<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SYNOPSYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 56-1546236
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
(415) 962-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
AART J. DE GEUS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SYNOPSYS, INC.
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 95043-4033
(415) 962-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
GREGORY M. GALLO, ESQ. PAUL LIPPE ROBERT P. LATTA, ESQ.
BRUCE E. SCHAEFFER, ESQ. SENIOR VICE PRESIDENT, CHRIS F. FENNELL, ESQ.
ROD J. HOWARD, ESQ. BUSINESS DEVELOPMENT WILSON SONSINI GOODRICH
GRAY CARY WARE & FREIDENRICH AND LEGAL, SECRETARY & ROSATI
A PROFESSIONAL CORPORATION SYNOPSYS, INC. PROFESSIONAL CORPORATION
400 HAMILTON AVENUE 700 EAST MIDDLEFIELD ROAD 650 PAGE MILL ROAD
PALO ALTO, CA 94301 MOUNTAIN VIEW, CA 94043-4033 PALO ALTO, CA 94304-1050
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share................................. 12,148,677 $31.50 $382,683,326 $115,964
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon an estimate of the maximum number of shares of the Common Stock
of the Registrant, $.01 par value per share, issuable in the merger
described herein.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) under the Securities Act of 1933 as amended (the
"Securities Act") and based upon prices on The Nasdaq National Market on
February 3, 1997 of EPIC Design Technology, Inc. shares to be exchanged for
shares of the Common Stock of the Registrant.
(3) A fee of $63,223 was previously paid by the Registrant pursuant to Rule
14a-6 promulgated under the Securities Exchange Act of 1934, as amended, in
connection with the filing of the preliminary Joint Proxy
Statement/Prospectus on January 27, 1997. Pursuant to Rule 457(b) under the
Securities Act, such fee is being credited against the registration fee, and
accordingly, an additional $52,741 is being paid in connection with the
Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SYNOPSYS, INC.
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
February 7, 1997
Dear Stockholder:
As most of you are aware, Synopsys, Inc. ("Synopsys") has agreed to a
business combination with EPIC Design Technology, Inc. ("EPIC"), in which EPIC
will become a subsidiary of Synopsys (the "Merger") and EPIC shareholders will
become stockholders of Synopsys. The completion of the Merger is subject to a
number of conditions, including the approval by Synopsys stockholders of the
issuance of Synopsys Common Stock in connection with the Merger. To this end,
you are cordially invited to attend a Special Meeting of Stockholders of
Synopsys to be held on Friday, February 28, 1997, commencing at 9:00 a.m. local
time, at Synopsys' principal executive offices at 700 East Middlefield Road,
Mountain View, California 94043. At this meeting you will be asked to approve
the issuance of Synopsys Common Stock in connection with the Merger.
The issuance of Synopsys Common Stock in connection with the Merger will
require the affirmative vote of the holders of a majority of the shares of
Synopsys Common Stock present in person or represented at the Special Meeting.
Holders of record of Synopsys Common Stock at the close of business on January
31, 1997 are entitled to notice of, and to vote at, the Special Meeting.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE ISSUANCE OF SHARES OF SYNOPSYS COMMON STOCK IN CONNECTION WITH THE MERGER
AND BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, SYNOPSYS
AND ITS STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE ISSUANCE OF SYNOPSYS COMMON STOCK IN CONNECTION WITH THE MERGER.
The Merger represents a significant strategic move for Synopsys. EPIC is a
premier supplier of deep submicron analysis, verification and reliability tools.
Synopsys' customers have continually asked us to provide methodology and
products to offer a more complete design flow for integrated circuits, from high
level design to the implementation of such design in silicon. We believe that
EPIC's knowledge of and strong presence in the market for physical design tools
will enable Synopsys to bring more innovative solutions to our customers.
Details of the proposed Merger and other important information concerning
Synopsys and EPIC appear in the accompanying Joint Proxy Statement/Prospectus.
Please read this material carefully before you vote.
After reading the Joint Proxy Statement/Prospectus, please promptly mark,
sign and return the enclosed proxy card in the prepaid envelope to assure that
your shares will be represented. Your shares cannot be voted unless you date,
sign and return the enclosed proxy card or attend the Special Meeting in person.
Regardless of the number of shares you own, your careful consideration of,
and vote on, the issuance of shares of Synopsys Common Stock in connection with
the Merger and related matters is important. Your prompt attention to this
matter is appreciated.
Very truly yours,
HARVEY C. JONES, JR.
Chairman of the Board of Directors
<PAGE> 3
SYNOPSYS, INC.
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043-4033
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 28, 1997
To the Stockholders of Synopsys, Inc.:
PLEASE TAKE NOTICE that a Special Meeting of Stockholders (the "Synopsys
Special Meeting") of Synopsys, Inc., a Delaware corporation ("Synopsys"), will
be held on Friday, February 28, 1997 at Synopsys' principal executive offices at
700 East Middlefield Road, Mountain View, California 94043, commencing at 9:00
a.m., local time, for the following purposes:
1. To approve the issuance of shares of Common Stock, par value $.01
per share, of Synopsys ("Synopsys Common Stock"), pursuant to the Agreement
and Plan of Merger, dated as of January 16, 1997, by and among Synopsys,
EPIC Merger Co., Inc., a Delaware corporation and a wholly-owned subsidiary
of Synopsys ("Sub"), and EPIC Design Technology, Inc., a California
corporation ("EPIC"), pursuant to which, among other things (a) Sub will be
merged with and into EPIC, which will be the surviving corporation, and
EPIC will become a wholly-owned subsidiary of Synopsys (the "Merger"), and
(b) each outstanding share of Common Stock, no par value per share, of EPIC
("EPIC Common Stock") will be converted into the right to receive 0.7485 of
a share of Synopsys Common Stock.
2. To transact such other matters as may properly come before the
Synopsys Special Meeting, including any motion to adjourn to a later date
to permit further solicitation of proxies if necessary, or any
postponements or adjournments thereof.
The accompanying Joint Proxy Statement/Prospectus contains further
information with respect to these matters.
Stockholders of record at the close of business on January 31, 1997 are
entitled to notice of, and to vote at, the Synopsys Special Meeting and any
adjournment or postponement thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign and return the enclosed proxy card as promptly as possible in the
enclosed postage-prepaid envelope.
By Order of the Board of Directors
HARVEY C. JONES, JR.
Chairman of the Board of Directors
Mountain View, California
February 7, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
<PAGE> 4
EPIC DESIGN TECHNOLOGY, INC.
310 NORTH MARY AVENUE
SUNNYVALE, CALIFORNIA 94086
FEBRUARY 7, 1997
Dear Shareholder:
A Special Meeting of the Shareholders (the "EPIC Special Meeting") of EPIC
Design Technology, Inc., a California corporation ("EPIC"), will be held at 9:00
a.m., local time, on February 28, 1997, at the offices of EPIC located at 310
North Mary Avenue, Sunnyvale, California 94086.
At the EPIC Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
January 16, 1997 (the "Merger Agreement"), by and among EPIC, Synopsys, Inc.
("Synopsys"), and EPIC Merger Co., Inc. ("Sub"), and the transactions
contemplated thereunder, including a merger pursuant to which Sub will be merged
with and into EPIC (the "Merger"), whereby, among other things, EPIC will
survive the Merger and become a wholly-owned subsidiary of Synopsys.
In connection with the Merger, each share of EPIC common stock, no par
value ("EPIC Common Stock"), issued and outstanding as of the time the Merger
becomes effective, which will occur upon the filing of required documentation
with the California Secretary of State (the "Effective Time"), will be converted
into 0.7485 shares (the "Exchange Ratio") of Synopsys common stock, par value
$.01 per share ("Synopsys Common Stock"). Based upon the number of shares of
Synopsys Common Stock and EPIC Common Stock outstanding at January 31, 1997, an
aggregate of approximately 10,325,691 shares of Synopsys Common Stock would be
issued in connection with the Merger, representing approximately 20.2% of the
total number of shares of Synopsys Common Stock outstanding after giving effect
to such issuance. In addition, at the Effective Time, each outstanding option to
purchase shares of EPIC Common Stock (an "EPIC Option"), will be assumed by
Synopsys and become an option to acquire, on substantially the same terms and
conditions as were applicable under such EPIC Option, the number of whole shares
of Synopsys Common Stock (rounded down to the nearest whole number) that the
holder of such EPIC Option would have been entitled to receive pursuant to the
Merger had such holder exercised such EPIC Option in full, including as to
unvested shares, immediately prior to the Effective Time (the "Synopsys
Option"). The exercise price per share (rounded up to the nearest whole cent) of
the Synopsys Option will equal (i) the aggregate exercise price for the shares
of EPIC Common Stock otherwise purchasable pursuant to the EPIC Option divided
by (ii) the number of whole shares of Synopsys Common Stock purchasable pursuant
to the Synopsys Option. Based upon the number of EPIC Options outstanding at
January 31, 1997, approximately 1,583,581 additional shares of Synopsys Common
Stock would be reserved for issuance to holders of EPIC Options in connection
with Synopsys' assumption of such options.
Both Synopsys stockholders and EPIC shareholders must vote on the
transactions contemplated by the Merger Agreement. The holders of the Synopsys
Common Stock must vote, pursuant to the rules of The Nasdaq National Market, on
the issuance of shares of Synopsys Common Stock in connection with the Merger.
The EPIC shareholders must approve the Merger Agreement. Synopsys' stockholders
will consider the issuance of shares pursuant to the Merger at a separate
meeting to be held on February 28, 1997.
THE EPIC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND THE MERGER AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO,
AND THAT THE MERGER IS IN THE BEST INTERESTS OF, EPIC AND ITS SHAREHOLDERS AND,
THEREFORE, UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF EPIC COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
At a meeting of the EPIC Board of Directors on January 16, 1997, Morgan
Stanley & Co. Incorporated, EPIC's financial advisor, rendered its oral opinion,
subsequently confirmed in writing, that as of such date, based upon and subject
to the various considerations set forth in the opinion, the Exchange Ratio
pursuant to the Merger Agreement was fair from a financial point of view to the
holders of shares of EPIC Common
<PAGE> 5
Stock. A complete copy of such opinion is attached to the accompanying Joint
Proxy Statement/Prospectus as Annex B.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by shareholders at the EPIC Special Meeting and a proxy. The
Joint Proxy Statement/Prospectus more fully describes the terms of the Merger
Agreement and the Merger and includes information about Synopsys and EPIC. The
Merger Agreement is attached as Annex A to the Joint Proxy Statement/Prospectus.
All shareholders are cordially invited to attend the EPIC Special Meeting
in person. If you attend the EPIC Special Meeting, you may vote in person if you
wish, even though you have previously returned your proxy.
WHETHER OR NOT YOU PLAN TO ATTEND THE EPIC SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND BE VOTED AT THE EPIC SPECIAL
MEETING.
Sincerely,
SANG S. WANG
Chief Executive Officer and
Chairman of the Board of Directors
EVERY VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE EPIC SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE> 6
EPIC DESIGN TECHNOLOGY, INC.
310 NORTH MARY AVENUE
SUNNYVALE, CALIFORNIA 94086
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 28, 1997
To the Shareholders of
EPIC Design Technology, Inc.
PLEASE TAKE NOTICE that a Special Meeting of Shareholders (the "Special
Meeting") of EPIC Design Technology, Inc., a California corporation ("EPIC"),
will be held on Friday, February 28, 1997, at the principal executive offices of
EPIC located at 310 North Mary Avenue, Sunnyvale, California 94086 commencing at
9:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of January
16, 1997, by and among Synopsys, Inc., a Delaware corporation ("Synopsys"),
EPIC Merger Co., Inc., a Delaware corporation and a wholly-owned subsidiary
of Synopsys ("Sub"), and EPIC, pursuant to which, among other things, (a)
Sub will be merged with and into EPIC, whereby EPIC will be the surviving
corporation and will become a wholly-owned subsidiary of Synopsys (the
"Merger") and (b) each outstanding share of common stock, no par value per
share, of EPIC ("EPIC Common Stock") will be converted into the right to
receive 0.7485 of a share of common stock, $.01 par value, of Synopsys; and
2. To transact such other business as may properly come before the
Special Meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies if necessary to establish a quorum or to
obtain additional votes in favor of the Merger, or before any postponements
or adjournments thereof.
The Merger and related transactions are more fully described in the Joint
Proxy Statement/Prospectus and the annexes thereto, including the Merger
Agreement, accompanying this Notice. Any action may be taken on any of the
foregoing proposals at the Special Meeting on the date specified above or on any
date to which the Special Meeting may be properly postponed or adjourned.
Shareholders of record at the close of business on January 31, 1997, are
entitled to notice of and to vote at the Special Meeting and any adjournment or
postponement thereof. Approval of the Merger Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of EPIC Common
Stock.
All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to complete
and sign the enclosed proxy card and return it as promptly as possible in the
enclosed postage-prepaid envelope.
By Order of the Board of Directors
TAMMY S. LIU
Secretary
Sunnyvale, California
February 7, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE YOUR PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD.
<PAGE> 7
SYNOPSYS, INC.
AND
EPIC DESIGN TECHNOLOGY, INC.
------------------------
JOINT PROXY STATEMENT
------------------------
SYNOPSYS, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus relates to the transactions
contemplated by the Agreement and Plan of Merger (the
"Merger Agreement") dated as of January 16, 1997 by and among Synopsys, Inc., a
Delaware corporation ("Synopsys"), EPIC Merger Co., Inc., a Delaware corporation
and a wholly-owned subsidiary of Synopsys ("Sub"), and EPIC Design Technology,
Inc., a California corporation ("EPIC"), which provides for EPIC to become a
wholly-owned subsidiary of Synopsys by means of a merger with Sub (the "Merger")
and for the shareholders of EPIC to become stockholders of Synopsys.
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, par value $.01 per share ("Synopsys Common Stock"), of Synopsys in
connection with the solicitation of proxies by the Board of Directors of
Synopsys (the "Synopsys Board") for use at a Special Meeting of Synopsys
stockholders (the "Synopsys Special Meeting") to be held on Friday, February 28,
1997, at Synopsys' principal executive offices at 700 East Middlefield Road,
Mountain View, California 94043, commencing at 9:00 a.m., local time, and at any
adjournments or postponements thereof. At the Synopsys Special Meeting the
Synopsys stockholders will vote (i) to approve the issuance of Synopsys Common
Stock in connection with the Merger and (ii) to transact such other matters as
may properly come before the Synopsys Special Meeting, including any motion to
adjourn to a later date to permit further solicitation of proxies if necessary,
or any postponement or adjournment thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, no par value per share ("EPIC Common Stock"), of EPIC, in
connection with the solicitation of proxies by the Board of Directors of EPIC
(the "EPIC Board") for use at the Special Meeting of EPIC shareholders (the
"EPIC Special Meeting") to be held on Friday, February 28, 1997, at the offices
of EPIC located at 310 North Mary Avenue, Sunnyvale, California 94086 commencing
at 9:00 a.m., local time, and at any adjournments or postponements thereof. At
the EPIC Special Meeting the EPIC shareholders will vote (i) to approve and
adopt the Merger Agreement and (ii) to transact such other matters as may
properly come before the EPIC Special Meeting, including any motion to adjourn
to a later date to permit further solicitation of proxies if necessary, or
before any postponement or adjournment thereof.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Synopsys for use in connection with the offer and issuance of shares of Synopsys
Common Stock pursuant to the Merger. Upon the consummation of the Merger (the
"Effective Time"), each outstanding share of EPIC Common Stock (other than
treasury shares, shares owned by Synopsys or its subsidiaries and dissenting
shares within the meaning of Sections 1300 et. seq. of the California General
Corporation Law) will be converted into the right to receive 0.7485 (the
"Exchange Ratio") of a share of Synopsys Common Stock. At the Effective Time,
each outstanding option to purchase shares of EPIC Common Stock (an "EPIC
Option") will be assumed by Synopsys and become an option (a "Synopsys Option")
to acquire on the same terms and conditions as were applicable under such EPIC
Option, the same number of shares of Synopsys Common Stock (rounded down to the
nearest whole number) that the holder of such EPIC Option would have been
entitled to receive pursuant to the Merger had such holder exercised such EPIC
Option in full including as to unvested shares immediately prior to the
Effective Time. The exercise price per share (rounded up to the nearest whole
cent) of the Synopsys Option will equal (i) the aggregate exercise price for the
shares of EPIC Common Stock otherwise purchasable pursuant to the EPIC Option
divided by (ii) the number of whole shares of Synopsys Common Stock purchasable
pursuant to the Synopsys Option. Based upon the number of shares of Synopsys
Common Stock and EPIC Common Stock outstanding at January 31, 1997, an aggregate
of approximately 10,325,691 shares of Synopsys Common Stock would be issued in
connection with the Merger, representing approximately 20.2% of the total number
of shares of Synopsys Common Stock outstanding after giving effect to such
issuance. Based upon the number of EPIC Options outstanding at January 31, 1997,
approximately 1,583,581 additional shares of Synopsys Common Stock would be
reserved for issuance to holders of EPIC Options in connection with Synopsys'
assumption of such EPIC Options. All information contained in this Joint Proxy
Statement/Prospectus relating to Synopsys has been supplied by Synopsys, and all
information relating to EPIC has been supplied by EPIC.
The outstanding shares of Synopsys Common Stock are listed on The Nasdaq
National Market under the symbol "SNPS," and it is a condition to the
obligations of Synopsys and EPIC to consummate the Merger that the shares of
Synopsys Common Stock to be issued in the Merger be approved for listing on The
Nasdaq National Market, upon official notice of issuance. The last reported sale
price of Synopsys Common Stock on The Nasdaq National Market on February 3, 1997
was $41.75 per share. Based on such last reported sale price, the Exchange Ratio
would result in a per share purchase price for the EPIC Common Stock of $31.25.
Because the Exchange Ratio is fixed, a change in the market price of Synopsys
Common Stock before the Merger will affect the dollar market value of the
Synopsys Common Stock to be received by the shareholders of EPIC in the Merger.
------------------------
SEE "RISK FACTORS", BEGINNING ON PAGE 13, FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY SYNOPSYS STOCKHOLDERS AND EPIC SHAREHOLDERS.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Synopsys and shareholders of EPIC on
or about February 7, 1997.
The date of this Joint Proxy Statement/Prospectus is February 7, 1997.
<PAGE> 8
AVAILABLE INFORMATION
Synopsys and EPIC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Synopsys and EPIC with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Northwestern Atrium, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 at
prescribed rates. The Synopsys Common Stock and the EPIC Common Stock are traded
on the Nasdaq National Market. Reports and other information concerning Synopsys
and EPIC can also be inspected at the offices of the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006. In addition, certain of the documents filed by Synopsys
and EPIC with the Commission are available through the Commission's Electronic
Data Gathering and Retrieval System ("EDGAR") at http://www.sec.gov.
Synopsys has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of Synopsys Common Stock to be issued pursuant to the Merger Agreement.
This Joint Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement. The omitted portions of this Registration
Statement may be obtained through EDGAR at http://www.sec.gov. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Joint Proxy Statement/Prospectus
or in any document incorporated by reference in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents and reports subsequently filed by Synopsys and EPIC pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the termination of the offering
under this Joint Proxy Statement/Prospectus shall be deemed to be incorporated
by reference in this Joint Proxy Statement/Prospectus and to be part hereof from
the date of filing of such documents or reports. Any statement contained in a
document deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Joint Proxy Statement/Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SYNOPSYS OR
EPIC. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF ANY OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL
TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SYNOPSYS OR EPIC SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
Synopsys, the Synopsys logo, COSSAP, DesignPower, DesignWare, Logic
Modeling, Smart Model, SOLV-IT and Source Model Library, are registered
trademarks, and ARKOS, Behavioral Compiler, CBA Design System, Cyclone, Design
Compiler, DesignTime, DesignWare Developer, FPGA Compiler, FPGA Express,
Floorplan Manager, HDL Advisor, HDL Compiler, ModelSource, Power Compiler,
Silicon Architects, Test Complier and VHDL System Simulator are trademarks, of
Synopsys or its subsidiaries. EPIC, PathMill, and TimeMill are registered
trademarks, and AMPS, Arcadia, DelayMill, Direct Silicon Access, PowerMill,
RailMill and Vertue are trademarks, of EPIC. This Joint Proxy
Statement/Prospectus may also include trademarks and trade names which are the
property of their respective owners.
2
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
SUMMARY............................................................................... 5
The Companies....................................................................... 5
The Proposed Merger................................................................. 5
Date and Place of Meetings.......................................................... 6
Stockholders Entitled to Vote....................................................... 6
Purpose of the Meetings............................................................. 6
Vote Required; Voting Agreements.................................................... 7
Recommendations of the Boards of Directors.......................................... 7
Reasons for the Merger.............................................................. 7
Opinion of EPIC's Financial Advisor................................................. 8
Interests of Certain Persons in the Merger.......................................... 8
Representations and Warranties; Covenants........................................... 9
Conditions to the Merger............................................................ 9
Termination......................................................................... 10
Surrender of Certificates........................................................... 10
Dissenters' Rights.................................................................. 11
Certain Federal Income Tax Consequences............................................. 11
Accounting Treatment................................................................ 11
Restrictions on Resale of Synopsys Common Stock..................................... 11
Comparison of Stockholder Rights.................................................... 12
RISK FACTORS.......................................................................... 13
Risks Relating to the Merger........................................................ 13
Risks Relating to Synopsys.......................................................... 14
Risks Relating to EPIC.............................................................. 16
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL
DATA................................................................................ 21
COMPARATIVE PER SHARE DATA............................................................ 23
MARKET PRICE AND DIVIDEND INFORMATION................................................. 24
THE MEETINGS.......................................................................... 26
General............................................................................. 26
Matters To Be Considered at the Meetings............................................ 26
Voting at the Meetings; Record Dates................................................ 26
Adjournment of the Synopsys Special Meeting or the EPIC Special Meeting............. 27
Proxies............................................................................. 28
THE MERGER............................................................................ 30
General............................................................................. 30
Background of the Merger............................................................ 30
Reasons for the Merger; Recommendations of the Boards of Directors.................. 33
Opinion of EPIC's Financial Advisor................................................. 38
Interests of Certain Persons in the Merger.......................................... 41
Accounting Treatment................................................................ 43
Voting Agreements................................................................... 43
Certain Federal Income Tax Consequences............................................. 43
Regulatory Approvals................................................................ 45
Restrictions on Resale of Synopsys Common Stock..................................... 45
Nasdaq National Market Quotation.................................................... 46
Dissenters' Rights.................................................................. 46
THE MERGER AGREEMENT.................................................................. 49
The Merger.......................................................................... 49
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
Conversion of Securities............................................................ 49
Representations and Warranties...................................................... 50
Certain Covenants and Agreements.................................................... 51
No Solicitation..................................................................... 51
Related Matters After the Merger.................................................... 52
Indemnification and Insurance....................................................... 53
Conditions.......................................................................... 53
Stock Option and Benefit Plans...................................................... 54
Termination......................................................................... 55
Termination Fees.................................................................... 56
Amendment and Waiver................................................................ 57
SYNOPSYS, INC. ....................................................................... 58
Business............................................................................ 58
Properties.......................................................................... 68
Legal Proceedings................................................................... 68
Selected Unaudited Quarterly Financial Data......................................... 68
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 69
Management.......................................................................... 75
Executive Compensation and Other Matters............................................ 77
Stock Ownership of Certain Beneficial Owners and Management......................... 81
EPIC DESIGN TECHNOLOGY, INC........................................................... 83
Business............................................................................ 83
Properties.......................................................................... 94
Legal Proceedings................................................................... 95
Selected Financial Data............................................................. 96
Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 97
Management.......................................................................... 105
Executive Compensation and Other Matters............................................ 106
Stock Ownership of Certain Beneficial Owners and Management......................... 109
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 112
COMPARISON OF RIGHTS OF HOLDERS OF EPIC COMMON STOCK AND HOLDERS OF SYNOPSYS COMMON
STOCK............................................................................... 118
DESCRIPTION OF SYNOPSYS CAPITAL STOCK................................................. 121
Common Stock........................................................................ 121
Certain Charter Provisions.......................................................... 121
Preferred Stock..................................................................... 121
LEGAL MATTERS......................................................................... 122
EXPERTS............................................................................... 122
DATE OF RECEIPT OF STOCKHOLDER PROPOSALS.............................................. 122
INDEX TO SYNOPSYS, INC. CONSOLIDATED FINANCIAL STATEMENTS............................. F-1
INDEX TO EPIC DESIGN TECHNOLOGY, INC. CONSOLIDATED FINANCIAL STATEMENTS............... F-22
ANNEX A -- AGREEMENT AND PLAN OF MERGER, DATED AS OF JANUARY 16, 1997, AMONG SYNOPSYS, INC.,
EPIC MERGER CO., INC. AND EPIC DESIGN TECHNOLOGY, INC.
ANNEX B -- OPINION OF MORGAN STANLEY & CO. INCORPORATED
ANNEX C -- CHAPTER 13 OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA
</TABLE>
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus. This summary does not contain a complete
description of the Merger Agreement, a copy of which is attached hereto as Annex
A. Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained in this Joint Proxy Statement/Prospectus and
the Annexes hereto. Unless otherwise defined herein, capitalized terms used in
this summary have the respective meanings ascribed to them elsewhere in this
Joint Proxy Statement/Prospectus. Stockholders of Synopsys and shareholders of
EPIC are urged to read carefully this Joint Proxy Statement/Prospectus and the
Annexes in their entirety.
All share and per share data in this Joint Proxy Statement/Prospectus
reflect all stock splits of Synopsys Common Stock and EPIC Common Stock prior to
the date hereof.
THE COMPANIES
Synopsys. Synopsys develops, markets, and supports high-level design
automation (HLDA) products for designers of integrated circuits (ICs) and
electronic systems. Synopsys offers a range of design tools, verification
systems and design reuse 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 electronic design automation (EDA) products. Synopsys
also provides training, support and consulting services for its customers.
Synopsys was incorporated in Delaware in May 1987. Synopsys' principal
executive offices are located at 700 East Middlefield Road, Mountain View,
California 95053-4033. Its telephone number is (415) 962-5000.
EPIC. EPIC develops, markets and supports a family of simulation,
analysis, extraction and physical verification software tools that help IC
designers better manage the timing, power and reliability characteristics of IC
designs. EPIC also develops, markets and supports a set of technical services
intended for the characterization of transistors and interconnect fabricated on
silicon wafers. EPIC's tools and services can be used by designers at different
stages of IC development to help identify flaws, enhance speed, reduce power
consumption and detect the causes of reliability failure. EPIC believes that by
using EPIC products, IC designers can reduce development time, lower the risk of
design failure, avoid lengthy refabrication cycles and improve an IC's
performance and value. EPIC's tools and services are particularly focused on
meeting deep submicron and nanometer IC designers' requirements for (i) static
and dynamic timing simulation, analysis, optimization and verification, (ii)
power simulation, analysis, optimization and verification, (iii) physical layout
extraction, analysis and verification and (iv) simulation, analysis and
correction of potential causes of realizability failure in complex ICs.
EPIC was incorporated in California in October 1986. EPIC's principal
executive offices are located at 310 North Mary Avenue, Sunnyvale, California
94086. Its telephone number is (408) 733-8080.
THE PROPOSED MERGER
At the Effective Time, pursuant to the Merger Agreement, (i) Sub will be
merged with and into EPIC, whereupon EPIC will be the surviving corporation and
will become a wholly-owned subsidiary of Synopsys, and (ii) each issued and
outstanding share of EPIC Common Stock will be converted into the right to
receive 0.7485 of a share of Synopsys Common Stock. Fractional shares of
Synopsys Common Stock will not be issued in connection with the Merger. Cash
will be paid in lieu of fractional shares. See "The Merger Agreement -- The
Merger."
At the Effective Time, each outstanding EPIC Option will be assumed by
Synopsys and become a Synopsys Option to acquire, on the same terms and
conditions as were applicable under such EPIC Option, the same number of shares
of Synopsys Common Stock (rounded down to the nearest whole number) that the
holder of such EPIC Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full, including as to unvested
shares, immediately prior to the Effective Time. The exercise price per share
(rounded up to the nearest whole cent) of the Synopsys Option will equal (i) the
aggregate exercise price for the shares of EPIC Common Stock otherwise
purchasable pursuant to the EPIC
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Option divided by (ii) the number of shares of Synopsys Common Stock purchasable
pursuant to the Synopsys Option. Immediately prior to the Effective Time, all
then outstanding rights to acquire shares of EPIC Common Stock under EPIC's 1994
Employee Stock Purchase Plan (the "EPIC Purchase Plan") will be exercised for
the purchase of shares of EPIC Common Stock.
Based upon the capitalization of Synopsys and EPIC as of January 31, 1997,
an aggregate of approximately 10,325,691 shares of Synopsys Common Stock would
be issued in connection with the Merger, representing approximately 20.2% of the
outstanding shares of Synopsys Common Stock outstanding after giving effect to
such issuance.
The Merger Agreement provides for the Synopsys Board to elect Dr. Sang S.
Wang, Chief Executive Officer and Chairman of the EPIC Board, to the Synopsys
Board immediately after the Effective Time. See "The Merger Agreement -- Related
Matters After the Merger."
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite stockholder approvals have been obtained and all
other conditions to the Merger have been satisfied or waived. If the Merger is
not consummated on or before June 30, 1997, EPIC and Synopsys each has the right
(subject to certain limitations) to terminate the Merger Agreement unless the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") has not expired, in which event either party may
terminate the Merger Agreement if the Merger is not consummated on or before
September 30, 1997. See "The Merger -- Regulatory Approvals" and "The Merger
Agreement -- Termination."
DATE AND PLACE OF MEETINGS
The Synopsys Special Meeting will be held on February 28, 1997 at Synopsys'
principal executive offices at 700 East Middlefield Road, Mountain View,
California 94043 commencing at 9:00 a.m., local time.
The EPIC Special Meeting will be held on February 28, 1997 at EPIC's
principal executive offices located at 310 North Mary Avenue, Sunnyvale,
California 94086 commencing at 9:00 a.m., local time.
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Synopsys Common Stock at the close of
business on January 31, 1997 are entitled to notice of and to vote at the
Synopsys Special Meeting. At such date there were 40,930,373 shares of Synopsys
Common Stock outstanding, each of which will be entitled to one vote on each
matter to be acted upon or which may properly come before the Synopsys Special
Meeting.
Holders of record of shares of EPIC Common Stock at the close of business
on January 31, 1997 (the "EPIC Record Date"), are entitled to notice of and to
vote at the EPIC Special Meeting. At such date there were 13,795,179 shares of
EPIC Common Stock outstanding, each of which will be entitled to one vote on
each matter to be acted upon or which may properly come before the EPIC Special
Meeting.
PURPOSE OF THE MEETINGS
Synopsys Special Meeting. The purpose of the Synopsys Special Meeting is
to consider and vote upon (i) the issuance of shares of Synopsys Common Stock in
exchange for shares of EPIC Common Stock pursuant to the Merger Agreement, a
copy of which is attached as Annex A to this Joint Proxy Statement/Prospectus,
providing for the business combination between Synopsys and EPIC, which will be
effected through the Merger of Sub into EPIC pursuant to which EPIC will become
a wholly-owned subsidiary of Synopsys and (ii) such other matters as may
properly be brought before the Synopsys Special Meeting, including any motion to
adjourn to a later date to permit further solicitation of proxies if necessary,
or any postponements or adjournments thereof.
EPIC Special Meeting. The purpose of the EPIC Special Meeting is to
consider and vote upon (i) a proposal to approve and adopt the Merger Agreement
and (ii) such other matters as may properly be brought before the EPIC Special
Meeting, including any motion to adjourn to a later date to permit further
solicitation of proxies if necessary, or before any postponements or
adjournments thereof. See "The Meetings."
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VOTE REQUIRED; VOTING AGREEMENTS
Synopsys. The approval of the issuance of Synopsys Common Stock in
connection with the Merger will require the affirmative vote of the holders of a
majority of the shares of Synopsys Common Stock present in person or represented
by proxy at the Synopsys Special Meeting and entitled to vote. The approval of
the issuance of Synopsys Common Stock in connection with the Merger is required
by the Nasdaq rules governing corporations with securities listed on The Nasdaq
National Market. As of January 31, 1997, directors and executive officers of
Synopsys and their respective affiliates may be deemed to be beneficial owners
of approximately 1.3% of the outstanding shares (excluding shares subject to
stock options) of Synopsys Common Stock. Each of the directors and executive
officers of Synopsys has advised Synopsys that he or she intends to vote or
direct the vote of all the outstanding shares of Synopsys Common Stock over
which he or she has voting control in favor of approval of the issuance of
Synopsys Common Stock in connection with the Merger. As of January 31, 1997,
directors and officers of EPIC and their respective affiliates beneficially
owned less than 1% of the outstanding shares of Synopsys Common Stock and EPIC
owned no shares of Synopsys Common Stock.
EPIC. The approval and adoption of the Merger Agreement by EPIC
shareholders will require the affirmative vote of the holders of a majority of
the outstanding shares of EPIC Common Stock entitled to vote. In accordance with
the terms of the Merger Agreement, directors and officers of EPIC have executed
and delivered agreements and irrevocable proxies to Synopsys (the "Voting
Agreements") obligating them, among other things, to vote their shares of EPIC
Common Stock in favor of approval and adoption of the Merger Agreement. As a
result, all of the 835,457 shares of EPIC Common Stock (which excludes shares
subject to EPIC Options) beneficially owned by directors and executive officers
of EPIC and their respective affiliates at the EPIC Record Date (representing
approximately 6.1% of the total number of shares of EPIC Common Stock
outstanding at such date) will be voted for approval of and adoption of the
Merger Agreement. As of January 31, 1997, directors and executive officers of
Synopsys and their respective affiliates beneficially owned less than 1% of the
outstanding shares of EPIC Common Stock and Synopsys owned no shares of EPIC
Common Stock. See "The Meetings."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Synopsys Board has unanimously approved the Merger Agreement and the
issuance of shares of Synopsys Common Stock in connection with the Merger and
believes that the Merger is fair to, and in the best interests of, Synopsys and
its stockholders and, therefore, unanimously recommends that the stockholders of
Synopsys vote for the issuance of such shares of Synopsys Common Stock.
The EPIC Board has unanimously approved the Merger Agreement and the Merger
and believes that the terms of the Merger Agreement are fair to, and that the
Merger is in the best interests of, EPIC and its shareholders and, therefore,
unanimously recommends that the holders of EPIC Common Stock vote for approval
and adoption of the Merger Agreement. See "The Merger -- Reasons for the Merger;
Recommendations of the Boards of Directors."
REASONS FOR THE MERGER
Joint Reasons. The Boards of Directors of Synopsys and EPIC concluded that
(i) the goals and philosophies of the two companies are consistent, (ii) the
products of the two companies are complementary, (iii) the combined company has
the opportunity to offer customers a more comprehensive IC design flow than
either could offer independently, by integrating Synopsys' expertise in high
level design with EPIC's expertise in transistor level physical design, (iv) the
Merger would be positively received by customers and (v) the stockholders of
Synopsys and the shareholders of EPIC would benefit by the enhanced ability of
the combined company to compete in the rapidly-changing EDA market.
Synopsys. In addition to the reasons described above, the Synopsys Board
believes that the Merger will be beneficial to Synopsys and Synopsys'
stockholders for the following additional reasons: (i) EPIC's products are
complementary to Synopsys' products, giving Synopsys an opportunity to offer a
more complete IC design solution to its customers and to compete more
successfully against its principal competitors in the face of
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<PAGE> 14
changing industry requirements; (ii) EPIC's technical management, research and
development, and applications teams have significant expertise in the
development of physical design tools, which may enhance Synopsys' efforts to
accelerate the integration of its current high-level design tools with physical
design tools; (iii) Synopsys' sales and marketing efforts may be enhanced by the
addition of EPIC's sales force of over 90 people, many of whom have extensive
experience and understanding of the sales channel for physical design tools;
(iv) Synopsys has identified power and timing analysis as fundamental issues
facing IC designers in deep submicron IC design, and believes that EPIC is a
leading provider of power and timing analysis tools at the transistor level; (v)
access to EPIC's expertise in transistor level analysis tools may help Synopsys
enhance its current range of design and verification tools; (vi) EPIC's strong
financial position, growth rate and operating margin may have positive effects
on the overall performance of the combined company; and (vii) in an increasingly
competitive and consolidating industry, Synopsys must continue to invest in
industry-leading technology, and the combined company may be in an improved
competitive position to effectively meet the industry's technological challenges
and customer demands.
EPIC. In addition to the joint reasons described above, the EPIC Board
believes that the Merger will be beneficial to EPIC and EPIC's shareholders for
the following additional reasons: (i) the Merger may allow EPIC, through its
participation in the combined company, to realize its strategic objective of
achieving greater scale and greater presence in the EDA industry resulting in a
stronger competitive position from which to compete more effectively against
larger EDA companies, (ii) the Merger may provide new opportunities to market
EPIC's products to a larger group of IC designers, resulting in expanded
distribution of EPIC's products, (iii) the Merger may result in more efficient
and higher levels of customer support to EPIC's customers, (iv) because the
companies' product offerings are complementary, together Synopsys' and EPIC's
products may provide a more comprehensive, fully-integrated design solution to
IC designers, (v) because achieving a rapid rate of technical innovation in the
EDA industry is critical, increasing the critical mass of the technical
personnel may permit the combined company to respond more quickly and
effectively to technological changes and to anticipate more readily the
advancements in the IC design industry and (vi) because the consideration to be
received in the Merger is the common stock of the combined company, EPIC's
shareholders will have an opportunity to benefit from any synergies achieved by
the combination of EPIC and Synopsys.
See "The Merger -- Reasons for the Merger; Recommendations of the Boards of
Directors."
OPINION OF EPIC'S FINANCIAL ADVISOR
At a meeting of the EPIC Board on January 16, 1997, Morgan Stanley & Co.
Incorporated ("Morgan Stanley") rendered its oral opinion, subsequently
confirmed in writing, that, as of such date based upon and subject to the
various considerations set forth in the opinion, the Exchange Ratio pursuant to
the Merger Agreement was fair from a financial point of view to the holders of
shares of EPIC Common Stock. The full text of the opinion of Morgan Stanley,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Annex B to this
Joint Proxy Statement/Prospectus and is incorporated herein by reference. EPIC
shareholders are urged to, and should, read the opinion in its entirety. See
"The Merger -- Opinion of EPIC's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of January 31, 1997, the executive officers and directors of EPIC
beneficially owned an aggregate of 1,070,620 shares of EPIC Common Stock
(including 235,163 shares of EPIC Common Stock subject to EPIC Options
exercisable within 60 days of January 31, 1997). Based upon the closing sale
price of Synopsys Common Stock on January 31, 1997 of $44.16, and assuming the
exercise of outstanding EPIC Options exercisable within 60 days of the EPIC
Record Date, the aggregate dollar value of Synopsys Common Stock to be received
in the Merger by the executive officers and directors of EPIC is approximately
$47,278,579.
Two officers of EPIC, Tammy S. Liu, Chief Financial Officer, and Gary
Larsen, Vice President, Worldwide Sales, have outstanding EPIC Options which by
their terms provide that the vesting of such EPIC Options will be accelerated in
the event of a merger of EPIC in which the officer is terminated or is offered a
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position with responsibilities substantially inferior to those of his or her
present position. Synopsys' acquisition of EPIC may trigger these acceleration
provisions. With respect to Ms. Liu, 35,344 shares (as of January 31, 1997) of
Ms. Liu's EPIC Option may be subject to acceleration. With respect to Mr.
Larsen, 25,000 shares (as of January 31, 1997) of Mr. Larsen's EPIC Option may
be subject to acceleration.
Pursuant to the Merger Agreement, Synopsys has agreed to indemnify each
person who was an officer, director or employee of EPIC against certain
liabilities. In addition, Synopsys has agreed to maintain, with certain
limitations, the policies of directors' and officers' liability insurance
maintained by EPIC or to provide comparable coverage.
The foregoing interests of the directors and certain members of management
of EPIC in the Merger may mean that such persons have personal interests in the
Merger which may not be identical to the interests of other EPIC shareholders.
See "The Merger -- Interests of Certain Persons in the Merger."
REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Merger Agreement, Synopsys and EPIC made a number of
representations regarding their respective capital structures, operations,
financial condition and other matters. Each party agreed as to itself and its
subsidiaries that, until consummation of the Merger or the earlier termination
of the Merger Agreement, it will, among other things, maintain its business,
conduct its operations in the ordinary course, provide the other with reasonable
access to its financial, operating and other information, and use all reasonable
efforts to consummate the Merger. See "The Merger Agreement -- Representations
and Warranties" and "-- Certain Covenants and Agreements."
CONDITIONS TO THE MERGER
The respective obligations of Synopsys, Sub and EPIC to effect the Merger
are subject to the following conditions, among others: (a) the Merger Agreement
shall have been approved and adopted by the shareholders of EPIC and the
issuance of Synopsys Common Stock in connection with the Merger shall have been
approved by the stockholders of Synopsys; (b) the waiting period applicable to
the consummation of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") shall have expired or been
terminated and no action shall have been instituted by the Antitrust Division of
the Department of Justice (the "Antitrust Division") or Federal Trade Commission
(the "FTC") challenging or seeking to enjoin the consummation of the Merger,
which action shall not have been withdrawn or terminated; (c) governmental
authorizations, consents, orders or approvals shall have been obtained except
where the failure to obtain such consents, orders or approvals would not have a
Material Adverse Effect (as defined in the Merger Agreement) on EPIC or
Synopsys, as the case may be; (d) the Registration Statement shall have become
effective under the Securities Act and shall not be the subject of a stop order
or proceedings seeking a stop order; (e) no temporary restraining order,
preliminary or permanent injunction or other order shall be in effect nor shall
there be any proceeding seeking any of the foregoing that prevents, or seeks to
prevent, the consummation of the Merger; (f) no action shall be taken, nor any
statute, rule, regulation, or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal or
prevents or prohibits the Merger, (g) the receipt of letters of independent
accountants by Synopsys and EPIC, respectively, dated the Effective Time stating
that the Merger will qualify as a pooling of interests transaction under
Accounting Principles Board Opinion No. 16 and applicable regulations of the
Commission, if the Merger is consummated in accordance with the Merger Agreement
(see "The Merger -- Accounting Treatment"); (h) the Synopsys Common Stock to be
issued, or reserved for future issuance, in the Merger shall have been approved
for quotation on The Nasdaq National Market; (i) receipt by Synopsys of a
written opinion from Gray Cary Ware & Freidenrich, A Professional Corporation,
counsel to Synopsys, and receipt by EPIC of an opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation ("WSG&R"), counsel to EPIC, both to
the effect that the Merger will be treated for Federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code") (see "The Merger -- Certain
Federal Income Tax Consequences"); (j) the representations and
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warranties of the other party set forth in the Merger Agreement are true and
correct, except for changes contemplated by the Merger Agreement or where
failure to be true and correct would not be reasonably likely to have a Material
Adverse Effect on EPIC or Synopsys, as the case may be; (k) the performance by
the other party in all material respects of all obligations required to be
performed by such party under the Merger Agreement; and (l) no Material Adverse
Effect with respect to the other party shall have occurred since the date of the
Merger Agreement. In addition, it is a condition to the obligations of Synopsys
and Sub that Affiliate Agreements in the form attached to the Merger Agreement
as Exhibit C shall have been executed and delivered to Synopsys by each
director, officer and applicable affiliate of EPIC, and that each Affiliate
Agreement shall be in full force and effect. See "The Merger
Agreement -- Conditions."
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Synopsys and EPIC
have filed notification and report forms under the HSR Act with the FTC and
Antitrust Division. These filings commenced a 30-day waiting period under the
HSR Act which is scheduled to expire prior to the Special Meetings. If, prior to
the expiration of such period the FTC or the Antitrust Division should request
additional information or documentary material under the HSR Act, consummation
of the Merger could be delayed until after the companies have substantially
complied with the request. At any time before or after the Effective Time of the
Merger, the Antitrust Division, the FTC or any state or foreign government may
take such action under the federal or state antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the
consummation of the Merger, seeking divestiture of substantial assets of
Synopsys or EPIC or seeking to impose conditions on Synopsys with respect to the
business operations of the Combined Company. Private parties may also seek to
take legal action under the antitrust laws under certain circumstances.
TERMINATION
The Merger Agreement is subject to termination by mutual written consent of
Synopsys and EPIC and at the option of either Synopsys or EPIC if the Merger is
not consummated before June 30, 1997, unless the waiting period pursuant to the
HSR Act has not expired, in which event either party may terminate the Merger
Agreement if the Merger is not consummated before September 30, 1997. The Merger
Agreement is also subject to termination by Synopsys or EPIC upon the occurrence
of any of the following: a court order permanently restraining, enjoining or
otherwise prohibiting the Merger, failure of the other party to obtain
shareholder or stockholder approval or, under certain circumstances, a breach by
the other party of a representation, warranty, covenant or agreement of the
other party contained in the Merger Agreement. In addition, Synopsys may
terminate the Merger Agreement if (i) the EPIC Board withdraws or adversely
modifies its recommendation of the Merger Agreement, (ii) the EPIC Board
approves one of a few certain types of alternative transactions or (iii) the
EPIC Board fails to recommend against a tender offer or exchange offer for 20%
or more of the outstanding shares of EPIC within a specified time period (each,
a "Synopsys Termination Trigger"). Upon the occurrence of a Synopsys Termination
Trigger or the termination of the Merger Agreement by Synopsys due to the
failure of the EPIC shareholders to approve the Merger Agreement under certain
circumstances, EPIC may be required to pay Synopsys a termination fee of
$10,700,000. In all other situations in which the Merger Agreement is
terminated, each party shall pay its own expenses and fees. See "The Merger
Agreement -- Termination" and "-- Termination Fees."
SURRENDER OF CERTIFICATES
If the Merger becomes effective, Synopsys will mail a letter of transmittal
with instructions to all holders of record of EPIC Common Stock immediately
prior to the Merger for use in surrendering their stock certificates in exchange
for certificates representing shares of Synopsys Common Stock and a cash payment
in lieu of fractional shares, if any. EPIC shareholders should not surrender
their certificates until the holders receive the letter of transmittal. See "The
Merger Agreement -- Conversion of Securities."
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DISSENTERS' RIGHTS
If holders of at least 5% of the outstanding shares of EPIC Common Stock
have exercised dissenters' rights in connection with the Merger under Sections
1300-1312 ("Section 1300") of the California General Corporation Law (the
"CGCL"), any holder of EPIC Common Stock may exercise dissenters' rights by
voting against the Merger and following the procedures set forth in Section
1300. If the holders of shares representing at least 5% of the outstanding
shares of EPIC Common Stock do not exercise dissenters' rights, then only a
holder of EPIC Common Stock with respect to which there exists a restriction on
transfer imposed by EPIC or by any law or regulation will be so entitled.
AN EPIC SHAREHOLDER WISHING TO EXERCISE DISSENTERS' RIGHTS MUST VOTE
AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE EPIC SPECIAL
MEETING. HOWEVER, VOTING AGAINST THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT WILL NOT, IN AND OF ITSELF, BE SUFFICIENT NOTICE OF SUCH SHAREHOLDERS'
INTENTION TO DISSENT. RATHER, ANY EPIC SHAREHOLDER WISHING TO EXERCISE
DISSENTERS' RIGHTS MUST COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 1300.
SEE "THE MERGER -- DISSENTERS' RIGHTS" AND THE FULL TEXT OF SECTION 1300, A COPY
OF WHICH IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX C AND IS
INCORPORATED HEREIN BY REFERENCE.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss would generally be recognized by Synopsys
or EPIC and no gain or loss would generally be recognized by EPIC shareholders,
except in respect of cash received in lieu of fractional shares. EPIC
shareholders are urged to consult their own tax advisors as to the specific tax
consequences of the Merger to the individual shareholder. It is a condition to
the Merger that Synopsys and EPIC shall have each received an opinion of their
respective counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. For a further
discussion of federal income tax consequences of the Merger, see "The
Merger -- Certain Federal Income Tax Consequences." See also "The Merger
Agreement -- Conditions."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. The obligations of Synopsys and EPIC to
consummate the Merger are conditioned upon the receipt by Synopsys and EPIC from
KPMG Peat Marwick LLP and Deloitte & Touche LLP, respectively, of letters dated
as of the Effective Date regarding the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16 if
the Merger is closed and consummated in accordance with the Merger Agreement.
See "The Merger -- Accounting Treatment" and "The Merger Agreement --
Conditions."
RESTRICTIONS ON RESALE OF SYNOPSYS COMMON STOCK
The shares of Synopsys Common Stock issuable to shareholders of EPIC upon
consummation of the Merger have been registered under the Securities Act. Such
shares may be freely traded without restriction by those shareholders who are
not deemed to be "affiliates" of Synopsys or EPIC, as that term is defined in
the rules under the Securities Act.
Shares of Synopsys Common Stock received by those shareholders of EPIC who
are deemed to be affiliates of EPIC may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Each affiliate of EPIC has agreed
not to offer, sell, pledge, transfer or otherwise dispose of any shares of
Synopsys Common Stock distributed pursuant to the Merger, except in compliance
with Rule 145 under the Securities Act, or in a transaction that is otherwise
exempt from the registration requirements of the Securities Act and an opinion
of counsel, satisfactory to Synopsys, has been provided to Synopsys to the
effect that no such registration is required in connection with the proposed
transaction, or in an offering that is registered under the Securities Act. In
addition, each affiliate of Synopsys and EPIC has agreed not to sell, transfer
or otherwise dispose of, or reduce
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such person's interest in or risk relating to (i) any shares of Synopsys Common
Stock or EPIC Common Stock from the date of the Merger Agreement until the
Effective Time (or the termination of the Merger Agreement) and (ii) any shares
of Synopsys Common Stock issued to such person in the Merger or otherwise
beneficially owned by such person, except in each case for amounts of EPIC
Common Stock and Synopsys Common Stock not more than the de minimis amount
permitted by the rules and releases of the Commission relating to pooling of
interests accounting treatment, until Synopsys has publicly released combined
financial results of Synopsys and EPIC for a period of at least 30 days of
combined operations. See "The Merger -- Restrictions on Resale of Synopsys
Common Stock."
COMPARISON OF STOCKHOLDER RIGHTS
See "Comparison of Rights of Holders of EPIC Common Stock and Holders of
Synopsys Common Stock" for a summary of the material differences between the
rights of holders of EPIC Common Stock and Synopsys Common Stock.
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RISK FACTORS
The following factors should be considered carefully by holders of EPIC
Common Stock in evaluating whether to approve and adopt the Merger Agreement,
and by the holders of Synopsys Common Stock in evaluating whether to approve the
issuance of Synopsys Common Stock in connection with the Merger. These factors
should be considered in conjunction with the other information included in this
Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. When used in the following discussion, the words "projects,"
"expects," and similar expressions are intended to identify forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this Joint Proxy Statement/Prospectus.
RISKS RELATING TO THE MERGER
Fixed Exchange Ratio. As a result of the Merger, each outstanding share of
EPIC Common Stock will be converted into the right to receive approximately
0.7485 of a share of Synopsys Common Stock. The Merger Agreement does not
provide for adjustment of the exchange ratio based on fluctuations in the price
of Synopsys Common Stock. Accordingly, the value of the consideration to be
received by the shareholders of EPIC upon the Merger will depend entirely on the
market price of Synopsys Common Stock at the Effective Time. The closing price
for Synopsys Common Stock on The Nasdaq National Market on January 15, 1997, the
last trading day prior to public announcement of the Merger, was $41.75, and on
February 3, 1997, the latest practicable trading day before the printing of this
Joint Proxy Statement/Prospectus, was $41.75. There can be no assurance that the
market price of Synopsys Common Stock on and after the Effective Time will not
be lower than such prices. See "-- Risks Relating to Synopsys" and "Market Price
and Dividend Information."
Potential Dilution of Interest. A number of shares equal to approximately
20.2% of Synopsys' outstanding Common Stock after giving effect to the Merger
will be issued to the shareholders of EPIC upon consummation of the Merger and
an additional approximately 1,583,581 shares of Synopsys Common Stock will be
reserved for issuance upon the exercise of options to purchase EPIC Common Stock
assumed by Synopsys in connection with the Merger. The issuance of Synopsys
Common Stock in the Merger and upon the exercise of EPIC Options assumed by
Synopsys may cause a dilution of earnings per share which may negatively impact
the price of Synopsys Common Stock. There can be no assurance that Synopsys'
stock price will not be negatively impacted, or that the pro forma financial
information presented herein will be indicative of actual results. See "Selected
Historical and Unaudited Pro Forma Combined Financial Data."
Integration of EPIC Operations; Risk of Failure to Achieve Synergies. The
managements of Synopsys and EPIC have entered into the Merger Agreement with the
expectation that the Merger will result in beneficial synergies. See "The
Merger -- Reasons for the Merger; Recommendations of the Boards of Directors."
Achieving the anticipated benefits of the Merger will depend in part upon
whether the integration of the two companies' businesses is accomplished in an
efficient and effective manner, and there can be no assurance that this will
occur. The combination of the two companies will require, among other things,
integration of the companies' respective product offerings and coordination of
their sales and marketing and research and development efforts. There can be no
assurance that such integration will be accomplished smoothly or successfully.
The integration of certain operations following the Merger will require the
dedication of management resources, which may distract management's attention
from the day-to-day business of the combined company. The inability of
management to successfully integrate the operations of the two companies could
have a material adverse effect on the business, financial condition and results
of operations of the combined company. The difficulties of assimilation may be
increased by the necessity of integrating personnel with disparate business
backgrounds and combining two different, although similar, corporate cultures.
The retention by EPIC and Synopsys of key employees is critical to ensure
continued advancement, development and support of the companies' technologies as
well as on-going sales and marketing efforts. As commonly occurs with mergers of
technology companies, during the pre-merger and integration phases,
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<PAGE> 20
competitors may intensify their efforts to attract customers and to recruit key
employees through various incentives. There can be no assurance that the
combined company will be able to retain key technical, sales or marketing
personnel after the Merger.
Integration of Other Acquired Businesses. Synopsys and EPIC have
consummated several business combinations in recent years, and the Merger, if
approved, would be the largest such combination for either company. The
difficulties of integrating Synopsys' and EPIC's businesses may be exacerbated
by the size and number of prior business combinations. There can be no assurance
that products, technologies, distribution channels, key personnel and businesses
of acquired companies will be effectively integrated into the combined company's
business or product offerings, or that such integration will not adversely
affect the combined company's business, financial condition or results of
operations. There can also be no assurance that any acquired products,
technologies or businesses will contribute at anticipated levels to the combined
company's sales or earnings, or that the sales and earnings from combined
businesses will not be adversely affected by the integration process. The
failure to integrate such acquisitions successfully could have an adverse impact
on the financial results of the combined company. See "Synopsys,
Inc. -- Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Mergers and Acquisitions."
Transaction Charges. Synopsys and EPIC estimate that they will incur direct
transaction costs of approximately $4.6 million associated with the Merger,
which will be charged to operations upon consummation of the Merger. In
addition, it is expected that after the Merger, the combined company will incur
an additional significant charge to operations, which is not currently
reasonably estimable, to reflect costs associated with integrating the two
companies. Although Synopsys expects that the elimination of duplicative
expenses as well as other efficiencies related to the integration of the
businesses may offset the direct transaction costs and other integration-related
charges over time, there can be no assurance that such net benefit will be
achieved in the near term, or at all. See "Selected Historical and Unaudited Pro
Forma Combined Financial Information."
Customers. There can be no assurance that present and potential customers
of Synopsys and EPIC will continue their current buying patterns without regard
to the announced Merger. Certain customers may defer purchasing decisions as
they evaluate Synopsys' future product strategy and competitive positioning. Any
such deferrals could have a material adverse effect upon the results of
operations of Synopsys, EPIC and/or the combined company both in the near-term
and the long-term.
Shares Eligible for Future Sale. If the Merger is consummated, Synopsys
will issue to shareholders of EPIC an aggregate of approximately 10,325,691
shares of Synopsys Common Stock based on the number of shares of EPIC Common
Stock outstanding as of January 31, 1997. Immediately upon consummation of the
Merger, up to approximately 9,700,352 of such shares will be freely tradeable.
As a result, substantial sales of Synopsys Common Stock could occur after the
Merger. Following publication of financial results covering 30 days of
post-Merger combined operations, an additional approximately 625,339 shares
issued in the Merger to persons who may be deemed affiliates of EPIC could be
publicly sold pursuant to Rule 145 under the Securities Act, subject to the
volume and other limitations thereof. In addition, based on the number of EPIC
Options outstanding on January 31, 1997, approximately 1,583,581 additional
shares of Synopsys Common Stock will be reserved for issuance to holders of EPIC
Options to be assumed by Synopsys in the Merger. Future sales of a substantial
number of such shares of Synopsys Common Stock could adversely affect or cause
substantial fluctuations in the market price of Synopsys Common Stock.
RISKS RELATING TO SYNOPSYS
The following factors relate to Synopsys as a stand-alone company without
giving effect to the Merger.
Competition. The EDA industry is highly competitive. Synopsys' products
compete with similar products from other vendors and compete with other EDA
products and services for a share of the EDA budgets of their customers.
Historically, much of Synopsys' growth has been attributable to the strength of
its synthesis products, an area in which Synopsys is currently the leading
supplier. Opportunities for share growth in this area are limited.
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<PAGE> 21
The EDA industry as a whole is experiencing rapid change. Technology
advances and customer 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. Presently, Synopsys does not offer physical
design tools, a field which is currently dominated by Cadence Design Systems,
Inc. and Avant! Corporation, and trails Cadence in its capacity to offer design
services. In May 1996, Synopsys entered into a strategic relationship with
Cooper & Chyan Technology, Inc. (CCT) involving the acquisition of 9.9% of CCT's
stock and a link between Synopsys' existing synthesis products and its design
planning products under development and CCT's routing technology. Cadence and
CCT have announced their intention to merge. Synopsys has sold a portion of its
holdings of CCT stock and is evaluating the effect of such a merger on its
overall relationship with CCT. See "Synopsys, Inc. -- Business -- Competition"
and "-- Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Uncertainty of Market Acceptance of New Products. Synopsys is seeking to
develop a balanced product portfolio. Among the most important new products
offered by Synopsys are its Behavioral Compiler, Cell-Based Array, ARKOS
hardware emulator, and Cyclone simulation accelerator products. These products
have achieved initial customer acceptance, but Synopsys will only derive
significant revenue from these products if they are accepted by a broad range of
customers, which cannot be assured. See "Synopsys, Inc. -- Business -- Product
Groups" and "-- Products."
Reliance on Semiconductor Industry. Synopsys' business has benefited from
the rapid worldwide growth of the semiconductor industry. The semiconductor
industry grew relatively slowly for most of 1996. Despite recent reports of
improving conditions in the industry, the outlook for 1997 remains uncertain.
Slower growth in the semiconductor industry could have an adverse effect on
Synopsys' performance. See "Synopsys, Inc. -- Business -- Industry Background"
and " -- Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Management of Growth. Synopsys attempts to manage its business to achieve
quarter-to-quarter revenue and earnings growth. The ability to manage such
growth is affected by a number of factors, including customer product demand,
product license terms, the size of Synopsys' backlog, and decisions regarding
the timing of revenue recognition. In recent years, the management of revenue
and earnings growth has become more difficult as a result of a number of
factors. Synopsys' orders have become more seasonal, with higher volumes in the
second and fourth quarters of Synopsys' fiscal year, and the average order size
has also increased. Synopsys increasingly receives a disproportionate volume of
orders in the last month of the quarter. This trend has grown more pronounced in
recent quarters. In addition, an increasing amount of Synopsys' orders involve
products and services which yield revenue over multiple quarters (often
extending beyond the current fiscal year) or upon completion of performance
rather than at the time of sale, including time-based product licenses,
consulting services, development contracts, and CBA licenses and royalties.
Because of these trends, Synopsys' ability to convert orders, particularly those
received late in a quarter, or backlog to revenue in any quarter is less certain
than it historically has been, and it is therefore possible for Synopsys to fall
short in its revenue and/or earnings plan for a given quarter even while orders
and backlog remain on plan. In addition, the Company recently modified its order
acceptance policy, which has resulted in a reduction of its current backlog and
may have an adverse effect on future backlog calculations. Ultimately, long-term
revenue and earnings growth is dependent upon the successful development and
sale of Synopsys' products and services over a sustained period of time. See
"Synopsys, Inc. -- Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Fixed Operating Expenses. Synopsys' operating expenses are based in part
on its expectations of future revenue, and expense levels are generally
committed in advance of revenue. Synopsys continues to expand and increase its
operating expenses in order to generate and support additional revenue in the
future. If revenue does not materialize as expected, Synopsys' results of
operations are likely to be adversely affected. Net
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income may be disproportionately affected by a reduction in revenue because only
a small portion of Synopsys' expenses varies with its revenue. See "Synopsys,
Inc. -- Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Exchange Rate Fluctuations; Foreign Economic Conditions. In recent years,
international revenue has accounted for approximately half of Synopsys' revenue.
As a result, Synopsys' financial performance could be negatively affected by
such factors as changes in foreign currency exchange rates and changes in
regional or worldwide economic or political conditions. In particular, revenue
from sales in Japan during fiscal 1996 was adversely affected by a decline in
the value of the yen against the dollar. Continued weakness in the value of the
yen could adversely affect revenue from Japan during fiscal year 1997. See
"Synopsys, Inc. -- Business -- Sales, Distribution and Backlog" and
"-- Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Uncertainties of Joint Development Efforts. In February 1996, Synopsys
entered into a six-year joint development and license agreement with IBM,
pursuant to which Synopsys and IBM will jointly develop certain new products
that Synopsys believes are important to the long-term growth of its business.
Synopsys has not previously entered into a joint development agreement of this
scope. Joint development of products is subject to risks and uncertainties over
and above those affecting internal development, and there can be no assurance
that Synopsys' joint development efforts will be successful. See "Synopsys,
Inc. -- Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Dependence on Key Personnel. Synopsys' success is dependent on technical
and other contributions of key individuals, and there can be no assurance that
Synopsys can continue to recruit and retain such key personnel. See "Synopsys,
Inc. -- Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Other Income and Expenses; Stock Repurchase Program. In May 1996 Synopsys
acquired 9.9% of the outstanding shares of CCT at a price of $14.50 per share.
Following announcement of the Cadence-CCT merger, Synopsys has commenced a
program of selling its CCT shares (and, if the proposed merger of CCT with
Cadence is consummated, its Cadence shares) in an amount per quarter sufficient
to generate a profit of $2 million per quarter. If the proposed CCT-Cadence
merger is not consummated for any reason, or the stock price of either company
declines significantly, the total amount of gain, if any, that Synopsys could
realize on such sales and its ability to sell CCT shares at regular intervals
would be adversely affected.
In May 1996 the Synopsys Board authorized a program to repurchase up to two
million shares of Synopsys Common Stock over two years, subject to a maximum
expenditure of $80 million. In January 1997 the Synopsys Board suspended the
stock repurchase program in order to comply with pooling of interests accounting
restrictions in connection with the Merger and will terminate such program if
necessary to comply with such restrictions. Although Synopsys' purchases have
been insignificant as a proportion of trading in Synopsys Common Stock since May
1996, suspension or termination of the repurchase program could have an adverse
effect on the price of Synopsys Common Stock.
Volatility of Stock Prices. Synopsys' stock price, like that of other
technology companies, is subject to significant volatility. Past financial
performance should not be considered a reliable indicator of future performance,
and investors should not use historical trends to anticipate results or trends
in future periods. If revenues or earnings in any quarter fail to meet
expectations of the investment community, there could be an immediate and
significant impact on Synopsys' stock price. In addition, Synopsys' stock price
may be affected by broader market trends that may be unrelated to Synopsys'
performance. See "Synopsys, Inc. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS RELATING TO EPIC
The following factors relate to EPIC as a stand-alone company without
giving effect to the Merger.
EPIC'S Quarterly Operating Results May Fluctuate. EPIC's quarterly results
have in the past and may in the future vary significantly due to a number of
factors, including the timing of customer design and development projects; the
timing of significant orders; the timing of expenditures in anticipation of
product
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releases or increased revenue; the timing of new product announcements by EPIC
and its competitors; competition and pricing in the semiconductor industry;
customer acceptance of new and enhanced versions of EPIC's products; variations
in the mix of products EPIC licenses; and variations in product development or
operating expenditures. Any unfavorable changes in these or other factors could
have a material adverse effect on EPIC's business, financial condition and
results of operations. A substantial portion of EPIC's revenue in each quarter
results from orders booked in that quarter. In addition, as is typical in the
software industry, many of EPIC's customers order on an as-needed basis and
often place orders near the end of fiscal quarters. Quarterly revenue and
operating results will therefore depend on the volume and timing of orders
received during the quarter which are often difficult to forecast. EPIC's
expense levels are based, in part, on its expectations of future revenues. As a
result, if anticipated revenue in any quarter does not occur or is delayed,
expenditure levels could be disproportionately high as a percentage of revenues,
and EPIC's operating results for that quarter would be adversely affected.
Further, it is possible that in some future quarter EPIC's revenue or operating
results will be below the expectations of public market analysts and investors.
In such event, the price of EPIC Common Stock would be materially adversely
affected. See "EPIC Design Technology, Inc. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The EDA Industry is Highly Competitive. In general, competition in the EDA
industry comes from major EDA vendors, each of which has a longer operating
history, significantly greater financial, technical and marketing resources,
greater name recognition and larger installed customer bases than EPIC. These
companies also have established relationships with current and potential
customers of EPIC. In addition, there have been several recent consolidations in
the EDA industry involving medium to large EDA companies acquiring small
technology companies. For example, Avant! has recently acquired Anagram, Inc.,
Meta-Software, Inc. and Frontline Design Automation and Cadence has recently
acquired High Level Design Systems, Inc. ("HLDS") and has recently announced an
agreement to acquire Cooper & Chyan Technology, Inc. providing additional sales
distribution channels and customer base access to these smaller companies and
improving their ability to compete effectively. EPIC believes that this
consolidation will result in increased competition from the larger, more
diversified EDA companies. In addition, a variety of small companies develop and
introduce new products, and any of these companies could become a significant
competitor in the EDA industry in the future. EPIC also competes with the
internal design groups of its existing and potential customers, many of whom
design and develop customized simulation and analysis tools for their particular
needs and therefore may be reluctant to purchase products offered by independent
vendors. In addition, increased competition could result from vendors of SPICE
simulation products which increase the performance of their existing products to
match that of EPIC's products. There can be no assurance that EPIC will be able
to continue to compete successfully against current and future competitors or
that competitive pressures faced by EPIC will not materially adversely affect
its business, financial condition and results of operations. In particular,
increased competition could result in price reductions, reduced margins and loss
of sales, all of which could materially adversely affect EPIC. In addition,
there can be no assurance that current competitors or other entities will not
develop similar products that have significant advantages over EPIC's core
technology which could have a material adverse effect on EPIC's business,
financial condition and results of operations. See "EPIC Design Technology,
Inc. -- Business -- Competition" and "-- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Uncertainty of Continued Customer Acceptance of EPIC's Products. EPIC's
future success is dependent upon the continued development and expansion of the
use of deep submicron ICs in electronic products. Because the field of deep
submicron ICs is new and evolving, there can be no assurance that the need for
simulation and analysis tools that aid in the design of deep submicron ICs will
continue to expand. There can be no assurance that the applications for which
EPIC's products are best suited will continue to develop or that EPIC's products
will achieve the continued customer acceptance required to maintain revenue
growth and continued profitability in the future. Continued acceptance of EPIC's
products will require that IC designers continue to adopt modified methods of
design simulation and analysis. Designers have historically relied on other
methodologies implemented through products supplied by the major EDA vendors,
and there can be no assurance that they will be willing to change these
established methods of design simulation and analysis. If the need for EPIC's
products continues to develop, EPIC expects competition from the major
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<PAGE> 24
EDA vendors to increase. See "EPIC Design Technology,
Inc. -- Business -- Industry Background" and "-- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EPIC is Dependent on Semiconductor Industry. EPIC is dependent upon the
semiconductor industry and, in particular, new IC design projects. The
semiconductor industry is highly volatile due to rapid technological change,
short product life cycles, fluctuations in manufacturing capacity, and pricing
and gross margin pressures. The semiconductor industry periodically has
experienced significant downturns, often in connection with, or in anticipation
of, declines in general economic conditions during which the number of new
design projects often decreases. Purchases of new licenses from EPIC are largely
dependent upon the commencement of new design projects, and factors negatively
affecting the semiconductor industry could have a material adverse effect on
EPIC's business, financial condition and results of operations. EPIC's business,
financial condition and results of operations may in the future reflect
substantial fluctuations from period-to-period as a consequence of semiconductor
industry patterns and general economic conditions. See "EPIC Design Technology,
Inc. -- Business -- Industry Background" and "-- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EPIC is Dependent on Distributors for International Sales. EPIC has no
direct sales force and relies on a single distributor for licensing and support
of its products in each of Japan, Korea and the ASEAN countries and India.
Accordingly, EPIC is dependent upon the continued viability and financial
stability of its distributors. In particular, license and service revenue from
Marubeni, the Company's exclusive distributor in Japan, accounted for 15.6%,
16.6%, 21.9% and 19.2% of total revenue in fiscal 1994, 1995 and 1996 and in the
first quarter of fiscal 1997, respectively. Since EPIC's products are used by
highly skilled professional engineers, effective distributors must possess
sufficient technical, marketing and sales resources and must devote these
resources to a lengthy sales cycle, customer training and product service and
support. Only a limited number of distributors possess these resources. In
addition, EPIC's distributors generally offer products of several different
companies, including in some cases products that are competitive with EPIC's
products. There can be no assurance that EPIC's current distributors will be
able to continue to market or service and support EPIC's products effectively,
that economic conditions or industry demand will not adversely affect these or
other distributors, that any distributor that licenses EPIC's products will
choose to continue to license such products or that these distributors will not
devote greater resources to licensing products of other companies. The loss of,
or a significant reduction in revenue from, one of EPIC's distributors could
have a material adverse effect on EPIC's business, financial condition and
results of operations. See "EPIC Design Technology, Inc. -- Business -- Sales,
Marketing and Customers" and "-- Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Risks Associated with International Licensing. International license and
service revenue accounted for 48.5%, 44.3%, 39.7% and 39.0% of the total revenue
in fiscal 1994, 1995 and 1996 and in the first quarter of fiscal 1997,
respectively. EPIC expects that international license and service revenue will
continue to account for a significant portion of its revenues in the future.
These revenues involve a number of inherent risks, including the impact of
recessionary environments in economies outside the United States, generally
longer receivable collection periods, unexpected changes in regulatory
requirements, reduced protection for intellectual property rights in some
countries, and tariffs and other trade barriers. There can be no assurance that
such factors will not have a material adverse effect on EPIC's future
international license and service revenue and, consequently, on EPIC's business,
financial condition and results of operations. Although EPIC has attempted to
reduce the risk of fluctuations in exchange rates associated with international
revenues by licensing its products for United States currency, EPIC pays the
expenses of its international operations in local currencies and does not engage
in hedging transactions with respect to such obligations. Currency exchange
fluctuations in countries in which EPIC licenses its products could have a
material adverse effect on EPIC by resulting in pricing that is not competitive
with prices denominated in local currencies. See "EPIC Design Technology,
Inc. -- Business -- Sales, Marketing and Customers" and " -- Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Fields in which EPIC Competes are Subject to Rapid Technological
Change; EPIC is Dependent on New Products. The EDA industry is characterized by
extremely rapid technological change, frequent new product introductions,
evolving industry standards and changing customer requirements. EPIC's future
18
<PAGE> 25
success will depend upon its ability to enhance its current products and to
develop and introduce new products on a timely and a cost-effective basis that
keep pace with technological developments and evolving industry standards and
methodologies, as well as address the increasingly sophisticated needs of EPIC's
customers. There can be no assurance that EPIC will be successful in developing
and marketing product enhancements or new products that respond to technological
change, evolving industry standards and changing customer requirements, that
EPIC will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products, or that its new
products and product enhancements will adequately meet the requirements of the
marketplace and achieve customer acceptance. Failure of EPIC, for technological
or other reasons, to develop and introduce new products and product enhancements
in a timely and cost-efficient manner would have a material adverse effect on
EPIC's business, financial condition and results of operations. In addition,
EPIC or its competitors may announce new products or technologies that have the
potential to replace EPIC's existing product offerings. The introduction of
products embodying new technologies or changes in industry standards or customer
requirements could render existing products obsolete and unmarketable. In
addition, there can be no assurance that the announcement of new product
offerings by EPIC or its competitors will not cause customers to defer purchases
of existing EPIC products, which could have a material adverse effect on EPIC's
business, financial condition and results of operations. See "EPIC Design
Technology, Inc. -- Business -- Product Development" and " -- Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EPIC is Dependent on Proprietary Technology; Risk of Third Party Claims of
Infringement. EPIC relies primarily upon a combination of copyright and
trademark laws to establish and protect proprietary rights in its products. EPIC
seeks to protect the source code for its products as an unpublished copyrighted
work. EPIC generally enters into proprietary information and confidentiality
agreements with its employees and distributors, and limits access to and
distribution of its software, documentation and other proprietary information.
EPIC does not license or release the source code for its proprietary software to
its customers, except in connection with source code escrow arrangements.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use EPIC's products or technology without authorization, or
to develop similar technology independently. 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, EPIC 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 are also important to establishing
and maintaining a technology leadership position. Although EPIC has one issued
United States patent, it does not anticipate that it will rely on this or other
patents to protect its proprietary rights. Although EPIC does not believe its
products infringe the proprietary rights of any third parties, there can be no
assurance that infringement claims will not be asserted against EPIC or its
customers in the future. EPIC could incur substantial costs and diversion of
management resources in defending itself and its customers against any such
claims. Furthermore, parties making such claims could secure substantial
damages, as well as injunctive or other equitable relief which could effectively
block EPIC's ability to sell its products in the United States and abroad. Such
a judgment could have a material adverse effect on EPIC's business, financial
condition and results of operations. If it appears necessary or desirable, EPIC
may seek licenses under intellectual property that it is allegedly infringing.
There can be no assurance, however, that licenses could be obtained on
commercially reasonable terms, if at all, or that the terms of any offered
licenses will be acceptable to EPIC. The failure to obtain the necessary
licenses or other rights could have a material adverse effect on EPIC's
business, financial condition and results of operations. See "EPIC Design
Technology, Inc. -- Business -- Proprietary Technology" and " -- Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EPIC Must Continue to Manage Growth. As of September 30, 1994, 1995 and
1996 and December 31, 1996, EPIC had 79 employees, 127 employees, 195 employees
and 204 employees, respectively. The growth in EPIC's business has placed, and
is expected to continue to place, a significant strain on EPIC's management,
operational and financial resources. In order to manage its growth, EPIC must
continue to implement and improve its operational, financial and management
information systems, hire, train and manage its employees and develop additional
management expertise. EPIC's failure to manage growth effectively could have a
material adverse effect on its business, financial condition and results of
operations.
19
<PAGE> 26
EPIC is Dependent on Key Personnel. EPIC is highly dependent upon the
continued service of, and on its ability to attract and retain, qualified
technical, sales, marketing and managerial personnel. The competition for
qualified personnel is intense, and the loss of any such persons, as well as the
failure to recruit additional key personnel in a timely manner, would have a
material adverse effect on EPIC's business, financial condition and results of
operations. In particular, there are only a limited number of qualified EDA
engineers, and the competition for such individuals is especially intense. There
can be no assurance that EPIC will be able to continue to attract and retain the
qualified technical and other personnel necessary for the continued development
and growth of its business. See "EPIC Design Technology, Inc. -- Business --
Employees."
Risk of Future EPIC Acquisitions. During each fiscal of 1995 and 1996,
EPIC entered into acquisitions of other companies. EPIC's management frequently
evaluates the strategic opportunities available to it and may in the near-term
or long-term pursue acquisitions of complimentary businesses, products or
technologies. Future acquisitions by EPIC may result in the diversion of
management's attention from the day-to-day operation of EPIC's business and may
include numerous other risks, including difficulties in the integration of the
operations, products and personnel of the acquired companies. Future
acquisitions by EPIC have the potential to result in dilutive issuances of
equity securities, the incurrence of additional debt and amortization expenses
related to goodwill and other intangible assets. See "EPIC Design Technology,
Inc. -- Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Issuance of Preferred Stock Could Adversely Affect Holders of EPIC Common
Stock. Pursuant to EPIC's Restated Articles of Incorporation, the EPIC Board of
Directors has the authority to issue up to 5,000,000 shares of undesignated
Preferred Stock and to determine the powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed upon any
unissued series of undesignated Preferred Stock and affix the number of shares
constituting any series in the designation of such series, without any further
vote or action by EPIC's shareholders. The EPIC Preferred Stock could be issued
with voting, liquidation, dividend or other rights superior to the rights of the
EPIC Common Stock. The issuance of EPIC Preferred Stock under certain
circumstances could have the effect of delaying or preventing a change in
control of EPIC and may affect the market price of, and the voting and other
rights of the holders of EPIC Common Stock.
Substantial Price Volatility of the EPIC Common Stock. The market price of
shares of EPIC Common Stock has in the past, and is likely to continue in the
future, to be highly volatile and significantly affected by factors such as
actual or anticipated fluctuations in EPIC's operating results, announcements of
technological innovations, new products or new licenses by EPIC or its
competitors, developments with respect to copyrights or proprietary rights,
conditions and trends in the EDA and semiconductor industries, adoption of new
accounting standards affecting the software industry, general market conditions,
the impact of relatively low trading float on the market price of the EPIC
Common Stock and other factors. In addition, the stock market has from
time-to-time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stocks of technology
companies and that have often been unrelated to the operating performance of
particular companies. These broad market fluctuations have in the past and may
in the future also adversely affect the market price of the EPIC Common Stock.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has occurred against the issuing
company. There can be no assurance that such litigation will not occur in the
future with respect to EPIC. Such litigation could result in substantial costs
and diversion and management's attention and resources, which could have a
material adverse effect on EPIC's business, financial condition and results of
operations. Any adverse determination in any such litigation could also subject
EPIC to significant liabilities.
