-----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, WDBfe7Eecsy0Q7orTMKPtZ9wOZn68WOlzO4/fAvvaMrby6Y0fOdEvsHvlTtwEV8T yiiCkHH92M+vjduqp3dPDQ== 0000891618-94-000131.txt : 19940620 0000891618-94-000131.hdr.sgml : 19940620 ACCESSION NUMBER: 0000891618-94-000131 CONFORMED SUBMISSION TYPE: 10-K CONFIRMING COPY: PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940617 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10606 FILM NUMBER: 00000000 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-K 1 FORM 10-K 1 THIS DOCUMENT IS AN ELECTRONIC CONFIRMING COPY OF THE FORM 10-K OF CADENCE DESIGN SYSTEMS, INC. FOR THE YEAR ENDED DECEMBER 31, 1993 FILED ON MARCH 30, 1994. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________to ____________________________ Commission file number 0-10606 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) Registrant's telephone number, including area code: (408) 943-1234 ---------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ------------------------------------------------------------ Common Stock, $.01 par value per share New York Stock Exchange - -------------------------------------- ------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None ________________________________________________________________________________ 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 _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] Aggregate market value of the voting stock held on March 25, 1994 by non-affiliates of the registrant: $433,260,556 Number of shares of common stock outstanding: 41,265,044 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Annual Meeting to be held on May 17, 1994 are incorporated by reference into Part III hereof. 2 CADENCE DESIGN SYSTEMS, INC. 1993 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART 1 Item 1. Business 1 Item 2. Properties 10 Item 3. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Executive Officers of the Registrant 12 PART II Item 5. Market for the Registrant's Common Equity and Related 14 Stockholder Matters Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial 15 Condition and Results of Operations Item 8. Financial Statements and Supplementary Data 23 Item 9. Changes in and Disagreements with Accountants on 23 Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 23 Item 11. Executive Compensation 23 Item 12. Security Ownership of Certain Beneficial Owners and 23 Management Item 13. Certain Relationships and Related Transactions 24 PART IV Item 14. Exhibits, Financial Statements, Schedules, and Reports 24 on Form 8-K Signatures 53
3 PART I ITEM 1. BUSINESS Cadence Design Systems, Inc. ("Cadence" or the "Company") develops, markets, and supports electronic design automation ("EDA") software products that automate, enhance and accelerate the design and verification of integrated circuits ("ICs") and electronic systems. Cadence's product lines are composed of suites of software packages or tools, integrated through Cadence's proprietary software architecture. Cadence was formed as a result of the merger of SDA Systems, Inc. ("SDA") into ECAD, Inc. ("ECAD") in May 1988. ECAD commenced operations in 1982. SDA commenced operations in 1983. The Company's name was changed to Cadence Design Systems, Inc. in June 1988. In March 1989, Cadence acquired Tangent Systems Corporation ("Tangent"). In December 1989, Cadence merged with Gateway Design Automation Corporation ("Gateway"), a leading EDA supplier of digital logic simulation software. In July 1990 Cadence merged with Automated Systems, Inc. ("ASI"), a company that marketed products and services related to the design and manufacture of electronic printed circuit boards ("PCBs") to the aerospace, defense, computer and telecommunications industries. In December 1991 Cadence merged with Valid Logic Systems Incorporated ("Valid"), a company that developed and supported EDA software used to design electronic systems, PCBs and applications for electronic product designs involving advanced packaging technology such as hybrids and multi-chip modules ("MCMs"). In June 1993 Cadence acquired the business and certain assets of Comdisco Systems, Inc. ("Comdisco") a subsidiary of Comdisco, Inc. Comdisco develops, markets and supports digital signal processing software products in the electronic systems applications area. In December 1993 the Company sold its ASI division and reported the operating results of ASI as discontinued operations for all prior years. Valid had acquired two companies by merger in February 1989: Integrated Measurements Systems, Inc. ("IMS"), a company that manufactured and marketed verification systems used in testing prototype application specific integrated circuits ("ASICs"), and Analog Design Tools, Inc. ("ADT"), a supplier of computer-aided engineering ("CAE") software for the design of analog electronic circuits. THE ELECTRONIC PRODUCT DEVELOPMENT CYCLE ELECTRONIC DESIGN AUTOMATION EDA refers to the use of engineering software to design electronic circuits and systems. A critical and enabling technology for the global electronics industry, EDA allows engineers to develop complex and high quality electronic products within accelerated time-to-market schedules. EDA software is one of the key forces driving electronics innovation and