84)(a) $1,503
------ ------ ----- ------ ------
</TABLE>
- ---------------
(a) Represents amounts written off.
S-2
<PAGE> 219
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
*2.1 Agreement and Plan of Merger dated as of October 14, 1997 among Synopsys, Inc., Post
Acquisition Corp. and Viewlogic Systems, Inc.
3.1 Third Amended and Restated Certificate of Incorporation.(9)
3.2 Amendment to Restated Certificate of Incorporation.(9)
3.3 Certificate of Designation of Rights, Preferences, and Privileges of Series A
Participating Preferred Stock, as filed with the Delaware Secretary of State on
October 24, 1997.
3.4 Restated Bylaws.(9)
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to Tax
Matters.
8.2 Opinion of Hale and Dorr LLP, as to Tax Matters.
10.1 Lease Agreement, dated August 17, 1990, between the Company and John Arrillaga,
Trustee or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended(1).
10.2 Lease Agreement, dated March 29, 1991, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended(1).
10.3 Lease Agreement, dated June 16, 1992, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended(2).
10.4 Lease Agreement, dated June 23, 1993, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended(3).
10.5 Lease Agreement, dated August 24, 1995, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga Separate
Property Trust), as amended, and Richard T. Peery, Trustee, or his successor
trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property Trust), as
amended(4).
10.6 Amendment No. 5 to Lease, dated October 4, 1995, to Lease Agreement dated August 17,
1990, between Synopsys and John Arrillaga, Trustee, or his successor trustee, UTA
dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust), as
amended(5).
10.7 Amendment No. 3 to Lease, dated October 4, 1995, to Lease Agreement dated June 16,
1992, between Synopsys and John Arrillaga, Trustee, or his successor trustee, UTA
dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust), as
amended(5).
10.8 Amendment No. 2 to Lease, dated October 4, 1995, to Lease Agreement dated June 23,
1993, between Synopsys and John Arrillaga, Trustee, or his successor trustee, UTA
dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust), as
amended(5).
</TABLE>
<PAGE> 220
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
10.9 Lease dated January 2, 1996 between Synopsys and Tarigo-Paul, a California Limited
Partnership(7).
10.10 Lease dated January 2, 1996 between Synopsys and Tarigo-Paul, a California Limited
Partnership(7).
10.11 1992 Stock Option Plan, as amended and restated(8).
10.12 Employee Stock Purchase Plan, as amended and restated(8).
10.13 International Employee Stock Purchase Plan, as amended and restated(8).
10.14 Deferred Compensation Plan.(9)
10.15 Form of Indemnification Agreement(1).
10.16 Director and Officer's Insurance and Company Reimbursement Policy(1).
10.17 Preferred Shares Rights Agreement, dated as of October 24, 1997 between Synopsys,
Inc. and BankBoston, N.A., including the Certificate of Determination, the form of
Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and
C, respectively.
21.1 Subsidiaries of Synopsys.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2A Consent of Deloitte & Touche LLP, Independent Auditors.
23.2B Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibits 5.1 and 8.1).
23.4 Consent of Hale and Dorr LLP (included in Exhibit 8.2).
23.5 Consent of Wessels, Arnold & Henderson, L.L.C. (included in Exhibit 99.1).
24.1 Power of Attorney (See page II-5).
*99.1 Opinion of Wessels, Arnold & Henderson, L.L.C.
99.2 Form of Proxy Card of Synopsys, Inc.
99.3 Form of Proxy Card of Viewlogic Systems, Inc.
</TABLE>
- ---------------
* Filed as an annex to the Joint Proxy Statement/Prospectus constituting part
of this Registration Statement and incorporated herein by reference.
(1) Incorporated by reference from Synopsys' Registration Statement on Form S-1
which became effective February 24, 1992.
(2) Incorporated by reference from Synopsys' Report on Form 10-K which became
effective September 30, 1992.
(3) Incorporated by reference from Synopsys' Report on Form 10-K which became
effective September 30, 1993.
(4) Incorporated by reference from Synopsys' Report on Form 10-K which became
effective September 30, 1995.
(5) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1995.
(6) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1996.
(7) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended March 31, 1996.
(8) Incorporated by reference from Synopsys' Registration Statement on Form S-8
filed on May 3, 1996.
(9) Incorporated by reference from Synopsys' Registration Statement on Form S-4
filed on February 5, 1997.
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF SYNOPSYS, INC.
The undersigned, Aart J. De Geus and Paul Lippe, do hereby certify:
1. That they are the duly elected and acting President and
Secretary, respectively, of Synopsys, Inc., a Delaware corporation (the
"CORPORATION").
2. That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation, the said
Board of Directors on September 3, 1997 adopted the following resolution
creating a series of 100,000 shares of Preferred Stock designated as Series A
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Restated Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a series of Preferred
Stock of the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
Participating Preferred Stock shall have a par value of $0.01 per share, and the
number of shares constituting such series shall be 100,000.
Section 2. Proportional Adjustment. In the event the Corporation
shall at any time after the issuance of any share or shares of Series A
Participating Preferred Stock (i) declare any dividend on Common Stock of the
Corporation ("COMMON STOCK") payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock.
Section 3. Dividends and Distributions.
(a) Subject to the prior and superior right of the holders
of any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Participating 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 "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
-1-
<PAGE> 2
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating Preferred
Stock.
(b) The Corporation shall declare a dividend or distribution
on the Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of
Series A Participating Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Participating
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly 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 Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Participating 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 Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
Section 4. Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(a) Each share of Series A Participating Preferred Stock
shall entitle the holder thereof to 1,000 votes on all matters submitted to a
vote of the stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series A Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as required by law, holders of Series A
Participating 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.
-2-
<PAGE> 3
Section 5. Certain Restrictions.
(a) The Corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock unless
concurrently therewith it shall declare a dividend on the Series A Participating
Preferred Stock as required by Section 3 hereof.
(b) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 3 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Series A Participating
Preferred Stock, except dividends paid ratably on the Series A Participating
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 on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating 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.
(c) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
-3-
<PAGE> 4
Section 6. Reacquired Shares. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein and, in the Restated Certificate of Incorporation, as then amended.
Section 7. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, the holders of shares
of Series A Participating Preferred Stock shall be entitled to receive an
aggregate amount per share equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock plus an amount equal
to any accrued and unpaid dividends on such shares of Series A Participating
Preferred Stock.
Section 8. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 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
changed or exchanged.
Section 9. No Redemption. The shares of Series A Participating
Preferred Stock shall not be redeemable.
Section 10. Ranking. The Series A Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 11. Amendment. The Restated Certificate of Incorporation of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of the
Series A Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority of the outstanding shares of
Series A Participating Preferred Stock, voting separately as a class.
Section 12. Fractional Shares. Series A Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock.
-4-
<PAGE> 5
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set
forth in the foregoing Certificate of Designation are true and correct of our
own knowledge.
Executed at Mountain View, California, on October 24, 1997.
/s/ Aart J. De Geus
-------------------------------------------
Aart J. De Geus, President
/s/ Paul Lippe
-------------------------------------------
Paul Lippe, Secretary
-5-
<PAGE> 1
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 650-493-9300 FACSIMILE 650-493-6811
November 7, 1997
Synopsys, Inc.
700 East Middlefield Road
Mountain View, California 94043-4033
RE: REGISTRATION STATEMENT ON FORM S-4
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4, Commission File
Number 333- , filed by you with the Securities and Exchange Commission (the
"Commission") on November 7, 1997 (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of
13,703,882 shares of your Common Stock (the "Shares"). As your counsel in
connection with this transaction, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with the
sales and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the proxy statement/prospectus constituting a
part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
-----------------------------------------
<PAGE> 1
EXHIBIT 8.1
WILSON SONSINI GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (650) 493-9300 Facsimile: (650) 493-6811
November 6, 1997
Synopsys, Inc.
700 East Middlefield Road
Mountain View, California 94043
Ladies and Gentlemen:
We have acted as counsel for Synopsys, Inc., a Delaware corporation
("Synopsys") in connection with the preparation and execution of the Agreement
and Plan of Merger dated as of October 14, 1997 (the "Merger Agreement") among
Synopsys, Post Acquisition Corp., a wholly-owned subsidiary of Synopsys
incorporated in Delaware ("Merger Sub"), and Viewlogic Systems, Inc. a Delaware
corporation ("Viewlogic"). Pursuant to the Merger Agreement, Merger Sub will
merge with and into Viewlogic (the "Merger"), and Viewlogic will become a
wholly-owned subsidiary of Synopsys. Unless otherwise defined, capitalized terms
referred to herein have the meanings set forth in the Merger Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
You have requested our opinion regarding certain United States
federal income tax consequences of the Merger. In delivering this opinion, we
have reviewed and relied upon the facts, statements, descriptions and
representations set forth in the Registration Statement on Form S-4 filed by
Synopsys with the Securities and Exchange Commission (which contains a joint
proxy statement/prospectus) (the "Registration Statement"), the Merger Agreement
(including Exhibits) and such other documents pertaining to the Merger as we
have deemed necessary or appropriate. We have also relied upon certificates of
officers of Synopsys and Viewlogic respectively (the "Officers' Certificates").
In connection with rendering this opinion, we have also assumed
(without any independent investigation) that:
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and there
has been (or will be by the Effective Time) due execution and delivery of all
documents where due execution and delivery are prerequisites to effectiveness
thereof;
<PAGE> 2
Synopsys, Inc.