20
<PAGE> 27
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected historical financial information of Synopsys and
EPIC has been derived from their respective historical consolidated financial
statements, and should be read in conjunction with such consolidated financial
statements and the notes thereto, included elsewhere in this Joint Proxy
Statement/Prospectus. The selected pro forma combined financial information is
derived from the unaudited pro forma combined condensed financial statements,
which give effect to the Merger as a pooling of interests, and should be read in
conjunction with such unaudited pro forma combined condensed financial
statements and the notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus. For pro forma purposes, Synopsys' consolidated statements
of income for the three fiscal years ended September 30, 1994, 1995 and 1996,
and for the three months ended December 31, 1995 and 1996, have been combined
with EPIC's consolidated statements of operations for the three fiscal years
ended September 30, 1994, 1995 and 1996, and for the three months ended December
31, 1995 and 1996, giving effect to the Merger as if it had occurred on October
1, 1993. For pro forma purposes, Synopsys' consolidated balance sheet as of
December 31, 1996 has been combined with the consolidated balance sheet of EPIC
as of December 31, 1996, giving effect to the Merger as if it had occurred on
December 31, 1996. No cash dividends have been declared or paid on Synopsys
Common Stock or EPIC Common Stock. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated at the beginning of the periods indicated, nor is it necessarily
indicative of future operating results or financial position.
SYNOPSYS SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenue.................... $91,689 $142,703 $199,200 $265,500 $353,500 $79,000 $102,500
Merger-related costs....... 1,374 -- 7,400 -- -- -- --
In-process research and
development.............. -- -- 5,900 9,200 39,700 -- --
Operating income........... 7,935 22,493 21,600 42,800 28,900 15,800 20,400
Net income................. 4,598 15,001 14,205 30,300 23,700 11,650 16,150
Earnings per share......... $ 0.13 $ 0.41 $ 0.36 $ 0.75 $ 0.57 $ 0.28 $ 0.38
Shares used in per share
computation.............. 34,508 36,854 39,038 40,416 41,553 41,632 42,993
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
--------------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Cash and short-term
investments.............. $49,814 $ 95,013 $141,213 $209,984 $236,567 $231,540
Working capital............ 41,260 64,098 94,756 147,259 157,377 174,046
Total assets............... 101,536 144,389 211,949 297,571 408,967 426,277
Long-term debt............. 778 -- -- -- 15,970 14,122
Total stockholders'
equity................... 63,061 89,364 123,728 182,302 232,747 264,280
</TABLE>
21
<PAGE> 28
EPIC SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue............................ $2,702 $5,532 $11,339 $25,003 $43,919 $9,439 $14,210
Purchased in-process technology.... -- -- -- 3,261 18,806 -- --
Operating income (loss)............ 27 809 1,830 2,458 (5,470) 2,681 4,291
Net income (loss).................. (25) 603 1,238 990 (9,678) 1,867 2,926
Net income (loss) per share........ $(0.01) $ 0.06 $ 0.13 $ 0.08 $ (0.77) $ 0.14 $ 0.20
Shares used in per share
computation...................... 4,922 9,520 9,864 13,198 12,625 13,656 14,735
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
--------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------ ------ ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Cash and short-term investments.... $ 965 $ 872 $ 3,974 $27,918 $39,527 $39,321
Working capital.................... 1,335 1,521 1,862 23,584 30,763 34,724
Total assets....................... 2,257 3,345 7,907 35,781 54,791 58,519
Total shareholders' equity......... 1,545 2,163 3,637 26,925 37,054 41,185
</TABLE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------- --------------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME DATA:
Revenue.............................. $210,539 $290,503 $397,419 $88,439 $116,710
Merger-related costs................. 7,400 -- -- -- --
In-process research and
development........................ 5,900 12,461 58,506 -- --
Operating income..................... 23,430 45,258 23,430 18,481 24,691
Net income........................... 15,443 31,290 14,022 13,517 19,076
Earnings per share................... $ 0.33 $ 0.62 $ 0.27 $ 0.26 $ 0.35
Shares used in per share
computation........................ 46,421 50,295 51,933 51,854 54,022
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1996
------------
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and short-term investments................................................. $270,861
Working capital................................................................. 204,170
Total assets.................................................................... 484,796
Long-term debt.................................................................. 14,122
Total stockholders' equity...................................................... 300,865
</TABLE>
22
<PAGE> 29
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Synopsys and EPIC and combined per share data on an unaudited pro forma basis
after giving effect to the Merger as a pooling of interests. This data should be
read in conjunction with the selected historical and unaudited pro forma
combined financial data and the unaudited pro forma combined condensed financial
statements of Synopsys and EPIC and notes thereto, included elsewhere in this
Joint Proxy Statement/Prospectus. The pro forma combined per share data are not
necessarily indicative of the operating results or financial position that would
have occurred if the Merger had been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of future operating results or
financial position.
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
------------------------- DECEMBER 31,
1994 1995 1996 1996
----- ----- ----- ------------
<S> <C> <C> <C> <C>
HISTORICAL -- SYNOPSYS
Earnings per share..................................... $0.36 $0.75 $0.57 $ 0.38
Book value per share(1)................................ 3.34 4.68 5.76 6.48
HISTORICAL -- EPIC
Net income (loss) per share............................ 0.13 0.08 (0.77) 0.20
Book value per share(1)................................ 0.43 2.22 2.72 3.00
PRO FORMA COMBINED EARNINGS PER SHARE(2)
Per Synopsys share..................................... 0.33 0.62 0.27 0.35
Equivalent per EPIC share(3)........................... 0.25 0.46 0.20 0.26
PRO FORMA COMBINED BOOK VALUE PER SHARE(2)(4)
Per Synopsys share..................................... 5.24 5.89
Equivalent per EPIC share(3)........................... 3.92 4.41
</TABLE>
- ---------------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock and preferred stock, on an as
if converted basis, outstanding at the end of each period.
(2) Synopsys and EPIC estimate they will incur direct transaction costs of
approximately $4.6 million associated with the Merger, which will be charged
to operations upon consummation of the Merger. In addition, it is expected
that after the Merger, the combined company will incur an additional
significant charge to operations, which is not currently reasonably
estimable, to reflect costs associated with integrating the two companies.
The pro forma combined book value per share data gives effect to the
estimated direct transaction costs, as if such costs had been incurred as of
the respective balance sheet date. The pro forma combined book value per
share data does not include the additional significant charge relating to
integrating the two companies. The direct transaction costs and
integration-related charges are not included in the pro forma combined
earnings per share data. See "Unaudited Pro Forma Combined Condensed
Financial Statements" and accompanying notes thereto.
(3) The EPIC equivalent pro forma combined per share amounts are calculated by
multiplying the Synopsys combined pro forma share amounts by the Exchange
Ratio of 0.7485 of a share of Synopsys Common Stock for each share of EPIC
Common Stock.
(4) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding at the end of each period.
23
<PAGE> 30
MARKET PRICE AND DIVIDEND INFORMATION
Synopsys. As of January 31, 1997, there were approximately 271 holders of
record of the Synopsys Common Stock. The Synopsys Common Stock is traded on The
Nasdaq National Market under the symbol "SNPS". The following table sets forth
for the periods indicated the range of high and low sale prices reported on The
Nasdaq National Market for the Synopsys Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended September 30, 1995:
First Quarter.................................................... $24.25 $19.75
Second Quarter................................................... 27.38 21.38
Third Quarter.................................................... 31.38 23.50
Fourth Quarter................................................... 34.50 28.13
Fiscal Year Ended September 30, 1996:
First Quarter.................................................... $38.50 $23.00
Second Quarter................................................... 37.75 27.50
Third Quarter.................................................... 46.75 29.75
Fourth Quarter................................................... 50.50 30.75
Fiscal Year Ending September 30, 1997:
First Quarter.................................................... $48.50 $42.25
Second Quarter (through February 3, 1997)........................ 46.25 38.63
</TABLE>
EPIC. As of January 31, 1997, there were approximately 86 holders of record
of the EPIC Common Stock. The EPIC Common Stock is traded on The Nasdaq National
Market under the symbol "EPIC". The following table sets forth for the periods
indicated the range of high and low sale prices reported on The Nasdaq National
Market for the EPIC Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended September 30, 1995:
First Quarter (from October 26, 1994)............................ $12.37 $ 9.37
Second Quarter................................................... 13.62 9.00
Third Quarter.................................................... 18.12 12.63
Fourth Quarter................................................... 24.25 15.75
Fiscal Year Ended September 30, 1996:
First Quarter.................................................... $24.25 $19.00
Second Quarter................................................... 36.75 20.50
Third Quarter.................................................... 36.00 24.00
Fourth Quarter................................................... 26.75 17.50
Fiscal Year Ending September 30, 1997:
First Quarter.................................................... $27.00 $22.63
Second Quarter (through February 3, 1997)........................ 33.50 24.25
</TABLE>
Neither Synopsys nor EPIC have paid cash dividends in the past. Following
the Merger, Synopsys does not anticipate paying cash dividends in the
foreseeable future. Pursuant to the Merger Agreement, EPIC and Synopsys have
agreed not to pay cash dividends pending the consummation of the Merger. If the
Merger is not completed, the EPIC Board presently intends to continue a policy
of retaining all earnings to finance the expansion of its business.
The following table sets forth the closing prices per share of Synopsys
Common Stock and EPIC Common Stock on The Nasdaq National Market on January 15,
1997, the last full trading date prior to the execution and delivery of the
Merger Agreement and the public announcement thereof, and on February 3, 1997,
the latest practicable trading day before the printing of this Joint Proxy
Statement/Prospectus; and the
24
<PAGE> 31
equivalent per share prices for EPIC Common Stock as of such dates based on the
Synopsys Common Stock prices multiplied by the Exchange Ratio of 0.7485:
<TABLE>
<CAPTION>
SYNOPSYS EPIC EPIC
COMMON STOCK COMMON STOCK EQUIVALENT
------------ ------------ ----------
<S> <C> <C> <C>
January 15, 1997............................. $41.75 $31.25 $31.25
February 3, 1997............................. $41.75 $29.75 $31.25
</TABLE>
No assurance can be given as to the market prices of Synopsys Common Stock
or EPIC Common Stock at any time before the Effective Time or as to the market
price of Synopsys Common Stock at any time thereafter. The Exchange Ratio is
fixed and will not be adjusted to compensate EPIC shareholders for decreases in
the market price of Synopsys Common Stock which could occur before the Merger
becomes effective. In the event the market price of Synopsys Common Stock
decreases or increases prior to the Effective Time, the market value at the
Effective Time of the Synopsys Common Stock to be received in the Merger in
exchange for EPIC Common Stock would correspondingly decrease or increase. EPIC
shareholders are urged to obtain a current market quotation of the EPIC Common
Stock and the Synopsys Common Stock.
Following the Merger, all EPIC Common Stock will be owned by Synopsys and,
as a result, EPIC Common Stock will no longer be listed on The Nasdaq National
Market.
25
<PAGE> 32
THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Synopsys Common Stock in connection with the solicitation of proxies by the
Synopsys Board for use at the Synopsys Special Meeting to be held on Friday,
February 28, 1997, at Synopsys' principal executive offices at 700 East
Middlefield Road, Mountain View, California 94043, commencing at 9:00 a.m.,
local time, and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders of
EPIC Common Stock in connection with the solicitation of proxies by the EPIC
Board for use at the EPIC Special Meeting to be held on Friday, February 28,
1997 at the offices of EPIC located at 310 North Mary Avenue, Sunnyvale,
California 94086, commencing at 9:00 a.m., local time, and at any adjournment or
postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy
are first being mailed to stockholders of Synopsys and shareholders of EPIC on
or about February 7, 1997.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Synopsys Special Meeting. At the Synopsys Special Meeting, holders of
Synopsys Common Stock will consider and vote upon (i) the issuance of shares of
Synopsys Common Stock in exchange for shares of EPIC Common Stock pursuant to
the Merger Agreement and (ii) such other matters as may properly be brought
before the Synopsys Special Meeting, including any motion to adjourn to a later
date to permit further solicitation of proxies if necessary, or any
postponements or adjournments thereof.
EPIC Special Meeting. At the EPIC Special Meeting, holders of EPIC Common
Stock will consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement, and (ii) such other matters as may properly be brought before the
EPIC Special Meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies if necessary, or before any adjournments
thereof.
Board of Directors' Recommendations. The Synopsys Board has unanimously
approved the Merger Agreement and the issuance of shares of Synopsys Common
Stock in connection with the Merger and believes that the Merger is fair to, and
in the best interests of, Synopsys and its stockholders and, therefore,
unanimously recommends a vote FOR the issuance of Synopsys Common Stock in
connection with the Merger.
The EPIC Board has unanimously approved the Merger Agreement and the Merger
and believes that the terms of the Merger Agreement are fair to, and that the
Merger is in the best interests of, EPIC and its shareholders and, therefore,
unanimously recommends that the holders of EPIC Common Stock vote FOR approval
and adoption of the Merger Agreement.
VOTING AT THE MEETINGS; RECORD DATES
Synopsys. Holders of record of Synopsys Common Stock on January 31, 1997
will be entitled to notice of and to vote at the Synopsys Special Meeting. As of
January 31, 1997 there were 40,930,373 shares of Synopsys Common Stock
outstanding and entitled to vote, which shares were held by approximately 271
holders of record. Each holder of record of shares of Synopsys Common Stock on
the record date is entitled to cast one vote per share, exercisable in person or
by properly executed proxy, at the Synopsys Special Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Synopsys Common Stock entitled to vote at the Synopsys
Special Meeting is necessary to constitute a quorum at the Synopsys Special
Meeting.
The approval of the issuance of Synopsys Common Stock in connection with
the Merger will require the affirmative vote of the holders of a majority of the
shares of Synopsys Common Stock present in person or represented by proxy at the
Synopsys Special Meeting. The approval of the issuance of Synopsys Common
26
<PAGE> 33
Stock in connection with the Merger is required by the rules of Nasdaq governing
corporations with securities listed on The Nasdaq National Market.
As of January 31, 1997, directors and executive officers of Synopsys and
their affiliates may be deemed to be beneficial owners of approximately 1.3% of
the outstanding shares (excluding shares subject to stock options) of Synopsys
Common Stock. Each of the directors and executive officers of Synopsys has
advised Synopsys that he or she intends to vote or direct the vote of all shares
of Synopsys Common Stock over which he or she has voting control for approval of
the issuance of Synopsys Common Stock in connection with the Merger.
As of January 31, 1997, the directors and executive officers of EPIC and
their affiliates owned less than 1% of the outstanding shares of Synopsys Common
Stock and EPIC owned no shares of Synopsys Common Stock.
EPIC. Holders of record of shares of EPIC Common Stock on January 31, 1997
will be entitled to notice of and to vote at the EPIC Special Meeting. As of
January 31, 1997 there were 13,795,179 shares of EPIC Common Stock outstanding
and entitled to vote, which shares were held by approximately 86 holders of
record. Each holder of record of shares of EPIC Common Stock on the EPIC Record
Date is entitled to cast one vote per share on each proposal submitted for the
vote of the EPIC shareholders, exercisable in person or by properly executed
proxy, at the EPIC Special Meeting. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of EPIC
Common Stock entitled to vote is necessary to constitute a quorum at the EPIC
Special Meeting.
The approval and adoption of the Merger Agreement by EPIC shareholders will
require the affirmative vote of the holders of a majority of the outstanding
shares of EPIC Common Stock entitled to vote.
In accordance with the terms of the Merger Agreement, directors and
officers of EPIC have executed and delivered agreements and irrevocable proxies
to Synopsys (the "Voting Agreements") obligating them, among other things, to
vote their shares of EPIC Common Stock in favor of approval of the Merger
Agreement. As a result, all of the 835,457 shares of EPIC Common Stock (which
excludes shares subject to EPIC Options) beneficially owned by directors and
executive officers of EPIC and their respective affiliates at the EPIC Record
Date (representing approximately 6.1% of the total number of shares of EPIC
Common Stock outstanding at such date) will be voted for approval of and
adoption of the Merger Agreement.
As of January 31, 1997, the directors and executive officers of Synopsys
and their affiliates owned less than 1% of the outstanding shares of EPIC Common
Stock and Synopsys owned no shares of EPIC Common Stock.
Effects of Abstentions and "Broker Non-Votes." At the Synopsys Special
Meeting, in determining whether the issuance of Synopsys Common Stock in
connection with the Merger has received the requisite number of affirmative
votes, (i) abstentions will be counted and will have the same effect as a vote
against the issuance of Synopsys Common Stock in connection with the Merger and
(ii) broker non-votes will have no effect on the outcome of the vote on the
issuance of Synopsys Common Stock in connection with the Merger. At the EPIC
Special Meeting, in determining whether the proposal to approve and adopt the
Merger Agreement has received the requisite number of affirmative votes,
abstentions and broker non-votes will have the same effect as a vote against
such proposal. At both the Synopsys Special Meeting and the EPIC Special
Meeting, abstentions and broker non-votes will be counted for purposes of
determining the presence of a quorum. A "broker non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a proposal because, for
such proposal, the nominee does not have discretionary voting power and has not
received instructions from such beneficial owner.
ADJOURNMENT OF THE EPIC SPECIAL MEETING OR THE SYNOPSYS SPECIAL MEETING
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement at the time of the EPIC Special Meeting, such proposal could
not be approved unless the EPIC Special Meeting was adjourned in order to permit
further solicitation of proxies from EPIC shareholders. Proxies that are being
solicited by the EPIC Board grant the discretionary authority to vote for any
such adjournment, if necessary. If
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it is necessary to adjourn the EPIC Special Meeting, and the adjournment is for
a period of less than 45 days, no notice of the time and place of the adjourned
meeting is required to be given to shareholders other than an announcement of
such time and place at the EPIC Special Meeting. A majority of the voting power
represented and voting at the EPIC Special Meeting is required to approve any
such adjournment, whether or not a quorum is present at the EPIC Special
Meeting.
In the event that there are not sufficient votes to approve the issuance of
shares of Synopsys Common Stock in connection with the Merger at the time of the
Synopsys Special Meeting, such proposal could not be approved unless the
Synopsys Special Meeting was adjourned to permit further solicitation of proxies
from Synopsys stockholders. Proxies that are being solicited by the Synopsys
Board grant the discretionary authority to vote for any such adjournment, if
necessary. If it is necessary to adjourn the Synopsys Special Meeting, and the
adjournment is for a period of less than 30 days, no notice of the time and
place of the adjourned meeting is required to be given to stockholders other
than the announcement of such time and place at the Synopsys Special Meeting. A
majority of the voting power represented and voting at the Synopsys Special
Meeting is required to approve such adjournment whether or not a quorum is
present at the Synopsys Special Meeting.
An adjournment of either the Synopsys Special Meeting or EPIC Special
Meeting, or both, may be necessary because the short time between the mailing of
the Joint Proxy Statement/Prospectus and the Special Meetings may result in the
lack of a quorum at either or both Special Meetings. In addition, an absolute
majority of all outstanding shares of EPIC Common Stock is required to approve
the Merger, and not merely a majority of the shares present and voting in person
or by proxy.
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Synopsys
stockholders and EPIC shareholders in connection with the solicitation of
proxies by and on behalf of the Synopsys and EPIC Boards for use at the Synopsys
Special Meeting and the EPIC Special Meeting, respectively.
All shares of Synopsys Common Stock and EPIC Common Stock which are
entitled to vote and are represented at the relevant Special Meeting by properly
executed proxies received prior to or at the relevant Special Meeting, and are
not revoked, will be voted at such Special Meeting in accordance with the
instructions indicated on such proxies. If no instructions are indicated, such
proxies will be voted:
(i) in the case of the Synopsys Special Meeting, FOR approval of the
issuance of Synopsys Common Stock in connection with the Merger; and
(ii) in the case of the EPIC Special Meeting, FOR approval and
adoption of the Merger Agreement.
If any other matters are properly presented at the Special Meetings for
consideration, including, among other things, consideration of a motion to
adjourn a Special Meeting (including, without limitation, for purposes of
soliciting additional votes for approval of the issuance of shares of Synopsys
Common Stock in connection with the Merger or for approval and adoption of the
Merger Agreement, as applicable) to another time and/or place, the persons named
in the enclosed form of proxy and acting thereunder will have discretion to vote
on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Synopsys or EPIC, as the case may be, at or before the
taking of the vote at the relevant Special Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a later
dated proxy relating to the same shares and delivering it to the Secretary of
Synopsys or EPIC, as the case may be, before the taking of the vote at the
relevant Special Meeting or (iii) attending the relevant Special Meeting and
voting in person (although attendance at a Special Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to, in the case of
Synopsys stockholders, to Synopsys, Inc., 700 East Middlefield Road, Mountain
View, California, 95053-4033, Attention: Secretary, and in the case of EPIC
shareholders, to EPIC Design Technology, Inc., 310 North Mary Avenue, Sunnyvale,
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California 94086, Attention: Secretary, or hand delivered to the Secretary of
Synopsys or EPIC, as the case may be, at or before the taking of the vote at the
relevant Special Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Joint Proxy Statement/ Prospectus, will be borne by Synopsys and
EPIC. In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of Synopsys and EPIC in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. EPIC may
retain a proxy solicitation firm for assistance in connection with its Special
Meeting at a cost of not more than $15,000, plus reasonable out-of-pocket
expenses. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such custodians, nominees and fiduciaries, and
Synopsys and EPIC will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
EPIC SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
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THE MERGER
GENERAL
Synopsys offers a wide range of high-level design automation products for
designers of ICs and electronic systems, including design tools, verification
systems and design reuse tools, and related services. EPIC develops, markets and
supports a family of simulation, analysis, extraction and physical verification
software tools. EPIC's timing, power and reliability analysis tools are widely
recognized as the leading tools in their fields.
As semiconductor design geometries continue to shrink and vendors
increasingly demand the integration of complex systems on a single chip, the
design automation industry must provide customers with a more effective software
solution integrating gate-level and transistor-level design and analysis
capabilities. EPIC's tools operate at the physical, or transistor, level of IC
design, while Synopsys' design and verification tools operate at the earlier
logic, or gate, level of IC design. The Merger offers Synopsys and EPIC an
opportunity to combine industry leading technologies to provide their customers
with a better integrated solution to meet these challenges.
BACKGROUND OF THE MERGER
The electronic design automation software industry is highly competitive.
In their efforts to enhance their market positions and grow their businesses in
an increasingly competitive environment, each of Synopsys and EPIC has
continually evaluated strategic relationships of various forms with various
third parties.
Over time, representatives of Synopsys and EPIC became familiar with each
others' products through informal contacts at industry trade shows and through
interaction with various industry participants.
In early December 1996, Sang S. Wang, Chairman of the Board of Directors
and Chief Executive Officer of EPIC, phoned Chi-Foon Chan, Executive Vice
President of Synopsys, to express interest in exploring the potential of a
commercial relationship between EPIC and Synopsys. On December 18, 1996, Dr.
Wang met with Dr. Chan and reviewed with Dr. Chan EPIC's overall business,
product offerings, strategic plan and organization. During the meeting, the
possibility of a commercial relationship between the two companies was
discussed.
On December 20, 1996, Dr. Chan met with Dr. Wang and Bernard Aronson,
President and a member of the Board of Directors of EPIC. They discussed each
company's views of the EDA industry as well as certain aspects of each company's
business and operations. At the meeting, the representatives of Synopsys and
EPIC again discussed a possible commercial relationship between Synopsys and
EPIC and also discussed the potential advantages of a strategic combination of
the two companies.
On January 7, 1997, Dr. Chan phoned Dr. Wang and expressed continued
interest on the part of Synopsys in further exploring the synergistic aspects of
the two companies' products. During this call, Dr. Chan suggested a formal
meeting between Dr. Wang and Mr. Aronson and Aart de Geus, President, Chief
Executive Officer and a member of the Board of Directors of Synopsys.
As described in the following paragraphs, between January 9, 1997 and
January 16, 1997, representatives of EPIC and Synopsys held numerous intensive
meetings and discussions to explore a possible business combination, conduct due
diligence and negotiate the terms of the Merger. These meetings and discussions
culminated with the signing and announcement of the Merger Agreement on January
16, 1997.
On January 9, 1997 Dr. Chan and Dr. de Geus met with Dr. Wang and Mr.
Aronson to discuss many aspects of the businesses, products, operations and
personnel of the two companies, focusing on EPIC's products, the strategic fit
with Synopsys' products and the potential benefits of a strategic combination.
On January 10, 1997, Dr. Chan conveyed to Dr. Wang by phone a positive
feeling about the potential strategic benefits of combining the two companies.
During this call Dr. Chan and Dr. Wang scheduled a meeting to further explore
the potential for a strategic business combination between Synopsys and EPIC.
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On January 11, 1997, Dr. de Geus and Dr. Chan met with Dr. Wang and Mr.
Aronson and discussed in detail various aspects of each company's business,
including their technology and product development strategies and sales and
marketing operations and strategies. In addition, the parties again discussed
the possibility of a transaction combining the two companies. In the course of
these discussions, the parties discussed advantages and benefits of a potential
strategic merger and explored the synergies that could be realized from such a
transaction. At the conclusion of this meeting, the representatives of Synopsys
and EPIC agreed to meet again the following day to perform due diligence
regarding each other's business and to continue to discuss the potential for a
strategic combination.
During the morning and early afternoon of January 12, 1997, Synopsys and
EPIC negotiated a letter agreement (the "Confidentiality Agreement"), which
provided for, among other things, the parties' exchange of certain non-public
information regarding their businesses on a confidential basis. Thereafter,
during the afternoon and into the evening of January 12, representatives of
Synopsys and EPIC met to exchange information, to conduct due diligence as to
the business of the other company, including financial due diligence, to discuss
the advantages and benefits of a potential combination and to explore the
potential synergies between the two companies and the operational issues
associated with any business combination. At the conclusion of this meeting,
Synopsys provided a term sheet to EPIC setting forth certain proposed terms of a
possible strategic combination with EPIC for purposes of determining the utility
of continuing discussions concerning such a transaction. This preliminary,
non-binding term sheet provided for a tax-free reorganization qualifying for
pooling of interests accounting treatment. The terms included a fixed exchange
ratio based on the relative last sale prices of Synopsys Common Stock and EPIC
Common Stock on January 10, 1997. The term sheet did not provide for a
representative of EPIC to be added to the Synopsys Board after the transaction.
At the conclusion of this meeting, the representatives of EPIC indicated that
they were supportive of the economic terms of the proposal and that they would
inform the EPIC Board of the status of discussions and the terms set forth in
the term sheet.
Late in the evening of January 12, EPIC senior management contacted Morgan
Stanley and WSG&R to discuss the Synopsys proposal and to arrange a meeting for
the following day. Morgan Stanley had provided financial advisory services to
EPIC in the past and was familiar with EPIC, the EDA industry in which EPIC
competes and the key players in the EDA industry, including Synopsys.
On January 13, 1997, Dr. Wang, Mr. Aronson and Tammy S. Liu, EPIC's Chief
Financial Officer, met with representatives of Morgan Stanley and WSG&R. At this
meeting, EPIC reviewed with Morgan Stanley and WSG&R the proposed terms of the
transaction as well as the information exchanged during the due diligence
discussions.
On the evening of January 13, 1997, the EPIC Board convened a meeting with
EPIC's senior management and financial and legal advisors regarding Synopsys'
proposal. At this meeting, Dr. Wang, Mr. Aronson and Ms. Liu reviewed with the
EPIC Board the discussions between senior management of the two companies and
the results of their due diligence investigations to date of Synopsys. Members
of the Board and management of EPIC discussed the factors that supported a
possible combination of the respective product lines, technologies and industry
positions of EPIC and Synopsys and the strategic factors associated with a
possible strategic business combination with Synopsys. In addition, the EPIC
Board and senior management discussed, as they had at several meetings over the
preceding year, alternative steps that could be taken to enhance EPIC's
long-term strategic position. During this meeting, representatives of WSG&R
reviewed the EPIC Board's fiduciary duties and powers in considering a strategic
business combination and discussed the possible terms of the transaction. In
addition, Morgan Stanley discussed with the EPIC Board Synopsys' preliminary
proposal. The EPIC Board authorized management to negotiate the engagement of
Morgan Stanley to act as EPIC's financial advisor in connection with discussions
with Synopsys regarding a potential business combination. The EPIC Board also
authorized management and EPIC's advisors to negotiate with Synopsys in order to
determine whether acceptable terms could be reached. Following the meeting,
EPIC's representatives informed Synopsys' representatives that EPIC was
interested in pursuing the merger transaction proposed by Synopsys, but that the
exchange ratio and certain other terms and conditions, including the composition
of the board of directors of the combined company, were issues requiring further
negotiation.
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On January 14, 1997, Synopsys provided to EPIC's financial and legal
advisors a proposed form of merger agreement. On the afternoon of January 14,
Dr. de Geus and Dr. Chan again met with Dr. Wang and Mr. Aronson to discuss the
business, operations and technology of each company and of the combined company
that would result from a business combination. The representatives of the
companies again discussed the strategic benefits to each company of a possible
combination and various structural and operational alternatives. In addition,
Dr. Wang and Mr. Aronson reviewed with the representatives of Synopsys the EPIC
Board's concerns regarding the proposed exchange ratio and certain other
proposed terms and conditions of the merger. Morgan Stanley also reviewed with
certain representatives of Synopsys concerns regarding valuation issues relevant
to the negotiation of a mutually acceptable exchange ratio.
On the morning of January 15, 1997, representatives of EPIC and Synopsys
met to perform technical due diligence and review. At the same time, EPIC's
legal and financial advisors met with EPIC senior management to review the terms
of the draft merger agreement presented by Synopsys. During this period of
negotiation and due diligence, Synopsys and EPIC became concerned that the
market was anticipating a potential transaction between the two companies. Both
Synopsys and EPIC and their respective advisors determined that it would be
prudent to accelerate negotiations in order to attempt to reach an agreement on
the terms of a strategic business combination and announce such agreement.
In the afternoon of January 15, senior management and financial and legal
advisors of EPIC negotiated with senior management of Synopsys regarding certain
of the terms and conditions of the possible combination. Morgan Stanley
communicated to Synopsys' senior management certain valuation issues believed by
EPIC to be relevant to the negotiation of a mutually acceptable exchange ratio
and other terms and conditions of a potential business combination. During the
negotiations and discussions, the representatives for EPIC suggested to
Synopsys' representatives that an exchange ratio based upon the last sale prices
of Synopsys Common Stock and EPIC Common Stock on January 15 (which represented
a premium to EPIC's recent stock price) and the addition of a member of the EPIC
Board to the Synopsys Board following the combination were the minimum terms
under which the EPIC Board would consider a strategic combination.
During the evening of January 15, the Board of Directors of Synopsys held a
special meeting to discuss the proposed transaction with EPIC. The meeting began
with a review of Synopsys' business strategy by Dr. de Geus. Dr. de Geus and
other members of Synopsys senior management then described EPIC's business,
products and personnel, the strategic fit between the two companies and the
proposed transaction terms. Senior management also described the technical and
financial due diligence that had been conducted and the results of these
investigations. Several Synopsys Board members were already familiar with EPIC.
After discussion, the Synopsys Board approved the Merger Agreement and
authorized senior management to proceed with the transaction, subject to final
negotiation of an acceptable exchange ratio by Dr. de Geus and Dr. Chan.
While the Synopsys Board met, Dr. Wang, Mr. Aronson and Ms. Liu contacted
the members of the EPIC Board individually to update them on the status of the
discussions and negotiations with Synopsys. In addition, EPIC senior management
met with its financial and legal advisors to review the terms of the draft
merger agreement and to receive reports regarding the financial and legal due
diligence performed by the advisors.
In the late evening of January 15, representatives of EPIC and Synopsys met
again to discuss the proposed combination. Based on the discussion at the
Synopsys Board meeting, Synopsys' representatives proposed an alternative
exchange ratio which would be based initially on the two companies' stock prices
on January 15, 1997, but would be subject to adjustment downward, within certain
limitations, based on the two companies' relative average stock prices between
January 15, 1997 and the closing date.
After conferring with EPIC's financial and legal advisors, Dr. Wang and Mr.
Aronson advised Synopsys that in EPIC's view, a fixed exchange ratio based on
the then current trading prices for the Synopsys Common Stock and the EPIC
Common Stock (which represented a premium to EPIC's recent stock price) was more
consistent with a strategic combination of the companies than was the
alternative exchange ratio proposed by Synopsys' representatives. There then
ensued discussions and negotiations between the senior management of Synopsys
and the senior management and financial and legal advisors of EPIC. At the
conclusion of these
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discussions, the parties reached agreement on the key terms of the proposed
combination, including a fixed exchange ratio of 0.7485 and that Dr. Wang would
be added to the Synopsys Board following the Merger.
Late in the evening of January 15, the EPIC Board met by telephone
conference call and senior management reported that agreement had been reached
with respect to the exchange ratio and other key business terms of the merger.
The EPIC Board discussed the structure of the proposed merger and the
composition of the board of directors of the combined company. In addition, the
senior management and advisors to EPIC reported on the results of the due
diligence investigation of Synopsys and the potential benefits and risks of the
Merger and responded to questions from members of the EPIC Board regarding
EPIC's due diligence and management's views on the business and operations of
Synopsys. At the conclusion of this meeting, the EPIC Board approved the Merger
and the draft of the Merger Agreement, subject to the receipt of an opinion of
Morgan Stanley regarding the exchange ratio, the completion of financial due
diligence and the finalization by EPIC's management and advisors of the
definitive Merger Agreement.
Early in the morning of January 16, Synopsys' and EPIC's legal counsel and
executive officers had discussions regarding the terms of the Merger Agreement
and related documents, including the terms of the EPIC Affiliate Agreements and
EPIC Voting Agreements, the representations, warranties and covenants to be
made, the termination rights relating to the Merger Agreement and the conditions
upon which breakup fees would be payable. In addition, senior management of
Synopsys and EPIC and EPIC's financial advisors conducted additional financial
due diligence on Synopsys.
Early in the morning of January 16, at a meeting of the EPIC Board, EPIC
senior management and EPIC's financial and legal advisors reported to the EPIC
Board that the parties had negotiated a definitive Merger Agreement and related
agreements, reviewed the terms of those agreements with the EPIC Board and
responded to questions regarding the proposed terms of the transaction. Morgan
Stanley discussed with the Board various analyses relating to the Merger and
responded to questions regarding such analyses. At the conclusion of its
presentation, Morgan Stanley delivered its oral opinion, subsequently confirmed
in writing, that, as of such date, the Exchange Ratio was fair to the holders of
shares of EPIC Common Stock from a financial point of view. At this point, the
EPIC Board approved the Merger Agreement and related agreements.
Thereafter, Synopsys and EPIC entered into the Merger Agreement and the
execution of the Merger Agreement was announced in a joint press release on
January 16, 1997.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Certain statements made in the following paragraphs regarding the potential
benefits that could result from the Merger are forward-looking statements based
on current expectations and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements. Such risks and uncertainties are set forth under
"Risk Factors" and elsewhere in this Joint Proxy Statement/Prospectus.
JOINT REASONS FOR THE MERGER
In reaching their decision to approve the Merger Agreement and the Merger,
the Synopsys and EPIC Boards consulted with their respective management teams
and advisors and independently considered the proposed Merger Agreement and the
transactions contemplated thereunder. Based upon their respective independent
reviews of the proposed transaction and the business and operations of the other
party, the Synopsys Board and the EPIC Board each approved the Merger Agreement
and the transactions contemplated thereby. The Board of each company concluded
that (i) the goals and philosophies of the two companies are consistent, (ii)
the products of the two companies are complementary, (iii) the combined company
has the opportunity to offer customers a more comprehensive IC design flow than
either could offer independently, by integrating Synopsys' expertise in high
level design with EPIC's expertise in transistor level physical design, (iv) the
Merger would be positively received by customers and (v) the companies'
shareholders would benefit by the enhanced ability of the combined company to
compete in the rapidly-changing EDA industry. There can be no assurance,
however, that these results or any of the efficiencies or opportunities
described in the following sections on Synopsys' Reasons for the Merger and
EPIC's Reasons for
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the Merger will be achieved through the consummation of the Merger. See "Risk
Factors -- Risks Relating to the Merger."
SYNOPSYS' REASONS FOR THE MERGER
The Synopsys Board has unanimously approved the Merger Agreement, has
determined that the Merger is advisable, fair to and in the best interests of
Synopsys and its stockholders, and recommends that holders of shares of Synopsys
Common Stock vote FOR approval and adoption of the Merger Agreement and the
Merger.
In addition to the anticipated joint reasons described above, the Synopsys
Board believes that the Merger will be beneficial to Synopsys and Synopsys'
stockholders for the following additional reasons:
- EPIC's products are complementary to Synopsys' products, giving Synopsys
an opportunity to offer a more complete IC design solution to its
customers and to compete more successfully against its principal
competitors in the face of changing industry requirements.
- EPIC's technical management, research and development, and applications
teams have significant expertise in the development of physical design
tools, which may enhance Synopsys' efforts to accelerate the integration
of its current high-level design tools with physical design tools.
- Synopsys' sales and marketing efforts may be enhanced by the addition of
EPIC's sales force of over 90 people, many of whom have extensive
experience and understanding of the sales channel for physical design
tools.
- Synopsys has identified power and timing analysis as fundamental issues
facing IC designers in deep submicron IC design, and believes that EPIC
maintains a leading position in the power and timing analysis tools at
the transistor level.
- Merging with EPIC enhances Synopsys' ability to develop products
addressing the physical design process.
- Access to EPIC's expertise in transistor level analysis tools may help
Synopsys enhance its current range of design and verification tools.
- EPIC's strong financial position, growth rate and operating margin may
have long-term positive effects on the overall performance of the
combined company.
- In an increasingly competitive and consolidating industry, Synopsys must
continue to invest in industry-leading technology, and the combined
company may be in an improved competitive position to effectively meet
the industry's technological challenges and customer demands.
In reaching its decision to approve the Merger Agreement and the issuance
of shares of Synopsys Common Stock in connection with the Merger, the Synopsys
Board also considered, among other things, the following factors, both positive
and potentially negative:
(i) The Synopsys Board considered the effect on stockholder value of a
combination with EPIC, in light of the financial condition and prospects of
Synopsys and the current economic and industry environment, including, but
not limited to, (A) other possible strategic alternatives for Synopsys and
(B) the possibility of synergies from combining Synopsys' and EPIC's
product lines, research and development programs and sales and marketing
organizations;
(ii) The Synopsys Board considered the reports and opinions of
Synopsys' management, including those resulting from management's due
diligence investigations concerning the business, technology, products,
operations, financial condition and prospects of EPIC;
(iii) The Synopsys Board considered its knowledge of the business
operations, properties, assets, financial condition and operating results
of Synopsys;
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(iv) The Synopsys Board considered Synopsys' future prospects and that
such prospects were likely to be enhanced as a result of the Merger;
(v) The Synopsys Board considered the terms and conditions of the
Merger Agreement, which were the product of extensive arm's-length
negotiations (see "The Merger Agreement");
(vi) The Synopsys Board considered the compatibility of the respective
business philosophies and corporate cultures of EPIC and Synopsys, which
the Synopsys Board believed was important for the successful integration of
the companies;
(vii) The Synopsys Board considered the impact of the Merger on the
interests of Synopsys' customers, suppliers, employees and the communities
in which Synopsys has operated;
(viii) The Synopsys Board considered the risk that the operations of
the two companies would not be successfully integrated; and
(ix) The Synopsys Board considered the other risks associated with
Synopsys' and EPIC's businesses described under "Risk Factors."
The foregoing discussion of the information and factors considered by the
Synopsys Board is not intended to be exhaustive but is believed to include all
material factors considered by the Synopsys Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the Synopsys
Board did not find it practicable to and did not quantify or otherwise assign
relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the Synopsys Board may have
given different weight to different factors.
RECOMMENDATION OF SYNOPSYS' BOARD OF DIRECTORS
The Synopsys Board has unanimously approved the Merger Agreement and the
issuance of shares of Synopsys Common Stock in connection with the Merger and
believes that the Merger is fair to, and in the best interests of, Synopsys and
its stockholders, and therefore, unanimously recommends that the stockholders of
Synopsys vote FOR the issuance of such shares.
EPIC'S REASONS FOR THE MERGER
In addition to the anticipated joint reasons described above, the EPIC
Board believes that the Merger will be beneficial to EPIC and EPIC's
shareholders for the following additional reasons:
- The EDA industry in which EPIC competes is extremely competitive. In
addition, over the last twelve months, the EDA industry has seen a number
of transactions involving medium to larger EDA companies acquiring
smaller companies. The EPIC Board recognized that substantial technical,
financial and other resources will be necessary to compete with these
larger, more diversified EDA companies. The Merger may allow EPIC,
through participation in the combined company, to realize its strategic
objective of achieving greater scale and greater presence in the EDA
industry, resulting in a stronger competitive position from which to
compete more effectively against larger EDA companies. The combined
experience, financial resources, size and breadth of product offerings of
the combined company may allow the combined company to respond more
quickly and effectively to technological change, increased competition
and customer demands in an industry experiencing rapid innovation and
change.
- The EPIC Board recognized that Synopsys has built a larger and more
diverse customer base, particularly in the application specific
integrated circuit (ASIC) industry, has achieved greater visibility and
has a deeper sales penetration of the larger semiconductor manufacturers
and designers. The Merger may therefore provide new opportunities to sell
EPIC's products to a larger group of IC designers, resulting in expanded
distribution of EPIC's products. Synopsys also possesses the customer
service and technical support resources necessary to provide high levels
of customer support to a large and diverse customer base. The Merger may
therefore result in more efficient and higher levels of support to EPIC's
customers.
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- EPIC currently derives substantially all of its revenue from the license
and support of products that meet the requirements of deep submicron IC
designers. EPIC believes that its continued future success is dependent
upon its ability to develop or acquire new products and expand its
product offerings. Because Synopsys specializes in high level design
automation and EPIC specializes in deep submicron design automation, the
companies' product offerings are complementary. Therefore, Synopsys' and
EPIC's products together may provide a more comprehensive, fully
integrated design solution to IC designers.
- The combined research and development and technology resources resulting
from the Merger may allow the combined company to compete more
effectively by developing more advanced products in a shorter time period
than could be developed by either company independently. Because
achieving a rapid rate of technical innovation in the EDA industry is
critical, increasing the critical mass of the technical personnel may
permit the combined company to respond more quickly and effectively to
technological changes and to anticipate more readily the advancements in
the IC design industry.
- Because the Merger Agreement provides for Dr. Wang to be elected to the
board of directors of the combined company after the Merger, a member of
the EPIC Board will continue to participate in the deliberations and
decisions made by the board of directors of the combined company. In
addition, because the consideration to be received in the Merger is the
common stock of the combined company, EPIC's shareholders will have an
opportunity to benefit from any synergies achieved by the combination of
EPIC and Synopsys. The synergies identified by the EPIC management are
described above under "-- Joint Reasons for the Merger" and in the
preceding paragraphs. Such assessments of potential synergies are
necessarily preliminary in nature and based on incomplete information,
and there can be assurance that such synergies will actually be achieved.
In reaching its decision to approve the Merger Agreement and the Merger and
to recommend that EPIC's shareholders vote to approve and adopt the Merger
Agreement, the EPIC Board also considered, among other things, the following
factors, both positive and potentially negative:
(i) The EPIC Board considered its knowledge of the business,
operations, properties, assets, financial condition and operating results
of EPIC;
(ii) The EPIC Board considered the reports and opinions of EPIC's
management and Morgan Stanley, including those resulting from management's
due diligence investigations concerning the business, technology, products,
operations, financial condition and prospects of Synopsys;
(iii) The EPIC Board considered EPIC's future prospects and that such
prospects were likely to be enhanced as a result of the Merger;
(iv) The EPIC Board considered the detailed financial analyses, pro
forma and other information with respect to EPIC and Synopsys presented by
Morgan Stanley in its presentations (see "-- Opinion of EPIC's Financial
Advisors");
(v) The EPIC Board considered the effect on shareholder value of EPIC
continuing as an independent entity, compared to the effect of a
combination with Synopsys, in the light of the financial condition and
prospects of EPIC and the current economic and industry environment,
including, but not limited to, (A) other possible strategic alternatives
for EPIC which the EPIC Board had examined, including continuing to execute
its stand-alone business plan, (B) the potential for increased value in the
combined EPIC/Synopsys enterprise, as compared to either EPIC or Synopsys
alone, and (C) the possibility of synergies from combining EPIC's and
Synopsys' product lines, research and development programs and sales and
marketing organizations;
(vi) The EPIC Board considered the opinion of Morgan Stanley dated
January 16, 1997 that, as of such date and based upon and subject to
certain matters stated therein, the Exchange Ratio was fair from a
financial point of view to the holders of EPIC Common Stock (see
"-- Opinion of EPIC's Financial Advisors");
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(vii) The EPIC Board, with the assistance of EPIC's financial
advisors, also considered recent and current market prices of Synopsys
Common Stock, and concluded that the Synopsys Common Stock was trading in a
reasonable range;
(viii) The EPIC Board considered the terms and conditions of the
Merger Agreement, which were the product of extensive arm's-length
negotiations (see "The Merger Agreement");
(ix) The EPIC Board considered the relationship between the market
value of the Synopsys Common Stock to be issued in exchange for each share
of EPIC Common Stock and a comparison of comparable merger transactions;
(x) The EPIC Board considered the compatibility of the respective
business philosophies of EPIC and Synopsys;
(xi) The EPIC Board considered the opportunity for EPIC shareholders
to participate, as holders of Synopsys Common Stock, in a larger company of
which former EPIC shareholders would hold approximately 20.2% of the equity
of the combined company following the Merger, and to do so by means of a
transaction which is designed to be tax-free to EPIC's shareholders;
(xii) The EPIC Board considered EPIC management's view as to the
potential for other third parties to enter into strategic relationships
with or to enter into strategic business combinations with EPIC;
(xiii) The EPIC Board considered that the Merger is conditioned upon
approval of the Merger Agreement by the holders of a majority of the
outstanding voting power of the EPIC Common Stock and that the issuance of
Synopsys Common Stock in the Merger is conditioned upon the vote of a
majority of the Synopsys Common Stock voting thereon;
(xiv) The EPIC Board considered the compatibility of the corporate
cultures of EPIC and Synopsys which the EPIC Board believed was important
for the successful integration of the companies;
(xv) The EPIC Board considered the impact of the Merger on the
interests of EPIC's customers, suppliers, employees and the communities in
which EPIC has operated;
(xvi) The EPIC Board considered the risks that the synergies and cost
savings anticipated to be achieved in the Merger would not be achieved;
(xvii) The EPIC Board considered the risk that the operations of the
two companies would not be successfully integrated;
(xviii) The EPIC Board considered the potential disruption of EPIC's
business that might result from employee uncertainty and lack of focus
following announcement of the Merger;
(xix) The EPIC Board considered the risk that despite the intentions
and efforts of the parties to support their respective products, the
announcement of the Merger could result in decisions by customers to defer
purchases of licenses for EPIC's products;
(xx) The EPIC Board considered the risk that despite the intentions
and efforts of the parties, key technical and management personnel might
not remain employed by the combined company after the Merger;
(xxi) The EPIC Board considered the adverse effects on EPIC's
business, operations and financial condition, including the effect on
EPIC's sales and operating results, the effect on EPIC's ability to attract
and retain key management, marketing and technical personnel and the effect
on the progress of certain development projects, in the event the Merger
was unable to be consummated following public announcement that the Merger
Agreement had been entered into; and
(xxii) The EPIC Board considered the other risks associated with
EPIC's and Synopsys' businesses described under "Risk Factors."
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The foregoing discussion of the information and factors considered by the
EPIC Board is not intended to be exhaustive but is believed to include all
material factors considered by the EPIC Board. In view of the variety of factors
considered in connection with its evaluation of the Merger, the EPIC Board did
not find it practicable to and did not quantify or otherwise assign relative
weight to the specific factors considered in reaching its determination. In
addition, individual members of the EPIC Board may have given different weight
to different factors. In the course of its deliberations, the EPIC Board did not
establish a range of values for EPIC; however, based on the factors outlined
above and on the opinion of its financial advisor, Morgan Stanley, referred to
in (vi) above, the EPIC Board determined that the Merger is advisable and fair
to, and in the best interests of, EPIC and its shareholders. The directors
unanimously voted to recommend to the holders of EPIC Common Stock that the
Merger Agreement be approved and adopted.
RECOMMENDATION OF EPIC'S BOARD OF DIRECTORS
The EPIC Board has unanimously approved the Merger Agreement and the Merger
and believes that the terms of the Merger Agreement are fair to, and that the
Merger is in the best interests of, EPIC and its shareholders and therefore
unanimously recommends that holders of EPIC Common Stock vote FOR approval and
adoption of the Merger Agreement.
OPINION OF EPIC'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of January 13, 1997 (the
"Engagement Letter"), Morgan Stanley provided a financial fairness opinion in
connection with the Merger. Morgan Stanley was selected by the EPIC Board to act
as EPIC's financial advisor based on Morgan Stanley's qualifications, expertise
and reputation and its knowledge of the business and affairs of EPIC. At the
meeting of the EPIC Board on January 16, 1997, Morgan Stanley rendered its oral
opinion, subsequently confirmed in writing, that as of such date, based upon and
subject to the various considerations set forth in the opinion, the Exchange
Ratio pursuant to the Merger Agreement was fair from a financial point of view
to the holders of shares of EPIC Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED JANUARY 16,
1997, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX B TO
THIS JOINT PROXY STATEMENT/PROSPECTUS. EPIC SHAREHOLDERS ARE URGED TO, AND
SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY IN CONJUNCTION WITH THIS
JOINT PROXY STATEMENT/PROSPECTUS. MORGAN STANLEY'S OPINION IS DIRECTED TO THE
EPIC BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO PURSUANT TO THE
MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW TO HOLDERS OF SHARES OF EPIC
COMMON STOCK AS OF THE DATE OF THE OPINION, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF EPIC COMMON STOCK AS TO HOW TO VOTE AT THE EPIC
SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of Synopsys and EPIC, respectively; (ii) reviewed certain internal
financial statements and other financial and operating data concerning EPIC and
Synopsys prepared by the managements of EPIC and Synopsys, respectively; (iii)
discussed the past and current operations and financial condition and the
prospects of Synopsys, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger, with senior
executives of Synopsys; (iv) discussed the past and current operations and
financial condition and the prospects of EPIC, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of EPIC; (v) reviewed the pro forma impact of the
Merger on the earnings per share and consolidated capitalization of Synopsys and
EPIC, respectively; (vi) reviewed the reported prices and trading activity for
the Synopsys Common Stock and the EPIC Common Stock; (vii) compared the
financial performance of Synopsys and EPIC and the prices and trading activity
of the Synopsys Common Stock and the EPIC Common Stock with that of certain
other comparable publicly-traded companies and their securities; (viii) reviewed
the financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (ix) reviewed and discussed with the senior
managements of Synopsys and EPIC (a) the strategic rationale for the Merger and
(b) certain alternatives to the Merger; (x) participated in
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discussions and negotiations among representatives of Synopsys and EPIC and
their legal advisors; (xi) reviewed the Merger Agreement and certain related
agreements; and (xii) considered such other factors as it deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of the opinion. With respect to the internal financial statements and other
financial and operating data provided by EPIC and Synopsys, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting the best then
currently available estimates and judgments of the prospects of Synopsys and
EPIC, respectively. Morgan Stanley relied upon the assessment by the management
of Synopsys and EPIC of their ability to retain key employees of both Synopsys
and EPIC. Morgan Stanley also relied upon, without independent verification, the
assessment by the managements of Synopsys and EPIC of the strategic and other
benefits expected to result from the Merger. Morgan Stanley also relied upon,
without independent verification, the assessment by the managements of Synopsys
and EPIC of Synopsys' and EPIC's technologies and products, the timing and risks
associated with the integration of EPIC with Synopsys, and the validity of, and
risks associated with Synopsys' and EPIC's existing and future products and
technologies. Morgan Stanley did not make any independent valuation or appraisal
of the assets, liabilities or technology of Synopsys or EPIC, respectively, nor
was Morgan Stanley furnished with any such appraisals. Morgan Stanley assumed
that the Merger would be accounted for as a pooling of interests business
combination in accordance with U.S. generally accepted accounting principles and
would be consummated in accordance with the terms set forth in the Merger
Agreement. Morgan Stanley's opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to it as
of, the date of the opinion. In arriving at its opinion, Morgan Stanley was not
authorized to solicit, and did not solicit, interest from any third party with
respect to the acquisition of EPIC or any of its assets.
The following is a brief summary of the analysis performed by Morgan
Stanley in preparation of its opinion letter dated January 16, 1997.
Certain analyses performed by Morgan Stanley utilized earnings per share
estimates for EPIC and Synopsys. Such estimates were based on estimates
published by securities research analysts in the investment community.
COMPARATIVE STOCK PRICE PERFORMANCE
As part of its analysis, Morgan Stanley reviewed the recent stock price
performance of EPIC and Synopsys and compared such performance with that of a
group of six design software companies (collectively, the "Design Software
Companies"). Morgan Stanley observed that over the period from January 1, 1996
to January 10, 1997, the market price of EPIC Common Stock appreciated
approximately 37%, compared with an approximate appreciation of 13% for Synopsys
and 40% for an index of the Design Software Companies.
PEER GROUP COMPARISON
Morgan Stanley compared certain financial information of EPIC and Synopsys
with that of the Design Software Companies. Such financial information included,
among other things, market valuation, stock price as a multiple of earnings per
share, and the ratio of calendar year 1997 price earnings multiple to projected
growth rate. Such analysis showed that as of January 10, 1997, based on earnings
per share and growth rate projections by securities research analysts, EPIC
traded at a multiple of 32.9 times forecasted earnings per share for the
calendar year 1997 (representing a multiple of 0.77 times its forecasted growth
rate), compared to multiples of 26.0 times (representing a multiple of 0.87
times its forecasted growth rate) for Synopsys, and a high of 36.5 times
(representing a multiple of 1.04 times forecasted growth rate) and a low of 13.3
times (representing a multiple of 0.89 times forecasted growth rate) for the
peer group based on securities research analyst forecasts. No company used in
the peer group comparison is identical to EPIC or Synopsys.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS
As part of this analysis, Morgan Stanley reviewed six design and simulation
software transactions (collectively the "Design and Simulation Software
Transactions"). Morgan Stanley compared certain statistics for the Design and
Simulation Software Transactions to the relevant financial statistics for EPIC
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based on the value of EPIC assuming the closing stock price for Synopsys as of
January 10, 1997 and the Exchange Ratio. The analysis showed multiples of
earnings ranging from 17.9 times to 67.3 times one year forward earnings and
multiples of latest twelve months revenues ranging from 1.3 times to 17.5 times.
These compared to multiples of 37.1 times one year forward earnings and 9.3
times latest twelve months revenues for EPIC based on the Exchange Ratio and the
closing stock price of the Synopsys Common Stock as of January 10, 1997. No
transaction used in the analysis of precedent transactions is identical to the
Merger.
DISCOUNTED EQUITY VALUE
Morgan Stanley performed an analysis of the present value per share of
EPIC's future trading price based on a range of earnings per share estimates for
EPIC for calendar years 1998 and 1999, illustrative multiples of earnings per
share ranging from 25.0 times to 32.9 times next calendar year's earnings per
share and an illustrative discount rate of 16.0% based on Morgan Stanley
estimates of the theoretical return required by shareholders to hold shares of
EPIC. Based on this analysis, Morgan Stanley estimated a present value of the
potential future trading price per share ranging from $34.55 to $42.44 for the
EPIC Common Stock based on a 32.9 times multiple of next calendar year's
earnings per share (the current one year forward multiple of EPIC) and an
illustrative discount rate of 16.0%. Morgan Stanley also estimated a present
value of the potential future trading price per share ranging from $27.31 to
$33.55 for the EPIC Common Stock based on a 26.0 times multiple of next calendar
year's earnings per share (the median multiple of the Design Software Companies
including Synopsys) and an illustrative discount rate of 16.0%. Additionally,
Morgan Stanley compared the present value per share of the EPIC Common Stock to
the pro forma present value per share to the EPIC shareholders assuming
consummation of the Merger. This analysis showed per share values ranging from
$36.41 to $41.43 (assuming no synergies) and $39.01 to $44.21 (with synergies)
for EPIC assuming consummation of the Merger based on a multiple of next
calendar year's earnings per share of 27.7 times (the combined company's then
current weighted average multiple of next calendar year's earnings per share)
and an illustrative discount rate of 16.0%. This analysis suggested that, based
on the aforementioned earnings per share estimates, multiples of earnings and
discount rate, the range of present values of the potential future trading
prices per share for the combined company, adjusted for the Exchange Ratio,
could be higher than for EPIC as a stand-alone entity.
RELATIVE CONTRIBUTION ANALYSIS
Morgan Stanley analyzed the pro forma contribution of each of EPIC and
Synopsys to the combined company assuming consummation of the Merger and based
on securities research analyst forecasts. This analysis showed, among other
things, that in terms of revenue, operating income and net income, EPIC would
contribute 12.1%, 16.6% and 15.7%, respectively, in the forecasted fiscal year
ended September 30, 1997 and 12.4%, 16.7% and 15.8%, respectively, in the
forecasted fiscal year ended September 30, 1998. These figures, adjusted to
reflect each company's respective capital structure, were compared to the pro
forma ownership of the combined company by EPIC shareholders of 19.6% on a fully
converted basis based on the Exchange Ratio.
EXCHANGE RATIO ANALYSIS
Morgan Stanley compared the exchange ratios implied by average historical
exchange ratios over various periods during the twelve month period ending
January 10, 1997 and computed the premiums represented by the Exchange Ratio
over the averages of these daily ratios over various periods. The averages of
the daily ratios of the closing stock prices of EPIC and Synopsys were 0.597 for
the previous 10 trading days, 0.581 for the previous 20 trading days, 0.554 for
the previous 60 trading days and 0.705 for the period beginning January 11,
1996. The Exchange Ratio represented premiums of 25.4%, 28.8%, 35.2% and 6.2%,
respectively, over the aforementioned average ratios of the EPIC and Synopsys
stock prices.
PRO FORMA ANALYSIS OF THE MERGER
Morgan Stanley analyzed the pro forma impact of the Merger on EPIC's
estimated earnings per share for the fiscal years ending September 30, 1997 and
1998. Such analysis was based on earnings estimates for EPIC
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and Synopsys based on securities research analyst forecasts for the
corresponding periods. Morgan Stanley observed that, assuming that the Merger
was treated as a pooling of interests for accounting purposes and before taking
into account any one-time restructuring charges or any synergies resulting from
the combination, the Merger would result in earnings per share accretion for
EPIC shareholders of 30.3% and 28.6% for the estimated fiscal years ending
September 30, 1997 and 1998, respectively, based on the Exchange Ratio. Morgan
Stanley also observed, based on the foregoing assumptions, that the Merger would
result in earnings per share accretion for EPIC shareholders of 33.3% and 38.0%
for the estimated fiscal years ending September 30, 1997 and 1998, respectively,
assuming synergies.
In connection with the review of the Merger by the EPIC Board, Morgan
Stanley performed a variety of financial and comparative analyses for purposes
of its opinion given in connection therewith. While the foregoing summary
describes the analyses and factors reviewed by Morgan Stanley in connection with
its opinion, it does not purport to be a complete description of all the
analyses performed by Morgan Stanley in arriving at its opinion. The preparation
of a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Morgan Stanley believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create a misleading view of the processes underlying its
opinion. In addition, Morgan Stanley may have deemed various assumptions more or
less probable than other assumptions, so that the range of valuation resulting
from particular analyses described above should not be taken to be Morgan
Stanley's view of the actual value of EPIC. In performing its analyses, Morgan
Stanley made numerous assumptions with respect to industry performance, general
business and economic conditions of other matters, many of which are beyond the
control of EPIC or Synopsys. Any estimates contained herein are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses performed
were prepared solely as part of Morgan Stanley's analysis of the fairness of the
Exchange Ratio in the Merger to the holders of shares of EPIC Common Stock and
were conducted in connection with the delivery of Morgan Stanley's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which EPIC
might actually be sold. Morgan Stanley did not recommend any specific exchange
ratio to EPIC or that any specific exchange ratio constituted the only
appropriate exchange ratio for the Merger.
The EPIC Board retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Morgan Stanley makes a market in Synopsys Common Stock. In
the ordinary course of Morgan Stanley's trading and brokerage activities, Morgan
Stanley or its affiliates may at any time hold long or short positions, may
trade or otherwise effect transactions, for its own account or for the account
of customers, in the equity securities of EPIC or Synopsys.
Pursuant to the Engagement Letter, Morgan Stanley provided advisory
services and a financial opinion in connection with the Merger and EPIC has
agreed to pay a customary fee based on the aggregate value of the transaction to
Morgan Stanley if the Merger is consummated. In addition, EPIC has also agreed
to indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against certain liabilities and expenses,
including certain liabilities under the federal securities laws, related to
Morgan Stanley's engagement. In the past, Morgan Stanley & Co. Incorporated and
its affiliates have provided financial advisory and financing services for
Synopsys and have received fees for the rendering of these services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Interests in EPIC Common Stock and Options
As of January 31, 1997, the executive officers and directors of EPIC
beneficially owned an aggregate of 1,070,620 shares of EPIC Common Stock
(including 235,163 shares of EPIC Common Stock subject to
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EPIC Options exercisable within 60 days of January 31, 1997). Based upon the
closing sale price of Synopsys Common Stock on January 31, 1997 of $44.16, and
assuming the exercise of outstanding EPIC Options exercisable within 60 days of
the EPIC Record Date, the aggregate dollar value of Synopsys Common Stock to be
received in the Merger by the executive officers and directors of EPIC is
approximately $47,278,579.
Acceleration of Vesting of Certain EPIC Options
Two officers of EPIC have outstanding EPIC Options which by their terms
provide that the vesting of such EPIC Options shall be accelerated as set forth
below in the event of a merger of EPIC in which the officer is terminated or is
offered a position with responsibilities substantially inferior to those of his
or her present position. Synopsys' acquisition of EPIC may trigger these
acceleration provisions.
Tammy S. Liu. On February 22, 1994, Tammy S. Liu, EPIC's Chief Financial
Officer and Secretary, received an option to purchase shares of EPIC Common
Stock at an exercise price of $0.165 per share, and in connection with the
related Incentive Stock Option Agreement (the "ISO Agreement"), the vesting of
Ms. Liu's EPIC Option may accelerate as a result of the Merger if certain
conditions occur. Ms. Liu's ISO Agreement provides that in the event of a merger
of EPIC with another company in which Ms. Liu is subsequently terminated without
cause, or is offered a position substantially inferior to her position as Chief
Financial Officer of EPIC, 12 months of vesting pursuant to the EPIC Option will
accelerate (the "Acceleration"), and Ms. Liu may purchase any or all of the
unexercised shares subject to Acceleration upon her termination. Thus, if
following the Merger Ms. Liu's employment is terminated without cause or she is
offered a position substantially inferior to her current position, 35,344 shares
(as of January 31, 1997) of Ms. Liu's EPIC Option will be subject to the
Acceleration. In order to receive such Acceleration, Ms. Liu has agreed pursuant
to the ISO Agreement, to perform consulting services for EPIC after her
termination. The scope of and payment for such consulting activities will be
determined by the mutual agreement of Ms. Liu and EPIC within two weeks of her
termination. The ISO Agreement provides that the payment terms of the consulting
relationship will be at a level that is competitive and appropriate for
comparable work by independent consultants of similar skill. Ms. Liu's
engagement as a consultant is at the discretion of EPIC, and if the consulting
relationship is terminated without reason of performance, Ms. Liu will be deemed
to have satisfied the consulting requirement for the Acceleration. If Ms. Liu
fails to complete the full term of her consulting agreement, EPIC may
repurchase, on a pro-rata basis, any of the 35,344 shares subject to the
Acceleration, with the number of shares eligible for repurchase declining by
1/12 for each month of the consulting agreement Ms. Liu has performed. If during
the twelve months after her termination, Ms. Liu accepts a full-time position
that would result in a conflict of interest, she would be entitled only to the
vesting of the shares subject to Acceleration that are not still subject to
repurchase or six months of vesting, whichever is greater.
Gary A. Larsen. On August 3, 1994, Gary A. Larsen, EPIC's Vice President
of Worldwide Sales, received an option to purchase shares of EPIC Common Stock
at an exercise price of $4.50 per share. In connection with Mr. Larsen's August
3, 1994 offer letter from EPIC and the September 21, 1994 amendment thereto (the
"Offer Letter"), the vesting of Mr. Larsen's EPIC Option may accelerate as a
result of the Merger if certain conditions occur. Mr. Larsen's Offer Letter
provides that in the event of a merger of EPIC with another company in which Mr.
Larsen's employment is subsequently terminated without cause or if he is offered
a position substantially inferior to his position of Vice President of Worldwide
Sales of EPIC, Mr. Larsen's EPIC Option is subject to acceleration of 12 months
of vesting, and Mr. Larsen may purchase any or all of the unexercised shares
subject to acceleration upon his termination. As a result, if following the
Merger Mr. Larsen's employment is terminated without cause or he is offered a
position substantially inferior to his current position, 25,000 shares (as of
January 31, 1997) of Mr. Larsen's EPIC Option will be subject to acceleration.
Indemnification and Insurance
Pursuant to the Merger Agreement, Synopsys has agreed to indemnify each
person who was an officer, director or employee of EPIC against certain
liabilities. In addition, Synopsys has agreed to maintain, with
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certain limitations, the policies of directors' and officers' liability
insurance maintained by EPIC or to provide comparable coverage. See "The Merger
Agreement -- Indemnification and Insurance."
The foregoing interests of the directors and certain members of management
of EPIC in the Merger may mean that such persons have personal interests in the
Merger which may not be identical to the interests of other EPIC shareholders.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. It is a condition to the Merger that Synopsys
and EPIC shall have received letters from KPMG Peat Marwick LLP and Deloitte &
Touche LLP, their respective independent accountants, regarding the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with the Merger Agreement. Under this method of accounting, the
recorded assets and liabilities of Synopsys and EPIC will be carried forward to
the combined company at their recorded amounts, income of the combined company
will include income of Synopsys and EPIC for the entire fiscal year in which the
combination occurs and the reported income or loss of the separate companies for
prior periods will be combined and restated as income of the combined company.
See "The Merger Agreement -- Conditions" and "Unaudited Pro Forma Combined
Condensed Financial Statements."
To help ensure that the parties meet the prerequisites for pooling of
interests accounting treatment, the affiliates of Synopsys and EPIC have each
executed a letter agreement to the effect that such person will not sell,
transfer or otherwise dispose of, or reduce such person's interest in or risk
relating to, any shares of Synopsys Common Stock or EPIC Common Stock from the
date of the Merger Agreement until the Effective Time (or the termination of the
Merger Agreement), and thereafter will not sell any shares of Synopsys Common
Stock received in the Merger or otherwise beneficially owned by such person,
except in each case for amounts of EPIC Common Stock and Synopsys Common Stock
not more than the de minimis amount permitted by the rules and releases of the
Commission relating to pooling of interests accounting treatment until Synopsys
publishes financial statements which reflect 30 days of combined operations of
Synopsys and EPIC. See "-- Restrictions on Resale of Synopsys Common Stock."
VOTING AGREEMENTS
In accordance with the terms of the Merger Agreement, directors and
officers of EPIC have executed and delivered voting agreements and irrevocable
proxies to Synopsys (the "Voting Agreements") obligating them, among other
things, to vote their shares of EPIC Common Stock in favor of approval of the
Merger Agreement and the Merger. As of the date of this Joint Proxy
Statement/Prospectus, Voting Agreements had been executed and delivered to
Synopsys covering an aggregate of approximately 835,457 shares of EPIC Common
Stock, representing approximately 6.1% of the shares of EPIC Common Stock
outstanding as of January 31, 1997.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
considerations of the Merger that are generally applicable to holders of EPIC
Common Stock. This discussion reflects the opinions of counsel attached as
Exhibits 8.1 and 8.2 to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part (the "Tax Opinions"). The Tax Opinions each
include an opinion to the effect that the Merger will constitute a
reorganization (a "Reorganization") within the meaning of Section 368(a) of the
Code. The Tax Opinions, which are based on certain assumptions and subject to
certain limitations and qualifications as noted in the opinions, were delivered
by Gray Cary Ware & Freidenrich, A Professional Corporation, and WSG&R.
EPIC shareholders should be aware that the following discussion does not
deal with all federal income tax considerations that may be relevant to
particular EPIC shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are foreign persons or who
acquired their EPIC Common Stock through stock option or stock purchase programs
or in other compensatory transactions. In addition, the following discussion
does not address the foreign, state or local tax laws or tax
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consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger) including, without
limitation, the exercise of options or rights to purchase EPIC Common Stock in
anticipation of the Merger. ACCORDINGLY, EPIC SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based on the interpretation by the companies'
respective counsel of the Code, applicable Treasury Regulations, judicial
authority and administrative ruling and practice, all as of the date hereof. The
Internal Revenue Service (the "IRS") is not precluded from adopting a contrary
position. In addition, there can be no assurance that future legislative,
judicial or administrative changes or interpretations will not adversely affect
the accuracy of the statements and conclusions set forth herein. Any such
changes or interpretations could be applied retroactively and could affect the
tax consequences of the Merger to Synopsys, EPIC and/or their respective
shareholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the companies' respective
counsel are of the opinion that:
(a) No gain or loss will be recognized by the holders of EPIC Common
Stock upon the receipt of Synopsys Common Stock solely in exchange for such
EPIC Common Stock in the Merger (except to the extent of cash received in
lieu of fractional shares);
(b) The aggregate tax basis of the Synopsys Common Stock so received
by EPIC shareholders in the Merger (including any fractional share of
Synopsys Common Stock not actually received) will be the same as the
aggregate tax basis of the EPIC Common Stock surrendered in exchange
therefor;
(c) The holding period of the Synopsys Common Stock so received by
each EPIC shareholder in the Merger will include the period for which the
EPIC Common Stock surrendered in exchange therefor was considered to be
held, provided that the EPIC Common Stock so surrendered is held as a
capital asset at the Effective Time;
(d) Cash payments received by holders of EPIC Common Stock in lieu of
receipt of a fractional share of Synopsys Common Stock will be treated as
if such fractional share of Synopsys Common Stock had been issued in the
Merger and then redeemed by Synopsys and an EPIC shareholder receiving such
cash will generally recognize gain or loss, upon such payment, measured by
the difference (if any) between the amount of cash received and the basis
in such fractional share;
(e) An EPIC shareholder who exercises appraisal or dissenters' rights
with respect to all of such holder's shares of EPIC Common Stock will
generally recognize capital gain or loss for federal income tax purposes,
measured by the difference between the holder's basis in such shares and
the amount of cash received; provided that the EPIC Common Stock is held as
a capital asset at the time of the Merger, and the payment is neither
essentially equivalent to a dividend within the meaning of Section 302 of
the Code nor has the effect of a distribution of a dividend within the
meaning of Section 356(a)(2) of the Code (collectively a "Dividend
Equivalent Transaction"). A sale of EPIC Common Stock pursuant to an
exercise of dissenters' rights will generally not be a Dividend Equivalent
Transaction if, as a result of such exercise, the shareholder exercising
dissenters' rights owns no shares of Synopsys Common Stock or EPIC Common
Stock (either actually or constructively within the meaning of Section 318
of the Code). If, however, a shareholder's sale for cash of EPIC Common
Stock pursuant to an exercise of dissenters' rights is a Dividend
Equivalent Transaction, then such shareholder will generally recognize
ordinary income for federal income tax purposes in an amount up to the
entire amount of cash so received; and
(f) None of Synopsys, Sub or EPIC will recognize gain or loss solely
as a result of the Merger.
Neither Synopsys nor EPIC has requested a ruling from the IRS in connection
with the Merger. The Tax Opinions neither bind the IRS nor preclude the IRS from
adopting a contrary position. The Tax Opinions are subject to certain
assumptions and qualifications and will be based on the truth and accuracy of
certain
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representations of Synopsys, EPIC and Sub, including representations in certain
certificates of the respective managements of Synopsys, EPIC and Sub, as well as
representations from certain EPIC shareholders.
A successful IRS challenge to the Reorganization status of the Merger would
result in an EPIC shareholder recognizing gain or loss with respect to each
share of EPIC Common Stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, as of the Effective
Time, of the Synopsys Common Stock received in exchange therefor. In such event,
an EPIC shareholder's aggregate basis in the Synopsys Common Stock so received
would equal its fair market value, and the shareholder's holding period for such
stock would begin the day after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Synopsys Common Stock would recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely EPIC Common Stock). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that an
EPIC shareholder was treated as receiving (directly or indirectly) consideration
other than Synopsys Common Stock in exchange for the EPIC Common Stock.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Synopsys and EPIC
have filed notification and report forms under the HSR Act with the FTC and
Antitrust Division. These filings commenced a 30-day waiting period under the
HSR Act which is scheduled to expire prior to the Special Meetings. If, prior to
the expiration of such period the FTC or the Antitrust Division should request
additional information or documentary material under the HSR Act, consummation
of the Merger could be delayed until after the companies have substantially
complied with the request. At any time before or after the Effective Time of the
Merger, the Antitrust Division, the FTC or any state or foreign government may
take such action under the federal or state antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the
consummation of the Merger, seeking divestiture of substantial assets of
Synopsys or EPIC or seeking to impose conditions on Synopsys with respect to the
business operations of the Combined Company. Private parties may also seek to
take legal action under the antitrust laws under certain circumstances.
Based on information available to them, Synopsys and EPIC believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, Synopsys and EPIC would prevail or would not be required to accept certain
conditions, possibly including certain divestitures, in order to consummate the
Merger. In this regard, the Merger Agreement requires Synopsys and EPIC to use
all reasonable efforts to defeat any challenge to the Merger under the HSR Act
or to settle such challenge on terms that permit the consummation of the Merger.
However, the Merger Agreement provides that neither party will be required to
agree to divest or hold separate any portion of its business or to take other
action that could reasonably be expected to have a material adverse effect on
such party.
RESTRICTIONS ON RESALE OF SYNOPSYS COMMON STOCK
The shares of Synopsys Common Stock issuable to shareholders of EPIC upon
consummation of the Merger have been registered under the Securities Act. Such
shares may be freely traded without restriction by those shareholders who are
not deemed to be "affiliates" of Synopsys or EPIC, as that term is defined in
the rules under the Securities Act.
Shares of Synopsys Common Stock received by those shareholders of EPIC who
are deemed to be affiliates of EPIC may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Each affiliate of EPIC has agreed
not to offer, sell, pledge, transfer or otherwise dispose of any shares of
Synopsys Common Stock distributed to them pursuant to the Merger, except in
compliance with Rule 145 under the Securities Act, or in a transaction
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that is otherwise exempt from the registration requirements of the Securities
Act and an opinion of counsel, satisfactory to Synopsys, has been provided to
Synopsys to the effect that no such registration is required in connection with
the proposed transaction, or in an offering that is registered under the
Securities Act. In addition, each affiliate of Synopsys and EPIC has agreed not
to sell, transfer or otherwise dispose of, or reduce such person's interest in
or risk relating to, (i) any shares of Synopsys Common Stock or EPIC Common
Stock from the date of the Merger Agreement until the Effective Time (or the
termination of the Merger Agreement) and (ii) any shares of Synopsys Common
Stock issued to such person in the Merger or otherwise beneficially owned by
such person, except in each case for amounts of EPIC Common Stock and Synopsys
Common Stock not more than the de minimis amount permitted by the rules and
releases of the Commission relating to pooling of interests accounting
treatment, until Synopsys publicly releases combined financial results of
Synopsys and EPIC for a period of at least 30 days of combined operations.
This Joint Proxy Statement/Prospectus does not cover any resales of
Synopsys Common Stock received by persons who are deemed to be affiliates of
EPIC.
NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the Merger that the shares of Synopsys Common Stock to
be issued pursuant to the Merger Agreement and required to be reserved for
issuance in connection with the Merger be approved for quotation on The Nasdaq
National Market. An application has been filed for listing such shares of
Synopsys Common Stock on The Nasdaq National Market.
DISSENTERS' RIGHTS
Pursuant to the terms of the Merger Agreement, if holders of at least 5% of
the outstanding shares of EPIC Common Stock have exercised dissenters' rights in
connection with the Merger under Section 1300, any holder of EPIC Common Stock
may exercise dissenters' rights by voting against the Merger and following the
procedures set forth in Section 1300. If the holders of shares representing at
least 5% of the outstanding shares of EPIC Common Stock do not exercise
dissenters' rights, then only a holder of EPIC Common Stock with respect to
which there exists a restriction on transfer imposed by EPIC or by any law or
regulation will be so entitled.
AN EPIC SHAREHOLDER WISHING TO EXERCISE DISSENTERS' RIGHTS MUST VOTE
AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE EPIC SPECIAL
MEETING. HOWEVER, VOTING AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
WILL NOT, IN AND OF ITSELF, BE SUFFICIENT NOTICE OF SUCH SHAREHOLDERS' INTENTION
TO DISSENT. RATHER, ANY EPIC SHAREHOLDER WISHING TO EXERCISE DISSENTERS' RIGHTS
MUST COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 1300. THE FOLLOWING SUMMARY
OF THE PROVISIONS OF SECTION 1300 IS NOT INTENDED TO BE A COMPLETE STATEMENT OF
SUCH PROVISIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SECTION 1300, A COPY OF WHICH IS ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS ANNEX C AND IS INCORPORATED HEREIN BY REFERENCE.
