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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-45138
SYNOPSYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 56-1546236
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)
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700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 962-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of November 21, 1997, was approximately $2,162,624,000.
On November 21, 1997, approximately 53,224,000 shares of the registrant's
Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's 1997 Annual Report to Stockholders for the
fiscal year ended September 30, 1997 are incorporated by reference into Parts I,
II and IV hereof.
(2) Portions of the registrant's Notice of Annual Meeting and Proxy
Statement for the registrant's annual meeting of stockholders to be held on
February 27, 1998 are incorporated by reference into Part III hereof.
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Except for the historical information presented, the matters discussed in
this Form 10-K include forward looking statements within the meaning of Section
27A of the Securities Exchange Act of 1933 and Section 21E of the Securities
Exchange of 1934. The Company's actual results could differ materially from
those projected in the forward looking statements as a result of risk factors
that include, but are not limited to, those discussed under the caption "Factors
That May Affect Future Results" under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's 1997 Annual
Report to Stockholders, which is incorporated by reference in this Form 10-K and
is included in Exhibit 13.1 hereto, as well as factors discussed elsewhere in
this Form 10-K.
PART I
ITEM 1. BUSINESS
INTRODUCTION
Synopsys, Inc. (hereinafter sometimes referred to as the "Company") was
incorporated in Delaware in May 1987 to develop, market, and support electronic
design automation ("EDA") products for designers of integrated circuits ("ICs")
and electronic systems. The Company 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. The Company
also provides training, support and consulting services for its customers.
The foundation of the Company's 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. The
Company's design tools also include test and timing analysis products.
The Company's 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. The Company 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. The Company's
simulation products permit engineers to simulate their designs at various stages
of the design process (behavioral, register-transfer and gate-levels).
The Company's design reuse products are intended to reduce design time by
permitting the straight-forward reuse of previously-proven circuit "blocks." The
Company believes design reuse will be a key to increased productivity of IC
designers as the density and complexity of ICs increase. The Company's design
reuse products include its DesignWare(R) library of synthesizable standard parts
and its proprietary Cell-Based Array ("CBA") IC architecture, libraries and
compilers, which are licensed to semiconductor manufacturers.
The Company's 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.
The Company 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. The Company 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.
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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.
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
- Layout 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
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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
The Company's 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, the Company seeks to 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
The Company's design tools consist principally of its core logic synthesis
product, Design Compiler(TM), 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 design for size, speed and power consumption and to explore
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 the Company released Synopsys 97(TM), a
significant upgrade to the Design Complier product family. Synopsys 97 includes
over 100 performance enhancements initiated by requests from the Company's
customers, plus a new capability for handling engineering change orders late in
the design process.
Synopsys' Behavioral Compiler(TM), 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, the Company introduced PrimeTime(TM), 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(TM), 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
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consumption, which is especially important in the design of portable,
battery-powered devices such as laptop computers and cellular telephones.
During fiscal year 1997 the Company continued to expand the distribution
channel for its FPGA Express(TM) 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 the Company's 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.
The Company's 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. The
Company's 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. The Company's 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(R) 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.
The Company's 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 to simulate the
performance of an IC within a system. VSS and Cyclone are both tightly linked to
the Company's 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 the Company 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,
the Company 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 SEMATECH project continued in fiscal year 1997.
Logic Modeling Group
Since the Company's February 1994 merger with Logic Modeling Corporation,
the Company has offered a full range of hardware and software modeling
solutions. Synopsys' ModelSource(TM) 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(R) 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. The Company's bus interface models are used to verify that
designs comply with established industry standards. Models are available for
most popular standards. In addition, the Company 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 available a
wide range of models and model types. The Company 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. The Company
seeks to maintain close relationships with leading semiconductor vendors to
ensure model accuracy and the
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earliest possible availability. The Company 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 integration of complex blocks on a single piece of silicon,
known as the system-on-a-chip. Design Architects group contains two business
units, Silicon Architects and Design Reuse.
Silicon Architects
Since the Company's 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.
The Company 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 the Company's customers a link between synthesis-based high-level design
and the physical implementation of designs. The Company has entered into CBA
license agreements with many of the world's leading ASIC vendors. In addition to
licensing semiconductor manufacturers, the Company 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 the Company 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 Graphics' 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
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DesignWare libraries. The Company 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, the Company
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.
DesignWare Developer(TM) 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, the Company 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 Technology 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(TM) 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(TM), 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
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to find the combination that will best meet user-defined power, speed and
area goals without changing the functionality of the design.
DelayMill(TM), 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.
CUSTOMER SERVICE AND SUPPORT
The Company devotes substantial resources to providing customers with
technical support, customer education, and consulting services. The Company
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 the Company's installed base, as
well as customer requests for education, support and consulting services, the
Company's 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
The Company 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 the Company's 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 is provided through both field- and corporate-based
technical application engineering groups. The Company provides customers with
software updates and a formal problem identification and resolution process
through the Synopsys Technical Support Center. The Company's central entry point
of all customer inquiries is SOLV-IT!(R), 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
The Company 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 Company
workshops.
PRODUCT WARRANTIES
The Company generally warrants its products to be free from defects in
media and to substantially conform to material specifications for a period of 90
days. The Company has not experienced significant returns to date.
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SUPPORT FOR INDUSTRY STANDARDS
The Company 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.
The Company's 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. The
Company donated its SWIFT modeling interface to the Open Modeling Forum to
establish a common simulator interface for models written in various formats.
The Company 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.
The Company's products are written mainly in the C language and utilize the
Motif and X11 standards for graphical user interfaces. The Company's 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 the
Company's software modeling products and its FPGA Express product run on the
Windows 95 and Windows NT operating systems.
SALES, DISTRIBUTION AND BACKLOG
The Company 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 the Company's 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, the Company's direct sales and service force
consisted of 563 management, technical and administrative employees. The Company
has 18 sales/support centers throughout the United States. Internationally, the
Company 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, the Company also utilizes
manufacturer's representatives and distributors. The Company has established
such relationships in Australia, Brazil, Hong Kong, India, Korea, Malaysia and
Singapore.
The Company's backlog was approximately $207.2 million on November 1, 1997,
as compared to $185.9 million on November 2, 1996. In fiscal 1996, the Company's
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, the Company 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 the
Company's 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
9
<PAGE> 10
accepted under the current order acceptance policy. The Company 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
The Company 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, the Company
maintains an advanced research group that is responsible for exploring new
directions and applications of its core technologies, migrating new technologies
into the existing product lines, and maintaining strong research relationships
outside the Company 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 the Company's 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. The Company anticipates that it will continue to commit substantial
resources to research and development in the future.
MANUFACTURING
The Company's 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
Company employees, with some sub-assembly performed by outside vendors. The
Company 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, the Company 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 Design Systems, Inc. ("Cadence"), Mentor Graphics
Corporation, Avanti! Corporation ("Avanti!") 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.
The Company's 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. The Company's products also compete with customers' internally
developed design tools and design capabilities. The Company 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. The Company believes that it currently
competes favorably with respect to these factors.
To date, the majority of the Company's 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 the Company's 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 the Company
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 the Company's business, financial condition and
results of operations.
10
<PAGE> 11
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. The Company 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, the
Company has less capacity than Cadence to offer design services.
In order to increase the breadth of its product offerings, the Company has
entered into a number of strategic relationships. In February 1996, the Company
entered into a six-year joint development and license agreement with IBM
pursuant to which the Company and IBM will jointly develop, among other
products, a design planning product. In May 1996, the Company entered into a
strategic relationship with Cooper & Chyan Technology, Inc. ("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 the Company that it does not intend to comply
with certain of CCT's obligations under the Company's agreements with CCT. The
Company and Cadence are currently discussing the basis on which the two
companies might continue to cooperate on linking the Company's 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 the Company will be able to compete successfully against current
and future competitors or that competitive pressure faced by the Company will
not materially adversely affect its business, operating results and financial
condition.
PRODUCT SALES AND LICENSING AGREEMENTS
The Company offers its system products for sale or lease. The Company
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. The Company 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 the Company will collect royalty
payments in addition to license fees.
PROPRIETARY RIGHTS
The Company 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
the Company's 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, the Company 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 the Company to
establish and maintain a technology leadership position. The Company 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 the Company believes that its products, trademarks and other
proprietary rights do not infringe on the proprietary rights of third parties,
and although to date the Company 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
the Company in the future or that any such claims will not require the Company
to enter into royalty arrangements or result in costly and time-consuming
litigation.
11
<PAGE> 12
EMPLOYEES
As of September 30, 1997, the Company 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. The Company's 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 the Company can retain its key
managerial and technical employees or that it can attract, assimilate or retain
other highly qualified technical and managerial personnel in the future. None of
the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good.
PENDING MERGER
On October 14, 1997, the Company entered into an agreement to merge with
Viewlogic Systems, Inc. ("Viewlogic"). Viewlogic 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. Under the agreement, the Company
will issue 0.6521 shares of its Common Stock for each share of Viewlogic common
stock outstanding on the effective date of the merger and assume outstanding
options to purchase Viewlogic common stock, which will thereafter be exercisable
for shares of the Company's Common Stock based on the same exchange ratio. The
merger is intended to be accounted for as a pooling of interests and is expected
to close on December 4, 1997, subject to approval by the stockholders of both
companies and to other customary conditions. See Note 8 of Notes to Consolidated
Financial Statements included in Exhibit 13.1 hereto.
ITEM 2. PROPERTIES
The Company's 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 1/2 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, the Company acquired approximately 53,000
square feet of office space in Sunnyvale. The EPIC Technology Group is expected
to relocate to other Company 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.
The Company 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.
The Company 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. The Company also leases a research and
development facility in India.
The Company believes that its existing facilities are adequate for its
current needs and that additional space will be available as needed on
commercially acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
12
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
Executive Officers of the Company
The executive officers of the Company 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
</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 as the Vice President of Application
Engineering and Services in May 1990. Since September 1996 he has served as
Executive Vice President, Office of the President and since April 1997 he has
served as Chief Operating Officer. From February 1994 until April 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. From March 1987 to May 1990, Dr. Chan was employed by NEC
13
<PAGE> 14
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 the Company 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 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.
14
<PAGE> 15
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 Europe. From
April 1993 until June 1997 Mr. Russo served as Vice President, North America
Sales. Prior to joining Synopsys Mr. Russo held senior-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 an 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
and currently serves as 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.
There are no family relationships among any executive officers of the
Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth on page 23 of the
Company's 1997 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth on page 22 of the
Company's 1997 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is set forth on pages 24 through 31
of the Company's 1997 Annual Report to Stockholders and is incorporated herein
by reference.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required by this item are included on
pages 34 through 50 of the Company's 1997 Annual Report to Stockholders and are
incorporated herein by reference. With the exception of the aforementioned
information and the information incorporated in Items 5, 6 and 7, the Company's
1997 Annual Report to Stockholders is not to be deemed filed as part of this
Annual Report on Form 10-K. The report of the Company's Independent Auditors on
the Company's consolidated financial statements is included on pages 32 and 33
of the Company's 1997 Annual Report to Stockholders and is incorporated herein
by reference. The report of the Company's Independent Auditors on the financial
statement schedule required by this item is included in Exhibit 23.1 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors is included under the caption
"Proposal One -- Election of Directors" in the Company's Notice of Annual
Meeting and Proxy Statement for the Company's annual meeting of stockholders to
be held on February 27, 1998 and is incorporated herein by reference.
Information with respect to Executive Officers is included under the heading
"Executive Officers of the Company" in Part I hereof after Item 4.
Information regarding delinquent filers pursuant to Item 405 of Regulation
S-K is included under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" under the caption "Additional Information" in the Company's Notice
of Annual Meeting of Stockholders and Proxy Statement for the Company's annual
meeting of stockholders to be held on February 27, 1998 and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the heading
"Executive Compensation" under the caption "Proposal One -- Election of
Directors" in the Company's Notice of Annual Meeting and Proxy Statement for the
Company's annual meeting of stockholders to be held on February 27, 1998 and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the heading
"Security Ownership of Certain Beneficial Owners and Management" under the
caption "Proposal One -- Election of Directors" in the Company's Notice of
Annual Meeting and Proxy Statement for the Company's annual meeting of
stockholders to be held on February 27, 1998 and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
"Proposal One -- Election of Directors" in the Company's Notice of Annual
Meeting and Proxy Statement for the Company's annual meeting of stockholders to
be held on February 27, 1998 and is incorporated herein by reference.
16
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS FORM 10-K ANNUAL REPORT:
1. Financial Statements
The following documents are included in the Company's 1997 Annual Report to
Stockholders and incorporated by reference in Item 8:
<TABLE>
<CAPTION>
PAGE NO. IN
ANNUAL REPORT
-------------
<S> <C>
Report of Independent Auditors.................................. 32 - 33
Consolidated Statements of Income for the years ended September
30, 1995, 1996 and 1997....................................... 34
Consolidated Balance Sheets at September 30, 1996 and 1997...... 35
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1995, 1996 and 1997....................... 36 - 37
Consolidated Statements of Cash Flows for the years ended
September 30, 1995, 1996 and 1997............................. 38
Notes to Consolidated Financial Statements...................... 39 - 50
</TABLE>
2. Financial Statement Schedule
The following schedule of the Company is included herein:
Valuation and Qualifying Accounts and Reserves (Schedule II)
All other schedules are omitted because they are not applicable or the
amounts are immaterial or the required information is presented in the
consolidated financial statements or notes thereto.
