AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 2001
REGISTRATION NO. 333-[ ]
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SYNOPSYS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7372 56-154236
(State of Incorporation) (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification
Number)
700 EAST MIDDLEFIELD ROAD, MOUNTAIN VIEW, CALIFORNIA 94043
(650) 584-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
AART J. DE GEUS
Chairman of the Board and Chief Executive Officer,
Synopsys, Inc.
700 East Middlefield Road, Mountain View, California 94043
(650) 584-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
VICTOR I. LEWKOW, ESQ. DAVID A. KRINSKY, ESQ.
Cleary, Gottlieb, Steen & Hamilton O'Melveny & Myers LLP
One Liberty Plaza 990 Marsh Road
New York, New York 10006 Menlo Park, California 94025
Telephone: (212) 225-2370 Telephone: (650) 473-2626
Facsimile: (212) 225-3999 Facsimile: (650) 473-2601
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement,
satisfaction or waiver of the other conditions to closing of the merger
described herein, and consummation of the merger.
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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) FEE(2)
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Common Stock, par value $0.01 per share(3)... 16,801,837 N/A $874,646,603.24 $209,040.53
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(1) Synopsys is registering a total of 16,801,837 Synopsys common shares, par
value $0.01 per share, in connection with the Synopsys/ Avant! merger
described herein. This number is based on (i) (a) 37,968,311 Avant! common
shares outstanding as of December 14, 2001 and (b) 7,319,661 Avant! common
shares issuable upon exercise of options to purchase Avant! common shares
outstanding as of December 14, 2001, excluding options to be cashed out
prior to completion of the merger, multiplied by (ii) an exchange ratio of
0.371 of a Synopsys common share for each Avant! common share pursuant to
the merger agreement referred to herein.
(2) Pursuant to Rules 457(c) and 457(f)(1) under the Securities Act of 1933, as
amended, and solely for the purpose of calculating this registration fee,
the proposed maximum aggregate offering price is equal to (x) the estimated
number of Avant! common shares to be exchanged in the merger (45,287,972),
multiplied by (y) the average of the high and low prices of Avant! common
shares as reported by the Nasdaq National Market on December 17, 2001
($19.313).
(3) Includes associated preferred stock purchase rights.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/ PROSPECTUS UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY -- SUBJECT TO COMPLETION -- DATED DECEMBER 20, 2001
[SYNOPSYS LOGO] [AVANT! LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
We are pleased to report that the boards of directors of Synopsys, Inc. and
Avant! Corporation have each unanimously approved a merger involving our two
companies. Before we can complete the merger, we must obtain the approval of our
companies' stockholders. We are sending you this joint proxy
statement/prospectus to ask you to vote in favor of the merger and related
matters.
In the merger, Avant! will merge with and into a subsidiary of Synopsys and
will become a wholly-owned subsidiary of Synopsys, and Avant! stockholders will
be entitled to receive 0.371 of a Synopsys common share in exchange for each of
their Avant! common shares. Each outstanding Synopsys common share will remain
unchanged in the merger. We estimate that in this merger Synopsys will issue
approximately 16.8 million Synopsys common shares. Synopsys common shares trade
on the Nasdaq National Market under the symbol "SNPS."
Avant! will hold a special meeting of its stockholders to consider and vote
on the merger proposal. Synopsys will, at its annual meeting, consider and vote
on the approval of the issuance of Synopsys common shares in the merger as well
as vote to elect directors and ratify the appointment of independent auditors.
Completion of the merger requires Avant! stockholder approval of the merger
proposal and Synopsys stockholder approval of the issuance of Synopsys common
shares in the merger.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
stockholder meeting, please take the time to vote by completing the enclosed
proxy card and mailing it to us. Synopsys stockholders may instead vote by
following the Internet or telephone instructions on the proxy card. If you sign
and mail your proxy card without indicating how you want to vote, your proxy
will be counted as a vote FOR each of the proposals presented. If you neither
return your card nor vote by Internet or telephone, your shares will not be
voted at your stockholder meeting, and if you do not instruct your broker how to
vote any shares held for you in "street name," your shares will not be voted at
your stockholder meeting for the merger related proposals.
This joint proxy statement/prospectus provides you with detailed
information about the merger and the stockholder meetings, and it includes our
merger agreement as Annex A. You can get more information about our companies
from publicly available documents we have filed with the Securities and Exchange
Commission. WE ENCOURAGE YOU TO READ CAREFULLY THIS ENTIRE DOCUMENT, INCLUDING
ALL ITS ANNEXES, AND WE ESPECIALLY ENCOURAGE YOU TO READ THE SECTION ON "RISK
FACTORS" BEGINNING ON PAGE [ ].
We enthusiastically support this combination of two leading electronic
design automation software suppliers, and we join with the members of our boards
of directors in recommending that you vote FOR the merger.
Aart J. de Geus Paul Lo
Chairman and Chief Executive Officer President
Synopsys, Inc. Avant! Corporation
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE COMMON SHARES TO BE ISSUED BY
SYNOPSYS UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated [ ], 2002, and is
being first mailed to
stockholders on or about [ ], 2002.
[Avant! Logo]
AVANT! CORPORATION
46871 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [ ], 2002
To the Stockholders of Avant! Corporation:
A special meeting of Avant! stockholders will be held on [ ],
[ ] 2002, at [ ] local time, at [ ], for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of December 3, 2001, among Synopsys,
Inc., Maple Forest Acquisition L.L.C., which is a newly formed,
wholly-owned subsidiary of Synopsys, and Avant!, pursuant to which Avant!
will be merged into Maple Forest Acquisition and will become a wholly-owned
subsidiary of Synopsys; and
2. To transact such other business as may properly be brought before
the special meeting and any adjournment or postponement of the special
meeting.
The terms of the proposed merger with Synopsys and the related merger
agreement are more fully described in the joint proxy statement/prospectus
attached to this notice.
Only holders of record of Avant! common shares at the close of business on
[ ], 2002 are entitled to notice of, and to vote at, the special
meeting or any adjournment or postponement of the special meeting. You may vote
in person or by proxy. To grant your proxy to vote your shares, you must
complete and return the enclosed proxy card. Granting your completed proxy in
advance of the special meeting will not prevent you from voting in person at the
special meeting.
We encourage you to vote on this important matter.
By Order of the Board of Directors
James C. Chiang
Secretary
Avant! Corporation
Fremont, California
[ ], 2002
IMPORTANT NOTICE
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO READ THE
ATTACHED JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY AND THEN SIGN, DATE AND
RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE BY FOLLOWING THE INSTRUCTIONS
ON THE ACCOMPANYING
PROXY CARD. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO
SO IN THE MANNER
SET FORTH IN THE ATTACHED JOINT PROXY
STATEMENT/PROSPECTUS.
PLEASE DO NOT SEND ANY AVANT! STOCK CERTIFICATES AT THIS TIME.
[SYNOPSYS LOGO]
SYNOPSYS, INC.
700 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD [ ], 2002
To the Stockholders of Synopsys:
An annual meeting of Synopsys stockholders will be held on [ ],
[ ] 2002, at [ ] local time, at Synopsys' principal executive
offices located at 700 East Middlefield Road, Building C, Mountain View,
California, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
the Synopsys common shares to be received by Avant! Corporation
stockholders in the proposed merger of Avant! into Maple Forest Acquisition
L.L.C., which is a newly formed, wholly-owned subsidiary of Synopsys;
2. To elect eight directors to serve for the following year or until
their successors are elected;
3. To ratify the appointment of KPMG LLP as independent auditors of
Synopsys for fiscal year 2002; and
4. To transact such other business as may properly be brought before
the annual meeting and any adjournment or postponement of the annual
meeting.
The terms of the proposed merger with Avant! and the related merger
agreement are more fully described in the joint proxy statement/prospectus
attached to this notice.
Only holders of record of Synopsys common shares at the close of business
on [ ], 2002 are entitled to notice of, and to vote at, the annual
meeting or any adjournment or postponement of the annual meeting. You may vote
in person or by proxy. To grant your proxy to vote your shares, you must
complete and return the enclosed proxy card or grant your proxy by telephone or
Internet. Granting your completed proxy in advance of the annual meeting will
not prevent you from voting in person at the annual meeting.
We encourage you to vote on these important matters.
By Order of the Board of Directors
Mountain View, California
[ ], 2002
IMPORTANT NOTICE
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO
READ THE
ATTACHED JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY AND THEN SIGN, DATE AND
RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR SUBMIT A PROXY BY TELEPHONE
OR THE INTERNET
BY FOLLOWING THE INSTRUCTIONS ON THE ACCOMPANYING PROXY CARD.
IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE
MANNER
SET FORTH IN THE ATTACHED JOINT PROXY
STATEMENT/PROSPECTUS.
ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Synopsys, Inc. and Avant! Corporation from documents filed with the
Securities and Exchange Commission that are not included in or delivered with
this document. Synopsys, Inc., which in this document we refer to as "Synopsys,"
will provide you with copies of this information relating to Synopsys, without
charge, upon written or oral request to:
SYNOPSYS, INC.
700 East Middlefield Road
Mountain View, California 94043
Attention: Investor Relations
Telephone Number: (650) 584-4257
Avant! Corporation, which in this document we refer to as "Avant!," will
provide you with copies of this information relating to Avant!, without charge,
upon written or oral request to:
AVANT! CORPORATION
46871 Bayside Parkway
Fremont, California 94538
Attention: Clayton Parker, General Counsel
Telephone Number: (510) 413-8000
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
ANNUAL AND SPECIAL MEETINGS, YOU MUST REQUEST THE INFORMATION NO LATER THAN
[ ].
In addition, if you have questions about the merger, you may contact:
FOR SYNOPSYS STOCKHOLDERS: FOR AVANT! STOCKHOLDERS:
D.F. King & Co., Inc. Georgeson Shareholder Communications, Inc.
77 Water Street, 20th Floor 111 Commerce Road
New York, NY 10005 Carlstadt, NJ 07072
Call Toll-Free: [ ] Call Toll-Free: [ ]
WHERE YOU CAN FIND MORE INFORMATION
Synopsys and Avant! file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission,
which in this document we refer to as the "SEC." You may read and copy any
reports, statements or other information on file at the SEC's public reference
room located at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room. The
SEC filings are also available to the public from commercial document retrieval
services. The Synopsys and Avant! filings are also available at the Internet
website maintained by the SEC at www.sec.gov.
Synopsys has filed a registration statement on Form S-4 to register with
the SEC the Synopsys common shares that Avant! stockholders will receive in
connection with the merger. This joint proxy statement/prospectus is a part of
the registration statement of Synopsys on Form S-4 and is a prospectus of
Synopsys, a proxy statement of Synopsys for the Synopsys annual meeting and a
proxy statement of Avant! for the Avant! special meeting.
The SEC permits Synopsys and Avant! to "incorporate by reference"
information into this joint proxy statement/prospectus. This means that the
companies can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this joint proxy statement/prospectus, except
for any information superseded by information contained directly in this joint
proxy statement/prospectus or by information contained in documents filed with
or furnished to the SEC after the date of this joint proxy statement/ prospectus
that is incorporated by reference in this joint proxy statement/prospectus.
This joint proxy statement/prospectus incorporates by reference the
documents set forth below that have been previously filed with the SEC. These
documents contain important information about Synopsys and Avant! and their
financial conditions.
SYNOPSYS SEC FILINGS (FILE NO. 0-19807) PERIOD OR FILING DATE
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Annual Report on Forms 10-K and 10-K/As Year Ended October 31, 2000
Quarterly Report on Forms 10-Q and 10-Q/A Quarter Ended January 31, 2001
Quarterly Report on Forms 10-Q and 10-Q/A Quarter Ended April 30, 2001
Quarterly Report on Forms 10-Q and 10-Q/A Quarter Ended July 31, 2001
Current Report on Form 8-K Filed on December 5, 2001
Description of Synopsys common shares set
forth
in its Registration Statement on Forms 8-A
and 8-A/A Filed on December 13, 1999 and April 10, 2000
AVANT! SEC FILINGS (FILE NO. 0-25864) PERIOD OR FILING DATE
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Annual Report on Form 10-K Year Ended December 31, 2000
Quarterly Report on Form 10-Q Quarter Ended March 31, 2001
Quarterly Report on Form 10-Q Quarter Ended June 30, 2001
Quarterly Report on Form 10-Q Quarter Ended September 30, 2001
Current Reports on Forms 8-K and 8-K/As Filed on April 20, 2001, April 25, 2001,
May 29, 2001, October 4, 2001 and
December 5, 2001
Description of Avant! common shares set forth
in its Registration Statement on Form 8-A Filed on September 18, 1998
Synopsys and Avant! also incorporate by reference into this joint proxy
statement/prospectus additional documents that either company may file with the
SEC under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of
1934, as amended, between the date of this document and the dates of the
Synopsys annual meeting and the Avant! special meeting. These documents include
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K as well as proxy statements.
You may not have been sent some of the documents incorporated by reference,
but you can obtain any of them through Synopsys or Avant! as described below,
through the SEC or through the SEC's Internet website as described above.
Documents incorporated by reference are available without charge, excluding all
exhibits unless an exhibit has been specifically incorporated by reference into
this joint proxy statement/prospectus. Stockholders may obtain documents
incorporated by reference into this joint proxy statement/prospectus by
requesting them in writing, by telephone or via the Internet from the
appropriate company at the following addresses:
FOR SYNOPSYS STOCKHOLDERS: FOR AVANT! STOCKHOLDERS:
-------------------------- ------------------------
SYNOPSYS, INC. AVANT! CORPORATION
700 EAST MIDDLEFIELD ROAD 46871 BAYSIDE PARKWAY
MOUNTAIN VIEW, CA 94043 FREMONT, CA 94538
ATTENTION: INVESTOR RELATIONS ATTENTION: CLAYTON PARKER, GENERAL COUNSEL
TELEPHONE NO.: (650) 584-4257 TELEPHONE NO.: (510) 413-8000
INTERNET WEBSITE: www.synopsys.com INTERNET WEBSITE: www.avanticorp.com
If you would like to request documents from Synopsys or Avant!, please do
so by [ ], to receive them before the Synopsys annual meeting or
the Avant! special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE INTO THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE SHARE
ISSUANCE OR THE MERGER. NO ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT FROM THAT CONTAINED IN, OR INCORPORATED BY
REFERENCE INTO, THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DATED [ ]. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN, OR INCORPORATED BY REFERENCE INTO THIS JOINT PROXY
STATEMENT/ PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE. NEITHER
OUR MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO SYNOPSYS AND AVANT!
STOCKHOLDERS NOR THE ISSUANCE BY SYNOPSYS OF COMMON SHARES IN CONNECTION WITH
THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. INFORMATION CONTAINED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS REGARDING SYNOPSYS HAS BEEN PROVIDED BY
SYNOPSYS AND INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
REGARDING AVANT! HAS BEEN PROVIDED BY AVANT!.
TABLE OF CONTENTS
PAGE
Questions and Answers About the Merger.... 1
Summary................................... 3
Summary Historical and Unaudited Pro Forma
Financial Information................... 8
Risk Factors.............................. 12
Forward-Looking Statements................ 15
The Synopsys Annual Meeting............... 16
Date, Time and Place.................... 16
Purpose of the Synopsys Annual
Meeting............................... 16
Record Date; Shares Entitled to Vote.... 16
Quorum.................................. 16
Shares Owned and Voted by Synopsys
Directors and Executive Officers...... 17
Votes Required.......................... 17
Voting of Proxies....................... 17
Revoking Your Proxy..................... 18
Solicitation of Proxies................. 18
The Avant! Special Meeting................ 18
Date, Time and Place.................... 18
Purpose of the Avant! Special Meeting... 19
Record Date; Shares Entitled to Vote.... 19
Quorum.................................. 19
Shares Owned and Voted by Avant!
Directors and Executive Officers...... 19
Agreement to Vote in Favor of the
Merger................................ 19
Vote Required........................... 20
Voting of Proxies....................... 20
Revoking Your Proxy..................... 20
Solicitation of Proxies................. 20
The Merger................................ 21
Background of the Merger................ 21
Avant! Board of Directors and Special
Committee Reasons for the Merger;
Recommendation of the Avant! Board of
Directors and Special Committee....... 30
Synopsys Board of Directors Reasons for
the Merger and Recommendation of the
Synopsys Board of Directors........... 32
Opinion of Synopsys' Financial
Advisor............................... 33
Opinion of Avant!'s Financial Advisor... 42
Conflicts of Interest of Avant!
Directors and Officers in the
Merger................................ 47
No Appraisal Rights..................... 50
Accounting Treatment...................... 50
Regulatory Approvals...................... 51
Litigation Protection Insurance........... 51
Avant!/Cadence Litigation............... 51
Description of the Litigation Protection
Insurance............................. 52
Federal Securities Law Consequences....... 53
PAGE
Other Effects of the Merger............... 53
Listing of Shares....................... 53
Delisting of Avant! Common Shares....... 53
Material U.S. Federal Income Tax
Consequences of the Merger.............. 54
Tax Consequences of the Merger.......... 54
Information Reporting and Backup
Withholding........................... 55
The Transaction Documents................. 55
The Merger Agreement.................... 55
Avant! Stockholder Voting Agreement..... 67
The Companies............................. 68
Synopsys, Inc........................... 68
Avant! Corporation...................... 68
Maple Forest Acquisition L.L.C.......... 69
Market Price and Dividend Data............ 70
Market Price............................ 70
Dividend Data........................... 71
Ownership of Capital Stock of Synopsys and
Avant!.................................. 72
Security Ownership of Certain Beneficial
Owners and Management of Synopsys..... 72
Security Ownership of Certain Beneficial
Owners and Management of Avant!....... 73
Synopsys, Inc. Unaudited Pro Forma
Condensed Combined Consolidated
Financial Statements.................... 75
Unaudited Pro Forma Condensed Combined
Consolidated Financial Statements..... 75
Notes to Unaudited Pro Forma Condensed
Combined Consolidated Financial
Statements.............................. 79
Comparative Rights of Synopsys and Avant!
Stockholders............................ 84
Authorized Capital Stock................ 84
Special Meetings of Stockholders........ 84
Rights of Redemption.................... 84
Number of Directors..................... 84
Notice Requirements for Stockholder
Nomination of Directors and Other
Proposals............................. 84
Board Vacancy........................... 85
Additional Matters To Be Considered at the
Synopsys Annual Meeting................. 85
Proposal 2 -- Election of Synopsys
Directors............................. 85
Executive Compensation.................. 89
Proposal 3 -- Ratification of
Appointment of Independent Auditors... 96
Additional Information.................. 97
Legal Matters............................. 97
Experts................................... 97
Stockholder Proposals..................... 98
Agreement and Plan of Merger, dated as of December 3, 2001,
among Synopsys, Inc., Maple Forest Acquisition L.L.C. and
Avant! Corporation........................................ Annex A
Voting Agreement, dated as of December 3, 2001, among
Synopsys, Inc., Moriyuki Chimura, Gerald C. Hsu, Howard
Ko, Paul Lo, Viraj J. Patel, Amy Sakasegawa, Scott
Spangenberg and Charles L. St. Clair...................... Annex B
Opinion of Credit Suisse First Boston Corporation, dated as
of December 3, 2001....................................... Annex C
Opinion of Salomon Smith Barney Inc., dated as of December
3, 2001................................................... Annex D
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: In the merger, Avant! will become a wholly-
owned subsidiary of Synopsys. Avant! stockholders will become Synopsys
stockholders and will own approximately 18.3% of the fully diluted Synopsys
common shares after the merger. Current Synopsys stockholders will own the
remaining approximately 81.7%.
Q: WHY ARE SYNOPSYS AND AVANT! PROPOSING THE
MERGER?
A: We believe that the merger will provide
substantial benefits to Synopsys, Avant! and their stockholders, including:
- the ability to offer customers a complete and, over time, integrated set
of software products for the design and verification of complex
integrated circuits, or ICs, which neither company can offer today;
- an enhanced capability for research and development on new and innovative
products that address our customers' IC design challenges;
- access to a broader customer base than either company enjoys today; and
- opportunities for efficiencies and cost savings arising out of synergies
in the operations of the two companies.
To review the reasons for the merger in greater detail, see pages [ ]
through [ ].
Q: WHAT WILL AVANT! STOCKHOLDERS RECEIVE IN THE
MERGER?
A: Avant! stockholders will receive 0.371 of a
Synopsys common share for each Avant! common share they own. Avant!
stockholders also will receive cash in place of any fractional shares. The
Synopsys common shares received in the merger will be traded on the Nasdaq
National Market under the symbol "SNPS."
Q: WHAT WILL HAPPEN TO SYNOPSYS COMMON
SHARES IN THE MERGER?
A: Nothing. Each Synopsys common share
outstanding will remain outstanding as a Synopsys common share.
Q: WHEN AND WHERE ARE THE STOCKHOLDER
MEETINGS?
A: The Synopsys annual meeting and the Avant!
special meeting will each take place on [ ], 2002. The location of
each meeting is specified on the notices inside the cover page of this
document.
Q: WHAT WILL HAPPEN AT THE STOCKHOLDER
MEETINGS?
A: At the Avant! special meeting, Avant!
stockholders will vote on the merger agreement and the transactions
contemplated by the merger agreement, including the merger.
At the Synopsys annual meeting, Synopsys stockholders will vote on the
issuance of Synopsys common shares in the merger. Because the Synopsys
stockholder meeting is an annual meeting, Synopsys stockholders will also
vote to elect eight directors to serve for the following year or until
their successors are elected and vote to ratify the appointment of KPMG LLP
as Synopsys' independent auditors for 2002.
Q: WHAT STOCKHOLDER APPROVALS ARE REQUIRED TO
APPROVE THE MERGER?
A: We cannot complete the merger unless, among
other things, Avant! stockholders vote to approve the merger agreement and
Synopsys stockholders vote to approve the common share issuance.
For Avant!, the affirmative vote of a majority of the shares outstanding
and entitled to vote at the meeting is required to approve and adopt the
merger agreement. As of the Avant! record date, Avant! directors and
officers were entitled to vote approximately [ ]% of the Avant! common
shares outstanding.
For Synopsys, the affirmative vote of a majority of the votes cast at the
meeting is
1
required to approve the issuance of shares in connection with the merger.
As of the Synopsys record date, Synopsys directors and officers were
entitled to vote approximately [ ]% of the Synopsys common shares
outstanding.
Q: WHAT DO I NEED TO DO TO VOTE?
A: After carefully reading and considering the
information contained in this document, mail your signed proxy card in the
enclosed return envelope or, in the case of Synopsys stockholders, you may
instead vote by Internet or by telephone, in each case as soon as possible
so that your shares may be represented at your meeting. In order to assure
that we obtain your vote, please vote as instructed on your proxy card even
if you currently plan to attend your meeting in person.
If you sign and mail your proxy and do not indicate how you want to vote,
your proxy will be voted for the approval of the proposals.
THE AVANT! BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT AVANT!
STOCKHOLDERS VOTE FOR THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE MERGER.
THE SYNOPSYS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SYNOPSYS
STOCKHOLDERS VOTE FOR THE ISSUANCE OF SYNOPSYS COMMON SHARES IN THE MERGER.
Q: HOW DO I VOTE MY SHARES IF MY SHARES ARE HELD
IN "STREET NAME?"
A: You should contact your broker. Your broker
can give you directions on how to instruct the broker to vote your shares.
Your broker will not vote your shares on the merger proposal unless the
broker receives appropriate instructions from you.
Q: MAY I CHANGE MY VOTE EVEN AFTER RETURNING A
PROXY CARD?
A: Yes. If you want to change your vote, you may
do so at any time before your meeting by sending to your company's
secretary a proxy with a later date. Alternatively, you may revoke your
proxy by delivering to your company's secretary a written revocation prior
to your meeting or by voting in person at your meeting.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We expect to complete the merger as quickly
as possible once all the conditions to the merger, including obtaining the
approvals of our stockholders at the meetings, are fulfilled. We currently
expect to complete the merger some time between March and May 2002.
Q: SHOULD I SEND IN MY AVANT! SHARE CERTIFICATES
NOW?
A: No. After the merger is completed, we will
send written instructions to Avant! stockholders, including a letter of
transmittal, that explain how to exchange Avant! share certificates for
Synopsys share certificates. Please do not send in any Avant! share
certificates until you receive these written instructions and the letter of
transmittal.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE
COMPANIES?
A: You can find more information about
Synopsys and Avant! from the various sources described under "Additional
Information -- Where You Can Find More Information."
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or
if you need additional copies of this joint proxy statement/prospectus or
the enclosed proxy card, you should contact:
FOR SYNOPSYS FOR AVANT!
------------ ----------
D.F. King & Co., Inc. Georgeson Shareholder
77 Water St., 20th Floor Communications, Inc.
New York, NY 10005 111 Commerce Road
Call Toll-Free: [ ] Carlstadt, NJ 07072
Call Toll-Free: [ ]
2
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. You should carefully
read this entire document and the other documents to which this document refers
to fully understand the merger and the other matters being submitted to
stockholders. See "Additional Information -- Where You Can Find More
Information." Each item in this summary includes a page reference directing you
to a more complete description of that item.
THE COMPANIES (SEE PAGE [ ])
AVANT! CORPORATION SYNOPSYS, INC. MAPLE FOREST ACQUISITION
46871 BAYSIDE PARKWAY 700 EAST MIDDLEFIELD ROAD L.L.C.
FREMONT, CALIFORNIA 94538 MOUNTAIN VIEW, CALIFORNIA 700 EAST MIDDLEFIELD ROAD
(510) 413-8000 94043 MOUNTAIN VIEW, CALIFORNIA
(650) 584-5000 94043
(650) 584-4257
Avant! develops, markets, Synopsys is a leading Maple Forest Acquisition
licenses and supports supplier of EDA software to L.L.C. is a wholly-owned
electronic design automation, the global electronics subsidiary of Synopsys
or EDA, software products industry. Synopsys' products recently formed solely for
that assist design engineers are used by designers of ICs, the purpose of effecting the
in the physical layout, including system-on-a-chip merger.
design, verification, ICs, and electronic products
simulation, timing and such as computers, cell
analysis of advanced phones, and Internet routers,
integrated circuits, or ICs. that use such ICs to automate
significant portions of their
chip design process.
THE MERGER (SEE PAGE [ ])
The terms and conditions of the merger are contained in the merger
agreement, which is attached as Annex A to this document. Please carefully read
the merger agreement as it is the legal document that governs the merger.
GENERAL
We propose a merger in which Avant! will merge into Maple Forest
Acquisition L.L.C., a wholly-owned subsidiary of Synopsys. After the merger,
Avant! will be a wholly-owned subsidiary of Synopsys, and Avant! stockholders
will become Synopsys stockholders.
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGE [ ])
Avant! Stockholders. Each Avant! common share will automatically be
converted into the right to receive 0.371 of a Synopsys common share and cash in
place of any fractional shares.
Synopsys Stockholders. Each Synopsys common share will remain issued and
outstanding as one Synopsys common share.
AVANT! STOCK OPTIONS (SEE PAGE [ ])
When we complete the merger, stock options to purchase Avant! common shares
granted to Avant! employees and directors under Avant!'s and its subsidiaries'
stock option plans that are outstanding and not exercised immediately before
completing the merger will become options to purchase Synopsys common shares.
The number of common shares subject to such stock options, and the exercise
price of such stock options, will be adjusted according to the exchange ratio.
3
OUR RECOMMENDATIONS TO STOCKHOLDERS (SEE PAGE [ ])
Avant! Stockholders. The Avant! board of directors and a special committee
of independent directors believe that the merger is fair to you and in your best
interests, and the Avant! board of directors unanimously recommends that you
vote FOR the proposal to approve the merger agreement and the transactions
contemplated by the merger agreement, including the merger.
Synopsys Stockholders. The Synopsys board of directors believes that the
merger is fair to you and in your best interests, and it unanimously recommends
that you vote FOR the proposal to issue Synopsys common shares in the merger.
OPINION OF SYNOPSYS' FINANCIAL ADVISOR (SEE PAGE [ ])
Credit Suisse First Boston, Synopsys' financial advisor, delivered a
written opinion to the Synopsys board of directors to the effect that, as of
December 3, 2001 and based upon and subject to the various considerations set
forth in the opinion, the exchange ratio was fair from a financial point of view
to Synopsys. We have attached this opinion, dated as of December 3, 2001, as
Annex C to this document. We encourage Synopsys stockholders to read this
document carefully and in its entirety. The opinion does not constitute a
recommendation to any stockholder as to how any stockholder should vote on the
merger.
OPINION OF AVANT!'S FINANCIAL ADVISOR (SEE PAGE [ ])
Salomon Smith Barney Inc., Avant!'s financial advisor, delivered a written
opinion to the Avant! board of directors to the effect that, as of December 3,
2001 and based upon and subject to the various considerations set forth in the
opinion, the exchange ratio was fair from a financial point of view to Avant!
stockholders. We have attached this opinion, dated as of December 3, 2001, as
Annex D to this document. We encourage Avant! stockholders to read this document
carefully and in its entirety. The opinion does not constitute a recommendation
to any stockholder as to how any stockholder should vote on the merger.
NON-SOLICITATION (SEE PAGE [ ])
Avant! has agreed that it will not solicit or encourage the initiation of
any inquiries regarding any acquisition proposals by third parties. Avant! may
respond to unsolicited superior acquisition proposals if required by the Avant!
board of directors' fiduciary duties. Avant! must promptly notify Synopsys if it
receives any acquisition proposals.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE [ ])
Each of Avant!'s and Synopsys' obligation to complete the merger is subject
to the satisfaction or waiver of a number of conditions including:
- approval of the merger agreement by Avant! stockholders and approval of
the common share issuance by Synopsys stockholders;
- expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act and any other national
merger control law or foreign investment regulation relating to the
merger;
- the absence of any law, rule, order or injunction restraining, enjoining
or preventing the completion of the merger;
- receipt by such company of an opinion from its legal counsel, that, for
U.S. federal income tax purposes, the merger will be treated as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code;
- the other company's representations and warranties in the merger
agreement are true and correct to the extent set forth in the merger
agreement;
4
- the other company has complied with its respective covenants and
agreements in the merger agreement, to the extent set forth in the merger
agreement; and
- the absence of a material adverse effect on the other company.
TERMINATION OF THE AGREEMENT (SEE PAGE [ ])
Synopsys and Avant! may jointly agree at any time to terminate the merger
agreement without completing the merger, even if Avant! stockholders have
approved the merger and Synopsys stockholders have approved the share issuance.
In addition, either of Synopsys or Avant! may, without the consent of the other,
terminate the merger agreement in various circumstances, including the
following:
- if the merger has not been completed by September 30, 2002;
- if Synopsys stockholders do not approve the share issuance or if Avant!
stockholders do not approve the merger;
- if any governmental order or ruling enjoining or prohibiting the merger
has become final and nonappealable;
- if the other party fails to call or hold its stockholder meeting; or
- if the other party breaches the merger agreement in a way that would
entitle the party seeking to terminate the agreement not to consummate
the merger and, if permitted by the merger agreement, the breaching party
does not promptly correct the breach.
In addition, Synopsys may, without the consent of Avant!, terminate the
merger agreement if the Avant! board of directors withdraws or adversely
modifies its recommendation that stockholders approve the merger agreement and
the merger.
TERMINATION FEES (SEE PAGE [ ])
Avant! has agreed to pay a termination fee to Synopsys of $45 million if
the merger agreement is terminated under some circumstances.
NO APPRAISAL RIGHTS (SEE PAGE [ ])
Under Delaware law, neither Avant! stockholders nor Synopsys stockholders
are entitled to appraisal rights in connection with the merger.
REGULATORY APPROVALS (SEE PAGE [ ])
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
the merger may not be consummated unless certain filings have been submitted to
the Federal Trade Commission and the Antitrust Division of the U.S. Department
of Justice and certain waiting period requirements have been satisfied.
Under German antitrust laws, the merger may not be completed prior to
filing with and clearance by the German antitrust authority. Further national
merger filing requirements are being assessed in order to establish whether any
other notification is required.
In addition, certain private parties as well as state attorneys general and
other antitrust authorities may challenge the transactions under antitrust laws
under certain circumstances. Synopsys and Avant! believe that they will obtain
the necessary antitrust clearances. There can be no assurance, however, that a
challenge to the merger on antitrust grounds will not be made, or, if such a
challenge is made, what the result will be.
We intend to make the relevant filings as soon as practicable.
5
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE [ ])
If the merger is completed as currently contemplated, a U.S. holder of
Avant! common shares will not recognize any income, gain or loss as a result of
the receipt of Synopsys common shares in exchange for Avant! common shares
pursuant to the merger. A U.S. holder will, however, recognize gain or loss in
connection with any cash received by such U.S. holder in lieu of a fractional
Synopsys common share.
Synopsys and Avant! have received opinions that the merger will qualify as
a tax-free reorganization for United States federal income tax purposes,
provided that the merger is completed under the current terms of the merger
agreement and based on the assumptions as to the absence of material changes in
fact or law before the completion of the merger, and on certain representations
as to the factual matters made by Synopsys and Avant!.
THIS TAX TREATMENT MAY NOT APPLY TO CERTAIN STOCKHOLDERS. YOU ARE STRONGLY
URGED TO CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING OF THE MERGER'S
TAX CONSEQUENCES FOR YOU.
VOTING AGREEMENT (SEE PAGE [ ])
Certain Avant! executive officers and directors have entered into a voting
agreement with Synopsys in which each has agreed, among other things, to vote
his or her Avant! common shares in favor of the merger and against any action
that would delay or prevent the merger and against any alternative transaction.
These persons have the right, as of the Avant! record date, to vote a total of
[ ] Avant! common shares or approximately [ ]% of the
outstanding Avant! common shares as of the Avant! record date.
CONFLICTS OF INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS OF AVANT! (SEE PAGE
[ ])
When considering the recommendations of the Avant! board of directors and
special committee regarding the merger, you should be aware of the interests
that Avant! executive officers and directors have in the merger that are
different from interests of stockholders generally. These interests include,
among other things:
- a separation agreement among Gerald C. Hsu, who is the Chairman of
Avant!'s board of directors, Synopsys and Avant! provides, among other
things, that upon his resignation from Avant! at the completion of the
merger, Mr. Hsu will receive (1) a cash payment of approximately $30.6
million, representing the estimated value of the severance amounts
payable to Mr. Hsu at the completion of the merger under his existing
employment agreement, (2) a cash payment equal to the excess of the
market value at the close of business on the trading day prior to the
completion of the merger of all Avant! common shares that Mr. Hsu had the
option to acquire over the exercise price for such shares, to which Mr.
Hsu would be entitled under his existing employment agreement, and (3)
any unpaid salary, bonus, expense reimbursement, previously deferred
compensation or vacation pay to which Mr. Hsu would be entitled under his
existing employment agreement;
- the terms of the merger agreement provide for an aggregate payment of up
to $14 million to certain shareholders of Maingate Electronics,
including, among others, Gerald C. Hsu, in connection with Avant!'s
proposed acquisition of Maingate;
- terms of existing employment and other agreements with certain current or
former executive officers and directors of Avant! provide, among other
things, for severance, other benefits and the acceleration of options as
a result of the merger;
- terms of options granted under Avant!'s 1995 and 2000 stock option plans
provide for accelerated vesting of options assumed by Synopsys in the
merger if the employee holder is involuntarily terminated within 18
months after the merger; and
- the merger agreement provides for continued director and officer
indemnification and insurance.
6
Avant!'s board of directors and special committee were aware of these
interests in approving the merger.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE [ ])
Synopsys common shares and Avant! common shares are each quoted on the
Nasdaq National Market. The following table presents the last reported sale
price of Synopsys common shares and Avant! common shares on December 3, 2001,
the last full trading day before we announced the merger, and on [ ],
2002, the last full trading day before the mailing of this document. The table
also presents the value of the Avant! common shares on an equivalent per share
basis on each of these two dates, calculated by multiplying the Synopsys common
share value on each such date by the exchange ratio of 0.371.
IMPLIED
PER SHARE
SYNOPSYS AVANT! VALUE OF AVANT!
DATE COMMON SHARES COMMON SHARES COMMON SHARES
---- ------------- ------------- -----------------
December 3, 2001........................... $55.39 $10.95 $20.55
[ ], 2002......................... $ $ $
You should obtain current stock price quotations for Avant! common shares and
Synopsys common shares.
7
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents Synopsys' historical financial results.
Synopsys' summary financial data for the fiscal years ended September 30,
1998, September 30, 1999 and October 31, 2000 and as of September 30, 1999 and
October 31, 2000 has been derived from its audited consolidated financial
statements and related notes thereto incorporated into this joint proxy
statement/prospectus by reference. Synopsys' summary financial data as of
September 30, 1998 and as of and for the fiscal years ended September 30, 1996
and 1997 has been derived from its audited consolidated financial statements and
related notes thereto which have not been included in or incorporated by
reference into this joint proxy statement/prospectus. Synopsys' historical
financial data as of and for the nine months ended July 31, 2001 has been
derived from, and should be read in conjunction with, Synopsys' unaudited
condensed consolidated financial statements and the notes thereto that are
incorporated by reference into this joint proxy statement/prospectus. The
unaudited results of operations data for the nine months ended July 31, 2001 are
not necessarily indicative of the results to be expected for any other interim
period or for the fiscal year 2001 as a whole. However, in the opinion of
Synopsys' management, the unaudited interim financial data presented reflects
all adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of the financial condition at such date and the results of
operations for such period. The historical financial information may not be
indicative of Synopsys' future performance.
NINE
FISCAL YEAR MONTHS
FISCAL YEARS ENDED SEPTEMBER 30,(1)(2) ENDED ENDED
------------------------------------------- OCTOBER 31, JULY 31,
1996 1997 1998 1999 2000(2) 2001(2)
-------- -------- -------- ---------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SYNOPSYS, INC.
Historical Consolidated Statement of
Operations Data:
Revenue..................................... $525,599 $646,956 $717,940 $ 806,098 $ 783,778 $496,788
Income before income taxes and extraordinary
items(3).................................. 40,228 132,793 116,861 251,411 145,938 53,536
Provision for income taxes.................. 23,426 51,043 55,819 90,049 48,160 17,132
Extraordinary items, net of income tax
expense(4)................................ -- -- 28,404 -- -- --
Net income.................................. 16,802 81,750 89,446 161,362 97,778 36,404
Net income per share:
Basic..................................... $ 0.28 $ 1.30 $ 1.34 $ 2.30 $ 1.43 $ 0.60
Diluted................................... $ 0.27 $ 1.24 $ 1.29 $ 2.20 $ 1.38 $ 0.56
Historical Consolidated Balance Sheet Data:
Working capital............................. $238,942 $336,675 $504,759 $ 627,207 $ 331,857 $130,196
Total assets................................ 584,853 769,499 951,633 1,173,918 1,050,993 894,034
Long-term debt, less current portion........ 15,974 9,191 13,138 11,642 564 123
Stockholders' equity........................ 350,547 502,445 664,941 865,596 682,829 460,076
---------------
(1) Amounts and per share data for periods presented have been retroactively
restated to reflect Synopsys' mergers with Viewlogic Systems, Inc. effective
December 4, 1997 and Everest Design Automation, Inc. effective November 21,
1998. Both mergers were accounted for under the pooling-of-interests method
of accounting.
(2) Synopsys has a fiscal year that ends on the Saturday nearest October 31.
Prior to fiscal 2000, Synopsys' fiscal year ended on the Saturday nearest to
September 30. The period from October 1, 1999 through October 31, 1999 was a
transition period. During the transition period, revenue, loss
8
before income taxes, benefit for income taxes and net loss were $23.2
million, $25.5 million, $9.9 million, and $15.5 million, respectively, and
basic and diluted loss per share was $0.22. The net loss during the
transition period is due to the fact that sales in the first month following
a quarter end are historically weak. As of October 31, 1999, working
capital, total assets, long-term debt, less current portion and
stockholders' equity were $621.9 million, $1.2 billion, $11.3 million and
$872.6 million, respectively. Fiscal 1996, 1997, 1999 and 2000 were 52-week
years while fiscal 1998 was a 53-week year. Fiscal 2001 will be a 53-week
year. For presentation purposes, the consolidated financial statements refer
to the calendar month end.
(3) Includes charges of $64.5 million, $5.5 million, $33.1 million, $21.2
million and $1.7 million for the years ended September 30, 1996, 1997, 1998
and 1999 and October 31, 2000, respectively, for in-process research and
development. Includes merger-related and other costs of $51.0 million and
$11.4 million for the years ended September 30, 1998 and 1997, respectively.
(4) In fiscal 1998, Synopsys sold a segment of the Viewlogic business for $51.9
million in cash. As a result of the transaction, Synopsys recorded an
extraordinary gain of $26.5 million, net of income tax expense, in the
fourth quarter of fiscal 1998.
The following table presents Avant!'s historical financial results.
Avant!'s summary financial data for the fiscal years ended December 31,
1998, 1999 and 2000 and as of December 31, 1999 and 2000 has been derived from
its audited consolidated financial statements and related notes thereto
incorporated into this joint proxy statement/prospectus by reference. Avant!'s
summary financial data as of December 31, 1998 and as of and for the fiscal
years ended December 31, 1996 and 1997 has been derived from its audited
consolidated financial statements and related notes thereto which have not been
included in or incorporated by reference into this joint proxy statement/
prospectus. Avant!'s historical financial data as of and for the nine months
ended September 30, 2001 has been derived from, and should be read in
conjunction with, Avant!'s unaudited condensed consolidated financial statements
and the related notes thereto that are incorporated by reference into this joint
proxy statement/prospectus. The unaudited consolidated results of operations
data for the nine months ended September 30, 2001 are not necessarily indicative
of the results to be expected for any other interim period or for 2001 as a
whole. However, in the opinion of Avant!'s management, the interim financial
data presented reflects all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial condition at
such date and the results of operations for such period. The historical
financial information may not be indicative of Avant!'s future performance.
NINE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- SEPTEMBER 30,
1996 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
AVANT! CORPORATION
Historical Consolidated Statement of Operations
Data:
Revenue....................................... $137,438 $181,150 $248,330 $303,620 $358,100 $ 292,520
Income (loss) before income taxes............. 14,782 3,128 47,069 94,484 85,139 (154,799)
Provision for income taxes.................... 5,958 738 24,491 37,864 32,280 30,662
Net income (loss)............................. 8,824 2,390 22,578 56,620 52,859 (185,461)
Net income (loss) per share:
Basic....................................... $ 0.29 $ 0.07 $ 0.62 $ 1.49 $ 1.36 $ (4.94)
Diluted..................................... $ 0.26 $ 0.07 $ 0.59 $ 1.42 $ 1.32 $ (4.94)
Historical Consolidated Balance Sheet Data:
Working capital (deficit)..................... $152,448 $132,284 $135,399 $216,246 $203,418 $ (34,372)
Total assets.................................. 211,656 272,896 337,508 435,527 561,890 391,169
Non-current liabilities....................... 13,025 2,026 2,535 1,668 7,918 11,427
Stockholders' equity.......................... 157,959 208,208 245,834 314,301 345,901 161,238
9
SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
DATA
The following summary selected unaudited pro forma condensed combined
consolidated financial data gives effect to the proposed merger between Synopsys
and Avant! using the purchase method of accounting for the business combination.
This data should be read in conjunction with Synopsys' unaudited pro forma
condensed combined consolidated financial statements and related notes thereto,
which you can find beginning on page [ ] of this joint proxy
statement/prospectus.
The pro forma condensed combined consolidated financial statements have
been presented assuming an exchange ratio of 0.371 of a Synopsys common share in
exchange for each Avant! common share pursuant to the merger agreement.
There can be no assurance that Synopsys and Avant! will not incur charges
in excess of those included in the pro forma total consideration related to the
merger or that Synopsys management will be successful in its effort to integrate
the operations of the companies.
The unaudited pro forma condensed combined consolidated statements of
operations of Synopsys gives effect to the proposed merger as if it had been
consummated on November 1, 1999. The unaudited pro forma condensed combined
consolidated statement of operations data of Synopsys combines the audited
historical consolidated statement of operations of Synopsys for the year ended
October 31, 2000 with the audited historical consolidated statement of
operations of Avant! for the year ended December 31, 2000.
The unaudited pro forma condensed combined consolidated statement of
operations data of Synopsys for the nine months ended July 31, 2001 combines the
unaudited historical consolidated statement of operations of Synopsys for the
nine months ended July 31, 2001 with the unaudited historical consolidated
statement of operations of Avant! for the nine months ended September 30, 2001.
The unaudited pro forma condensed combined consolidated balance sheet data
of Synopsys gives effect to the proposed merger as if it had occurred on July
31, 2001, and combines the unaudited historical consolidated balance sheet of
Synopsys as of July 31, 2001 with the unaudited historical consolidated balance
sheet of Avant! as of September 30, 2001.
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 proposed merger had been consummated on November
1, 1999 or on July 31, 2001, respectively, nor is it necessarily indicative of
future operating results or financial position. The pro forma adjustments are
based upon information and assumptions available at the time of the filing of
this joint proxy statement/prospectus. The pro forma information should be read
in conjunction with the unaudited pro forma financial statements and
accompanying notes thereto included in this joint proxy statement/prospectus and
with Synopsys' and Avant!'s historical consolidated financial statements and
related notes thereto incorporated by reference into this joint proxy
statement/prospectus.
The assumptions used in the following pro forma statements were determined
as of December 3, 2001.
FISCAL YEAR ENDED NINE MONTHS ENDED
OCTOBER 31, 2000 JULY 31, 2001
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma Condensed Combined
Consolidated Statement of Operations Data:
Revenue................................................... $1,141,878 $ 789,308
Income (loss) before income taxes......................... 146,746 (158,693)
Provision for income taxes................................ 50,081 27,119
Net income (loss)......................................... 96,665 (185,812)
Earnings (loss) per share:
Basic.................................................. $ 1.17 $ (2.47)
Diluted................................................ $ 1.13 $ (2.47)
Pro Forma Condensed Combined Consolidated
Balance Sheet Data:
Working Capital (deficit)................................. $ (164,930)
Total assets.............................................. 1,982,466
Long-term debt, less current portion...................... 123
Stockholders' equity...................................... 1,157,794
10
COMPARATIVE PER SHARE DATA
The following tables present certain historical per share data and combined
per share data on an unaudited pro forma basis after giving effect to the merger
using the purchase method of accounting and assuming 0.371 shares of Synopsys
common stock are issued in exchange for each share of Avant! common stock. This
data should be read along with the selected historical consolidated financial
data of Synopsys and Avant! included in this joint proxy statement/prospectus,
and the historical consolidated financial statements of Synopsys and Avant! and
the notes thereto that are incorporated by reference into this joint proxy
statement/prospectus. The pro forma information is presented for illustrative
purposes only. You should not rely on the pro forma financial information as an
indication of the combined financial position or results of operations of future
periods or the results that actually would have been realized had the entities
been a single entity during the periods presented.
The historical book value per share information presented is computed by
dividing total stockholders' equity for each of Synopsys or Avant! by the number
of shares of Synopsys or Avant! common stock, respectively, outstanding as of
the respective balance sheet date.
The pro forma combined net income (loss) per share information is computed
by dividing the pro forma combined net income (loss) by the sum of Synopsys'
weighted average common and equivalent shares outstanding during each period and
the number of shares of Synopsys common stock and equivalents to be issued in
connection with the proposed merger, assuming Synopsys had merged with Avant! on
November 1, 1999. The pro forma combined net income (loss) per equivalent Avant!
share information is computed by multiplying Synopsys' combined pro forma net
income (loss) per share amounts by the exchange ratio of 0.371.
The pro forma combined book value per Synopsys share is computed by
dividing total pro forma stockholders' equity by the pro forma number of shares
of Synopsys common stock outstanding at July 31, 2001 assuming the merger had
occurred on that date. Pro forma combined book value per equivalent Avant! share
is computed by multiplying Synopsys' pro forma combined book value per share by
the exchange ratio of 0.371.
FISCAL YEAR NINE MONTHS
ENDED ENDED
OCTOBER 31, JULY 31,
2000 2001
SYNOPSYS HISTORICAL DATA: ----------- -----------
Net income per share:
Basic..................................................... $ 1.43 $ 0.60
Diluted................................................... 1.38 0.56
Book value per share at the end of the period............. 10.86 7.80
FISCAL YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2000 2001
AVANT! HISTORICAL DATA: ------------ -------------
Net income (loss) per share:
Basic..................................................... $ 1.36 $(4.94)
Diluted................................................... 1.32 (4.94)
Book value per share at the end of the period............. 9.21 4.27
UNAUDITED PRO FORMA COMBINED PER SHARE DATA
FISCAL YEAR NINE MONTHS
ENDED ENDED
OCTOBER 31, JULY 31,
2000 2001
----------- -----------
Synopsys and Avant! Pro Forma Combined:
Pro forma combined net income (loss) per share:
Basic................................................... $1.17 $(2.47)
Diluted................................................. 1.13 (2.47)
Pro forma combined net income (loss) per equivalent Avant!
share:
Basic................................................... 0.43 (0.92)
Diluted................................................. 0.42 (0.92)
Pro forma combined book value per Synopsys share at
July 31, 2001........................................... 15.86
Pro forma combined book value per equivalent Avant! share
at September 30, 2001................................... 5.88
11
RISK FACTORS
By voting in favor of the merger, current Avant! stockholders will be
choosing to invest in Synopsys common shares, and current Synopsys stockholders
will be accepting dilution of their ownership interest in Synopsys and accepting
that Synopsys will become subject to Avant!'s liabilities, including its
contingent liabilities. IN DECIDING WHETHER TO VOTE IN FAVOR OF THE MERGER, YOU
SHOULD CONSIDER ALL OF THE INFORMATION WE HAVE INCLUDED IN THIS DOCUMENT AND ITS
ANNEXES AND ALL OF THE INFORMATION INCLUDED IN THE DOCUMENTS WE HAVE
INCORPORATED BY REFERENCE, ESPECIALLY THE OTHER RISKS DESCRIBED IN SYNOPSYS'
REPORT ON FORM 10-Q FILED WITH THE SEC ON SEPTEMBER 18, 2001 (PP. 21-24), AND IN
AVANT!'S REPORT ON FORM 10-Q FILED WITH THE SEC ON NOVEMBER 14, 2001 (PP.
21-27). SEE "ADDITIONAL INFORMATION -- WHERE YOU CAN FIND MORE INFORMATION."
In addition you should pay particular attention to the following risks
relating to the merger.
THE MARKET VALUE OF SYNOPSYS COMMON SHARES THAT AVANT! STOCKHOLDERS RECEIVE WILL
VARY AS A RESULT OF THE FIXED EXCHANGE RATIO AND POSSIBLE STOCK PRICE
FLUCTUATIONS.
Upon completion of the merger, each Avant! common share will be exchanged
for 0.371 of a Synopsys common share. This exchange ratio is fixed, and there
will be no adjustment for changes in the market price of either Synopsys common
shares or Avant! common shares. Neither company is permitted to "walk away" from
the merger or resolicit the vote of its stockholders solely because of changes
in the market prices of either company's stock.
The price of Synopsys common shares at the time the merger is completed may
be higher or lower than its price on the date of this document or on the date of
the meetings of stockholders. Changes in the business, operations or prospects
of Synopsys or Avant!, market assessments of the benefits of the merger and of
the likelihood that the merger will be completed, regulatory considerations,
developments in the litigation by Cadence Design Systems, Inc., which in this
document we refer to as "Cadence," against Avant!, general market and economic
conditions, or other factors may affect the price of Synopsys common shares or
Avant! common shares. Most of these factors are beyond our control.
Because the merger will be completed only after the meetings of our
stockholders are held, there is no way to be sure that the price of the Synopsys
common shares on the date of the meetings will be indicative of its price at the
time the merger is completed. We urge you to obtain current market quotations
for both Synopsys common shares and Avant! common shares.
SYNOPSYS MAY FAIL TO INTEGRATE SUCCESSFULLY SYNOPSYS' AND AVANT!'S OPERATIONS.
AS A RESULT, SYNOPSYS AND AVANT! MAY NOT ACHIEVE THE ANTICIPATED BENEFITS OF THE
MERGER AND THE PRICE OF SYNOPSYS COMMON SHARES MIGHT BE ADVERSELY AFFECTED.
Synopsys and Avant! entered into the merger agreement with the expectation
that the merger will result in benefits to Synopsys and Avant!, including the
offering of a complete and, over time, integrated set of software products for
the design and verification of complex integrated circuits to its customers.
However, the expected benefits may not be fully realized. Achieving the benefits
of the merger will depend on many factors, including the successful and timely
integration of the products, technology and sales operations of the two
companies following the completion of the merger. These integration efforts may
be difficult and time consuming, especially considering the highly technical and
complex nature of each company's products. Failure to achieve a successful and
timely integration of their respective products and sales operations could
result in the loss of existing or potential customers of Synopsys and Avant! and
could have a material adverse effect on the business, financial condition and
results of operations of Synopsys and its subsidiaries, including Avant!, and on
the price of Synopsys common shares. Integration efforts between the two
companies will also divert significant management attention and resources. This
diversion of attention could have an adverse effect on Synopsys during such
transition period.
12
AVANT! HAS BEEN REQUIRED TO PAY SUBSTANTIAL AMOUNTS IN THE RECENT RESOLUTION OF
CRIMINAL AND CIVIL LITIGATION, AND MIGHT BE REQUIRED TO PAY SUBSTANTIAL
ADDITIONAL AMOUNTS UNDER PENDING LAWSUITS.
During 2001, Avant! paid approximately $237 million in fines and
restitution arising out of charges brought by the District Attorney of Santa
Clara County, which action will be referred to in this document as "the Santa
Clara criminal action." Avant! does not expect any further proceedings in the
Santa Clara criminal action and, therefore, does not expect to incur any
additional litigation costs, fines or other payments in such criminal action.
Avant! and its subsidiaries are engaged in a number of material civil
litigation matters, including an action brought by Cadence in December 1995,
which in this document we refer to as the "Avant!/Cadence litigation." The
Avant!/Cadence litigation generally arises out of the same set of facts that
were the subject of the Santa Clara criminal action. Avant! believes it has
defenses to all of Cadence's claims and intends to defend itself vigorously.
Should Cadence ultimately succeed in the prosecution of its claims, however,
Avant! could be required to pay substantial monetary damages to Cadence. Some or
all of these damages may be offset by the amounts paid to Cadence as restitution
in the Santa Clara criminal action.
Injunctions entered in 1997 and 1998 enjoined Avant! from marketing its
early place and route products, ArcCell and Aquarius, based on a judicial
determination that they incorporated portions of Cadence's Design Framework II
source code, which in this document we refer to as "DFII." The injunctions also
prohibit Avant! from possessing, using, selling or licensing any product or work
copied or derived from DFII and directly or indirectly marketing, selling,
leasing, licensing, copying or transferring any of the ArcCell or Aquarius
products. The DFII code is not incorporated in any current Avant! product.
Although Cadence has not made a claim in the Avant!/Cadence litigation against
any current Avant! product, including its Apollo and Astro place and route
products, and has not introduced any evidence that any such product infringes
Cadence's intellectual property rights, Avant! expects Cadence to assert such
claims. Avant! believes it would have defenses to any such claims and Avant!
would defend itself vigorously. Nonetheless, should Cadence be successful at
proving that any past or then-current Avant! product incorporated intellectual
property misappropriated from Cadence, Avant! could be permanently enjoined from
further use of such intellectual property, which might require modification to
existing products and/or suspension of the sale of such products until such
Cadence intellectual property was removed. See "Litigation Protection
Insurance -- Avant!/Cadence Litigation."
Other litigation involving Avant! is described in Avant!'s filings with the
SEC that you can find as described in "Additional Information -- Where You Can
Find More Information." The Avant!/Cadence litigation, other pending litigation
and other potential litigation, regardless of the outcome, may continue to
result in substantial costs and expenses and significant diversion of effort by
management, and may negatively impact relationships with customers. An adverse
result in any of these litigation matters could seriously harm Avant!'s and,
after the merger, Synopsys' business, financial condition and results of
operations.
THE INSURER UNDER THE LITIGATION PROTECTION INSURANCE MAY BE PREVENTED FROM
PAYING FOR CERTAIN LOSSES ON THE GROUNDS THAT SUCH PAYMENT VIOLATES PUBLIC
POLICY. THIS MAY RESULT IN SYNOPSYS BEING SUBJECT TO THOSE ADDITIONAL LOSSES.
Certain of the potential losses relating to the Avant!/Cadence litigation
that are covered by the terms of the litigation protection insurance obtained by
Synopsys with respect to that litigation may arise from exemplary and punitive
damages, fines and penalties. In some jurisdictions, it may be against public
policy to provide insurance for willful acts, punitive damages or similar
claims. This could potentially affect the validity of certain elements of the
policy. The legal agreement governing the arrangement will be governed by the
laws of the State of Delaware. Synopsys believes that the arrangement will be
enforceable in Delaware, but there can be no assurance in this regard. To the
extent the insurer is prevented from paying certain losses on grounds of public
policy that would otherwise be covered by the insurance, Synopsys will be
required to pay that portion of the losses and the insurer may be obligated to
refund a portion of the premium to Synopsys. See "Litigation Protection
Insurance -- Description of the Litigation Protection Insurance."
13
AVANT! OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE THEM
TO SUPPORT OR APPROVE THE MERGER.
When considering the recommendations of the board of directors and special
committee of Avant! regarding the merger, you should be aware of the interests
that officers and directors of Avant! have in the merger that are different from
interests of stockholders generally. These interests include, among other
things:
- a separation agreement among Gerald C. Hsu, Synopsys and Avant! provides,
among other things, that upon his resignation from Avant! at the
completion of the merger, Mr. Hsu will receive (1) a cash payment of
approximately $30.6 million, representing the estimated value of the
severance amounts payable to Mr. Hsu at the completion of the merger
under his existing employment agreement, (2) a cash payment equal to the
excess of the market value at the close of business on the trading day
prior to the completion of the merger of all Avant! common shares that
Mr. Hsu had the option to acquire over the exercise price for such
shares, to which Mr. Hsu would be entitled under his existing employment
agreement, and (3) any unpaid salary, bonus, expense reimbursement,
previously deferred compensation or vacation pay to which Mr. Hsu would
be entitled to under his existing employment agreement;
- the terms of the merger agreement provide for an aggregate payment of up
to $14 million to certain shareholders of Maingate Electronics, which
include, among others, Gerald C. Hsu, in connection with Avant!'s
proposed acquisition of Maingate;
- terms of existing employment and other agreements with certain current or
former executive officers and directors of Avant! provide, among other
things, for severance and other benefits and the acceleration of options
as a result of the merger;
- terms of options granted under Avant!'s 1995 and 2000 stock option plans
providing for accelerated vesting of options assumed by Synopsys in the
merger if the employee holder is involuntarily terminated within 18
months after the merger; and
- the merger agreement provides for continued director and officer
indemnification and insurance.
WHETHER OR NOT THE MERGER IS COMPLETED, THE ANNOUNCEMENT OF THE PROPOSED MERGER
MAY CAUSE DISRUPTIONS IN THE BUSINESS OF AVANT! AND SYNOPSYS WHICH COULD HAVE
MATERIAL ADVERSE EFFECTS ON THE BUSINESS AND OPERATIONS OF AVANT! AND SYNOPSYS.
Whether or not the merger is completed, Synopsys' and Avant!'s customers,
in response to the announcement of the merger, may delay or defer decisions,
which could have a material adverse effect on the business of each company.
Similarly, current and prospective Synopsys and Avant! employees may experience
uncertainty about their future roles with Synopsys and Avant!. This may
adversely affect Synopsys' and Avant!'s ability to attract and retain key
management, sales, marketing and technical personnel. The extent of this adverse
effect could depend on the length of time prior to completion of the merger or
termination of the merger agreement.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT SYNOPSYS AND/OR AVANT!'S
STOCK PRICE, FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, Synopsys and Avant! may be
subject to a number of material risks, including the following:
- Avant! may be obligated to pay Synopsys a fee of $45 million if the
merger agreement is terminated in certain circumstances in connection
with an alternative transaction proposal or a settlement proposal from
Cadence;
- each company may face difficulties in attracting strategic customers and
partners, who were expecting to use the integrated product suite proposed
to be offered by the merged company, to assist in the development of new
products by the separate companies; and
- certain costs relating to the merger, such as legal, accounting,
financial advisor and printing fees, must be paid even if the merger is
not completed.
14
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus, and the documents we are
incorporating by reference, contain forward-looking statements about Synopsys
and Avant!, which we intend to be covered by the safe harbor for
"forward-looking statements" provided by the Private Securities Litigation
Reform Act of 1995.
Any document we have filed or will file with the SEC also may include
forward-looking statements. Other written or oral forward-looking statements
have been made and may in the future be made, from time to time, by or on behalf
of Synopsys and Avant!. Forward-looking statements are statements that are not
historical facts, and include financial projections and estimates and their
underlying assumptions; statements regarding plans, objectives and expectations
with respect to future operations, results, ability to generate income or cash
flows, products and services; the outcome of litigation; the impact of
regulatory initiatives on our operations; our share of new and existing markets;
general industry and macroeconomic growth rates and our performance relative to
them and statements regarding future performance. Forward-looking statements
generally are identified by the words "expects," "anticipates," "believes,"
"intends," "estimates," "should," "would," "strategy," "plan" and similar
expressions.
The forward-looking statements in this joint proxy statement/prospectus and
in the documents incorporated by reference into this document are subject to
various risks and uncertainties, most of which are difficult to predict and are
generally beyond the control of Synopsys and Avant!. Accordingly, actual results
of Synopsys following the merger may differ materially from those expressed in,
or implied by, the forward-looking statements. The risks and uncertainties to
which forward-looking statements are subject include:
- those risks and uncertainties we discuss under "Risk Factors;"
- those risks and uncertainties we discuss or identify in our public
filings with the SEC;
- changes in both companies' businesses during the period between now and
the completion of the merger;
- litigation relating to the transaction or the businesses, including the
outcome of the Avant!/Cadence litigation;
- the successful integration of Avant! into Synopsys' business subsequent
to the completion of the merger;
- timely development, production and acceptance of products and services
contemplated by the merged company after completion of the merger;
- increasing competition in the market for design implementation or design
verification software;
- the ability to retain key management and technical personnel; and
- adverse reactions to the proposed merger by customers, suppliers and
strategic partners.
You should understand that various factors, in addition to those discussed
elsewhere in this document and in the documents referred to or incorporated by
reference in this document, could affect the future results of Synopsys and
Avant! following the merger and could cause results to differ materially from
those expressed in these forward-looking statements. The actual results,
performance or achievement of Synopsys or Avant! following the merger could
differ significantly from those expressed in, or implied by, our forward-looking
statements. In addition, any of the events anticipated by our forward-looking
statements might not occur, and if they do, we cannot predict what impact they
might have on the results of operations and financial condition of Synopsys or
Avant! following the merger. The forward-looking statements included in this
document are made only as of the date of this document, and we do not have any
obligation to publicly update any forward-looking statements to reflect
subsequent events or circumstances.