November 6, 1997
Page 2
2. Any statement made in any of the documents referred to herein,"to
the best of the knowledge" of any person or party is correct without such
qualification;
3. All statements, descriptions and representations contained in any
of the documents referred to herein or otherwise made to us are true and correct
in all material respects and no actions have been (or will be) taken which are
inconsistent with such representations; and
4. The Merger will be reported by Synopsys and Viewlogic on their
respective federal income tax returns in a manner consistent with the opinion
set forth below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and the statements set forth in the Officers' Certificates are true and
correct as of the date hereof, then:
1. The Merger will constitute a Merger within the meaning of Section
368(a);
2. No gain or loss will be recognized by Synopsys, Merger Sub, or
Viewlogic as a result of the Merger;
3. No gain or loss will be recognized by the shareholders of
Viewlogic upon the exchange of Viewlogic stock solely for shares of Synopsys
stock in the Merger;
4. Cash received by the shareholders of Viewlogic in lieu of
fractional shares of Synopsys stock will be treated as received as a
distribution in redemption of such fractional shares, subject to the provisions
of Section 302, as if such fractional shares had been issued in the Merger and
then redeemed by Synopsys;
5. The tax basis of the shares of Synopsys stock received by the
shareholders of Viewlogic in the Merger will be equal to the tax basis of the
shares of Viewlogic stock exchanged therefor in the Merger, reduced by any basis
allocable to a fractional share of Synopsys stock treated as sold or exchanged
under Section 302; and
6. The holding period for the shares of Synopsys stock received by
the shareholders of Viewlogic will include the holding period for the shares of
Viewlogic stock exchanged therefor in the Merger, provided that the shares of
Viewlogic stock are held as capital assets at the Effective Time.
In rendering this opinion, we have assumed that Hale and Dorr LLP
has delivered, and has not withdrawn, an opinion that is substantially similar
to this one. No opinion is expressed as to any
<PAGE> 3
Synopsys, Inc.
November 6, 1997
Page 3
federal income tax consequence of the Merger except as specifically set forth
herein, and this opinion may not be relied upon except with respect to the
consequences specifically discussed herein.
This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion addresses only the matters set forth above, and does
not address any other federal, state, local or foreign tax consequences that may
result from the Merger or any other transaction (including any transaction
undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger
as described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
This opinion is intended solely for the purpose of inclusion as an
exhibit to the Registration Statement. It may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and
further consent to the use of our name in connection with references to this
opinion and the tax consequences of the Merger. In giving this consent, however,
we do not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE> 1
EXHIBIT 8.2
[HALE AND DORR LLP LETTERHEAD]
60 State Street, Boston, Massachusetts 02109
617-526-6000 fax 617-526-5000
November 5, 1997
Viewlogic Systems, Inc.
293 Boston Post Road West
Marlboro, MA 01752
Re: Merger pursuant to Agreement and Plan of Merger among Synopsys, Inc.,
Post Acquisition Corp., and Viewlogic Systems, Inc.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of October 14, 1997 (the "Merger Agreement"), by and
among Synopsys, Inc., a Delaware corporation ("Parent"), Post Acquisition Corp.,
a Delaware corporation and wholly owned subsidiary of Parent ("Sub"), and
Viewlogic Systems, Inc., a Delaware corporation ("Target"). Pursuant to the
Merger Agreement, Sub will merge with and into Target (the "Merger"). Except as
otherwise provided, capitalized terms not defined herein have the meanings set
forth in the Merger Agreement and the exhibits thereto or in the letters
delivered to Hale and Dorr LLP by Parent and Target and certain Target
shareholders containing certain representations of Parent and Target and certain
Target shareholders relevant to this opinion (the "Representation Letters"). All
section references, unless otherwise indicated, are to the United States
Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Viewlogic Systems, Inc. in the Merger, and
for purposes of rendering this opinion, we have examined and relied upon the
Registration Statement, the Merger Agreement and the exhibits thereto, the
Representation Letters, and such other documents as we considered relevant to
our analysis. In our examination of documents, we have assumed the authenticity
of original documents, the accuracy of copies, the genuineness of signatures,
and the legal capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at
<PAGE> 2
Viewlogic Systems, Inc.
November 5, 1997
Page 2
the Effective Time pursuant to the terms and conditions set forth in the Merger
Agreement without the waiver or modification of any such terms and conditions.
Furthermore, we have assumed that all representations contained in the Merger
Agreement, as well as those representations contained in the Representation
Letters, are, and at the Effective Time will be, true and complete in all
material respects, and that any representation made in any of the documents
referred to herein "to the best of the knowledge and belief" (or similar
qualification) of any person or party is correct without such qualification. We
have also assumed that as to all matters for which a person or entity has
represented that such person or entity is not a party to, does not have, or is
not aware of, any plan, intention, understanding, or agreement, there is no such
plan, intention, understanding, or agreement. We have not attempted to verify
independently such representations, but in the course of our representation,
nothing has come to our attention that would cause us to question the accuracy
thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
Target that are subject to special tax rules, and we express no opinion
regarding the tax consequences of the Merger arising in connection with the
ownership of options or warrants for Target stock.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the following
opinion:
<PAGE> 3
Viewlogic Systems, Inc.
November 5, 1997
Page 3
1. The Merger will constitute a reorganization within the meaning of
Section 368(a);
2. No gain or loss will be recognized by Parent, Sub, or Target as a result
of the Merger;
3. No gain or loss will be recognized by the shareholders of Target upon
the exchange of Target stock solely for shares of Parent stock in the Merger;
4. Cash received by the shareholders of Target in lieu of fractional shares
of Parent stock will be treated as received as a distribution in redemption of
such fractional shares, subject to the provisions of Section 302, as if such
fractional shares had been issued in the Merger and then redeemed by Parent;
5. The tax basis of the shares of Parent stock received by the shareholders
of Target in the Merger will be equal to the tax basis of the shares of Target
stock exchanged therefor in the Merger, reduced by any basis allocable to a
fractional share of Parent stock treated as sold or exchanged under Section 302;
and
6. The holding period for the shares of Parent stock received by the
shareholders of Target will include the holding period for the shares of Target
stock exchanged therefor in the Merger, provided that the shares of Target stock
are held as capital assets at the Effective Time.
In rendering this opinion, we have assumed that Wilson Sonsini Goodrich &
Rosati, Professional Corporation, has delivered, and has not withdrawn, an
opinion that is substantially similar to this one. No opinion is expressed as to
any federal income tax consequence of the Merger except as specifically set
forth herein, and this opinion may not be relied upon except with respect to the
consequences specifically discussed herein.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and further
consent to the use of our name in the Registration Statement in connection with
references to this opinion and the tax
<PAGE> 4
Viewlogic Systems, Inc.
November 5, 1997
Page 4
consequences of the Merger. In giving this consent, however, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
HALE AND DORR LLP
<PAGE> 1
Exhibit 10.17
SYNOPSYS, INC.
AND
BANKBOSTON N. A.
RIGHTS AGENT
PREFERRED SHARES RIGHTS AGREEMENT
DATED AS OF OCTOBER 24, 1997
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
Section 1. Certain Definitions...............................................1
Section 2. Appointment of Rights Agent.......................................7
Section 3. Issuance of Rights Certificates...................................7
Section 4. Form of Rights Certificates.......................................9
Section 5. Countersignature and Registration................................10
Section 6. Transfer, Split Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or
Stolen Rights Certificates.......................................10
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights....11
Section 8. Cancellation and Destruction of Rights Certificates..............13
Section 9. Reservation and Availability of Preferred Shares.................13
Section 10. Record Date......................................................14
Section 11. Adjustment of Exercise Price, Number of Shares or
Number of Rights.................................................15
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.......21
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power.......................................21
Section 14. Fractional Rights and Fractional Shares..........................25
Section 15. Rights of Action.................................................26
Section 16. Agreement of Rights Holders......................................26
Section 17. Rights Certificate Holder Not Deemed a Stockholder...............27
Section 18. Concerning the Rights Agent......................................27
Section 19. Merger or Consolidation or Change of Name of Rights Agent........28
Section 20. Duties of Rights Agent...........................................28
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
Section 21. Change of Rights Agent...........................................30
Section 22. Issuance of New Rights Certificates..............................31
Section 23. Redemption.......................................................31
Section 24. Exchange.........................................................32
Section 25. Notice of Certain Events.........................................34
Section 26. Notices..........................................................34
Section 27. Supplements and Amendments.......................................35
Section 28. Successors.......................................................36
Section 29. Determinations and Actions by the Board of Directors, etc........36
Section 30. Benefits of this Agreement.......................................36
Section 31. Severability.....................................................36
Section 32. Governing Law....................................................36
Section 33. Counterparts.....................................................37
Section 34. Descriptive Headings.............................................37
EXHIBITS
Exhibit A Form of Certificate of Designation
Exhibit B Form of Rights Certificate
Exhibit C Summary of Rights
-ii-
<PAGE> 4
RIGHTS AGREEMENT
Agreement, dated as of October 24, 1997, between Synopsys, Inc., a
Delaware corporation (the "COMPANY"), and BankBoston N. A. ("RIGHTS AGENT").
On September 3, 1997 (the "RIGHTS DIVIDEND DECLARATION DATE"), the
Board of Directors of the Company authorized and declared a dividend of one
Preferred Share Purchase Right (a "RIGHT") for each Common Share (as hereinafter
defined) of the Company outstanding as of the Close of Business (as hereinafter
defined) on November 10, 1997 (the "RECORD DATE"), each Right representing the
right to purchase one one-thousandth of a share of Series A Participating
Preferred Stock (as such number may be adjusted pursuant to the provisions of
this Agreement), having the rights, preferences and privileges set forth in the
form of Certificate of Designations of Rights, Preferences and Privileges of
Series A Participating Preferred Stock attached hereto as Exhibit A, upon the
terms and subject to the conditions herein set forth, and further authorized and
directed the issuance of one Right (as such number may be adjusted pursuant to
the provisions of this Agreement) with respect to each Common Share that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises 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 meanings indicated:
(a) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company or any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall be deemed to be an Acquiring Person as the result of
an acquisition of Common Shares 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 Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), then such Person shall
be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of
such additional Common Shares of the Company such Person does not beneficially
own 15% or more of the Common Shares of the Company then outstanding.