The following document is included in Exhibit 23.1 hereto:
Independent Auditors' Report on Financial Statement Schedule of
Synopsys, Inc.
3. Exhibits
See Item 14(c) below. The following compensatory plans are required
to be filed as exhibits. Certain of such plans have been incorporated by
reference from prior filings, as indicated under Item 14(c):
<TABLE>
<S> <C>
Exhibit 99.1 -- 1992 Stock Option Plan as restated and amended
Exhibit 99.2 -- Employee Stock Purchase Program, as restated and
amended
Exhibit 99.3 -- International Employee Stock Purchase Program,
as restated and amended
Exhibit 99.4 -- Synopsys deferred compensation plan dated
September 30, 1996
Exhibit 99.5 -- 1994 Non-Employee Directors Stock Option Plan,
as restated and amended
</TABLE>
(b)REPORTS ON FORM 8-K
Not applicable.
17
<PAGE> 18
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated October 14, 1997, by the Company, Post
Acquisition Corp. and Viewlogic Systems, Inc.(10)
3.1 Third Amended and Restated Certificate of Incorporation(8)
3.2 Amendment to Restated Certificate of Incorporation(8)
3.3 Restated Bylaws of Synopsys, Inc.
4.1 Preferred Shares Rights Agreement dated October 24, 1997(9)
4.3 Specimen Common Stock Certificate(1)
10.1 Form of Indemnification Agreement(1)
10.2 Director's and Officer's Insurance and Company Reimbursement Policy(1)
10.6 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)
10.7 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)
10.15 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)
10.16 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)
10.21 Lease Agreement, 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)
10.25 Amendment No. 5 to Lease, dated October 4, 1995, to Lease Agreement dated August 17,
1990, between the Company and John Arrillaga,Trustee, or his successor trustee, UTA
dated July 20, 1997 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended(5)
10.26 Amendment No. 3 to Lease, dated October 4, 1995, to Lease Agreement dated June 16,
1992, between the Company and John Arrillaga, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended(5)
10.27 Amendment No. 2 to Lease, dated October 4, 1995, to Lease Agreement dated June 23,
1993, between the Company and John Arillaga, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended(5)
10.28 Lease dated January 2, 1996 between the Company and Tarigo-Paul, a California
Limited Partnership(6)
13.1 Portions of the Annual Report to Stockholders for fiscal year ended September 30,
1997, expressly incorporated by reference herein
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (see page 21)
27 Financial Data Schedule
99.1 1992 Stock Option Plan, as amended and restated(7)
99.2 Employee Stock Purchase Program, as amended and restated
99.3 International Employee Stock Purchase Plan, as amended and restated
99.4 Synopsys deferred compensation plan dated September 30, 1996(8)
99.5 1994 Non-Employee Directors Stock Option Plan, as amended and restated
</TABLE>
- ---------------
(1) Incorporated by reference to an exhibit of the same number filed with the
Company's Registration Statement on Form S-1 (File No. 33-45138) which
became effective February 24, 1992
(2) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-K for the year ended September 30, 1992
(3) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-K for the year ended September 30, 1993
(4) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-K for the year ended September 30, 1995
(5) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-Q for the quarterly period ended December 31,
1995
(6) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-Q for the quarterly period ended March 31, 1996
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8, filed on May 3, 1996
(8) Incorporated by reference to an exhibit to the Registration Statement on
Form S-4 (File No. 333-21129) of Synopsys, Inc. as filed with the
Securities and Exchange Commission on February 5, 1997
(9) Incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A (File No. 000-19807) of Synopsys, Inc. as filed with
the Securities and Exchange Commission on October 31, 1997.
(10) Incorporated by reference to Annex A to the form of prospectus contained in
the Registration Statement on Form S-4 (File No. 333-39713) of Synopsys,
Inc. as filed with the Securities and Exchange Commission on November 7,
1997
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYNOPSYS, INC.
By /s/ AART J. DE GEUS
------------------------------------
Aart J. de Geus
President, Chief Executive Officer,
and Director (Principal Executive
Officer)
By /s/ DAVID SUGISHITA
------------------------------------
David Sugishita
Senior Vice President, Finance and
Operations, and Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: December 3, 1997
20
<PAGE> 21
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Aart J. de Geus and David Sugishita, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
/s/ HARVEY C. JONES, JR. Chairman of the Board of December 3, 1997
- --------------------------------------------- Directors
Harvey C. Jones, Jr.
/s/ WILLIAM W. LATTIN Executive Vice President December 3, 1997
- --------------------------------------------- and Director
William W. Lattin
/s/ SANG WANG Director December 3, 1997
- ---------------------------------------------
Sang Wang
/s/ DEBORAH A. COLEMAN Director December 3, 1997
- ---------------------------------------------
Deborah A. Coleman
/s/ A. RICHARD NEWTON Director December 3, 1997
- ---------------------------------------------
A. Richard Newton
/s/ STEVEN C. WALSKE Director December 3, 1997
- ---------------------------------------------
Steven C. Walske
</TABLE>
21
<PAGE> 22
SCHEDULE II
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.
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated October 14, 1997, by the Company, Post
Acquisition Corp. and Viewlogic Systems, Inc.(10)
3.1 Third Amended and Restated Certificate of Incorporation(8)
3.2 Amendment to Restated Certificate of Incorporation(8)
3.3 Restated Bylaws of Synopsys, Inc.
4.1 Preferred Shares Rights Agreement dated October 24, 1997(9)
4.3 Specimen Common Stock Certificate(1)
10.1 Form of Indemnification Agreement(1)
10.2 Director's and Officer's Insurance and Company Reimbursement Policy(1)
10.6 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)
10.7 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)
10.15 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)
10.16 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)
10.21 Lease Agreement, 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)
10.25 Amendment No. 5 to Lease, dated October 4, 1995, to Lease Agreement dated August 17,
1990, between the Company and John Arrillaga,Trustee, or his successor trustee, UTA
dated July 20, 1997 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended(5)
10.26 Amendment No. 3 to Lease, dated October 4, 1995, to Lease Agreement dated June 16,
1992, between the Company and John Arrillaga, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended(5)
10.27 Amendment No. 2 to Lease, dated October 4, 1995, to Lease Agreement dated June 23,
1993, between the Company and John Arillaga, Trustee, or his successor trustee, UTA
dated July 20, 1997 (Arrillaga Family Trust), and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1997 (Richard T. Peery Separate Property
Trust), as amended(5)
10.28 Lease dated January 2, 1996 between the Company and Tarigo-Paul, a California
Limited Partnership(6)
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
13.1 Portions of the Annual Report to Stockholders for fiscal year ended September 30,
1997, expressly incorporated by reference herein
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (see page 21)
27 Financial Data Schedule
99.1 1992 Stock Option Plan, as amended and restated(7)
99.2 Employee Stock Purchase Program, as amended and restated
99.3 International Employee Stock Purchase Plan, as amended and restated
99.4 Synopsys deferred compensation plan dated September 30, 1996(8)
99.5 1994 Non-Employee Directors Stock Option Plan, as amended and restated
</TABLE>
- ---------------
(1) Incorporated by reference to an exhibit of the same number filed with the
Company's Registration Statement on Form S-1 (File No. 33-45138) which
became effective February 24, 1992
(2) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-K for the year ended September 30, 1992
(3) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-K for the year ended September 30, 1993
(4) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-K for the year ended September 30, 1995
(5) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-Q for the quarterly period ended December 31,
1995
(6) Incorporated by reference to an exhibit of the same number filed with the
Company's Report on Form 10-Q for the quarterly period ended March 31, 1996
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8, filed on May 3, 1996
(8) Incorporated by reference to an exhibit to the Registration Statement on
Form S-4 (File No. 333-21129) of Synopsys, Inc. as filed with the
Securities and Exchange Commission on February 5, 1997
(9) Incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A (File No. 000-19807) of Synopsys, Inc. as filed with
the Securities and Exchange Commission on October 31, 1997.
(10) Incorporated by reference to Annex A to the form of prospectus contained in
the Registration Statement on Form S-4 (File No. 333-39713) of Synopsys,
Inc. as filed with the Securities and Exchange Commission on November 7,
1997
<PAGE> 1
Exhibit 3.3
RESTATED BYLAWS
OF
SYNOPSYS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the state of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
Directors shall be held at such place either within or without the state of
Delaware as shall be designated from time to time by the Board of Directors (the
"Board") and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
state of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. (a) Annual meetings of stockholders, commencing with the year
1992, shall be held at such place, date and hour as shall be fixed by the Board
and stated in the notice of the meeting, at which the stockholders shall elect a
Board of Directors, and transact such other business as may properly be brought
before the meeting.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice
<PAGE> 2
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date specified in the corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received a reasonable time before the solicitation is made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted
-2-
<PAGE> 3
at any annual meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph (b),
and, if he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at the meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 2.2. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a Director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for elections of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a Director if elected); and (ii) as to such
stockholder giving notice, the
-3-
<PAGE> 4
information required to be provided pursuant to paragraph (b) of this Section
2.2. At the request of the Board of Directors, any person nominated by the
stockholder for election as a Director shall furnish to the Secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrants, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, or cause a third party to prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the Chairman, President or Chief Executive
Officer and shall be called by the
-4-
<PAGE> 5
Chairman or President or Secretary at the request in writing of a majority of
the Board of Directors. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business, except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy and voting on that particular matter shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of the statutes or of the certificate of incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
-5-
<PAGE> 6
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall, at every meeting of the stockholders, be
entitled to one (1) vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
on after three (3) years from its date, unless the proxy provides for a longer
period.
ARTICLE III
DIRECTORS
Section 1. The number of Directors which shall constitute the whole
Board of Directors shall be not fewer than five (5) nor more than eight (8),
with the actual number of Directors to be determined by the Board of Directors.
The Directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 2 of this Article, and each Director elected shall hold
office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies and newly-created directorships may be filled only
by vote of at least two-thirds (2/3rds) of the Directors then in office, though
less than a quorum, or by a sole remaining Director, except that in the event a
Director is removed by the stockholders for cause, the stockholders shall be
entitled to fill the vacancy created as a result of such removal. The Directors
so chosen shall serve for the remainder of the term of the vacated directorships
being filled and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no Directors in office, then an election
of Directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by, or under
the direction of, its Board of Directors, which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
-6-
<PAGE> 7
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the state of Delaware.
Section 5. Intentionally omitted.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 7. Special meetings of the Board may be called by the Chairman
or President on four (4) days' notice to each Director by mail or forty-eight
(48) hours' notice to each Director either personally or by telephone, telegram
or facsimile; special meetings shall be called by the Chairman or President or
Secretary in like manner and on like notice on the written request of two (2)
Directors unless the Board consists of only one (1) Director, in which case
special meetings shall be called by the Chairman or President or Secretary in
like manner and on like notice on the written request of the sole Director. A
written waiver of notice, signed by the person entitled thereto, whether before
or after the time of the meeting stated therein, shall be deemed equivalent to
notice.
Section 8. At all meetings of the Board of Directors a majority of the
Directors then in office shall constitute a quorum for the transaction of
business, and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of
-7-
<PAGE> 8
Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the Directors of the corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of
-8-
<PAGE> 9
the corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of Directors. Director compensation may include, among
other things, payment of his expenses, if any, of attendance at each meeting of
the Board of Directors, payment of a fixed sum for attendance at each meeting of
the Board of Directors or payment of a stated salary as Director. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any Director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of Directors.
ARTICLE IV
NOTICES
-9-
<PAGE> 10
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any Director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these bylaws), but
such notice may be given in writing, by mail, addressed to such Director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
Directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a Chairman, a President, a Secretary and a Treasurer.
The Board of Directors may elect from among its members a Chairman of the Board
and a Vice Chairman of the Board. The Board of Directors may also choose one or
more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any number
of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors, at its first meeting in each fiscal
year, shall choose a Chairman, a President, a Secretary and a Treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
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<PAGE> 11
Section 4. The salaries of all officers of the corporation shall be
fixed by the Board of Directors. The salaries of agents of the corporation
shall, unless fixed by the Board of Directors, be fixed by the President or any
Vice President of the corporation.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall preside at all meetings of
the Board of Directors and of the stockholders at which he shall be present. He
shall have and may exercise such powers as are, from time to time, assigned to
him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board or the Vice
Chairman of the Board, if any, the President shall preside at all meetings of
the Board of Directors and of the stockholders at which he shall be present. He
shall have and may exercise such powers as are, from time to time, assigned to
him by the Board and as may be provided by law.
PRESIDENT AND VICE PRESIDENTS
Section 8. The President shall be the Chief Executive Officer of the
corporation, and shall be responsible for the general supervision, direction and
control of the business and affairs of the corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
Section 9. The Chairman, the President, any Vice President or the
Secretary shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and
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<PAGE> 12
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
corporation.