An EPIC shareholder wishing to exercise dissenters' rights must, not later
than the date of the EPIC Special Meeting (currently scheduled for February 28,
1997), demand in writing from EPIC, the purchase of his or her shares and
payment to the shareholder of such shares fair market value. A holder of EPIC
Common Stock who elects to exercise dissenters' rights should mail or deliver
his or her written demand to EPIC at 310 North Mary Avenue, Sunnyvale,
California 94086, directed to the attention of EPIC's Secretary. The demand
should specify the holder's name and mailing address, the number of shares owned
by such shareholder and state that such holder is demanding a purchase of his or
her shares, and must also contain a statement as to what the shareholder claims
to be the fair market value of such shares, determined in accordance with the
provisions of Section 1300. The fair market value of the shares of EPIC Common
Stock will be determined as of the day before the first announcement of the
terms of the proposed Merger, excluding any appreciation or depreciation as a
consequence of the proposed Merger. Such statement of the fair market value
constitutes an offer by the EPIC shareholder to sell the shares to EPIC at that
price. If the Merger is approved by the required vote of EPIC's shareholders and
is not abandoned or terminated and the holders of shares representing at least
5% of the outstanding shares of EPIC Common Stock exercise dissenters' rights
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with respect to the Merger, each holder of shares of EPIC Common Stock who has
given timely notice and who votes against the Merger and follows the procedures
set forth in Section 1300 will be entitled to have his or her shares of EPIC
Common Stock purchased by EPIC for cash at their fair market value. If the
holders of shares representing at least 5% of the outstanding shares of EPIC
Common Stock do not exercise dissenters' rights, then only a holder of EPIC
Common Stock with respect to which there exists a restriction on transfer
imposed by EPIC or by any law or regulation will be so entitled. The shares of
EPIC Common Stock with respect to which holders have perfected their purchase
demand in accordance with Section 1300 and have not effectively withdrawn or
lost such rights are referred to herein as "Dissenting Shares." If an EPIC
shareholder has a beneficial interest in shares of EPIC Common Stock that are
held of record in the name of another person, such as a trustee or nominee, and
such shareholder desires to perfect any dissenters' rights such beneficial
shareholder may have, such beneficial shareholder must act promptly to cause the
holder of record to timely and properly to follow the steps summarized above.
Within ten days after approval of the Merger by EPIC's shareholders, EPIC
must mail a notice of such approval (the "Approval Notice") to all of its
shareholders who have voted against the Merger, together with a statement of the
price determined by EPIC to represent the fair market value of the applicable
Dissenting Shares (determined in accordance with the immediately preceding
paragraph), a brief description of the procedures to be followed in order for
the shareholder to pursue his dissenters' rights, and a copy of Sections
1300-1304 of the CGCL. The statement of price made in the Approval Notice
constitutes an offer to purchase all Dissenting Shares at the stated amount.
Only a holder of record of shares of EPIC Common Stock on the EPIC Record Date
(or his or her duly appointed representative) is entitled to assert a purchase
demand for the shares registered in that holder's name.
Within 30 days following the mailing of EPIC's Approval Notice, EPIC
shareholders exercising dissenters' rights must submit the certificate(s)
representing the Dissenting Shares to EPIC for endorsement as Dissenting Shares.
If EPIC and the shareholder agree that the shares are Dissenting Shares and
agree upon the purchase price of the shares, the dissenting shareholder is
entitled to the agreed upon price with interest thereon at the legal rate on
judgments from the date of such agreement. Payment for the Dissenting Shares
must be made within thirty (30) days after the later of the date of such
agreement or the date on which all statutory and contractual conditions to the
Merger are satisfied, and is subject to the surrender by the shareholder of the
certificate(s) representing the Dissenting Shares.
If EPIC denies that the shares are Dissenting Shares, or if EPIC and the
shareholder fail to agree upon the fair market value of the shares, then within
six months after the date the Approval Notice was mailed to shareholders, any
shareholder who has made a valid written purchase demand may file a complaint in
the Superior Court of Santa Clara County, California (the "Court") requesting a
determination as to whether the shares are Dissenting Shares or as to the fair
market value of such holder's shares, or both, or may intervene in any pending
action brought by any other shareholder.
Any holder of Dissenting Shares who has duly demanded the purchase of his
or her shares under Section 1300 will not, after the Effective Time, be entitled
to the payment of dividends or other distributions on such Dissenting Shares
(except dividends or other distributions payable to shareholders of record as of
a date prior to the Effective Time).
If any holder of shares of EPIC Common Stock who demands the purchase of
his or her shares under Section 1300 fails to perfect, or effectively withdraws
or loses his or her right to such purchase, the shares of such holder will be
converted into a right to receive that number of shares of Synopsys Common Stock
equal to the Exchange Ratio times the number of shares of EPIC Common Stock held
by such person, in accordance with the Merger Agreement. Dissenting Shares lose
their status as Dissenting Shares if (a) the Merger is abandoned; (b) the shares
are transferred prior to their submission for the required endorsement or are
surrendered for conversion into shares of another class in accordance with the
Restated Articles of Incorporation of EPIC; (c) the dissenting shareholder fails
to make a timely written demand for purchase, along with a statement of fair
market value; (d) the dissenting shareholder votes for the approval and adoption
of the Merger Agreement; (e) the dissenting shareholder and EPIC do not agree
upon the status of the shares
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as Dissenting Shares or do not agree on the purchase price, but neither EPIC nor
the shareholder files a complaint or intervenes in a pending action within six
months after mailing of the Approval Notice or (f) with EPIC's consent, the
holder delivers a written withdrawal of such holder's demand for purchase of his
or her shares.
Pursuant to the Merger Agreement, EPIC will give Synopsys prompt notice of
any demands received by EPIC, and Synopsys will have the right to participate in
all negotiations and proceedings with respect to the demands. EPIC will not,
except with the prior written consent of Synopsys, make any payment with respect
to, or settle or offer to settle, any such demands.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Proxy
Statement/Prospectus and incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Shareholders of
EPIC and stockholders of Synopsys are urged to read the Merger Agreement in its
entirety for a more complete description of the Merger. In case of any conflict
between the Merger Agreement and the summary set forth herein, the Merger
Agreement will control.
THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the shareholders of EPIC, the approval of the issuance
of shares of Synopsys Common Stock in connection with the Merger by the
stockholders of Synopsys, and the satisfaction or waiver of the other conditions
to the Merger, Sub will be merged with and into EPIC, with EPIC continuing as
the surviving corporation (the "Surviving Corporation") and becoming a
wholly-owned subsidiary of Synopsys.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the latest of: (a) the date and time of the filing of
a statutory Agreement of Merger and related Officers' Certificates with the
Secretary of State of the State of California, (b) the date and time of the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware, or (c) such other date and time as is provided in the Agreement of
Merger.
CONVERSION OF SECURITIES
Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding share of EPIC Common Stock (other than shares owned by
EPIC as treasury stock or by Synopsys, Sub or any other wholly-owned subsidiary
of Synopsys, all of which will be canceled, and shares which qualify as
"dissenting shares" as defined in Section 1300(b) of the CGCL, which will
receive the consideration prescribed by the CGCL) will be converted into the
right to receive 0.7485 of a share of Synopsys Common Stock. Based upon the
number of shares of Synopsys Common Stock and EPIC Common Stock outstanding at
January 31, 1997, an aggregate of approximately 10,325,691 shares of Synopsys
Common Stock would be issued in connection with the Merger, representing
approximately 20.2% of the total number of shares of Synopsys Common Stock
outstanding after giving effect to such issuance. In lieu of fractional shares
(after taking account of all certificates delivered by a given holder), holders
of EPIC Common Stock will receive cash in an amount equal to the fractional
amount of the Synopsys Common Stock multiplied by the average of the last
reported sale price of Synopsys Common Stock, as reported on The Nasdaq National
Market, on each of the ten trading days immediately preceding the date of the
Effective Time. Each share of Sub common stock issued and outstanding
immediately prior to the Effective Time will be converted into one share of
common stock of the Surviving Corporation.
As soon as reasonably practicable after the Effective Time, the exchange
agent designated by Synopsys and reasonably acceptable to EPIC (the "Exchange
Agent") will mail transmittal forms and exchange instructions to be used to
surrender and exchange certificates formerly evidencing shares of EPIC Common
Stock for certificates evidencing the shares of Synopsys Common Stock to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of EPIC Common Stock (the "EPIC
Certificates"). After receipt of such transmittal forms, each holder of EPIC
Common Stock will be able to surrender his or her EPIC Certificates to the
Exchange Agent, and each such holder will receive in exchange therefor
certificates evidencing the number of whole shares of Synopsys Common Stock to
which such holder is entitled and any cash which may be payable in lieu of a
fractional share. Such transmittal forms will be accompanied by instructions
specifying other details of the exchange. EPIC SHAREHOLDERS SHOULD NOT SURRENDER
THEIR EPIC CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Time, EPIC Certificates, until so surrendered and
exchanged, will be deemed, for all purposes, to evidence only the right to
receive the number of whole shares of Synopsys Common Stock which
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the holder of the EPIC Certificates is entitled to receive and the right to
receive any cash payment in lieu of a fractional share. The holder of any
unexchanged EPIC Certificate will not be entitled to receive any dividends or
other distributions payable by Synopsys until the EPIC Certificate has been
surrendered. Subject to applicable laws, such dividends and distributions,
together with any cash payment in lieu of a fractional share of Synopsys Common
Stock, will be paid without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains statements that various representations and
warranties contained therein are true and correct, except (i) as disclosed in
the filings with the Commission by either Synopsys or EPIC, as the case may be
or (ii) where the failure of such a representation or warranty to be true and
correct would not have a Material Adverse Effect (as defined below) on either
Synopsys or EPIC and their respective subsidiaries in the aggregate, as the case
may be, with respect to items a, d to o, q, and u listed below. In particular,
both EPIC and Synopsys provided representations and warranties relating to,
among other things, (a) the due organization, valid existence and good standing
of each of Synopsys, EPIC and each of their respective subsidiaries; (b) the
capital structure of each of Synopsys and EPIC; (c) each party's authorization
to execute and deliver the Merger Agreement and that the Merger Agreement
constitutes a valid and binding obligation of each party enforceable in
accordance with its terms, and each party's authority to consummate the
transactions contemplated by the Merger Agreement; (d) the absence of conflicts
under charters or bylaws, required consents or approvals (other than (i) the
filing of a pre-merger notification under the HSR; (ii) the filing by Synopsys
of its Registration Statement; (iii) the filing of the required merger documents
with the Secretaries of State of California and Delaware; and (iv) the filing of
proxy statements with the Commission by EPIC and Synopsys), and violations of
any instruments or law; (e) the accuracy and completeness of documents and
financial statements filed by each of Synopsys and EPIC with the Commission; (f)
the absence of undisclosed liabilities; (g) the absence of certain material
adverse changes or events; (h) the accurate preparation and timely filing of all
returns and payment of taxes owed and the absence of any material liability for
unpaid taxes that have not been accrued or reserved for by the respective
parties; (i) title to properties; (j) title to intellectual property; (k) the
absence of a breach or the cancellation of material agreements, contracts and
commitments; (l) the absence of litigation; (m) compliance with environmental
regulations, the absence of conduct of activities involving hazardous materials
and absence of any actions against either party regarding environmental matters
or hazardous materials; (n) certain employment tax, labor and employee benefit
matters; (o) compliance with laws; (p) the absence of circumstances adversely
affecting the availability of pooling of interests accounting; (q) the absence
of material interested party transactions; (r) the accuracy of information
supplied by each of Synopsys and EPIC in connection with the Registration
Statement and this Joint Proxy Statement/Prospectus. In addition, the Merger
Agreement contains a representation and warranty by Synopsys as to the interim
operations of Sub, and representations and warranties by EPIC as to (s) the
absence of payments resulting from the Merger, (t) receipt of an opinion of
EPIC's financial advisor as to the fairness of the Merger, from a financial
standpoint, to EPIC's shareholders, and (u) the status of purchases and orders
by substantial distributors and customers of EPIC.
A Material Adverse Effect means any change, event or effect that is
materially adverse to the business, operations or results of operations of EPIC
or Synopsys, as the case may be, and such party's subsidiaries taken as a whole;
provided, however that any of the following are not deemed to constitute a
Material Adverse Effect: (i) adverse changes in or effects on revenues or gross
margins of the party to the extent attributable to a delay of, reduction in or
cancellation or change in the terms of product licenses by the party's customers
to the extent attributable directly and primarily to the transactions
contemplated by the Merger Agreement; (ii) adverse changes in the market prices
for the party's common stock between the date of the Merger Agreement and the
Effective Time, or (iii) the failure of the party's quarterly results of
operations for any quarter ending during the period starting on the date of the
Merger Agreement and ending at the Effective Time to meet generally analysts'
expectations as reflected in the "First Call Consensus" estimate.
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CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Merger Agreement, EPIC has agreed that, during the period
from the date of the Merger Agreement until the earlier of the termination of
the Merger Agreement or the Effective Time, except as otherwise consented to in
writing by Synopsys or as contemplated by the Merger Agreement, EPIC and its
subsidiaries have agreed to: (a) carry on EPIC's business in the ordinary course
in substantially the same manner as previously conducted, including the use of
reasonable efforts consistent with past practices and policies of EPIC to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees and (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it; (b) not accelerate, amend or change the
period of exercisability of EPIC Options, except as required pursuant to the
plan or any related agreement; (c) not transfer or license or otherwise extend,
amend or modify any rights to its intellectual property, other than in the
ordinary course of business consistent with past practices; (d) not declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, not effect certain other changes in its capitalization, and not
purchase or otherwise acquire, directly or indirectly, any shares of its capital
stock except under certain circumstances; (e) not issue, or authorize or propose
the issuance of, any shares of its capital stock or securities convertible into
shares of its capital stock, or any subscriptions, rights, warrants, or options
to acquire, or other agreements obligating it to issue any such shares or other
convertible securities, subject to certain exceptions; (f) not agree to engage
or engage in material acquisitions; (g) not sell, lease, license or otherwise
dispose of material properties or assets, except in the ordinary course of
business; (h) not increase the compensation or severance payable to its officers
or employees (except for increases in accordance with agreements entered into
prior to the Merger Agreement and increases consistent with past practices),
enter into any collective bargaining agreement or establish, adopt, enter into
or amend in any material respect any plan for the benefit of its directors,
officers, or employees, subject to certain exceptions; (i) not amend EPIC's
Restated Articles of Incorporation or Bylaws, except as contemplated by the
Merger Agreement; and (j) not take any action that would or is reasonably likely
to result in any of its representations and warranties becoming untrue. In
addition EPIC has agreed to confer on a regular basis with Synopsys on material
operational matters.
Pursuant to the Merger Agreement, Synopsys has agreed that, during the
period from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement or the Effective Time, except as otherwise
consented to in writing by EPIC or as contemplated by the Merger Agreement,
Synopsys will not: (a) declare or pay any dividends on or make any other
distributions in respect of any of its capital stock, or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock (other
than stock splits of Synopsys Common Stock or stock dividends payable in shares
of Synopsys Common Stock), or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants under certain circumstances; (b) issue, deliver or
sell or authorize or propose the issuance, delivery or sale of, any shares of
its capital stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, subject to certain exceptions; (c) amend or propose to
amend its Certificate of Incorporation or Bylaws, except as contemplated by the
Merger Agreement; (d) acquire or agree to acquire by merger or consolidation
with, or by purchase of a substantial equity interest in or substantial portion
of the assets of any business or any corporation, partnership or other business
organization or division, for consideration having a fair market value (at the
time of the public announcement of such acquisition or agreement) in excess of
$100,000,000; and (e) sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the aggregate, to
the business of Synopsys and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business. In addition,
Synopsys has agreed to confer on a regular basis with EPIC on material
operational matters.
NO SOLICITATION
The Merger Agreement provides that EPIC will not, directly or indirectly,
through any officer, director, employee, representative or agent (i) solicit,
initiate or encourage any inquiries or proposals that constitute, or
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could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, share exchange, business combination, sale of substantial assets,
sale of shares of capital stock (including without limitation pursuant to a
tender offer) or similar transactions or series of transactions involving EPIC,
other than the transactions contemplated by the Merger Agreement (any of the
foregoing inquiries or proposals being referred to as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
any non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal;
provided, however, that nothing contained in the Merger Agreement shall prevent
EPIC or the EPIC Board from (A) furnishing non-public information to, or
entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Acquisition Proposal by such
person or entity (including a new and unsolicited Acquisition Proposal received
by EPIC after the execution of the Merger Agreement from a person or entity
whose initial contact with EPIC may have been solicited by EPIC prior to the
execution of the Merger Agreement) or recommending such an unsolicited bona fide
written Acquisition Proposal to the shareholders of EPIC, if and only to the
extent that (1) the EPIC Board believes in good faith (after consultation with
and based upon the advice of its financial advisor) that such Acquisition
Proposal would, if consummated, result in a transaction more favorable to EPIC's
shareholders from a financial point of view than the transaction contemplated by
the Merger Agreement (any such more favorable Acquisition Proposal being
referred to as a "Superior Proposal") and the EPIC Board determines in good
faith after consultation with and based upon the advice of outside legal counsel
that such action is necessary for EPIC to comply with its fiduciary duties to
shareholders under applicable law and (2) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, the EPIC Board receives from such person or entity an executed
confidentiality agreement with terms no more favorable to such party than those
contained in the Confidentiality Agreement dated January 12, 1997 between
Synopsys and EPIC; or (B) complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal.
Upon compliance with the foregoing, following receipt of a Superior
Proposal, EPIC shall be entitled to (i) withdraw, modify or refrain from making
its recommendation in favor of the Merger Agreement and the Merger and approve
and recommend to the shareholders of EPIC a Superior Proposal and (ii) enter
into an agreement with such third party concerning a Superior Proposal provided
that EPIC shall concurrently make payment in full to Synopsys of certain
termination fees. See "-- Termination Fees."
EPIC is required to notify Synopsys (orally and in writing) within 24 hours
after receiving any Acquisition Proposal, learning of a third party's intent to
make an Acquisition Proposal, or receiving any request for non-public
information or access to its properties, books or records in connection with an
Acquisition Proposal.
RELATED MATTERS AFTER THE MERGER
At the Effective Time, Sub will be merged with and into EPIC, and EPIC will
be the surviving corporation and a wholly-owned subsidiary of Synopsys. Each
share of Sub common stock issued and outstanding immediately prior to the
Effective Time will be converted into and exchanged for one validly issued,
fully paid and nonassessable share of EPIC Common Stock. Each stock certificate
of Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of EPIC Common Stock.
At the Effective Time the Restated Articles of Incorporation and Bylaws of
EPIC, as in effect immediately prior to the Effective Time, will be the Articles
of Incorporation and Bylaws of the Surviving Corporation.
The directors and officers of Sub immediately prior to the Effective Time
will be the initial officers and directors of the Surviving Corporation.
Immediately after the Effective Time, the Synopsys Board will elect Dr.
Sang S. Wang to the Synopsys Board.
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After the Effective Time, all shares of EPIC Common Stock will cease to be
quoted on The Nasdaq National Market, and the Surviving Corporation will
undertake to terminate registration of EPIC Common Stock under the Exchange Act.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that EPIC shall and, from and after the
Effective Time, Synopsys and the Surviving Corporation shall, indemnify, defend
and hold harmless each person who was an officer, director or employee of EPIC
or any of its subsidiaries as of the date of the Merger Agreement or has been at
any time prior to the date thereof (or who becomes a director, officer or
employee of EPIC or any of its subsidiaries prior to the Effective Time) against
all losses, claims, damages, costs, expenses, liabilities or judgments or
amounts that are paid in settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on,
or arising in whole or in part out of, the fact that such person is or was a
director, officer or employee of EPIC or any EPIC subsidiary, whether pertaining
to any matter existing or occurring at or prior to the Effective Time and
whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities"), including, without limitation, all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to the Merger Agreement or the transactions contemplated thereby,
in each case to the full extent that a corporation is permitted under the CGCL
to indemnify its own directors, officers or employees, as the case may be. After
the Effective Time, Synopsys and the Surviving Corporation will fulfill, assume
and honor in all respects the obligations of EPIC pursuant to EPIC's Restated
Articles of Incorporation and any indemnification agreements existing and in
force as of the date of the Merger Agreement with EPIC's directors and officers.
Synopsys and the Surviving Corporation shall, until the sixth anniversary
of the Effective Time or such earlier date as may be mutually agreed upon by the
interested parties, cause to be maintained in effect, to the extent available,
the policies of directors' and officers' liability insurance maintained by EPIC
and its subsidiaries as of the date of the Merger Agreement (or policies of at
least the same coverage and amounts containing terms that are no less
advantageous to the insured parties) with respect to claims arising from facts
or events that occurred on or prior to the Effective Time. In lieu of the
purchase of such insurance by Synopsys or the Surviving Corporation, EPIC may
purchase a six-year extended reporting period endorsement under its existing
directors' and liability insurance coverage. In no event shall Synopsys or the
Surviving Corporation be obligated to expend any amount per year in excess of
150% of the aggregate premiums paid by EPIC and its subsidiaries in the fiscal
year ended September 30, 1996 for directors' and officers' liability insurance
in order to maintain or procure such insurance coverage.
CONDITIONS
The respective obligations of Synopsys, Sub and EPIC to effect the Merger
are subject to the following conditions: (a) the Merger Agreement shall have
been approved and adopted by the shareholders of EPIC and the issuance of
Synopsys Common Stock in connection with the Merger shall have been approved by
the Synopsys stockholders; (b) the waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Antitrust Division or FTC challenging
or seeking to enjoin the consummation of the Merger, which action shall not have
been withdrawn or terminated; (c) all authorizations, consents, orders or
approvals of any governmental entity required to consummate the Merger shall
have been obtained and be in effect, the absence of which would be reasonably
likely to have a Material Adverse Effect on either Synopsys or EPIC, as the case
may be; (d) the Registration Statement shall have become effective under the
Securities Act and shall not be the subject of a stop order or proceedings
seeking a stop order; (e) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction, legal or regulatory restraint or prohibition preventing the
consummation of the Merger or limiting or restricting Synopsys' conduct or
operation of the business of Synopsys or EPIC after the Merger shall have been
issued and be in effect, nor shall there be any proceeding brought by any
governmental entity seeking any of the foregoing be pending; (f) no action shall
be taken, nor any statute, rule, regulation, or order enacted, entered, enforced
or deemed
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applicable to the Merger which makes the consummation of the Merger illegal or
prevents or prohibits the Merger; (g) the receipt of letters, in form and
substance reasonably acceptable to EPIC and Synopsys, of independent accountants
by Synopsys and EPIC, respectively, dated the closing date stating that the
Merger will qualify as a pooling of interests transaction under Accounting
Principles Board Opinion No. 16 and applicable regulations of the Commission, if
the Merger is consummated in accordance with the Merger Agreement; (h) the
Synopsys Common Stock to be issued in the Merger, or reserved for future
issuance, shall have been approved for quotation on The Nasdaq National Market;
(i) receipt by Synopsys of a written opinion from Gray Cary Ware & Freidenrich,
A Professional Corporation, counsel to Synopsys, and receipt by EPIC of an
opinion of WSG&R, counsel to EPIC, both to the effect that the Merger will be
treated as a tax-free reorganization within the meaning of Section 368(a) of the
Code; (j) the accuracy in all material respects of the representations and
warranties of the other party set forth in the Merger Agreement, except for
changes contemplated by the Merger Agreement or where the failure to be true and
correct would not be reasonably likely to have a Material Adverse Effect on EPIC
or Synopsys, as the case may be; (k) the performance by the other party in all
material respects of all obligations required to be performed by such party
under the Merger Agreement; and (l) no Material Adverse Effect with respect to
the other party shall have occurred since the date of the Merger Agreement. In
addition, it is a condition to the obligations of Synopsys and Sub that
Affiliate Agreements in the form attached to the Merger Agreement as Exhibit C
shall have been executed and delivered to Synopsys by each director, officer and
applicable affiliate of EPIC, and that each Affiliate Agreement shall be in full
force and effect.
STOCK OPTION AND BENEFIT PLANS
At the Effective Time, each outstanding option to purchase EPIC Common
Stock issued under the EPIC 1990 Stock Option Plan or the EPIC 1994 Director
Option Plan (together the "EPIC Option Plans"), or issued in connection with the
assumption of options to purchase common stock of CIDA Technology, Inc. ("CIDA")
in connection with EPIC's acquisition of CIDA, whether vested or unvested, will
be assumed by Synopsys. Accordingly, each EPIC Option shall be deemed to
constitute a Synopsys Option to acquire, on the same terms and conditions as
were applicable under such EPIC Option, the same number of shares of Synopsys
Common Stock as the holder of such EPIC Option would have been entitled to
receive pursuant to the Merger had such holder exercised the EPIC Option in full
including as to unvested shares, immediately prior to the Effective Time
(rounded down to the nearest whole number), at a price per share (rounded up to
the nearest whole cent) equal to (i) the aggregate purchase price for the shares
of EPIC Common Stock otherwise purchasable pursuant to such EPIC Option divided
by (ii) the number of shares of Synopsys Common Stock deemed purchasable
pursuant to such Synopsys Option as determined by the method described in the
preceding sentence. However, with respect to any EPIC Option to which Section
422 of the Code applies ("incentive stock options"), the option price, the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code. As of January 31, 1997, options to acquire
2,115,673 shares of EPIC Common Stock were outstanding under the EPIC Option
Plans or issued in connection with EPIC's acquisition of CIDA.
Synopsys has agreed to reserve for issuance a sufficient number of shares
of Synopsys Common Stock for delivery under the EPIC Options assumed as
described above. As soon as practicable after the Effective Time, Synopsys shall
file a registration statement on Form S-3, or Form S-8 or another appropriate
form, as the case may be, with respect to the shares of Synopsys Common Stock
subject to such EPIC Options and shall use its best efforts to maintain the
effectiveness of such registration statement(s)(and the current status of the
prospectus(es) contained therein) for so long as such EPIC Options remain
outstanding. With respect to those individuals who subsequent to the Merger will
be subject to the reporting requirements under Section 16(a) of the Exchange
Act, Synopsys has agreed to administer the EPIC Option Plans assumed in the
Merger in a manner that complies with Rule 16b-3 promulgated under the Exchange
Act.
On the last trading day on which EPIC Common Stock is traded in The Nasdaq
National Market immediately prior to the Effective Time, all then outstanding
rights to acquire shares of EPIC Common Stock under EPIC's 1994 Employee Stock
Purchase Plan (the "EPIC Purchase Plan") will be exercised for the
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purchase of shares of EPIC Common Stock; provided, however, that the purchase of
shares on that date is conditioned upon consummation of the Merger. Any shares
of EPIC Common Stock so purchased shall be automatically converted into shares
of Synopsys Common Stock on the same basis as all other shares of EPIC Common
Stock without the issuance of the certificates representing EPIC Common Stock.
Employees of EPIC as of the Effective Time will be permitted to participate in
the Synopsys Employee Stock Purchase Plan commencing on the first enrollment
date of such plan following the Effective Time, subject to the terms and
conditions of such plan. Employees of EPIC will each receive credit, for
purposes of such eligibility provisions, for prior service with EPIC or
Synopsys.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Synopsys or the shareholders of EPIC:
(a) by mutual written consent of Synopsys and EPIC; or
(b) by either Synopsys or EPIC if the Merger shall not have been
consummated by June 30, 1997, provided that if the Merger shall not have
been consummated due to the waiting period (or any extension thereof) under
the HSR Act not having expired or been terminated, or due to an action
having been instituted by the Antitrust Division or the FTC challenging or
seeking to enjoin the consummation of the Merger, then such date shall be
extended to September 30, 1997, and provided further that the right to
terminate the Merger Agreement under this provision is not available to any
party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of or resulted in the failure of the Merger to occur on
or before such date; or
(c) by either Synopsys or EPIC if a court of competent jurisdiction or
other Governmental Entity (as defined in the Merger Agreement) shall have
issued a nonappealable final order, decree or ruling or taken any other
action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, except, if the party relying
on such order, decree or ruling or other action has not complied with its
obligations under Section 6.7 of the Merger Agreement (Legal Conditions to
Merger); or
(d) by either Synopsys or EPIC if the required approvals of the
stockholders of Synopsys or shareholders of EPIC contemplated by the Merger
Agreement shall not have been obtained by reason of the failure to obtain
the required vote upon a vote taken at a meeting of such stockholders or
shareholders duly convened therefor or at any adjournment thereof (provided
that the right to terminate the Merger Agreement under this provision is
not available to any party where the failure to obtain approval of such
party's stockholders or shareholders shall have been caused by the action
or failure to act of such party in breach of the Merger Agreement); or
(e) by Synopsys, if (i) the EPIC Board shall have withdrawn or
modified its recommendation of the Merger Agreement in a manner adverse to
Synopsys or shall have publicly announced its intention to do any of the
foregoing; (ii) an Alternative Transaction (as defined in the Merger
Agreement) shall have taken place (including execution of an agreement to
engage in the same) or the EPIC Board shall have recommended to the
shareholders of EPIC an Alternative Transaction; (iii) a tender offer or
exchange offer for 20% or more of the outstanding shares of EPIC Common
Stock is commenced (other than by Synopsys or an Affiliate of Synopsys) and
the EPIC Board has not recommended that the shareholders of EPIC not tender
their shares in such tender or exchange offer within the time period
prescribed by Rule 14e-2 promulgated under the Exchange Act; or
(f) by Synopsys or EPIC, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, which breach causes the conditions
set forth in Sections 7.2(a) or 7.2(b) of the Merger Agreement (in the case
of termination by Synopsys) or 7.3(a) or 7.3(b) (in the case of termination
by EPIC) not to be satisfied as of the time of such breach, provided that
if such breach by such party is curable by such party through the exercise
of
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its reasonable efforts and for so long as such party continues to exercise
such reasonable efforts, the other party may not terminate the Merger
Agreement under this provision.
In the event of any termination of the Merger Agreement by either Synopsys
or EPIC pursuant to clause (a) above, there will be no liability or obligation
on the part of any party to the Merger Agreement or its officers, directors,
stockholders (or shareholders as the case may be) or affiliates, except as set
forth in Section 8.3 of the Merger Agreement (Fees and Expenses), provided that
the provisions of Sections 6.14 (Brokers and Finders), 8.3 (Fees and Expenses)
and Article IX (Miscellaneous) and the Confidentiality Agreement shall survive
any such termination. In the event of any termination of the Merger Agreement
pursuant to Sections 8.1(b) to 8.1(f), the Merger Agreement shall be of no
further force and effect, except that Sections 8.2 and 8.3 and Article IX of the
Merger Agreement and the Confidentiality Agreement shall remain in full force
and effect and survive any termination of the Merger Agreement and nothing in
the Merger Agreement shall relieve any party from liability for any breach of
the Merger Agreement.
Except as described below, all fees, costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, whether or not the Merger is
consummated, except Synopsys and EPIC shall share equally all fees and expenses,
other than attorneys' fees, incurred in relation to the printing and filing of
this Proxy Statement/Prospectus and the Registration Statement and any
preliminary materials, documents or supplements thereto.
TERMINATION FEES
Section 8.3 of Merger Agreement provides for EPIC to pay to Synopsys a cash
termination fee of $10,700,000 upon the earliest to occur of the following
events:
(i) the termination of the Merger Agreement by Synopsys pursuant to
Section 8.1(e) of the Merger Agreement; or
(ii) the termination of the Merger Agreement by Synopsys pursuant to
Section 8.1(d) of the Merger Agreement as a result of the failure to
receive the requisite vote for approval of the Merger Agreement and the
Merger by the shareholders of EPIC at the EPIC Special Meeting if, at the
time of such failure,
(A) there shall have been announced or commenced an Alternative
Transaction (as defined in clauses (i), (ii) or (iii) of Section 8.3(d)
but excluding clause (iv) contained in such definition) or EPIC shall
have executed an agreement to engage in the same and the EPIC Board
shall not have recommended against such Alternative Transaction
affirmatively or, if the EPIC Board has recommended against such
Alternative Transaction, the EPIC Board shall have withdrawn such
recommendation against such Alternative Transaction or modified such
recommendation in a manner adverse to Synopsys, or
(B) there shall have been announced an Alternative Transaction
(including, but not limited to, the definition contained in clause (iv)
of Section 8.3(d)) and EPIC shall have engaged in any merger,
consolidation, share exchange, business combination, or similar
transaction with, or shall have sold, leased, exchanged, or otherwise
transferred Material Assets (as defined in Section 8.3(d)(iii)) to the
Third Party (as defined in Section 8.3(d)) or any affiliate thereof
proposing such Alternative Transaction (or entered into an agreement
with such Third Party or any affiliate thereof to engage in the same)
within six months after the date of the EPIC Special Meeting or the EPIC
Board shall have recommended an Alternative Transaction (as defined
clause (i) in Section 8.3(d)) with the Third Party proposing such
Alternative Transaction or any affiliate thereof within six months after
the date of the EPIC Special Meeting.
As used in the Merger Agreement, "Alternative Transaction" means either (i)
a transaction pursuant to which any person (or group of persons) other than
Synopsys or its Affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of EPIC Common Stock, pursuant to a tender offer or exchange
offer or otherwise, (ii) a merger or other business combination involving EPIC
pursuant to which any Third Party
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acquires more than 20% of the outstanding equity securities of EPIC or the
entity surviving such merger or business combination, (iii) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
EPIC, and the entity surviving any merger or business combination including any
of them) of EPIC having a fair market value (as determined by the EPIC Board in
good faith) equal to more than 20% of the fair market value of all the assets of
EPIC immediately prior to such transaction ("Material Assets"), or (iv) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing.
Notwithstanding the foregoing, in no event is EPIC required to pay any
termination fees to Synopsys if, immediately prior to the termination of the
Merger Agreement, Synopsys was in breach of any of its material obligations
under the Merger Agreement. Payment of the fees described above shall not be in
lieu of damages incurred in the event of breach of the Merger Agreement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by action taken or authorized by the
respective Boards of Directors of Synopsys and EPIC, at any time before or after
approval by the shareholders of EPIC and the stockholders Synopsys of the
matters presented in connection with the Merger to them, but, after such
approvals, no amendment shall be made which by law requires further approval by
the EPIC shareholders or the Synopsys stockholders, without such further
approval. At any time prior to the Effective Time, Synopsys and EPIC, by action
taken or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (i) extend the time for performance of the obligations or other
acts of the other parties to the Merger Agreement, (ii) waive any inaccuracies
in the representations or warranties contained in the Merger Agreement and (iii)
waive compliance with any agreements or conditions contained in the Merger
Agreement.
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SYNOPSYS, INC.
BUSINESS
INTRODUCTION
Synopsys develops, markets, and supports high-level design automation
(HLDA) products for designers of integrated circuits (ICs) and electronic
systems. Synopsys offers a range of design tools, verification systems and
design reuse 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
electronic design automation (EDA) products. Synopsys also provides training,
support and consulting services for its customers.
The foundation of Synopsys' HLDA methodology is logic synthesis. Synopsys
pioneered the commercial development of logic synthesis technology in the late
1980s and is currently the leading provider of synthesis software. Synopsys
offers both logic and behavioral synthesis products. Logic synthesis allows
designers to use a high-level language to describe a chip, then automatically
converts and optimizes this high-level description into a gate-level format that
can be manufactured by a semiconductor company. Behavioral synthesis allows
designers to specify their designs at the behavioral level, which is a higher
level of abstraction than is permitted by logic synthesis.
Synopsys' verification systems products are used by IC designers in several
stages of system design to help ensure that their ICs will work before they are
manufactured. Synopsys is a leading provider of software and hardware models,
which are used to test IC designs within the context of the system into which
they will be designed or to simulate the performance of an entire system or
subset of a system before manufacturing. Synopsys' simulation products permit
engineers to simulate their designs at various stages of the design process
(behavioral, register-transfer and gate-levels).
Synopsys' design reuse products are intended to reduce design time by
permitting the straight-forward reuse of previously-proven circuit "blocks."
Synopsys believes design reuse will be a key to increased productivity of IC
designers as the density and complexity of ICs increases. Synopsys' 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.
Synopsys markets its products on a worldwide basis and offers comprehensive
customer service, education, consulting, and support as integral components of
its product offerings. Products primarily are marketed through its direct sales
force. Synopsys has license agreements with many of the world's leading
semiconductor, computer, communications and electronics companies.
INDUSTRY BACKGROUND
EDA products have played a critical role in accelerating the dramatic
advances in the electronics industry over the past two decades.
For the past 26 years, IC complexity (as measured by the number of
transistors on a chip) has increased by a factor of 10 every six years, a
formula known in the semiconductor industry as Moore's Law (for the founder of
Intel Corporation). The need for EDA resulted from this increasing complexity,
as well as increased complexity of the electronic systems in which ICs are used
and the scarcity of skilled IC design engineers. Increased IC complexity
lengthened the product design and development cycles while, at the same time,
competition shortened product life cycles. The objectives of EDA are to (a)
reduce time to market, (b) reduce the costs associated with product design and
development, (c) improve the performance and density of complex IC designs, and
(d) improve the predictability of IC manufacture and testing.
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);
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- 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.
The first successful step towards high-level design was the introduction of
hardware description languages (HDLs) that permitted the expression of design
ideas and functionality at a level independent of silicon implementation.
Initial HDL modeling and system simulation found only limited application
because there was no enabling technology that could translate the
functional-level HDL specifications into gate-level designs.
Logic synthesis provided the enabling technology that permitted designers
to translate HDL specifications into gate-level designs. Logic synthesis employs
a number of advanced computational algorithms for Boolean logic manipulation and
optimization, timing analysis, and technology mapping. By raising the level of
abstraction at which IC designers work from the gate-level to the
functional-level, logic synthesis has become the focal point of the third
generation of EDA.
Semiconductor process technology has continued to advance into the 1990s.
Chip complexity and density have continued to increase accordingly. At the same
time, the competitive pressures faced by computer, telecommunications,
electronics, automotive and appliance companies and other designers and
consumers of ICs have made design productivity and time-to-market even more
critical factors in selecting IC design methods and tools.
STRATEGY
Synopsys' strategy is to lead the evolution of electronic design by
providing methodologies, products and services that maximize the productivity of
its customers. In order to execute this strategy, Synopsys seeks to 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 and provide high quality support, education and
consulting services that meet the needs of its customers.
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PRODUCT GROUPS
Design Tools
Synopsys' design tools consist principally of its core synthesis product,
Design Compiler(TM), and a suite of high-level design products that are tightly
linked to it. Synopsys is currently the leading provider of logic synthesis
tools. Design Compiler was introduced in 1988 and has been updated regularly. It
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. In fiscal year 1996, Synopsys introduced Power Compiler(TM),
which permits IC designers to optimize their designs for power consumption.
Optimizing ICs for power consumption is especially important for portable,
battery-powered devices such as laptop computers and cellular telephones.
In fiscal year 1996, Synopsys introduced FPGA Express(TM), a new synthesis
tool for high-density FPGAs and complex programmable logic devices (CPLDs). FPGA
Express is Synopsys' first product to run on the Windows 95 and Windows NT
operating systems, reflecting the fact that personal computers are the
predominant platform for FPGA and CPLD designs.
Synopsys believes that behavioral synthesis is a key enabling technology
for the next advance in electronic design productivity. During fiscal year 1996,
Behavioral Compiler(TM), Synopsys' behavioral synthesis product, continued to
gain customer acceptance. Behavioral synthesis permits engineers to create
complex circuits in a high-level shorthand; the designer specifies the algorithm
and the software then helps the designer pick the best architecture. Early
adopters of Behavioral Compiler (which was introduced in 1994) have reported
significant reductions in architecture design time (an important component of
overall design time), while achieving improvements in performance and area.
Synopsys' other design tools are integrated with Design Compiler to offer a
comprehensive design environment. HDL Advisor(TM) lets IC designers analyze and
improve their source code before synthesis and simulation runs. Synopsys' test
synthesis software permits designers to generate high-quality test patterns and
moves IC design testing from the final stages of the design process to the
high-level design process, thus permitting earlier detection of design defects.
Synopsys' power analysis product lets designers measure and analyze power
consumption earlier in the design cycle than layout-oriented tools and Power
Compiler automatically optimizes for power. Synopsys' floorplanning management
product acts as a high-level link to the layout process by taking physical
design data into consideration during synthesis.
Synopsys' design tools offer a number of benefits to customers. Its
synthesis products typically reduce circuit area up to 25% and improve
critical-path timing by approximately 30% when compared to the results achieved
by designers using traditional CAE tools. Logic synthesis supports technology
independent design, giving designers a wide array of options in choosing
semiconductor suppliers and, due to the automated nature of the process, allows
them 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)).
In order to address the challenges posed by increasing IC complexity and
advances in IC technology, in fiscal year 1996 Synopsys formed a number of
important strategic relationships. In February 1996, Synopsys and International
Business Machines Corporation (IBM) formed an alliance to jointly develop
products in the areas of design planning, timing, test and synthesis, and
Synopsys acquired a license to use certain IBM technology. In addition, Synopsys
was selected by SEMATECH, a consortium of the leading U.S. semiconductor
manufacturers, as the prime contractor on a $6 million contract to deliver next
generation tools for designing complex ICs at 0.25-micron and below. In May
1996, Synopsys entered into a strategic relationship with Cooper & Chyan
Technology (CCT), Inc. to link Synopsys' synthesis tools with CCT's routing
technologies. CCT recently announced an agreement to merge with Cadence Design
Systems, Inc., a competitor of Synopsys. Synopsys is currently evaluating its
relationship with CCT in light of the proposed merger.
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Verification Systems
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.
Synopsys offers a range of verification products, including simulation and
emulation tools and hardware and software models, integrated into its
synthesis-based design flow, that help customers verify their designs before
committing them to silicon.
In September 1996, Synopsys introduced two new products that help address
the verification demands of designing increasingly complex ICs. Cyclone(TM),
Synopsys' new "cycle-based" simulation software, 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. Synopsys'
ARKOS(TM) hardware emulator emulates the behavior of an ASIC with up to 4
million gates and can operate as an execution engine for Cyclone, providing
accelerated simulation. Together, Cyclone and the ARKOS hardware emulator permit
designers to use emulation and simulation early in the design process.
Cyclone and the ARKOS hardware emulator complement Synopsys' VHDL System
Simulator(TM) (VSS). 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. During fiscal 1996, Synopsys added VSS support for "VITAL," the
industry signoff gate-level modeling standard. VSS, Cyclone and the ARKOS
emulator are all tightly linked to Synopsys' synthesis products.
Since Synopsys' February 1994 merger with Logic Modeling Corporation,
Synopsys has offered a full range of hardware and software modeling solutions.
Synopsys currently offers models for more than 13,000 commercially available
ICs, including a wide range of microprocessors, DSPs, CPLDs, memories and
standard logic. In addition, Synopsys offers modeling technologies to allow
designers to create models of both standard and proprietary devices. These
models support all major EDA simulation environments and a wide range of EDA
platforms, giving designers access to a broad range of models to assist them
with verification of their designs.
Success in the modeling business depends, in part, upon making a wide range
of models and model types. Synopsys continues to focus its modeling development
efforts on enhancing its ability to quickly and efficiently produce and
distribute new models. Synopsys seeks to maintain close relationships with
leading semiconductor vendors to ensure model accuracy and the earliest possible
availability. Synopsys believes that future design verification methodologies
will require models of even more complex components, subsystems, and systems as
customers engage in ever larger and more sophisticated designs.
Design Reuse
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 reuse products are intended to enable such
reuse.
Since Synopsys' acquisition of Silicon Architects(TM) in May 1995, it has
offered a proprietary IC architecture, known as Cell-Based Array (CBA), and
compilers for high-level memories and data path elements. The CBA architecture
consists of optimized libraries of low level elements in an IC. Synopsys
licenses these libraries to ASIC manufacturers and adapts the libraries for use
in the manufacturer's particular production process. The CBA libraries are then
used in lieu of the manufacturer's proprietary library. Replacing
vendor-specific libraries with optimized CBA libraries can provide cost benefits
to ASIC vendors by reducing the silicon area required for a given design and can
provide improved performance and power consumption levels compared to other IC
architectures. The CBA architecture also offers Synopsys' customers a link
between synthesis-based high-level design and the physical implementation of
designs. Synopsys has entered into CBA license agreements with many of the
world's leading ASIC vendors.
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DesignWare, introduced in 1992, provides IC designers with libraries of
pre-designed and pre-verified off-the-shelf design modules to incorporate into
their own designs. By providing these building blocks and making them
synthesizable (i.e., usable by Synopsys' design tools in optimizing a design),
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 1996, over 100 design modules were available in
DesignWare libraries. Synopsys intends to make more modules available and to
increase the size and functions of the available modules. DesignWare
Developer(TM) is used in conjunction with DesignWare and permits designers to
create their own proprietary reusable DesignWare components.
PRODUCTS
Synopsys' products include design tools, verification systems and design
reuse tools, as summarized below. In addition, Synopsys offers interface
products that permit the sharing of data with other EDA systems and library
tools that assist semiconductor vendors in developing technology libraries.
Design Tools
Behavioral Compiler. Behavioral Compiler provides a direct link from the
functional descriptions of a design to HDL Compiler(TM) and Design Compiler for
implementation. By permitting IC designers to work at a higher level of
abstraction than permitted by other tools, Behavioral Compiler simplifies IC
design and, in the process, makes the design more reliable and predictable.
HDL Compiler Family. The HDL Compiler family includes VHDL Compiler and
HDL Compiler (for Verilog). The HDL Compiler family synthesizes HDL descriptions
into optimized, technology independent netlists for the Design Compiler family.
Design Compiler Family. The Design Compiler family consists of products
that synthesize hierarchical descriptions of circuits in any combination of
equations, state tables, and netlists from external CAE systems or the Synopsys
HDL Compiler family and optimizes such designs to meet timing and area
requirements given a particular technology library.
Power Family. Includes DesignPower(R) and Power Compiler, offering a
complete methodology for power. DesignPower analyzes power consumption early in
the design process, helping to avoid surprises late in the design process that
could force designers to use more expensive packaging, "re-spin" designs, and/or
add cooling devices to meet power consumption requirements. Power Compiler
offers "push button" power optimization on top of designs developed with
DesignPower. When used in conjunction with Design Compiler, Power Compiler
enables simultaneous optimization for size, timing and power.
FPGA Compiler(TM). FPGA Compiler works with the Design Compiler to
synthesize designs for implementation in Field Programmable Gate Arrays (FPGAs)
from a number of manufacturers, including Actel, Altera, Lucent Technologies and
Xilinx.
FPGA Express. FPGA Express offers synthesis and optimization for FPGAs and
complex programmable logic devices on Windows 95 or Windows NT-based PCs.
Test Compiler(TM). Test Compiler works with the Design Compiler family to
integrate testability analysis and design-for-test capabilities into the design
process. Test Compiler lets designers explore testability trade-offs early in
the design process and automatically generates vectors needed to test the
design.
HDL Advisor. HDL Advisor helps designers reduce the number of design
iterations by providing a source-level performance analysis tool for use either
before or after synthesis or simulation.
DesignTime(TM). DesignTime delivers full static timing analysis within
Synopsys' high-level design environment, permitting a designer to perform
point-to-point timing analysis using the same vendor-certified libraries, timing
algorithms, and interfaces used to create the design.
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Floorplan Manager(TM). Floorplan Manager takes into account physical
design information from a commercial floorplanner early in the design process,
promoting convergence between synthesis and layout and reducing design time by
reducing post-layout timing violations.
COSSAP. COSSAP(R) is a second-generation DSP design system that can
simulate large, complex, high-level systems that would be hard to model with
standard cycle-based or event-driven simulators. COSSAP includes a library of
DSP building blocks.
Verification Systems
VHDL System Simulator (VSS) Family. The VSS family provides a single
simulation environment for the three major stages of IC design -- behavioral,
logic, and gate -- letting designers capture and verify high-level
specifications and detect design inconsistencies before and after committing
designs to synthesis. It also includes a source-level debugging tool and
post-processing utilities, including statistical analysis.
Cyclone. Cyclone, Synopsys' new "cycle-based" simulation software, permits
IC designers to simulate their designs using cycle-based algorithms at the
register-transfer level, which is faster and requires less memory than current
tools.
ARKOS Emulator. Synopsys' ARKOS hardware emulator emulates the behavior of
an ASIC with up
to 4 million gates and can operate as an execution engine for Cyclone, providing
accelerated simulation.
ModelSource(TM) 3000 Hardware Modeling Products. The ModelSource 3000
series is a family of hardware modeling systems for ASIC and board level design
which provide a flexible means for designers to model complex devices.
ModelSource 3000 systems use the actual integrated circuit to model its own
behavior.
SmartModel(R) Library and SourceModel Library(R). These two libraries
include models of more than 13,500 devices, representing all major device types
and semiconductor manufacturers. The SmartModel Library features models of
complex devices -- microprocessors, controllers, peripherals, FPGAs and logic
devices -- that engineers would not typically model themselves. The SourceModel
Library offers designers models of commonly-used standard logic and memory
devices. Models are furnished in either Verilog or VHDL source code.
Bus Interface Models. Bus interface models are used to verify that designs
comply with established industry standards. Models are available for popular
standards including: Peripheral Component Interface (PCI), Personal Computer
Memory Card International Association (PCMCIA), MicroChannel Architecture (MCA),
Industry Standard Interface (ISA), Extended Industry Standard Interface (EISA),
Small Computer Systems Interface-2 (SCSI-2), and Versa Module Eurocard (VME)
standards.
Design Reuse
DesignWare. DesignWare provides libraries of flexible, ready-to-use
digital components that are technology-independent, parameterizable and
synthesizable. DesignWare libraries include commonly used functions ranging from
simple modules, such as multipliers, to more complex functions. DesignWare
libraries are tightly coupled to Synopsys' high-level design environment.
DesignWare Developer(TM). DesignWare Developer helps customers develop
their own DesignWare components from which they can build an inventory of design
knowledge that can be leveraged across multiple development teams or in
subsequent design cycles.
Cell-Based Array (CBA) Architecture and Macrocell Libraries. Synopsys' CBA
architecture offers semiconductor vendors the customization advantages of gate
array architecture with the density and performance and power advantages of
standard cell design. Macrocell libraries contain circuit elements used by the
CBA Design System(TM) and Synopsys synthesis tools. Compilers for complex
datapath and memory blocks based on CBA are also available.
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Memory and Datapath Compilers. Compilers are used to quickly generate
optimized general purpose functions for an IC, and are parameterized to allow
the designer to generate a function of optimal size, performance and power.
CBA Design System. The CBA Design System provides several Silicon
Architect-developed tools with integration of commercial EDA tools to facilitate
design of complex ICs based on the CBA Architecture.
CUSTOMER SERVICE AND SUPPORT
Synopsys devotes substantial resources to providing customers with
technical support, customer education, and consulting services. Synopsys
believes that a high level of customer service and support is critical to the
adoption and successful utilization of its high-level design automation
methodology.
As a result of the continued growth of Synopsys' installed base, as well as
customer requests for education, support and consulting services, Synopsys'
service revenue has increased as a percentage of total revenue, representing
31%, 32%, 34% and 35% of total revenue in fiscal 1994, 1995, 1996 and the first
quarter of fiscal 1997, respectively.
Technical Support
Technical support is provided through both field- and corporate-based
technical application engineering groups. Synopsys provides customers with
software updates and a formal problem identification and resolution process
through the Synopsys Technical Support Center. Synopsys' 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
Synopsys offers a number of workshops focused on high-level design,
simulation, behavioral synthesis, logic synthesis, and test. Regularly scheduled
workshops are offered in Mountain View, California; Austin, Texas; Burlington,
Massachusetts; Reading, England; Rungis, France; Munich, Germany; Tokyo and
Osaka, Japan; and Seoul, Korea. On-site workshops are available on a worldwide
basis at customers' facilities. To date, over 15,000 design engineers have been
trained in the use of Synopsys' products through participation in Synopsys
workshops.
Consulting
Synopsys provides consulting services through its Professional Services
Group, which offers customized high-level design support for IC and systems
designs. Synopsys consultants are experienced designers who provide customers
with in-depth technical expertise in the use of Synopsys' HLDA methodology and
tools. Synopsys offers both methodology and project consulting. Methodology
consulting is aimed at increasing customer productivity, promoting the adoption
of Synopsys' HLDA methodology and solving immediate needs of customers' design
teams. Project consulting involves Synopsys experts working with customer design
teams from design implementation through simulation, synthesis and tapeout.
PRODUCT WARRANTIES
Synopsys generally warrants its products to be free from defects in media
and to substantially conform to material specifications for a period of 90 days.
Synopsys has not experienced significant returns to date.
SUPPORT FOR INDUSTRY STANDARDS
Synopsys actively supports standards that it believes will help its
customers increase productivity and solve design problems, including support for
key standards that promote system-on-chip design and allow tool
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interoperability. Synopsys' products support the two most commonly used hardware
description languages, VHDL and Verilog HDL. The Company's de facto standard
register-transfer-level subsets of the VHDL and Verilog languages were donated
to the EDA Industry Council for its project to create a formal standard RTL
subset. Netlist and schematic input/output are supported through the Electronic
Data Interchange Format. The products support simulation modeling with the VHDL
Initiative Towards ASIC Libraries (VITAL) standard. Ties to physical design
tools are provided by Synopsys' support of Standard Delay Format and Physical
Design Exchange Format. The latter was donated to the industry for
standardization as part of a Delay Calculation System for deep submicron design.
Synopsys contributes to this Delay Calculation System standardization effort
which includes, in addition to PDEF, the Delay Calculation Language (DCL),
donated by International Business Machines Corporation, and the Standard
Parasitic Extended Format, donated by Cadence Design Systems, Inc. Synopsys
donated its SWIFT modeling interface to the Open Modeling Forum for a common
simulator interface from models written in various formats.
Synopsys is on the Board of Directors of the standards groups Open Verilog
International, VHDL International, Open Modeling Forum (OMF), and CAD Framework
Initiative. As a member of SEMI/SEMATECH and the EDA Industry Council, Synopsys
is participating in the EDA Industry Standards Roadmap and the active projects
that are implementing the Roadmap. Synopsys is the prime contractor for
SEMATECH's Chip Hierarchical Design System, which is predicated on open
standards. Synopsys also contributes to the efforts of the Design Automation
Standards Committee of the IEEE. Synopsys' software is chiefly written in C
language and utilizes the Motif and X11 standards for graphical user interfaces.
Synopsys' software runs principally under the UNIX operating system and is
offered on the most widely used workstation platforms, including those from Sun
Microsystems, Hewlett-Packard, IBM, Digital Equipment Corporation and Sony.
Certain of Synopsys' software modeling products and FPGA Express run on the
Windows '95 and Windows NT operating system and are available for IBM-compatible
PCs.
SALES, DISTRIBUTION AND BACKLOG
Synopsys markets its products and services primarily through its direct
sales and service force in over 30 offices in the United States and principal
international markets. Synopsys employs highly skilled engineers and technically
proficient sales persons capable of serving the sophisticated needs of the
customers' engineering and management staffs.
For fiscal 1994, 1995, 1996 and the first quarter of fiscal 1997,
international sales represented 48%, 52%, 49% and 45%, respectively, of
Synopsys' total revenue. Additional information relating to domestic and foreign
operations is contained in Note 8 of Note to Consolidated Financial Statements.
As of September 30, 1996, Synopsys' direct sales and service force
consisted of 600 management, technical, and administrative employees. Synopsys
has nineteen sales/support centers throughout the United States.
Internationally, Synopsys has sales/support offices in Canada, Finland, France,
Germany, Hong Kong, Israel, Italy, Japan, Korea, the People's Republic of China,
Singapore, Sweden, Taiwan, and the United Kingdom, including regional
headquarters offices in Germany, Japan and Singapore. On a limited basis,
Synopsys also utilizes manufacturer's representatives and distributors. Synopsys
has established such relationships in Australia, Brazil, Hong Kong, India,
Korea, Malaysia and Singapore.
Synopsys' backlog was approximately $176.4 million on November 2, 1996, as
compared to $99.4 million on November 4, 1995. Synopsys' backlog includes orders
for customer training and consulting services which are expected to be completed
within one year, orders for systems and software products and related
maintenance and support with customer requested ship dates within three months,
and deferred revenue, which consists of subscription services, maintenance and
support. Synopsys has not historically experienced significant cancellations of
orders. Customers frequently reschedule or revise the requested ship date of
orders, however, which can have the effect of deferring recognition of revenue
for these orders beyond the expected time period.
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RESEARCH AND DEVELOPMENT
Synopsys believes that its future performance will depend in large part on
its ability to maintain and enhance its current product lines, develop new
products, maintain technological competitiveness, and meet an expanding range of
customer requirements. In addition to product development teams, Synopsys
maintains an advanced research group that is responsible for exploring new
directions and applications of the core technologies, migrating new technologies
into the existing product lines, and maintaining strong research relationships
outside Synopsys both within industry and academia. Relationships are maintained
with third-party software and hardware vendors to broaden the product lines
without direct investment and with all major hardware vendors on whose platforms
Synopsys' products operate.
During fiscal 1994, 1995, 1996 and the first quarter of fiscal 1997,
research and development expenses were $41.3 million, $58.7 million, $84.2
million and $24.9 million, respectively, excluding capitalized software
development costs. Capitalized software development costs for these periods were
$1.5 million, $1.0 million, $1.0 million and $250,000, respectively. Synopsys
anticipates that it will continue to commit substantial resources to research
and development in the future.
MANUFACTURING
Synopsys' manufacturing operations consist of assembling, testing,
packaging and shipping its hardware and software products and documentation
needed to fulfill each order. All 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 hardware
products is done by Synopsys employees, with some sub-assembly performed by
outside vendors. Synopsys typically ships its software products, with either a
permanent or temporary access key, within 10 days of acceptance of customer
purchase orders and execution of software license agreements, unless the
customer has requested otherwise. For its hardware products, Synopsys buys
components in anticipation of orders and builds units to match orders, typically
shipping within four to twelve weeks of order acceptance, unless the customer
has requested otherwise.
COMPETITION
The EDA industry is highly competitive. The other principal companies in
the EDA industry are Cadence Design Systems, Inc., Mentor Graphics Corp.,
Viewlogic Corporation, Avant! Corporation and Quickturn Design Systems Inc.
There are many other companies in the EDA industry and frequent new entrants,
including businesses targeted at Synopsys' product areas.
Synopsys' products compete with similar products from other vendors and
compete with other EDA products and services for a share of the EDA budgets of
their customers. Synopsys believes that the principal competitive factors in the
EDA industry are product performance, technology leadership, methodology
support, technical support, support of industry standards, price, and
reputation. Synopsys believes that it currently competes favorably with respect
to these factors.
To date, the majority of Synopsys' revenue has resulted from sales of
synthesis and synthesis-related HLDA tools, and modeling products, both areas in
which Synopsys is currently the leading provider. As Synopsys' business evolves,
it expects to continue to face competition in the core product areas of
synthesis and modeling and to face competition both in new product areas and
from competing alternatives for its customers' EDA dollars (e.g., internal
spending, services, out-sourcing of design or other tools). Although Synopsys
has maintained its leadership in synthesis and modeling, a loss of market share
or price/margin reduction resulting from increased competition could have a
significant adverse effect on Synopsys.
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.
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No single EDA company currently offers its customers industry leading
products for a complete design flow. Presently, Synopsys does not offer physical
design tools, a field which is currently dominated by Cadence and Avant!, and
trails Cadence in its capacity to offer design services. In May 1996, Synopsys
entered into a strategic relationship with Cooper & Chyan Technology, Inc. (CCT)
involving the acquisition of 9.9% of CCT's stock and a link between Synopsys'
existing synthesis products and its design planning products under development
and CCT's routing technology. Cadence and CCT have announced their intention to
merge. Synopsys has sold a portion of its holdings of CCT stock and is
evaluating the effect of such a merger on its overall relationship with CCT.
To counter competition, Synopsys will continue to enhance its product line
and promote the adoption of new products and methodologies. However, there can
be no assurance that Synopsys will be able to compete successfully against
current and future competitors or that competitive pressure faced by Synopsys
will not materially adversely affect its business, operating results and
financial condition.
PRODUCT SALES AND LICENSING AGREEMENTS
Synopsys offers its hardware products for sale or lease. Synopsys typically
licenses its software to customers under non-exclusive license agreements that
transfer title to the media only and that restrict use of the software to
internal purposes at specified sites. Synopsys currently licenses the majority
of its software as a network license that allows a number of individual users to
access the software on a defined network. License fees are dependent on the type
of license, product mix and number of copies of each product required. On
certain software products Synopsys will collect royalty payments in addition to
license fees.
PROPRIETARY RIGHTS
Synopsys primarily relies upon a combination of copyright, patent,
trademark and trade secret laws and license and nondisclosure agreements to
establish and protect proprietary rights in its products. The source code for
Synopsys' products is protected both as a trade secret and as an unpublished
copyrighted work. However, it may be possible for third parties to develop
similar technology independently, provided they have not violated any
contractual agreements or intellectual property laws. In addition, effective
copyright and trade secret protection may be unavailable or limited in certain
foreign countries. Because the EDA industry is characterized by rapid
technological change, Synopsys believes that factors such as the technological
and creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance, coupled with
the various forms of legal protection that are available for its technology,
provide an effective means for Synopsys to establish and maintain a technology
leadership position. Synopsys currently holds several U.S. and foreign patents
on some of the technologies included in its products and will continue to pursue
additional patents in the future.
Although Synopsys believes that its products, trademarks and other
proprietary rights do not infringe on the proprietary rights of third parties,
and although to date Synopsys has received no communications from third parties
alleging the infringement of the proprietary rights of such parties, there can
be no assurance that infringement claims will not be asserted against Synopsys
in the future or that any such claims will not require Synopsys to enter into
royalty arrangements or result in costly and time-consuming litigation.
EMPLOYEES
As of September 30, 1996, Synopsys had a total of 1,716 employees, of whom
1,333 were based in the United States and 383 were based internationally. Of the
total, 762 were engaged in marketing, sales and related customer support
services, 548 were in research and development, 123 were in operations and 283
were in administration and finance. Synopsys' future financial results depend,
in part, upon the continued service of its key technical and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense
and there can be no assurance that Synopsys can retain its key managerial and
technical employees or that it can attract, assimilate or retain other highly
qualified technical and managerial personnel in the future. None of Synopsys'
employees
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is represented by a labor union. Synopsys has not experienced any work stoppages
and considers its relations with its employees to be good.
PROPERTIES
Synopsys' principal administrative, sales, marketing, research and
development facilities are located in five adjacent buildings in Mountain View,
California, which together provide approximately 415,000 square feet of
available space. These buildings are leased through February 28, 2003.
On January 2, 1996 Synopsys entered into a build-to-suit lease arrangement
for two buildings in Sunnyvale, California, within one-half mile from its
principal offices. The buildings will provide approximately 200,000 square feet
of additional space, and are expected to be available for occupancy in mid-1997.
The lease term is ten years from the date of occupancy.
Synopsys leases approximately 53,000 square feet in Beaverton, Oregon for
administrative, marketing, research and development and support activities. This
facility is leased through December 31, 1998.
Synopsys currently leases nineteen other domestic sales offices throughout
the United States. Synopsys currently leases international sales and/or service
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. Synopsys also leases a research and development facility in India.
Synopsys believes that its existing facilities are adequate for its current
needs and that additional space will be available as needed.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against Synopsys.
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA(A)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED SEPTEMBER 30, 1995 YEAR ENDED SEPTEMBER 30, 1996 ENDED
------------------------------------- -------------------------------------- DECEMBER 31,
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1996
------- ------- ------- ------- ------- -------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product........................ $40,009 $43,707 $47,088 $50,069 $53,749 $ 56,980 $58,612 $63,342 $ 66,160
Service........................ 19,891 20,293 21,012 23,431 25,251 28,020 32,388 35,158 36,340
------- ------- ------- ------- ------- ------- ------- --------
Total revenue............ 59,900 64,000 68,100 73,500 79,000 85,000 91,000 98,500 102,500
------- ------- ------- ------- ------- ------- ------- --------
Cost of revenue:
Product........................ 3,190 5,190 3,364 3,826 3,593 3,930 4,302 4,685 5,811
Service........................ 3,408 3,081 3,994 4,556 4,741 5,263 6,240 6,139 6,391
------- ------- ------- ------- ------- ------- ------- --------
Total cost of revenue.... 6,598 8,271 7,358 8,382 8,334 9,193 10,542 10,824 12,202
------- ------- ------- ------- ------- ------- ------- --------
Gross margin..................... 53,302 55,729 60,742 65,118 70,666 75,807 80,458 87,676 90,298
------- ------- ------- ------- ------- ------- ------- --------
Operating expenses:
Research and development....... 13,232 13,505 15,261 16,675 18,202 20,441 21,921 23,684 24,882
Sales and marketing............ 23,447 24,632 26,202 27,699 30,323 32,599 34,032 37,132 37,048
General and administrative..... 4,923 5,492 5,779 6,044 6,341 6,467 7,005 7,860 7,968
In-process research and
development.................. -- -- 9,200 -- -- 39,700 -- -- --
------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses............... 41,602 43,629 56,442 50,418 54,866 99,207 62,958 68,676 69,898
------- ------- ------- ------- ------- ------- ------- --------
Operating income (loss).......... 11,700 12,100 4,300 14,700 15,800 (23,400) 17,500 19,000 20,400
Other income, net................ 639 1,169 1,500 1,600 1,850 1,700 1,700 1,700 3,700
------- ------- ------- ------- ------- ------- ------- --------
Income (loss) before income
taxes.......................... 12,339 13,269 5,800 16,300 17,650 (21,700) 19,200 20,700 24,100
Income tax provision (benefit)... 4,533 4,951 2,088 5,836 6,000 (7,400) 6,528 7,022 7,950
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss)................ $ 7,806 $ 8,318 $ 3,712 $10,464 $11,650 $(14,300) $12,672 $13,678 $ 16,150
======= ======= ======= ======= ======= ======= ======= ========
Earnings (loss) per share(B)..... $ 0.20 $ 0.21 $ 0.09 $ 0.25 $ 0.28 $ (0.36) $ 0.30 $ 0.32 $ 0.38
======= ======= ======= ======= ======= ======= ======= ========
Weighted average common shares
and equivalents where
dilutive(B).................... 39,554 40,050 40,760 41,299 41,632 39,494 42,556 42,530 42,993
======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
- ---------------
(A) See Note 3 of Notes to Consolidated Financial Statements regarding Synopsys'
merger with Silicon Architects.
(B) Synopsys Common Stock is traded in the over-the-counter market on The Nasdaq
National Market System under the symbol "SNPS." At January 31, 1997, there
were approximately 271 owners of record of Synopsys Common Stock. Synopsys
has not paid cash dividends and does not anticipate paying cash dividends in
the foreseeable future. Share and per share amounts have been restated for
all periods presented to reflect the two-for-one stock split effective
September 8, 1995.
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<PAGE> 75
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 1994, 1995, and 1996 and the percentage change of such
results compared to the prior year.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
REVENUE PERCENTAGE CHANGE
-------------------------- -------------------------
1994 1995 1996 1994-1995 1995-1996
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Product............................. 69% 68% 66% 33% 29%
Service............................. 31 32 34 35 43
--- --- ---
Total revenue.................... 100 100 100 33 33
--- --- ---
Cost of revenue:
Product............................. 7 6 5 8 6
Service............................. 7 6 6 12 49
--- --- ---
Total cost of revenue............ 14 12 11 10 27
--- --- ---
Gross margin.......................... 86 88 89 37 34
Operating expenses:
Research and development............ 21 22 24 42 44
Sales and marketing................. 39 38 38 30 31
General and administrative.......... 8 8 8 30 24
Merger-related costs................ 4 -- -- (100) --
In-process research and
development...................... 3 4 11 56 332
--- --- ---
Total operating expenses......... 75 72 81 28 49
--- --- ---
Operating income...................... 11 16 8 98 (32)
Other income, net..................... 1 2 2 139 42
--- --- ---
Income before income taxes............ 12 18 10 102 (25)
Income tax provision.................. 5 7 3 84 (30)
--- --- ---
Net income............................ 7% 11% 7% 113% (22)%
=== === ===
</TABLE>
Except for the historical information presented, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Synopsys' actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors -- Risks Relating to the Merger"
and "-- Risks Relating to Synopsys".
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.
Corporate agreements, relationships, and acquisitions of complementary
businesses are part of Synopsys' overall business strategy. Technical
relationships and acquisitions accommodate Synopsys' focused strategic
requirements by filling gaps in existing products or technologies and providing
Synopsys with an avenue into new lines of business. Synopsys will continue to
evaluate potential alliances which could result in additional business
combinations and corporate relationships in the future. There can be no
assurance that Synopsys will be successful in these efforts.
CORPORATE AGREEMENTS AND RELATIONSHIPS
On February 1, 1996, Synopsys and IBM entered into a six-year Joint
Development and License Agreement Concerning EDA Software and Related
Intellectual Property (the "Agreement"). Pursuant to the Agreement, Synopsys
acquired certain in-process research and development technology and a
non-exclusive
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<PAGE> 76
license to sublicense and to use certain existing IBM EDA technology and the
underlying intellectual property, and licensed certain of its EDA-related
intellectual property to IBM. In addition, Synopsys and IBM are jointly
developing new EDA products in the areas of synthesis, test methodology, design
planning, and static timing sign-off. Synopsys will have sole ownership of
synthesis products and the exclusive right to market test, design planning, and
static timing products (subject to certain rights of IBM upon termination of the
Agreement). In accordance with the Agreement, Synopsys paid IBM $11.0 million in
cash and issued $30.0 million in notes, which bear interest at three percent,
and are payable to IBM upon the earlier of achievement of scheduled milestones
or at maturity in 2006. The notes were recorded at fair value of $28.5 million,
using a discount rate commensurate with the risks involved. Synopsys will also
pay royalties on revenues from the sale of new products developed pursuant to
the Agreement. As a result of the transaction, Synopsys incurred an in-process
research and development charge of $39.7 million in the second quarter of fiscal
1996.
On May 7, 1996, Synopsys and Cooper and Chyan Technology, Inc. (CCT), a
developer of routing technology for printed circuit boards and integrated
circuits, entered into a strategic relationship. As part of this strategic
relationship, Synopsys purchased 1.2 million shares, approximately 9.9 percent
of the outstanding shares of CCT, for $14.50 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," and an unrealized gain of $8.3 million, net
of taxes, was recorded as a separate component of stockholders' equity during
fiscal year 1996. CCT and Cadence Design Systems, Inc. recently announced that
they had reached an agreement to merge. Synopsys has sold a portion of its
holdings of CCT stock and is evaluating the effect of such a merger on its
overall relationship with CCT.
MERGERS AND ACQUISITIONS
On February 16, 1994, Synopsys issued approximately 5.2 million shares of
its common stock in exchange for all the outstanding shares of capital stock,
vested stock options, and warrants of Logic Modeling Corporation (LMC), a
developer of simulation models and modeling technologies for the verification of
electronic designs. The merger was accounted for as a pooling of interests and,
accordingly, Synopsys' consolidated financial statements have been restated for
all periods.
On May 31, 1994, Synopsys acquired all the outstanding stock of Cadis GmbH
(Cadis) for approximately $3.6 million in cash and notes. Cadis was a software
developer specializing in digital signal processing design. On September 30,
1994, Synopsys acquired all the outstanding stock of Arcad SA (Arcad) for
approximately $1.5 million in cash and notes. Arcad was a software developer of
VHDL models specializing in telecommunications standards. These acquisitions
were accounted for by the purchase method of accounting, and the results of
operations of Cadis and Arcad are included in Synopsys' consolidated results of
operations since the dates of the acquisitions. The purchase price, acquisition
costs, and net liabilities assumed total $7.3 million, of which $5.9 million was
allocated to in-process research and development expense.
On May 10, 1995, Synopsys issued approximately 1.4 million shares of its
common stock in exchange for all the outstanding shares of capital stock and
warrants of Silicon Architects, a developer of design technology for complex
application specific integrated circuits (ASICs) and application specific
standard products (ASSPs). Additionally, options to acquire shares of Silicon
Architects' common stock were exchanged for options to acquire approximately
148,000 shares of Synopsys' common stock. The merger was accounted for as a
pooling of interests and, accordingly, Synopsys' consolidated financial
statements have been restated for all periods.
On June 28, 1995, Synopsys acquired all the outstanding securities of ARKOS
Design, Inc. (ARKOS) for approximately $9.3 million in cash and notes. The notes
had a balance of $3.1 million at September 30, 1996, mature at various dates
through 2005, contain certain provisions that could accelerate maturity, and are
included in current liabilities. Synopsys recently introduced a product based on
ARKOS technology that supports high-speed validation of ICs. The acquisition was
accounted for by the purchase method of accounting, and the results of
operations of ARKOS are included in Synopsys' consolidated results since the
date of the acquisition. The purchase price, acquisition costs, and net
liabilities assumed total $9.7 million, of which $9.2 million was allocated to
in-process research and development expense.
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YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
Revenue
Synopsys' revenue increased by 33% from $199.2 million in fiscal 1994 to
$265.5 million in fiscal 1995 and by 33% from fiscal 1995 to $353.5 million in
fiscal 1996. The percentage of Synopsys' total revenue attributable to software
and systems products decreased from 69% in fiscal 1994 to 68% in fiscal 1995 and
to 66% in fiscal 1996, primarily due to an increase in Synopsys' base of
installed software and the associated increase in maintenance and support,
customer training, and consulting revenue. To date, price increases have not
been a material factor in Synopsys' revenue growth.
Product revenue increased by 33% from $136.5 million in fiscal 1994 to
$180.9 million in fiscal 1995 and by 29% from fiscal 1995 to $232.7 million in
fiscal 1996. These increases were primarily due to increased worldwide licensing
and sales of Synopsys' software and systems products.
Service revenue increased by 35% from $62.7 million in fiscal 1994 to $84.6
million in fiscal 1995 and by 43% from fiscal 1995 to $120.8 million in fiscal
1996. These increases were primarily attributable to continued growth of the
installed customer base and the renewal of maintenance and support contracts.
Revenue from international operations was $94.5 million, $138.0 million,
and $173.2 million or 48%, 52%, and 49% of total revenue in fiscal 1994, 1995,
and 1996, respectively. The 1996 decrease in international revenue as a
percentage of total revenue was primarily due 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.
Revenue consists of fees for licenses and subscriptions of Synopsys'
software products, sales of systems products, maintenance and support, customer
training, and consulting. License revenue is recognized upon shipment of
products and fulfillment of significant acceptance terms, if any. When Synopsys
receives advance payment for software products, such payments are recorded as
advances and recognized as revenue when products are actually shipped. Synopsys
has fulfilled certain orders by shipping the product and providing a temporary
access key for software usage. Revenue is deferred until Synopsys provides a
production key and collectability is reasonably assured. Revenue from systems
products is recognized upon shipment of products and fulfillment of significant
acceptance terms, if any. 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 Revenue
Cost of product revenue includes cost of production personnel, product
packaging, documentation, amortization of capitalized software development
costs, and costs of Synopsys' systems 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 7%, 6%, and 5% of total
revenue in fiscal 1994, 1995, and 1996, respectively. 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
was 7% of total revenue in fiscal 1994 and declined to 6% of total revenue in
fiscal 1995 and 1996. Cost of product revenue and cost of service revenue as a
percentage of total revenue both decreased because personnel and related costs
increased at a slower rate than revenue.
Research and Development
Synopsys believes that significant investment for product research and
development is essential to product and technical leadership. Research and
development expenses increased by 42% from $41.3 million in fiscal 1994 to $58.7
million in fiscal 1995 and by 44% from fiscal 1995 to $84.2 million in fiscal
1996, net of capitalized software development costs. These increases were
primarily attributable to increases in personnel
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<PAGE> 78
and personnel-related costs associated with the development of new products and
enhancement of existing products. In addition, during fiscal 1996, Synopsys
incurred hardware prototype expenses associated with the development of the
ARKOS emulation product. Research and development expenses represented 21%, 22%,
and 24% of total revenue in fiscal 1994, 1995, and 1996, respectively,
representing Synopsys' ongoing commitment to invest substantial resources in
research and development. Synopsys expects continued growth in research and
development expenses, provided that Synopsys is able to continue to hire a
sufficient number of qualified personnel. Synopsys expects that for fiscal 1997,
research and development expenses as a percentage of total revenue will remain
approximately at the fiscal 1996 level.
Synopsys capitalizes software development costs after technological
feasibility of the product has been established in accordance with SFAS No. 86.
Synopsys capitalized software development costs of $1.5 million in fiscal 1994
and $1.0 million in fiscal years 1995 and 1996, which represented approximately
4%, 2%, and 1 % of total research and development expenses, in fiscal 1994,
1995, and 1996, respectively. See Note 1 of Notes to Consolidated Financial
Statements.
Sales and Marketing
Sales and marketing expenses increased by 30% from $78.2 million in fiscal
1994 to $102.0 million in fiscal 1995 and by 31% from fiscal 1995 to $134.1
million in fiscal 1996. Sales and marketing expenses represented 39% of total
revenue in 1994 and 38% of total revenue in both fiscal years 1995 and 1996.
Total expenses increased in each fiscal year due to the expansion of Synopsys'
worldwide sales and marketing organizations, higher incentive compensation
associated with increased revenue, and participation in domestic and
international conferences and trade shows. Synopsys expects that for fiscal
1997, sales and marketing expenses as a percentage of total revenue will be at
or slightly lower than the fiscal 1996 level.
General and Administrative
General and administrative expenses increased by 30% from $17.0 million in
fiscal 1994 to $22.2 million in fiscal 1995 and by 24% from fiscal 1995 to $27.7
million in fiscal 1996. General and administrative expenses represented 8% of
total revenue in each of the three years presented. Expenses increased primarily
due to an increase in personnel and the investment associated with the
implementation of an enterprise-wide database and management information system,
based principally on software from SAP AG. Synopsys expects that for fiscal
1997, general and administrative expenses as a percentage of total revenue will
be at or slightly lower than the fiscal 1996 level.
Merger-Related Costs
In fiscal 1994, in connection with the LMC merger, Synopsys recorded
related costs of approximately $7.4 million, primarily for transaction costs and
elimination of duplicate facilities and equipment. These estimated costs were
reduced by $900,000 in fiscal 1995.
In fiscal 1995, in connection with the Silicon Architects merger, Synopsys
recorded related costs of approximately $900,000. These nonrecurring costs
primarily consisted of contract cancellation charges, transaction fees, and the
elimination of duplicate facilities and equipment.