15
THE SYNOPSYS ANNUAL MEETING
We are furnishing this document to the Synopsys stockholders as part of the
solicitation of proxies for use at the Synopsys annual meeting of stockholders,
including any adjournment or postponement of the annual meeting.
DATE, TIME AND PLACE
Synopsys will hold its annual meeting on [ ], [ ], 2002, at
[ ], local time, at Synopsys' principal executive offices located at 700
East Middlefield Road, Building C, Mountain View, California.
PURPOSE OF THE SYNOPSYS ANNUAL MEETING
At the Synopsys annual meeting we are asking holders of record of Synopsys
common shares:
1. to consider and vote on a proposal to approve the issuance of Synopsys
common shares in the merger;
2. to elect eight directors to serve for the following year or until their
successors are elected;
3. to ratify the appointment of KPMG LLP as independent auditors of
Synopsys for fiscal year 2002; and
4. to transact such other business as may properly come before the annual
meeting or any adjournment or postponement of the meeting.
The Synopsys board of directors unanimously determined that the merger, the
merger agreement and the other transactions contemplated by the merger agreement
are advisable and fair to, and in the best interests of, Synopsys and the
Synopsys stockholders.
THE SYNOPSYS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SYNOPSYS
STOCKHOLDERS VOTE FOR THE ISSUANCE OF SYNOPSYS COMMON SHARES IN THE MERGER, THE
ELECTION OF NOMINEES NAMED IN THIS DOCUMENT AS DIRECTORS AND THE RATIFICATION OF
KPMG LLP AS INDEPENDENT AUDITORS.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of Synopsys common shares at the close of business
on [ ], 2002, the Synopsys record date, are entitled to notice of and
to vote at the Synopsys annual meeting. On [ ] 2002, approximately
[ ] Synopsys common shares were issued and outstanding and were held by
approximately [ ] holders of record. Each Synopsys stockholder is
entitled to one vote for each Synopsys common share held by such stockholder of
record as of the close of business on the Synopsys record date.
QUORUM
A quorum of Synopsys stockholders is required to hold a valid annual
meeting. A quorum will be present at the Synopsys annual meeting if a majority
of the Synopsys common shares issued, outstanding and entitled to vote on the
Synopsys record date is represented at the annual meeting in person or by proxy.
If a quorum is not present, we expect the Synopsys annual meeting will be
adjourned to solicit additional proxies.
Abstentions and broker non-votes count as present for purposes of
establishing a quorum. Synopsys common shares held by Synopsys or its
subsidiaries do not count toward a quorum.
A "broker non-vote" occurs with respect to a proposal when a broker is not
permitted to vote on that proposal without instruction from the beneficial owner
of the Synopsys common shares and no instruction is given. A "broker non-vote"
is generally viewed as present for purposes of the quorum only, but not as
having cast a vote on the particular matter.
16
A stockholder who abstains on any or all matters will be deemed present at
the meeting for purposes of determining whether a quorum is present and the
total number of votes cast with respect to a proposal, other than votes cast for
the election of directors, but will not be deemed to have voted in favor of the
particular matter with respect to which the stockholder abstained.
SHARES OWNED AND VOTED BY SYNOPSYS DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on [ ], 2002, the Synopsys record date,
the directors and executive officers of Synopsys owned and were entitled to
vote, in the aggregate [ ] Synopsys common shares. These shares represent
approximately [ ]% of the Synopsys common shares outstanding as of the
Synopsys record date.
These individuals have indicated that they intend to vote or cause to be
voted their Synopsys common shares in favor of the Synopsys proposals.
VOTES REQUIRED
ISSUANCE OF SYNOPSYS COMMON SHARES IN CONNECTION WITH THE MERGER
Approval of the share issuance requires the approval of the holders of a
majority of the votes cast on the proposal. A stockholder who abstains on this
matter will have the same effect as a vote against the proposal because he or
she will be deemed to have cast a vote. However, broker non-votes will not be
treated as votes cast and therefore will have no effect on the outcome of the
vote on this proposal.
ELECTION OF DIRECTORS
The eight candidates receiving the highest number of affirmative votes cast
at the Synopsys annual meeting will be elected directors of Synopsys. For this
purpose, abstentions and broker non-votes will have no effect.
RATIFICATION OF INDEPENDENT AUDITORS
The proposal to ratify the appointment of independent auditors must receive
the affirmative vote of a majority of the votes cast at the Synopsys annual
meeting. A stockholder who abstains on this matter will have the same effect as
a vote against the proposal because he or she will be deemed to have voted.
However, broker non-votes will not be treated as votes cast and therefore will
have no effect on the outcome of the vote on this proposal.
VOTING OF PROXIES
All Synopsys shares represented by properly executed proxies received in
time for the Synopsys annual meeting and not revoked will be voted at the
Synopsys annual meeting, and at any adjournment or postponement of the meeting,
in accordance with the instructions contained in the proxy. Properly executed
proxies that do not contain voting instructions will be voted FOR the issuance
of Synopsys common shares, FOR the election of the nominees named in this
document as directors, and FOR the ratification of the appointment of Synopsys'
independent auditors.
You are requested to complete, sign, date and promptly return the enclosed
proxy card in the postage-prepaid envelope provided for this purpose to ensure
your Synopsys common shares are voted. Alternatively, instead of manually
executing and returning a proxy by mail, you may vote by telephone or by the
Internet, in which case you should dial the toll-free number or access the
Internet address, in each case as indicated on your proxy card. You will then be
prompted to enter the control number printed on your proxy card and to follow
the subsequent instructions.
You may vote in person at the Synopsys annual meeting or by proxy. We
recommend you vote by proxy even if you plan to attend the Synopsys annual
meeting. You can always change your vote at the Synopsys annual meeting.
17
If your broker holds your shares for you in "street name," you should
instruct your broker to vote your shares, following the directions your broker
provides. Most brokers have procedures for telephone or Internet voting. Check
the material your broker sends you or call your account representative for more
information. In the event you do not instruct your broker how to vote any shares
held for you in "street name," those shares will not be voted for the issuance
of shares in the merger or for any other proposal with respect to which the
broker does not have discretionary authority.
The Synopsys board of directors is not aware of any other business to be
brought before the Synopsys annual meeting or any adjournment or postponement of
the meeting. If, however, other matters are properly brought before the Synopsys
annual meeting or an adjournment or postponement of the meeting, the persons
appointed as proxies will have discretionary authority to vote the Synopsys
shares represented by duly executed proxies in accordance with their discretion
and judgement.
REVOKING YOUR PROXY
You may revoke your proxy at any time before the proxy is voted at the
Synopsys annual meeting by:
- submitting a written revocation to the Corporate Secretary of Synopsys at
700 East Middlefield Road, Mountain View, California 94043;
- granting a duly executed proxy bearing a later date, including a proxy
given by the Internet or by telephone; or
- by attending the Synopsys annual meeting and voting in person.
Simply attending the Synopsys annual meeting will not revoke a proxy. If
you do not hold your Synopsys common shares in your own name, you may revoke a
previously given proxy by following the revocation instructions provided by the
bank, broker or other party that is the registered owner of the shares.
SOLICITATION OF PROXIES
Synopsys and Avant! will generally share equally expenses incurred in
connection with the filing, printing and mailing of this joint proxy
statement/prospectus, but each party will pay its own cost of soliciting
approvals. In addition to solicitation by mail, the directors, officers,
employees and agents of Synopsys may solicit proxies from Synopsys stockholders
by telephone or other electronic means or in person. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of shares held of
record by these persons, and Synopsys and Avant! will reimburse them for their
reasonable out-of-pocket expenses.
Synopsys has retained D.F. King & Co., Inc. to assist in the solicitation
of proxies from banks, brokerage firms, nominees, institutional holders, and
individual investors for a fee of $11,000, plus expenses relating to the
solicitation.
THE AVANT! SPECIAL MEETING
We are furnishing this document to the Avant! stockholders as part of the
solicitation of proxies for use at the Avant! special meeting of stockholders,
including any adjournment or postponement of the meeting.
DATE, TIME AND PLACE
Avant! will hold its special meeting on [ ], [ ], 2002, at
[ ], local time, at [ ].
18
PURPOSE OF THE AVANT! SPECIAL MEETING
At the Avant! special meeting we are asking holders of record of Avant!
common shares:
1. to consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of December 3, 2001, among Synopsys, Maple
Forest Acquisition L.L.C., a wholly-owned subsidiary of Synopsys, and
Avant! and the transactions contemplated by that agreement, including
the merger; and
2. to transact such other business as may properly come before the meeting
or any adjournment or postponement of the meeting.
The Avant! board of directors has unanimously determined that the merger,
the merger agreement and the other transactions contemplated by the merger
agreement are advisable and fair to, and in the best interests of, Avant! and
its stockholders.
THE AVANT! BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT AVANT!
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of Avant! common shares at the close of business on
[ ], 2002, the Avant! record date, are entitled to notice of and to
vote at the Avant! special meeting. On [ ] 2002, approximately
[ ] Avant! common shares were issued and outstanding and were held by
approximately [ ] holders of record. Each Avant! stockholder is
entitled to one vote for each Avant! common share held by such stockholder of
record as of the close of business on the Avant! record date.
QUORUM
A quorum of Avant! stockholders is required to hold a valid special
meeting. A quorum will be present at the Avant! special meeting if a majority of
the Avant! common shares issued, outstanding and entitled to vote on the Avant!
record date is represented at the special meeting in person or by proxy. If a
quorum is not present, we expect the Avant! special meeting will be adjourned to
solicit additional proxies.
Abstentions and broker non-votes count as present for purposes of
establishing a quorum. Avant! common shares held by Avant! or its subsidiaries
do not count toward a quorum.
A "broker non-vote" occurs with respect to a proposal when a broker is not
permitted to vote on that proposal without instruction from the beneficial owner
of the Avant! common shares and no instruction is given.
SHARES OWNED AND VOTED BY AVANT! DIRECTORS AND EXECUTIVE OFFICERS
At the close of business on [ ], 2002, the directors and executive
officers of Avant! owned and were entitled to vote, in the aggregate,
[ ] Avant! common shares. These shares represent approximately [ ]%
of the Avant! common shares outstanding as of the record date.
These individuals have indicated that they intend to vote or cause to be
voted their Avant! common shares in favor of the Avant! proposal. Certain of
these directors and executive officers also entered into a voting agreement
described below.
AGREEMENT TO VOTE IN FAVOR OF THE MERGER
Certain Avant! executive officers and directors have entered into a voting
agreement with Synopsys in which each has agreed, among other things, to vote
his or her Avant! common shares in favor of the merger and against any action
that would delay or prevent the merger and against any alternative transaction.
These persons have the right, as of the Avant! record date, to vote a total of
[ ]
19
Avant! common shares or approximately [ ]% of the outstanding Avant!
common shares as of the Avant! record date. See "The Transaction
Documents -- Avant! Stockholder Voting Agreement."
VOTE REQUIRED
Approval and adoption of the merger agreement requires the approval of the
holders of a majority of the Avant! shares entitled to vote on the proposal to
adopt the merger agreement. A stockholder who abstains on this matter and a
broker non-vote will each have the same effect as a vote against the proposal.
VOTING OF PROXIES
All Avant! shares represented by properly executed proxies received in time
for the Avant! special meeting and not revoked will be voted at the Avant!
special meeting, and at any adjournment or postponement of the meeting, in
accordance with the instructions contained in the proxy. Properly executed
proxies that do not contain voting instructions will be voted FOR the adoption
of the merger agreement. You are requested to complete, sign, date and promptly
return the enclosed proxy card in the postage-prepaid envelope provided for this
purpose to ensure that your Avant! common shares are voted.
You may vote in person at the Avant! special meeting or by proxy. We
recommend that you vote by proxy even if you plan to attend the Avant! special
meeting. You can always change your vote at the Avant! special meeting.
If your broker holds your shares for you in "street name," you should
instruct your broker to vote your shares, following the directions your broker
provides. Most brokers have procedures for telephone or Internet voting. Check
the material your broker sends you or call your account representative for more
information. In the event you do not instruct your broker how to vote any shares
held for you in "street name," your shares will not be voted for the adoption of
the merger agreement.
The Avant! board of directors is not aware of any other business to be
brought before the Avant! special meeting or any adjournment or postponement of
the meeting. If, however, other matters are properly brought before the Avant!
special meeting or an adjournment or postponement thereof, the persons appointed
as proxies will have discretionary authority to vote the Avant! shares
represented by duly executed proxies in accordance with their discretion and
judgement.
AVANT! STOCKHOLDERS SHOULD NOT SEND IN ANY SHARE CERTIFICATES WITH THEIR
PROXY CARDS. A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR SURRENDER OF
CERTIFICATES REPRESENTING AVANT! COMMON SHARES WILL BE MAILED TO AVANT!
STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE COMPLETION OF THE MERGER.
REVOKING YOUR PROXY
You may revoke your proxy at any time before the proxy is voted at the
Avant! special meeting by:
- submitting a written revocation bearing a later date than the proxy to
the Secretary of Avant! at 46871 Bayside Parkway, Fremont, California
94538;
- granting a duly executed proxy relating to the same shares and bearing a
later date and delivering it to the Secretary of Avant!; or
- by attending the Avant! special meeting and voting in person.
Simply attending the Avant! special meeting will not revoke a proxy. If you
do not hold your Avant! common shares in your own name, you may revoke a
previously given proxy by following the revocation instructions provided by the
bank, broker or other party that is the registered owner of the shares.
SOLICITATION OF PROXIES
Synopsys and Avant! will generally share equally expenses incurred in
connection with the filing, printing and mailing of this joint proxy
statement/prospectus, but each party will pay its own cost of
20
soliciting approvals. In addition to solicitation by mail, the directors,
officers, employees and agents of Avant! may solicit proxies from Avant!
stockholders by telephone or other electronic means or in person. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares held of record by these persons, and Synopsys and Avant! will
reimburse them for their reasonable out-of-pocket expenses.
Avant! has retained Georgeson Shareholder Communications, Inc. to assist in
the solicitation of proxies from banks, brokerage firms, nominees, institutional
holders, and individual investors for a fee of $10,000 plus expenses relating to
the solicitation.
THE MERGER
BACKGROUND OF THE MERGER
The board of directors and management of Avant! have from time to time
considered strategic alternatives for Avant!, including a business combination
with Synopsys. In May 2001, Avant! resolved its criminal trade secret proceeding
in the Santa Clara criminal action by entering pleas of no contest to conspiracy
to misappropriate trade secrets, two counts of trade secret misappropriation and
a violation of California corporate securities laws. As a part of the plea
agreement, Avant! agreed to pay a fine of $27.0 million and pay restitution in
an amount determined by the court. In addition, as part of the settlement,
Avant! paid the fines assessed against certain current and former Avant!
employees who were defendants in this action. In July 2001, the court fixed the
total restitution amount to be paid to Cadence at $195.4 million. Avant!
subsequently paid this award in full.
Following the court ruling, Dr. Chi-Foon Chan, President and Chief
Operating Officer of Synopsys, contacted Gerald C. Hsu, Chairman of the Board
and Chief Strategist of Avant!, to initiate discussions concerning a possible
combination of the two companies. During the next several weeks, Dr. Chan and
Mr. Hsu, as well as other representatives of Avant!, engaged in several
discussions concerning a possible business combination. At the same time, Mr.
Hsu, along with other representatives of Avant!, engaged in discussions with a
second interested buyer concerning a business combination with Avant!, as well
as a private equity fund concerning a strategic investment in Avant!.
During the three week period commencing August 6, 2001, counsel for the
second interested buyer had limited discussions with counsel for Avant!
regarding Avant!'s outstanding civil litigation. During that same time period,
Avant!'s representatives met with representatives of the private equity fund to
discuss Avant!'s outstanding civil litigation. In addition, beginning in
mid-August 2001, Synopsys and its outside counsel commenced a review of Avant!'s
outstanding civil litigation and began investigating the possibility of
obtaining insurance in order to mitigate the impact of any future verdict or
settlement in the Avant!/ Cadence litigation.
Beginning on or around August 22, 2001, Avant!'s counsel entered into
negotiations with counsel for the second interested buyer concerning a
confidentiality agreement with Avant!. On August 26, 2001, Avant! received a
written preliminary term sheet for a business combination and a proposed
exclusivity agreement from the second interested buyer. The term sheet provided
that each Avant! common share would be exchanged for the second interested
buyer's publicly-traded common shares based on a fixed exchange ratio and a
transferable contingent value right, which is described below. The stock
consideration offered represented the right to receive a fraction of a share of
the second interested buyer, having a market value of approximately $20 per
Avant! share based on the closing market price of the second interested buyer's
common shares on August 24, 2001, the last trading day prior to August 26, 2001.
The contingent value rights would have provided for the payment, in cash, to the
holders of these rights, on a pro rata basis, an amount equal to 90% of the
amount, if any, by which $325 million exceeded the amount ultimately paid by
Avant! with respect to existing intellectual property litigation or any
litigation arising
21
from the proposed transaction. The August 26, 2001 preliminary term sheet
contained other terms and conditions, including:
- Simultaneously with the execution of a definitive agreement for the
proposed transaction, Avant! would enter into an agreement, which would
not be contingent upon the closing of the proposed transaction, to sell
its HSpice and Taurus Mask Tools businesses to the second interested
buyer for a cash price equal to the revenues of those businesses during
the preceding 12 months.
- Avant! would pay the second interested buyer a break-up fee of 4.9% of
the value of the transaction to Avant! stockholders in the event that
Avant! terminated the definitive agreement as a result of certain trigger
events, primarily relating to Avant! accepting or discussing a business
combination with a third party, including the Avant! board withdrawing or
modifying its recommendation to Avant! stockholders to approve the
proposed transaction or the failure of Avant! stockholders to approve the
proposed transaction.
- Each party would receive an option to purchase 19.9% of the outstanding
common shares of the other party at an exercise price equal to the
relevant market prices as of August 26, 2001. The option would terminate,
and any shares obtained upon exercise would be repurchasable at cost,
upon any change of control of the party exercising the option prior to
consummation of the proposed transaction.
- Avant! would unconditionally recommend the proposed transaction to its
stockholders, hold a meeting of stockholders to vote on approval of the
proposed transaction, abstain from talking or providing any information
to a third party concerning a competing transaction, provide full
information concerning any expression of interest in a competing
transaction, not terminate the definitive agreement for the proposed
transaction prior to the Avant! stockholder vote and provide the second
interested buyer with a reasonable opportunity to match or exceed a
competing transaction as to which an agreement is reached within nine
months following termination of the definitive agreement with the second
interested buyer following the Avant! stockholder vote.
- Avant! would execute an agreement providing that Avant! would deal
exclusively with the second interested buyer until October 15, 2001.
- Closing conditions in the definitive agreement would include, among other
things, the completion of due diligence.
- The second interested buyer would cause Avant! to cash out Gerald C.
Hsu's employment agreement in consideration of a cash payment as provided
in his existing employment agreement with Avant! and would enter into a
non-competition agreement with Mr. Hsu calling for cash payments of $3.33
million per year for four years from the closing.
- Employment arrangements with other senior executives of Avant! would be
modified to provide incentives for continued employment and no change of
control payments would be made in the transaction.
- Key employees would execute three-year non-competition agreements with
the second interested buyer.
- The second interested buyer would purchase for cash, at the closing,
Maingate Electronics, Davan Tech Co. and other distributors in which
employees or stockholders of Avant! held significant economic interests
at fair market value as established by an appraisal conducted by a
big-five accounting firm that did not represent Avant! or the second
interested buyer.
- The executive officers and directors of Avant! would enter into
stockholder agreements providing for (1) the voting of their shares of
Avant! in favor of the transaction and against similar transactions with
a third party and for the payment to the second interested buyer of the
amount by which the consideration received by such stockholders with
respect to their stock in any transaction similar to the proposed
transaction with a third party exceeded the consideration offered by the
second
22
interested buyer and (2) in the event of a competing transaction, the
sale to the second interested buyer of any shares of Maingate Electronics
held by such stockholders at the appraised fair market value.
On August 28, 2001, the Avant! board of directors met to discuss the August
26, 2001 preliminary term sheet from the second interested buyer as well as Mr.
Hsu's recent discussions with Dr. Chan of Synopsys. At this meeting, Avant!'s
counsel summarized for Avant!'s board of directors its fiduciary duties in
connection with considering the proposed business combinations and other
strategic alternatives. In addition, the board discussed the engagement of
investment bankers to assist the board in evaluating the proposed transactions.
On August 28, 2001, the Synopsys board held a regular meeting at which
management made various presentations about potential strategic combinations,
including the potential acquisition of Avant!, the strategic benefits of this
transaction and the diligence to date on the Avant!/Cadence litigation.
Thereafter, between Synopsys board meetings Dr. Aart de Geus, Chairman and Chief
Executive Officer of Synopsys, kept the Synopsys board informed, and had
informal discussions with individual board members, regarding the status of
discussions with Avant!, the Avant!/Cadence litigation, the efforts to obtain
litigation insurance and related matters.
During the week of August 26, 2001, discussions continued between
representatives of Avant! and the second interested buyer as well as between
representatives of Avant! and Synopsys. On August 31, 2001, the Avant! board of
directors met to discuss the possible transactions. At this meeting, the board
formed a special committee of independent directors to negotiate and evaluate a
potential business combination or other strategic transaction with Avant!. The
board appointed directors Daniel Taylor, Nelson Lane Kelley and Toyohiko Muraki
to serve as members of the special committee. In addition, the board approved
the engagement of Salomon Smith Barney as its financial advisor.
On September 2, 2001, the special committee convened to discuss the
proposal for a business combination with the second interested buyer. Avant!'s
advisors discussed the financial and legal terms of the proposal with the
committee. After this meeting, representatives of Avant! met with
representatives of the second interested buyer to discuss the preliminary terms
of a business combination between the two companies. At this meeting, the
parties failed to come to an understanding on many key terms of the possible
business combination, including the exchange ratio, the cross-options and the
sale of the HSpice and Taurus Mask Tools businesses.
During the first week of September 2001, representatives of Avant!
continued their discussions with representatives of Synopsys and the second
interested buyer. On September 4, 2001, Avant! received a term sheet from
Synopsys for a proposed business combination. The provisions of this term sheet
were subject to Synopsys' completion of due diligence as well as the negotiation
of definitive agreements. Under Synopsys' proposed transaction, each Avant!
common share would be exchanged into the right to receive 0.4032 of a Synopsys
common share (having a market value of approximately $18.34 per Avant! share
based on the closing market price for Synopsys common shares on September 4,
2001) and a transferable pro rata interest in a trust that would hold
zero-coupon debt securities with a face value at maturity of $400 million and a
maturity of 10 years. The trust would be responsible for 90% of the amounts paid
in respect of legal claims against Avant! by Cadence, with the remaining 10%
borne by Synopsys. At the earlier of resolution of such legal matters or 10
years, any remaining assets in the trust would be liquidated and the proceeds
distributed to the holders of the trust certificates. The September 4, 2001 term
sheet contained a limited number of other terms and conditions, including:
- All outstanding stock options would be assumed by Synopsys and converted
into options to purchase Synopsys common shares with identical vesting
provisions, with no acceleration of vesting unless the parties otherwise
agreed, and with appropriate adjustments based on the exchange ratio.
- Synopsys would honor all existing employment and indemnification
agreements with Avant! senior employees and existing indemnification
obligations of Avant!.
23
- As a condition to execution of the definitive agreement, certain key
Avant! employees to be identified during due diligence would enter into
employment agreements with Synopsys with customary non-competition,
non-solicitation and non-hiring provisions.
As part of the September 4, 2001 term sheet, Synopsys requested that Avant!
grant Synopsys an exclusivity arrangement for a 26-day period. At this time,
counsel for Synopsys and counsel for Avant! began negotiating both a
confidentiality agreement and an exclusivity agreement.
On September 6, 2001, the special committee convened to discuss Synopsys'
proposed term sheet as well as the September 2, 2001 discussions with the second
interested buyer. At this meeting, Avant!'s advisors discussed the financial and
legal terms of Synopsys' proposal with the committee.
Between September 6, 2001 and September 9, 2001, representatives of Avant!
and representatives of Synopsys negotiated revisions to the proposed term sheet,
confidentiality agreement and exclusivity agreement. On September 9, 2001, the
special committee convened to discuss Synopsys' revised proposal, which, like
the September 4, 2001 proposal, was subject to completion of due diligence and
negotiation of definitive agreements. Under the revised proposal, each Avant!
common share would be exchanged into the right to receive 0.2217 of a Synopsys
common share (having a market value of approximately $9.70 per Avant! common
share based on the closing market price of Synopsys common shares on September
7, 2001, the last trading day prior to September 9, 2001), $9.00 in cash and the
pro rata transferable interest in the trust described above. In its revised
proposal, Synopsys indicated that the transaction would not be subject to a
financing condition, but that Avant! must unconditionally agree to hold a
meeting of its stockholders to consider the proposed business combination. At
this meeting, the special committee also considered recent discussions between
the second interested buyer and Avant!. Avant!'s counsel reviewed the legal
terms of the Synopsys proposal with the committee, and representatives of
Salomon Smith Barney discussed their analysis of the financial terms of the
Synopsys proposal, comparing this proposal to the August 26, 2001 proposal of
the second interested buyer. At the conclusion of this meeting, the special
committee approved entering into a 21-day exclusivity arrangement with Synopsys.
On September 10, 2001, Avant! and Synopsys signed an exclusivity agreement
and a confidentiality agreement. During the three-week period commencing
September 10, 2001, representatives of Synopsys met with representatives of
Avant! to conduct Synopsys' due diligence investigation of Avant!. As part of
this diligence, Synopsys engaged a second law firm to review the Avant!/Cadence
litigation. Furthermore, at Synopsys' request, counsel to the insurance company
with which Synopsys was having discussions regarding a potential insurance
policy relating to the Avant!/Cadence litigation initiated due diligence on such
litigation.
On September 18, 2001, the Avant! board of directors received a written
proposal from the private equity fund concerning a strategic investment in
Avant!. Under this proposal, the private equity fund stated that it was prepared
to sponsor a proposal to settle all of Avant!'s outstanding legal disputes with
Cadence by making a significant cash payment to Cadence to settle the
outstanding Cadence litigation, estimated by the fund at the time in its written
proposal to require up to $350 million of outside capital, although the fund did
not represent that Cadence was prepared to settle for such amount or any amount,
and by funding other one-time transaction related charges, including payments
under Avant!'s employment contracts and distribution agreements. The private
equity fund proposed (1) an investment of at least $100 million in exchange for
preferred equity of Avant!, convertible into common shares at approximately the
then-current market price of Avant! common shares and (2) to provide additional
financial resources sufficient to settle and/or defend the Cadence litigation
and other litigation and to fund other liabilities. In addition, under the
proposal, the private equity fund would have the right to appoint two directors
to the Avant! board.
On September 20, 2001, the special committee convened a meeting to consider
the proposal from the private equity fund. Avant!'s advisors discussed the
financial and legal terms of the proposal with the committee. At this meeting,
the committee also discussed the status of Synopsys' due diligence investigation
of Avant!. At the conclusion of this meeting, the committee determined to
continue active negotiations with Synopsys and to give no formal response to the
proposal by the private equity fund.
24
On September 21, 2001, Synopsys' counsel sent a draft merger agreement to
Avant!'s counsel. On September 22, 2001, Avant! and Synopsys signed a
confidentiality agreement with respect to Avant!'s due diligence investigation
of Synopsys.
On September 24, 2001, Avant!'s counsel sent comments to the draft merger
agreement to Synopsys' counsel. On September 25, 2001, Avant! held a special
committee meeting at which the terms of the proposed merger agreement were
discussed.
On October 1, 2001, Synopsys sent a letter to the special committee
describing a revised proposal for a business combination between the two
companies. The revised proposal was contingent upon a settlement of all
outstanding Cadence claims against Avant!, and contemplated that the merger
agreement and settlement agreement would be executed simultaneously. Synopsys
also revised the merger consideration offered to Avant! stockholders. Under the
revised proposal, each Avant! common share would be exchanged into the right to
receive a fraction of a Synopsys common share based on an exchange ratio,
calculated prior to signing the merger agreement, providing an aggregate market
value equal to $850 million less the amount to be paid to Cadence to settle the
outstanding litigation. The revised proposal did not include interests in the
litigation trust described in Synopsys' prior proposals. The revised proposal
contained other material terms and conditions substantially similar to Synopsys'
September 9, 2001 proposal and included the following additional material terms
and conditions:
- Prior to executing the definitive agreement, Avant! would acquire or have
entered into a binding agreement to acquire all outstanding shares of
Maingate Electronics, based on a valuation determined by an unrelated
third party acceptable to Synopsys and on terms acceptable to Synopsys,
subject to a total purchase price not to exceed $30 million.
- Avant! would obtain the consent of its other distributors not to exercise
their rights to terminate their distribution agreements based on a change
of control of Avant! and to other amendments to the other terms of these
agreements as Synopsys would specify.
- The definitive agreement would provide a termination fee equal to 5% of
the merger consideration, plus reimbursement of Synopsys' reasonable
expenses incurred in connection with the transaction.
On October 2, 2001, the special committee convened a meeting to consider
the October 1, 2001 proposal by Synopsys. At the conclusion of this meeting, the
special committee determined not to proceed with a business combination with
Synopsys at that time. On October 2, 2001, Avant! sent a letter to Dr. de Geus
informing Synopsys of the determination of the special committee and requesting
that Synopsys return or destroy the Avant! due diligence material held by
Synopsys and its representatives.
Between October 2, 2001 and October 4, 2001, representatives of Avant! and
Synopsys discussed the most recent Synopsys proposal. On October 5, 2001,
Synopsys sent a letter to the special committee describing a new proposal for a
business combination between the two companies. Synopsys proposed that each
Avant! common share in the business combination would be exchanged into the
right to receive 0.3762 of a Synopsys common share (having a market value of
approximately $15.40 per Avant! share based on the closing market price for
Synopsys common shares on October 5, 2001), with no condition relating to the
settlement of the Avant!/Cadence litigation.
On October 8, 2001, the special committee convened to consider the October
5, 2001 proposal of Synopsys. Avant!'s advisors discussed the financial and
legal terms of the proposal with the committee. After deliberation, the
committee authorized the continuation of negotiations with Synopsys, but only if
Synopsys would increase the merger consideration offered in its latest proposal.
On October 9, 2001, Avant! sent Synopsys a letter describing the committee's
determination. Synopsys determined not to change its proposal at that time and
the discussions terminated. Representatives of Avant! and Synopsys later
verified with each other that they had either returned or destroyed all
confidential information that they had exchanged pursuant to the confidentiality
agreements between the parties.
On October 22, 2001, representatives of the private equity fund met with
representatives of Avant! to discuss the fund's proposal for a strategic
investment in Avant!.
25
During the last week of October 2001, representatives of Avant! contacted
representatives of Synopsys about resuming their negotiations concerning a
proposed business combination between the two companies. In addition, at
approximately the same time, counsel for Avant! contacted counsel for the second
interested buyer about resuming their negotiations concerning a proposed
business combination between Avant! and the second interested buyer.
During the first week of November, representatives from Avant! met with
representatives from Synopsys to discuss the outstanding Avant!/Cadence
litigation as well as the draft merger agreement circulated by Synopsys' counsel
at the end of September 2001.
On November 7, 2001, Avant! received a new term sheet from the second
interested buyer. The term sheet provided that each Avant! common share would be
exchanged for the second interested buyer's common shares based on a fixed
exchange ratio and a contingent value right, which is described below. The stock
consideration offered represented the right to receive a fraction of a share of
the second interested buyer having a market value of approximately $14 per
Avant! share based on the closing market price of the second interested buyer's
common shares on November 6, 2001. The contingent value rights would have
provided for the payment, in cash, to the holders of these rights, on a pro rata
basis, of the amount equal to 90% of the amount, if any, by which $325 million
exceeded the amount ultimately paid by Avant! with respect to any intellectual
property litigation or any stockholders' litigation filed on or after October
12, 2001. The revised term sheet contained other material terms and conditions
substantially similar to the second interested buyer's August 26, 2001 proposal
with the following principal changes:
- Avant! would pay the second interested buyer a termination fee based on
an unspecified percentage of the value of the transaction to Avant!'s
stockholders in the event that Avant! terminated the definitive agreement
as a result of certain trigger events, but the fee payable with respect
solely to the failure of the Avant! stockholders to approve the proposed
transaction would be reduced to an unspecified amount.
- Each party would receive an option to purchase 14.9% of the outstanding
common shares of the other party at a price equal to $11.01 per Avant!
common share and a recent market price per share for the second
interested party's common shares. The option to purchase the second
interested buyer's shares would terminate, and any shares obtained upon
exercise would be repurchasable at cost, upon the occurrence of any event
that provided payment of a break-up fee to the second interested buyer.
- Simultaneously with the execution of a definitive agreement for the
proposed transaction, Avant! would sell its HSpice and Taurus Mask Tools
businesses to the second interested buyer for a cash price equal to 1.5
times the revenues of those businesses during the 12-month period ended
September 30, 2001.
- The definitive agreement would provide an exception to the covenant
restricting Avant!'s ability to talk or provide information to a third
party in connection with a competing transaction as required to satisfy
the Avant! board's legal duties, subject to certain other conditions.
- Current employment arrangements with mutually agreed specified executives
of Avant!, including change of control payments, would be honored.
- Due diligence would be completed at or before execution of definitive
agreements.
- Avant! would execute an agreement providing that Avant! would deal
exclusively with the second interested buyer until January 7, 2002.
- The executive officers and directors of Avant! would enter into
stockholder agreements providing for the voting of their shares of Avant!
in favor of the transaction and against similar transactions with a third
party, and for the payment to the second interested buyer of 60% of the
amount by which the consideration received by such stockholders with
respect to their shares in any transaction similar to the proposed
transaction with a third party exceeded the consideration offered by the
second interested buyer.
26
On November 8, 2001, the special committee convened to consider the
November 7, 2001 term sheet proposed by the second interested buyer. Avant!'s
advisors discussed the financial and legal terms of the proposal with the
committee. In addition, the special committee considered the recent discussions
between representatives of Synopsys and Avant! concerning a possible business
combination between the two companies. The special committee determined to
continue negotiations with both Synopsys and the second interested buyer.
On November 8, 2001, counsel for Synopsys distributed revised drafts of the
merger agreement and voting agreement to counsel for Avant!. The draft merger
agreement, in addition to reflecting the most recent Synopsys proposal, provided
that, among other things:
- Each Avant! common share would be exchanged for an unspecified number of
Synopsys common shares.
- The closing of the merger would be conditioned upon Synopsys obtaining
litigation insurance as well as Avant!'s acquisition of all outstanding
shares of Maingate Electronics.
- The signing of the merger agreement would be contingent upon the
execution of various employment and severance agreements among executives
of Avant!.
- Avant! would pay a termination fee equal to 5% of the merger
consideration, plus reimbursement of Synopsys' reasonable expenses
incurred in connection with the transaction, upon certain trigger events
relating to a third party proposal.
- Avant! would pay a termination fee equal to an unspecified percentage
greater than 5% of the merger consideration, plus reimbursement of
Synopsys' reasonable expenses incurred in connection with the
transaction, in connection with the settlement of the outstanding Cadence
litigation.
On November 11, 2001, the Synopsys board held a special meeting at which
extensive presentations regarding a potential Avant! transaction were made,
including with respect to the status of the Avant!/Cadence litigation, Synopsys'
other diligence on Avant!, the negotiations with Avant! and the efforts to
obtain insurance with respect to the Avant!/Cadence litigation. At the
conclusion of the meeting, the Synopsys board authorized further negotiations
concerning a business combination with Avant!.
On November 14, 2001, representatives of Avant! and the second interested
buyer discussed increasing the merger consideration described in the November 7,
2001 term sheet proposed by the second interested buyer.
Between November 14, 2001 and November 16, 2001, representatives of Avant!
met with representatives of Synopsys to negotiate the merger agreement.
On November 14, 2001, Dr. Chan and Mr. Hsu met to discuss the proposed
exchange ratio in the merger. At this meeting, Dr. Chan proposed that each
Avant! common share be exchanged for 0.350 of a Synopsys common share (having a
market value of approximately $17.80 per Avant! common share based on the
closing market price for Synopsys on November 14, 2001).
On November 15, 2001, the special committee convened to consider the
exchange ratio proposed by Dr. Chan on November 14, 2001 as well as the status
of the negotiations of the merger agreement. The committee also reviewed the
recent discussions between representatives of Avant! and the second interested
buyer. At this meeting, representatives of Salomon Smith Barney discussed with
the committee their analysis of the financial terms of Synopsys' new proposal.
After discussion, the special committee instructed and authorized Mr. Hsu to
seek a higher exchange ratio. In addition, the special committee authorized
other representatives of Avant! to continue negotiations on the merger
agreement.
On November 15, 2001 and November 16, 2001, Dr. Chan and Mr. Hsu held
additional meetings to discuss the proposed exchange ratio. On November 16,
2001, Dr. Chan proposed that in the merger, each Avant! common share be
exchanged for 0.372 of a Synopsys common share (having a market value of
approximately $18.99 per Avant! common share based on the closing market price
for Synopsys common shares on November 15, 2001). At this meeting, Dr. Chan and
Mr. Hsu tentatively agreed to recommend
27
this exchange ratio to their respective boards of directors and, in the case of
Avant!, its special committee, subject to the parties' reaching agreement on the
remaining key open points in the merger agreement and the completion of due
diligence.
Between November 14, 2001 and November 16, 2001, counsel for Mr. Hsu met
with representatives of Synopsys to negotiate Mr. Hsu's severance arrangements.
Discussions on Mr. Hsu's severance arrangements continued thereafter until the
merger agreement and Mr. Hsu's separation agreement were signed on December 3,
2001.
On November 19, 2001, counsel for Synopsys circulated a new draft of the
merger agreement.
On November 23, 2001, counsel for Avant! and counsel for Synopsys
participated in a conference call to discuss open points in the merger
agreement.
On November 26, 2001, the special committee held a meeting to re-consider
the September 2001 proposal for a strategic investment in Avant! by the private
equity fund. At this meeting, the private equity fund gave a presentation to the
special committee concerning its proposal.
On November 26, 2001, counsel for Synopsys distributed revised drafts of
the merger and voting agreements.
On November 27, 2001, the special committee convened to discuss the status
of negotiations of the merger agreement. At this meeting, the special committee
also considered the presentation made by the private equity fund on November 26,
2001.
On November 28, 2001, counsel for Avant! and counsel for Synopsys
participated in a conference call to discuss open points in the draft merger
agreement.
On November 29, 2001, the special committee received a letter from the
private equity fund, restating its interest in making a strategic investment in
Avant!
On November 30, 2001, representatives from Avant! and Synopsys reviewed
Avant!'s due diligence of Synopsys.
On November 30, 2001, counsel for Synopsys distributed a revised draft of
the merger agreement. Later that day counsel for Avant! and counsel for Synopsys
participated in a conference call to discuss open points in the revised draft of
the merger agreement.
On November 30, 2001, Synopsys entered into a binder for insurance with
respect to the Avant!/Cadence litigation and advised Avant! that the proposed
condition in the draft merger agreement regarding litigation insurance would be
withdrawn.
On November 30, 2001, the special committee convened a meeting to discuss
the status of the Synopsys negotiations as well as the November 29, 2001 letter
from the private equity fund. At this meeting, the committee determined not to
proceed with its negotiations with the fund. After the special committee
meeting, the full board of Avant! held a meeting to discuss the proposed
business combination with Synopsys. At this meeting, representatives of Salomon
Smith Barney discussed their preliminary financial analysis of the proposed
business combination with Synopsys.
On December 1, 2001, counsel to Synopsys distributed revised drafts of the
merger and voting agreements. Also on December 1, 2001, the Synopsys board held
a special meeting at which the proposed merger was discussed and considered. At
the meeting, officers and management of Synopsys and representatives of Credit
Suisse First Boston, Synopsys' financial advisor, made presentations to the
board regarding the proposed transaction. Synopsys' counsel then outlined the
terms of the proposed merger agreement and the voting agreement, the potential
risks of the proposed transaction and other legal issues associated with the
proposed transaction. Management updated the board on Avant!'s business, recent
financial performance and the Avant!/Cadence litigation. Credit Suisse First
Boston then delivered to the Synopsys board its oral opinion that, as of such
date and based upon and subject to various considerations, the anticipated
exchange ratio of 0.372 of a Synopsys common share for each Avant! common share
was
28
fair to Synopsys from a financial point of view. Following the presentations and
opinion, and after discussion, the Synopsys board unanimously approved the
merger agreement and the transactions contemplated by the merger agreement.
On December 2, 2001, representatives of Avant! and representatives of
Synopsys met and resolved the remaining open points on the merger agreement.
Also on that day, representatives of Avant! informed representatives of Synopsys
that the fees to be paid to unaffiliated third parties by Avant! in connection
with the merger would be higher than Synopsys had previously been informed, and
the parties agreed to a final merger exchange ratio of 0.371 of a Synopsys
common share for each Avant! common share (having a market value of
approximately $20.42 per Avant! share based on the closing market price for
Synopsys on November 30, 2001, the last trading day prior to December 3, 2001).
On December 2, 2001, a representative of the private equity fund telephoned
a representative of Avant!. During this conversation, the fund proposed the
initiation of discussions for a change of control transaction valuing Avant! at
$18 or more per share. No other material terms were discussed.
Late in the evening on December 2, 2001, the special committee held a
meeting to consider the proposed transaction with Synopsys. Representatives of
Avant!'s counsel and Salomon Smith Barney participated in the meeting. At the
meeting, Salomon Smith Barney reviewed written materials with the special
committee members describing Salomon Smith Barney's financial analysis of the
transaction. The committee also reviewed the various business reasons for the
transaction. Avant!'s counsel then outlined the terms of the proposed merger
agreement, voting agreement, employment agreement amendments and severance
agreements, the potential risks of the proposed transaction and other legal
issues associated with the proposed transaction. Avant!'s counsel and Salomon
Smith Barney responded to questions regarding various aspects of the proposed
merger. Salomon Smith Barney then delivered its opinion as to the fairness of
the exchange ratio from a financial point of view to the holders of Avant!
common shares. Avant!'s special committee then voted unanimously to recommend
approval and adoption of the proposed merger and merger agreement to the Avant!
board of directors.
Immediately after the special committee meeting, during the early morning
hours of December 3, 2001, the full Avant! board of directors convened a special
meeting. At this meeting, Salomon Smith Barney reviewed its written materials
with the full board describing its analysis of the transaction. The Board then
discussed the various business reasons for the proposed transaction. Avant!'s
counsel outlined the terms of the proposed merger agreement, voting agreement,
employment agreement amendments and severance agreements, the potential risks of
the proposed transaction and other legal issues associated with the proposed
transaction. Avant!'s counsel also reviewed the various matters associated with
the proposed merger which required Avant! board approval. Salomon Smith Barney
and Avant!'s counsel then responded to questions regarding various aspects of
the proposed transaction. Salomon Smith Barney then delivered its opinion, dated
December 3, 2001, the date of the definitive merger agreement, to the effect
that, as of the date of the opinion and subject to the terms thereof, the
exchange ratio was fair from a financial point of view to the holders of Avant!
common shares. Avant!'s board of directors then voted unanimously to approve the
proposed merger and authorize the executive officers to enter into the merger
agreement on the terms presented to the board.
On December 3, 2001, Credit Suisse First Boston provided Synopsys with its
written opinion that, as of such date and based upon and subject to various
considerations set forth in its opinion, the exchange ratio in the merger
agreement was fair, from a financial point of view, to Synopsys.
On December 3, 2001, counsel for Synopsys and Avant! finalized the merger
agreement, and thereafter, the merger agreement, voting agreement, employment
agreement amendments and severance agreements were executed by the relevant
parties. Synopsys and Avant! then publicly announced the proposed transaction.
29
AVANT! BOARD OF DIRECTORS AND SPECIAL COMMITTEE REASONS FOR THE MERGER;
RECOMMENDATION OF THE AVANT! BOARD OF DIRECTORS AND SPECIAL COMMITTEE
At a meeting of Avant!'s special committee of independent directors on
December 2, 2001, the special committee members determined that the terms of the
merger are advisable and fair to, and in the best interests of, Avant! and its
stockholders and, by unanimous vote, recommended that the board of directors
approve the merger agreement and the transactions contemplated by the merger
agreement. At the Avant! board of directors meeting held on December 3, 2001,
the board considered the special committee's recommendations and independently
concluded that the terms of the proposed merger are advisable and fair to, and
in the best interests of, Avant! and its stockholders. The board then
unanimously approved the merger agreement and the associated transactions. In
reaching its decision, the board and the special committee consulted with
Avant!'s financial and legal advisors as well as with Avant!'s management, and
considered a number of factors.
The positive factors that Avant!'s board of directors and special committee
considered included:
- Synopsys and Avant! will provide customers with a high-quality complete
IC design solution by bringing together Synopsys' front-end/logic-design
products with Avant!'s back-end/physical design tools;
- Synopsys shares Avant!'s emphasis on engineering and technology
innovation, which makes the companies' research and development teams
very compatible and enhances the ability of Synopsys and Avant! to
develop advanced IC design solutions;
- Synopsys and Avant! will provide a strong operational infrastructure
under which the merged research and development teams can operate,
thereby providing a favorable environment for the development of new
products;
- The proposed merger will provide Avant! with a management succession plan
to resolve perceived corporate governance and management issues as well
as perceived employee morale and customer issues;
- Synopsys and Avant! will have greater financial resources and insurance,
mitigating certain risks associated with Avant!'s outstanding litigation
with Cadence;
- The financial presentation of Salomon Smith Barney, including the
assumptions and methodologies underlying its analyses and presentations
of the stand-alone value of Avant!, made to the Avant! board of directors
and special committee and the opinion of Salomon Smith Barney to the
effect that, as of December 3, 2001, the proposed exchange ratio was fair
to Avant!'s stockholders from a financial point of view;
- The merger agreement and the voting agreement contained terms and
conditions that were acceptable given the nature of the proposed
transaction, including that Avant! does not have to complete the merger
if the representations and warranties of Synopsys are not or were not
true and correct as set forth in the merger agreement or if there has
been a material adverse effect on Synopsys;
- The merger agreement permits the Avant! board of directors, in the
exercise of its fiduciary duties, under circumstances enumerated in the
merger agreement, to furnish information to, or engage in negotiations
with, third parties in response to unsolicited takeover proposals,
subject to payment of a break-up fee if the merger agreement is
terminated under certain circumstances;
- The belief of the Avant! board of directors and special committee that
the terms of the merger agreement relating to other potential bidders and
the circumstances in which Avant! would be required to pay a termination
fee would not materially deter a third party otherwise willing to make a
superior bid from making such a bid;
30
- Discussions with Avant!'s management regarding the business, operations,
financial performance and condition, business strategy and prospects
indicated that the proposed transaction was fair to, and in the best
interests of, Avant! and its stockholders;
- Prior to entering into the merger agreement with Synopsys, the special
committee and representatives of Avant! engaged in extensive discussions
with another interested buyer concerning a business combination with
Avant! as well as a private equity fund concerning a strategic investment
in Avant!;
- In the proposed merger, Avant! stockholders will receive Synopsys common
shares, allowing Avant! stockholders to participate in any appreciation
in the price of Synopsys common shares whether prior to or after the
merger; and
- The belief of the Avant! board of directors and the special committee of
the greater likelihood of regulatory approval of the merger with Synopsys
than a business combination with the second interested buyer.
The negative factors that Avant!'s board of directors and special committee
considered included:
- Avant! stockholders will receive Synopsys common shares as merger
consideration rather than cash, which will subject Avant! stockholders to
the risk that Synopsys' share price could decline;
- The value of the merger consideration is determined by a fixed exchange
ratio, such that the value of the transaction could fall between signing
of the merger agreement and the completion of the merger as a result of a
decrease in Synopsys' share price during such time;
- The financial terms of the merger did not compare favorably to the
implied firm value of some of Avant!'s competitors in the electronic data
automation industry, calculated based on multiples of revenue and
earnings before interest, taxes, depreciation and amortization;
- The anticipated benefits of the merger might not be fully realized;
- The companies might not be able to obtain the necessary approvals
required to complete the merger, including stockholder approvals and
antitrust regulatory approvals; and
- The merger and Synopsys' and Avant!'s businesses are subject to other
risks, as described in the section of this joint proxy
statement/prospectus entitled "Risk Factors" and in each company's SEC
filings.
In approving the merger agreement, the Avant! board of directors and
special committee of independent directors were aware of the interests of
Avant!'s management in the merger, as described in "-- Conflicts of Interest of
Avant! Directors and Officers in the Merger."
The foregoing discussion of the information and factors considered by the
Avant! board of directors and the special committee is not intended to be
exhaustive but includes the material factors considered by the Avant! board and
special committee. In view of the wide variety of factors considered in
connection with their evaluation of the proposed merger, the board and special
committee did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specified factors considered in reaching their
determinations. Individual directors may have given differing weights to
different factors. In addition, the Avant! board and special committee did not
reach any specific conclusion with respect to each of the factors considered.
Instead, the Avant! board of directors and special committee conducted an
overall analysis of the factors described above and determined that the
potential benefits outweighed the potential risks of the merger. The Avant!
board of directors and special committee relied on the experience and expertise
of Salomon Smith Barney, their financial advisor, for quantitative analysis of
the financial terms of the merger, and considered the opinion of Salomon Smith
Barney an important factor in determining whether to approve the merger
agreement.
THE AVANT! BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
31
SYNOPSYS BOARD OF DIRECTORS REASONS FOR THE MERGER AND RECOMMENDATION OF THE
SYNOPSYS BOARD OF DIRECTORS
At the Synopsys board of directors meeting on December 1, 2001, the
Synopsys board of directors unanimously determined that the merger, the merger
agreement and the other transactions contemplated by the merger agreement are
advisable and fair to, and in the best interests of, Synopsys and its
stockholders, approved the merger agreement and the associated transactions and
recommended that Synopsys stockholders vote FOR the issuance of Synopsys common
shares in the merger.
In approving the merger agreement and making these determinations and
recommendations, the Synopsys board of directors consulted with Synopsys' legal
and financial advisors as well as with Synopsys' management and considered a
number of factors.
The positive factors that the Synopsys board of directors considered
included:
- the merger would enable Synopsys and Avant! to offer their semiconductor
customers a complete end-to-end solution for System on Chip, or "SoC,"
design that links Synopsys' logic synthesis and design verification tools
with Avant!'s advanced place and route, physical verification and design
integrity products, thus increasing customers' design efficiencies;
- by increasing customer design efficiencies, Synopsys expects to be able
to better compete for customers designing the next generation of
semiconductors;
- by gaining access to Avant!'s physical design and verification products,
as well as its broad customer base and relationships, Synopsys will gain
new opportunities to market its existing products, including Synopsys'
current physical synthesis product, Physical Compiler;
- Avant! shares Synopsys' emphasis on engineering and technology
innovation, which makes the companies' research and development teams
very compatible and enhances the ability of Synopsys and Avant! to
develop advanced IC design solutions;
- the merger will help eliminate customer uncertainties over the long-term
viability of Avant! arising from the ongoing Avant!/Cadence litigation,
which should encourage more widespread adoption of a Synopsys-Avant!
design flow;
- by improving the integration of the products currently offered by the
separate companies, the merger should result in a growth rate that
exceeds Synopsys' currently anticipated growth rate;
- the merger will provide Synopsys with access to Avant!'s established
engineering operations in Asia that should prove valuable for serving
emerging markets in the region;
- Avant! has a highly skilled workforce, including a sales and technical
support organization experienced in physical design;
- Avant! has had strong financial performance during the past several
years;
- the merger presents opportunities for potential synergies and cost
savings; and
- the financial presentation of Credit Suisse First Boston, including the
assumptions and methodologies underlying its analyses and presentations,
made to the Synopsys board of directors on December 1, 2001 and the
opinion of Credit Suisse First Boston, dated as of December 3, 2001 and
based upon and subject to the various considerations set forth in the
opinion, that the exchange ratio in the merger was fair to Synopsys from
a financial point of view.
The negative factors that the Synopsys board of directors considered
included:
- the potential difficulties in integrating the product development
efforts, sales forces, operations and control environments of the two
companies;
- the risk that the anticipated benefits of the merger may not be fully
realized;
32
- the risks arising out of the Avant!/Cadence litigation, as more fully
described under "Risk Factors" and "Litigation Protection
Insurance -- Avant!/Cadence Litigation;"
- the impact of converting Avant!'s software license model to Synopsys'
ratable license model after the merger, which will result in a reduction
in reported revenue in the near term and an increase in backlog to be
recognized as revenue in subsequent periods;
- the treatment of Avant!'s expected deferred revenue balance and
pre-merger backlog under purchase accounting rules, which require that
such amounts be re-valued upon the merger and result in Synopsys
recognizing significantly less revenue from such deferred revenue and
backlog than Avant! would have recognized as a stand-alone company;
- the short term dilutive effect of the merger on Synopsys' results of
operations post-merger, which results from the conversion of Avant!'s
software license model to Synopsys' ratable license model and the impact
of purchase accounting on Synopsys' ability to recognize revenue from
Avant!'s pre-merger deferred revenue and backlog; and
- the effect of the period of time between announcement and completion of
the merger, which could adversely impact customer buying decisions and
retention of key Avant! staff.
The Synopsys board of directors concluded that certain of these risks could
be managed or mitigated or were unlikely to have a material impact on Synopsys
or the merger, and that, on balance, the potential benefits of the merger
outweighed the risks of the merger.
The foregoing discussion of the information and factors considered by the
Synopsys board of directors is not intended to be exhaustive but includes the
material factors considered by the Synopsys board of directors. In view of the
wide variety of factors considered in connection with its evaluation of the
merger, the Synopsys board of directors did not find it practical to, and did
not, quantify or otherwise assign relative weights to the specified factors
considered in reaching its determination. Individual directors may have given
differing weights to different factors. In addition, the Synopsys board did not
reach any specific conclusion with respect to each of the factors considered.
THE SYNOPSYS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SYNOPSYS
STOCKHOLDERS VOTE FOR THE ISSUANCE OF SYNOPSYS COMMON SHARES IN THE MERGER.
OPINION OF SYNOPSYS' FINANCIAL ADVISOR
Synopsys has retained Credit Suisse First Boston to act as its financial
advisor in connection with the merger. In connection with Credit Suisse First
Boston's engagement, Synopsys requested that Credit Suisse First Boston evaluate
the fairness, from a financial point of view, of the exchange ratio to Synopsys.
On December 1, 2001, the Synopsys board of directors met to review the proposed
merger and the terms of the proposed merger agreement, which at that point
assumed an exchange ratio of 0.372. During this meeting, Credit Suisse First
Boston reviewed with the Synopsys board of directors certain financial analyses,
as described below, and rendered its oral opinion to the Synopsys board of
directors that, as of the date of the opinion, based upon and subject to the
various considerations set forth in the Credit Suisse First Boston opinion, the
anticipated exchange ratio of 0.372 of a Synopsys common share for each Avant!
common share was fair, from a financial point of view, to Synopsys. On December
3, 2001, Credit Suisse First Boston rendered its written opinion to the Synopsys
board of directors that, as of the date of the opinion and based upon and
subject to the various considerations set forth in the opinion, the 0.371
exchange ratio was fair, from a financial point of view, to Synopsys.
The full text of the Credit Suisse First Boston opinion, which sets forth,
among other things, assumptions made, procedures followed, matters considered
and limitations on the scope of the review undertaken by Credit Suisse First
Boston in rendering its opinion, is attached as Annex C to this joint proxy
statement/prospectus and is incorporated by reference in its entirety. Synopsys
stockholders are urged to, and should, read the Credit Suisse First Boston
opinion carefully and in its entirety. The Credit Suisse First Boston opinion
addresses only the fairness, from a financial point of view, of the exchange
33
ratio to Synopsys as of the date of the Credit Suisse First Boston opinion, and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote or act on any matter relating to the proposed merger.
The summary of the Credit Suisse First Boston opinion in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the Credit Suisse First Boston opinion.
In connection with its opinion, Credit Suisse First Boston, among other
things,
- reviewed the merger agreement;
- reviewed certain publicly available business and financial information
relating to Synopsys and Avant!;
- reviewed certain other information relating to Synopsys and Avant!,
including financial forecasts provided to it by Synopsys and Avant!, and
met with the managements of Synopsys and Avant! to discuss the businesses
and prospects of Synopsys and Avant!, respectively;
- considered certain financial and stock market data of Synopsys and Avant!
and compared that data with similar data for other publicly held
companies in businesses similar to Synopsys and Avant!;
- considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions that have been
effected or announced; and
- considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which Credit
Suisse First Boston deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the foregoing
information and relied upon such information being complete and accurate in all
material respects. With respect to financial forecasts for Avant! and Synopsys
that it reviewed, Credit Suisse First Boston was advised, and Credit Suisse
First Boston assumed, that such forecasts had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Avant! and Synopsys as to the future financial performance of
Avant! and Synopsys, respectively. In addition, Credit Suisse First Boston
relied upon, without independent verification, the assessment of the management
of Synopsys as to:
- Synopsys' ability to retain key employees;
- the strategic benefits and potential cost savings and other synergies,
including the amount, timing and achievability of such benefits, savings
and other synergies, anticipated by Synopsys' management to result from
the merger;
- the existing technology, products and services of Synopsys and Avant! and
the validity of, and risks associated with, the existing and future
technology, products and services of Synopsys and Avant!; and
- Synopsys' ability to integrate the businesses of Synopsys and Avant!.
Synopsys also informed Credit Suisse First Boston, and Credit Suisse First
Boston assumed, that the merger will be treated as a tax-free reorganization for
federal income tax purposes. Credit Suisse First Boston also assumed, with
Synopsys' consent, that in the course of obtaining necessary regulatory and
third-party approvals and consents for the merger, no modification, delay,
limitation, restriction or condition will be imposed that will have a material
adverse effect on Synopsys or Avant! or the contemplated benefits of the merger.
Credit Suisse First Boston was not requested to make, and did not make, an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of Synopsys or Avant!, nor was Credit Suisse First Boston furnished
with any such evaluations or appraisals. The Credit Suisse First Boston opinion
is necessarily based upon information available to it as of the date of its
opinion, and upon financial, economic, market and other conditions as they
existed and could be evaluated on the date of the Credit Suisse First Boston
opinion. Credit Suisse First Boston did not express any opinion as to what the
value of the Synopsys common shares actually will be when issued to holders
34
of Avant! common shares pursuant to the merger or the prices at which Synopsys
common shares will trade at any time. The Credit Suisse First Boston opinion
does not address the relative merits of the merger as compared to other business
strategies that might be available to Synopsys, nor does it address the
underlying business decision of Synopsys to engage in the merger.
Credit Suisse First Boston did not express any opinion as to any legal
matters involving Avant!, as to which Credit Suisse First Boston understands
that Synopsys conducted such investigations, and obtained such advice from
qualified professionals, as Synopsys deemed necessary. With respect to
outstanding litigation involving Avant! in which significant damages are
alleged, the Synopsys board of directors, after consultation with Synopsys'
management and its outside counsel, instructed Credit Suisse First Boston to
assume, and Credit Suisse First Boston did assume, without independent
verification and based solely upon the assessment and judgment of Synopsys'
management, taking into account the advice of Synopsys' outside counsel, (1)
that the aggregate amount of damages that will be assessed against or agreed to
by Avant! or Synopsys in any pending or potential litigation involving Cadence
will not exceed the limit of, and will be covered to the extent of, the
insurance that Synopsys advised Credit Suisse First Boston was being purchased
by Synopsys in connection with the merger, and (2) that no pending or potential
litigation involving Avant! will have an adverse impact on the business,
financial condition, results of operations or prospects of Avant! or Synopsys.
In preparing its opinion to Synopsys, Credit Suisse First Boston performed
a variety of financial and comparative analyses. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Credit Suisse First Boston 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 the
Credit Suisse First Boston opinion. No company or transaction used in the
analysis performed by Credit Suisse First Boston as a comparison is identical to
Synopsys, Avant! or the contemplated merger. In addition, Credit Suisse First
Boston may have given various analyses more or less weight than other analyses,
and may have deemed various assumptions more or less probable than other
assumptions, so that the range of valuation resulting from any particular
analysis described below should not be taken to be Credit Suisse First Boston's
view of the actual value of Synopsys or Avant!. The analyses performed by Credit
Suisse First Boston are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or assets do not purport to be appraisals or to necessarily reflect
the prices at which businesses or assets may actually be sold. The analyses
performed were prepared solely as part of Credit Suisse First Boston's analysis
of the fairness, from a financial point of view, of the exchange ratio to
Synopsys and were provided to the Synopsys board of directors in connection with
the delivery of the Credit Suisse First Boston opinion.
Where relevant, the analyses performed by Credit Suisse First Boston
assumed either that no payment would be required to be made to Cadence in
connection with the Avant!/Cadence litigation or that the aggregate amount of
damages that would be assessed against or agreed to by Avant! or Synopsys in any
pending or potential litigation involving Cadence would be between $250 million
and $500 million. The analyses assumed that any such damages would be covered to
the extent of the insurance purchased by Synopsys from a AAA-rated insurance
company, that the cost to Synopsys of such insurance was $335 million and that
Synopsys would not receive any refund of any of such amount. The analyses also
assumed that no pending or potential litigation involving Avant! would result in
an injunction against the sales of Avant!'s products or have an adverse impact
on the business, financial condition, results of operations or prospects of
Avant! or Synopsys.
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston in connection with the preparation of its opinion,
and reviewed with the Synopsys board of directors at a meeting of the Synopsys
board of directors held on December 1, 2001. For purposes of the financial
analyses reviewed with the Synopsys board of directors at this meeting, Credit
Suisse First Boston used an exchange ratio of 0.372. The exchange ratio in the
merger of 0.371 was agreed to by Synopsys and Avant!
35
subsequent to the Synopsys board meeting. Stockholders should consider that the
exchange ratio in the merger of 0.371 is slightly less than the exchange ratio
of 0.372 that was used in the following analyses.
Certain of the following summaries of the material financial analyses that
were performed by Credit Suisse First Boston include information presented in
tabular format. In order to understand fully the material financial analyses
used by Credit Suisse First Boston, the tables should be read together with the
text of each summary. The tables alone do not constitute a complete description
of the material financial analyses.