Section 10. In the absence of the Chairman or the President or in the
event of their inability or refusal to act, the Vice President, if any, (or in
the event there be more than one Vice President, the Vice Presidents in the
order designated by the Directors, or in the absence of any designation, then in
the order of their election) shall perform the duties of the President, and when
so acting, shall have all the powers of, and be subject to all the restrictions
upon, the President.
SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
Chairman, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of
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<PAGE> 13
the Secretary and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 13. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. The Treasurer shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, the Treasurer shall
give the corporation a bond (which shall be renewed every six (6) years) in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 16. The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the Treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
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<PAGE> 14
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Certificates may be issued for partly paid shares and in
such case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Any or all of the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or
-14-
<PAGE> 15
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of, or to vote at, any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of
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<PAGE> 16
such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of, or to vote at, a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
state of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the Directors shall think conducive to the
-16-
<PAGE> 17
interest of the corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall indemnify its officers and Directors to
the full extent permitted by the General Corporation Law of Delaware. Without
limiting the generality of the preceding sentence, the corporation shall
indemnify to the full extent permitted by, and in the manner permissible under,
the laws of the state of Delaware any person made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate is or
was a Director or officer of the corporation or any predecessor of the
corporation, or served any other enterprise as a Director or officer at the
request of the corporation or any predecessor of the corporation.
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<PAGE> 18
Expenses incurred by a Director or officer of the
corporation 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 the corporation's request as a Director or officer of another
enterprise or corporation) shall be paid by the corporation 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
the corporation as authorized by relevant sections of the General Corporation
Law of Delaware.
The foregoing provisions of this Article VII shall be deemed
to be a contract between the corporation and each Director and officer who
serves in such capacity at any time while this bylaw is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation 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.
The foregoing rights of indemnification shall not be deemed
exclusive of any other rights to which any Director or officer may be entitled
apart from the provisions of this Article VII.
ARTICLE VIII
AMENDMENTS
Any bylaw (including these bylaws) may be adopted, amended or repealed
by the vote of the holders of a majority of the shares then entitled to vote at
an election of
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<PAGE> 19
Directors, or by vote of the Board or by the Directors' written consent pursuant
to Section 9 of Article III.
-19-
<PAGE> 1
EXHIBIT 13.1
SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(In thousands, except per share and employee data)
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:(A)
Revenue:
Product $109,585 $146,169 $201,605 $267,231 $318,603
Service 38,650 64,370 88,898 130,188 180,542
-------- -------- -------- -------- --------
Total revenue 148,235 210,539 290,503 397,419 499,145
-------- -------- -------- -------- --------
Cost of revenue:
Product 13,778 14,946 16,885 18,181 25,031
Service 9,922 13,852 16,026 24,064 35,405
-------- -------- -------- -------- --------
Total cost of revenue 23,700 28,798 32,911 42,245 60,436
-------- -------- -------- -------- --------
Gross margin 124,535 181,741 257,592 355,174 438,709
Operating expenses:
Research and development 27,050 44,209 64,559 94,814 115,038
Sales and marketing 61,089 82,729 110,751 147,371 177,739
General and administrative 13,094 18,073 24,563 31,053 37,471
Merger-related costs -- 7,400 -- -- 11,400
In-process research and development -- 5,900 12,461 58,506 --
-------- -------- -------- -------- --------
Total operating expenses 101,233 158,311 212,334 331,744 341,648
-------- -------- -------- -------- --------
Operating income 23,302 23,430 45,258 23,430 97,061
Other income, net 980 2,136 5,730 8,103 16,305
-------- -------- -------- -------- --------
Income before income taxes 24,282 25,566 50,988 31,533 113,366
Income tax provision 8,678 10,123 19,698 17,511 40,972
-------- -------- -------- -------- --------
Net income $ 15,604 $ 15,443 $ 31,290 $ 14,022 $ 72,394
======== -------- ======== -------- ========
Earnings per share(B) $ .35 $ .33 $ .62 $ .28 $ 1.34
======== ======== ======== ======== ========
Weighted average common shares
and equivalents where dilutive(B) 43,980 46,261 50,199 50,917 54,039
======== ======== ======== ======== ========
Balance Sheet Data:(A)
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
Other Data:
Permanent employees 854 1,132 1,515 1,911 1,961
</TABLE>
(A) See Note 3 of Notes to Consolidated Financial Statements regarding the
Company's mergers.
(B) Share and per share amounts have been restated for all periods presented to
reflect the two-for-one stock split effective September 8, 1995.
<PAGE> 2
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA(A)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1997
(In thousands, except per share data) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
<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
========= ========= ========= ========= ========= ========= ========= =========
Market price range (B)
High $ 38.50 $ 37.75 $ 46.75 $ 50.50 $ 50.00 $ 46.25 $ 38.00 $ 45.19
Low $ 23.00 $ 27.50 $ 29.75 $ 30.75 $ 39.75 $ 24.25 $ 21.75 $ 29.50
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 the
Company's mergers.
(B) The Company's common stock is traded in the over-the-counter market on the
NASDAQ National Market system under the symbol "SNPS." At September 30, 1997
there were approximately 303 owners of record of the Company's common stock. The
Company has not paid cash dividends and does not anticipate paying cash
dividends in the foreseeable future.
F-2
<PAGE> 3
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. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below in "Factors That May Affect Future Results."
Corporate Agreements and Relationships
In February 1996, the Company 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, the
Company 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, 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 $11.0 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. 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 $39.7 million in fiscal year 1996.
In May 1996, the Company 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, the Company
purchased
F-3
<PAGE> 4
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 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 Cadence Common Stock and
realized a gain of approximately $8.0 million.
During fiscal 1997, the Company 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, the Company 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 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 $5.0
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, the Company 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 the
Company's Common Stock. The EPIC 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.
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.
Revenue
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.
The Company's 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 the Company's 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 the Company's
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 the Company's revenue growth.
F-4
<PAGE> 5
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 the Company's 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 the Company's 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
The Company 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. The Company anticipates that it will continue to commit substantial
resources to research and development in the future, provided that the Company
is able to continue to hire and retain a sufficient number of qualified
personnel. The Company 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.
The Company capitalizes software development costs after technological
feasibility of the product has been established in accordance with SFAS No. 86.
The Company 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 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 the Company's worldwide
sales and marketing organizations, higher incentive compensation associated with
increased revenue, and participation in conferences and trade shows. The Company
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.
F-5
<PAGE> 6
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, the Company recorded additional reserves for
receivables from customers considered potentially uncollectible. The Company
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, the Company 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. The Company 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
The Company 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.
Liquidity and Capital Resources
As of September 30, 1997, the Company 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
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 Board of Directors authorized the repurchase of up to 2.0
million 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.
The Company has three foreign exchange lines of credit totaling $102.5
million which expire in October 1997, June 1998, and June 1999. The Company
enters into forward exchange contracts to hedge foreign currency denominated
F-6
<PAGE> 7
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 $18.5 million. The forward exchange contracts are valued at
prevailing market rates.
The Company believes that its current cash balances, anticipated cash flows
from operations and the existing credit facilities will be sufficient to fund
the Company's cash needs for at least the next twelve months.
Factors That May Affect Future Results
When used in the following discussion, the words "projects," "expects," and
similar expressions are intended to identify forward-looking statements. Such
statements, and the Company's results, are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from those projected or estimated.
On October 14, 1997, the Company announced its agreement to merge (the
"Merger") with Viewlogic Systems, Inc. ("Viewlogic"). The Company expects that
the Merger will result in cost savings and beneficial product synergy, but there
can be no assurance that these will be achieved. In addition, the Merger may be
unsettling to customers, distracting for management and disruptive to employees.
Customers may defer purchasing decisions as they evaluate Synopsys' plans for
the two companies' product offerings, particularly their timing and test
products. The Company believes that a number of its 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 Company's quarterly
results could fail to meet analysts' expectations. The dedication of management
resources required to complete the Merger and integrate the companies'
businesses may distract attention from the day-to-day business of the Company.
Employees may experience uncertainty and lack of focus during the pre-merger and
integration phases, during which time competitors may intensify their efforts to
recruit key employees. In addition, the issuance of Synopsys Common Stock in the
Merger and upon the exercise of Viewlogic stock 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 the integration of
Viewlogic's business will be accomplished smoothly, expeditiously or
successfully, and the failure to do so could have a have a material adverse
effect on the business, financial condition and results of operations of the
Company.
The EDA industry is highly competitive. The Company's 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. The
Company's products also compete with customers' internally-developed design
tools and design capabilities. The Company's 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, the Company 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 the Company's 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, the Company 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. The Company 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, the Company has less capacity than Cadence to offer design consulting
services.
Historically, much of the Company's 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. The Company is seeking to add new products to its portfolio. Among
the most important new products offered by the Company are its Behavioral
Compiler, Cell-Based Array, PrimeTime timing estimator and Cyclone simulation
accelerator products. These products have achieved initial customer acceptance,
but the Company will only derive significant revenue from
F-7
<PAGE> 8
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, the Company sold its hardware emulator
business, based on technology acquired by the Company in June 1995, as a result
of uncertainties over the long-term competitiveness of such technology. There
can be no assurance that the Company's 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 the
Company's business, financial condition and results of operations.
The Company's business has benefited from the rapid worldwide growth of the
semiconductor industry. Purchases of the Company's 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 1998 is uncertain. Slower growth in
the semiconductor industry, and/or a reduced number of design starts, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company 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 the Company's backlog, and the timing of revenue
recognition. In recent years, the Company's orders have become more seasonal,
with the first quarter of the Company's fiscal year traditionally being the
weakest and with higher volumes in the second and fourth quarters. The Company
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. The Company also has become more dependent upon large
orders. In addition, an increasing amount of the Company's 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, the Company's ability to convert orders, particularly those received
late in a quarter, or backlog to revenue in any quarter is less certain, and the
Company is more vulnerable to delays in individual large orders, than it
historically has been. It is therefore possible for the Company 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 the Company's products and
services over a sustained period of time.
The Company's operating expenses are based in part on its expectations of
future revenue, and expense levels are generally committed in advance of
revenue. The Company expects to continue to increase operating expenses in order
to generate and support continued growth in revenue. If the Company is
unsuccessful in generating such revenue, the Company's 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 the
Company's expenses varies with its revenue.
In recent years, international revenue has accounted for approximately 50% of
the Company's revenue. The Company 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 the Company's 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 recent
months, the currencies of many countries in the Asia Pacific region have lost
significant value against the dollar, notably the currencies of Korea and
Taiwan, each of which are important markets for the Company in the Asia Pacific
region. As a result, the Company's sales in these countries could be adversely
affected. More generally, recent instability in Asian currency and stock market
economies, could adversely affect the economic health of the entire region and
could have an adverse effect on the Company's results of operations.
In February 1996, the Company entered into a six-year joint development and
license agreement with International Business Machines Corporation ("IBM"),
pursuant to which the Company and IBM agreed to develop certain new products
that the Company 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. The Company 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 the Company's joint development efforts will be successful.
F-8
<PAGE> 9
As of September 30, 1997, the Company held 674,000 shares of Cadence common
stock, which were acquired as a result of the Company's 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, the Company 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 the Company's investment, is subject to significant
fluctuation. The number of Cadence shares the Company is required to sell in
order to generate $2 million in profit in any fiscal quarter, the number of
quarters that the Company will be able to generate such profits, and the total
gain that the Company may be able to realize on sales of its Cadence shares
depends upon the price of Cadence common stock at the time of sale.
The Company's success is dependent on technical and other contributions of
key employees, including individuals who joined the Company in connection with
the acquisition of EPIC Design Technology, Inc. ("EPIC") and who will join the
Company in connection with its merger with Viewlogic. 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 the Company can continue
to recruit and retain such key personnel. Failure to successfully recruit and
retain such personnel could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company has adopted a number of provisions that could have antitakeover
effects. In September 1997, the Board of Directors adopted a Preferred Shares
Rights Plan, commonly referred to as a "poison pill." In addition, the Board of
Directors 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 the Company's
Restated Certificate of Incorporation (the "Restated Certificate") and Bylaws
and the Delaware General Corporation Law may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
the Company, including transactions in which the stockholders of the Company
might otherwise receive a premium for their shares over then current market
prices.
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.