Other Income
Other income consists of interest income, interest expense, and
miscellaneous income and expense items. Other income was $2.1 million, $4.9
million, and $7.0 million in fiscal 1994, 1995, and 1996, respectively. Other
income increased in each fiscal year primarily as a result of earnings on higher
cash and short-term investment balances. In fiscal 1996, interest expense
increased due primarily to the notes associated with the IBM Agreement.
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<PAGE> 79
Income Tax Provision
The provision for income taxes was $9.4 million, $17.4 million, and $12.2
million in fiscal 1994, 1995, and 1996, respectively. The provision for income
taxes as a percentage of pretax income was 40%, 36%, and 34% in fiscal 1994,
1995, and 1996, respectively. The tax rate in fiscal 1994 was higher than the
rates in fiscal 1995 and 1996 primarily due to items related to mergers and
acquisitions.
Net Income
Synopsys reported net income of $14.2 million, $30.3 million, and $23.7
million, or 7%, 11%, and 7% of total revenue in fiscal 1994, 1995, and 1996,
respectively.
Liquidity and Capital Resources
As of September 30, 1996, Synopsys had $236.6 million of cash and
short-term investments available to finance future growth. In fiscal 1996, cash
and short-term investments increased by $26.6 million primarily attributable to
cash flows from operations of $88.3 million, and proceeds from the sale of
common stock of $28.0 million. These positive cash flows were partially off-set
by capital expenditures of $39.2 million, the investment in Cooper and Chyan
Technology of $17.5 million, cash paid in relation to the IBM Agreement of $11.5
million, and the repurchase of common stock of $14.8 million.
In May 1996, Synopsys announced that its Board of Directors had authorized
the repurchase of up to 2.0 million shares of its outstanding common stock in
the open market over the next 24 months. During fiscal 1996, Synopsys purchased
361,494 shares at an average price of approximately $41.00 per share. The
repurchased shares are available for use under Synopsys' employee stock plans
and for other corporate purposes. All shares repurchased during fiscal 1996 were
reissued by the end of the year.
Synopsys also had available three foreign exchange lines of credit totaling
$169.0 million to facilitate foreign currency transactions. Synopsys enters into
forward exchange contracts to hedge foreign currency denominated intercompany
balances. Gains and losses on contracts to hedge foreign currency commitments
are recognized during the periods in which the related instruments are
outstanding. At September 30, 1996, Synopsys had outstanding forward contracts
in yen and European currencies totaling approximately $4.1 million. The forward
exchange contracts are valued at prevailing market rates.
Synopsys believes that its current cash balances, anticipated cash flows
from operations and the existing credit facilities will be sufficient to fund
Synopsys' cash needs for at least the next twelve months.
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996
Revenue
Revenue increased 30% from $79.0 million in the first quarter of fiscal
1996 to $102.5 million in the first quarter of fiscal 1997. This increase in
revenue was primarily attributable to increased worldwide licensing and sales of
Synopsys' software and systems products. Product revenue as a percentage of
total revenue decreased from 68% in the first quarter of fiscal 1996 to 65% in
the first quarter of fiscal 1997. This decrease was due in part to an increase
in service revenue from training and consulting services during the first
quarter of fiscal 1997. In addition, Synopsys recognized revenue of $4.0 million
during the first quarter of fiscal 1997 related to an amended license agreement
which eliminated a further support obligation.
International revenue as a percentage of total revenue decreased from 46%
in the first quarter of fiscal 1996 to 45% in the first quarter of fiscal 1997,
due to decreased revenue in Europe and the Pacific Rim as a percent of total
revenue.
Cost of Revenue
Cost of revenue as a percentage of total revenue increased from 11% in the
first quarter of fiscal 1996 to 12% in the first quarter of fiscal 1997. Cost of
revenue includes personnel and related costs, production costs,
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<PAGE> 80
product packaging, documentation, amortization of capitalized software
development and purchased software costs, and costs of Synopsys' system
products.
Research and Development
Research and development expenses as a percentage of total revenue
increased from 23% in the first quarter of fiscal 1996 to 24% in the first
quarter of fiscal 1997, and increased in absolute dollars from $18.2 million to
$24.9 million. Increased research and development expenses were primarily
attributable to increases in personnel and personnel-related costs associated
with the development of new products and enhancement of existing products.
Sales and Marketing
Sales and marketing expenses as a percentage of total revenue decreased
from 38% in the first quarter of fiscal 1996 to 36% in the first quarter of
fiscal 1997, but increased in absolute dollars from $30.3 million to $37.0
million. Total sales and marketing expenses increased as a result of continued
expansion of Synopsys' worldwide sales and marketing organizations and higher
incentive compensation associated with increased revenue.
General and Administrative
General and administrative expenses as a percentage of total revenue
remained constant at 8% in the first quarter of fiscal 1996 and in the first
quarter of fiscal 1997, but increased in absolute dollars from $6.3 million to
$8.0 million. The increase in total expenses was due principally to increases in
personnel and facilities costs.
Income Tax Provision
The provision for income taxes, as a percentage of income decreased from
34% in the first quarter of fiscal
1996 to 33% in the first quarter of fiscal 1997. The decrease in Synopsys' tax
rate was primarily due to the reinstatement of the U.S. federal research tax
credit.
Net Income
Net income increased from $11.7 million in the first quarter of fiscal 1996
to $16.2 million in the first quarter of 1997. As a percentage of total revenue,
net income increased from 15% in the first quarter of fiscal 1996 to 16% in the
first quarter of fiscal 1997.
Synopsys' book-to-bill ratio for the first quarter of fiscal 1997 was
slightly lower than one-to-one. The book-to-bill ratio measures the ratio of
accepted orders to revenue.
Liquidity and Capital Resources
For the first three months of fiscal 1997, cash and short-term investments
decreased $5.0 million to $231.5 million. The decrease in cash and short-term
investments is due primarily to payments of payables and accruals, capital
expenditures and the repurchase of common stock, partially offset by cash
generated from operations and proceeds from the sale of common stock.
Synopsys believes that the existing cash and short-term investments balance
of $231.5 million and anticipated cash flow from operations will be sufficient
to meet its currently anticipated liquidity and capital expenditure requirements
for at least the next twelve months.
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MANAGEMENT
The executive officers and directors of Synopsys and their ages, as of
January 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------
<S> <C> <C>
Harvey C. Jones, Jr. ............ 43 Chairman of the Board of Directors
Aart J. de Geus.................. 42 President, Chief Executive Officer, Acting
Chief Financial Officer* and Director
Chi-Foon Chan.................... 47 Executive Vice President, Office of the
President, Senior Vice President, Design Tools
Group and Design Reuse Group
William W. Lattin................ 56 Executive Vice President and Director
David C. Bullis.................. 44 Senior Vice President, Verification Systems
Group
Sally A. DeStefano............... 49 Senior Vice President, Human Resources and
Facilities
Alain J. Labat................... 41 Senior Vice President, Worldwide Field
Operations
Paul Lippe....................... 38 Senior Vice President, Business Development &
Legal, Secretary
Deborah A. Coleman............... 43 Director
A. Richard Newton................ 45 Director
Steven C. Walske................. 44 Director
</TABLE>
- ---------------
* Dr. de Geus serves as Acting Chief Financial Officer as a result of Brooke
Seawell's resignation as Senior Vice President, Finance and Operations, and
Chief Financial Officer effective as of January 20, 1997. Mr. Seawell has
agreed to continue to provide services to Synopsys on a part-time basis until
April 30, 1997.
Harvey C. Jones, Jr. joined Synopsys in December 1987 and has been serving
as Chairman of the Board since December 1992. He was first elected as a Director
in 1988. 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 CAE company he co-founded in
1981. From 1974 to 1981, Mr. Jones was employed by Calma Company, a CAD 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 in December 1986 and currently
serves as President, Chief Executive Officer and Acting Chief Financial Officer.
He has served as a Director since 1986. He served as President from December
1992 until January 1994. Prior to December 1992, Dr. de Geus served as Chairman
of the Board and Senior Vice President, Marketing of Synopsys. Prior to his
appointment as Senior Vice President, Marketing, Dr. de Geus served as Synopsys'
Senior Vice President, Engineering. From 1982 to 1986, Dr. de Geus was employed
by General Electric Corporation, where he was the Manager of the Advanced
Computer-Aided Engineering Group. Dr. de Geus holds an M.S.E.E. from the Swiss
Federal Institute of Technology in Lausanne, Switzerland, and a Ph.D. in
electrical engineering from Southern Methodist University.
Dr. Chi-Foon Chan joined Synopsys in May 1990 and currently serves as
Executive Vice President, Office of the President. He also serves as Senior Vice
President, Design Tools Group (since February 1994) and Design Reuse Group
(since October 1996). Prior to February 1994, Dr. Chan served as Vice President,
Engineering and General Manager, DesignWare Operations, and prior to October
1993, he served as Vice President, Application Engineering and Services. From
March 1987 to May 1990, Dr. Chan was employed by NEC Electronics, a diversified
electronics company, where his last position was General Manager of the
Microprocessor Division. Dr. Chan holds an M.S. and a Ph.D. in computer
engineering from Case Western Reserve University.
Dr. William W. Lattin is an Executive Vice President of Synopsys and has
been a Director of Synopsys since July 28, 1995. Dr. Lattin joined Synopsys in
February 1994 in connection with Synopsys' merger with
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<PAGE> 82
Logic Modeling Corporation ("LMC"). From October 1994 to July 1995 he served as
Synopsys' Senior Vice President, Corporate Marketing, and from February 1994
until October 1994 Dr. Lattin served 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 May 1992, Dr. Lattin served as Chairman of the Board of Directors, President
and Chief Executive Officer of Logic Automation Incorporated, 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. Dr. Lattin is also 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,
Verification Systems Group. Prior to October 1994, Mr. Bullis served as Vice
President, SmartModel Division. From May 1993 to February 1994, Mr. Bullis
served as Vice President and General Manager, SmartModel Division of LMC and
from May 1992 to May 1993, he served as Vice President, Sales of LMC. From 1991
to May 1992, Mr. Bullis served as Vice President, Sales of Logic Automation
Incorporated. From 1984 to 1991, Mr. Bullis 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.
Sally DeStefano joined Synopsys in June 1995 and currently serves as Senior
Vice President, Human Resources and Facilities. From June 1989 until June 1995,
Ms. DeStefano was Vice President of Human Resources of Sybase, Inc., a vendor of
client/server software and services for building enterprise-wide information
systems. From April 1986 to May 1989, Ms. DeStefano served as Director, then
Vice President of Human Resources for Ungermann-Bass, a manufacturer of computer
network software and equipment. Prior to 1986, she spent two years at VLSI
Technology, Inc., a semiconductor manufacturer, as human resources manager. Ms.
DeStefano holds a B.A. in Education from the University of Florida.
Alain J. Labat joined Synopsys in December 1990 and currently serves as
Senior Vice President, Worldwide Field Operations. Prior to February 1994, Mr.
Labat served as Vice President, International Operations. From 1986 to 1990, Mr.
Labat was employed by Valid Logic Systems, Inc., a CAE company, serving in a
variety of positions, most recently as Vice President of International
Operations. Mr. Labat holds a Master's degree in International Management from
the American Graduate School of International Management, Glendale, Arizona, and
an M.B.A. from INSEEC, Bordeaux, France.
Paul Lippe joined Synopsys in October 1992 and currently serves as Senior
Vice President, Business Development & Legal, and as Secretary. Mr. Lippe was
previously employed by Solbourne Computer as Vice President, Corporate
Development, General Counsel and Secretary and 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.
Deborah A. Coleman has been a Director of Synopsys since November 1, 1995.
Ms. Coleman has been Chairman and Chief Executive Officer of Merix Corporation,
a manufacturer of printed circuit boards, since May 1994, when it was spun off
from Tektronix, Inc. Ms. Coleman joined Merix from Tektronix, a diversified
electronics corporation, where she served as Vice President of Materials
Operations, responsible for worldwide procurement, distribution, component
engineering and component manufacturing operations. Prior to joining Tektronix
in November 1992, Ms. Coleman was with Apple Computer, Inc. for eleven years,
where she held several executive positions, including Chief Financial Officer,
Chief Information Officer and Vice President of Operations. She is a director of
Octel Communications, a manufacturer of voice messaging systems.
Dr. A. Richard Newton has been a Director of Synopsys since January 5,
1995. Previously, Dr. Newton was a Director of Synopsys from January 1987 to
June 1991. Dr. Newton has been a Professor of Electrical Engineering and
Computer Sciences at the University of California at Berkeley since 1979. Since
1988, Dr. Newton has acted as a Venture Partner with the Mayfield Fund, a
venture capital partnership, and has contributed to the evaluation and
development of over a dozen new companies. From November 1994 to July 1995 he
was acting President and Chief Executive Officer of Silicon Light Machines, a
private company which is developing display systems based on the application of
micromachined silicon light-valves.
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Steven C. Walske has been a Director of Synopsys since December 1991. Mr.
Walske has been Chairman and Chief Executive Officer and a director of
Parametric Technology Corporation ("Parametric"), a supplier of software
products for mechanical computer-aided engineering, since August 1994. From
December 1986 to July 1994 Mr. Walske was President and Chief Executive Officer
of Parametric. Mr. Walske is also a director of Videoserver, Inc., a supplier of
network conference servers, Cascade Communications Corp., which makes broadband
data communications equipment, and Object Design Inc., which makes object data
management software.
There are no family relationships among any executive officers or directors
of Synopsys.
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by Synopsys' Chief
Executive Officer and each of the other four most highly compensated executive
officers who will serve as executive officers of Synopsys after the Merger and
whose compensation for fiscal year 1996 exceeded $100,000 (the "Named Executive
Officers"), for services rendered in all capacities to Synopsys during the last
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
ANNUAL COMPENSATION OTHER ANNUAL AWARDS ALL OTHER
-------------------- COMPENSATION UNDERLYING COMPENSATION
NAME AND POSITION YEAR SALARY($) BONUS($) (1)($) OPTIONS($) (2)($)
- ------------------------- ---- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Aart J. de Geus.......... 1996 260,000 240,000 -- 120,000 2,517
President and Chief 1995 230,000 190,277 -- -- 1,488
Executive Officer 1994 229,423 81,075 -- 120,000 --
Alain J. Labat........... 1996 165,000 183,618 97,196 25,000 2,700
Sr. Vice President, 1995 155,000 72,050 260,130 30,000 1,603
Worldwide Field 1994 149,808 92,702 74,660 40,000 --
Operations
Chi-Foon Chan............ 1996 224,138 153,930 -- 35,000 3,122
Executive Vice
President; 1995 200,000 146,199 -- 24,000 2,082
Sr. Vice President, 1994 174,521 61,863 -- 40,000 --
Design Tools Group and
Design Reuse Group(3)
David C. Bullis.......... 1996 187,000 127,134 -- 25,000 2,719
Sr. Vice President, 1995 175,000 105,402 -- 40,000 1,678
Verification Systems 1994 149,792 80,807 -- 18,928 --
Group
Sally DeStefano.......... 1996 192,043 111,621 -- 20,000 2,457
Sr. Vice President, 1995 58,042 157,911 -- 40,000 294
Human Resources 1994 -- -- -- -- --
and Facilities
</TABLE>
- ---------------
(1) "Other Annual Compensation" includes the following: (i) commissions of
$97,196, $252,930, and $67,460 earned by Mr. Labat for fiscal years 1996,
1995 and 1994, respectively; (ii) car allowances of $7,200 for Mr. Labat for
fiscal years 1995 and 1994.
(2) Amounts in this column reflect premiums paid for group term life insurance
and Synopsys 401(k) contributions.
(3) Dr. Chan was appointed Sr. Vice President of the Design Reuse Group
effective October 1, 1996.
OPTION GRANTS
The following table sets forth further information regarding individual
grants of options for Synopsys' Common Stock during fiscal year 1996 for each of
the Named Executive Officers. All grants for each of the
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Named Executive Officers were made pursuant to Synopsys' 1992 Stock Option Plan
(the "1992 Plan"). In accordance with the rules of the Commission, the table
sets forth the hypothetical gains or "option spreads" that would exist for the
options at the end of their respective ten-year terms based on assumed
annualized rates of compound stock price appreciation of 0%, 5%, and 10% from
the dates the options were granted to the end of the respective option terms.
Actual gains, if any, on option exercises are dependent on the future
performance of Synopsys Common Stock and overall market conditions. There can be
no assurance that the potential realizable values shown in this table will be
achieved.
No stock appreciation rights were granted to such officers during the 1996
fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM($)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ----------------------------
NAME GRANTED(1) FISCAL 1996(%) ($/SHARE) DATE 0% 5% 10%
- -------------------------- ---------- -------------- ----------- ---------- --- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Aart J. de Geus........... 120,000 5.47 35.50 11/1/05 0 2,679,091 6,789,343
Alain J. Labat............ 25,000 1.14 35.50 11/1/05 0 558,144 1,414,446
Chi-Foon Chan............. 35,000 1.60 35.50 11/1/05 0 781,402 1,980,225
David C. Bullis........... 25,000 1.14 35.50 11/1/05 0 558,144 1,414,446
Sally DeStefano........... 20,000 0.91 35.50 11/1/05 0 446,515 1,131,557
</TABLE>
- ---------------
(1) These options become exercisable ratably in a series of monthly installments
over a four-year period from the grant date, assuming continued service to
Synopsys, subject to acceleration under certain circumstances involving
change in control of Synopsys. Each option has a maximum term of 10 years,
subject to earlier termination upon the optionee's cessation of service.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth, for each of the Named Executive Officers,
each exercise of stock options during fiscal year 1996 and the year-end value of
unexercised options.
No stock appreciation rights were exercised during such fiscal year by the
Named Executive Officers, and except for limited stock appreciation rights
granted to certain executive officers prior to fiscal year 1996 which form part
of the outstanding stock options held by those officers, no stock appreciation
rights were outstanding at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
SHARES OPTIONS AT FY-END: OPTIONS AT FY-END:($)(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Aart J. de Geus........... 20,000 537,250 58,500 147,500 1,195,266 2,459,297
Alain J. Labat............ 4,000 152,750 70,000 52,918 2,113,040 958,727
Chi-Foon Chan............. 17,500 669,281 123,790 53,710 4,330,165 933,129
David C. Bullis........... 28,206 556,478 11,458 53,006 197,418 1,015,014
Sally De Stefano.......... -- -- 16,666 43,334 246,087 611,413
</TABLE>
- ---------------
(1) Market value at exercise less exercise price.
(2) Market value of underlying securities at year-end ($46.00) minus the
exercise price.
DIRECTORS' COMPENSATION
Each non-employee Synopsys Board member is paid $3,000 ($2,500 prior to May
1, 1996) plus certain expenses for each Synopsys Board meeting attended.
Synopsys Board members receive no compensation for attending meetings of
Synopsys Board Committees.
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<PAGE> 85
In addition, non-employee Synopsys Board members receive automatic option
grants under the 1994 Non-Employee Directors Stock Option Plan (the "Directors
Plan"). As of the date of this Joint Proxy Statement/Prospectus there were three
non-employee Synopsys Board members eligible to participate in the Directors
Plan. Under the Directors Plan each eligible non-employee Synopsys Board member
will automatically be granted, at the time of his or her initial election or
appointment to the Synopsys Board, a non-statutory option to purchase 20,000
shares of Synopsys Common Stock (unless such member was previously an employee
of Synopsys). On the date of each annual stockholders meeting each individual
re-elected as a non-employee Synopsys Board member at the annual meeting will
automatically be granted a non-statutory option to purchase 5,000 shares of
Common Stock. Synopsys' proxy statement relating to the 1997 Annual Meeting of
Stockholders to be held on February 28, 1997 contains a proposal to amend the
Directors Plan to increase the annual option grant to 8,000 shares.
A total of 225,000 shares has been reserved for issuance under the
Directors Plan. The exercise price per share of Synopsys Common Stock subject to
each automatic option grant is equal to one hundred percent (100%) of the fair
market value per share on the automatic grant date. The options have a maximum
term of 10 years, measured from the grant date, subject to earlier termination
upon cessation of service as a director.
Options granted under the Directors Plan are immediately exercisable for
shares, but any shares purchased are subject to repurchase by Synopsys at the
exercise price until the recipient's right in such shares vests. The initial
automatic grant for 20,000 shares made to each non-employee Synopsys Board
member vests, and Synopsys' repurchase right relating thereto lapses, in a
series of four successive equal installments on the date immediately prior to
each of the first four annual meetings of stockholders following the grant date
of that option, provided the optionee continues in Board service through each
such vesting date. Each annual automatic grant vests in full, and Synopsys'
repurchase right relating thereto lapses, on the date immediately prior to the
fourth annual meeting of stockholders following the grant date of that option,
provided the optionee continues in Synopsys Board service through such vesting
date.
Notwithstanding the preceding paragraph, options granted under the
Directors Plan shall automatically vest upon the occurrence of certain corporate
transactions, including certain mergers or changes in control of Synopsys or the
sale of all or substantially all of Synopsys' assets. In the event of a hostile
tender offer for securities possessing more than 50% of Synopsys' outstanding
voting power, options granted under the Directors Plan and held for more than
six months may be surrendered for a cash distribution equal to the excess of the
tender offer price over the exercise price of the options.
During fiscal year 1996, an automatic grant of options to purchase 20,000
shares of Synopsys Common Stock was made to Ms. Coleman on November 1, 1995, at
an exercise price of $35.50 per share. Mr. Walske, Dr. Newton and Ms. Coleman
each received automatic grants of options to purchase 5,000 shares of Synopsys
Common Stock on March 1, 1996, at an exercise price of $33.75. In connection
with the 1997 Annual Stockholders Meeting and subject to stockholder approval of
a proposal to amend the Directors Plan to increase the annual option grant to
8,000 shares, Mr. Walske, Dr. Newton and Ms. Coleman each will receive automatic
grants of options to purchase 8,000 shares of Synopsys Common Stock.
During fiscal year 1996, Dr. Newton earned $17,000 for consulting services
provided to Synopsys. Under Synopsys' agreement with Dr. Newton, at Synopsys'
request, Dr. Newton provides advice as to industry and competitive developments
and market conditions.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF
CONTROL AGREEMENTS
Under the 1992 Plan, in the event of certain changes in the ownership or
control of Synopsys involving a "Corporate Transaction," which includes an
acquisition of Synopsys by merger or asset sale, all outstanding options under
the 1992 Plan will automatically become exercisable, unless the option is
assumed by the successor corporation (or parent thereof) or replaced by a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof).
In addition, in the event of a successful hostile tender offer for more
than 50% of Synopsys' outstanding Common Stock or a change in the majority of
the Synopsys Board as a result of one or more contested
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<PAGE> 86
elections for Board membership, the Compensation Committee has the authority to
provide for the acceleration of vesting of the shares of Common Stock subject to
outstanding options under the 1992 Plan.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee or the Plan
Administrators Committee, which was consolidated into the Compensation Committee
on November 1, 1996, was at any time during the 1996 fiscal year or at any other
time an officer or employee of Synopsys. As described in "-- Directors'
Compensation," Dr. Newton served as a consultant to Synopsys during fiscal year
1996.
No executive officer of Synopsys serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as members of the Synopsys Board or the Compensation
Committee or the Plan Administrators Committee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Synopsys' directors, officers
and ten percent stockholders to file reports of ownership and changes in
ownership with the Commission. Directors, officers and greater than ten percent
stockholders are required by Commission regulations to furnish Synopsys with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of the Forms 3, 4 and 5 received
by Synopsys and/or written representations from certain reporting persons that
no Form 5s were required for such persons, Synopsys believes that each of its
directors, officers and greater than ten percent beneficial owners during the
fiscal year ended September 28, 1996 have complied with all filing requirements
applicable to such person, except that in July 1996, Dr. Newton filed an amended
Form 4 to reflect 78 shares he held in July 1995 but did not report on his Form
4 filed at that time.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Synopsys' Common Stock as of January 31, 1997 by (i)
each person known by Synopsys to own beneficially more than five percent of the
outstanding shares of Synopsys Common Stock of 40,930,373 shares, (ii) each
director of Synopsys, (iii) each of the Named Executive Officers and (iv) all
directors and current executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
------------------------
PERCENTAGE
DIRECTORS, EXECUTIVE OFFICERS AND FIVE PERCENT STOCKHOLDERS NUMBER OWNERSHIP
- ---------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Putnam Investment Management
Boston, MA 02109-2137............................................... 3,864,616(1) 9.44%
T. Rowe Price Associates, Inc.
Baltimore, MD 21202-1008............................................ 3,366,200(2) 8.22%
Warburg, Pincus Counsellors, Inc.
New York, NY 10017-3147............................................. 3,291,174(3) 8.04%
J. & W. Seligman & Co., Inc.
New York, NY 10017-5598............................................. 2,861,562(4) 6.99%
Aart J. de Geus....................................................... 421,847(5) 1.03%
William W. Lattin..................................................... 169,540(6) *
Chi-Foon Chan......................................................... 148,575(7) *
Harvey C. Jones Jr. .................................................. 109,818(8) *
Alain J. Labat........................................................ 79,001(9) *
David C. Bullis....................................................... 41,249(10) *
Sally DeStefano....................................................... 14,586(11) *
A. Richard Newton..................................................... (12) *
Deborah A. Coleman.................................................... (13) *
Steven C. Walske...................................................... 16,033(14) *
All directors and executive officers as a group (12 persons).......... 1,117,647(15) 2.73%
</TABLE>
- ---------------
* Less than 1%
(1) Based on information obtained from a Schedule 13G filed with the Commission
on January 31, 1997.
(2) Based on information obtained from publicly available filings with the
Commission as of September 1996.
(3) Based on information obtained from a Schedule 13G filed with the Commission
on January 14, 1997.
(4) Based on information obtained from publicly available filings with the
Commission as of September 1996.
(5) Includes options to purchase 96,163 shares of Common Stock exercisable by
Dr. de Geus within 60 days of January 31, 1997. Excludes 11,000 shares held
by Dr. de Geus' spouse and for which he disclaims beneficial ownership.
(6) Includes options to purchase 76,042 shares of Common Stock exercisable by
Dr. Lattin within 60 days of January 31, 1997.
(7) Includes options to purchase 142,691 shares of Common Stock exercisable by
Dr. Chan within 60 days of January 31, 1997.
(8) Includes options to purchase 57,260 shares of Common Stock exercisable by
Mr. Jones within 60 days of January 31, 1997.
(9) Includes options to purchase 74,947 shares of Common Stock exercisable by
Mr. Labat within 60 days of January 31, 1997.
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<PAGE> 88
(10) Includes options to purchase 24,451 shares of Common Stock exercisable by
Mr. Bullis within 60 days of January 31, 1997.
(11) Includes options to purchase 14,166 shares of Common Stock exercisable by
Ms. DeStefano within 60 days of January 31, 1997.
(12) Includes options to purchase 25,000 shares of Common Stock exercisable by
Dr. Newton within 60 days of January 31, 1997.
(13) Includes options to purchase 25,000 shares of Common Stock exercisable by
Ms. Coleman within 60 days of January 31, 1997.
(14) Includes options to purchase 15,833 shares of Common Stock exercisable by
Mr. Walske within 60 days of January 31, 1997.
(15) Includes options to purchase 591,326 shares of Common Stock exercisable by
directors and executive officers within 60 days of January 31, 1997.
Excludes 11,000 shares held by Dr. de Geus' spouse, and for which he
disclaims beneficial ownership.
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EPIC DESIGN TECHNOLOGY, INC.
BUSINESS
INTRODUCTION
EPIC develops, markets and supports a family of simulation, analysis,
extraction and physical verification software tools that help IC designers
better manage the timing, power and reliability characteristics of IC designs.
EPIC also develops, markets, and supports a set of technical services intended
for the characterization of transistors and interconnects fabricated on silicon
wafers. EPIC's tools and services can be used by designers at different stages
of IC development to help identify flaws, enhance speed, reduce power
consumption and detect the causes of reliability failure. EPIC believes that by
using EPIC products, IC designers can reduce development time, lower the risk of
design failure, avoid lengthy refabrication cycles and improve an IC's
performance and value. EPIC's tools and services are particularly focused on
meeting deep submicron and nanometer IC designers' requirements for (i) static
and dynamic timing simulation, analysis, optimization and verification, (ii)
power simulation, analysis, optimization and verification, (iii) physical layout
extraction, analysis and verification and (iv) simulation, analysis and
correction of potential causes of reliability failure in complex ICs.
Certain statements in this Joint Proxy Statement/Prospectus are
forward-looking statements based on current expectations, and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties are set forth under "Risk Factors -- Risks Related to EPIC," in
the second and fourth paragraphs under "-- Sales, Marketing and Customers,"
under "-- Product Development," "-- Competition," "-- Proprietary Technology,"
"-- Employees," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview," "-- Liquidity and Capital Resources,"
"-- Factors Affecting Future Operating Results" and elsewhere in this Joint
Proxy Statement/Prospectus.
INDUSTRY BACKGROUND
There has been substantial growth in the need for sophisticated, portable
electronic products such as cellular telephones, laptop computers, camcorders
and pagers. Rapid growth in the Internet and multimedia arenas has also fueled
growth in the electronic systems necessary to support them. These products have
been enabled, in significant part, by improvements in silicon process
technologies which have made possible the design and manufacture of increasingly
complex, high performance and highly integrated ICs. In the 1970s, a typical IC
consisted of a few thousand transistors implemented in five-micron technology.
Today, designers are creating ICs consisting of millions of transistors
implemented in less than 0.6 micron (deep submicron) technology, and the most
advanced designers are creating ICs consisting of tens of millions of
transistors implemented in less than 0.35 micron (nanometer) technology. The
trends toward portability, multimedia and increased utilization of nanometer
technology have placed increasing demands on IC designers to develop ICs that
are low cost, low power, high speed and highly reliable. At the same time,
competitive pressures are forcing designers to shorten development cycles in
order to bring products to market more rapidly.
Since the early 1970s, designers have used electronic design automation
(EDA) tools to assist in the IC development process. EDA vendors have provided
designers with methods, tools and services to develop, simulate and verify ICs.
The IC development cycle has five stages:
- Architectural Design. Exploration of design alternatives;
- Functional Design. Specification of the desired functionality of the IC;
- Logic Implementation. Development of gate and transistor level
descriptions that implement this functionality;
- Layout and Verification. Geometric layout of the individual components
that implement the logic design and verification of the correctness of
the design; and
- Production. Fabrication of the IC.
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While EDA products have brought greater efficiency and productivity to the
IC development process, advances in EDA software technology have not kept pace
with advances in semiconductor process technology. For example, an IC can be
described at different levels of detail or hierarchy, ranging from transistors,
to gates (which are comprised of several transistors), to functional (i.e.,
behavioral) blocks (which can represent a large number of gates). Existing EDA
tools are primarily focused on providing simulation and analysis capabilities at
the gate or behavioral levels and generally do not extend these capabilities
down to the transistor level. However, deep submicron and nanometer technologies
each introduce new classes of problems in modeling speed, power and other
physical circuit behavior along with new problems in managing the integration
characteristics of an IC. These problems cannot be addressed as efficiently or
effectively at the gate and behavioral levels.
- Speed. Advanced technology enables an IC to operate at high speed, but
also introduces new challenges in modeling its behavior. At deep submicron and
nanometer levels, the physics of silicon leads to complicated electrical
phenomena (e.g., short channel effect, mobility saturation and cross-coupling)
that make transistor and interconnect behavior difficult to predict. These
phenomena cause significant problems in accurately modeling the timing delays
inherent in the interconnections between transistors (interconnect delay) and
the non-digital behavior of individual transistors on an IC.
- Power. Industry demands for portability, higher speed and increased
levels of integration have placed greater importance on minimizing the power
consumed by an IC. Portable applications, which represent a significant
opportunity for advanced silicon technology, require that IC power consumption
be minimized in order to increase battery life and decrease the cost, size and
weight of the system. Reducing power also contributes to increased life and
reliability for an IC.
- Integration. The dramatic increase in the number of transistors and
complexity of IC designs, along with the pressure to reduce design time, create
new problems in tracking the interaction between elements. For example, a design
group will generally work concurrently on different blocks at different levels
of hierarchy, after which the various blocks must be integrated. This
integration is more difficult in advanced IC design because of the large number
of blocks, gates and transistors and because interconnect delay has a greater
impact on the performance of the IC. Highly integrated, advanced silicon ICs
also create new problems in ensuring both their manufacturability and their
reliability. For example, constraints imposed by the physics involved in
characterizing and fabricating nanometer ICs require new solutions to achieve
satisfactory chip yields at process corners and to build in dependability by
identifying and correcting possible points of metal failure.
These design challenges have exposed certain limitations in established EDA
methods and tools. For example, traditional design tools do not accurately
analyze the power consumption characteristics of an IC prior to fabrication.
Therefore, while the designer may have certain power utilization objectives, the
power behavior of an IC is not accurately known until after fabrication. This
uncertainty may require redesign and refabrication, thereby increasing costs and
delaying time-to-market. Furthermore, existing gate level and circuit level
(e.g., SPICE) simulators have been used by designers to model the functionality
and timing characteristics of an IC. Gate level simulators are fast and have the
capacity to simulate an IC with a large number of gates, while SPICE provides
accurate results for small transistor level blocks. However, gate level
simulators cannot accurately simulate the non-digital behavior and complex
interconnect timing inherent in advanced silicon circuits, and SPICE cannot meet
the simulation speed and capacity requirements of most IC designers. Finally,
existing gate and circuit level EDA design tools do not allow designers to track
and manage effectively the interaction between blocks of complex ICs.
Consequently, designers need solutions that enable them to optimize speed and
power and manage integration in an efficient and accurate manner.
EPIC SOLUTIONS
EPIC provides IC designers with a family of characterization, simulation,
analysis, extraction and physical verification software tools and services to
assist in meeting the design challenges created by deep submicron and nanometer
technology. EPIC's six principal products -- AMPS, Arcadia, PathMill, PowerMill,
RailMill and TimeMill -- utilize EPIC's core technologies to enable a designer
to address timing,
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power and reliability requirements of an IC. In addition, Vertue, a seventh
product, enables PowerMill or TimeMill to co-simulate with Verilog-XL, a widely
used gate and behavioral level simulation tool in the EDA industry.
EPIC believes that its products can provide the following benefits:
- Shorten time-to-market. EPIC's tools have been shown to provide accuracy
to within five percent of the accuracy of SPICE, to be significantly
faster than SPICE in modeling ICs and to possess the capacity to model
circuits in excess of four million transistors. These attributes of
accuracy, speed and capacity can shorten time-to-market by reducing the
risk of redesign and allowing designers to complete their tasks more
rapidly.
- Reduce power consumption. EPIC believes that PowerMill is uniquely able
to detect and highlight design elements that cause excessive power
dissipation, thereby permitting designers to modify the circuit to reduce
overall power consumption. EPIC also believes that AMPS enables designers
to produce lower power ICs by handling the complex tradeoffs between
power, speed and area in advanced circuits.
- Increase levels of design integration. EPIC believes that the accuracy
of its tools reduces design risk in developing more highly integrated
ICs. PathMill provides both critical path analysis and full chip static
timing verification. Arcadia provides the capacitance and resistance
information necessary to model interconnect between blocks and between
individual elements. The ability for PowerMill and TimeMill to simulate
with Verilog-XL enables a designer to track the interaction between
blocks of a complex IC and to manage them more effectively.
- Extend product life and enhance reliability. EPIC believes that the
analysis capabilities of its products allow designers to detect more
causes of circuit failure than existing gate level tools, resulting in
improved IC reliability. RailMill enables the designer to detect the
potential causes of voltage drop and electromigration (metal migration)
which can lead to unreliable operation and early device failure.
- Reduce development costs. In addition to development cost savings that
may result from decreased design time and fewer prototype iterations,
EPIC believes that interfaces developed to run between EPIC's products
and the frameworks from EDA suppliers can streamline the design flow and
potentially reduce the complexity and cost of IC design.
EPIC STRATEGY
EPIC's strategy is to become the leading supplier of timing, power and
reliability management tools for the design of deep submicron and nanometer ICs.
The key elements of this strategy are to:
Capitalize On and Maintain Technological Leadership in Advanced IC
Design Analysis. EPIC intends to continue to invest significant resources to
expand its set of core technologies and to enhance and support its products.
During fiscal 1996, EPIC unveiled several new capabilities reflecting this
strategy. EPIC introduced AMPS which enables designers to optimize circuit
performance by automating the complex simultaneous tradeoff of power, delay and
area in the design space. EPIC announced Synchronous Matrix Solver technology, a
third-generation dynamic simulation technology targeted to provide the
underlying "nanometer-ready" capability for all of EPIC's next-generation
dynamic simulation tools. EPIC also announced Direct Silicon Access, a service
that generates technology files (characterized transistor and interconnect data)
directly from laboratory measurements of a silicon test chip, enabling the EPIC
tools to provide results closer to actual silicon than when SPICE is used. In
September 1996, EPIC also acquired CIDA. EPIC believes that technology from this
acquisition will form the foundation of EPIC's next-generation hierarchical
physical verification tools. In addition, EPIC plans to develop new technologies
to address future generations of silicon process technology.
Provide Comprehensive Tools for Low Power Design. EPIC expects
increasing demand for portable electronic products to require designers to
minimize IC power consumption. EPIC has devoted significant effort to meet the
requirements of low power IC design. PowerMill provides power analysis and
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diagnostics enabling designers to identify and reduce IC power consumption. AMPS
enables the development of circuits that are optimized for low power
performance. EPIC intends to enhance its PowerMill and AMPS technology base and
to continue to develop tools targeted at the low power IC design field.
Provide Open Architecture Design Tools and Support Industry
Standards. EPIC has entered into major EDA supplier programs to provide more
integrated design solutions. EPIC is a member of Cadence Design Systems'
Connections Program, Synopsys' in-Sync Program and Mentor Graphics Corporation's
OpenDoor program. EPIC offers interfaces to these and other vendor environments
and designs its products to support various widely used EDA formats such as SDF
(Standard Delay Format), SPF (Standard Parasitic Format), Verilog and EDIF
(Electronic Data Interchange Format). EPIC believes that this strategy will
facilitate integration of EPIC tools into designers' preferred development
environments.
Establish Long-Term Customer Relationships with Major Accounts. EPIC
will continue to focus its sales and marketing efforts on key accounts worldwide
in the consumer electronics, computer, communications and semiconductor
industries. EPIC provides direct interaction of certain key personnel with these
key accounts to ensure successful adoption of EPIC's products. These strategic
relationships act as highly visible references and provide ongoing technical
input into the development of future products and enhancements to existing
products.
Provide Products which Address the Needs of ASIC Designers. ASIC
designers have traditionally used gate level tools to meet their design needs.
EPIC believes that existing gate level tools, particularly with respect to power
consumption and timing calculation, will become increasingly inadequate as IC
designs are implemented in nanometer technology and will need to be supplemented
with more accurate tools. EPIC is currently developing tools, expected to be
introduced prior to the end of fiscal 1997, that it believes will provide
accurate power analysis and diagnostics and also delay calculation for ASIC
designs. EPIC believes that the ASIC design field, although much more
competitive, presents a significant opportunity for EPIC.
Provide Products which Address the Requirements of Physical
Verification. Once a design is completed, it must be verified to assure that no
design rules have been broken. This process is called physical verification and
includes several procedures, including Design Rule Checking (DRC), Electrical
Rule Checking (ERC), Layout Versus Schematic (LVS) which determines whether the
circuit laid out actually matches the netlist (schematic), and Layout Parasitic
Extraction (LPE) to provide resistance, capacitance and inductance data. EPIC
believes that existing physical verification tools will become increasingly
inadequate as IC designs are implemented in nanometer technology and will need
to more fully accommodate hierarchical design methods. Based on the CIDA
technology, EPIC is presently developing tools, expected to be introduced prior
to the end of fiscal 1997, that it believes will provide faster operation, true
hierarchy and lower memory requirements for physical verification. Although the
physical verification field is highly competitive, EPIC believes that it
presents a significant opportunity for EPIC.
TECHNOLOGY AND PRODUCTS
EPIC's AMPS, PathMill, PowerMill, RailMill and TimeMill products all use
the same input files, including netlist, control and technology files. Arcadia
uses compatible netlist and back annotation formats but has its own technology
file. These technology files can be generated based on data measured directly
from silicon using the Direct Silicon Access Laboratory, a new service
laboratory established by EPIC in fiscal 1996. EPIC's products provide a breadth
of timing, power and reliability analysis capabilities and are enhanced by the
availability of optional features for such specialty needs as analog blocks.
Technology
EPIC's products are based upon the following internally developed and
acquired proprietary technologies and innovative software algorithms.
- Event driven transistor level simulation. EPIC has developed innovative
algorithms that effectively partition the design and accurately simulate
the non-digital behavior of transistor level circuits common in advanced
IC designs.
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- Mixed transistor models. EPIC's products use complex algorithms that
analyze a circuit and automatically select the appropriate transistor
model in each instance in order to maximize performance of the simulation
while maintaining the desired accuracy.
- Efficient creation, storage and retrieval of table look-up MOSFET
models. This proprietary method utilizes Direct Silicon Access
Laboratory data (or the output of SPICE) with user-defined MOSFET models
to efficiently create, store and retrieve tabular device characteristics
that are referenced during the simulation process.
- Synchronous Matrix Solver and high-performance sparse matrix circuit
solver. EPIC has developed innovative methods for solving circuit
equations to provide detailed and numerically reliable circuit behavior
modeling in complex ICs.
- Optimum transistor width solver. EPIC has developed a unique approach
for determining optimum transistor widths in order to meet power, delay
and area constraints.
- Quasi-3D capacitance analysis. EPIC has acquired innovative topology
analysis for parasitic capacitance analysis that provides enhanced
accuracy with minimized performance degradation.
- Accurate resistance topology analysis. EPIC has acquired a unique
approach to breaking down polygons to ensure accurate parasitic
resistance calculation.
- Interconnect and transistor characterization from silicon. EPIC has
invested in a laboratory furnished with state-of-the-art measurement and
test equipment which is combined with advanced software technologies to
create a semi-automated characterization process.
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Products
EPIC's products can be utilized at various stages of the advanced silicon
IC development process and provide designers with the following functions and
capabilities to address speed, power and integration requirements:
<TABLE>
<CAPTION>
SPEED POWER INTEGRATION
------------------- ------------------- -------------------
<S> <C> <C> <C>
- -----------------------
ARCHITECTURAL DESIGN Vertue enables
TimeMill and
Verilog-XL co-
simulation to
explore
architecture
options
- -----------------------
- -----------------------
FUNCTIONAL DESIGN PathMill identifies PowerMill or PathMill ensures
critical timing PowerMill with timing budgets for
paths that drive Vertue explores low each block are
the design planning power alternatives consistent with
for key design initial goals
blocks
- -----------------------
- -----------------------
LOGIC IMPLEMENTATION PathMill and PowerMill verifies PathMill and
TimeMill analyze that pre-layout TimeMill help
and improve timing power meets power designers optimize
constraints goals transistor level
blocks
- -----------------------
- -----------------------
LAYOUT & VERIFICATION Arcadia provides PowerMill PathMill enables
accurate post prioritizes designers to
layout parasitics critical power perform full chip
to help ensure the areas static timing
accuracy of verification
analysis results
PathMill AMPS obtains lowest PathMill and
prioritizes power while TimeMill verify
critical timing maintaining timing post- layout timing
areas specifications
PathMill and PowerMill verifies Vertue enables
TimeMill validate and helps designers PowerMill or
post-layout timing minimize power TimeMill and
consumption Verilog-XL co-
simulation to
verify the
completed IC
- -----------------------
- -----------------------
PRODUCTION RailMill identifies RailMill identifies Arcadia provides
voltage drop high currents that selective net
problems that cause extraction that
reduce performance electromigration increases accuracy
problems. It can and reduces runtime
help designers to improve the
select the best design validation
network strategy cycle
for optimized
performance
- -----------------------
</TABLE>
AMPS. AMPS simultaneously optimizes power, delay and area in digital CMOS
circuits. AMPS automatically resizes transistors, making them larger and/or
smaller to find the combination that will best meet user-defined power, speed
and area goals without changing the functionality of the design. EPIC believes
that AMPS helps a designer manage the complex relationships between power, speed
and area in such a way
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as to meet or exceed design goals and thereby add value to the design. AMPS can
be used on full custom and standard cell designs, and it runs on blocks of 100
to 30,000 transistors. At the back end, AMPS serves as a verification tool,
using parasitics extracted from layout to determine whether design performance
goals have actually been met and allowing the designer to make further
improvements if necessary. AMPS also enables a designer to reuse blocks by
automatically resizing the circuits to make them run faster, consume less power
and/or minimize area. AMPS carries a list price in the United States of $90,000
for a floating license and was first shipped to customers in January 1996. A
floating license allows one use of the product at any given time on any one
computer on the customer's network.
Arcadia. Arcadia provides full chip and net-by-net RC extraction. EPIC
believes that Arcadia achieves a greater combination of accuracy and fast run
time than other existing tools. Arcadia is also easy to use and supports a
variety of formats that enable simple integration into existing design flows.
Arcadia provides the user with multiple extraction modes and allows net-by-net
extraction, so that designers can 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. Arcadia carries a
list price in the United States ranging from $30,500 to $109,500 for a floating
license depending on features and functionality and was first shipped to
customers in March 1995.
PathMill. PathMill is a static timing tool that provides a detailed
critical path analysis and static timing verification capability. EPIC believes
that 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. PathMill has the capability of
generating netlists of selected paths for several versions of SPICE. The user
can use the netlists directly to run SPICE simulations on the critical paths to
fine tune the paths or to verify the results from PathMill. PathMill carries a
list price in the United States ranging from $45,500 to $96,750 for a floating
license depending on features and was first shipped to customers in June 1989.
PowerMill. PowerMill simulates block and full chip current and power
behavior, providing fast and accurate current and power analysis and power
diagnostics. PowerMill offers static and dynamic diagnostics to identify design
flaws that cause unnecessary power consumption. PowerMill also allows the
designer to accurately predict the power consumption of a block and explore
different alternatives for minimizing the power consumed by the block. In
addition, PowerMill helps to ensure that power problems are caught early in the
design cycle and to verify the design prior to layout. The results can then be
used to help modify the layout to facilitate minimum power dissipation and
optimal power bus sizing. After layout, PowerMill helps designers confirm that
power consumption is acceptable before committing the design to silicon.
PowerMill carries a list price in the United States ranging from $75,100 to
$101,350 for a floating license depending on features and was first shipped to
customers in March 1992.
RailMill. RailMill is an IC reliability analysis tool to detect
electromigration and voltage drop problems before silicon. Leveraging EPIC's
expertise in power and extraction, RailMill addresses problems related to
reliability in IC design and verification. RailMill is used during the physical
design phase and allows designers to detect and eliminate the causes of
intermittent failure and reduced lifetime due to voltage drop and
electromigration problems. RailMill brings reliability detection into the design
phase, eliminating silicon turns and reducing very expensive and time-consuming
post-silicon analysis. RailMill carries a list price in the United States
ranging from $166,000 to $236,250 for a floating license depending on features
and was first shipped to customers in May 1995.
TimeMill. TimeMill is a transistor level simulator and dynamic timing
analyzer that provides results significantly faster and with greater capacity
than SPICE and with more accuracy than gate level simulators. Used interactively
in the pre-layout 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. These problems may be missed by a logic simulator and are generally
impractical to find with SPICE. TimeMill
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provides an extra level of verification which can detect errors or insufficient
detail in the gate level library. TimeMill's dynamic timing checks allow
designers to specify design margin and automatically flag violations which can
be used to check the impact of layout on the critical timing areas. TimeMill
carries a list price in the United States ranging from $55,800 to $103,050 for a
floating license depending on features and was first shipped to customers in
August 1987.
Vertue. Vertue uses technology developed by EPIC with SimMatrix developed
by Precedence Incorporated ("Precedence") to enable co-simulation of TimeMill or
PowerMill with Verilog-XL. EPIC has been granted a license to use, market and
distribute the interface developed by Precedence in return for certain
development fees and royalties. Vertue enables the concurrent use of Verilog-XL
and TimeMill or PowerMill allowing the designer to mix behavioral, gate and
transistor level blocks as needed. With the use of top-down design, the creation
of test sets ("test benches") and system level simulation vectors is performed
at the top level. Vertue enables the designer to use the Verilog test benches to
drive TimeMill or PowerMill directly, and therefore reduces the need to create
additional test vectors. Vertue extends the value of the Verilog environment by
enabling accurate timing, non-digital behavior and power to be simulated from
within the Verilog environment. Vertue carries a list price in the United States
of $24,000 for a floating license and was first shipped to customers in March
1994.
Options. EPIC offers a variety of product options. PowerMill and TimeMill
have extensions (ACE, BCX and MSX) that allow designers to directly simulate
mixed-signal and BiCMOS ICs. PathMill has options for dynamic analysis of clock
trees (DSX), writing custom routines for tailoring PathMill results directly
(PFX), and for writing and reading constraints and models within a Synopsys
design flow (SFX). BDC (Block Delay Calculator) works with TimeMill and extracts
the timing and drive loading information necessary for pin-to-pin block timing
characterization. SNX (Signal Net eXtension) works with RailMill to provide
signal net analysis in addition to power and ground nets. Arcadia has a range of
configuration options that allow the designer flexibility in using the tool at
various places in the design flow.
Interfaces. EPIC supports certain platforms available from Sun
Microsystems, Inc., Hewlett-Packard Company and IBM. EPIC has developed
graphical interfaces for Arcadia, PathMill, PowerMill and RailMill and intends
to develop other interfaces during fiscal 1997. EPIC's OEMs support several
products that ease the integration of EPIC's products to other environments. The
following tables list the interfaces and tools supported by EPIC:
INTERFACES
<TABLE>
<CAPTION>
CADENCE DESIGN VIEWLOGIC MENTOR GRAPHICS
SYSTEMS, INC. SYSTEMS, INC. CORPORATION
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Framework Integration............................. X X X
Schematic Capture Interface....................... X X X
Waveform Display.................................. X X X
Co-simulation with Verilog-XL..................... X
- ---------------------------------------------------------------------------------------------------------
</TABLE>
TOOLS
<TABLE>
<CAPTION>
NETLIST INTEGRATION VECTOR INTEGRATION WAVEFORM INTEGRATION
----------------------- ----------------------- -----------------------
<S> <C> <C>
SPICE SPICE TurboWave
EDIF Verilog SimWave
LSIM Proprietary formats
Verilog
</TABLE>
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SALES, MARKETING AND CUSTOMERS
EPIC markets its products in North America and Europe primarily through a
direct sales organization. EPIC uses a team of sales personnel and field
applications engineers working together from EPIC's sales and support offices to
provide commercial and technical solutions for each customer. Additionally, EPIC
has a team of product experts based at EPIC's headquarters to assist the
applications engineers in certain situations where an advanced level of product
expertise is required. EPIC has domestic sales and support offices in Sunnyvale
and Irvine, California, Austin and Dallas, Texas, Framingham, Massachusetts,
Upper Saddle River, New Jersey, Research Triangle, North Carolina, Arvada,
Colorado, Phoenix, Arizona, Vancouver, Washington and Baltimore, Maryland.
Internationally, EPIC has sales and support offices in Taipei, Taiwan, Grenoble,
France, Munich, Germany and London, England. As of December 31, 1996, EPIC
employed 35 sales personnel and 47 applications engineers. EPIC participates in
industry trade shows and organizes seminars to promote and further expand the
adoption of its products and technologies.
In Asia, EPIC markets its products primarily through a limited number of
independent distributors who license and service EPIC's products in this area.
EPIC also supports these distributors and their customers with technical, sales
and management personnel. Marubeni is EPIC's exclusive distributor in Japan. C&G
Technology distributed EPIC's products on a nonexclusive basis in Korea until
June 30, 1996. Beginning July 1, 1996, EPIC Associates, Inc. became EPIC's
nonexclusive distributor in Korea. EPIC is currently negotiating with C&G
Technology for a new nonexclusive distributor agreement intended to be effective
January 1, 1997 and intends to employ some of the employees of EPIC Associates,
Inc. to directly support EPIC's Korean customers starting January 1, 1997.
Future Techno Design distributes EPIC's products on a nonexclusive basis in the
ASEAN countries (Singapore, Malaysia, Indonesia, Thailand and the Philippines)
and in India. EPIC has no direct sales force and relies on a single distributor
for licensing and support of its products in each of Japan, Korea and the ASEAN
countries and India. Accordingly, EPIC is dependent upon the continued viability
and financial stability of its distributors, and in particular, of Marubeni.
Since EPIC's products are used by highly skilled professional engineers,
effective distributors must possess sufficient technical, marketing and sales
resources and must devote these resources to a lengthy sales cycle, customer
training and product service and support. Only a limited number of distributors
possess these resources. In addition, EPIC's distributors generally offer
products of several different companies, including in some cases products that
are competitive with EPIC's products. There can be no assurance that EPIC's
current distributors will be able to continue to market or service and support
EPIC's products effectively, that economic conditions or industry demand will
not adversely affect these or other distributors, that any distributor that
licenses EPIC's products will choose to continue to license such products or
that these distributors will not devote greater resources to licensing products
of other companies. The loss of, or a significant reduction in revenue from, one
of EPIC's distributors could have a material adverse effect on EPIC's business,
financial condition and results of operations.
In June 1996, EPIC entered into a nonexclusive OEM agreement with Cascade
Design Automation Corp. ("Cascade"). Under such agreement, Cascade is granted
the nonexclusive right of distributing EPIC's Arcadia product by bundling it
with Cascade's own product.
International license and service revenue accounted for 48.5%, 44.3%, 39.7%
and 39.0% of the total revenue in fiscal 1994, 1995 and 1996 and in the first
quarter of fiscal 1997, respectively. EPIC expects that international license
and service revenue will continue to account for a significant portion of its
revenues in the future. These revenues involve a number of inherent risks,
including the impact of recessionary environments in economies outside the
United States, generally longer receivable collection periods, unexpected
changes in regulatory requirements, reduced protection for intellectual property
rights in some countries, and tariffs and other trade barriers. There can be no
assurance that such factors will not have a material adverse effect on EPIC's
future international license and service revenue and, consequently, on EPIC's
business, financial condition and results of operations. Although EPIC has
attempted to reduce the risk of fluctuations in exchange rates associated with
international revenues by licensing its products for United States currency,
EPIC pays the expenses of its international operations in local currencies and
does not engage in hedging transactions with respect to such obligations.
Currency exchange fluctuations in countries in which EPIC
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licenses its products could have a material adverse effect on EPIC by resulting
in pricing that is not competitive with prices denominated in local currencies.
In fiscal 1994, 1995 and 1996 and in the first quarter of fiscal 1997,
licensing and service revenue from Marubeni accounted for 15.6%, 16.6%, 21.9%
and 19.2%, respectively, of total revenue. Licensing and service revenue from
the C&G Technology, EPIC's distributor in Korea, accounted for 11.0% of total
revenue in fiscal 1995. Advanced Micro Devices, Inc. accounted for 10.7% of
licensing and service revenue in fiscal 1996. No other customer of EPIC
accounted for greater than 10% of total revenue during fiscal 1994, 1995 or 1996
or during the first quarter of fiscal 1997.
CUSTOMER SERVICE AND SUPPORT
EPIC provides its customers with a wide range of support services,
including a support hot-line, on-site support and on-site and in-house training
for all products. EPIC's customer service and support is provided by application
engineers who understand the design methodologies of EPIC's customers and
generally have IC design backgrounds. Pre-sales support is supplied in executing
benchmarks, training and providing integration analysis as needed. Post-sales
support is provided pursuant to renewable annual maintenance contracts. In
addition, customers with maintenance agreements have access to a hot-line and
receive periodic product enhancement releases at no additional cost. Initial
training is currently included in the license fees, however, customers are
charged for specialist consulting or on-site training. Most of EPIC's customers
currently have maintenance agreements.
PRODUCT DEVELOPMENT
EPIC's future success is dependent in part upon its ability to enhance its
current products and to develop and introduce new products on a timely and a
cost-effective basis that keep pace with technological developments and evolving
industry standards, as well as address the increasingly sophisticated needs of
EPIC's customers. EPIC's research and development staff focuses on the
development, enhancement and support of a particular product of EPIC or the
development and support of product integration and graphical user interfaces.
These groups also focus on releasing improved versions of EPIC's existing
products and developing new products and product options.
EPIC's product development efforts are currently focused on several new
products, that EPIC currently expects to introduce in fiscal 1997 in the timing,
power and reliability areas. With its recent acquisition of CIDA, EPIC is
continuing the development efforts in the layout verification area. In addition,
EPIC is modifying its products for the ASIC design industry. EPIC is working
with ASIC vendors and designers to develop a tool designed to provide accurate
power analysis and diagnostics for ASIC applications. The EDA industry is
characterized by extremely rapid technological change, frequent new product
introductions, evolving industry standards and changing customer requirements.
EPIC's future success will depend upon its ability to enhance its current
products and to develop and introduce new products on a timely and a cost-
effective basis that keep pace with technological developments and evolving
industry standards and methodologies, as well as address the increasingly
sophisticated needs of EPIC's customers. There can be no assurance that EPIC
will be successful in developing and marketing product enhancements or new
products that respond to technological change, evolving industry standards and
changing customer requirements, that EPIC will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
these products, or that its new products and product enhancements will
adequately meet the requirements of the marketplace and achieve customer
acceptance. Failure of EPIC, for technological or other reasons, to develop and
introduce new products and product enhancements in a timely and cost-efficient
manner would have a material adverse effect on EPIC's business, financial
condition and results of operations.
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COMPETITION
The EDA industry is highly competitive. In general, competition in the EDA
industry comes from major EDA vendors, each of which has a longer operating
history, significantly greater financial, technical and marketing resources,
greater name recognition and larger installed customer bases than EPIC. These
companies also have established relationships with current and potential
customers of EPIC. Customer acceptance of EPIC's products will require that IC
designers adopt modified methods of design simulation and analysis, for example
simulating and analyzing at the transistor level as opposed to the gate level.
Designers have historically relied on other methodologies implemented through
products supplied by the major EDA vendors, and there can be no assurance that
they will be willing to change these established methods of design simulation
and analysis. If the customer demand for EPIC's products develops, EPIC expects
competition from the major EDA vendors to increase. In addition, a variety of
small companies develop and introduce new products, and any of these companies
could become a significant competitor in the future. EPIC also competes with the
internal design groups of its existing and potential customers, many of whom
design and develop customized simulation and analysis tools for their particular
needs and therefore may be reluctant to purchase products offered by independent
vendors. In addition, increased competition could result from vendors of SPICE
simulation products which increase the performance of their existing products to
match that of EPIC's products.
Each of EPIC's products addresses a different aspect of IC performance
optimization and has different competitors. AMPS competes with a tool that
Cadence has licensed from Lucent Technology, Inc. Arcadia competes with
extraction tools offered by Cadence, Avant! Corp. ("Avant!") and High Level
Design Systems, Inc. ("HLDS"). PathMill competes with a static timing analysis
product offered by Cadence at the transistor level and there are several gate
level analyzers which have historically been used for static timing analysis.
Among the leading EDA vendors that currently offer gate level static timing
analyzers are Viewlogic, Synopsys, Cadence and Mentor Graphics Corporation
("Mentor"). In addition, EPIC is aware of certain transistor level products
competitive with PathMill which are offered by smaller EDA companies. PowerMill
competes with transistor level products including those offered by Mentor and
Avant! and TimeMill experiences competition from product offerings of Avant!,
Mentor and certain smaller EDA companies. To date, EPIC has faced little direct
competition for RailMill and Vertue. EPIC has also recently established a
silicon characterization service laboratory which is competing with a similar
service laboratory at Avant!. With EPIC beginning to sell physical verification
tools through its acquisition of CIDA, EPIC will also be competing with layout
verification tools from Cadence, Mentor and Avant!.
Several recent consolidations in the EDA industry involving medium to large
EDA companies acquiring small technology companies have provided the additional
sales distribution channels and customer base access to these smaller companies
that otherwise would not have had such resources. For example, as a result of
Avant!'s acquisitions of Anagram, Inc., Meta-Software, Inc. and Frontline Design
Automation and Cadence's
recent acquisition of HLDS and recent announcement of an agreement to acquire
Cooper & Chyan Technology, Inc., EPIC believes that its competitive environment
has moved toward a small number of competitors with increased competition coming
from larger, more diversified EDA companies that possess significantly greater
financial, technical and marketing resources and greater name recognition and
larger installed customer bases than EPIC.
EPIC competes on the basis of certain factors, including first-to-market
product capabilities, product performance, price, support of industry standards,
ease of use and customer technical support and service. EPIC believes that it
currently competes favorably overall with respect to these factors, particularly
time-to-market product features, technical support and customer service.
However, there can be no assurance that EPIC will be able to continue to compete
successfully against current and future competitors or that competitive
pressures faced by EPIC will not materially adversely affect its business,
financial condition and results of operations. In particular, increased
competition could result in price reductions, reduced margins and loss of its
competitive position, all of which could materially adversely affect EPIC. In
addition, there can be no assurance that current competitors or other entities
will not develop similar products that have significant
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advantages over EPIC's core technology which could have a material adverse
effect on EPIC's business, financial condition and results of operations.
PROPRIETARY TECHNOLOGY
EPIC relies primarily upon a combination of copyright and trademark laws to
establish and protect proprietary rights in its products. EPIC seeks to protect
the source code for its products as an unpublished copyrighted work. EPIC
generally enters into proprietary information and confidentiality agreements
with its employees and distributors, and limits access to and distribution of
its software, documentation and other proprietary information. EPIC does not
license or release the source code for its proprietary software to its
customers, except in connection with source code escrow arrangements. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use EPIC's products or technology without authorization, or to
develop similar technology independently. 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, EPIC 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 are also important to establishing
and maintaining a technology leadership position. EPIC does not hold any patents
and does not anticipate that it will rely in the future on patents to protect
its proprietary rights.
Although EPIC does not believe its products infringe the proprietary rights
of any third parties, there can be no assurance that infringement claims will
not be asserted against EPIC or its customers in the future. Although there are
no such pending lawsuits against EPIC or notices that EPIC is infringing
intellectual property rights of others, there can be no assurance that
litigation or infringement claims will not occur in the future. EPIC could incur
substantial costs and diversion of management resources in defending itself and
its customers against any such claims. Furthermore, parties making such claims
could secure substantial damages, as well as injunctive or other equitable
relief which could effectively block EPIC's ability to sell its products in the
United States and abroad. Such a judgment could have a material adverse effect
on EPIC's business, financial condition and results of operations. If it appears
necessary or desirable, EPIC may seek licenses under intellectual property that
it is allegedly infringing. There can be no assurance, however, that licenses
could be obtained on commercially reasonable terms, if at all, or that the terms
of any offered licenses will be acceptable to EPIC. The failure to obtain the
necessary licenses or other rights could have a material adverse effect on
EPIC's business, financial condition and results of operations.
EMPLOYEES
As of December 31, 1996, EPIC had a total of 204 employees, including 95 in
research and development, 91 in sales, marketing and related customer support
services, and 18 in administration. Over thirty of EPIC's employees hold Ph.D.
degrees. None of EPIC's employees is represented by a collective bargaining
agreement, nor has EPIC experienced any work stoppage. EPIC considers its
relations with its employees to be good. EPIC is highly dependent upon the
continued service of, and on its ability to attract and retain, qualified
technical, sales, marketing and managerial personnel. The competition for
qualified personnel is intense, and the loss of any such persons, as well as the
failure to recruit additional key personnel in a timely manner, would have a
material adverse effect on EPIC's business, financial condition and results of
operations. In particular, there are only a limited number of qualified EDA
engineers, and the competition for such individuals is especially intense. There
can be no assurance that EPIC will be able to continue to attract and retain the
qualified technical and other personnel necessary for the development of its
business.
PROPERTIES
In December 1995, EPIC relocated its principal administration, sales,
marketing and research and development operations to a facility occupying
approximately 53,000 square feet in Sunnyvale, California. The facility is
leased through November 2000, at which time EPIC has two options to extend the
lease for
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additional periods of two and one-half years each. EPIC's lease on its former
principal facility expired in February 1996. In addition, EPIC also leases sales
offices in Irvine, California, Austin and Dallas, Texas, Framingham,
Massachusetts, Upper Saddle River, New Jersey, Vancouver, Washington, Taipei,
Taiwan, Grenoble, France, Munich, Germany and London, England. EPIC also leases
an approximately 3,000 square feet facility in Santa Clara, California, pursuant
to a lease assumed in connection with the acquisition of Archer Systems, Inc.
("Archer"). EPIC subleases this facility to a third-party. Additionally,
pursuant to a lease assumed in connection with the acquisition of CIDA, EPIC
leases approximately 2,500 square feet facility in Sunnyvale, California and
such lease expired on December 31, 1996. EPIC believes that its existing
facilities are adequate to meet its current needs and that suitable additional
or alternative space will be available in the future on commercially reasonable
terms as needed.
LEGAL PROCEEDINGS
EPIC is not a party to any legal proceeding.
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SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
EPIC's statements of operations for each of the three years in the period ended
September 30, 1996, and with respect to the balance sheets as of September 30,
1995 and 1996, are derived from the Consolidated Financial Statements that have
been audited by Deloitte & Touche LLP, independent auditors, which are included
elsewhere in this Joint Proxy Statement/Prospectus. The statement of operations
data for the years ended September 30, 1992 and 1993, and the balance sheet data
as of September 30, 1992, 1993 and 1994, are derived from audited consolidated
financial statements not included herein. The selected consolidated financial
data as of December 31, 1996 and for the three months ended December 31, 1995
and 1996 are unaudited but have been prepared on a basis substantially
consistent with the applicable financial data included in the audited
consolidated financial statements and, in the opinion of management, contain all
such adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position and results of operations of EPIC as of
such date and for such periods. Operating results for the three months ended
December 31, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending September 30, 1997 or any future period. The
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related Notes included herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License............................... $ 2,250 $ 4,808 $ 9,694 $20,732 $34,548 $ 7,288 $11,240
Service............................... 452 724 1,645 4,271 9,371 2,151 2,970
------- ------- ------- ------ ------
Total revenue.................. 2,702 5,532 11,339 25,003 43,919 9,439 14,210
------- ------- ------- ------ ------
Cost and expenses:
Cost of license....................... 68 161 572 1,315 1,671 454 337
Cost of service....................... 94 235 454 987 1,681 370 548
Sales and marketing................... 899 2,114 4,548 8,771 13,285 3,125 4,299
Research and development.............. 1,252 1,668 2,908 5,886 10,566 2,065 3,630
General and administrative............ 362 545 1,027 2,325 3,380 744 1,105
Purchased in-process technology....... -- -- -- 3,261 18,806 -- --
------- ------- ------- ------ ------
Total operating expenses....... 2,675 4,723 9,509 22,545 49,389 6,758 9,919
------- ------- ------- ------ ------
Income (loss) from operations........... 27 809 1,830 2,458 (5,470) 2,681 4,291
Interest income, net.................... 13 24 82 822 1,153 282 354
------- ------- ------- ------ ------
Income (loss) before income taxes....... 40 833 1,912 3,280 (4,317) 2,963 4,645
Provision for income taxes.............. 65 230 674 2,290 5,361 1,096 1,719
------- ------- ------- ------ ------
Net income (loss)....................... $ (25) $ 603 $ 1,238 $ 990 $(9,678) $ 1,867 $ 2,926
======= ======= ======= ====== ======
Net income (loss) per share(1).......... $ (0.01) $ 0.06 $ 0.13 $ 0.08 $ (0.77) $ 0.14 $ 0.20
======= ======= ======= ====== ======
Shares used in per share computation.... 4,922 9,520 9,864 13,198 12,625 13,656 14,735
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments........................... $ 965 $ 872 $ 3,974 $27,918 $39,527 $39,321
Working capital......................... 1,335 1,521 1,862 23,584 30,763 34,724
Total assets............................ 2,257 3,345 7,907 35,781 54,791 58,519
Total shareholders' equity.............. 1,545 2,163 3,637 26,925 37,054 41,185
</TABLE>
- ---------------
(1) See Note 1 of Notes to EPIC's Consolidated Financial Statements for an
explanation of the determination of shares used in computing net income
(loss) per share.
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<PAGE> 103
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Joint Proxy
Statement/Prospectus are forward-looking statements based on current
expectations, and entail various risks and uncertainties that could cause actual
results to differ materially from those expressed in such forward-looking
statements. Such risks and uncertainties are set forth under "Risk
Factors -- Risks Relating to EPIC" and below in the second paragraph under
"Overview," under "Liquidity and Capital Resources" and under "Factors Affecting
Future Operating Results." These forward-looking statements include the last
sentence of the first paragraph under "Overview," the statement relating to
future international license and service revenue in the fourth paragraph under
"Revenue," the last sentence under "Research and Development," the last sentence
of the second paragraph under "Liquidity and Capital Resources" and the
statement relating to the period of time through which EPIC's resources will be
adequate to finance its operations in the last paragraph under "Liquidity and
Capital Resources."
OVERVIEW
EPIC develops, markets and supports a family of simulation and analysis
software tools that helps IC designers better manage the timing, reliability and
power characteristics of IC designs. EPIC was founded in 1986 and licensed its
first product, TimeMill, in August 1987. EPIC began licensing PathMill in June
1989, PowerMill in March 1992, Vertue in March 1994, RailMill in May 1995, AMPS
in January 1996 and its latest options, TimeMill ACE and PowerMill ACE, which
are based on newly developed technology, in December 1996. With the acquisition
of Archer in June 1995, EPIC also began licensing Arcadia in November 1995.
Substantially all of EPIC's license revenue to date has been derived from the
licensing of Arcadia, PathMill, PowerMill and TimeMill. EPIC also derives
service revenue primarily from maintenance agreements which provide customers
access to product enhancements, training and customer support. Most of EPIC's
customers have purchased annual maintenance contracts on initial licenses and
have renewed such contracts upon expiration. EPIC has recently acquired CIDA
which is developing a new technology in the area of layout verification. EPIC
does not expect to generate any substantial revenue from these products until
they are formally released and receive customer acceptance.
Most of EPIC's products are based upon a single set of core software
technologies, and the licensing and support of all products are expected to
account for substantially all of EPIC's revenue for the foreseeable future.
Acceptance of EPIC's products by existing and new customers and the
competitiveness of the products in an ever increasing competitive environment
are critical to EPIC's future success. There can be no assurance that the
industries for which EPIC's products are best suited will continue to develop
or, if such industries do continue to develop, that EPIC's products will
continue to achieve the acceptance required to maintain revenue growth and
continued profitability in the future.
PROPOSED MERGER WITH SYNOPSYS, INC.
On January 16, 1997, EPIC entered into the Merger Agreement, whereby EPIC
will survive and become a wholly-owned subsidiary of Synopsys. In connection
with the Merger, (i) each share of EPIC Common Stock issued and outstanding at
the effective time of the Merger will be converted into 0.7485 of a share of
Synopsys Common Stock and (ii) each stock option to purchase shares of EPIC
Common Stock will be assumed by Synopsys and converted into an option to
purchase Synopsys Common Stock based upon the Exchange Ratio. Consummation of
the Merger is subject to customary conditions to closing including the approval
of the shareholders of EPIC and the stockholders of Synopsys and certain
regulatory approvals. The Merger is intended to be treated as a pooling of
interest for accounting purposes and is intended to qualify as a tax-free
reorganization for federal income tax purposes.
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<PAGE> 104
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data of EPIC expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED SEPTEMBER ENDED
30, DECEMBER 31,
----------------------- --------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
License...................................... 85.5% 82.9% 78.7% 77.2% 79.1%
Service...................................... 14.5 17.1 21.3 22.8 20.9
----- ----- ----- ----- -----
Total revenue........................ 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of license.............................. 5.0 5.3 3.8 4.8 2.4
Cost of service.............................. 4.1 3.9 3.8 3.9 3.8
Sales and marketing.......................... 40.1 35.1 30.2 33.1 30.3
Research and development..................... 25.6 23.6 24.1 21.9 25.5
General and administrative................... 9.1 9.3 7.7 7.9 7.8
Purchased in-process technology.............. -- 13.0 42.8 -- --
----- ----- ----- ----- -----
Total operating expenses............. 83.9 90.2 112.4 71.6 69.8
----- ----- ----- ----- -----
Income (loss) from operations.................. 16.1 9.8 (12.4) 28.4 30.2
Interest income, net........................... 0.8 3.3 2.6 3.0 2.5
----- ----- ----- ----- -----
Income (loss) before income taxes.............. 16.9 13.1 (9.8) 31.4 32.7
Provision for income taxes..................... 6.0 9.1 12.2 11.6 12.1
----- ----- ----- ----- -----
Net income (loss).............................. 10.9% 4.0% 22.0% 19.8% 20.6%
===== ===== ===== ===== =====
</TABLE>
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
Revenue
Revenue consists primarily of fees for licenses of EPIC's software
products, maintenance and customer support. EPIC recognizes revenue from
software licenses after shipment of the products and fulfillment of acceptance
terms, if any, and when no significant contractual obligations remain
outstanding. When EPIC receives payment prior to shipment or fulfillment of
significant vendor obligations, such payments are recorded as deferred revenue
and customer deposits and are recognized as revenue upon shipment or fulfillment
of significant vendor obligations. Costs related to insignificant vendor
obligations for post-contract customer support are accrued upon recognition of
the license revenue. Maintenance revenue is deferred and recognized ratably over
the term of the maintenance agreement, which is typically one year. Revenue from
customer training, support and other services is recognized as the service is
performed. Total revenue increased by 75.7% to $43.9 million in fiscal 1996 from
$25.0 million in fiscal 1995 and increased by 120.5% in fiscal 1995 from $11.3
million in fiscal 1994. The percentage of EPIC's total revenue attributable to
license fees decreased to 78.7% in fiscal 1996 from 82.9% and 85.5% in fiscal
1995 and 1994, respectively.
License revenue increased by 66.6% to $34.5 million in fiscal 1996 from
$20.7 million in fiscal 1995 and increased by 113.9% in fiscal 1995 from $9.7
million in fiscal 1994. The increase in revenue in fiscal 1996 was primarily due
to increases in the number of licenses of Arcadia, PathMill, PowerMill, RailMill
and various options for such products. The increase in revenue in fiscal 1995
was primarily due to increases in the number of licenses of PathMill, PowerMill,
TimeMill and to a lesser extent, various options and third party software
products. In May 1995, EPIC began licensing its reliability product, RailMill.
In July 1995, with the acquisition of Archer, EPIC started licensing Arcadia. To
date, price increases have not been a material factor in EPIC's revenue growth.
98
<PAGE> 105
Service revenue increased by 119.4% to $9.4 million in fiscal 1996 from
$4.3 million in fiscal 1995 and
increased by 159.6% in fiscal 1995 from $1.6 million in fiscal 1994. The
increases in service revenue in each fiscal year were primarily attributable to
maintenance contracts in connection with the continued growth of the installed
base of customers licensing EPIC's products. Most of EPIC's customers have
purchased annual maintenance contracts on initial licenses and have renewed such
contracts upon expiration. The percentage of EPIC's total revenue attributable
to service revenue increased to 21.3% in fiscal 1996 from 17.1% in fiscal 1995
and from 14.5% in fiscal 1994. Service revenue as a percentage of total revenue
increased in fiscal 1996 as a result of EPIC generating $1.8 million or 19.1% of
service revenue from consulting and training revenues, which had historically
been minimal. Service revenue as a percentage of total revenue increased in
fiscal 1995 primarily due to the faster growth of maintenance customer base
compared to the growth rate of total revenue.
International license and service revenue accounted for 39.7%, 44.3% and
48.5% of total revenue in fiscal 1996, 1995 and 1994, respectively. The
decreases of international license and service revenue as a percentage of total
revenue were primarily due to the increases of volume purchase agreements with
major domestic customers. EPIC expects that international license and service
revenues will continue to account for a significant portion of its revenues in
the future. License and service revenue from Marubeni, EPIC's exclusive
distributor in Japan, accounted for 21.9%, 16.6% and 15.6% of total revenue in
fiscal 1996, 1995 and 1994, respectively. License and service revenue from
Advanced Micro Devices, Inc. accounted for 10.7% of total revenue in fiscal
1996. License and service revenue from C&G Technology, EPIC's distributor in
Korea, accounted for 11.0% of total revenue in fiscal 1995. No other customer or
distributor accounted for more than 10% of total revenue during any of these
periods.
Cost of Revenue
Cost of license revenue includes third party software license royalties,
documentation and other production costs related to the licensing of EPIC's
products. Cost of license revenue as a percentage of total revenue decreased to
3.8% in fiscal 1996 from 5.3% in fiscal 1995 and from 5.0% in fiscal 1994. The
decreases in cost of license revenue as a percentage of total revenue were
primarily due to the cost of license revenue increasing at a slower rate than
the growth in total revenue.
Cost of service revenue includes personnel and related operating costs
allocated to maintenance and other customer support services. Cost of service
revenue as a percentage of total revenue remained relatively constant at 3.8%,
3.9% and 4.1% in fiscal 1996, 1995 and 1994, respectively.
Sales and Marketing
Sales and marketing expenses consist of salaries, commissions paid to
internal sales and marketing personnel and certain distributors, promotional
costs and related operating expenses. Sales and marketing expenses increased by
51.5% to $13.3 million in fiscal 1996 from $8.8 million in fiscal 1995 and
increased by 92.9% in fiscal 1995 from $4.5 million in fiscal 1994. Sales and
marketing expenses increased in each period due to the expansion of EPIC's
worldwide direct sales and marketing organization, increased commissions
associated with increased revenue and, to a lesser extent, participation in
domestic and international conferences and trade shows. During the periods, EPIC
established direct sales and support offices in the United States, Europe and
Asia. The number of sales and marketing personnel also increased to 84 persons
at the end of fiscal 1996 from 57 and 34 persons at the end of fiscal 1995 and
1994, respectively. As a percentage of total revenue, sales and marketing
expenses were 30.2%, 35.1% and 40.1% of total revenue in fiscal 1996, 1995 and
1994, respectively. The decrease of sales and marketing expenses as a percentage
of total revenue in fiscal 1996 from fiscal 1995 and 1994 was primarily due to
total revenues increasing at a rate faster than the increases in sales and
marketing expenses.