production. Virtually all complex computer, telecommunication, aerospace and semiconductor projects depend on advanced EDA solutions to handle the large amounts of data associated with these designs. In addition, the short product life cycles of consumer electronics products depend on the accelerated design schedules that EDA software allows. EDA software can literally cut months from a production schedule, allowing design teams to complete projects in a timeframe that would be impossible if done manually. Electronics manufacturing has a synergistic relationship with EDA. Without EDA simulation software to verify design performance, the design quality required for profitable high volume production of ICs and PCBs would be compromised. EDA technology has also enabled the quick production time and enormous market growth of semi-custom circuits and subsystems such as ASICs, Programmable Logic Devices ("PLDs"), Field Programmable Gate Arrays ("FPGAs") and MCMs. EDA systems address two major functions in the electronic product development cycle: electrical design, often referred to as CAE, and physical design, often referred to as computer-aided design ("CAD"). Together, CAE and CAD address the major phases in the design of electronic systems, PCBs, MCMs, ASICs, PLDs, FPGAs and full-custom ICs. 1 4 CAE DESIGN PROCESSES The electrical design process involves design description, model development and simulation of the design's behavior and timing performance. Additional design automation technologies, such as architectural design and logic and test synthesis, can simplify the design entry process; IC floorplanning can provide greater accuracy in simulation. Design description (called design entry, design capture or schematic capture) is the first step in the electronic design process. To handle the complexity of large designs, design entry often consists of several levels of design description. At the highest level of abstraction, a design can be expressed in a behavioral description, a convention that allows engineers to describe large and complex designs quickly. Behavioral design description typically involves the use of equations, or a special design description language called a Hardware Description Language ("HDL"). For digital designs, the most common HDLs are Verilog(R) HDL, a language developed by Cadence that is now in the public domain, and VHDL, a language standardized and backed by the U.S. Department of Defense and supported by Cadence as well as many other EDA vendors. A similar standard is emerging for analog design. Cadence is developing an analog hardware description language ("AHDL") which it will seek to make an industry-standard. Much as a sketch is detailed into a blueprint before building a house, behavioral descriptions must be detailed into lower-level descriptions (also called structural designs) before the IC or PCB can be manufactured. This process can be done manually, or in an automated fashion using a process called logic synthesis and a software tool such as the Cadence Synergy(TM) synthesizer. In structural design, the engineer specifically defines components, their interconnections, and associated physical properties. This description can be the text file produced by logic synthesis, or a graphical drawing called a schematic. In structural design, critical design time is saved by pulling components from an electronic library and including them in the design, rather than recreating symbols and data for each design. A database, containing the design's electrical characteristics, interconnections and specific design rules, is automatically created and used as the foundation for subsequent design steps. Simulation is used to verify the design electronically before it is manufactured, enabling engineers to explore design alternatives quickly and to catch costly design errors before the design is manufactured. Simulation can be performed with different levels of design description: behavioral, structural and mixed-level. These levels allow designers to test their design concept, actual structure and performance, and a combination of concept and structure. A key element in the simulation process is the use of component libraries containing software models of commonly used parts. These are either developed and supplied by Cadence, or are provided by third-parties such as ASIC vendors or independent modeling companies that have certified their libraries for use with Cadence's simulation products. When the functionality and timing are determined to be correct, the engineer generates a netlist. A netlist is a non-graphic description, in list form, of all design components and interconnects. The netlist is the link between the CAE design environment and the CAD process. CAD DESIGN PROCESSES An electronic product's physical design process varies depending on whether the final product is a full-custom IC, an ASIC or a PCB. However, the physical design process typically includes the placement of devices or components, electrical routing or wiring between those devices and components, analysis of the layout to check for compliance with design rules and performance specifications and the generation of data for use in manufacturing and test activities. If the design is a full custom IC, the process