F-9
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
To 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., 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., 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-10
<PAGE> 11
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-11
<PAGE> 12
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 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 $ .62 $ .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-11
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
(IN THOUSANDS, EXCEPT SHARE DATA) 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-12
<PAGE> 14
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994................................................... 2,982 $1,815 40,470 $405 $ 97,302
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..................................... -- -- -- -- --
Translation adjustment.......................................................... -- -- -- -- --
Unrealized gain on investments, net............................................. -- -- -- -- --
Net income...................................................................... -- -- -- -- --
------ ------- ------- ------ ----------
Balance at September 30, 1995................................................... -- -- 48,053 480 149,096
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
Tax benefits associated with exercise of stock
options....................................................................... -- -- -- -- 8,607
Amortization of deferred stock compensation..................................... -- -- -- -- --
Translation adjustment.......................................................... -- -- -- -- --
Unrealized gain on investments, net............................................. -- -- -- -- --
Net income...................................................................... -- -- -- -- --
------ ------- ------- ------ ----------
Balance at September 30, 1996................................................... -- -- 50,646 506 196,693
Acquisition of treasury stock................................................... -- -- (205) -- --
Stock issued under stock option and stock
purchase plans................................................................ -- -- 2,265 21 37,656
Tax benefits associated with exercise of stock
options....................................................................... -- -- -- -- 29,584
Amortization of deferred stock compensation..................................... -- -- -- -- --
Translation adjustment.......................................................... -- -- -- -- --
Unrealized gain on investments, net............................................. -- -- -- -- --
Net income...................................................................... -- -- -- -- --
------ ------- ------- ------ ----------
Balance at September 30, 1997................................................... -- $ -- $52,706 $527 $263,933
====== ======= ======= ======= =========
<CAPTION>
DEFERRED
STOCK CUMULATIVE UNREALIZED
RETAINED COMPEN- TRANSLATION GAIN ON TREASURY
EARNINGS SATION ADJUSTMENT INVESTMENTS STOCK TOTAL
-------- ------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994....................... $28,802 $(347) $(612) $ -- $ -- $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 -- -- -- 144
Translation adjustment.............................. -- -- 364 -- -- 364
Unrealized gain on investments, net................. -- -- -- 10 -- 10
Net income.......................................... 31,290 -- -- -- -- 31,290
-------- ------- ----------- ----------- -------- --------
Balance at September 30, 1995....................... 60,092 (203) (248) 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.................................... (9,281) -- -- -- 14,817 30,041
Tax benefits associated with exercise of stock
options........................................... -- -- -- -- -- 8,607
Amortization of deferred stock compensation......... -- 93 -- -- -- 93
Translation adjustment.............................. -- -- (154) -- -- (154)
Unrealized gain on investments, net................. -- -- -- 8,271 -- 8,271
Net income.......................................... 14,022 -- -- -- -- 14,022
-------- ------- ----------- ----------- -------- --------
Balance at September 30, 1996....................... 64,833 (110) (402) 8,281 -- 269,801
Acquisition of treasury stock....................... -- -- -- -- (9,489) (9,489)
Stock issued under stock option and stock
purchase plans.................................... (5,871) -- -- -- 9,489 41,295
Tax benefits associated with exercise of stock
options........................................... -- -- -- -- -- 29,584
Amortization of deferred stock compensation......... -- 110 -- -- -- 110
Translation adjustment.............................. -- -- (302) -- -- (302)
Unrealized gain on investments, net................. -- -- -- 8,380 -- 8,380
Net income.......................................... 72,394 -- -- -- -- 72,394
-------- ------- ----------- ----------- -------- --------
Balance at September 30, 1997....................... $131,356 $ -- $(704) $16,661 $ -- $411,773
======== ======== ========== ========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS)
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-14
<PAGE> 16
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
systems 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-15
<PAGE> 17
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,
(IN THOUSANDS) 1996 1997
--------- ---------
<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-16
<PAGE> 18
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
(IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Classified as current
assets:
Tax-exempt com-
mercial 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
(IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Classified as current
assets:
Tax-exempt com-
mercial 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.
F-17
<PAGE> 19
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
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,
(IN THOUSANDS) 1996 1997
------- -------
<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.
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.
F-18
<PAGE> 20
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.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2,
"Software Revenue Recognition," which supersedes SOP 91-1. The Company will
adopt SOP 97-2 for software transactions entered into beginning October 1, 1997.
SOP 97-2 generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
values of the elements. The revenue allocated to software products generally is
recognized upon delivery of the products. The revenue allocated to postcontract
customer support generally is recognized ratably over the term of the support
and revenue allocated to service elements generally is recognized as the
services are performed. The Company's management anticipates that the adoption
of SOP 97-2 will not have a material impact on the Company's results of
operations.
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, 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.
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
F-19
<PAGE> 21
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>
(IN THOUSANDS) Synopsys EPIC Combined
-------- ---- --------
<S> <C> <C> <C>
Year ending 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 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.
F-20
<PAGE> 22
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.
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.
F-21
<PAGE> 23
The following table summarizes information about options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF 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 $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 Plans Stock 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>
(in thousands, except per share amounts) 1996 1997
---- ----
<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.
F-22
<PAGE> 24
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.
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,
(IN THOUSANDS) 1996 1997
-------- --------
<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,
(IN THOUSANDS) 1995 1996 1997
-------- -------- --------
<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-23
<PAGE> 25
The significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS) 1995 1996 1997
-------- -------- --------
<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,
(IN THOUSANDS) 1995 1996 1997
-------- -------- --------
<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 (971) (1,551) (2,404)
corporation
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. 370 377 1,501
statutory tax
Non-deductible
merger and
acquisition
expenses and other 4,231 9,281 8,239
Change in
beginning-of-year
valuation allowance -- -- (5,435)
-------- -------- --------
$ 19,698 $ 17,511 $ 40,972
======== ======== ========
</TABLE>
F-24
<PAGE> 26
NOTE 7. WORLDWIDE OPERATIONS
The Company operates in a single industry segment, the development,
marketing, and support of electronic design automation software and systems
products. The Company markets its products through several wholly-owned foreign
subsidiaries.
The Company's operations by geographic area were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS) 1995 1996 1997
--------- --------- ---------
<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-25
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SYNOPSYS, INC.
<TABLE>
<CAPTION>
SUBSIDIARY NAME JURISDICTION OF INCORPORATION
<S> <C>
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
</TABLE>
<PAGE> 1
EXHIBIT 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE AND INDEPENDENT AUDITORS' REPORT
The Board of Directors
of Synopsys, Inc.:
The audits referred to in our report dated October 17, 1997, included the
related financial statement schedule as of September 30, 1996 and 1997, and for
each of the years in the three-year period ended September 30, 1997, are
incorporated by reference in the Annual Report on Form 10-K. The financial
statement schedule is the responsibility of the Company's 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 respects, the information set forth therein.
We consent to the incorporation by reference in Registration Statement Nos.
33-82804, 33-78560, 33-76206, 33-92144, 333-04410 and 333-22663 on Form S-8 of
Synopsys, Inc. of our reports dated October 17, 1997, relating to the
consolidated balance sheets of Synopsys, Inc. and subsidiaries as of 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, and the related schedule, which report appears
in the September 30, 1997 Annual Report on Form 10-K of Synopsys, Inc.
KPMG Peat Marwick LLP
Palo Alto, California
December 1, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statement Nos.
33-82804, 33-78560, 33-76206, 33-92144, 333-04410 and 333-22663 of Synopsys,
Inc. on Form S-8 of our report dated October 11, 1996 (relating to the
consolidated financial statements of EPIC Design Technology, Inc. not presented
separately herein), appearing and incorporated by reference in this Annual
Report on Form 10-K for the year ended September 30, 1997.
DELOITTE & TOUCHE LLP
San Jose, California
December 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 78,278
<SECURITIES> 284,492
<RECEIVABLES> 94,401
<ALLOWANCES> 6,452
<INVENTORY> 0
<CURRENT-ASSETS> 486,091
<PP&E> 140,975
<DEPRECIATION> 64,272
<TOTAL-ASSETS> 629,687
<CURRENT-LIABILITIES> 205,713
<BONDS> 8,996
0
0
<COMMON> 527
<OTHER-SE> 411,246
<TOTAL-LIABILITY-AND-EQUITY> 629,687
<SALES> 499,145
<TOTAL-REVENUES> 499,145
<CGS> 60,436
<TOTAL-COSTS> 60,436
<OTHER-EXPENSES> 341,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,080
<INCOME-PRETAX> 113,366
<INCOME-TAX> 40,972
<INCOME-CONTINUING> 72,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,394
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
<PAGE> 1
EXHIBIT 99.2
SYNOPSYS, INC.
EMPLOYEE STOCK PURCHASE PLAN
(As Amended through November 5, 1997)
I. PURPOSE
The Synopsys, Inc. Employee Stock Purchase Plan (the "Plan") is intended
to provide eligible employees of the Company and one or more of its Corporate
Affiliates with the opportunity to acquire a proprietary interest in the Company
through the periodic application of their payroll deductions to the purchase of
shares of the Company's common stock.
II. DEFINITIONS
For purposes of plan administration, the following terms shall have the
meanings indicated.
Base Salary means all compensation paid as wages, salaries, commissions,
overtime, and bonuses, but excluding all of the following items (even if
included in taxable income): reimbursements, car allowances or other expense
allowances, severance pay, fringe benefits (cash and noncash), moving expenses,
deferred compensation, income attributable to stock options, restricted stock
grants, SARs and other equity-related incentive programs, and welfare benefits.
Code means the Internal Revenue Code of 1986, as amended from time to
time.
Company means Synopsys, Inc., a Delaware corporation, and any corporate
successor to all or substantially all of the assets or voting stock of Synopsys,
Inc. which shall by appropriate action adopt the Plan.
Common Stock means shares of the Company's common stock.
Corporate Stock means shares of the Company's common stock.
Corporate Affiliate means any company which is a parent or subsidiary
corporation of the Company (as determined in accordance with Code Section 424),
including any parent or subsidiary corporation which becomes such after the
Effective Date.
<PAGE> 2
Effective Date means the first day of the initial offering period
scheduled to commence upon the later of (i) February 1, 1992 or (ii) the
effective date of the S-8 Registration Statement covering the share of Common
Stock issuable under the Plan. However, for any Corporate Affiliate which
becomes a participating Company in the Plan after the first day of the initial
offering period, a subsequent Effective Date shall be designated with respect to
participation by its Eligible Employees.
Eligible Employee means any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week and more than
five (5) months per calendar year, in the rendition of personal services to the
Company or any other Participating Company for earnings considered wages under
Section 3121(a) of the Code.
Enrollment Date has the meaning ascribed to it in Section V.A.
Participant means any Eligible Employee of a Participating Company who
is actively participating in the Plan.
Participating Company means the Company and such Corporate Affiliate or
Affiliates as may be designated from time to time by the Board.
Semi-Annual Entry Date means the first business day of May and the first
business day of November during each calendar year within an offering period in
effect under the Plan. The earliest Semi-Annual Entry Date under the Plan shall
be November 2, 1992.
Semi-Annual Period of Participation means each semi-annual period for
which the Participant actually participates in an offering period in effect
under the Plan. There shall be a maximum of four (4) semi-annual periods of
participation within each offering period. Except as otherwise designated by the
Plan Administrator, each such semi-annual period shall be measured from the
applicable Semi-Annual Entry Date.
Semi-Annual Purchase Date means the last business day of April and
October each year on which shares of Common Stock are automatically purchased
for Participants under the Plan.
-2-
<PAGE> 3
III. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
or a committee that will satisfy Rule 16b-3 of the Securities and Exchange
Commission, as in effect with respect to the Company from time to time (in
either case, the "Board"). The Board may from time to time select a committee or
persons (the "Plan Administrator") to be responsible for any transactions not
subject to Rule 16b-3. Subject to the express provisions of the Plan, to the
overall supervision of the Board, and to the limitations of Section 423 of the
Code, the Plan Administrator may administer and interpret the Plan in any manner
it believes to be desirable (including the designation of a brokerage firm at
which accounts for the holding of shares purchased under the Plan must be
established by each employee desiring to participate in the Plan), and any such
interpretation shall be final and binding on all parties who have an interest in
the Plan.
IV. OFFERING PERIODS
The Plan shall be implemented in a series of offering periods. Each
offering period shall be of a duration of twenty-four (24) months or less as
designated by the Plan Administrator prior to the start date of any offering
period. Within each offering period, there shall be a maximum of four (4)
Semi-Annual Periods of Participation.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee will be automatically enrolled in the Plan in
the offering period that begins on the first Semi-Annual Entry Date following
the commencement of employment; thereafter, any Eligible Employee may enroll or
re-enroll in the Plan in the offering period that begins as of any Semi-Annual
Entry Date, or such other days as may be established by the Board from time to
time (each, an "Enrollment Date"). To participate, an Eligible Employee must
complete, sign, and submit to the Company an enrollment form prescribed by the
Plan Administrator. Any enrollment form received by the Company by the 15th day
of the month preceding an Enrollment Date (or by the Enrollment Date in the case
of employees hired after such 15th day), or such other date established by the
Plan Administrator from time to time, will be effective on that Enrollment Date.
Enrollment or re-enrollment by a Participant in the Plan on an Enrollment Date
will constitute the grant by the Company to the Participant of an
-3-
<PAGE> 4
option to purchase shares of Common Stock from the Company under the Plan. At
the end of each offering period, each Participant who has not withdrawn from the
Plan will automatically be re-enrolled in the Plan in the offering period that
begins on the Enrollment Date immediately following the date on which the option
expires. Furthermore, except as may otherwise be determined by the Plan
Administrator, each Participant who has not withdrawn from the Plan will
automatically be re-enrolled in the Plan in each offering period that begins on
an Enrollment Date on which the fair market value per share of the Company's
Common Stock is lower than the fair market value per share of the Company's
Common Stock on the Enrollment Date for the offering period in which the
Participant is then enrolled.
B. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be zero percent (0%) or any
whole multiple of one percent (1%) of the Base Salary paid to the Participant
during each Semi-Annual Period of Participation within the offering period, up
to a maximum of ten percent (10%). The deduction rate so authorized shall
continue in effect for the entire Semi-Annual Period of Participation and for
each successive Semi-Annual Period of Participation unless (i) the Participant
shall change the rate for a subsequent Semi-Annual Period of Participation by
filing the appropriate form with the Plan Administrator prior to the
commencement of that Semi-Annual Period of Participation or (ii) the Participant
shall change the rate within a Semi-Annual Period of Participation by filing the
appropriate form with the Plan Administrator. The new rate shall become
effective as soon as practicable following the filing of such form. A
Participant may not increase or decrease the deduction rate more than once per
Semi-Annual Period of Participation in addition to fixing the rate at the
beginning of the Semi-Annual Period of Participation. Payroll deductions,
however, will automatically cease upon the termination of the Participant's
purchase right in accordance with Article VII below.
C. In no event may any Participant's payroll deductions for any one
Semi-Annual Period of Participation exceed Seven Thousand Five Hundred Dollars
($7,500.00).
VI. STOCK SUBJECT TO PLAN
A. The Common Stock purchasable by Participants under the Plan shall,
solely in the discretion of the Plan Administrator,
-4-
<PAGE> 5
be made available from either authorized but unissued shares of the Common Stock
or from shares of Common Stock reacquired by the Company, including shares of
Common Stock purchased on the open market. The total number of shares which may
be issued under the Plan shall not exceed 3,550,000 shares, less any shares sold
under the Synopsys, Inc. International Employee Stock Purchase Plan (subject to
adjustment under Section VI.B below). Such share reserve includes the increase
of 1,400,000 shares approved by the Board in November 1997, subject to approval
by the stockholders in February 1998.
B. In the event any change is made to the Company's outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other change affecting such outstanding Common Stock as a class without receipt
of consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during each Semi-Annual Period of Participation, (iii) the class and
maximum number of shares purchasable in the aggregate by all Participants on any
one purchase date under the Plan and (iv) the class and number of shares and the
price per share of the Common Stock subject to each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.
VII. PURCHASE RIGHTS
An Employee who participates in the Plan for a particular offering
period shall have the right to purchase shares of Common Stock, in a series of
successive semi-annual installments during such offering period, upon the terms
and conditions set forth below and shall execute a purchase agreement embodying
such terms and conditions and such other provisions (not inconsistent with the
Plan) as the Plan Administrator may deem advisable.
Purchase Price. Common Stock shall be issuable on each Semi-Annual
Purchase Date at a purchase price equal to 85 percent of the lower of (i) the
fair market value per share on the Participant's Enrollment Date or (ii) the
fair market value per share on the Semi-Annual Purchase Date. However, for each
Participant whose Enrollment Date is other than the start date of the offering
period in effect under the Plan, the clause (i) amount shall in no event be less
than the fair market value of
-5-
<PAGE> 6
the Common Stock on the start date of such offering period.
Valuation. For purposes of determining the fair market value per share
of Common Stock on any relevant date, the following procedures shall be in
effect:
(i) If such fair market value is to be determined on any date on
or after the date the Common Stock is first registered under Section
12(g) of the Securities Exchange Act of 1934, then the fair market value
shall be the closing selling price on that date, as officially quoted on
the Nasdaq National Market System. If there is no quoted selling price
for such date, then the closing selling price on the next preceding day
for which there does exist such a quotation shall be determinative of
fair market value.
(ii) If such fair market value is to be determined on any date
prior to the time of such Section 12(g) registration of the Common
Stock, then the fair market value of the Common Stock on such date shall
be determined by the Plan Administrator, after taking into account such
factors as the Plan Administrator deems appropriate.
Number of Purchasable Shares. The number of shares purchasable per
Participant on each Semi-Annual Purchase Date shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the corresponding Semi-Annual Period of Participation
by the purchase price in effect for the Semi-Annual Purchase Date. However, no
Participant may, during any Semi-Annual Purchase Period, purchase more than
2,000 shares of Common Stock, subject to periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Corporate Affiliates.
Payment. Payment for the Common Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin on the first pay day coincident with or immediately
following the Participant's
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<PAGE> 7
Enrollment Date and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of the
offering period.
The amounts so collected shall be credited to the Participant's book
account under the Plan, but no interest shall be paid on the balance from time
to time outstanding in such account. The amounts collected from a Participant
may be commingled with the general assets of the Company and may be used for
general corporate purposes.
Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last five (5)
business days of the Semi-Annual Period of Participation, terminate
his/her outstanding purchase right under the Plan by filing the
prescribed notification form with the Plan Administrator. No further
payroll deductions shall be collected from the Participant with respect
to the terminated purchase right, and any payroll deductions collected
for the Semi-Annual Period of Participation in which such termination
occurs shall, at the Participant's election, be immediately refunded or
held for the purchase of shares on the next Semi-Annual Purchase Date.
If no such election is made, then such funds shall be refunded as soon
as possible after the close of such Semi-Annual Period of Participation.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for
which such terminated purchase right was granted. In order to resume
participation in any subsequent offering period, such individual must
re-enroll in the Plan in accordance with Section V.A.
(iii) Should a Participant cease to remain an Eligible Employee
while his/her purchase right remains outstanding or should there
otherwise occur a change in such individual's employee status so that
he/she is no longer an Eligible Employee while holding such purchase
right, then such purchase right shall immediately terminate upon such
termination of service or change in status and all sums previously
collected from the Participant during the Semi-Annual Period of
Participation in which the purchase right
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<PAGE> 8
so terminates shall be promptly refunded to the Participant. However,
should the Participant die or become permanently disabled while in
service or should the Participant cease employment by reason of a leave
of absence, then the Participant (or the person or persons to whom the
rights of the deceased Participant under the Plan are transferred by
will or the laws of inheritance) shall have the election, exercisable up
until the end of the Semi-Annual Period of Participation in which the
Participant dies or becomes permanently disabled or in which the leave
of absence commences, to (i) withdraw all the funds credited to the
Participant's account at the time of his/her cessation of service or at
the commencement of such leave or (ii) have such funds held for the
purchase of shares of Common Stock at the next Semi-Annual Purchase
Date. If no such election is made, then such funds shall automatically
be held for the purchase of shares of Common Stock at the next
Semi-Annual Purchase Date. In no event, however, shall any further
payroll deductions be added to the Participant's account following
his/her cessation of service or the commencement of such leave. Should
the Participant return to active service following a leave of absence,
then his/her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began, provided such
return to service occurs prior to the end of the offering period in
which such leave began. For purpose of the Plan: (i) the Participant
shall be considered to remain in service for so long as such Participant
remains in the active employ of the Company or one or more other
Participating Companies and (ii) the Participant shall be deemed to be
permanently disabled if he/she is unable to engage in any substantial
gainful employment, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of at least twelve (12) months.
Stock Purchase. Shares of Common Stock shall automatically be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded or set aside for refund in accordance with the
"Termination of Purchase Right" provisions above) on each Semi-Annual Purchase
Date. The purchase shall be effected by applying each Participant's payroll
deductions for the Semi-Annual Period of Participation ending on such
Semi-Annual Purchase Date (together with any carryover deductions from the
preceding Semi-
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<PAGE> 9
Annual Period of Participation) to the purchase of whole shares of Common Stock
(subject to the limitation on the maximum number of purchasable shares set forth
above) at the purchase price in effect for such Semi-Annual Period of
Participation. Any payroll deductions not applied to such purchase because they
are not sufficient to purchase a whole share shall be held for the purchase of
Common Stock in the next Semi-Annual Period of Participation. However, any
payroll deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant for
that Semi-Annual Period of Participation shall be promptly refunded to the
Participant.
Proration of Purchase Rights. Not more than 500,000 shares of Common
Stock, subject to periodic adjustment under Section VI.B, may be purchased in
the aggregate by all Participants on any one Semi-Annual Purchase Date. Should
the total number of shares of Common Stock which are to be purchased pursuant to
outstanding purchase rights on any particular date exceed either (i) the maximum
limitation on the number of shares purchasable in the aggregate on such date or
(ii) the number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares on a
uniform and non-discriminatory basis, and the payroll deductions for each
Participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, shall be refunded to such
Participant.
Rights as Stockholder. A Participant shall have no stockholder rights
with respect to the shares subject to his/her outstanding purchase right until
the shares are actually purchased on the Participant's behalf in accordance with
the applicable provisions of the Plan. No adjustments shall be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
Assignability. No purchase right granted under the Plan shall be
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only by the
Participant.
Change in Ownership. Should the Company or its stockholders enter into
an agreement to dispose of all or substantially all of
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the assets or outstanding capital stock of the Company by means of:
(i) a sale, merger or other reorganization in which the Company
will not be the surviving corporation (other than a reorganization
effected primarily to change the State in which the Company is
incorporated), or
(ii) a reverse merger in which the Company is the surviving
corporation but in which more than fifty percent (50%) of the Company's
outstanding voting stock is transferred to holders different from those
who held the stock immediately prior to the reverse merger, then all
outstanding purchase rights under the Plan shall automatically be
exercised immediately prior to the consummation of such sale, merger,
reorganization or reverse merger by applying the payroll deductions of
each Participant for the Semi-Annual Period of participation in which
such transaction occurs to the purchase of whole shares of Common Stock
at eighty-five percent (85%) of the lower of (i) the fair market value
of the Common Stock on the Participant's Enrollment Date for the
offering period in which such transaction occurs or (ii) the fair market
value of the Common Stock immediately prior to the consummation of such
transaction. However, the applicable share limitations of Articles VII
and VIII shall continue to apply to any such purchase, and the clause
(i) amount above shall not, for any Participant whose Enrollment Date
for the offering period is other than the start date of such offering
period, be less than the fair market value of the Common Stock on such
start date.
The Company shall use its best efforts to provide at least ten (10)
days' advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall, following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (I) rights to purchase Common Stock
accrued under
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<PAGE> 11
any other purchase right outstanding under this Plan and (II) similar rights
accrued under other employee stock purchase plans (within the meaning of Section
423 of the Code) of the Company or its Corporate Affiliates, would otherwise
permit such Participant to purchase more than $25,000 worth of stock of the
Company or any Corporate Affiliate (determined on the basis of the fair market
value of such stock on the date or dates such rights are granted to the
Participant) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the right to
acquire Common Stock pursuant to each purchase right outstanding under the Plan
shall accrue as follows:
(i) The right to acquire Common Stock under each such purchase
right shall accrue in a series of successive semi-annual installments as
and when the purchase right first becomes exercisable for each
semi-annual installment on the last business day of each Semi-Annual
Period of Participation for which the right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire $25,000 worth of
Common Stock (determined on the basis of the fair market value on the
date or dates of grant) pursuant to one or more purchase rights held by
the Participant during such calendar year.
(iii) If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Semi-Annual
Period of Participation, then the payroll deductions which the
Participant made during that Semi-Annual Period of Participation with
respect to such purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of this
Article VIII and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article VIII shall be controlling.
IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS
The Plan is designed to qualify as an employee stock purchase plan under
Code Section 423.
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<PAGE> 12
X. AMENDMENT AND TERMINATION
A. The Board may amend, alter, suspend, discontinue, or terminate the
Plan at any time, including amendments to outstanding options/purchase rights.
However, the Board may not, without the approval of the Company's stockholders:
(i) increase the number of shares issuable under the Plan or the
maximum number of shares which may be purchased per Participant or in
the aggregate during any one Semi-Annual Period of Participation under
the Plan, except that the Plan Administrator shall have the authority,
exercisable without such stockholder approval, to effect adjustments to
the extent necessary to reflect changes in the Company's capital
structure pursuant to Section VI.B;
(ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares issuable under the Plan; or
(iii) materially increase the benefits accruing to Participants
under the Plan or materially modify the requirements for eligibility to
participate in the Plan.
B. The Board may elect to terminate any or all outstanding purchase
rights at any time. In the event the Plan is terminated, the Board may also
elect to terminate outstanding purchase rights either immediately or upon
completion of the purchase of shares on the next Semi-Annual Purchase Date, or
may elect to permit purchase rights to expire in accordance with their terms
(and participation to continue through such expiration dates). If purchase
rights are terminated prior to expiration, all funds contributed to the Plan
that have not been used to purchase shares shall be returned to the Participants
as soon as administratively feasible.
IX. GENERAL PROVISIONS
A. The Plan shall become effective on the designated Effective Date,
provided that no offering period shall commence, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders and
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<PAGE> 13
(ii) the Company shall have complied with all applicable requirements of the
Securities Act of 1933 (as amended), all applicable listing requirements of any
securities exchange on which shares of the Common Stock are listed and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such Company compliance is not
effected, within twelve (12) months after the date on which the Plan is adopted
by the Board, the Plan shall terminate and have no further force of effect.
B. All costs and expenses incurred in the administration of the Plan
shall be paid by the Company.
C. Neither the action of the Company in establishing the Plan, nor any
action taken under the Plan by the Board or the Plan Administrator, nor any
provision of the Plan itself shall be construed so as to grant any person the
right to remain in the employ of the Company or any of its Corporate Affiliates
for any period of specific duration, and such person's employment may be
terminated at any time, with or without cause.