Research and Development
Research and development expenses include all costs associated with the
development of new products and enhancements to existing products. Research and
development expenses increased by 79.5% to $10.6 million in fiscal 1996 from
$5.9 million in fiscal 1995 and increased by 102.4% in fiscal 1995 from $2.9
million
99
<PAGE> 106
in fiscal 1994. The increases in research and development expenses in each
period resulted primarily from the continued investment in the number of
research and development personnel, which grew to 92 persons at the end of
fiscal 1996 from 58 and 33 persons at the end of fiscal 1995 and 1994,
respectively, for the continued development of new software products, as well as
enhancements to existing products. As a percentage of total revenue, these
expenses were 24.1%, 23.6% and 25.6% of total revenues in fiscal 1996, 1995 and
1994, respectively. To maintain a competitive position in the EDA industry, EPIC
expects to increase its investment in research and development, although such
expenses as a percentage of total revenue may fluctuate.
General and Administrative
General and administrative expenses increased by 45.4% to $3.4 million in
fiscal 1996 from $2.3 million in fiscal 1995 and increased by 126.4% in fiscal
1995 from $1.0 million in fiscal 1994. The increases were primarily attributable
to costs associated with new administrative personnel, professional fees such as
legal and accounting, and increases in operating expenses associated with being
a public company. As a percentage of total revenue, general and administrative
expenses were 7.7%, 9.3% and 9.1% of total revenues in fiscal 1996, 1995 and
1994, respectively. The decrease of general and administrative expenses as a
percentage of total revenue in fiscal 1996 was a result of total revenue
increasing at a rate faster than the increases in general and administrative
expenses.
Purchased In-Process Technology
As of September 30, 1996, EPIC substantially completed its acquisition of
CIDA, through a merger of CIDA with and into a wholly-owned subsidiary of EPIC.
EPIC exchanged a total of 729,454 shares of EPIC Common Stock, options to
purchase 101,000 shares of EPIC Common Stock and cash of $3.4 million for all of
the outstanding shares of the common stock and options to purchase common stock
of CIDA. The acquisition was accounted for as a purchase. The purchase price of
$17.9 million, as well as costs directly attributable to the acquisition, have
been allocated to the assets acquired and liabilities assumed. Approximately
$18.8 million of the total purchase price represented the value of in-process
technology that had not reached technological feasibility and that had no
alternative future use and was charged to EPIC's operations in the fourth
quarter of fiscal 1996.
As of June 30, 1995, EPIC substantially completed its acquisition of
Archer, through a merger of Archer with and into a wholly-owned subsidiary of
EPIC. EPIC exchanged a total of 260,484 shares of EPIC Common Stock and options
to purchase EPIC Common Stock for all of the outstanding shares of the common
stock and options to purchase common stock of Archer. The acquisition was
accounted for as a purchase. The purchase price of $3.6 million, as well as
costs directly attributable to the acquisition, have been allocated to the
assets acquired and liabilities assumed. Approximately $3.3 million of the total
purchase price represented the value of in-process technology that had not
reached technological feasibility and that had no alternative future use and was
charged to EPIC's operations in the third quarter of fiscal 1995.
Income Taxes
EPIC accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The provision of
income taxes as a percentage of pre-tax income, excluding purchased in-process
technology which is not tax deductible since the mergers with CIDA and Archer
were tax-free reorganizations was 37.0%, 35.0% and 35.3% for fiscal 1996, 1995
and 1994, respectively. These percentages are less than the federal and state
combined statutory rate of approximately 40.0% due primarily to tax exempt
interest income, the utilization of research and experimentation credits and the
establishment of a Foreign Sales Corporation (FSC). See Note 9 of Notes to
Consolidated Financial Statements.
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996
Revenue
Total revenue for the first quarter of fiscal 1997 increased by 50.5% to
$14.2 million from $9.4 million in the first quarter of fiscal 1996.
100
<PAGE> 107
License revenue for the first quarter of fiscal 1997 increased by 54.2% to
$11.2 million from $7.3 million in the first quarter of fiscal 1996. The
increase in license revenue was primarily due to increases in the licensing of
AMPS, Arcadia, RailMil, TimeMill and various options for such products. To date,
price increases have not been a material factor in EPIC's revenue growth.
Service revenue for the first quarter of fiscal 1997 increased by 38.1% to
$3.0 million from $2.2 million in the first quarter of fiscal 1996. The increase
in service revenue was primarily attributable to maintenance contracts in
connection with the continued growth of the installed base of customers
licensing EPIC's products. Most of EPIC's customers have purchased annual
maintenance contracts on initial licenses and have renewed such contracts upon
expiration. The percentage of EPIC's total revenue attributable to service
revenue decreased to 20.9% in the first quarter of fiscal 1997 from 22.8% in the
first quarter of fiscal 1996. Service revenue as a percentage of total revenue
decreased primarily due to the faster growth of license revenue compared to the
growth rate of service revenue.
International license and service revenue accounted for 39.0% and 44.9% of
total revenue in the first quarter of fiscal 1997 and 1996, respectively. The
decrease in international license and service revenue as a percentage of total
revenue was primarily attributable to the increases of volume purchase
agreements with major domestic customers. EPIC expects that international
license and service revenues will continue to account for a significant portion
of its revenues in the future. License and service revenue from Marubeni, EPIC's
exclusive distributor in Japan, accounted for 19.2% and 24.9% of the total
revenue in the first quarter of fiscal 1997 and 1996, respectively. No other
customer or distributor accounted for more than 10% of total revenue during any
of these periods.
Cost of Revenue
Cost of license revenue as a percentage of total revenue decreased to 2.4%
in the first quarter of fiscal 1997 from 4.8% in the first quarter of fiscal
1996. The decrease in cost of license revenue as a percentage of total revenue
was due to lower third party software licensing royalties and expenses
increasing at a slower rate than the total revenue.
Cost of service revenue as a percentage of total revenue remained
relatively constant at 3.8% for the first quarter of fiscal 1997 compared to
3.9% for the first quarter of fiscal 1996 as personnel and related operating
costs allocated to maintenance and other customer support services increased at
a similar rate as the total revenue.
Sales and Marketing
Sales and marketing expenses increased by 37.6% to $4.3 million in the
first quarter of fiscal 1997 from $3.1 million in the first quarter of fiscal
1996. Sales and marketing expenses increased as EPIC continued to expand its
worldwide direct sales and support organization, incurred higher commissions
associated with increased revenue and, to a lesser extent, increased
participation in domestic and international trade shows, conferences and
seminars. The number of sales and marketing personnel increased from 65 at the
end of the first quarter of fiscal 1996 to 91 at the end of the first quarter of
fiscal 1997. As a percentage of total revenue, sales and marketing expenses
decreased to 30.3% in the first quarter of fiscal 1997 from 33.1% in the first
quarter of fiscal 1996. The decrease was due to total revenues increasing at a
rate faster than the increases in sales and marketing expenses.
Research and Development
Research and development expenses increased by 75.8% to $3.6 million in the
first quarter of fiscal 1997 from $2.1 million in the first quarter of fiscal
1996. The increase in expenses resulted from the continued investment in the
number of research and development personnel, which grew from 61 at the end of
the first quarter of fiscal 1996 to 95 at the end of the first quarter of fiscal
1997, and for the continued development of new software products, as well as
enhancements to existing products. These increased expenses include the
additional headcount and costs relating to the CIDA business acquired in the
fourth quarter of fiscal 1996. As a percentage of total revenue, these expenses
increased to 25.5% in the first quarter of fiscal 1997 from 21.9%
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<PAGE> 108
in the first quarter of fiscal 1996. To maintain a competitive position in the
EDA industry, EPIC expects to continue to increase its investment in research
and development, although such expenses as a percentage of total revenue may
fluctuate.
General and Administrative
General and administrative expenses increased by 48.5% to $1.1 million in
the first quarter of fiscal 1997 from $744,000 in the first quarter of fiscal
1996. The increase was primarily attributable to costs associated with new
administrative personnel, professional fees in connection with legal and
accounting services, and increases in operating expenses associated with the
continued growth of EPIC. As a percentage of total revenue, general and
administrative expenses remained relatively flat at 7.8% for the first quarter
of fiscal 1997 compared to 7.9% for the first quarter of fiscal 1996.
Income Taxes
The provision for income taxes as a percentage of income remained at 37.0%
in the first quarter of fiscal 1997 as in the first quarter fiscal 1996. These
percentages are less than the federal and state combined statutory rate of
approximately 40.0% primarily due to tax exempt interest income and the benefits
of EPIC's Foreign Sales Corporation (FSC).
LIQUIDITY AND CAPITAL RESOURCES
EPIC has financed its operations to date through private and public sales
of equity securities and with cash from operations. Private sales of equity
securities have yielded approximately $2.1 million. In addition, in October
1994, EPIC completed its initial public offering raising approximately $17.4
million of cash, net of expenses. Net cash provided by operating activities was
$13.3 million, $7.6 million and $4.4 million in fiscal 1996, 1995 and 1994,
respectively, and resulted primarily from net income, adjusted by non-cash
activities, and increases in accrued liabilities and income taxes payable.
Accrued liabilities increased by approximately $6.8 million as of September 30,
1996 from the previous fiscal year end primarily due to increases in accrued
compensation and accruals of various operating expenses as a result of increased
level of operations. Deferred revenue and customer deposits increased to $3.8
million at September 30, 1996 from $3.0 million at September 30, 1995 as a
result of an increase in the number of maintenance and service contracts, the
revenue from which is deferred and recognized ratably over the term of the
contract.
Cash used in investing activities resulted primarily from the net purchases
of short-term investments, additions to property and equipment and increases in
other assets. Purchases of short-term investments, net of proceeds from maturity
of short term investments, were $9.6 million and $15.4 million in fiscal 1996
and 1995, respectively, and additions to property and equipment, consisting
primarily of computer equipment, were $3.9 million, $1.8 million and $1.1
million in fiscal 1996, 1995 and 1994, respectively. As a result of the
acquisition of CIDA and Archer, which were accounted for as purchases, EPIC
recorded a total of $1.1 million and $1.0 million, respectively, in other assets
for technology and goodwill which are being amortized over the estimated useful
lives of the assets ranging from three to five years. EPIC expects to make
capital expenditures of approximately $8.0 million in fiscal 1997.
Net cash used by operating activities was $525,000 in the three months
ended December 31, 1996, which resulted from an increase in accounts receivable
and a decrease in accrued liabilities, offset by net income, adjusted by
non-cash activities, and an increase in deferred revenue and customer deposits.
The increase in accounts receivable was primarily due to extended payment terms
on certain volume purchase agreements with major domestic customers and the
large number of products shipped late in the quarter. Cash payments related to
the acquisition of CIDA was the primary cause for the decrease in accrued
liabilities. The increase in deferred revenue and customer deposits resulted
from continued increase in the number of maintenance and service contracts and a
large advance payment from a major domestic customer.
Cash provided by investing activities resulted primarily from the net
maturities of short-term investments, offset by additions to property and
equipment.
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<PAGE> 109
Although EPIC does not believe its products infringe the proprietary rights
of any third parties, there can be no assurance that infringement claims will
not be asserted against EPIC or its customers in the future. EPIC could incur
substantial costs and diversion of management resources with respect to the
defense of such claims and parties making such claims could secure substantial
damages, each of which could have a material adverse effect on EPIC's financial
condition and results of operations.
As of December 31, 1996, EPIC had working capital of $34.7 million
including cash, cash equivalents and short-term investments of $39.3 million. As
of December 31, 1996, EPIC had no bank indebtedness and no long term commitments
other than minimum operating lease obligations. EPIC believes that the existing
cash, cash equivalents and short-term investments along with funds generated
from operations will provide EPIC with sufficient funds to finance its
operations through at least the next 12 months. Thereafter, EPIC may require
additional funds to support its working capital requirements or for other
purposes and may seek to raise such additional funds through public or private
equity financing or from other sources. No assurance can be given that
additional financing will be available or that, if available, such financing
will be obtainable on terms favorable to EPIC or its shareholders.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Quarterly Operating Results May Fluctuate; Dependence on Semiconductor
Industry. EPIC's quarterly results have in the past and may in the future vary
significantly due to a number of factors, including the timing of customer
design and development projects; the timing of significant orders; the timing of
expenditures in anticipation of product releases or increased revenue; the
timing of new product announcements by EPIC and its competitors; competition and
pricing in the semiconductor industry; customer acceptance of new and enhanced
versions of EPIC's products; variations in the mix of products EPIC licenses;
and variations in product development or operating expenditures. Any unfavorable
changes in these or other factors could have a material adverse effect on EPIC's
business, financial condition and results of operations. EPIC's expense levels
are based, in part, on its expectations of future revenues. As a result, if
anticipated revenue in any quarter does not occur or is delayed, expenditure
levels could be disproportionately high as a percentage of revenues, and EPIC's
operating results for that quarter would be adversely affected.
EPIC is dependent upon the semiconductor industry and, in particular, new
IC design projects. The semiconductor industry is highly volatile due to rapid
technological change, short product life cycles, fluctuations in manufacturing
capacity, and pricing and gross margin pressures. The semiconductor industry
periodically has experienced significant downturns, often in connection with, or
in anticipation of, declines in general economic conditions during which the
number of new design projects often decreases. EPIC's business, financial
condition and results of operations may in the future reflect substantial
fluctuations from period-to-period as a consequence of semiconductor industry
patterns and general economic conditions.
The EDA Industry is Highly Competitive. The EDA industry is highly
competitive. In general, competition in the EDA industry comes from major EDA
vendors, each of which has a longer operating history, significantly greater
financial, technical and marketing resources, greater name recognition and
larger installed customer bases than EPIC. In addition, a variety of small
companies develop and introduce new products, and any of these companies could
become a significant competitor in the EDA industry in the future. EPIC also
competes with the internal design groups of its existing and potential
customers, many of whom design and develop customized simulation and analysis
tools for their particular needs and therefore may be reluctant to purchase
products offered by independent vendors. There can be no assurance that EPIC
will be able to compete successfully against current and future competitors or
that competitive pressures faced by EPIC will not materially adversely affect
its business, financial condition and results of operations. In particular,
increased competition could result in price reductions, reduced margins and loss
of its competitive position, all of which could materially adversely affect
EPIC. In addition, there can be no assurance that current competitors or other
entities will not develop similar products that have significant advantages over
EPIC's core technology which could have a material adverse affect on EPIC's
business, financial condition and results of operations.
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<PAGE> 110
EPIC's Industry is Subject to Rapid Technological Change. The EDA industry
is characterized by extremely rapid technological change, frequent new product
introductions, evolving industry standards and changing customer requirements.
EPIC's future success will depend upon its ability to enhance its current
products and to develop and introduce new products on a timely and a
cost-effective basis that keep pace with technological development and evolving
industry standards and methodologies, as well as address the increasingly
sophisticated needs of EPIC's customers. There can be no assurance that EPIC
will be successful in developing and marketing product enhancements or new
products that respond to technological change, evolving industry standards and
changing customer requirements, that EPIC will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
these products, or that its new products and product enhancements will
adequately meet the requirements of the marketplace and achieve customer
acceptance. Failure of EPIC, for technological or other reasons, to develop and
introduce new products and product enhancements in a timely and cost-efficient
manner, would have a material and adverse effect on EPIC's business, financial
conditions and results of operations.
Reliance Upon International Distributors. A substantial portion of EPIC's
international license and service revenue results from a limited number of
distributors. EPIC has no direct sales force, and relies on a single distributor
for licensing and support of its products, in each of Japan, Korea and the ASEAN
countries and in India. Accordingly, EPIC is dependent upon the continued
viability and financial stability of its distributors and in particular of
Marubeni. Since EPIC's products are used by highly skilled professional
engineers, effective distributors must possess sufficient technical, marketing
and sales resources and must devote these resources to a lengthy sale cycle,
customer training and product service and support. Only a limited number of
distributors possess these resources. In addition, EPIC's distributors generally
offer products of several different companies, including in some cases products
that are competitive with EPIC's products. There can be no assurance that EPIC's
current distributors will be able to continue to market or service and support
EPIC's products effectively, that economic conditions or industry demand will
not adversely affect these or other distributors, that any distributor that
licenses EPIC's products will choose to continue to license such products or
that these distributors will not devote greater resources to licensing products
of other companies. The loss of, or a significant reduction in revenue from, one
of EPIC's distributors could have a material adverse effect on EPIC's business,
financial conditions and results of operations.
Risks Associated with International Licensing. International license and
service revenue accounted for 39.7% and 39.0% of total revenue in fiscal 1996
and the first quarter of fiscal 1997, respectively. EPIC expects that
international license and service revenue will continue to account for a
significant portion of its revenues in the future. These revenues involve a
number of inherit risks, including the impact of recessionary environments in
economies outside the United States, generally longer receivable collection
periods, unexpected changes in regulatory requirements, reduced protection of
intellectual property rights in some countries, and tariffs and other trade
barriers. There can be no assurance that such factors will not have a material
adverse affect on EPIC's future international license and service revenue and,
consequently, on EPIC's business, financial conditions and results of
operations.
EPIC is Dependent Upon Proprietary Technology. Despite precautions by EPIC,
it may be possible for a third party to copy or otherwise obtain and use EPIC's
products or technology without authorization, or to develop similar technology
independently. In addition, effective intellectual property protection may be
unavailable or limited in certain foreign countries. In addition, although EPIC
does not believe its products infringe the proprietary rights of any third
parties, there can be no assurance that infringement claims will not be asserted
against EPIC or its customers in the future. EPIC could incur substantial costs
and diversion of management resources with respect to the defense of such claims
which could have a material adverse effect on EPIC's business, financial
condition and results of operations. Furthermore, parties making such claims
could secure substantial damages, as well as injunctive or other equitable
relief which could effectively block EPIC's ability to license its products in
the United States or abroad. Such a judgment could have a material adverse
affect upon EPIC's business, financial condition and results of operations.
Future Acquisitions. During each fiscal 1996 and 1995, EPIC completed
acquisitions of other companies. EPIC's management frequently evaluates the
strategic opportunities available to it and may in the near-term or long-term
pursue acquisitions of complimentary businesses, products or technologies.
Future
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<PAGE> 111
acquisitions by EPIC may result in the diversion of management's attention from
the day-to-day operation of EPIC's business and may include numerous other
risks, including difficulties in the integration of the operations, products and
personnel of the acquired companies. Future acquisitions by EPIC have the
potential to result in dilutive issuances of equity securities, the incurrence
of additional debt and amortization expenses related to goodwill and other
intangible assets.
MANAGEMENT
The directors and executive officers of EPIC and their ages as of January
31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Sang S. Wang, Ph.D................. 51 Chief Executive Officer and Chairman of the
Board of Directors
Bernard Aronson.................... 66 President and Director
Yen-Son Huang, Ph.D................ 51 Director
Joseph A. Prang.................... 40 Director
Gary A. Larsen..................... 63 Vice President, Worldwide Sales
Tammy S. Liu....................... 40 Chief Financial Officer and Secretary
</TABLE>
Dr. Wang, a co-founder of EPIC, has served as Chief Executive Officer since
August 1991 and as Chairman of the Board of Directors since September 1993. From
EPIC's inception in October 1986, he served as President until August 1991 and
as Chief Financial Officer until March 1993. Prior to founding EPIC, Dr. Wang
was a Manager of Computer Aided Design at AMD, a manufacturer of integrated
circuits, responsible for the development of AMD's internal bipolar circuit
simulation environment.
Mr. Aronson has served as President of EPIC since August 1991 and as a
Director since March 1992. From March 1990 to August 1991, Mr. Aronson served as
Executive Vice President of Zoran Corporation, a semiconductor company. From
1987 to January 1990, he served as President of ICI Array Technology, Inc., a
contract assembly company. From 1976 to 1987, Mr. Aronson served as President of
Pico Design, Inc., a semiconductor chip design company that he founded and which
became a wholly-owned subsidiary of Motorola in 1979.
Dr. Huang has served as a Director of EPIC since January 1992. He has
served as Executive Vice President, Product Development and a director of
Quickturn Design Systems, Inc., a manufacturer of system level verification
tools ("Quickturn"), since June 1993. From January 1990 to June 1993, he served
as President of PiE Design Systems, Inc. ("PiE"), a company which he co-founded.
From 1982 to January 1990, he served as Executive Vice President of Research and
Development at Cadence Design Systems, Inc., a developer of electronic design
automation software.
Mr. Prang has served as a Director of EPIC since April 1995. Since May
1994, Mr. Prang has been President and a Director of Aspect Development, Inc., a
developer of component information systems. From January 1992 to May 1994, he
served as President of the Systems Division of Cadence Design Systems, Inc. From
1988 to December 1991, he served as President of Marketing of Valid Logic
Systems, Incorporated, a developer of electronic design automation software.
Mr. Larsen has served as Vice President, Worldwide Sales since joining EPIC
in August 1994. From 1984 to April 1994, he served in a variety of managerial
positions at Cadence, most recently as Vice President of the ASIC Solution
Group.
Ms. Liu has served as Chief Financial Officer since joining EPIC in January
1994 and as Secretary since August 1994. From January 1990 to September 1993,
she served as Chief Financial Officer at PiE Design Systems, Inc., a
manufacturer of system level verification tools. From 1988 to December 1989, she
served as Corporate Controller of Plexus Computers, Inc., a manufacturer of
image processing computers. Prior to that time, she served in a variety of
financial management positions at Cadence and Finnigan Corporation, a
manufacturer of mass spectrometers.
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<PAGE> 112
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth total compensation for the fiscal years
ended September 30, 1996, 1995 and 1994 for the Chief Executive Officer and each
of the next four most highly compensated executive officers of EPIC (the "EPIC
Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) NUMBER OF
--------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
- ----------------------------- ------ -------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang, Ph.D. ......... 1996 $218,898 $20,900 $ -- 140,000(3) $ 3,600
Chief Executive Officer and 1995 182,748 50,700 -- 50,000 3,600
Chairman of the Board of 1994 156,594 -- -- -- 3,600
Directors
Bernard Aronson.............. 1996 217,800 20,800 -- 140,000(3) 3,600
President and Director 1995 181,500 50,250 -- 50,000 3,600
1994 155,188 -- -- -- --
Gary A. Larsen(4)............ 1996 268,056 6,961 -- 12,000 6,000
Vice President, Worldwide 1995 251,085 17,250 -- -- 6,000
Sales
1994 35,641 -- -- -- 750
Simon G. Napper(5)........... 1996 124,108 -- -- 29,000 5,000
Vice President, Marketing 1995 131,972 39,020 -- -- 6,000
1994 122,000 -- -- -- 6,000
John A. Yelinek.............. 1996 256,896 1,000 -- 40,000(6) 6,000
Vice President, North 1995 222,287 9,750 -- -- 6,000
American Sales 1994 153,599 35,500 -- -- 6,000
</TABLE>
- ---------------
(1) Other than salary and bonus described herein, EPIC did not pay the persons
named in the Summary Compensation Table any compensation, including
incidental personal benefits, in excess of 10% of such executive officer's
salary.
(2) Represents car allowance paid during fiscal 1994, 1995 and 1996 to each of
the EPIC Named Executive Officers.
(3) Includes options to purchase 70,000 shares of EPIC Common Stock granted in
March 1996 that were canceled upon the simultaneous grant of an option to
purchase a like number of shares in July 1996.
(4) Mr. Larsen joined the Company in August 1994.
(5) Mr. Napper resigned in August 1996.
(6) Includes options to purchase 15,000 shares of EPIC Common Stock granted in
March 1996 that were canceled upon the simultaneous grant of an option to
purchase a like number of shares in July 1996.
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<PAGE> 113
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning each grant of options
to purchase EPIC's Common Stock made during the fiscal year ended September 30,
1996 to the EPIC Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS MINUS EXERCISE PRICE
-------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL EXERCISE RATES OF STOCK PRICE
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(1)
OPTIONS EMPLOYEES IN ($/SH) EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR (2)(3)(4) DATE 5% 10%
- ------------------------------ ---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang, Ph.D. .......... 70,000(5) 4.6% $ 33.00 03/14/2006 $ -- $ --
70,000 4.6% 19.50 07/18/2006 858,442 2,175,458
Bernard Aronson............... 70,000(5) 4.6% 33.00 03/14/2006 -- --
70,000 4.6% 19.50 07/18/2006 858,442 2,175,458
Gary A. Larsen................ 12,000 * 22.50 09/18/2006 169,802 430,310
Simon G. Napper............... 14,000 * 22.75 10/15/2005 200,303 507,607
15,000 * 33.00 03/14/2006 311,303 788,902
John A. Yelinek............... 10,000 * 22.75 10/15/2005 143,074 362,576
15,000(5) * 33.00 03/14/2006 -- --
15,000 * 19.50 07/18/2006 183,952 466,170
</TABLE>
- ---------------
* Less than 1%.
(1) Potential realizable value is based on the assumption that the EPIC Common
Stock appreciates at the annual rate shown (compounded annually) from the
date of grant until the expiration of the 10 year option term. These numbers
are calculated based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect EPIC's estimate of future stock price
growth.
(2) All options shown granted in fiscal 1996 become exercisable as to 1/12th of
15% of the shares subject to the option exercisable per month during the
first year, 1/12th of 20% of the shares subject to the option exercisable
per month during the second year, 1/12th of 30% of shares subject to the
option exercisable per month during the third year and 1/12th of 35% of the
shares subject to the option exercisable per month during the fourth year.
Under the EPIC 1990 Stock Option Plan, the EPIC Board retains the discretion
to modify the terms, including the price, of outstanding options.
(3) Options were granted at an exercise price equal to the fair market value of
the EPIC's Common Stock, as determined by reference to the closing sale
price of EPIC's Common Stock on the Nasdaq National Market on the day
immediately preceding the date of grant.
(4) Exercise price may be paid in cash, promissory note, by delivery of
already-owned shares subject to certain conditions, or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to EPIC, out of the sale proceeds, an amount equal to the exercise price
plus all applicable withholding taxes.
(5) This option was canceled upon the simultaneous grant of an option to
purchase a like number of shares in July 1996.
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<PAGE> 114
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding the exercise
of stock options by the EPIC Named Executive Officers in the fiscal year ended
September 30, 1996 and the value of stock options held as of September 30, 1996
by such individuals.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE SEPTEMBER 30, 1996(#) SEPTEMBER 30, 1996($)(1)
ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ------------ ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang, Ph.D. ...... -- $ -- 96,749 109,363 $ 2,222,336 $ 918,714
Bernard Aronson........... 229,471 4,501,332 48,137 110,058 1,016,307 936,016
Gary A. Larsen............ 35,414 973,465 18,738 57,848 384,129 969,884
Simon G. Napper........... 66,672 1,597,019 2,324 -- 3,544 --
John A. Yelinek........... -- -- 69,249 23,251 1,681,513 99,849
</TABLE>
- ---------------
(1) Fair market value of EPIC Common Stock as of the date of exercise or
September 30, 1996, as the case may be, minus the exercise price.
TEN YEAR OPTION REPRICINGS
The following table identifies stock options to purchase shares of EPIC's
Common Stock held by the EPIC Named Executive Officers which were granted at a
lower exercise price during the last fiscal year in exchange for options
previously granted to the EPIC Named Executive Officers.
On July 18, 1996, all employees of EPIC, including the Chief Executive
Officer and EPIC Named Executive Officers, were given the opportunity to
exchange existing, higher priced options granted under the 1990 Plan, for new
options with an exercise price of $19.50 per share, which price was equal to the
closing price of EPIC's Common Stock on that date. Vesting was restarted as of
the date of the repricing.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT NEW REMAINING AT
OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME DATE REPRICED (#) REPRICING($) REPRICING($) PRICE($) REPRICING
- ---------------------------- -------- ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sang S. Wang................ 03/14/96 70,000 $19.50 $33.00 $19.50 116 months
Bernard Aronson............. 03/14/96 70,000 19.50 33.00 19.50 116 months
Gary A. Larson.............. -- -- -- -- -- --
Simon G. Napper............. -- -- -- -- -- --
John A. Yelinek............. 03/14/96 15,000 19.50 33.00 19.50 116 months
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
See "The Merger -- Interests of Certain Persons in the
Merger -- Acceleration of Vesting of Certain EPIC Options" for a discussion of
certain change in control arrangements. EPIC currently has no other employment
contracts with any of the EPIC Named Executive Officers, and EPIC has no
compensatory plan or arrangement with such EPIC Named Executive Officers where
the amounts to be paid exceed $100,000 and which are activated upon resignation,
termination or retirement of any such executive officer upon a change in control
of EPIC.
COMPENSATION OF DIRECTORS
EPIC's non-employee directors receive $2,000 for each meeting of the EPIC
Board attended in person. EPIC's 1994 Director Option Plan provides for the
non-discretionary automatic grant of options to each non-employee director of
EPIC who does not represent shareholders holding more than 1% of the EPIC's
outstanding EPIC Common Stock ("EPIC Outside Director"). Each new EPIC Outside
Director is
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<PAGE> 115
automatically granted an option to purchase 20,000 shares upon the date on which
such person first becomes a director which vests at a rate of 25% on the first
anniversary of the date of grant and at a rate of 1/48th of the shares per month
thereafter. Subsequently, each EPIC Outside Director is granted an additional
option to purchase 6,666 shares of EPIC Common Stock at the next meeting of the
EPIC Board following the Annual Meeting of Shareholders if, on such date, he or
she has served as a director for at least six months, which vests at a rate of
1/12th of the shares per month from the date of grant. The exercise price of
options granted to EPIC Outside Directors must be 100% of the fair market value
of EPIC's Common Stock on the date of grant. On February 15, 1996, Henri A.
Jarrat was granted an option to purchase 20,000 shares of EPIC's Common Stock at
an exercise price of $36.00 per share. On March 14, 1996, Messrs. Yen-Son Huang
and Joseph A. Prang were each granted an option to purchase 6,666 shares of
EPIC's Common Stock at an exercise price of $33.00 per share.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of EPIC Common Stock as of January 31, 1997 as to (i) each person who
is known by EPIC to own beneficially more than 5% of the outstanding shares of
EPIC Common Stock, (ii) each director and nominee for director of EPIC, (iii)
each of the persons named in the Summary Compensation Table above and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
COMMON
STOCK APPROXIMATE
FIVE PERCENT SHAREHOLDERS, DIRECTORS BENEFICIALLY PERCENTAGE
AND CERTAIN EXECUTIVE OFFICERS OWNED OWNED(1)
- --------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Warburg, Pincus Counsellors, Inc(2).................................. 1,842,956 13.4%
466 Lexington Avenue, 10th Floor
New York, NY 10017
T. Rowe Price Associates, Inc.(3).................................... 1,255,300 9.1%
100 East Pratt Street
Baltimore, MD 21202
FMR Corp.(4)......................................................... 844,700 6.1%
82 Devonshire Street
Boston, MA 02109
Sang S. Wang(5)...................................................... 618,654 4.5%
Bernard Aronson(6)................................................... 126,820 *
Yen-Son Huang, Ph.D.(7).............................................. 127,785 *
Joseph A. Prang(8)................................................... 16,249 *
Glen M. Antle........................................................ -- --
Gary A. Larsen(9).................................................... 57,674 *
John A. Yelinek(10).................................................. 126,501 *
Henri A. Jarrat(11).................................................. 10,000 *
Simon G. Napper...................................................... 2,774 *
All current directors and executive officers as a group (7
persons)(12)....................................................... 1,070,620 7.6%
</TABLE>
- ---------------
* Less than 1%
(1) Applicable percentage of ownership is based on 13,795,179 shares of EPIC
Common Stock outstanding as of January 31, 1997 together with applicable
options for such shareholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to shares. Shares of EPIC
Common Stock subject to options currently exercisable or exercisable within
60 days after January 31, 1997 are deemed outstanding for computing the
percentage ownership of the person holding such options, but are not deemed
outstanding for computing the percentage of any other person.
(2) Reflects ownership as reported on Schedule 13G dated January 9, 1997 filed
with the Securities and Exchange Commission by Warburg Pincus Counsellors,
Inc. ("Warburg"). Such Schedule 13G
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<PAGE> 116
indicates that Warburg has sole dispositive power with respect to 1,839,956
of such shares, sole voting power with respect to 925,600 of such shares
and shared voting power with respect to 597,484 of such shares.
(3) Reflects ownership as reported on Schedule 13G dated July 8, 1996 filed
with the Securities and Exchange Commission by T. Rowe Price Associates,
Inc. ("Price"). Such Schedule 13G indicates that these securities are owned
by various individual and institutional investors which Price serves as
investment adviser with power to direct investments and/or sole power to
vote the securities. Such Schedule 13G indicates that for purposes of the
reporting requirements of the Securities Exchange Act of 1934, Price is
deemed to be a beneficial owner of such securities; however, Price
expressly disclaims that it is, in fact, the beneficial owner of such
securities.
(4) Reflects ownership as reported on Schedule 13G/A dated February 15, 1996
filed with the Securities and Exchange Commission by FMR Corp. ("FMR").
Represents shares beneficially owned by (i) FMR Corp. through its
wholly-owned subsidiaries Fidelity Management & Research Company, a
registered investment Advisor ("Fidelity"), and Fidelity Management Trust
Company, a "bank" under the Securities Exchange Act of 1934 ("FMTC"); (ii)
certain investment companies (including the Fidelity American Special
Situations Trust ("FASST") for which Fidelity serves as an investment sub-
advisor) for which Fidelity serves as an investment advisor (the "Funds");
(iii) certain institutional accounts for which FMTC serves as investment
manager (the "Institutional Accounts"); (iv) Fidelity International Limited
("FIL"), a Bermudian joint stock company that was formerly a wholly owned
subsidiary of Fidelity and whose shares were distributed to the FMR
shareholders on June 30, 1980 and certain investment companies, including
FASST, for which FIL serves as an investment advisor; and (v) Edward C.
Johnson 3d, as Chairman of FMR Corp. and through certain members of his
family by virtue of their controlling interest as a group of the voting
stock of FMR Corp. and of FIL. Fidelity is the beneficial owner of 382,900
shares of EPIC Common Stock. Mr. Johnson and FMR Corp., through control of
Fidelity and the Funds, each has sole dispositive power over 356,100 shares
of EPIC Common Stock. Neither FMR nor Mr. Johnson has the sole power to
vote or direct the voting of the shares owned by the Funds, which power
resides with the Funds trustees. Fidelity carries out the voting of these
shares under written guidelines established by the Funds' Boards of
Trustees. FMTC is the beneficial owner of 461,800 shares of EPIC Common
Stock. Mr. Johnson and FMR Corp., through control of FMTC, each has sole
dispositive power over 461,800 shares of EPIC Common Stock and sole power
to vote or to direct the voting of 455,500 shares of EPIC Common Stock.
FASST is the beneficial owner and has sole dispositive and voting power
over 26,800 shares of EPIC Common Stock. FIL, FMR through Fidelity, and
FASST each has sole power to vote and to dispose of the 26,800 shares held
by FASST.
(5) Includes 110,142 shares of EPIC Common Stock which may be acquired upon
exercise of Stock Options which are presently exercisable or will become
exercisable within 60 days of January 31, 1997, and 73,334 shares held by
Sang S. Wang, Janet Wang and Virginia Chen as co-trustees of the Wang
family Trust dated May 27, 1994 over which Dr. Wang exercises voting and
investment powers.
(6) Includes 62,225 shares of EPIC Common Stock which may be acquired upon
exercise of Stock Options which are presently exercisable or will become
exercisable within 60 days of January 31, 1997, and 64,595 shares held by
Bernard and Mindel Aronson, Trustees of the Aronson Family Trust over which
Mr. Aronson exercises voting and investment powers.
(7) Includes 93,952 shares of EPIC Common Stock held by Yen-Son Huang, Trustee
of the Yen-Son Huang and Daisy Ku Huang Revocable Trust and 6,666 shares of
EPIC Common Stock which may be acquired upon exercise of Stock Options
which are presently exercisable or will become exercisable within 60 days
of January 31, 1997.
(8) Includes 8,749 shares of EPIC Common Stock which may be acquired upon
exercise of Stock Options which are presently exercisable or will become
exercisable within 60 days of January 31, 1997.
(9) Includes 22,222 shares of EPIC Common Stock held by Gary A. Larsen, Trustee
of the Gary A. Larsen Living Trust over which Mr. Larsen exercises voting
and investment power, and 9,973 shares of EPIC Common Stock which may be
acquired upon exercise of Stock Options which are presently exercisable or
will become exercisable within 60 days of January 31, 1997. No adjustment
has been made to reflect the acceleration of vesting of certain Stock
Options upon consummation of the Merger.
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<PAGE> 117
(10) Includes 71,410 shares of EPIC Common Stock which may be acquired upon
exercise of Stock Options which are presently exercisable or will become
exercisable within 60 days of January 31, 1997.
(11) Includes 10,000 shares of EPIC Common Stock which may be acquired upon
exercise of Stock Options which are presently exercisable or will become
exercisable within 60 days of January 31, 1997.
(12) Includes 235,163 shares of EPIC Common Stock which may be acquired upon
exercise of Stock Options which are presently exercisable or will become
exercisable within 60 days of January 31, 1997.
111
<PAGE> 118
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the Merger, using the pooling of interests
method of accounting. The unaudited pro forma combined condensed financial
statements reflect certain assumptions deemed probable by management regarding
the Merger (e.g., that share information used in the unaudited pro forma
information approximates actual share information at the effective date.) No
adjustments to the unaudited pro forma combined condensed financial statements
have been made to account for different possible results in connection with the
foregoing, as management believes that the impact on such information of varying
outcomes, individually or in the aggregate, would not be materially different.
The unaudited pro forma combined condensed balance sheet as of December 31,
1996 gives effect to the Merger as if it had occurred on December 31, 1996, and
combines the historical consolidated balance sheet of Synopsys and the
historical consolidated balance sheet of EPIC as of December 31, 1996.
The unaudited pro forma combined condensed statements of income combine the
historical consolidated statements of income and statements of operations of
Synopsys and EPIC, respectively, for each of the years in the three-year period
ended September 30, 1996 and the three months ended December 31, 1995 and 1996,
in each case as if the Merger had occurred at the beginning of the earliest
period presented.
Synopsys and EPIC estimate that they will incur direct transaction costs of
approximately $4.6 million associated with the Merger, which will be charged to
operations upon consummation of the Merger. In addition, it is expected that
following the Merger, the combined company will incur an additional significant
charge to operations, which is not currently reasonably estimable, to reflect
costs associated with integrating the two companies. There can be no assurance
that the combined company will not incur additional charges to reflect costs
associated with the Merger or that management will be successful in its efforts
to integrate the operations of the two companies.
Unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the Merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined condensed financial statements
are based upon the respective historical consolidated financial statements of
Synopsys and EPIC and notes thereto, included elsewhere in this Joint Proxy
Statement/Prospectus. These unaudited pro forma combined condensed financial
statements do not incorporate, nor do they assume, any benefits from cost
savings or synergies of operations of the combined company.
112
<PAGE> 119
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
SYNOPSYS EPIC ADJUSTMENTS COMBINED
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 33,499 $18,579 $ 52,078
Short-term investments....................... 198,041 20,742 218,783
-------- ------- -------- --------
Cash and short-term investments........... 231,540 39,321 270,861
Accounts receivable, net..................... 64,879 9,949 74,828
Prepaid expenses, deferred taxes and other... 23,918 2,788 26,706
-------- ------- -------- --------
Total current assets................. 320,337 52,058 372,395
Property and equipment, net.................... 55,938 4,801 60,739
Capitalized software development costs, net.... 1,125 -- 1,125
Long-term investments.......................... 38,305 -- 38,305
Other assets................................... 10,572 1,660 12,232
-------- ------- -------- --------
Total assets......................... $426,277 $58,519 $ -- $484,796
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..... $ 58,301 $10,068 $ 68,369
Current portion of long-term debt............ 10,962 -- 10,962
Accrued transaction costs.................... -- -- $ 4,6002(a) 4,600
Income taxes payable......................... 12,881 1,909 14,790
Deferred revenue............................. 64,147 5,357 69,504
-------- ------- -------- --------
Total current liabilities............ 146,291 17,334 4,600 168,225
Long-term debt................................. 14,122 -- 14,122
Deferred compensation.......................... 1,584 -- 1,584
Stockholders' equity:
Common stock................................. 408 45,746 (45,644)2(c) 510
Additional paid-in capital................... 172,165 -- 45,6442(c) 217,809
Retained earnings (accumulated deficit)...... 87,398 (4,498) (4,600)2(a) 78,300
Cumulative translation adjustment............ (353) -- (353)
Net unrealized gain on investments........... 12,401 24 12,425
Treasury stock, at cost...................... (7,739) -- (7,739)
Deferred stock compensation.................. -- (87) (87)
-------- ------- -------- --------
Total stockholders' equity........... 264,280 41,185 (4,600) 300,865
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................. $426,277 $58,519 $ -- $484,796
======== ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
113
<PAGE> 120
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------- ---------------------
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Product........................... $146,169 $201,605 $267,231 $ 61,037 $ 77,400
Service........................... 64,370 88,898 130,188 27,402 39,310
-------- -------- -------- -------- --------
Total revenue............. 210,539 290,503 397,419 88,439 116,710
-------- -------- -------- -------- --------
Cost of revenue:
Product........................... 14,946 16,885 18,181 4,047 6,148
Service........................... 13,852 16,026 24,064 5,111 6,939
-------- -------- -------- -------- --------
Total cost of revenue..... 28,798 32,911 42,245 9,158 13,087
-------- -------- -------- -------- --------
Gross margin...................... 181,741 257,592 355,174 79,281 103,623
Operating expenses:
Research and development.......... 44,209 64,559 94,814 20,267 28,512
Sales and marketing............... 82,729 110,751 147,371 33,448 41,347
General and administrative........ 18,073 24,563 31,053 7,085 9,073
Merger-related costs.............. 7,400 -- -- -- --
In-process research and
development.................... 5,900 12,461 58,506 -- --
-------- -------- -------- -------- --------
Total operating
expenses................ 158,311 212,334 331,744 60,800 78,932
-------- -------- -------- -------- --------
Operating income.................... 23,430 45,258 23,430 18,481 24,691
Other income, net................... 2,136 5,730 8,103 2,132 4,054
-------- -------- -------- -------- --------
Income before income taxes.......... 25,566 50,988 31,533 20,613 28,745
Provision for income taxes.......... 10,123 19,698 17,511 7,096 9,669
-------- -------- -------- -------- --------
Net income.......................... $ 15,443 $ 31,290 $ 14,022 $ 13,517 $ 19,076
======== ======== ======== ======== ========
Earnings per share.................. $ 0.33 $ 0.62 $ 0.27 $ 0.26 $ 0.35
======== ======== ======== ======== ========
Shares used in per share
computations...................... 46,421 50,295 51,933 51,854 54,022
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE> 121
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma combined condensed financial statements reflect
the issuance of 10,267,388 shares of Synopsys Common Stock in exchange for the
aggregate of 13,717,285 shares of EPIC Common Stock (outstanding as of December
31, 1996) in connection with the Merger, based on the Exchange Ratio of 0.7485
set forth in the following table.
<TABLE>
<S> <C>
EPIC Common Stock outstanding as of December 31, 1996............ 13,717,285
Exchange Ratio................................................... 0.7485
----------
Number of shares of Synopsys Common Stock exchanged.............. 10,267,388
Number of shares of Synopsys Common Stock as of December 31,
1996........................................................... 40,779,853
----------
Number of shares of combined company Common Stock outstanding
after completion of the Merger................................. 51,047,241
==========
</TABLE>
Additionally at the Effective Time, all outstanding options to purchase
EPIC Common Stock will be exchanged for options to purchase Synopsys Common
Stock, based on the Exchange Ratio of 0.7485. As of December 31, 1996, 2,148,717
options to purchase EPIC Common Stock were outstanding.
The actual number of shares of Synopsys Common Stock and Synopsys Common
Stock options to be exchanged will be determined at the Effective Time based on
the number of shares of EPIC Common Stock and EPIC Common Stock options
outstanding on that date.
2. PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) Synopsys and EPIC estimated they will incur direct transaction costs of
approximately $4.6 million associated with the Merger consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. These nonrecurring transaction costs will be charged to
operations upon consummation of the Merger.
(b) It is expected that following the Merger, the combined company will
incur an additional significant charge to operations, which is not currently
reasonably estimable, to reflect costs associated with integrating the two
companies. This charge has not been reflected in the pro forma combined balance
sheet. There can be no assurance that the combined company will not incur
additional charges to reflect costs associated with the Merger or that
management will be successful in its efforts to integrate the operations of the
two companies.
(c) Reflects the reclassification of additional paid-in capital associated
with the Synopsys Common Stock issued in the combination.
3. PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
The direct transaction costs and additional significant charge discussed in
Notes 2a and 2b are not reflected in the pro forma combined condensed statements
of income because they are non-recurring.
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<PAGE> 122
The following is a summary of the historical results of operations of
Synopsys and EPIC and their pro forma combined amounts to reflect the Merger as
if it were effected for all periods presented below (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------- --------------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Product revenue:
Synopsys........................... $136,475 $180,873 $232,683 $53,749 $ 66,160
EPIC............................... 9,694 20,732 34,548 7,288 11,240
-------- -------- -------- -------- -------
146,169 201,605 267,231 61,037 77,400
======== ======== ======== ======== =======
Service revenue:
Synopsys........................... $ 62,725 $ 84,627 $120,817 $25,251 $ 36,340
EPIC............................... 1,645 4,271 9,371 2,151 2,970
-------- -------- -------- -------- -------
64,370 88,898 130,188 27,402 39,310
======== ======== ======== ======== =======
Cost of product revenue:
Synopsys........................... $ 14,374 $ 15,570 $ 16,510 $ 3,593 $ 5,811
EPIC............................... 572 1,315 1,671 454 337
-------- -------- -------- -------- -------
14,946 16,885 18,181 4,047 6,148
======== ======== ======== ======== =======
Cost of service revenue:
Synopsys........................... $ 13,398 $ 15,039 $ 22,383 $ 4,741 $ 6,391
EPIC............................... 454 987 1,681 370 548
-------- -------- -------- -------- -------
13,852 16,026 24,064 5,111 6,939
======== ======== ======== ======== =======
Research and development:
Synopsys........................... $ 41,301 $ 58,673 $ 84,248 $18,202 $ 24,882
EPIC............................... 2,908 5,886 10,566 2,065 3,630
-------- -------- -------- -------- -------
44,209 64,559 94,814 20,267 28,512
======== ======== ======== ======== =======
Sales and marketing:
Synopsys........................... $ 78,181 $101,980 $134,086 $30,323 $ 37,048
EPIC............................... 4,548 8,771 13,285 3,125 4,299
-------- -------- -------- -------- -------
82,729 110,751 147,371 33,448 41,347
======== ======== ======== ======== =======
General and administrative:
Synopsys........................... $ 17,046 $ 22,238 $ 27,673 $ 6,341 $ 7,968
EPIC............................... 1,027 2,325 3,380 744 1,105
-------- -------- -------- -------- -------
18,073 24,563 31,053 7,085 9,073
======== ======== ======== ======== =======
</TABLE>
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<PAGE> 123
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------- --------------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Merger-related costs:
Synopsys........................... $ 7,400 $ -- $ -- $ -- $ --
EPIC............................... -- -- -- -- --
-------- -------- -------- -------- -------
7,400 -- -- -- --
======== ======== ======== ======== =======
In-process research and development:
Synopsys........................... $ 5,900 $ 9,200 $ 39,700 $ -- $ --
EPIC............................... -- 3,261 18,806 -- --
-------- -------- -------- -------- -------
5,900 12,461 58,506 -- --
======== ======== ======== ======== =======
Other income:
Synopsys........................... $ 2,054 $ 4,908 $ 6,950 $ 1,850 $ 3,700
EPIC............................... 82 822 1,153 282 354
-------- -------- -------- -------- -------
2,136 5,730 8,103 2,132 4,054
======== ======== ======== ======== =======
Income tax provision:
Synopsys........................... $ 9,449 $ 17,408 $ 12,150 $ 6,000 $ 7,950
EPIC............................... 674 2,290 5,361 1,096 1,719
-------- -------- -------- -------- -------
10,123 19,698 17,511 7,096 9,669
======== ======== ======== ======== =======
Net income (loss):
Synopsys........................... $ 14,205 $ 30,300 $ 23,700 $11,650 $ 16,150
EPIC............................... 1,238 990 (9,678) 1,867 2,926
-------- -------- -------- -------- -------
15,443 31,290 14,022 13,517 19,076
======== ======== ======== ======== =======
</TABLE>
4. PRO FORMA EARNINGS (LOSS) PER SHARE
The following table reconciles the number of shares used in the pro forma
per share computations to the numbers set forth in Synopsys' and EPIC's
historical statements of income (in thousands except the Exchange Ratio and per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------- -----------------
1994 1995 1996 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Shares used in per share calculation:
Historical Synopsys........................... 39,038 40,416 41,553 41,632 42,993
------ ------ ------ ------ ------
Historical EPIC............................... 9,864 13,198 12,625 13,656 14,735
Options to purchase common stock (1).......... -- -- 1,243 -- --
------ ------ ------ ------ ------
9,864 13,198 13,868 13,656 14,735
Exchange Ratio................................ 0.7485 0.7485 0.7485 0.7485 0.7485
------ ------ ------ ------ ------
7,383 9,879 10,380 10,222 11,029
------ ------ ------ ------ ------
Pro forma combined............................ 46,421 50,295 51,933 51,854 54,022
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) To include common stock equivalents arising from options to purchase EPIC
Common Stock during periods where they were antidilutive on a historical
basis.
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<PAGE> 124
COMPARISON OF RIGHTS OF HOLDERS OF EPIC
COMMON STOCK AND HOLDERS OF SYNOPSYS COMMON STOCK
EPIC is incorporated under the laws of California, and Synopsys is
incorporated under the laws of Delaware. The following summarizes the chief
differences between (i) the Delaware General Corporation Law ("DGCL") and the
California General Corporation Law ("CGCL") and (ii) between the charter
documents of EPIC and Synopsys, that could materially affect the rights of
shareholders of EPIC after consummation of the Merger. After consummation of the
Merger, former shareholders of EPIC, whose rights as shareholders of a
California corporation were governed by the CGCL, will become stockholders of
Synopsys, and their rights as stockholders of a Delaware corporation will be
governed by the DGCL.
Annual Meeting. Both the EPIC Bylaws and the Synopsys Bylaws require that
an annual shareholder meeting be held each year at a time designated by the
respective Boards of Directors.
Number of Directors. Under the CGCL, as long as a California corporation
has more than three (3) or more shareholders of record, the number of directors
of the corporation cannot be reduced below three (3). Subject to this
three-director minimum, a bylaw or amendment of the articles of incorporation
specifying or changing a fixed number of directors or the maximum or minimum
number of directors or changing from a fixed to a variable board or vice versa
may only be adopted by the approval of a majority of the outstanding shares;
provided, however, that a bylaw or amendment of the articles of incorporation
reducing the fixed number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting or the shares not
consenting in the case of action by written consent are equal to more than
sixteen and two-thirds percent (16 2/3%) of the outstanding shares entitled to
vote. Under the DGCL, by contrast, a Delaware corporation may have a board of
directors consisting of one or more members, and the exact number of directors,
which is not subject under the DGCL to any limits analogous to the CGCL, is set
in the corporation's certificate of incorporation or bylaws. The Synopsys Bylaws
provide that (i) the authorized number of Synopsys directors shall be not less
than five (5) nor more than eight (8) (the "Synopsys Range") and (ii) the exact
number of directors within the Synopsys Range shall be determined by the
Synopsys Board. The EPIC Bylaws, by comparison, provide that (i) the authorized
number of EPIC directors shall not be less than five (5) nor more than nine (9)
(the "EPIC Range"), (ii) the exact number of EPIC directors shall be five (5),
until changed within the EPIC Range, by an amendment of the Bylaws, adopted by
the EPIC shareholders or by the EPIC Board, and (iii) that the EPIC Range may be
changed, or a definite number of authorized EPIC directors may be substituted
for the EPIC Range, by an amendment of the EPIC Articles of Incorporation or the
EPIC Bylaws, subject to the provisions of the CGCL described in the proviso of
the second sentence of this paragraph and provided that an amendment reducing
the fixed number or the minimum number of directors to a number less than five
(5) cannot be adopted if the votes cast against its adoption at a meeting, or
the shares not consenting in the case of an action by written consent, are equal
to more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares
entitled to vote thereon.
Cumulative Voting for Directors. Under the DGCL, stockholders of a
Delaware corporation do not have the right to cumulate their votes in elections
of directors unless such corporation's certificate of incorporation expressly
provides for cumulative voting. Under California law, by contrast, shareholders
of a California corporation have the right to cumulate their votes in elections
of directors unless such corporation's articles of incorporation expressly
eliminates the right to cumulative voting. The Synopsys Certificate of
Incorporation does not provide for cumulative voting. Accordingly, Synopsys
stockholders do not have the right to cumulate their votes in elections of
directors. The EPIC Articles of Incorporation do not eliminate cumulative
voting. Accordingly, EPIC shareholders have the right to cumulate their votes in
elections of directors, subject to giving notice of the intent to cumulate votes
prior to the voting as required by EPIC's Bylaws.
Board of Directors Meetings. Under the CGCL, meetings of the board of
directors of a California corporation, unless otherwise provided in such
corporation's articles of incorporation or bylaws, may be called by the chairman
of the board, the president, any vice president, the secretary or any two (2)
directors. The DGCL imposes no requirements as to calling board of directors
meetings, and so such requirements are as set forth in a Delaware corporation's
certificate of incorporation or bylaws. The EPIC Bylaws (i) provide for the
organizational meetings of the board of directors to be held immediately after
the annual meeting of
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<PAGE> 125
shareholders, (ii) do not impose any frequency requirements as to regular
meetings of the EPIC Board, and (iii) do not contain, nor do the EPIC Articles
of Incorporation contain, any provision inconsistent with the provisions of the
CGCL described in the first sentence of this paragraph. Similarly, the Synopsys
Bylaws (i) do not provide for any organizational meetings of the Synopsys Board,
(ii) do not impose any frequency requirements as to regular meetings of the
Synopsys Board, and (iii) provide that special meetings of the Synopsys Board
may be called by the chairman, the president, the secretary, any two (2)
directors or, if applicable, the sole director.
Director Voting. Under the CGCL, a quorum of a California corporation's
board of directors is equal to a majority of the authorized number of such
corporation's directors unless such corporation's articles of incorporation or
bylaws provide for a lesser number, provided, however, that such less number
cannot be less than the larger of (i) one-third ( 1/3) of the authorized number
of directors or (ii) two (2). A California corporation's articles of
incorporation may require more than a majority of the authorized number of
directors (up to and including all of the directors) for a quorum. Under the
DGCL, a quorum of a Delaware corporation's board of directors is equal to a
majority of the total number of directors unless such corporation's certificate
of incorporation provides for a lesser number, which in no case can be less than
one-third ( 1/3) of the total number of directors (unless the total number of
directors is one (1), in which case one (1) director shall constitute a quorum).
A Delaware corporation's certificate of incorporation or bylaws may impose a
quorum requirement equal to more than the majority of the total number of
directors (up to and including all of the directors). The respective boards of
directors of either a California corporation under the CGCL, or a Delaware
corporation under the DGCL, may act by unanimous written consent without a
meeting. The EPIC Articles of Incorporation are silent with respect to what
constitutes a quorum of the EPIC Board. The EPIC Bylaws expressly state that a
majority of the authorized number of EPIC directors shall constitute a quorum
and that the action of a majority of EPIC directors present at any meeting at
which there is a quorum, when duly assembled, is valid as a corporate act.
Similarly, the Synopsys Certificate of Incorporation is silent with respect to
what constitutes a quorum of the Synopsys Board, and the Synopsys Bylaws provide
that the action or decision of a majority of Synopsys directors present at a
duly held meeting at which a quorum is present shall be regarded as a valid act
of the Synopsys Board.
Removal of Directors. Under CGCL, a director of a California corporation
may be removed without cause by a majority of the outstanding shares; provided,
however, that no such director may be removed (unless the entire board is
removed) when the votes cast against removal, or not consenting in writing to
the removal, would be sufficient to elect the director if voted cumulatively at
an election at which the same total number of votes were cast (or, if the action
is taken by written consent, all shares entitled to vote were voted) and the
entire number of directors authorized at the time of the director's most recent
election were then being elected. Under the DGCL, unless a Delaware
corporation's certificate of incorporation provides otherwise, a director may be
removed with or without cause by a majority of the outstanding shares then
entitled to vote at an election of directors. Neither the EPIC Articles of
Incorporation or Bylaws nor the Synopsys Certificate of Incorporation or Bylaws
contain any provision inconsistent with the CGCL or the DGCL provisions,
respectively, set forth in the first two sentences of this paragraph.
Power of Directors. The respective Bylaws of EPIC and Synopsys expressly
provide that the business and affairs of each of the respective companies will
be managed and all corporate powers will be exercised by or under the direction
of the companies' respective boards of directors. Neither the EPIC Articles of
Incorporation nor the Synopsys Certificate of Incorporation provides for any
limits on such delegation except as provided under the CGCL and the DGCL
respectively.
Elimination of Stockholders Ability to Act by Written Consent Without A
Meeting. The DGCL, unlike the CGCL, allows a corporation to eliminate its
stockholders' ability to act by written consent without a meeting by so
providing in its certificate of incorporation, and the Synopsys Certificate of
Incorporation eliminates its stockholders' ability to act by written consent
without a meeting.
Record Date. Under the CGCL, a California corporation may provide in its
bylaws procedures for establishing a record date to determine which shareholders
are entitled to notice of a meeting or to vote thereat or entitled to give
consent to corporate action without a meeting; provided, however, that such
record
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<PAGE> 126
date shall not be more than 60 nor less than 10 days prior to the date of such
meeting nor more than 60 days prior to such action without a meeting. The DGCL
contains a similar provision. Neither the EPIC Bylaws nor the Synopsys Bylaws
contain any provision regarding the establishment of a record date which is
inconsistent with the CGCL or DGCL, respectively.
Advance Notice to Shareholder Proposals. The CGCL does not specify whether
a shareholder of a California corporation needs to provide such corporation's
board of directors with advance notice of a shareholder proposal at an annual
meeting of shareholders. The DGCL, by contrast, allows a Delaware corporation to
provide in its bylaws that a stockholder must provide notice of a stockholder
proposal to such corporation's board of directors up to one hundred twenty (120)
days in advance of the anniversary of the date that the previous year's proxy
statement was sent to such corporation's stockholders. Neither the EPIC Bylaws
nor the Synopsys Bylaws imposes any advance notice requirements of shareholder
proposals at such corporations' respective annual meetings of shareholders.
Special Meetings of Shareholders. Unlike the CGCL, the DGCL allows a
corporation to eliminate in its certificate of incorporation or bylaws the
ability of its stockholders to call a special meeting. The effect of such a
prohibition would be to limit the stockholders' ability to act at other than an
annual meeting. Neither the Synopsys Certificate of Incorporation nor the
Synopsys Bylaws contain such a prohibition. The EPIC Bylaws require that any
person entitled to call a special meeting of shareholders upon proper written
request and who receives such request, provide notice to the shareholders
entitled to vote not less than 35 nor more than 60 days after receipt of such
request and not less than 10 nor more than 60 days before such meeting. The
Synopsys Bylaws require that notice of special meetings of stockholders be
provided to all stockholders entitled to vote not less than 10 nor more than 60
days before such meeting.
Amendment of Charter Documents. Under the CGCL approval of shareholders
holding at least a majority of the voting shares of EPIC is required to amend
the EPIC Articles of Incorporation. Similarly, under the DGCL, a majority of the
stockholders of Synopsys can amend any or all of the provisions of the Synopsys
Certificate of Incorporation.
Amendment of Bylaws. The EPIC Bylaws may be amended by holders of a
majority of voting shares entitled to vote or by a majority of the directors
except that a majority of directors may not change the EPIC Range. Similarly,
the Synopsys Bylaws may be amended by holders of a majority of voting shares
entitled to vote or by a majority of the directors.
Director Liability and Indemnification. The DGCL is generally more
favorable to directors than the CGCL. The significant differences in directors'
protection between the CGCL and the DGCL law today deal with limitation of
liability and indemnification.
The CGCL and the DGCL both permit a corporation to adopt provisions
eliminating personal monetary liability of directors, and both impose certain
restrictions on the corporation's right to eliminate such liability. The CGCL
prohibits elimination of liability for a broader class of acts than does the
DGCL, including: reckless disregard of duty in the face of a serious risk of
injury to the corporation or its shareholders and acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's liability to the corporation. Elimination of liability for such
acts would be permitted under the DGCL, unless a court concluded that such
exculpation was void as contrary to public policy. As a result, directors of a
California corporation have a greater likelihood of a possible shareholder
challenge to the elimination of their monetary liability.
Both the CGCL and the DGCL now allow corporations to authorize in their
charter documents and bylaws broader indemnification of officers and directors
than is provided to such persons by statute. Both states also allow corporations
to expand indemnification of their directors and officers through written
agreements. However, a California corporation may not indemnify as to the
following matters for which the DGCL permits indemnification, at least in some
circumstances: (i) matters as to which a person is adjudged liable to the
corporation in the performance of his or her duties (unless the court expressly
authorizes indemnity); (ii) amounts paid in settlements of pending derivative
actions if the court has not approved the settlement; (iii) expenses incurred in
defending a pending derivative action if the court has not approved the
settlement;
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<PAGE> 127
(iv) matters for which indemnification is inconsistent with provisions in the
corporation's articles of incorporation or bylaws, agreement, resolution of the
shareholders, or condition expressly imposed by a court in approving a
settlement; and (v) any acts for which elimination of liability is prohibited,
including those described above.
Further, the standard of care required to be met prior to allowing director
indemnification under the CGCL is higher than under the DGCL, and the procedures
required to obtain such indemnification are more restrictive. Accordingly, a
director's right of indemnification is broader and more certain under the DGCL.
Restriction on Sales of Stock. Neither the Synopsys Certificate of
Incorporation and Bylaws nor the EPIC Articles of Incorporation and Bylaws
provide for any restrictions on the transfer of outstanding shares, other, than
those imposed by federal securities laws for shares offered under certain exempt
transactions.
DESCRIPTION OF SYNOPSYS CAPITAL STOCK
The authorized capital stock of Synopsys consists of 100,000,000 shares of
Common Stock, $.01 par value, and 2,000,000 shares of Preferred Stock, $.01 par
value.
COMMON STOCK
As of January 31, 1997, there were approximately 40,930,373 shares of
Synopsys Common Stock outstanding held of record by approximately 271
stockholders.
Subject to preferences that may be applicable to any outstanding Preferred
Stock (no shares of which are outstanding as of the date of this Joint Proxy
Statement/Prospectus), holders of Synopsys Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Synopsys has not paid any cash dividends on its
Common Stock and is prohibited by certain of its borrowing arrangements from
paying cash dividends without prior approval from the lender. Each holder of
Synopsys Common Stock is entitled to one vote for each share held of record by
him or her and may not cumulate votes for the election of directors. In the
event of a liquidation, dissolution or winding up of Synopsys, holders of
Synopsys Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
Preferred Stock (no shares of which are outstanding as of the date of this Joint
Proxy Statement/Prospectus). Holders of Synopsys Common Stock have no preemptive
rights and have no rights to convert their Common Stock into any other
securities and there are no redemption provisions with respect to such shares.
All of the outstanding shares of Synopsys Common Stock are fully paid and
non-assessable.
The transfer agent for Synopsys Common Stock is Boston EquiServe.
CERTAIN CHARTER PROVISIONS
The Synopsys Certificate of Incorporation and Bylaws contain certain
provisions that could have the effect of delaying, deferring or preventing a
change in control of Synopsys. See "Comparison of Rights of Holders of EPIC
Common Stock and Holders of Synopsys Common Stock."
PREFERRED STOCK
As of January 31, 1997, there were no shares of Synopsys Preferred Stock
outstanding. The Synopsys Preferred Stock may be issued from time to time in one
or more series. The Synopsys Board has authority to fix the designation,
preferences, and rights of each such series and the qualifications, limitations
and restrictions thereon and to increase or decrease the number of shares of
such series (but not below the number of shares of such series then
outstanding), without any further vote or action by the stockholders.
121
<PAGE> 128
LEGAL MATTERS
The validity of the shares of Synopsys Common Stock to be issued in
connection with the Merger will be passed upon for Synopsys by Gray Cary Ware &
Freidenrich, A Professional Corporation, Palo Alto, California. Certain legal
matters in connection with the Merger will be passed upon for EPIC by Wilson
Sonsini Goodrich, & Rosati, PC, Palo Alto, California.
EXPERTS
The Consolidated Financial Statements and Schedule of Synopsys, Inc. as of
September 30, 1995 and 1996, and for each of the years in the three-year period
ended September 30, 1996, have been included in the Registration Statement and
Joint Proxy Statement/Prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of EPIC as of September 30, 1995 and
1996 and for each of the three years in the period ended September 30, 1996
included elsewhere in this Joint Proxy Statement/Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Synopsys. Proposals of stockholders of Synopsys that are intended to be
presented by such stockholders at Synopsys' 1998 Annual Meeting of Stockholders
must be received by Synopsys no later than September 16, 1997 in order that they
may be included in the proxy statement and proxy relating to that meeting.
EPIC. If the Merger is not consummated, EPIC will continue as an
independent entity. In such case, proposals of shareholders of EPIC Common Stock
that are intended to be presented by such shareholders at the EPIC 1998 Annual
Meeting of Shareholders must be received by EPIC no later than September 12,
1997 in order that they may be considered for inclusion in the proxy statements
and form of proxy related to that meeting.
122
<PAGE> 129
INDEX TO SYNOPSYS, INC. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors..................................................... F-2
Consolidated Statements of Income for the years ended September 30, 1994, 1995,
1996............................................................................ F-3
Consolidated Balance Sheets at September 30, 1995 and 1996......................... F-4
Consolidated Statements of Stockholders' Equity for the years ended September 30,
1994, 1995 and 1996............................................................. F-5
Consolidated Statements of Cash Flows for the years ended September 30, 1994, 1995
and 1996........................................................................ F-6
Notes to Consolidated Financial Statements......................................... F-7
Condensed Consolidated Statements of Income for the three months ended December 31,
1995 and 1996 (unaudited)....................................................... F-17
Condensed Consolidated Balance Sheets at September 30, 1996 and December 31, 1996
(unaudited)..................................................................... F-18
Condensed Consolidated Statements of Cash Flows for the three months ended December
31, 1995 and 1996 (unaudited)................................................... F-19
Notes to Condensed Consolidated Financial Statements (unaudited)................... F-20
</TABLE>
F-1
<PAGE> 130
REPORT OF INDEPENDENT AUDITORS
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, 1995 and 1996, 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, 1996. 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 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, based on our audits, 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, 1995 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Palo Alto, California
October 18, 1996
F-2
<PAGE> 131
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product.................................................. $136,475 $180,873 $232,683
Service.................................................. 62,725 84,627 120,817
-------- -------- --------
Total revenue.................................... 199,200 265,500 353,500
-------- -------- --------
Cost of revenue:
Product.................................................. 14,374 15,570 16,510
Service.................................................. 13,398 15,039 22,383
-------- -------- --------
Total cost of revenue............................ 27,772 30,609 38,893
-------- -------- --------
Gross margin............................................... 171,428 234,891 314,607
Operating expenses:
Research and development................................. 41,301 58,673 84,248
Sales and marketing...................................... 78,181 101,980 134,086
General and administrative............................... 17,046 22,238 27,673
Merger-related costs..................................... 7,400 -- --
In-process research and development...................... 5,900 9,200 39,700
-------- -------- --------
Total operating expenses......................... 149,828 192,091 285,707
-------- -------- --------
Operating income........................................... 21,600 42,800 28,900
-------- -------- --------
Other income (expense):
Interest income.......................................... 3,035 6,282 8,509
Interest and other expense............................... (981) (1,374) (1,559)
-------- -------- --------
Total other income............................... 2,054 4,908 6,950
-------- -------- --------
Income before income taxes................................. 23,654 47,708 35,850
Income tax provision....................................... 9,449 17,408 12,150
-------- -------- --------
Net income................................................. $ 14,205 $ 30,300 $ 23,700
======== ======== ========
Earnings per share......................................... $ .36 $ .75 $ .57
======== ======== ========
Weighted average common shares and equivalents where
dilutive................................................. 39,038 40,416 41,553
</TABLE>
See accompanying notes.
F-3
<PAGE> 132
SYNOPSYS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 91,193 $ 33,904
Short-term investments............................................... 118,791 202,663
-------- --------
Cash and short-term investments................................... 209,984 236,567
Accounts receivable, net of allowances of $2,813 and $3,661,
respectively...................................................... 42,863 61,085
Prepaid expenses, deferred taxes and other........................... 9,681 19,975
-------- --------
Total current assets......................................... 262,528 317,627
-------- --------
Property and equipment, net............................................ 28,720 51,537
Capitalized software development costs, net of accumulated amortization
of $1,680 and $2,805, respectively................................... 1,271 1,146
Long-term investment................................................... -- 30,495
Other assets........................................................... 5,052 8,162
-------- --------
Total assets................................................. $297,571 $408,967
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 8,563 $ 11,509
Accrued liabilities.................................................. 40,181 59,072
Current portion of long-term debt.................................... 4,061 11,580
Income taxes payable................................................. 9,908 12,091
Deferred revenue..................................................... 52,556 65,998
-------- --------
Total current liabilities.................................... 115,269 160,250
-------- --------
Long-term debt......................................................... -- 15,970
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;
38,970,504 and 40,434,563 shares outstanding, respectively........ 390 404
Additional paid-in capital........................................... 124,322 152,187
Retained earnings.................................................... 57,838 72,257
Cumulative translation adjustment.................................... (248) (402)
Net unrealized gain on investment.................................... -- 8,301
-------- --------
Total stockholders' equity........................................ 182,302 232,747
-------- --------
Total liabilities and stockholders' equity................... $297,571 $408,967
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 133
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE UNREALIZED
------------------- PAID-IN RETAINED TRANSLATION GAIN ON TREASURY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT INVESTMENT STOCK TOTAL
---------- ------ -------- ------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993....... 33,667,696 $337 $ 77,001 $12,786 $(760) $ -- $ -- $ 89,364
Merger with Silicon Architects...... 1,095,995 11 602 547 -- -- -- 1,160
Issuance of Silicon Architects'
common stock prior to the
merger............................ 247,476 3 2,981 -- -- -- -- 2,984
Net exercise of warrants............ 39,398 -- 173 -- -- -- -- 173
Stock issued under stock option and
stock purchase plans.............. 2,019,334 20 8,974 -- -- -- -- 8,994
Tax benefit associated with exercise
of stock options.................. -- -- 6,700 -- -- -- -- 6,700
Translation adjustment.............. -- -- -- -- 148 -- -- 148
Net income.......................... -- -- -- 14,205 -- -- -- 14,205
---------- ---- -------- ------- ----- ------ -------- --------
Balance at September 30, 1994....... 37,069,899 371 96,431 27,538 (612) -- -- 123,728
Net exercise of warrants............ 7,432 -- 90 -- -- -- -- 90
Stock issued under stock option and
stock purchase plans.............. 1,893,173 19 19,701 -- -- -- -- 19,720
Tax benefit associated with exercise
of stock options.................. -- -- 8,100 -- -- -- -- 8,100
Translation adjustment.............. -- -- -- -- 364 -- -- 364
Net income.......................... -- -- -- 30,300 -- -- -- 30,300
---------- ---- -------- ------- ----- ------ -------- --------
Balance at September 30, 1995....... 38,970,504 390 124,322 57,838 (248) -- -- 182,302
Acquisition of treasury stock....... (361,494) -- -- -- -- -- (14,817) (14,817)
Stock issued under stock option and
stock purchase plans.............. 1,825,553 14 22,424 (9,281) -- -- 14,817 27,974
Tax benefit associated with exercise
of stock options.................. -- -- 5,441 -- -- -- -- 5,441
Translation adjustment.............. -- -- -- -- (154) -- -- (154)
Net unrealized gain on investment... -- -- -- -- -- 8,301 -- 8,301
Net income.......................... -- -- -- 23,700 -- -- -- 23,700
---------- ---- -------- ------- ----- ------ -------- --------
Balance at September 30, 1996....... 40,434,563 $404 $152,187 $72,257 $(402) $8,301 $ -- $232,747
========== ==== ======== ======= ===== ====== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 134
SYNOPSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 14,205 $ 30,300 $ 23,700
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 12,213 15,548 18,721
Interest accretion on notes payable............................ -- -- 470
Provision for doubtful accounts and sales returns.............. 443 913 848
Tax benefit associated with stock options...................... 6,700 8,100 5,441
Deferred revenue............................................... 16,635 10,731 13,442
Deferred taxes................................................. (900) (1,725) (11,944)
Merger-related costs........................................... 3,724 -- --
In-process research and development............................ 5,900 9,200 39,700
Net changes in operating assets and liabilities:
Accounts receivable.......................................... (13,343) (9,078) (19,070)
Prepaid expenses and other................................... (2,148) (105) (3,019)
Other assets................................................. (1,967) 793 (3,129)
Accounts payable............................................. (594) 927 2,946
Accrued liabilities.......................................... 12,290 4,156 17,993
Income taxes payable......................................... 624 6,960 2,183
-------- -------- ---------
Net cash provided by operating activities................. 53,782 76,720 88,282
-------- -------- ---------
Cash flows from investing activities:
Change in short-term investments.................................. (30,761) (29,519) (83,872)
Purchases of property and equipment............................... (13,444) (20,858) (39,221)
Purchase of technology and related costs.......................... -- -- (11,500)
Purchase of long-term investment.................................. -- -- (17,500)
Capitalization of software development costs...................... (1,539) (1,000) (1,000)
Purchase of businesses, net of cash acquired...................... (4,512) (6,265) --
-------- -------- ---------
Net cash used in investing activities..................... (50,256) (57,642) (153,093)
-------- -------- ---------
Cash flows from financing activities:
Principal payments under capital lease obligations................ (386) -- --
Principal payments under debt obligations......................... -- -- (5,481)
Proceeds from sale of common stock, net........................... 12,151 19,810 27,974
Purchases of treasury stock....................................... -- -- (14,817)
-------- -------- ---------
Net cash provided by financing activities................. 11,765 19,810 7,676
-------- -------- ---------
Effect of exchange rate changes on cash............................. 148 364 (154)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents................ 15,439 39,252 (57,289)
Cash and cash equivalents, beginning of year........................ 36,502 51,941 91,193
-------- -------- ---------
Cash and cash equivalents, end of year.............................. $ 51,941 $ 91,193 $ 33,904
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest....................................................... $ -- $ -- $ 685
Income taxes................................................... $ 1,218 $ 1,946 $ 16,400
Non-cash transactions:
Purchase of technology for notes............................... $ -- $ -- $ 28,500
</TABLE>
See accompanying notes.
F-6
<PAGE> 135
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year End -- Synopsys, Inc. (Synopsys or the Company), has a fiscal
year end that ends on the Saturday nearest September 30. Fiscal 1994, 1995, and
1996 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 net 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. License revenue is
recognized upon shipment of products and fulfillment of significant acceptance
terms, if any. When the Company receives advance payment for software products,
such payments are recorded as advances and recognized as revenue when products
are actually shipped. The Company has fulfilled certain orders by shipping the
product and providing a temporary access key for software usage. Revenue is
deferred until the Company provides a production key and collectability is
reasonably assured. Revenue from systems products is recognized upon shipment of
products and fulfillment of significant acceptance terms, if any. 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.
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
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Computer and other equipment................................... $ 46,801 $ 72,626
Furniture and fixtures......................................... 8,174 10,844
Leasehold improvements......................................... 4,518 9,025
-------- --------
59,493 92,495
Less accumulated depreciation and amortization................. (30,773) (40,958)
-------- --------
$ 28,720 $ 51,537
======== ========
</TABLE>
Software Development Costs -- Capitalization of computer software
development costs begins upon the establishment of technological feasibility.
Software development costs capitalized were approximately $1,539,000,
$1,000,000, and $1,000,000 in fiscal 1994, 1995, and 1996, respectively.
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 $1,229,000, $879,000, and $1,125,000 in fiscal 1994, 1995, and
1996, respectively.
F-7
<PAGE> 136
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Short-Term 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, 1996, the underlying maturities of the
short-term investments are as follows: $106,837,000 within one year, $2,080,000
within one to five years, $10,015,000 within five to ten years, and $83,731,000
after ten years.
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 consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------------------------------
ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Classified as current assets:
Tax-exempt commercial paper..................... $ 34,533 $ -- $ -- $ 34,533
Tax-exempt municipal obligations................ 65,889 -- -- 65,889
Money market preferred stock.................... 43,384 -- -- 43,384
Municipal auction rate preferred stock.......... 9,518 -- -- 9,518
-------- ------- ------- --------
Total securities........................ $153,324 $ -- $ -- $153,324
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------------
ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Classified as current assets:
Tax-exempt commercial paper..................... $ 6,000 $ -- $ -- $ 6,000
Tax-exempt municipal obligations................ 107,712 -- -- 107,712
Money market preferred stock.................... 77,005 -- -- 77,005
Municipal auction rate preferred stock.......... 17,946 -- -- 17,946
-------- ------- ------- --------
208,663 -- -- 208,663
Classified as non-current assets:
Equity securities............................... 17,500 12,995 -- 30,495
-------- ------- ------- --------
Total securities........................ $226,163 $12,995 $ -- $239,158
======== ======= ======= ========
</TABLE>
At September 30, 1995, $34,533,000 and $118,791,000 are classified as cash
equivalents and short-term investments, respectively. At September 30, 1996,
$6,000,000 and $202,663,000 are classified as cash equivalents and short-term
investments, respectively. The adjustment to unrealized holding gains on
available-
F-8
<PAGE> 137
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for-sale securities included as a separate component of stockholders' equity
totaled $8,301,000, net of tax, in 1996. See Note 2 of Notes to Consolidated
Financial Statements. Gains and losses on sales of securities have not been
material.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
equivalents, short and long-term 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. These
investments typically bear minimal risk. This diversification of risk is
consistent with the Company's policy to ensure safety of principal and maintain
liquidity.