includes chip-level architectural design, creation of cells and blocks, floorplanning, placement, routing and compaction of the cells/blocks, analysis of conformance to electrical and physical design rules, analysis of wire lengths, load factors and timing performance, and generation of mask data for chip fabrication. If the design is produced as a PCB or MCM incorporating off-the-shelf components, full custom ICs and/or ASICs, physical design typically includes floorplanning and pre-placement of critical components, automatic or interactive component placement, analysis of thermal conditions and high-frequency transmission line characteristics, analysis of testability and generation of test documentation, pre-manufacturing clean-up or "glossing" of the board design, and generation of a wide range of manufacturing data and artwork. 2 5 CADENCE'S EDA PRODUCT FAMILY Cadence's full line of integrated EDA software solutions has been developed to support engineers at two levels. At one level, individual engineers need solutions to solve their specific design needs. A second level is to support teams of engineers working on larger projects. These engineers need to share information across the entire company and can do so effectively with a variety of solutions from Cadence. Cadence offers a full line of integrated EDA solutions for three basic design areas: IC design for digital, analog and mixed-signal devices; system design for both digital and analog systems; and ASIC design, particularly for high-performance sub-micron ASICs. These three areas include solutions for the electrical and physical design of all types of systems, subsystems, and ICs, including PCBs, MCMs, hybrids, ASICs, PLDs, FPGAs, and full custom and semi-custom ICs. The major advantages of Cadence products are in the areas of design methodologies and integration of electrical and physical design tools. Cadence's commitment to industry standard hardware platforms, operating systems and networking protocols allows users to configure an open design environment tailored to their specific needs. As design needs grow, the Cadence design environment can be expanded to include additional Cadence tools or third-party tools. Customizing environments can be handled through Cadence's Spectrum Services Group, responsible for working with customers to define and implement design environments optimized for customer project or product needs. PRODUCT STRATEGY AND PRODUCTS Cadence's goal is to provide technology that accelerates the creation of innovative electronic products, enabling designers to bring complex products to market quickly and reliably. To meet this goal consistently, Cadence has adopted the following core product strategies: o Focus development efforts on collapsing the most complex and time-consuming aspects of the design process o Provide full integration of leading-edge tools into a unified environment o Deliver solutions that combine software tools and advanced design methodologies to streamline the overall design process CORE PRODUCT TECHNOLOGY Cadence believes that within its integrated solutions approach, customers still demand high performance point tools for certain functions. By focusing technology development efforts to address the most complex and time-consuming aspects of the design process, Cadence has delivered a suite of individual design tools that has become well known in the industry. These tools, which address all major areas of the design process, include: o Allegro(TM) and Prance-XL(TM) for board and MCM layout, along with integrated layout analysis tools, DF/SigNoise(TM), DF/Thermax(TM), and DF/Viable(TM) o Analog Artist(TM) and Analog Workbench(TM) for analog IC and system design, respectively o Composer(TM) and Concept(TM) design entry environments o Design Framework II(TM) framework technology o Dracula(R) and Diva(TM) for verification o Gate Ensemble(TM), Cell Ensemble(TM) and Block Ensemble(TM) for place and route o Preview(TM) for ASIC and IC floorplanning o Profile(TM) analog behavioral language o Spectre(TM), Cadence Spice(TM) and SpicePlus(TM) for analog simulation o Synergy(TM) family for circuit synthesis and optimization o Verilog-XL(TM) and Leapfrog(TM) VHDL for top-down digital simulation o Virtuoso(TM) products for custom IC layout and library development 3 6 OPEN ENVIRONMENT Cadence pioneered the ability to link and manage a variety of design tools under a consistent graphical user interface with the introduction of its Design Framework(TM) in 1985. In 1990 Cadence delivered Design Framework II, so that designers can work with multiple tools more efficiently. Through its communication and design management features, Design Framework II also improves project and data management, critical for today's large designs and design teams. Design Framework II gives users an easy-to-use EDA software system, which can easily be customized, combined with third party tools, and ported to new computer platforms as they become available. Cadence's software operates on industry standard workstations from Digital Equipment Corporation, Hewlett-Packard/Apollo, International Business Machines Corporation and Sun Microsystems, Inc. Cadence believes that it is well positioned to port its systems quickly to other UNIX-based