-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WlZZ+hMq3KOFlJ2aWbuNntFuOSU50im4200pQwyq8o/6vyDnqciSYxR51FMUWZvU w9StHgeAbDRBPydmDuDgCw== 0000813672-94-000026.txt : 19940823 0000813672-94-000026.hdr.sgml : 19940823 ACCESSION NUMBER: 0000813672-94-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000813672 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 770148231 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10606 FILM NUMBER: 94544310 BUSINESS ADDRESS: STREET 1: 555 RIVER OAKS PKWY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089431234 MAIL ADDRESS: STREET 1: 555 RIVER OAKS PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 FORMER COMPANY: FORMER CONFORMED NAME: ECAD INC /DE/ DATE OF NAME CHANGE: 19880609 10-Q 1 FORM 10Q FORM 10-Q ______________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF ___ THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _________________ Commission file number 1-10606 CADENCE DESIGN SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 77-0148231 (State or other jurisdiction of (I.R.S.Employer Identification No.) incorporation or organization) 555 River Oaks Parkway, San Jose, California 95134 (Address of principal executive offices) (Zip Code) (408) 943-1234 Registrant's telephone number, including area code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ At August 5, 1994 there were 39,240,810 shares of the registrant's Common Stock, $0.01 par value outstanding. CADENCE DESIGN SYSTEMS, INC. INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Condensed Consolidated Balance Sheets: June 30, 1994 and December 31, 1993 3 Condensed Consolidated Statements of Income: Three and Six Months Ended June 30, 1994 and 1993 4 Condensed Consolidated Statements of Cash Flows: Six Months Ended June 30, 1994 and 1993 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security-Holders 11 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 15 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 1994 1993 --------- ---------- (Unaudited) ASSETS Current Assets: Cash and cash investments $ 68,387 $ 61,382 Short-term investments 28,412 31,423 Accounts receivable, net 74,156 101,890 Inventories 5,204 5,744 Prepaid expenses and other assets 15,185 18,036 Total current assets 191,344 218,475 Property, plant and equipment, net 93,421 61,477 Software development costs, net 30,484 31,265 Purchased software and other intangibles, net 10,189 12,787 Other assets 11,227 15,297 Total assets $ 336,665 $ 339,301 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term obligations $ 2,792 $ 3,962 Accounts payable 13,598 13,513 Accrued liabilities 52,317 51,352 Income taxes payable 5,548 6,541 Deferred revenue 52,731 38,111 Total current liabilities 126,986 113,479 Long-term obligations 2,292 4,001 Lease liabilities 9,819 10,722 Deferred income taxes 2,202 2,243 Other noncurrent liabilities 2,558 2,734 Total long-term liabilities 16,871 19,700 Put warrants 44,270 - - - Stockholders' Equity: Common stock 465 460 Additional paid-in capital 209,599 250,501 Treasury shares at cost (6,512,380 and 4,857,200 shares, respectively) (76,750) (52,178) Retained earnings 14,292 8,527 Accumulated translation adjustment 932 (1,188) Total stockholders' equity 148,538 206,122 Total liabilities and stockholders' equity $ 336,665 $ 339,301 The accompanying notes are an integral part of these statements. CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1994 1993 1994 1993 --------- -------- -------- ------- (Unaudited) (Unaudited) REVENUE Product $ 62,685 $ 60,301 $ 123,832 $107,415 Maintenance 38,358 28,513 73,989 57,516 Total revenue 101,043 88,814 197,821 164,931 COST OF REVENUE Product 19,260 18,894 38,976 35,783 Maintenance 3,309 3,845 7,134 7,803 Total cost of revenue 22,569 22,739 46,110 43,586 Gross margin 78,474 66,075 151,711 121,345 OPERATING EXPENSES Marketing and sales 39,418 38,968 78,442 76,467 Research and development 18,299 16,134 35,288 33,052 General and administrative 9,807 9,370 20,406 18,847 Restructuring costs - - - - - - - - - 13,450 Provision for settlement of litigation (2,050) - - - 10,054 - - - Total operating expenses 65,474 64,472 144,190 141,816 INCOME (LOSS) FROM CONTINUING OPERATIONS 13,000 1,603 7,521 (20,471) Other income, net 443 598 790 1,102 Income (loss) from continuing operations before provision (benefit) for income taxes 13,443 2,201 8,311 (19,369) Provision (benefit) for income taxes 3,361 292 2,078 (5,440) NET INCOME (LOSS) FROM CONTINUING OPERATIONS 10,082 1,909 6,233 (13,929) LOSS FROM DISCONTINUED OPERATIONS - - - (1,077) - - - (1,555) NET INCOME (LOSS) $ 10,082 $ 832 $ 6,233 $(15,484) NET INCOME (LOSS) PER SHARE From continuing operations $ .23 $ .04 $ .14 $ (.32) From discontinued operations - - - (.02) - - - (.04) Net income (loss) per share $ .23 $ .02 $ .14 $ (.36) Weighted average common and common equivalent shares outstanding 44,576 43,011 44,973 43,573 The accompanying notes are an integral part of these statements. CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six Months Ended June 30, June 30, 1994 1993 -------- --------- (Unaudited) CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD $ 61,382 $ 78,976 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) 6,233 (15,484) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 23,967 22,123 Lease liabilities (960) (1,709) Deferred income taxes, noncurrent (41) 5,573 Write-offs of capitalized software development costs, purchased software and intangibles 807 - - - Accruals for severance and facilities restructure costs - - - 6,833 Decrease in other noncurrent liabilities (196) (9) Write down and reserve of assets related to restructure - - - 6,617 Net changes in current assets and liabilities, net of purchase of third-party interests in partnerships: Decrease in accounts receivable 30,855 40,666 Decrease (increase) in inventories 506 (1,177) Decrease (increase) in prepaid expenses and other assets 3,075 (10,044) Decrease in accrued liabilities and payables (770) (10,359) Increase in deferred revenue 14,003 5,942 Net cash provided by operating activities 77,479 48,972 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (28,074) (42,846) Sale of short-term investments 31,085 20,059 Purchase of property and equipment (8,356) (11,780) Capitalization of software development costs (6,124) (7,911) Increase in other assets and purchased software and intangibles (229) (532) Payment for purchase of third-party interests in partnerships, net of cash acquired (8,729) - - - Sale of put warrants 5,801 - - - Purchase of call options (5,801) - - - Net cash used for investing activities (20,427) (43,010) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable and long-term obligations (27,170) (6,069) Sale of common stock, net of notes receivable from stockholders 3,373 4,925 Purchase of treasury stock, net (25,040) (27,460) Net cash used for financing activities (48,837) (28,604) EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,210) (980) INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 7,005 (23,622) CASH AND CASH INVESTMENTS AT END OF PERIOD $ 68,387 $ 55,354 The accompanying notes are an integral part of these statements. CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1993. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. Acquisition of Third-Party Interests in Real Estate Partnerships In March 1994 the Company acquired all third-party interests in two real estate partnerships in which it was a 46.5% and 80% limited partner, respectively, for approximately $9 million in cash and the assumption of a secured construction loan of approximately $23.5 million. The Company leased buildings from one of the limited partnerships and the second limited partnership owned unencumbered land adjacent to the leased property. The Company paid off the secured construction loan with its cash reserves in May 1994. 3. Discontinued Operations In December 1993 the Company sold its Automated Systems ("ASI") division. The operating results of ASI have been reported as discontinued operations in the consolidated statements of income for all periods presented. Revenue of the discontinued division was approximately $2.9 million and $6.1 million for the quarter and six months ended June 30, 1993, respectively. 4. Purchase of Comdisco Systems, Inc. In June 1993 the Company acquired the business and certain assets of Comdisco Systems, Inc. ("Comdisco"), a subsidiary of Comdisco, Inc. in exchange for 1,050,000 shares of the Company's common stock and a warrant to purchase 1,300,000 shares of the Company's common stock. The acquisition was accounted for as a purchase. Accordingly, the results of Comdisco from the date of acquisition forward have been recorded in the Company's consolidated financial statements. Comparative pro forma financial information has not been presented as the results of operations for Comdisco are not material to the Company's consolidated financial statements for 1993. 5. Disclosure of Noncash Investing Activities As discussed in Note 2 the Company purchased all third-party interests in two real estate partnerships for approximately $9 million. In connection with the acquisition, net assets acquired were as follows (in thousands): Property and other assets $ 36,083 Liabilities assumed (23,576) Less cash acquired (3,778) Total $ 8,729 6. Investments in Debt and Equity Securities Effective January 1, 1994 the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities". There was no effect on the Company's operating results due to the adoption of this statement. The Company classifies its investments as "held-to-maturity" for the purposes of this statement. The investments mature at various dates through December 1994. 7. Net Income (Loss) Per Share The number of shares used in the computation of net income per share for each period is calculated by dividing net income by the weighted average number of common stock and common stock equivalents outstanding during the period. Common stock equivalents consist of dilutive shares issuable upon the exercise of outstanding common stock options and warrants. Net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock. Fully diluted net income (loss) per share is substantially the same as primary net income (loss) per share. 8. Inventories Inventories which consist primarily of testing equipment are stated at the lower of cost (first-in, first-out method) or market. Cost includes labor, material and manufacturing overhead. Inventories consisted of the following (in thousands): June 30, December 31, 1994 1993 --------- ------------ (Unaudited) Raw materials and supplies $1,070 $2,240 Work-in-progress 2,669 2,214 Finished goods 1,465 1,290 Total $5,204 $5,744 9. Commitments and Contingencies Securities class action lawsuits were filed against the Company and certain of its officers and directors in the United States District Court for the Northern District of California, San Jose Division, on April 8 and 9, 1991. The lawsuits, which were consolidated into a single action, allege violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. Court rulings in response to the Company's motions to dismiss the lawsuit limited the class period to include purchasers of the Company's common stock between January 29, 1991 and April 3, 1991. On March 23, 1993 a separate class action lawsuit was filed against the Company and certain of its directors and officers in the United States District Court, Northern District of California, San Jose Division. This lawsuit, which was consolidated into a single action with two virtually identical lawsuits filed later in March and in April 1993, alleges violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. On November 18, 1993, the District Court granted the Company's motion to dismiss the 1993 complaint. The effect of the ruling was to dismiss the complaint except as to a statement allegedly made on January 28, 1993, but plaintiffs were granted leave to further amend their complaint. In April 1994 the Company entered into tentative agreements to settle both of the above class action lawsuits for a combined settlement of $16.5 million, of which approximately $7.5 million was covered by the Company's insurance carriers. The agreements are subject to negotiation and execution of final settlement agreements and final court approval. The Company remitted into escrow approximately $13.2 million during the second quarter of 1994 and will remit the remaining $3.3 million in the third quarter of 1994. In May 1994 the Company concluded negotiations on the second lawsuit with its secondary insurance carrier, who agreed to provide coverage on the settlement. Accordingly, net income for the second quarter included a credit to operating expenses of approximately $2.1 million for additional insurance proceeds and the reduction of accruals for legal expenses relating to the provision taken in the first quarter for settlement of the two shareholder class action suits. 10. Put Warrants During the second quarter, the Company, through private placement, sold three million put warrants that entitle the holder of each warrant to sell one share of common stock to the Company at a specified price ranging from $13.13 to $16.58 per share. Additionally, the Company purchased 2,250,000 call options that entitle the Company to buy one share of common stock at prices ranging from $14.94 to $17.83 per share. These put warrants and call options outstanding at June 30, 1994 expire on various dates between April 1995 and June 1995. The amount related to the Company's maximum potential repurchase obligation under the put warrants at June 30, 1994 has been reclassified from stockholders' equity to put warrants in the accompanying balance sheet. The Company has the right to settle these put warrants with stock, or a cash settlement equal to the difference between the exercise price and market value at the date of exercise. These securities had no significant dilutive effect on net income per share for the periods presented. 