D. The provisions of the Plan shall be governed by the laws of the State
of California without resort to that State's conflict-of-laws rules.
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<PAGE> 1
EXHIBIT 99.3
SYNOPSYS, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
(As Amended through November 5, 1997)
I. PURPOSE
The Synopsys, Inc. International Employee Stock Purchase Plan
(the "Plan") is intended to provide eligible employees of designated
subsidiaries of the Company with the opportunity to acquire a proprietary
interest in the Company through the periodic application of their payroll
deductions to the purchase of shares of the Company's common stock.
II. DEFINITIONS
For purposes of plan administration, the following terms shall
have the meanings indicated:
Base Salary means all compensation paid as wages, salaries,
commissions, overtime, and bonuses, but excluding all of the following items
(even if included in taxable income): reimbursements, car allowances or other
expense allowances, severance pay, fringe benefits (cash and noncash), moving
expenses, deferred compensation, income attributable to stock options,
restricted stock grants, SARs and other equity-related incentive programs, and
welfare benefits.
Code means the Internal Revenue Code of 1986, as amended from
time to time.
Company means Synopsys, Inc., a Delaware corporation, and any
corporate successor to all or substantially all of the assets or voting stock of
Synopsys, Inc. which shall by appropriate action adopt the Plan.
Common Stock means shares of the Company's common stock.
Corporate Affiliate means any company which is a parent or
subsidiary corporation of the Company (as determined in accordance with Code
Section 424), including any parent or subsidiary corporation which becomes such
after the Effective Date.
<PAGE> 2
Effective Date means the first day of the initial offering period
scheduled to commence on May 3, 1993. However, for any Subsidiary which becomes
a Participating Subsidiary in the Plan after the first day of the initial
offering period, a subsequent Effective Date shall be designated with respect to
participation by its Eligible Employees.
Eligible Employee means any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week and more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Subsidiary for earnings considered wages under Section 3121(a) of
the Code, but shall not include persons prohibited by the laws of the nation of
their residence or employment from participating in the Plan.
Enrollment Date has the meaning ascribed to it in Section V.A.
Participant means any Eligible Employee of a Participating
Subsidiary who is actively participating in the Plan.
Participating Subsidiary means a Subsidiary of the Company that
has been designated as a Participating Subsidiary by the Board.
Semi-Annual Entry Date means the first business day of May and
the first business day of November during each calendar year within an offering
period in effect under the Plan. The earliest Semi-Annual Entry Date under the
Plan shall be MayE3, 1993.
Semi-Annual Period of Participation means each semi-annual period
for which the Participant actually participates in an offering period in effect
under the Plan. There shall be a maximum of four (4) semi-annual periods of
participation within each offering period. Except as otherwise designated by the
Plan Administrator, each such semi-annual period shall be measured from the
applicable Semi-Annual Entry Date.
Semi-Annual Purchase Date means the last business day of April
and October each year on which shares of Common Stock are automatically
purchased for Participants under the Plan.
Subsidiary shall mean any corporation described in Section 425(e)
or (f) of the Code.
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<PAGE> 3
III. ADMINISTRATION
The Plan shall be administered by the Board of Directors or a
committee that will satisfy Rule 16b-3 of the Securities and Exchange
Commission, as in effect with respect to the Company from time to time (in
either case, the "Board"). The Board may from time to time select a committee or
persons (the "Plan Administrator") to be responsible for any transactions.
IV. OFFERING PERIODS
The Plan shall be implemented in a series of offering periods.
Each offering period shall be of a duration of twenty-four (24) months or less
as designated by the Plan Administrator prior to the start date of any offering
period. Within each offering period, there shall be a maximum of four (4)
Semi-Annual Periods of Participation.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee of a Participating Subsidiary shall be
eligible to participate in the Plan in accordance with the following provisions:
- The Board may at any time designate one or more
Subsidiaries as participating in the Plan. The names of all
Participating Subsidiaries shall be shown on Exhibit A to the
Plan, which shall be amended from time to time to reflect
additions and deletions of Participating Subsidiaries; failure to
show a Participating Subsidiary on Exhibit A shall not, however,
prevent otherwise eligible employees of that Subsidiary from
participating in the Plan. No Subsidiary participating in the
Company's Employee Stock Purchase Plan effective May 3, 1993 may
be designated for participation in the Plan.
- Each Eligible Employee will be automatically enrolled in
the Plan in the offering period that begins on the first
Semi-Annual Entry Date following the commencement of employment;
thereafter, any Eligible Employee may enroll or re-enroll in the
Plan in the offering period that begins as of any Semi-Annual
Entry Date, or such other days as may be established by the Board
from
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<PAGE> 4
time to time (each, an "Enrollment Date"). To participate, an
Eligible Employee must complete, sign, and submit to the Company
an enrollment form prescribed by the Plan Administrator. Any
enrollment form received by the Company by the 15th day of the
month preceding an Enrollment Date (or by the Enrollment Date in
the case of employees hired after such 15th day), or such other
date established by the Plan Administrator from time to time,
will be effective on that Enrollment Date. Enrollment or
re-enrollment by a Participant in the Plan on an Enrollment Date
will constitute the grant by the Company to the Participant of an
option to purchase shares of Common Stock from the Company under
the Plan. At the end of each offering period, each Participant
who has not withdrawn from the Plan will automatically be
re-enrolled in the Plan in the offering period that begins on the
Enrollment Date immediately following the date on which the
option expires. Furthermore, except as may otherwise be
determined by the Plan Administrator, each Participant who has
not withdrawn from the Plan will automatically be re-enrolled in
the Plan in each offering period that begins on an Enrollment
Date on which the fair market value per share of the Company's
Common Stock is lower than the fair market value per share of the
Company's Common Stock on the Enrollment Date for the offering
period in which the Participant is then enrolled.
- An individual who becomes an Eligible Employee
immediately following termination of such employee's
participation in the Synopsys, Inc. Employee Stock Purchase Plan
shall, for purposes of participation in the Plan, have a deemed
Enrollment Date corresponding to such employee's most recent
Enrollment Date under the Synopsys, Inc.
Employee Stock Purchase Plan.
B. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be zero percent
(0%) or any whole multiple of one percent (1%) of the Base Salary paid to the
Participant during each Semi-Annual Period of Participation within the offering
period, up to a maximum of ten percent (10%). The
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<PAGE> 5
deduction rate so authorized shall continue in effect for the entire Semi-Annual
Period of Participation and for each successive Semi-Annual Period of
Participation unless (i) the Participant shall change the rate for a subsequent
Semi-Annual Period of Participation by filing the appropriate form with the Plan
Administrator prior to the commencement of that Semi-Annual Period of
Participation or (ii) the Participant shall change the rate within a Semi-Annual
Period of Participation by filing the appropriate form with the Plan
Administrator. The new rate shall become effective as soon as practicable
following the filing of such form. A Participant may not increase or decrease
the deduction rate more than once per Semi-Annual Period of Participation in
addition to fixing the rate at the beginning of the Semi-Annual Period of
Participation. Payroll deductions, however, will automatically cease upon the
termination of the Participant's purchase right in accordance with Article VII
below.
C. In no event may any Participant's payroll deductions for any
one Semi-Annual Period of Participation exceed Seven Thousand Five Hundred
Dollars ($7,500.00) calculated on the Purchase Date following conversion of
accumulated withholdings into U.S.
Dollars.
D. It is intended that all eligible employees shall have
substantially equivalent rights and privileges with respect to the Plan;
notwithstanding any other provision of the Plan, however, the Plan Administrator
may make such changes in the terms of eligibility and participation from
Subsidiary to Subsidiary that it determines, in its discretion, to be necessary
or desirable to reflect or comply with local laws or conditions.
VI. STOCK SUBJECT TO PLAN
A. The Common Stock purchasable by Participants under the Plan
shall, solely in the discretion of the Plan Administrator, be made available
from either authorized but unissued shares of the Common Stock or from shares of
Common Stock reacquired by the Company, including shares of Common Stock
purchased on the open market. The total number of shares which may be issued
under the Plan shall not exceed 3,550,000 shares, less any shares sold under the
Synopsys, Inc. Employee Stock Purchase Plan (subject to adjustment under Section
VI.B below). Such share reserve includes the increase of 1,400,000 shares
approved by the Board in November 1997 and subject to shareholder approval in
February 1998.
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<PAGE> 6
B. In the event any change is made to the Company's outstanding
Common Stock by reason of any stock dividend, stock split, combination of shares
or other change affecting such outstanding Common Stock as a class without
receipt of consideration, then appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of shares issuable over the
term of the Plan, (ii) the class and maximum number of shares purchasable per
Participant during each Semi-Annual Period of Participation, (iii) the class and
maximum number of shares purchasable in the aggregate by all Participants on any
one purchase date under the Plan and (iv) the class and number of shares and the
price per share of the Common Stock subject to each purchase right at the time
outstanding under the Plan. Such adjustments shall be designed to preclude the
dilution or enlargement of rights and benefits under the Plan.
VII. PURCHASE RIGHTS
An Employee who participates in the Plan for a particular
offering period shall have the right to purchase shares of Common Stock, in a
series of successive semi-annual installments during such offering period, upon
the terms and conditions set forth below and shall execute such agreements and
documents embodying such terms and conditions and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem advisable.
Purchase Price. Common Stock shall be issuable on each
Semi-Annual Purchase Date at a purchase price equal to eighty-five percent (85%)
of the lower of (i) the fair market value per share on the Participant's
Enrollment Date or (ii) the fair market value per share on the Semi-Annual
Purchase Date. However, for each Participant whose Enrollment Date is other than
the start date of the offering period in effect under the Plan, the clause (i)
amount shall in no event be less than the fair market value of the Common Stock
on the start date of such offering period.
Valuation. The fair market value per share of Common Stock on any
relevant date shall be the closing selling price of the Common Stock on that
date, as officially quoted on the Nasdaq National Market System. If there is no
quoted selling price for such date, then the closing selling price on the next
preceding day for which there does exist such a quotation shall be determinative
of fair market value.
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<PAGE> 7
Number of Purchasable Shares. The number of shares purchasable
per Participant on each Semi-Annual Purchase Date shall be the number of whole
shares obtained by dividing the amount collected, after conversion into U.S.
Dollars on the Purchase Date, from the Participant through payroll deductions
during the corresponding Semi-Annual Period of Participation by the purchase
price in effect for the Semi-Annual Purchase Date. However, no Participant may,
during any one Semi-Annual Purchase Period, purchase more than 2,000 shares of
Common Stock, subject to periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or any of its Corporate Affiliates.
Payment; Withholding. Payment for the Common Stock purchased
under the Plan shall be effected by means of the Participant's authorized
payroll deductions. Such deductions shall begin on the first pay day coincident
with or immediately following the Participant's Enrollment Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of the
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan in local currency, but no interest shall be paid on
the balance from time to time outstanding in such account. The amounts collected
from a Participant may be commingled with the general assets of the Company
and/or any Participating Subsidiary and may be used for general corporate
purposes. Upon disposition of shares acquired by exercise of purchase right, the
Participant shall pay, or make provision adequate to the Company and the
Participating Subsidiary for payment of, all federal, state, and other tax (and
similar) withholdings that the Company or the Participating Subsidiary
determines, in its discretion, are required due to the disposition, including
any such withholding that the Company or the Participating Subsidiary
determines, in its discretion, is necessary to allow the Company or the
Participating Subsidiary to claim tax deductions or other benefits in connection
with the disposition. A Participant shall make such similar provisions for
payment that the Company or the Participating Subsidiary determines, in its
discretion, are
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<PAGE> 8
required due to the exercise of purchase right, including such provisions as are
necessary to allow the Company or the Participating Subsidiary to claim tax
deductions or other benefits in connection with the exercise of purchase right.
Termination of Purchase Right. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the
last five (5) business days of the Semi-Annual Period of
Participation, terminate his/her outstanding purchase right under
the Plan by filing the prescribed notification form with the Plan
Administrator. No further payroll deductions shall be collected
from the Participant with respect to the terminated purchase
right, and any payroll deductions collected for the Semi-Annual
Period of Participation in which such termination occurs shall,
at the Participant's election, be immediately refunded or held
for the purchase of shares on the next Semi-Annual Purchase Date.
If no such election is made, then such funds shall be refunded as
soon as possible after the close of such Semi-Annual Period of
Participation.
(ii) The termination of such purchase right shall
be irrevocable, and the Participant may not subsequently rejoin
the offering period for which such terminated purchase right was
granted. In order to resume participation in any subsequent
offering period, such individual must enroll in the Plan in
accordance with Section V.A.
(iii) Should a Participant cease to remain an
Eligible Employee while his/her purchase right remains
outstanding or should there otherwise occur a change in such
individual's employee status so that he/she is no longer an
Eligible Employee while holding such purchase right, then such
purchase right shall immediately terminate upon such termination
of service or change in status and all sums previously collected
from the Participant during the Semi-Annual Period of
Participation in which the purchase right so
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<PAGE> 9
terminates shall be promptly refunded to the Participant.