workstations that may gain broad customer acceptance in the future. The CAD Framework Initiative (CFI), a standards committee comprised of EDA vendors and customers, has developed a reference architecture as an initial step towards a universal framework definition. As a founding member, Cadence works closely with CFI to develop this standard, and is advancing Design Framework II to adhere to CFI's evolving guidelines. INTEGRATED DESIGN SOLUTIONS Cadence offers a full line of EDA software combined with framework technology and advanced design methodologies to provide complete EDA solutions that enhance productivity. IC DESIGN Cadence's products have been used in every major electronic product design ranging from microprocessors that are at the heart of personal computers and workstations, to mixed signal chips that are driving the telecommunications and networking industries. Cadence's IC solutions feature proven tools for custom library development and editing, automated custom design, advanced digital and analog simulation, and IC physical verification. Building on this full-line of IC tools, Cadence offers complete, front-to-back solutions for designing digital, analog, mixed-signal and microwave ICs. These solutions streamline the design of complex chips and help design teams get to market with innovative, high quality products. For each step in the IC design process Cadence provides a complete design environment to meet individual design tasks. Cadence's solution includes the Virtuoso(TM) product family of custom layout tools supporting polygon layout, symbolic layout and layout synthesis; the Ensemble(TM) product family providing automatic place and route for both ASIC and custom cell-based design styles; Chip Assembly Solution for multi-layered block placement and routing; the Diva(TM) product family of interactive verification tools; and the DRACULA product family of physical verification tools. For analog designers, Cadence offers complete front-to-back solutions for analog, mixed-signal and microwave circuits. The Analog Artist for IC design provides advanced simulation, layout and verification, featuring products like the Profile(TM) behavioral modeling and simulation software and the Spectre(TM) high-speed circuit simulator. This solution supports design teams with productive tools for fast, early evaluation of design alternatives on complex analog designs, allowing teams to manage the critical interdependencies between electrical design and physical layout. Cadence's front-to-back IC solution includes a unique timing-driven design methodology to minimize costly downstream iterations. All tools, from synthesis and simulation to floorplanning and place and route, share critical timing information to maintain consistency and ensure that key performance requirements are met. SYSTEM DESIGN Cadence provides complete front-to-back digital and analog system design solutions built around the Concept design entry system; the Verilog-XL and Leapfrog VHDL simulators; and the Allegro PCB/MCM physical design system. 4 7 Allegro, one of the industry's most comprehensive and production-proven systems design environments includes: the DF/Viable(TM) reliability analyzer, the DF/SigNoise(TM) and signal integrity analysis modules, the DF/Thermax(R) thermal analysis software, and the Prance- XL(TM) routers. For analog board and system design, Cadence provides the Analog Workbench, for top-down, front-to-back analog design. The Analog Workbench provides simulation tools, integrated physical layout, extensive analog model libraries and advanced analysis tools for tasks such as thermal analysis and post-layout simulation with extracted temperatures. Cadence's system design tools, combined with design methodologies such as rules-driven design and correct-by-design, allow engineers to shorten design cycles and improve the product quality of high-speed PCBs, MCMs, hybrids and multiwire boards. With Cadence's solutions, important design or technology considerations are defined in advance and are automatically checked and enforced throughout the design process to shorten design cycles and optimize designs for performance, quality and cost. For additional accuracy, flexibility and overall process control, Cadence's unique "synchronized" library approach and in-process analysis tools cover electrical, thermal, reliability, testability, manufacturing and design management constraints. ASIC DESIGN Cadence helped pioneer the use of top-down design by ASIC designers with its Verilog-XL simulator and Verilog(R) HDL design language. Building on what is now the most broadly used top-down method in the industry, Cadence offers a complete and production- proven top-down design system. Included is a flexible environment with Composer(TM) mixed-level design entry using either Verilog HDL or VHDL; large-capacity, high- performance logic synthesis and optimization with the Synergy and Optimizer(TM) synthesis software; fully integrated mixed-level logic simulation with Verilog-XL(TM) and Leapfrog(TM) VHDL verification tools; and the Preview(TM) floorplanner that enable the sharing of consistent timing data from design entry through place and route. Completing the ASIC design process is Cadence's Gate Ensemble place and route system. A new series