TRANSACTION MULTIPLES
Credit Suisse First Boston calculated several values implied by the merger
exchange ratio, including the implied price per Avant! common share, the
fully-diluted equity value and enterprise value of Avant!, the pro forma
fully-diluted ownership of Synopsys by Avant! stockholders, as well as the
enterprise value as a multiple of revenues and price per share as a multiple of
earnings per share for the last twelve months, or "LTM," and for calendar years
2001 and 2002. The multiples were calculated using publicly available forecasts
by securities research analysts for calendar years 2001 and 2002. The following
table summarizes the results of this analysis:
IMPLIED AVANT!
IMPLIED PRO FULLY-DILUTED IMPLIED PRICE
IMPLIED FORMA ENTERPRISE VALUE/ PER AVANT! SHARE/
IMPLIED AVANT! IMPLIED AVANT! FULLY-DILUTED AVANT! REVENUES AVANT! EARNINGS PER SHARE
PRICE PER FULLY-DILUTED FULLY-DILUTED AVANT! OWNERSHIP -------------------- --------------------------
AVANT! SHARE EQUITY VALUE ENTERPRISE VALUE IN SYNOPSYS LTM 2001E 2002E LTM 2001E 2002E
------------ ------------- ---------------- ---------------- ---- ----- ----- ------ ------- -------
$20.47 $828 million $732 million 18.4% 1.9x 1.8x 1.6x 9.7x 8.9x 7.6x
Credit Suisse First Boston also calculated an aggregate transaction value
for the merger of $1,340 million by adding $512 million of transaction costs
estimated by Synopsys management to the implied Avant! fully-diluted equity
value of $828 million. Credit Suisse First Boston calculated several values
implied by the aggregate transaction value, including the price per Avant!
common share and the enterprise value of Avant!, as well as the enterprise value
as a multiple of revenues and price per share as a multiple of earnings per
share for the last twelve months and for calendar years 2001 and 2002. The
following table summarizes the results of this analysis:
IMPLIED AVANT!
ENTERPRISE VALUE/ IMPLIED PRICE PER AVANT! SHARE/
IMPLIED AVANT! REVENUES AVANT! EARNINGS PER SHARE
PRICE PER IMPLIED AGGREGATE IMPLIED AVANT! -------------------- ---------------------------------
AVANT! SHARE TRANSACTION VALUE ENTERPRISE VALUE LTM 2001E 2002E LTM 2001E 2002E
------------ ------------------ ---------------- ---- ----- ----- --------- --------- ---------
$31.44... $1,340 million $1,244 million 3.2x 3.1x 2.7x 14.9x 13.7x 11.7x
PUBLIC COMPANY TRADING ANALYSIS
Credit Suisse First Boston compared certain financial information of Avant!
with that of other companies in certain sectors of the software industry,
including:
- MATURE ELECTRONIC DESIGN AUTOMATION ("EDA") VENDORS
Cadence
Synopsys
Mentor Graphics Corporation
- HIGH-GROWTH EDA COMPANIES
Verisity Ltd.
Simplex Solutions, Inc.
Synplicity, Inc.
- ENGINEERING SOFTWARE COMPARABLES
Dassault Systemes S.A.
Parametric Technology Corp.
Autodesk, Inc.
Wind River Systems, Inc.
Bsquare Corporation
36
Such information included, among other things, the mean and median of
several metrics for the companies in each industry sector, including
fully-diluted enterprise values as multiples of revenues and prices per share as
multiples of earnings per share for the last twelve months and for calendar
years 2001 and 2002. The multiples were calculated using publicly available
information and publicly available forecasts by securities research analysts for
calendar years 2001 and 2002 and closing share prices as of November 30, 2001.
The following table summarizes the results of this analysis:
FULLY-DILUTED ENTERPRISE PRICE PER SHARE/
VALUE/REVENUES EARNINGS PER SHARE
-------------------------- ----------------------
LTM 2001E 2002E LTM 2001E 2002E
------ ------- ------- ----- ------ -----
Avant!.......................................... 0.8x 0.7x 0.7x 4.9x 4.5x 3.8x
Mature EDA Vendors
Median........................................ 4.2x 4.3x 3.4x 32.6x 29.1x 21.9x
Mean.......................................... 3.7x 3.8x 3.1x 34.2x 33.2x 21.0x
High-Growth EDA Companies
Median........................................ 5.1x 4.1x 3.9x 67.9x 120.3x 50.1x
Mean.......................................... 5.5x 4.9x 4.1x 69.1x 102.0x 63.6x
Engineering Software Comparables
Median........................................ 2.2x 2.2x 2.1x 28.0x 39.8x 33.2x
Mean.......................................... 3.3x 3.2x 2.8x 31.9x 40.2x 51.9x
Credit Suisse First Boston also calculated implied prices per Avant! common
share and fully-diluted equity values and enterprise values of Avant! assuming a
range of multiples of price per share to estimated earnings per share for
calendar year 2002. The estimated earnings per Avant! common share for calendar
year 2002 were based on publicly available consensus forecasts from securities
research analysts. The following table summarizes the results of this analysis:
MENTOR CADENCE DESIGN
AVANT! GRAPHICS SYSTEMS SYNOPSYS
------ -------- -------------- --------
Calendar Year 2002 P/E Multiple.... 4.7x 14.0x 16.0x 18.0x 21.9x 23.3x
Avant! Calendar Year 2002E
Consensus Earnings Per Share..... $2.21 $2.21 $2.21 $2.21 $2.21 $2.21
Implied Price Per Avant! Share..... $10.31 $30.94 $35.36 $39.75 $48.36 $51.45
Implied Avant! Fully-Diluted Equity
Value (millions)................. $393 $1,317 $1,525 $1,732 $2,137 $2,283
Implied Avant! Fully-Diluted
Enterprise Value (millions)...... $297 $1,221 $1,429 $1,636 $2,041 $2,187
Credit Suisse First Boston also calculated the implied fully-diluted equity
values of Avant!, the implied prices per Avant! common share, and the implied
exchange ratios, assuming control premiums typical for precedent transactions of
35% and 45%. The following table summarizes the results of this analysis:
Calendar Year 2002 P/E Multiple............................. 14.0x 16.0x
Implied Avant! Fully-Diluted Equity Value After 35.0%
Premium (millions)..................................... $1,778 $2,059
Implied Price Per Avant! Share.............................. $40.73 $46.69
Implied Exchange Ratio...................................... 0.740x 0.848x
Implied Avant! Fully-Diluted Equity Value After 45.0%
Premium (millions)..................................... $1,910 $2,211
Implied Price Per Avant! Share.............................. $43.53 $49.93
Implied Exchange Ratio...................................... 0.791x 0.907x
37
DISCOUNTED CASH FLOW ANALYSIS
Using a discounted cash flow analysis, Credit Suisse First Boston
calculated implied Avant! equity values and implied prices per Avant! common
share based on financial forecasts for Avant! provided to Credit Suisse First
Boston by Synopsys management. The discounted cash flow analysis was based on
various operating assumptions provided by Synopsys management, including
assumptions relating to working capital, capital expenditures and depreciation.
The analysis also assumed that the merger would close on June 15, 2002 and that
following the closing, the sales model for Avant!'s products would shift from
Avant!'s current license model to a ratable license model matching that of
Synopsys, as provided by Synopsys management. Credit Suisse First Boston's
analysis used perpetuity growth rates of unlevered free cash flows ranging from
3% to 5% and discount rates ranging from 16% to 20%. The following table
summarizes the results of this analysis:
PERPETUITY GROWTH RATE --
UNLEVERED FREE CASH FLOWS
---------------------------
DISCOUNT RATE 3.0% 4.0% 5.0%
------------- ------- ------- -------
16.0% Implied Avant! Equity Value (millions)................ $1,512 $1,595 $1,694
Implied Price Per Avant! Share........................ $35.08 $36.85 $38.95
18.0% Implied Avant! Equity Value (millions)................ $1,295 $1,353 $1,419
Implied Price Per Avant! Share........................ $30.47 $31.70 $33.11
20.0% Implied Avant! Equity Value (millions)................ $1,131 $1,172 $1,219
Implied Price Per Avant! Share........................ $26.96 $27.84 $28.85
Credit Suisse First Boston also performed a similar discounted cash flow
analysis based on a second set of financial forecasts provided to it by Synopsys
management, which forecasts included various assumptions regarding synergies
that are anticipated by Synopsys management to result from the merger. The
following table summarizes the results of this analysis:
PERPETUITY GROWTH RATE --
UNLEVERED FREE CASH FLOWS
---------------------------
DISCOUNT RATE 3.0% 4.0% 5.0%
------------- ------- ------- -------
16.0% Implied Avant! Equity Value (millions)................ $1,754 $1,851 $1,966
Implied Price Per Avant! Share........................ $40.22 $42.28 $44.73
18.0% Implied Avant! Equity Value (millions)................ $1,501 $1,568 $1,646
Implied Price Per Avant! Share........................ $34.85 $36.28 $37.92
20.0% Implied Avant! Equity Value (millions)................ $1,310 $1,358 $1,412
Implied Price Per Avant! Share........................ $30.79 $31.81 $32.97
CONTRIBUTION ANALYSIS
Credit Suisse First Boston analyzed the relative contributions of Avant!
and Synopsys to the pro forma total revenues, gross profit, operating income and
net income of the combined company, based on results for the last twelve months
and estimates for calendar years 2001 and 2002 prepared by securities research
analysts. Credit Suisse First Boston derived, among other things, the pro forma
fully-diluted ownership of Synopsys by Avant! stockholders, the exchange ratio
and the price per Avant! common share implied by such relative contributions,
based on closing share prices on November 30, 2001. The following table
summarizes the results of this analysis:
IMPLIED PRO FORMA IMPLIED
FULLY-DILUTED AVANT! IMPLIED PRICE PER
OWNERSHIP IN SYNOPSYS EXCHANGE RATIO AVANT! SHARE
--------------------- --------------- ----------------
Revenues...................... 30.2% -- 33.7% 0.667x -- $36.69 --
0.774x $42.59
Gross Profit.................. 32.0% -- 36.3% 0.721x -- $39.66 --
0.862x $47.42
Operating Income.............. 40.9% -- 79.4% 1.033x -- $56.86 --
5.497x $302.49
Net Income.................... 39.9% -- 55.1% 0.994x -- $54.71 --
1.791x $98.54
38
PRECEDENT TRANSACTIONS ANALYSIS
Credit Suisse First Boston reviewed several metrics from the following ten
precedent transactions in the EDA industry:
- IKOS Systems, Inc./Synopsys
- Integrated Systems Inc./Wind River Systems, Inc.
- Quickturn Design Systems, Inc./Cadence
- Viewlogic Systems, Inc./Synopsys
- EPIC Design Technology, Inc./Synopsys
- Cooper & Chyan Technology, Inc./Cadence
- High Level Design Systems/Cadence
- Meta-Software, Inc./Avant!
- Microtec Research, Inc./Mentor Graphics Corporation
- ISS Inc./ArcSys, Inc.
Credit Suisse First Boston calculated the mean and median of several
metrics for the precedent transactions, including the premiums paid in such
transactions, the multiples of the enterprise values paid in such transactions
to revenues of the acquired company, and the prices per share paid in such
transactions as a multiple of earnings per share of the acquired company. Credit
Suisse First Boston also calculated the price per Avant! common share implied by
such mean and median statistics using financial results for the last twelve
months, and publicly available consensus forecasts from securities research
analysts for calendar year 2002. The following table summarizes the results of
this analysis:
ENTERPRISE PRICE PER
VALUE/ SHARE/EARNINGS
REVENUES PER SHARE
---------- ----------------
LTM LTM 2002E
---------- ------- ------
Mean Statistic from Precedent Transactions.................. 7.0x 53.8x 37.4x
Implied Price Per Avant! Share.............................. $62.51 $113.11 $82.68
Median Statistic from Precedent Transactions................ 4.3x 43.1x 34.9x
Implied Price Per Avant! Share.............................. $39.94 $90.60 $77.17
PRECEDENT EXCHANGE RATIO PREMIUMS ANALYSIS
Credit Suisse First Boston reviewed the exchange ratio premiums paid in 249
precedent stock-for-stock transactions in the technology industry and 86
precedent stock-for-stock transactions in the software industry since August 22,
1989. For each group of transactions, Credit Suisse First Boston calculated the
premium implied by the exchange ratio in each transaction relative to the ratio
of the closing share prices for the target company and the acquiror company in
the transaction over various periods prior to public announcement of the
transaction. Credit Suisse First Boston then applied the average of such
premiums to the ratio of the closing price of Avant! common shares to the
closing price of Synopsys common shares over the same periods, to calculate the
implied exchange ratios and the implied prices per Avant! common share. The
following tables summarize the results of this analysis:
EXCHANGE RATIO PREMIUMS PAID IN 249 PRECEDENT TECHNOLOGY TRANSACTIONS SINCE
AUGUST 22, 1989
LTM TRAILING TRAILING TRAILING TRAILING
AVERAGE 90 DAYS 60 DAYS 30 DAYS 10 DAYS MARKET AVERAGE MEDIAN
------- -------- -------- -------- -------- ------ ------- ------
Average Premium in Precedent Transactions.... 21.0% 33.9% 39.8% 42.2% 39.1% 32.6% 34.8% 36.5%
Avant!/Synopsys Observed Exchange Ratio...... 0.286x 0.153x 0.158x 0.198x 0.200x 0.187x 0.197x 0.192x
Implied Merger Exchange Ratio Based on
Precedent Average Premium.................. 0.346x 0.205x 0.221x 0.281x 0.278x 0.248x 0.266x 0.263x
Implied Price Per Avant! Share............... $19.04 $11.31 $12.15 $15.46 $15.30 $13.67 $14.61 $14.46
39
EXCHANGE RATIO PREMIUMS PAID IN 86 PRECEDENT SOFTWARE TRANSACTIONS SINCE AUGUST
22, 1989
LTM TRAILING TRAILING TRAILING TRAILING
AVERAGE 90 DAYS 60 DAYS 30 DAYS 10 DAYS MARKET AVERAGE MEDIAN
----------- -------- -------- -------- -------- ------ ------- ------
Average Premium in Precedent
Transactions........................... 10.9% 28.9% 37.9% 42.2% 40.1% 32.8% 32.1% 35.3%
Avant!/Synopsys Observed Exchange
Ratio.................................. 0.286x 0.153x 0.158x 0.198x 0.200x 0.187x 0.197x 0.182x
Implied Merger Exchange Ratio Based on
Precedent Average Premium.............. 0.317x 0.198x 0.218x 0.281x 0.280x 0.249x 0.260x 0.247x
Implied Price Per Avant! Share........... $17.45 $10.89 $11.99 $15.46 $15.41 $13.69 $14.33 $13.57
No transaction utilized as a comparison in the precedent transactions
analysis or precedent exchange ratio premiums analysis is identical to the
merger. Mathematical analysis, such as determining the average or the median, is
not in itself a meaningful method of using comparable transaction data.
PRO FORMA EARNINGS IMPACT ANALYSIS
Credit Suisse First Boston analyzed certain pro forma effects expected to
result from the merger, including, among other things, the expected effect of
the merger on Synopsys' estimated earnings per share for the calendar years 2002
and 2003. This analysis assumed that the cash expenses at the closing of the
merger incurred by Synopsys in the merger would equal $457 million and that the
merger would close on June 15, 2002. The analysis also assumed a shift in the
sales model for Avant!'s products after the closing of the merger from its
current software license model to a ratable license model matching that of
Synopsys, which model was provided by Synopsys management. The following table
sets forth the resulting accretion/(dilution) to Synopsys' earnings per share
for the full calendar year 2002 based on street estimates, which are publicly
available forecasts from securities research analysts, for Avant! and Synopsys
and for the second-half and full calendar year 2002 based upon Synopsys
management's estimates for Avant! and Synopsys. The following table does not
assume any synergies that are anticipated to result from the merger:
STREET ESTIMATES SYNOPSYS MANAGEMENT ESTIMATES
---------------- --------------------------------------
CALENDAR YEAR SECOND HALF OF
2002 CALENDAR YEAR 2002 CALENDAR YEAR 2002
---------------- ------------------ ------------------
36.7% (39.6%) (11.1%)
Credit Suisse First Boston noted that the dilutive impact on Synopsys'
earnings per share in calendar year 2003 based on Synopsys' management estimates
would be lower than in the second half of calendar year 2002.
The following table sets forth the accretion/(dilution) to Synopsys'
earnings per share for the second-half and full calendar year 2002 assuming
synergies that are anticipated by Synopsys management to result from the merger:
STREET ESTIMATES SYNOPSYS MANAGEMENT ESTIMATES
---------------- --------------------------------------
CALENDAR YEAR SECOND HALF OF
2002 CALENDAR YEAR 2002 CALENDAR YEAR 2002
---------------- ------------------ ------------------
46.9% (23.9%) (1.1%)
Credit Suisse First Boston noted that the dilutive impact on Synopsys'
earnings per share in calendar year 2003 based on Synopsys' management estimates
would be lower than in the second half of calendar year 2002.
Credit Suisse First Boston noted that the dilution reflected above (both
with and without synergies) related to, among other things:
- The impact of shifting Avant!'s software license model to Synopsys'
ratable license model after the closing, which will result in a reduction
in reported revenue in the near term and an increase in backlog to be
recognized as revenue in subsequent periods; and
40
- The treatment of Avant!'s substantial deferred revenue balance and
pre-merger backlog under purchase accounting rules, which require that
such amounts be re-valued upon the merger, results in Synopsys
recognizing significantly less revenue from such deferred revenue and
backlog than Avant! would have recognized as a standalone company.
Based on Synopsys management's estimates, in the absence of these two
factors the merger would be accretive, both with synergies and without
synergies, in each of the periods analyzed.
The actual results achieved by the combined company after the merger may
vary from such estimated results and the variations may be material.
SUMMARY OF VALUATION ANALYSES
Credit Suisse First Boston compared several values implied by the merger
exchange ratio and the aggregate transaction value to values implied by the
results of its analyses. The following tables summarize these results:
PUBLIC COMPANY PUBLIC COMPANY
VALUES IMPLIED BY VALUES IMPLIED BY TRADING TRADING
THE MERGER THE AGGREGATE ANALYSIS (EXCLUDING ANALYSIS (INCLUDING
EXCHANGE RATIO TRANSACTION VALUE CONTROL PREMIUM) CONTROL PREMIUM)
----------------- ----------------- ------------------- -------------------
Implied Aggregate Transaction Value
(millions).......................... $828 $1,340 $1,317 -- $1,525 $1,778 -- $2,211
Implied Price Per Avant! Share........ $20.47 $31.44 $30.94 -- $35.36 $40.73 -- $49.93
DISCOUNTED CASH DISCOUNTED CASH PRECEDENT PRECEDENT
FLOW ANALYSIS FLOW ANALYSIS TRANSACTIONS EXCHANGE RATIO CONTRIBUTION
(EXCLUDING SYNERGIES) (INCLUDING SYNERGIES) ANALYSIS PREMIUMS ANALYSIS ANALYSIS
--------------------- --------------------- --------------- ----------------- ---------------
Implied Aggregate
Transaction Value
(millions)......... $1,219 -- $1,512 $1,412 -- $1,754 $3,494 -- $604 -- $762 $1,588 --
$3,754 $2,436
Implied Price Per
Avant! Share....... $28.85 -- $35.08 $32.97 -- $40.22 $77.17 -- $15.46 -- $19.04 $36.69 --
$82.68 $54.71
OTHER FACTORS
In the course of preparing its opinion, Credit Suisse First Boston also
reviewed and considered other information and data, including:
- the historical share price performance of Avant! common shares over
various periods, including the volume of shares traded during such
periods, and compared with the share price performance of other
companies;
- reported earnings per share for the last eleven fiscal quarters for
Avant! compared to publicly available research analysts' estimates for
the respective quarters; and
- the exchange ratio in the merger compared to the average exchange ratios
observed over various time periods, based on the closing prices of Avant!
common shares and Synopsys common shares during such periods.
Credit Suisse First Boston's opinion and presentation to the Synopsys board
of directors was one of many factors taken into consideration by the Synopsys
board of directors in making its determination to engage in the merger.
Consequently, the analyses described above should not be viewed as determinative
of the opinion of the Synopsys board of directors or the management of Synopsys
with respect to the value of Avant! or whether the Synopsys board of directors
would have been willing to agree to a different exchange ratio.
The Synopsys board of directors retained Credit Suisse First Boston to act
as its financial advisor in connection with the merger. Credit Suisse First
Boston was selected by the Synopsys board of directors based on Credit Suisse
First Boston's qualifications, expertise and reputation. Credit Suisse First
Boston is
41
an internationally recognized investment banking and advisory firm. Credit
Suisse First Boston, as part of its investment banking business, is continuously
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, leveraged buyouts, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the past, Credit
Suisse First Boston and its affiliates have provided certain investment banking
and financial services to Synopsys for which they received compensation. In the
ordinary course of its business, Credit Suisse First Boston and its affiliates
may actively trade the securities of Synopsys and Avant! for their own accounts
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities. As of September 30, 2001 and [ ],
2002, Credit Suisse Asset Management, an affiliate of Credit Suisse First
Boston, owned approximately 3.5% and [ ]% of the outstanding Avant!
common shares, respectively.
Pursuant to an engagement letter dated August 27, 2001, Synopsys engaged
Credit Suisse First Boston to provide financial advisory services to the
Synopsys board of directors in connection with the merger, including, among
other things, rendering its opinion. Pursuant to the terms of the engagement
letter, Synopsys has agreed to pay Credit Suisse First Boston a customary fee in
connection with its engagement. Credit Suisse First Boston will also receive a
fee for rendering its opinion. In addition, Synopsys has agreed to reimburse
Credit Suisse First Boston for its out-of-pocket expenses, including attorneys'
fees, incurred in connection with its engagement and to indemnify Credit Suisse
First Boston and certain related persons against certain liabilities and
expenses arising out of or in conjunction with its rendering of services under
its engagement, including liabilities arising under the federal securities laws.
OPINION OF AVANT!'S FINANCIAL ADVISOR
Salomon Smith Barney has acted as the financial advisor to Avant! in
connection with the merger. Salomon Smith Barney delivered in a presentation to
the Avant! special committee on December 2, 2001, and in a presentation to the
Avant! board of directors on December 3, 2001, its oral opinion, subsequently
confirmed in writing on December 3, 2001, that as of such date and based upon
and subject to the factors and assumptions set forth in the presentation, the
exchange ratio was fair, from a financial point of view, to the holders of
Avant! common shares.
THE FULL TEXT OF THE WRITTEN OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED AND MATTERS CONSIDERED BY SALOMON SMITH BARNEY, IS SET
FORTH AS ANNEX D TO THIS JOINT PROXY STATEMENT/ PROSPECTUS AND AVANT!
STOCKHOLDERS ARE URGED TO READ SALOMON SMITH BARNEY'S OPINION IN ITS ENTIRETY.
THE SUMMARY OF THE OPINION AS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
The opinion and presentation of Salomon Smith Barney to the Avant! special
committee and board of directors, in connection with which Salomon Smith Barney
was requested to evaluate the fairness, from a financial point of view, of the
exchange ratio to the holders of Avant! common shares, was only one of many
factors taken into consideration by the Avant! board of directors in making its
determination to approve the merger. No limitations were imposed by the Avant!
board of directors upon Salomon Smith Barney with respect to the investigation
made or the procedures followed by Salomon Smith Barney in rendering its
opinion.
Salomon Smith Barney's opinion should be read carefully and in its
entirety. It is directed only to the fairness, from a financial point of view,
of the exchange ratio to holders of Avant! common shares, and it does not
address the underlying business decision of Avant! to effect the merger or
constitute a recommendation to any Avant! shareholder as to how such holder
should vote with respect to the merger. It also does not constitute an opinion
or imply any conclusion of Salomon Smith Barney as to what the value of the
Synopsys common shares actually will be when issued pursuant to the merger or
the price at which Synopsys common shares will trade following the announcement
or completion of the merger, which may vary.
In connection with rendering its opinion, Salomon Smith Barney reviewed
selected publicly available business and financial information concerning
Synopsys and Avant! as well as financial forecasts that were
42
provided to Salomon Smith Barney by Synopsys, Avant! and Maingate, which is
Avant!'s Japanese distributor, respectively. Salomon Smith Barney discussed the
business, operations and prospects of Synopsys and Avant!, as well as other
matters it believed relevant to its inquiry, with officers and employees of
Synopsys and Avant!, respectively. Salomon Smith Barney also reviewed and
considered the effect of certain pending and potential litigation matters on
Avant!'s historical trading value and potential future litigation exposure and
its impact on Avant!'s business fundamentals. Salomon Smith Barney also
considered such other information, analyses, investigations and financial,
economic and market criteria that it deemed appropriate.
In its review and analysis and in arriving at its opinion, Salomon Smith
Barney assumed and relied upon, without assuming any responsibility for
independent verification, the accuracy and completeness of the financial and
other information reviewed by Salomon Smith Barney. With respect to the
financial forecasts of Synopsys and Avant!, Salomon Smith Barney assumed that
they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Synopsys and
Avant! as to the future financial performance of Synopsys and Avant!,
respectively, and Salomon Smith Barney expressed no opinion with respect to such
forecasts or the assumptions on which such forecasts were based. Salomon Smith
Barney also assumed that the merger will be consummated in accordance with the
terms of the merger agreement and the other agreements entered into in
conjunction with the merger. Salomon Smith Barney also assumed for purposes of
its analyses, with Avant!'s consent, that certain pending and potential
litigation matters involving Avant! could result in a potential liability to
Avant! of between $250 million and $500 million. Salomon Smith Barney did not
make or assume any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets or liabilities, contingent or
otherwise, of Synopsys or Avant!. Salomon Smith Barney did not express, with
Avant!'s consent, any opinion as to the fairness to Avant! or to the holders of
Avant! common shares of any aspect of Avant!'s planned acquisition of all of the
outstanding equity interests in Maingate. Salomon Smith Barney's opinion is
necessarily based upon conditions as they existed and could be evaluated on
December 3, 2001.
In connection with rendering its opinion to the Avant! special committee
and board of directors, Salomon Smith Barney performed several financial
analyses which it presented to the Avant! special committee and board of
directors, the material portions of which are summarized below. Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors it considered, without
considering all such analyses and factors, could create an incomplete view of
the analyses and the process underlying its opinion. While the conclusions
reached in connection with each analysis were considered carefully by Salomon
Smith Barney in arriving at its opinion, Salomon Smith Barney made various
subjective judgments in arriving at its opinion and did not consider it
practicable to, nor did it attempt to, assign relative weights to the individual
analyses and specific factors considered in reaching its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In addition,
the process of preparing a fairness opinion necessarily requires a broad range
of subjective judgments with respect to appropriate comparable companies and
transactions, appropriate multiples of various selected financial data,
appropriate discount rates and other financial and other factors. Analyses and
estimates of the values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities actually
may be sold. No public company utilized as a comparison is identical to Synopsys
or Avant!, and none of the other business combinations utilized as a comparison
is identical to the proposed merger. Accordingly, any analysis of publicly
traded comparable companies or comparable business combinations is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the public trading value
of the companies or company to which they are being compared. The range of
valuation for any particular analysis should not be taken to be the view of
Salomon Smith Barney of the actual value of Synopsys or Avant!.
43
The following is a summary of the material financial analyses used by
Salomon Smith Barney in connection with providing its opinion to the Avant!
special committee and board of directors. Several of the summaries below include
information presented in tabular format. In order to fully understand such
financial analyses used by Salomon Smith Barney, the tables must be read with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
AVANT! VALUATION ANALYSIS
Salomon Smith Barney arrived at a range of values for Avant! by using three
principal valuation methodologies: a public market analysis, a precedent
transactions analysis and a discounted cash flow analysis. Public market
analysis analyzes a business's operating performance and outlook relative to a
group of publicly traded peer companies to determine an implied unaffected
market trading value. Precedent transactions analysis compares the proposed
transaction to a group of similar transactions between peer companies to
determine an implied sale price. A discounted cash flow analysis provides
insight into the intrinsic value of a business based on the projected earnings
and capital requirements and the net present value of the subsequent unlevered
free cash flows to be generated by the assets of such business. No company used
in the public market analysis or precedent transaction analysis described below
is identical to Avant!. Accordingly, an analysis of the data described below
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the businesses and other factors
that could affect the public trading value or the acquisition value of the
companies to which they are being compared.
Public Market Analysis. Salomon Smith Barney compared selected financial
information of Avant! with corresponding data of the following electronic design
automation companies that Salomon Smith Barney believed to be appropriate:
- Cadence
- Mentor Graphics Corporation
- Synopsys
Salomon Smith Barney reviewed multiples of revenue, EBITDA, which is
defined as earnings before interest, taxes, depreciation and amortization, and
earnings per share, or "EPS," for the foregoing companies, and using this
information, determined the corresponding multiple range for Avant!:
MULTIPLE
RANGE
-----------
LOW HIGH
---- ----
FIRM VALUE/REVENUE
2001........................................................ 2.0x 2.5x
2002........................................................ 1.8 2.2
FIRM VALUE/EBITDA
2001........................................................ 10.0x 12.0x
2002........................................................ 9.0 11.0
PRICE/EPS
2001........................................................ 15.0x 20.0x
2002........................................................ 13.0 18.0
Based on estimated revenues, EBITDA and Price/EPS of Avant! for 2001 and
2002, and after making selected adjustments relevant to the valuation of Avant!,
including adjustments for potential litigation and settlement expenses, one-time
charges, cash, investments and proceeds from sales of common shares issuable
upon option exercises, this analysis resulted in an implied per share equity
value
44
reference range for Avant! of $19.00 to $25.00, as compared to an implied per
share consideration of $20.42, equal to the exchange ratio times the closing
price of Synopsys common shares on November 30, 2001.
Precedent Transactions Analysis. Salomon Smith Barney reviewed the
purchase prices and implied firm value, which is defined as aggregate purchase
price plus debt less cash, multiples paid or proposed to be paid in the
following eight selected transactions in the electronic design automation
industry:
ACQUIRER TARGET
------------------------------ -------------------------------
Synopsys(1) IKOS Systems, Inc.
Cadence CadMOS Design Technology
Avant! Chrysalis Symbolic Design, Inc.
Avant! Xynetix Design Systems, Inc.
Cadence OrCAD, Inc.
Cadence Quickturn Design Systems, Inc.
Cadence Ambit Design Systems, Inc.
Mentor Graphics Corporation(2) Quickturn Design Systems, Inc.
---------------
(1) Pending.
(2) Transaction not completed.
Salomon Smith Barney compared firm value in the selected transactions as a
multiple of revenue for the last twelve months and as a multiple of estimated
revenue for the next succeeding future calendar year. All multiples were based
on publicly available financial information and information provided by Avant!.
This analysis resulted in a range of multiples of 2.5x to 2.9x for the last
twelve months revenues and 2.2x to 2.6x for the next succeeding future calendar
year revenues. Salomon Smith Barney then applied these ranges of multiples
derived from the selected transactions to Avant!'s estimated revenues for 2001
and 2002. After making adjustments to the derived firm value, including
adjustments for potential litigation and settlement expenses, one-time charges,
cash, investments and proceeds from sales of common shares issuable upon option
exercises, this analysis resulted in an implied per share equity value reference
range for Avant! of $18.00 to $23.00, as compared to an implied per share
consideration of $20.42, equal to the exchange ratio times the closing price of
Synopsys common shares on November 30, 2001.
Discounted Cash Flow Analysis. Salomon Smith Barney performed a discounted
cash flow analysis of Avant! to derive the stand-alone unlevered free cash flows
that Avant! could generate from 2002 through 2004 based on internal estimates of
the Avant! management. Salomon Smith Barney derived ranges of per share equity
values for Avant! based upon the present value as of December 31, 2001. The
analysis below represents only a portion of the overall analysis performed by
Salomon Smith Barney, and Salomon Smith Barney expresses no judgment on the
appropriateness or accuracy of the assumptions underlying the analysis. Salomon
Smith Barney applied the following assumptions to the discounted cash flow
analysis:
WEIGHTED AVERAGE TERMINAL EBITDA
COST OF CAPITAL MULTIPLES
---------------- ---------------
14.00% -- 15.50% 8.25x -- 9.75x
The range of estimated terminal values for Avant! was calculated by
applying the terminal EBITDA multiples to Avant!'s estimated 2004 EBITDA. The
unlevered free cash flows and terminal value were discounted to present value
using the derived weighted average cost of capital. After making selected
adjustments relevant to the valuation of Avant!, including adjustments for
potential litigation and settlement expenses, one-time charges, cash,
investments and proceeds from sales of common shares issuable upon option
exercises, this analysis resulted in an implied per share equity value reference
range
45
for Avant! of $22.00 to $32.00, as compared to an implied per share
consideration of $20.42, equal to the exchange ratio times the closing price of
Synopsys common shares on November 30, 2001.
SYNOPSYS VALUATION ANALYSIS
Salomon Smith Barney also performed a public market analysis and a
discounted cash flow analysis of Synopsys.
Public Market Analysis. Salomon Smith Barney compared selected financial
information of Synopsys with corresponding data of the following selected
electronic design automation companies that Salomon Smith Barney believed to be
appropriate:
- Cadence
- Mentor Graphics Corporation
- Synopsys
Due to Synopsys' change to a subscription-based revenue model in 2000,
Salomon Smith Barney focused on multiples of estimated revenues, EBITDA and EPS
for 2002 for the public market analysis. Salomon Smith Barney reviewed multiples
of revenue, EBITDA and EPS for the foregoing companies, and using this
information, determined the corresponding multiple range for Synopsys:
MULTIPLE
RANGE
-----------
LOW HIGH
---- ----
Firm Value/2002 Revenue..................................... 3.3x 4.3x
Firm Value/2002 EBITDA...................................... 11.0 13.0
Price/2002 EPS.............................................. 20.0 25.0
Based on estimated revenues, EBITDA and EPS of Synopsys for 2002, and after
making selected adjustments relevant to the valuation of Synopsys, including
adjustments for debt, cash, investments and proceeds from sales of common shares
issuable upon option exercises, this analysis resulted in an implied per share
equity value reference range for Synopsys of $52.00 to $60.00, as compared to
the closing price of Synopsys common shares of $55.03 per share on November 30,
2001.
Discounted Cash Flow Analysis. Salomon Smith Barney performed a discounted
cash flow analysis of Synopsys to derive the stand-alone unlevered free cash
flows that Synopsys could generate from 2002 through 2004 based on internal
estimates of the Synopsys management. Salomon Smith Barney derived ranges of per
share equity values for Synopsys based upon the present value as of January 31,
2002. The analysis below represents only a portion of the overall analysis
performed by Salomon Smith Barney, and Salomon Smith Barney expresses no
judgment on the appropriateness or accuracy of the assumptions underlying the
analysis. Salomon Smith Barney applied the following assumptions to the
discounted cash flow analysis:
WEIGHTED AVERAGE TERMINAL EBITDA
COST OF CAPITAL MULTIPLES
--------------- ---------
14.00% -- 15.50% 8.50x -- 9.50x
The range of estimated terminal values for Synopsys was calculated by
applying the terminal EBITDA multiples to Synopsys' estimated 2004 EBITDA. The
unlevered free cash flows and terminal value were discounted to present value
using the derived weighted average cost of capital. After making selected
adjustments relevant to the valuation of Synopsys, including adjustments for
debt, cash, investments and proceeds from sales of common shares issuable upon
option exercises, this analysis resulted in an implied per share equity value
reference range for Synopsys of $68.00 to $75.00, as compared to the closing
price of Synopsys common shares of $55.03 per share on November 30, 2001.
46
EXCHANGE RATIO ANALYSIS
Salomon Smith Barney calculated the aggregate exchange ratio reference
ranges implied by the results derived from the analyses described above for
Synopsys and Avant! and compared these ranges to the exchange ratio provided in
the merger agreement. This analysis indicated the following implied approximate
exchange ratio reference ranges, as compared to the exchange ratio of .371x of a
Synopsys common share for each Avant! common share as provided in the merger
agreement:
IMPLIED
EXCHANGE
RATIO
----------
VALUATION METHOD LOW HIGH
---------------- --- ----
Public Market............................................... .32x .48x
Precedent Transactions(1)................................... .30 .45
Discounted Cash Flow........................................ .31 .46
---------------
(1) Precedent transactions Avant! valuation divided by public market Synopsys
valuation.
In addition, Salomon Smith Barney performed an analysis of the respective
contributions of Synopsys and Avant! to the pro forma combined company's
estimated revenue, EBITDA and net income. This analysis, which did not assume
the realization of any synergies or transaction costs in connection with the
merger, resulted in an implied exchange ratio of .35x to .55x.
Salomon Smith Barney is an internationally recognized investment banking
firm that regularly engages in the valuation of companies and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities, and
valuations for corporate, estate and other purposes. Avant! retained Salomon
Smith Barney as a financial advisor because of its reputation, expertise in the
valuation of companies and substantial experience in transactions such as the
merger.
Pursuant to the terms of Salomon Smith Barney's engagement, Avant! agreed
to pay Salomon Smith Barney a fee of $1 million upon the execution of the
engagement letter and $4 million upon completion of the merger. Additionally,
Avant! has agreed to reimburse Salomon Smith Barney for reasonable out-of-
pocket expenses, including, without limitation, reasonable fees and expenses of
Salomon Smith Barney's legal counsel. Avant! has also agreed to indemnify
Salomon Smith Barney and related persons against liabilities, including
liabilities under the federal securities laws, related to or arising out of its
engagement. In the ordinary course of its business, Salomon Smith Barney may
actively trade the securities of Synopsys and Avant! for its own account and the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. As of September 30, 2001, Salomon Smith Barney and
its affiliates owned less than 1% of the outstanding Avant! common shares.
CONFLICTS OF INTEREST OF AVANT! DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendations of the Avant! board of directors and
special committee regarding the merger, you should be aware that the directors
and officers of Avant! have interests in the merger that differ from those of
other stockholders of Avant!, as described below. The special committee and the
board of directors were aware of these matters and considered them in
recommending and approving the merger.
SEPARATION AGREEMENT WITH GERALD C. HSU
Gerald C. Hsu and Avant! are parties to an employment agreement, dated
August 24, 2000, and a modification agreement, dated July 25, 2001. We refer to
both of these agreements as Mr. Hsu's employment agreement. Mr. Hsu's employment
agreement provided severance and other benefits to Mr. Hsu upon a change of
control of Avant!.
47
Concurrently with the execution of the merger agreement, Mr. Hsu, Synopsys
and Avant! entered into a separation agreement, which supplemented and amended
Mr. Hsu's employment agreement to provide for Mr. Hsu's resignation upon the
completion of the merger and to describe the terms and conditions of his
termination upon completion of the merger. The execution of the separation
agreement was a condition to Synopsys entering into the merger agreement. In
order to ensure that the terms of the separation agreement and not Mr. Hsu's
employment agreement were applicable upon completion of the merger, the
separation agreement provided that Mr. Hsu would not voluntarily terminate his
employment or make an election under his employment agreement that he had been
terminated without cause prior to the earlier to occur of the completion of the
merger and the termination of the merger agreement. If the merger agreement
terminates prior to the completion of the merger, the separation agreement will
automatically terminate, and Mr. Hsu's employment agreement will remain in
place.
Under the separation agreement, at the completion of the merger Mr. Hsu
will receive: (1) a cash payment of approximately $30.6 million, representing
the estimated value of the severance amounts that would have been payable to Mr.
Hsu at the completion of the merger under his employment agreement, (2) a cash
payment equal to the excess of the market value at the close of business on the
trading day prior to the completion of the merger of all Avant! common shares
that Mr. Hsu had the option to acquire over the exercise price for such shares,
to which Mr. Hsu would be entitled under his existing employment agreement, and
(3) any unpaid salary, bonus, expense reimbursement, previously deferred
compensation or vacation pay to which Mr. Hsu would be entitled under his
existing employment agreement. Assuming the December 3, 2001 market price of
Synopsys common shares and of Avant! common shares, Mr. Hsu would be entitled to
a cash payment of approximately $13.1 million for his stock options on the date
of the completion of the merger. The separation agreement provides that no other
termination or severance payment will be paid to Mr. Hsu at the completion of
the merger under his employment agreement, any Avant! benefit plan or otherwise.
The separation agreement also contains a mutual release between Mr. Hsu and
Synopsys, which is limited to the claims known by the releasing party and which
modifies the release contemplated by Mr. Hsu's employment agreement, and
reaffirms the indemnification provisions of Mr. Hsu's employment agreement. In
addition, the separation agreement extends the period of time Mr. Hsu has agreed
not to compete with Avant! after the termination of his employment to four years
and the scope of the non-competition agreement, and provides that Mr. Hsu will
cooperate with Synopsys after the completion of the merger with respect to
litigation matters relating to Avant!
INTERESTS OF OTHER EXECUTIVE OFFICERS AND DIRECTORS OF AVANT! IN THE MERGER
Other executive officers and directors of Avant! also have interests in the
merger that differ from those of other stockholders of Avant!.
Noriko Ando and John H. Hsu Separation Agreements. Each of Noriko Ando and
John H. Hsu (the son of Gerald C. Hsu), Avant! employees and former Avant!
executives, and Avant! were parties to employment agreements, each dated October
1, 2000. These employment agreements would have provided severance payments and
other benefits to Ms. Ando and Mr. John Hsu if they had voluntarily resigned or
been terminated during the six month period after the completion of the merger.
Concurrently with the execution of the merger agreement, each of Ms. Ando
and Mr. John Hsu entered into a separation agreement with Avant!, under which
both Ms. Ando and Mr. John Hsu voluntarily terminated their employment with
Avant! effective December 3, 2001. The execution of these agreements was a
condition to Synopsys signing the merger agreement. Under the separation
agreement, Ms. Ando and Mr. John Hsu each agreed to an extension of the scope
and duration of the non-competition covenant in their employment agreements and
relinquished the right they each would have had under their employment
agreements to receive $2,000,000 as compensation for this covenant. Ms. Ando and
Mr. John Hsu also released Avant! from any claim they would have had under their
employment agreements for constructive termination due to a change in control of
Avant! at the completion of the merger. In consideration, Ms. Ando and Mr. John
Hsu each received (1) a payment of
48
$1,050,000, representing the severance amounts payable to each of Ms. Ando and
Mr. Hsu under their employment agreements, and (2) any unpaid salary, expense
reimbursement, previously deferred compensation, vacation pay, or other regular
employee benefits to which they were entitled to under their employment
agreements. In addition, all of Ms. Ando's and Mr. John Hsu's options to
purchase Avant! common shares vested upon the termination of their employment as
provided under their employment agreement and will be exercisable at any time
until their respective expiration dates or, if earlier, the completion of the
merger. As of the date of this joint proxy statement/prospectus, Ms. Ando owned
options to purchase [ ] Avant! common shares with a weighted average
exercise price of [ ], and Mr. John Hsu owned options to purchase [ ]
Avant! common shares with a weighted average exercise price of [ ]. Each of
their separation agreements also contained a mutual release and reaffirmed the
indemnification provisions and non-competition agreement contained in their
employment agreements with Avant!.
Severance and Other Agreements with Other Executive Officers and
Directors. Avant! has entered into agreements with certain of its executive
officers and directors that provide severance and other benefits as a result of
the merger.
Prior to execution of the merger agreement, Avant! had entered into
agreements with a number of its officers, directors and employees, including
Paul Lo, Moriyuki Chimura, Howard Ko and Amy Sakasegawa, which provide that, in
the case of a termination of employment relating to a voluntary resignation or
involuntary termination of employment that occurs within six months after a
change of control event, such as the consummation of the merger, the employee
will receive a cash termination payment based on two or three times the
employee's base salary in effect at that time. Pursuant to the terms of Mr. Lo's
original employment agreement with Avant!, in connection with the merger Mr. Lo
would also receive a $2 million payment upon termination of his employment in
consideration for an agreement not to compete with Avant! and Synopsys after his
termination. In addition, certain of these agreements provide for acceleration
of all unvested stock options after a change in control event. Certain of these
agreements were amended on December 3, 2001 as a condition to Synopsys signing
the merger agreement to provide, among other things, for a mutual release
between the employees and Avant!. The amendments to the employment agreements
with Mr. Ko and Ms. Sakasagawa also extended the period of time after the
consummation of the merger during which a severance payment could be triggered
due to a termination of employment from six months to two years.
Avant! has also entered into agreements with Viraj Patel, Chief Financial
Officer of Avant!, and Scott Spangenberg, Avant!'s Controller, which provide
that Avant! will pay a bonus to each of these officers if he remains employed at
Avant! through the completion of the merger.
Avant! has loaned Mr. Chimura $300,000 pursuant to a promissory note, dated
June 5, 1998. This note bears interest at an annual rate of 3% and provides that
the outstanding principal and accrued interest under the note will be forgiven
in the event Mr. Hsu is no longer the President and Chief Executive Officer of
Avant!. Avant! is also party to a general release and settlement agreement with
Mr. Stephen Wuu, a former officer of Avant!, under which all unpaid amounts owed
to Mr. Wuu under this agreement will become immediately payable at the
completion of the merger.
Options. Upon completion of the merger, stock options to purchase Avant!
common shares granted to Avant! employees and directors under Avant!'s and its
subsidiaries' stock option plans that are outstanding and not exercised
immediately prior to the completion of the merger will become options to
purchase Synopsys common shares, except that options granted to non-employee
directors under Avant!'s 1995 stock option plan will vest in full immediately
prior to the completion of the merger and will expire if not exercised. The
number of common shares subject to such stock options and the exercise price of
the assumed stock options will be adjusted according to the exchange ratio.
According to the terms of options granted under Avant!'s 1995 and 2000 stock
option plans, the vesting of options assumed by Synopsys in the merger will
accelerate if an employee holder is involuntarily terminated within 18 months
after the merger.
49
As of December 3, 2001, Avant!'s current executive officers and directors,
other than Mr. Gerald C. Hsu, held 842,255 of these options, as reflected in the
table below:
TOTAL AVANT!
NAME TITLE OPTIONS
---- --------------------------------------------- ------------
Moriyuki Chimura..................... Director 238,000
Nelson Lane Kelley................... Director and member of the special committee 25,000
Toyohiko Muraki...................... Director and member of the special committee 25,000
Charles St. Clair.................... Director 63,000
Kenneth Tai.......................... Director 25,000
Daniel Taylor........................ Director and member of the special committee 30,000
Paul Lo.............................. President 256,500
Howard Ko............................ Chief Operating Officer 70,880
Viraj Patel.......................... Chief Financial Officer 36,000
Amy Sakasegawa....................... Head of Sales 38,875
Scott Spangenberg.................... Controller 34,000
PURCHASE OF MAINGATE ELECTRONICS
Avant! has agreed in the merger agreement to purchase the shares of
Maingate owned by Gerald C. Hsu, Noriko Ando and The Eigen Fund, which represent
all outstanding shares of Maingate not owned by Avant!, based on the formula
agreed to by Avant! and Synopsys set forth in the merger agreement for an
aggregate price not to exceed $14 million. The purchase of Maingate is a
condition to the closing of the merger under the merger agreement. As of
December 19, 2001, Mr. Hsu and Ms. Ando owned directly 50% and 10%,
respectively, and Mr. Chimura owned, indirectly through the Eigen Fund, 5%, of
the outstanding voting stock of Maingate.
INDEMNIFICATION
Synopsys is required by the merger agreement to maintain in effect the
current provisions regarding indemnification of officers and directors contained
in the charter and bylaws and any disclosed agreements of Avant!.
Synopsys has agreed to continue to maintain in effect the current Avant!
directors' and officers' liability insurance for a period of six years after the
completion of the merger. However, Synopsys is not required to expend in any
year an amount in excess of 200% of the current premium paid by Avant!. If the
aggregate expenditure on coverage exceeds that amount, Synopsys will purchase as
much insurance as can be obtained for that amount.
NO APPRAISAL RIGHTS
Neither Avant! stockholders nor Synopsys stockholders will be entitled to
any dissenters' appraisal rights under the Delaware General Corporation Law or
any other applicable law in connection with the merger.
ACCOUNTING TREATMENT
The merger will be treated as a "purchase" for accounting purposes.
Therefore, the purchase price will be allocated to Avant! assets and liabilities
based on their estimated fair market values at the completion of the merger. Any
excess of the purchase price over these fair market values will be accounted for
as goodwill.
50
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
the merger may not be consummated unless certain filings have been submitted to
the Federal Trade Commission and the Antitrust Division of the U.S. Department
of Justice and certain waiting period requirements have been satisfied.
The Federal Trade Commission and the Antitrust Division frequently
scrutinize the legality under the antitrust laws of transactions like the
merger. At any time before or after the completion of the merger, the Federal
Trade Commission or the Antitrust Division could take any action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the completion of the merger or seeking the
divestiture of substantial assets of Synopsys or Avant!. In addition, certain
private parties as well state attorneys general and other antitrust authorities
may challenge the transactions under antitrust laws under certain circumstances.
A merger filing also must be submitted to the Bundeskartellamt, the German
antitrust authority. Under German antitrust laws, mergers may not be completed
prior to clearance. Further national merger filing requirements are being
assessed in order to establish whether any other notification is required.
Synopsys and Avant! believe that the completion of the merger will not
violate any antitrust laws. There can be no assurance, however, that a challenge
to the merger on antitrust grounds will not be made, or, if such a challenge is
made, what the result will be.
LITIGATION PROTECTION INSURANCE
AVANT!/CADENCE LITIGATION
On December 6, 1995, Cadence filed an action against Avant! and certain of
its officers in the United States District Court for the Northern District of
California alleging copyright infringement, unfair competition, misappropriation
of trade secrets, conspiracy, breach of contract, inducing breach of contract
and false advertising. The complaint alleges that some of Avant!'s employees
formerly employed by Cadence misappropriated and improperly copied Cadence's
source code for important functions of Avant!'s place and route products, and
that Avant! competed unfairly against Cadence by making false statements about
Cadence and its products. The action also alleges that Avant! induced
individuals, who have been named as defendants, to breach their employment and
confidentiality agreements with Cadence.
In addition to seeking actual and punitive damages, which Cadence has not
fully quantified, Cadence sought to enjoin the sale of Avant!'s ArcCell and
Aquarius place and route products. On December 19, 1997, the District Court
entered a preliminary injunction against continued sales or licensing of any
product or work copied or derived from DFII, specifically including, but not
limited to, the ArcCell products. The preliminary injunction also bars Avant!
from possessing or using any copies of any portion of the source code or object
code for ArcCell or any other product, to the extent it had been copied or
derived from DFII. Avant! had ceased licensing its ArcCell products in mid-1996.
On December 7, 1998, the District Court also entered a preliminary injunction
against Avant! prohibiting Avant! from directly or indirectly marketing,
selling, leasing, licensing, copying or transferring the Aquarius, Aquarius XO
and Aquarius BV products. Pending the outcome of the trial of Cadence's action,
the injunction further prohibits Avant! from marketing, selling, leasing,
licensing, copying or transferring any translation code for any Aquarius product
that infringes any protected right of Cadence and prohibits Avant! from
possessing or using any copies of any portion of the source code or object code
for the Aquarius products, to the extent that it has been copied or derived from
DFII. Avant! ceased licensing the Aquarius products in February 1999.
On January 16, 1996, Avant! filed an answer to the complaint denying
wrongdoing. On the same day, Avant! filed a counterclaim against Cadence and its
then-CEO, Joseph Costello, alleging antitrust violations, racketeering, false
advertising, defamation, trade libel, unfair competition, unfair trade
practices, negligent and intentional interference with prospective economic
advantage, and intentional interference
51
with contractual relations. The counterclaim alleges, among other things, that
Cadence's lawsuit is part of a scheme to harm Avant! competitively, because of
Avant!'s success in the marketplace. Avant! filed its amended counterclaim on
January 29, 1998. Pursuant to a stipulated court order, Cadence and the other
counterclaim defendants have not responded to the amended counterclaim, and
Avant!'s counterclaim is currently stayed.
In April 1999, Avant! and Cadence filed cross-motions for summary
adjudication as to whether a 1994 written release agreement between the two
companies extinguished all Cadence claims regarding Avant!'s continued use of
intellectual property claimed by Cadence in any Avant! place and route product
in existence when the release was signed by the parties. On September 8, 1999,
the District Court granted Avant!'s motion in part and ruled that Cadence's
trade secret claim regarding use of DFII source code was barred by the release.
The District Court also ruled that the release did not bar Cadence's copyright
infringement claims regarding Avant!'s alleged use of DFII source code. Subject
to appeal, Avant! believes that this ruling makes it likely that Cadence will
prevail on its copyright infringement claims regarding Avant!'s use of DFII
source code in the ArcCell products. While this ruling also increases the
likelihood that Cadence will prevail on the same claims as they might apply to
the Aquarius products, Avant! believes that it possesses additional meritorious
defenses with respect to Aquarius that are not available with respect to
ArcCell. On October 15, 1999, the District Court issued an amended order
certifying its September 8, 1999 order for interlocutory appeal to the United
States Circuit Court of Appeals for the Ninth Circuit. Cadence and Avant!
petitioned for leave to file an interlocutory appeal, and the Circuit Court
granted their petitions on December 20, 1999. On June 11, 2001, the Circuit
Court certified to the California Supreme Court the question of when under
California statutory law a claim for trade secret infringement arises. On
October 31, 2001, the California Supreme Court accepted the certified question.
Briefing before the California Supreme Court has not been completed, and no date
for oral argument has been set.
Proceedings in the District Court have been stayed pending the Circuit
Court's decision on appeal, which will follow the California Supreme Court's
decision on the question certified to it, and no trial date has been set.
Depending upon the timing of the decision of the California Supreme Court, the
disposition of the appeal by the Circuit Court, the discovery process, jury
selection and the judicial calendar, Avant! expects that, absent a lifting of
the current stay, any trial would likely commence no earlier than early 2003,
and could commence substantially later.
Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. Should Cadence ultimately succeed in the prosecution
of its claims, however, Avant! could be required to pay substantial monetary
damages to Cadence. Some or all of these damages may be offset by the amounts
paid to Cadence as restitution arising out of the Santa Clara criminal action.
As noted above, preliminary injuctions entered in 1997 and 1998 enjoined Avant!
from marketing its early place and route products, ArcCell and Aquarius, based
on a judicial determination that they incorporated DFII source code. The DFII
code is not incorporated in any current Avant! product. Although Cadence has not
made a claim in the Avant!/Cadence litigation against any current Avant!
product, including its Apollo and Astro place and route products, and has not
introduced any evidence that any such product infringes Cadence's intellectual
property rights, Avant! expects that Cadence will assert such claims. If and
when such claims are made, Avant! believes it would have defenses to any such
claims and would defend itself vigorously. Nonetheless, should Cadence be
successful at proving that any past or then-current Avant! product incorporated
intellectual property misappropriated from Cadence, Avant! could be permanently
enjoined from further use of such intellectual property, which might require
modification to existing products and/or suspension of the sale of such products
until such Cadence intellectual property was removed.
DESCRIPTION OF THE LITIGATION PROTECTION INSURANCE
Synopsys has agreed to enter into a policy with an insurance company rated
AAA by Standard & Poors. Under the policy, insurance will be provided to pay
Synopsys an amount equaling certain compensatory, exemplary and punitive
damages, penalties and fines, and attorneys' fees arising out of the
Avant!/Cadence litigation, which in this document we refer to as "covered loss."
The policy does not
52
provide coverage for litigation other than the Avant!/Cadence litigation. In
exchange for a binding fee of $10 million paid by Synopsys, the insurer has
issued a legally binding commitment to provide the coverage, effective following
the closing of the merger. Such fee is refundable in part to Synopsys in the
event the merger is not completed. Otherwise, the fee will be credited against
the premium to make the insurance effective, which must be paid by Synopsys to
the insurer on or about the closing of the merger.
In return for a premium of $335 million, including the binding fee, the
insurer will be obligated to pay covered loss up to a limit of liability
equaling (a) $500 million plus (b) interest accruing at the fixed rate of 2%,
compounded semi-annually, on $250 million. The policy will expire upon a final
judgment or settlement of the Avant!/Cadence litigation or any earlier date upon
Synopsys' election. Upon such expiration, Synopsys will be entitled to a payment
equal to $250 million plus interest calculated as set forth above less any loss
paid under the policy.
As discussed above, covered loss may arise from exemplary and punitive
damages, fines and penalties. In some jurisdictions, it may be against public
policy to provide insurance for willful acts, punitive damages or similar
claims. This could potentially affect the validity of certain elements of the
policy. The legal agreement governing the arrangement will be governed by the
laws of the State of Delaware. Synopsys believes that the arrangement will be
enforceable in Delaware, but there can be no assurance in this regard. To the
extent the insurer is prevented from paying covered loss on grounds of public
policy, Synopsys will be required to pay that portion of the losses and the
insurer may be obligated to refund a portion of the premium to Synopsys.
The first $250 million of the insurance premium will be included on
Synopsys' balance sheet following the merger, plus accrued interest to date, as
a long-term restricted asset. Interest earned on that amount will be included in
other income on the statement of operations. The balance of the premium paid to
the insurer, $85 million, will be immediately charged to expense as of the date
of the merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All Synopsys common shares that Avant! stockholders will receive in the
merger will be freely transferable, except for Synopsys common shares that are
received by persons who are deemed to be "affiliates" of Avant! under the
Securities Act of 1933, as amended, at the time of the Avant! special meeting.
These affiliates may resell the Synopsys common shares they receive in the
merger only in transactions permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Avant! for the above purposes generally include individuals or
entities that control, are controlled by or are under common control with
Avant!, and include directors and certain executive officers of Avant!. The
merger agreement requires that Avant! cause each of these affiliates to deliver
to Avant!, not later than the date of the initial mailing of this joint proxy
statement/prospectus, a written agreement to the effect that these persons will
not sell, transfer or otherwise dispose of any of the Synopsys common shares
issued to them in the merger in violation of the Securities Act or the related
SEC rules.
OTHER EFFECTS OF THE MERGER
LISTING OF SHARES
It is a condition to the merger that Synopsys common shares issuable in
connection with the merger be authorized for listing on the Nasdaq National
Market, subject to official notice of issuance.
DELISTING OF AVANT! COMMON SHARES
If the merger is completed, Avant! common shares will be delisted from the
Nasdaq National Market and deregistered under the Exchange Act.
53
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material U.S. federal income
tax consequences to U.S. holders who exchange Avant! common shares for Synopsys
common shares pursuant to the merger. The discussion which follows is based on
the U.S. Internal Revenue Code of 1986, as amended, which in this document we
refer to as the "Code," U.S. Treasury Regulations promulgated thereunder,
administrative rulings and pronouncements and judicial decisions as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
The discussion below, except where specifically noted, does not address the
effects of any state, local or non-U.S. tax laws. In addition, the discussion
below relates to persons who hold Avant! common shares and will hold Synopsys
common shares as capital assets. The tax treatment of an Avant! stockholder may
vary depending upon such stockholder's particular situation, and certain
stockholders may be subject to special rules not discussed below. Such
stockholders would include, for example, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, stockholders who hold
shares of Avant! as part of a hedge, straddle, constructive sale or conversion
transaction, and individuals who received Avant! common shares pursuant to the
exercise of employee stock options or otherwise as compensation.
As used in this section, a "U.S. holder" means a citizen or resident of the
United States or a domestic corporation or a person who is otherwise subject to
U.S. federal income tax on a net income basis with respect to Avant! common
shares.
YOU ARE STRONGLY URGED TO CONSULT WITH YOUR TAX ADVISOR WITH RESPECT TO THE
TAX CONSEQUENCES TO YOU OF THE MERGER IN LIGHT OF YOUR OWN PARTICULAR
CIRCUMSTANCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN U.S. FEDERAL OR OTHER TAX
LAWS.
TAX CONSEQUENCES OF THE MERGER
In the opinions of Cleary, Gottlieb, Steen & Hamilton, counsel to Synopsys,
and O'Melveny & Myers LLP, counsel to Avant!:
- The merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and each
of Synopsys and Avant! will be a party to a reorganization within the
meaning of Section 368(b) of the Code.
Based on this conclusion, the following additional material U.S. federal
income tax consequences will result from the merger:
- An Avant! stockholder will not recognize any income, gain or loss as a
result of the receipt of Synopsys common shares in exchange for Avant!
common shares pursuant to the merger, except with respect to cash
received in lieu of a fractional Synopsys common share;
- The aggregate tax basis to an Avant! stockholder of the Synopsys common
shares received in exchange for Avant! common shares pursuant to the
merger will equal such Avant! stockholder's aggregate tax basis in the
Avant! common shares surrendered in exchange therefor, reduced by the tax
basis allocable to any fractional share interest in Synopsys common
shares for which cash is received;
- The holding period of an Avant! stockholder for the Synopsys common
shares received pursuant to the merger will include the holding period of
the Avant! common shares surrendered in exchange therefor;
- An Avant! stockholder who receives cash in lieu of a fractional Synopsys
common share pursuant to the merger will be treated as having received
such cash in exchange for such fractional share and generally will
recognize capital gain or loss on such deemed exchange in an amount equal
to the difference between the amount of cash received and the tax basis
of the Avant! common shares allocable to such fractional share; and
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- No income, gain or loss will be recognized by Synopsys, Maple Forest
Acquisition L.L.C. or Avant! as a result of the merger.
The above opinions, which are not binding on the Internal Revenue Service
or the courts, are conditioned upon the assumption that the merger is completed
under the current terms of the merger agreement. The above opinions are based
on, among other things, facts existing as of the date hereof, on certain
representations as to factual matters made by Synopsys and Avant!, and on the
assumption as to the absence of material changes in facts or in law between the
date hereof and the effective time of the merger.
The obligation of Synopsys to complete the merger is conditioned on the
receipt of an opinion from Cleary, Gottlieb, Steen & Hamilton, counsel to
Synopsys, and the obligation of Avant! to complete the merger is conditioned on
the receipt of an opinion from O'Melveny & Myers LLP, counsel to Avant!, each
opinion dated as of the completion of the merger, as described above. Neither
Synopsys nor Avant! intends to waive the receipt of its counsel's opinion as a
condition to its obligation to complete the merger, and will not waive the
receipt of an opinion as a condition to its obligation to complete the merger
without circulating a revised proxy statement in order to resolicit stockholder
approval.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain U.S. holders may be subject to information reporting with respect
to the amount of cash, if any, received in lieu of a fractional share interest
in Synopsys common shares. U.S. holders who are subject to information reporting
and who do not provide appropriate information when requested may also be
subject to backup withholding. Any amount withheld under such rules is not an
additional tax and may be refunded or credited against such U.S. holders'
federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.
THE TRANSACTION DOCUMENTS
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. This summary is qualified in its entirety by reference to the merger
agreement, a copy of which is attached as Annex A to this document and is
incorporated into this document by reference. You should read the merger
agreement in its entirety, as it is the legal document governing this merger.