Notwithstanding the foregoing, (i) if a majority of the Continuing Directors
then in office determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently (including, without limitation,
because (A) such Person was unaware that it beneficially owned a percentage of
the Common Shares that
<PAGE> 5
would otherwise cause such Person to be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph (a), or (B) such Person
was aware of the extent of the Common Shares it beneficially owned but had no
actual knowledge of the consequences of such beneficial ownership under this
Agreement) and without any intention of changing or influencing control of the
Company, and if such Person divested or divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to be or to have become an
"Acquiring Person" for any purposes of this Agreement; and (ii) if, as of the
date hereof, any Person is the Beneficial Owner of 15% or more of the Common
Shares outstanding, such Person shall not be or become an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph (a), unless and
until such time as such Person shall become the Beneficial Owner of additional
Common Shares (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), unless, upon becoming
the Beneficial Owner of such additional Common Shares, such Person is not then
the Beneficial Owner of 15% or more of the Common Shares then outstanding.
(b) "ADJUSTMENT FRACTION" shall have the meaning set forth
in Section 11(a)(i) hereof.
(c) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.
(d) A Person shall be deemed the "BENEFICIAL OWNER" of and
shall be deemed to "BENEFICIALLY OWN" any securities:
(i) which such Person or any of such Person's Affiliates
or Associates beneficially owns, directly or indirectly, for purposes of Section
13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or
successor law or regulation);
(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 bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed pursuant to this
Section 1(d)(ii)(A) to be the Beneficial Owner of, or to beneficially own, (1)
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 or exchange, or (2) securities
which a Person or any of such Person's Affiliates or Associates may be deemed to
have the right to acquire pursuant to any merger or other acquisition agreement
between the Company and such Person (or one or more of its Affiliates or
Associates) if such agreement has been approved by the Board of Directors of the
Company prior to there being an Acquiring Person; 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 under this Section 1(d)(ii)(B) if the agreement,
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<PAGE> 6
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 of 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 (or any Affiliate or Associate thereof) with
which such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding, whether or not in writing (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(d)(ii)(B)) or disposing of any securities of the Company; provided,
however, that in no case shall an officer or director of the Company be deemed
(x) the Beneficial Owner of any securities beneficially owned by another officer
or director of the Company solely by reason of actions undertaken by such
persons in their capacity as officers or directors of the Company or (y) the
Beneficial Owner of securities held of record by the trustee of any employee
benefit plan of the Company or any Subsidiary of the Company for the benefit of
any employee of the Company or any Subsidiary of the Company, other than the
officer or director, by reason of any influence that such officer or director
may have over the voting of the securities held in the plan.
(e) "BUSINESS DAY" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
(f) "CLOSE OF BUSINESS" on any given date shall mean 5:00
P.M., New York time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York time, on the next succeeding
Business Day.
(g) "COMMON SHARES" when used with reference to the Company
shall mean the shares of Common Stock of the Company, $0.01 par value. Common
Shares when used with reference to any Person other than the Company shall mean
the capital stock (or 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.
(h) "COMMON STOCK EQUIVALENTS" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(i) "COMPANY" shall mean Synopsys, Inc., a Delaware
corporation, subject to the terms of Section 13(a)(iii)(C) hereof.
(j) "CONTINUING DIRECTOR" shall mean (i) any member of the
Board of Directors of the Company who, while a member of the Board, is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who was a member of the Board prior to there being an Acquiring Person, and (ii)
any Person who subsequently becomes a member of the Board and who, while a
member of the Board, is not an Acquiring
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<PAGE> 7
Person, or an Affiliate or Associate of an Acquiring Person, or a representative
of an Acquiring Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or approved by a
majority of the Continuing Directors.
(k) "CURRENT PER SHARE MARKET PRICE" of any security (a
"Security" for purposes of this definition), for all computations other than
those made pursuant to Section 11(a)(iii) hereof, shall mean the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price
of any Security on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the ten (10) consecutive Trading
Days 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 (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the applicable
thirty (30) Trading Day or ten (10) Trading Day period, 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 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 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 sale price or, if such last sale price is not reported, 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. If on any such
date no market maker is making a market in the Security, the fair value of such
shares on such date as determined in good faith by the Board of Directors of the
Company shall be used. If the Preferred Shares are not publicly traded, the
Current Per Share Market Price of the Preferred Shares shall be conclusively
deemed to be the Current Per Share Market Price of the Common Shares as
determined pursuant to this Section 1(k), as appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof, multiplied by 1000. If the Security is not publicly held or so listed or
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 and
shall be conclusive for all purposes.
(l) "CURRENT VALUE" shall have the meaning set forth in
Section 11(a)(iii) hereof.
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<PAGE> 8
(m) "DISTRIBUTION DATE" shall mean the earlier of (i) the
Close of Business on the tenth day (or such later date as may be determined by
action of a majority of Continuing Directors then in office) after the Shares
Acquisition Date (or, if the tenth day after the Shares Acquisition Date occurs
before the Record Date, the Close of Business on the Record Date) or (ii) the
Close of Business on the tenth Business Day (or such later date as may be
determined by action of a majority of Continuing Directors then in office) after
the date that a tender or exchange offer by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be an Acquiring Person.
(n) "EQUIVALENT SHARES" shall mean Preferred Shares and any
other class or series of capital stock of the Company which is entitled to the
same rights, privileges and preferences as the Preferred Shares.
(o) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(p) "EXCHANGE RATIO" shall have the meaning set forth in
Section 24(a) hereof.
(q) "EXERCISE PRICE" shall have the meaning set forth in
Section 4(a) hereof.
(r) "EXPIRATION DATE" shall mean the earliest to occur of:
(i) the Close of Business on the Final Expiration Date, (ii) the Redemption
Date, (iii) consummation of any transaction contemplated by Section 13(f)
hereof, or (iv) the time at which the Board of Directors orders the exchange of
the Rights as provided in Section 24 hereof.
(s) "FINAL EXPIRATION DATE" shall mean October 24, 2007.
(t) "NASDAQ" shall mean The Nasdaq Stock Market.
(u) "PERMITTED OFFER" shall mean a tender offer for all
outstanding Common Shares made in the manner prescribed by Section 14(d) of the
Exchange Act and the rules and regulations promulgated thereunder; provided,
however, that such tender offer occurs at a time when Continuing Directors are
in office and a majority of the Continuing Directors then in office has
determined that the offer is both fair and otherwise in the best interests of
the Company and its stockholders (taking into account all factors that such
Continuing Directors deem relevant).
(v) "PERSON" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(w) "POST-EVENT TRANSFEREE" shall have the meaning set forth
in Section 7(e) hereof.
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<PAGE> 9
(x) "PREFERRED SHARES" shall mean shares of Series A
Participating Preferred Stock, $0.01 par value, of the Company.
(y) "PRE-EVENT TRANSFEREE" shall have the meaning set forth
in Section 7(e) hereof.
(z) "PRINCIPAL PARTY" shall have the meaning set forth in
Section 13(b) hereof.
(aa) "RECORD DATE" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(bb) "REDEMPTION DATE"shall have the meaning set forth in
Section 23(a) hereof.
(cc) "REDEMPTION PRICE" shall have the meaning set forth in
Section 23(a) hereof.
(dd) "RIGHTS AGENT" shall mean BankBoston N.A. or its
successor or replacement as provided in Sections 19 and 21 hereof.
(ee) "RIGHTS CERTIFICATE" shall mean a certificate
substantially in the form attached hereto as Exhibit B.
(ff) "RIGHTS DIVIDEND DECLARATION DATE" shall have the
meaning set forth in the recitals at the beginning of this Agreement.
(gg) "SECTION 11(a)(II) TRIGGER DATE" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(hh) "SECTION 13 EVENT" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) hereof.
(ii) "SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
(jj) "SHARES 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) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided, however, that if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
(kk) "SPREAD" shall have the meaning set forth in Section
11(a)(iii) hereof.
(ll) "SUBSIDIARY" of any Person shall mean any corporation
or other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar
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<PAGE> 10
authority of such corporation or other entity is beneficially owned, directly or
indirectly, by such Person, or any corporation or other entity otherwise
controlled by such Person.
(mm) "SUBSTITUTION PERIOD" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(nn) "SUMMARY OF RIGHTS" shall mean a summary of this
Agreement substantially in the form attached hereto as Exhibit C.
(oo) "TOTAL EXERCISE PRICE" shall have the meaning set forth
in Section 4(a) hereof.
(pp) "TRADING DAY" shall mean a day on which the principal
national securities exchange on which a referenced security is listed or
admitted to trading is open for the transaction of business or, if a referenced
security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(qq) A "TRIGGERING EVENT" shall be deemed to have occurred
upon any Person becoming an Acquiring 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, upon ten (10) days prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issuance of Rights Certificates.
(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b) and 3(c) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Rights Certificates) and not by
separate Rights Certificates and (ii) the right to receive Rights Certificates
will be transferable only in connection with the transfer of Common Shares.
Until the earlier of the Distribution Date or the Expiration Date, the surrender
for transfer of certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. 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, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. In the event that an adjustment in the number of Rights per Common Share
has been made pursuant to Section 11 hereof, then at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of the Distribution Date, the
Rights will be evidenced solely by such
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<PAGE> 11
Rights Certificates and may be transferred by the transfer of the Rights
Certificates as permitted hereby, separately and apart from any transfer of
Common Shares, and the holders of such Rights Certificates as listed in the
records of the Company or any transfer agent or registrar for the Rights shall
be the record holders thereof.
(b) On the Record Date or as soon as practicable thereafter,
the Company will send a copy of the Summary of Rights by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Record Date, at the address of such holder shown on the records
of the Company's transfer agent and registrar. With respect to certificates for
Common Shares 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, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Shares 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 Shares represented thereby.