of design-for-test tools, offering advanced test synthesis and test pattern generation capabilities, helps to shorten ASIC design cycles and improve yields. In addition, Cadence's extensive list of over 185 ASIC libraries and endorsements from major ASIC vendors help ensure a production path for the most complex, leading-edge ASIC designs. MARKETING AND CUSTOMERS CUSTOMERS AND MARKETING STRATEGY Cadence's customers and target markets include computer manufacturers, consumer electronics companies, defense electronics companies, merchant semiconductor manufacturers, ASIC foundries and telecommunications companies. In addition, Cadence licenses its products to international distributors in certain countries (see "International Sales" below in this "Business" section). In 1993, 1992 and 1991 one customer, Cadence's distributor in Japan, Innotech Corporation ("Innotech"), accounted for 13%, 14% and 13% of total revenue, respectively. Cadence's principal marketing objectives are: o Offer high quality, complete and integrated design solutions o Provide best-in-class technologies in critical design areas o Deliver a standards-driven, open design environment o Utilize Cadence's worldwide resources to solve customers' complex design challenges and serve global customers CUSTOMER SUPPORT Cadence's support group helps tailor new tools to a customer's existing design environment, train designers on how to best utilize their EDA software and provide ongoing software updates to enhance product capabilities. The backbone of the global customer support process is the customer response center program. These centers give Cadence customers worldwide access to solution and product experts. A dedicated team of application engineers is 5 8 available to address customer applications issues as well as provide links between customers and Cadence's product developers. CADENCE SPECTRUM SERVICES Customizing design automation systems can require a major time and resource investment from the customer. Spectrum Services provides a structured consultative approach to analyzing the design process. After an extensive review of a customer's business and technical objectives and design processes, a comprehensive plan is developed for an advanced custom design environment. By integrating Cadence's solutions with the customer's software tools and third-party and custom-designed tools and augmenting the software with expert advice on streamlining the design process, customers benefit from a custom optimized design environment. CUSTOMER PARTNERSHIPS Cadence has established close working relationships with a number of semiconductor manufacturers and electronic systems companies based on a business partnership model that has become a central business model for the Company. To ensure that research and development activities are properly prioritized, and also that finished products meet customers' needs, major new product developments begin after collaboration with a Cadence customer/partner. There are presently several variations of Cadence partnerships: four groups of technology partnerships (involving Cadence's IC, HDL, Systems Design and Systems Physical Design Groups, respectively) and a fifth group that focuses on development of specific products ("Product Development Partnerships"). These technology partnerships allow Cadence to work with customers' designers in defining and developing state-of-the-art solutions for current and emerging design approaches. Through an engineer exchange program, customers will often work on-site at Cadence facilities, giving Cadence valuable insight into customer product planning. Product Development Partnerships are generally directed at the development and refinement of specific tools. INDUSTRY ALLIANCES Cadence cooperates with other design automation vendors to deliver full-scope technology to its customers. Through Cadence's Connections(TM) Program, participating companies can integrate their products and technologies more easily into Cadence's design framework. This provides customers with the flexibility to mix and match third-party and proprietary tools to specifically meet their design automation needs. Today over 70 companies have integrated their tools into Cadence's design framework. UNIVERSITY SOFTWARE PROGRAM Cadence supports EDA research by sharing its design automation technology and expertise with universities. More than 500 universities worldwide participate, including the University of California at Berkeley, Duke University, the Massachusetts Institute of Technology and Stanford University. 