11. Subsequent Event In July 1994, the Company and Redwood Design Automation, Inc. ("Redwood") entered into a definitive merger agreement which provides that approximately 500,000 shares of the Company's common stock will be issued in exchange for all of the outstanding stock of Redwood. The merger will be accounted for as a purchase. The acquisition of Redwood is expected to be completed during the third quarter and is not expected to have a material impact on the financial position or results of operations of the Company. In addition, the Company has loaned Redwood $2.5 million in the form of a $1.0 million note payable due August 30, 1996 and a $1.5 million note payable due September 30, 1996. Interest on both notes is compounded monthly at a prime rate. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Revenue for the second quarter ended June 30, 1994 was $101.0 million compared with $88.8 million for the same period of the prior year, an increase of 14%. For the six months ended June 30, 1994, revenue was $197.8 million, an increase of 20% from revenue of $164.9 million recorded for the same period of 1993. Product revenue increased $2.4 million from $60.3 million for the quarter ended June 30, 1993 to $62.7 million for the quarter ended June 30, 1994. For the six month period ended June 30, 1994, product revenue was $123.8 million as compared to $107.4 million for the same period in 1993. The increase in product revenue for the six month period is partially due to improved economic conditions and increased demand for the Company's products resulting partly from the addition of Comdisco operations. Also, revenue for the first six months of 1993 was adversely impacted by a shift in the Company's systems product strategy. Maintenance revenue increased in absolute dollars by $9.8 million and $16.5 million for the three and six month periods ended June 30, 1994, respectively, as compared to the same periods in 1993, in part because of a larger customer base, continued focus on customer renewals and the addition of Comdisco operations. Cost of product was $19.3 million and $39.0 million for the three and six month periods ended June 30, 1994, respectively, as compared to $18.9 million and $35.8 million for the same periods in 1993. Cost of product for the quarter ended June 30, 1994 was $.4 million greater than cost of product for the quarter ended June 30, 1993. Increased expenses related to the addition of Comdisco operations were partly offset by decreased royalty and purchased software expense. The increase in cost of product for the six month period ended June 30, 1994 is partially the result of increased expenses related to the addition of Comdisco operations, as well as increased amortization and write-off of purchased software and intangibles. Cost of maintenance decreased in absolute dollars from $3.8 million and $7.8 million for the quarter and six month period ended June 30, 1993, respectively, to $3.3 million and $7.1 million for the same periods in 1994. These decreases resulted primarily from utilizing a more cost-effective update program and lower cost media in 1994. As a result of the factors discussed above, gross margin increased from 74% for the three and six month periods ended June 30, 1993, respectively, to 78% and 77% for the same periods in 1994. Marketing and sales expenses were $39.4 million for the quarter ended June 30, 1994 as compared to $39.0 million for the same period in 1993. For the six months ended June 30, 1994, as compared to the same period in the prior year, marketing and sales expenses increased from $76.5 million to $78.4 million. This increase in marketing and sales expense was primarily due to the addition of Comdisco operations and increased facilities costs. Research and development expenses for the second quarter ended June 30, 1994 were $18.3 million as compared to $16.1 million for the same period of the prior year, an increase of 13%. Capitalization of software development costs for the quarters ended June 30, 1994 and 1993 was $2.8 million and $4.2 million, which represented 13% and 20% of total research and development expenditures made in each of those periods, respectively. For the six months ended June 30, 1994, research and development expenses were $35.3 million compared with $33.1 million for the same period in 1993, after capitalization of $6.1 million and $7.9 million, which represented 15% and 19% of total research and development expenditures made in those periods, respectively. Gross research and development expenditures increased from $20.3 million for the three months ended June 30, 1993 to $21.1 million for the same period in the current year and increased to $41.4 million for the six months ended June 30, 1994 from $41.0 million for the same period in the prior year. These increases were primarily due to increased costs related to the addition of Comdisco operations partially offset by cost savings resulting from the purchase of facilities in the first quarter of 1994. General and administrative expenses increased to $9.8 million for the second quarter ended June 30, 1994 from $9.4 million for the same period in 1993, an increase of 5%. This increase resulted primarily from increased costs associated with the addition of Comdisco operations. For the six months ended June 30, 1994, general and administrative expenses were $20.4 million as compared to $18.8 million for the same period in 1993, an increase of 8%. The year over year increase for the six month period was primarily the result of increased costs related to the addition of Comdisco operations, increased professional services and provisions for bad debt partly offset by cost savings resulting from the purchase of facilities in the first quarter of 1994. In March 1994 the Company recorded a provision of $12.1 million for settlement of the stockholder class action lawsuits filed against the Company and certain of its officers and directors in 1991 and 1993. This $12.1 million provision was comprised of $17.9 million for settlement payments and legal costs offset by $5.8 million of receivables due from the Company's insurance carriers. In May 1994 the Company concluded negotiations on the second lawsuit with its secondary insurance carrier, who agreed to provide coverage on the settlement. Accordingly, the results of operations for the second quarter ended June 30, 1994 included a $2.1 million credit to operating expenses for the additional insurance proceeds received and the reduction of accruals for legal expenses relating to the provision taken in the first quarter. In March 1993 the Company recorded restructuring costs of $13.5 million associated with a planned restructure of certain areas of sales, operations and administration due to business conditions. The restructuring charge reflects costs associated with employee terminations, excess facilities and the write-off of purchased software and intangibles arising from required adjustments to the