THE MERGER
Avant! will merge with and into a Delaware limited liability company formed
by Synopsys, and, as a result, Avant! will become a wholly-owned subsidiary of
Synopsys. At Synopsys' election, the structure of the merger may be revised to
provide for a newly organized Delaware corporation, whose sole stockholder is
Synopsys, to merge with and into Avant!, provided that this structure does not
alter the exchange ratio or merger consideration, prevent or materially delay
the merger or prevent the satisfaction of certain conditions to completion of
the merger.
EFFECTIVE TIME AND TIMING OF CLOSING
The merger will be completed and become effective when the certificate of
merger is filed with the Secretary of State of the State of Delaware or at such
later time as we may agree and as is specified in the certificate of merger in
accordance with Delaware law. The closing of the merger will take place on the
fifth business day after the conditions to the merger have been satisfied or
waived, or on such other date as we may agree. We currently anticipate that we
will complete the merger shortly after the Synopsys annual meeting and the
Avant! special meeting, assuming our stockholders approve the merger at these
meetings and all other conditions to the merger have been satisfied or waived.
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MERGER CONSIDERATION
Exchange Ratio. At the effective time of the merger, each Avant! common
share issued and outstanding immediately before the effective time of the merger
will be converted into the right to receive 0.371 of a Synopsys common share,
except for Avant! common shares held by Avant!, Synopsys or any of their
subsidiaries, which will be canceled and retired.
Fractional Shares. Certificates for fractional Synopsys common shares will
not be issued in the merger. Avant! stockholders who would otherwise receive a
fractional share will, instead, be entitled to receive a cash payment equal to
the value of such fractional share.
WHAT AVANT! STOCKHOLDERS WILL RECEIVE IN THE MERGER
Computershare Trust Company of New York will act as exchange agent in the
merger. As soon as reasonably practicable after the effective time of the
merger, the exchange agent will mail to each registered holder of Avant! common
shares a letter of transmittal, which the holder must properly complete and
deliver to the exchange agent along with the holder's Avant! share certificates.
After a record holder of Avant! common shares delivers certificates for
those shares and a properly completed letter of transmittal to the exchange
agent, the exchange agent will deliver to the holder:
- the whole number of Synopsys common shares such holder has a right to
receive in the merger with respect to such Avant! common shares; and
- after giving effect to any required tax withholdings, a check in the
amount of:
-- cash payable in lieu of any fractional Synopsys common shares, if
any, plus
-- any unpaid dividends and distributions, if any, that the holder has
the right to receive pursuant to the merger agreement.
Avant! common shares that are surrendered to the exchange agent will be
cancelled. No interest will be paid or accrued on any amount payable to holders
of Avant! common shares. In addition, no holder of Avant! common shares will
receive any dividends or other distributions with respect to Synopsys common
shares to which the holder is entitled under the merger agreement until that
holder's Avant! common share certificate is surrendered to the exchange agent
with a properly completed letter of transmittal.
AVANT! STOCKHOLDERS SHOULD NOT SEND IN THEIR AVANT! SHARE CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL.
If any Synopsys common shares are to be delivered to a person other than
the registered holder of the Avant! common shares represented by the
certificates surrendered to the exchange agent:
- those Avant! certificates must be properly endorsed or otherwise be in
proper form for transfer; and
- the person requesting the delivery must pay to the exchange agent any
transfer or other taxes required as a result of delivery to a person
other than the registered holder, or establish to the satisfaction of the
exchange agent that such tax has been paid or is not payable.
TREATMENT OF AVANT! STOCK OPTIONS AND OTHER STOCK PLANS
Except as provided below, each outstanding Avant! stock option, including
stock options granted under stock option plans of Avant!'s subsidiaries, will be
converted into an option to purchase the number of Synopsys common shares
determined by multiplying the number of Avant! common shares subject to the
option immediately prior to the completion of the merger by the 0.371 exchange
ratio. The exercise price per Synopsys common share for each of these options
will be the exercise price per Avant! common share applicable to that option
immediately prior to the completion of the merger divided by the 0.371 exchange
ratio. The replacement options will generally have the same terms and conditions
as were applicable under Avant! option plans. Synopsys will adjust the
conversion formula, if necessary, to comply with section 424(a) of the Code.
Each Avant! stock option granted to non-employee directors of Avant!
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under Avant!'s 1995 stock option plan will not be assumed and converted and will
instead vest in full immediately prior to the completion of the merger. In
addition, options granted to Gerald C. Hsu will not be assumed or converted and
will instead be treated in accordance with the separation agreement among
Avant!, Synopsys and Mr. Hsu. See "The Merger -- Conflicts of Interest of Avant!
Directors and Officers in the Merger."
Synopsys will use its best efforts to file with the SEC a registration
statement to register Synopsys common shares issuable upon exercise of these
stock options to acquire Synopsys common shares, and to maintain the
effectiveness of registration statements covering these assumed stock options
for so long as such stock options remain outstanding.
No later than three business days prior to the completion of the merger,
Avant! will cause the exercise of each outstanding purchase right under the
employee stock purchase plans of Avant! and its subsidiaries and will provide
that no further purchase periods will commence under such plans.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains a number of representations and warranties
made by Synopsys and Avant! to each other, including those regarding:
- corporate organization and good standing;
- capital structure;
- corporate power and authority to enter into the merger agreement and lack
of conflicts with corporate governance documents, contracts or laws
caused by the merger;
- the votes necessary to approve the Synopsys share issuance, in the case
of Synopsys, and the merger agreement, in the case of Avant!;
- accuracy of SEC reports, financial statements and information provided
for inclusion in this document by the parties;
- absence of undisclosed liabilities;
- absence of certain adverse changes or events since December 31, 2000;
- governmental consents and filings required for the merger;
- compliance with applicable laws;
- the receipt of a fairness opinion from a financial advisor;
- finders' or brokers' fees;
- absence of facts or actions that would prevent the merger from qualifying
as a reorganization under Section 368(a) of the Code; and
- absence of undisclosed material litigation.
In addition, Avant! made representations and warranties to Synopsys as to:
- subsidiaries;
- lack of violations of corporate governance documents, contracts or laws;
- real and leased property;
- pending and threatened litigation and accuracy of disclosure with respect
to the Avant!/Cadence litigation;
- possession of required permits;
- employee benefits;
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- labor matters;
- environmental matters;
- tax matters;
- absence of questionable or unlawful payments;
- validity of contracts;
- insurance;
- intellectual property;
- interested party transactions;
- state takeover laws and amendments to stockholder rights plans;
- amendments to agreements with certain Avant! distributors to ensure the
absence of termination payments;
- the termination of its agreements with Semiconductor Manufacturing
International Corporation; and
- repurchases of Avant! Hi-Tech, Inc. shares not held by Avant! or its
subsidiaries.
The merger agreement also contains representations and warranties relating
to Maple Forest Acquisition L.L.C., including:
- due organization;
- corporate power and authority to enter into the merger agreement and lack
of conflicts with corporate governance documents, contracts or laws;
- information provided for inclusion in this document; and
- finders' or brokers' fees.
The representations and warranties contained in the merger agreement will
not survive the merger, but they form the basis of certain conditions to our
obligations to complete the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Covenants of Avant!. Except as contemplated by the merger agreement,
Avant! has agreed that, until the completion of the merger, it will conduct its
and its subsidiaries' business in the ordinary course and will seek to preserve
its business organization and relationships with customers, suppliers and other
constituencies of its business and keep available the services of its officers
and employees. In addition, until the merger is completed, Avant! has agreed
that it and its subsidiaries will be subject to specific restrictions relating
to:
- changes in the charter, bylaws or rights plan;
- the issuance, sale or delivery of any capital stock, except pursuant to
the exercise of Avant! stock options outstanding on the date of the
merger agreement;
- the split or reclassification of capital stock, the declaration of any
dividend or distribution or the redemption, repurchase or acquisition of
any securities of any of its subsidiaries;
- changes in corporate structure or ownership of any subsidiary;
- any merger, liquidation, dissolution, restructuring, consolidation or
other reorganization;
- the incurrence or assumption of indebtedness, except for immaterial
amounts in the ordinary course;
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- the assumption of obligations of any other person, except for immaterial
amounts in the ordinary course and except for guarantees of wholly-owned
subsidiary obligations;
- the waiver or cancellation of indebtedness, capital contributions or
investments;
- the pledge or encumbrance of capital stock or the mortgage, pledge or
encumbrance of assets or properties;
- increases in or acceleration of vesting of compensation or benefits
provided to officers, directors, consultants or employees, except
pursuant to current Avant! benefit plan agreements;
- the execution, adoption, amendment or termination of stock option or
other stock-related plans, severance plans, employee benefit plans,
change-in-control agreements or employment agreements, except in the
ordinary course for employees who are not Avant! directors or officers or
their family members;
- the acquisition, sale, lease or disposition of assets, except immaterial
assets or in the ordinary course;
- changes in method or principle of accounting, except as required by a
change in law or U.S. GAAP;
- the material revaluation of assets, except in the ordinary course or as
required by U.S. GAAP;
- the acquisition of any corporation, partnership or other business
organization, division or equity interest;
- entering into any customer contract that would be breached by the merger
or entering into agreements or material amendments to contracts, except
in the ordinary course and, if involving aggregate consideration in
excess of $500,000, approved by the president of Avant!;
- the authorization of new capital expenditures or expenditures
individually in excess of $150,000 or in the aggregate in excess of $2
million in any fiscal quarter;
- making or revoking any tax election, settling or compromising any tax
liability, filing any refund claim based on the carry back of a net
operation loss or changing tax accounting methods;
- the payment, discharge or satisfaction of any material claims,
liabilities or obligations, other than reserved against in the September
30, 2001 balance sheet or in the ordinary course;
- the waiver or modification of confidentiality or standstill agreements;
- the settlement or compromise of any pending or threatened suit, action or
claim relating to the merger and related transactions;
- actions that would prevent or impede the merger from qualifying as a
reorganization under Section 368(a) of the Code;
- the entrance into agreements or arrangements that limit or restrict
Avant! or its subsidiaries from engaging or competing in any line of
business in any geographic area;
- the entrance into any license or other agreements with respect to
Avant!-owned intellectual property, except those not involving rights to
software source code, or entrance into consulting arrangements, unless on
commercially reasonable terms in the ordinary course or, if involving
aggregate consideration in excess of $500,000, approved by the president
of Avant!;
- the execution, amendment, extension or termination of any distribution
agreement, original equipment manufacturer agreement, reseller agreement
or joint venture agreement;
- transactions or agreements with any director, officer, affiliate or
family member of any director or officer, except for currently disclosed
agreements and transactions between Avant! and wholly-owned subsidiaries;
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- actions that would result in payment obligations to Gerald C. Hsu
pursuant to any agreement he has with Avant! or its subsidiaries
associated with his employment termination; and
- taking or proposing or agreeing to take any of the above actions or any
other action that would make the representations and warranties in the
merger agreement materially untrue or incorrect or would result in any of
the conditions to the merger being unsatisfied.
Covenants of Synopsys. Except as contemplated by the merger agreement,
Synopsys has agreed that it and its subsidiaries will be subject to specific
restrictions relating to:
- changes in their charter;
- the declaration or payment of dividends and other distributions; and
- taking or proposing or agreeing to take any of the above actions or any
other action that would make the representations and warranties in the
merger agreement materially untrue or incorrect or would result in any of
the conditions to the merger being unsatisfied.
OFFERS FOR ALTERNATIVE TRANSACTIONS
Avant! has agreed not to:
- solicit, initiate, facilitate or encourage, or furnish non-public
information in furtherance of, any inquiries or the making of any
acquisition proposal with respect to a competing transaction as defined
below; or
- negotiate, engage in discussions or enter into any agreement with any
third party with respect to any competing transaction.
Avant! also agreed not to permit any of its subsidiaries or its or their
respective officers, directors or employees to do any of the above-mentioned
actions, and Avant! has agreed to use its reasonable best efforts to cause its
advisors and representatives not to do any of the above-mentioned actions.
However, if Avant! receives an unsolicited acquisition proposal, which we
define below, then Avant! may, after giving Synopsys three business days'
advance written notice:
- furnish information with respect to Avant! pursuant to a confidentiality
agreement in reasonably customary form and containing terms at least as
stringent as the confidentiality agreement in place between Synopsys and
Avant!; and
- engage in discussions and negotiations with the persons that made such
proposal;
but only if:
- the Avant! board of directors has reasonably determined in good faith,
after receiving advice from independent legal counsel, that such action
is necessary for it to comply with its fiduciary duties; and
- such acquisition proposal would result in a superior proposal, which we
define below, being made.
Important Definitions:
"acquisition proposal" means an inquiry, offer or proposal regarding any of
the following:
- any merger, consolidation, recapitalization, business combination or
similar transaction with Avant! or any of its subsidiaries, as
applicable, whose individual or aggregate assets would constitute 30% or
more of the consolidated assets of Avant!;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 30% or more of the assets of Avant! and its subsidiaries
in a single transaction or series of transactions;
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- any tender or exchange offer for 30% or more of the outstanding Avant!
common shares, or the filing of a registration statement in relation to
such offer; or
- any public announcement of a proposal, plan or intention to do any of the
foregoing or agreement to engage in the foregoing.
"superior proposal" means an acquisition proposal which the Avant! board of
directors has reasonably determined in good faith is reasonably likely to be
consummated taking into account all legal, financial, regulatory and other
aspects of the proposal, and believes in good faith, after consulting with an
independent financial advisor of nationally recognized reputation, would result
in a transaction materially more favorable to Avant! stockholders from a
financial point of view than the Synopsys/Avant! merger.
Avant! also has agreed to notify Synopsys of any request for nonpublic
information by any person making or considering making an acquisition proposal,
including the material terms of the request or proposal and the identity of the
person making it, promptly, but in any event within 24 hours of receipt. Avant!
has agreed to provide Synopsys with a copy of any written acquisition proposal,
including updates, and to keep Synopsys fully informed of the status of such
acquisition proposal. In addition, Avant! has agreed to cease all activities,
discussions or negotiations with respect to any acquisition proposal that
existed at the time the merger agreement was signed.
SYNOPSYS AND AVANT! BOARDS OF DIRECTORS' RECOMMENDATIONS
The merger agreement requires the Synopsys and Avant! boards of directors:
- to recommend that their respective stockholders approve the share
issuance, in the case of Synopsys, and the merger agreement, in the case
of Avant!; and
- not to withdraw or modify, or to propose publicly to withdraw or modify,
its recommendation in a manner adverse to the other party.
However, the board of directors may withdraw or modify its recommendation
in a manner adverse to the other party, if:
- in the case of Avant!, Avant! has fully complied with the matters and
procedures set forth above under "-- Offers for Alternative
Transactions;"
- the board of directors determines in good faith, after receiving advice
from independent legal counsel, that such action is necessary for it to
comply with its fiduciary duties; and
- it provides the other party with three business days' prior written
notice that it intends to change its recommendation and describing its
reasons.
The merger agreement also permits Avant! to comply with Rule 14e-2(a) under
the Exchange Act in connection with any tender offer for Avant! shares.
The merger agreement requires Avant! to submit the merger agreement to a
stockholder vote even if the Avant! board of directors no longer recommends
approval of the merger. The merger agreement also requires Synopsys to submit
the share issuance to a stockholder vote even if the Synopsys board of directors
no longer recommends approval of the share issuance.
ADDITIONAL AGREEMENTS
The merger agreement contains a number of other covenants and agreements by
and between Synopsys and Avant! on subjects including:
- Avant! updating Synopsys on all existing or new litigation to which
Avant! or any of its subsidiaries is a party and notifying and consulting
with Synopsys on any material developments concerning such litigation;
- obtaining necessary tax representation letters; and
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- Synopsys taking steps necessary to cause the new Synopsys common shares
to become listed on the Nasdaq National Market.
In addition, as promptly as possible, and in no event later than December
31, 2001, Avant! will repurchase the equity interests of Maingate Electronics,
KK it sold in January 2001 for not more than $1 million, and purchase the other
outstanding equity interests of Maingate not currently owned by Avant! for a
purchase price equal to the lesser of:
- $13 million, subject to certain reductions for cash and net assets on
Maingate's balance sheet, and
- a valuation of Maingate prepared by an independent third party appraiser.
Avant! also agreed that Maingate will be operated only in the ordinary
course and will not declare or pay any dividends, repurchase any outstanding
equity interests or enter into any transactions with any of its affiliates or
shareholders.
Synopsys and Avant! have agreed to use their commercially reasonable best
efforts to:
- take all actions and to do all things necessary or advisable under
applicable laws promptly to complete the merger and the other
transactions contemplated by the merger agreement;
- obtain all approvals and authorizations for the transactions under
antitrust laws;
- resolve any objections asserted by any governmental entity under any
antitrust laws with respect to the merger transaction; and
- contest or resist any objections under antitrust laws and any order
prohibiting, preventing or restricting the transactions contemplated by
the merger agreement.
Important Exceptions:
Synopsys will not be required to:
- hold separate any businesses or assets;
- complete the merger if any governmental consent, authorization or
non-objection is conditioned on significant restrictions or material
accommodations with respect to the merger or the business of Synopsys
following the merger; or
- breach or diminish any authority or license granted by any governmental
entity.
INDEMNIFICATION AND INSURANCE
Synopsys is required by the merger agreement to maintain in effect the
current provisions regarding indemnification of officers and directors contained
in the charter and bylaws and any disclosed agreements of Avant!.
Synopsys has agreed to continue to maintain in effect the current Avant!
directors' and officers' liability insurance for a period of six years after the
completion of the merger. However, Synopsys is not required to expend in any
year an amount in excess of 200% of the current premium paid by Avant!. If the
aggregate expenditure on coverage exceeds that amount, Synopsys will purchase as
much insurance as can be obtained for that amount.
EMPLOYEE BENEFITS
Following the completion of the merger, continuing Avant! employees will be
eligible to participate in those benefit plans and programs maintained by
Synopsys for similarly situated employees of Synopsys. Continuing Avant!
employees will be given credit for purposes of eligibility and vesting for such
employees' period of service with Avant! or its subsidiaries under a similar
plan prior to the effective time. Each such employee will also be given credit
for co-payments, deductibles and co-insurance features paid in the plan year in
which the merger is completed. Synopsys will cause all pre-existing condition
limitations and
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eligibility waiting periods under Synopsys group health plans to be waived if
the applicable Avant! plan would not have excluded such claim.
CLOSING CONDITIONS
Mutual Conditions. Our respective obligations to complete the merger are
subject to the satisfaction or waiver of various conditions, including the
following:
- Stockholder Approval. The Avant! stockholders having approved the merger
agreement and the merger and the Synopsys stockholders having approved
the issuance of Synopsys common shares in the merger.
- Antitrust. Expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act or any other national merger
control law or foreign investment regulation relating to the merger.
- No Injunction or Restraint. The absence of any law, rule, order or
injunction restraining, enjoining or preventing the completion of the
merger.
- Registration Statement Effective. The SEC having declared the
registration statement effective under the Securities Act of 1933, as
amended, no stop order suspending the effectiveness of the registration
statement issued, no proceedings or investigation by the SEC for such
purpose continuing and all necessary approvals under state and U.S.
securities laws relating to the issuance or trading of the Synopsys
common shares having been received.
- Nasdaq National Market Listings. Approval for listing on the Nasdaq
National Market of the Synopsys common shares to be issued in the merger.
Additional Conditions to Obligations of Synopsys and Maple Forest
Acquisition L.L.C. to Complete the Merger. The conditions to Synopsys' and
Maple Forest Acquisition's obligations to complete the merger are also subject
to the satisfaction or waiver by Synopsys or Maple Forest Acquisition of certain
conditions, including the following:
- Performance of Obligations; Representations and Warranties
-- the representations and warranties of Avant! regarding its
capitalization are true and correct except to a de minimis extent;
-- the representations and warranties of Avant! regarding corporate
power and authority to enter into the merger agreement are true and
correct;
-- the facts and information not disclosed, if any, in violation of the
representations and warranties of Avant! regarding the disclosure of
information known to it affecting the Avant!/Cadence litigation, in
the aggregate, would not have had a material negative impact on a
reasonable evaluation as of the date of the merger agreement on
Avant!'s liability for damages or indemnity obligations or exposure
for equitable relief in the Avant!/Cadence litigation;
-- the other representations and warranties of Avant! set forth in the
merger agreement are true and correct, except for failures to be
true and correct that have not had and would not have, individually
or in the aggregate, a material adverse effect on Avant!, which we
define below; and
-- Avant! has performed in all material respects all conditions and
agreements under the merger agreement, and in all respects the
obligations listed above under "-- Additional Agreements" with
respect to Maingate.
Important Limitation Affecting Avant!'s Representations and
Warranties. If Avant! has not breached its representation or
warranty relating to the disclosure of information known to it
affecting the Avant!/Cadence litigation, Avant! will not breach any
other
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representation or warranty in the merger agreement to the extent
such breach results from the pendency of or developments with
respect to the Cadence litigation.
- Receipt of Tax Opinion. Synopsys has received an opinion of Cleary,
Gottlieb, Steen & Hamilton, dated as of the date the merger is completed,
that for U.S. federal income tax purposes, the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code.
- Receipt of Governmental Approvals. All consents or authorizations from
any governmental entities required for the merger have been received
without, in the case of antitrust laws, any restriction or conditions
that has or would have a material adverse effect on Avant!, unless the
failure to receive any such consent or authorization would not have a
material adverse effect on Avant!.
- Receipt of SMIC Amount. Avant! has received payment in full from
Semiconductor Manufacturing International Corporation. Avant! received
the final payment from Semiconductor Manufacturing International
Corporation on November 30, 2001.
- Retention of Certain Employees. Avant! continues to employ at least 80%
of certain key technical employees.
- No Material Adverse Effect. There has been no material adverse effect on
Avant!, except that if Avant! has not breached its representations and
warranties regarding the disclosure of information known to it affecting
the Avant!/Cadence litigation, any developments in the Avant!/Cadence
litigation will be disregarded for determining whether there has been a
material adverse effect on Avant!.
Additional Conditions to Obligations of Avant! to Complete the Merger. The
conditions to Avant!'s obligations to complete the merger are also subject to
the satisfaction or waiver by Avant! of certain conditions, including the
following:
- Performance of Obligations; Representations and Warranties
-- the representations and warranties of Synopsys regarding corporate
power and authority to enter into the merger agreement are true and
correct;
-- the other representations and warranties of Synopsys set forth in
the merger agreement are true and correct, except for failures to be
true and correct that have not had and would not have, individually
or in the aggregate, a material adverse effect on Synopsys; and
-- Synopsys has performed in all material respects all conditions and
agreements under the merger agreement.
- Receipt of Tax Opinion. Avant! has received an opinion of O'Melveny &
Myers LLP, dated as of the date the merger is completed, that for U.S.
federal income tax purposes, the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code.
- No Material Adverse Effect. There has been no material adverse effect on
Synopsys.
In the event Synopsys or Avant! waives a material condition to the merger,
Synopsys or Avant!, as applicable, will, if legally required, resolicit approval
of its stockholders.
TERMINATION AND TERMINATION FEE
Right to Terminate. The merger agreement may be terminated at any time
before the completion of the merger in any of the following ways:
- by mutual written consent;
- by either Synopsys or Avant! if:
-- the merger has not been completed by September 30, 2002;
64
-- any governmental order or ruling enjoining or prohibiting the merger
has become final and nonappealable; or
-- the Synopsys stockholders do not approve the Synopsys common share
issuance or the Avant! stockholders do not approve the merger
agreement at their respective stockholder meetings;
in each case, unless the party seeking to terminate the merger
agreement has breached its obligations under the merger agreement in
any manner that contributed to the failure of the merger to be
completed;
- by Avant! if:
-- the Synopsys board of directors has not held the Synopsys
stockholder meeting; or
-- Synopsys breaches any representation, warranty, covenant or
agreement contained in the merger agreement and the breach would
result in a failure of any condition set forth above under
"-- Closing Conditions -- Additional Conditions to Obligations of
Avant! to Complete the Merger -- Performance of Obligations;
Representations and Warranties" and such breach is not cured within
15 business days after receipt by Synopsys of written notice of such
breach; or
- by Synopsys if:
-- the Avant! board of directors has withdrawn or adversely modified
its recommendation referred to above in "-- Synopsys and Avant!
Boards of Directors' Recommendations" or the Avant! board of
directors has not held the Avant! stockholder meeting;
-- Avant! breaches its obligations set forth above under "-- Synopsys
and Avant! Boards of Directors' Recommendations" or "-- Offers for
Alternative Transactions;" or
-- Avant! breaches any representation, warranty, covenant or agreement
contained in the merger agreement and the breach would result in a
failure of any condition set forth above under "-- Closing
Conditions -- Additional Conditions to Obligations of Synopsys and
Maple Forest Acquisition L.L.C. to Complete the
Merger -- Performance of Obligations; Representations and
Warranties" and, among other things, such breach is not cured within
15 business days after receipt by Avant! of written notice of such
breach.
Should any of these potential grounds for termination occur, Synopsys' and
Avant!'s board of directors may or may not exercise their respective rights to
terminate the merger agreement.
Termination Fees. Avant! has agreed to pay Synopsys a fee of $45 million
in the event that the merger agreement is terminated under one of the
circumstances listed below. Payment of this fee is required under these
circumstances whether or not Avant! stockholders approve the merger agreement.
- Synopsys terminates because the Avant! board of directors has withdrawn
or adversely modified its recommendation referred to above in
"-- Synopsys and Avant! Boards of Directors' Recommendations" or Avant!
board of directors does not hold the Avant! stockholder meeting;
- Synopsys terminates because Avant! breaches its obligations set forth
above under "-- Synopsys and Avant! Boards of Directors' Recommendations"
or "-- Offers for Alternative Transactions;"
- after the date of the merger agreement and prior to termination an
acquisition proposal is made, or any person publicly announces an
intention to make an acquisition proposal, to Avant! or any of its
subsidiaries or stockholders and subsequently the merger agreement is
terminated:
-- by the Synopsys board of directors based on any uncured willful
Avant! breach of any covenant or agreement contained in the merger
agreement;
-- by the Synopsys board of directors based on any uncured Avant!
breach of any representation, warranty, covenant or agreement
contained in the merger agreement, other
65
than as set forth immediately above, that would result in a failure
of the last condition set forth above under "-- Closing
Conditions -- Additional Conditions to Obligations of Synopsys and
Maple Forest Acquisition L.L.C. to Complete the
Merger -- Performance of Obligations; Representations and
Warranties" and, within 15 months of termination, Avant! consummates
or agrees to an acquisition proposal; or
-- by either Synopsys or Avant! because the merger is not completed by
September 30, 2002 or the stockholders of Avant! do not approve the
merger agreement at the Avant! special meeting and, within 15 months
of termination, Avant! consummates or agrees to an acquisition
proposal; or
- after the date of the merger agreement and prior to termination, Cadence
makes a Cadence settlement proposal with respect to the Avant!/Cadence
litigation, as set forth in the merger agreement, or makes an acquisition
proposal or Cadence publicly announces an intention to make a Cadence
settlement proposal or an acquisition proposal, and subsequently the
merger agreement is terminated:
-- by the Synopsys board of directors based on any uncured willful
Avant! breach of any covenant or agreement contained in the merger
agreement;
-- by the Synopsys board of directors based on any uncured Avant!
breach of any representation, warranty, covenant or agreement
contained in the merger agreement, other than as set forth
immediately above, that would result in a failure of the last
condition set forth above under "-- Closing Conditions -- Additional
Conditions to Obligations of Synopsys and Maple Forest Acquisition
L.L.C. to Complete the Merger -- Performance of Obligations;
Representations and Warranties" and, within 15 months of
termination, Avant! enters into a Cadence settlement agreement or
consummates or agrees to an acquisition proposal with Cadence; or
-- by either Synopsys or Avant! because the merger is not completed by
September 30, 2002 or the stockholders of Avant! do not approve the
merger agreement at the Avant! special meeting and, within 15 months
of termination, Avant! enters into a Cadence settlement agreement or
consummates or agrees to an acquisition proposal with Cadence.
AMENDMENT AND WAIVER
We may amend the merger agreement in writing by action taken by our
respective boards of directors at any time, but, after approval of the merger
agreement by the Avant! stockholders or after the approval of the Synopsys
common share issuance by the Synopsys stockholders, we may not make any
amendment that by law requires further approval by a party's stockholders
without the further approval of those stockholders.
At any time before the effective time of the merger, each party may in
writing:
- extend the time for the performance of any obligations or other acts of
the other party;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered under the merger
agreement; or
- waive compliance by the other party with any of the agreements or
conditions contained in the merger agreement.
COSTS AND EXPENSES
In general, all costs and expenses incurred in connection with the merger
agreement will be paid by the party incurring such expenses, except that those
expenses incurred in connection with filing, printing and mailing the
registration statement and this document will be shared equally by Synopsys and
Avant!.
66
IMPORTANT DEFINITIONS
"Cadence settlement agreement." As used in the merger agreement, a
"Cadence settlement agreement" is generally any agreement, order consented to by
Avant! or stipulation effecting or implementing a Cadence settlement proposal.
"Cadence settlement proposal." As used in the merger agreement, a "Cadence
settlement proposal" is any proposal by or on behalf of Cadence which, if
accepted in whole or in part, would have the effect of materially limiting:
- the amount of damages and/or costs potentially recoverable by Cadence;
- the injunctive and/or other equitable relief potentially awardable to
Cadence;
- the claims upon which relief could potentially be granted to Cadence;
- the products of Avant! or underlying technology to which Cadence's claims
could potentially apply; or
- the evidence upon which Cadence could seek to rely in support of a claim
or a remedy.
"material adverse effect." As used in the merger agreement, a "material
adverse effect" on any entity means any change, circumstance or effect that,
individually or in the aggregate, is or would be reasonably expected to be
materially adverse to the business, assets, properties, condition or results of
operations of such entity and its subsidiaries taken as a whole or to the
ability of such party to consummate the transactions contemplated by merger
agreement.
However, "material adverse effect" does not include any change,
circumstance or effect resulting from:
- general changes in the industries in which Avant! and its subsidiaries or
Synopsys and its subsidiaries operate, except those that adversely
affect, respectively, Avant! and its subsidiaries or Synopsys and its
subsidiaries, to a materially greater extent than they affect other
entities operating in such industries;
- changes in general economic conditions or changes in securities markets
in general; or
- effects of the public announcement or pendency of the transactions
contemplated by the merger agreement.
AVANT! STOCKHOLDER VOTING AGREEMENT
AGREEMENT TO VOTE
Each of Moriyuki Chimura, Gerald C. Hsu, Howard Ko, Paul Lo, Viraj J.
Patel, Amy Sakasegawa, Scott Spangenberg and Charles L. St. Clair has entered
into a voting agreement with Synopsys. Each of these Avant! directors and
officers has agreed to vote his or her Avant! common shares in favor of the
merger and to vote all of his or her Avant! common shares against any action
that would delay or prevent the merger or against any alternative transaction,
as defined in the merger agreement and as discussed under "-- The Merger
Agreement -- Offers for Alternative Transactions." Each stockholder's obligation
to vote in this manner applies whether or not the Avant! board of directors
continues to recommend the merger to the Avant! stockholders. These stockholders
have the right, as of the Avant! record date, to vote a total of [ ]
Avant! common shares or approximately [ ]% of the outstanding Avant!
common shares.
Each stockholder has also granted Synopsys a proxy to vote the Avant!
common shares owned by such stockholder, including additional Avant! common
shares subsequently acquired, in favor of the merger and against any alternative
transaction.
67
TRANSFER RESTRICTIONS
The voting agreement restricts or limits the ability of each stockholder
that is a party to the agreement to sell, transfer, pledge, assign or otherwise
dispose of any of his or her Avant! common shares, or to agree to do the
foregoing, other than with Synopsys' prior written consent.
NO SOLICITATION
Each stockholder agrees not to solicit, initiate or encourage any inquiries
or proposals from, discuss or negotiate with, or provide any non-public
information to, any person relating to an acquisition proposal or otherwise
facilitate an acquisition proposal, except as permitted by the merger agreement.
Each stockholder has also agreed, unless required by law, not to make any press
release or other communication with respect to Synopsys or the business or
affairs of Avant! or its subsidiaries without the prior written consent of
Synopsys.
TERMINATION
The voting agreement will terminate upon the earliest to occur of:
- the completion of the merger;
- Avant!'s termination of the merger agreement because the Synopsys board
of directors has not held the Synopsys stockholder meeting or Synopsys
breached a representation, warranty, covenant or agreement contained in
the merger agreement and the breach would result in a failure of the last
condition set forth above under " -- The Merger Agreement -- Closing
Conditions -- Additional Conditions to Obligations of Avant! to Complete
the Merger -- Performance of Obligations; Representations and
Warranties," unless Synopsys would also be able to terminate the merger
agreement; and
- 120 days following termination of the merger agreement other than as set
forth in the preceding bullet point.
THE COMPANIES
SYNOPSYS, INC.
Synopsys is a leading supplier of EDA software to the global electronics
industry. Synopsys' products are used by designers of integrated circuits, which
in this document we refer to as "ICs," including system-on-a-chip ICs, and
electronic products such as computers, cell phones, and Internet routers, that
use such ICs to automate significant portions of their chip design process. ICs
are distinguished by the speed at which they run, their area, the amount of
power they consume and their cost of production. Synopsys' products offer its
customers the opportunity to design ICs that are optimized for speed, area,
power consumption and production cost, while reducing overall design time.
Synopsys also provides consulting services to assist customers with their IC
designs, as well as training and support services.
Synopsys' headquarters are located at 700 East Middlefield Road, Mountain
View, California 94043, and its telephone number is (650) 584-5000.
AVANT! CORPORATION
Avant! develops, markets, licenses and supports electronic design
automation software products that assist design engineers in the physical
layout, design, verification, simulation, timing and analysis of advanced ICs.
Avant!'s products offer its customers the opportunity to design ICs that are
optimized for speed, size, power consumption and production cost, while reducing
overall design time. Avant!'s products are used by IC designers in the
semiconductor, computer, consumer electronics, multimedia and telecommunications
IC industries to automate a significant portion of the IC design process. Avant!
also offers reusable silicon libraries, silicon intellectual property, design
blocks, and optimized design-flow
68
management and tool interoperability software products. Avant!'s design group
also offers physical design, parasitic extraction, verification, flow
development and library development services, as well as product maintenance and
customer support services.
Avant!'s headquarters are located at 46871 Bayside Parkway, Fremont,
California 94538, and its telephone number is (510) 413-8000.
MAPLE FOREST ACQUISITION L.L.C.
Maple Forest Acquisition L.L.C. is a newly-formed limited liability company
and a direct wholly-owned subsidiary of Synopsys formed for the purpose of
effecting the merger.
Maple Forest Acquisition L.L.C.'s headquarters are located at 700 East
Middlefield Road, Mountain View, California 94043, and its telephone number is
(650) 584-4257.
69
MARKET PRICE AND DIVIDEND DATA
MARKET PRICE
SYNOPSYS
Synopsys common shares trade on the Nasdaq National Market under the Nasdaq
symbol "SNPS."
The following table sets forth the high and low sales prices of Synopsys
common shares for the calendar quarters indicated, as reported on the Nasdaq
National Market:
HIGH LOW
---- ---
1999
First Quarter............................................... 61 1/4 43 1/2
Second Quarter.............................................. 59 3/16 37 1/8
Third Quarter............................................... 65 1/8 53 1/8
Fourth Quarter.............................................. 75 5/8 53 3/8
2000
First Quarter............................................... 68 5/8 36 7/8
Second Quarter.............................................. 52 15/16 34 3/8
Third Quarter............................................... 39 1/8 25 15/16
Fourth Quarter.............................................. 50 1/4 31 5/16
2001
First Quarter............................................... 62 1/8 41 27/32
Second Quarter.............................................. 63 1/64 43 1/4
Third Quarter............................................... 55 61/64 36 5/32
Fourth Quarter..............................................
2002
First Quarter (through , 2002)....................
On December 3, 2001, the last full trading day before the public
announcement of the merger agreement, the high and low sale prices of Synopsys
common shares as reported on the Nasdaq National Market were $56.40 and $54.43,
respectively. On [ ], 2002, the last full trading day before the date
of this joint proxy statement/prospectus, the closing price of Synopsys common
shares as reported on the Nasdaq National Market was $[ ].
As of [ ], 2002, the last date prior to printing this document for
which it was practicable for Synopsys to obtain this information, there were
approximately [ ] registered holders of Synopsys common shares.
AVANT!
Avant!'s common shares trade on the Nasdaq National Market under the Nasdaq
symbol "AVNT."
70
The following table sets forth the high and low sales prices of Avant!
common shares for the calendar quarters indicated, as reported on the Nasdaq
National Market:
HIGH LOW
---- ---
1999
First Quarter............................................... 24 14 5/8
Second Quarter.............................................. 18 3/8 10 1/2
Third Quarter............................................... 25 1/4 11 5/8
Fourth Quarter.............................................. 17 1/2 12 1/2
2000
First Quarter............................................... 20 1/4 12 3/8
Second Quarter.............................................. 19 8 29/32
Third Quarter............................................... 20 5/8 12 9/16
Fourth Quarter.............................................. 20 1/2 14 3/8
2001
First Quarter............................................... 27 15 11/16
Second Quarter.............................................. 20 29/32 11 3/32
Third Quarter............................................... 15 19/32 2 5/8
Fourth Quarter..............................................
2002
First Quarter (through , 2002)....................
On December 3, 2001, the last full trading day before the public
announcement of the merger agreement, the high and low sale prices of Avant!
common shares as reported on the Nasdaq National Market were $11.10 and $10.32,
respectively. On [ ], 2002, the last full trading day before the date
of this joint proxy statement/prospectus, the closing price of Avant! common
shares as reported on the Nasdaq National Market was $[ ].
As of [ ], 2002, the last date prior to printing this document for
which it was practicable for Avant! to obtain this information, there were
approximately [ ] registered holders of Avant! common shares.
DIVIDEND DATA
Neither Synopsys nor Avant! has ever declared or paid cash dividends on its
common shares and neither anticipates paying cash dividends on its common shares
in the foreseeable future.
71
OWNERSHIP OF CAPITAL STOCK OF SYNOPSYS AND AVANT!
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SYNOPSYS
The following table sets forth certain information with respect to the
beneficial ownership of Synopsys common shares as of [ ], 2002 by (1)
each person known by Synopsys to own beneficially more than five percent of the
outstanding Synopsys common shares on that date, (2) each Synopsys director, (3)
each of the persons named in "Additional Matters To Be Considered at the
Synopsys Annual Meeting -- Executive Compensation -- Executive Compensation and
Other Matters" on page [ ] and (4) all Synopsys directors and current
executive officers as a group.
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
----------------------
PERCENTAGE
NAME OF BENEFICIAL OWNER(1) NUMBER OWNERSHIP
--------------------------- --------- ----------
J. & W. Seligman & Co. Incorporated......................... (2) %
100 Park Avenue, 8th Floor
New York, NY 10017
Blum Capital Partners, L.P.................................. (2) %
909 Montgomery Street, Suite 400
San Francisco, CA 94133-4625
Vicki L. Andrews............................................ (3) *
Andy D. Bryant.............................................. (4) *
Chi-Foon Chan............................................... (5) %
Bruce R. Chizen............................................. 6) *
Deborah A. Coleman.......................................... (7) *
Aart J. de Geus............................................. (8) %
Robert B. Henske............................................ (9) *
A. Richard Newton........................................... (10) *
Steven K. Shevick........................................... (11) *
Sasson Somekh............................................... (12) *
Steven C. Walske............................................ (13) *
All directors and current executive officers as a group (11
persons).................................................. (14) %
---------------
* Less than 1%
(1) The persons named in the table above have sole voting and investment power
with respect to all Synopsys common shares shown as beneficially owned by
them, subject to community property laws where applicable and the
information contained in the footnotes of this table.
(2) Based upon filings made with the SEC.
(3) Includes options to purchase [ ] Synopsys common shares
exercisable by Ms. Andrews within 60 days of [ ], 2002.
(4) Consists of options to purchase [ ] Synopsys common shares
exercisable by Mr. Bryant within 60 days of [ ], 2002.
(5) Includes options to purchase [ ] Synopsys common shares
exercisable by Dr. Chan within 60 days of [ ], 2002.
(6) Consists of options to purchase [ ] Synopsys common shares
exercisable by Mr. Chizen within 60 days [ ], 2002.
(7) Consists of options to purchase [ ] Synopsys common shares
exercisable by Ms. Coleman within 60 days of [ ], 2002.
(8) Includes options to purchase [ ] Synopsys common shares
exercisable by Dr. de Geus within 60 days of [ ], 2002.
72
(9) Includes options to purchase [ ] Synopsys common shares
exercisable by Mr. Henske within 60 days of [ ], 2002.
(10) Includes options to purchase [ ] Synopsys common shares
exercisable by Dr. Newton within 60 days of [ ], 2002.
(11) Includes options to purchase [ ] Synopsys common shares
exercisable by Mr. Shevick within 60 days of [ ], 2002.
(12) Includes options to purchase [ ] Synopsys common shares
exercisable by Dr. Somkeh within 60 days of [ ], 2002.
(13) Includes options to purchase [ ] Synopsys common shares
exercisable by Mr. Walske within 60 days of [ ], 2002.
(14) Includes options to purchase [ ] Synopsys common shares
exercisable by directors and current executive officers within 60 days of
[ ], 2002.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AVANT!
The following table sets forth information with respect to the beneficial
ownership of Avant! common shares as of [ ], 2002 for (1) each person
known to Avant! to own beneficially more than 5% of the outstanding Avant!
common shares on that date, (2) each Avant! director, (3) each executive officer
of Avant!, and (4) all directors and executive officers as a group.
PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------------------------ ---------- ----------
Wellington Management Co., LLP(2)........................... %
75 State Street
Boston, MA 02109
FMR Corp.(2)................................................
82 Devonshire Street
Boston, MA 02109
Gerald Hsu(3)...............................................
Moriyuki Chimura(4).........................................
Charles St. Clair(5)........................................
Daniel Taylor(6)............................................
Kenneth Tai(7)..............................................
Nelson Lane Kelley(8).......................................
Toyohiko Muraki(9)..........................................
Howard Ko(10)...............................................
Paul Lo(11).................................................
Viraj Patel(12).............................................
Amy Sakasegawa(13)..........................................
Scott Spangenberg(14).......................................
All directors and current executive officers as a group (12
persons)(15)..............................................
---------------
* Less than 1.0% of the outstanding Avant! common shares.
(1) Based on [ ] Avant! common shares outstanding as of [ ],
2002.
(2) Based on filings made with the SEC.
(3) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(4) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
73
(5) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(6) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(7) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(8) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(9) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(10) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(11) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(12) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(13) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(14) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
(15) Includes options to purchase [ ] Avant! common shares exercisable
within 60 days of [ ], 2002.
74
SYNOPSYS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated financial
statements give effect to the proposed merger between Synopsys and Avant! using
the purchase method of accounting for the business combination.
Upon completion of the merger, holders of Avant! common stock will be
entitled to receive 0.371 of a share of Synopsys common stock (including the
associated preferred stock rights) in exchange for each share of Avant! common
stock (the exchange ratio) owned at the time of completion of the merger. The
exchange ratio will be proportionately adjusted for any stock split, stock
dividend, reorganization or similar change in Avant! common stock or Synopsys
common stock. Avant! stockholders will receive cash based on the market price of
Synopsys common stock in lieu of any fractional shares to which they might
otherwise be entitled.
The actual number of shares of Synopsys common stock to be issued in the
proposed merger and the dollar value at the effective time of the merger cannot
be determined until the closing date of the merger. The unaudited pro forma
condensed combined consolidated financial statements were prepared based on the
number of outstanding Avant! common shares as of December 3, 2001.
There can be no assurance that Synopsys and Avant! will not incur charges
in excess of those included in the pro forma total consideration related to the
merger or that management will be successful in its effort to integrate the
operations of the companies.
The pro forma condensed combined consolidated financial statements do not
include the effect of Synopsys' proposed acquisition of IKOS Systems, Inc.
(IKOS) because it is not required by Article 11 of the Securities and Exchange
Commission Regulation S-X (Regulation S-X).
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined consolidated balance sheet of
Synopsys gives effect to the proposed merger as if it occurred on July 31, 2001
and combines the unaudited historical consolidated balance sheet of Synopsys as
of July 31, 2001 with the unaudited historical consolidated balance sheet of
Avant! as of September 30, 2001.
The unaudited pro forma condensed combined consolidated statements of
operations of Synopsys give effect to the proposed merger as if the merger had
been consummated on November 1, 1999. The unaudited pro forma condensed combined
consolidated statement of operations of Synopsys for the year ended October 31,
2000 combines the audited historical consolidated statement of operations of
Synopsys for the year ended October 31, 2000 with the audited historical
consolidated statement of operations of Avant! for the year ended December 31,
2000.
The unaudited pro forma condensed combined consolidated statement of
operations of Synopsys for the nine months ended July 31, 2001 combines the
unaudited historical consolidated statement of operations of Synopsys for the
nine months ended July 31, 2001 with the unaudited historical consolidated
statement of operations of Avant! for the nine months ended September 30, 2001.
The accompanying unaudited pro forma condensed combined consolidated
financial statements are presented in accordance with Article 11 of Regulation
S-X. 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 proposed merger had been consummated on November
1, 1999 or on July 31, 2001, respectively, nor is it necessarily indicative of
future operating results or financial position. See "Forward-Looking Statements"
on page [ ]. The pro forma adjustments are based upon information and
assumptions available at the time of the filing of this joint proxy
statement/prospectus. The pro forma financial statements should be read in
conjunction with the accompanying notes thereto and with Synopsys' and Avant!'s
historical consolidated financial statements and related notes thereto,
incorporated by reference into this joint proxy statement/prospectus.
75
SYNOPSYS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
JULY 31, 2001
HISTORICAL
---------------------
SYNOPSYS, AVANT! PRO FORMA PRO FORMA
INC.(1) CORP.(2) ADJUSTMENTS COMBINED
--------- -------- ----------- ----------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................. $ 134,504 $ 56,738 $ (69,972)D $ 36,270
(85,000)D
Short-term investments................................ 174,371 5,657 (180,028)D --
Restricted investments................................ -- 33,744 -- 33,744
--------- -------- --------- ----------
Total cash and short-term investments................. 308,875 96,139 (335,000) 70,014
Accounts receivable, net.............................. 131,721 43,644 -- 175,365
Prepaid expenses, unbilled receivables, deferred taxes
and other........................................... 98,557 44,349 91,400A 234,306
--------- -------- --------- ----------
Total current assets.............................. 539,153 184,132 (243,600) 479,685
Property and equipment, net........................... 173,661 24,100 (536)A 195,906
(1,319)D
Long-term investments................................. 88,222 89,106 -- 177,328
Long-term restricted asset............................ -- -- 250,000D 250,000
Intangible assets, net................................ 39,428 23,069 (23,069)C 755,215
386,287A
166,100A
47,400A
95,600A
17,300A
3,100A
Other assets.......................................... 53,570 70,762 -- 124,332
--------- -------- --------- ----------
Total assets...................................... $ 894,034 $391,169 $ 697,263 $1,982,466
========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.............. $ 120,980 $ 64,802 $ 30,000A $ 265,382
47,000A
2,600E
Current portion of long-term debt..................... 535 -- -- 535
Accrued litigation.................................... -- 25,400 -- 25,400
Accrued income taxes.................................. 36,690 42,456 (30,600)D 48,546
Deferred revenue...................................... 250,752 85,846 (31,846)A 304,752
--------- -------- --------- ----------
Total current liabilities......................... 408,957 218,504 17,154 644,615
Long-term debt.......................................... 123 -- -- 123
Deferred compensation................................... 17,717 -- -- 17,717
Deferred taxes and other liabilities.................... 7,161 11,427 143,629A 162,217
Stockholders' equity:
Preferred stock....................................... -- -- -- --
Common stock.......................................... 590 4 (4)B 731
141A
Additional paid-in capital............................ 573,787 284,467 (284,467)B 1,434,568
860,781A
Retained earnings (accumulated deficit)............... 421,507 (47,032) 47,032B 280,988
(54,400)D
(1,319)D
(84,800)A
Treasury stock, at cost............................... (552,174) (72,856) 72,856B (552,174)
Deferred compensation................................. -- (3,136) 3,136B (22,685)
(22,685)A
Accumulated other comprehensive income (loss)......... 16,366 (209) 209B 16,366
--------- -------- --------- ----------
Total stockholders' equity........................ 460,076 161,238 536,480 1,157,794
--------- -------- --------- ----------
Total liabilities and stockholders' equity........ $ 894,034 $391,169 $ 697,263 $1,982,466
========= ======== ========= ==========
---------------
(1) As of July 31, 2001
(2) As of September 30, 2001
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
76
SYNOPSYS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
HISTORICAL
---------------------
SYNOPSYS, AVANT! PRO FORMA PRO FORMA
INC.(1) CORP.(2) ADJUSTMENTS COMBINED
--------- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Product................................................ $442,453 $222,459 $ -- $ 664,912
Service................................................ 341,325 135,641 -- 476,966
-------- -------- --------- ----------
Total revenue...................................... 783,778 358,100 -- 1,141,878
Cost of revenue:
Product................................................ 42,257 5,623 -- 47,880
Service................................................ 82,217 20,131 -- 102,348
-------- -------- --------- ----------
Total cost of revenue.............................. 124,474 25,754 -- 150,228
-------- -------- --------- ----------
Gross margin............................................. 659,304 332,346 -- 991,650
Operating expenses:
Research and development............................... 189,280 84,237 (234)F 273,283
Sales and marketing.................................... 288,762 102,953 -- 391,715
General and administrative............................. 59,248 39,556 (17,407)C 81,397
Litigation settlement and other related costs.......... -- 47,500 -- 47,500
Amortization of intangible assets...................... 15,129 -- 89,692A 104,821
Amortization of deferred compensation expense.......... -- -- 12,280G 12,280
Merger costs and in-process research and development... 1,750 (343) -- 1,407
-------- -------- --------- ----------
Total operating expenses................................. 554,169 273,903 84,331 912,403
-------- -------- --------- ----------
Operating income (loss).................................. 105,135 58,443 (84,331) 79,247
Other income, net........................................ 40,803 26,696 -- 67,499
-------- -------- --------- ----------
Income (loss) before provision (benefit) for income
taxes.................................................. 145,938 85,139 (84,331) 146,746
Provision (benefit) for income taxes..................... 48,160 32,280 (30,359)H 50,081
-------- -------- --------- ----------
Net income (loss)........................................ $ 97,778 $ 52,859 $ (53,972) $ 96,665
======== ======== ========= ==========
Basic earnings per share................................. $ 1.43 $ 1.36 I $ 1.17
Weighted average common shares outstanding............... 68,510 38,880 I 82,561
======== ======== ==========
Diluted earnings per share............................... $ 1.38 $ 1.32 I $ 1.13
Weighted average common shares and dilutive stock options
outstanding............................................ 70,998 39,966 I 85,855
======== ======== ==========
---------------
(1) For the year ended October 31, 2000
(2) For the year ended December 31, 2000
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
77
SYNOPSYS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 2001
HISTORICAL
-----------------------
SYNOPSYS, AVANT! PRO FORMA PRO FORMA
INC.(1) CORP.(2) ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Product.............................................. $117,152 $ 175,002 $ -- $ 292,154
Service.............................................. 259,900 117,518 -- 377,418
Ratable license...................................... 119,736 -- -- 119,736
-------- --------- --------- ---------
Total revenue.................................... 496,788 292,520 -- 789,308
Cost of revenue:
Product.............................................. 17,616 4,117 -- 21,733
Service.............................................. 58,427 18,211 -- 76,638
Ratable license...................................... 19,689 -- -- 19,689
-------- --------- --------- ---------
Total cost of revenue............................ 95,732 22,328 -- 118,060
-------- --------- --------- ---------
Gross margin........................................... 401,056 270,192 -- 671,248
Operating expenses:
Research and development............................. 143,239 65,052 (301)F 207,990
Sales and marketing.................................. 207,735 76,178 -- 283,913
General and administrative........................... 50,933 36,265 (14,169)C 73,029
Litigation settlement and other related costs........ -- 236,537 -- 236,537
Amortization of intangible assets.................... 12,514 -- 67,268A 79,782
Amortization of deferred compensation expense........ -- -- 4,632G 4,632
-------- --------- --------- ---------
Total operating expenses......................... 414,421 414,032 57,430 885,883
-------- --------- --------- ---------
Operating (loss) income................................ (13,365) (143,840) (57,430) (214,635)
Other income (loss), net............................... 66,901 (10,959) -- 55,942
-------- --------- --------- ---------
Income before provision (benefit) for income taxes..... 53,536 (154,799) (57,430) (158,693)
Provision (benefit) for income taxes................... 17,132 30,662 (20,675)H 27,119
-------- --------- --------- ---------
Net income (loss)...................................... $ 36,404 $(185,461) $ (36,755) $(185,812)
======== ========= ========= =========
Basic earnings (loss) per share........................ $ 0.60 $ (4.94) I $ (2.47)
Weighted average common shares outstanding............. 61,050 37,516 I 75,101
======== ========= =========
Diluted earnings (loss) per share...................... $ 0.56 $ (4.94) I $ (2.47)
Weighted average common shares and dilutive stock
options outstanding.................................. 65,362 37,516 I 75,101
======== ========= =========
---------------
(1) For the nine months ended July 31, 2001
(2) For the nine months ended September 30, 2001
See accompanying notes to unaudited pro forma condensed combined consolidated
financial statements.
78
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
The measurement date to determine the value of the proposed merger has not
occurred. For purposes of the following pro forma adjustments, December 3, 2001
was used for determining the adjustments. The pro forma adjustments are based on
preliminary estimates which may change as additional information is obtained.
(A) Purchase Price Adjustments
The purchase price adjustments reflect the assumed issuance of 14,050,531
shares of Synopsys common stock to Avant! stockholders using the exchange ratio
of 0.371 based on 37,872,052 shares of Avant! common stock outstanding at
December 3, 2001. The fair value of the Synopsys shares assumed to be issued is
based on a per share value of $54.74, which is equal to Synopsys' average last
sale price per share as reported on the Nasdaq National Market for the
trading-day period two days before and after December 3, 2001.
For purposes of the pro forma financial information, the following table
presents the assumptions used.
Total consideration (in thousands):
Fair value of Synopsys common stock assumed to be
issued................................................. $ 769,126
Estimated acquisition related costs....................... 30,000
Employee severance costs.................................. 47,000
Estimated fair value of options to purchase Synopsys
common stock to be issued, less $22.7 million
representing the portion of the intrinsic value of
Avant!'s unvested options applicable to the remaining
vesting period......................................... 69,111
----------
$ 915,237
==========
The actual number of Synopsys common shares and options to be issued will
be based on the actual number of Avant! common shares and options outstanding at
the consummation date.
The estimated acquisition-related costs consist primarily of banking, legal
and accounting fees, printing costs, and other directly related charges.
Employee severance costs consist of a cash severance payment due upon the
closing of the merger of $30.6 million to Avant!'s Chairman of the Board and
$16.4 million in cash severance payments to other employees of Avant! due within
the 12-month period following the closing of the merger. In addition, Avant!'s
Chairman of the Board will be paid the cash value of his in-the-money stock
options determined as of the effective date of the merger, payable on the date
the merger is completed. Based on the in-the-money stock options held by the
Chairman of the Board at December 3, 2001, the amount of this payment would be
$13.1 million, which is included in total consideration above in the estimated
fair value of options to purchase Synopsys common stock to be issued.
The planning process for the integration of Avant!'s operations may result
in additional accruals for severance costs and/or facilities closures in
accordance with Emerging Issues Task Force (EITF) Issue No. 95-3. Such accruals
would increase the purchase consideration and the allocation of the purchase
consideration to goodwill.
79
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following represents the preliminary allocation of the purchase price
to the acquired assets and assumed liabilities of Avant! and is for illustrative
purposes only. This allocation is preliminary and based on Avant!'s assets and
liabilities as of September 30, 2001.
(IN THOUSANDS)
--------------
Net tangible assets......................................... $ 114,650
Goodwill.................................................... 386,287
Other intangible assets:
Core/Developed technology.............................. 166,100
Contract rights intangible............................. 47,400
Customer installed base/relationship................... 95,600
Trademarks and tradenames.............................. 17,300
Covenants not to compete............................... 3,100
In-process research and development......................... 84,800
----------
Total purchase price................................. $ 915,237
==========
Net tangible assets consist of $170 million recorded on the Avant!
historical financial statements, adjusted principally for an increase in
deferred tax liabilities of $143.6 million and an increase in unbilled
receivables of $91.4 million.
Goodwill represents the excess of the purchase price over the fair value of
tangible and identifiable intangible assets. The unaudited pro forma condensed
combined consolidated statements of operations do not reflect the amortization
of goodwill acquired in the proposed merger consistent with the guidance in the
Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and
Other Intangible Assets.
Amortization of other intangible assets has been provided over the
following estimated useful lives: core/developed technology -- three years;
contract right intangible -- the life of the related contracts (one to four
years); customer installed base/relationship -- six years; trademarks and
tradenames -- three years; and covenants not to compete -- the life of the
related agreement (two to four years). This will result in annual amortization
of approximately $55.4 million for core technology, $15.9 million for customer
installed base/relationship, $5.8 million for trademarks and tradename and $0.8
million for covenants not to compete.
The purchase price allocation includes a reduction in Avant!'s reported
deferred revenue at September 30, 2001. Under the purchase method of accounting,
Avant!'s deferred revenue related to post-contract customer support (PCS) for
perpetual license arrangements in which payment had been received or was legally
due and payable was reduced by approximately $45.3 million to the fair value of
the related PCS obligation as of September 30, 2001. In addition, Avant! had
executed signed license agreements, and delivered the licensed technology, under
contracts specifying future customer payments. There were no receivables or
deferred revenue recorded on Avant!'s historical financial statements for these
contracts as the related payments were not yet due under extended payment terms
and Avant! had not yet satisfied its remaining PCS obligations. Accounts
receivable was increased by $91.4 million, equal to the present value of these
future payments and deferred revenue was increased by the $13.5 million fair
value of the related PCS obligation.
Avant! had also executed signed license agreements, and delivered the
initial configuration of licensed technologies, under subscription arrangements.
There were no receivables or deferred revenues recorded on Avant!'s historical
financial statements related to these subscription arrangements as the related
payments were not yet due under extended payment terms and deliveries occur over
the term of the subscription
80
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
arrangements. The contract rights intangible asset associated with these
subscription arrangements will be amortized to cost of sales over the related
contract lives.
Synopsys has not given effect in the pro forma statements of operations to
the deferred revenue adjustment on revenue or the effect of the amortization of
the contract rights intangible asset on cost of sales as the adjustments are
directly related to the merger and the effect is non-recurring. Such adjustments
will be reflected in the post-merger statements of operations of the combined
company.
The deferred revenue adjustment, which will be based on Avant!'s deferred
revenue and backlog at the date of the merger, will have the effect of reducing
the amount of revenue the combined company will recognize in periods subsequent
to the merger compared to the amount of revenue Avant! would have recognized in
the same period absent the merger.
The $22.7 million of deferred stock-based compensation represents the
unearned portion as of December 3, 2001 of the intrinsic value of Avant!'s
common stock options assumed in the merger. For purposes of this calculation,
Avant!'s outstanding options that will vest solely as a result of the
consummation of the proposed merger are deemed to be vested as of December 3,
2001. The deferred compensation is being amortized on an accelerated basis over
the remaining vesting period of one to three years consistent with the graded
vesting approach described in FASB Interpretation No. 28.
The pro forma adjustment to property and equipment, net represents the
elimination of Synopsys software licenses owned by Avant! totaling $0.5 million.
The pro forma financial statements do not include any adjustment related to
the following Avant! transactions which will be completed subsequent to
September 30, 2001:
- Avant! agreed in the merger agreement to purchase the remaining joint
venture interest in Maingate Electronics, KK, a joint venture in which
Avant! owns an 18.8% interest and in which Avant!'s Chairman of the Board
owns a 50% interest. The purchase is expected to be completed in December
2001 for a total purchase price not to exceed $14.0 million.
- Avant! has entered into an agreement to terminate its investment in
Semiconductor Manufacturing International Corporation (SMIC), a
development stage company in the process of establishing a semiconductor
fabrication facility in China. In connection with the termination
agreement, Avant! was reimbursed for the remaining amount of its
investment. The balance of the investment at September 30, 2001 of $29.5
million was reimbursed in November 2001.
Certain preacquisition contingencies that are settled within one year of
the acquisition date for an amount different than the amount accrued for will
result in an adjustment to goodwill. Settlement differences that occur more than
one year from the acquisition date, except for preacquisition income tax
contingencies, will result in a charge or a credit to operations in the period
the settlement occurs. Settlement differences relating to preacquisition income
tax contingencies will result in a goodwill adjustment, regardless of the
settlement date.
(B) The pro forma adjustment represents the elimination of Avant!'s
stockholders' equity accounts.
(C) The pro forma adjustment represents the elimination of Avant!'s capitalized
goodwill and other intangible assets aggregating $23.1 million and related
amortization expense of $17.4 million and $14.2 million in the year ended
October 31, 2000 and the nine months ended July 31, 2001, respectively.
(D) As a result of the merger, Synopsys anticipates that the combined company
will incur certain costs directly related to the merger that will be recognized
in the quarter in which the merger is consummated.
81
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These costs are reflected in the pro forma financial information as a reduction
of retained earnings at the balance sheet date and are described below.
- In connection with the merger, Synopsys has agreed to enter into a policy
with a AAA rated insurance company whereby insurance will be provided to
pay Synopsys an amount equaling certain compensatory, exemplary and
punitive damages, penalties and fines and attorneys' fees arising out of
the Avant!/Cadence litigation (the covered loss). The policy does not
provide coverage for litigation other than the Avant!/Cadence litigation.
In exchange for a binding fee of $10.0 million paid by Synopsys, the
insurer has issued a legally binding commitment to provide the coverage,
effective following the closing of the merger.
In return for a premium of $335 million, including the binding fee, the
insurer will be obligated to pay covered loss up to a limit of liability
equaling (a) $500 million plus (b) interest accruing at the fixed rate of
2%, compounded semi-annually, on $250 million. The policy will expire
upon a final judgment or settlement of the Avant!/Cadence litigation or
any earlier date upon Synopsys' election. Upon such expiration, Synopsys
will be entitled to a payment equal to $250 million plus interest less
any loss paid under the policy.
The contingently refundable portion of the insurance premium ($250
million) is included in the pro forma balance sheet at July 30, 2001 as a
long-term restricted asset. Interest earned on that amount will be
included in other income, net in the post-acquisition statement of
operations. The balance of the premium paid to the insurer, $85 million,
will be recognized in the quarter in which the merger is consummated. For
purposes of the pro forma balance sheet at July 31, 2001, the $85 million
premium reduced by the related $30.6 million income tax benefit, is
recorded as a reduction of retained earnings.