(c) Unless the Board of Directors by resolution adopted at
or before the time of the issuance of any Common Shares specifies to the
contrary, Rights shall be issued in respect of all Common Shares that are issued
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or, in certain circumstances provided in Section 22 hereof,
after the Distribution Date. Certificates representing such Common Shares shall
also be deemed to be certificates for Rights, and shall bear the following
legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN SYNOPSYS,
INC. AND BANKBOSTON N. A., AS THE RIGHTS AGENT, DATED AS OF OCTOBER
24, 1997 (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 SYNOPSYS, 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. SYNOPSYS, 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 SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO,
OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR
ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH
PERSON OR BY ANY SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
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<PAGE> 12
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
(d) In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of 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 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 any stock exchange or a national market system, on which
the Rights may from time to time be listed or included, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distri buted, shall be dated as of the Record Date (or in
the case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares) and on
their face shall entitle the holders thereof to purchase such number of
one-thousandths of a Preferred Share as shall be set forth therein at the price
set forth therein (such exercise price per one one-thousandth of a Preferred
Share being hereinafter referred to as the "EXERCISE PRICE" and the aggregate
Exercise Price of all Preferred Shares issuable upon exercise of one Right being
hereinafter referred to as the "TOTAL EXERCISE PRICE"), but the number and type
of securities purchasable upon the exercise of each Right and the Exercise Price
shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a)
or Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which a majority of the Continuing Directors then in
office has determined is part of a plan, arrangement or understanding which has
as a primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING
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<PAGE> 13
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRE SENTED
HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF THE RIGHTS AGREEMENT.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of
the Company by its Chairman of the Board, its Chief Executive Officer, its Chief
Financial Officer, its President or any Vice President, either manually or by
facsimile signature, and by the Secretary or an Assistant Secretary of the
Company, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal (if any) or a facsimile thereof. The Rights
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 Rights Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights 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 Rights
Certificates on behalf of the Company had not ceased to be such officer of the
Company; and any Rights Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Rights Certifi cate,
shall be a proper officer of the Company to sign such Rights Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred, split
up, combined or exchanged at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall
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<PAGE> 14
have provided such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Sections
7(e), 14 and 24 hereof, countersign and deliver to the person entitled thereto a
Rights Certificate or Rights 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 Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights 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 Rights Certificate if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights.
(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date and prior to the Close of Business on the Expiration
Date by surrender of the Rights Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office of the Rights Agent designated for such purpose, together with payment of
the Exercise Price for each one-thousandth of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) as
to which the Rights are exercised.
(b) The Exercise Price for each one-thousandth of a
Preferred Share issuable pursuant to the exercise of a Right shall initially be
One Hundred Seventy-Five Dollars ($175.00), 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)
below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Exercise Price for the number of one-thousandths
of a Preferred Share (or, following a Triggering Event, other securities, cash
or other assets as the case may be) to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Rights
Certificate in accordance with Section 9(e) hereof, the Rights Agent shall,
subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares (or make available, if the Rights Agent
is the transfer agent for the Preferred Shares) a certificate or certificates
for the number of one-thousandths of a Preferred Share (or, following a
Triggering Event, other securities, cash or other assets as the case may be) to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests or (B) if the Company shall have elected to
deposit the total number of one-thousandths of a Preferred Share (or, following
a Triggering Event, other securities, cash or other assets as the case may be)
issuable upon exercise of the Rights hereunder with a depositary agent,
requisition from the depositary agent depositary
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<PAGE> 15
receipts representing such number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets as the case
may be) as are to be purchased (in which case certificates for the Preferred
Shares (or, following a Triggering Event, other securities, cash or other assets
as the case may be) 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 appropriate, 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) 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 Rights Certificate, registered in
such name or names as may be designated by such holder and (iv) when appro
priate, after receipt thereof, deliver such cash to or upon the order of the
registered holder of such Rights Certificate. The payment of the Exercise Price
(as such amount may be reduced (including to zero) pursuant to Section
11(a)(iii) hereof) and an amount equal to any applicable transfer tax required
to be paid by the holder of such Rights Certificate in accordance with Section
9(e) hereof, may be made in cash or by certified bank check, cashier's check or
bank draft payable to the order of the Company. In the event that the Company is
obligated to issue securities of the Company other than Preferred Shares, pay
cash and/or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remain ing unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such (a "POST- EVENT TRANSFEREE"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which a majority of the Continuing Directors then in office has determined is
part of a plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e) (a "PRE-EVENT TRANSFEREE") or (iv) any
subsequent transferee receiving transferred Rights from a Post- Event Transferee
or a Pre-Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and Section 4(b) hereof are complied with, but shall have no liability to any
holder of Rights Certificates or to any other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or any of such
Acquiring Person's Affiliates, Associates or transferees hereunder.
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<PAGE> 16
(f) 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 upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall, in addition to having complied with the requirements of Section
7(a), have (i) completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights 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 canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
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 Rights Certificate purchased or acquired by the Company otherwise
than upon the exercise thereof. The Rights Agent shall deliver all canceled
Rights Certificates to the Company, or shall, at the written request of the
Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will use its
best efforts to cause to be reserved and kept available out of its authorized
and unissued Preferred Shares not reserved for another purpose (and, following
the occurrence of a Triggering Event, out of its authorized and unissued Common
Shares and/or other securities), the number of Preferred Shares (and, following
the occurrence of the Triggering Event, Common Shares and/or other securities)
that will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on such exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights is described in Section 11(a)(ii) or Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all
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<PAGE> 17
times meeting the requirements of the Securities Act) until the earlier of (A)
the date as of which the Rights are no longer exercisable for such securities
and (B) the date of expiration of the Rights. The Company may temporarily
suspend, for a period not to exceed ninety (90) days after the date set forth in
clause (i) of the first sentence of this Section 9(c), the exercisability of the
Rights in order to prepare and file such registration statement and permit it to
become effective. Upon any such suspension, the Company shall issue a public
announcement stating, and notify the Rights Agent, that the exercisability of
the Rights has been temporarily suspended, as well as a public announcement and
notification to the Rights Agent at such time as the suspension is no longer in
effect. The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. 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, or an exemption therefrom shall be available, and
until a registration statement has been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares (or other
securities of the Company) delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such securities (subject to payment of the
Exercise 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 federal and state transfer taxes and
charges which may be payable in respect of the original issuance or delivery of
the Rights Certificates or of any Preferred Shares (or other securities of the
Company) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Rights Certificates to a person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares (or
other securities of the Company) in a name other than that of, the registered
holder of the Rights Certificate evidencing Rights surrendered for exercise or
to issue or to deliver any certificates or depositary receipts for Preferred
Shares (or other securities of the Company) upon the exercise of any Rights
until any such tax shall have been paid (any such tax being payable by the
holder of such Rights Certificate at the time of surrender) or until it has been
established to the Company's satisfaction that no such tax is due.
Section 10. Record Date. Each Person in whose name any certificate
for a number of one- thousandths of a Preferred Share (or other securities of
the Company) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of Preferred Shares (or other
securities of the Company) represented thereby on, and such certificate shall be
dated, the date upon which the Rights Certificate evidencing such Rights was
duly surrendered and payment of the Total Exercise Price with respect to which
the Rights have been exercised (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the 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 transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate shall not be entitled to any rights of a holder
of Preferred Shares (or other
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<PAGE> 18
securities of the Company) for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Exercise Price, Number of Shares or Number
of Rights. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares (by reverse stock split or otherwise) into a
smaller number of Preferred Shares, or (D) issue any shares of its capital stock
in a reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), then, in each such event,
except as otherwise provided in this Section 11 and Section 7(e) hereof: (1) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by dividing the Exercise Price in effect immediately prior to such time by a
fraction (the "ADJUSTMENT FRACTION"), the numerator of which shall be the total
number of Preferred Shares (or shares of capital stock issued in such
reclassification of the Preferred Shares) outstanding immediately following such
time and the denominator of which shall be the total number of Preferred Shares
outstanding immediately prior to such time; 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 such Right; and (2) the number of one-thousandths of a
Preferred Share (or share of such other capital stock) issuable upon the
exercise of each Right shall equal the number of one-thousandths of a Preferred
Share (or share of such other capital stock) as was issuable upon exercise of a
Right immediately prior to the occurrence of the event described in clauses
(A)-(D) of this Section 11(a)(i), multiplied by the Adjustment Fraction;
provided, however, that, no such adjustment shall be made pursuant to this
Section 11(a)(i) to the extent that there shall have simultaneously occurred an
event described in clause (A), (B), (C) or (D) of Section 11(n) with a
proportionate adjustment being made thereunder. Each Common Share that shall
become outstanding after an adjustment has been made pursuant to this Section
11(a)(i) shall have associated with it the number of Rights, exercisable at the
Exercise Price and for the number of one-thousandths of a Preferred Share (or
shares of such other capital stock) as one Common Share has associated with it
immediately following the adjustment made pursuant to this Section 11(a)(i).
(ii) Subject to Section 24 of this Agreement, in the
event a Triggering Event shall have occurred, then promptly following such
Triggering Event each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive for each Right, upon exercise
thereof in accordance with the terms of this Agreement and payment of the
Exercise Price in effect immediately prior to the occurrence of the Triggering
Event, in lieu of a number of one-thousandths of a Preferred Share, such number
of Common Shares of the Company as shall equal the result obtained by
multiplying the Exercise Price in effect immediately prior to the occurrence of
the Triggering Event by the number of one-thousandths of a Preferred Share for
which a Right was exercisable (or would have
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<PAGE> 19
been exercisable if the Distribution Date had occurred) immediately prior to the
first occurrence of a Triggering Event, and dividing that product by 50% of the
Current Per Share Market Price for Common Shares on the date of occurrence of
the Triggering Event; provided, however, that the Exercise Price and the number
of Common Shares of the Company so receivable upon exercise of a Right shall be
subject to further adjustment as appropriate in accordance with Section 11(e)
hereof to reflect any events occurring in respect of the Common Shares of the
Company after the occurrence of the Triggering Event. Notwithstanding the
foregoing provisions of this Section 11(a)(ii), the right to buy Common Shares
of the Company pursuant to Section 11(a)(ii) hereof shall not arise as a result
of any Person becoming an Acquiring Person through an acquisition of Common
Shares pursuant to a Permitted Offer.