Company's cost structure necessitated by lower revenue levels. Also included in the restructuring charge was an additional provision for doubtful accounts and the write-off of certain software development costs resulting from changes in the systems product strategy. Net other income for the second quarter ended June 30, 1994 was $.4 million compared with $.6 million for the same period in 1993. For the six months ended June 30, 1994, net other income was $.8 million as compared to $1.1 million for the same period in 1993. There were no material fluctuations in the components of other income. The Company's estimated annual effective tax rate for fiscal 1994 is 25% as compared to 26% for the same period in the prior year. The Company's operating expenses are partially based on its expectations of future revenue. The Company's results of operations may be adversely affected if revenue does not materialize in a quarter as expected. Since expense levels are usually committed in advance of revenues and because only a small portion of expenses vary with revenue, the Company's operating results may be impacted significantly by lower revenue. Based on the Company's operating history and factors that may cause fluctuations in the quarterly results, quarter to quarter comparisons should not be relied upon as indicators of future performance. LIQUIDITY AND CAPITAL RESOURCES During the six months ended June 30, 1994 the Company's cash and cash investments and short-term investments increased $4.0 million from $92.8 million to $96.8 million. This increase was primarily due to net cash generated from operating activities exceeding net cash used for investing and financing activities. Cash used for financing activities included approximately $25.0 million of net treasury stock purchases and an approximate $23.5 million payment of a construction loan. As part of its authorized stock repurchase program, the Company has the maximum potential obligation at June 30, 1994 to buy back three million shares of its common stock at an aggregate price of $44.3 million. The Company has the right to settle these put warrants with stock, or a cash settlement equal to the difference between the exercise price and market value at the date of exercise. In addition to the $96.8 million in cash and cash investments and short-term investments at June 30, 1994, the Company had available $15.0 million under equipment lease lines and $17.5 million under bank lines of credit. The Company was not in compliance with certain financial covenants under its lines of credit as of June 30, 1994, primarily due to its stock repurchase activity. The items of noncompliance related to net worth, stock repurchase and current ratio levels. Subsequent to June 30, 1994, the Company obtained waivers of the noncompliance from the banks. The Company is currently in the process of renegotiating the bank lines of credit and has obtained extensions of the current lines of credit through May and June 1995. Anticipated cash requirements in 1994 include the purchase of treasury stock, the settlement of the class action lawsuits (approximately $3.3 million to be paid during the third quarter) and contemplated additions of capital equipment. Prior to 1993, the Company authorized the repurchase of up to 2.8 million shares of common stock in the open market to satisfy its estimated requirements for shares to be issued under its employee stock option and stock purchase plans. In April 1993, February 1994 and June 1994, the Company authorized the repurchase of an additional 4.0 million shares, 2.9 million shares and 5.2 million shares, respectively, of common stock from time to time. Some purchases are necessary to satisfy estimated requirements for shares to be issued under the Company's employee stock option and stock purchase plans. The Company anticipates that current cash and short-term investment balances, cash flows from operations and unused balances on equipment lease lines and lines of credit will be sufficient to meet its working capital and capital expenditure requirements for the foreseeable future. PART II. OTHER INFORMATION Item 1. Legal Proceedings Securities class action lawsuits were filed against the Company and certain of its officers and directors in the United States District Court for the Northern District of California, San Jose Division, on April 8 and 9, 1991. The lawsuits, which were consolidated into a single action, allege violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. Court rulings in response to the Company's motions to dismiss the lawsuit limited the class period to include purchasers of the Company's common stock between January 29, 1991 and April 3, 1991. On March 23, 1993 a separate class action lawsuit was filed against the Company and certain of its directors and officers in the United States District Court, Northern District of California, San Jose Division. This lawsuit, which was consolidated into a single action with two virtually identical lawsuits filed later in March and in April 1993, alleges violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. On November 18, 1993, the District Court granted the Company's motion to dismiss the 1993 complaint. The effect of the ruling was to dismiss the complaint except as to a statement allegedly made on January 28, 1993, but plaintiffs were granted leave to further amend their complaint. In April 1994 the Company entered into tentative agreements to settle both of the above class action lawsuits for a combined settlement of $16.5 million of which approximately $7.5 million was covered by the Company's insurance carriers. The agreements are subject to negotiation and execution of final settlement agreements and final court approval. The Company remitted into escrow approximately $13.2 million during the second quarter of 1994 and will remit the remaining $3.3 million in the third quarter of 1994. In May 1994 the Company concluded negotiations on the second lawsuit with its secondary insurance carrier, who agreed to provide coverage on the settlement. Accordingly, net income for the second quarter included a credit to operating expenses of approximately $2.1 million for additional insurance proceeds and the reduction of accruals for legal expenses relating to the provision taken in the first quarter for settlement of the two shareholder class action suits. Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders held May 17, 1994, the stockholders of the Company approved the following matters. 1. A proposal to approve the Company's 1993 Directors Stock Option Plan authorizing the issuance of up to 107,223 shares of common stock under the Plan was approved by a vote of 21,599,006 for, 13,004,672 opposed and 791,970 withheld. 2. An amendment of the Company's 1990 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 1,500,000 shares was approved by a vote of 29,447,795 for, 5,164,992 opposed and 782,862 withheld. 