- Synopsys will write-off the net book value of software licenses totaling
$1.3 million originally purchased from Avant!.
(E) A pro forma adjustment of $2.6 million has been recorded representing the
amount by which Avant!'s current operating lease commitments exceed their fair
value.
(F) The pro forma adjustment represents the elimination of depreciation expense
of $0.2 million and $0.3 million in the year ended October 31, 2000 and the nine
months ended July 31, 2001, respectively, for Synopsys software owned by Avant!.
(G) The pro forma adjustment represents the amortization of deferred
compensation associated with unvested stock options assumed in the proposed
merger with Avant!. The deferred compensation is amortized over the options'
remaining vesting period as of December 3, 2001 of one to three years.
(H) The pro forma adjustment reflects a combined effective tax rate of 36% for
the year ended October 31, 2000. For the nine months ended July 31, 2001 there
was a negative combined effective tax rate due to certain losses arising in
Avant!.
82
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(I) The following tables set forth the computation of basic and diluted earnings
per share:
HISTORICAL
------------------------
SYNOPSYS, AVANT!, PRO FORMA
INC.(1) CORP.(2) COMBINED
FOR THE YEAR ENDED OCTOBER 31, 2000 ----------- ---------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Numerator:
Net income................................................ $97,778 $52,859 $96,665
======= ======= =======
Denominator:
Weighted-average common shares outstanding................ 68,510 38,880 82,561
Effect of dilutive employee stock options outstanding..... 2,488 1,086 3,294
------- ------- -------
Diluted common shares(5).................................. 70,998 39,966 85,855
======= ======= =======
Basic earnings per share.................................... $ 1.43 $ 1.36 $ 1.17
======= ======= =======
Diluted earnings per share.................................. $ 1.38 $ 1.32 $ 1.13
======= ======= =======
HISTORICAL
-----------------------
SYNOPSYS, AVANT!, PRO FORMA
INC.(3) CORP.(4) COMBINED
FOR THE NINE MONTHS ENDED JULY 31, 2001 ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
Numerator:
Net income (loss)......................................... $36,404 $(185,461) $(185,812)
Denominator:
Weighted-average common shares outstanding................ 61,050 37,516 75,101
Effect of dilutive employee stock options outstanding..... 4,312 -- --
------- --------- ---------
Diluted common shares..................................... 65,362 37,516 75,101
======= ========= =========
Basic earnings (loss) per share............................. $ 0.60 $ (4.94) $ (2.47)
======= ========= =========
Diluted earnings (loss) per share........................... $ 0.56 $ (4.94) $ (2.47)
======= ========= =========
---------------
(1) For the year ended October 31, 2000.
(2) For the year ended December 31, 2000.
(3) For the nine months ended July 31, 2001.
(4) For the nine months ended September 30, 2001.
(5) The effect of dilutive employee stock options outstanding includes the
effect of the weighted average Avant! options expected to be assumed in the
merger.
83
COMPARATIVE RIGHTS OF SYNOPSYS AND AVANT! STOCKHOLDERS
Synopsys and Avant! are both Delaware corporations. The rights of each
company's stockholders are generally governed by Delaware law and each company's
certificate of incorporation and bylaws. Upon completion of the merger,
stockholders of Avant! will become stockholders of Synopsys. No changes to the
Synopsys certificate of incorporation or bylaws will be adopted in connection
with the merger.
The following is only a summary comparison of the material differences
between the rights of an Avant! stockholder and the rights of a Synopsys
stockholder arising from the governing organizational instruments of these
companies. We encourage you to read carefully and in their entirety the
certificates of incorporation and bylaws of Synopsys and Avant!. For information
on how to obtain these documents, see "Additional Information -- Where You Can
Find More Information." You are encouraged to obtain and read these documents.
If your shares are held in "street name" by a broker or other financial
intermediary rather than directly by you as a person whose name is entered on
the share register of the relevant company, you must rely on procedures
established by that broker or financial intermediary in order to assert the
rights of a stockholder against the relevant company.
AUTHORIZED CAPITAL STOCK
Avant!. 75 million shares, of which 70 million are shares of common stock,
par value $0.0001 per share, and five million are shares of preferred stock, par
value $0.0001 per share.
Synopsys. 402 million shares, of which 400 million are shares of common
stock, par value $0.01 per share, and two million are shares of preferred stock,
par value $0.01 per share.
SPECIAL MEETINGS OF STOCKHOLDERS
Avant!. Special meetings of Avant!'s stockholders may be called only by
Avant!'s president and shall be called by Avant!'s president or secretary at the
request in writing of a majority of the board.
Synopsys. Special meetings of Synopsys' stockholders may be called only by
Synopsys' chairman, president or chief executive officer and shall be called by
Synopsys' chairman, president or secretary at the request in writing of a
majority of the board.
RIGHTS OF REDEMPTION
Avant!. Avant!'s certificate of incorporation does not limit the right to
redeem Avant's shares and, as a result, Avant! may purchase, redeem and dispose
of its own shares subject to the limitations imposed by Delaware law.
Synopsys. Synopsys' certificate of incorporation provides that its common
shares are not redeemable.
NUMBER OF DIRECTORS
Avant!. Avant!'s certificate of incorporation and bylaws provide for the
board or a majority of shares entitled to vote at an annual meeting to set the
number of directors. Avant! currently has a seven-member board.
Synopsys. For Synopsys, the number of directors is fixed by a bylaw or
bylaw amendment adopted by the board or by a majority of shares entitled to
vote. Synopsys' current bylaws provide that the board sets the number of
directors, which may not be less than five nor more than nine. Synopsys
currently has an eight-member board.
NOTICE REQUIREMENTS FOR STOCKHOLDER NOMINATION OF DIRECTORS AND OTHER PROPOSALS
Avant!. In general, to bring a matter before an annual meeting or to
nominate a candidate for director, a stockholder must provide notice of the
proposed matter or nomination not less than 45 and not
84
more than 75 days prior to the first anniversary date of the proxy mailing date
for the immediately preceding annual meeting.
If the annual meeting is not within 30 days before or 30 days after the
anniversary date of the preceding annual meeting, the stockholder notice must be
received no later than the later of the 90th day prior to the annual meeting and
the 10th day following the day of public announcement of the annual meeting.
The stockholder must also deliver a proxy statement and form of proxy to
holders of at least the percentage of Avant!'s voting shares believed by the
stockholder to be sufficient to either elect the proposed nominee or nominees or
approve the proposed matter.
Synopsys. In general, to bring a matter before an annual meeting or to
nominate a candidate for director, a stockholder must provide notice of the
proposed matter or nomination not less than 120 days prior to the date specified
in Synopsys' proxy statement for the previous year's annual meeting.
If the annual meeting is not within 30 days before or 30 days after the
anniversary date of the preceding annual meeting, or if there was no annual
meeting in the previous year, Synopsys must receive stockholders' notifications
a reasonable time before the solicitation is made.
BOARD VACANCY
Avant!. Vacancies and newly-created directorships may be filled by a
majority of the directors then in office or by the sole remaining director.
Synopsys. Vacancies and newly-created directorships may be filled only by
a vote of at least two-thirds of the directors then in office or by a sole
remaining director, except that if a director is removed by the stockholders for
cause, the stockholders are entitled to fill the vacancy created as a result of
such removal.
ADDITIONAL MATTERS TO BE CONSIDERED AT THE SYNOPSYS ANNUAL MEETING
At the Synopsys annual meeting, in addition to voting on Proposal 1, the
share issuance, Synopsys stockholders will be asked to vote on the following two
proposals.
PROPOSAL 2 -- ELECTION OF SYNOPSYS DIRECTORS
The bylaws of Synopsys provide that the Synopsys board of directors shall
consist of not fewer than five and not more than nine persons. Within that
range, the Synopsys board of directors has set the number of directors at eight
persons. At the Synopsys annual meeting, eight directors are to be elected to
serve until Synopsys' next annual meeting or until their successors are elected
and qualified. The Synopsys board of directors has selected eight nominees for
director. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unavailable to
serve. Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the nominees named below. The eight candidates receiving
the highest number of affirmative votes of the shares represented and voting on
this proposal at the Synopsys annual meeting will be elected directors of
Synopsys.
THE SYNOPSYS BOARD OF DIRECTORS RECOMMENDS THAT THE SYNOPSYS STOCKHOLDERS
VOTE FOR THE ELECTION OF EACH OF THE FOLLOWING NOMINEES TO SERVE AS DIRECTORS OF
SYNOPSYS UNTIL THE NEXT SYNOPSYS ANNUAL MEETING OR UNTIL THEIR SUCCESSORS HAVE
BEEN ELECTED AND QUALIFIED.
85
NOMINEES
Set forth below is information regarding the nominees, including
information furnished by them as to principal occupations, certain other
directorships held by them, any arrangements pursuant to which they were
selected as directors or nominees and their ages as of January 1, 2002.
YEAR FIRST
NAME AGE ELECTED DIRECTOR
---- ---- ----------------
Aart J. de Geus............................................. 47 1986
Andy D. Bryant.............................................. 51 1999
Chi-Foon Chan............................................... 52 1998
Bruce R. Chizen............................................. 46 2001
Deborah A. Coleman.......................................... 48 1995
A. Richard Newton........................................... 50 1987; 1995
Sasson Somekh............................................... 55 1999
Steven C. Walske............................................ 49 1991
BACKGROUND OF DIRECTORS
DR. AART J. DE GEUS co-founded Synopsys and currently serves as Chief
Executive Officer and Chairman of the Board of Directors. Since the inception of
Synopsys in December 1986, he has held a variety of positions, including Senior
Vice President of Engineering and Senior Vice President of Marketing. From 1986
to 1992, Dr. de Geus served as Chairman of the Board. He served as President
from 1992 to 1998. Dr. de Geus has served as Chief Executive Officer since
January 1994 and has held the additional title of Chairman of the Board since
February 1998. He has served as a Director since 1986. From 1982 to 1986 Dr. de
Geus was employed by General Electric Corporation, where he was the Manager of
the Advanced Computer-Aided Engineering Group. Dr. de Geus holds an M.S.E.E.
from the Swiss Federal Institute of Technology in Lausanne, Switzerland and a
Ph.D. in electrical engineering from Southern Methodist University.
ANDY D. BRYANT has been a Director of Synopsys since January 1999 and
currently serves as Executive Vice President and Chief Financial and Enterprise
Services Officer of Intel Corporation, with responsibility for financial
operations, human resources, information technology and e-business functions and
activities worldwide. Mr. Bryant joined Intel in 1981 as Controller for the
Commercial Memory Systems Operation and in 1983 became Systems Group Controller.
In 1987 he was promoted to Director of Finance for the corporation and was
appointed Vice President and Director of Finance of the Intel Products Group in
1990. Mr. Bryant became CFO in February of 1994 and was promoted to Senior Vice
President in January 1999. Mr. Bryant expanded his role to Chief Financial and
Enterprise Services Officer in December 1999. He was promoted to Executive Vice
President in January 2001. Prior to joining Intel, he held positions in finance
at Ford Motor Company and Chrysler Corporation. Mr. Bryant holds a B.A. in
economics from the University of Missouri and an M.B.A. in finance from the
University of Kansas. Mr. Bryant is a director of Convera Corporation, a
provider of content management solutions.
DR. CHI-FOON CHAN joined Synopsys as Vice President of Application
Engineering & Services in May 1990. Since April 1997 he has served as Chief
Operating Officer and since February 1998 he has held the additional title of
President. Dr. Chan also became a Director of Synopsys in February 1998. From
September 1996 to February 1998 he served as Executive Vice President, Office of
the President. From February 1994 until April 1997 he served as Senior Vice
President, Design Tools Group and from October 1996 until April 1997 as Acting
Senior Vice President, Design Re-Use Group. Additionally, he has held the titles
of Vice President, Engineering and General Manager, DesignWare Operations and
Senior Vice President, Worldwide Field Organization. From March 1987 to May
1990, Dr. Chan was employed by NEC Electronics, where his last position was
General Manager, Microprocessor Division. From 1977 to 1987, Dr. Chan held a
number of senior engineering positions at Intel Corporation. Dr. Chan holds an
M.S. and Ph.D. in computer engineering from Case Western Reserve University.
86
BRUCE R. CHIZEN has been a Director of Synopsys since April 2001. Mr.
Chizen has served as President of Adobe Systems Incorporated, a provider of
graphic design, publishing, and imaging software for Web and print production,
since April 2000 and as Chief Executive Officer since December 2000. He joined
Adobe Systems in August 1994 as Vice President and General Manager, Consumer
Products Division and in December 1997 became Senior Vice President and General
Manager, Graphics Products Division. In August 1998 Mr. Chizen was promoted to
Executive Vice President, Products and Marketing. From November 1992 to February
1994 he was Vice President and General Manager, Claris Clear Choice for Claris
Corp., a wholly-owned subsidiary of Apple Computer. He is a Director of Adobe
Systems Incorporated and Viewpoint Corporation, a provider of advanced 3D
product visualization and marketing solutions.
DEBORAH A. COLEMAN has been a Director of Synopsys since November 1995. Ms.
Coleman is co-founder and currently General Partner of SmartForest Ventures in
Portland, Oregon. Ms. Coleman was Chairman of the Board of Merix Corporation, a
manufacturer of printed circuit boards, from May 1994, when it was spun off from
Tektronix, Inc., until September 2001. She also served as Chief Executive
Officer of Merix from May 1994 to September 1999 and as President from March
1997 to September 1999. Ms. Coleman joined Merix from Tektronix, a diversified
electronics corporation, where she served as Vice President of Materials
Operations, responsible for worldwide procurement, distribution, component
engineering and component manufacturing operation. Prior to joining Tektronix in
November 1992, Ms. Coleman was with Apple Computer, Inc. for eleven years, where
she held several executive positions, including Chief Financial Officer, Chief
Information Officer and Vice President of Operations. She is a Director of
Applied Materials, Inc., a manufacturer of semiconductor fabrication equipment.
DR. A. RICHARD NEWTON has been a Director of Synopsys since January 1995.
Previously, Dr. Newton was a Director of Synopsys from January 1987 to June
1991. Dr. Newton has been a Professor of Electrical Engineering and Computer
Sciences at the University of California at Berkeley since 1979 and is currently
Dean of the College of Engineering. From July 1999 to June 2000, Dr. Newton was
Chair of the Electrical Engineering and Computer Sciences Department. Since 1988
Dr. Newton has acted as a Venture Partner with Mayfield Fund, a venture capital
partnership, and has contributed to the evaluation and development of over two
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 has
developed display systems based on the application of micromachined silicon
light-valves. Dr. Newton is also a Director of Simplex Solutions, Inc., which
provides software and services for integrated circuit design and verification.
DR. SASSON SOMEKH has been a Director of Synopsys since January 1999. He is
Executive Vice President of Applied Materials, Inc., a manufacturer of
semiconductor fabrication equipment. From December 1993 to November 2000, Dr.
Somekh served as Senior Vice President. Dr. Somekh served as Group Vice
President from 1990 to 1993. Prior to that, he was a divisional Vice President.
Dr. Somekh joined Applied Materials in 1980 as a Project Manager.
STEVEN C. WALSKE has been a Director of Synopsys since December 1991. Mr.
Walske has been Chief Business Strategist of Parametric Technology Corporation,
a supplier of software products for mechanical computer aided engineering, since
June 2000 and served as Chairman, Chief Executive Officer and a Director from
August 1994 until June 2000. From December 1986 to August 1994 Mr. Walske served
as President and Chief Executive Officer of that company.
There are no family relationships among any executive officers, directors
or persons chosen or nominated to become executive officers or directors of
Synopsys.
BOARD COMMITTEES AND MEETINGS
During fiscal 2001, the Synopsys board of directors held five meetings.
During such year, the committees of the Synopsys board of directors included an
Audit Committee, a Human Resources and Compensation Committee, which we refer to
in this document as the "Compensation Committee," a Technology Committee and a
Corporate Governance Committee.
87
During fiscal 2001, the Audit Committee consisted of three directors: Mr.
Bryant, Ms. Coleman and Dr. Somekh. All such directors served on the Audit
Committee for the entire year, except for Mr. Bryant who was appointed in May
2001. The Audit Committee is primarily responsible for reviewing Synopsys'
financial results prior to their release to the public, reviewing reports
provided by, and approving the services performed by, Synopsys' independent
auditors and reviewing Synopsys' accounting practices and systems of internal
accounting controls. The Audit Committee held five meetings during fiscal 2001.
During fiscal 2001, the Compensation Committee consisted of four directors:
Mr. Bryant, Mr. Chizen, Ms. Coleman and Mr. Walske. All such directors served on
the committee for the entire fiscal year, except for Mr. Chizen who was
appointed in May 2001. The Compensation Committee is primarily responsible for
reviewing and approving Synopsys' general compensation policies, setting
compensation levels for Synopsys' executive officers and administering Synopsys'
stock option, employee stock purchase and 401(k) savings plans. The committee
held four meetings during fiscal 2001 and acted by unanimous written consent on
two occasions. In March 2000, the Compensation Committee established a Grant
Subcommittee consisting of committee members Ms. Coleman and Mr. Walske. Mr.
Chizen was added to the Grant Subcommittee in August 2001. The purpose of the
Grant Subcommittee is to ensure that option grants made to executive officers of
Synopsys comply with certain securities and tax rules. During fiscal 2001, the
Grant Subcommittee held two meetings and acted by unanimous written consent on
two occasions.
During fiscal 2001, the Technology Committee consisted of two directors:
Dr. Newton and Dr. Somekh. Both directors served on the committee for the entire
fiscal year. The Technology Committee advises the Synopsys board of directors on
long-term technology strategy and industry development issues. The committee
held three meetings during the year.
During fiscal 2001, the Corporate Governance Committee consisted of six
directors: Mr. Bryant, Mr. Chizen, Ms. Coleman, Dr. Newton, Dr. Somekh and Mr.
Walske, all of whom are non-employee directors. All such directors served on the
committee for the entire fiscal year, except for Mr. Chizen who was appointed in
May 2001. The Corporate Governance Committee identifies and recommends to the
Synopsys board of directors candidates for membership on the Synopsys board of
directors and Synopsys board of directors committees, considers and recommends
to the Synopsys board of directors candidates for certain corporate officers,
including chief executive officer, develops and recommends criteria and policies
relating to service and tenure of directors, oversees matters of corporate
governance, reviews the performance of the Chief Executive Officer and other
senior executives and reviews such other matters relating to management of
Synopsys as it deems appropriate. The committee held three meetings during
fiscal 2001. All nominees for the Synopsys board of directors were approved by
the committee.
During fiscal 2001, all directors attended at least 75% of the meetings of
the Synopsys board of directors and committees of the Synopsys board of
directors on which they served, except Dr. Somekh and Mr. Walske.
DIRECTORS' COMPENSATION
During fiscal 2001, each non-employee board of directors member was paid an
annual retainer of $8,000 and $1,000, respectively, for each board of directors
or board of directors committee meeting attended, plus expenses.
In addition, non-employee board of directors members receive automatic
option grants under the 1994 Non-Employee Directors Stock Option Plan, which in
this document we refer to as the "Directors Plan." As of the date of this joint
proxy statement/prospectus, all six non-employee Synopsys board of directors
members were eligible to participate in the Directors Plan.
During fiscal 2001, directors Andy D. Bryant, Bruce R. Chizen, Deborah A.
Coleman, A. Richard Newton, Sasson Somekh and Steven C. Walske each received
automatic grants of options to purchase 10,000 Synopsys common shares at an
exercise price of $50.69 per share for Synopsys board of directors service
during the year. In addition, during fiscal 2001, Mr. Chizen received options to
purchase 9,166
88
Synopsys common shares, at an exercise price of $61.37, and Ms. Coleman and
Messrs. Bryant, Newton, Somekh and Walske each received options to purchase
10,000 Synopsys common shares for service on Synopsys board of directors
committees at an exercise price of $50.69. Mr. Chizen also received an automatic
grant of options to purchase 20,000 Synopsys common shares at an exercise price
of $50.69 per share for his initial Synopsys board of directors service.
During fiscal 2001, Dr. Newton provided consulting services to Synopsys,
for which he was paid $150,000. Under Synopsys' agreement with Dr. Newton, at
Synopsys' request, Dr. Newton provides advice concerning long-term technology
strategy and industry development issues, as well as providing assistance in
identifying opportunities for partnerships with academia.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth the compensation earned by (1) Synopsys'
Chief Executive Officer and (2) each of the other four most highly compensated
executive officers whose compensation for fiscal 2001 exceeded $100,000, which
in this document we collectively refer to as the "named executive officers," for
services rendered in all capacities to Synopsys during the last three fiscal
years.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION:
ANNUAL SECURITIES
COMPENSATION($) AWARDS ALL OTHER
------------------- UNDERLYING COMPENSATION
NAME AND POSITION YEAR(1) SALARY BONUS OPTIONS(#) ($)(2)
----------------- ------- ------- -------- ------------- ------------
Aart J. de Geus.................... 2001 400,000 575,000 85,500 1,830
Chief Executive Officer and...... 2000 430,769 600,000 731,000 1,855
Chairman of the Board............ 1999 375,000 681,690 254,700 1,953
Chi-Foon Chan...................... 2001 400,000 575,000 71,000 2,588
President and.................... 2000 430,769 600,000 623,000 2,493
Chief Operating Officer.......... 1999 375,000 681,690 199,200 1,653
Vicki L. Andrews................... 2001 289,423 611,396(3) 60,500 9,544
Senior Vice President............ 2000 287,500 568,256(4) 179,000 9,826
World Wide Sales
Robert B. Henske................... 2001 364,423 350,000 60,500 1,825
Senior Vice President and........ 2000(5) 175,000 232,000 340,000 160
Chief Financial Officer
Steven K. Shevick.................. 2001 241,538 175,000 17,500 1,871
Vice President, Investor
Relations........................ 2000 236,154 160,984 100,000 1,833
and Legal, General Counsel
---------------
(1) During fiscal 1999, Synopsys had a fiscal year that ended on the last
Saturday of September. In July 1999, Synopsys changed its fiscal year end to
the last Saturday in October. As a result, salary data for fiscal 2000
includes the 13-month period ended October 28, 1999.
(2) Amounts in this column reflect premiums paid for group term life insurance,
Synopsys 401(k) contributions and, in the case of Ms. Andrews only, car
allowances.
(3) Ms. Andrews' 2001 bonus consists of commissions of $150,000, a variable
bonus of $296,260, a relocation bonus of $160,000 and a special bonus of
$5,136.
(4) Ms. Andrews' 2000 bonus consists of commissions of $318,096 and a variable
bonus of $250,160.
(5) Mr. Henske commenced employment with Synopsys on May 10, 2000.
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STOCK OPTION GRANTS
The following table sets forth further information regarding individual
grants of options for Synopsys common shares during fiscal 2001 for each of the
named executive officers. All grants for each of the named executive officers
were made pursuant to the 1992 stock option plan. In accordance with the rules
of the SEC, the table sets forth the hypothetical gains or "option spreads" that
would exist for the options at the end of their respective ten-year terms based
on assumed annualized rates of compound stock price appreciation of 5% and 10%
from the dates the options were granted to the end of their respective option
terms. Actual gains, if any, on option exercises are dependent on the future
performance of the Synopsys common shares and overall market conditions. There
can be no assurance that the potential realizable values shown in this table
will be achieved. No stock appreciation rights were granted to such officers
during fiscal 2001.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM($)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL 2001(2) ($/SHARE) DATE 5% 10%
---- ---------- -------------- ------------- ------------------- ---------- ----------
Aart J. de Geus.......... 85,500 1.47 47.44 - 61.37 2/28/11 - 8/28/11 2,930,209 7,425,724
Chi-Foon Chan............ 71,000 1.22 47.44 - 61.37 2/28/11 - 8/28/11 2,432,192 6,163,652
Vicki L. Andrews......... 60,500 1.04 47.44 - 61.37 2/28/11 - 8/28/11 2,084,176 5,281,710
Robert B. Henske......... 60,500 1.04 47.44 - 61.37 2/28/11 - 8/28/11 2,084,176 5,281,710
Steven K. Shevick........ 17,500 0.30 47.44 - 61.37 2/28/11 - 8/28/11 600,604 1,522,048
---------------
(1) Sum of all option grants made during the fiscal year to such person. Options
become exercisable ratably in a series of monthly installments over a
four-year period from the grant date, assuming continued service to
Synopsys, subject to acceleration under certain circumstances involving a
change in control of Synopsys. Each option has a maximum term of 10 years,
subject to earlier termination upon the optionee's cessation of service.
(2) Based on aggregate options to acquire 5,809,892 Synopsys common shares
granted in fiscal 2001.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth, for each of the named executive officers,
each exercise of stock options during fiscal 2001 and the year-end value of
unexercised options.
No stock appreciation rights were exercised during such fiscal year by the
named executive officers, and no stock appreciation rights were outstanding at
the end of the fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
SHARES NUMBER OF UNEXERCISED VALUE OF IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT FY-END OPTIONS AT FY-END($)(2)
ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Aart J. de Geus............... -- -- 967,503 654,697 9,868,495 5,464,579
Chi-Foon Chan................. -- -- 549,005 547,195 4,430,172 4,427,467
Vicki L. Andrews.............. 11,000 305,335 69,049 174,617 689,694 1,509,669
Robert B. Henske.............. -- -- 124,374 276,126 1,314,625 2,563,045
Steven K. Shevick............. -- -- 74,665 87,335 730,765 738,265
---------------
(1) Market value at exercise less exercise price.
(2) Market value of underlying securities on November 2, 2001 ($47.86) minus the
exercise price.
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF
CONTROL AGREEMENTS
Under Synopsys' 1992 stock option 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 stock option 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 the outstanding Synopsys common shares or a change in the majority
of the Synopsys board of directors as a result of one or more contested
elections for membership on the Synopsys board of directors, the administrator
of the 1992 stock option plan has the authority to provide for the acceleration
of vesting of the Synopsys common shares subject to outstanding options under
the 1992 stock option plan.
Synopsys has entered into Employment Agreements, effective October 1, 1997,
with its Chief Executive Officer and its President and an Employment Agreement
with its Chief Financial Officer, effective May 10, 2000. Each Employment
Agreement provides that if the executive is terminated involuntarily other than
for cause within 24 months of a change of control, (a) the executive will be
paid an amount equal to two times the sum of the executive's annual base pay
plus target cash incentive, plus the cash value of the executive's health
benefits for the next 18 months and (b) all stock options held by the executive
will immediately vest in full. If the executive is terminated involuntarily
other than for cause in any other situation, the executive will receive a cash
payment equal to the sum of the executive's annual base pay for one year plus
the target cash incentive for such year, plus the cash value of the executive's
health benefits for 12 months. The terms "involuntary termination," "cause" and
"change of control" are defined in each Employment Agreement, each of which is
filed with the SEC.
REPORT OF THE COMPENSATION COMMITTEE
The following is the report of the Compensation Committee of the Synopsys
board of directors describing the compensation policies, and the rationale for
these policies, with respect to the compensation paid to Synopsys' executive
officers for fiscal 2001.
EXECUTIVE COMPENSATION
PURPOSE OF THE COMPENSATION COMMITTEE
The Compensation Committee is responsible for determining compensation
levels for the executive officers for each fiscal year based upon a consistent
set of procedures. The Committee reviews and approves all executive target
compensation (base and bonus) and the plan by which bonus in excess of target
may be paid to executive officers. In the case of Synopsys' principal sales
executive, the Chief Executive Officer, President and certain other members of
senior management formulate an individual bonus plan based primarily upon
accepted orders for Synopsys' products and services and revenues.
COMMITTEE STRUCTURE
The Committee is comprised of four non-employee members of the board of
directors: Andy Bryant, Bruce Chizen, Deborah Coleman and Steven C. Walske. In
March 2000, the Compensation Committee established a Grant Subcommittee
comprised of committee members Ms. Coleman and Mr. Walske. Mr. Chizen was added
to the Grant Subcommittee in August 2001. The purpose of the Grant Subcommittee
is to ensure that option grants made to executive officers of Synopsys comply
with certain securities and tax rules.
OBJECTIVES OF THE COMPENSATION PLAN
The objectives of the compensation program as established by the Committee
are: (1) to provide a means for Synopsys to attract and retain high-quality
executives; (2) to tie executive compensation
91
directly to Synopsys' business and performance objectives; and (3) to reward
outstanding individual performance that contributes to the long-term success of
Synopsys.
ELEMENTS OF COMPENSATION
Each executive officer's compensation package consists of three elements:
(1) base compensation, which reflects individual performance and is designed
primarily to be competitive with salary levels in a comparative group; (2)
variable or bonus compensation payable based on the achievement of financial
performance goals and individual performance; and (3) long-term stock-based
incentive compensation, which rewards Synopsys growth and increased stockholder
value.
Base Compensation. The base compensation for each executive officer is
determined based on consideration of the following factors: (1) salary levels
for comparable positions in software and related companies similar in size and
business that compete with Synopsys in the recruitment and retention of senior
personnel; (2) each executive's past performance relative to corporate, business
group (if applicable) and individual objectives; (3) each executive's
responsibility level and objectives for the subsequent year; and (4)
compensation relative to other executives at Synopsys.
Information regarding competitive salary ranges for fiscal 2001 was
obtained from an independent compensation survey firm. Some of the companies the
Committee surveyed as part of the peer group for comparative compensation
purposes are included in the S&P Technology Sector Index, which Synopsys has
selected as the industry index for purposes of the stock price performance graph
that appears later in this joint proxy/prospectus. However, the S&P Technology
Sector Index also includes a significant number of companies that are of greater
size than Synopsys, participate in different industries than Synopsys or are
located in different regions from Synopsys, and use of index companies alone
would have incorrectly affected compensation comparisons. In selecting companies
for compensation comparison purposes, the Committee selected companies that
actually compete with Synopsys in seeking executive talent. Consequently, some
companies included in the compensation comparison survey are not necessarily
included in the S&P Technology Sector Index.
Synopsys believes that the total cash compensation for the executive
officers of Synopsys for fiscal 2001 was competitive with the total cash
compensation for executive officers at companies with which Synopsys competes
for executives.
Variable Compensation. Synopsys' fiscal 2001 bonus plan approved by the
Committee set forth (1) the size of the aggregate bonus pool for all
non-commissionable employees and executive officers and (2) the amount of
incentive bonus compensation payable to individual executive officers (other
than Synopsys' principal sales executive) based on the achievement of specific
performance targets relating to accepted orders, revenue and expenses for
Synopsys as a whole. An executive officer's bonus compensation may be increased
based upon a qualitative assessment of his or her performance by the Chairman of
the Board/Chief Executive Officer and President/Chief Operating Officer, in
consultation with and approval by the Committee and the board of directors. The
bonuses payable to all such executive officers, together with bonuses payable to
all other non-commissionable employees as a group, may not exceed the total
bonus pool approved by the Committee.
For fiscal 2001, a bonus formula was established such that achievement of
planned levels of accepted orders, revenue and expenses would result in a
specified bonus level. For performance levels over or under plan, the bonus
compensation amount would increase or decrease proportionately.
For fiscal 2001, expenses met the established targets, although revenue and
accepted orders did not. Bonus compensation (except for the qualitative
component) was determined according to the compensation formula and was below
the target amount. Bonus compensation paid to Synopsys' principal sales
executive in fiscal 2001 was determined under her individual bonus plan and was
adjusted downward as a result of the decline in orders and revenue during fiscal
2001. Total bonus compensation for the Named Executive Officers is shown in
"-- Executive Compensation and Other Matters" on page [ ].
92
The Committee believes that these levels of compensation are a fair reflection
of the performance of the named individuals.
The Compensation Committee met during the first quarter of fiscal 2002 to
review the incentive bonus compensation structure for executive officers for
fiscal 2002. The Committee decided to defer approval of the 2002 bonus plan for
executive officers until later in fiscal 2002. As a result, Synopsys' executive
officers are currently being compensated according to the fiscal 2001 plan.
Long-Term Incentive Compensation. Long-term compensation provided to
Synopsys' executives has been in the form of stock options. The Committee
believes that equity-based compensation closely aligns the interests of
executive officers with those of stockholders by providing an incentive to
manage Synopsys with a focus on long-term strategic objectives set by the
Synopsys board of directors relating to growth and stockholder value. Stock
options are granted under the 1992 Plan according to guidelines that take into
account the executive's responsibility level, comparison with comparable awards
to individuals in similar positions in the industry, Synopsys' long-term
objectives for maintaining and expanding technological leadership through
product development and growth, expected Synopsys performance, the executive's
performance and contribution during the last fiscal year and the executive's
existing holdings of unvested stock options. However, the Committee does not
strictly adhere to these factors in all cases and will vary the size of the
grant made to each executive officer as the particular circumstances warrant.
Each grant allows the officer to acquire Synopsys common shares at the fair
market value in effect on the date of grant.
The options vest in a series of installments over a four-year period,
contingent upon the executive's continued employment with Synopsys. Accordingly,
the option will provide a return to the executive only if he or she remains in
Synopsys' employ, and then only if the market price of the Synopsys common
shares appreciates over the option term. Subsequent grants may be made to
officers when the Committee believes that the officer has demonstrated greater
potential, achieved more than originally expected, or assumed expanded
responsibilities. Additionally, subsequent grants may be made to remain
competitive with similar companies. See "-- Option Exercises and Year-End
Values" on page [ ].
The Committee evaluated the performance of the executive officers against
the strategic objectives for fiscal 2001 set by the board of directors and
concluded that such performance warrants the level of long-term compensation
awarded them as set forth in "--Summary Compensation and Other Matters" on page
[ ]. The Committee typically reexamines long-term compensation levels each
year.
CHAIRMAN OF THE BOARD/CHIEF EXECUTIVE OFFICER'S COMPENSATION
Compensation for the Chairman/CEO is determined by a process similar to
that discussed above for executive officers. Dr. de Geus' base compensation for
fiscal 2001 was established by the Committee in February 2001. Dr. de Geus' base
compensation is competitive with base compensation levels for chief executive
officers of the companies with which Synopsys competes for executives.
As was the case with the other executive officers, Dr. de Geus' bonus was
calculated under a formula based on accepted orders, revenue and expense. For
performance levels over or under plan, the bonus compensation amount would
increase or decrease proportionately. Dr. de Geus was also eligible for an
increased bonus based on a qualitative assessment of his performance by the
Board of Directors. For fiscal 2001, expenses met the established targets,
although revenue and accepted orders did not. As a result, Dr. de Geus' overall
fiscal 2001 bonus was lower than his target bonus. Dr. de Geus' bonus
compensation (except for the qualitative component) was determined according to
the compensation formula established at the beginning of the year. See
"-- Executive and Other Compensation Matters" on page [ ]. In determining the
amount of long-term compensation to grant to Dr. de Geus, the Committee
considered the same factors used to determine grants for other executive
officers set forth above.
The Committee believes that the overall level of compensation is a fair
reflection of Dr. de Geus' performance for the year.
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TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code places a $1 million limit on the tax
deductibility of cash compensation paid to the five most highly compensated
executive officers of Synopsys. Synopsys expects that no portion of the cash
compensation paid to such executive officers in fiscal 2001 will be subject to
the limitation under Section 162(m). Under the 1992 stock option plan,
compensation deemed paid to an executive officer when he or she exercises an
outstanding option under the Plan will qualify as performance-based compensation
which will not be subject to the $1 million limitation.
COMPENSATION COMMITTEE
Steven C. Walske, Chairperson
Andy D. Bryant
Bruce R. Chizen
Deborah A. Coleman
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee was at any time during
fiscal 2001, or at any other time, an officer or employee of Synopsys.
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 of directors or
Compensation Committee.
REPORT OF THE AUDIT COMMITTEE
Other than the information set forth below in "-- Fees Billed to Synopsys
by KPMG LLP during Fiscal 2001," the following Report of the Audit Committee
shall not constitute "soliciting material" nor shall it be deemed "filed" with
the SEC and is not to be incorporated by reference into any other Synopsys
filing under the Securities Act or the Exchange Act, except to the extent
Synopsys specifically incorporates this Report by reference therein.
ADOPTION OF CHARTER
The Audit Committee has adopted a written charter, which was filed with the
SEC as an appendix to Synopsys' Proxy Statement for its 2001 Annual Meeting of
Stockholders.
COMMUNICATIONS WITH MANAGEMENT AND INDEPENDENT ACCOUNTANTS
Synopsys has not yet completed preparation of its audited financial
statements for fiscal 2001. As a result, the Audit Committee has not yet: (1)
reviewed and discussed such financial statements with management; (2) discussed
with KPMG LLP, Synopsys' independent accountants, the matters required to be
discussed by Statement of Auditing Standards No. 61, "Communications With Audit
Committees"; or (3) received the written disclosures and the letter from KPMG
LLP required by the Independence Standards Board Standard No. 1. The Audit
Committee expects to address these items on or before January 31, 2002.
COMMITTEE MEMBER INDEPENDENCE
Committee members Deborah Coleman and Sasson Somekh each qualify as an
"independent" director under the current listing standards of the National
Association of Securities Dealers (the "NASD"). Mr. Bryant does not qualify as
an independent director under such standards due to the fact that he also serves
as Senior Vice President and Chief Financial and Enterprise Services Officer of
Intel Corporation, which accounted for greater than 5% of Synopsys' consolidated
gross revenues in fiscal 1999. However, in accordance with NASD listing
standards, Synopsys' board of directors (with Mr. Bryant
94
abstaining) has determined that Mr. Bryant's membership on the Audit Committee
is required by the best interests of Synopsys and its stockholders due to Mr.
Bryant's extremely high level of experience in financial and accounting matters
as a result of his service as Intel's principal financial officer since 1994.
RECOMMENDATION REGARDING FINANCIAL STATEMENTS
As mentioned above, Synopsys has not yet completed preparation of its
audited financial statements for fiscal 2001. As a result, the Audit Committee
has not made a recommendation to Synopsys' board of directors regarding
inclusion of the 2001 audited financial statements in Synopsys' Annual Report on
Form 10-K for fiscal 2001. The Audit Committee expects to make a recommendation
regarding the 2001 audited financial statements on or before January 31, 2002.
FEES BILLED TO SYNOPSYS BY KPMG LLP DURING FISCAL 2001
AUDIT FEES
Fees billed to Synopsys by KPMG LLP for the 2001 fiscal year annual audit
of its financial statements included in its Annual Report on Form 10-K for the
year ended November 3, 2001, and for review of the financial statements included
in Synopsys' fiscal year 2001 Quarterly Reports on Form 10-Q have totaled
approximately $1,673,000 as of the date of this joint proxy
statement/prospectus.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
KPMG LLP did not perform any financial information systems design or
implementation services for Synopsys during fiscal year 2001.
ALL OTHER FEES
Fees billed to Synopsys by KPMG LLP for all other non-audit services
rendered to Synopsys during fiscal 2001, including services relating to SEC
matters, statutory audits of foreign subsidiaries and tax related services,
totaled approximately $1,888,000.
AUDIT COMMITTEE
Deborah A. Coleman, Chairperson
Andy D. Bryant
Sasson Somekh
95
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
Synopsys common shares from September 30, 1996 through November 3, 2001 to the
cumulative total return of (1) the S&P 500 Index and (2) the S&P Technology
Sector Index over the same period, assuming an investment of $100 in Synopsys
common shares and in each of the other indices, and reinvestment of all
dividends. This section shall not constitute "soliciting material" nor shall it
be deemed "filed" with the SEC, and is not to be incorporated by reference into
any other Synopsys filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which in this document we refer to
as the "Exchange Act," except to the extent Synopsys specifically incorporates
this section therein.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SYNOPSYS, INC., THE S&P 500 INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
[5-YEAR COMPARISON GRAPH]
SYNOPSYS, INC. S&P 500 S&P TECHNOLOGY INDEX
-------------- ------- --------------------
9/96 100.00 100.00 100.00
9/97 86.00 132.00 145.00
9/98 101.00 161.00 192.00
9/99 138.00 203.00 319.00
10/00 78.00 215.00 355.00
11/01 104.00 161.00 168.00
* $100 INVESTED ON SEPTEMBER 30, 1996 IN STOCK OR INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS, FISCAL YEAR ENDING NOVEMBER 3, 2001.
PROPOSAL 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Synopsys board of directors has appointed the firm of KPMG LLP,
independent auditors, to audit the financial statements of Synopsys for fiscal
2002. KPMG LLP has audited Synopsys' consolidated financial statements since
fiscal 1992.
A representative of KPMG LLP is expected to be present at the Synopsys
annual meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
In the event the Synopsys stockholders fail to ratify the appointment, the
Synopsys board of directors will reconsider its selection. Ratification of the
appointment of KPMG LLP requires the affirmative vote of the majority of the
votes cast at a duly held stockholder meeting at which there is a quorum.
96
RECOMMENDATION
THE SYNOPSYS BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE RATIFICATION OF THE SELECTION OF KPMG LLP TO SERVE AS SYNOPSYS' INDEPENDENT
AUDITORS FOR FISCAL 2002.
ADDITIONAL INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Synopsys' directors, officers
and greater than ten percent beneficial owners of its shares to file reports of
ownership and changes in ownership with the SEC. Directors, officers and greater
than ten percent stockholders are required by SEC regulations to furnish
Synopsys with copies of all Section 16(a) forms they file.
Based solely upon its review of the copies of the Forms 3, 4 and 5 received
by Synopsys and/or written representations from certain reporting persons,
Synopsys believes that each of its directors, officers, and greater than ten
percent beneficial owners of its shares during the fiscal year ended November 3,
2001 has complied with all filing requirements applicable to such persons during
such fiscal year, except that an amended Form 4 was filed on behalf of Vicki
Andrews to reflect the sale of additional shares sold as part of a previously
reported transaction, which additional sale was not timely reported.
ANNUAL REPORT ON FORM 10-K
A copy of Synopsys' Annual Report on Form 10-K for fiscal 2001, and the
letter to stockholders attached to the annual report, has been mailed
concurrently with this joint proxy statement/prospectus to all Synopsys
stockholders entitled to notice of and to vote at the Synopsys annual meeting.
The letter to stockholders attached to the annual report is not incorporated
into this joint proxy statement/prospectus and shall not be considered proxy
solicitation material.
LEGAL MATTERS
The validity of the Synopsys common shares to be issued in the merger will
be passed upon for Synopsys by Cleary, Gottlieb, Steen & Hamilton, counsel to
Synopsys.
Cleary, Gottlieb, Steen & Hamilton, counsel to Synopsys, has rendered an
opinion that the merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
O'Melveny & Myers LLP, counsel to Avant!, has rendered an opinion that the
merger will qualify as a "reorganization" within the meaning of Section 368(a)
of the Code.
EXPERTS
The consolidated financial statements and schedule of Synopsys, Inc. and
subsidiaries as of October 31, 2000 and 1999 and September 30, 1999, and for the
year ended October 31, 2000, the one-month period ended October 31, 1999, and
each of the years in the two-year period ended September 30, 1999, included in
its annual report on Form 10-K/A, have been incorporated by reference in
reliance upon the reports of KPMG LLP, independent auditors, which is
incorporated by reference, and upon that firm as experts in accounting and
auditing.
The consolidated financial statements and schedule of Avant! and
subsidiaries as of December 31, 2000 and 1999, and for each of the years in the
three-year period ended December 31, 2000 included in its annual report on Form
10-K, have been incorporated by reference in reliance upon the report of KPMG
LLP, independent auditors, which is incorporated by reference, and upon that
firm as experts in accounting and auditing.
The financial statements of Forefront Venture Partners, L.P. incorporated
by reference in this joint proxy statement/prospectus have been audited by BDO
Seidman, LLP, independent certified public
97
accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated herein in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
STOCKHOLDER PROPOSALS
Any Synopsys stockholder who intends to present a proposal at Synopsys'
2003 annual meeting of stockholders, whether or not for inclusion in the proxy
statement and form of proxy relating to that meeting, is advised that to be
eligible, the proposal must be received by the Secretary of Synopsys at
Synopsys' principal executive offices not later than [ ]. A stockholder's
notice to Synopsys must include, with respect to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
matter and the reasons for conducting such business at the annual meeting, (ii)
the name and address of the stockholder, as he or she appears on Synopsys'
books, (iii) the number of shares beneficially owned by the stockholder, (iv)
any material interest of the stockholder in the proposal, and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Exchange Act. Nominations of persons to the Synopsys
board of directors must include, with respect to each nomination and the
nominating stockholder, (a) the name, age, business address and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the class and number of shares of Synopsys which are beneficially
owned by such person, (d) a description of all arrangements or understandings
between the stockholder and each nominee and other person or persons, naming
such person or persons, pursuant to which the nominations are to be made by the
stockholder, and (e) any other information relating to such person that is
required to be disclosed in solicitations of proxies for elections of directors,
or is otherwise required under the Exchange Act.
Any Avant! stockholder who intends to present a proposal at Avant!'s 2002
annual meeting of stockholders for inclusion in the proxy statement and form of
proxy relating to that meeting is advised that to be eligible, the proposal must
have been received by the Secretary of Avant! at Avant!'s principal executive
offices not later than December 27, 2001. Any Avant! stockholder who intends to
present a proposal at Avant!'s 2002 annual meeting of stockholders, where the
stockholder has not sought inclusion of the matter in the proxy statement and
proxy relating to such meeting, is advised that to be eligible, notice of such
proposal must be delivered to Avant!'s Secretary at Avant!'s principal executive
offices no earlier than February 7, 2002 and no later than March 9, 2002. If the
merger is consummated as currently contemplated, there will be no Avant! 2002
annual meeting.
98
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 3, 2001
AMONG
SYNOPSYS, INC.,
MAPLE FOREST ACQUISITION L.L.C.
AND
AVANT! CORPORATION
ARTICLE I
THE MERGER
1.1. The Merger.................................................. A-1
1.2. Effective Time.............................................. A-1
1.3. Closing of the Merger....................................... A-1
1.4. Effects of the Merger....................................... A-1
1.5. Certificate of Formation; Limited Liability Company
Agreement................................................... A-2
1.6. Sole Member................................................. A-2
1.7. Officers.................................................... A-2
1.8. Structure................................................... A-2
ARTICLE II
CONVERSION OF SECURITIES
2.1. Conversion of Securities.................................... A-2
2.2. Stock Options and Other Stock Plans......................... A-3
2.3. Exchange Fund............................................... A-4
2.4. Exchange Procedures......................................... A-5
2.5. Distributions with Respect to Unsurrendered Certificates.... A-5
2.6. No Further Ownership Rights................................. A-5
2.7. No Fractional Shares of Parent Common Stock................. A-5
2.8. Termination of Exchange Fund................................ A-6
2.9. No Liability................................................ A-6
2.10. Investment of the Exchange Funds............................ A-6
2.11. Lost Certificates........................................... A-6
2.12. Withholding Rights.......................................... A-6
2.13. Stock Transfer Books........................................ A-6
2.14. Affiliates.................................................. A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1. Organization and Qualification; Subsidiaries................ A-7
3.2. Capitalization of the Company and Its Subsidiaries.......... A-7
3.3. Authority Relative to This Agreement........................ A-8
3.4. SEC Reports; Financial Statements........................... A-9
3.5. No Undisclosed Liabilities.................................. A-9
3.6. Absence of Changes.......................................... A-10
3.7. Information Supplied........................................ A-11
3.8. Consents and Approvals; No Violations....................... A-11
3.9. No Default.................................................. A-12
3.10. Real Property............................................... A-12
3.11. Litigation.................................................. A-13
3.12. Company Permits; Compliance with Applicable Laws............ A-13
3.13. Employee Benefit Plans; ERISA............................... A-13
3.14. Labor Matters............................................... A-17
3.15. Environmental Matters....................................... A-17
3.16. Taxes....................................................... A-19
3.17. Absence of Questionable Payments............................ A-20
3.18. Company Contracts........................................... A-21
3.19. Insurance Matters........................................... A-22
3.20. Intellectual Property....................................... A-22
3.21. Interested Party Transactions............................... A-25
A-i
3.22. Opinion of Company Financial Advisor........................ A-25
3.23. Brokers..................................................... A-25
3.24. Tax Treatment............................................... A-25
3.25. Takeover Statutes, etc...................................... A-25
3.26. Amendment to the Company Rights Agreement................... A-26
3.27. Distributors................................................ A-26
3.28. Semiconductor Manufacturing International Corporation....... A-26
3.29. Avant!HighTech.............................................. A-27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
4.1. Organization................................................ A-27
4.2. Capitalization of Parent.................................... A-27
4.3. Authority Relative to This Agreement........................ A-28
4.4. SEC Reports; Financial Statements........................... A-28
4.5. No Undisclosed Liabilities.................................. A-29
4.6. Absence of Certain Changes or Events........................ A-29
4.7. Information Supplied........................................ A-29
4.8. Consents and Approvals; No Violations....................... A-30
4.9. Compliance with Applicable Laws............................. A-30
4.10. Opinion of Parent Financial Advisor......................... A-30
4.11. Brokers..................................................... A-30
4.12. Tax Treatment............................................... A-30
4.13. Litigation.................................................. A-30
ARTICLE V
COVENANTS
5.1. Conduct of Business of the Company.......................... A-31
5.2. Conduct of Business of Parent............................... A-33
5.3. Access to Information....................................... A-34
5.4. Company Litigation.......................................... A-34
5.5. Dispositions................................................ A-34
5.6. Maingate.................................................... A-34
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Preparation of S-4 and the Proxy Statement.................. A-35
6.2. Meetings.................................................... A-35
6.3. Commercially Reasonable Best Efforts........................ A-36
6.4. Acquisition Proposals....................................... A-37
6.5. Public Announcements........................................ A-38
6.6. Indemnification; Directors' and Officers' Insurance......... A-38
6.7. Notification of Certain Matters............................. A-39
6.8. Certification............................................... A-39
6.9. Employee Matters............................................ A-39
6.10. Affiliate Letters........................................... A-40
6.11. SEC Filings................................................. A-40
6.12. Fees and Expenses........................................... A-40
6.13. Listing of Stock............................................ A-41
6.14. Takeover Statutes........................................... A-41
6.15. Direct Payment of Expenses.................................. A-41
A-ii
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1. Conditions to Each Party's Obligations to Effect the
Merger...................................................... A-41
7.2. Conditions to the Obligations of the Parent and Merger
Sub......................................................... A-42
7.3. Conditions to the Obligations of the Company................ A-43
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
8.1. Termination by Mutual Agreement............................. A-44
8.2. Termination by Either Parent or the Company................. A-44
8.3. Termination by the Company.................................. A-44
8.4. Termination by Parent....................................... A-44
8.5. Effect of Termination and Abandonment....................... A-44
8.6. Amendment................................................... A-46
8.7. Extension; Waiver........................................... A-46
8.8. Breaches Relating to Litigation............................. A-46
ARTICLE IX
MISCELLANEOUS
9.1. Nonsurvival of Representations and Warranties............... A-46
9.2. Entire Agreement; Assignment................................ A-46
9.3. Notices..................................................... A-47
9.4. Governing Law............................................... A-47
9.5. Descriptive Headings........................................ A-47
9.6. Parties in Interest......................................... A-47
9.7. Severability................................................ A-47
9.8. Enforcement; Jurisdiction................................... A-48
9.9. Counterparts................................................ A-48
9.10. Interpretation.............................................. A-48
9.11. Definitions................................................. A-48
A-iii
GLOSSARY OF DEFINED TERMS
DEFINED
DEFINED TERMS ON PAGE
------------- -------
1995 Plan........................... A-3
2000 Plan........................... A-3
Acquiring Person.................... A-26
Acquisition Proposal................ A-48
affiliate........................... A-49
Agreement........................... A-1
Antitrust Law....................... A-37
Assumed Stock Option................ A-3
Audit Date.......................... A-10
Avant! High-Tech.................... A-27
Avant!HK............................ A-26
Avant!Japan......................... A-26
beneficial ownership................ A-49
beneficially own.................... A-49
Business Day........................ A-49
Cadence............................. A-45
Cadence Litigation.................. A-49
Cadence Settlement Agreement........ A-49
Cadence Settlement Proposal......... A-49
Capitalization Date................. A-7
Certificate of Merger............... A-1
Certificates........................ A-4
Closing............................. A-1
Closing Date........................ A-1
Code................................ A-1
Company............................. A-1
Company Agreements.................. A-12
Company Benefit Plans............... A-14
Company Board....................... A-8
Company Common Stock................ A-2
Company Contracts................... A-2
Company Convertible Preferred
Stock............................. A-7
Company Disclosure Schedule......... A-7
Company Financial Advisor........... A-25
Company Junior Participating
Preferred Stock................... A-7
Company Option Plans................ A-3
Company Permits..................... A-13
Company Required Approvals.......... A-11
Company Rights Agreement............ A-8
Company SEC Reports................. A-9
Company Shares...................... A-1
Company Stockholder Meeting......... A-35
Confidentiality Agreement........... A-34
Continuing Employees................ A-39
Copyrights.......................... A-25
DEFINED
DEFINED TERMS ON PAGE
------------- -------
DavanTech........................... A-26
DavanTech Agreement................. A-26
DGCL................................ A-1
Distribution Date................... A-26
DLLCA............................... A-1
DOJ................................. A-36
Effective Time...................... A-1
Exchange Act........................ A-9
Exchange Agent...................... A-4
Exchange Fund....................... A-4
Exchange Ratio...................... A-2
Expenses............................ A-41
Final Expiration Date............... A-26
FTC................................. A-36
FTD................................. A-26
FTD Agreement....................... A-26
GAAP................................ A-9
Governmental Entity................. A-12
HSR Act............................. A-11
Intellectual Property............... A-24
know................................ A-49
knowledge........................... A-49
Law................................. A-12
Lien................................ A-8
Maingate............................ A-26
Maingate Agreement.................. A-26
Maingate Purchase Price............. A-35
Material Adverse Effect............. A-49
Merger.............................. A-1
Merger Consideration................ A-2
Merger Sub.......................... A-1
NASD................................ A-11
Network Identifiers................. A-25
Option Holder....................... A-3
Ordinary Course Customer Contract... A-22
ordinary course of business......... A-50
Outstanding SMIC Amount............. A-27
Parent.............................. A-1
Parent Agreements................... A-30
Parent Board........................ A-28
Parent Common Stock................. A-2
Parent Confidentiality Agreement.... A-34
Parent Disclosure Schedule.......... A-27
Parent July 31 Balance Sheet........ A-29
Parent Preferred Stock.............. A-27
A-iv
DEFINED
DEFINED TERMS ON PAGE
------------- -------
Parent Required Approvals........... A-30
Parent Rights....................... A-2
Parent Rights Agreement............. A-50
Parent SEC Reports.................. A-29
Parent Stock Option Plans........... A-28
Parent Stockholder Meeting.......... A-36
Parties............................. A-50
Patents............................. A-24
PBGC................................ A-15
person.............................. A-50
Product Lease....................... A-26
Proxy Statement..................... A-11
Real Property Leases................ A-12
Required Company Vote............... A-9
Required Parent Vote................ A-28
Rights.............................. A-26
S-4................................. A-11
SEC................................. A-4
Section 11(a)(ii) Trigger Date...... A-26
Securities Act...................... A-7
DEFINED
DEFINED TERMS ON PAGE
------------- -------
September 30 Balance Sheet.......... A-10
Share............................... A-2
Share Issuance...................... A-11
Shares.............................. A-2
SMIC................................ A-27
SMIC Termination Agreement.......... A-27
SMIC Transactions................... A-27
Software............................ A-25
subsidiary.......................... A-50
Superior Proposal................... A-38
Surviving Company................... A-1
Takeover Statutes................... A-25
Tax Returns......................... A-20
Taxes............................... A-20
Termination Date.................... A-44
Trade Secrets....................... A-25
Trademarks.......................... A-24
Transaction Costs................... A-41
Voting Agreements................... A-1
WARN Act............................ A-17
A-v
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 3, 2001 (the
"Agreement") is among Synopsys, Inc., a Delaware corporation ("Parent"), Maple
Forest Acquisition L.L.C., a Delaware limited liability company and a direct
wholly-owned subsidiary of Parent ("Merger Sub"), and Avant! Corporation, a
Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent and the Company, and Parent (in
its capacity as sole member of Merger Sub), have each determined that this
Agreement and the transactions contemplated hereby, including the Merger (as
defined in Section 1.1), are advisable and fair to, and in the best interests
of, their respective stockholders or (in the case of Merger Sub) member;
WHEREAS, for United States federal income tax purposes, the Parties intend
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, in order to induce Parent and Merger Sub to enter into this
Agreement, and as a condition to their doing so, Parent is simultaneously
entering into stockholder agreements (collectively, the "Voting Agreements")
with the Company's directors and executive officers owning shares of Company
Common Stock (as defined in Section 2.1(c)), pursuant to which such stockholders
are agreeing, among other things, to vote in favor of the Merger;
WHEREAS, in order to induce Parent and Merger Sub to enter into this
Agreement, and as a condition to their doing so, certain executive officers and
other persons affiliated with the Company are simultaneously entering into new
employment agreements and other agreements with Parent or the Company to become
effective at the Effective Time (as defined in Section 1.2)
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent and Merger Sub hereby agree as
follows:
ARTICLE I
THE MERGER
1.1. The Merger. At the Effective Time, upon the terms and subject to the
conditions of this Agreement and in accordance with the General Corporation Law
of the State of Delaware (the "DGCL") and the Delaware Limited Liability Company
Act (the "DLLCA"), the Company shall be merged with and into Merger Sub (the
"Merger"). Following the Merger, Merger Sub shall continue as the surviving
company (the "Surviving Company") and shall continue its existence under the
DLLCA, and the separate corporate existence of the Company shall cease.
1.2. Effective Time. Subject to the provisions of this Agreement, Parent,
Merger Sub and the Company shall cause the Merger to be consummated by filing a
certificate of merger complying with Section 264 of the DGCL, and with Section
18-209 of the DLLCA, with the Secretary of State of the State of Delaware (the
"Certificate of Merger") on the Closing Date (as defined in Section 1.3). The
Merger shall become effective upon such filing or at such time thereafter as the
parties shall agree and as shall be provided in the Certificate of Merger (the
"Effective Time").
1.3. Closing of the Merger. The closing of the Merger (the "Closing") will
take place at a time and on a date (the "Closing Date") to be specified by
Parent, which shall be no later than the fifth Business Day (as defined in
Section 9.11(d)) after satisfaction or waiver of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions), at the offices of Parent (or such other location to be specified by
Parent), unless another time or date is agreed to in writing by the parties
hereto.
1.4. Effects of the Merger. The Merger shall have the effects set forth in
the DGCL and the DLLCA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all
A-1
the properties, rights, privileges, immunities, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Company, and all debts,
liabilities, obligations and duties of the Company and Merger Sub shall become
the debts, liabilities, obligations and duties of the Surviving Company.
1.5. Certificate of Formation; Limited Liability Company Agreement. The
limited liability company agreement of Merger Sub in effect immediately prior to
the Effective Time shall, by virtue of the Merger, be amended and restated as of
the Effective Time to reflect the fact that the name of the Surviving Company,
from and after the Effective Time, shall be "Avant! Company," and as so amended
and restated, such limited liability company agreement shall (as amended by
Parent, as sole member, from time to time) be the limited liability company
agreement of the Surviving Company. The certificate of formation of Merger Sub
in effect immediately prior to the Effective Time shall be the certificate of
formation of the Surviving Company and shall be amended in due course to reflect
the fact that the name of the Surviving Company, from and after the Effective
Time, shall be "Avant! Company."
1.6. Sole Member. Parent shall be the sole member of the Surviving
Company.
1.7. Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Company, each to hold
office in accordance with the limited liability company agreement of the
Surviving Company until successors are duly elected or appointed and qualified.
1.8. Structure. Notwithstanding any other provision of this Agreement, at
Parent's election (exercised in its sole discretion) the structure of the Merger
shall be revised to provide for a newly organized Delaware corporation, whose
sole stockholder shall be Parent, to merge with and into the Company, and the
Parties shall enter into an amendment to this Agreement effecting such revised
structure; provided that any such revised structure and amendment does not (x)
alter the Exchange Ratio or the Merger Consideration or (y) prevent or
materially delay the consummation of the Merger or (z) prevent satisfaction of
the conditions set forth in Sections 7.2(d) and 7.3(d).
ARTICLE II
CONVERSION OF SECURITIES
2.1. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of any of the parties hereto or any
holder of any securities or interests of or in the Company or Merger Sub:
(a) Limited Liability Company Interests in Merger Sub. Each limited
liability company interest in Merger Sub outstanding immediately prior to the
Effective Time shall remain outstanding upon the Merger.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each share
of Company Common Stock (as defined in Section 2.1(c)) issued and outstanding
immediately prior to the Effective Time that is owned by the Company or Parent
or any of their respective wholly-owned subsidiaries shall automatically be
cancelled and shall cease to exist, and no consideration shall be delivered or
deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Each share of common stock, par
value $.0001 per share, of the Company ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time (individually, a "Share" and
collectively, the "Shares") (other than Shares to be cancelled in accordance
with Section 2.1(b)) shall be converted into and be exchangeable for the right
to receive .371 (the "Exchange Ratio") of a fully paid and non-assessable share
of common stock, par value $.01 per share, of Parent (including the associated
rights (the "Parent Rights") to purchase shares of Series A Participating
Preferred Stock pursuant to the Parent Rights Agreement (as defined in Section
9.11) ("Parent Common Stock") (all such shares of Parent Common Stock issued,
together with any cash in lieu of fractional shares of Parent Common Stock to be
paid pursuant to Section 2.7, being referred to as the "Merger Consideration").
A-2
(d) Certain Adjustments. If between the date of this Agreement and the
Effective Time the outstanding shares of Parent Common Stock shall have been
changed into a different number of shares or a different class by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares or any similar event, the fraction of a share
of Parent Common Stock constituting the Exchange Ratio shall be appropriately
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares or such similar
event.
2.2. Stock Options and Other Stock Plans. (a) As soon as practicable
following the date of this Agreement, Parent and the Company (or, if
appropriate, the Board of Directors of the Company or any committee of the Board
of Directors of the Company administering the Company's 2000 Stock Option/Stock
Issuance Plan (the "2000 Plan") , the Company's 1995 Stock Option/Stock Issuance
Plan (the "1995 Plan") , the Chrysalis Symbolic Design, Inc. 1993 Stock Option
Plan, the Xynetix Design Systems 1993 Employee and Consultant Stock Option Plan,
the Xynetix Design Systems 1993 Employee and Consultant Stock Option Plan
(United Kingdom Version), the InterHDL, Inc. 1993 Stock Option Plan, the
InterHDL, Inc. 1996 Stock Plan, the Aceo Technology, Inc. 1996 Stock Option
Plan, the Technology Modeling Associates, Inc. 1989 Stock Option Plan, the
Technology Modeling Associates, Inc. 1995 Stock Option Plan, the Technology
Modeling Associates, Inc. 1996 Equity Incentive Plan, the Frontline Design
Automation, Inc. 1996 Equity Incentive Plan, the Meta-Software, Inc. 1995 Equity
Incentive Plan, the Meta-Software, Inc. 1992 Stock Option/Appreciation Plan, the
Meta-Software, Inc. 1995 Directors' Stock Option Plan, the Ads Software, Inc.