However, should the Participant die or become permanently
disabled while in service or should the Participant cease
employment by reason of a leave of absence, then the Participant
(or the person or persons to whom the rights of the deceased
Participant under the Plan are transferred by will or the laws of
inheritance) shall have the election, exercisable up until the
end of the Semi-Annual Period of Participation in which the
Participant dies or becomes permanently disabled or in which the
leave of absence commences, to (i) withdraw all the funds
credited to the Participant's account at the time of his/her
cessation of service or at the commencement of such leave or (ii)
have such funds held for the purchase of shares of Common Stock
at the next Semi-Annual Purchase Date. If no such election is
made, then such funds shall automatically be held for the
purchase of shares of Common Stock at the next Semi-Annual
Purchase Date. In no event, however, shall any further payroll
deductions be added to the Participant's account following
his/her cessation of service or the commencement of such leave;
provided, however, that if a Participant's employment is
terminated because of a transfer of employment to the Company or
any subsidiary of the Company other than a Participating
Subsidiary, any outstanding purchase right shall not terminate
until the occurrence of the earlier of (x) the last Semi-Annual
Purchase Date in the offering period or (y) enrollment of the
Participant in the Company's Employee Stock Purchase Plan. While
a purchase right remains outstanding, the Company or other
subsidiary to which the participant is transferred shall effect
payroll deductions authorized by the Participant and shall remit
them to the Participating Subsidiary that employed the
Participant at the time of the transfer for purposes of acquiring
shares of Common Stock under the Plan. Following approval by the
Company and the Participating Subsidiary, the Participant may, in
lieu of payroll deduction, pay a corresponding amount to the
Participating Subsidiary if such amount is received on or before
the relevant Purchase Date.
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Should the Participant return to active service following a leave
of absence, then his/her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave
began, provided such return to service occurs prior to the end of
the offering period in which such leave began. For purpose of the
Plan: (i) the Participant shall be considered to remain in
service for so long as such Participant remains in the active
employ of the Company or one or more other Participating
Subsidiaries and (ii) the Participant shall be deemed to be
permanently disabled if he/she is unable to engage in any
substantial gainful employment, by reason of any medically
determinable physical or mental impairment expected to result in
death or to be of continuous duration of at least twelve (12)
months.
Stock Purchase. Shares of Common Stock shall automatically be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded or set aside for refund in accordance
with the Termination of Purchase Right provisions above) on each Semi-Annual
Purchase Date. The purchase shall be effected by applying each Participant's
payroll deductions after conversion to U.S. Dollars for the Semi-Annual Period
of Participation ending on such semiannual Purchase Date (together with any
carryover deductions from the preceding Semi-Annual Period of Participation) to
the purchase of whole shares of Common Stock (subject to the limitation on the
maximum number of purchasable shares as set forth above) at the purchase price
in effect for such Semi-Annual Period of Participation. Any payroll deductions
not applied to such purchase because they are not sufficient to purchase a whole
share shall be held in local currency for the purchase of Common Stock in the
next Semi-Annual Period of Participation. However, any payroll deductions not
applied to the purchase of Common Stock by reason of the limitation on the
maximum number of shares purchasable by the Participant for that Semi-Annual
Period of Participation shall be promptly refunded to the Participant.
Proration of Purchase Rights. Not more than 500,000 shares of
Common Stock, subject to periodic adjustment under Section VI.B, may be
purchased in the aggregate by all
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participants under the Plan and under the Synopsys, Inc. Employee Stock Purchase
Plan on any one Semi-Annual Purchase Date. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed either (i) the maximum limitation on the number of
shares purchasable in the aggregate on such date or (ii) the number of shares
then available for issuance under the Plan and the Synopsys, Inc. Employee Stock
Purchase Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and non-discriminatory basis (including, to the
extent practicable vis a vis participants in the Synopsys, Inc. Employee Stock
Purchase Plan) and the payroll deductions for each Participant, to the extent in
excess of the aggregate purchase price payable for the Common Stock pro-rated to
such individual, shall be refunded to such Participant.
Rights as Stockholder. A Participant shall have no stockholder
rights with respect to the shares subject to his/her outstanding purchase right
until the shares are actually purchased on the Participant's behalf in
accordance; with the applicable provisions of the Plan. No adjustments shall be
made for dividends, distributions, or other rights for which the record date is
prior to the date of such purchase.
Assignability. No purchase right granted under the Plan shall be
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only by the
Participant.
Change in Ownership. Should the Company or its stockholders enter
into an agreement to dispose of all or substantially all of the assets or
outstanding capital stock of the Company by means of:
(i) a sale, merger or other reorganization in which
the Company will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which
the Company is incorporated), or
(ii) a reverse merger in which the Company is the
surviving corporation but in which more than fifty percent (50%)
of the Company's outstanding voting stock is transferred to
holders
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different from those who held the stock immediately prior to the
reverse merger,
then all outstanding purchase rights under the Plan shall
automatically be exercised immediately prior to the consummation of such sale,
merger, reorganization or reverse merger by applying the payroll deductions of
each Participant, after conversion into U.S. Dollars on the date of purchase,
for the Semi-Annual Period of Participation in which such transaction occurs to
the purchase of whole shares of Common Stock at eighty-five percent (85%) of the
lower of (i) the fair market value of the Common Stock on the Participant's
Enrollment Date into the offering period in which such transaction occurs or
(ii) the fair market value of the Common Stock immediately prior to the
consummation of such transaction. However, the applicable share limitations of
Sections VII and VIII shall continue to apply to any such purchase, and the
clause (i) amount above shall not, for any Participant whose Enrollment Date for
the offering period is other than the start date of such offering period, be
less than the fair market value of the Common Stock on such start date.
The Company shall use its best efforts to provide at least ten
(10) days' advance written notice of the occurrence of any such sale, merger,
reorganization or reverse merger, and Participants shall, following the receipt
of such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.
VIII.ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Section 423 of the Code) of the Company and its Corporate
Affiliates would otherwise permit such Participant to purchase more than $25,000
worth of stock of the Company or any Corporate Affiliate (determined on the
basis of the fair market value of such stock on the date or dates such rights
are granted to the Participant) for each calendar year such rights are at any
time outstanding.
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B. For purposes of applying such accrual limitations, the right
to acquire Common Stock pursuant to each purchase right outstanding under the
Plan shall accrue as follows:
(i) The right to acquire Common Stock under each
such purchase right shall accrue in a series of successive
semi-annual installments as and when the purchase right first
becomes exercisable for each semi-annual installment on the last
business day of each Semi-Annual Period of Participation for
which the right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the
Participant has already accrued in the same calendar year the
right to acquire $25,000 worth of Common Stock (determined on the
basis of the fair market value on the date or dates of grant)
pursuant to one or more purchase rights held by the Participant
during such calendar year.
(iii) If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular
Semi-Annual Period of Participation, then the payroll deductions
which the Participant made during that Semi-Annual Period of
Participation with respect to such purchase right shall be
promptly refunded.
C. In the event there is any conflict between the provisions of
this Section VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Section VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
A. The Board may amend, alter, suspend, discontinue, or terminate
the Plan at any time, including amendments to outstanding options/purchase
rights. However, the Board may not, without the approval of the Company's
stockholders:
(i) increase the number of shares issuable under
the Plan or the maximum number of shares which may be purchased
per Participant or
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in the aggregate during any one Semi-Annual Period of
Participation under the Plan, except that the Plan Administrator
shall have the authority, exercisable without such stockholder
approval, to effect adjustments to the extent necessary to
reflect changes in the Company's capital structure pursuant to
Section VI.B;
(ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares issuable under
the Plan; or
(iii) materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements
for eligibility to participate in the Plan.
B. The Board may elect to terminate any or all outstanding
purchase rights at any time. In the event the Plan is terminated, the Board may
also elect to terminate outstanding purchase rights either immediately or upon
completion of the purchase of shares on the next Semi-Annual Purchase Date, or
may elect to permit purchase rights to expire in accordance with their terms
(and participation to continue through such expiration dates). If purchase
rights are terminated prior to expiration, all funds contributed to the Plan
that have not been used to purchase shares shall be returned to the Participants
as soon as administratively feasible.
X. GENERAL PROVISIONS
A. The Plan shall become effective on the date on which it is
adopted by the Board, provided the Company has complied with all applicable
requirements established by law or regulation.
B. All costs and expenses incurred in the administration of the
Plan shall be paid by the Company.
C. Neither the action of the Company in establishing the Plan,
nor any action taken under the Plan by the Board or the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any person
the right to remain in the employ of the Company or any of its Corporate
Affiliates for any period of specific
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duration, and such person's employment may be terminated at any time, with or
without cause.
D. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
E. If the Plan Administrator in its discretion so elects, it may
retain a brokerage firm, bank, or other financial institution to assist in the
purchase of shares, delivery of reports, or other administrative aspects of the
Plan. If the Plan Administrator so elects, each Participant shall (unless
prohibited by the laws of the nation of his or her employment or residence) be
deemed upon enrollment in the Plan to have authorized the establishment of an
account on his or her behalf at such institution. Shares purchased by a
Participant under the Plan shall be held in the account in the name in which the
share certificate would otherwise be issued pursuant to Section VII.
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Schedule A
Companies Participating in
International Employee Stock Purchase
Plan As of the Effective Date
German Subsidiary: Synopsys GmbH
French Subsidiary: Synopsys SARL
UK Subsidiary: Synopsys (Northern Europe) Limited
Japan Subsidiary: Nihon Synopsys K.K.
Korea Subsidiary: Synopsys Korea, Inc.
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EXHIBIT 99.5
SYNOPSYS, INC.
1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(REFLECTING AMENDMENTS THROUGH NOVEMBER 4, 1997)
I. PURPOSE OF THE PLAN
This 1994 Non-Employee Directors Stock Option Plan (the "Plan") is
intended to promote the interests of Synopsys, Inc., a Delaware corporation (the
"Corporation"), by providing the non-employee members of the Board of Directors
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
II. DEFINITIONS
For purposes of the Plan, the following definitions shall be in
effect:
ANNUAL MEETING: the annual meeting of the Corporation's
stockholders.
BOARD: the Corporation's Board of Directors.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock.
CHANGE IN CONTROL: a change in ownership or control of the
Corporation effected through either of the following transactions:
a. any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation) directly
or indirectly acquires beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934, as amended) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the
Board does not recommend such stockholders to accept; or
b. there is a change in the composition of the Board over a
period of twenty-four (24) consecutive months or less such that a majority
of the Board members ceases, by reason of one or more contested elections
for Board
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membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (A) who were
still in office at the time such election or nomination was approved by
the Board.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which the Corporation is
not the surviving entity, except for a transaction the principal purpose
of which is to change the State of the Corporation's incorporation,
b. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
c. any reverse merger in which the Corporation is the
surviving entity but in which securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to holders different from those who
held such securities immediately prior to such merger.
EFFECTIVE DATE: October 27, 1994, the date on which the Plan was
adopted by the Board.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
a. If the Common Stock is not at the time listed or
admitted to trading on any national securities exchange but is traded on
the Nasdaq National Market, the Fair Market Value shall be the closing
selling price per share on the date in question, as such price is reported
by the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no reported closing selling
price for the Common Stock on the date in question, then the closing
selling price on the last preceding date for which such quotation exists
shall be determinative of Fair Market Value.
b. If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair Market Value
shall be the closing selling price per share on the date in question on
the exchange serving as the primary market for the Common Stock, as such
price is officially quoted in
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<PAGE> 3
the composite tape of transactions on such exchange. If there is no
reported sale of Common Stock on such exchange on the date in question,
then the Fair Market Value shall be the closing selling price on the
exchange on the last preceding date for which such quotation exists.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
a. any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation) directly
or indirectly acquires beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934, as amended) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the
Board does not recommend such stockholders to accept, and
b. more than fifty percent (50%) of the securities so
acquired in such tender or exchange offer are accepted from holders other
than the officers and directors of the Corporation subject to the
short-swing profit restrictions of Section 16 of the 1934 Act.
1934 ACT: the Securities Exchange Act of 1934, as amended.
OPTIONEE: any person to whom an option is granted under the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
TAKE-OVER PRICE: the greater of (a) the Fair Market Value per share
of Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (b) the highest reported price per share
of Common Stock paid by the tender offeror in effecting such Hostile Take-Over.
III. ADMINISTRATION OF THE PLAN
The terms and conditions of each automatic option grant (including
the timing and pricing of the option grant) shall be determined by the express
terms and conditions of the Plan,
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and neither the Board nor any committee of the Board shall exercise any
discretionary functions with respect to option grants made pursuant to the Plan.
IV. STOCK SUBJECT TO THE PLAN
A. Shares of the Corporation's Common Stock shall be available
for issuance under the Plan and shall be drawn from either the Corporation's
authorized but unissued shares of Common Stock or from reacquired shares of
Common Stock, including shares repurchased by the Corporation on the open
market. The number of shares of Common Stock reserved for issuance over the term
of the Plan shall initially be fixed at 100,000 shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of each
calendar year during the term of the Plan, beginning with the 1996 calendar
year, by an additional 25,000 shares (taking into account all stock splits as of
November 5, 1997).