(iii) In lieu of issuing Common Shares in accordance
with Section 11(a)(ii) hereof, the Company may, if a majority of the Continuing
Directors then in office determines that such action is necessary or appropriate
and not contrary to the interest of holders of Rights and, in the event that the
number of Common Shares which are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall: (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the "CURRENT VALUE") over (2) the Exercise Price (such excess, the
"SPREAD") and (B) with respect to each Right, make adequate provision to
substitute for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
preferred stock which a majority of the Continuing Directors then in office has
deemed to have the same value as Common Shares (such shares or units of shares
of preferred stock are herein called "COMMON STOCK EQUIVALENTS")), except to the
extent that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, (4) debt securities of the Company, except to the
extent that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by a majority of the Continuing Directors
then in office based upon the advice of a nationally recognized investment
banking firm selected by a majority of the Continuing Directors then in office;
provided, however, if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days following the
later of (x) the first occurrence of a Triggering Event and (y) the date on
which the Company's right of redemption pursuant to Section 23(a) expires (the
later of (x) and (y) being referred to herein as the "SECTION 11(A)(II) TRIGGER
DATE"), then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Exercise Price, Common
Shares (to the extent available), except to the extent that the Company has not
obtained any necessary stockholder or regulatory approval for such issuance, and
then, if necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If a majority of the Continuing Directors then in office shall
determine in good faith that it is likely that sufficient additional Common
Shares could be authorized for issuance upon exercise in full of the Rights or
that any necessary regulatory approval for such issuance will be obtained, 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 or take action to obtain such regulatory approval (such
period, as it may be extended, the "SUBSTITUTION PERIOD"). To the extent that
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<PAGE> 20
the Company determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) 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, to take any action to obtain any required
regulatory approval and/or to decide the appropriate form of distribution to be
made pursuant to such first 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 suspen sion is no longer in
effect. For purposes of this Section 11(a)(iii), the value of the Common Shares
shall be the Current Per Share Market Price of the Common Shares on the Section
11(a)(ii) Trigger Date and the value of any Common Stock Equivalent shall be
deemed to have the same value as the Common Shares on such date.
(b) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Shares entitling such holders (for a period
expiring within forty-five (45) calendar days after such record date) to
subscribe for or purchase Preferred Shares or Equivalent Shares or securities
convertible into Preferred Shares or Equivalent Shares at a price per share (or
having a conversion price per share, if a security convertible into Preferred
Shares or Equivalent Shares) less than the then Current Per Share Market Price
of the Preferred Shares or Equivalent Shares on such record date, then, in each
such case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record date,
plus the number of Preferred Shares or Equivalent Shares, as the case may be,
which the aggregate offering price of the total number of Preferred Shares or
Equivalent Shares, as the case may be, to be offered or issued (and/or the
aggregate initial conversion price of the convertible securities to be offered
or issued) would purchase at such current market price, and the denominator of
which shall be the number of Preferred Shares and Equivalent Shares (if any)
outstanding on such record date, plus the number of additional Preferred Shares
or Equivalent Shares, as the case may be, 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 a majority of the
Continuing Directors then in office, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Preferred Shares and Equivalent 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 Exercise Price shall be adjusted to be the
Exercise Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the making of a distribution to all
holders of the Preferred Shares or of any class or series of Equivalent Shares
(including any such distribution made in connection with a consolidation or
merger
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<PAGE> 21
in which the Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend, if any, or
a dividend payable in Preferred Shares) or subscription rights, options or
warrants (excluding those referred to in Section 11(b)), then, in each such
case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Per Share
Market Price of a Preferred Share or an Equivalent Share on such record date,
less the fair market value per Preferred Share or Equivalent 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) of
the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Preferred
Share or Equivalent Share, as the case may be, and the denominator of which
shall be such Current Per Share Market Price of a Preferred Share or Equivalent
Share on such record date; 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. 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 Exercise Price shall be adjusted to be the Exercise Price which would have
been in effect if such record date had not been fixed.
(d) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; provided,
however, that any adjustments which by reason of this Section 11(d) 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 ten-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(d), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which requires such adjustment or
(ii) the Expiration Date.
(e) If as a result of an adjustment made pursuant to Section
11(a) or 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right and, if required, the Exercise Price thereof, 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 Shares contained in
Sections 11(a), 11(b), 11(c), 11(d), 11(g), 11(h), 11(i), 11(j), 11(k) and
11(l), and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the
Preferred Shares shall apply on like terms to any such other shares.
(f) All Rights originally issued by the Company subsequent
to any adjustment made to the Exercise Price hereunder shall evidence the right
to purchase, at the adjusted Exercise Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
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<PAGE> 22
(g) Unless the Company shall have exercised its election as
provided in Section 11(h), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 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 Exercise Price, that number of Preferred
Shares (calculated to the nearest one hundred-thousandth of a share) obtained by
(i) multiplying (x) the number of Preferred Shares covered by a Right
immediately prior to this adjustment, by (y) the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price, and (ii) dividing
the product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(h) The Company may elect on or after the date of any
adjustment of the Exercise Price as a result of the calculations made in Section
11(b) or (c) to adjust the number of Rights, in substi tution for any adjustment
in the number of Preferred Shares 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-thousandths of a Preferred Share 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 hundred-thousandth) obtained by
dividing the Exercise Price in effect immediately prior to adjustment of the
Exercise Price by the Exercise Price in effect immediately after adjustment of
the Exercise Price. The Company shall make a public announcement of its election
to adjust the number of Rights, 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 Exercise Price is adjusted or any day
thereafter, but, if the Rights Certificates have been issued, shall be at least
ten (10) days later than the date of the public announcement. If Rights
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(h), the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Rights Certificates on such
record date Rights Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Rights
Certificates held by such holders prior to the date of adjustment, and upon
surrender thereof, if required by the Company, new Rights Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Rights Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may bear, at the option
of the Company, the adjusted Exercise Price) and shall be registered in the
names of the holders of record of Rights Certificates on the record date
specified in the public announcement.
(i) Irrespective of any adjustment or change in the Exercise
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Exercise Price per one one-thousandth of a Preferred Share and
the number of one-thousandths of a Preferred Share which were expressed in the
initial Rights Certificates issued hereunder.
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<PAGE> 23
(j) Before taking any action that would cause an adjustment
reducing the Exercise Price below the par or stated value, if any, of the number
of one-thousandths of a Preferred Share 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 as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Exercise Price.
(k) In any case in which this Section 11 shall require that
an adjustment in the Exercise 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 number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of one-thousandths of a Preferred Share and other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise 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
(fractional or otherwise) upon the occurrence of the event requiring such
adjustment.
(l) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be entitled
to make such reductions in the Exercise 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 (i) consolidation
or subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash
of any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash of Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common Shares,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Company to holders of its Preferred or
Common Shares shall not be taxable to such stockholders.
(m) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(n) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the
outstanding Common Shares (by reverse stock split or otherwise) into a smaller
number of Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11(a) and Section 7(e) hereof: (1) each Common Share
(or shares of capital stock issued in such reclassification of the Common
Shares) outstanding immediately following such time shall have associated with
it the number of Rights as were associated with one Common Share immediately
prior to the occurrence of the event described in clauses (A)-(D) above; (2) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result
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obtained by multiplying the Exercise Price in effect immediately prior to such
time by a fraction, the numerator of which shall be the total number of Common
Shares outstanding immediately prior to the event described in clauses (A)-(D)
above, and the denominator of which shall be the total number of Common Shares
outstanding immediately after such event; 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 such Right; and (3) the number of one- thousandths of a
Preferred Share (or shares of such other capital stock) issuable upon the
exercise of each Right outstanding after such event shall equal the number of
one-thousandths of a Preferred Share (or shares of such other capital stock) as
were issuable with respect to one Right immediately prior to such event. Each
Common Share that shall become outstanding after an adjustment has been made
pursuant to this Section 11(n) shall have associated with it the number of
Rights, exercisable at the Exercise Price and for the number of one-thousandths
of a Preferred Share (or shares of such other capital stock) as one Common Share
has associated with it immediately following the adjustment made pursuant to
this Section 11(n). If an event occurs which would require an adjustment under
both this Section 11(n) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(n) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to Section 11(a)(ii) hereof.
Section 12. Certificate of Adjusted Exercise Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 and 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Preferred
Shares a copy of such certificate and (c) mail a brief summary thereof to each
holder of a Rights Certificate in accordance with Section 26 hereof.
Notwithstanding the foregoing sentence, the failure of the Company to make such
certification or give such notice shall not affect the validity of such
adjustment or the force or effect of the requirement for such adjustment. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment contained therein and shall not be deemed to have knowledge of
such adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following a Triggering Event,
directly or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a wholly-owned Subsidiary of the Company
in a transaction the principal purpose of which is to change the state of
incorporation of the Company and which complies with Section 11(m) hereof);
(ii) any Person shall consolidate with the Company, or
merge with and into the Company and the Company shall be the continuing or
surviving corporation of such consolidation or merger and, in connection with
such merger, all or part of the Common Shares shall be changed into or exchanged
for stock or other securities of any other person (or the Company); or
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(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 or Persons (other than the Company or one or more of its wholly
owned Subsidiaries in one or more transactions, each of which individually (and
together) complies with Section 11(m) hereof),
then, concurrent with and in each such case,
(A) each holder of a Right (except as provided in
Section 7(e) hereof) shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the Total Exercise Price applicable
immediately prior to the occurrence of the Section 13 Event in accordance with
the terms of this Agreement, such number of validly authorized and issued, fully
paid, nonassessable and freely tradeable Common Shares of the Principal Party
(as hereinafter defined), free of any liens, encumbrances, rights of first
refusal or other adverse claims, as shall be equal to the result obtained by
dividing such Total Exercise Price by 50% of the Current Per Share Market Price
of the Common Shares of such Principal Party on the date of consummation of such
Section 13 Event; provided, however, that the Exercise Price and the number of
Common Shares of such Principal Party so receivable upon exercise of a Right
shall be subject to further adjustment as appropriate in accordance with Section
11(e) hereof;
(B) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event, 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, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares) in connection with the consummation of any such transaction as
may be necessary to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights; and
(E) 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
Total Exercise 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
Shares of the Principal Party receivable upon the exercise of such 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.