The Company sells its products to a large number of customers in
diversified industries, primarily in the United States, Europe, and the Pacific
Rim. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Notes receivable of $2,740,000 have been
discounted with a financial institution, and the Company remains contingently
liable for these notes. 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 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
Payroll and related benefits..................................... $21,918 $33,330
Other accrued liabilities........................................ 18,263 25,742
------- -------
$40,181 $59,072
======= =======
</TABLE>
Income Taxes -- The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," which uses 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.
New Accounting Pronouncements -- The Financial Accounting Standards Board
recently adopted SFAS No. 123, "Accounting for Stock-Based Compensation." This
statement establishes financial accounting and reporting standards for
stock-based employee compensation plans, including employee stock purchase plans
and stock option plans. SFAS No. 123 is effective for fiscal years beginning
after December 15, 1995 and
F-9
<PAGE> 138
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provides an alternative to Accounting Principles Board's Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees." Management plans to continue to
account for its employee stock plans under APB No. 25 for purposes of
measurement of compensation expense. Accordingly, adoption of SFAS No. 123 will
not have a material effect on the Company's consolidated results of operations.
The Financial Accounting Standards Board recently adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" which is effective for fiscal years beginning after September 1,
1996. This statement requires long-lived assets to be evaluated for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. The adoption of SFAS No. 121 is not expected to
have a material impact on the Company's consolidated results of operations.
Reclassifications -- Certain amounts reported in previous years have been
reclassified to conform to the fiscal 1996 presentation.
NOTE 2. PURCHASE OF TECHNOLOGY AND STRATEGIC INVESTMENTS
On February 1, 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
Agreement). Pursuant to the 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, test methodology,
design planning, and static timing sign-off. The Company will have sole
ownership of synthesis products and the exclusive right to market test, design
planning, and static timing products (subject to certain rights of IBM upon
termination of the Agreement). In accordance with the 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 Agreement. As a result of the
transaction, the Company incurred an in-process research and development charge
of $39,700,000 in the second quarter of fiscal 1996. As of September 30, 1996,
the notes had a balance of $24,470,000, of which $15,970,000 is included in
long-term debt. The carrying amount of the debt, including the long-term
portion, approximates the fair value.
On May 7, 1996, the Company and Cooper and Chyan Technology, Inc. (CCT), a
developer of routing technology for printed circuit boards and integrated
circuits, entered into a strategic relationship. As part of this strategic
relationship, the Company purchased 1,206,542 shares, approximately 9.9 percent
of the outstanding shares of CCT, for $14.50 per share. In accordance with SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the
investment has been classified as "available for sale," and an unrealized gain
of $8,301,000, net of taxes, was recorded as a separate component of
stockholders' equity during fiscal year 1996. CCT and Cadence Design Systems,
Inc. recently announced that they had reached an agreement to merge. The Company
is evaluating the effect of such a merger on its relationship with CCT.
NOTE 3. MERGERS
Logic Modeling Corporation -- On February 16, 1994, the Company issued
approximately 5,200,000 shares of its common stock in exchange for all the
outstanding shares of capital stock, vested stock options, and warrants of Logic
Modeling Corporation (LMC), a developer of simulation models and modeling
F-10
<PAGE> 139
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
technologies for the verification of electronic designs. The merger was
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated for all periods.
In fiscal 1994, in connection with the LMC merger, the Company recorded
related costs of approximately $7,400,000, primarily for transaction costs and
elimination of duplicate facilities and equipment. These estimated costs were
reduced by $900,000 in fiscal 1995.
Silicon Architects -- On May 10, 1995, the Company issued approximately
1,400,000 shares of its common stock in exchange for all the outstanding shares
of capital stock and warrants of Silicon Architects, a developer of design
technology for complex application specific integrated circuits (ASICs) and
application specific standard products (ASSPs). Additionally, options to acquire
shares of Silicon Architects' common stock were exchanged for options to acquire
approximately 148,000 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 for all periods. Total
revenue and net income for the individual entities are as follows (in
thousands):
<TABLE>
<CAPTION>
SILICON
SYNOPSYS ARCHITECTS COMBINED
-------- ------- --------
<S> <C> <C> <C>
Six months ended March 31, 1995:
Total revenue............................................. $120,500 $ 3,400 $123,900
Net income (loss)......................................... 16,140 (16) 16,124
Year ended September 30, 1994:
Total revenue............................................. 196,000 3,200 199,200
Net income (loss)......................................... 15,750 (1,545) 14,205
</TABLE>
In connection with this merger, the Company recorded related costs of
approximately $900,000, primarily consisting of contract cancellation charges,
transaction fees, and the elimination of duplicate facilities and equipment.
NOTE 4. ACQUISITIONS
CADIS GmbH AND ARCAD SA -- On May 31, 1994, the Company acquired all the
outstanding stock of Cadis GmbH (Cadis) for approximately $3,600,000 in cash and
notes. Cadis was a software developer specializing in digital signal processing
design. On September 30, 1994, the Company acquired all the outstanding stock of
Arcad SA (Arcad) for approximately $1,500,000 in cash and notes. Arcad was a
software developer of VHDL models specializing in telecommunications standards.
These acquisitions were accounted for by the purchase method of accounting, and
the results of operations of Cadis and Arcad are included in the Company's
consolidated results of operations since the dates of the acquisitions. The
purchase price, acquisition costs, and net liabilities assumed total $7,300,000,
of which $5,900,000 was allocated to in-process research and development
expense.
Arkos Design, Inc. -- On June 28, 1995, the Company acquired all the
outstanding securities of ARKOS Design, Inc. (ARKOS) for approximately
$9,300,000 in cash and notes. The notes had a balance of $3,100,000 at September
30, 1996, mature at various dates through 2005, contain certain provisions that
could accelerate maturity, and are included in current liabilities. The Company
recently introduced a product based on ARKOS technology that supports high-speed
validation of integrated circuits (ICs). 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. The purchase price, acquisition costs, and net liabilities assumed
total $9,700,000, of which $9,200,000 was allocated to in-process research and
development expense.
F-11
<PAGE> 140
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. COMMON STOCK
Stock Repurchase Program -- In May 1996, the Company announced that its
Board of Directors had authorized the repurchase of up to 2,000,000 shares of
its outstanding common stock in the open market over the next 24 months. During
fiscal 1996, the Company purchased 361,494 shares at an average price of
approximately $41.00 per share. The repurchased shares are available for use
under the Company's employee stock plans and for other corporate purposes. All
shares repurchased during fiscal 1996 were reissued by the end of the year.
Stock Options -- Under the Company's 1992 Stock Option Plan (the Plan) and
its predecessor, the 1988 Restricted Stock 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. Under both plans, 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.
In October 1994, the Company adopted the 1994 Non-Employee Directors Stock
Option Plan (the Directors Plan) and reserved 200,000 shares for issuance. Under
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 5,000
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.
Prior to the mergers, Silicon Architects had a stock option plan and LMC
had a separate set of stock option plans. Both the Silicon Architects and LMC
plans were terminated as to future grants upon completion of each of the
mergers. Each outstanding option to acquire Silicon Architects stock was
converted to an option to acquire approximately .18 share of the Company's
common stock and each outstanding option to acquire LMC stock was converted to
an option to acquire approximately .14 share of the Company's common stock,
under terms similar to the terms of the Plan.
The following table summarizes stock option activity for the three years
ended September 30, 1996. Stock option activity in fiscal 1994 includes LMC
activity prior to the merger. Stock option activity in fiscal 1994 and 1995
includes Silicon Architects' activity prior to the merger.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES --------------------------------
AVAILABLE SHARES PRICE PER SHARE
---------- ---------- -----------------
<S> <C> <C> <C>
Balances at September 30, 1993................... 918,448 5,530,710 $ .0625 - $24.375
Merger with Silicon Architects................. 185,498 56,026 $ .0140 - $ .7007
Additional shares authorized................... 2,544,298 --
Granted........................................ (2,520,958) 2,520,958 $ 1.205 - $25.000
Exercised...................................... -- (1,738,484) $ .0625 - $22.125
Canceled....................................... 382,026 (466,216) $ .1125 - $25.000
---------- ----------
Balances at September 30, 1994................... 1,509,312 5,902,994 $ .0140 - $25.000
Additional shares authorized................... 2,083,884 --
Granted........................................ (3,448,537) 3,448,537 $ 1.205 - $33.500
Exercised...................................... -- (1,645,817) $ .0140 - $29.875
Canceled....................................... 479,891 (538,338) $ .0140 - $32.750
---------- ----------
</TABLE>
F-12
<PAGE> 141
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES OPTIONS OUTSTANDING
AVAILABLE SHARES PRICE PER SHARE
---------- ---------- -------------------
<S> <C> <C> <C>
Balances at September 30, 1995................... 624,550 7,167,376 $ .1125 - $33.500
Additional shares authorized................... 2,089,937 --
Granted........................................ (2,228,133) 2,228,133 $29.125 - $47.281
Exercised...................................... -- (1,514,864) $ .1125 - $37.000
Canceled....................................... 614,791 (631,066) $ 1.205 - $37.000
---------- ----------
Balances at September 30, 1996................... 1,101,145 7,249,579 $ .1125 - $47.281
========== ==========
</TABLE>
At September 30, 1996, 2,629,140 options were exercisable at prices ranging
from $.1125 to $44.50 per share.
Employee Stock Purchase Plan -- In January 1992, the Board of Directors and
stockholders adopted the Employee Stock Purchase Plan, under which a total of
1,750,000 shares have been reserved for issuance as of September 30, 1996. 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 1994, 1995, and 1996, shares
totaling 280,850, 247,356, and 310,689, respectively, were issued under the plan
at average prices of $9.57, $17.22, and $18.84 per share, respectively.
NOTE 6. LINES OF CREDIT AND COMMITMENTS
To facilitate foreign currency forward contracts, the Company has three
foreign exchange lines of credit totaling $169,000,000, which expire in October
1996, May 1997, and June 1997. The Company enters into forward exchange
contracts to hedge foreign currency denominated intercompany balances. Gains and
losses on contracts to hedge foreign currency commitments are recognized during
the periods in which the related instruments are outstanding. At September 30,
1996, the Company had outstanding forward contracts in yen and European
currencies totaling approximately $4,078,000. The forward exchange contracts are
valued at prevailing market rates. The net gains and losses resulting from
hedging intercompany balances were not significant.
The Company leases its facilities and certain office equipment under
operating lease agreements. The Company's current corporate facility lease
expires in February 2003 and provides for graduated rental payments. The Company
has entered into an additional corporate facility lease. The facility is under
construction and the lease expires ten years after occupancy. The Company is
amortizing the total rent payments over the lease term on a straight-line basis.
At September 30, 1996 future minimum lease payments under operating leases are:
1997 -- $12,443,000; 1998 -- $14,235,000; 1999 -- $14,112,000; 2000 --
$13,252,000; 2001 -- $12,963,000; and $34,802,000 thereafter. Total rent expense
under operating leases was approximately $9,517,000, $12,490,000, and
$14,441,000 in fiscal 1994, 1995, and 1996, respectively.
NOTE 7. INCOME TAXES
As discussed in Note 1, the Company accounts for income taxes in accordance
with SFAS No. 109.
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, 1996, the Company had net operating loss carryovers in
foreign jurisdictions of approximately $700,000 which are available to offset
future taxable income, if any, in those jurisdictions. For U.S. federal income
tax purposes, the Company had research tax credit carryforwards of approximately
F-13
<PAGE> 142
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3,300,000 expiring in fiscal years 2009 through 2011, and alternative minimum
tax credit carryforwards of approximately $400,000, which do not expire. In
addition, the Company had research tax credit carryforwards for state income tax
purposes of approximately $1,200,000, which do not expire.
A net deferred tax asset of $2,625,000 and $9,900,000 is included in
prepaid expenses, deferred taxes, and other at September 30, 1995 and 1996,
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 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers................................ $ 816 $ 400
Tax credit carryovers........................................ 6,788 4,885
Deferred revenue............................................. 5,991 10,891
Joint venture and acquisition costs.......................... -- 12,985
Reserves and other expenses not currently deductible......... 5,616 9,354
Depreciation and amortization................................ 476 --
-------- --------
Total gross deferred tax asset............................... 19,687 38,515
Less valuation allowance..................................... (15,896) (23,525)
-------- --------
Deferred tax asset........................................... 3,791 14,990
-------- --------
Deferred tax liabilities:
Unrealized foreign exchange gain............................. (708) --
Unrealized gain on securities................................ -- (4,669)
Net capitalized software development costs................... (458) (421)
-------- --------
Deferred tax liability....................................... (1,166) (5,090)
-------- --------
Net deferred tax asset......................................... $ 2,625 $ 9,900
======== ========
</TABLE>
The change in the valuation allowance was a net decrease of $4,510,000
during fiscal 1995 and a net increase of $7,629,000 during fiscal 1996. The
valuation allowance applies primarily to those U.S. federal and state timing
items that are expected to be deductible at a point in the future when taxable
income is uncertain.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of September 30, 1996, will be allocated as follows
(in thousands):
<TABLE>
<S> <C>
Income tax benefit........................................................ $ 5,435
Additional paid-in capital................................................ 18,090
-------
$ 23,525
=======
</TABLE>
Income before income taxes consisted of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
United States......................................... $22,230 $42,178 $30,831
Foreign............................................... 1,424 5,530 5,019
------- ------- -------
$23,654 $47,708 $35,850
======= ======= =======
</TABLE>
F-14
<PAGE> 143
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the provision for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 965 $ 3,730 $ 9,907
State................................................ 146 1,475 1,415
Foreign.............................................. 928 2,420 2,662
---- ------ ------
2,039 7,625 13,984
---- ------ ------
Deferred:
Federal.............................................. -- -- (6,650)
State................................................ -- -- (950)
Foreign.............................................. (250) (21) 325
---- ------ ------
(250) (21) (7,275)
---- ------ ------
Reduction in goodwill for the foreign tax benefit from
utilization of acquired company's tax attributes..... 960 1,704 --
Charge equivalent to the federal and state tax benefit
related to
employee stock options............................... 6,700 8,100 5,441
---- ------ ------
7,660 9,804 5,441
---- ------ ------
Provision for income taxes............................. $9,449 $17,408 $12,150
==== ====== ======
</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
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Statutory federal tax.................................. $8,279 $16,698 $12,548
State tax, net of federal benefit...................... 524 1,086 1,237
Tax benefit from foreign sales corporation............. (452) (971) (1,551)
Tax exempt income...................................... (789) (1,849) (2,579)
Research and development tax credits................... (666) (950) (503)
Foreign tax in excess of U.S. statutory tax............ 753 370 377
Non-deductible merger and acquisition expenses and
other................................................ 1,800 3,024 2,621
------ ------- -------
$9,449 $17,408 $12,150
====== ======= =======
</TABLE>
NOTE 8. 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.
F-15
<PAGE> 144
SYNOPSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's operations by geographic area were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Revenue
North America.................................. $184,977 $ 237,690 $ 325,346
Europe......................................... 41,480 52,342 64,805
Pacific Rim.................................... 53,010 85,671 108,397
Transfers between geographic areas............. (80,267) (110,203) (145,048)
-------- --------- ---------
Consolidated..................................... $199,200 $ 265,500 $ 353,500
-------- --------- ---------
Operating income:
North America.................................. $ 16,992 $ 20,220 $ 31,653
Europe......................................... 7,686 9,606 9,765
Pacific Rim.................................... 10,222 22,174 27,182
Corporate and other............................ (13,300) (9,200) (39,700)
-------- --------- ---------
Consolidated..................................... $ 21,600 $ 42,800 $ 28,900
-------- --------- ---------
Identifiable assets:
North America.................................. $ 67,841 $ 73,771 $ 138,813
Europe......................................... 16,586 20,061 24,216
Pacific Rim.................................... 27,193 31,962 27,903
Corporate assets and eliminations.............. 100,329 171,777 218,035
-------- --------- ---------
Consolidated..................................... $211,949 $ 297,571 $ 408,967
======== ========= =========
</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 1996,
identifiable assets in the Pacific Rim include $12,788,000 of accounts
receivable from customers located in Japan. Management believes allowances are
adequate to cover any uncollected amounts. Corporate assets consist primarily of
cash and investments. In 1994, 1995, and 1996, no customer accounted for more
than ten percent of revenue.
* * * * *
F-16
<PAGE> 145
SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1995 1996
-------- -------
<S> <C> <C>
Revenue:
Product............................................................... $ 53,749 $66,160
Service............................................................... 25,251 36,340
-------- -------
Total revenue................................................. 79,000 102,500
-------- -------
Cost of revenue:
Product............................................................... 3,593 5,811
Service............................................................... 4,741 6,391
-------- -------
Total cost of revenue......................................... 8,334 12,202
-------- -------
Gross margin............................................................ 70,666 90,298
-------- -------
Operating expenses:
Research and development.............................................. 18,202 24,882
Sales and marketing................................................... 30,323 37,048
General and administrative............................................ 6,341 7,968
-------- -------
Total operating expenses...................................... 54,866 69,898
-------- -------
Operating income........................................................ 15,800 20,400
Other income, net....................................................... 1,850 3,700
-------- -------
Income before income taxes.............................................. 17,650 24,100
Provision for income taxes.............................................. 6,000 7,950
-------- -------
Net income.............................................................. $ 11,650 $16,150
======== =======
Earnings per share...................................................... $ .28 $ .38
======== =======
Weighted average common shares and equivalents.......................... 41,632 42,993
</TABLE>
See accompanying notes.
F-17
<PAGE> 146
SYNOPSYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
------------- DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 33,904 $ 33,499
Short-term investments........................................... 202,663 198,041
------------- ------------
Cash and short-term investments............................... 236,567 231,540
Accounts receivable, net of allowances of $3,661 and $3,446...... 61,085 64,879
Prepaid expenses, deferred taxes and other....................... 19,975 23,918
------------- ------------
Total current assets..................................... 317,627 320,337
------------- ------------
Property and equipment, net........................................ 51,537 55,938
Capitalized software development costs, net of accumulated
amortization of $2,805 and $3,076................................ 1,146 1,125
Long-term investments.............................................. 30,495 38,305
Other assets....................................................... 8,162 10,572
------------- ------------
Total assets............................................. $ 408,967 $426,277
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities......................... $ 70,581 $ 58,301
Current portion of long-term debt................................ 11,580 10,962
Income taxes payable............................................. 12,091 12,881
Deferred revenue................................................. 65,998 64,147
------------- ------------
Total current liabilities................................ 160,250 146,291
------------- ------------
Long-term debt..................................................... 15,970 14,122
Deferred compensation.............................................. -- 1,584
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; no
shares outstanding............................................ -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
40,434,563 and 40,779,853 shares outstanding.................. 404 408
Additional paid-in capital....................................... 152,187 172,165
Retained earnings................................................ 72,257 87,398
Cumulative translation adjustment................................ (402) (353)
Net unrealized gain on investment................................ 8,301 12,401
Treasury stock, at cost.......................................... -- (7,739)
------------- ------------
Total stockholders' equity............................... 232,747 264,280
------------- ------------
Total liabilities and stockholders' equity............... $ 408,967 $426,277
========== ==========
</TABLE>
See accompanying notes.
F-18
<PAGE> 147
SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1995 1996
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $11,650 $ 16,150
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 3,455 6,324
Interest accretion on notes payable................................ -- 152
Provision for doubtful accounts and sales returns.................. 70 (215)
Tax benefit associated with stock options.......................... 1,000 9,406
Deferred revenue................................................... 7,694 (1,851)
Deferred taxes..................................................... -- (4,406)
Gain on sale of long-term investment............................... -- (2,000)
Net change in assets and liabilities:
Accounts receivable.............................................. (2,100) (3,579)
Prepaid expenses and other....................................... (243) (1,843)
Other assets..................................................... 13 (2,410)
Accounts payable and accrued liabilities......................... (6,478) (12,578)
Income taxes payable............................................. (5,089) 790
Deferred compensation............................................ -- 1,584
------- --------
Net cash provided by operating activities..................... 9,972 5,524
Cash flows from investing activities:
Proceeds from sale of long-term investment............................ -- 3,782
Purchase of long-term investment...................................... -- (3,186)
Change in short-term investments...................................... (1,856) 4,622
Purchases of property and equipment................................... (7,099) (10,155)
Capitalization of software development costs.......................... (250) (250)
------- --------
Net cash used in investing activities......................... (9,205) (5,187)
Cash flows from financing activities:
Principal payments on debt obligations................................ -- (2,618)
Proceeds from sale of common stock, net............................... 5,204 11,316
Purchases of treasury stock........................................... -- (9,489)
------- --------
Net cash provided (used) by financing activities.............. 5,204 (791)
------- --------
Effect of exchange rate changes on cash................................. (1) 49
------- --------
Net increase (decrease) in cash and cash equivalents.................... 5,970 (405)
Cash and cash equivalents, beginning of period.......................... 91,193 33,904
------- --------
Cash and cash equivalents, end of period................................ $97,163 $ 33,499
======= ========
Supplemental Disclosure:
Cash paid during the period for:
Interest........................................................... $ -- $ 214
======= ========
Income taxes....................................................... $10,123 $ 2,446
======= ========
</TABLE>
See accompanying notes.
F-19
<PAGE> 148
SYNOPSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments which in the
opinion of management are necessary to fairly state Synopsys' and its
subsidiaries' condensed consolidated financial position, the results of their
operations, and their cash flows for the periods presented. These financial
statements should be read in conjunction with Synopsys' Annual Report to
Stockholders for the year ended September 30, 1996. For financial reporting
purposes, Synopsys reports on a 13-week quarter and a 52 or 53-week year. For
presentation purposes, the consolidated financial statements refer to the
quarter's calendar month end. The consolidated results of operations for the
period ended December 31, 1996 are not necessarily indicative of the results to
be expected for any subsequent quarter or for the entire fiscal year.
2. 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.
3. LONG-TERM INVESTMENTS
In May 1996, Synopsys purchased 1,206,542 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
accordance with FASB Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the investment has been classified as "available
for sale." In October 1996, CCT and Cadence Design Systems, Inc. announced that
they had reached an agreement to merge. It is currently Synopsys' 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 the first quarter of fiscal year 1997,
Synopsys sold 122,889 shares of CCT and realized a gain of approximately $2.0
million. In addition, the net unrealized gain recorded as a separate component
of stockholders' equity increased by $4.1 million during the first quarter.
In December 1996, Synopsys made an investment of $3.2 million in a company
which is not publicly traded. The investment is carried at cost and is included
in long-term investments.
4. LONG-TERM DEBT
In February 1996, Synopsys and International Business Machines Corporation
("IBM") entered into a six-year Joint Development and License Agreement
Concerning EDA Software and Related Intellectual Property (the "Agreement"). In
accordance with the Agreement, Synopsys paid IBM $11.0 million in cash and
issued $30.0 million in notes, which bear interest at 3%, 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. As of December 31, 1996, the notes had a
balance of $22.4 million, of which $14.1 million is included in long-term
obligations. The carrying amount of the debt, including the long-term portion,
approximates the fair value.
5. DEFERRED COMPENSATION
Synopsys has established the Synopsys Deferred Compensation Plan that
allows certain eligible employees to defer a portion of their compensation. The
deferred compensation and accumulated earnings is accrued but unfunded. Such
deferred compensation is included in long-term liabilities.
F-20
<PAGE> 149
SYNOPSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUBSEQUENT EVENTS
On January 16, 1997, Synopsys announced a definitive agreement to merge
with EPIC Design Technology, Inc., a developer of design automation tools for
deep submicron design in the area of integrated circuit power, timing, and
reliability analysis. The transaction will result in 0.7485 shares of Synopsys
Common Stock being issued in exchange for each share of EPIC Common Stock
outstanding on the effective date of the Merger. Additionally, outstanding
options to purchase EPIC Common Stock will be exchanged for options to purchase
Synopsys Common Stock, based on the same Exchange Ratio. As of December 31, 1996
EPIC had 13.7 million shares of Common Stock outstanding. The transaction is
subject to stockholder and regulatory approvals. The merger is intended to be
accounted for as a pooling of interests.
F-21
<PAGE> 150
EPIC DESIGN TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report......................................................... F-23
Consolidated Balance Sheets at September 30, 1995 and 1996........................... F-24
Consolidated Statements of Operations for the Years Ended September 30, 1994, 1995
and 1996........................................................................... F-25
Consolidated Statements of Shareholders' Equity for the Years Ended September 30,
1994, 1995 and 1996................................................................ F-26
Consolidated Statements of Cash Flows for the Years Ended September 30, 1994, 1995
and 1996........................................................................... F-27
Notes to Consolidated Financial Statements........................................... F-28
Condensed Consolidated Balance Sheets at September 30, 1996 and December 31, 1996
(Unaudited)........................................................................ F-36
Condensed Consolidated Statements of Income for the Three Months Ended December 31,
1995 and 1996 (Unaudited).......................................................... F-37
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December
31, 1995 and 1996 (Unaudited)...................................................... F-38
Notes to Condensed Consolidated Financial Statements (Unaudited)..................... F-39
</TABLE>
F-22
<PAGE> 151
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
EPIC Design Technology, Inc.:
We have audited the accompanying consolidated balance sheets of EPIC Design
Technology, Inc. and subsidiaries as of September 30, 1995 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of EPIC Design Technology, Inc.
and subsidiaries at September 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
October 11, 1996
F-23
<PAGE> 152
EPIC DESIGN TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................... $11,247 $13,259
Short-term investments................................................. 16,671 26,268
Accounts receivable (net of allowances of $79 in 1995 and $216 in
1996)............................................................... 2,937 6,300
Prepaid expenses and other assets...................................... 607 1,026
Deferred income taxes.................................................. 978 1,647
------- -------
Total current assets................................................ 32,440 48,500
Property and equipment -- net............................................ 2,337 4,496
Other assets............................................................. 1,004 1,795
------- -------
TOTAL.......................................................... $35,781 $54,791
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 878 $ 1,091
Income taxes payable................................................... 414 1,538
Accrued liabilities.................................................... 4,529 11,336
Deferred revenue and customer deposits................................. 3,035 3,772
------- -------
Total current liabilities........................................... 8,856 17,737
------- -------
Commitments (Note 7)
Shareholders' equity:
Preferred stock, no par value: 5,000 shares authorized; none
outstanding......................................................... -- --
Common stock, no par value: 20,000 shares authorized; shares
outstanding: 1995 -- 12,134; 1996 -- 13,642......................... 24,864 44,608
Deferred stock compensation............................................ (203) (110)
Retained earnings (accumulated deficit)................................ 2,254 (7,424)
Unrealized gain (loss) on investments, net............................. 10 (20)
------- -------
Total shareholders' equity.......................................... 26,925 37,054
------- -------
TOTAL.......................................................... $35,781 $54,791
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-24
<PAGE> 153
EPIC DESIGN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenue:
License......................................................... $ 9,694 $20,732 $34,548
Service......................................................... 1,645 4,271 9,371
------- ------- -------
Total revenue........................................... 11,339 25,003 43,919
------- ------- -------
Costs and expenses:
Cost of license................................................. 572 1,315 1,671
Cost of service................................................. 454 987 1,681
Sales and marketing............................................. 4,548 8,771 13,285
Research and development........................................ 2,908 5,886 10,566
General and administrative...................................... 1,027 2,325 3,380
Purchased in-process technology................................. -- 3,261 18,806
------- ------- -------
Total operating expenses................................ 9,509 22,545 49,389
------- ------- -------
Income (loss) from operations..................................... 1,830 2,458 (5,470)
Interest income, net.............................................. 82 822 1,153
------- ------- -------
Income (loss) before income taxes................................. 1,912 3,280 (4,317)
Provision for income taxes........................................ 674 2,290 5,361
------- ------- -------
Net income (loss)................................................. $ 1,238 $ 990 $(9,678)
======= ======= =======
Net income (loss) per common and equivalent share................. $ 0.13 $ 0.08 $ (0.77)
======= ======= =======
Shares used in per share computation.............................. 9,864 13,198 12,625
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-25
<PAGE> 154
EPIC DESIGN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE UNREALIZED
PREFERRED STOCK COMMON STOCK DEFERRED RETAINED GAIN TOTAL
--------------- --------------- STOCK EARNINGS (LOSS) ON SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION (DEFICIT) INVESTMENTS EQUITY
------ ------- ------ ------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, October 1, 1993............... 1,992 $ 1,815 3,641 $ 398 $ (76) $ 26 $ -- $ 2,163
Exercise of stock options............... 902 142 142
Deferred stock compensation............. 365 (365)
Amortization of deferred stock
compensation.......................... 94 94
Net income.............................. 1,238 1,238
------ ------- ------ -------
BALANCES, September 30, 1994............ 1,992 1,815 4,543 905 (347) 1,264 -- 3,637
Conversion of preferred stock to common
stock................................. (1,992) (1,815) 3,984 1,815 --
Initial public offering, net of issuance
costs................................. 3,000 17,380 17,380
Issuance of common stock and stock
options assumed in connection with
acquisition of Archer Systems......... 184 3,617 3,617
Issuance of common stock under stock
purchase plan......................... 79 436 436
Exercise of stock options............... 344 288 288
Tax benefit from employee stock
transactions.......................... 423 423
Amortization of deferred stock
compensation.......................... 144 144
Unrealized gain on investments, net..... 10 10
Net income.............................. 990 990
------ ------- ------ -------
BALANCES, September 30, 1995............ -- -- 12,134 24,864 (203) 2,254 10 26,925
Issuance of common stock and stock
options assumed in connection with
acquisition of CIDA................... 729 14,511 14,511
Issuance of common stock under stock
purchase plan......................... 88 863 863
Exercise of stock options............... 691 1,204 1,204
Tax benefit from employee stock
transactions.......................... 3,166 3,166
Amortization of deferred stock
compensation.......................... 93 93
Unrealized loss on investments, net..... (30) (30)
Net loss................................ (9,678) -- (9,678)
------ ------- ------ -------
BALANCES, September 30, 1996............ -- $ -- 13,642 $44,608 $ (110) $(7,424) $ (20) $37,054
====== ======= ====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE> 155
EPIC DESIGN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 1,238 $ 990 $ (9,678)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 358 997 2,111
Write-off of in-process technology.................... -- 3,261 18,806
Deferred income taxes................................. (543) (518) (752)
Amortization of deferred stock compensation........... 94 144 93
Changes in assets and liabilities:
Accounts receivable................................. 211 (1,280) (3,363)
Prepaid expenses and other assets................... (144) (64) (401)
Accounts payable.................................... 251 (95) 202
Income taxes payable................................ 857 (88) 4,290
Accrued liabilities................................. 556 3,259 2,270
Deferred revenue and customer deposits.............. 1,521 956 (263)
-------- -------- -------
Net cash provided by operating activities........ 4,399 7,562 13,315
-------- -------- -------
Cash flows from investing activities:
Purchases of short-term investments...................... (1,245) (48,430) (42,785)
Proceeds from maturity of short-term investments......... -- 33,014 33,158
Purchases of property and equipment...................... (1,107) (1,792) (3,896)
Cash acquired in business acquisition.................... -- 64 67
Other assets............................................. (318) -- 86
-------- -------- -------
Cash used in investing activities................ (2,670) (17,144) (13,370)
-------- -------- -------
Cash flows from financing activities:
Payments of capital lease obligations.................... (14) (4) --
Proceeds from sales of common stock...................... 142 18,104 2,067
-------- -------- -------
Net cash provided by financing activities........ 128 18,100 2,067
-------- -------- -------
Net increase in cash and equivalents....................... 1,857 8,518 2,012
Cash and equivalents, beginning of year.................... 872 2,729 11,247
-------- -------- -------
Cash and equivalents, end of year.......................... $ 2,729 $ 11,247 $ 13,259
======== ======== =======
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest................................................. $ 1 $ 1 $ --
Income taxes............................................. $ 345 $ 3,132 $ 806
Supplemental schedule of noncash investing and financing
activities:
Conversion of preferred stock to common stock............ $ -- $ 1,815 $ --
Tax benefit from employee stock transactions............. $ -- $ 423 $ 3,166
Unrealized gain (loss) on investments.................... $ -- $ 10 $ (30)
Effect of acquisitions:
Fair value of assets acquired, including in-process
technology.......................................... $ -- $ 4,573 $ 20,142
Common shares, stock options issued and cash to be
paid in the acquisition............................. -- (3,617) (17,869)
-------- -------- -------
Liabilities assumed................................... $ -- $ 956 $ 2,273
======== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-27
<PAGE> 156
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- EPIC Design Technology, Inc. (the Company) develops,
markets and supports advanced simulation and analysis software tools for the
design of integrated circuits.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates,
and such differences may be material to the financial statements.
Cash Equivalents and Short-Term Investments -- All highly liquid debt
investments purchased with a remaining maturity of three months or less are
classified as cash equivalents. Cash equivalents, consisting primarily of
municipal obligations, money market funds and bank savings accounts, are stated
at cost which approximates fair value. Short-term investments consist primarily
of highly liquid debt instruments purchased with a remaining maturity date of
greater than three months. The Company classifies its short-term investments as
"available-for-sale securities," and the carrying value of such securities is
adjusted to fair market value, with unrealized gains and losses excluded from
earnings and reported as a separate component of shareholders' equity. The fair
values of marketable debt instruments are based on quoted market prices. Cost is
determined by specific identification for purposes of computing realized gains
or losses.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
generally three to five years. Leasehold improvements are amortized over their
useful life or the lease term, whichever is shorter.
Other Assets -- Other assets, including $1,033,000 and $2,113,000 at
September 30, 1995 and 1996, respectively, of purchased technologies, goodwill
and covenants not to compete acquired through acquisitions, are amortized on a
straight-line basis over a three- to five-year period. Accumulated amortization
equaled $76,000 and $379,000 at September 30, 1995 and 1996, respectively.
Revenue Recognition -- Revenue consists primarily of fees for licenses of
the Company's software products, maintenance and customer support.
License Revenue -- Revenue from software licenses is recognized after
shipment of the products and fulfillment of acceptance terms, if any, and
when no significant contractual obligations remain outstanding. When the
Company receives payment prior to shipment or fulfillment of significant
vendor obligations, such payments are recorded as deferred revenue and
customer deposits and are recognized as revenue upon shipment or
fulfillment of significant vendor obligations. Costs related to
insignificant vendor obligations for post-contract customer support are
accrued upon recognition of the license revenue.
Service Revenue -- Maintenance revenue is deferred and recognized
ratably over the term of the maintenance agreement, which is typically one
year. Revenue from customer training, support and other services is
recognized as the service is performed.
Software Development Costs -- Costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs to complete the products or enhancements would be
F-28
<PAGE> 157
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
capitalized. Because the Company believes its current process for developing
software is essentially completed concurrently with the establishment of
technological feasibility, no costs have been capitalized to date.
Income Taxes -- Income taxes are provided utilizing an asset and liability
approach which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of assets and liabilities
and net operating loss and tax credit carryforwards.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to a concentration of credit risk principally consist of
cash and equivalents, short-term investments and accounts receivable. The
Company licenses products primarily to customers and distributors in the
integrated circuit design industry in North America, Europe and the Far East. To
reduce credit risk, management performs ongoing credit evaluations of its
customers' financial condition. The Company maintains reserves for potential
credit losses, but historically has not experienced significant losses related
to individual customers or groups of customers in any particular geographic
area. The Company invests its excess cash balances in high-grade instruments
which it places for safekeeping with high quality financial institutions. The
Company has not experienced any material losses in any of the instruments it has
used for excess cash balances.
Foreign Currency Translation -- The functional currency of the Company's
foreign subsidiaries is the U.S. dollar. All monetary assets and liabilities are
translated at the current exchange rate at the end of the period, nonmonetary
assets and liabilities are translated at historical rates and revenues and
expenses are translated at average exchange rates in effect during the period.
Translation and transaction gains and losses, which are included in the
consolidated statements of operations, have not been material in any of the
periods presented.
Net Income (Loss) Per Share -- Net income per share is based on the
weighted average number of common and dilutive common equivalent shares
outstanding during the periods. Common equivalent shares include outstanding
convertible preferred stock and common stock options. All common shares issued
and stock options granted by the Company at a price less than the initial public
offering price subsequent to September 1, 1993 and prior to the initial public
offering (using the treasury stock method for options) have been included in the
computation of common and common equivalent shares outstanding for all periods
presented prior to the initial public offering. Net loss per share is calculated
by dividing net loss by the weighted average number of common shares outstanding
as including common equivalent shares would be anti-dilutive.
Effect of New Accounting Standards -- The Company accounts for its stock
option plan and its employee stock purchase plan in accordance with provisions
of the Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for
Stock Issued to Employees. In October 1995, the Financial Accounting Standards
Board released Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation." SFAS 123 provides an alternative
accounting method to APB 25 and its disclosure requirements are effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, SFAS 123 is not expected to have any impact on the Company's
financial position or results of operations.
F-29
<PAGE> 158
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
2. INVESTMENTS
The following is a summary of available-for-sale securities at September 30
(in thousands):
<TABLE>
<CAPTION>
1995 1996
--------------------------------------- -------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED -------------- ESTIMATED AMORTIZED -------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE
--------- ----- ------ ---------- ------- ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal bonds........ $16,661 $10 $ -- $ 16,671 $26,288 $-- $(20) $ 26,268
</TABLE>
At September 30, 1996 all available-for-sale securities have maturities due
in two years or less. Realized gains or losses from the sale of securities were
insignificant in fiscal years 1994, 1995 and 1996.
3. ACQUISITIONS
In fiscal 1995, the Company acquired Archer Systems, Inc., a company
engaged in the design, manufacturing and marketing of an integrated circuit
parameter extraction CAD tool. The Company exchanged a total of 184,208 shares
of its common stock and options to acquire 76,276 shares of its common stock for
all the outstanding shares of the common stock and options to purchase common
stock of Archer. The acquisition was accounted for as a purchase. The purchase
price of $3.6 million, as well as costs directly attributable to the
acquisition, have been allocated to the assets acquired and liabilities assumed.
Approximately $3.3 million of the total purchase price represented the value of
in-process technology that had not reached technological feasibility and that
had no alternative future use and was, therefore, charged to the Company's
operations in the third quarter of fiscal 1995.
In fiscal 1996, the Company acquired CIDA Technology, Inc. (CIDA), a
development stage company formed to develop and market IC verification and
extraction tools for use by IC design engineers. The Company exchanged a total
of 729,454 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. The acquisition was
accounted for as a purchase. The purchase price of $17.9 million, as well as
costs directly attributable to the acquisition, have been allocated to the
assets acquired and liabilities assumed. Approximately $18.8 million of the
total purchase price represented the value of in-process technology that had not
reached technological feasibility and that had no alternative future use and
was, therefore, charged to the Company's operations in the fourth quarter of
fiscal 1996.
The operating results of Archer and CIDA have been included in the
consolidated statements of operations since the dates of acquisition. Pro forma
results of operations, assuming the acquisitions had taken place at the
beginning of fiscal 1995 or 1996, would be as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Revenues....................................................... $ 25,483 $ 44,419
Net income (loss).............................................. $ 76 $(11,044)
Net income (loss) per common and equivalent share.............. $ 0.01 $ (0.83)
</TABLE>
The pro forma results of operations give effect to certain adjustments,
including amortization of purchased intangibles and goodwill as well as the
issuance of common shares as a result of the acquisition. The $3.3 million and
$18.8 million charge for purchased in-process technology from the Archer and
CIDA acquisitions, respectively, have been reflected in the pro forma results
for the years ended September 30, 1995 and 1996, respectively. The pro forma
combination of the companies is for presentation purposes only. Actual
statements of operations of the companies will be combined from the effective
date of the acquisition, with no retroactive restatement.
F-30
<PAGE> 159
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
4. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
Computers and related software................................... $ 3,633 $ 7,083
Other equipment.................................................. 137 351
Furniture and fixtures........................................... 159 462
------- -------
3,929 7,896
Less accumulated depreciation and amortization................... (1,592) (3,400)
------- -------
$ 2,337 $ 4,496
======= =======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
------ -------
<S> <C> <C>
Accrued merger costs.............................................. $ -- $ 4,433
Accrued compensation and related benefits......................... 1,583 2,979
Other............................................................. 2,946 3,924
------- ------
$4,529 $11,336
======= ======
</TABLE>
6. SHAREHOLDERS' EQUITY
Employee Stock Purchase Plan -- In fiscal 1994, the Company adopted the
1994 Employee Stock Purchase Plan, which permits eligible employees to purchase
up to an aggregate of 350,000 shares of common stock of the Company. Under the
Company's Employee Stock Purchase Plan, employees may purchase from the Company
a designated number of shares through payroll deductions at a price per share
equal to 85% of the lesser of the fair value of the Company's common stock as of
the first day of each twelve-month offering period or the last day of each
six-month purchase period. In 1995 and 1996, approximately 79,000 and 88,000
shares, respectively, were issued under this plan. As of September 30, 1996, the
Company has approximately 183,000 shares of common stock available for future
purchases under this Plan.
Stock Option Plan -- The Company's 1990 Stock Option Plan (the Plan)
authorizes the issuance of 4,000,000 shares of common stock for the grant of
incentive or nonstatutory stock options to employees, directors, contractors and
consultants. Under the Plan, options are generally granted at fair value at the
date of grant as determined by the Board of Directors. Such options become
exercisable generally over four years and expire up to ten years from the grant
date. Prior to the adoption of the 1990 Stock Option Plan, the Company granted
options to purchase 420,000 shares of common stock.
The Company has reserved 200,000 shares of common stock for issuance under
the 1994 Director Option Plan, which provides for each outside Director to be
granted an option to purchase 20,000 shares of common stock on the date on which
such person first becomes an outside Director following the effective date of
the Director Option Plan and, annually thereafter, an option to purchase 6,666
shares of common stock. The exercise price of such options will be the fair
market value at the date of grant. The initial options vest over four years
while the subsequent grants vest over twelve months from the date of grant.
Through September 30, 1996, approximately 53,000 shares have been granted under
this plan.
F-31
<PAGE> 160
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
In July 1996, all employees of the Company were given the opportunity to
exchange existing, higher priced options granted under the 1990 Plan for new
options with an exercise price of $19.50 per share, which was the closing price
of the Company's common stock on that date. Vesting was restarted as of the date
of the repricing. Stock options to purchase 585,000 shares of common stock were
canceled and granted under this repricing and are included in the fiscal 1996
option activity schedule below.
Stock option activity is summarized as follows (in thousands):
<TABLE>
<CAPTION>
SHARES UNDER
OPTION PRICE RANGE
------------ --------------
<S> <C> <C> <C>
Outstanding, October 1, 1993............................ 1,838 $ .09 - $ .16
Granted................................................. 882 .16 - 5.00
Canceled................................................ (74) .16 - 5.00
Exercised............................................... (902) .09 - .16
-----
Outstanding, September 30, 1994......................... 1,744 .16 - 5.00
Granted or assumed...................................... 612 .00 - 22.38
Canceled................................................ (42) .16 - 12.22
Exercised............................................... (344) .16 - 12.63
-----
Outstanding, September 30, 1995......................... 1,970 .00 - 22.38
Granted or assumed...................................... 1,559 1.00 - 36.00
Canceled................................................ (740) .17 - 35.00
Exercised............................................... (691) .00 - 22.75
-----
Outstanding, September 30, 1996......................... 2,098 $ .00 - $36.00
=====
</TABLE>
At September 30, 1996, options to purchase 560,000 shares of common stock
were exercisable and options to purchase 163,000 and 147,000 shares of common
stock were available for future grant under the 1990 Stock Option Plan and the
1995 Director Option Plan, respectively.
Deferred Stock Compensation -- In connection with the preparation of its
initial public offering, the Company determined that certain stock options
issued prior to the offering contained a compensatory element which should be
recorded for financial reporting purposes. These valuations resulted in a charge
to operations for the years ended September 30, 1994, 1995 and 1996 of $94,000,
$144,000 and $93,000, respectively, and will result in remaining charges in
future periods aggregating $110,000 to be amortized over the vesting period of
the related stock options.
7. LEASE COMMITMENTS
The Company leases facilities under operating lease agreements which expire
through calendar year 2001. Total rent expense for the years ended September 30,
1994, 1995 and 1996 was approximately $213,000, $531,000, $696,000,
respectively.
F-32
<PAGE> 161
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
Future minimum operating lease commitments as of September 30, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
------------------------------------------------------------
<S> <C>
1997........................................................ $ 905
1998........................................................ 819
1999........................................................ 661
2000........................................................ 541
2001........................................................ 90
------
$3,016
======
</TABLE>
8. EXPORT SALES AND MAJOR CUSTOMERS
The Company sells its products in North America, Asia and Europe. Export
revenues as a percentage of net revenues for the years ended September 30 are as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Asia............................................................ 41% 33% 29%
Europe.......................................................... 8 11 11
-- -- --
49% 44% 40%
== == ==
</TABLE>
Approximately 16%, 17% and 22% of revenues were made through a distributor
in Japan, which sells the Company's products to various end user customers, in
1994, 1995 and 1996, respectively, and another distributor in Korea accounted
for 11% of revenues in 1995. At September 30, 1995, accounts receivable from the
two distributors were $922,000. At September 30, 1996, accounts receivable from
the Japanese distributor was $728,000. One single end user customer accounted
for 11% of revenues in 1996 and had an accounts receivable balance at September
30, 1996 of $1,109,000.
9. INCOME TAXES
The provision for income taxes for the years ended September 30 consists of
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal................................................ $ 656 $1,623 $4,002
State.................................................. 216 547 1,067
Foreign................................................ 345 638 1,044
------ ------ ------
Total current....................................... 1,217 2,808 6,113
------ ------ ------
Deferred:
Federal................................................ (451) (415) (582)
State.................................................. (92) (103) (170)
------ ------ ------
Total deferred...................................... (543) (518) (752)
------ ------ ------
Total provision for income taxes............... $ 674 $2,290 $5,361
====== ====== ======
</TABLE>
F-33
<PAGE> 162
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
Total income tax expense differs from the amounts computed by applying the
statutory federal income tax rate to income before income taxes as a result of
the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
Provision (benefit) computed at federal statutory
rate................................................. $ 669 $1,148 $(1,511)
Change in valuation allowance.......................... 34 67 115
Research and experimentation credit.................... (100) (97) --
State income taxes, net of federal benefit............. 81 293 580
Tax-exempt interest income............................. -- (261) (368)
Nondeductible purchased in-process technology.......... -- 1,109 6,582
Other.................................................. (10) 31 (37)
------- ------ -----
Total provision for income taxes............. $ 674 $2,290 $ 5,361
======= ====== =====
</TABLE>
Loss before income taxes attributable to the Company's foreign subsidiary
was $96,000, $192,000 and $330,000 in 1994, 1995 and 1996, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as operating loss
and credit carryforwards. Effective October 1, 1994, EPIC converted from a cash
to accrual basis taxpayer; the related cumulative temporary differences at that
time are being amortized for income tax purposes over three to six years.
Significant components of the Company's deferred income tax assets and
liabilities as of September 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Conversion to accrual from cash basis............................ $ 547 $ 421
Reserves not recognized for tax purposes......................... 486 1,144
Foreign net operating loss carryforwards......................... 101 221
State taxes...................................................... 87 40
Depreciation and amortization.................................... 12 135
Other............................................................ 127 40
Valuation allowance.............................................. (101) (216)
------ ------
1,259 1,785
Deferred tax liabilities --
Intangible assets................................................ (281) (138)
------ ------
Net deferred tax asset............................................. $ 978 $1,647
====== ======
</TABLE>
The Company has net operating loss carryforwards as of September 30, 1995
and 1996 of approximately $288,000 and $619,000, respectively, related to its
French subsidiary that may be utilized to offset future taxable income of that
entity. The valuation allowance as of September 30, 1995 and 1996 of $101,000
and $216,000, respectively, related entirely to these net operating loss
carryforwards.
10. EMPLOYEE BENEFIT PLAN
Substantially all full-time employees are entitled to participate in the
Company's retirement savings plan (401(k) Plan). Employer contributions to the
401(k) Plan were $24,000 and $140,000 for the years ended September 30, 1995 and
1996, respectively (none in 1994).
11. RELATED PARTY TRANSACTION
In fiscal 1994 and 1995, the Company received royalties from a shareholder
under an OEM software license agreement. Revenues recognized under this
agreement were $365,000 and $544,000 for the years
F-34
<PAGE> 163
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
ended September 30, 1994 and 1995, respectively. During fiscal 1995, the
shareholder sold its investment in the Company and the OEM software license
agreement was terminated.
* * * * * *
F-35
<PAGE> 164
EPIC DESIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996(1) 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $13,259 $18,579
Short-term investments.................................... 26,268 20,742
Accounts receivable (net of allowance of $216)............ 6,300 9,949
Prepaid expenses and other assets......................... 1,026 1,141
Deferred income taxes..................................... 1,647 1,647
------- -------
Total current assets.............................. 48,500 52,058
Property and equipment -- net............................... 4,496 4,801
Other assets................................................ 1,795 1,660
------- -------
Total assets...................................... $54,791 $58,519
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,091 $ 1,110
Income taxes payable...................................... 1,538 1,909
Accrued liabilities....................................... 11,336 8,958
Deferred revenue and customer deposits.................... 3,772 5,357
------- -------
Total current liabilities......................... 17,737 17,334
------- -------
Shareholders' equity:
Common stock, no par value: 20,000,000 shares authorized;
13,641,539 and 13,717,285 shares issued and
outstanding, respectively.............................. 44,608 45,746
Unrealized gain/(loss) on investments..................... (20) 24
Deferred stock compensation............................... (110) (87)
Retained earnings......................................... (7,424) (4,498)
------- -------
Total shareholders' equity........................ 37,054 41,185
------- -------
Total liabilities and shareholders' equity........ $54,791 $58,519
======= =======
</TABLE>
- ---------------
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of September 30, 1996.
F-36
<PAGE> 165
EPIC DESIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1995 1996
------- -------
<S> <C> <C>
Revenue:
License.............................................................. $ 7,288 $11,240
Service.............................................................. 2,151 2,970
------- -------
Total revenue................................................ 9,439 14,210
------- -------
Costs and expenses:
Cost of license...................................................... 454 337
Cost of service...................................................... 370 548
Sales and marketing.................................................. 3,125 4,299
Research and development............................................. 2,065 3,630
General and administrative........................................... 744 1,105
------- -------
Total operating expenses..................................... 6,758 9,919
------- -------
Income from operations................................................. 2,681 4,291
Interest income........................................................ 282 354
------- -------
Income before income taxes............................................. 2,963 4,645
Provision for income taxes............................................. 1,096 1,719
------- -------
Net income............................................................. $ 1,867 $ 2,926
======= =======
Net income per share................................................... $ 0.14 $ 0.20
======= =======
Shares used in per share computation................................... 13,656 14,735
======= =======
</TABLE>
F-37
<PAGE> 166
EPIC DESIGN TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income............................................................. $ 1,867 $ 2,926
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization....................................... 359 737
Amortization of deferred stock compensation......................... 24 23
Unrealized gain/(loss) on investments............................... -- (44)
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable............................................... (860) (3,649)
Prepaid expenses and other assets................................. (927) (115)
Accounts payable.................................................. (212) 19
Income taxes payable.............................................. 1,204 371
Accrued liabilities............................................... (374) (2,378)
Deferred revenue and customer deposits............................ 969 1,585
------- -------
Net cash provided (used) by operating activities.................... 2,050 (525)
------- -------
Cash Flows from Investing Activities:
Purchases of short-term investments.................................... (7,412) (9,653)
Maturities of short-term investments................................... 3,717 15,180
Purchases of property and equipment, net............................... (528) (820)
Other assets........................................................... 51 --
------- -------
Net cash used (provided) in investing activities............... (4,172) 4,707
------- -------
Cash Flows from Financing Activities--
Proceeds from sales of common stock, net............................... 534 1,138
------- -------
Net increase (decrease) in cash and equivalents.......................... (1,588) 5,320
Cash and equivalents, beginning of period................................ 11,247 13,259
------- -------
Cash and equivalents, end of period...................................... $ 9,659 $18,579
======= =======
Supplemental disclosure of cash flow information --
Cash paid during the period for income taxes........................... $ 145 $ 819
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
F-38
<PAGE> 167
EPIC DESIGN TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
have been prepared by EPIC pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information or footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The statements reflect all adjustments (only of a normal
and recurring nature) which are, in the opinion of management, necessary to a
fair presentation of the results for the interim periods presented. These
financial statements should be read in conjunction with EPIC's audited
consolidated financial statements included elsewhere in this Joint Proxy
Statement/Prospectus. See "Index to EPIC Consolidated Financial Statements." The
interim results presented herein are not necessarily indicative of the results
of operations that may be expected for the full fiscal year ending September 30,
1997, or any other future periods.
2. ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The new standard defines a fair value method of
accounting for stock options and other equity instruments, such as stock
purchase plans. Under this method, compensation cost is measured based on the
fair value of the stock award when granted and is recognized as an expense over
the service period, which is usually the vesting period. This standard became
effective for EPIC beginning October 1, 1996 and requires measurement of awards
made beginning October 1, 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income and
earnings per share as if EPIC had applied the new method of accounting. As
required, EPIC will implement these disclosure requirements for its employee
stock option plans beginning with its fiscal 1997 annual report. Based on EPIC's
current use of equity instruments, adoption of the new standard is not expected
to impact reported net income or net income per share, and will not have any
effect on EPIC's cash flow.
3. INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
At the EPIC 1997 Annual Meeting of Shareholders, currently scheduled for
February 12, 1997, the EPIC shareholders will consider and vote upon a proposal
to increase the authorized number of shares of EPIC Common Stock to 31,500,000
shares.
4. PROPOSED MERGER WITH SYNOPSYS, INC.
On January 16, 1997, EPIC entered into an Agreement and Plan of Merger by
and among EPIC, Synopsys, Inc. ("Synopsys") and a wholly-owned subsidiary of
Synopsys ("Sub") pursuant to which Sub will be merged with and into EPIC (the
"Merger"), whereby EPIC will survive and become a wholly-owned subsidiary of
Synopsys. In connection with the merger, (i) each share of EPIC Common Stock
issued and outstanding at the effective time of the Merger will be converted
into 0.7485 (the "Exchange Ratio") of a share of Synopsys Common Stock and (ii)
each stock option to purchase shares of EPIC Common Stock will be assumed by
Synopsys and converted into an option to purchase Synopsys Common Stock based
upon the Exchange Ratio. Consummation of the Merger is subject to customary
conditions to closing including the approval of the shareholders of each of
Synopsys and EPIC and certain regulatory approvals. The Merger is intended to be
treated as a pooling of interest for accounting purposes and is intended to
qualify as a tax-free reorganization for federal income tax purposes.
F-39
<PAGE> 168
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
SYNOPSYS, INC.,
A DELAWARE CORPORATION,
EPIC MERGER CO., INC.,
A DELAWARE CORPORATION AND A WHOLLY-OWNED
SUBSIDIARY OF SYNOPSYS, INC.
AND
EPIC DESIGN TECHNOLOGY, INC.,
A CALIFORNIA CORPORATION
DATED AS OF JANUARY 16, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 169
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I -- THE MERGER................................................................ A-1
Section 1.1 The Merger............................................................ A-1
Section 1.2 Closing; Effective Time of the Merger................................. A-1
Section 1.3 Effects of Merger..................................................... A-2
Section 1.4 Directors and Officers................................................ A-2
ARTICLE II -- CONVERSION OF SECURITIES................................................. A-2
Section 2.1 Conversion of Capital Stock........................................... A-2
Section 2.2 Exchange of Certificates.............................................. A-3
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF EPIC.................................. A-3
Section 3.1 Organization.......................................................... A-4
Section 3.2 EPIC Subsidiaries and Joint Ventures.................................. A-4
Section 3.3 EPIC Capital Structure................................................ A-4
Section 3.4 Authority; No Conflict; Required Filings and Consents................. A-5
Section 3.5 SEC Filings; Financial Statements..................................... A-5
Section 3.6 Absence of Undisclosed Liabilities.................................... A-6
Section 3.7 Absence of Certain Changes or Events.................................. A-6
Section 3.8 Taxes................................................................. A-6
Section 3.9 Properties............................................................ A-7
Section 3.10 Intellectual Property................................................. A-7
Section 3.11 Agreements, Contracts and Commitments................................. A-7
Section 3.12 Litigation............................................................ A-8
Section 3.13 Environmental Matters................................................. A-8
Section 3.14 Employee Benefit Plans................................................ A-8
Section 3.15 Compliance with Laws.................................................. A-9
Section 3.16 Pooling of Interests.................................................. A-9
Section 3.17 Interested Party Transactions......................................... A-9
Section 3.18 Registration Statement; Proxy Statement/Prospectus.................... A-9
Section 3.19 Payments Resulting from Mergers....................................... A-9
Section 3.20 Opinion of Financial Advisor.......................................... A-10
Section 3.21 Substantial Distributors and Customers................................ A-10
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SYNOPSYS AND SUB....................... A-10
Section 4.1 Organization.......................................................... A-10
Section 4.2 Synopsys Capital Structure............................................ A-11
Section 4.3 Authority; No Conflict; Required Filings and Consents................. A-11
Section 4.4 SEC Filings; Financial Statements..................................... A-12
Section 4.5 Absence of Undisclosed Liabilities.................................... A-12
Section 4.6 Absence of Certain Changes or Events.................................. A-13
Section 4.7 Taxes................................................................. A-13
Section 4.8 Properties............................................................ A-13
Section 4.9 Intellectual Property................................................. A-13
Section 4.10 Agreements, Contracts and Commitments................................. A-14
Section 4.11 Litigation............................................................ A-14
Section 4.12 Environmental Matters................................................. A-14
Section 4.13 Employee Benefit Plans................................................ A-14
Section 4.14 Compliance with Laws.................................................. A-15
Section 4.15 Pooling of Interests.................................................. A-15
Section 4.16 Interested Party Transactions......................................... A-15
Section 4.17 Registration Statement; Proxy Statement/Prospectus.................... A-15
Section 4.18 Interim Operations of Sub............................................. A-16
</TABLE>
i
<PAGE> 170
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE V -- CONDUCT OF BUSINESS....................................................... A-16
Section 5.1 Covenants of EPIC..................................................... A-16
Section 5.2 Covenants of Synopsys................................................. A-17
Section 5.3 Cooperation........................................................... A-18
ARTICLE VI -- ADDITIONAL AGREEMENTS.................................................... A-18
Section 6.1 No Solicitation....................................................... A-18
Section 6.2 Proxy Statement/Prospectus; Registration Statement.................... A-19
Section 6.3 Consents.............................................................. A-19
Section 6.4 Current Nasdaq Quotation.............................................. A-19
Section 6.5 Access to Information................................................. A-20
Section 6.6 Stockholder Meetings.................................................. A-20
Section 6.7 Legal Conditions to Merger............................................ A-20
Section 6.8 Public Disclosure..................................................... A-21
Section 6.9 Tax-Free Reorganization............................................... A-21
Section 6.10 Pooling Accounting.................................................... A-21
Section 6.11 Affiliate Agreements.................................................. A-21
Section 6.12 Nasdaq Quotation...................................................... A-21
Section 6.13 Stock Plans and Options............................................... A-21
Section 6.14 Brokers or Finders.................................................... A-22
Section 6.15 Indemnification and Insurance......................................... A-23
Section 6.16 Additional Agreements; Reasonable Efforts............................. A-24
Section 6.17 Voting Agreements..................................................... A-24
Section 6.18 Board Composition..................................................... A-24
Section 6.19 Notification of Certain Matters....................................... A-24
Section 6.20 Benefit Plans Generally............................................... A-24
ARTICLE VII -- CONDITIONS TO MERGER.................................................... A-25
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger............ A-25
Section 7.2 Additional Conditions to Obligations of Synopsys and Sub.............. A-26
Section 7.3 Additional Conditions to Obligations of EPIC.......................... A-26
ARTICLE VIII -- TERMINATION AND AMENDMENT.............................................. A-26
Section 8.1 Termination........................................................... A-26
Section 8.2 Effect of Termination................................................. A-27
Section 8.3 Fees and Expenses..................................................... A-27
Section 8.4 Amendment............................................................. A-29
Section 8.5 Extension; Waiver..................................................... A-29
ARTICLE IX -- MISCELLANEOUS............................................................ A-29
Section 9.1 Nonsurvival of Representations, Warranties and Agreements............. A-29
Section 9.2 Notices............................................................... A-29
Section 9.3 Interpretation; Certain Definitions................................... A-30
Section 9.4 Counterparts.......................................................... A-30
Section 9.5 Entire Agreement; No Third Party Beneficiaries........................ A-31
Section 9.6 Governing Law......................................................... A-31
Section 9.7 Assignment............................................................ A-31
Section 9.8 Severability.......................................................... A-31
EXHIBITS
Exhibit A -- Exchange Procedures
Exhibit B -- Voting Agreements
Exhibit C -- Affiliate Agreements
Exhibit D -- Pooling Letter
</TABLE>
ii
<PAGE> 171
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of January 16,
1997 by and among Synopsys, Inc., a Delaware corporation ("Synopsys"), EPIC
Merger Co., Inc., a Delaware corporation and a wholly-owned subsidiary of
Synopsys ("Sub"), and EPIC Design Technology, Inc., a California corporation
("EPIC").
WHEREAS, the Boards of Directors of Synopsys, Sub and EPIC (i) deem it
advisable and in the best interests of each corporation and its respective
stockholders and shareholders that Synopsys and EPIC combine in order to advance
the long-term business interests of Synopsys and EPIC and (ii) have approved
this Agreement, the Merger (as defined below) and the other transactions
contemplated by this Agreement;
WHEREAS, the combination of Synopsys and EPIC shall be effected by the
terms of this Agreement through a transaction in which Sub will merge with and
into EPIC, EPIC will become a wholly-owned subsidiary of Synopsys and the
shareholders of EPIC will become stockholders of Synopsys (the "Merger");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the provisions of this Agreement and in
accordance with the California General Corporation Law ) (the "CGCL") and the
Delaware General Corporation Law (the "DGCL"), Sub shall be merged with and into
EPIC (the "Merger"). As a result of the Merger, the outstanding shares of
capital stock of Sub and EPIC shall be converted or canceled in the manner
provided in Article II of this Agreement; the separate corporate existence of
Sub shall cease; and EPIC shall be the surviving corporation in the Merger.
Section 1.2 Closing; Effective Time of the Merger. Unless this Agreement
shall have been terminated pursuant to Section 8.1, the closing of the Merger
(the "Closing") will take place at 10:00 a.m., California time, on a date to be
specified by Synopsys and EPIC (the "Closing Date"), which shall be no later
than the second business day after satisfaction (or waiver in accordance with
Section 8.5) of all conditions set forth in Article VII at the offices of Gray
Cary Ware & Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo
Alto, CA 94301, unless another date or place is agreed to in writing by Synopsys
and EPIC. Subject to the provisions of this Agreement, (i) an agreement of
merger (the "California Agreement of Merger") shall be duly prepared, executed
and acknowledged by Sub and by EPIC as the Surviving Corporation (as defined in
Section 1.3(a)) and simultaneously with or as soon as practicable following the
Closing delivered to the Secretary of State of the State of California (the
"California Secretary of State") for filing, along with certificates of the
officers of the Constituent Corporations (as defined in Section 1.3(a))
("Officers' Certificates"), and a certificate of merger (the "Delaware
Certificate of Merger") shall be duly prepared, executed and acknowledged by
EPIC and simultaneously with or as soon as practicable following the Closing
delivered to the Secretary of State of the State of Delaware for filing. The
Merger shall become effective upon the latest of: (a) the date and time of the
filing of the California Agreement of Merger and the Officers' Certificates with
the Secretary of State of the State of California, (b) the date and time of the
filing of the Delaware Certificate of Merger with the Secretary of State of the
State of Delaware, or (c) such other date and time as is provided in the Merger
Agreement (the "Effective Time").
A-1
<PAGE> 172
Section 1.3 Effects of Merger.
(a) At the Effective Time: (i) the separate existence of Sub shall cease
and Sub shall be merged with and into EPIC (Sub and EPIC are sometimes referred
to collectively herein as the "Constituent Corporations" and EPIC is sometimes
referred to herein as the "Surviving Corporation"); (ii) the Articles of
Incorporation and Bylaws of EPIC as in effect immediately prior to the Effective
Time shall be the Article of Incorporation and Bylaws of the Surviving
Corporation until amended in accordance with the terms thereof and in accordance
with applicable law.
(b) The Merger shall have the effects set forth in this Agreement and in
the CGCL and the DGCL. Without limiting the generality of the foregoing, from
and after the Effective Time, the Surviving Corporation shall possess all the
rights, privileges, powers and franchises of a public as well as of a private
nature, and be subject to all the restrictions, disabilities and duties of each
of the Constituent Corporations; and all and singular rights, privileges, powers
and franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well as for stock subscriptions and all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
the Surviving Corporation, and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Constituent
Corporations, and the title to any real estate vested by deed or otherwise, in
either of the Constituent Corporations, shall not revert or be in any way
impaired; but all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thereafter attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if such debts and liabilities had been incurred by it.
Section 1.4 Directors and Officers. The directors and officers of Sub
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, and shall hold office in accordance with
the Articles of Incorporation and Bylaws of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed. The
directors and officers of EPIC immediately prior to the Effective Time and each
person who is now or at any time prior to the date of this Agreement has been an
officer or director of EPIC shall be entitled to indemnification on the terms,
and subject to the conditions, set forth in Section 6.15.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the Constituent
Corporations or the holder of any shares of Common Stock, no par value, of EPIC
("EPIC Common Stock") or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and nonassessable
share of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Synopsys-Owned Stock. All shares of
EPIC Common Stock that are owned by EPIC as treasury stock and any shares of
EPIC Common Stock owned by Synopsys, Sub or any other wholly-owned Subsidiary
(as defined in Section 9.3 below) of Synopsys shall be canceled and retired and
shall cease to exist and no stock of Synopsys or other consideration shall be
delivered in exchange therefor. All shares of Common Stock, $.01 par value, of
Synopsys ("Synopsys Common Stock") owned by EPIC shall remain unaffected by the
Merger.
(c) Exchange Ratio for EPIC Common Stock. Subject to Section 2.2, each
issued and outstanding share of EPIC Common Stock (other than shares to be
canceled in accordance with Section 2.1(b)) shall be converted into the right to
receive .7485 (the "Conversion Number") of a fully paid and nonassessable share
of Synopsys Common Stock. All such shares of EPIC Common Stock, when so
converted, shall no longer be
A-2
<PAGE> 173
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of Synopsys Common Stock and any cash in lieu of fractional shares of Synopsys
Common Stock to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with Section 2.2, without interest.
(d) EPIC Stock Options and Employee Stock Purchase Plan. At the Effective
Time, all then outstanding options to purchase EPIC Common Stock issued under
the EPIC 1990 Stock Option Plan or the EPIC 1994 Director Option Plan (together
the "EPIC Option Plans"), or issued in connection with the assumption of options
to purchase common stock of CIDA Technology, Inc. ("CIDA") in connection with
EPIC's acquisition of CIDA, will be assumed by Synopsys in accordance with
Section 6.13. Immediately prior to the Effective Time, all then outstanding
rights to acquire shares of EPIC Common Stock under the EPIC 1994 Employee Stock
Purchase Plan (the "EPIC Purchase Plan") will be exercised for the purchase of
shares of EPIC Common Stock, as provided in Section 6.13.
(e) Adjustment of Exchange Ratio. If between the date of this Agreement
and the Effective Time, the outstanding shares of Synopsys Common Stock or EPIC
Common Stock shall have been changed into a different number of shares or a
different class by reason of any reclassification, recapitalization, split-up,
stock dividend, stock combination, exchange of shares, readjustment or
otherwise, then the Conversion Number shall be correspondingly adjusted;
provided, however, that any such changes shall be subject to Sections 5.1 and
5.2 below.
(f) Dissenting Shares. Notwithstanding any provision of this Agreement to
the contrary, each outstanding share of EPIC Common Stock held by a holder
exercising dissenter's, appraisal or other similar rights ("Dissenter's Rights")
with respect to such shares pursuant to Chapter 13 or other applicable
provisions of the CGCL, who has not effectively withdrawn or lost such rights (a
"Dissenting Share"), shall not be converted into or represent a right to receive
shares of Synopsys Common Stock pursuant to this Article II, but the holder
thereof shall be entitled only to such rights as are granted by the applicable
provisions of the CGCL; provided, however, that each Dissenting Share held by a
person at the Effective Time who shall, after the Effective Time, lose such
Dissenter's Rights or withdraw such demand for appraisal or payment of fair
market value pursuant to the CGCL, shall be deemed to be converted, as of the
Effective Time, into the right to receive shares of Synopsys Common Stock and
any cash in lieu of fractional shares of Synopsys Common Stock pursuant to this
Article II. EPIC shall give Synopsys (A) prompt notice and copies of all notices
of dissent, demands for appraisal or payment of fair market value, withdrawals
of demands for appraisal or payment of fair market value, and other instruments
received by EPIC relating to the exercise of Dissenter's Rights received by EPIC
and (B) the opportunity to direct all negotiations and proceedings with respect
thereto under the CGCL. EPIC will not, except with the prior written consent of
Synopsys, voluntarily make any payment with respect to any demands for appraisal
or payment of fair market value and will not, except with the prior written
consent of Synopsys, settle or offer to settle any such demands.
Section 2.2 Exchange of Certificates. The procedures for exchanging
outstanding shares of EPIC Common Stock for Synopsys Common Stock pursuant to
the Merger are set forth in Exhibit A, which is deemed to be part of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EPIC
EPIC represents and warrants to Synopsys and Sub that the statements
contained in this Article III are true and correct, except (i) as disclosed in
the EPIC SEC Reports (as defined in Section 3.5(a)) filed prior to the date of
this Agreement or (ii) in the case of the representations and warranties in
Sections 3.1, 3.2, 3.4(b), 3.5 through 3.15, 3.17 and 3.21, where the failure to
be true and correct would not, either individually or in the aggregate, have an
EPIC Material Adverse Effect (as defined below). When used in connection with
EPIC or any of its Subsidiaries, the term "EPIC Material Adverse Effect" means
any change, event or effect that is materially adverse to the business, assets
(including intangible assets), liabilities, financial condition,
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operations or results of operations of EPIC and its Subsidiaries taken as a
whole; provided, however, that the following shall not be deemed to constitute
an "EPIC Material Adverse Effect": (i) an adverse change in or effect on the
revenues or gross margins of EPIC (or the direct consequences thereof) following
the date of this Agreement to the extent attributable to a delay of, reduction
in or cancellation or change in the terms of product licenses by customers of
EPIC which is directly and primarily attributable to the transactions
contemplated by this Agreement; (ii) an adverse change in or effect on the
market price of EPIC Common Stock between the date of this Agreement and the
Closing Date; or (iii) a failure of quarterly results of operations for any
quarter ending between the date of this Agreement and the Closing Date to meet
generally analysts' expectations as reflected in the First Call Consensus
estimate.
Section 3.1 Organization. Each of EPIC and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have an EPIC Material Adverse Effect. Neither EPIC nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for any such equity
or similar interest in, any corporation, limited liability company, partnership,
joint venture or other business association or entity, excluding securities of
any publicly traded company held for investment by EPIC and comprising less than
five percent (5%) of the outstanding stock of such company.
Section 3.2 EPIC Subsidiaries and Joint Ventures.
(a) All of the issued and outstanding shares of capital stock of each
Subsidiary are owned by EPIC or by a Subsidiary of EPIC and are validly issued,
fully paid, and nonassessable, and there are no outstanding subscriptions,
options, call, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants with respect to
any such Subsidiary's capital stock, including any right obligating any such
Subsidiary to issue, deliver, or sell additional shares of its capital stock.
Section 3.3 EPIC Capital Structure.
(a) The authorized capital stock of EPIC consists of 20,000,000 shares of
EPIC Common Stock and 5,000,000 shares of Preferred Stock, no par value per
share ("EPIC Preferred Stock"). As of January 15, 1997, (i) 13,762,354 shares of
EPIC Common Stock and no shares of EPIC Preferred Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
no shares of EPIC Common Stock or EPIC Preferred Stock were held in the treasury
of EPIC or by Subsidiaries of EPIC; (iii) 2,370,144 shares of EPIC Common Stock
were reserved for issuance under EPIC Stock Plans (including (A) 2,023,085
shares reserved for issuance under the EPIC 1990 Stock Option Plan, 2,008,116 of
which were subject to outstanding options and 14,969 of which were reserved for
future option grants, (B) 192,500 shares of EPIC Common Stock reserved for
issuance under the EPIC 1994 Director Option Plan, 45,832 of which were subject
to outstanding options and 146,668 of which were reserved for future option
grants, and (C) 154,559 shares of EPIC Common Stock were reserved for future
issuance pursuant to the EPIC Purchase Plan) and (iv) 98,200 shares of EPIC
Common Stock were reserved for issuance pursuant to options to purchase EPIC
Common Stock issued in connection with the assumption of options to purchase
common stock of CIDA in connection with EPIC's acquisition of CIDA. All shares
of EPIC Common Stock subject to issuance as specified above, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of EPIC or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
EPIC Common Stock or the capital stock of any EPIC Subsidiary or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations of
such Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each Subsidiary of EPIC are duly
authorized, validly issued, fully paid and nonassessable, and all such shares
(other than directors' qualifying shares in the case of foreign Subsidiaries)
are owned by EPIC or another EPIC Subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations on EPIC's voting
rights, charges or other encumbrances of any nature.
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(b) Except as set forth in Section 3.3(a), there are no equity securities
of any class of EPIC or any of its Subsidiaries, or any security exchangeable
into or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in Section 3.3(a), there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which EPIC or any of its Subsidiaries is a party or by which it is
bound obligating EPIC or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
EPIC or any of its Subsidiaries or obligating EPIC or any of its Subsidiaries to
grant, extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement, and, except for the
Voting Agreements and related proxies contemplated by this Agreement, there are
no voting trusts, proxies or other agreements or understandings with respect to
the shares of capital stock of EPIC.
Section 3.4 Authority; No Conflict; Required Filings and Consents.
(a) EPIC has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate and shareholder action on the part of EPIC, subject only (in
the case of this Agreement and certain of the transactions contemplated hereby)
to the approval of the Merger by EPIC's shareholders under the CGCL. This
Agreement has been duly executed and delivered by EPIC and constitutes the valid
and binding obligation of EPIC, enforceable in accordance with the terms
thereof, except as such enforceability may be limited by (i) bankruptcy laws and
other similar laws affecting creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law.
(b) The execution and delivery of this Agreement by EPIC do not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of any provision of the
Restated Articles of Incorporation or Bylaws of EPIC or any of its Subsidiaries
(in each case as heretofore amended), (ii) result in any violation or breach of,
or constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any benefit) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which EPIC or any of its Subsidiaries is
a party or by which any of them or any of their properties or assets may be
bound, or (iii) conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to EPIC or any of its Subsidiaries or any of their properties or
assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to EPIC or any of its Subsidiaries in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of a
pre-merger notification report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and, in the case of this
Agreement and the transactions contemplated hereby, (ii) the filing by Synopsys
of the Registration Statement (as defined in Section 3.18) with the Securities
and Exchange Commission (the "SEC") in accordance with the Securities Act of
1933, as amended (the "Securities Act"), (iii) the filing of the California
Agreement of Merger with the Secretary of State of the State of California in
accordance with the CGCL and the Delaware Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with the DGCL, and
(iv) the filing of the Proxy Statement (as defined in Section 3.18) and related
proxy materials with the SEC in accordance with the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Section 3.5 SEC Filings; Financial Statements.
(a) EPIC has filed and made available to Synopsys all forms, reports and
documents required to be filed by EPIC with the SEC, other than the unredacted
version of documents for which confidential treatment has been granted by the
SEC or for which such treatment has been applied and such application is pending
(collectively, the "EPIC SEC Reports"). The EPIC SEC Reports (i) at the time
filed, complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case
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may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such EPIC SEC Reports or necessary in
order to make the statements in such EPIC SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of EPIC's
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the EPIC SEC Reports, including any EPIC SEC
Reports filed after the date of this Agreement until the Closing (the "EPIC
Financial Statements"), complied or will comply as to form in all material
respects with the applicable published rules and regulations of the SEC with
respect thereto, was or will be prepared in accordance with U.S. generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q
promulgated by the SEC), and fairly presented or will fairly present the
consolidated financial position of EPIC and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
Section 3.6 Absence of Undisclosed Liabilities. EPIC and its Subsidiaries
do not have any liabilities, either accrued or contingent (whether or not
required to be reflected in financial statements in accordance with U.S.
generally accepted accounting principles), and whether due or to become due,
which individually or in the aggregate, are or would be reasonably likely to
have an EPIC Material Adverse Effect, other than (i) liabilities reflected in
the unaudited consolidated balance sheet of EPIC as of December 31, 1996 (the
"EPIC Balance Sheet" (which as of the date of this Agreement had not been filed
with the SEC), and (ii) normal or recurring liabilities incurred since December
31, 1996 in the ordinary course of business consistent with past practices.
Section 3.7 Absence of Certain Changes or Events. Since the date of the
EPIC Balance Sheet, EPIC and its Subsidiaries have conducted their businesses
only in the ordinary course, in a manner consistent with past practice, and
there has not been: (i) any EPIC Material Adverse Effect; (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to EPIC
or any of its Subsidiaries having an EPIC Material Adverse Effect; (iii) any
material change by EPIC or any of its Subsidiaries in its accounting methods,
principles or practices to which Synopsys has not previously consented in
writing; or (iv) any revaluation by EPIC or any of its Subsidiaries of any of
its assets having an EPIC Material Adverse Effect, including writing down the
value of capitalized software or inventory or writing off notes or accounts
receivable other than in the ordinary course of business consistent with past
practice, unless Synopsys has previously consented in writing, any other action
or event that would have required the consent of Synopsys pursuant to Section
5.1 of this Agreement had such action or event occurred after the date of this
Agreement and that could reasonably be expected to result in an EPIC Material
Adverse Effect.
Section 3.8 Taxes.