3. All director nominees were re-elected and the votes cast with respect to each director are as follows: NOMINEE IN FAVOR OPPOSED Carol Bartz 35,271,653 123,996 Joseph B. Costello 35,268,220 127,429 Raymond J. Lane 35,254,100 141,549 Leonard Y.W. Liu 35,271,632 124,017 Donald L. Lucas 35,271,626 124,023 Alberto Sangiovanni- Vincentelli 35,271,888 123,761 George M. Scalise 35,271,408 124,241 John B. Shoven 35,255,618 140,031 James E. Solomon 35,272,292 124,023 4. A proposal for the ratification of the selection of Arthur Andersen & Co. as independent public accountants was approved by a vote of 35,265,941 for, 80,064 opposed and 49,643 withheld. (a) The following exhibits are filed herewith: Exhibit Number Exhibit Title 10.01 The Registrant's 1987 Stock Option Plan, as amended to date, (incorporated by reference to Exhibit 4.01 to the Registrant's Form S-8 Registration Statement (No. 33- 53913) filed on May 31, 1994 (the "1994 Form S-8")).* 10.02 Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect under the Registrant's 1987 Stock Option Plan (incorporated by reference to Exhibit 4.01 to the Registrant's Form S-8 Registration Statement (No. 33-22652) filed on June 20, 1988).* 10.03 The Registrant's 1988 Directors Stock Option Plan, as amended to date, including the Stock Option Grant and Stock Option Exercise Notice and Agreement (the first document is incorporated by reference to Exhibit 4.02 of the Registrant's 1994 Form S-8 and the latter two documents are incorporated by reference to Exhibit 10.08 - 10.10 of the 1988 Form S-1).* 10.04 The Registrant's 1993 Directors Stock Option Plan including the Stock Option Grant (incorporated by reference to the Registrant's Form 10-K for the fiscal year ended December 31, 1993 (the "1993 Form 10-K")).* 10.05 The Registrant's 1990 Employee Stock Purchase Plan as amended to date (incorporated by reference to Exhibit 4.03 of the 1994 Form S-8).* 10.06 The Registrant's Senior Executive Bonus Plan for 1993 (incorporated by reference to Exhibit 10.07 of the Registrant's Form 10-K for the fiscal year ended December 31, 1992 (the "1992 Form 10-K")).* 10.07 The Registrant's Key Contributor Bonus Plan for 1993 (incorporated by reference to Exhibit 10.08 of the 1992 Form 10-K).* 10.08 The Registrant's Senior Executive Bonus Plan for 1994 (incorporated by reference to the 1993 Form 10-K).* 10.09 The Registrant's Key Contributor Bonus Plan for 1994 (incorporated by reference to the 1993 Form 10-K).* 10.10 The Registrant's Cash or Deferred Profit Sharing Plan, as currently in effect (certain amendments are incorporated by reference to the 1993 Form 10-K; the Plan itself is incorporated by reference to Exhibit 10.12 to the Registrant's Form S-4 Registration Statement (No. 33-31673), originally filed on October 18, 1989 (the "1989 Form S4")).* 10.11 Amended and Restated Lease, dated June 29, 1989, by and between River Oaks Place Associates, a California limited partnership, ("ROPA") and the Registrant, for the Registrant's executive offices at 555 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the Registrant's Form 10-K for the fiscal year ended December 31, 1990) (the "1990 Form 10-K")). 10.12 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 575 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.16 to the 1990 Form 10-K). 10.13 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 535 and 545 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.17 to the 1990 Form 10-K). 10.14 Lease dated September 3, 1985 by and among the Richard T. Peery and John Arrillaga Separate Property Trusts ("P/A Trusts") and Valid Logic Systems Incorporated ("Valid") (which merged into the Registrant) for the Registrant's offices at 75 West Plumeria Avenue, San Jose, California (incorporated by reference to Exhibit 10.16 to the Form 10-K for Valid for the fiscal year ended December 30, 1990 (the "1990 Valid Form 10-K")). 10.15 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 75 West Plumeria Avenue, San Jose, California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.17 to the 1990 Valid Form 10-K). 10.16 Lease dated December 19, 1988 by and among the P/A Trusts and Valid for the Registrant's offices at 2835 North First Street, San Jose, California (incorporated by reference to Exhibit 10.18 to the 1990 Valid Form 10-K). 10.17 Lease dated September 3, 1985 by and among the P/A Trusts and Valid for the Registrant's offices at 2820 Orchard Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the 1990 Valid Form 10-K). 10.18 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 2820 Orchard Parkway, San Jose, California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.15 to the 1990 Valid Form 10-K). 10.19 Form of Executive Compensation Agreement dated May 1989 between Registrant and Mr. Costello (incorporated by reference to Exhibit 10.20 to the 1989 Form S-4).* 10.20 Lease dated as of June 18, 1991 by and between C.T. Montague I, L.P., a California limited partnership, and the Registrant for improved real property including office buildings located at Seely Road and Montague Avenue, San Jose, California (incorporated by reference to Exhibit 10.24 to the 1991 Form S-4). 10.21 Employment Agreement dated as of December 1, 1989 between the Registrant and Mr. Doug Hajjar (incorporated by reference to Exhibit 10.36 to Form 10-K for Valid for the fiscal year ended December 31, 1989). * 10.22 Modification to Employment Agreement with Mr. Hajjar (incorporated by reference to Exhibit 10.03 to the 1991 Form S-4). * 10.23 Amendment to Employment Agreement with Mr. Hajjar dated December 16, 1992 (incorporated by reference to Exhibit 10.18 to the Registrant's Form 10-K for the fiscal year ended December 31, 1992). * 10.24 Offer letter to H. Raymond Bingham dated May 12, 1993 (incorporated by reference to the 1993 Form 10K).* 10.25 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated by reference to the 1993 Form 10-K).* 10.26 Letter agreement dated March 9, 1994 by and among C.T. Properties, Inc. ("General Partner"), Registrant, Montague Investors, L.P. ("Montague") and David M. Thede ("Thede") whereby Registrant acquired all of Thede's ownership interests in the C.T. Montague I, L.P. and C.T. Montague II, L.P. limited partnerships and the General Partner and all of Montague's interests in C.T. Montague I, L.P. (incorporated by reference to the 1993 Form 10-K). 10.27 1993 Non-Statutory Stock Option Plan, (incorporated by reference to Exhibit 4.05 to the 1994 Form S-8). 10.28 Consulting agreement dated May 1, 1994 with Henry E. Johnston, who was made a director on July 5, 1994 by unanimous written consent. 10.29 Consulting agreement dated October 26, 1993 with Alberto Sangiovanni-Vincentelli. (b) No reports on Form 8-K have been filed during the quarter ended June 30, 1994. * A management contract or compensatory plan required to be filed as an exhibit to Form 10-K. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CADENCE DESIGN SYSTEMS, INC. (Registrant) DATE: August 12, 1994 By: /s/ Joseph B. Costello JOSEPH B. COSTELLO President and Chief Executive Officer DATE: August 12, 1994 By: /s/ H. Raymond Bingham H. RAYMOND BINGHAM Executive Vice President and Chief Financial Officer EX-28 2 CADENCE DESIGN SYSTEMS, INC. CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into this 1rst day of May 1994 between CADENCE DESIGN SYSTEMS, INC. (the "COMPANY") and Henry E. Johnston, ("CONSULTANT"). THE PARTIES AGREE AS FOLLOWS: 1. Consultancy. CONSULTANT shall serve as a Consultant to the COMPANY for a period commencing on the date of this Agreement and concluding on the date set forth in Schedule A hereto, subject to the termination of this Agreement in accordance with Section 8. The period during which CONSULTANT shall serve as a Consultant to the COMPANY pursuant to this Agreement shall constitute the "Consulting Period". 2. Duties. CONSULTANT shall serve as a consultant to the COMPANY in the activities of the COMPANY set forth in Schedule A or as otherwise requested by an officer of the COMPANY. CONSULTANT shall perform such services under the general direction of the COMPANY or its officers, but CONSULTANT shall determine the manner and means by which the services are accomplished. During the Consulting Period, CONSULTANT agrees to perform all duties to the best of his/her ability. In the performance of such duties, CONSULTANT shall consult with the COMPANY up to the number of days per month set forth at Schedule A, which days of consulting will take place at the COMPANY's facilities or at such other places as the COMPANY shall reasonably request. CONSULTANT shall remain available for telephone consultation with the officers, employees, or consultants of the COMPANY or any of its subsidiaries or affiliates. 3. Other Employment. 3.1 Other Affiliation. CONSULTANT shall not use, disclose or deliver any proprietary or confidential information of third parties in dealings with the COMPANY or in providing the services under this agreement. CONSULTANT represents that he/she is not a party to any existing agreement that would prevent him/her from entering into this Agreement, and that the only agreements with third parties which may restrict his/her consulting activities on behalf of the COMPANY at the time of this Agreement are CONSULTANT's obligations pursuant to the agreements set forth in Schedule A. The COMPANY understands and agrees that during the Consulting Period CONSULTANT may be retained by other companies, corporations, and/or commercial enterprises which are not engaged in the design, development, manufacture or marketing of products similar to those of the COMPANY. CONSULTANT agrees to inform the COMPANY of any such agreement immediately. CONSULTANT agrees to use his/her best efforts to segregate work done under this Agreement from all work done at, or for, any such company, corporation, and/or other commercial enterprise. In any dealings with any such company, corporation, and/or other commercial enterprise, CONSULTANT shall protect and guard the COMPANY's "Confidential Information" (as defined in Section 5.1 below) in accordance with the terms of this Agreement. 3.2 Conflict of Interest. CONSULTANT warrants that he/she is not obligated under any other consulting, employment, or other agreement which would affect the COMPANY's rights or CONSULTANT's duties under this Agreement other than those referred to in Section 3.1. 4. Compensation. 4.1 Consulting Fees. The COMPANY agrees to pay CONSULTANT and CONSULTANT agrees to accept for CONSULTANT's services under this Agreement consulting fees (the "Consulting Fees") as set forth in Schedule A. Payment of the Consulting Fees will be made within 30 days after the receipt of CONSULTANT's invoice. 4.2 Employment Taxes and Benefits. CONSULTANT acknowledges and agrees that it shall be CONSULTANT'S sole obligation to report as self-employment income all compensation received by CONSULTANT from the COMPANY for CONSULTANT'S services as a consultant. CONSULTANT agrees to indemnify the COMPANY and hold it harmless to the extent of any obligations imposed by law on the COMPANY to pay any withholding taxes, social security, unemployment or disability insurance or similar items in connection with any payments made to CONSULTANT by the Company for CONSULTANT'S services as a consultant. 4.3 Legal Relationship. CONSULTANT shall be an independent contractor with respect to the COMPANY and shall not be an employee or agent of the COMPANY. CONSULTANT shall be entitled to no benefits or compensation from the COMPANY except as set forth in this Agreement and shall in no event be entitled to any fringe benefits payable to employees of the COMPANY. 4.4 Expenses. CONSULTANT will be reimbursed only reasonable costs and expenses incurred in performing duties hereunder and only if the incurring of such costs and expenses was approved in advance by an authorized individual of the COMPANY. Such reimbursement shall be made within thirty (30) days of submission of adequate and appropriate documentation of such costs and expenses. 5. Confidentiality. 5.1 Confidential Information. CONSULTANT's work for the COMPANY creates a relationship of trust and confidence between the COMPANY and CONSULTANT. During and after CONSULTANT's work for the COMPANY, CONSULTANT will not use or disclose or allow anyone else to use or disclose any "Confidential Information" (as defined below) relating to the COMPANY, its products, suppliers or customers, except as may be necessary in the performance of CONSULTANT's work for the COMPANY or as may be authorized in advance by appropriate officials of the COMPANY. "Confidential Information" includes Innovations (as defined in Section 6.2 below), marketing plans, product plans, business strategies, financial information, forecasts, personnel information, customer lists, trade secrets, any other non-public technical or business information, third party information made available to CONSULTANT, joint research agreements or agreements entered into by the COMPANY or any of its affiliates, whether in writing or given to CONSULTANT orally, which CONSULTANT knows or has reason to know the COMPANY would like to treat as confidential for any purpose, such as maintaining a competitive advantage or avoiding undesirable publicity. CONSULTANT will keep Confidential Information secret and will not allow any unauthorized use of the same whether or not any document containing it is marked as confidential. These restrictions, however, will not apply to Confidential Information that has become known to the public generally through no fault or breach of CONSULTANT or that the COMPANY regularly gives to third parties without restriction on use or disclosure. 5.2 Records. CONSULTANT agrees to keep separate and segregated from other work all documents, records, notebooks and correspondence which directly relate to his/her work under this Agreement. 