C. Should one or more outstanding options under this Plan expire
or terminate for any reason prior to exercise in full, then the shares subject
to the portion of each option not so exercised shall be available for subsequent
option grant under the Plan. Shares subject to any option or portion thereof
surrendered in accordance with Article VII and all share issuances under the
Plan, whether or not the shares are subsequently repurchased by the Corporation
pursuant to its repurchase rights under the Plan, shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent option grant under the Plan. In addition, should the exercise price
of an outstanding option under the Plan be paid with shares of Common Stock,
then the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is
exercised, and not by the net number of shares of Common Stock actually issued
to the holder of such option.
D. Should any change be made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan, (ii) the number
and/or class of securities by which the share reserve is to increase
automatically each calendar year, (iii) the number and/or class of securities
for which automatic option grants are to be subsequently made to each
newly-elected or continuing non-employee Board member under the Plan, and (iv)
the number and/or class of securities and price per share in effect under each
option outstanding under the Plan. The adjustments to the outstanding options
shall be made by the Board in a manner which shall preclude the enlargement or
dilution of rights and benefits under such options and shall be final, binding
and conclusive.
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<PAGE> 5
V. ELIGIBILITY
A. Eligible Optionees. The individuals eligible to receive
automatic option grants pursuant to the provisions of this Plan shall be limited
to (i) those individuals serving as non-employee Board members on the Effective
Date who have indicated their intention to stand for re-election to the Board at
the 1995 Annual Meeting and who have not otherwise previously received a stock
option grant from the Corporation, (ii) those individuals who are first elected
or appointed as non-employee Board members after the Effective Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (iii) those individuals who are re-elected as non-employee Board members at
one or more Annual Meetings held after the Effective Date. A non-employee Board
member shall not be eligible to receive the initial automatic option grant under
clause (i) or clause (ii) if such individual has previously been in the employ
of the Corporation (or any parent or subsidiary). However, a non-employee Board
member shall be eligible to receive one or more clause (iii) option grants,
whether or not he or she has previously been in the employ of the Corporation
(or any parent or subsidiary). Each non-employee Board member eligible to
participate in the Plan pursuant to the foregoing criteria is hereby designated
an Eligible Director.
B. Limitation. Except for the grants to be made pursuant to this
Plan, non-employee Board members shall not be eligible to receive any stock
options, stock appreciation rights, direct stock issuances or other stock awards
under this Plan or any other stock plan of the Corporation or any parent or
subsidiary.
VI. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Date. Option grants shall be made on the dates specified
below:
- Each individual serving as an Eligible Director on the
Effective Date who has indicated his or her intention to stand for
re-election to the Board at the 1995 Annual Meeting and who has not
otherwise previously received a stock option grant from the Corporation
year shall automatically be granted at that time a non-statutory stock
option to purchase 20,000 shares of Common Stock.
- Each individual who first becomes an Eligible Director after
the Effective Date, whether through election by the Corporation's
stockholders or appointment by the Board, shall automatically be granted,
at the time of such initial election or appointment, a non-statutory
option to purchase 20,000 shares of Common Stock.
- On the date of each Annual Meeting each Eligible Director who
is re-elected to the Board at that Annual Meeting shall automatically be
granted a
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<PAGE> 6
non-statutory option to purchase an additional 10,000 shares of Common
Stock. On the date on which an individual first becomes an Eligible
Director by election or appointment by the Board, such Eligible Director
shall automatically be granted, at the time of such appointment, a
non-statutory option to purchase 10,000 shares of Common Stock reduced in
the care of Eligible Directors appointed to the Board, by one twelfth for
each whole month that has elapsed since the most recent Annual Meeting.
There shall be no limit on the number of such annual 10,000-share option
grants any one Eligible Director may receive over his or her period of
continued Board service.
- Each Eligible Director who serves on the Audit Committee,
Compensation (or comparable) Committee or other eligible committee as
determined by the Board (each such committee a "grant-eligible committee")
shall automatically be granted a non-statutory option to purchase 5,000
shares of Common Stock for service on such a grant-eligible committee (a
"Committee-Service Option Grant"). Such grants shall be awarded on the date
of each Annual Meeting to Eligible Directors serving on such committees as
of such date and re-elected to the Board at such Annual Meeting, and
otherwise upon appointment to a grant-eligible committee. The number of
option shares granted to Eligible Directors who are appointed to a
grant-eligible committee between Annual Meetings shall be reduced by one
twelfth for each whole month that has elapsed from the Annual Meeting until
the date of appointment, except with respect to Eligible Directors who are
first elected to the Board at the Annual Meeting and elected to serve on a
grant-eligible committee at the first meeting of the Board following the
Annual Meeting. There shall be no limit on the number of such annual
5,000-share committee-service option grants any one Eligible Director may
receive over his or her period of continued Board service.
B. Exercise Price. The exercise price per share of Common Stock
subject to each automatic option grant shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the automatic grant
date.
C. Payment.
The exercise price shall become immediately due upon exercise of the
option and shall be payable in one of the alternative forms specified below:
(i) full payment in cash or check made payable to the
Corporation's order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial-reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below); or
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(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial-reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check payable to the
Corporation's order; or
(iv) to the extent the option is exercised for vested shares,
full payment through a broker-dealer sale and remittance procedure
pursuant to which the non-employee Board member (I) shall provide
irrevocable written instructions to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares and (II) shall concurrently provide written directives to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
For purposes of this Section VI.C, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the
Corporation. Except to the extent the sale and remittance procedure specified
above is utilized in connection with the exercise of the option for vested
shares, payment of the exercise price for the purchased shares must accompany
the exercise notice. However, if the option is exercised for any unvested
shares, then the Optionee must also execute and deliver to the Corporation a
stock purchase agreement for those unvested shares which provides the
Corporation with the right to repurchase, at the exercise price paid per share,
any unvested shares held by the Optionee at the time of his or her cessation of
Board service and which precludes the sale, transfer or other disposition of any
shares purchased under the option, to the extent those shares are at the time
subject to the Corporation's repurchase right.
D. Exercisability/Vesting. Each automatic grant shall be
immediately exercisable for any or all of the option shares. Any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares in accordance with the applicable
schedule below.
- The initial automatic grant for 20,000 shares made to each
Eligible Director shall vest, and the Corporation's repurchase right shall
lapse, in a series of four (4) successive equal installments as such
individual continues in Board service through the date immediately
preceding each of the first four (4) Annual Meetings following the grant
date of that option.
- Each annual 10,000-share automatic grant made to an Eligible
Director (and each prorated grant issued pursuant to the third paragraph
of Section
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<PAGE> 8
VI.A.) shall vest in full, and the Corporation's repurchase right shall
lapse in its entirety, on the date immediately prior to the Annual Meeting
following the grant date of that option, provided the Optionee continues
in Board service and remains a member of the committee with respect to
which the grant was awarded through that vesting date.
- Each 5,000-share automatic committee-service option grant made
to an Eligible Director shall vest in full, and the Corporation's
repurchase right shall lapse in its entirety, on the date immediately prior
to the Annual Meeting following the grant date of that option, provided the
Optionee continues in Board service and remains a member of the committee
with respect to which the grant was awarded through that vesting date.
Vesting of the option shares shall be subject to acceleration as
provided in Section VI.G and Article VII. In no event, however, shall any
additional option shares vest after the Optionee's cessation of Board service.
E. Option Term. Each automatic grant under the Plan shall have a
maximum term of ten (10) years measured from the automatic grant date.
F. Non-Transferability. During the lifetime of the Optionee, each
automatic option grant, together with the limited stock appreciation right
pertaining to such option, shall be exercisable only by the Optionee and shall
not be assignable or transferable by the Optionee other than a transfer of the
option effected by will or by the laws of descent and distribution following
Optionee's death.
G. Effect of Termination of Board Service.
1. Should the Optionee cease to serve as a Board member for
any reason (other than death or Permanent Disability) while holding one or more
automatic option grants under the Plan, then such individual shall have a six
(6)-month period following the date of such cessation of Board service in which
to exercise each such option for any or all of the option shares in which the
Optionee is vested at the time of his or her cessation of Board service. Each
such option shall immediately terminate and cease to be outstanding, at the time
of such cessation of Board service, with respect to any option shares in which
the Optionee is not otherwise at that time vested.
2. Should the Optionee die within six (6) months after
cessation of Board service, then any automatic option grant held by the Optionee
at the time of death may subsequently be exercised, for any or all of the option
shares in which the Optionee is vested at the time of his or her cessation of
Board service (less any option shares subsequently purchased by the Optionee
prior to death), by the
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<PAGE> 9
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. The right to exercise each such
option shall lapse upon the expiration of the twelve (12)-month period measured
from the date of the Optionee's death.
3. Should the Optionee die or become Permanently Disabled
while serving as a Board member, then any automatic option grant held by the
Optionee at the time of his or her death or Permanent Disability may
subsequently be exercised for any or all of the option shares in which the
Optionee is vested at that time plus an additional number of option shares equal
to the number of option shares (if any) in which the Optionee would have vested
had he or she continued in Board service until the next Annual Meeting. The
Optionee (or the personal representative of the Optionee's estate or the person
or persons to whom the option is transferred upon the Optionee's death) shall
have the right to exercise the option for such number of option shares at any
time prior to the expiration of the twelve (12)-month period measured from the
date of the Optionee's death or Permanent Disability.
4. In no event shall any automatic grant under this Plan
remain exercisable after the expiration date of the maximum ten (10)-year option
term. Upon the expiration of the applicable post-service exercise period under
subparagraphs 1 through 3 above or (if earlier) upon the expiration of the
maximum ten (10)-year option term, the automatic grant shall terminate and cease
to be outstanding for any option shares in which the Optionee was vested at the
time of his or her cessation of Board service but for which such option was not
otherwise exercised.
H. Stockholder Rights. The holder of an automatic option grant
shall have none of the rights of a stockholder with respect to any shares
subject to such option until such individual shall have exercised the option and
paid the exercise price for the purchased shares.
I. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the form Stock Option Agreement
attached as Exhibit A.
VII. SPECIAL ACCELERATION EVENTS
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock. Immediately following the
consummation of the Corporate Transaction, each automatic option grant under the
Plan shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation or its parent company.
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B. In connection with any Change in Control of the Corporation,
the shares of Common Stock at the time subject to each outstanding option but
not otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the specified effective date for the Change in
Control, become fully exercisable for all of the shares of Common Stock at the
time subject to that option and may be exercised for all or any portion of such
shares as fully-vested shares of Common Stock. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or sooner
termination of the option term or the cash-out of the option in accordance with
Section VII.C.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option grant held by him or her for a period of at least six (6)
months. The Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the surrendered option (whether or
not the Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board shall be required in connection
with such option surrender and cash distribution.
D. The shares of Common Stock subject to each option surrendered
in connection with the Hostile Take-Over shall NOT be available for subsequent
option grant under this Plan.
E. The automatic option grants outstanding under the Plan shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
VIII. AMENDMENT OF THE PLAN AND AWARDS
The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, (i) the Plan, together with the option grants outstanding under the
Plan, may not be amended at intervals more frequently than once every six (6)
months, other than to the extent necessary to comply with applicable Federal
income tax laws and regulations, and (ii) no such amendment or modification
shall adversely affect rights and obligations with respect to options at the
time outstanding under the Plan, unless the affected Optionees consent to such
amendment. In addition, the Board may not, without the approval of the
Corporation's stockholders, amend the Plan to (i) materially increase the
maximum number of shares issuable under the Plan or the number of shares
issuable per newly-elected or continuing Eligible Director, except for
permissible adjustments under Section IV.B., (ii) materially modify the
eligibility requirements for participation in the Plan or (iii) materially
increase the benefits accruing to participants in the Plan.
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IX. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective immediately upon adoption by the
Board on the Effective Date, and one or more automatic option grants may be made
under the Plan at any time on or after such Effective Date. However, no options
granted under the Plan shall become exercisable in whole or in part prior to
approval of the Plan by the Corporation's stockholders at the 1995 Annual
Meeting. If such approval is not obtained, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
option grants shall be made under the Plan.
B. The Plan shall terminate upon the earlier of (i) October 26,
2004 or (ii) the date on which all shares available for issuance under the Plan
shall have been issued or canceled pursuant to the exercise or cash-out of the
options granted under the Plan. If the date of termination is determined under
clause (i) above, then all option grants and unvested stock issuances
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the agreements evidencing those option grants
or stock issuances.
X. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants or share issuances under the Plan shall be used
for general corporate purposes.
XI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
under the Plan and the issuance of Common Stock upon the exercise of the option
grants made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which the Common Stock is then listed for trading.
XII. NO IMPAIRMENT OF RIGHTS
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Neither the action of the Corporation in establishing the Plan nor
any provision of the Plan shall be construed or interpreted so as to affect
adversely or otherwise impair the right of the Corporation or the stockholders
to remove any individual from the Board at any time in accordance with the
provisions of applicable law.
XIII. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any Optionee.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and
be binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Optionees, the legal representatives
of their respective estates, their respective heirs or legatees and their
permitted assignees.
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