(a) For purposes of this Agreement, a "Tax" or, collectively, "Taxes" means
any and all material federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, including taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) EPIC and its Subsidiaries have accurately prepared and timely filed all
material federal, state, local and foreign returns, estimates, information
statements and reports required to be filed at or before the Effective Time
("Returns") relating to any and all Taxes concerning or attributable to EPIC or
any of its Subsidiaries or to their operations, and such Returns are true and
correct in all material respects.
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(c) EPIC and its Subsidiaries as of the Effective Time: (i) will have paid
all Taxes it is required to pay prior to the Effective Time and (ii) will have
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld, except where any failure to make
such payment or withholding would not be reasonably likely to have an EPIC
Material Adverse Effect.
(d) There is no Tax deficiency outstanding, proposed or assessed against
EPIC or any of its Subsidiaries that is not reflected as a liability on the EPIC
Balance Sheet nor has EPIC or any of its Subsidiaries executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax (other than state Taxes in the ordinary course of business
in an amount that is not material to EPIC and its Subsidiaries taken together as
a whole).
(e) Neither EPIC nor any of its Subsidiaries has any material liability for
unpaid federal, state, local or foreign Taxes that has not been accrued for or
reserved on the EPIC Balance Sheet, whether asserted or unasserted, contingent
or otherwise.
Section 3.9 Properties. All material real property leases of EPIC or any
of its Subsidiaries ("Material Lease(s)") are in good standing, valid and
effective in accordance with their respective terms, and neither EPIC nor its
Subsidiaries is in default under any of such leases, except where the lack of
such good standing, validity and effectiveness or the existence of such default
would not be reasonably likely to have an EPIC Material Adverse Effect.
Section 3.10 Intellectual Property.
(a) EPIC and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of EPIC and
its Subsidiaries as currently conducted, or planned to be conducted, the absence
of which would be reasonably likely to have an EPIC Material Adverse Effect (the
"EPIC Intellectual Property Rights").
(b) Neither EPIC nor any of its Subsidiaries is, or will as a result of the
execution and delivery of this Agreement or the performance of EPIC's
obligations under this Agreement be, in breach of any license, sublicense or
other agreement relating to the EPIC Intellectual Property Rights, or any
material licenses, sublicenses and other agreements as to which EPIC or any of
its Subsidiaries is a party and pursuant to which EPIC or any of its
Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software ("EPIC Third Party Intellectual Property Rights")
which is used in the manufacture of, incorporated in, or forms a part of any
product of EPIC or any of its Subsidiaries the breach of which would be
reasonably likely to have an EPIC Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by EPIC or any of its Subsidiaries, and which are material to the
business of EPIC and its Subsidiaries, taken as a whole, are valid and
subsisting. EPIC (i) has not been sued in any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party; and (ii) has no knowledge that the manufacturing, marketing,
licensing or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would reasonably be expected to have an EPIC Material Adverse
Effect.
Section 3.11 Agreements, Contracts and Commitments. Neither EPIC nor any
of its Subsidiaries has breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any material agreement,
contract or commitment filed as an exhibit to the EPIC SEC Reports ("EPIC
Material Contracts") in such a manner as would permit any other party to cancel
or terminate the same or would permit any other party to collect material
damages from EPIC or any of its Subsidiaries under any EPIC Material Contract.
Each EPIC Material Contract that has not expired or been terminated is in full
force and effect and is not subject to any material default thereunder of which
EPIC is aware by any party obligated to EPIC or any of its Subsidiaries pursuant
to such EPIC Material Contract. To the knowledge of EPIC and its
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Subsidiaries, none of the parties to the EPIC Material Contracts have
terminated, or in any way expressed an intent to materially reduce or terminate
the amount of business with EPIC and its Subsidiaries in the future.
Section 3.12 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against EPIC or any of its Subsidiaries pending or
as to which EPIC or any of its Subsidiaries has received any written notice of
assertion, which, if decided adversely to EPIC or such Subsidiary, could have an
EPIC Material Adverse Effect, or a material adverse effect on the ability of
EPIC to consummate the transactions contemplated by this Agreement.
Section 3.13 Environmental Matters. As of the date hereof, no underground
storage tanks are present under any property that EPIC or any of its
Subsidiaries has at any time owned, operated, occupied or leased and no amount
of any Hazardous Material (as defined in Section 9.3) is present as a result of
the actions of EPIC or any of its Subsidiaries, or any actions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that EPIC or any of its
Subsidiaries has at any time owned, operated, occupied or leased, where the
presence of such underground storage tanks or Hazardous Material is reasonably
likely to have an EPIC Material Adverse Effect. At no time has EPIC or any of
its Subsidiaries engaged in any Hazardous Materials Activities (as defined in
Section 9.3) in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity to prohibit, regulate or control Hazardous Materials
or any Hazardous Material Activity, which violation has had or is reasonably
likely to have an EPIC Material Adverse Effect. EPIC and its Subsidiaries hold
all Environmental Permits (as defined in Section 9.3), the absence of which
would be reasonably likely to have an EPIC Material Adverse Effect. No action,
proceeding, revocation proceeding, amendment procedure, writ, injunction or
claim is pending or, to the knowledge of EPIC, threatened concerning any
Environmental Permit or any Hazardous Materials Activity of EPIC or any of its
Subsidiaries. EPIC is not aware of any fact or circumstance which could involve
EPIC or any of its Subsidiaries in any environmental litigation or impose upon
EPIC or any of its Subsidiaries any environmental liability which would be
reasonably likely to have an EPIC Material Adverse Effect.
Section 3.14 Employee Benefit Plans.
(a) EPIC has made available to Synopsys all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
employee benefit plans, and all material unexpired severance agreements
(pursuant to which payments are still payable by EPIC), written or otherwise,
for the benefit of, or relating to, any current or former employee of EPIC or
any of its Subsidiaries or any trade or business (whether or not incorporated)
which is a member or which is under common control with EPIC within the meaning
of Section 414 of the Code (an "ERISA Affiliate") (together, the "EPIC Employee
Plans").
(b) With respect to each EPIC Employee Plan, EPIC has made available to
Synopsys, a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service ("IRS") with respect to an EPIC
Employee Plan subject to such filing requirement, (ii) such EPIC Employee Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
EPIC Employee Plan and (iv) the most recent actuarial report or valuation
relating to an EPIC Employee Plan subject to Title IV of ERISA.
(c) With respect to the EPIC Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of EPIC, there exists no
condition or set of circumstances in connection with which EPIC or any of its
Subsidiaries could be subject to any liability that is reasonably likely to have
an EPIC Material Adverse Effect under ERISA, the Code or any other applicable
law.
(d) With respect to the EPIC Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with U.S. generally accepted accounting principles, on the EPIC
Financial Statements, which obligations are reasonably expected to have an EPIC
Material Adverse Effect.
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(e) Except as provided for in this Agreement, neither EPIC nor any of its
Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
EPIC or any of its Subsidiaries, the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving EPIC of the nature contemplated by this Agreement, (iii) agreement
with any officer of EPIC or any of its Subsidiaries providing any term of
employment or compensation guarantee extending for a period longer than one year
from the date hereof or for the payment of compensation in excess of one hundred
thousand dollars ($100,000) per annum, or (iv) agreement or plan, including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
Section 3.15 Compliance with Laws. Each of EPIC and its Subsidiaries has
complied in all material respects with all applicable federal, state, local and
foreign statutes, laws and regulations, and is not in violation of, and has not
received any notices of violation with respect to, any such statute, law or
regulation, with respect to the conduct of its business or the ownership or
operation of its business, including the federal Foreign Corrupt Practices Act
and all United States statutes, laws and regulations as from time to time govern
the license and delivery of technology and products abroad by persons subject to
the jurisdiction of the United States.
Section 3.16 Pooling of Interests. Neither EPIC nor any of its Affiliates
(as defined in Section 6.11) has, through the date of this Agreement, taken or
agreed to take any action which could materially affect the ability of Synopsys
to account for the business combination to be effected by the Merger as a
pooling of interests.
Section 3.17 Interested Party Transactions. Since the date of EPIC's most
recent proxy statement to its shareholders, no event has occurred that would be
required to be reported by EPIC as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.
Section 3.18 Registration Statement; Proxy Statement/Prospectus. The
information supplied to Synopsys by EPIC for inclusion in the registration
statement of Synopsys on Form S-4 pursuant to which shares of Synopsys Common
Stock issued in the Merger will be registered with the SEC (the "Registration
Statement") does not contain, and at the time the Registration Statement is
declared effective by the SEC shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the statements in the
Registration Statement, in light of the circumstances under which they were
made, not misleading. The information supplied by EPIC for inclusion in the
proxy statement/prospectus (the "Proxy Statement") to be sent to the
shareholders of EPIC in connection with the special meeting of EPIC's
shareholders to consider this Agreement and the Merger (the "EPIC Shareholders
Meeting") and to the stockholders of Synopsys in connection with the meeting of
Synopsys stockholders to approve the issuance of Synopsys Common Stock in
connection with the transactions contemplated by this Agreement (the "Synopsys
Stockholders Meeting") shall not, on the date the Proxy Statement is first
mailed to shareholders of EPIC and stockholders of Synopsys, at the time of the
EPIC Shareholders Meeting, the Synopsys Stockholders Meeting or at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it was made, is false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to make
the statements made in the Proxy Statement not false or misleading or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the EPIC
Shareholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to EPIC or any of its Affiliates,
officers or directors should be discovered by EPIC which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, EPIC shall promptly inform Synopsys.
Section 3.19 Payments Resulting from Mergers. Except for arrangements with
Tammy S. Liu, Gary S. Larsen and Jacques Benkoski, the consummation or
announcement of any transaction contemplated by this
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Agreement will not (either alone or upon the occurrence of any additional or
further acts or events) result in any material payment (whether of severance pay
or otherwise) becoming due from EPIC or any of its Subsidiaries to any officer,
employee, former employee or director thereof of to the trustee under (i) any
management, employment, deferred compensation, severance (including any payment,
right or benefit resulting from a change in control), bonus or other contract
for personal services with any officer, director or employee or any plan,
agreement or understanding similar to any of the foregoing, or any "rabbi trust"
or similar arrangement, or (ii) material benefit under any EPIC benefit plan
being established or becoming accelerated, vested or payable.
Section 3.20 Opinion of Financial Advisor. The financial advisor to EPIC,
Morgan Stanley & Co. Incorporated, has delivered to EPIC an opinion dated the
date of this Agreement to the effect that the Conversion Number is fair from a
financial point of view to the shareholders of EPIC.
Section 3.21 Substantial Distributors and Customers. Of the twenty (20)
largest distributors and customers of EPIC and its Subsidiaries on the basis of
consolidated revenues for the most recently completed fiscal year, no such
distributor or customer has ceased or materially reduced its purchases or orders
from, or use of the services of, EPIC and its Subsidiaries or, to the knowledge
of EPIC and its Subsidiaries, has threatened to cease or materially reduce such
purchases, orders or use after the date hereof, and, to the knowledge of EPIC
and its Subsidiaries, no such distributor or customer is threatened with
bankruptcy or insolvency.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SYNOPSYS AND SUB
Synopsys and Sub represent and warrant to EPIC that the statements
contained in this Article IV are true and correct, except (i) as disclosed in
the Synopsys SEC Reports (as defined in Section 4.4(a)) filed prior to the date
of this Agreement, or (ii) in the case of the representations and warranties in
Sections 4.1, 4.3(b), 4.4 through 4.14, and 4.16, where the failure to be true
and correct would not, either individually or in the aggregate, have a Synopsys
Material Adverse Effect (as defined below). When used in connection with
Synopsys or any of its Subsidiaries, the term "Synopsys Material Adverse Effect"
means any change, event or effect that is materially adverse to the business,
assets (including intangible assets), liabilities, financial condition,
operations or results of operations of Synopsys and its Subsidiaries, taken as a
whole; provided, however, that the following shall not be deemed to constitute a
"Synopsys Material Adverse Effect": (i) an adverse change in or effect on the
revenues or gross margins of Synopsys (or the direct consequences thereof)
following the date of this Agreement to the extent attributable to a delay of,
reduction in or cancellation or change in the terms of product licenses by
customers of Synopsys to the extent attributable directly and primarily to the
transactions contemplated by this Agreement; (ii) an adverse change in or effect
on the market price of Synopsys Common Stock between the date of this Agreement
and the Closing Date; or (iii) a failure of quarterly results of operations for
any quarter ending between the date of this Agreement and the Closing Date to
meet generally analysts' expectations as reflected in the First Call Consensus
estimate.
Section 4.1 Organization. Each of Synopsys, Sub and the other Subsidiaries
of Synopsys is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Synopsys
Material Adverse Effect. Neither Synopsys nor any of its Subsidiaries directly
or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any such equity or similar
interest in, any corporation, limited liability company, partnership, joint
venture or other business association or entity, excluding securities of any
publicly traded company held for investment by Synopsys and comprising less than
five percent (5%) of the outstanding stock of such company.
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Section 4.2 Synopsys Capital Structure.
(a) The authorized capital stock of Synopsys consists of 100,000,000 shares
of Synopsys Common Stock, $0.01 par value and 2,000,000 shares of Preferred
Stock, $.01 par value ("Synopsys Preferred Stock"). As of December 28, 1996: (i)
40,779,853 shares of Synopsys Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable; (ii) no shares of
Synopsys Common Stock were held in the treasury of Synopsys or by Subsidiaries
of Synopsys; (iii) 7,540,940 shares of Synopsys Common Stock were reserved for
issuance in respect of outstanding options issued under the Synopsys 1992 Stock
Option Plan and 2,277,845 shares of Synopsys Common Stock were reserved for
issuance in respect of options authorized for future issuance under the Synopsys
1992 Stock Option Plan, and (iv) 65,000 shares of Synopsys Common Stock were
reserved for issuance in respect of outstanding options issued under the
Synopsys 1994 Non-Employee Directors Plan and 155,000 shares of Synopsys Common
Stock were reserved for future issuance in respect of options authorized for
future issuance under the Synopsys 1994 Non-Employee Directors Plan. (The
Synopsys 1992 Stock Option Plan and the Synopsys 1994 Non-Employee Directors
Option Plan are hereinafter sometimes referred to as the "Synopsys Option
Plans".) As of January 15, 1997, 554,004 shares of Synopsys Common Stock were
reserved for future issuance pursuant to rights outstanding under the Synopsys
Employee Stock Purchase Plan (the "Synopsys Purchase Plan"). No material change
in such capitalization has occurred between December 28, 1996 and the date of
this Agreement. As of the date of this Agreement, none of the shares of Synopsys
Preferred Stock are issued and outstanding. All shares of Synopsys Common Stock
subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. There
are no obligations, contingent or otherwise, of Synopsys or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Synopsys
Common Stock or the capital stock of any Synopsys Subsidiary or to provide funds
to or make any investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
bank obligations of such Subsidiaries entered into in the ordinary course of
business. All of the outstanding shares of capital stock of each Subsidiary of
Synopsys are duly authorized, validly issued, fully paid and nonassessable, and
all such shares (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by Synopsys or another Synopsys Subsidiary free and
clear of all security interests, liens, claims, pledges, agreements, limitations
on the voting rights of Synopsys, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.2 or as reserved for future
grants of options under the Synopsys Option Plans or the Synopsys Purchase Plan,
there are no equity securities of any class of Synopsys or any of its
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except as set forth in
this Section 4.2, there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which Synopsys or any of
its Subsidiaries is a party or by which it is bound obligating Synopsys or any
of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock of Synopsys or any of its
Subsidiaries or obligating Synopsys or any of its Subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement, and to the best knowledge of
Synopsys, there are no voting trusts, proxies or other agreements or
understandings with respect to the shares of capital stock of Synopsys.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) Synopsys has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate and stockholder action on the part of Synopsys, subject
only to the approval by Synopsys stockholders of the issuance of the shares of
Synopsys Common Stock issuable pursuant to this Agreement. This Agreement has
been duly executed and delivered by Synopsys and constitutes the valid and
binding obligation of Synopsys, enforceable in accordance with the terms
thereof, except as such enforceability may be limited by (i) bankruptcy laws and
other similar laws affecting creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law.
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(b) The execution and delivery of this Agreement by Synopsys do not, and
the consummation of the transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Synopsys, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, contract
or other agreement, instrument or obligation to which Synopsys or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iii) conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Synopsys or any of its Subsidiaries or any of its or
their properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not be reasonably likely to have a Synopsys Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Synopsys or any of its Subsidiaries in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby and thereby, except for (i) the filing of a pre-merger
notification report under the HSR Act, and, in the case of this Agreement and
certain of the transactions contemplated hereby, (ii) the filing of the
Registration Statement with the SEC in accordance with the Securities Act, (iii)
the filing of an Agreement of Merger with the Secretary of State of the State of
California in accordance with the CGCL and the Delaware Certificate of Merger
with the Secretary of State of the State of Delaware, (iv) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and the laws
of any foreign country, (v) the filing of the Registration Statement and the
Proxy Statement (as defined in Section 3.18) with the SEC in accordance with the
Exchange Act and (vi) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not be reasonably likely
to have a Synopsys Material Adverse Effect or a material adverse effect on the
ability of Synopsys to consummate the transactions contemplated by this
Agreement.
Section 4.4 SEC Filings; Financial Statements.
(a) Synopsys has filed and made available to EPIC all forms, reports and
documents required to be filed by Synopsys with the SEC (collectively, the
"Synopsys SEC Reports"). The Synopsys SEC Reports (i) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
such Synopsys SEC Reports or necessary in order to make the statements in such
Synopsys SEC Reports, in the light of the circumstances under which they were
made, not misleading. No Synopsys Subsidiary is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Synopsys SEC Reports, including any Synopsys
SEC Reports filed after the date of this Agreement until the Closing, complied
or will comply as to form in all material respects with the applicable published
rules and regulations of the SEC with respect thereto, was or will be prepared
in accordance with U.S. generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q promulgated by the SEC) and fairly presented or will
present the consolidated financial position of Synopsys and its Subsidiaries as
at the respective dates and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
Section 4.5 Absence of Undisclosed Liabilities. Except as disclosed in
writing to EPIC, Synopsys and its Subsidiaries do not have any liabilities,
either accrued or contingent (whether or not required to be reflected in
financial statements in accordance with U.S. generally accepted accounting
principles), and
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whether due or to become due, which individually or in the aggregate would be
reasonably likely to have a Synopsys Material Adverse Effect, other than (i)
liabilities reflected in the unaudited consolidated balance sheet of Synopsys as
of December 28, 1996 (the "Synopsys Balance Sheet") (which as of the date of
this Agreement has not been filed with the SEC), and (ii) normal or recurring
liabilities incurred since December 28, 1996 in the ordinary course of business
consistent with past practices.
Section 4.6 Absence of Certain Changes or Events. Since the date of the
Synopsys Balance Sheet, Synopsys and its Subsidiaries have conducted their
businesses only in the ordinary course, in a manner consistent with past
practice, and there has not been: (i) any Synopsys Material Adverse Effect; (ii)
any damage, destruction or loss (whether or not covered by insurance) with
respect to Synopsys or any of its Subsidiaries having a Synopsys Material
Adverse Effect; (iii) any material change by Synopsys in its accounting methods,
principles or practices to which EPIC has not previously consented in writing;
(iv) any revaluation by Synopsys of any of its assets having a Synopsys Material
Adverse Effect, including writing down the value of capitalized software or
inventory or writing off notes or accounts receivable other than in the ordinary
course of business consistent with past practice, unless EPIC has previously
consented in writing; or (v) any other action or event that would have required
the consent of EPIC pursuant to Section 5.2 of this Agreement had such action or
event occurred after the date of this Agreement and that could reasonably be
expected to result in a Synopsys Material Adverse Effect.
Section 4.7 Taxes.
(a) Synopsys has accurately prepared and timely filed all material required
Returns relating to any and all Taxes concerning or attributable to Synopsys or
its operations and such Returns are true and correct in all material respects.
(b) Synopsys as of the Effective Time: (i) will have paid all Taxes it is
required to pay prior to the Effective Time and (ii) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, except where any failure to make such
payment or withholding would not be reasonably likely to have a Synopsys
Material Adverse Effect.
(c) There is no Tax deficiency outstanding, proposed or assessed against
Synopsys that is not reflected as a liability on the Synopsys Balance Sheet nor
has Synopsys executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax (other than state Taxes
in the ordinary course of business in an amount that is not material to Synopsys
and its Subsidiaries taken together as a whole).
(d) Synopsys does not have any material liabilities for unpaid federal,
state, local and foreign Taxes that have not been accrued for or reserved on
Synopsys Balance Sheet, whether asserted or unasserted, contingent or otherwise.
Section 4.8 Properties. All Material Leases under which Synopsys and its
Subsidiaries lease real property are in good standing, valid and effective in
accordance with their respective terms, and neither Synopsys nor any of its
Subsidiaries is in default under any material provision of such Material Leases,
except where the lack of such good standing, validity and effectiveness or the
existence of such default would not be reasonably likely to have a Synopsys
Material Adverse Effect.
Section 4.9 Intellectual Property.
(a) Synopsys owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or material that are necessary to conduct the business of Synopsys
as currently conducted or planned to be conducted, the absence of which would be
reasonably likely to have a Synopsys Material Adverse Effect (the "Synopsys
Intellectual Property Rights").
(b) Synopsys is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement
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relating to the Synopsys Intellectual Property Rights or any material license,
sublicense or other agreement pursuant to which Synopsys is authorized to use
any third party patents, trademarks or copyrights, including software, which are
incorporated in, are or form a part of any Synopsys product that is material to
its business, the breach of which would be reasonably likely to have a Synopsys
Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Synopsys or any of its Subsidiaries and which are material to the
business of Synopsys and its Subsidiaries, taken as a whole, are valid and
subsisting. Synopsys has no knowledge that the manufacturing, marketing,
licensing or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement would be reasonably likely to have a Synopsys Material Adverse
Effect.
Section 4.10 Agreements, Contracts and Commitments. Synopsys has not
breached, or received in writing any claim or threat that it has breached, any
of the terms or conditions of any material agreement, contract or commitment
filed as an exhibit to the Synopsys SEC Reports ("Synopsys Material Contracts")
in such a manner as would permit any other party to cancel or terminate the same
or would permit any other party to seek material damages from Synopsys under any
Synopsys Material Contract. Each Synopsys Material Contract that has not expired
or been terminated is in full force and effect and is not subject to any
material default thereunder of which Synopsys is aware by any party obligated to
Synopsys pursuant to such Synopsys Material Contract.
Section 4.11 Litigation. There is no action, suit or proceeding, claim,
arbitration or investigation against Synopsys pending or as to which Synopsys
has received any written notice of assertion, which is reasonably likely to have
a Synopsys Material Adverse Effect or a material adverse effect on the ability
of Synopsys to consummate the transactions contemplated by this Agreement.
Section 4.12 Environmental Matters. No underground storage tanks are
present under any property that Synopsys or any of its Subsidiaries has at any
time owned, operated, occupied or leased. As of the date hereof, no amount of
any Hazardous Material (as defined in Section 9.3) is present as a result of the
actions of Synopsys, or, to the knowledge of Synopsys, as a result of any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water, that Synopsys or
any of its Subsidiaries has at any time owned, operated, occupied or leased,
where the presence of such Hazardous Materials is reasonably likely to have a
Synopsys Material Adverse Effect. At no time has Synopsys or any of its
Subsidiaries engaged in Hazardous Materials Activities (as defined in Section
9.3) in violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity which have had or are reasonably likely to have a
Synopsys Material Adverse Effect. Synopsys currently holds all Environmental
Permits (as defined in Section 9.3), the absence of which would be reasonably
likely to have a Synopsys Material Adverse Effect. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is pending
or, to the knowledge of Synopsys, threatened concerning any Environmental Permit
or any Hazardous Materials Activity of Synopsys. Synopsys is not aware of any
fact or circumstance which could involve Synopsys in any environmental
litigation or impose upon Synopsys any environmental liability, which would be
reasonably likely to have a Synopsys Material Adverse Effect.
Section 4.13 Employee Benefit Plans.
(a) Synopsys has made available to EPIC all employee benefit plans (as
defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar employee benefit plans, and all material unexpired severance agreements
(pursuant to which payments are still payable by Synopsys), written or
otherwise, for the benefit of, or relating to, any current or former employee of
Synopsys or any ERISA Affiliate of Synopsys (together, the "Synopsys Employee
Plans").
(b) With respect to each Synopsys Employee Plan, Synopsys has made
available to EPIC, a true and correct copy of (i) the most recent annual report
(Form 5500) filed with the IRS with respect to Synopsys Employee Plan subject to
such filing requirement, (ii) such Synopsys Employee Plan, (iii) each trust
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agreement and group annuity contract, if any, relating to such Synopsys Employee
Plan and (iv) the most recent actuarial report or valuation relating to a
Synopsys Employee Plan subject to Title IV of ERISA.
(c) With respect to the Synopsys Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Synopsys, there exists
no condition or set of circumstances in connection with which Synopsys could be
subject to any liability that is reasonably expected to have a Synopsys Material
Adverse Effect, under ERISA, the Code or any other applicable law.
(d) With respect to the Synopsys Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with U.S. generally accepted accounting principles, on the
financial statements of Synopsys, which obligations are reasonably expected to
have a Synopsys Material Adverse Effect.
(e) Except as provided for in this Agreement, neither Synopsys nor any of
its Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
Synopsys or any of its Subsidiaries, the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Synopsys of the nature contemplated by this Agreement, (iii) agreement
with any officer of Synopsys providing any term of employment or compensation
guarantee extending for a period longer than one year from the date hereof, or
(iv) agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
Section 4.14 Compliance with Laws. Synopsys has complied with all federal,
state, local and foreign statutes, laws and regulations, and, is not in
violation of, and has not received any notices of violation with respect to, any
such statute, law or regulation, with respect to the conduct of its business or
the ownership or operation of its business, including the federal Foreign
Corrupt Practices Act and all United States statutes, laws and regulations as
from time to time govern the license and delivery of technology and products
abroad by persons subject to the jurisdiction of the United States, except for
failures to comply or violations which would not be reasonably likely to have a
Synopsys Material Adverse Effect.
Section 4.15 Pooling of Interests. To its knowledge, neither Synopsys nor
any of its Affiliates (as defined in Section 6.11) has, through the date of this
Agreement, taken or agreed to take any action which would prevent Synopsys from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
Section 4.16 Interested Party Transactions. Since the date of the most
recent proxy statement of Synopsys to its stockholders, no event has occurred
that would be required to be reported by Synopsys as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
Section 4.17 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Synopsys for inclusion in the Registration Statement
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Synopsys for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to shareholders of EPIC, at the time of the
EPIC Shareholders Meeting or at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the EPIC Shareholders Meeting which has become false
or misleading. If at any time prior to the Effective Time any event relating to
Synopsys or any of its Affiliates, officers or directors
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should be discovered by Synopsys which should be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement, Synopsys
shall promptly inform EPIC.
Section 4.18 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of EPIC. Except as proposed in the EPIC Proxy
Statement for the 1997 Annual Meeting of Shareholders or as expressly
contemplated by this Agreement, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, EPIC agrees as to itself and its Subsidiaries (except to
the extent that Synopsys shall otherwise consent in writing (which consent shall
not be unreasonably withheld), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted, to
pay its debts and taxes when due, subject to good faith disputes over such debts
or taxes, to pay or perform its other obligations when due, and to use all
reasonable efforts consistent with past practices and policies to (i) preserve
intact its present business organization, (ii) keep available the services of
its present officers and key employees and (iii) preserve its relationships with
customers, suppliers, distributors, licensors, licensees and others having
business dealings with it. Without limiting the generality of the foregoing,
EPIC shall not (and shall not permit any of its Subsidiaries to), without the
prior written consent of Synopsys (which consent shall not be unreasonably
withheld):
(a) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of EPIC
or authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement;
(b) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the EPIC Intellectual Property Rights other
than in the ordinary course of business consistent with past practices;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(d) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities other than (i) the issuance of rights to purchase shares of EPIC
Common Stock as and to the extent required under the EPIC Option Plans; and
(ii) the issuance of EPIC Common Stock upon the exercise of EPIC Stock
Options (as defined in Section 6.13(a)) outstanding on the date of this
Agreement in accordance with their present terms or pursuant to the EPIC
Purchase Plan in accordance with its present terms, and (iii) the granting,
in the ordinary course of business consistent with past practice, pursuant
to EPIC Stock Plans in effect on the date of this Agreement, of EPIC
Options to purchase up to a number of shares of EPIC Common Stock as shall
be agreed to by EPIC and Synopsys, and the issuance of EPIC Common Stock
upon exercise thereof.
(e) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any
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corporation, partnership or other business organization or division (any
such transaction is referred to as a "Permitted Synopsys Acquisition");
(f) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of EPIC and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business;
(g) take any action to: (i) increase or agree to increase the
compensation payable or to become payable to its officers or employees,
except for increases in salary or wages of employees in accordance with
agreements entered into before the date of this Agreement or otherwise in
the ordinary course of EPIC's business consistent with past practices, (ii)
grant any additional severance or termination pay to, or enter into any
employment or severance agreements with, officers, (iii) grant any
severance or termination pay to, or enter into any employment or severance
agreement, with any employee, except in accordance with agreements entered
into before the date of this Agreement or otherwise in the ordinary course
of EPIC's business consistent with past practices, (iv) enter into any
collective bargaining agreement, or (v) establish, adopt, enter into or
amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust,
fund, policy or arrangement for the benefit of any directors, officers or
employees;
(h) amend or propose to amend its Articles of Incorporation or Bylaws,
except as contemplated by this Agreement;
(i) take, or agree in writing or otherwise to take, any of the actions
described in the foregoing clauses (a) through (h), or any action which is
reasonably likely to make any of EPIC's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
Section 5.2 Covenants of Synopsys. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, except as expressly contemplated by this Agreement,
Synopsys shall not, without the prior written consent of EPIC (which consent
shall not be unreasonably withheld):
(a) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock (other than stock splits of
its Common Stock or stock dividends payable in shares of Common Stock), or
purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in
connection with any termination of service by such party;
(b) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the issuance pursuant to a Permitted Synopsys
Acquisition (as defined in clause (d) below), or (ii) the grant to
employees, directors or consultants of options to purchase Synopsys Common
Stock in the ordinary course of business consistent with past practices
pursuant to agreements and plans entered into or established before the
date of this Agreement or otherwise in the ordinary course of business
consistent with past practices, or (iii) as contemplated in this Agreement;
(c) amend or propose to amend its Certificate of Incorporation or
Bylaws, except as contemplated by this Agreement; or
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or otherwise, any business or any corporation,
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partnership or other business organization or division, for consideration
having a fair market value (at the time of the public announcement of such
acquisition or agreement) in excess of $100,000,000;
(e) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of Synopsys and its Subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business; or
(f) take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (e) above, or any action which is
reasonably likely to make any representations or warranties of Synopsys
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
Section 5.3 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Synopsys and EPIC shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations and shall promptly provide the other party or its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger and the transactions contemplated
hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, EPIC shall not, directly or indirectly, through any officer, director,
employee, representative or agent, (i) solicit, initiate or encourage any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, share exchange, business
combination, sale of substantial assets, sale of shares of capital stock
(including without limitation pursuant to a tender offer) or similar transaction
or series of transactions involving EPIC, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"), or (ii)
engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Acquisition Proposal, or
(iii) agree to, approve or recommend any Acquisition Proposal; provided,
however, that nothing contained in this Agreement shall prevent EPIC or its
Board of Directors from (A) furnishing non-public information to, or entering
into discussions or negotiations with, any person or entity in connection with
an unsolicited bona fide written Acquisition Proposal by such person or entity
(including a new and unsolicited Acquisition Proposal received by EPIC after the
execution of this Agreement from a person or entity whose initial contact with
EPIC may have been solicited by EPIC prior to the execution of this Agreement)
or recommending such an unsolicited bona fide written Acquisition Proposal to
the shareholders of EPIC, if and only to the extent that (1) the Board of
Directors of EPIC believes in good faith (after consultation with and based upon
the advice of its financial advisor) that such Acquisition Proposal would, if
consummated, result in a transaction more favorable to EPIC shareholders from a
financial point of view than the transaction contemplated by this Agreement (any
such more favorable Acquisition Proposal being referred to in this Agreement as
a "Superior Proposal") and the Board of Directors of EPIC determines in good
faith after consultation with and based upon the advice of outside legal counsel
that such action is necessary for EPIC to comply with its fiduciary duties to
its shareholders under applicable law and (2) prior to furnishing such
non-public information to, or entering into discussions or negotiations with,
such person or entity, such Board of Directors receives from such person or
entity an executed confidentiality agreement with terms no less favorable to
such party than those contained in the Confidentiality Agreement (as defined in
Section 6.5(c)) or (B) complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal.
(b) Upon compliance with the foregoing, following receipt of a Superior
Proposal, EPIC shall be entitled to (i) withdraw, modify or refrain from making
its recommendation referred to in Section 6.2 and approve and recommend to the
shareholders of EPIC a Superior Proposal and (ii) enter into an agreement with
such
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third party concerning a Superior Proposal provided that EPIC shall concurrently
make payment in full to Synopsys of the fee provided in Section 8.3(b) below.
(c) EPIC shall notify Synopsys within twenty four (24) hours after receipt
by EPIC (or its advisors) of any Acquisition Proposal or any request for
nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of EPIC by any person or entity that informs
EPIC that it is considering making, or has made, an Acquisition Proposal. Such
notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact. EPIC shall notify Synopsys of any discussions with
any such offeror within 24 hours of such discussions and shall disclose to
Synopsys within such 24-hour period the substance of such discussions in
reasonable detail.
(d) EPIC shall be entitled to provide copies of this Section 6.1 to third
parties who, on an unsolicited basis after the date of this Agreement, contact
EPIC regarding an Acquisition Proposal, provided that Synopsys shall
concurrently be notified of such contact and delivery of such copy.
Section 6.2 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement,
Synopsys and EPIC shall prepare and file with the SEC a preliminary Proxy
Statement in form and substance satisfactory to each of EPIC and Synopsys, and
Synopsys shall prepare and file with the SEC the Registration Statement, in
which the Proxy Statement will be included. Each of Synopsys and EPIC shall use
its reasonable efforts to respond to any comments of the SEC, to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing and to cause the Proxy Statement to be mailed
to such company's stockholders and shareholders at the earliest practicable
time. As promptly as practicable after the date of this Agreement, Synopsys and
EPIC shall prepare and file any other filings required under the Exchange Act,
the Securities Act or any other federal or state securities laws relating to the
Merger and the transactions contemplated by this Agreement, including, without
limitation, under the HSR Act and state takeover laws (the "Other Filings").
Each of Synopsys and EPIC will notify the other promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff or
any other government officials for amendments or supplements to the Registration
Statement, the Proxy Statement or any Other Filing or for additional information
and will supply the other with copies of all correspondence between such company
or any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any Other Filing. The Proxy
Statement, the Registration Statement and the Other Filings shall comply in all
material respects with all applicable requirements of law. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Proxy Statement, the Registration Statement or any Other Filing, Synopsys or
EPIC, as the case may be, shall promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff or any other government officials,
and/or mailing to stockholders of Synopsys and shareholders of EPIC, such
amendment or supplement. The Proxy Statement shall include the recommendations
of the Board of Directors of Synopsys in favor of the issuance of Synopsys
Common Stock in connection with the Merger and of the Board of Directors of EPIC
in favor of the Merger and this Agreement, provided that the recommendations of
the Board of Directors of EPIC in favor of the Merger and approval of this
Agreement and the Board of Directors of Synopsys in favor of the issuance of
Synopsys Common Stock in connection with the Merger may not be included or may
be withdrawn if previously included if the Board of Directors of EPIC has
accepted a Superior Proposal in accordance with the terms of Section 6.1.
Section 6.3 Consents. Each of Synopsys and EPIC shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals, and to make all
necessary notifications or filings under any of Synopsys' or EPIC's material
agreements, contracts, licenses or leases as may be necessary or advisable to
consummate the Merger and the other transactions contemplated by this Agreement.
Section 6.4 Current Nasdaq Quotation. Each of Synopsys and EPIC agrees to
continue the quotation of Synopsys Common Stock and EPIC Common Stock,
respectively, on the Nasdaq National Market during the term of the Agreement.
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Section 6.5 Access to Information.
(a) Upon reasonable notice, EPIC shall (and shall cause each of its
Subsidiaries to) afford (i) to the officers, employees, independent auditors,
legal counsel (including outside legal counsel) and other representatives of
Synopsys, reasonable access, during normal business hours during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records in order that Synopsys have a full opportunity to make
such investigation as it reasonably desires to make of EPIC and its Subsidiaries
and (ii) to the independent auditors of Synopsys, reasonable access to the audit
work papers and other records of the independent auditors of EPIC and its
Subsidiaries. Additionally EPIC and its Subsidiaries will permit Synopsys to
make such reasonable inspections of EPIC and its Subsidiaries and their
respective operations during normal business hours as Synopsys may reasonably
require and EPIC and its Subsidiaries will cause its officers and the officers
of its Subsidiaries to furnish Synopsys with such financial and operating data
and other information with respect to the business and properties of EPIC and
its Subsidiaries as Synopsys may from time to time reasonably request. During
the period prior to the Effective Time, EPIC shall (and shall cause each of its
Subsidiaries to) furnish promptly to Synopsys (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(ii) all other information concerning its business, properties and personnel as
Synopsys may reasonably request.
(b) Upon reasonable notice, Synopsys shall (and shall cause each of its
Subsidiaries to) afford (i) to the officers, employees, independent auditors,
outside legal counsel and other representatives of EPIC, reasonable access,
during normal business hours during the period prior to the Effective Date, to
all its properties, books, contracts, commitments and records and, (ii) to the
independent accountants of EPIC, reasonable access to the audit work papers and
other records of the independent auditors of Synopsys and its Subsidiaries.
Additionally, Synopsys and its Subsidiaries will permit EPIC to make such
reasonable inspections of Synopsys and its Subsidiaries and their respective
operations during normal business hours as EPIC may reasonably require and
Synopsys and its Subsidiaries will cause its officers and the officers of its
Subsidiaries to furnish EPIC with such financial and operating data and other
information with respect to the business and properties of Synopsys and its
Subsidiaries as EPIC may from time to time reasonably request. During the period
prior to the Effective Time, Synopsys shall (and shall cause each of its
Subsidiaries to) furnish promptly to EPIC (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws and (ii) all
other information concerning its business, properties and personnel as EPIC may
reasonably request.
(c) The parties will hold any information provided pursuant to Section 6.5
(a) or (b) in confidence in accordance with the terms and conditions of that
certain letter agreement dated January 12, 1997, between EPIC and Synopsys (the
"Confidentiality Agreement"). No information or knowledge obtained in any
investigation pursuant to this Section 6.5 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the Merger.
Section 6.6 Stockholder Meetings. As promptly as practicable after the
date hereof, EPIC shall call a meeting of its shareholders for the purpose of
voting upon the Merger and this Agreement and Synopsys shall call a meeting of
its stockholders for the purpose of voting upon the issuance of the shares of
Synopsys Common Stock in connection with the Merger. EPIC and Synopsys shall
coordinate and cooperate with respect to the timing of such meetings and shall
use their respective reasonable efforts to hold such meetings on the same day as
soon as practicable after the date hereof.
Section 6.7 Legal Conditions to Merger. Each of Synopsys and EPIC will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger (which
actions shall include, without limitation, furnishing all information required
under the HSR Act and in connection with approvals of or filings with any other
Governmental Entity) and will promptly cooperate with and furnish information to
each other in connection with any such requirements imposed upon any of them or
any of their Subsidiaries in connection with the Merger. Each of Synopsys and
EPIC will, and will cause its Subsidiaries to, take all reasonable actions
necessary (i) to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental
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Entity or other public third party, required to be obtained or made by EPIC,
Synopsys or any of their Subsidiaries in connection with the Merger or the
taking of any action contemplated by this Agreement, (ii) to lift, rescind or
mitigate the effect of any injunction or restraining order or other order
adversely affecting its ability to consummate the transactions contemplated
hereby, (iii) to fulfill all conditions applicable to Synopsys, EPIC or Sub
pursuant to this Agreement, and (iv) to prevent, with respect to a threatened or
pending temporary, preliminary or permanent injunction or other order, decree or
ruling or statute, rule, regulation or executive order, the entry, enactment or
promulgation thereof, as the case may be.
Section 6.8 Public Disclosure. Synopsys and EPIC shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law.
Section 6.9 Tax-Free Reorganization. Synopsys and EPIC shall take no
action to cause the Merger fail to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
Section 6.10 Pooling Accounting. Synopsys and EPIC each agrees not to take
any action after the date of this Agreement that would adversely affect the
ability of Synopsys to treat the business combination to be effected by the
Merger as a pooling of interests, and each of Synopsys and EPIC agrees to take
such action as may be reasonably required to negate the impact of any past
actions that would adversely impact the ability of Synopsys to treat the
business combination to be effected by the Merger as a pooling of interests.
Each of EPIC and Synopsys shall use its best efforts (i) to cause its respective
Affiliates (as defined in Section 6.11) not to take any action that would
adversely affect the ability of Synopsys to account for the business combination
to be effected by the Merger as a pooling of interests and (ii) to cause its
Affiliates to sign and deliver to Synopsys a customary "pooling letter",
substantially in the form attached hereto as Exhibit D, to the extent that
receipt of such letter is required to assure the availability of pooling of
interests accounting treatment.
Section 6.11 Affiliate Agreements. Upon the execution of this Agreement,
Synopsys and EPIC will provide each other a list of those persons who are, in
the respective reasonable knowledge and judgment of Synopsys or EPIC, in each
case after consultation with legal counsel, "affiliates" of Synopsys or EPIC,
within the meaning of Rule 145 (each such person who is an "affiliate" of
Synopsys or EPIC within the meaning of Rule 145 is referred to herein as an
"Affiliate") promulgated under the Securities Act ("Rule 145"). Synopsys and
EPIC shall provide each other such information and documents as the other shall
reasonably request for purposes of reviewing such list and shall notify each
other in writing regarding any change in the identity of such Affiliates prior
to the Closing Date. EPIC shall use its reasonable efforts to deliver or cause
to be delivered to Synopsys by January 23, 1997 from each of the Affiliates of
EPIC, an executed Affiliates Agreement, substantially in the form attached
hereto as Exhibit C, by which each such Affiliate of EPIC agrees to comply with
the applicable requirements of Rule 145 ("Affiliates Agreement"); provided,
however, that it is understood that Affiliates Agreements are not likely to be
obtainable from shareholders who are institutional investors not affiliated with
any officer or director of EPIC. Synopsys shall be entitled to place appropriate
legends on the certificates evidencing any Synopsys Common Stock to be received
by such Affiliates of EPIC pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Synopsys
Common Stock, consistent with the terms of the Affiliates Agreements.
Section 6.12 Nasdaq Quotation. Synopsys shall use its best efforts to
cause the shares of Synopsys Common Stock to be issued in the Merger, and those
required to be reserved for issuance in connection with the Merger, to be
approved for quotation on the Nasdaq National Market, subject to official notice
of issuance, prior to the Closing Date.
Section 6.13 Stock Plans and Options.
(a) At the Effective Time, each outstanding option to purchase shares of
EPIC Common Stock (a "EPIC Stock Option") under the EPIC Option Plans or issued
in connection with the assumption of options to purchase common stock of CIDA in
connection with EPIC's acquisition of CIDA, whether vested or unvested, shall be
assumed by Synopsys. Accordingly, each EPIC Stock Option shall be deemed to
constitute
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an option to acquire, on the same terms and conditions as were applicable under
such EPIC Stock Option, the same number of shares of Synopsys Common Stock as
the holder of such EPIC Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full including
as to unvested shares, immediately prior to the Effective Time (rounded down to
the nearest whole number), at a price per share (rounded up to the nearest whole
cent) equal to (i) the aggregate exercise price for the shares of EPIC Common
Stock otherwise purchasable pursuant to such EPIC Stock Option divided by (ii)
the number of full shares of Synopsys Common Stock deemed purchasable pursuant
to such Synopsys Stock Option in accordance with the foregoing; provided,
however, that, in the case of any EPIC Stock Option to which Section 422 of the
Code applies ("incentive stock options"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in order to comply with Section 424(a) of the
Code.
(b) As soon as practicable after the Effective Time, Synopsys shall deliver
to the holders of EPIC Stock Options and the participants in the EPIC Option
Plans appropriate notice evidencing the foregoing assumption and setting forth
such participants' rights pursuant thereto, and the grants pursuant to the EPIC
Option Plans or under options issued in connection with the assumption of
options to purchase common stock of CIDA in connection with EPIC's acquisition
of CIDA shall continue in effect on the same terms and conditions (subject to
the adjustments required by this Section 6.13 after giving effect to the
Merger). Synopsys shall comply with the terms of the EPIC Option Plans to
ensure, to the extent required by, and subject to the provisions of, such EPIC
Option Plans, that EPIC Stock Options which qualified as incentive stock options
prior the Effective Time continue to qualify as incentive stock options after
the Effective Time.
(c) Synopsys shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Synopsys Common Stock for delivery
under EPIC Stock Options assumed in accordance with this Section 6.13. As soon
as practicable after the Effective Time, Synopsys shall file a registration
statement on Form S-3 or Form S-8 as the case may be (or any successor or other
appropriate forms), or another appropriate form with respect to the shares of
Synopsys Common Stock subject to such EPIC Stock Options and shall use its best
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such EPIC Stock options remain
outstanding. With respect to those individuals who subsequent to the Merger will
be subject to the reporting requirements under Section 16(a) of the Exchange
Act, where applicable, Synopsys shall administer the EPIC Option Plans assumed
pursuant to this Section 6.13 in a manner that complies with Rule 16b-3
promulgated by the SEC under the Exchange Act.
(d) EPIC shall take actions as are necessary to cause the "Purchase Date"
(as such term is used in the EPIC Purchase Plan) applicable to the then current
Offering Period (as such term is used in the EPIC Purchase Plan) to be the last
trading day on which the EPIC Common Stock is traded on the Nasdaq National
Market immediately prior to the Effective Time (the "Final EPIC Purchase Date");
provided, that such change in the Purchase Date shall be conditioned upon the
consummation of the Merger. On the Final EPIC Purchase Date, EPIC shall apply
the funds credited as of such date under the EPIC Purchase Plan within each
participant's payroll withholdings account to the purchase of whole shares of
EPIC Common Stock in accordance with the terms of the EPIC Purchase Plan. Any
such shares purchased under the EPIC Purchase Plan shall be automatically
converted on the same basis as all other shares of EPIC Common Stock (other than
shares canceled pursuant to Section 2.1(b) and Dissenting Shares), except that
such shares shall be converted automatically into shares of Synopsys Common
Stock without issuance of certificates representing issued and outstanding
shares of EPIC Common Stock to EPIC Purchase Plan participants.
(e) Employees of EPIC as of the Effective Time shall be permitted to
participate in the Synopsys Purchase Plan commencing on the first enrollment
date of such plan following the Effective Time, subject to the terms and
conditions of such plan (with employees receiving credit, for purposes of such
eligibility provisions, for service with EPIC or Synopsys).
Section 6.14 Brokers or Finders. Each of Synopsys and EPIC represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the
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transactions contemplated by this Agreement except Morgan Stanley & Co.
Incorporated, whose fees and expenses will be paid by EPIC in accordance with
EPIC's agreement with such firm (copies of which have been delivered by EPIC to
Synopsys prior to the date of this Agreement), and each of Synopsys and EPIC
agrees to indemnify and hold the other harmless from and against any and all
claims, liabilities or obligations with respect to any other fees, commissions
or expenses asserted by any person on the basis of any act or statement alleged
to have been made by such party or its Affiliate.
Section 6.15 Indemnification and Insurance.
(a) EPIC shall and, from and after the Effective Time, Synopsys and the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an officer, director or employee of EPIC or
any of its Subsidiaries (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party (which approval shall not
be unreasonably withheld) of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer, or
employee of EPIC or any of its Subsidiaries, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities")
including, without limitation, all losses, claims, damages, costs, expenses,
liabilities or judgments based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Agreement or the transactions contemplated
hereby, in each case to the full extent a corporation is permitted under the
CGCL to indemnify its own directors, officers and employees, as the case may be
(EPIC, Synopsys and the Surviving Corporation, as the case may be, will pay
expenses in advance of the final disposition of any such action or proceeding to
each Indemnified Party to the full extent permitted by law upon receipt of any
undertaking contemplated by Section 317(f) of the CGCL). Without limiting the
foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party (whether arising before
or after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them and EPIC (or them and Synopsys and the Surviving
Corporation after the Effective Time), (ii) EPIC (or after the Effective Time,
Synopsys and the Surviving Corporation) shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, and (iii) EPIC (or after the Effective Time, Synopsys and
the Surviving Corporation) will use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that none of EPIC, Synopsys or the
Surviving Corporation shall be liable for any settlement of any claim effected
without its written consent, which consent, however, shall not be unreasonably
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 6.15, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify EPIC, Synopsys or the Surviving Corporation
(but the failure so to notify an Indemnifying Party shall not relieve it from
any liability which it may have under this Section 6.15 except to the extent
such failure prejudices such party), and shall deliver to EPIC (or after the
Effective Time, Synopsys and the Surviving Corporation) the undertaking
contemplated by Section 317(f) of the CGCL. The Indemnified Parties as a group
may retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties. The obligations of the parties set forth in this Section 6.15(a) shall
be in the furtherance of and not in limitation of the succeeding paragraphs of
this Section 6.15.
(b) From and after the Effective Time, the Surviving Corporation and
Synopsys will fulfill, assume and honor in all respects the obligations of EPIC
pursuant to EPIC's Articles of Incorporation and any indemnification agreement
between EPIC and any of EPIC's directors and officers existing and in force as
of the Effective Time.
(c) Synopsys and the Surviving Corporation shall, until the sixth
anniversary of the Effective Time or such earlier date as may be mutually agreed
upon by Synopsys, the Surviving Corporation and the applicable Indemnified
Party, cause to be maintained in effect, to the extent available, the policies
of directors' and officers' liability insurance maintained by EPIC and its
Subsidiaries as of the date hereof (or policies of at least the same coverage
and amounts containing terms that are no less advantageous to the insured
parties) with respect to claims arising from facts or events that occurred on or
prior to the Effective Time. In lieu of the
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purchase of such insurance by Synopsys or the Surviving Corporation, EPIC may
purchase a six-year extended reporting period endorsement ("reporting tail
coverage") under its existing directors' and liability insurance coverage. In no
event shall Synopsys or the Surviving Corporation be obligated to expend in
order to maintain or procure insurance coverage pursuant to this paragraph (c)
any amount per year in excess of 150% of the aggregate premiums paid by EPIC and
its Subsidiaries in the fiscal year ended September 30, 1996 for directors' and
officers' liability insurance.
Section 6.16 Additional Agreements; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of shareholders of EPIC and
stockholders of Synopsys described in Section 6.6, including cooperating fully
with the other party, including by provision of information and making all
necessary filings under the HSR Act. Synopsys and EPIC will use their reasonable
best efforts to resolve any competitive issues relating to or arising under the
HSR Act or any other federal or state antitrust or fair trade law raised by any
Governmental Entity. If such offers are not accepted by such Governmental
Entity, Synopsys (with EPIC's cooperation) shall pursue all litigation resulting
from such issues. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to the HSR Act or any other
federal or state antitrust or fair trade law. In the event of a challenge to the
transactions contemplated by this Agreement pursuant to the HSR Act, Synopsys
and EPIC shall use all reasonable efforts to defeat such challenge, including by
institution and defense of litigation, or to settle such challenge on terms that
permit the consummation of the Merger; provided, that nothing herein shall
require either party to agree to divest or hold separate any portion of its
business or otherwise take action that could reasonably be expected to have an
EPIC Material Adverse Effect or a Synopsys Material Adverse Effect. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either of the Constituent Corporations, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
Section 6.17 Voting Agreements. EPIC shall use its reasonable efforts to
cause each director and officer of EPIC to execute and deliver to Synopsys by
January 23, 1997 voting agreements and irrevocable proxies in the forms annexed
hereto as Exhibit B (the "Voting Agreements"), agreeing, among other things, to
vote in favor of the Merger.
Section 6.18 Board Composition. Synopsys and the Board of Directors of
Synopsys shall take all action required to cause the election immediately after
the Effective Time by the Board of Directors of Synopsys of Dr. Sang S. Wang to
the Board of Directors of Synopsys.
Section 6.19 Notification of Certain Matters. EPIC shall give prompt
notice to Synopsys, and Synopsys and Sub shall give prompt notice to EPIC, of
the occurrence, or failure to occur, of any event, which occurrence or failure
to occur would be likely to cause (a) any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time, or (b) any material
failure of EPIC or Synopsys and Sub, as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. The delivery of any notice pursuant to this Section 6.19 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 6.20 Benefit Plans Generally. Subsequent to the Effective Time,
EPIC employees shall participate in Synopsys employee benefit programs or
comparable programs under substantially the same terms and conditions as all
other Synopsys employees.
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ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of holders of EPIC Common Stock
pursuant to the CGCL and the Restated Articles of Incorporation of EPIC and the
issuance of Synopsys Common Stock in connection with the Merger shall have been
approved by the requisite vote of the holders of Synopsys Common Stock pursuant
to the DGCL, the Restated Certificate of Incorporation of Synopsys and the
regulations of the Nasdaq National Market.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and no action
shall have been instituted by the Department of Justice or Federal Trade
Commission challenging or seeking to enjoin the consummation of the Merger,
which action shall not have been withdrawn or terminated.
(c) Approvals. All authorizations, consents, orders or approvals of any
Governmental Entity required to consummate the transactions contemplated by this
Agreement, the absence of which would be reasonably likely to have a Synopsys
Material Adverse Effect or an EPIC Material Adverse Effect, shall have been
obtained and be in effect.
(d) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger or limiting or restricting Synopsys'
conduct or operation of the business of Synopsys or EPIC after the Merger shall
have been issued and be in effect, nor shall any proceeding brought by a
domestic administrative agency or commission or other domestic Governmental
Entity, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation of the Merger
illegal or prevents or prohibits the Merger.
(f) Pooling. Synopsys shall have received a letter from its independent
accountants, dated the Closing Date, in form and substance reasonably
satisfactory to Synopsys and EPIC, stating that the Merger will qualify as a
pooling of interests transaction under Accounting Principles Board Opinion No.
16 and applicable SEC regulations, if the Merger is consummated in accordance
with this Agreement. EPIC shall have received a letter from its independent
accountants, dated the Closing Date, in form and substance reasonably
satisfactory to EPIC and Synopsys, stating that the Merger will qualify as a
pooling of interests transaction under Accounting Principles Board Opinion No.
16 and applicable SEC regulations, if the Merger is consummated in accordance
with this Agreement.
(g) Nasdaq Laws. The shares of Synopsys Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq National Market.
(h) Tax Opinions. Synopsys and EPIC shall each have received written
opinions from their respective counsel Gray Cary Ware & Freidenrich, A
Professional Corporation, and Wilson Sonsini Goodrich & Rosati, Professional
Corporation, in form and substance reasonably satisfactory to them to the effect
that the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, counsel may relay upon reasonable representations and certificates
of Synopsys, Sub, EPIC and certain shareholders of EPIC, and the parties to this
Agreement agree to make, and to use reasonable efforts to cause the shareholders
of EPIC to make, such representations and deliver such certificates.
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Section 7.2 Additional Conditions to Obligations of Synopsys and Sub. The
obligations of Synopsys and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived, in
writing, exclusively by Synopsys and Sub:
(a) Representations and Warranties. The representations and warranties of
EPIC set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties expressly speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except (i) for
changes contemplated by this Agreement or (ii) where the failure to be true and
correct would not be reasonably likely to have an EPIC Material Adverse Effect,
and Synopsys shall have received a certificate signed on behalf of EPIC by the
chief executive officer and the chief financial officer of EPIC to such effect.
(b) Performance of Obligations. EPIC shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing Date; and Synopsys shall have received a certificate
signed on behalf of EPIC by the chief executive officer and the chief financial
officer of EPIC to such effect.
(c) Affiliate and Other Agreements. An Affiliate Agreement in the form
annexed hereto as Exhibit C shall have been executed and delivered to Synopsys
by each director and officer and each applicable Affiliate of EPIC; and each
Affiliate Agreement shall be in full force and effect.
(d) Absence of EPIC Material Adverse Effect. No EPIC Material Adverse
Effect shall have occurred since the date of this Agreement.
Section 7.3 Additional Conditions to Obligations of EPIC. The obligation
of EPIC to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
EPIC:
(a) Representations and Warranties. The representations and warranties of
Synopsys and Sub set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, except (i) for changes contemplated
by this Agreement or (ii) where the failure to be true and correct would not be
reasonably likely to have a Synopsys Material Adverse Effect, and EPIC shall
have received a certificate signed on behalf of Synopsys and Sub by the chief
executive officer and the chief financial officer of Synopsys and Sub to such
effect.
(b) Performance of Obligations. Synopsys and Sub shall have performed in
all material respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date; and EPIC shall have received a
certificate signed on behalf of Synopsys and Sub by the chief executive officer
and the chief financial officer of Synopsys and Sub to such effect.
(c) Absence of Synopsys Material Adverse Effect. No Synopsys Material
Adverse Effect shall have occurred since the date of this Agreement.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.1(b) through 8.1(f)), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Synopsys or shareholders of EPIC:
(a) by mutual written consent of Synopsys and EPIC; or
(b) by either Synopsys or EPIC if the Merger shall not have been
consummated by June 30, 1997, provided that if the Merger shall not have
been consummated due to the waiting period (or any extension thereof) under
the HSR Act not having expired or been terminated, or due to an action
having been
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instituted by the Department of Justice or Federal Trade Commission
challenging or seeking to enjoin the consummation of the Merger, then such
date shall be extended to September 30, 1997, and provided further that the
right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date; or
(c) by either Synopsys or EPIC if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger,
except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under Section 6.7 of this
Agreement; or
(d) by either Synopsys or EPIC if the required approvals of the
stockholders of Synopsys or shareholders of EPIC contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain
the required vote upon a vote taken at a meeting of such stockholders or
shareholders duly convened therefor or at any adjournment thereof (provided
that the right to terminate this Agreement under this Section 8.1(d) shall
not be available to any party where the failure to obtain approval of such
party's stockholders or shareholders shall have been caused by the action
or failure to act of such party in breach of this Agreement); or
(e) by Synopsys, if (i) the Board of Directors of EPIC shall have
withdrawn or modified its recommendation of this Agreement in a manner
adverse to Synopsys or shall have publicly announced its intention to do
any of the foregoing; (ii) an Alternative Transaction (as defined in
clauses (ii) or (iii) of Section 8.3(d)) shall have taken place (including
execution of an agreement to engage in the same) or the Board of Directors
of EPIC shall have recommended to the shareholders of EPIC an Alternative
Transaction; (iii) a tender offer or exchange offer for 20% or more of the
outstanding shares of EPIC Common Stock is commenced (other than by
Synopsys or an Affiliate of Synopsys) and the Board of Directors of EPIC
has not recommended that the shareholders of EPIC not tender their shares
in such tender or exchange offer within the time period prescribed by Rule
14e-2 promulgated under the Exchange Act; or
(f) by Synopsys or EPIC, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach causes the conditions set
forth in Section 7.2(a) or 7.2(b) (in the case of termination by Synopsys)
or 7.3(a) or 7.3(b) (in the case of termination by EPIC) not to be
satisfied as of the time of such breach, provided that if such breach by
such party is curable by such party through the exercise of its reasonable
efforts and for so long as such party continues to exercise such reasonable
efforts, the other party may not terminate this Agreement under this
Section 8.1(f); or
Section 8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1(b) through 8.1(f), this Agreement shall be
of no further force and effect, except Section 8.2, Section 8.3 and Article IX
of this Agreement and the Confidentiality Agreement shall remain in full force
and effect and survive any termination of this Agreement and nothing herein
shall relieve any party from liability for any breach of this Agreement. In the
event of termination of this Agreement as provided in Section 8.1(a), there
shall be no liability or obligation on the part of any party hereto, or any of
its officers, directors, stockholders (or shareholders, as the case may be) or
Affiliates except as set forth in Section 8.3; provided that the provisions of
Sections 6.14 and 8.3 and Article IX of this Agreement and the Confidentiality
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
Section 8.3 Fees and Expenses.
(a) Except as set forth in this Section 8.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated; provided, however, that Synopsys and EPIC shall share equally all
fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Proxy
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Statement (including any related preliminary materials) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements.
(b) EPIC shall pay Synopsys a cash termination fee of $10,700,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Synopsys pursuant to Section
8.1(e); or
(ii) the termination of this Agreement by Synopsys pursuant to Section
8.1(d) as a result of the failure to receive the requisite vote for
approval of this Agreement and the Merger by the shareholders of EPIC at
the EPIC Shareholders Meeting if, at the time of such failure,
(A) there shall have been announced or commenced an Alternative
Transaction (as defined in clauses (i), (ii) or (iii) of Section 8.3(d)
but excluding the definition contained in clause (iv)) or EPIC shall
have executed an agreement to engage in the same and the EPIC Board of
Directors shall not have recommended against such Alternative
Transaction affirmatively or, if the EPIC Board of Directors has
recommended against such Alternative Transaction, the EPIC Board of
Directors shall have withdrawn such recommendation against such
Alternative Transaction or modified such recommendation in a manner
adverse to Synopsys, or
(B) there shall have been announced an Alternative Transaction
(including, but not limited to, the definition contained in clause (iv))
and EPIC shall have engaged in any merger, consolidation, share
exchange, business combination, or similar transaction with, or shall
have sold, leased, exchanged, or otherwise transferred Material Assets
(as defined in Section 8.3(d)(iii)) to the Third Party (as defined in
Section 8.3(d)) or any affiliate thereof proposing such Alternative
Transaction (or entered into an agreement with such Third Party or any
affiliate thereof to engage in the same) within six months after the
date of the EPIC Shareholders Meeting or the EPIC Board of Directors
shall have recommended an Alternative Transaction (as defined in clause
(i) of Section 8.3(d)) with the Third Party proposing such Alternative
Transaction or any affiliate thereof within six months after the date of
the EPIC Shareholders Meeting.
(c) The fees, if applicable, payable pursuant to Section 8.3(b) shall be
paid within one business day after the first to occur of the events (inclusive
of any applicable cure period) described in Section 8.3(b)(i) or (ii) and prior
to the closing of an Alternative Transaction; provided that, (i) despite the
foregoing provision, if EPIC is obligated to pay a termination fee to Synopsys
pursuant to Section 8.3(b)(ii), then the fees payable by EPIC to Synopsys
pursuant to Section 8.3(b)(ii) shall be paid within one business day after the
occurrence of the transaction or recommendation occurring or continuing after
the EPIC Shareholders Meeting which gives rise to the right to receive the
termination fee and (ii) in no event shall EPIC be required to pay any
termination fees, if applicable, to Synopsys, if, immediately prior to the
termination of this Agreement, Synopsys, if applicable, was in breach of any of
its material obligations under this Agreement.
(d) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than
Synopsys or its Affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of EPIC Common Stock, pursuant to a tender offer or exchange
offer or otherwise, (ii) a merger or other business combination involving EPIC
pursuant to which any Third Party acquires more than 20% of the outstanding
equity securities of EPIC or the entity surviving such merger or business
combination, (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of Subsidiaries of EPIC, and the entity surviving any merger or
business combination including any of them) of EPIC having a fair market value
(as determined by the Board of Directors of EPIC in good faith) equal to more
than 20% of the fair market value of all the assets of EPIC immediately prior to
such transaction ("Material Assets"), or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
(e) Payment of the fees described in Section 8.3(b) above shall not be in
lieu of damages incurred in the event of breach of this Agreement.
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Section 8.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. This
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the shareholders of EPIC
and stockholders of Synopsys, but, after any such approval, no amendment shall
be made which by law requires further approval by such stockholders and
shareholders without such further approval.
Section 8.5 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Closing and the Effective Time, except for the agreements contained
in Sections 1.3, 1.4, 2.1, 2.2, 6.13, 6.15, 6.18, 6.20 and 8.3, the last
sentence of Section 6.16, the last sentence of Section 8.4, and Article IX, and
the agreements of the Affiliates of EPIC delivered pursuant to this Agreement.
The Confidentiality Agreement shall survive the execution and delivery of this
Agreement.
Section 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed), sent by nationally-recognized, overnight courier or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Synopsys or Sub, to:
Synopsys, Inc.
700 East Middlefield Road
Mountain View, California 94043
Attention: Senior Vice President, Business
Development and Legal
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Bruce E. Schaeffer & Rod J. Howard
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<PAGE> 200
(b) if to EPIC, to:
EPIC Design Technology, Inc.
310 North Mary Avenue
Sunnyvale, California 94086
Attention: President
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Robert P. Latta
Section 9.3 Interpretation; Certain Definitions.
(a) When a reference is made in this Agreement to a section, such reference
shall be to a Section of this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to January 16, 1997.
(b) "Environmental Permits" means environmental approvals, permits,
licenses, clearances and consents.
(c) "Hazardous Material" means substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws.
(d) "Hazardous Materials Activities" means the transportation, storage,
use, manufacture, disposal of, release or exposure of employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has EPIC or any of its Subsidiaries disposed of, transported, sold, or
manufactured any product containing a Hazardous Material.
(e) "Joint Venture" means, with respect to any party, any corporation,
limited liability company, partnership, joint venture or other entity in which
(i) such party, directly or indirectly, owns or control more than five percent
(5%) and less than a majority of any class of the outstanding voting securities
or economic interests, or (ii) such party or a Subsidiary of such party is a
general partner.
(f) "Subsidiary" means, with respect to any party, any corporation, limited
liability company, partnership, joint venture, or other business association or
entity, (i) at least a majority of the voting securities or economic interests
of which is directly or indirectly owned or controlled by such party or by any
one or more of its Subsidiaries, or (ii) of which such party or any other
Subsidiary of such party is a general partner (excluding partnerships, the
general partnership interests of which held by such party or any Subsidiary of
such party do not have a majority of the voting interest in such partnership).
Section 9.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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Section 9.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the Confidentiality Agreement and other documents and the instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, and (b) except as provided in Section
6.15 is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 9.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of California without regard to any
applicable conflicts of law, except that certain matters relating to the merger
of Sub with and into EPIC shall be governed by the General Corporation Law of
the State of Delaware.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 9.8 Severability. It is the desire and intent of the parties that
the provisions of this Agreement be enforced to the fullest extent permissible
under the law and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, in the event that any provision of this
Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, Synopsys, Sub and EPIC have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
<TABLE>
<S> <C>
EPIC DESIGN TECHNOLOGY, INC. SYNOPSYS, INC.
By: /s/ Sang S. Wang By: /s/ Aart J. de Geus
- -------------------------------------------- --------------------------------------------
Title: Chairman and Chief Executive Officer Title: President and Chief Executive Officer
- -------------------------------------------- --------------------------------------------
EPIC MERGER CO., INC.
By: /s/ Paul Lippe
--------------------------------------------
Title: President
--------------------------------------------
</TABLE>
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<PAGE> 202
EXHIBIT A
EXCHANGE PROCEDURES
The procedures for exchanging outstanding shares of EPIC Common Stock for
Synopsys Common Stock pursuant to the Merger shall be as set forth in this
Exhibit A to the Agreement. This Exhibit A shall be deemed to be a part of the
Agreement. Capitalized terms used herein and not defined in this Exhibit A shall
have their defined meanings as set forth in the Agreement.
1. Exchange Agent. As of the Effective Time, Synopsys shall deposit with
an exchange agent designated by Synopsys, reasonably acceptable to EPIC (the
"Exchange Agent"), for the benefit of the holders of shares of EPIC Common
Stock, for exchange in accordance with Article II of the Agreement and this
Exhibit A, through the Exchange Agent, certificates representing the shares of
Synopsys Common Stock (such shares of Synopsys Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund") issuable pursuant to Article II of the Agreement in
exchange for outstanding shares of EPIC Common Stock, and cash in an amount
sufficient for payment in lieu of fractional shares as contemplated by this
Exhibit A.
2. Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record
(including holders of record pursuant to purchases made under the EPIC Purchase
Plan immediately prior to the Effective Time pursuant to Section 6.13) of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of EPIC Common Stock (each a "Certificate" and
collectively, the "Certificates") whose shares were converted pursuant to
Article II into the right to receive shares of Synopsys Common Stock (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Synopsys and EPIC may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Synopsys Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents reasonably acceptable to EPIC as may be appointed by Synopsys, together
with such letter of transmittal, duly executed, and such other documents as may
be reasonably required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole shares of Synopsys Common Stock which such holder has the
right to receive pursuant to the provisions of Article II of the Agreement, and
the Certificate so surrendered shall immediately be canceled. In the event of a
transfer of ownership of EPIC Common Stock which is not registered in the
transfer records of EPIC, a certificate representing the proper number of shares
of Synopsys Common Stock may be issued to a transferee if the Certificate
representing such EPIC Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Exhibit A, each Certificate shall be deemed
at any time after the Effective Time to represent only the right to receive upon
such surrender the certificate representing shares of Synopsys Common Stock and
cash in lieu of any fractional shares of Synopsys Common Stock as contemplated
by this Exhibit A.
3. Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Synopsys
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Synopsys
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 5 below until the
holder of record of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of Synopsys Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Synopsys Common Stock to which such holder is entitled
pursuant to Section 5 below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to such
whole shares of Synopsys Common Stock, and (ii) at the appropriate payment date,
the
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amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Synopsys Common Stock.
4. No Further Ownership Rights in EPIC Common Stock. All shares of
Synopsys Common Stock issued upon the surrender for exchange of shares of EPIC
Common Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 3 or 5 of this Exhibit A) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of EPIC
Common Stock, subject, however, to the Surviving Corporation's obligation to pay
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by EPIC on such shares of
EPIC Common Stock in accordance with the terms of this Agreement on or prior to
the date hereof and which remain unpaid at the Effective Time, and there shall
be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of EPIC Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Exhibit A.
5. No Fractional Shares. No certificate or scrip representing fractional
shares of Synopsys Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Synopsys. Notwithstanding
any other provision of this Agreement, each holder of shares of EPIC Common
Stock exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Synopsys Common Stock (after taking into
account all Certificates delivered by such holder) shall receive from Synopsys,
in lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of Synopsys Common Stock multiplied by the average of the last
reported sale prices of Synopsys Common Stock, as reported on the Nasdaq
National Market, on each of the ten trading days immediately preceding the date
of the Effective Time.
6. Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the shareholders of EPIC for one year after the
Effective Time shall be delivered to Synopsys, upon demand, and any former
shareholders of EPIC who have not previously complied with this Exhibit A shall
thereafter look only to Synopsys for payment of their claim for Synopsys Common
Stock, any cash in lieu of fractional shares of Synopsys Common Stock and any
dividends or distributions with respect to Synopsys Common Stock.
7. No Liability. Neither the Exchange Agent, Synopsys, Sub nor EPIC shall
be liable to any holder of shares of EPIC Common Stock or Synopsys Common Stock,
as the case may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
8. Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Synopsys Common
Stock, cash in lieu of fractional shares of Synopsys Common Stock to which such
holder is entitled pursuant to Section 5 above and any dividends or other
distributions with respect to Synopsys Common Stock to which such holder is
entitled.
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EXHIBIT B
VOTING AGREEMENT
This Voting Agreement ("Agreement") is made and entered into as of January
16, 1997 by and between Synopsys, Inc., a Delaware corporation ("Synopsys"), and
the undersigned director, executive officer, or affiliate of EPIC Design
Technology, Inc., a California corporation ("EPIC").
RECITALS
Concurrently with the execution of this Agreement, Synopsys, Homer Merger
Co., a Delaware corporation and a wholly-owned subsidiary of Synopsys ("Sub"),
and EPIC have entered into an Agreement and Plan of Reorganization dated as of
January 16, 1997 (the "Merger Agreement"), providing for the merger of Sub with
and into EPIC (the "Merger"), pursuant to which EPIC will become a wholly-owned
subsidiary of Synopsys. The shareholder named on the signature page hereof (the
"Shareholder") is the beneficial holder of record of the number of shares of the
outstanding common stock, par value $.01 per share, of EPIC ("EPIC Common
Stock"), as is indicated on the final page of this Agreement (the "Shares"). In
connection with the Merger, Synopsys will acquire the Shareholder's entire
equity interest in EPIC and the Shareholder will receive in exchange an equity
interest in Synopsys. In consideration of and to induce the execution of the
Merger Agreement by Synopsys, the Shareholder agrees not to sell or otherwise
dispose of any shares of EPIC stock held by the Shareholder and to vote the
Shares so as to facilitate consummation of the Merger as more fully described
below.
NOW, THEREFORE, in consideration of the mutual promises and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. Agreement to Retain Shares. The Shareholder agrees not to transfer,
pledge, sell, exchange or offer to transfer or sell or otherwise dispose of or
encumber any of the Shares at any time prior to the Expiration Date, as defined
herein. The "Expiration Date" shall mean the earlier of (i) the date and time on
which the Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement or (ii) the date on which the Merger
Agreement shall be terminated pursuant to Article VIII of the Merger Agreement.
2. Agreement to Vote Shares. At any meeting of the EPIC shareholders
called with respect to the Merger and the Merger Agreement, and at any
adjournment thereof, and with respect to any consent solicited with respect the
Merger and the Merger Agreement, the Shareholder shall vote the Shares in favor
of approval of the Merger Agreement and the Merger and any matter which could
reasonably be expected to facilitate the Merger. The Shareholder, as the holder
of voting stock of EPIC shall be present, in person or by proxy, at all meetings
of shareholders of EPIC so that all Shares are counted for the purpose of
determining the presence of a quorum at such meetings. This Agreement is
intended to bind the Shareholder only with respect to the specific matters set
forth herein, and shall not prohibit the Shareholder from acting in accordance
with his fiduciary duties as an officer or director of EPIC.
3. Irrevocable Proxy. Concurrently with the execution of this Agreement,
the Shareholder agrees to deliver to Synopsys a proxy in the form attached
hereto as Annex A (the "Proxy"), which shall be irrevocable to the extent
provided therein; provided that the Proxy shall be revoked upon termination of
this Agreement in accordance with its terms.
4. Additional Purchases. For purposes of this Agreement, the term "Shares"
shall include any shares of EPIC capital stock which the Shareholder purchases
or otherwise acquires after the execution of this Agreement and prior to the
Expiration Date.
5. Representations, Warranties and Covenants of the Shareholder. The
Shareholder hereby represents, warrants and covenants to Synopsys that, except
as specifically described on Annex B to this Agreement, the Shareholder (i) is
the holder and beneficial owner of the Shares, which at the date hereof and at
all times until the Expiration Date will be free and clear of any liens, claims,
options, charges or other encumbrances,
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(ii) does not beneficially own any shares of stock of EPIC other than the Shares
and (iii) has full power and authority to make, enter into, deliver and carry
out the terms of this Agreement and the Proxy.
6. Representations, Warranties and Covenants of Synopsys. Synopsys
represents, warrants and covenants to the Shareholder as follows:
6.1 Due Authorization. This Agreement has been authorized by all
necessary corporate action on the part of Synopsys and has been duly
executed by a duly authorized officer of Synopsys.
6.2 Validity; No Conflict. This Agreement constitutes the legal,
valid and binding obligation of Synopsys. Neither the execution of this
Agreement by Synopsys nor the consummation of the transactions contemplated
hereby will result in a breach or violation of the terms of any agreement
by which Synopsys is bound or of any decree, judgment, order, law or
regulation now in effect of any court or other governmental body applicable
to Synopsys.
7. Additional Documents. The Shareholder and Synopsys hereby covenant and
agree to execute and deliver any additional documents necessary or desirable, in
the reasonable opinion of Synopsys' legal counsel or the Shareholder, as the
case may be, to carry out the intent of this Agreement.
8. Consent and Waiver. The Shareholder hereby gives any consent or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which the Shareholder is a party or pursuant to any rights
the Shareholder may have.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement
nor any of the rights, interests or obligations of the parties hereto may
be assigned by any of the parties without the prior written consent of the
other.
9.3 Amendments and Modifications. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of
a written agreement executed by the parties hereto.
9.4 Specific Performance: Injunctive Relief. The parties hereto
acknowledge that Synopsys will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or
agreements of the Shareholder set forth herein. Therefore, it is agreed
that, in addition to any other remedies which may be available to Synopsys
upon such violation, Synopsys shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or by
any other means available to it at law or in equity.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person, by commercial overnight courier service, by confirmed
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telecopy, or sent by mail (registered or certified mail, postage prepaid,
return receipt requested) to the respective parties as follows:
(a) if to Synopsys or Sub, to
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attention: Senior Vice President,
Business Development and Legal
Facsimile No.: (415) 694-4087
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Gregory M. Gallo, Esq.,
Bruce E. Schaeffer, Esq. &
Rod J. Howard, Esq.
Facsimile No.: (415) 327-3699
(b) if to EPIC, to
EPIC Design Technology, Inc.
310 North Mary Avenue
Sunnyvale, CA 94086
Attention: President
Facsimile No.: (408) 733-8698
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Robert P. Latta, Esq., &
Chris Fennell, Esq.
Facsimile No.: (415) 496-4086
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
9.6 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of California without
giving effect to principles of conflicts of law.
9.7 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties
with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall
constitute one and the same agreement.
9.9 Effect of Headings. This section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
9.10 Termination. Notwithstanding anything else in this Agreement,
this Agreement and the Proxy, and all obligations of the Shareholder under
either of them, shall automatically terminate as of the Expiration Date.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
SYNOPSYS, INC.