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(F) For purposes hereof, the "earning power" of
the Company and its Subsidiaries shall be determined in good faith by the
Company's Board of Directors on the basis of the operating earnings of each
business operated by the Company and its Subsidiaries during the three fiscal
years preceding the date of such determination (or, in the case of any business
not operated by the Company or any Subsidiary during three full fiscal years
preceding such date, during the period such business was operated by the Company
or any Subsidiary).
(b) For purposes of this Agreement, the term "PRINCIPAL
PARTY" shall mean:
(i) in the case of any transaction described in clause
(i) or (ii) of Section 13(a) hereof: (A) the Person that is the issuer of the
securities into which the Common Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the Common
Shares 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 Common Shares 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 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 clause
(iii) of Section13(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 more than one Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred and each such portion would, were it not for the other
equal portions, constitute the greatest 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 is the issuer of
Common Shares 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 Shares of such Person are not at such time or
have 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 Shares of which are and have 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 Shares of which are and have been so registered, the term "Principal
Party" shall refer to whichever of such Persons is the issuer of Common Shares
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 ration as its interest in such Person bears to the total of such interests.
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<PAGE> 27
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized Common
Shares that have not been issued or reserved for issuance to permit the exercise
in full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such issuer shall have executed and delivered to the
Rights Agent a supplemental agreement confirming that such Principal Party
shall, upon consummation of such Section 13 Event, assume this Agreement in
accordance with Sections 13(a) and 13(b) hereof, that all rights of first
refusal or preemptive rights in respect of the issuance of Common Shares of such
Principal Party upon exercise of outstanding Rights have been waived, that there
are no rights, warrants, instruments or securities outstanding or any agreements
or arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be afforded
by the Rights and that such transaction shall not result in a default by such
Principal Party under this Agreement, and further providing that, as soon as
practicable after the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under the
Securities Act 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 Expiration Date, and similarly comply with applicable
state securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon exercise of the
Rights on a national securities exchange or to meet the eligibility requirements
for quotation on Nasdaq and list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which comply in all respects with
the requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of a Triggering
Event some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13, the Rights which have not theretofore
been exercised shall thereafter be exercisable in the manner described in
Section 13(a) (without taking into account any prior adjustment required by
Section 11(a)(ii)).
(d) In case the "Principal Party" for purposes of Section
13(b) hereof 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 Section 13
hereof), in connection with, or as a consequence of, the consummation of a
Section 13 Event, Common Shares or Equivalent Shares of such Principal Party at
less than the then Current Per Share Market Price thereof or securities
exercisable for, or convertible into, Common Shares or Equivalent Shares of such
Principal Party at less than such then Current Per Share Market Price, or (ii)
providing for any special payment, tax or similar provision in connection with
the issuance of the Common Shares of such Principal Party pursuant to the
provisions
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of Section 13 hereof, 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 canceled, 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 the Distribution Date, effect or permit to occur any Section 13
Event, if (i) at the time or immediately after such Section 13 Event 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, (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the stockholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(b) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or (iii)
the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights.
(f) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
clauses (i) and (ii) of Section 13(a) if: (i) such transaction is consummated
with a Person or Persons who acquired Common Shares pursuant to a Permitted
Offer (or a wholly-owned Subsidiary of any such Person or Persons); (ii) the
price per share of Common Shares offered in such transaction is not less than
the price per share of Common Shares paid to all holders of Common Shares whose
shares were purchased pursuant to such Permitted Offer; and (iii) the form of
consideration being offered to the remaining holders of Common Shares pursuant
to such transaction is the same form as the form of consideration paid pursuant
to such Permitted Offer. Upon consummation of any such transaction contemplated
by this Section 13(f), all Rights hereunder shall expire.
(g) The provisions of this Section 13 shall similarly apply
to successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights 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, as determined pursuant to
the second sentence of Section 1(k) hereof.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions
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that are integral multiples of one one-thousandth of a Preferred Share).
Interests in fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share 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, however, 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 Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not integral multiples
of one one-thousandth of a Preferred Share, the Company shall pay to the
registered holders of Rights 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 a Preferred Share. For purposes of this Section 14(b), the
current market value of a Preferred Share shall be one thousand times the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 1(k) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares upon the exercise or exchange of Rights. In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of Rights
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 a Common
Share. For purposes of this Section 14(c), the current market value of a Common
Share shall be the closing price of a Common Share (as determined pursuant to
the second sentence of Section 1(k) hereof) for the Trading Day immediately
prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of a Right.
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 Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights 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 Rights 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:
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(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company
and the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares 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. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
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 Rights Certificate be construed to confer upon the holder of any
Rights 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 withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights 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 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 or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. In no event will the Rights Agent be liable for
special, indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of such
loss or damage.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Preferred Shares or Common Shares or
for other
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<PAGE> 31
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 reasonably 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.
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 corpora tion
succeeding to the corporate trust business 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, however, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Rights Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights 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 Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall
be changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights 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 as to any action
taken 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 (including, without limitation, the identity of any Acquiring Person and
the determination of Current Per Share Market Price) 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
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<PAGE> 32
and established by a certificate signed by any one of the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered 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 gross 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
Rights 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 Rights 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 Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
or any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Sections 3, 11, 13, 23 or 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 Rights
Certificates after receipt by the Rights Agent 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 Preferred Shares to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any Preferred Shares
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 one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. 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 or omitted by the Rights Agent under this Rights
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 by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified in such
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application (which date shall not be less than five (5) 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 or omitted.
(h) The Rights Agent and any stockholder, 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.
(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, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate attached to the
form of assignment or form of election to purchase, as the case may be, has
either not been completed or indicates an affirmative response to clause 1
and/or 2 thereof, the 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 thirty (30) days' notice in writing mailed to the Company and to
each transfer agent of the Preferred Shares and the Common Shares by registered
or certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (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 Preferred
Shares and the Common Shares by registered or certified mail, and to the holders
of the Rights 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 thirty (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
Rights Certificate (who shall, with such notice, submit his or her Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any
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<PAGE> 34
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of any state of the United States, in good standing, which is
authorized under such laws to exercise corporate trust or stockholder services
powers and 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 (provided that such
requirement shall not apply to the initial Rights Agent). 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 Preferred Shares and the Common Shares, and mail
a notice thereof in writing to the registered holders of the Rights
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.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Exercise Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of other securities of the Company outstanding at the
date hereof or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued and this sentence shall be null and void ab initio if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
(a) The Company may, at its option and with the approval of
the Board of Directors, at any time prior to the Close of Business on the
earlier of (i) the tenth day following the Shares Acquisition Date (or such
later date as may be determined by action of a majority of Continuing Directors
then in office and publicly announced by the Company) and (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding Rights at
a redemption price of $0.01 per Right, appropriately
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<PAGE> 35
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being herein referred to
as the "REDEMPTION PRICE") and the Company may, at its option, pay the
Redemption Price either in Common Shares (based on the Current Per Share Market
Price thereof at the time of redemption) or cash. Such redemption of the Rights
by the Company 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;
provided, however, if the Board of Directors of the Company authorizes
redemption of the Rights on or after the time a Person becomes an Acquiring
Person, then there must be Continuing Directors then in office and such
authorization shall require the concurrence of a majority of such Continuing
Directors. The date on which the Board of Directors elects to make the
redemption effective shall be referred to as the "REDEMPTION DATE."
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, 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 ten (10) days after the action of
the Board of Directors ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders 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 Shares. 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 will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
(a) Subject to applicable laws, rules and regulations, and
subject to subsection 24(c) below, the Company may, at its option, by majority
vote of the Board of Directors and a majority vote of the Continuing Directors,
at any time after the occurrence of a Triggering Event, exchange all or part of
the then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (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 any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
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<PAGE> 36
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection 24(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 a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall 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 mail a notice of any such exchange to all of
the holders of such Rights at their last addresses as they appear upon the
registry books of 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 Common Shares 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 7(e) hereof)
held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a), the Company
shall either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay cash
in an amount equal to the Current Value (as hereinafter defined), in lieu of
issuing Common Shares in exchange therefor, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by majority vote of the Board of Directors, or
(iii) deliver any combination of cash, property, Common Shares and/or other
securities having a value equal to the Current Value in exchange for each Right.
For purposes of this Section 24(c) only, the Current Value shall mean the
product of the Current Per Share Market Price of Common Shares on the date of
the occurrence of the event described above in subparagraph (a), multiplied by
the number of Common Shares for which the Right otherwise would be exchangeable
if there were sufficient shares available. To the extent that the Company
determines that some action need be taken pursuant to clauses (i), (ii) or (iii)
of this Section 24(c), the Board of Directors may temporarily suspend the
exercisability of the Rights for a period of up to sixty (60) days following the
date on which the event described in Section 24(a) shall have occurred, in order
to seek any authorization of additional Common Shares and/or to decide the
appropriate form of distribution to be made pursuant to the above provision 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.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Common Share (as
determined pursuant to the second sentence of Section 1(k) hereof).
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<PAGE> 37
(e) The Company may, at its option, by majority vote of the
Board of Directors, at any time before any Person has become an Acquiring
Person, exchange all or part of the then outstanding Rights for rights of
substantially equivalent value, as determined reasonably and with good faith by
the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection 24(e) 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 a holder of such
Rights shall be to receive that number of rights in exchange therefor as has
been determined by the Board of Directors in accordance with subsection 24(e)
above. The Company shall 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 mail a notice of any
such exchange to all of the holders of such Rights at their last addresses as
they appear upon the registry books of the transfer agent for the Common Shares
of the Company. 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 Rights will be
effected.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event or Section 13 Event, the Company shall give notice
thereof to each holder of Rights in accordance with Section 26 hereof at least
twenty (20) days prior to occurrence of such Triggering Event or such Section 13
Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under Sections
11(a)(ii) and 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 Rights
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:
Synopsys, Inc.
700 East Middlefield Road
Mountain View, California 95043-4033
Attention: Chief Executive Officer
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<PAGE> 38
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Thomas C. DeFilipps, Esq.