5.3 Record of Confidential Information. All notes, memoranda, reports, drawings, manuals, materials, data and any papers or records of every kind which are or shall come into CONSULTANT's possession at any time during the Consulting Period related to Confidential Information of the COMPANY shall be the sole and exclusive property of the COMPANY. This property shall be surrendered to the COMPANY upon termination of the Consulting Period or upon request of the COMPANY at any time either during or after the termination of the Consulting Period, and no copies, notes, or excerpts thereof shall be retained. 6. Innovations. 6.1 Company Property. All Innovations (as defined in Section 6.2 below) made, conceived, or completed by CONSULTANT, individually or in conjunction with others during the Consulting Period shall be the sole and exclusive property of the COMPANY, provided such Innovations (i) are made, conceived or completed with equipment, supplies, or facilities of the COMPANY, its subsidiaries or affiliates, or (ii) are made, conceived or completed by CONSULTANT during hours in which CONSULTANT is performing services for the COMPANY or any of its subsidiaries or affiliates. It is understood that nothing contained herein shall affect the rights or obligations of CONSULTANT with respect to any Innovations which are protected by Section 2870 of the California Labor Code. 6.2 a) Disclosure of Innovations. CONSULTANT shall disclose in writing to the COMPANY all inventions, discoveries, concepts, ideas, improvements and other innovations of any kind that CONSULTANT may make, conceive, develop or reduce to practice, alone or jointly with others, in the course of performing work for the COMPANY or as a result of that work, whether or not they are related to CONSULTANT's work for the COMPANY and whether or not they are eligible for patent, copyright, trademark, trade secret or other legal protection ("Innovations"). Examples of Innovations include: formulas, algorithms, methods, processes, databases, mechanical and electronic hardware, electronic components, computers and their parts, computer languages, computer programs and their documentation, encoding techniques, articles, writings, compositions, works of authorship, marketing and new product plans, production processes, advertising, packaging and marketing techniques, and improvements to anything. b) Assignment of Ownership. CONSULTANT agrees that all Innovations will be the sole and exclusive property of the COMPANY and hereby assigns to the COMPANY all rights in the Innovations and in all related patents, patent applications, copyrights, mask work rights, trademarks, trade secrets, rights of priority and other proprietary rights. At the COMPANY's request and expense, during and after the period during which CONSULTANT acts as a CONSULTANT to the COMPANY, CONSULTANT will assist and cooperate with the COMPANY in all respects and will execute documents, and subject to reasonable availability, give testimony and take further acts requested by the COMPANY to acquire, transfer, maintain and enforce patent, copyright, trademark, mask work, trade secret and other legal protection for the Innovation(s). CONSULTANT hereby appoints the Secretary of the Company as CONSULTANT's attorney-in-fact to execute documents on CONSULTANT's behalf for this purpose. c) Moral Rights Waiver. CONSULTANT hereby irrevocably transfers and assigns to the COMPANY any and all "Moral Rights" (as defined below) that CONSULTANT may have in or with respect to any Innovation. CONSULTANT also hereby forever waives and agrees never to assert any and all "Moral Rights" CONSULTANT may have in or with respect to any Innovation, even after termination of CONSULTANT's work on behalf of the COMPANY. "Moral Rights" mean any rights of paternity or integrity, any right to claim authorship of an Innovation, to object to any distortion, mutilation or other modification of, or other derogatory action in relation to, any Innovation, whether or not such would be prejudicial to CONSULTANT's honor or reputation, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right". 6.3 Legal Proceedings. Whenever requested to do so by the COMPANY, CONSULTANT shall promptly deliver to the COMPANY evidence for interference purposes or other legal proceedings and testify in any interference or other legal proceedings which relates to any matters on which CONSULTANT has provided services to the COMPANY. 6.4 Non-Infringement. CONSULTANT represents and warrants that the services performed under this Agreement and the Innovations made or contributed by CONSULTANT hereunder will not infringe on any rights of any third party. 6.5 License. To the extent that the COMPANY's use or exploitation of any Innovations made or contributed by CONSULTANT hereunder may require a license from CONSULTANT under any other proprietary rights held by CONSULTANT, CONSULTANT hereby grants the COMPANY a fully- paid, royalty-free, perpetual, worldwide license to make, use, sell, copy, modify, distribute, perform, display and otherwise exploit such Innovations. 7. Non-Solicitation. CONSULTANT agrees that, during the Consulting Period and for a period of two years after the expiration or earlier termination of the Consulting Period, CONSULTANT will not solicit or recruit Cadence employees for any other employers outside the COMPANY or employ any of the employees of the COMPANY without its prior written consent. 8. Termination. The Consulting Period may be terminated immediately, at-will by the COMPANY or CONSULTANT for any or no reason upon notice to the other party. The covenants and agreements set forth in Sections 5, 6 and 7 shall survive the Consulting Period and remain in full force and effect regardless of such termination. 9. Severability. If a court finds any provision of this Agreement invalid or unenforceable as applied to any circumstance, that provision shall be enforced to the maximum extent permitted by law, and the other provisions will remain in full force and effect. 10. Notice. Any notice to be delivered pursuant to this Agreement shall be in writing and shall be deemed delivered upon service, if served personally, or three days after deposit in the United States Mail, if mailed by first class mail, postage prepaid, registered or certified with return receipt requested, and addressed to the other party at the following address, or such address as may be designated in accordance herewith: TO the COMPANY: CADENCE DESIGN SYSTEMS, INC. Human Resources Department 2655 Seely Rd., Bldg. 5 San Jose, CA 95134 TO CONSULTANT: Henry E. Johnston 4001 Glenwick Dallas, Texas 75205 11. Binding Effect; No Assignment. This Agreement shall be binding upon CONSULTANT, and except as regards personal services, upon CONSULTANT's heirs, personal representatives, executors and administrators, and shall inure to the benefit of the COMPANY, its successors and assigns. This Agreement may not be assigned by CONSULTANT and any attempted assignment by CONSULTANT shall be void. 12. Amendment. This Agreement may be modified or amended only by mutual written consent of the parties. 