By:
--------------------------------------
SHAREHOLDER
By:
--------------------------------------
Shareholder's Address for Notice:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Shares beneficially owned:
________ shares of EPIC Common Stock
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ANNEX A
IRREVOCABLE PROXY
The undersigned holder of shares of capital stock (the "Shareholder") of
EPIC Design Technology, Inc., a California corporation ("EPIC"), hereby
irrevocably appoints and constitutes the members of the Board of Directors of
Synopsys, Inc., a Delaware corporation ("Synopsys"), and each of them (the
"Proxyholders"), the agents and proxies of the undersigned, with full power of
substitution and resubstitution, to the full extent of the undersigned's rights
with respect to the shares of capital stock of EPIC beneficially owned by the
undersigned, which shares are listed below (the "Shares"), and any and all other
shares or securities issued or issuable in respect thereof on or after the date
hereof and prior to the date this proxy terminates, to vote the Shares as
follows:
The agents and proxies named above are empowered at any time prior to
termination of this proxy to exercise all voting and other rights (including,
without limitation, the power to execute and deliver written consents with
respect to the Shares) of the undersigned at every annual, special or adjourned
meeting of EPIC shareholders, and in every written consent in lieu of such a
meeting, or otherwise, in favor of approval of the Merger (as defined in the
Voting Agreement dated January 16, 1997 between the Shareholder and Synopsys
(the "Voting Agreement")) and that certain Agreement and Plan of Merger (the
"Merger Agreement") dated as of January 16, 1997 by and among Synopsys, EPIC,
and EPIC Merger Co., Inc., a Delaware corporation and a wholly-owned subsidiary
of Synopsys ("Sub"), and any matter that could reasonably be expected to
facilitate the Merger. The Proxyholders may not exercise this proxy on any other
matter. The undersigned shareholder may vote the Shares on all such other
matters.
The proxy granted by the Shareholder to the Proxyholders hereby is granted
as of the date of this Agreement in order to secure the obligations of the
Shareholders set forth in Section 2 of the Voting Agreement, and is irrevocable
and coupled with an interest in such obligations and in the interests in EPIC to
be purchased and sold pursuant the Merger Agreement. This proxy will terminate
upon the termination of the Voting Agreement in accordance with its terms.
Upon the execution hereof, all prior proxies given by the undersigned with
respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof are hereby revoked and
no subsequent proxies will be given until such time as this proxy shall be
terminated in accordance with its terms.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned shareholder
authorizes the Proxyholders to file this proxy and any substitution or
revocation of substitution with the Secretary of EPIC and with any Inspector of
Elections at any meeting of the shareholders of EPIC.
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This proxy is irrevocable and shall survive the insolvency, incapacity,
death or liquidation of the undersigned.
Dated: January 16, 1997
Signature of Shareholder:
- --------------------------------------------------------------------------------
Print name of Shareholder:
- --------------------------------------------------------------------------------
Shares beneficially owned:
- ------------------ shares of EPIC Common Stock
AB-6
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EXHIBIT C
AFFILIATE AGREEMENT
January 16, 1997
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043-4033
Ladies and Gentlemen:
An Agreement and Plan of Merger dated as of January 16, 1997 (the
"Agreement") has been entered into among Synopsys, Inc. ("Synopsys"), EPIC
Merger Co., Inc., a wholly-owned subsidiary of Synopsys ("Sub") and EPIC Design
Technology, Inc. ("EPIC"). Pursuant to the Agreement, Sub will merge with and
into EPIC, EPIC will become a wholly-owned subsidiary of Synopsys and the
stockholders of EPIC will become stockholders of Synopsys (the "Merger").
In accordance with the Agreement, Synopsys Common Stock (as defined in the
Agreement) owned by the undersigned at the Effective Time (as defined in the
Agreement) shall be converted into shares of common stock, $.01 par value, of
Synopsys ("Synopsys Common Stock") in the manner and in the amounts described in
the Agreement.
In consideration of the mutual agreements, provisions and covenants set
forth in the Agreement and hereinafter in this agreement, the undersigned
represents and agrees as follows:
1. Rule 145. The undersigned will not offer, sell, pledge, transfer
or otherwise dispose of any of the shares of Synopsys Common Stock issued
to the undersigned in the Merger unless at such time either: (i) such
transaction shall be permitted pursuant to the provisions of Rule 145 under
the Securities Act of 1933, as amended (the "Securities Act"); (ii) the
undersigned shall have furnished to Synopsys an opinion of counsel,
satisfactory to Synopsys, to the effect that no registration under the
Securities Act would be required in connection with the proposed offer,
sale, pledge, transfer or other disposition; or (iii) a registration
statement under the Securities Act covering the proposed offer, sale,
pledge, transfer or other disposition shall be effective under the
Securities Act.
2. Legend.
(a) The undersigned understands that all certificates representing Synopsys
Common Stock deliverable to the undersigned pursuant to the Merger shall bear a
legend substantially as follows:
"The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance with
the requirements of the Securities Act of 1933, as amended, and the
other conditions specified in the Affiliate Agreement dated as of
January , 1997 between the holder of this certificate and Synopsys,
Inc., and the Pooling Agreement dated as of January , 1997 between the
holder of this certificate and Synopsys, Inc., copies of which
Agreements may be inspected by the holder of the certificate at the
offices of Synopsys, Inc., 700 East Middlefield Road, Mountain View, CA
94043 or furnished by Synopsys, Inc. to the holder of this certificate
upon written request and without charge."
(b) The undersigned also understands that unless the transfer by the
undersigned of shares of Synopsys Common Stock has been registered under the
Securities Act or is a sale made in conformity with the provisions of Rule 145,
Synopsys reserves the right to put the following legend on the certificates
issue to my transferee:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired from a
person who received such shares in a transaction to which Rule 145
promulgated under the Securities Act of 1933, as amended, applies. The
shares have been acquired by the holder not with a view to, or for
resale in connection with, any distribution thereof
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within the meaning of the Securities Act of 1933, as amended, and may
not be sold, pledged or otherwise transferred except in accordance with
an exemption from the registration requirements of the Securities Act of
1933, as amended."
It is understood and agreed that the legends set forth in paragraphs (a)
and (b) above shall be removed by delivery of substitute certificates without
such legends if I, the undersigned, shall have delivered to Synopsys a copy of a
letter from the staff of the Securities and Exchange Commission, or an opinion
of counsel in form and substance reasonably satisfactory to Synopsys, to the
effect that such legends are not required for purposes of the Securities Act.
Synopsys, in its discretion, may cause stop transfer orders to be placed
with its transfer agent with respect to the certificates for the shares of
Synopsys Common Stock which are required to bear the foregoing legends.
3. Miscellaneous.
(a) This agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
(b) This agreement shall be binding on the undersigned's successors and
assigns, including his heirs, executors and administrators.
(c) The undersigned, has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with his counsel
or counsel for EPIC.
(d) From and after the Effective Time of the Merger and for so long as is
necessary in order to permit the undersigned to sell the Synopsys Common Stock
held by the undersigned pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Securities Act, Synopsys will file on a timely basis all reports
required to be filed by it pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, as the same shall be in
effect at the time, referred to in paragraph (c) of Rule 144 under the
Securities Act, in order to permit me to sell, transfer or otherwise dispose of
the Synopsys Common Stock held by me pursuant to the terms and conditions of
Rule 145 and the applicable provisions of Rule 144.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
Accepted:
SYNOPSYS, INC.
By:
- ----------------------------------------------------
Title:
- --------------------------------------------------
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EXHIBIT D
SYNOPSYS, INC. POOLING AGREEMENT
January 16, 1997
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043-4033
Ladies and Gentlemen:
An Agreement and Plan of Merger dated as of January 16, 1997 (the "Merger
Agreement") has been entered into by and among Synopsys, Inc. ("Synopsys"), EPIC
Merger Co., Inc. ("Sub") and EPIC Design Technology, Inc. ("EPIC"). The Merger
Agreement provides for the merger of Sub with and into EPIC (the "Merger"). The
Merger is intended to be accounted for as a pooling of interests pursuant to
Opinion No. 16 of the Accounting Principles Board.
I have been advised that as of the date of this Agreement I may be deemed
to be an "affiliate" of Synopsys, as the term "affiliate" is used in, and for
purposes of, Accounting Series Releases Nos. 130 and 135, as amended, of the
Securities and Exchange Commission, although nothing contained herein should be
construed as an admission thereof.
In consideration of the mutual agreements, provisions and covenants set
forth in the Merger Agreement and hereinafter in this Agreement, I represent and
agree as follows:
Pooling Requirements. From the date hereof until the earlier of the
Effective Time of the Merger or the termination of the Merger Agreement,
except as permitted below, I will not sell, transfer or otherwise dispose
of, or reduce my interest in or risk relating to, any shares of Synopsys
Common Stock or EPIC Common Stock presently beneficially owned by me. In
addition, except as permitted below, I will not (except to a revocable
trust of which I or members of my immediate family are the beneficiary)
sell, transfer or otherwise dispose of, or reduce my interest in or risk
relating to, any Synopsys Common Stock issued to me in the Merger or
otherwise beneficially owned by me until after such time as Synopsys has
published (within the meaning of Accounting Series Release No. 130, as
amended, of the Securities and Exchange Commission) in an effective
registration statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q or Current Report on Form 8-K filed with the Securities and
Exchange Commission, or any publicly disclosed quarterly earnings report or
press release or other authorized public disclosures by Synopsys, financial
results covering at least 30 days of combined post-Merger operations of
Synopsys and EPIC (the "Pooling Holding Period"). Nevertheless, I
understand that I will be permitted to sell, transfer or otherwise dispose
of, or reduce my interest in or risk relating to, beginning on the date of
this Agreement and ending at the expiration of the Pooling Holding Period,
an amount of EPIC Common Stock and Synopsys Common Stock not more than the
de minimis amount permitted by the Securities and Exchange Commission in
its rules and releases relating to pooling-of-interests accounting
treatment, subject to the advance concurrence of Synopsys and EPIC and each
of their independent auditors.
1. Miscellaneous.
(a) This agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
(b) This agreement shall be binding on my successors and assigns, including
my heirs, executors and administrators.
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I have carefully read this agreement and discussed its requirements, to the
extent the undersigned believed necessary, with my counsel or counsel for
Synopsys, Inc.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
Accepted:
Synopsys, Inc.
By:
- ----------------------------------------------------
Name:
- -------------------------------------------------
Title:
- --------------------------------------------------
Dated:
- -------------------------------------------------
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<PAGE> 214
ANNEX B
January 16, 1997
Board of Directors
EPIC Design Technology, Inc.
310 North Mary Avenue
Sunnyvale, California 94086-411
Members of the Board
We understand that Synopsys, Inc. ("Synopsys"), EPIC Design Technology,
Inc. ("EPIC") and EPIC Merger Co., Inc. ("Merger Sub"), a wholly-owned
subsidiary of Synopsys, have entered into an Agreement and Plan of Merger, dated
as of January 16, 1997 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Merger Sub with and into EPIC. Pursuant
to the Merger, EPIC will become a wholly-owned subsidiary of Synopsys and each
issued and outstanding share of common stock, no par value per share, of EPIC
(the "EPIC Common Stock"), other than shares held in treasury or held by
Synopsys or any subsidiary of Synopsys or EPIC or as to which dissenters' rights
have been perfected, shall be converted into the right to receive 0.7485 (the
"Exchange Ratio") shares of common stock, par value $0.01 per share, of Synopsys
(the "Synopsys Common Stock"). The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of EPIC Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Synopsys and EPIC, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning EPIC and Synopsys prepared by the
managements of EPIC and Synopsys, respectively;
(iii) discussed the past and current operations and financial
condition and the prospects of Synopsys, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Synopsys;
(iv) discussed the past and current operations and financial condition
and the prospects of EPIC, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of EPIC;
(v) reviewed the pro forma impact of the Merger on the earnings per
share and consolidated capitalization of Synopsys and EPIC, respectively;
(vi) reviewed the reported prices and trading activity for the
Synopsys Common Stock and the EPIC Common Stock;
(vii) compared the financial performance of Synopsys and EPIC and the
prices and trading activity of the Synopsys Common Stock and the EPIC
Common Stock with that of certain other comparable publicly-traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(ix) reviewed and discussed with the senior managements of Synopsys
and EPIC (a) the strategic rationale for the Merger and (b) certain
alternatives to the Merger;
(x) participated in discussions and negotiations among representatives
of Synopsys and EPIC and
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their legal advisors;
(xi) reviewed the Merger Agreement and certain related agreements; and
(xii) considered such other factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the internal financial statements and other
financial and operating data provided by EPIC and Synopsys, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the prospects of Synopsys and EPIC,
respectively. We have relied upon the assessment by the managements of Synopsys
and EPIC of their ability to retain key employees of both Synopsys and EPIC. We
have also relied upon, without independent verification, the assessment by the
managements of Synopsys and EPIC of the strategic and other benefits expected to
result from the Merger. We have also relied upon, without independent
verification, the assessment by the managements of Synopsys and EPIC of
Synopsys' and EPIC's technologies and products, the timing and risks associated
with the integration of EPIC with Synopsys, and the validity of, and risks
associated with, Synopsys' and EPIC's existing and future products and
technologies. We have not made any independent valuation or appraisal of the
assets, liabilities or technology of Synopsys or EPIC, respectively, nor have we
been furnished with any such appraisals. We have assumed that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with U.S. Generally Accepted Accounting Principles and will be consummated in
accordance with the terms set forth in the Merger Agreement. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of EPIC in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Synopsys and have received fees
for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of EPIC, except that this opinion may be included in its entirety in
any filing made by Synopsys with the Securities and Exchange Commission with
respect to the transactions contemplated by the Merger Agreement. In addition,
we express no recommendation or opinion as to how the holders of EPIC Common
Stock should vote at the shareholders' meeting held in connection with the
Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of EPIC Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
BY: /s/ MARK S. MENELL
------------------------------------
Mark S. Menell
Principal
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<PAGE> 216
ANNEX C
CALIFORNIA GENERAL CORPORATION LAW --
CHAPTER 13 DISSENTERS' RIGHTS
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
SEC. 1300 RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED
a. If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation is a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
b. As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
c. As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
SEC. 1301 DEMAND FOR PURCHASE
a. If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval,
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accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
b. Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
c. The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SEC. 1302 ENDORSEMENT OF SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SEC. 1303 AGREED PRICE -- TIME FOR PAYMENT
a. If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
b. Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SEC. 1304 DISSENTER'S ACTION TO ENFORCE PAYMENT
a. If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was
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mailed to the shareholder, but not thereafter, may file a complaint in the
superior court of the proper county praying the court to determine whether the
shares are dissenting shares or the fair market value of the dissenting shares
or both or may intervene in any action pending on such a complaint.
b. Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
c. On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SEC. 1305 APPRAISER'S REPORT -- PAYMENT -- COSTS
a. If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
b. If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
c. Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
d. Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
e. The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SEC. 1306 DISSENTING SHAREHOLDER'S STATUS AS CREDITOR
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SEC. 1307 DIVIDENDS PAID AS CREDIT AGAINST PAYMENT
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
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SEC. 1308 CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SEC. 1309 TERMINATION OF DISSENTING SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
a. The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
b. The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
c. The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
d. The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SEC. 1310 SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SEC. 1311 EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SEC. 1312 ATTACKING VALIDITY OF REORGANIZATION OR MERGER
a. No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
b. If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form
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merger or to have the reorganization or short-form merger set aside or rescinded
shall not restrain or enjoin the consummation of the transaction except upon 10
days' prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
c. If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
organization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Ten of the Synopsys Certificate of Incorporation provides that no
director of Synopsys shall be liable for any breach of fiduciary duty, except to
the extent that the Delaware General Corporation Law prohibits the elimination
or limitation of liability of directors for breach of fiduciary duty.
Article Ten of the Synopsys Certificate of Incorporation further provides
that in the event that the Delaware General Corporation Law is amended to expand
the indemnification permitted to directors or officers Synopsys must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section Six of Article Seven of the Synopsys Bylaws provides that Synopsys
shall indemnify its officers and directors to the full extent permitted by the
General Corporation Law of Delaware, and provides that expenses incurred by a
director or officer of Synopsys in defending a civil or criminal action, suit or
proceeding by reason of the fact that he is or was a director or officer of the
corporation (or was serving at Synopsys' request as a director or officer of
another enterprise or corporation) shall be paid by Synopsys in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is or not entitled to be indemnified
by Synopsys as authorized by relevant sections of the General Corporation Law of
Delaware.
Section Six of Article Seven of the Synopsys Bylaws further provides that
the indemnification provided therein is not exclusive, and provides further that
the Board of Directors of Synopsys in its discretion shall have power on behalf
of Synopsys to indemnify any person, other than a director or officer, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an employee or agent of the corporation and to
pay the expenses incurred by any such person in defending such action, suit or
proceeding.
Synopsys has obtained liability insurance for the benefit of its directors
and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S> <C>
*2.1 -- Agreement and Plan of Merger dated as of January 16, 1997 among Synopsys,
Inc., EPIC Merger Co., Inc. and EPIC Design Technology, Inc.
3.1 -- Third Amended and Restated Certificate of Incorporation.
3.2 -- Amendment to Restated Certificate of Incorporation
3.3 -- Restated Bylaws.
5.1 -- Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
8.1 -- Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation, as to Tax
Matters.
8.2 -- Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to
Tax Matters.
</TABLE>
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<TABLE>
<C> <S> <C>
10.1 -- Lease Agreement, dated August 17, 1990, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1977 (John
Arrillaga Separate Property Trust), as amended, and Richard T. Peery, Trustee,
or his successor trustee, UTA dated July 20, 1977 (Richard T. Peery Separate
Property Trust), as amended(1).
10.2 -- Lease Agreement, dated March 29, 1991, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga
Separate Property Trust), as amended, and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property
Trust), as amended(1).
10.3 -- Lease Agreement, dated June 16, 1992, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga
Separate Property Trust), as amended, and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property
Trust), as amended(2).
10.4 -- Lease Agreement, dated June 23, 1993, between the Company and John Arrillaga,
Trustee, or his successor trustee, UTA dated July 20, 1977 (John Arrillaga
Separate Property Trust), as amended, and Richard T. Peery, Trustee, or his
successor trustee, UTA dated July 20, 1977 (Richard T. Peery Separate Property
Trust), as amended(3).
10.5 -- Lease Agreement, dated August 24, 1995, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1997 (John
Arrillaga Separate Property Trust), as amended, and Richard T. Peery, Trustee,
or his successor trustee, UTA dated July 20, 1977 (Richard T. Peery Separate
Property Trust), as amended(4).
10.6 -- Amendment No. 5 to Lease, dated October 4, 1995, to Lease Agreement dated
August 17, 1990, between Synopsys and John Arrillaga, Trustee, or his
successor trustee, UTA dated 7/20/77 (Arrillaga Family Trust), and Richard T.
Peery, Trustee, or his successor trustee, UTA dated 7/20/77 (Richard T. Peery
Separate Property Trust), as amended(5).
10.7 -- Amendment No. 3 to Lease, dated October 4, 1995, to Lease Agreement dated June
16, 1992, between Synopsys and John Arrillaga, Trustee, or his successor
trustee, UTA dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery,
Trustee, or his successor trustee, UTA dated 7/20/77 (Richard T. Peery
Separate Property Trust), as amended(5).
10.8 -- Amendment No. 2 to Lease, dated October 4, 1995, to Lease Agreement dated June
23, 1993, between Synopsys and John Arrillaga, Trustee, or his successor
trustee, UTA dated 7/20/77 (Arrillaga Family Trust), and Richard T. Peery,
Trustee, or his successor trustee, UTA dated 7/20/77 (Richard T. Peery
Separate Property Trust), as amended(5).
10.9 -- Lease dated January 2, 1996 between Synopsys and Tarigo-Paul, a California
Limited Partnership(6).
10.10 -- Lease dated January 2, 1996 between the Company and Tarigo-Paul, a California
Limited Partnership.(7)
10.11 -- 1992 Stock Option Plan, as amended and restated(8).
10.12 -- Employee Stock Purchase Program, as amended and restated(8).
10.13 -- International Employee Stock Purchase Plan, as amended and restated(8).
10.14 -- Deferred Compensation Plan.
10.15 -- Form of Indemnification Agreement(1)
10.16 -- Director's and Officer's Insurance and Company Reimbursement Policy(1)
21.1 -- Subsidiaries of Synopsys.
23.1 -- Consent of Independent Auditors.
23.2 -- Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 -- Consent of Gray Cary Ware & Freidenrich, A Professional Corporation (included
in Exhibits 5.1 and 8.1).
</TABLE>
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<TABLE>
<C> <S> <C>
23.4 -- Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 8.2).
23.5 -- Consent of Morgan Stanley & Co. Incorporated (included in Exhibit 99.1).
24.1 -- Power of Attorney (See page II-4).
*99.1 -- Opinion of Morgan Stanley & Co. Incorporated.
99.2 -- Form of Proxy Card of Synopsys.
99.3 -- Form of Proxy Card of EPIC.
99.4 -- Consent of Dr. Sang S. Wang.
</TABLE>
- ---------------
* Filed as an annex to the Joint Proxy Statement/Prospectus constituting part
of this Registration Statement and incorporated herein by reference.
(1) Incorporated by reference from Synopsys' Registration Statement on Form S-1
which became effective February 24, 1992.
(2) Incorporated by reference from Synopsys' Report on Form 10-K for the year
ended September 30, 1992.
(3) Incorporated by reference from Synopsys' Report on Form 10-K for the year
ended September 30, 1993.
(4) Incorporated by reference from Synopsys' Report on Form 10-K for the year
ended September 30, 1995.
(5) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1995.
(6) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1996.
(7) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended March 31, 1996.
(8) Incorporated by reference from Synopsys' S-8 registration statement filed on
May 3, 1996.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts and Reserves
ITEM 22. UNDERTAKINGS
(1) Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) Registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy/Statement Prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
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(4) Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act each filing of the Registrant's annual report
pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Synopsys, Inc.
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Mountain View, State of
California, on the 4th day of February, 1997.
SYNOPSYS, INC.
By: /s/ AART J. DE GEUS
------------------------------------
Aart J. de Geus
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
Each of the officers and directors of Synopsys, Inc. whose signature
appears below hereby constitutes and appoints Aart J. de Geus their true and
lawful attorney and agent, with full power of substitution to sign and execute
on behalf of the undersigned any amendment or amendments to this Registration
Statement on Form S-4 and to perform any acts necessary in order to file such
amendments, and each of the undersigned does hereby ratify and confirm any such
acts that said attorney and agent, or his substitutes, shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 4th day of February, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ AART J. DE GEUS President, Chief Executive Officer, Acting
- --------------------------------------------- Chief Financial Officer and Director
Aart J. de Geus (Principal Executive Officer, Principal
Financial Officer and Principal Accounting
Officer)
/s/ WILLIAM W. LATTIN Executive Vice President and Director
- ---------------------------------------------
William W. Lattin
/s/ HARVEY C. JONES, JR. Chairman of the Board of Directors
- ---------------------------------------------
Harvey C. Jones, Jr.
/s/ DEBORAH A. COLEMAN Director
- ---------------------------------------------
Deborah A. Coleman
/s/ A. RICHARD NEWTON Director
- ---------------------------------------------
A. Richard Newton
/s/ STEVEN C. WALSKE Director
- ---------------------------------------------
Steven C. Walske
</TABLE>
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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 INCOME ACCOUNTS(1) DEDUCTIONS(2) PERIOD
---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts and Sales Returns:
1996.................... $2,813 $1,576 $(334) $ 394 $3,661
---------- ---------- ----------- ------------- ----------
1995.................... $1,900 $ 688 $ 210 $ (15) $2,813
---------- ---------- ----------- ------------- ----------
1994.................... $1,391 $ 443 $ 36 $ (30) $1,900
---------- ---------- ----------- ------------- ----------
</TABLE>
- ------------
(1) Translation and other adjustments.
(2) Accounts written off, net of recoveries.
S-1
<PAGE> 227
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------ ------------------------------------------------------------------------ ----------
<C> <S> <C>
*2.1 Agreement and Plan of Merger dated as of January 16, 1997 among
Synopsys, Inc., EPIC Merger Co., Inc. and EPIC Design Technology, Inc.
3.1 Third Amended and Restated Certificate of Incorporation.
3.2 Amendment to Restated Certificate of Incorporation.
3.3 Restated Bylaws.
5.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
8.2 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation as
to Tax Matters.
8.1 Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation, as
to Tax Matters.
10.1 Lease Agreement, dated August 17, 1990, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust), as amended, and Richard T.
Peery, Trustee, or his successor trustee, UTA dated July 20, 1977
(Richard T. Peery Separate Property Trust), as amended(1).
10.2 Lease Agreement, dated March 29, 1991, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust), as amended, and Richard T.
Peery, Trustee, or his successor trustee, UTA dated July 20, 1977
(Richard T. Peery Separate Property Trust), as amended(1).
10.3 Lease Agreement, dated June 16, 1992, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust), as amended, and Richard T.
Peery, Trustee, or his successor trustee, UTA dated July 20, 1977
(Richard T. Peery Separate Property Trust), as amended(2).
10.4 Lease Agreement, dated June 23, 1993, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust), as amended, and Richard T.
Peery, Trustee, or his successor trustee, UTA dated July 20, 1977
(Richard T. Peery Separate Property Trust), as amended(3).
10.5 Lease Agreement, dated August 24, 1995, between the Company and John
Arrillaga, Trustee, or his successor trustee, UTA dated July 20, 1997
(John Arrillaga Separate Property Trust), as amended, and Richard T.
Peery, Trustee, or his successor trustee, UTA dated July 20, 1977
(Richard T. Peery Separate Property Trust), as amended(4).
10.6 Amendment No. 5 to Lease, dated October 4, 1995, to Lease Agreement
dated August 17, 1990, between Synopsys and John Arrillaga, Trustee, or
his successor trustee, UTA dated 7/20/77 (Arrillaga Family Trust), and
Richard T. Peery, Trustee, or his successor trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust), as amended(5).
10.7 Amendment No. 3 to Lease, dated October 4, 1995, to Lease Agreement
dated June 16, 1992, between Synopsys and John Arrillaga, Trustee, or
his successor trustee, UTA dated 7/20/77 (Arrillaga Family Trust), and
Richard T. Peery, Trustee, or his successor trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust), as amended(5).
</TABLE>
<PAGE> 228
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
- ------ ------------------------------------------------------------------------ ----------
<C> <S> <C>
10.8 Amendment No. 2 to Lease, dated October 4, 1995, to Lease Agreement
dated June 23, 1993, between Synopsys and John Arrillaga, Trustee, or
his successor trustee, UTA dated 7/20/77 (Arrillaga Family Trust), and
Richard T. Peery, Trustee, or his successor trustee, UTA dated 7/20/77
(Richard T. Peery Separate Property Trust), as amended(5).
10.9 Lease dated January 2, 1996 between Synopsys and Tarigo-Paul, a
California Limited Partnership(6).
10.10 Lease dated January 2, 1996 between the Company and Tarigo-Paul, a
California Limited Partnership.(7)
10.11 1992 Stock Option Plan, as amended and restated(8).
10.12 Employee Stock Purchase Program, as amended and restated(8).
10.13 International Employee Stock Purchase Plan, as amended and restated(8).
10.14 Deferred Compensation Plan.
10.15 Form of Indemnification Agreement(1)
10.16 Director's and Officer's Insurance and Company Reimbursement Policy(1)
21.1 Subsidiaries of Synopsys.
23.1 Consent of Independent Auditors.
23.2 Consent of Deloitte & Touche LLP, Independent Auditors.
23.3 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation,
(included in Exhibits 5.1 and 8.1).
23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 8.2).
23.5 Consent of Morgan Stanley & Co. Incorporated (included in Exhibit 99.1).
24.1 Power of Attorney (See page II-4).
*99.1 Opinion of Morgan Stanley & Co. Incorporated.
99.2 Form of Proxy Card of Synopsys.
99.3 Form of Proxy Card of EPIC.
99.4 Consent of Dr. Sang S. Wang.
</TABLE>
- ---------------
* Filed as an annex to the Joint Proxy Statement/Prospectus constituting part
of this Registration Statement and incorporated herein by reference.
(1) Incorporated by reference from Synopsys' Registration Statement on Form S-1
which became effective February 24, 1992.
(2) Incorporated by reference from Synopsys' Report on Form 10-K for the year
ended September 30, 1992.
(3) Incorporated by reference from Synopsys' Report on Form 10-K for the year
ended September 30, 1993.
(4) Incorporated by reference from Synopsys' Report on Form 10-K for the year
ended September 30, 1995.
(5) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1995.
(6) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended December 31, 1996.
(7) Incorporated by reference from Synopsys' Report on Form 10-Q for the
quarterly period ended March 31, 1996.
(8) Incorporated by reference from Synopsys' S-8 registration statement filed on
May 3, 1996.
<PAGE> 1
EXHIBIT 3.1
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SYNOPSYS, INC.
a Delaware Corporation
(Pursuant to sections 242, 228 and 245 of the
Delaware General Corporation Law)
Synopsys, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law") does
hereby certify that:
FIRST: The name of the Corporation is Synopsys, Inc. and that the
Corporation was originally incorporated on May 7, 1987 under the name Optimal
Solutions, Inc. (Delaware) pursuant to the General Corporation Law; and
SECOND: The following resolutions amending and restating the Corporation's
Second Amended and Restated Certificate of Incorporation were approved by the
Board of Directors of the Corporation at a special meeting held on January 14,
1992 and were duly adopted by the stockholders of the Corporation in accordance
with the provisions of Sections 242 and 245 of the General Corporation Law by
written consent of stockholders given in accordance with Section 228 of the
General Corporation Law, with written notice given to stockholders who did not
consent in writing:
"Now, therefore, be it resolved that the Certificate of Incorporation
of the Corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of the corporation (herein called the "Corporation") is SYNOPSYS,
INC.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that the corporation is authorized to issue
is Fifty-Two Million (52,000,000) shares, par value of one cent ($.01) per
share. Fifty Million (50,000,00) shares shall be Common Stock and Two Million
(2,000,000) shares shall be Preferred Stock.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Third Amended and Restated Articles of
Incorporation may be issued from time to time in series. The Board of Directors
is hereby authorized to fix or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any series of Preferred Stock, and the
number of shares constituting any such series and the designation thereof, or
of any of them. Subject to compliance with applicable protective voting rights
that have been or may be granted to the Preferred Stock or series thereof in
Certificates of Determination or the corporation's Certificate of Incorporation
("Protective Provisions"), but notwithstanding any other rights of the
Preferred Stock or any series thereof, the rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series, prior or subsequent to
the issue of that series, but not below the number of shares of such series
then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
C. Common Stock.
1. Divided Rights. Subject to any preferential dividend rights
applicable to the shares of the Preferred Stock, the holders of shares of the
Common Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board of Directors.
2. Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, after distribution
in full of the preferential amounts to be distributed to the holders of shares
of the
2.
<PAGE> 3
Preferred Stock, the holders of shares of the Common Stock shall be entitled
to receive all of the remaining assets of the Corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
of the Common Stock held by them.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holders of shares of Common Stock shall be
entitled to vote on all matters at all meetings of the stockholders of the
Corporation and shall be entitled to one vote for each share of Common Stock
entitled to vote at such meeting.
ARTICLE V
Except as otherwise provided in this Third Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized to
make, repeal, alter, amend and rescind any or all of the Bylaws of the
corporation.
ARTICLE VI
The number of directors of the corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE IX
No action may be taken by the stockholders of the corporation without a
meeting, and no consents in lieu of a meeting may be taken pursuant to Section
228 of the Delaware General Corporation Law.
3.
<PAGE> 4
ARTICLE X
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the corporation's directors for breach of
fiduciary duty, then a director of the corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article VIII by the stockholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification.
ARTICLE XI
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Third Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statue, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, SYNOPSYS, INC. has caused this Third Amended and
Restated Certificate of Incorporation to be signed by its President and
attested to by its Assistant Secretary this 3rd day of March, 1992.
SYNOPSYS, INC.
/s/ Harvey C. Jones, Jr.
--------------------------------
HARVEY C. JONES, JR., President
ATTEST:
/s/ A. Brooke Seawell
- --------------------------------------
A. BROOKE SEAWELL, Assistant Secretary
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
SYNOPSYS, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Synopsys, Inc. a
resolution was duly adopted setting forth a proposed amendment to the
Certificate of Incorporation of said corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, That the Restated Certificate of Incorporation of this
corporation be amended by changing the FOURTH Article ("Classes of
Stock") thereof so that, as amended said Article shall be and read as
follows:
"A. Classes of Stock. This corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares that the corporation is
authorized to issue is One Hundred and Two Million (102,000,000), par
value of one cent ($.01) per share. One Hundred Million (100,000,000)
shares shall be Common Stock and Two Million (2,000,000) shares shall
be Preferred Stock."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with section 222 of the General
Corporation law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 2
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by STEVEN K. SHEVICK, its Deputy General Counsel, this THIRD day of
JUNE, 1996.
/s/ Steven K. Shevick
--------------------------------
Steven K. Shevick
Deputy General Counsel
Synopsys, Inc.
<PAGE> 1
Exhibit 3.3
RESTATED BY-LAWS
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. 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
<PAGE> 2
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.
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 or President and shall be called by
the Chairman or President or Secretary at the request in writing of a majority
of the Board of Directors or of one or more stockholders holding not less than
ten percent (10%) of the voting power of the
Synopsys By-Laws-2-May 1, 1996
<PAGE> 3
corporation, and may not be called absent such a request. 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.
Synopsys By-Laws-3-May 1, 1996
<PAGE> 4
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.
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.
Synopsys By-Laws-4-May 1, 1996
<PAGE> 5
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.
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
Synopsys By-Laws-5-May 1, 1996
<PAGE> 6
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 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.
Synopsys By-Laws-6-May 1, 1996
<PAGE> 7
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
Synopsys By-Laws-7-May 1, 1996
<PAGE> 8
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 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
Synopsys By-Laws-8-May 1, 1996
<PAGE> 9
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
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
Synopsys By-Laws-9-May 1, 1996
<PAGE> 10
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.
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.
Synopsys By-Laws-10-May 1, 1996
<PAGE> 11
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
Synopsys By-Laws-11-May 1, 1996
<PAGE> 12
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 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
Synopsys By-Laws-12-May 1, 1996
<PAGE> 13
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 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
Synopsys By-Laws-13-May 1, 1996
<PAGE> 14
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.
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
Synopsys By-Laws-14-May 1, 1996
<PAGE> 15
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.
Synopsys By-Laws-15-May 1, 1996
<PAGE> 16
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 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.
Synopsys By-Laws-16-May 1, 1996
<PAGE> 17
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 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
Synopsys By-Laws-17-May 1, 1996
<PAGE> 18
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 interest of the
corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
Synopsys By-Laws-18-May 1, 1996
<PAGE> 19
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
Synopsys By-Laws-19-May 1, 1996
<PAGE> 20
corporation, or served any other enterprise as a Director or officer at the
request of the corporation or any predecessor of the corporation.
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
Synopsys By-Laws-20-May 1, 1996
<PAGE> 21
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 By-Laws) 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 Directors, or by vote of the Board or by the Directors' written
consent pursuant to Section 9 of Article III.
Synopsys By-Laws-21-May 1, 1996
<PAGE> 1
EXHIBIT 5.1
February 4, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
RE: SYNOPSYS, INC.
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 12,148,677 shares of Common Stock (the "Common
Stock"), $.01 par value per share, of Synopsys, Inc. (the "Company").
We have acted as counsel for the Company in connection with the
issuance of the shares of Common Stock pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of January 16, 1997, by and among the
Company, EPIC Merger Co., Inc. and EPIC Design Technology, Inc. We have examined
signed copies of the Registration Statement and all exhibits thereto (including,
but not limited to, the Merger Agreement), all as filed with the Commission. We
have also examined and relied upon the original or copies of minutes of meetings
of the stockholders and Board of Directors of the Company, a certificate of the
transfer agent for the Common Stock, the Certificate of Incorporation and the
Bylaws of the Company and such other documents as we have deemed material to the
opinion set forth below.
Based upon the foregoing, we are of the opinion that the shares of
Common Stock to be issued pursuant to the Merger Agreement are duly authorized
by the Company and, when issued in accordance with the terms of the Merger
Agreement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in the
Registration Statement and in the related Prospectus, as originally filed or
as amended or Supplemented.
This opinion is to be used only in connection with the issuance of the
Common Stock while the Registration Statement is in effect.
Very truly yours,
/s/ GRAY CARY WARE & FREIDENRICH
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE> 1
EXHIBIT 8.1
ATTORNEYS AT LAW
400 HAMILTON AVENUE
PALO ALTO, CA 94301-1825
TEL: (415) 328-6561
FAX: (415) 327-3699
http://www.gcwf.com
February 4, 1997
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043-4033
Dear Ladies and Gentlemen:
We have acted as legal counsel to Synopsys, Inc., a Delaware
corporation ("Synopsys") in connection with the preparation and execution of
the Agreement and Plan of Merger dated January 16, 1997 (the "Merger
Agreement") among Synopsys, Epic Merger Co., Inc., a Delaware corporation and a
wholly-owned subsidiary of Synopsys ("Sub") and Epic Design Technology, Inc., a
California corporation ("Epic"). Pursuant to the Merger Agreement, Sub will
merge with and into Epic (the "Merger"), and Epic will become a wholly-owned
subsidiary of Synopsys. Unless otherwise defined, capitalized terms referred to
herein have the meanings set forth in the Merger Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
You have requested our opinion that the Merger will constitute a
"reorganization" as defined in Section 368(a) of the Code. In delivering this
opinion, we have examined and are relying upon (without any independent
investigation or review thereof) the truth and accuracy, at all relevant times,
of the statements, covenants, representations and warranties contained in the
following documents (including all schedules and exhibits thereto): (1) the
registration statement on form S-4 of a Joint Proxy Statement/Prospectus of
Epic and Synopsys (the "Registration Statement"); (2) the Merger Agreement; (3)
such other instruments and documents related to the formation, organization and
operation of Epic and Synopsys or to the consummation of the Merger and the
transactions contemplated thereby as we have deemed necessary or appropriate;
(4) representations and warranties made to us by Epic, Synopsys and Sub (the
"Officers' Certificates"); and (5) an opinion of counsel, received by Synopsys
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, substantially
identical in substance to this opinion (the "WSGR Tax Opinion").
<PAGE> 2
Gray Cary Ware & Freidenrich
Synopsys, Inc.
February 4, 1997
Page Two
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification. As to all matters in
which a person or entity making a representation referred to above has
represented that such person or entity either is not a party to, does not have,
or is not aware of, any plan or intention, understanding or agreement, there is
in fact no such plan, intention, understanding or agreement;
3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us (including, but not
limited to the Officers' Certificates) are true and correct as of the date
hereof, at the effective date of the Registration Statement and at the Effective
Time, and no actions have been (or will be) taken which are inconsistent with
such statements, descriptions and representations;
4. The Merger will be reported by Synopsys and Epic on their respective
federal income tax returns in a manner consistent with the opinion set forth
below;
5. The Merger will be consummated in accordance with the Merger Agreement
(and without any waiver, breach or amendment of any of the provisions thereof)
and will be effective under the applicable state law; and
6. The WSGR Tax Opinion has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that for federal income tax purposes, the Merger will constitute
a "reorganization" as defined in Section 368(a) of the Code. In addition to the
assumptions set forth above, this opinion is subject to the exceptions,
limitations and qualifications set forth below.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and the
Internal Revenue Service is not precluded from successfully asserting a contrary
position. Furthermore, no assurance can be given that future
<PAGE> 3
Gray Cary Ware & Freidenrich
Synopsys, Inc.
February 4, 1997
Page Three
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the federal income
tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code. No opinion is expressed as to
any other matter, including any other tax consequences of the Merger or any
other transaction (including any transaction undertaken in connection with the
Merger) under any foreign, federal, state, or local tax law.
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied
are not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
This opinion has been delivered to you for the purpose of satisfying
the requirements of Section 7.1(h) of the Merger Agreement. It may not be relied
upon by any other person or entity, and may not be made available to any other
person or entity without our prior written consent. We hereby consent, however,
to the use of this opinion as an exhibit to the Registration Statement and
further consent to the use of our name wherever appearing in the Registration
Statement, including the Joint Proxy Statement/Prospectus constituting a part
thereof, and any amendments thereto.
Very truly yours,
/s/ GRAY CARY WARE & FREIDENRICH
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE> 1
Exhibit 8.2
WILSON SONSINI GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, California 94304
February 4, 1997
Epic Design Technology, Inc.
310 N. Mary Avenue
Sunnyvale, California 94086
Ladies and Gentlemen:
We have acted as counsel for EPIC Design Technology, Inc., a California
corporation ("EPIC") in connection with the preparation and execution of the
Agreement and Plan of Merger (the "Merger Agreement") dated as of January 16,
1997, among Synopsys, Inc., a Delaware corporation ("Synopsys"), EPIC Merger
Co., Inc., a wholly-owned subsidiary of Synopsys incorporated in Delaware
("Sub"), and EPIC. Pursuant to the Merger Agreement, Sub will merge with and
into EPIC (the "Merger"), and EPIC will become a wholly-owned subsidiary of
Synopsys. Unless otherwise defined, capitalized terms referred to herein have
the meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon the facts, statements, descriptions and representations
set forth in the Registration Statement on Form S-4 filed by Synopsys with the
Securities and Exchange Commission (which contains a prospectus and joint proxy
statement of EPIC and Synopsys) (the "Registration Statement"), the Merger
Agreement (including Exhibits), an opinion of counsel received by Synopsys from
Gray Cary Ware & Freidenrich, Professional Corporation, substantially identical
in substance to this opinion (the "GCWF Tax Opinion"), and such other documents
pertaining to the Merger as we have deemed necessary or appropriate. We have
also relied upon certificates of officers of EPIC and Synopsys respectively (the
"Officers' Certificates").
In connection with rendering this opinion, we have also assumed
(without any independent investigation) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
<PAGE> 2
Epic Design Technology, Inc.
February 4, 1997
Page 2
2. Any statement made in any of the documents referred to herein, "to
the best of the knowledge" of any person or party is correct without such
qualification;
3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all material respects and no actions have been (or will be) taken which are
inconsistent with such representations;
4. The Merger will be reported by Synopsys and EPIC on their respective
federal income tax returns in a manner consistent with the opinion set forth
below;
5. The Merger will be consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and will be effective under the applicable state law; and
6. The GCWF Tax Opinion has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that for federal income tax purposes, the Merger will constitute
a "reorganization" as defined in Section 368(a) of the Code.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
Federal income tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
<PAGE> 3
Epic Design Technology, Inc.
February 4, 1997
Page 3
This opinion has been delivered to you for the purpose of satisfying
the requirements of Section 7.1(h) of the Merger Agreement. It may not be relied
upon for any other purpose or by any other person or entity, and may not be made
available to any other person or entity without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Certain Federal Income
Tax Consequences." In giving such consent, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 10.8
SYNOPSYS
DEFERRED COMPENSATION PLAN
(EFFECTIVE SEPTEMBER 30, 1996)
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I TITLE AND DEFINITIONS............................ 2
ARTICLE II PARTICIPATION.................................... 4
ARTICLE III DEFERRAL ELECTIONS............................... 4
ARTICLE IV ACCOUNTS......................................... 6
ARTICLE V VESTING.......................................... 7
ARTICLE VI DISTRIBUTIONS.................................... 7
ARTICLE VII ADMINISTRATION................................... 9
ARTICLE VIII MISCELLANEOUS................................... 11
<PAGE> 3
<PAGE> 4
RECITALS
1. The Company wishes to establish a supplemental retirement plan for
the benefit of selected highly compensated employees or others as designated by
the Company.
2. The Company wishes to provide that the plan to be established shall
be designated as the Synopsys Deferred Compensation Plan (the "Plan").
3. The Company wishes to provide under the Plan for the payment of
vested accrued benefits to Plan participants and their beneficiary or
beneficiaries in accordance with the terms of this document.
4. The Company wishes to provide under the Plan that the Company shall
pay all of the accrued benefits from its general assets.
5. The Company intends that the assets of the Plan shall at all times
be subject to the claims of the general creditors of the Company.
6. The Company intends that the Plan be considered as "unfunded" for
purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall not be construed to provide income to Plan participants
under the Plan prior to actual payment of the accrued benefits thereunder.
NOW THEREFORE, the Company does hereby establish the Plan as follows:
ARTICLE I
TITLE AND DEFINITIONS
1.1 Title.
This Plan shall be known as the Synopsys Deferred Compensation Plan.
<PAGE> 5
SYNOPSYS
DEFERRED COMPENSATION PLAN
This Plan, effective as of September 30, 1996 (the "Effective Date"),
is adopted by Synopsys, Inc. (the "Company"), acting on behalf of itself and its
designated subsidiaries. Throughout, the term "Company" shall include wherever
relevant any entity that is directly or indirectly controlled by the Company or
any entity in which the Company has a significant equity or investment interest,
as determined by the Company.
1.2 Definitions.
Whenever the following words and phrases are used in this Plan, with
the first letter capitalized, they shall have the meanings specified below.
"Account" means for each Participant the bookkeeping account maintained
by the Committee that is credited with amounts equal to (1) the portion of the
Participant's Base Pay that he or she elects to defer, (2) the portion of the
Participant's Variable Pay that he or she elects to defer, (3) Company's
discretionary contributions, if any, credited under the Plan for the
Participant's benefit, and (4) adjustments to reflect deemed gains or losses
pursuant to Section 4.1(d).
"Base Pay" means the non-variable portion of an Eligible Employees'
compensation.
"Beneficiary" or "Beneficiaries" means the beneficiary last designated
in writing by a Participant in accordance with procedures established by the
Committee to receive the benefits specified hereunder in the event of the
Participant's death. No beneficiary designation shall become effective until it
is filed with the Committee during the Participant's lifetime.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Administrative Committee formed in accordance
with Article VII consisting of senior representatives from departments of Human
Resources, Legal and Finance.
"Company" means Synopsys, Inc., any successor corporation and any
entity that is directly or indirectly controlled by the Company or any entity in
which the Company has a significant equity or investment interest, as determined
by the Company.
"Distributable Amount" means the amount credited to a Participant's
Account.
"Effective Date" means September 30, 1996.
<PAGE> 6
"Eligible Employee" for a Plan Year means (i) a common law employee of
the Company performing services regularly in the United States of America whose
Salary equals or exceeds $130,000 determined as of August 1 immediately
preceding the Plan Year, or (ii) any other employee or category of employee
designated by the Committee. Notwithstanding the foregoing, the Committee may
determine in writing that an otherwise Eligible Employee shall not be eligible
to participate in this Plan. The compensation threshold may be adjusted at the
discretion of the Committee.
"Fiscal Year" as determined by the Company's Board of Directors.
"Fund" or "Funds" means one or more of the investment funds selected by
the Committee pursuant to Section 3.3.
"Fund Return" means, for each Fund, an amount equal to the net rate of
gain or loss on the assets of such Fund during each month
"Initial Election Period" for an Eligible Employee means the later of
the period beginning September 3, 1996 and ending 30 days after the Effective
Date or the period beginning on the Eligible Employee's initial date of
eligibility and ending 30 days thereafter.
"Insurable Participant" means a Participant who satisfies underwriting
standards for the issuance of life insurance determined by the insurance company
selected by the Committee.
"Participant" means any Eligible Employee who elects to defer
compensation in accordance with Section 3.1.
"Payment Eligibility Date" means the first day of the month following
the calendar quarter in which a Participant terminates employment or dies, or if
not such date, as soon as administratively possible thereafter.
"Plan" means Synopsys Deferred Compensation Plan set forth herein, now
in effect, or as amended from time to time.
"Plan Year" means the 12-consecutive month period beginning with the
first day of each Fiscal Year of the Company and ending on the last day of such
Fiscal Year.
"Retirement" means termination of employment with the Company on or
after attaining age 55.
"Salary" means annualized compensation that is used to calculate
eligibility. Specifically, (i) in the case of an Eligible Employee whose
compensation from the Company does not contain a commission element, the
Eligible Employee's annualized Base Pay (wages and overtime), and (ii) in the
case of an Eligible Employee whose compensation from the Company contains a
commission element, the employee's total target compensation (i.e., annualized
Base Pay plus annualized target commissions and target bonuses, but excluding
additional commissions and bonuses). Salary excludes any other form of
compensation such as bonuses, restricted stock proceeds from stock options or
stock appreciation rights, severance payments, moving
<PAGE> 7
expenses, car or other special allowance, or any other amounts included in an
Eligible Employee's taxable income that is not compensation for services.
Deferral elections shall be computed before taking into account any reduction in
taxable income by Salary reduction under Code Sections 125, 401(k), Employee
Stock Purchase Program, or under this Plan.
"Variable Pay" means any variable compensation including commissions,
sales bonuses and/or other incentive compensation that is payable in addition to
the Participant's Base Pay.
ARTICLE II
PARTICIPATION
2.1 Participation.
An Eligible Employee shall become a Participant in the Plan by electing
to defer all or a portion of his or her compensation in accordance with Section
3.1, by completing an application for life insurance, and by complying with any
applicable medical underwriting requirements of the insurance company.
ARTICLE III
DEFERRAL ELECTIONS
3.1 Elections to Defer Compensation.
(a) Initial Election Period. Each Eligible Employee may elect initially
to defer compensation by filing with the Committee an election that conforms to
the requirements of this Section 3.1, on a form provided by the Committee, no
later than the last day of his or her Initial Election Period.
(b) General Rule. Subject to the limitations set forth in paragraph (c)
below, the amount of compensation which an Eligible Employee may elect to defer
is as follows:
(1) Any whole percentage of Base Pay up to 50%; and/or
(2) Any whole percentage of Variable Pay up to 100%;
provided, however, that no election shall be effective to reduce the
compensation paid to an Eligible Employee for a calendar year to an
amount that is less than the amount necessary to pay applicable
employment taxes (e.g., FICA, hospital insurance, SDI) payable with
respect to amounts deferred hereunder, amounts necessary to satisfy any
other benefit plan withholding obligations, and any resulting income
taxes payable with respect to compensation that cannot be so deferred.
Until an Eligible Employee (other than an Eligible Employee who has
been determined not to be an Insurable Participant) completes an
application for life insurance, any deferral election made by the
Eligible Employee pursuant to Section 3.1 hereof shall be void.
<PAGE> 8
(c) Minimum Deferrals. For each Plan Year during which the Eligible
Employee is a Participant, the minimum dollar amount that may be deferred under
this Section 3.1 is $5,000.
(d) Effect of Initial Election. An election to defer compensation
during the Initial Election Period shall be effective with respect to Base Pay
earned during the first pay period beginning after the initial election which is
in the Plan Year for which the election is made, and to Variable Pay payable for
the Plan Year for which the election is made. At the discretion of the
Committee, certain Variable Pay may be deferred which is payable in the first
Plan Year of eligibility (even though such variable pay was earned in prior
period).
(e) Duration of Base Pay Deferral Election. Any Base Pay deferral
election made under paragraph (a) or paragraph (g) of this Section 3.1 shall be
irrevocable and shall apply only to the Base Pay payable with respect to
services performed during the Plan Year for which the election is made. Subject
to the minimum deferral requirement of Section 3.1(c), the percentage or amount
of Base Pay designated by the Participant for deferral must be restated,
increased, decreased or suspended, by filing a new election, in accordance with
the terms of this Section 3.1, with the Committee at least 15 days before the
beginning of the next Plan Year.
(f) Duration of Variable Pay Deferral Election. Any Variable Pay
deferral election made under paragraph (a) or paragraph (g) of this Section 3.1
shall be irrevocable and shall apply only to the Variable Pay payable with
respect to services performed during the Plan Year for which the election is
made. For each subsequent Plan Year, an Eligible Employee may make a new
election to defer a percentage of his or her Variable Pay. Such election shall
be on forms provided by the Committee and shall be made at least 15 days before
the beginning of the Plan Year for which the election is to apply.
(g) Elections Other Than Elections During the Initial Election Period.
Any Eligible Employee who fails to elect to defer compensation during his or her
Initial Election Period may subsequently become a Participant, and any Eligible
Employee who has terminated a prior deferral election may elect to again defer
compensation, by filing an election, on a form provided by the Committee, to
defer compensation as described in paragraph (b) above. An election to defer
compensation must be filed at least 15 days before the beginning of the Plan
Year and will be effective for Base Pay earned during pay periods beginning
after the Plan Year begins and the Variable Pay paid with respect to services
performed in the Plan Year.
3.2 Company Contributions.
The Company may, in its sole discretion, credit discretionary
contributions to the Accounts of one or more Participants at such times and in
such amounts as the Committee may determine.
<PAGE> 9
3.3 Investment Elections.
The Committee shall provide each Participant with a list of Funds
available for hypothetical investment, and the Participant may designate, on a
form provided by the Committee, one or more Funds that his or her Account will
be deemed to be invested in for purposes of determining the amount of gains or
losses to be credited to that Account. The Fund Return of each Fund shall be
used to determine the amount to be credited to the Participants' Accounts under
Section 4.1(d).
In making the designation pursuant to this Section 3.3, the Participant
may specify that all or any whole percentage of his or her Account be deemed to
be invested in one or more of the Funds selected by the Committee. A Participant
may change the designation made under this Section 3.3 by filing an election on
a form provided by the Committee. If the form is filed at least 15 days prior to
the end of the quarter, then the revised allocation will become effective as of
the beginning of the next quarter.
The Company may, but need not, acquire investments corresponding to
those designated by the Participants hereunder, and it is not under any
obligation to maintain any investment it may make. Any such investments, if
made, shall be in the name of the Company, and shall be its sole property in
which no Participant shall have any interest.
ARTICLE IV
ACCOUNTS
4.l Participant Accounts.
The Committee shall establish and maintain an Account for each
Participant under the Plan. Each Participant's Account shall be further divided
into separate subaccounts ("investment fund subaccounts"), each of which
corresponds to a Fund designated by the Participant pursuant to Section 3.3(a).
A Participant's Account shall be credited as follows:
(a) Not later than the last day of each month, the Committee shall
assure that the investment fund subaccounts of the Participant's Account be
credited with an amount equal to the Base Pay deferred by the Participant during
each pay period ending in that month in accordance with the Participant's
election; that is, the portion of the Participant's deferred Base Pay that the
Participant has elected to be deemed to be invested in a certain Fund shall be
credited to the investment fund subaccount corresponding to that Fund.
(b) Not later than the last day of the month in which Variable Pay was
payable, the Committee shall assure that the investment fund subaccounts of the
Participant's Account be credited with an amount equal to the portion of the
Variable Pay deferred by the Participant's election; that is, the portion of the
Participant's deferred Variable Pay that the Participant has elected to be
deemed to be invested in a certain Fund shall be credited to the investment fund
subaccount corresponding to that Fund.
<PAGE> 10
(c) Not later than the last day of the Plan Year or such earlier time
or times as the Committee may determine, the Committee shall credit the
investment fund subaccounts of the Participant's Account with an amount equal to
the portion, if any, of any Company contribution for the Participant's benefit
in accordance with Section 3.3; that is, the portion of the Participant's
Company contribution, if any, that the Participant has elected to be deemed to
be invested in a certain Fund shall be credited to the investment fund
subaccount corresponding to that Fund.
(d) Not later than the last day of each month, each investment fund
subaccount of a Participant's Account shall be credited with gains or losses in
an amount equal to that determined by multiplying the balance credited to such
investment fund subaccount as of the last day of the preceding month by the Fund
Return (positive or negative) for the corresponding Fund.
ARTICLE V
VESTING
5.1 Account.
(a) Base Pay and Variable Pay Deferrals. A Participant's Account
attributable to Base Pay and Variable Pay deferred by a Participant pursuant to
the terms of this Plan, together with any amounts credited to the Participant's
Account under Section 4.1(d) with respect to such deferrals, shall be 100%
vested at all times.
(b) Company Contributions. The portion of a Participant's Account
attributable to any Company contributions pursuant to Section 3.2, including the
Fund Return credited with respect thereto, shall vest at such time or times as
the Committee shall specify in connection with any such amounts.
ARTICLE VI
DISTRIBUTIONS
6.1 Distribution of Deferred Compensation.
(a) A Participant will initially elect, for each Plan Year, to receive
or commence receiving distributions either on a certain future date or upon
Retirement. If a future date is selected, then the form of payment will be lump
sum paid in January of the year identified on the election form. The lump sum
payment will be the portion of the Participant's Account attributable to
deferrals in the Plan Year for which the election form applies. The initial
election must be for a future date that is 2 years or more from the Election
Date. If the initial election is for a future date, then a Participant may delay
receipt of the scheduled distribution
<PAGE> 11
provided that his or her subsequent election is filed with the Committee at
least one year (365 days), prior to his or her scheduled distribution date.
(b) In the case of a Participant, who terminates employment with the
Company as a result of Retirement, or a long-term disability (as defined in the
Company's long-term disability plan), the Distributable Amount shall be paid to
the Participant (and after his death to his or her Beneficiary) in the form of
proportionate quarterly installments over 15 years beginning on his or her
Payment Eligibility Date. Notwithstanding the foregoing, a Participant described
in the preceding sentence may elect one of the following optional forms of
distribution provided that his or her election is filed with the Committee
within 30 days of the date the Eligible Employee first becomes a Participant:
(1) a cash lump sum payable on the Participant's Payment Eligibility
Date; or
(2) proportionate quarterly installments over five or 10 years
beginning on the Participant's Payment Eligibility Date.
Notwithstanding this subsection 6.1(b), a Participant described above may change
his or her form of distribution to one of the optional forms listed above
provided that his or her election is filed with the Committee at least one year
(365 days) prior to his or her Payment Eligibility Date. However, if the
Participant's Distributable Amount on the Payment Eligibility Date is $25,000 or
less, the Distributable Amount shall automatically be distributed in the form of
a cash lump sum. To the extent the Distributable Amount is paid in installments,
the Participant's Account shall continue to be credited monthly pursuant to
Section 4.l(d) of the Plan and the installment amount shall be adjusted annually
to reflect changes in the Account balance until all amounts credited to his or
her Account under the Plan have been distributed.
(c) In the case of a Participant who terminates employment for reasons
other than Retirement or a long-term disability, the Distributable Amount shall
be paid to the Participant in the form of a cash lump sum within 90 days of the
termination date.
6.2 Early Distributions.
Participants shall be permitted to request to withdraw amounts credited
to their Accounts prior to termination of employment with the Company ("Early
Distributions"), subject to the following restrictions:
(a) The request to receive an Early Distribution shall be made by
filing a form provided by and filed with the Committee prior to the end of any
calendar month.
(b) The amount payable to a Participant in connection with an Early
Distribution shall in all cases equal 90% of the amount requested by the
Participant; provided that the maximum amount payable to a Participant in
connection with an Early Distribution shall be 90% of the Distributable Amount
as of the end of the calendar month in which the Early Distribution request is
made.
<PAGE> 12
(c) The amount described in subsection (b) above shall be paid in a
single cash lump sum as soon as practicable after the end of the calendar month
in which the Early Distribution request is made and approved.
(d) If a Participant receives an Early Distribution, the remaining
portion of the requested amount, (i.e., 10% of such amount), shall be
permanently forfeited and the Company shall have no obligation to the
Participant or his Beneficiary with respects to such forfeited amount.
(e) If a Participant receives an Early Distribution, the Participant
shall be ineligible to defer for the balance of the Plan Year in which the Early
Distribution occurs and the following Plan Year.
(f) A Participant shall be limited to a maximum of two Early
Distributions during all of his or her periods of participation in the Plan.
6.3 Unforeseeable Emergency.
The Committee may, pursuant to rules adopted by it and applied in a
uniform manner, accelerate the date of distribution of a Participant's Account
because of an Unforeseeable Emergency at any time. "Unforeseeable Emergency"
shall mean an unforeseeable, severe financial condition resulting from (a) a
sudden and unexpected illness or accident of the Participant or his or her
dependent (as defined in Section 152(a) of the Code); (b) loss of the
Participant's property due to casualty; or (c) other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant, but which may not be relieved through other available resources
of the Participant, as determined by the Committee. Distribution pursuant to
this subsection of less than the Participant's entire interest in the Plan shall
be made pro rata from his or her investment fund subaccounts according to the
balances in such subaccounts. Subject to the foregoing, payment of any amount
with respect to which a Participant has filed a request under this subsection
shall be made as soon as practicable after approval of such request by the
Committee.
6.4 Inability To Locate Participant.
In the event that the Committee is unable to locate a Participant or
Beneficiary for two years, the amount allocated to the Participant's Account
shall be forfeited.
<PAGE> 13
ARTICLE VII
ADMINISTRATION
7.1 Committee.
The number of members comprising the Committee shall be five (5)
initially and future determinations will be made by affirmative vote of a
majority from the existing Committee members. The number of Committee
members may vary from time to time. A member of the Committee may resign by
delivering a written notice of resignation to the Chairperson of the
Committee. The Committee may remove, by affirmative vote of a majority, any
member by delivering a certified copy of its resolution of removal to such
member. Vacancies in the membership of the Committee shall be filled
promptly by any Committee member's nomination of a prospective member
approved by affirmative vote of a majority of the remaining Committee
members.
7.2 Committee Action.
The Committee shall act at meetings by affirmative vote of a majority
of the members of the Committee. Any action permitted to be taken at a
meeting may be taken without a meeting if, prior to such action, a written
consent to the action is signed by all members of the Committee and such
written consent if filed with the minutes of the proceedings of the
Committee. A member of the Committee shall not vote or act upon any matter
which relates solely to himself or herself as a Participant. The
Chairperson of the Committee or any other member or members of the
Committee designated by the Chairperson may execute any certificate or
other written direction on behalf of the Committee.
7.3 Powers and Duties of the Committee.
(a) The Committee, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan in accordance with its terms, shall
be charged with the general administration of the Plan and shall have all
powers necessary to accomplish its purposes, including, but not by way of
limitation, the following:
(1) To select the investments to determine the Funds Return in
accordance with Section 3.3 hereof;
(2) To construe and interpret the terms and provisions of this
Plan;
(3) To amend, modify, suspend or terminate the Plan in accordance
with Section 8.4;
(4) To compute and certify to the amount and kind of benefits
payable to Participants and their Beneficiaries and to direct
the distribution of Plan benefits;
(5) To maintain all records that may be necessary for the
administration of the Plan;
<PAGE> 14
(6) To provide for the disclosure of all information and the
filing or provision of all reports and statements to
Participants, Beneficiaries or governmental agencies as shall
be required by law;
(7) To make and publish such rules for the regulation of the Plan
and procedures for the administration of the Plan as are not
inconsistent with the terms hereof; and
(8) To appoint a Plan administrator or any other agent, and to
delegate to them such powers and duties in connection with the
administration of the Plan as the Committee may from time to
time prescribe.
7.4 Construction and Interpretation.
The Committee shall have full discretion to construe and interpret the
terms and provisions of this Plan, which interpretation or construction,
subject to Section 8.4, shall be final and binding on all parties,
including but not limited to the Company and any Participant or
Beneficiary. The Committee shall administer such terms and provisions in a
uniform and nondiscriminatory manner and in full accordance with any and
all laws applicable to the Plan.
7.5 Information.
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating
to the compensation of all Participants, their deaths or other causes of
termination, and such other pertinent facts as the Committee may reasonably
require.
7.6 Compensation, Expenses and Indemnity.
(a) The members of the Committee shall serve without compensation for
their services hereunder.
(b) The Committee is authorized at the expense of the Company to
employ such legal counsel as it may deem advisable to assist in the
performance of its duties hereunder. Expenses and fees in connection with
the administration of the Plan shall be paid by the Company.
(c) To the extent permitted by the state law of the Company's
incorporation (Delaware), the Company shall indemnify and save harmless the
Committee and each member thereof, the Board of Directors and any delegate
of the Committee who is an employee of the Company against any and all
expenses, liabilities and claims, including legal fees to defend against
such liabilities and claims arising out of their discharge of
responsibilities under or incident to the Plan, other than expenses and
liabilities arising out of willful misconduct. This indemnity shall not
preclude such further indemnities as may be available under insurance
purchased by the Company or provided by the Company under any bylaw,
agreement or otherwise, as such indemnities are permitted under state law.
<PAGE> 15
7.7 Quarterly Statements.
Under procedures established by the Committee, a Participant shall
receive a statement with respect to such Participant's Account on a quarterly
basis.
ARTICLE VIII
MISCELLANEOUS
8.1 Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interests in any specific
property or assets of the Company. No assets of the Company shall be held under
any trust, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all of the Company's assets
shall be, and remain, the general unpledged, unrestricted assets of the Company.
The Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future, and the rights of
the Participants and Beneficiaries shall be no greater than those of unsecured
general creditors.
8.2 Restriction Against Assignment.
The Company shall pay all amounts payable hereunder only to the person
or persons designated by the Plan and not to any other person or corporation. No
part of a Participant's Account shall be liable for the debts, contracts, or
engagements of any Participant, his or her Beneficiary, or successors in
interest, nor shall a Participant's Account be subject to execution by levy,
attachment, or garnishment or by any other legal or equitable proceeding, nor
shall any such person have any right to alienate, anticipate, commute, pledge,
encumber, or assign any benefits or payments hereunder in any manner whatsoever.
If any Participant, Beneficiary or successor in interest is adjudicated bankrupt
or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge any distribution or payment from the Plan, voluntarily or involuntarily,
the Committee, in its discretion, may cancel such distribution or payment (or
any part thereof) to or for the benefit of such Participant, Beneficiary or
successor in interest in such manner as the Committee shall direct.
8.3 Withholding.
There shall be deducted from each payment made under the Plan all taxes
which are required to be withheld by the Company in respect to such payment. The
Company shall have the right to reduce any payment by the amount of cash
sufficient to provide the amount of said taxes.
<PAGE> 16
8.4 Disputes.
(a) The Committee shall administer this Plan. The Committee (either
directly or through its designees) shall have the power and authority to
interpret, construe, and administer this Plan.
(b) Neither the Committee, its designee nor its advisors, shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Plan.
(c) The Committee shall determine each Participant's and Beneficiary's
right to payments under the Plan. If a Participant or Beneficiary disagrees with
the Committee's determination, he or she may make a written claim for payments
inconsistent with that determination. Any such claim shall be filed with the
Committee at the principal executive offices of the Company. The Committee shall
review the claim and notify the claimant of its decision in writing within 60
days after the claim is received. If the Committee denies the claim, in whole or
in part, the notice shall specify the reasons for denial, references to the Plan
provisions upon which denial is based, any additional information or material
necessary to perfect the claim, and procedures for further review of the claim.
Within 60 days after receipt of the notice of denial, the claimant may file a
written appeal of the denial of the claim, identifying the grounds, facts and
any other matter upon which the appeal is based. The Committee shall give the
claimant a final decision within 60 days after receipt of the request for
review. If the Committee affirms the denial of the claim in whole or in part, it
shall specify in writing the reasons for the affirmance, with specific
references to the Plan provisions upon which the affirmance is based.
(d) If the Committee has affirmed the denial of a claim pursuant to the
procedure described in subsection (c) above, Participant or his or her
Beneficiary may, if he or she desires, submit any denied claim for payment under
this Plan to arbitration. This right to select arbitration shall be solely that
of Participant or his or her Beneficiary and Participant or his or her
Beneficiary may decide whether or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on Participant or his or her
Beneficiary and Participant or his or her Beneficiary may choose in lieu thereof
to bring an action in an appropriate civil court. Once an arbitration is
commenced, however, it may not be discontinued without the mutual consent of
both parties to the arbitration. During the lifetime of the Participant only he
or she can use the arbitration procedure set forth in this section.
(e) Any claim for arbitration may be submitted as follows: if
Participant or his or her Beneficiary disagrees with the Committee regarding the
interpretation of this Plan and the claim is finally denied by the Committee in
whole or in part, such claim may be filed in writing with an arbitrator of
Participant's or Beneficiary's choice who is selected by the method described in
the next four sentences. The first step of the selection shall consist of
Participant or his or her Beneficiary submitting a list of five potential
arbitrators to the Committee. Each of the five arbitrators must be either (1) a
member of the National Academy of Arbitrators located in the State of California
or (2) a retired California Superior Court or Appellate Court judge. Within one
week after receipt of the list, the Committee shall select one of the five
arbitrators as the arbitrator for the dispute in question. If the
<PAGE> 17
Committee fails to select an arbitrator in a timely manner, Participant or his
or her Beneficiary shall then designate one of the five arbitrators as the
arbitrator for the dispute in question.
(f) The arbitration hearing shall be held within seven days (or as soon
thereafter as possible) after the picking of the arbitrator. No continuance of
said hearing shall be allowed without the mutual consent of Participant or his
or her Beneficiary and the Committee. Absence from or nonparticipation at the
hearing by either party shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be ordered at the arbitrator's
discretion, and the arbitrator may close the hearing in his or her sole
discretion when he or she decides he or she has heard sufficient evidence to
satisfy issuance of an award.
(g) The arbitrator's award shall be rendered as expeditiously as
possible and in no event later than one week after the close of the hearing. In
the event the arbitrator finds that the Company has breached this Plan, he or
she shall order the Company to immediately take the necessary steps to remedy
the breach. The award of the arbitrator shall be final and binding upon the
parties. The award may be enforced in any appropriate court as soon as possible
after its rendition. If an action is brought to confirm the award, both the
Company and Participant agree that no appeal shall be taken by either party from
any decision rendered in such action.
(h) Solely for purposes of determining the allocation of the costs
described in this subsection, the Committee will be considered the prevailing
party in a dispute if the arbitrator determines (1) that the Company has not
breached this Plan and (2) the claim by Participant or his or her Beneficiary
was not made in good faith. Otherwise, Participant or his or her Beneficiary
will be considered the prevailing party. In the event that the Company is the
prevailing party, the fee of the arbitrator and all necessary expenses of the
hearing (excluding any attorneys' fees incurred by the Company) including
stenographic reporter, if employed, shall be paid by the other party. In the
event that Participant or his or her Beneficiary is the prevailing party, the
fee of the arbitrator and all necessary expenses of the hearing (including all
attorneys' fees incurred by Participant or his or her Beneficiary in pursuing
his or her claim), including the fees of a stenographic reporter if employed,
shall be paid by the Company.
8.5 Amendment, Modification, Suspension or Termination.
The Committee may amend, modify, suspend or terminate the Plan in whole
or in part, except that no amendment, modification, suspension or termination
shall have any retroactive effect to reduce any amounts credited to a
Participant's Account. In the event that this Plan is terminated, the time the
amounts credited to a Participant's Account shall be distributed may be
accelerated at the sole discretion of the Committee.
<PAGE> 18
8.6 Governing Law.
This Plan shall be construed, governed and administered in accordance
with the laws of the State of California.
8.7 Receipt or Release.
Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Committee and the Company. The
Committee may require such Participant or Beneficiary, as a condition precedent
to such payment, to execute a receipt and release to such effect.
8.8 Payments on Behalf of Persons Under Incapacity.
In the event that any amount becomes payable under the Plan to a person
who, in the sole judgment of the Committee, is considered by reason of physical
or mental condition to be unable to give a valid receipt therefore, the
Committee may direct that such payment be made to any person found by the
Committee, in its sole judgment, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Committee and the Company.
8.9 No Employment Rights.
Participation in this Plan shall not confer upon any person any right
to be employed by the Company nor any other right not expressly provided
hereunder.
8.10 Department of Labor Determination.
In the event that any Participants are found to be ineligible, that is,
not members of a select group of management or highly compensated employees or
otherwise eligible, according to a determination made by the Department of
Labor, the Committee shall take whatever steps it deems necessary, in its sole
discretion, to equitably protect the interests of the affected Participants.
8.11 Headings, etc. Not Part of Agreement.
Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.
<PAGE> 19
IN WITNESS WHEREOF, the Company has caused this document to be executed
by its duly authorized officer this 30th day of September, 1996.
SYNOPSYS, INC.
By:_________________________________
Title:________________________________
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
Nihon Synopsys K.K. Japan
Synopsys GmbH Germany
Synopsys Holding Co. U.S.A.
Synopsys (India) Pvte. Ltd. India
Synopsys International, Inc. Barbados
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
Arkos Design, Inc. U.S.A.
SNPS Israel Ltd. Israel
Maud Avenue Land Corporation U.S.A.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
SYNOPSYS, INC.
The audits referred to in our report dated October 18, 1996, included the
related financial statement schedule for each of the years in the three-year
period ended September 30, 1996, included in the registration statement. The
financial statement schedule is the responsibility of Synopsys' management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Palo Alto, California
February 4, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the use in this Registration Statement of Synopsys, Inc. on
Form S-4 of our report dated October 11, 1996 relating to the consolidated
financial statements of EPIC Design Technology, Inc. as of September 30, 1995
and 1996 and for each of the three years in the period ended September 30, 1996,
appearing in the Synopsys, Inc./EPIC Design Technology, Inc. Joint Proxy
Statement/Prospectus, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Joint Proxy Statement.
DELOITTE & TOUCHE LLP
San Jose, California
February 3, 1997
<PAGE> 1
EXHIBIT 99.2
SYNOPSYS, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 1997
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Aart J. de Geus and Chi-Foon Chan, and each
of them, with full power of substitution, to represent the undersigned and to
vote all of the shares of stock in Synopsys, Inc., a Delaware corporation (the
"Company"), which the undersigned is entitled to vote at the Special Meeting of
Stockholders of said Company to be held at the Company's principal executive
offices located at 700 East Middlefield Road, Mountain View, California 94043 on
Friday, February 28, 1997 at 9:00 a.m., local time, and at any adjournment or
postponement thereof (1) as hereinafter specified upon the proposals listed on
the reverse side and as more particularly described in the Joint Proxy
Statement/Prospectus of the Company dated February 7, 1997 (the "Proxy
Statement"), receipt of which is hereby acknowledged, and (2) in their
discretion upon such other matters as may properly come before the meeting,
including any motion to adjourn to permit further solicitation of proxies if
necessary, or any postponements or adjournments thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSAL 1.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
<PAGE> 2
[X] Please mark votes as in this example.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED
TO SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT
YOUR STOCK MAY BE REPRESENTED AT THE MEETING.
A vote FOR the following proposal is recommended by the Board of Directors:
1. To approve the issuance of shares of the Company's Common Stock, par
value $.01 per share ("Common Stock"), pursuant to the Agreement and Plan of
Merger, dated as of January 16, 1997, by and among the Company, EPIC Merger Co.,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company
("Sub"), and EPIC Design Technology, Inc., a California corporation ("EPIC"),
pursuant to which, among other things, (a) Sub will be merged with and into
EPIC, which will be the surviving corporation, and EPIC will become a
wholly-owned subsidiary of the Company and (b) each outstanding share of Common
Stock, no par value, of EPIC will be converted into the right to receive 0.7485
of a share of the Company's Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Upon such other business as may properly come before the meeting,
including any motion to adjourn to permit further solicitation of proxies if
necessary, or any postponements or adjournments thereof.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT [ ]
MARK HERE IF YOU PLAN
TO ATTEND THE MEETING [ ]
Signature: ___________________ Date:
Signature: ___________________ Date:
PLEASE SIGN HERE. If shares of stock
are held jointly, both or all of such
persons should sign. Corporate or
partnership proxies should be signed
in full corporate or partnership name
by an authorized person. Persons
signing in a fiduciary capacity should
indicate their full titles in such
capacity.
<PAGE> 1
EXHIBIT 99.3
EPIC DESIGN TECHNOLOGY, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
SPECIAL MEETING OF SHAREHOLDERS
The undersigned shareholder of EPIC Design Technology, Inc., a California
corporation ("EPIC"), hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and Joint Proxy Statement/Prospectus, each dated
February 7, 1997, and hereby appoints Sang S. Wang and Tammy S. Liu, and each of
them, with full power of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Special Meeting of Shareholders
of EPIC to be held Friday, February 28, 1997 at 9:00 a.m., local time, at 310
North Mary Avenue, Sunnyvale, California 94086 and at any adjournments or
postponements thereof, and to vote shares of the EPIC common stock which the
undersigned would be entitled to vote, if then and there personally present, on
the matters set forth on the reverse side hereof:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENVELOPE
PROVIDED.
(SEE REVERSE SIDE)
<PAGE> 2
THE EPIC BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1 TO
APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF JANUARY 16, 1997
(THE "MERGER AGREEMENT"), BY AND AMONG SYNOPSYS, INC., A DELAWARE CORPORATION
("SYNOPSYS"), EPIC MERGER CO., INC., A DELAWARE CORPORATION AND A WHOLLY-OWNED
SUBSIDIARY OF SYNOPSYS ("SUB"), AND EPIC AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, INCLUDING A MERGER PURSUANT TO WHICH SUB WOULD BE MERGED WITH AND
INTO EPIC, WITH EPIC BEING THE SURVIVING CORPORATION (THE "MERGER") AND EPIC
BECOMING A WHOLLY-OWNED SUBSIDIARY OF SYNOPSYS.
1. To approve and adopt the Merger Agreement and the transactions contemplated
thereunder, including the Merger.
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
2. Upon such other business as may properly come before the EPIC Special
Meeting or any adjournments or postponements, thereof, as determined by a
majority of EPIC's Board of Directors.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR THE PROPOSAL LISTED, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING, INCLUDING, AMONG OTHER THINGS,
CONSIDERATION OF ANY MOTION MADE FOR ADJOURNMENT OF THE MEETING (INCLUDING,
WITHOUT LIMITATION, FOR PURPOSES OF SOLICITING ADDITIONAL VOTES TO APPROVE THE
MERGER AGREEMENT AND THE MERGER).
The undersigned shareholder may revoke this proxy at any time before it is
voted by filing with the Secretary of EPIC either an instrument revoking the
proxy or a duly executed proxy bearing a later date, or by attending the EPIC
Special Meeting and voting in person.
PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS ON SHARE CERTIFICATES.
--------------------------------------
--------------------------------------
Signature(s) of Shareholders or
Authorized Representative
Date:
Each executor, administrator, trustee,
guardian, attorney-in-fact and other
fiduciary should sign and indicate his
or her full title. When shares have
been issued in the name of two or more
persons, all should sign. If a
corporation, please sign in corporate
name by President or other authorized
officer. If a partnership, please sign
in partnership name by authorized
person.
<PAGE> 1
EXHIBIT 99.4
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
The undersigned consents to the reference to the undersigned in the
Synopsys, Inc. Registration Statement on Form S-4 as a person named in the
Registration Statement as about to become a director of Synopsys, Inc.
/s/ DR. SANG S. WANG
--------------------------------------
Dr. Sang S. Wang
Dated: February 4, 1995