1994 Stock Option Plan, the Harris Electronic Design Automation 1993 Employee
and Consultant Stock Option Plan, the Integrated Silicon Systems, Inc. Incentive
Stock Option Plan, the Arcsys, Inc. 1993 Stock Option/Stock Issuance Plan and
the Anagram, Inc. 1993 Stock Incentive Plan (collectively, the "Company Option
Plans")) shall take such action as may be required or desirable (including
obtaining all applicable consents) to effect the following provisions of this
Section 2.2(a). Except as may otherwise be provided in any agreement on terms
specified in Section 2.2(a) of the Company Disclosure Schedule, effective as of
the Effective Time (i) each then outstanding option to purchase Shares (each a
"Company Stock Option") granted pursuant to the Company Stock Plans or otherwise
granted by the Company to any current or former employee or director of, or
consultant to, the Company or any of its subsidiaries (each, an "Option Holder")
shall be assumed by Parent and shall be converted into an option (an "Assumed
Stock Option") to purchase a number of shares of Parent Common Stock (rounded
down to the nearest whole share) equal to (x) the number of Shares subject to
such Company Stock Option immediately prior to the Effective Time multiplied by
(y) the Exchange Ratio and (ii) the per share exercise price for shares of
Parent Common Stock issuable upon exercise of such Assumed Stock Option shall be
equal to (1) the exercise price per share of Company Common Stock at which such
Company Stock Option was exercisable immediately prior to the Effective Time
divided by (2) the Exchange Ratio; provided, however, that in the case of any
Company Stock Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code, the conversion formula shall be
adjusted, if necessary, to comply with Section 424(a) of the Code. Except as
otherwise provided herein, the Assumed Stock Option shall be subject to the same
terms and conditions (including expiration date, vesting and exercise
provisions) as were applicable to the corresponding Company Stock Options
immediately prior to the Effective Time; provided, that the Parent Board of
Directors or a committee thereof shall succeed to the authority and
responsibility of the Company Board of Directors or any committee thereof; and
provided, further that each Company Stock Option granted to an Eligible Director
(as defined in the 1995 Plan) under the 1995 Plan shall not be assumed and
converted and shall vest in full immediately prior to the Effective Time, in
accordance with the terms of the 1995 Plan.
(b) With respect to Company Stock Options granted under the Company Option
Plans pursuant to which consent of an Option Holder is required, if any, as
identified in Section 2.2(b) of the Company Disclosure Schedule, no later than
the Effective Time, the Company will obtain a signed written consent from each
Option Holder to the treatment of the Company Stock Options in the manner
described in Section 2.2(a) hereof. As soon as practicable after the Effective
Time, Parent shall deliver to the Option Holders appropriate notices setting
forth the number of shares subject to such Assumed Stock Options held by each
such Option Holder and the exercise price under each such Assumed Stock Option,
each as
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adjusted pursuant to Section 2.2(a) hereof, and stating that such Assumed Stock
Options shall remain subject to the original terms and conditions applicable to
the corresponding Company Stock Option as in effect immediately prior to the
Effective Time (subject to the adjustments required by this Section 2.2).
(c) As soon as reasonably practicable following the Effective Time, Parent
shall take such actions as are reasonably necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock upon the exercise of the
Assumed Stock Options. Parent shall use its best efforts to prepare and file
with the Securities and Exchange Commission (the "SEC") a registration statement
on Form S-8 or other appropriate form with respect to the shares of Parent
Common Stock subject to the Assumed Stock Options and to maintain the
effectiveness of such registration statement or registration statements covering
such Assumed Stock Options (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Assumed Stock Options remain
outstanding.
(d) Prior to the Effective Time, the Company shall take all necessary or
appropriate action (including amending any of the Company Option Plans and
related award agreements or making adjustments as permitted thereby) to (i)
effectuate the assumption and conversion of the Company Stock Options by Parent
in accordance with the terms hereof and the assignment to Parent of the
authorities and responsibilities of the Company Board or any committee thereof
under the Company Option Plans and (ii) except as permitted under Section 2.2(d)
of the Company Disclosure Schedule, preclude the grant of any additional options
or other awards of any type under any of the Company Option Plans or otherwise.
(e) The Company shall take such action as is necessary to (i) cause the
exercise (as of a date that is no later than three Business Days prior to the
Effective Date) of each outstanding purchase right under the Company's Employee
Stock Purchase Plan, the Technology Modeling Associates, Inc. 1996 Employee
Stock Purchase Plan, and the Meta-Software, Inc. 1995 Employee Stock Purchase
Plan, as applicable, (the "Company Stock Purchase Plans"); and (ii) provide that
no further purchase period shall commence under such plans; provided, that such
exercise and cessation of further purchase periods shall be conditioned upon the
consummation of the Merger. On such new exercise date, the Company shall apply
the funds credited as of such date under the applicable Company Stock Purchase
Plan within each participant's payroll withholding account to the purchase of
whole shares of Company Common Stock in accordance with the terms of the
applicable Company Stock Purchase Plan. At the Effective Time, a holder of such
Shares received under the Company Stock Purchase Plans shall, by virtue of the
Merger and without any action on the part of such holder, be entitled to receive
the Merger Consideration (subject to any applicable withholding tax as specified
in Section 2.12 hereof or as may apply to payments made in connection with the
performance of services), upon the surrender of the certificate representing
such Shares as provided in Section 2.4. Immediately prior to and effective as of
the Effective Time and subject to the consummation of the Merger, the Company
shall terminate the Company Stock Purchase Plans.
2.3. Exchange Fund. (a) Prior to the Effective Time, Parent shall appoint
a commercial bank or trust company reasonably acceptable to the Company to act
as exchange agent hereunder for the purpose of exchanging Shares for the Merger
Consideration (the "Exchange Agent").
(b) At or prior to the Effective Time, Parent shall deposit, or cause to be
deposited, with the Exchange Agent, in trust for the benefit of holders of
Shares, the Merger Consideration issuable pursuant to Section 2.1 in exchange
for outstanding Shares. Parent agrees to make available to the Exchange Agent
from time to time as needed, cash sufficient to pay cash in lieu of fractional
shares pursuant to Section 2.7 and any dividends and other distributions
pursuant to Section 2.5. Any cash or Parent Common Stock deposited with the
Exchange Agent pursuant to this Section 2.3(b) shall hereinafter be referred to
as the "Exchange Fund."
2.4. Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Company shall cause the Exchange Agent to mail to
each holder of record, as of the Effective Time, of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") whose Shares were converted into the
right to receive Parent Common Stock pursuant to Section 2.1(c) (i) a form of
letter of transmittal (which shall specify that delivery shall be effective,
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and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent, and which letter shall be in
customary form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for effecting the surrender of such Certificates in
exchange for the applicable Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor
shares of Parent Common Stock representing, in the aggregate, the whole number
of shares that such holder has the right to receive pursuant to Section 2.1(c)
(after taking into account all Shares then held by such holder) and (B) a check
in the amount equal to the cash that such holder has the right to receive (x) in
lieu of any fractional shares of Parent Common Stock pursuant to Section 2.7 and
(y) in respect of any dividends and other distributions payable pursuant to
Section 2.5. No interest will be paid or will accrue on any cash payable
pursuant to this Article II and the certificates so surrendered shall forthwith
be cancelled. In the event of a transfer of ownership of Company Common Stock
which is not registered in the transfer records of the Company, shares of Parent
Common Stock evidencing, in the aggregate, the proper number of shares of Parent
Common Stock, cash in lieu of any fractional shares of Parent Common Stock
pursuant to Section 2.7 and any dividends or other distributions to which such
holder is entitled pursuant to Section 2.5, may be issued and paid with respect
to such Shares to such a transferee if the Certificate representing such Shares
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer Taxes have been paid.
2.5. Distributions with Respect to Unsurrendered Certificates. From and
after the Effective Time and until surrendered in accordance with the provisions
of this Article II, each Certificate (other than Certificates for Shares to be
cancelled pursuant to Section 2.1(b)) shall represent for all purposes solely
the right to receive in accordance with the terms hereof, the Merger
Consideration. No dividends or other distributions declared or made with respect
to shares of Parent Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate representing Shares
of Company Common Stock with respect to the shares of Parent Common Stock that
such holder would be entitled to receive upon surrender of such Certificate and
no cash payment in lieu of fractional shares of Parent Common Stock shall be
paid to any such holder pursuant to Section 2.7 until such holder shall
surrender such Certificate in accordance with Section 2.4. Subject to the effect
of applicable Laws (as defined in Section 3.9), following surrender of any such
Certificate, there shall be paid to such holder of shares of Parent Common Stock
issuable in exchange therefor, without interest, (i) promptly after the time of
such surrender, the amount of any cash payable in lieu of fractional shares of
Parent Common Stock to which such holder is entitled pursuant to Section 2.7 and
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of Parent Common Stock.
2.6. No Further Ownership Rights. All shares of Parent Common Stock and
issued upon conversion of the Shares in accordance with the terms of this
Article II, and any cash paid pursuant to Sections 2.5 and 2.7, shall be deemed
to have been issued or paid in full satisfaction of all rights pertaining to the
Shares.
2.7. No Fractional Shares of Parent Common Stock. (a) No certificates or
scrip of shares of Parent Common Stock representing fractional shares of Parent
Common Stock or book-entry credit of the same 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 have any rights of a stockholder of
Parent or a holder of shares of Parent Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
Shares exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Parent Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i) such
fractional part of a share of
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Parent Common Stock multiplied by (ii) the average of the closing prices during
regular trading hours (as reported in the New York City edition of The Wall
Street Journal or, if not reported thereby, another nationally recognized
source) for a share of Parent Common Stock on the three trading days immediately
prior to the day on which the Effective Time occurs. As promptly as practicable
after the determination of the aggregate amount of cash to be paid to holders of
fractional interests, the Exchange Agent shall notify Parent and Parent shall
deposit such amount with the Exchange Agent and shall cause the Exchange Agent
to forward payments to such holders of fractional interests subject to and in
accordance with the terms hereof.
2.8. Termination of Exchange Fund. Any portion of the Exchange Fund
(including any income or proceeds thereof or of any investments thereof) which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall be delivered to Parent or otherwise on the instruction of
Parent, and any holders of the Certificates who have not theretofore complied
with this Article II shall thereafter look only to the Surviving Company and
Parent (subject to abandoned property, escheat and similar laws) for the Merger
Consideration exchangeable for such Certificates to which such holders are
entitled, any cash in lieu of fractional shares of Parent Common Stock to which
such holders are entitled pursuant to Section 2.7 and any dividends or
distributions with respect to shares of Parent Common Stock to which such
holders are entitled pursuant to Section 2.5, without any interest on any
thereof. Any such portion of the Exchange Fund remaining unclaimed by holders of
Shares two years after the Effective Time (or such earlier date as shall be
immediately prior to such date as such securities or amounts would otherwise
escheat to or become property of any Governmental Entity (as defined in Section
3.8)) shall, to the extent permitted by Law, become the property of Parent, free
and clear of any claims or interest of any person previously entitled thereto.
2.9. No Liability. None of Parent, Merger Sub, the Company, the Surviving
Company or the Exchange Agent shall be liable to any person in respect of any
Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law.
2.10. Investment of the Exchange Funds. The Exchange Agent shall invest
any cash included in the Exchange Fund as directed by Parent on a daily basis.
Any interest and other income resulting from any such investment shall promptly
be paid to Parent.
2.11. Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Company, the posting by such person of a bond in such reasonable
amount as the Surviving Company may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
deliver in exchange for such lost, stolen or destroyed Certificate the
applicable Merger Consideration with respect to the Shares formerly represented
thereby and any unpaid dividends and distributions on shares of Parent Common
Stock deliverable in respect thereof, pursuant to this Agreement, without any
interest thereon.
2.12. Withholding Rights. Each of the Surviving Company and Parent shall
be entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of Shares of such amounts as it
is required to deduct and withhold with respect to the making of such payment
under the Code and the rules and regulations promulgated thereunder, or any
provision of a Tax Law (as the term "Tax" is defined in Section 3.16(n) hereof).
To the extent that amounts are so withheld by the Surviving Company or Parent,
as the case may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the Shares in respect of
which such deduction and withholding was made by the Surviving Company or
Parent, as the case may be.
2.13. Stock Transfer Books. The stock transfer books of the Company shall
be closed immediately upon the Effective Time and there shall be no further
registration of transfers of Shares thereafter on the records of the Company. On
or after the Effective Time, any Certificates presented to the Exchange Agent or
Parent for any reason shall, subject to Section 2.8, be converted into the
Merger Consideration with respect to the Shares formerly represented thereby,
any cash in lieu of fractional shares of Parent Common
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Stock to which the holders thereof are entitled pursuant to Section 2.7 and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.5.
2.14. Affiliates. Notwithstanding anything to the contrary herein, no
Merger Consideration shall be delivered to a person who may be deemed an
"affiliate" of the Company in accordance with Section 6.10 hereof for purposes
of Rule 145 under the Securities Act of 1933, as amended (the "Securities Act"),
until such person has executed and delivered to Parent the written agreement
contemplated by Section 6.10.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the section of the disclosure schedule delivered by
the Company to Parent prior to the execution of this Agreement (the "Company
Disclosure Schedule") that specifically relates to the correspondingly numbered
section of this Article III, the Company hereby represents and warrants to each
of Parent and Merger Sub as follows:
3.1. Organization and Qualification; Subsidiaries. (a) The Company and
each of its subsidiaries is a corporation or legal entity duly organized,
validly existing and (in those jurisdictions in which there is an applicable
concept of good standing) in good standing under the Laws of the jurisdiction of
its organization and has all requisite corporate, partnership or similar power
and authority to own, lease and operate its properties and to carry on its
businesses as now conducted.
(b) Section 3.1 of the Company Disclosure Schedule sets forth (i) a list of
all subsidiaries of the Company, (ii) in the case of such subsidiaries not
wholly-owned by the Company (A) the identity of any other entity or person that
owns, directly or indirectly, beneficially or of record, any shares of capital
stock or other security, or any option to purchase any shares of capital stock
or other security, or any other investment in such entity (and all rights,
privileges and preferences of any such beneficial or record holder with respect
thereto, including repurchase rights, put rights, cancellation rights, co-sale
rights, registration rights or other rights affecting the shares or options held
by such third party), (B) the percentage ownership represented by such
investment and (C) with regard to the entity in which such investment is held,
all jurisdictions where such entities conduct business or own assets. The
Company does not own, directly or indirectly, beneficially or of record, any
shares of capital stock or other security of any other entity or any other
investment in any entity that is not listed on Section 3.1(b) to the Company
Disclosure Schedule.
(c) The Company and each of its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and (in those jurisdictions in which there is an
applicable concept of good standing) in good standing has not had, and would not
have, individually or in the aggregate, a Material Adverse Effect (as defined in
Section 9.11) on the Company.
(d) The Company has heretofore delivered or made available to Parent
accurate and complete copies of the articles or certificate of incorporation and
bylaws or other similar organizational documents, as currently in effect, of (i)
the Company and (ii) each of its material subsidiaries.
3.2. Capitalization of the Company and Its Subsidiaries. (a) The
authorized capital stock of the Company consists of (i) seventy million
(70,000,000) shares of Company Common Stock, and (ii) Five Million (5,000,000)
shares of preferred stock, par value $.0001 per share (the "Company Preferred
Stock") of which 75,000 shares have been designated Series A Junior
Participating Preferred Stock, par value $.0001 per share (the "Company Junior
Participating Preferred Stock"). As of November 30, 2001, (the "Capitalization
Date") (i) 37,872,052 shares of Company Common Stock were issued and
outstanding; (ii) 4,021,708 shares of Company Common Stock were subject to
outstanding options issued pursuant to the 2000 Plan, and 5,715,029 shares of
Company Common Stock were subject to outstanding options issued pursuant to the
Company Option Plans other than the 2000 Plan; (iii) 4,457,029 shares of
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Company Common Stock were issued and held in the treasury of the Company and
(iv) no Company Preferred Stock was issued or outstanding. As of the
Capitalization Date 75,000 shares of Company Junior Participating Preferred
Stock are reserved for issuance upon exercise of the rights pursuant to the
Rights Agreement (as hereinafter defined). Section 3.2 of the Company Disclosure
Schedule sets forth a complete and correct list of all holders of options to
acquire Shares, including each such person's name, the number of options
(vested, unvested and total) held by such person as of the Capitalization Date
and the exercise price for each such option. All the outstanding Shares are, and
the exercise of outstanding options described in the second sentence of this
Section 3.2 will be, when issued in accordance with the terms thereof, duly
authorized, validly issued, fully paid and non-assessable. From the
Capitalization Date through the date hereof, there have been no issuances of
shares of the capital stock or other securities of the Company or of options,
warrants or rights with respect to shares of Company Common Stock or other
securities of the Company, other than issuances of shares of Company Common
Stock pursuant to the exercise of options outstanding on the Capitalization Date
as fully reflected on Section 3.2 of the Company Disclosure Schedule. Except as
set forth above or in Section 3.2(a) of the Company Disclosure Schedule and
except for the Company's obligations under the Rights Agreement, dated as of
September 4, 1998 (the "Company Rights Agreement"), between the Company and
Computer Share Investor Services LLC, as rights agent, and except for the
transactions contemplated by this Agreement (1) there are no shares of capital
stock of the Company authorized, issued or outstanding, (2) there are no
authorized or outstanding options, warrants, calls, preemptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character (whether or not conditional) relating to the issued or unissued
capital stock of the Company or any of its subsidiaries, obligating the Company
or any of its subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or other equity interest in the
Company of any of its subsidiaries or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company or
any of its subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or commitment, (3)
there are no outstanding contractual obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any Shares or other
capital stock of the Company or any of its subsidiaries, or to make any payments
based on the market price or value of shares or other capital stock of the
Company or its subsidiaries, or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any subsidiary or any
other entity other than loans to wholly-owned subsidiaries in the ordinary
course of business, and (4) there are no outstanding shareholder agreements,
voting agreements, option agreements, buy-sell agreements, rights of first
refusal or first offer, registration rights agreements or other similar
agreements with respect to the equity securities of any subsidiary.
(b) All of the capital stock of the Company's subsidiaries owned by the
Company, directly or indirectly, is free and clear of any Lien or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided as a matter of Law), and there are no
irrevocable proxies with respect to such capital stock. For purposes of this
Agreement, "Lien" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
(c) The consummation of the Merger and the transactions contemplated hereby
will not trigger, and neither the Company nor the Board (nor any committee
thereof) shall take any action to cause with respect to any Company Stock
Options, (x) the acceleration of vesting provisions of or (y) the termination of
any rights by the Company to repurchase any outstanding option to buy Company
Shares, except, in the case of each of clauses (x) and (y), as required by the
2000 Plan, the 1995 Plan and the other agreements set forth (together with the
identities of the holders of the Company Stock Options so subject to
acceleration or termination and the number of such Options) in Section 3.2(c) of
the Company Disclosure Schedule.
3.3. Authority Relative to This Agreement. (a) The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The Board of Directors
of the Company (the "Company Board") has, by unanimous vote of those present
(who constituted all of the directors then in office), duly and validly
authorized the execution, delivery and
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performance of this Agreement and approved the consummation of the transactions
contemplated hereby, and taken all corporate actions required to be taken by the
Company Board for the consummation of the transactions, including the Merger,
contemplated hereby, and has (i) by resolution approved, and declared advisable,
the agreement of merger (within the meaning of Section 251 of the DGCL)
contained within this Agreement; (ii) determined that such transactions are
advisable and fair to, and in the best interests of, the Company and its
stockholders; and (iii) resolved to recommend that the stockholders of the
Company approve and adopt such agreement of merger. Such Company Board action
reflected the unanimous recommendation of the Special Committee of Independent
Directors established by the Company Board. No other corporate proceedings on
the part of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to the
Merger and the agreement of merger (within the meaning of Section 251 of the
DGCL contained within this Agreement), the Required Company Vote (as defined in
Section 3.3(b) herein)). This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid, legal and binding agreement of
the Company, enforceable against the Company in accordance with its terms.
(b) The Company Board has directed that the agreement of merger contained
within this Agreement be submitted to the stockholders of the Company for their
approval at a meeting to be held for that purpose. The affirmative vote of the
holders of a majority of the outstanding Company Common Stock as of the record
date for the Company Stockholders Meeting (as hereinafter defined) (the
"Required Company Vote") is the only vote of the holders of any class or series
of capital stock of the Company necessary to adopt the agreement of merger
contained within this Agreement and approve the transactions contemplated
hereby, including the Merger.
3.4. SEC Reports; Financial Statements. (a) The Company has timely filed
all required forms, reports and documents with the SEC since January 1, 1998,
each of which has complied in all material respects with all applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), each as in effect on the dates such forms, reports
and documents were filed. No subsidiary of the Company has filed, or is required
to file, any form, report or other document with the SEC. The Company has
heretofore (x) delivered or made available to Parent all correspondence with the
SEC since January 1, 1999 and prior to the date hereof and (y) made available to
Parent in the form filed with the SEC (including any amendments thereto) (i) its
Annual Reports on Form 10-K for each of the fiscal years ended December 31,
1998, 1999 and 2000; (ii) all definitive proxy statements relating to the
Company's meetings of stockholders (whether annual or special) held since
January 1, 1999 and prior to the date hereof; and (iii) all other reports or
registration statements filed by the Company with the SEC since January 1, 1999
and prior to the date hereof (the forms, reports and documents referred to in
clauses (y) (i), (ii) and (iii) are collectively referred to herein as the
"Company SEC Reports"). None of such forms, reports or documents, including,
without limitation, any financial statements, exhibits or schedules included or
incorporated by reference therein, contained, when filed, any untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) The audited and unaudited consolidated financial statements of the
Company included (or incorporated by reference) in the Company SEC Reports
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with U.S. generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as
specifically indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments that have not been,
and will not be, material in amount). The Company has furnished Parent with its
good faith estimate, as of the date hereof, of aggregate orders and revenues for
the quarter ending December 31, 2001.
3.5. No Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature, whether accrued,
contingent or otherwise, and whether or not required to be
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recorded or reflected on a balance sheet under GAAP, except (a) liabilities or
obligations reflected in the financial statements in the Company SEC Reports
filed prior to the date hereof, including liabilities or obligations adequately
provided for or fully disclosed in the Company's unaudited balance sheet
(including the notes thereto) included in the Company's quarterly report on Form
10-Q for the quarter ended September 30, 2001 (the "September 30 Balance
Sheet"), (b) liabilities or obligations incurred since September 30, 2001 and
prior to the date hereof in the ordinary course of business consistent with past
practice, and since September 30, 2001 which have not had, and would not have,
individually or in the aggregate, a Material Adverse Effect on the Company and
(c) liabilities or obligations (of a type and in amounts consistent with those
set forth on Section 3.5 of the Company Disclosure Schedule) incurred in
connection with the transactions contemplated hereby (including the liabilities
described in Section 3.23). Section 3.5 of the Company Disclosure Schedule sets
forth each of the Company's liabilities and obligations of any nature as of the
date hereof, whether accrued, contingent or otherwise, and whether or not
required to be recorded or reflected on a balance sheet under GAAP, which
liability or obligation (x) if incurred on or before September 30, 2001, is or
may be in an individual amount greater than five hundred thousand U.S. dollars
(US$500,000) or (y) if incurred after September 30, 2001 and on or before the
date hereof, is or may be in an individual amount greater than one hundred
thousand U.S. dollars (US$100,000).
3.6. Absence of Changes. Except as and to the extent publicly disclosed in
the Company SEC Reports filed prior to the date hereof, since December 31, 2000
(the "Audit Date") and prior to the date hereof, the Company and its
subsidiaries have conducted their business in the ordinary course of business
consistent with past practice and there has not been from the Audit Date through
the date hereof:
(a) any event, occurrence or development which has had, or would have,
individually or in the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or any subsidiary of
the Company of any securities of the Company or of any of its subsidiaries;
(c) any amendment of (or agreement to amend) any term of any outstanding
security of the Company or of any subsidiary of the Company;
(d) (i) any incurrence or assumption (or agreement to incur or assume)
by the Company or any subsidiary of the Company of any indebtedness for borrowed
money or (ii) any guarantee, endorsement or other incurrence or assumption of
(or agreement to guarantee, endorse, incur or assume) liability (whether
directly, contingently or otherwise) by the Company or any subsidiary of the
Company for the obligations of any other person (other than any wholly owned
subsidiary of the Company);
(e) any creation or assumption by the Company or any subsidiary of the
Company of any Lien on any material asset of the Company or any subsidiary of
the Company other than in the ordinary course of business consistent with past
practice;
(f) any making or cancellation of (or agreement to make or cancel) any
loan, advance or capital contribution to or investment in any person by the
Company or any subsidiary of the Company other than loans, advances or capital
contributions to or investments in wholly owned subsidiaries of the Company;
(g) (i) any contract or agreement entered into by the Company or any
subsidiary of the Company relating to any material acquisition or disposition of
any assets or business or (ii) any material modification, amendment, assignment,
termination or relinquishment by the Company or any subsidiary of the Company of
any contract, license or other right (including any insurance policy naming it
as a beneficiary or a loss payable payee);
(h) any change in any method of accounting or accounting principles or
practice by the Company or any subsidiary of the Company, except for any such
change required by reason of a change of Law or in GAAP;
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(i) any (i) grant of (or agreement to grant) any severance or
termination payment; (ii) entering into of (or agreement to enter into) any
employment, deferred compensation, change in control, severance, retention,
consulting, indemnification, release or other agreement (or any amendment to any
such existing agreement or arrangement); (iii) increase in (or agreement to
increase) any compensation or benefits payable or to become payable under (A)
any severance or termination pay or benefit plans or policies or (B) employment,
deferred compensation, retention, consulting, change in control or severance
agreements or arrangements; (iv) grant of (or agreement to increase) any bonus
or similar payment (annual or otherwise, and whether or not consistent with past
practice) other than in the ordinary course of business and as specified in
Section 3.6(i) of the Company Disclosure Schedule (which Section 3.6(i) sets
forth (x) in the case of officer, director or consultant grantees, the identity
of the grantee, the amount of such bonus or similar payment, and the material
conditions upon which such bonus or similar payment is payable and (y) in the
case of other grantees, the aggregate amount of such bonuses and similar
payments); or (v) increase in (or agreement to increase) any compensation or
benefits (other than as referred to in clause (iv)), in the case of each of
clauses (i) through (v) to or with any current or former director, officer,
employee or consultant of or to the Company or any of its subsidiaries other
than, in the case of clause (v) only, increases prior to the date hereof in
annual salary or wage rates payable to employees of the Company or any of its
subsidiaries (other than officers, directors or employees with employment
agreements referred to in Section 3.18(a) of the Company Disclosure Schedule)
that have been granted in the ordinary course of business consistent with past
practice (in which course of business consistent with past practice such
increases do not exceed 4 percent) and at regularly scheduled times; or
(j) any new material Tax election or revocation of a previous material
Tax election by the Company or any subsidiary of the Company, any settlement or
compromise of any Tax Liability of the Company or any subsidiary of the Company,
or change (or request to any taxing authority to change) any aspect of the
method of accounting for Tax purposes employed by the Company or any subsidiary
of the Company.
3.7. Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Common Stock as required by the terms of
this Agreement (the "Share Issuance") pursuant to the Merger (the "S-4") at the
time the S-4 is filed with the SEC and at the time it becomes effective under
the Securities Act, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the joint proxy statement
relating to the Company Stockholder Meeting (as hereinafter defined) and the
Parent Stockholder Meeting (as hereinafter defined) to be held in connection
with the Merger and the Share Issuance (the "Proxy Statement") will, at the date
mailed to stockholders and at the times of the meetings of stockholders to be
held in connection with the Merger or the Share Issuance, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time, any event with respect to the Company, its officers
and directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the S-4 or the Proxy
Statement, the Company shall promptly so advise Parent and such event shall be
so described, and such amendment or supplement (which Parent shall have a
reasonable opportunity to review) shall be promptly filed with the SEC and, to
the extent required by Law, disseminated to the stockholders of the Company. The
Proxy Statement, insofar as it relates to the Company Stockholder Meeting, will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder.
3.8. Consents and Approvals; No Violations. (a) Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the NASD Regulation, Inc. (the "NASD"), the
Securities Act, the Exchange Act, state securities or "blue sky" Laws, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and other national merger control laws or foreign investment regulations, and
the filing of the Certificate of Merger as required by the DGCL (collectively,
the "Company Required Approvals"), no filing with or notice to, and no permit,
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authorization, consent or approval of, any supranational, national, state,
municipal or local court or tribunal or administrative, governmental,
quasi-governmental or regulatory body, agency or authority (a "Governmental
Entity") is necessary for the execution and delivery by the Company of this
Agreement or the consummation by the Company of the transactions contemplated
hereby, except where the failure to obtain such permits, authorizations,
consents or approvals or to make such filings or give such notice does not have,
and would not have, individually or in the aggregate, a Material Adverse Effect
on the Company.
(b) Neither the execution, delivery and performance of this Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
respective articles or certificate of incorporation or bylaws (or similar
governing documents) of the Company or any of its subsidiaries, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration of any obligation or the loss of any material
benefit, or the creation of any Lien) under any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound (collectively, the "Company
Agreements") or (iii) violate any Law applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, except in the case
of each of clauses (ii) and (iii) for any violations, breaches or defaults which
do not have, and would not have, individually or in the aggregate, a Material
Adverse Effect on the Company. Section 3.8 of the Company Disclosure Schedule
sets forth a list of all material third party consents and approvals required to
be obtained under the Company Agreements in connection with the consummation of
the transactions contemplated by this Agreement.
3.9. No Default. Except to the extent disclosed by the Company in Section
3.9 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is in violation in any material respect of any term of (i) its
articles or certificate of incorporation, bylaws or other organizational
documents, (ii) any agreement or instrument related to indebtedness for borrowed
money or any other material agreement to which it is a party or by which it is
bound, or (iii) any foreign or domestic law, order, writ, injunction, decree,
ordinance, award, stipulation, statute, judicial or administrative doctrine,
rule or regulation entered by a Governmental Entity ("Law") applicable to the
Company, its subsidiaries or any of their respective properties or assets,
except in the case of each of clauses (ii) and (iii) above, for violations which
do not have, and would not have, individually or in the aggregate, a Material
Adverse Effect on the Company.
3.10. Real Property. (a) Neither the Company nor any of its subsidiaries
owns any real property.
(b) Section 3.10 of the Company Disclosure Schedule sets forth all leases,
subleases and other agreements (the "Real Property Leases") under which the
Company or any of its subsidiaries uses, occupies or sublets or has the right to
use, occupy or sublet now or in the future, any real property. The Company has
heretofore delivered or made available to Parent true, correct and complete
copies of all Real Property Leases (and all modifications, amendments and
supplements thereto and all side letters to which the Company or any of its
subsidiaries is a party affecting the obligations of any party thereunder). Each
Real Property Lease constitutes the valid and legally binding obligation of the
Company or its subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect. All rent and other sums and
charges payable by the Company and its subsidiaries as tenants, or payable to
the Company or any of its subsidiaries as sublessor, under each Real Property
Lease are current, no termination event or condition or uncured default of a
material nature on the part of the Company or any such subsidiary of the Company
or, to the Company's knowledge, the landlord or the sublessee, as the case may
be, exists under any Real Property Lease. Each of the Company and its
subsidiaries has a good and valid leasehold interest in each parcel of real
property leased by it free and clear of all Liens, except (i) Liens for Taxes
and general and special assessments not in default and payable without penalty
and material interest and (ii) other liens, mortgages, pledges, encumbrances and
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security interests which do not materially interfere with the Company's or any
of its subsidiaries' use and enjoyment of such real property or materially
detract from or diminish the value thereof.
(c) No party to any Real Property Lease has given notice to the Company or
any of its subsidiaries of or made a claim against the Company or any of its
subsidiaries to the Company or any of its subsidiaries with respect to any
material breach or default thereunder and the Company has no knowledge of any
such claim.
3.11. Litigation. (a) Except as and to the extent disclosed in the Company
SEC Reports filed prior to the date hereof or in Section 3.11(a) of the Company
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the Company's knowledge, threatened against the
Company or any of its subsidiaries or any of their respective properties or
assets.
(b) Except to the extent disclosed in Section 3.11(b) of the Company
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the Company's knowledge, threatened against the
Company or any of its subsidiaries or any of their respective properties or
assets that (i) if decided adversely to the Company would have, individually or
in the aggregate, a Material Adverse Effect on the Company or (ii) questions the
validity of this Agreement or any action to be taken by the Company in
connection with the consummation of the transactions contemplated hereby or
would otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as and to the extent disclosed in the
Company SEC Reports filed prior to the date hereof or as set forth in Section
3.11 of the Company Disclosure Schedule, none of the Company or its subsidiaries
is subject to any outstanding order, writ, injunction or decree which has, or
would have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(c) The Company has prior to the date hereof fully and accurately disclosed
(or caused its outside counsel to disclose) to Parent's General Counsel, Deputy
General Counsel or outside counsel, all facts and information relating to the
Cadence Litigation (as defined in Section 9.11(e)) and the acts or omissions
that are the subject of such Litigation, that in each case could reasonably be
expected to have a bearing on the outcome (or on a reasonable evaluation of the
outcome) of such Litigation, to the extent such information is known as of the
date hereof to any of the persons listed in Section 3.11(c)(i) to the Company
Disclosure Schedule, other than facts and information that, individually and in
the aggregate, would not reasonably be expected to have a material bearing on
the outcome (or on a reasonable evaluation of the outcome) of the Cadence
Litigation. Without limiting the foregoing, the facts and information not
disclosed by the Company to Parent by reason of any joint defense agreement
referred to in Section 3.11(c)(ii) of the Company Disclosure Schedule or any
court-ordered protective order are not inconsistent in any material respect with
the facts and information that have been disclosed by the Company to Parent.
3.12. Company Permits; Compliance with Applicable Laws. The Company and
its subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which would not
have, individually or in the aggregate, a Material Adverse Effect on the
Company. The Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure to so comply would not have,
individually or in the aggregate, a Material Adverse Effect on the Company. The
businesses of the Company and its subsidiaries are not being conducted in
violation of any Law applicable to the Company or its subsidiaries, except for
violations which would not have, individually or in the aggregate, a Material
Adverse Effect on the Company. To the Company's knowledge, no investigation or
review by any Governmental Entity with respect to the Company or its
subsidiaries is pending or threatened, nor, to the Company's knowledge, has any
Governmental Entity indicated an intention to conduct the same.
3.13. Employee Benefit Plans; ERISA. (a) Neither the Company nor any of
its subsidiaries maintains or contributes to, or has any material obligation to
contribute to, or has or may have any liability, direct or indirect, contingent
or otherwise (including, without limitation, a material liability arising out of
an indemnification, guarantee, hold harmless or similar agreement) under or with
respect to, any
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employment, consulting, severance, termination, retirement, profit sharing,
bonus, incentive or deferred compensation, retention or change in control plan,
program, arrangement, agreement or commitment, or bonus, pension, stock option,
restricted stock or other equity-based, profit sharing, savings, life, health,
disability, accident, medical, insurance, vacation, other welfare fringe benefit
or other employee compensation or benefit plan, program, arrangement, agreement,
fund or commitment, including any "employee benefit plan" as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") providing benefits to any current or former employee, consultant or
director of the Company or any of its subsidiaries or any current or former
employee, consultant or director of any entity with respect to which the Company
or its subsidiaries is a successor (collectively the "Company Benefit Plans").
True and complete copies of each Company Benefit Plan, including, but not
limited to, any trust instruments and/or insurance contracts, if any, forming a
part thereof, all amendments thereto and the most recent determination letters
issued by the Internal Revenue Service, all government and regulatory approvals
received from any foreign Regulatory Agency, the most recent summary plan
descriptions (including any material modifications), the two most recent annual
reports on Form 5500 (including all exhibits and attachments thereto), the two
most recent actual reports and the two most recent audited financial reports for
any funded Company Benefit Plan have been supplied or made available to Parent.
Neither the Company nor any of its subsidiaries has made any plan or commitment,
to create any additional Company Benefit Plan or modify or change any existing
Company Benefit Plan that would increase the compensation or benefits provided
to any employee or former employee, consultant or director of the Company or any
subsidiary of the Company. Since the Audit Date there has been no material
change, amendment, modification to, or adoption of, any Company Benefit Plan.
(b) With respect to each Company Benefit Plan: (i) if intended to qualify
under Section 401(a), 401(k) or 403(a) of the Code or under any law or
regulation of any foreign jurisdiction or Regulatory Agency, such plan so
qualifies, its trusts (if any) are exempt from taxation under Section 501(a) of
the Code (or the comparable provisions of any law or regulation of any foreign
jurisdiction or Regulatory Agency) and the consummation of the transaction
contemplated hereby will not adversely affect such qualification or exemption;
(ii) it has been operated and administered in material compliance with its terms
and all applicable laws and regulations (including but not limited to ERISA, the
Code and any relevant foreign laws and regulations); (iii) there are no pending
or threatened claims against, by or on behalf of any Company Benefit Plans or
the assets, fiduciaries or administrators thereof (other than routine claims for
benefits); (iv) no breaches of fiduciary duty under which the Company or a
fiduciary could reasonably be expected to incur a material liability have
occurred; (v) no non-exempt prohibited transaction within the meaning of Section
406 of ERISA or Section 4975 of the Code has occurred; (vi) no Lien imposed
under the Code, ERISA or any foreign law exists; and (vii) all contributions,
premiums and expenses to or in respect of such Company Benefit Plan have been
timely paid in full or, to the extent not yet due, have been adequately accrued
on the Company's consolidated financial statements.
(c) Neither the Company nor any of its subsidiaries has incurred or
reasonably expects to incur, either directly or indirectly (including as a
result of an indemnification obligation), any material liability under Title I
or IV of ERISA or the penalty, excise tax or joint and several liability
provisions of the Code or any foreign law or regulation relating to employee
benefit plans (including, without limitation, Section 406, 409, 502(i), 502(l),
4069 or 4212(c) of ERISA, or Section 4971, 4975 or 4976 of the Code), or under
any agreement, instrument, statute, rule or legal requirement pursuant to or
under which the Company or any of its subsidiaries or any Company Benefit Plan
has agreed to indemnify or is required to indemnify any person against liability
incurred under, or for a violation or failure to satisfy the requirements of,
any such legal requirement, and to the knowledge of the Company, no event,
transaction or condition has occurred, exists or is expected to occur which
could result in any such material liability to the Company, any of its
subsidiaries or, after the Closing, to Parent.
(d) The Company and each of its subsidiaries has complied in all material
respects with, and each such Company Benefit Plan conforms in all material
respects in operation and form to, all applicable legal requirements, including,
but not limited to, ERISA, the Code and all applicable U.S. and non-U.S.
securities laws and regulations.
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(e) With respect to each "employee pension benefit plan" (within the
meaning of Section 3(2) of ERISA) as to which either the Company or any
subsidiary of the Company may incur any liability under, or which is subject to,
Section 302 or Title IV of ERISA or Section 412 of the Code:
(i) no such plan is a "multiemployer plan" (within the meaning of
Section 3(37) of ERISA) or a "multiple employer plan" (within the meaning
of Section 413(c) of the Code);
(ii) no such plan has been terminated so as to result, directly or
indirectly, in any material liability, contingent or otherwise, of either
the Company or any subsidiary of the Company under Title IV of ERISA;
(iii) no complete or partial withdrawal from such plan has been made
by the Company or any subsidiary of the Company, or by any other person, so
as to result in any material liability to the Company or any subsidiary of
the Company, whether such liability is contingent or otherwise;
(iv) no proceeding has been initiated by any Person (including the
Pension Benefit Guaranty Corporation (the "PBGC")) to terminate any such
plan or to appoint a trustee for any such plan;
(v) no condition or event currently exists or currently is expected to
occur that could result, directly or indirectly, in any material liability
of the Company or any subsidiary of the Company under Title IV of ERISA,
whether to the PBGC or otherwise, on account of the termination of any such
plan;
(vi) if any such plan were to be terminated as of the Closing Date or
if any person were to withdraw from such plan, neither the Company nor any
subsidiary of the Company would incur, directly or indirectly, any material
liability under Title IV of ERISA;
(vii) no "reportable event" (as defined in Section 4043 of ERISA) has
occurred with respect to any such plan, nor has notice of any such event or
similar notice to any foreign Regulatory Agency been required to be filed
for any Company Benefit Plan within the past 12 months nor will any such
notice be required to be filed as a result of the transactions contemplated
by this Agreement;
(viii) no such plan has incurred any "accumulated funding deficiency"
(as defined in Section 302 of ERISA and section 412 of the Code,
respectively), whether or not waived, and neither the Company nor any of
its subsidiaries has provided, or is required to provide, security to any
Company Benefit Plan pursuant to Section 401(a)(29) of the Code; and
(ix) the transactions contemplated hereby will not result in any event
described in section 4062(e) of ERISA.
(f) With respect to each Company Benefit Plan that is a "welfare plan" (as
defined in Section 3(1) of ERISA), neither the Company nor any subsidiary of the
Company has any material obligations to provide health, life insurance, or death
benefits with respect to current or former employees, consultants or directors
of the Company or any of its subsidiaries beyond their termination of employment
or service, other than as required under Section 4980B of the Code, and each
such Company Benefit Plan may be amended or terminated at any time without
incurring material liability thereunder. There has been no communication to any
employee, consultant or director of the Company or any subsidiary of the Company
that would reasonably be expected to promise or guarantee any such retiree
health or life insurance or other retiree death benefits on a permanent basis.
(g) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, either alone or in
combination with another event (whether contingent or otherwise) will (i)
entitle any current or former employee, consultant or director of the Company or
any of its subsidiaries or any group of such employees, consultants or directors
to any payment; (ii) increase the amount of compensation or benefits due to any
such employee, consultant or director; (iii) accelerate the vesting, funding or
time of payment of any compensation, equity award or other benefit; (iv) result
in any "parachute payment" under Section 280G of the Code (whether or not such
payment is considered to be reasonable compensation for services rendered); or
(v) cause any compensation to fail to be deductible
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under Section 162(m) of the Code, or any other provision of the Code or any
similar foreign law or regulation.
(h) Under each Company Benefit Plan which is a single-employer plan and any
foreign plan that is a defined benefit plan, as of the last day of the most
recent plan year ended prior to the date hereof, the actuarially determined
present value of all "benefit liabilities", within the meaning of Section
4001(a)(16) of ERISA or, with respect to any foreign plan, as determined under
any equivalent law or practice (in each case as determined on the basis of the
actuarial assumptions contained in Company Benefit Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such Company
Benefit Plan, and there has been no material adverse change in the financial
condition of such Company Benefit Plan (with respect to either assets or
benefits) since the last day of the most recent plan year.
(i) Neither the Company nor any of its subsidiaries maintains any plan,
agreement or arrangement, formal or informal, that provides, in the case of any
such formal plan, agreement or arrangement, benefits or, in the case of any such
informal plan, agreement or arrangement, material benefits in the nature of
severance or has outstanding any liabilities with respect to any severance
benefits available under any formal plan, agreement or arrangement or material
severance benefits available under any informal plan, agreement or arrangement.
(j) Neither the Company nor any subsidiary of the Company has any material
liability (including a material liability arising out of an indemnification,
guarantee, hold harmless or similar agreement) relating to any insurance
contract held under or purchased to fund a Company Benefit Plan, the issuer of
which is or was insolvent or in reorganization or the payments under which were
suspended.
(k) Section 3.13(k) of the Company Disclosure Schedule sets forth any and
all indebtedness in excess of fifty thousand U.S. dollars (US$50,000) owed by
any current or former employee, consultant or director to the Company or any
subsidiary of the Company.
(l) No Company Benefit Plan, nor the Company or any subsidiary of the
Company with respect to any Company Benefit Plan, is under audit or is the
subject of an audit or investigation by the IRS, the U.S. Department of Labor,
the PBGC or any other federal or state governmental agency or any foreign
Regulatory Agency, nor is any such audit or investigation pending or, to the
knowledge of the Company, threatened.
(m) All liabilities with respect to any current or former employee,
consultant or director of the Company or any subsidiary of the Company or any
affiliate of any member thereof, whether contingent or otherwise, that Parent
will assume by reason of this Agreement or by operation of law are accurately
reflected on the Company's latest audited financial statements.
(n) Except for the Company Option Plans, the Company Stock Purchase Plans
and as set forth in Section 3.13(n) of the Company Disclosure Schedule, neither
the Company nor any subsidiary of the Company maintains any plan, program or
arrangement or is a party to any contract that provides any material benefits or
provides for material payments to any Person in, based on or measured by the
value of, any equity security of, or interest in, the Company or any subsidiary
of the Company.
(o) The Company has provided to Parent a true and complete list of each
current or former employee, consultant, officer or director of the Company or
any of its subsidiaries who, as of the date hereof, holds (i) any option to
purchase any shares of Company Common Stock or commitments for future options,
together with the number of shares of Company Common Stock subject to each such
option, the exercise price per share under each such option, whether such option
is intended to qualify as an incentive stock option within the meaning of
Section 422(b) of the Code, and the expiration date of each such option, (ii)
any shares of Company Common Stock that are unvested or subject to a repurchase
option, risk of forfeiture or other condition providing that such shares may be
forfeited or repurchased by the Company upon any termination of the
shareholders' employment, directorship or other relationship with the Company or
any of its subsidiaries or which shares are subject to performance-based vesting
and (iii) any other award or right (including share units or stock appreciate
rights), directly or indirectly, to receive Company Common Stock (or any other
unit of Company equity) or any amount payable by
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reference to Company Common Stock (or any other unit of Company equity),
together with the number of shares of Company Common Stock (or any other unity
of Company equity) subject to such right.
(p) Except as set forth in Section 3.13(p) of the Company Disclosure
Schedule, there are no material liabilities, whether contingent or absolute, of
the Company or any of its subsidiaries relating to workers' compensation
benefits that are not fully insured against by a bona fide third-party insurance
carrier.
(q) With respect to each Company Benefit Plan and with respect to each
state workers' compensation arrangement, that is funded wholly or partially
through an insurance policy or public or private fund, all premiums required to
have been paid to date under such insurance policy or fund have been paid, all
premiums required to be paid under the insurance policy or fund through the
Closing Date will have been paid on or before the Closing Date and, as of the
Closing Date, there will be no material liability of the Company or its
Subsidiaries under any such insurance policy, fund or ancillary agreement with
respect to such insurance policy in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent material liability
arising wholly or partially out of events occurring prior to the Closing Date.
3.14. Labor Matters.
(a) Except as set forth in Section 3.14(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
collective bargaining agreements, and there are no labor unions or other
organizations representing, purporting to represent or attempting to represent,
any employee of the Company or any of its subsidiaries. Neither the Company nor
any of its subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any employees of
the Company or any of its subsidiaries.
(b) Neither the Company nor any of its subsidiaries has violated any
statute, law, ordinance, rule or regulation, or any order, ruling, decree,
judgment or arbitration award of any court, arbitrator or any government agency
regarding the terms and conditions of employment of employees, former employees
or prospective employees or other labor related matters, including laws, rules,
regulations, orders, rulings, decrees, judgments and awards relating to
discrimination, fair labor standards and occupational health and safety,
wrongful discharge or violation of the personal rights of employees, former
employees or prospective employees, except for any violations which do not have,
and would not have, individually or in the aggregate, a Material Adverse Effect
on the Company.
(c) Except as set forth in Section 3.14(c) of the Company Disclosure
Schedule, in the three years prior to the date hereof, neither the Company nor
any of its subsidiaries has effectuated (i) a "plant closing" (as defined in the
Worker Adjustment and Retraining Notification Act (the "WARN Act") or any
similar state, local or foreign law) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
the Company or any of its subsidiaries or (ii) a "mass layoff" (as defined in
the WARN Act, or any similar state, local or foreign law) affecting any site of
employment or facility of the Company or any of its subsidiaries.
(d) The Company has entered into agreements relating to employment,
consulting, severance, personal services, product design or development or
non-competition contracts with each of the persons listed in Section 3.14(d) of
the Company Disclosure Schedule, giving effect to the arrangements set forth
therein and in a form previously furnished to Parent, effective as of the
Effective Time.
3.15. Environmental Matters. (a) For purposes of this Agreement:
(i) "Environment" means any ambient, workplace or indoor air, surface
water, drinking water, groundwater, land surface, subsurface strata, river
sediment, plant or animal life, natural resources, workplace, and real
property and the physical structures and improvements thereon.
(ii) "Environmental Costs and Liabilities" mean any and all losses,
liabilities, obligations, damages (including compensatory, punitive and
consequential damages), fines, penalties, judgments, actions, claims, costs
and expenses (including, without limitation, fees, disbursements and
expenses of
A-17
legal counsel, experts, engineers and consultants and the costs of
investigation, monitoring, remediation or other response action) pursuant
to any Environmental Law or arising from the Environment, Hazardous
Substances or a Release.
(iii) "Environmental Law" means any law (including without limitation
common law), statute, code, order, judgment, decision, rule, regulation,
standard, or requirement.
(iv) of any Governmental Entity, or any binding agreement with any
Governmental Entity, relating to: (a) the Environment, including, without
limitation, pollution, contamination, cleanup, preservation, protection, or
reclamation of the Environment; (b) public or employee health or safety;
(c) any Release, including without limitation notification, investigation,
monitoring, or remediation of or other response to a Release; or (d) the
handling, use, manufacture, distribution, treatment, storage, disposal, or
recycling of or exposure to Hazardous Substances.
(v) "Hazardous Substance" means any pollutant, hazardous contaminant,
chemical, petroleum or any fraction thereof, asbestos or
asbestos-containing-material, polychlorinated biphenyls, or industrial,
toxic, radioactive, infectious, disease-causing or hazardous substance,
waste or agent.
(vi) "Proceeding" means any order, decree, judgment, agreement, claim,
citation, complaint, inspection, investigation, notice, arbitration or
other proceeding.
(vii) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, or other release of any Hazardous Substance, at, in, on, into or
onto the Environment.
(b) Except as have not had or would not have, individually or in the
aggregate, a Material Adverse Effect on the Company:
(i) The operations of the Company and its subsidiaries are, have been
and, as of the Closing Date, will be, in compliance with all Environmental
Laws and all Company Permits issued under Environmental Laws, and the
Company is not aware of any facts, circumstances or conditions which would
prevent the operations of the Company and its subsidiaries from continued
compliance in the future with all Environmental Laws and Company Permits
issued under such Laws.
(ii) The Company and its subsidiaries have obtained and will, as of
the Closing Date, maintain all Company Permits required under applicable
Environmental Laws for the continued operations of their respective
businesses and will, as of the Closing Date, have filed all applications
and related documents required to obtain the extension or renewal of all
such Company Permits.
(iii) There have been no Proceedings against the Company or its
subsidiaries relating to either their current or former operations alleging
any violation of Environmental Law or of any Company Permit issued under
any Environmental Law or seeking to impose Environmental Costs and
Liabilities except for any violations which do not have, and would not
have, individually or in the aggregate, a Material Adverse Effect on the
Company. To the knowledge of the Company and its subsidiaries, no such
Proceeding has been threatened.
(iv) To the Company's knowledge, there has been no Release, whether
on-site or off-site, that has subjected, or is reasonably anticipated to
subject, the Company or its subsidiaries to a notification or reporting
requirement under any Environmental Law or to any Environmental Costs and
Liabilities.
(v) To the Company's knowledge, there has been no disposal of
Hazardous Substances at, in, on or under any of the properties currently or
previously owned or operated by the Company or its subsidiaries, and no
storage or use of Hazardous Substances at these properties.
(vi) There is not now, nor to the Company's knowledge, has there been
in the past, on or in any current or former property owned or operated by
the Company or its subsidiaries any asbestos, asbestos-containing material,
polychlorinated biphenyls, or underground storage tanks.
A-18
(c) The Company has provided Parent with copies of all assessments, audits,
investigations, and sampling or similar reports relating to the Environment,
Hazardous Substances, Environmental Laws or any Release, to the extent
applicable to the current or former operations of the Company or its
subsidiaries and to the extent in the possession or control of the Company.
3.16. Taxes. (a) The Company and each subsidiary of the Company have
timely filed (taking into account all available extensions) all Tax Returns
concerning Taxes (or such Tax Returns have been filed on behalf of the Company
or subsidiary of the Company, as the case may be) required to be filed by
applicable Law and have paid all amounts due in respect of Taxes (whether or not
actually shown on such Tax Returns); all such Tax Returns are true, correct and
complete in all material respects and accurately set forth all items to the
extent required to be reflected or included in such Tax Returns by applicable
Law.
(b) The amount of the Company's and its subsidiaries' liability for unpaid
Taxes for all periods ending on or before the date of this Agreement does not,
in the aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as shown in the most recent financial
statements contained in the Company SEC Reports filed prior to the date hereof.
For these purposes "liability for unpaid Taxes" shall include Taxes, penalties,
interest, fines, deficiencies, assessments and governmental charges (including,
without limitation, all Taxes that the Company or a subsidiary of the Company is
obligated to withhold from amounts paid or payable to or benefits conferred upon
employees, creditors and third parties) relating to periods covered by the
Company SEC Reports filed prior to the date hereof. The current liability
accruals do not include any Taxes other than those imposed by U.S. federal,
state, or local government or any agency or political subdivision of such
government. Except as set forth on Section 3.16(b) of the Company Disclosure
Schedule, as of the date hereof, there is no proposed liability for any material
Tax to be imposed upon the Company or any of its subsidiaries for the most
recently ended period and all prior periods for which there is not an adequate
reserve.
(c) No claim has ever been made by any authority in a jurisdiction where
neither the Company nor any of its subsidiaries files Tax Returns that it is or
may be subject to taxation by that jurisdiction.
(d) No Liens for Taxes exist with respect to any asset of the Company or
any subsidiary of the Company, except for statutory liens for Tax not yet due.
(e) No deficiency with respect to Taxes has been proposed, asserted or
assessed against the Company or any subsidiary of the Company in writing by any
Tax authority. Except as set forth on Section 3.16(e) of the Company Disclosure
Schedule, neither the Company nor any subsidiary of the Company has received any
written or oral notice from any Tax authority of any examinations, audits or
litigation involving Taxes, or of any proposed assessments or adjustments
regarding Taxes. Except as set forth on Section 3.16(e) of the Company
Disclosure Schedule, there are and have been no examinations, audits or
litigation involving Taxes involving the Company or any subsidiary of the
Company. As of the date hereof, neither the Company nor any of its subsidiaries
has executed any outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any material Taxes or
Tax Returns; and the period during which any assessment against the Company or
any of the subsidiaries may be made by the United States Internal Revenue
Service (the "IRS") or other appropriate taxing authority has expired or will
expire without waiver or extension of any such period for each such authority.
(f) There are no agreements relating to allocating or sharing of Taxes of
which the Company or any of its subsidiaries is a party. Neither the Company nor
any of its subsidiaries is liable for Taxes of any other Person, or is currently
under any contractual obligation to indemnify any Person with respect to any
amounts of Taxes (except for customary agreements to indemnify lenders or
security holders in respect of Taxes) or is a party to any agreement providing
for payments by the Company or any of its subsidiaries with respect to any
amount of Taxes.
(g) Neither the Company nor any subsidiary of the Company has constituted
either a "distributing corporation" or a "controlled corporation" within the
meaning of Section 355(a)(1)(A) of the Code. Neither the Company nor any of its
subsidiaries is or has been a United States real property holding
A-19
corporation within the meaning of section 897(c)(2) of the Code and the Company
is not required to withhold tax on the purchase of the Company by reason of
section 1445 of the Code. Neither the Company nor any of its subsidiaries has
agreed to nor is it required to make, any adjustment under Code section 481(a)
by reason of a change in accounting method or otherwise.
(h) Neither the Company nor any subsidiary of the Company has been a member
of an affiliated group of corporations within the meaning of Section 1504 of the
Code or within the meaning of any similar provision of Law to which the Company
or a subsidiary may be subject, other than the affiliated group of which the
Company is the common Parent.
(i) The Company has made available to Parent true and complete copies of
all Tax Returns of the Company and its subsidiaries for tax years beginning on
or after January 1, 1997. No audit reports have been issued since 1991 (or
otherwise with respect to any audit or proceeding in progress) relating to Taxes
of the Company or any subsidiary of the Company. Section 3.16(i) of the Company
Disclosure Schedule lists (i) all material Tax Returns filed by the Company for
all years beginning on or after January 1, 1997 and indicates whether each such
Tax Return has been examined by and settled with the IRS or other appropriate
taxing authority and (ii) any material Tax Returns for all years beginning
before January 1, 1997 to the extent the statute of limitations with respect to
such Tax Return has not expired.
(j) INTENTIONALLY OMITTED.
(k) No elections under section 338 of the Code have been made by or in
respect of the Company or any of its subsidiaries.
(l) Neither the Company nor any of its subsidiaries previously elected to
be treated as an S Corporation under section 1361 of the Code.
(m) Section 3.16(m) of the Company Disclosure Schedule lists all
transactions in which the Company or any of its subsidiaries acquired
substantially all of the assets relating to a business or acquired more than 50
percent of the stock or other equity interests of any entity (including but not
limited to a profits or capital interest of a limited liability company or
partnership); provided that such list of transactions does not include
transactions where the purchase price was less than one million U.S. dollars
(US$1,000,000) (whether such consideration was delivered in cash or other
property).
(n) For purposes of this Agreement:
(A) "Taxes" means all taxes, however denominated, including any
interest or penalties that may become payable in respect thereof, imposed
by any federal, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include,
without limiting the generality of the foregoing, all income taxes
(including, but not limited to, United States federal income taxes and
state income Taxes), payroll and employee withholding taxes, unemployment
insurance, social security, ad valorem taxes, sales and use taxes, excise
taxes, environmental taxes, franchise taxes, gross receipts taxes,
occupation taxes, real and personal property taxes, gift taxes, stamp
taxes, transfer taxes, withholding taxes, workers' compensation premiums,
Pension Benefit Guaranty Corporation premiums and other obligations of the
same or of a similar nature, whether arising before, on or after the
Closing Date.
(B) "Tax Returns" means a report, estimate, declaration of estimated
taxes, information statement or return or other information (including any
amendments) required to be supplied to a governmental entity with respect
to Taxes including, where permitted or required, combined or consolidated
returns for any group of entities that includes the Company or any of its
subsidiaries and information returns or reports with respect to backup
withholding and other payments to third parties.
3.17. Absence of Questionable Payments. Neither the Company nor any of its
subsidiaries nor, any director, officer, agent, employee, consultant or other
person acting on behalf of the Company or any of its subsidiaries, has used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to government officials or others or established or maintained any unlawful or
unrecorded funds in violation of Section 30A of the
A-20
Exchange Act. Neither the Company nor any of its subsidiaries nor, any director,
officer, agent, employee or other person acting on behalf of the Company or any
of its subsidiaries, has accepted or received any unlawful contributions,
payments, gifts, or expenditures. The Company is in compliance in all material
respects with the provisions of Section 13(b) of the Exchange Act.
3.18. Company Contracts. (a) The Company has heretofore made available to
Parent true, correct and complete copies of (or, in the case of oral contracts,
summaries of) each of the following which exists as of the date hereof
(including all amendments, modifications and supplements thereto to which the
Company or any of its subsidiaries is a party), and which either (x) is in
effect (or contains provisions that remain in effect) as of the date hereof or
(y) will come into effect (or give rise to actual or contingent obligations that
may come into effect) pursuant to its terms after the date hereof: (i)
employment, severance, product design or development, personal services,
consulting, non-competition or indemnification contracts other than employment
agreements and offer letters terminable in each case at will (or on not more
than 30 days' notice) and without consideration, including any contract to which
the Company or any of its subsidiaries is a party involving employees of the
Company; (ii) agreements with non-employees with respect to the provision of
services by the Company or its subsidiaries or the manufacture, licensing,
rental, sale or distribution of the Company's products, including without
limitation, distribution agreements, franchise agreements, original equipment
manufacturer agreements, end user licenses granted by the Company, volume
purchase agreements, software licenses granted by the Company, material software
licenses granted to the Company, reseller agreements, service agreements granted
by the Company, research and development agreements, joint sales agreements,
territory arrangements, franchise, product development, commission or agency
agreements with non-employees, sales representative agreements with
non-employees, conditional sales contracts, and other agreements with
non-employees involving the payment of commissions or other consideration or
providing for discounts with respect to the provision of services by the Company
or its subsidiaries or the manufacture, licensing, rental, sale or distribution
of the Company's products; (iii) joint development agreements with
non-employees, cooperative development agreements, technical development
agreements, joint marketing agreements, cooperative marketing agreements,
interoperability agreements and agreements with subcontractors related to the
development, maintenance or quality assurance testing of the Company's products;
(iv) all agreements, including employee and severance agreements, that either
have change of control or similar provisions or otherwise have benefits or
payment provisions that would be triggered by the Mergers or the consummation of
the transactions contemplated hereby; (v) contracts granting a right of first
refusal or first negotiation with regard to a sale of any assets of the Company
or any of its subsidiaries; (vi) subscription, shareholder, voting, release,
indemnification, partnership or joint venture agreements other than those
entered into solely between the Company and one or more wholly-owned
subsidiaries thereof; (vii) agreements for the acquisition, sale or lease
(including leases in connection with financing transactions) of material
properties or assets of the Company (by merger, purchase or sale of assets or
stock or otherwise) entered into since January 1, 1998 or, if prior to that
date, having representations, warranties or indemnities that remain in effect or
as to which claims are pending or pursuant to which the Company retains any
payment obligations (including contingent payment obligations); (viii) contracts
or agreements with any Governmental Entity; (ix) loan or credit agreements,
mortgages, indentures or other agreements or instruments evidencing material
indebtedness for borrowed money by the Company or any of its subsidiaries or any
such agreement pursuant to which material indebtedness for borrowed money may be
incurred; (x) agreements that purport to limit, curtail or restrict the ability
of the Company or any of its subsidiaries to compete in any geographic area or
line of business; (xi) agreements or arrangements, including but not limited to
hedges, options, swaps, caps and collars, designed to protect the Company or any
of its subsidiaries against fluctuations in interest rates, currency exchange
rates or the prices of certain commodities and raw materials; (xii) contracts or
agreements that would be required to be filed as an exhibit to a Form 10-K filed
by the Company with the SEC on the date hereof; (xiii) agreements with respect
to the settlement of any suits, claims, actions, proceedings or investigations
against the Company or any of its subsidiaries or any of their respective
properties or assets (except for those agreements or portions thereof which are
the subject of confidentiality arrangements that would prevent their disclosure
in accordance herewith and are so designated in Section 3.18(a) of the Company
Disclosure Schedule),
A-21
(xiv) agreements granting a security interest in respect of any assets of the
Company to any third party; and (xv) commitments and agreements to enter into
any of the foregoing (collectively, the "Company Contracts"); provided that the
Company has not so made available Ordinary Course Customer Contracts (as defined
below). Section 3.18(a) of the Company Disclosure Schedule sets forth (1) a list
of all Company Contracts other than Ordinary Course Customer Contracts and (2) a
list of the Company's (and its subsidiaries') counterparties with respect to the
Ordinary Course Customer Contracts.