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 Rights 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:
BankBoston N. A.
c/o Boston Equiserve Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
Attention: Client Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights 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. Prior to the occurrence of a
Distribution Date, the Company may supplement or amend this Agreement in any
respect without the approval of any holders of Rights and the Rights Agent
shall, if the Company so directs, execute such supplement or amendment. From and
after the occurrence of a Distribution Date, the Company and the Rights Agent
may from time to time supplement or amend this Agreement without the approval of
any holders of Rights 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 (which shortening or lengthening shall be effective only if there are
Continuing Directors and shall require the concurrence of a majority of such
Continuing Directors) or (iv) to change or supplement the provisions hereunder
in any manner that the Company may deem necessary or desirable and that shall
not adversely affect the interests of the holders of Rights (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided,
however, that this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period relating to when
the Rights may be redeemed at such time as the Rights are not then redeemable or
(B) any other time period unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of, and/or the benefits to, the
holders of Rights (other than an Acquiring Person or an Affiliate or Associate
of an Acquiring Person). Upon the delivery of a certificate from an appropriate
officer of the Company that states that the proposed supplement or amendment is
in compliance with the terms of this Section ?, the Rights Agent shall execute
such supplement or amendment. Prior to the Distribution Date, the interests of
the holders of Rights shall be deemed coincident with the interests of the
holders of Common Shares.
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<PAGE> 39
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.
Section 29. Determinations and Actions by the Board of Directors,
etc. For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company (or, where specifically provided for
herein, the Continuing Directors) shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board, or the Company (or, where specifically provided for
herein, the Continuing Directors), or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including a determination to redeem or not redeem the Rights or to
amend the Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) which are done or made by the Board (or, where
specifically provided for herein, by the Continuing Directors) in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights Certificates and all other parties and (y) not subject the
Board or the Continuing Directors to any liability to the holders of the Rights.
Section 30. 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 Rights Certificates (and, prior to the
Distribution Date, the Common Shares) 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 Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of 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;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each
Rights 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.
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<PAGE> 40
Section 33. 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 34. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
"COMPANY" SYNOPSYS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
"RIGHTS AGENT" BANKBOSTON N. A.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE> 41
EXHIBIT A
---------
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF SYNOPSYS, INC.
The undersigned, Aart J. De Geus and Paul Lippe, do hereby certify:
1. That they are the duly elected and acting President and
Secretary, respectively, of Synopsys, Inc., a Delaware corporation (the
"CORPORATION").
2. That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation, the said
Board of Directors on September 3, 1997 adopted the following resolution
creating a series of 100,000 shares of Preferred Stock designated as Series A
Participating Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the corporation by the Restated Certificate of Incorporation, the
Board of Directors does hereby provide for the issue of a series of Preferred
Stock of the Corporation and does hereby fix and herein state and express the
designations, powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions of such series of Preferred Stock
as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "SERIES A PARTICIPATING PREFERRED STOCK." The Series A
Participating Preferred Stock shall have a par value of $0.01 per share, and the
number of shares constituting such series shall be 100,000.
Section 2. Proportional Adjustment. In the event the Corporation
shall at any time after the issuance of any share or shares of Series A
Participating Preferred Stock (i) declare any dividend on Common Stock of the
Corporation ("COMMON STOCK") payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock or (iii) combine the outstanding Common Stock into
a smaller number of shares, then in each such case the Corporation shall
simultaneously effect a proportional adjustment to the number of outstanding
shares of Series A Participating Preferred Stock.
Section 3. Dividends and Distributions.
(a) Subject to the prior and superior right of the holders
of any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Participating 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 "QUARTERLY DIVIDEND PAYMENT DATE"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
-1-
<PAGE> 42
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Participating Preferred
Stock.
(b) The Corporation shall declare a dividend or distribution
on the Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue on outstanding shares of
Series A Participating Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Participating
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly 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 Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Participating 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 Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
Section 4. Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(a) Each share of Series A Participating Preferred Stock
shall entitle the holder thereof to 1,000 votes on all matters submitted to a
vote of the stockholders of the Corporation.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series A Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(c) Except as required by law, holders of Series A
Participating 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.
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<PAGE> 43
Section 5. Certain Restrictions.
(a) The Corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock unless
concurrently therewith it shall declare a dividend on the Series A Participating
Preferred Stock as required by Section 3 hereof.
(b) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 3 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Series A Participating
Preferred Stock, except dividends paid ratably on the Series A Participating
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 on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating 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.
(c) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
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<PAGE> 44
Section 6. Reacquired Shares. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein and, in the Restated Certificate of Incorporation, as then amended.
Section 7. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, the holders of shares
of Series A Participating Preferred Stock shall be entitled to receive an
aggregate amount per share equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock plus an amount equal
to any accrued and unpaid dividends on such shares of Series A Participating
Preferred Stock.
Section 8. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share equal to 1,000 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
changed or exchanged.
Section 9. No Redemption. The shares of Series A Participating
Preferred Stock shall not be redeemable.
Section 10. Ranking. The Series A Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 11. Amendment. The Restated Certificate of Incorporation of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of the
Series A Participating Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of a majority of the outstanding shares of
Series A Participating Preferred Stock, voting separately as a class.
Section 12. Fractional Shares. Series A Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock.
-4-
<PAGE> 45
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Designation of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set
forth in the foregoing Certificate of Designation are true and correct of our
own knowledge.
Executed at Mountain View, California, on ____, 1997.
-------------------------------------------
Aart J. De Geus, President
-------------------------------------------
Paul Lippe, Secretary
-5-
<PAGE> 46
EXHIBIT B
FORM OF RIGHTS CERTIFICATE
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF (i) OCTOBER 24, 2007, (ii) THE
DATE TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY
EXCHANGES THE RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS
ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01
PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER
OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY
THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON
WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE
OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(E) OF SUCH RIGHTS AGREEMENT.]*
RIGHTS CERTIFICATE
SYNOPSYS, 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 October 24, 1997 (the "RIGHTS AGREEMENT"),
between Synopsys, Inc., a Delaware corporation (the "COMPANY"), and BankBoston
N. A. ( 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 time, on October 24, 2007 at the office of the Rights Agent
designated for such purpose, or at the office of its successor as Rights Agent,
one one-thousandth (1/1,000) of a fully paid non-assessable share of Series A
Participating Preferred Stock, $0.01 par value, (the "PREFERRED SHARES"), of the
Company, at a Exercise Price of One Hundred Seventy-Five Dollars ($175.00) per
one-thousandth of a Preferred Share (the "EXERCISE PRICE"), upon presentation
and surrender of this Rights Certificate with the Form of Election to Purchase
and related Certificate duly executed. The number of Rights evidenced by this
Rights Certificate (and
- --------
*[The portion of the legend in bracket shall be inserted only if applicable and
shall replace the preceding sentence.]
<PAGE> 47
the number of one-thousandths of a Preferred Share which may be purchased upon
exercise hereof) set forth above are the number and Exercise Price as of October
24, 1997 based on the Preferred Shares as constituted at such date. As provided
in the Rights Agreement, the Exercise Price and the number and kind of Preferred
Shares or other securities which may be purchased upon the exercise of the
Rights evidenced by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
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 Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned office of the Rights Agent.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed by the Company, at its
option, at a redemption price of $0.01 per Right or (ii) may be exchanged by the
Company in whole or in part for Common Shares, substantially equivalent rights
or other consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate amount of securities as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a Preferred
Share will be issued upon the exercise of any Right or Rights evidenced hereby
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares 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 Rights
Certificate shall have been exercised as provided in the Rights Agreement.
-2-
<PAGE> 48
This Rights 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 _______________, 19____.
ATTEST: SYNOPSYS, INC.
- -------------------------------- By:
---------------------------------
- --------------------, Secretary
Its:
--------------------------------
Countersigned:
BankBoston N. A.
as Rights Agent
By:
-----------------------------------
Its:
----------------------------------
-3-
<PAGE> 49
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate)
FOR VALUE RECEIVED ______________________________hereby sells,
assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _______________, 19____
--------------------------------------
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.
<PAGE> 50
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned
and transferred by or on behalf of a Person who is or was an Acquiring Person,
or an Affiliate or Associate of any such Person (as such terms are defined in
the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19____
--------------------------------------
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.
<PAGE> 51
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Rights Certificate)
To: Synopsys, Inc.
The undersigned hereby irrevocably elects to exercise
_________________________ Rights represented by this Rights Certificate to
purchase the number of one-thousandths of a Preferred Share issuable upon the
exercise of such Rights and requests that certificates for such number of one-
thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________________ , 19____
-----------------------------------
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.
<PAGE> 52
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, 19____
---------------------------------
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.
<PAGE> 53
FORM OF REVERSE SIDE OF RIGHTS CERTIFICATE -- CONTINUED
NOTICE
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE> 54
EXHIBIT C
STOCKHOLDER RIGHTS PLAN
SYNOPSYS, INC.
Summary of Rights
Distribution and The Board of Directors has declared a dividend of
Transfer of Rights one Right for each share of Synopsys, Inc. Common
Rights Certificate: Stock outstanding. Prior to the Distribution Date
to below, the Rights will be evidenced by and
trade with the certificates for the Common Stock.
After the Distribution Date, Synopsys, Inc. (the
"COMPANY") will mail Rights certificates to the
Company's stockholders and the Rights will become
transferable apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock
and become exercisable following (a) the tenth
day (or such later date as may be determined by
a majority of the Directors not affiliated with
the acquiring person or group (the "CONTINUING
DIRECTORS")) after a person or group acquires
beneficial ownership of 15% or more of the
Company's Common Stock or (b) the tenth business
day (or such later date as may be determined by a
majority of the Continuing Directors) after a
person or group announces a tender or exchange
offer, the consummation of which would result in
ownership by a person or group of 15% or more of
the Company's Common Stock.