13. Governing Law. This Agreement shall be governed and enforced in accordance with the laws of the State of California, excluding that body of law known as choice of law. 14. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. 15. Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes all prior and contemporaneous negotiations, correspondence, understanding and agreements of the parties relating to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CONSULTANT: CADENCE DESIGN SYSTEMS, INC. /s/ Henry E. Johnston By: /s/Thomas F. Rouse Requester/Manager Henry E. Johnston Thomas F. Rouse (Please Print) (Please Print) Social Security No.###-##-#### Title:Director, Comp & Benefits or Federal Tax I.D.# __________________ By: /s/ Scott W. Sherwood Department V.P. (Up to $10K) By: ______________________________ Controller (Up to $25K) Forward to HR for Approval By: ______________________________ Exec. VP Finance (Up to $50K) By: /s/ Scott W. Sherwood By: /s/ Joseph B. Costello Human Resources 7/28/94 President (Over $50K) Schedule A to Consulting Agreement ALL ITEMS BELOW MUST BE COMPLETELY FILLED IN. DO NOT LEAVE ANY BLANK LINES. 1. Name of Consultant: Henry E. Johnston 2. Address of Consultant for notice: 4001 Glenwick Dallas, Texas 75205 3. Term of Consulting Period: Start Date End Date 05/01/94 12/31/94 (a) Terms of Termination Agreement: After 12/31/94, in accordance with Section 8 of this Agreement. 4. Duties of Consultant: Provide Executive Consultation and advice to Cadence with emphasis on Consulting Services and Sales Distribution channel segments of the business. 5. Individual to whom Consultant reports (include location and extension): Joseph Costello, San Jose Five, Extension 7400. 6. Department Number/Account Number to be charged: 000-4100 7. Maximum number of days of consulting to be performed per month: Five 8. Other existing agreements of Consultant: N/A 9. Consulting Fees (stated as dollars per hour or day, or other agreed upon terms): Stock options in lieu of cash payment through 12/31/94. 15,000 shares to vest on 12/31/94. Cash to cover benefit cost. 10. The dollar value of this Consulting Agreement is not to exceed N/A. /s/ Henry E. Johnston /s/ Scott W. Sherwood Consultant Cadence Design Systems, Inc. MISSING INFORMATION COULD CAUSE A DELAY IN THE PROCESSING OF THE CONSULTING AGREEMENT AND/OR PAYMENT TO THE CONSULTANT. Schedule A to Consulting Agreement A D D E N D U M SUMMARY OF AGREEMENT Henry E. Johnston - - -- For the period May 1, 1994 through December 31, 1994, Mr. Henry E. Johnston agrees to a minimum of five days consulting per month. Any additional days to be mutually acceptable between Mr. Joseph Costello and Mr. Henry E. Johnston. - - -- Consulting Agreement to remain effect through December 31, 1994. After December 31, 1994 Agreement governed by Section 8 of the Consulting Agreement. - - -- Mr. Henry E. Johnston shall receive an option to purchase 15,000 shares of Cadence stock, priced at date of grant. These shares will vest 100% as of December 31, 1994. - - -- All options granted during the life of this Consulting Agreement, that are vested at the end of the unbroken Consulting Agreement, can be exercised up to one year from the date the Agreement is terminated, or ten years from the grant date, which-ever occurs sooner. - - -- Cadence MED 100 and High Dental coverage will be provided to Mr. Henry E. Johnston, his spouse, Katrina B. and student son, James F. (eligible as a full time student). - - -- Medical benefits will have an inputed income value that will show as payment to Mr. Henry E. Johnston. Cadence will deliver cash equivalent to 50% of this inputed income to compensate Mr. Henry E. Johnston for any tax liabilities that might occur. EX-99 3 Consulting Agreement ALL ITEMS BELOW MUST BE COMPLETELY FILLED IN. DO NOT LEAVE ANY BLANK LINES. 1. Name of Consultant: Alberto Sangiovanni-Vincentelli 2. Address of Consultant for notice: 200 Tunnel Road Berkeley, CA 94705 3. Term of Consulting Period: Start Date End Date 7/1/93 12/31/94 4. Duties of Consultant: Member, Cadence Board of Directors Chair, Cadence Scientific Advisory Committee Consultant, Cadence Product/Marketing/Sales/Labs Group and commercial joint ventures. A quarterly report will be submitted to Sylvia Hill, Programs Director, Cadence Labs, which details a listing of consulting activity, including: Group, Topic, Date, Duration of Meeting Results/Action Items/Conclusions. Plans for consulting in next quarter. Reports are due on September 30, 1993 and December 31, 1993. 5. Individual to whom Consultant reports: VP of Cadence Labs, SJ3 X7026 6. Department Number/Account Number to be charged: 000-3900-741100 7. Maximum number of days of consulting to be performed per month: Five 8. Other existing agreements of Consultant: See attached 9. Consulting Fees (stated as dollars per hour or day, or other agreed upon terms): Consultant to be issued a stock option to purchase 15,000 shares of Cadence Common Stock, subject to approval by the Compensation Committee of the Board of Directors. This option will vest 25% at the end of the first year of this contract and monthly thereafter with vesting of all of such shares occurring at the end of four years. In addition, subject to approval by the Compensation Committee of the Board of Directors, Consultant will be granted a stock option to purchase 15,000 shares of Cadence Common Stock with cliff vesting (100% vested after ten years from the date of grant). However, 5,000 of these shares shall become fully vested upon achievement of delivery by the Berkeley Labs unit of Cadence of the prototype for Logic Simulation and Timing Verification by January 1, 1994, 5,000 of these shares shall become fully vested upon the product release by Cadence of Logic Simulation and Timing Verification by January 1, 1995 and the last 5,000 of these shares shall become fully vested upon the achievement of product release by Cadence of a third product deliverable. Options are generally approved and granted every two weeks by the Compensation Committee at the average of the high and low market price of Cadence Common Stock on that date. 10. The dollar value of this Consulting Agreement is not to exceed One Hundred and Fifteen Thousand Dollars ($115,000.00) per year. CONSULTANT: CADENCE DESIGN SYSTEMS, INC. /s/ Alberto Sangiovanni-Vincentelli By: /s/P. Scaglia Requester/Manager Alberto Sangiovanni-Vincentelli Patrick Scaglia (Please Print) (Please Print) Social Security No.###-##-#### Title:V.P., Cadence Laboratories or Federal Tax I.D.# __________________ By: /s/ Scott W. Sherwood 10/26/93 Department V.P. (Up to $10K) By: /s/ Larry Sferra 12/10/93 Controller (Up to $25K) Forward to HR for Approval By: ______________________________ Exec. VP Finance (Up to $50K) By: /s/ Scott W. Sherwood By: /s/ Leonard Liu Human Resources 7/28/94 Chief Operating Officer (Over $50K) MISSING INFORMATION COULD CAUSE A DELAY IN THE PROCESSING OF THE CONSULTING AGREEMENT AND/OR PAYMENT TO THE CONSULTANT. -----END PRIVACY-ENHANCED MESSAGE-----