(b) Each of the Company Contracts constitutes the valid and legally binding
obligation of the Company or one or more of its subsidiaries, enforceable in
accordance with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar Laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and is in full force and effect. There is no
default under any Company Contract so listed either by the Company or, to the
Company's knowledge, by any other party thereto, and no event has occurred that
with the lapse of time or the giving of notice or both would constitute a
default thereunder by the Company or, to the Company's knowledge, any other
party, except for defaults which do not have, and would not have, individually
or in the aggregate, a Material Adverse Effect on the Company.
(c) No party to any Company Contract has given notice to the Company or any
subsidiary thereof of or made a claim against the Company or any subsidiary
thereof to the Company or any subsidiary thereof with respect to any material
breach or default thereunder.
(d) Section 3.18(d) to the Company Disclosure Schedule sets forth (i) a
list of all entities who have entered into a distribution agreement with the
Company or any subsidiary thereof, or any other Company Contract that provides
for the rendering of distribution services to the Company or any subsidiary
thereof, (or who perform such services and have not entered into such a Company
Contract), other than contracts or agreements solely between the Company or any
wholly-owned subsidiary of the Company and one or more wholly-owned subsidiaries
of the Company and (ii) the percentage of such entity's capital stock, and any
other security of or investment in such entity, held or owned, beneficially or
of record, by the Company or any subsidiary thereof.
(e) "Ordinary Course Customer Contract" shall mean any Company Contract
entered into by the Company or any subsidiary thereof for the sale, license,
rental or manufacture of products, or provision of services, by the Company or
any of its subsidiaries to or for any person, other than (i) any such agreement
involving aggregate consideration in excess of one million U.S. dollars
(US$1,000,000) payable in either calendar year 2000 or calendar year 2001 and
(ii) any agreement between the Company or any of its subsidiaries and any person
whereby such person acts as a distributor or reseller of the Company and its
subsidiaries' products or services.
(f) The Company has provided English translations of the Company Contracts
listed on Section 3.18(f) of the Company Disclosure Schedule.
3.19. Insurance Matters. Section 3.19 of the Company Disclosure Schedule
sets forth a list of insurance policies (including information on the premiums
payable in connection therewith and the scope and amount of the coverage and
deductibles provided thereunder) maintained by the Company or any of its
subsidiaries which policies have been issued by insurers, which, to the
Company's knowledge, are reputable and financially sound and provide coverage
for the operations conducted by the Company and its subsidiaries of a scope and
coverage consistent with customary industry practice.
3.20. Intellectual Property.
(a) (i) Section 3.20(a)(i) of the Company Disclosure Schedule sets forth a
list of the following categories of Company Owned Intellectual Property together
with a separate list specifying any Company Owned Intellectual Property in any
such category that is owned by any subsidiary of the Company that is not a
wholly-owned subsidiary thereof (and with respect to any such Company Owned
Intellectual Property, the identity of such non-wholly-owned subsidiary that
owns it): (A) Trademarks; (B) Patents (including issued and applications
therefor); (C) registered Copyrights; (D) Software (other than commercial
"shrink wrap" software and those that are in development and alpha or beta
tests); and
A-22
(E) Network Identifiers; and in each case listing, as applicable, the
registration number, and in the case of a registration, the registered owner,
and the jurisdiction of registration; and
(ii) Section 3.20(a)(ii) of the Company Disclosure Schedule sets forth a
complete and correct list of: (A) all agreements under which the Company or any
of its subsidiaries use, have access to or exercise any other rights with regard
to Company Licensed Intellectual Property, other than those agreements for
Company Licensed Intellectual Property that is commercial "shrink wrap" software
or publicly available "shareware" or "freeware" software and (B) all agreements
under which the Company or any of its subsidiaries has licensed to others, or
has been granted a license or otherwise afforded, the right to access or use
Company Intellectual Property or exercise any other rights with regard thereto;
in each case, specifying the parties to the agreement, the Intellectual Property
that is licensed, and whether the license is exclusive or non-exclusive.
(b) The Company and its subsidiaries (x) own, or license or otherwise
possess full, legally enforceable rights to use, all Intellectual Property that
the Company or any of its subsidiaries uses or holds for use, or intends to use,
in connection with its respective business, or that is material or necessary to
its respective business, in each case, as such business currently is conducted
or as is proposed to be conducted, free and clear of conditions, adverse claims
or Liens, and (y) have not, since January 1, 1996, transferred any Intellectual
Property that prior to such transfer constituted Company Owned Intellectual
Property, or transferred ownership of any Intellectual Property that was
developed by the Company or any of its subsidiaries after such date and is
currently incorporated in any of the products of the Company or any of its
subsidiaries, to any person other than a wholly-owned subsidiary of the Company.
(c) The Company and its subsidiaries have taken all reasonable and
appropriate steps when deemed necessary in the Company's reasonable discretion
to register all registrable Company Intellectual Property, other than
Copyrights, with the applicable authorities in the United States, Japan, China,
Korea, Canada, EU, India, Russian Federation, Turkey, Singapore, Benelux,
Germany, Hong Kong, Italy, Taiwan, France, UK, Australia, Switzerland, Israel,
Norway, Egypt, South Africa (in the case of Trademarks) and United States,
European Patent Office, Japan, Hong Kong, Canada and Patent Cooperation Treaty
countries (in the case of Patents), and all registrations for the Company Owned
Intellectual Property, including for Patents and Trademarks, are registered in
the name of the Company or its subsidiaries, as the case may be, and are
subsisting.
(d) The Company and its subsidiaries generally secures valid written
assignments from all consultants and employees who contribute or have
contributed to the creation or development of Company Owned Intellectual
Property of the rights to such contributions that the Company or its
subsidiaries do not already own by operation of law.
(e) The Company and its subsidiaries have taken reasonable and appropriate
steps to protect and preserve the confidentiality of all of the Trade Secrets
that comprise any part of Company Intellectual Property.
(f) Except as set forth in Section 3.20(f) of the Company Disclosure
Schedule, there is no pending (or, to the knowledge of the Company and its
subsidiaries, threatened) assertion or claim: (i) challenging the validity,
enforceability, scope or effectiveness of, or contesting the Company's or any of
its subsidiaries' rights with respect to, any Company Owned Intellectual
Property, or (ii) challenging the Company's or any of its subsidiaries' rights
to use any Company Licensed Intellectual Property or the enforceability of any
agreements or arrangements relating thereto.
(g) Except as set forth in Section 3.20(g) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries: (i) is a party to any
suit, action or proceeding which involves a claim of infringement, breach or
misappropriation of any Intellectual Property of any person; or (ii) has brought
any action, suit or proceeding against any person for infringement or
misappropriation of, or breach of any license or agreement involving, any
Company Intellectual Property.
(h) Neither Company Intellectual Property nor the use or other exploitation
thereof by the Company or any of its subsidiaries (or any consultant, contractor
or employee of the Company or any of its
A-23
subsidiaries who contributes to or has contributed to or participated in the
creation or development of Company Intellectual Property), nor the Company's or
any of its subsidiaries' sale or provision of, or any other exercise of rights
in respect of, any products or services of the Company or its subsidiaries that
heretofore have been or currently are exploited by the Company or its
subsidiaries, infringes on, misappropriates, breaches or violates the rights in
Intellectual Property of any person, except for such infringements,
misappropriations, breaches or violations that do not have, and would not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(i) Neither the Company nor any of its subsidiaries has given or received
any notice of default or any event which with the lapse of time would constitute
a default under any agreement relating to Company Intellectual Property; neither
the Company nor any of its subsidiaries, nor, to the knowledge of Company and
its subsidiaries, any other party is currently in default with regard to any
agreement relating to Company Intellectual Property, and there exists no
condition or event (including, without limitation, the execution, delivery and
performance of this Agreement) which, with the giving of notice or the lapse of
time or both, would constitute a default by the Company or any of its
subsidiaries under any agreement relating to Company Intellectual Property, or
would give any person any rights of termination, cancellation, acceleration of
any performance under any such agreement or result in the creation or imposition
of any Lien.
(j) To the Company's and each of its subsidiaries' knowledge, there are no
unauthorized uses, disclosures, infringements, or misappropriations by any
person of any Company Intellectual Property. Other than in license agreements
granting certain Company Owned Intellectual Property rights, neither the Company
nor any of its subsidiaries has entered into (i) any agreement to indemnify any
other person against any charge of infringement, breach or misappropriation of
any person's rights in Intellectual Property or (ii) any agreement granting any
person the right to bring infringement or misappropriation actions with respect
to, or otherwise to enforce rights with respect to, any Company Owned
Intellectual Property.
(k) To the Company's and each of its subsidiaries' knowledge, all use,
disclosure or appropriation of confidential and/or proprietary information not
owned by the Company or its subsidiaries in the course of conducting their
respective businesses has been pursuant to the terms of a written agreement
between the Company or its subsidiaries and the owner of such confidential
and/or proprietary information, or is otherwise lawful.
(l) No person other than the Company, its subsidiaries, and third parties
authorized to hold source codes pursuant to an escrow or other agreement,
possesses any current or contingent rights to, or otherwise uses, any computer
software source code that is part of Company Owned Intellectual Property.
Section 3.20(l) of the Company Disclosure Schedule sets forth a complete and
correct list of all such escrow and other agreements.
(m) All Software contained within the Company Owned Intellectual Property
performs in all material respects in accordance with the specifications and
other documentation included therein or applicable thereto issued by the
Company.
(n) As used in this Agreement:
"Intellectual Property" means any and all intellectual property or
proprietary rights in any jurisdiction, whether owned or held for use under
license, whether registered or unregistered, including such rights in and to:
(i) trademarks and pending trademark applications, trade dress, service marks,
certification marks, logos, trade names, brand names, corporate names, assumed
names and business names ("Trademarks"); (ii) issued patents and pending patent
applications, and any and all divisions, continuations, continuations-in-part,
reissues, continuing patent applications, reexaminations, and extensions
thereof, any counterparts claiming priority therefrom, utility models, patents
of importation/confirmation, certificates of invention, certificates of
registration and like statutory rights ("Patents"); inventions, invention
disclosures, discoveries and improvements, whether patentable or not; (iii)
works of authorship, whether or not copyrightable, copyrights, copyright
registrations and pending copyright registration applications and mask
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works ("Copyrights"); (iv) trade secrets (including, but not limited to, those
trade secrets defined in the Uniform Trade Secrets Act and under corresponding
foreign statutory and common law), business, technical and know-how information,
non-public information, and confidential information and rights to limit the use
or disclosure thereof by any person ("Trade Secrets"); (v) computer software and
firmware, data files, source and object codes, user interfaces, manuals,
databases and other specifications and documentation ("Software"); (vi) all
internet protocol addresses and networks, including without limitation, DNS
domain names, internet e-mail addresses, world wide web (www) and http
addresses, network names, network addresses, (such as IPv4) and services (such
as mail or website) whether or not used or currently in service, and any
registrations relating thereto ("Network Identifiers"); (vii) claims, causes of
action or defenses relating to the enforcement of any of the foregoing; and
(viii) goodwill associated with the foregoing.
"Company Intellectual Property" means any and all Intellectual Property
that is being used or held for use, or is currently under development for use or
is intended to be used, in the business of the Company or its subsidiaries, as
such businesses currently are or are anticipated to be (from the date hereof
through and including the Closing Date) conducted.
"Company Licensed Intellectual Property" means all Company Intellectual
Property other than Company Owned Intellectual Property.
"Company Owned Intellectual Property" means all Company Intellectual
Property that is owned by the Company or its subsidiaries.
3.21. Interested Party Transactions. Except as set forth in the Company
SEC Reports filed prior to the date hereof, no event has occurred since January
1, 1998 that would be required to be reported by the Company as a "Certain
Relationship" or "Related Transaction" pursuant to Item 404 of Regulation S-K
promulgated by the SEC; provided that for these purposes the definitions of
"Certain Relationship" and "Related Transaction" shall be considered without
regard to the minimum dollar threshold applicable for purposes of such Item 404.
The Company has disclosed in Section 3.21 of the Company Disclosure Schedule all
agreements that have been entered into by and between the Company or any of its
subsidiaries and any Company subsidiary or affiliate.
3.22. Opinion of Company Financial Advisor. Salomon Smith Barney Inc. (the
"Company Financial Advisor") has delivered to the Company Board its written
opinion, dated the date of this Agreement, to the effect that, as of such date,
the Exchange Ratio is fair to the holders of Shares from a financial point of
view (a true and correct copy of which has been or will promptly be furnished to
Parent), and such opinion has not been withdrawn or modified as of the date
hereof.
3.23. Brokers. No broker, finder or investment banker (other than the
Company Financial Advisor, the fees and expenses of which will be paid by the
Company), is entitled to any brokerage, finder's or other fee or commission or
expense reimbursement in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or any of
its affiliates. A true, correct and complete copy of the engagement agreement
with the Company Financial Advisor has been delivered to the Parent.
3.24. Tax Treatment. Neither the Company nor any of its affiliates has
taken or agreed to take any action or is aware of any fact or circumstance that
would prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code.
3.25. Takeover Statutes, etc. The Company Board has approved, for purposes
of Section 203 of the DGCL, this Agreement and the transactions contemplated
hereby and the execution, delivery and performance of the Voting Agreement. The
Company has taken all action required to be taken by it in order to exempt this
Agreement and the Voting Agreement and the transactions contemplated hereby and
thereby from, and this Agreement and the Voting Agreement and the transactions
contemplated hereby and thereby are exempt from, the requirements of any
"moratorium", "control share", "fair price", "affiliate transaction", "business
combination" or other antitakeover Laws and regulations (collectively, "Takeover
Statutes") of the State of Delaware. To the extent that the Takeover Statues of
any state other
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than the State of Delaware purport to apply to this Agreement or the Voting
Agreement or the transactions contemplated hereby or thereby, and to the fullest
extent of its respective powers, the Company Board has passed a resolution, and
the Company has taken all necessary steps, to exempt this Agreement and the
Voting Agreement and the transactions contemplated hereby and thereby from such
Takeover Statutes.
3.26. Amendment to the Company Rights Agreement. The Company Board has
irrevocably taken all necessary action with respect to the Company Rights
Agreement (including any amendment thereof) so that (a) none of the execution or
delivery of this Agreement or the Voting Agreement, the exchange of the Merger
Consideration for the Shares in accordance with Article II, or any other
transaction contemplated hereby or thereby will cause (i) the rights (the
"Rights") issued pursuant to the Company Rights Agreement to become exercisable
under the Company Rights Agreement, (ii) Parent or Merger Sub to be deemed an
"Acquiring Person" (as defined in the Company Rights Agreement), or (iii) the
"Distribution Date", or a "Section 11(a)(ii) Trigger Date" (in each case, as
defined in the Company Rights Agreement) or an event triggering the right of
holders of Rights to receive common shares of the Acquiring Person as described
in Section 13 of the Company Rights Agreement to occur upon any such event; and
(b) the "Final Expiration Date" (as defined in the Company Rights Agreement) of
the Rights shall occur immediately prior to the Effective Time. The Company has
furnished Parent with true copies of all such actions of the Company Board.
3.27. Distributors.
(a) Avant!Corp, Hong Kong Limited, a subsidiary of the Company
("Avant!HK"), and:
(i) DavanTech Co. Ltd. have entered into a duly authorized and
executed amendment to the Distribution Agreement dated as of October 1,
2000 between Avant!HK and DavanTech (the ("DavanTech Agreement") (x) which
amendment provides that upon termination of the DavanTech Agreement,
DavanTech will not be entitled to any compensation or fee of any sort from
Avant!HK or its affiliates and (y) whereby DavanTech waived any rights to
any termination fee, termination payment or similar award due upon
termination of the DavanTech Agreement; and
(ii) Future Techno Designs Pte. Ltd. ("FTD") have entered into a duly
authorized and executed amendment to the Distribution Agreement dated as of
October 1, 2000 between Avant!HK and FTD (the ("FTD Agreement") (x) which
amendment provides that upon termination of the FTD Agreement, FTD will not
be entitled to any compensation or fee of any sort from Avant!HK or its
affiliates and (y) whereby FTD waived any rights to any termination fee,
termination payment or similar award due upon termination of the FTD
Agreement.
(b) Avant!Japan Corporation ("Avant!Japan") and Maingate Electronics, KK
("Maingate") have entered into (A) a duly authorized and executed amendment to
the Distribution Agreement dated as of October 1, 2000 between Avant!Japan and
Maingate (the ("Maingate Agreement") (x) which amendment provides that upon
termination of the Maingate Agreement, Maingate will not be entitled to any
compensation or fee of any sort from Avant!Japan or its affiliates and (y)
whereby Maingate waived any rights to any termination fee, termination payment
or similar award due upon termination of the Maingate Agreement and (B) a duly
authorized and executed amendment to the Product Lease Agreement dated as of
October 1, 2000 between Avant!Japan and Maingate (the ("Product Lease") (1)
which amendment provides that upon termination of the Product Lease, Maingate
will not be entitled to any compensation or fee of any sort from Avant!Japan or
its affiliates and (2) whereby Maingate waived any rights to any termination
fee, termination payment or similar award due upon termination of the Product
Lease.
(c) To the Company's knowledge, in the fiscal year ending September 30,
2001 (x) total revenues for DavanTech were in the amount of five million twenty
four thousand U.S. dollars (US$5,024,000) and (y) the net income of DavanTech
was in the amount of one million twenty four thousand U.S. dollars
(US$1,024,000).
3.28. Semiconductor Manufacturing International Corporation. The Company
does not, directly or indirectly, own (beneficially or otherwise) any equity
interest in Semiconductor Manufacturing
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International Corporation, a Cayman Islands company ("SMIC"), and, in accordance
with all applicable documents and Laws, and pursuant to the Termination,
Release, Waiver and Indemnification Agreement, dated September 25, 2001, between
Avant! Global Investment Holdings Ltd. and SMIC (the "SMIC Termination
Agreement"), a true and complete copy of which has been furnished to Parent, and
the transactions contemplated thereby (the "SMIC Transactions") except as set
forth in Section 3.28 of the Company Disclosure Schedule: (i) all oral and
written agreements between or including the Company and/or its subsidiaries, on
the one hand and SMIC, on the other hand, have either been terminated or are of
no further force and effect as against the Company and its subsidiaries, and
(ii) the Company and its subsidiaries have no further liabilities or obligations
(including capital contribution obligations) relating to SMIC. Pursuant to the
SMIC Termination Agreement, the Company and a wholly-owned subsidiary of the
Company are entitled to receive on a consolidated basis sixty two million five
hundred thousand U.S. dollars (US$62,500,000) of proceeds for the sale of the
Company's interest in SMIC, of which amount (i) thirty-three million U.S.
dollars (US$33,000,000) was received prior to the date hereof and (ii)
twenty-nine million five hundred thousand U.S. dollars (US$29,500,000) (the
"Outstanding SMIC Amount") was due and payable on or before November 30, 2001
but has not been received by the Company as of the date hereof.
3.29. Avant!HighTech. As of the date hereof, Avant! High-Tech, Inc.
("Avant! High-Tech") has, through a wholly-owned subsidiary thereof, repurchased
all outstanding equity not held by the Company or its subsidiaries except for
equity held by those current and former employees listed on Section 3.29 of the
Company Disclosure Schedule. Avant! High-Tech has, through a wholly-owned
subsidiary, prior to the date hereof entered into a stock repurchase agreement
with each employee listed on Section 3.29 of the Company Disclosure Schedule.
Each such agreement contemplates the transfer to Avant! High-Tech, through a
wholly-owned subsidiary thereof, of 100 percent of the stock in Avant! High-Tech
owned by the employee who is a party thereto, and is effective on or prior to
the date hereof, subject only to regulatory approval.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the section of the disclosure schedule delivered by
Parent to the Company prior to the execution of this Agreement (the "Parent
Disclosure Schedule") that specifically relates to the correspondingly numbered
section of this Article IV, Parent and Merger Sub hereby represent and warrant
to the Company as follows:
4.1. Organization. (a) Parent and each of its subsidiaries is a
corporation or legal entity duly organized, validly existing and (in those
jurisdictions where there is an applicable concept of good standing) in good
standing under the Laws of the jurisdiction of its organization and has all
requisite corporate, partnership or similar power and authority to own, lease
and operate its properties and to carry on its businesses as now conducted.
(b) Parent and each of its subsidiaries is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing does not have, and would not
have, individually or in the aggregate, a Material Adverse Effect on Parent.
(c) Parent has heretofore delivered to the Company accurate and complete
copies of its certificate of incorporation and bylaws and of Merger Sub's
certificate of formation and limited liability company agreement.
4.2. Capitalization of Parent. (a) (i) The authorized capital stock of
Parent consists of 400,000,000 shares of Parent Common Stock and 2,000,000
shares of preferred stock, par value $.01 per share ("Parent Preferred Stock").
As of the Capitalization Date: (i) 59,825,008 shares of Parent Common Stock
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were issued and outstanding; (ii) 25,332,273 shares of Parent Common Stock were
subject to outstanding options issued pursuant to Parent's stock option plans
(collectively, the "Parent Stock Option Plans"); and (iii) 11,688,276 shares of
Parent Common Stock were issued and held in the treasury of the Parent. As of
the date hereof, no shares of Parent Preferred Stock are issued and outstanding
and 100,000 shares of Parent Preferred Stock are reserved for issuance upon
exercise of the Parent Rights pursuant to the Parent Rights Agreement. From the
Capitalization Date through the date hereof, there have been no issuances of
shares of the capital stock or other securities of the Parent or of options,
warrants or rights with respect to shares of Parent Common Stock or other
securities of Parent other than issuances of shares of Parent Common Stock
pursuant to the exercise of options outstanding or the Capitalization Date as
fully reflected in Section 4.2 of the Parent Disclosure Schedule. All the
outstanding Shares of Parent Common Stock are, and all shares to be issued as
part of the Merger Consideration will be, when issued in accordance with the
terms hereof, duly authorized, validly issued, fully paid and non-assessable.
Except as set forth above, and except for the transactions contemplated by this
Agreement and Parent's obligations under the Parent Rights Agreement, as of the
date of this Agreement (1) there are no shares of capital stock of Parent
authorized, issued or outstanding, (2) there are no authorized or outstanding
options, warrants, calls, preemptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character (whether or not
conditional) relating to the issued or unissued capital stock of Parent or any
of its subsidiaries, obligating Parent or any of its subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or other equity interest in Parent or any of its subsidiaries or
securities convertible into or exchangeable for such shares or equity interests,
or obligating Parent or any of its subsidiaries to grant, extend or enter into
any such option, warrant, call, subscription or other right, agreement,
arrangement or commitment and (3) there are no outstanding contractual
obligations of Parent or any of its subsidiaries to repurchase, redeem or
otherwise acquire any capital stock of Parent or any of its subsidiaries, or to
make any payments based on the market price or value of shares or other capital
stock of the Parent or its subsidiaries, or to provide funds to make any
investment (in the form of a loan, capital contribution or otherwise) in any
subsidiary or any other entity other than loans to subsidiaries in the ordinary
course of business.
(b) All of the outstanding limited liability company interests in Merger
Sub are owned by Parent, directly or indirectly, free and clear of any Lien or
any other limitation or restriction (including any restriction on the right to
vote or sell the same, except as may be provided as a matter of Law) and there
are no irrevocable proxies with respect to such limited liability company
interests.
4.3. Authority Relative to This Agreement. (a) Each of Parent and Merger
Sub has all necessary power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by each of Parent and Merger Sub and
constitutes a valid, legal and binding agreement of each of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms.
(b) The Board of Directors of Parent (the "Parent Board") and Parent, in
its capacity as the sole member of Merger Sub, have duly and validly authorized
the execution and delivery of this Agreement and approved the consummation of
the transactions contemplated hereby, and have taken all corporate and company
actions required to be taken by the Parent Board and by Parent, in its capacity
as the sole member of Merger Sub, for the consummation of such transactions. The
affirmative approval of the majority of those holders who are present and voting
at the Parent Stockholder Meeting, provided that a majority of the outstanding
shares are present at such Parent Stockholder Meeting (the "Required Parent
Vote"), is the only vote of the holders of any class or series of capital stock
of Parent necessary to approve the Share Issuance and no corporate or company
proceedings on the part of Parent or Merger Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than,
with respect to the Share Issuance, the Required Parent Vote).
4.4. SEC Reports; Financial Statements. (a) Parent has timely filed all
required forms, reports and documents with the SEC since January 1, 1998 each of
which has complied in all material respects with all applicable requirements of
the Securities Act and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed. Parent has heretofore delivered to the
Company,
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(x) delivered to the Company all correspondence with the SEC since January 1,
1999 and prior to the date hereof (y) made available to the Company in the form
filed with the SEC (including any amendments thereto), (i) its Annual Reports on
Form 10-K for the fiscal year ended September 30, 1998, September 30, 1999 and
October 31, 2000, (ii) all definitive proxy statements relating to Parent's
meetings of stockholders (whether annual or special) held since January 1, 1999
and (iii) all other reports or registration statements filed by Parent with the
SEC since January 1, 1999 and prior to the date hereof (the forms, reports or
documents referred to in clauses (i), (ii) and (iii) are collectively referred
to herein as the "Parent SEC Reports"). None of such forms, reports or
documents, including, without limitation, any financial statements, exhibits or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(b) The audited and unaudited consolidated financial statements of Parent
included (or incorporated by reference) in the Parent SEC Reports complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto and fairly
present, in conformity with GAAP (except as specifically indicated in the notes
thereto), the consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments that have not been, and will not be, material in amount).
4.5. No Undisclosed Liabilities. Neither the Parent nor any of its
subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and whether or not required to be recorded or
reflected on a balance sheet under GAAP and there is no existing condition,
situation or set of circumstances which could be expected to result in such a
liability or obligation, except (a) liabilities or obligations reflected in the
financial statements in the Parent SEC Reports filed prior to the date hereof,
including liabilities or obligations adequately provided for or fully disclosed
in the Parent's unaudited balance sheet (including the notes thereto) included
in the Parent's quarterly report on Form 10-Q for the fiscal quarter ended July
31, 2001 (the ("Parent July 31 Balance Sheet"), (b) liabilities or obligations
incurred since July 31, 2001 which have not had, and would not have,
individually or in the aggregate, a Material Adverse Effect on the Parent and
which, if prior to the date hereof , were incurred in the ordinary course of
business, and (c) liabilities or obligations incurred in connection with the
transactions contemplated hereby.
4.6. Absence of Certain Changes or Events. Except as and to the extent
disclosed in the Parent SEC Reports filed prior to the date hereof, since
December 31, 2000 (a) the businesses of the Parent and its subsidiaries have
been conducted through the date hereof in the ordinary course of business
consistent with past practice and (b) there has not been any event, occurrence,
development or state of circumstance or facts that has had, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on Parent.
4.7. Information Supplied. None of the information supplied or to be
supplied by Parent or Merger Sub for inclusion or incorporation by reference in
(i) the S-4 will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (ii) the Proxy
Statement will, at the date mailed to stockholders and at the times of the
Company Stockholder Meeting and the Parent Stockholder Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If, at any
time prior to the Effective Time, any event with respect to Parent, its officers
and directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the S-4 or the Proxy
Statement, Parent shall promptly so advise the Company and such event shall be
so described, and such amendment or supplement (which the Company shall have a
reasonable opportunity to review) shall be promptly filed with the SEC and, to
the extent
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required by law, disseminated to the stockholders of the Company. The Proxy
Statement, insofar as it relates to the Parent Stockholders Meeting, and the S-4
will comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.
4.8. Consents and Approvals; No Violations. (a) Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the NASD, the Securities Act, the Exchange
Act, state securities or "blue sky" Laws, the HSR Act, and any other national
merger control law or foreign investment regulation, and the filing and
recordation of a certificate of merger as required by the DGCL (the "Parent
Required Approvals"), no filing with or notice to, and no permit, authorization,
consent or approval of, any Governmental Entity is necessary for the execution
and delivery by Parent or Merger Sub of this Agreement or the consummation by
Parent or Merger Sub of the transactions contemplated hereby except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings or give such notice does not have, and would not have, individually
or in the aggregate, a Material Adverse Effect on Parent.
(b) Neither the execution, delivery and performance of this Agreement by
Parent or Merger Sub nor the consummation by Parent or Merger Sub of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the certificate of incorporation or bylaws of Parent, of the
certificate of formation or limited liability company agreement of Merger Sub,
or of any similar organizational documents of any of Parent's subsidiaries, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration of an obligation or the loss of any
material benefit, or the creation of any Lien) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Parent or Merger
Sub or any of Parent's subsidiaries is a party or by which any of them or any of
their respective properties or assets may be bound (collectively, the "Parent
Agreements" or (iii) violate any Law applicable to Parent or Merger Sub or any
of Parent's subsidiaries or any of their respective properties or assets, except
in the case of (ii) or (iii) for violations, breaches or defaults which do not
have, and could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
4.9. Compliance with Applicable Laws. Except to the extent disclosed by
Parent in the Parent SEC Reports filed prior to the date hereof, the businesses
of Parent and its subsidiaries are not being conducted in violation of any Law
applicable to the Parent except for violations which do not and would not have,
individually or in the aggregate, a Material Adverse Effect on Parent.
4.10. Opinion of Parent Financial Advisor. Credit Suisse First Boston
Corporation (the "Parent Financial Advisor") has delivered to the Parent Board
its written opinion, dated the date of this Agreement, to the effect that, as of
such date, the Exchange Ratio to be offered to the holders of Shares in the
Merger is fair to the Parent from a financial point of view (a true and correct
copy of which has been, or will promptly be, furnished to Company), and such
opinion has not been withdrawn or modified as of the date hereof.
4.11. Brokers. No broker, finder or investment banker (other than Credit
Suisse First Boston Corporation) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of Parent or Merger Sub
or any of their affiliates.
4.12. Tax Treatment. Neither Parent nor any of its affiliates has taken or
agreed to take any action or is aware of any fact or circumstance that would
prevent the Merger from qualifying as a re-organization under Section 368(a) of
the Code.
4.13. Litigation. Except to the extent disclosed in Section 4.13 of the
Parent Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the Parent's knowledge, threatened against the
Parent or any of its subsidiaries or any of their respective properties or
assets that (i) if decided adversely to Parent would have, individually or in
the aggregate, a Material Adverse Effect on Parent or (ii) questions the
validity of this Agreement or any action to be taken by Parent in
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connection with the consummation of the transactions contemplated hereby or
would otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as and to the extent disclosed in the
Parent SEC Reports filed prior to the date hereof or as set forth in Section
4.13 of the Parent Disclosure Schedule, none of Parent or its subsidiaries is
subject to any outstanding order, writ, injunction or decree which has, or would
have, individually or in the aggregate, a Material Adverse Effect on Parent.
ARTICLE V
COVENANTS
5.1. Conduct of Business of the Company. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Company Disclosure Schedule,
during the period from the date hereof to the Effective Time, the Company will,
and will cause each of its subsidiaries to, in all material respects, conduct
its operations in the ordinary course of business consistent with past practice
and, to the extent consistent therewith, with no less diligence and effort than
would be applied in the absence of this Agreement, seek to preserve intact its
current business organizations, seek to keep available the service of its
current officers and employees and seek to preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement or the Company Disclosure Schedule, prior
to the Effective Time, neither the Company nor any of its subsidiaries will,
without the prior written consent of Parent:
(a) amend its certificate of incorporation or bylaws (or other similar
governing instrument) or amend, modify or terminate the Company Rights
Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities convertible into or exchangeable for any
stock or any equity equivalents (including, without limitation, any stock
options or stock appreciation rights), except for the issuance or sale of Shares
pursuant to the exercise of Company Stock Options outstanding on the date of
this Agreement;
(c) (i) split, combine or reclassify any shares of its capital stock; (ii)
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(iii) make any other actual, constructive or deemed distribution in respect of
any shares of its capital stock or otherwise make any payments to stockholders
in their capacity as such; or (iv) redeem, repurchase or otherwise acquire any
of its securities or any securities of any of its subsidiaries (including
redeeming any Rights);
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue any debt
securities, except for borrowings under existing lines of credit in the ordinary
course of business consistent with past practice and in amounts not material to
the Company and its subsidiaries taken as a whole; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary course of business consistent with past practice and in amounts not
material to the Company and its subsidiaries, taken as a whole, and except for
guarantees of obligations of wholly owned subsidiaries of the Company; (iii)
make or cancel, or waive any rights with respect to, any loans, advances or
capital contributions to, or investments in, any other person (other than to
wholly owned subsidiaries of the Company); (iv) pledge or otherwise encumber
shares of capital stock
A-31
of the Company or its subsidiaries; or (v) mortgage or pledge any of its
tangible or intangible assets or properties, or create or suffer to exist any
Lien thereupon.
(g) except as may be required by Law (or, in the case of employees who are
not directors or officers of the Company (or family members of directors or
officers of the Company), in the ordinary course of business consistent with
past practices as specified in Section 5.1(g) of the Company Disclosure
Schedule), enter into, adopt, amend, extend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock purchase,
pension, retirement, deferred or incentive compensation, labor, collective
bargaining, employment, or other employee benefit, retention, change in control
or similar agreement, trust, plan, fund, award or other arrangement for the
benefit or welfare of any current or former director, officer, employee or
consultant in any manner, take any action to accelerate the vesting of any
Company Stock Options or other equity based awards, bonus or incentive
compensation or other non-periodic compensation payment or award or (except as
required under the terms of agreements that are Company Benefit Plans as in
effect on the date hereof) increase in any manner the compensation or benefits
of any current or former director, officer, employee or consultant or pay any
benefit not required under the terms of any Company Benefit Plan as in effect as
of the date hereof (including, without limitation, the granting of stock
options, stock appreciation rights, restricted shares or other awards);
(h) acquire, sell, lease or dispose of any assets outside the ordinary
course of business consistent with past practice or any assets which in the
aggregate are material to the Company and its subsidiaries taken as a whole, or
enter into any commitment or transaction outside the ordinary course of business
consistent with past practice;
(i) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary course of business consistent with past
practice or as required by GAAP;
(k) (i) acquire (by merger, consolidation, or acquisition of stock or
assets or otherwise) any corporation, partnership or other business organization
or division thereof or any equity interest therein; (ii) enter into any contract
or agreement, other than a contract or agreement (x) entered into in the
ordinary course of business consistent with past practice and (y) which, to the
extent that it involves consideration in an aggregate amount exceeding five
hundred thousand U.S. dollars (US$500,000), has been approved by the President
of the Company; (iii) make any amendment in any material respect to any of the
Company Contracts or any security of the Company or any subsidiary of the
Company, other than an amendment (x) entered into in the ordinary course of
business consistent with past practice and (y) which, to the extent that it
involves additional consideration in an aggregate amount exceeding five hundred
thousand U.S. dollars (US$500,000), has been approved by the President of the
Company; (iv) authorize any new capital expenditure or expenditures which,
individually, is in excess of one hundred and fifty thousand U.S. dollars
(US$150,000) or, in the aggregate, are in excess of two million U.S. dollars
(US$2,000,000) in any fiscal quarter or (v) enter into any Customer Contract the
breach of which would be caused by (or which would be terminable in a manner
adverse to the Company or any its subsidiaries upon) the consummation of the
Merger or the other transactions contemplated hereby;
(l) make or revoke any Tax election, or settle or compromise any Tax
liability, or file any refund claim based in whole or in part on the carry back
of a net operating loss, or change (or make a request to any taxing authority to
change) any aspect of its method of accounting for Tax purposes;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice of liabilities reflected or
reserved against in the September 30 Balance Sheet, or incurred subsequent to
such date in the ordinary course of business consistent with past practice;
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(n) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or any of
its subsidiaries is a party;
(o) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
(p) take any action (including any action otherwise permitted by this
Section 5.1) that would prevent or impede the Merger from qualifying as
reorganization under Section 368(a) of the Code;
(q) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any of its subsidiaries or any successor thereto or
that could, after the Effective Time, limit or restrict the Surviving Company
and its affiliates (including Parent) or any successor thereto, from engaging or
competing in any line of business or in any geographic area;
(r) (i) enter into any license or other agreement with respect to the
Company Owned Intellectual Property (other than licenses or other agreements
that do not, in any case, involve rights to computer software source code) or
(ii) enter into any consulting arrangement; provided that clauses (i) and (ii)
shall not include any license, agreement or consulting arrangement that is
granted on commercially reasonable terms in the ordinary course of business
consistent with past practice but excluding any licenses, agreements or
consulting arrangements that fail to satisfy the conditions set forth in clause
(k)(ii)(y).
(s) enter into, adopt, amend, extend or terminate any distribution
agreement, original equipment manufacturer agreement, reseller agreement or
(other than in the ordinary course of business consistent with past practices)
joint development agreement with any person;
(t) directly or indirectly engage in any transaction (except pursuant to an
already existing, and legally enforceable written agreement disclosed in Section
5.1(t) of the Company Disclosure Schedule) with, or enter into any agreement
with, any director, officer or affiliate of the Company or any family member of
any such person except for transactions solely between the Company or any
wholly-owned subsidiary of the Company and one or more wholly-owned subsidiaries
of the Company;
(u) take any action that would result in an obligation to make any payment
to Gerald Hsu by the Company or any subsidiary thereof pursuant to any agreement
between Gerald Hsu and the Company or any subsidiary thereof associated with the
termination of his employment; or
(v) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through 5.1(u) or any other action that
(i) would make any of the representations or warranties of the Company contained
in this Agreement (A) which are qualified as to materiality, untrue or incorrect
or (B) which are not so qualified, untrue or incorrect in any material respect
or (ii) would be reasonably likely to result in any of the conditions to the
Merger set forth in Article VII hereof not being satisfied.
5.2. Conduct of Business of Parent. Except as otherwise expressly provided
in this Agreement or as set forth in the Parent Disclosure Schedule, prior to
the Effective Time, neither Parent nor any of its subsidiaries will, without the
prior written consent of the Company:
(a) amend its certificate of incorporation (or other similar governing
instrument) in any manner that would be materially adverse to the holders of
Company Common Stock;
(b) declare, set aside or pay any dividend or other distribution in respect
of its capital stock except the declaration and payment of regular quarterly
cash dividends or pro rata stock dividends; or
(c) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Section 5.2(a) or (b) or any action that (i) would make
the representations or warranties of Parent and Merger Sub in this Agreement (A)
which are qualified as to materiality, untrue or incorrect or (B) which are not
so qualified, untrue in any material respect or (ii) would be reasonably likely
to result in any of the conditions to the Merger set forth in Article VII hereof
not being satisfied.
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5.3. Access to Information. (a) Between the date hereof and the Effective
Time, the Company will give Parent and Merger Sub and their authorized
representatives (including counsel, financial advisors and auditors) reasonable
access during normal business hours to all employees, plants, offices,
warehouses and other facilities and to all books and records of the Company and
its subsidiaries, will permit Parent and Merger Sub to make such inspections as
Parent and Merger Sub may reasonably require and will cause the Company's
officers and those of its subsidiaries to furnish Parent and Merger Sub with
such financial and operating data and other information with respect to the
business, properties and personnel of the Company and its subsidiaries as Parent
or Merger Sub may from time to time reasonably request, provided, that no
investigation pursuant to this Section 5.3(a) shall affect or be deemed to
modify any of the representations or warranties made by the Company.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent, (i) concurrently with the delivery thereof to management,
such monthly financial statements and data as are regularly prepared for
distribution to Company management and (ii) at the earliest time they are
available, such quarterly and annual financial statements as are prepared for
the Company's SEC filings, which (in the case of this clause (ii)) shall be in
accordance with the books and records of the Company. Between the date hereof
and the Effective Time, Parent shall furnish to the Company, at the earliest
time they are available, such quarterly and annual financial statements as are
prepared for Parent's SEC filings, which shall be in accordance with the books
and records of Parent.
(c) Parent will hold and will cause its authorized representatives to hold
in confidence all documents and information concerning the Company and its
subsidiaries furnished to Parent in connection with the transactions
contemplated by this Agreement pursuant to the terms of that certain
Confidentiality Agreement entered into between the Company and Parent dated
September 9, 2001 (the "Confidentiality Agreement"). The Company will hold and
will cause its authorized representatives to hold in confidence all documents
and information concerning Parent and its subsidiaries furnished to the Company
in connection with the transactions contemplated by this Agreements pursuant to
the terms of that certain Confidentiality Agreement entered into between the
Company and Parent dated September 24, 2001 (the "Parent Confidentiality
Agreement").
(d) Any documents or information disclosed by the Company or any of its
subsidiaries to Parent pursuant to Section 3.18(a), Section 5.1 or clause (a) or
(b) of this Section 5.3 shall be used by Parent solely for the evaluation of,
and/or transitional planning in connection with, the transactions contemplated
hereby and shall, for the avoidance of doubt, be subject to clause (c) of this
Section 5.3; provided that the restrictions set forth in this clause (d) shall
not apply to the disclosure of any document or information that is exempted from
the confidentiality restrictions set forth in the Confidentiality Agreement
pursuant to the terms thereof.
5.4. Company Litigation. The Company will (i) at such intervals as are
reasonably specified by Parent provide Parent with information as to the status
of all existing or new litigations in which the Company or any Company
subsidiary is a party and (ii) promptly notify Parent of, and consult with
Parent as to, any material developments concerning any such litigation.
5.5. Dispositions. Prior to the Effective Time, Parent and the Company
shall take all such steps as may be required to cause any dispositions of
Company Common Stock (including derivative securities with respect to Company
Common Stock) resulting from the transactions contemplated by this Agreement by
each individual who is subject to the reporting requirements of Section 16(a) of
the Exchange Act with respect to the Company, to be exempt under Rule 16b-3
promulgated under the Exchange Act, such steps to be taken in accordance with
the No-Action Letter dated January 12, 1999, issued by the SEC to Skadden, Arps,
Slate, Meagher & Flom LLP.
5.6. Maingate. As promptly as possible, and in any event not later than
December 31, 2001, the Company shall (i) repurchase the Maingate shares it sold
in January 2001 for not more than the one million U.S. dollars (U$1,000,000) it
received at that time, and (ii) repurchase all other Maingate shares (and all
options or other equity or potential equity rights) it does not own for a cash
amount of not more than the Maingate Purchase Price (as defined below). Between
the date hereof and the date of such
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transactions, Maingate shall be operated only in the ordinary course of business
in accordance with past practice. Without limiting the foregoing, during such
period Maingate shall not declare or pay any dividends, or repurchase any
outstanding shares (or options or other equity or potential equity rights) or
enter into any transactions with any affiliate or shareholder thereof (other
than transactions in the ordinary course of business consistent with past
practice with the Company or its subsidiaries). The "Maingate Purchase Price"
shall be the lesser of (i) the value determined by multiplying the midpoint of
the high and low values of the range established by the independent appraiser
that has been retained for such purpose by the percentage of the outstanding
Maingate shares owned in the aggregate by the shareholders other than the
Company (after giving effect to the repurchase referred to in clause (i) above),
and (ii) a formula price equal to the amount determined pursuant to the
following formula:
formula price = US$13,000,000 minus A minus B.
For purposes of this formula, A shall equal fifteen million U.S. dollars
(US$15,000,000) minus the amount of cash on the balance sheet of Maingate at the
time of closing of the transactions contemplated by this Section 5.6.
Notwithstanding the previous sentence, if A is a negative amount, it shall not
be subtracted under the previous sentence in determining the formula price. For
purpose of the formula, B shall equal one million three hundred fifty thousand
U.S. dollars (US$1,350,000) minus (x minus y) where x is the total amount of
assets on the balance sheet of Maingate at the time of closing of such
transactions other than cash, and y is the total amount of liabilities on the
balance sheet at the time of closing of such transactions other than accounts
payable-trade owing to the Company. Notwithstanding the previous sentence, B
shall not be subtracted in determining the formula price if B is a negative
number or if A plus B is a negative number.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Preparation of S-4 and the Proxy Statement. Each of Parent and the
Company shall cooperate and as promptly as practicable jointly prepare and
Parent shall file with the SEC as promptly as practicable the S-4 under the
Securities Act with respect to the Share Issuance. A portion of the S-4 shall
serve as a prospectus with respect to the Share Issuance and as the Proxy
Statement in connection with the vote of the stockholders of the Company with
respect to the Merger and the vote of the stockholders of Parent with respect to
the Share Issuance. Parent will cause the S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act and the
rules and regulations thereunder and the Company will cause the Proxy Statement,
to the extent it relates to such Party, to comply as to form in all material
respects with the applicable provisions of the Exchange Act and the rules and
regulations thereunder. Parent and the Company will, and will cause their
respective accountants and lawyers to, use all reasonable best efforts to have
or cause the S-4 declared effective as promptly as practicable after filing with
the SEC, including, without limitation, causing their accountants to deliver
necessary or required instruments such as opinions, consents and certificates,
and will take any other action required or necessary to be taken under federal
or state securities Laws or otherwise in connection with the registration
process (other than qualifying to do business in any jurisdiction which it is
not now so qualified or to file a general consent to service of process in any
jurisdiction). Each of the Company and Parent shall, as promptly as practicable
after the receipt thereof, provide to the other Party copies of any written
comments and advise the other Party of any oral comments, with respect to the
Proxy Statement or the S-4 received from the staff of the SEC. Each of the
Company and Parent will provide the other Party with a reasonable opportunity to
review and comment on any amendment or supplement to the Proxy Statement prior
to filing with the SEC and will provide the other Party with a copy of all such
filings with the SEC. Each of Parent and the Company will use its reasonable
best efforts to cause the Proxy Statement to be mailed to its stockholders at
the earliest practicable date.
6.2. Meetings. (a) The Company shall take all lawful action to (i) cause a
special meeting of its stockholders (the "Company Stockholder Meeting") to be
duly called and held as soon as practicable after
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the date of this Agreement for the purpose of voting on the approval and
adoption of the "agreement of merger" (within the meaning of Section 251 of the
DGCL) contained in this Agreement, and the Merger, and (ii) solicit proxies from
its stockholders with respect to such vote, which solicitation, unless the
Company Board withdraws its recommendation of such approval and adoption in
accordance with Section 6.4(b), shall be to obtain the Required Company Vote for
such approval and adoption. Except as permitted by Section 6.4(b), the Company
Board shall recommend approval and adoption of the "agreement of merger"
contained in this Agreement and the Merger by the Company's stockholders and,
the Company Board shall not withdraw, amend or modify in a manner adverse to
Parent such recommendation (or announce publicly its intention to do so). The
Company shall submit this Agreement to its stockholders at the Company
Stockholder Meeting even if the Company Board shall have withdrawn, amended or
modified in a manner adverse to Parent such recommendation or announced publicly
its intention to do so as permitted by Section 6.4(b).
(b) Parent shall take all lawful action to (i) cause a special meeting of
its stockholders (the "Parent Stockholder Meeting") to be duly called and held
as soon as practicable after the date of this Agreement for the purpose of
voting on the approval of the Share Issuance and (ii) solicit proxies from its
stockholders with respect to such vote, which solicitation, unless the Parent
Board withdraws its recommendation of such approval in accordance herewith,
shall be to obtain the Required Parent Vote. The Parent Board shall recommend
approval of the Share Issuance by Parent's stockholders and shall not withdraw,
amend or modify, in a manner adverse to the Company, its recommendation that
stockholders vote in favor of the Share Issuance (or publicly announce its
intention to do so); provided that nothing herein shall require Parent Board to
make (or prevent Parent Board from withdrawing, amending or modifying in a
manner adverse to the Company) any such recommendation in the event that (1)
Parent Board after consultation with and based upon the advice of independent
legal counsel, determines in good faith that to make (or to refrain from
withdrawing, amending or modifying in a manner adverse to the Company) such
recommendation, would cause Parent Board to fail to be in compliance with its
fiduciary duties to Parent's stockholders under any applicable Law and (2)
Parent shall have delivered to Company a prior written notice advising Company
that it intends to take such action and describing its reasons for taking such
action (such notice to be delivered not less than three Business Days prior to
the time such action is taken). Parent shall hold the Parent Stockholder Meeting
for the purpose of voting on the approval of the Share Issuance even if the
Parent Board shall not have made, or shall have withdrawn, amended or modified
in a manner adverse to Parent, such recommendation or announced publicly its
intention to do so as permitted hereby.
6.3. Commercially Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each Party will use its commercially reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable Laws
promptly to consummate the Merger and the other transactions contemplated by
this Agreement. In furtherance and not in limitation of the foregoing, each
Party hereto agrees to make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated
hereby as promptly as practicable and to supply as promptly as practicable any
additional information and documentary material that may be requested pursuant
to the HSR Act and use its commercially reasonable best efforts to take, or
cause to be taken, all other actions consistent with this Section 6.3 necessary
to cause the expiration or termination of the applicable waiting periods under
the HSR Act as soon as practicable.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.3(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Antitrust Law, (i) use its commercially reasonable best efforts
to cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party; and (ii) keep the other Party
informed in all material respects of any material communication received by such
Party from, or given by such Party to, the Federal Trade Commission (the "FTC"),
the Antitrust Division of the Department of Justice (the "DOJ") or any other
Governmental Entity and of any material
A-36
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the transactions contemplated hereby. For
purposes of this Agreement, "Antitrust Law" means the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as
amended, and all other Laws (including other national merger control laws or
foreign investment regulations) that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition through merger or acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 6.3(a) and 6.3(b), each of Parent and the Company shall
use its commercially reasonable best efforts to resolve such objections if any,
as may be asserted a Governmental Entity or other person with respect to the
transactions contemplated hereby under any Antitrust Law. In connection with the
foregoing, if any administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
Antitrust Law, each of Parent and the Company shall cooperate in all respects
with each other and use its respective commercially reasonable best efforts to
contest and resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 6.3 shall (i) limit a Party's right to
terminate this Agreement pursuant to Section 8.2(a) or (d) so long as such Party
has theretofore complied in all material respects with its obligations under
this Section 6.3 or (ii) require Parent to (x) enter into any "hold-separate"
agreement or other agreement with respect to the disposition of any assets or
businesses of the Parent or any of its subsidiaries or the Company or any of its
subsidiaries in order to obtain clearance from the FTC or the DOJ or any other
antitrust or competition authorities to proceed with the consummation of the
transactions contemplated hereby; or (y) consummate the transactions
contemplated hereby in the event that any consent, approval, authorization or
non-objection of any Governmental Entity obtained or sought to be obtained in
connection with this Agreement is conditioned upon the imposition of any other
significant restrictions upon, or the making of any material accommodation
(financial or otherwise) in respect of the transactions contemplated hereby or
the conduct of the business of the Surviving Company or the Parent (including
any agreement not to compete in any geographic area or line of business or any
agreement to license technology to third parties) or results, or would result
in, the abrogation or diminishment of any authority or license granted by any
Governmental Entity.
(d) The Company shall use its reasonable best efforts in consultation with
Parent to obtain any consents of third parties with respect to any Company
Agreements that may be necessary or appropriate for the purposes of the
transactions contemplated hereby.
6.4. Acquisition Proposals. (a) The Company agrees that (1) it will not
(and it will cause its subsidiaries and each officer, director or employee of
the Company or any of its subsidiaries not to) directly or indirectly: (i)
solicit, initiate or encourage the submission of any Acquisition Proposal (as
defined in Section 9.11 herein), (ii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to the Company or any of its subsidiaries in connection with, or take
any other action to facilitate, any Acquisition Proposal or any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal or (iii) enter into any agreement with respect to
an Acquisition Proposal and (2) it will not authorize or permit any investment
banker, attorney or accountant, or other advisor or representative of, the
Company or any of its subsidiaries to take any of the actions referred to in
clauses (1)(i), (ii) or (iii); provided, however, that nothing contained in this
Section 6.4(a) shall prohibit the Company Board from furnishing information to,
or entering into discussions or negotiations with, any person that makes an
unsolicited bona fide written Acquisition Proposal if, and only to the extent
that (A) the Company Board, after consultation with and based upon the advice of
independent legal counsel, reasonably determines in good faith that such action
is necessary for the Company Board to comply with its fiduciary duties to the
Company's stockholders under applicable Law, (B) the Company Board reasonably
determines in good
A-37
faith that such Acquisition Proposal, if accepted, is reasonably likely to be
consummated taking into account all legal, financial, regulatory and other
aspects of the proposal and the person making the proposal, and believes in good
faith, after consultation with an independent, nationally recognized financial
advisor, that such Acquisition Proposal would, if consummated, result in a
transaction materially more favorable to the Company's stockholders from a
financial point of view than the Merger (any such materially more favorable
Acquisition Proposal being referred to herein as a "Superior Proposal"), and (C)
prior to taking such action, the Company (x) provides three Business Day prior
written notice to Parent to the effect that it is proposing to take such action
and (y) receives from such person an executed confidentiality agreement in
reasonably customary form and in any event containing terms at least as
stringent as those contained in the Confidentiality Agreement. The Company shall
notify Parent of any Acquisition Proposal or request for nonpublic information
by any person who is making, or who has indicated that it is considering making,
an Acquisition Proposal (including, without limitation, all material terms and
conditions thereof and the identity of the person making it) as promptly as
practicable (but in no case later than 24 hours) after its receipt thereof, and
shall provide Parent with a copy of any written Acquisition Proposal or
amendments or supplements thereto, and shall thereafter inform Parent on a
current basis of the status of any inquiries, discussions or negotiations with
such a third party, and any material changes to the terms and conditions of such
Acquisition Proposal, and shall promptly give Parent a copy of any information
delivered to such person which has not previously been made available to Parent.
Immediately after the execution and delivery of this Agreement, the Company
will, and will cause its subsidiaries and affiliates, and their respective
officers, directors, employees, investment bankers, attorneys, accountants and
other agents to, cease and terminate any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any possible
Acquisition Proposal and shall notify each Party that it, or any officer,
director, investment advisor, financial advisor, attorney or other
representative retained by it, has had discussions with during the 90 days prior
to the date of this Agreement that the Company Board no longer seeks or requests
the making of any Acquisition Proposal, and withdraws any consent theretofore
given to the making of an Acquisition Proposal.
(b) The Company Board will not withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Parent, its recommendation that stockholders
vote in favor of the Merger unless (i) the Company has fully complied with the
terms of Section 6.4(a), (ii) the Company Board after consultation with and
based upon the advice of independent legal counsel, determines in good faith
that such action is necessary for the Company Board to comply with its fiduciary
duties to the Company's stockholders under applicable Law and (iii) the Company
shall have delivered to Parent a prior written notice advising Parent that it
intends to take such action and describing its reasons for taking such action
(such notice to be delivered not less than three Business Days prior to the time
such action is taken). Nothing contained in this Section 6.4(b) shall prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act.
(c) Nothing in this Section 6.4 shall (i) permit the Company to terminate
this Agreement (except as provided in Article VIII hereof) or (ii) affect any
other obligations of the Company under this Agreement.
6.5. Public Announcements. Each of Parent and the Company will consult
with one another before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement,
including, without limitation, the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable Law or by obligations pursuant to any listing
agreement with the NASD, as determined by Parent or the Company, as the case may
be.
6.6. Indemnification; Directors' and Officers' Insurance. (a) The Parent
agrees that all rights now existing to exculpation, release, and indemnification
for acts or omissions occurring prior to the Effective Time now existing in
favor of the current or former directors or officers (the "Indemnified Parties")
of the Company as provided in its certificate of incorporation or bylaws or in
any agreement listed in Section 6.6 of the Company Disclosure Schedule shall
survive the Merger and shall continue in full force and effect indefinitely in
accordance with their terms following the Effective Time.
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(b) For a period of six years after the Effective Time, Parent shall cause
to be maintained in effect the policies of directors' and officers' liability
insurance maintained by the Company for the benefit of those persons who are
covered by such policies at the Effective Time (or Parent may substitute
therefor policies of at least the same coverage with respect to matters
occurring prior to the Effective Time), to the extent that such liability
insurance can be maintained at a cost to Parent not greater than 200 percent of
the annual premium for the current Company directors' and officers' liability
insurance as set forth in Section 6.6 of the Company Disclosure Schedule;
provided, that if such insurance cannot be so maintained or obtained at such
costs, Parent shall maintain or obtain as much of such insurance as can be so
maintained or obtained at a cost equal to 200 percent of such annual premiums of
the Company for such insurance.
6.7. Notification of Certain Matters. The Company shall, upon obtaining
knowledge of any of the following, give prompt notice to Parent, and Parent
shall, upon obtaining knowledge of any of the following, give prompt notice to
the Company: (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would reasonably be likely to cause any representation or
warranty of such Party contained in this Agreement, which is qualified as to
materiality, to be untrue or inaccurate, or any representation or warranty of
such Party not so qualified, to be untrue or inaccurate in any material respect,
at or prior to the Effective Time; (ii) any material failure of the Company or
Parent, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; (iii) the occurrence
or non-occurrence of any event the occurrence or non-occurrence of which would
reasonably be likely to cause any condition to the obligations of any Party to
effect the transactions contemplated hereby not to be satisfied; (iv) any notice
of, or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any contract or agreement material to the financial condition,
properties, businesses, results of operations or prospects of it and its
subsidiaries taken as a whole to which it or any of its subsidiaries is a party
or is subject; (v) any material notice or other material communication from any
Governmental Entity in connection with the Merger; (vi) any actions, suits,
claims, investigations or other proceedings (or communications indicating that
the same may be contemplated) commenced or threatened against the Company or any
of its subsidiaries or Parent or any of its subsidiaries, as applicable, which,
if pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.11 of the Company Disclosure Schedule, or
Section 4.13 of the Parent Disclosure Schedule, or which relate to the
consummation of the Merger; (vii) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement; or (viii)
any event or occurrence that is, or would reasonably be likely to be, a Material
Adverse Effect with respect to it; provided, however, that the delivery of any
notice pursuant to this Section 6.7 shall not cure such breach or non-compliance
or limit or otherwise affect the remedies available hereunder to the Party
receiving such notice.
6.8. Certification. The Company, Parent and Merger Sub shall execute and
deliver to O'Melveny & Myers LLP, counsel to the Company, and to Cleary,
Gottlieb, Steen & Hamilton, counsel to Parent and Merger Sub, certificates
substantially in the forms attached hereto as Exhibit B (in the case of the
Company) and Exhibit C (in the case of Parent and Merger Sub) at such time or
times as reasonably requested by such law firms in connection with their
respective deliveries of tax opinions with respect to the transactions
contemplated hereby. Prior to the Effective Time, none of the Company, Parent or
Merger Sub shall take or cause to be taken any action which would cause to be
untrue (or fail to take or cause not to be taken any action which would cause to
be untrue) any of the representations in such certificates.
6.9. Employee Matters. On or as soon as practicable following the
Effective Time, those employees of the Company and its subsidiaries who will
continue employment with Parent or the Surviving Company ("Continuing Employees"
) shall be eligible to participate in those benefit plans and programs
maintained by Parent for similarly situated employees of Parent generally (or in
substantially similar programs), but explicitly excluding individual plans,
programs, arrangements or agreements on the same terms applicable
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to similarly situated employees of Parent. Each Continuing Employee shall be
given credit, for purposes of eligibility to participate and vesting (but not
for benefit accrual purposes), for his or her period of service with the Company
or any of its subsidiaries credited under a similar plan prior to the Effective
Time, subject to applicable break in service rules. Each such employee shall,
with respect to any Parent plans or programs which have co-payment, deductible
or other co-insurance features, receive credit for any amounts such individual
has paid to date in the plan year of the Effective Time under comparable plans
or programs maintained by the Company or any of its subsidiaries prior to the
Effective Time. Each Continuing Employee and eligible dependent who, at the
Effective Time, was participating in an employee group health plan maintained by
the Company or any of its subsidiaries shall not be excluded from Parent's
employee group health plan or limited in coverage thereunder by reason of any
waiting period restriction or pre-existing condition limitation that would not
have excluded such claim under the applicable Company Plan.
6.10. Affiliate Letters. Section 6.10 of the Company Disclosure Schedule
sets forth a list of all persons who are, and all persons who to the Company's
knowledge will be at the Closing Date, "affiliates" of the Company for purposes
of Rule 145 under the Securities Act. The Company will cause such list to be
updated promptly through the Closing Date. Not later than the date of the
initial mailing of the Proxy Statement, the Company shall use its best efforts
to cause its "affiliates" to deliver to Parent a written agreement substantially
in the form attached as Exhibit A.
6.11. SEC Filings.
(a) The Company shall furnish to the Parent copies of all reports, proxy
statements and prospectuses of the type referred to in Section 3.4 which it
files with the SEC on or after the date hereof, and the Company represents and
warrants that as of the respective dates thereof, such reports will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and the unaudited consolidated interim
financial statements included in such reports (including any related notes and
schedules) will fairly present the financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the results of operations
and cash flows or other information included therein for the periods or as of
the date then ended (subject, in the case of the interim financial statements,
to normal, recurring year-end adjustments which will not be material in amount),
in each case in accordance with past practice and GAAP consistently applied
during the periods involved (except as otherwise disclosed in the notes
thereto.) The Company shall additionally furnish to Parent all correspondence
that the Company or its counsel or accountants furnish to or receive from the
SEC after the date hereof and shall notify Parent of, and consult with Parent as
to, all other communications between the Company or its counsel or accountants
and the SEC.
(b) The Parent shall furnish to the Company copies of all reports, proxy
statements and prospectuses of the type referred to in Section 4.4 which it
files with the SEC on or after the date hereof, and the Parent represents and
warrants that as of the respective dates thereof, such reports will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and the unaudited consolidated interim
financial statements included in such reports (including any related notes and
schedules) will fairly present the financial position of the Parent and its
consolidated subsidiaries as of the dates thereof and the results of operations
and cash flows or other information included therein for the periods or as of
the date then ended (subject, in the case of the interim financial statements,
to normal, recurring year-end adjustments which will not be material in amount),
in each case in accordance with past practice and GAAP consistently applied
during the periods involved (except as otherwise disclosed in the notes
thereto).