Preferred Stock After the Distribution Date, each Right will
Purchasable Upon entitle the holder to purchase for $175.00 (the
Exercise of Rights: "EXERCISE PRICE"), a fraction of a share
of the Company's Preferred Stock with economic
terms similar to that of one share of the
Company's Common Stock.
Flip-In: If an acquiror (an "ACQUIRING PERSON") obtains
15% or more of the Company's Common Stock (other
than pursuant to a tender offer deemed adequate
and in the best interests of the Company and its
stockholders by the Continuing Directors (a
"PERMITTED OFFER")), then each Right (other than
Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to
purchase, for the Exercise Price, a number of
shares of the Company's Common Stock having a
then-current market value of twice the Exercise
Price.
Flip-Over: If, after an Acquiring Person obtains 15% or more
of the Company's Common Stock, (a) the Company
merges into another entity, (b) an acquiring
entity merges into the Company or (c) the Company
sells more than 50% of the Company's assets or
earning power, then each Right (other than Rights
owned by an Acquiring Person or its affiliates)
will entitle the holder thereof to purchase,
<PAGE> 55
for the Exercise Price, a number of shares of
Common Stock of the person engaging in the
transaction having a then-current market value of
twice the Exercise Price (unless the transaction
satisfies certain conditions and is consummated
with a person who acquired shares pursuant to a
Permitted Offer, in which case the Rights will
expire).
Exchange Provision: At any time after the date an Acquiring Person
obtains 15% or more of the Company's Common Stock
and prior to the acquisition by the Acquiring
Person of 50% of the outstanding Common Stock, a
majority of the Board of Directors and a majority
of the Continuing Directors of the Company may
exchange the Rights (other than Rights owned by
the Acquiring Person or its affiliates), in whole
or in part, for shares of Common Stock of the
Company at an exchange ratio of one share of
Common Stock per Right (subject to adjustment).
Redemption of Rights will be redeemable at the Company's option
the Rights: for $0.01 per Right at any time on or prior to
the tenth day (or such later date as may be
determined by a majority of the Continuing
Directors) after public announcement that a
Person has acquired beneficial ownership of 15%
or more of the Company's Common Stock (the
"SHARES ACQUISITION DATE").
Expiration of The Rights expire on the earliest of (a) October
the Rights: 24, 2007, (b) exchange or redemption of the
Rights as described above, or (c) consummation of
a merger, consolidation or asset sale resulting
in expiration of the Rights as described above.
Amendment of The terms of the Rights and the Rights Agreement
Terms of Rights: may be amended in any respect without the consent
of the Rights holders on or prior to the
Distribution Date; thereafter, the terms of the
Rights and the Rights Agreement may be amended
without the consent of the Rights holders in
order to cure any ambiguities or to make changes
which do not adversely affect the interests of
Rights holders (other than the Acquiring Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution Rights will have the benefit of certain customary
Provisions: anti-dilution provisions.
Taxes: The Rights distribution should not be taxable for
federal income tax purposes. However, following
an event which renders the Rights exercisable or
upon redemption of the Rights, stockholders may
recognize taxable income.
-2-
<PAGE> 56
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms of
the Rights Agreement dated as of October 24, 1997, between the Company and the
Rights Agent.
-3-
<PAGE> 1
EXHIBIT 21.1
Synopsys, Inc.
Subsidiaries
Name Jurisdiction of Incorporation
- ---- -----------------------------
Nihon Synopsys K.K. Japan
Synopsys GmbH Germany
Synopsys Holding Co. U.S.A.
Synopsys (India) Pvte. Ltd. India
Synopsys International, Inc. U.S. Virgin Islands
Synopsys Italia, SRL Italy
Synopsys Korea, Inc. Korea
Synopsys (Northern Europe) Ltd. United Kingdom
Synopsys SARL France
Synopsys Scandinavia AB Sweden
Synopsys Singapore Pte. Ltd. Singapore
Synthesis and Optimisation Systems Ltd. Israel
CIDA Technology, Inc. U.S.A.
EPIC International FSC, Inc. Barbados
<PAGE> 1
EXHIBIT 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Synopsys, Inc:
The audits referred to in our report dated October 17, 1997, included the
related financial statement schedule for each of the years in the three-year
period ended September 30, 1997, included in the registration statement. The
financial statement schedule is the responsibility of Synopsys' management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Palo Alto, California
November 4, 1997
<PAGE> 1
EXHIBIT 23.2A
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Viewlogic Systems, Inc.
Marlboro, Massachusetts
We consent to the use in this Registration Statement of Synopsys, Inc. on
Form S-4 of our report dated January 29, 1997 (February 19, 1997 as to the
second paragraph of Note 3), appearing in the Prospectus, which is a part of
this Registration Statement, and to the references to us under the headings
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Viewlogic Systems,
Inc., listed in Item 21(b). This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 6, 1997
<PAGE> 1
EXHIBIT 23.2B
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the use in this Registration Statement of Synopsys, Inc. on
Form S-4 of our report dated October 11, 1996 (relating to the consolidated
financial statements of EPIC Design Technology, Inc. not presented separately
herein), appearing in the Synopsys, Inc./ViewLogic, Inc. Joint Proxy Statement/
Prospectus, which is part of this Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
San Jose, California
November 4, 1997
<PAGE> 1
EXHIBIT 99.2
SYNOPSYS, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 4, 1997
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Aart J. de Geus and David Sugishita, and
each of them, with full power of substitution, to represent the undersigned and
to vote all of the shares of stock in Synopsys, Inc., a Delaware corporation
(the "Company"), which the undersigned is entitled to vote at the Special
Meeting of Stockholders of said Company to be held at the Company's principal
executive offices located at 700 East Middlefield Road, Mountain View,
California 94043 on Thursday, December 4, 1997 at 9:00 a.m., local time, and at
any adjournment or postponement thereof (1) as hereinafter specified upon the
proposal listed on the reverse side and as more particularly described in the
Joint Proxy Statement/Prospectus of the Company dated November 10, 1997 (the
"Proxy Statement"), receipt of which is hereby acknowledged, and (2) in their
discretion upon such other matters as may properly come before the meeting,
including any motion to adjourn to permit further solicitation of proxies if
necessary, or any postponement or adjournment thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSAL 1 AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING, INCLUDING ANY MOTION TO ADJOURN TO PERMIT FURTHER SOLICITATION OF
PROXIES IF NECESSARY, OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
<PAGE> 2
[X] Please mark votes as in this example.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT
YOUR STOCK MAY BE REPRESENTED AT THE MEETING.
A vote FOR the following proposal is recommended by the Board of Directors:
1. To approve the issuance of shares of the Company's Common Stock, par
value $0.01 per share ("Common Stock"), pursuant to the Agreement and Plan of
Merger, dated as of October 14, 1997, by and among the Company, Post Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of the Company
("Sub"), and Viewlogic Systems, Inc., a Delaware corporation ("Viewlogic"),
pursuant to which, among other things, (a) Sub will be merged with and into
Viewlogic, which will be the surviving corporation, and Viewlogic will become a
wholly-owned subsidiary of the Company and (b) each outstanding share of Common
Stock, $0.01 par value per share, of Viewlogic will be converted into the right
to receive 0.6521 of a share of the Company's Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Upon such other business as may properly come before the meeting,
including any motion to adjourn to permit further solicitation of proxies if
necessary, or any postponement or adjournment thereof.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT [ ]
MARK HERE IF YOU PLAN
TO ATTEND THE MEETING [ ]
Signature: ___________________ Date:
Signature: ___________________ Date:
PLEASE SIGN HERE. If shares of stock
are held jointly, both or all of such
persons should sign. Corporate or
partnership proxies should be signed
in full corporate or partnership name
by an authorized person. Persons
signing in a fiduciary capacity should
indicate their full titles in such
capacity.
<PAGE> 1
EXHIBIT 99.3
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
VIEWLOGIC SYSTEMS, INC.
1. To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger, dated as of October 14, 1997, by and among Synopsys, Inc., a
Delaware corporation ("Synopsys"), Post Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Synopsys ("Sub"), and the
Company, pursuant to which, among other things, (a) Sub will be merged with
and into the Company, whereby the Company will be the surviving corporation
and will become a wholly-owned subsidiary of Synopsys (the "Merger") and (b)
each outstanding share of common stock, $0.01 par value per share, of the
Company will be converted into the right to receive 0.6521 of a share of
common stock, $0.01 par value per share, of Synopsys.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the Special
Meeting, including any motion to adjourn to a later date to permit further
solicitation of proxies if necessary, to establish a quorum or to obtain
additional votes in favor of the Merger, or any postponement or adjournment
thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
RECORD DATE SHARES:
Please be sure to sign and date this
Proxy.
Date
--------------------------------------
Stockholder sign here
--------------------------------------
Co-owner sign here
Mark box at right if an address change
has been noted on the reverse side of
this card. [ ]
DETACH CARD DETACH CARD
VIEWLOGIC SYSTEMS, INC.
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Corporation that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Special Meeting of Stockholders to be
held on December 4, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Viewlogic Systems, Inc.
<PAGE> 2
VIEWLOGIC SYSTEMS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 4, 1997
This Proxy is Solicited on Behalf of the Board of Directors of the Company
The undersigned, revoking all prior proxies, hereby appoint(s) as proxies Ronald
R. Benanto and Peter T. Johnson, and each of them, with full power of
substitution, to represent and to vote as designated herein, all shares of stock
of Viewlogic Systems, Inc. (the "Company") which the undersigned would be
entitled to vote if present at the Special Meeting of Stockholders of the
Company to be held at the principal executive offices of the Company located at
293 Boston Post Road West, Marlboro, Massachusetts 01752, on Thursday, December
4, 1997 at 9:00 a.m., local time, and at any postponement or adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. ATTENDANCE OF THE UNDERSIGNED AT THE MEETING OR AT
ANY POSTPONEMENT OR ADJOURNMENT THEREOF WILL NOT BE DEEMED TO REVOKE THIS PROXY
UNLESS THE UNDERSIGNED SHALL REVOKE THIS PROXY IN WRITING.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE: Please sign exactly as name(s) appear(s) hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. For
partnership, please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
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