6.12. Fees and Expenses. Subject to Section 6.15 and Section 8.5, whether
or not the Merger is consummated, all Expenses incurred in connection with this
Agreement, and the transactions contemplated hereby shall be paid by the Party
incurring such Expenses, except Expenses (including filing fees) incurred
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in connection with the filing, printing and mailing of the Proxy Statement and
the S-4 shall be shared equally by the Company and Parent. As used in this
Agreement, "Expenses" includes all out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a Party hereto and its affiliates) incurred by a
Party or on its behalf in connection with, or related to, the authorization,
preparation, negotiation, execution and performance of this Agreement and the
transactions contemplated hereby, including the preparation, filing, printing
and mailing of the Proxy Statement and the S-4 and the solicitation of
stockholder approvals and all other matters related to the transactions
contemplated hereby.
6.13. Listing of Stock. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued in connection with the Merger to be
approved for listing on the NASDAQ National Market System on or prior to the
Closing Date, subject to official notice of issuance.
6.14. Takeover Statutes. If any Takeover Statute is or may become
applicable to the Merger, each of Parent and Company shall take such actions as
are necessary so that the transactions contemplated by this Agreement and the
Voting Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on the Merger.
6.15. Direct Payment of Expenses. If the Transaction Costs (defined below)
incurred by the Company in connection with the Merger and the other transactions
contemplated by this Agreement exceed 10 percent of the net equity value of the
Company immediately prior to the Effective Time, then Parent shall directly pay
Expenses of the Company that are solely and directly related to the Merger so
that the Transaction Costs reduced by the amount of the Company Expenses paid by
Parent are less than 10 percent of the net equity value of the Company at the
Effective Time. For purposes of this Agreement, the term "Transaction Costs"
means all costs, payments, benefits and expenses that are triggered by, or
incurred in connection with, the Merger or the consummation of the other
transactions contemplated hereby (including without limitation, all Expenses and
any change of control and severance payments).
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each Party to consummate the transactions contemplated
by this Agreement are subject to the fulfillment at or prior to the Effective
Time of each of the following conditions, any or all of which may be waived in
whole or in part by the Party being benefited thereby, to the extent permitted
by applicable Law:
(a) The agreement of merger (within the meaning of Section 251 of the
DGCL) contained within this Agreement shall have been approved and adopted by
the Required Company Vote and the Share Issuance shall have been approved by the
Required Parent Vote.
(b) Any waiting period applicable to the Merger under the HSR Act or any
other national merger control law or foreign investment regulation shall have
expired or early termination thereof shall have been granted.
(c) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement.
(d) The S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending effectiveness
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities Laws or the
Securities Act or Exchange Act relating to the issuance or trading of the Parent
Common Stock shall have been received.
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(e) The Parent Common Stock required to be issued hereunder shall have
been approved for listing on the NASDAQ National Market System, subject only to
official notice of issuance.
7.2. Conditions to the Obligations of the Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the transactions contemplated
by this Agreement are subject to the fulfillment at or prior to the Effective
Time of each of the following additional conditions, any or all of which may be
waived in whole or part by Parent or Merger Sub to the extent permitted by
applicable Law:
(a) The representations and warranties of the Company contained herein
shall have been true when made and on and as of the Closing Date as though made
on and as of the Closing Date (except for representations and warranties made as
of a specified date, which need be true only as of the specified date); provided
that:
(i) All such representations and warranties shall be interpreted
without giving effect to the words "materially" or "material" or to any
qualification based on such terms or based on the defined term "Material
Adverse Effect";
(ii) Any such representation or warranty contained in Section 3.2
shall be deemed untrue if it shall fail to be true and correct except to
a de minimis extent;
(iii) Any such representation or warranty contained in Section 3.3
shall be deemed untrue if it shall fail to be true and correct in any
respect;
(iv) Any such representation or warranty contained in Section
3.11(c) shall be deemed untrue if the facts and information not
disclosed in violation of the first sentence thereof and the
inconsistent information not disclosed in violation of the second
sentence thereof, in the aggregate, would have had a material negative
impact on a reasonable evaluation as of the date hereof of the Company's
liability for damages or indemnity obligations or exposure for equitable
relief in the Cadence Litigation; and
(v) Any such representation or warranty (other than any
representation or warranty referred to in clause (ii), (iii) or (iv)
above) shall be deemed untrue if such representation or warranty shall
fail to be true and correct in all respects except where the failure of
all such representations and warranties to be true and correct has not
had and would not have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(b) The Company shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing; provided that with
respect to Section 5.6, the Company and/or its subsidiaries shall have prior to
the time of the Closing performed or complied in all respects with all
agreements and conditions contained therein.
(c) The Company shall have delivered to Parent a certificate, dated the
date of the Closing, signed by the President or any Vice President of the
Company, certifying as to the fulfillment of the conditions specified in
Sections 7.2(a), 7.2(b) and 7.2(g).
(d) Parent shall have received an opinion of Cleary, Gottlieb, Steen &
Hamilton, dated the date on which the Effective Time occurs, based on the
representations of Parent, and the Company, referred to in Section 6.8, to the
effect that the Merger will be treated for federal income Tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
(e) All authorizations, consents or approvals of a Governmental Entity
(other than those specified in Section 7.1(b) hereof) required in connection
with the execution and delivery of this Agreement and the performance of the
obligations hereunder shall have been made or obtained, without (in the context
of the Antitrust Laws) any limitation, restriction or condition that has or
would have, individually or in the aggregate, a Material Adverse Effect on the
Company (or an effect on Parent and its subsidiaries that, were such effect
applied to the Company and its subsidiaries, would have, individually or in the
aggregate, a Material Adverse Effect on the Company), except for such
authorizations, consents or approvals, the
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failure of which to have been made or obtained does not and would not have,
individually or in the aggregate, a Material Adverse Effect on the Company (or
an effect on Parent and its subsidiaries that, were such effect applied to the
Company and its subsidiaries, would have, individually or in the aggregate, a
Material Adverse Effect on the Company).
(f) Parent shall have received from each of the Company's "affiliates"
(within the meaning of Rule 145 under the Securities Act) a written agreement
substantially in the form attached as Exhibit A.
(g) The Company shall have received payment of the Outstanding SMIC Amount.
(h) No fewer than 80 percent of the persons listed on Section 7.2(j) of the
Company Disclosure Schedule shall continue to be employed by, and shall not have
given notice of their intention to terminate their employment with, the Company
or its subsidiaries.
(i) During the period that begins on the date hereof and ends immediately
prior to the Effective Time there shall not have occurred any change,
circumstance or effect that constitutes a Material Adverse Effect with respect
to the Company; provided, however that if there has not been a breach of the
representations and warranties contained in Section 3.11(c), any developments in
the Cadence Litigation after the date hereof shall be disregarded for purposes
of determining whether there has been a Material Adverse Effect with respect to
the Company.
7.3. Conditions to the Obligations of the Company. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions, any or all of which may be waived in whole or in part by
the Company to the extent permitted by applicable Law:
(a) The representations and warranties of Parent contained herein shall
have been true when made and on and as of the Closing Date as though made on and
as of the Closing Date (except for representations and warranties made as of a
specified date, which need be true only as of the specified date); provided
that:
(i) All such representations and warranties shall be interpreted
without giving effect to the words "materially" or "material" or to any
qualification based on such terms or based on the defined term "Material
Adverse Effect";
(ii) Any such representation or warranty contained in Section 4.3
shall be deemed untrue if it shall fail to be true and correct in any
respect; and
(iii) Any such representation or warranty (other than any
representation or warranty contained in Section 4.3) shall be deemed
untrue if such representation or warranty shall fail to be true and
correct in all respects except where the failure of all such
representations and warranties to be true and correct has not had and
would not have, individually or in the aggregate, a Material Adverse
Effect on the Parent.
(b) Parent shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) Parent shall have delivered to the Company a certificate, dated the
date of the Closing, signed by the President or any Vice President of Parent,
certifying as to the fulfillment of the conditions specified in Sections 7.3(a)
and 7.3(b).
(d) The Company shall have received an opinion of O'Melveny & Myers LLP,
dated the Effective Time, based on the representations of Parent and the
Company, referred to in Section 6.8 hereof, to the effect that the Merger will
be treated for federal income Tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
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(e) During the period that begins on the date hereof and ends
immediately prior to the Effective Time there shall not have occurred any
change, circumstance or effect that constitutes a Material Adverse Effect with
respect to Parent.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
8.1. Termination by Mutual Agreement. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after the approval of the Merger by the Required Company Vote and the
approval of the Share Issuance by the Required Parent Vote, by mutual written
consent of the Company and Parent by action of their respective Boards of
Directors.
8.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the Company if:
(a) the Merger shall not have been consummated by September 30, 2002
(the "Termination Date");
(b) the Required Company Vote shall not have been obtained at the
Company Stockholder Meeting or at any adjournment or postponement thereof;
(c) the Required Parent Vote shall not have been obtained at the Parent
Stockholder Meeting or at any adjournment or postponement thereof; or
(d) any Law permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable;
provided, that the right to terminate this Agreement pursuant to this Section
8.2 shall not be available to any Party that has breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the occurrence of the failure of the Merger to be
consummated.
8.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Company Board if (i) the Parent Board, whether or not permitted to do so by this
Agreement, shall have failed to call and hold the Parent Stockholders Meeting in
accordance with Section 6.2(b) or (ii) there is a breach by Parent of any
representation, warranty, covenant or agreement contained in this Agreement that
would give rise to a failure of a condition set forth in Section 7.3(a) or
7.3(b), which has not been cured (or is not capable of being cured) within
fifteen Business Days following receipt by Parent of written notice of such
breach.
8.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Parent Board if:
(a) the Company Board, whether or not permitted to do so by this
Agreement, shall have withdrawn or adversely modified its recommendation
referred to in Section 6.2(a) or the Company shall have failed to call and hold
the Company Stockholder Meeting in accordance with Section 6.2(a); or
(b) there is a breach by the Company (i) of any of its obligations under
Section 6.2(a) or Section 6.4 or (ii) a breach by the Company of any other
representation, warranty, covenant or agreement contained in this Agreement
would give rise to a failure of a condition set forth in Section 7.2(a) or
7.2(b), which, in the case of this clause (ii), (x) has not been cured (or is
not capable of being cured) within fifteen Business Days following receipt by
the Company of written notice of such breach and (y) does not arise out of facts
expressly referred to in any letter delivered prior to the date hereof from the
chief executive officer of Parent to an officer or director of the Company.
8.5. Effect of Termination and Abandonment. (a) Except as provided in
Sections 8.5(b), in the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article VIII, this Agreement (other
than this Section 8.5 and Sections 5.3(c), 5.3(d) and 6.12 and Article IX) shall
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become void and of no effect with no liability on the part of any Party (or of
any of its directors, officers, employees, agents, legal and financial advisors
or other representatives); provided, however, no such termination shall relieve
any Party hereto of any liability or damages resulting from (i) any willful and
material breach of any representations or warranties contained in this Agreement
or (ii) any willful and material breach of any covenant or agreement contained
in this Agreement.
(b) In the event that:
(i) at any time, this Agreement is terminated by Parent pursuant to
Section 8.4(a) or Section 8.4(b)(i); or
(ii) at any time on or after the date hereof and prior to the
termination of this Agreement pursuant to this Article VIII an Acquisition
Proposal shall have been made to the Company or any of its subsidiaries or
any of its stockholders, or any person shall have publicly announced an
intention (whether or not conditional) to make an Acquisition Proposal with
respect to the Company or any of its subsidiaries, and thereafter this
Agreement is terminated:
(x) by action of the Parent Board pursuant to Section 8.4(b)(ii)
following a willful breach by the Company of any covenant or agreement
contained in this Agreement (other than any covenant or agreement
contained in Section 6.2(a) or Section 6.4 which is included in clause
(i) above by reference to Section 8.4(a) or Section 8.4(b)(i)); or
(y) by (1) action of the Parent Board pursuant to Section
8.4(b)(ii) under circumstances in which a termination fee would not be
payable pursuant to Section 8.5(b)(ii)(x) or (2) either Parent or the
Company, pursuant to either Section 8.2(a) or Section 8.2(b), and in the
case of any termination contemplated by clause (y)(1) or (y)(2), within
15 months of such termination of this Agreement, (A) the Company enters
into an agreement with respect to any Acquisition Proposal or (B) any
Acquisition Proposal is consummated; or
(iii) at any time on or after the date hereof and prior to the
termination of this Agreement a Cadence Settlement Proposal (as defined in
Section 9.11(g)) shall have been made to the Company or any of its
subsidiaries or any of its stockholders, or Cadence Design Systems, Inc.
("Cadence") shall have publicly announced its intention (whether or not
conditional) to make a Cadence Settlement Proposal, and thereafter this
Agreement is terminated:
(x) by action of the Parent Board pursuant to Section 8.4(b)(ii)
following a willful breach by the Company of any covenant or agreement
contained in this Agreement (other than any covenant or agreement
contained in Section 6.2(a) or Section 6.4 which is included in clause
(i) above by reference to Section 8.4(a) or Section 8.4(b)(i)); or
(y) by (1) action of the Parent Board pursuant to Section
8.4(b)(ii) under circumstances in which a termination fee would not be
payable pursuant to Section 8.5(b)(iii)(x) or (2) either Parent or the
Company, pursuant to either Section 8.2(a) or Section 8.2(b), and in the
case of any termination contemplated by clause (y)(1) or (y)(2), within
15 months of such termination of this Agreement, the Company enters into
a Cadence Settlement Agreement;
then the Company shall pay Parent a termination fee of forty-five million U.S.
dollars (US$45,000,000) in same-day funds. Such payment shall be made (I) on the
first Business Day following the date of such termination in the case of a
termination by action of the Parent Board or by Parent referred to in Section
8.5(b)(i), Section 8.5(b)(ii)(x) and Section 8.5(b)(iii)(x), (II) on the first
Business Day after the occurrence of any of the events referred to in Section
8.5(b)(ii)(y)(A) or Section 8.5(b)(ii)(y)(B) or upon the entering into of a
Cadence Settlement Proposal as referred to in Section 8.5(b)(iii)(y) in the case
of a termination by action of the Parent Board or by Parent referred to in
Section 8.5(b)(ii)(y) or Section 8.5(b)(iii)(y), and (III) on the day of the
occurrence of any of the events referred to in Section 8.5(b)(ii)(y)(A) or
Section 8.5(b)(ii)(y)(B) or upon the entering into of a Cadence Settlement
Proposal as referred to in Section 8.5(b)(iii)(y) in the case of a termination
by the Company referred to in Section 8.5(b)(ii)(y)(2) or Section
8.5(b)(iii)(y)(2).
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(c) The Company acknowledges that the agreements contained in Section
8.5(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent would not have entered into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to Section 8.5(b), and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for the fee set
forth in this Section 8.5, the Company shall pay to Parent its costs and
expenses (including attorneys' fees) in connection with such suit, together with
interest from the date of termination of this Agreement on the amounts owed at
the prime rate of Citibank N.A. in effect from time to time during such period
plus 2 percent.
8.6. Amendment. This Agreement may be amended by action taken by the
Company, Parent and Merger Sub at any time before or after approval of the
Merger by the Required Company Vote and the approval of the Share Issuance by
the Required Parent Vote but, after any such approval, no amendment shall be
made which requires the approval of such stockholders under applicable Law
without such approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of the Parties hereto.
8.7. Extension; Waiver. At any time prior to the Effective Time, each
Party hereto (for these purposes, Parent and Merger Sub shall together be deemed
one Party and the Company shall be deemed the other Party) may (i) extend the
time for the performance of any of the obligations or other acts of the other
Party, (ii) waive any inaccuracies in the representations and warranties of the
other Party contained herein or in any document, certificate or writing
delivered pursuant hereto, or (iii) waive compliance by the other Party with any
of the agreements or conditions contained herein. Any agreement on the part of
either Party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such Party. The failure of
either Party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
8.8. Breaches Relating to Litigation. Notwithstanding any other provision
in this Agreement to the contrary, the Company shall not be deemed to be in
breach of any representation or warranty contained herein, except for any
representation or warranty contained in Section 3.11(c), to the extent that such
breach results from the pendency of, or developments with respect to, the
Cadence Litigation or is based on the acts or omissions that are the subject of
such Litigation; provided, however, that this Section 8.8 shall not apply in the
event that the Company has breached any representation or warranty in Section
3.11(c).
ARTICLE IX
MISCELLANEOUS
9.1. Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time. This Section 9.1 shall not limit any covenant
or agreement of the parties which by its terms contemplates performance after
the Effective Time.
9.2. Entire Agreement; Assignment. (a) This Agreement (including the
schedules) constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof, other than the Confidentiality Agreement, the Parent
Confidentiality Agreement and the information sharing agreement between Parent
and the Company with respect to the Cadence Litigation.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including, but not limited to,
by merger or consolidation) or otherwise; provided, however, that Merger Sub may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent or Merger Sub of its
obligations hereunder if such assignee does not perform such obligations. Any
assignment in violation of the preceding sentence shall be void. Subject to the
preceding
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sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
9.3. Notices. All notices, requests, instructions or other documents to be
given under this Agreement shall be in writing and shall be deemed given, (i)
five Business Days following sending by registered or certified mail, postage
prepaid, (ii) when sent if sent by facsimile; provided, that the fax is promptly
confirmed by telephone confirmation thereof, (iii) when delivered, if delivered
personally to the intended recipient and (iv) one Business Day following sending
by overnight delivery via a national courier service, and in each case,
addressed to a Party at the following address for such Party:
if to Parent or to Merger Sub, to:
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attention: Steven K. Shevick, Esq.
Facsimile: (650) 584-4396
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Attention: Victor I. Lewkow, Esq.
Facsimile: (212) 225-3999
if to the Company, to:
Avant! Corporation
46871 Bayside Parkway
Fremont, CA 94538
Attention: Clayton Parker, Esq.
Facsimile: (510) 413-7707
with a copy to:
O'Melveny & Myers LLP
990 Marsh Road
Menlo Park, CA 94025
Attention: David A. Krinsky, Esq.
Facsimile: (650) 473-2601
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
9.4. Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, without giving effect to the
choice of law principles thereof.
9.5. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
9.6. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each Party hereto and its successors and permitted
assigns, and nothing in this Agreement, express or implied, except for Section
6.6 (which is intended to be for the benefit of the Indemnified Parties and may
be enforced by such Indemnified Parties) is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
9.7. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is
A-47
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
9.8. Enforcement; Jurisdiction. Each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any federal court located in the
State of Delaware or any Delaware state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other than a federal or state court sitting in
the State of Delaware.
9.9. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.10 Interpretation. (a) The words "hereof," "herein" and "herewith" and
words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement,
and article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." All terms defined in this Agreement shall have the defined
meanings contained herein when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time, amended, qualified
or supplemented, including (in the case of agreements and instruments) by waiver
or consent and (in the case of statutes) by succession of comparable successor
statutes and all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns.
(b) The phrase "made available" in this Agreement shall mean that the
information referred to (i) has been actually delivered to the Party to whom
such information is to be made available or its outside counsel, (ii) is
included in a Company SEC Report (or in any document that is an exhibit thereto
(including any exhibit incorporated by reference)) or (iii) is contained in a
document that has been filed prior to October 1, 2001 in the room at the offices
of O'Melveny & Myers LLP in Menlo Park, California that has been designated as
the data room for the purposes of the transactions contemplated by this
Agreement (the "Data Room").
(c) The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any provisions of this
Agreement.
9.11. Definitions. (a) "Acquisition Proposal" means an inquiry, offer or
proposal regarding any of the following (other than the transactions
contemplated by this Agreement) with respect to the Company or any of its
subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction involving the Company or its
subsidiaries whose assets, individually or in the aggregate, would constitute 30
percent or more of the consolidated assets of the Company, taken as a whole;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of 30 percent or more of the assets of the Company and its subsidiaries, taken
as a whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 30 percent or more
A-48
of the outstanding Shares or the filing of a registration statement under the
Securities Act in connection therewith; 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; provided that for purposes of clause 8.5 (x) any
such inquiry, offer or proposal made by Cadence shall be deemed to be a Cadence
Settlement Proposal and not an Acquisition Proposal and (y) any consummation of,
or entering into of an agreement with respect to, such an inquiry, offer or
proposal by the Company shall be deemed to be the entering into of a Cadence
Settlement Agreement and not the consummation of, or entering into of an
agreement with respect to, an Acquisition Proposal.
(b) An "affiliate" of a person, unless otherwise defined herein, shall have
the meaning provided in Rule 12b-2 under the Exchange Act.
(c) "beneficial ownership" or "beneficially own" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(d) "Business Day" shall have the meaning provided in Rule 14d-1(g) under
the Exchange Act.
(e) "Cadence Litigation" means (x) the litigation pending in the United
States District Court for the Northern District of California captioned Cadence
Design Systems, Inc. v. Avant! Corporation, Case No. C-95-20828, and (y) any
other claim by Cadence seeking relief for a breach of a duty or obligation
allegedly committed after January 1, 1991 by the Company or a person then or
subsequently affiliated with the Company.
(f) "Cadence Settlement Agreement" means, in addition to anything deemed to
be a Cadence Settlement Agreement pursuant to the proviso set forth in clause
(a), any agreement, order consented to by the Company or stipulation effecting
or implementing a Cadence Settlement Proposal (whether the proposal to enter
into such agreement was made by Cadence or by the Company).
(g) "Cadence Settlement Proposal" means, in addition to anything deemed to
be a Cadence Settlement Proposal pursuant to the proviso set forth in clause
(a), any proposal by or on behalf of Cadence which, if accepted in whole or in
part, would have the effect of materially limiting: (i) the amount of damages
and/or costs potentially recoverable by Cadence; (ii) the injunctive and/or
other equitable relief potentially awardable to Cadence; (iii) the claims upon
which relief could potentially be granted to Cadence; (iv) the products of the
Company or underlying technology to which Cadence's claims could potentially
apply; or (v) the evidence on which Cadence could seek to rely in support of a
claim or a remedy.
(h) "know" or "knowledge" means, (i) with respect to the Company and its
subsidiaries, the knowledge of Gerald C. Hsu, Sheng-Chun (Paul) Lo, Viraj Patel,
Fu-Hwa (Howard) Ko, Clayton Parker or, in the case of Section 3.11(c), the
persons set forth in Section 3.11(c) to the Company Disclosure Schedule and (ii)
with respect to Parent and its subsidiaries, Aart J. de Geus, Robert B. Henske,
Chi-Foon Chan and Steven K. Shevick, in the case of each of clauses (i) and (ii)
after due inquiry, including inquiry of such party's counsel and other officers
or employees of such party responsible for the relevant matter.
(i) "Material Adverse Effect" means with respect to any entity, any change,
circumstance or effect that, individually or in the aggregate with all other
changes, circumstances and effects, is or would be reasonably expected to be,
materially adverse to (i) the business, assets, properties, condition (financial
or otherwise) or results of operations of such entity and its subsidiaries taken
as a whole or (ii) the ability of such party to consummate the transactions
contemplated by this Agreement; provided, however, that clause (i) shall not
include any change, circumstance or effect resulting from (1) general changes in
the industries in which either the Company and its subsidiaries or Parent and
its subsidiaries operate, as the case may be, except those changes,
circumstances or effects that adversely affect, respectively, the Company and
its subsidiaries or Parent and its subsidiaries, to a materially greater extent
than they affect other entities operating in such industries, (2) changes in
general economic conditions or changes in securities markets in general or (3)
effects of the public announcement or pendency of the transactions contemplated
hereby.
A-49
(j) "ordinary course of business" whether or not modified by the phrase
"consistent with past practice" shall mean with respect to either Party or
subsidiary thereof, (1) in accordance with generally accepted business practice
and (2) in accordance with such Party's (or subsidiary's) past business
practice.
(k) "Parent Rights Agreement" shall mean the Rights Agreement dated as of
November 24, 1999, between Parent and Harris Trust and Savings Bank, as Rights
Agent.
(l) "Parties" shall mean Parent, Merger Sub and the Company.
(m) "person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(n) "subsidiary" means, when used with reference to any entity, any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such party or any other subsidiary of such party is a general or
managing partner or (ii) the outstanding voting securities or interests of,
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization, are directly or indirectly owned or
controlled by such party or by any one or more of its subsidiaries; provided
that Maingate shall be deemed a subsidiary of the Company for purposes of this
definition.
[SIGNATURE PAGE FOLLOWS]
A-50
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
SYNOPSYS, INC.
By: /s/ AART DE GEUS
------------------------------------
Name: Aart de Geus
Title: Chief Executive Officer
MAPLE FOREST ACQUISITION L.L.C.
By: /s/ CHI-FOON CHAN
------------------------------------
Name: Chi-Foon Chan
Title: President
AVANT! CORPORATION
By: /s/ SHENG-CHUN LO
------------------------------------
Name: Sheng-Chun Lo
Title: President
A-51
ANNEX B
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of December 3, 2001, is
entered into by and among Moriyuki Chimura, Gerald C. Hsu, Fu-Hwa (Howard) Ko,
Sheng-Chun (Paul) Lo, Viraj J. Patel, Amy Sakasegawa, Scott Spangenberg and
Charles L. St. Clair (each a "Stockholder Party") and Synopsys, Inc., a
corporation organized under the laws of the State of Delaware (the "Parent").
WHEREAS, simultaneously with the execution of this Agreement, the Parent,
Maple Forest Acquisition L.L.C., a limited liability company organized under the
laws of Delaware and a direct wholly-owned subsidiary of the Parent ("Merger
Sub") and Avant! Corporation, a corporation organized under the laws of Delaware
(the "Company"), are entering into an Agreement and Plan of Merger, dated as of
the date hereof (as the same may be amended or supplemented, the "Merger
Agreement"), providing, among other things, for the merger of the Company with
and into Merger Sub with Merger Sub continuing as the surviving entity (the
"Merger");
WHEREAS, as of the date hereof, each Stockholder Party is the Beneficial
Owner (as defined below) of, and has the sole right to vote and dispose of the
shares of common stock, par value $0.0001 per share ("Company Common Stock"), of
the Company set forth in Schedule A (the "Owned Shares"), in each case together
with the associated preferred stock purchase rights issued pursuant to that
certain Rights Agreement, dated as of September 4, 1998 between the Company and
Computer Share Investor Services LLC, as rights agent; and
WHEREAS, as an inducement and a condition to its entering into the Merger
Agreement and incurring the obligations set forth therein, the Parent has
required that each Stockholder Party enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Certain Definitions. (a) Capitalized terms used but not defined in this
Agreement are used in this Agreement with the meanings given to such terms in
the Merger Agreement. In addition, for purposes of this Agreement:
"Affiliate" means, with respect to any specified Person, any Person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, the Person specified.
For purposes of this Agreement, with respect to any Stockholder Party,
"Affiliate" shall not include the Company or the Persons that directly, or
indirectly through one or more intermediaries, are controlled by the
Company.
"Agreement" has the meaning specified in the preamble hereto.
"Alternative Transaction" has the meaning set forth in Section 2(b)
hereof.
"Beneficially Owned" or "Beneficial Ownership" with respect to any
securities means having beneficial ownership of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act, disregarding the
phrase "within 60 days" in paragraph (d)(1)(i) thereof), including pursuant
to any agreement, arrangement or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all Affiliates of such Person and all other Persons
with whom such Person would constitute a "Group" within the meaning of
Section 13(d) of the Exchange Act and the rules promulgated thereunder.
"Beneficial Owner" with respect to any securities means a Person who
has Beneficial Ownership of such securities.
B-1
"Company" has the meaning specified in the recitals hereto.
"Company Common Stock" has the meaning specified in the recitals
hereto.
"Company Meeting" has the meaning set forth in Section 3 hereof.
"DGCL" means the General Corporation Law of the State of Delaware.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"Merger" has the meaning specified in the recitals hereto.
"Merger Agreement" has the meaning specified in the recitals hereto.
"Merger Sub" has the meaning specified in the recitals hereto.
"Owned Shares" has the meaning specified in the recitals hereto.
"Parent" has the meaning specified in the preamble hereto.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Proposed Business Combination" means the Merger and the related
transactions contemplated by the Merger Agreement.
"Stockholder Party" has the meaning specified in the preamble hereto.
"subsidiary" has the meaning specified in the Merger Agreement.
"Transfer" means, with respect to a security, the sale, transfer,
pledge, hypothecation, encumbrance, assignment or disposition of such
security or the Beneficial Ownership thereof (other than by operation of
law), the offer to make such a sale, transfer or other disposition, and
each option, agreement, arrangement or understanding, whether or not in
writing, to effect any of the foregoing. As a verb, "Transfer" shall have a
correlative meaning.
2. No Disposition or Solicitation.
(a) Each Stockholder Party agrees that from and after the date hereof,
except as contemplated by this Agreement, such Stockholder Party will not
Transfer or agree to Transfer any Company Common Stock Beneficially Owned by
such Stockholder Party other than with the Parent's prior written consent (which
consent shall not be unreasonably withheld or delayed in the context of a
Transfer to any member of the immediate family of such Stockholder Party or to
any trust the Beneficial Ownership of which is held by such Stockholder Party,
provided in each case that such transferee agree, in a form satisfactory to the
Parent, to be bound by the terms of this Agreement), or grant any proxy or
power-of-attorney with respect to any such Company Common Stock other than
pursuant to this Agreement.
(b) Each Stockholder Party agrees that from and after the date hereof,
subject to Section 12 of this Agreement, such Stockholder Party and its
Affiliates and representatives, will not directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from, discuss or negotiate
with, or provide any non-public information to, any Person relating to, or
otherwise facilitate any of the following (other than the transactions
contemplated by the Merger Agreement) with respect to the Company or any of its
subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction involving the Company or its
subsidiaries whose assets, individually or in the aggregate, would constitute 20
percent or more of the consolidated assets of the Company, taken as a whole;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of 20 percent or more of the assets of the Company and its subsidiaries, taken
as a whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 20 percent or more of the outstanding Company
Common Stock or the filing of a registration statement under the Securities Act,
in connection therewith; or
B-2
(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 (an "Alternative
Transaction").
(c) Each Stockholder Party agrees that unless required by applicable law,
neither such Stockholder Party nor any of such Stockholder Party's Affiliates or
representatives shall make any press release, public announcement or other
communication with respect to the Parent or the business or affairs of the
Company or its subsidiaries, including this Agreement and the Merger Agreement
and the transactions contemplated hereby and thereby, without the prior written
consent of the Parent. Each Stockholder Party acknowledges and agrees that the
terms of this Agreement shall be disclosed in connection with the announcement
of the Merger Agreement.
3. Stockholder Vote. Each Stockholder Party agrees that (i) at such time
as the Company conducts a meeting of or otherwise seeks a vote or consent of its
stockholders for the purpose of adopting the Merger Agreement and approving the
transactions contemplated by such Agreement, including the Merger (such meeting
or any adjournment thereof, or such consent process, the "Company Meeting"),
such Stockholder Party will vote, or provide a consent with respect to, all
Company Common Stock (including the Owned Shares) which, as of the relevant
record date, such Stockholder Party has the power to vote, in favor of adopting
the Merger Agreement and approving the transactions contemplated by such
Agreement, including the Merger and (ii) such Stockholder Party will (at any
meeting of stockholders or in connection with any consent solicitation) vote all
shares of Company Common Stock (including the Owned Shares) which, as of the
relevant record date, such Stockholder Party has the power to vote, against, and
will not consent to, any Alternative Transaction or any action that would or is
designed to delay, prevent or frustrate the Proposed Business Combination.
Without limiting the foregoing, it is understood that the obligations under
clause (i) in this Section 3 shall remain applicable in respect of each meeting
of stockholders of the Company duly called for the purpose of adopting the
Merger Agreement and approving the transactions contemplated thereby, including
the Merger, regardless of the position of the Company's board of directors as to
the Merger or the Proposed Business Combination at the time of such meeting.
4. Reasonable Efforts to Cooperate. Each Stockholder Party will (a) use
all reasonable efforts to cooperate with the Company in connection with the
transactions contemplated by the Merger Agreement, (b) promptly take such
reasonable actions as are necessary or appropriate to consummate such
transactions, and (c) provide any information reasonably requested by the
Company or the Parent for any regulatory application or filing made or approval
sought for such transactions (including filings with the Securities and Exchange
Commission).
5. Additional Stock. Each Stockholder Party agrees that any additional
shares of Company Common Stock or securities convertible into Company Common
Stock acquired by such Stockholder Party or over which it acquires Beneficial
Ownership or voting power, whether pursuant to existing stock option agreements,
warrants or otherwise, shall be subject to the provisions of this Agreement.
6. Irrevocable Proxy.
(a) In furtherance of the agreements contained in Section 3 of this
Agreement, each Stockholder Party hereby irrevocably grants to, and appoints,
the Parent and Aart J. de Geus, Chief Executive Officer of the Parent, Chi-Foon
Chan, President of the Parent, and Robert B. Henske, Chief Financial Officer of
the Parent, in their respective capacities as officers of the Parent, and any
individual who shall hereafter succeed to any such office of the Parent, and
each of them individually, such Stockholder Party's proxy and attorney-in-fact
(with full power of substitution), for and in the name, place and stead of such
Stockholder Party, to vote all shares of Company Common Stock Beneficially Owned
by such Stockholder Party, or grant a consent or approval in respect of such
shares, or execute and deliver a proxy to vote such shares, (x) in favor of
adopting the Merger Agreement and approving the transactions contemplated
thereby, including the Merger and (y) against any Alternative Transaction or any
other matter referred to in clause (ii) of Section 3 hereof.
B-3
(b) Each Stockholder Party represents and warrants to the Parent that any
proxies heretofore given by it in respect of shares of Company Common Stock are
not irrevocable, and that any such proxies are hereby revoked, and agrees to
communicate in writing notice of revocation of such proxies to the relevant
proxy holders.
(c) Each Stockholder Party hereby affirms that the irrevocable proxy set
forth in Section 6(a) is given in connection with, and in consideration of, the
execution of the Merger Agreement by the Parent, and that such irrevocable proxy
is given to secure the performance of the duties of such Stockholder Party under
this Agreement. Each Stockholder Party hereby further affirms that the
irrevocable proxy is coupled with an interest and may under no circumstances be
revoked. Such Stockholder Party hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 212 of the DGCL.
7. Covenant of Stockholder Parties. Each Stockholder Party agrees that it
will take all action necessary to prevent creditors in respect of any pledge of
such Stockholder Party's Owned Shares from exercising their rights under such
pledge.
8. Representations, Warranties and Covenants of Stockholder Parties. Each
Stockholder Party hereby individually (and not jointly or severally) represents
and warrants to, and agrees with, the Parent as follows:
(a) Such Stockholder Party has all necessary power and authority and legal
capacity to execute and deliver this Agreement and perform its obligations
hereunder. In the case of each Stockholder Party who is not a natural person, no
other proceedings or actions on the part of such Stockholder Party are necessary
to authorize the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by such
Stockholder Party and constitutes the valid and binding agreement of such
Stockholder Party, enforceable against such Stockholder Party in accordance with
its terms except (i) to the extent limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights or (ii) to the extent that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) Each Stockholder Party is the sole Beneficial Owner of such Stockholder
Party's Owned Shares. Each Stockholder Party has good and marketable title
(which may include holding in nominee or "street" name) to all of such
Stockholder Party's Owned Shares, free and clear of all liens, claims, options,
proxies, voting agreements and security interests (other than as created by this
Agreement and the restrictions on Transfer under applicable securities laws).
The Owned Shares constitute all of the capital stock of the Company Beneficially
Owned by such Stockholder Party and neither such Stockholder Party nor any of
such Stockholder Party's Affiliates is the Beneficial Owner of, or has any right
to acquire (whether currently upon lapse of time, following the satisfaction of
any conditions, upon the occurrence of any event or any combination of the
foregoing) any Company Common Stock or any securities convertible into or
exchangeable or exercisable for Company Common Stock.
(d) Neither the execution and delivery of this Agreement by such
Stockholder Party nor the consummation of the transactions contemplated hereby
will (i) conflict with, result in any violation of, require any consent under or
constitute a default (whether with notice or lapse of time or both) by such
Stockholder Party under any mortgage, bond, indenture, agreement, instrument or
obligation to which such Stockholder Party is a party or by which such
Stockholder Party or any of the Owned Shares is bound (or, in the case of each
Stockholder Party that is not a natural person, such Stockholder Party's
constituent documents); (ii) violate any judgment, order, injunction, decree or
award of any court, administrative agency or governmental body that is binding
on such Stockholder Party; or (iii) constitute a violation by such Stockholder
Party of any law or regulation of any jurisdiction.
B-4
(e) Each Stockholder Party understands and acknowledges that the Parent
is entering into the Merger Agreement in reliance upon such Stockholder Party's
execution, delivery and performance of this Agreement. Each Stockholder Party
acknowledges that such Stockholder Party's irrevocable proxy set forth in
Section 6(a) is granted in consideration of the execution and delivery of the
Merger Agreement by the Parent.
9. Representations and Warranties of the Parent. The Parent represents and
warrants to the Stockholder Parties that the Parent has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Parent will not constitute a violation of, conflict with or result in a default
under, (i) any contract, understanding or arrangement to which the Parent is a
party or by which it is bound or that requires the consent of any other Person
or any party pursuant thereto, (ii) any judgment, decree or order applicable to
the Parent, or (iii) any law, rule or regulation of any governmental body, in
each case except for violations, conflicts or defaults that would not have a
material adverse effect on the ability of the Parent to perform its obligations
under this Agreement; and this Agreement constitutes a legal, valid and binding
agreement on the part of the Parent, enforceable against the Parent in
accordance with its terms, except as such enforceability may be limited by
principles applicable to creditors' rights generally or governing the
availability of equitable relief. The execution and delivery by the Parent of
this Agreement and the consummation by the Parent of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of the Parent and no other corporate proceedings on the part of the
Parent are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Parent.
10. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate on the earliest of (a) the Effective Time;
(b) the date upon which the Merger Agreement is terminated by the Company
pursuant to Section 8.3 thereof (unless at such time the Parent would also be
entitled to terminate, or following the giving of notice and lapse of time would
be entitled to terminate, the Merger Agreement); and (c) 120 days following the
termination of the Merger Agreement other than as set forth in (b) above.
11. Miscellaneous.
(a) This Agreement represents the entire understanding of the parties
hereto with respect to the voting of Company Common Stock and supersedes any and
all other oral or written agreements and understandings among the parties
heretofore made with respect thereto.
(b) Except as otherwise provided in this Agreement, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
(c) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties and their respective successors,
personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party (whether by operation of law or otherwise), in whole or in
part, without the prior written consent of the other parties; provided, that the
Parent may assign any or all rights under this Agreement to any subsidiary of
the Parent. Nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
(d) This Agreement may not be amended, changed, supplemented, or otherwise
modified or terminated, except upon the execution and delivery of a written
agreement executed by the parties hereto; provided, that the Parent may waive
compliance by any other party with any representation, agreement or condition
otherwise required to be complied with by any other party under this Agreement
or release any other party from its obligations under this Agreement, but any
such waiver or release shall be effective only if in a writing executed by the
Parent.
B-5
(e) All notices and other communications hereunder shall be in writing and
shall be deemed given upon (a) transmitter's confirmation of a receipt of a
facsimile transmission, (b) confirmed delivery by a standard overnight carrier
or when delivered by hand or (c) the expiration of five business days after the
day when mailed by certified or registered mail, postage prepaid, addressed at
the address for such party set forth below.
(i) If to a Stockholder Party, to such Stockholder Party at the
address set forth beside its name on Schedule A hereto with a copy to:
Avant! Corporation
46871 Bayside Parkway
Fax: (510) 413-7707
Attention: Clayton Parker, Esq.
and to:
O'Melveny & Myers LLP
900 Marsh Road
Menlo Park, CA 94025
Fax: (650) 473-2601
Attention: David A. Krinsky, Esq.
If to the Parent, to:
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA
Facsimile: (650) 584-4396
Attention: Steven K. Shevick, Esq.
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Fax: (212) 225-3999
Attention: Victor I. Lewkow
or to such other address or facsimile number as the Person to whom notice
is given shall have previously furnished to the others in writing in the
manner set forth above.
(f) If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
(g) Each Stockholder Party acknowledges and agrees that in the event of any
breach of this Agreement, the Parent would be irreparably and immediately harmed
and could not be made whole by monetary damages. It is accordingly agreed that
(a) each Stockholder Party will waive, in any action for specific performance,
the defense of adequacy of a remedy at law, and (b) the Parent shall be
entitled, in addition to any other remedy to which it may be entitled at law or
in equity, to compel specific performance of this Agreement.
(h) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this
B-6
Agreement or otherwise available in respect hereof at law or in equity, or to
insist upon compliance by any other party hereto with its obligations hereunder,
and any custom or practice of the parties at variance with the terms hereof,
shall not constitute a waiver by such party of its right to exercise any such or
other right, power or remedy or to demand such compliance.
(i) This Agreement shall be governed by and construed in accordance with,
the internal laws of the State of Delaware without giving effect to the
principles of conflict of laws.
(j) Each party to this Agreement hereby irrevocably and unconditionally (i)
consents to the submission to the exclusive jurisdiction of the courts of the
State of Delaware sitting in Wilmington, Delaware and the United States District
Court for the District of Delaware for any actions, suits or proceedings arising
out of or relating to this Agreement, (ii) agrees not to commence any action,
suit or proceeding relating thereto except in such courts and in accordance with
the provisions of this Agreement, (iii) agrees that service of any process,
summons, notice or document by U.S. registered mail shall be effective service
of process for any action, suit or proceeding arising out of or relating to this
Agreement brought against it in any such court, (iv) waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
in the above-referenced courts of the State of Delaware or the United States
District Court for the District of Delaware and (v) agrees not to plead or claim
in any court that any such action, suit or proceeding arising out of or relating
to this Agreement brought in any such court has been brought in an inconvenient
forum.
(k) The section and paragraph captions herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof. The words "include,"
"includes," and "including" shall be deemed to be followed by "without
limitation" whether or not they are in fact followed by such words or words of
like import.
(l) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original.
12. Stockholder Capacity. No Stockholder Party executing this Agreement
who is or becomes during the term hereof a director or officer of the Company
makes any agreement or understanding herein in his or her capacity as such a
director or officer. Each Stockholder Party executing this Agreement does so
solely in such Stockholder Party's capacity as the owner of record and/or
Beneficial Owner of the Owned Shares and nothing herein shall limit or affect
any actions taken or omitted to be taken by a Stockholder Party in his or her
capacity as an officer or director of the Company (including, for the avoidance
of doubt, any action in compliance with Section 6.5 of the Merger Agreement);
provided, that nothing in this Section 12 shall be deemed to permit any
Stockholder Party to take any action on behalf of the Company that is prohibited
by the Merger Agreement.
13. Further Assurances. From time to time, at the Parent's request and
without further consideration, each Stockholder Party shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
B-7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SYNOPSYS, INC.
/s/ AART DE GEUS
--------------------------------------
By: Aart de Geus
Title: Chief Executive Officer
Moriyuki Chimura
/s/ MORIYUKI CHIMURA
-----------------------------------
Gerald C. Hsu
/s/ GERALD C. HSU
-----------------------------------
Fu-Hwa (Howard) Ko
/s/ FU-HWA (HOWARD) KO
-----------------------------------
Sheng-Chun (Paul) Lo
/s/ SHENG-CHUN (PAUL) LO
-----------------------------------
Viraj J. Patel
/s/ VIRAJ J. PATEL
-----------------------------------
Amy Sakasegawa
/s/ AMY SAKASEGAWA
-----------------------------------
Scott Spangenberg
/s/ SCOTT SPANGENBERG
-----------------------------------
Charles L. St. Clair
/s/ CHARLES L. ST. CLAIR
-----------------------------------
B-8
ANNEX C
[CSFB LETTERHEAD]
December 3, 2001
Board of Directors
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to Synopsys, Inc. (the "Acquiror") of the Exchange
Ratio (as defined below) set forth in the Agreement and Plan of Merger, dated as
of December 3, 2001 (the "Merger Agreement"), by and among the Acquiror, Maple
Forest Acquisition L.L.C., a wholly owned subsidiary of the Acquiror ("Merger
Sub"), and Avant! Corporation (the "Company"). The Merger Agreement provides
for, among other things, the merger (the "Merger") of the Company with and into
Merger Sub (or, at the Acquiror's election, the merger of a wholly owned
subsidiary of the Acquiror with and into the Company) pursuant to which the
Company will become a wholly owned subsidiary of the Acquiror and each
outstanding share of common stock, par value $.0001 per share, of the Company
(including the associated rights to purchase shares of Series A Participating
Preferred Stock pursuant to a Rights Agreement) ("Company Common Stock") will be
converted into the right to receive 0.371 (the "Exchange Ratio") shares of
common stock, par value $.01 per share, of the Acquiror ("Acquiror Common
Stock").
In arriving at our opinion, we have reviewed the Merger Agreement and
certain publicly available business and financial information relating to the
Company and the Acquiror. We have also reviewed certain other information,
including financial forecasts, provided to us by the Company and the Acquiror,
and have met with the managements of the Company and the Acquiror to discuss the
business and prospects of the Company and the Acquiror, respectively. We have
also considered certain financial and stock market data of the Company and the
Acquiror, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of the Company and the Acquiror,
and we have considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions that have recently
been effected or announced. We also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
which we deemed relevant. In addition, we have relied upon, without independent
verification, the assessment of the management of the Acquiror as to (i) its
ability to retain key employees, (ii) the strategic benefits and potential cost
savings and other synergies (including the amount, timing and achievability
thereof) anticipated by the management of the Acquiror to result from the
Merger, (iii) the existing technology, products and services of the Acquiror and
the Company and the validity of, and risks associated with, the existing and
future technology, products and services of the Acquiror and the Company and
(iv) the ability to integrate the businesses of the Acquiror and the Company.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts for the Company and the Acquiror that we have reviewed, we
have been advised, and we have assumed, that such forecasts have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of the Company and the Acquiror as to the future
financial performance of the Company and the Acquiror, respectively. You have
also informed us, and we have assumed, that the Merger will be treated as a
tax-free reorganization for federal income tax purposes. We also have assumed,
with your consent, that in the course of obtaining necessary regulatory and
third party approvals and consents for the Merger, no modification, delay,
limitation, restriction or condition will be imposed that will have a material
adverse effect on the Acquiror or the Company or the contemplated benefits of
the Merger. In addition, we have not been requested to
C-1
Board of Directors
Synopsys, Inc.
December 3, 2001
Page 2
make, and have not made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or the Acquiror, nor have
we been furnished with any such evaluations or appraisals. Our opinion is
necessarily based upon information available to us as of the date hereof, and
upon financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. We are not expressing any opinion as to what the
value of shares of Acquiror Common Stock actually will be when issued to holders
of Company Common Stock pursuant to the Merger or the prices at which shares of
Acquiror Common Stock will trade at any time. Our opinion does not address the
relative merits of the Merger as compared to other business strategies that
might be available to the Acquiror, nor does it address the underlying business
decision of the Acquiror to engage in the Merger.
We do not express any opinion as to any legal matters involving the
Company, as to which we understand that the Acquiror has conducted such
investigations, and has obtained such advice from qualified professionals, as it
has deemed necessary. With respect to outstanding litigation involving the
Company in which significant damages are alleged, you, after consultation with
management of the Acquiror and its outside counsel, have instructed us to
assume, and we have assumed, without independent verification and based solely
upon the assessment and judgment of management of the Acquiror, taking into
account the advice of the Acquiror's outside counsel, (i) that the aggregate
amount of damages that will be assessed against or agreed to by the Company or
the Acquiror in any pending or potential litigation involving Cadence Design
Systems, Inc. will not exceed the limit of, and will be covered to the extent
of, the insurance that you have advised us is being purchased by the Acquiror in
connection with the Merger, and (ii) that no pending or potential litigation
involving the Company will have an adverse impact on the business, financial
condition, results of operations or prospects of the Company or the Acquiror.
We have acted as financial advisor to the Board of Directors of the
Acquiror in connection with the Merger and will receive a fee for our services,
a significant portion of which is contingent upon the consummation of the
Merger. We will also receive a fee for rendering this opinion. In the past, we
and our affiliates have provided certain investment banking and financial
services to the Acquiror for which we have received compensation. In the
ordinary course of our business, we and our affiliates may actively trade the
debt and equity securities of both the Company and the Acquiror for our and such
affiliates' own accounts and for the accounts of customers and, accordingly, may
at any time hold long or short positions in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Acquiror in connection with its consideration of the Merger and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote or act on any matter relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
Acquiror.
Very truly yours,
/s/ CREDIT SUISSE FIRST BOSTON
CORPORATION
C-2
ANNEX D
[SALOMON SMITH BARNEY INC. LETTERHEAD]
December 3, 2001
Board of Directors
Avant! Corporation
46871 Bayside Parkway
Fremont, CA 95438
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common stock, par value $.0001 per share ("Company
Common Stock"), of Avant! Corporation (the "Company"), of the Exchange Ratio (as
defined below) contemplated by the Agreement and Plan of Merger dated as of
December 3, 2001 (the "Merger Agreement") among Synopsys, Inc., a Delaware
corporation ("Parent"), Maple Forest Acquisition LLC, a newly-formed Delaware
entity and a direct wholly-owned subsidiary of Parent ("Merger Sub") and the
Company. The Merger Agreement provides, among other things, that Merger Sub will
be merged with the Company (the "Merger"), with Merger Sub (or, at Parent's
election, the Company) continuing as the surviving company. The Merger Agreement
also provides, among other things, that upon the effectiveness of the Merger,
each issued and outstanding share of Company Common Stock will be converted into
and be exchangeable for the right to receive 0.371 (the "Exchange Ratio") of a
fully paid and non-assessable share of common stock, par value $.01 per share,
of Parent (including the associated rights to purchase shares of Series A
Participating Preferred Stock of Parent) (individually, a "Parent Share" and,
collectively, the "Parent Shares").
In arriving at our opinion, we held discussions with certain officers,
employees and other representatives of the Company and Parent concerning the
businesses, operations and prospects of the Company and Parent. We examined
certain publicly available business and financial information relating to the
Company and Parent as well as certain financial forecasts and other information
and data for the Company, Maingate (the Company's Japanese distributor) and
Parent that were provided to us or otherwise discussed with us by the respective
managements of the Company and Parent. In addition to the foregoing, we
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we deemed appropriate in arriving at
our opinion.
In rendering our opinion, we have assumed and relied upon, without any
responsibility for independent verification, the accuracy and completeness of
all financial and other information and data publicly available or provided to
or otherwise reviewed by or discussed with us. With respect to financial
forecasts provided to or otherwise reviewed by or discussed with us, we have
been advised by the respective managements of the Company and Parent that such
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgements of the managements of the Company and Parent,
respectively, as to the future financial performance of the Company and Parent,
respectively, and we express no opinion with respect to such forecasts or the
assumptions on which they are based. We have also assumed for purposes of our
analysis, with your consent, that certain pending and potential litigation
matters involving the Company could result in a potential liability to the
Company of between $250 million and $500 million. We have assumed, with your
consent, that the Merger will be treated as a tax-free "reorganization" for
federal income tax purposes.
We are not expressing any opinion as to what the value of the Parent Shares
actually will be when issued pursuant to the Merger or the price at which the
Parent Shares will trade subsequent to the Merger, which may vary depending
upon, among other factors, changes in interest rates, dividend rates, market
conditions, general economic conditions and other factors that generally
influence the price of securities. We are also not expressing, with your
consent, any opinion as to the fairness to the Company or
D-1
The Board of Directors
Avant! Corporation
December 3, 2001
Page 2
to the holders of Company Common Stock of any aspect of the Company's planned
acquisition of all of the outstanding equity interests in Maingate.
We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
or Parent, nor have we made any physical inspection of the properties or assets
of the Company and Parent. Our opinion does not address the Company's underlying
business decision to effect the Merger, and we express no view on the effect on
the Company of the Merger and related transactions. Our opinion is necessarily
based upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon consummation of the Merger. In
the ordinary course of business, we and our affiliates may actively trade the
securities of the Company and Parent for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. We and our affiliates (including Citigroup Inc.) may have other
business relationships with the Company or Parent in the ordinary course of
their businesses.
Our advisory services and the opinion expressed herein are provided for the
use of the Board of Directors of the Company in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of Company Common Stock.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
D-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the Delaware General Corporation Law, a corporation may not
indemnify any director, officer, employee or agent made or threatened to be made
a party to any threatened, pending, or completed proceeding unless such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal proceedings, had no reasonable cause to believe that his or her conduct
was unlawful.
In the case of a proceeding by or in the right of the corporation to
procure a judgment in its favor (e.g., a stockholder derivative suit), a
corporation may indemnify an officer, director, employee or agent if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation; provided, however, that no
person adjudged to be liable to the corporation may be indemnified unless, and
only to the extent that, the Delaware Court of Chancery or the court in which
such action or suit was brought determines upon application that, despite the
adjudication of liability, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court deems proper. A director, officer, employee or agent who is
successful, on the merits or otherwise, in defense of any proceeding subject to
the Delaware General Corporation Law's indemnification provisions must be
indemnified by the corporation for reasonable expenses incurred therein,
including attorneys' fees.
Article X of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permitted
under the General Corporation Law of the State of Delaware.
Article VII of the Registrant's bylaws provides for the indemnification of
officers and directors to the fullest extent permitted under the General
Corporation Law of Delaware and provides for the indemnification to the fullest
extent permitted under Delaware law of any third party made, or threatened to be
made, a party to an action or proceeding by reason of the fact that he, his
testator or intestate is or was a director or officer of Synopsys or served any
other enterprise as a director or officer at the request of Synopsys.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to the indemnification provided
for in the Registrant's bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith unless otherwise indicated:
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated as of December 3, 2001,
by and among Synopsys, Inc., Maple Forest Acquisition
L.L.C., and Avant! Corporation (attached as Annex A to the
joint proxy statement/ prospectus contained in this
registration statement).
3.1 Fourth Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3(i) to
Synopsys' Quarterly Report on Form 10-Q for the quarterly
period ended April 3, 1999).
3.2 Certificate of Designation of Series A Participating
Preferred Stock (incorporated herein by reference to Exhibit
A to Exhibit 1 to Amendment No. 1 to Synopsys' Registration
Statement on Form 8-A as filed with the Securities and
Exchange Commission on December 13, 1999).
3.3 Certificate of Amendment of Fourth Amended and Restated
Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 to Synopsys' Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 2000).
II-1
EXHIBIT
NO. DESCRIPTION
------- -----------
3.4 Restated Bylaws of Synopsys, Inc. (incorporated herein by
reference to Exhibit 3(ii) to Synopsys' Quarterly Report on
Form 10-Q for the quarterly period ended April 3, 1999).
4.1 Amended and Restated Preferred Shares Rights Agreement dated
November 24, 1999 (incorporated herein by reference to
Exhibit 1 to Amendment No. 1 to Synopsys' Registration
Statement on Form 8-A/A as filed with the Securities and
Exchange Commission on April 10, 2000).
5.1* Opinion of Cleary, Gottlieb, Steen & Hamilton regarding the
validity of the Synopsys common shares registered hereunder.
8.1* Tax Opinion of Cleary, Gottlieb, Steen & Hamilton.
8.2* Tax Opinion of O'Melveny & Myers, LLP.
10.1 Voting Agreement, dated as of December 3, 2001, by and among
Synopsys, Inc., Moriyuki Chimura, Gerald C. Hsu, Howard Ko,
Paul Lo, Viraj J. Patel, Amy Sakasegawa, Scott Spangenberg
and Charles L. St. Clair (attached as Annex B to the joint
proxy statement/prospectus contained in this registration
statement).
10.2 Separation Agreement, General Release and Waiver, dated as
of December 3, 2001, by and among Synopsys, Inc., Avant!
Corporation and Gerald Chien Kuo Hsu.
10.3 Separation Agreement, General Release and Waiver, dated as
of December 3, 2001, by and between Avant! Corporation and
John Howard Hsu.
10.4 Separation Agreement, General Release and Waiver, dated as
of December 3, 2001, by and between Avant! Corporation and
Noriko Ando.
10.5 Amendment to Employment Agreement, dated as of December 3,
2001, by and between Avant! Corporation and Sheng-Chun
(Paul) Lo.
10.6 Form of Amendment to Employment Agreement, dated as of
December 3, 2001, by and between Avant! Corporation and
Howard Ko and Amy M. Sakasegawa.
23.1 Consent of KPMG LLP with respect to Synopsys, Inc.
23.2 Consent of KPMG LLP with respect to Avant! Corporation.
23.3 Consent of BDO Seidman, LLP, Independent Auditors of
Subsidiary Not Consolidated and 50-percent-or-less-owned
Persons.
23.4* Consent of Cleary, Gottlieb, Steen & Hamilton (included in
Exhibit 5.1).
23.5* Consent of Cleary, Gottlieb, Steen & Hamilton (included in
Exhibit 8.1).
23.6* Consent of O'Melveny & Myers, LLP (included in Exhibit 8.2).
24.1 Powers of Attorney (contained in the signature page to this
Registration Statement).
99.1 Form of Synopsys Proxy Card.
99.2 Form of Avant! Proxy Card.
99.3 Consent of Credit Suisse First Boston Corporation.
99.4 Consent of Salomon Smith Barney Inc.
---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
(b) (1) The undersigned 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), the issuer 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 this form; and
(2) the 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 of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(e) The undersigned registrant 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
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 December 20, 2001.
SYNOPSYS, INC.
By: /s/ AART J. DE GEUS
------------------------------------
Name: Aart J. de Geus
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints Aart J. de Geus and
Robert B. Henske, and each of them, as such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for such person and in such person's name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to file same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ AART J. DE GEUS Chief Executive Officer December 20, 2001
------------------------------------------------ (Principal Executive Officer)
Aart J. de Geus and Chairman of the Board of
Directors
/s/ CHI-FOON CHAN President and Chief Operating December 20, 2001
------------------------------------------------ Officer and Director
Chi-Foon Chan
/s/ ROBERT B. HENSKE Chief Financial Officer December 20, 2001
------------------------------------------------ (Principal Financial Officer)
Robert B. Henske
/s/ RICHARD ROWLEY Corporate Controller (Principal December 20, 2001
------------------------------------------------ Accounting Officer)
Richard Rowley
/s/ ANDY D. BRYANT Director December 20, 2001
------------------------------------------------
Andy D. Bryant
/s/ BRUCE R. CHIZEN Director December 20, 2001
------------------------------------------------
Bruce R. Chizen
/s/ DEBORAH A. COLEMAN Director December 20, 2001
------------------------------------------------
Deborah A. Coleman
/s/ A. RICHARD NEWTON Director December 20, 2001
------------------------------------------------
A. Richard Newton
/s/ SASSON SOMEKH Director December 20, 2001
------------------------------------------------
Sasson Somekh
/s/ STEVEN C. WALSKE Director December 20, 2001
------------------------------------------------
Steven C. Walske
II-5
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 -- Agreement and Plan of Merger, dated as of December 3, 2001,
by and among Synopsys, Inc., Maple Forest Acquisition
L.L.C., and Avant! Corporation (attached as Annex A to the
joint proxy statement/prospectus contained in this
registration statement).
3.1 -- Fourth Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Exhibit 3 (i) to
Synopsys' Quarterly Report on Form 10-Q for the quarterly
period ended April 3, 1999).
3.2 -- Certificate of Designation of Series A Participating
Preferred Stock (incorporated herein by reference to Exhibit
A to Exhibit 1 to Amendment No. 1 to Synopsys' Registration
Statement on Form 8-A as filed with the Securities and
Exchange Commission on December 13, 1999).
3.3 -- Certificate of Amendment of Fourth Amended and Restated
Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1 to Synopsys' Quarterly Report on
Form 10-Q for the quarterly period ended April 30, 2000).
3.4 -- Restated Bylaws of Synopsys, Inc. (incorporated herein by
reference to Exhibit 3(ii) to Synopsys' Quarterly Report on
Form 10-Q for the quarterly period ended April 3, 1999).
4.1 -- Amended and Restated Preferred Shares Rights Agreement dated
November 24, 1999 (incorporated herein by reference to
Exhibit 1 to Amendment No. 1 to Synopsys' Registration
Statement on Form 8-A/A as filed with the Securities and
Exchange Commission on April 10, 2000).
5.1* -- Opinion of Cleary, Gottlieb, Steen & Hamilton regarding the
validity of the Synopsys common shares registered hereunder.
8.1* -- Tax Opinion of Cleary, Gottlieb, Steen & Hamilton.
8.2* -- Tax Opinion of O'Melveny & Myers, LLP.
10.1 -- Voting Agreement, dated as of December 3, 2001, by and among
Synopsys, Inc., Moriyuki Chimura, Gerald C. Hsu, Howard Ko,
Paul Lo, Viraj J. Patel, Amy Sakasegawa, Scott Spangenberg
and Charles L. St. Clair (attached as Annex B to the joint
proxy statement/prospectus contained in this registration
statement).
10.2 -- Separation Agreement, General Release and Waiver, dated as
of December 3, 2001, by and among Synopsys, Inc., Avant!
Corporation and Gerald Chien Kuo Hsu.
10.3 -- Separation Agreement, General Release and Waiver, dated as
of December 3, 2001, by and between Avant! Corporation and
John Howard Hsu.
10.4 -- Separation Agreement, General Release and Waiver, dated as
of December 3, 2001, by and between Avant! Corporation and
Noriko Ando.
10.5 -- Amendment to Employment Agreement, dated as of December 3,
2001, by and between Avant! Corporation and Sheng-Chun
(Paul) Lo.
10.6 -- Form of Amendment to Employment Agreement, dated as of
December 3, 2001, by and between Avant! Corporation and
Howard Ko and Amy M. Sakasegawa.
23.1 -- Consent of KPMG LLP with respect to Synopsys, Inc.
23.2 -- Consent of KPMG LLP with respect to Avant! Corporation.
23.3 -- Consent of BDO Seidman, LLP, Independent Auditors of
Subsidiary Not Consolidated and 50-percent-or-less-owned
Persons.
23.4* -- Consent of Cleary, Gottlieb, Steen & Hamilton (included in
Exhibit 5.1).
23.5* -- Consent of Cleary, Gottlieb, Steen & Hamilton (included in
Exhibit 8.1).
23.6* -- Consent of O'Melveny & Myers, LLP (included in Exhibit 8.2).
24.1 -- Powers of Attorney (contained in the signature page to this
Registration Statement).
99.1 -- Form of Synopsys Proxy Card.
99.2 -- Form of Avant! Proxy Card.
99.3 -- Consent of Credit Suisse First Boston Corporation.
99.4 -- Consent of Salomon Smith Barney Inc.
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* To be filed by amendment.