6 9 SALES As of December 31, 1993, Cadence had 796 employees engaged in field sales and sales support, representing approximately 32% of its total employees. Cadence's sales people present Cadence and its products for licensing to prospective customers, while applications engineers provide technical pre-sales as well as post-sales support. Due to the complexity of EDA products, the selling cycle is generally long, with three to six months being typical. Activities during this sales cycle typically consist of a technical presentation, a product demonstration, a design benchmark and often, an on-site customer evaluation of Cadence software. NORTH AMERICAN SALES In the domestic market Cadence uses a direct sales force, utilizing both sales people and applications engineers in each territory to license its products. As of December 31, 1993, Cadence had 419 regional sales people and applications engineers licensing and supporting Cadence's products in the United States and Canada. Cadence maintains domestic sales and support offices at various locations across the United States. INTERNATIONAL SALES In Europe and Asia Cadence markets and supports its products primarily through 12 majority owned subsidiaries, which, as of December 31, 1993, employed 86 salespeople and 291 other sales and support personnel. Cadence licenses its products in Japan through three distributors: Innotech, Kanematsu Electronics and Sony Tektronics. Cadence's systems products are marketed in Japan through a wholly-owned subsidiary and, until 1992, through a distributor, CIC, Inc. In March 1992 Cadence reached an agreement to acquire CIC, Inc. and consolidated its systems product marketing in Japan utilizing its subsidiary in Japan, Cadence Design Systems K.K. ("Cadence K.K."). Cadence also serves its international customers through a manufacturer's representative in Europe, European Silicon Structures B.V. ("ES2"). The Company also uses distributors in various countries. In Singapore, Hong Kong, Brazil, Australia, India and The People's Republic of China, Cadence uses CAD/CAM Systems, Modern Devices Ltd., Quick Chip Eng. E. Projectos Ltd., Cadence Design Systems Pty Ltd., Wipro Information Technology and IMAG Industries, Inc. and ReMA Ltd., respectively, as its distributors. Revenue from international sources was $183.6 million, $215.4 million and $197.6 million or approximately 50%, 51% and 52% of total revenue for the years ended December 31, 1993, 1992 and 1991, respectively. Prices for international customers are quoted from an international price list. The list is maintained in U.S. dollars but reflects the higher cost of doing business outside the United States. International customers are invoiced in U.S. dollars using current exchange rates or the local currency. In light of the large portion of Cadence's revenue derived from international sales, if the dollar strengthens in relation to the Japanese yen or certain European currencies, Cadence's revenue from international sales may be adversely affected. Cadence enters into forward exchange contracts to reduce the impact of foreign currency fluctuations resulting from transaction gains and losses. Cadence is required to have United States Department of Commerce export licenses for shipment of its products outside the United States. Although to date Cadence has not encountered any material difficulty in obtaining these licenses, any difficulty in obtaining necessary export licenses in the future could have an adverse effect on revenue. Foreign subsidiaries' marketing and support expenses are incurred in local currency and license fees paid by the subsidiaries to Cadence are paid in local currency or U.S. dollars. Cadence is subject to the currency conversion risks inherent in international transactions. It is Cadence's policy to manage and minimize its foreign exchange risks. 7 10 SERVICE AND SUPPORT STANDARD SERVICE AND SUPPORT Cadence believes that customer support is a key factor in successfully marketing EDA products and generating repeat orders. A majority of Cadence's customers have purchased one-year renewable maintenance contracts. Product maintenance contracts entitle the customers to product updates, documentation and ongoing support. Cadence tracks all service reports using an on-line database that provides a mechanism for tracking progress in solving any reported problem from first report to final software solution. ENHANCED SERVICE AND SUPPORT Installing a new design automation system, tailoring it to a customer's design environment and training designers in the efficient use of this new system requires a major time and resource investment from the customer. In response to customer requests, Cadence has developed an enhanced consulting service capability. The Cadence consulting services team is a group of Cadence employees whose services can be retained by customers to provide a wide range of engineering activities from specialized training to custom programming projects or contract design. These services are intended to assist customers in becoming productive quickly through use of Cadence's products, thereby improving customer satisfaction and increasing the likelihood of follow-on sales. PRODUCT DEVELOPMENT AND ENGINEERING As of December 31, 1993, Cadence's product development was performed by 750 employees, 476 employees located at its research and development facilities in San Jose, Foster City, Santa Cruz and San Diego, California, 106 employees in Chelmsford, Massachusetts, 59 employees in India, 13 employees in Taiwan, 15 employees in Lawrence, Kansas, 2 employees in Ohio and 5 employees in Albany, New York. The development group includes experts in database structures and industry specific algorithm technology. In June 1990, the Company entered into a joint venture ("EuCAD") as majority owner with ES2. During 1992, the Company acquired the minority interest in the joint venture. EuCAD has 26 employees in the U.K. and 3 employees in France and specializes in research and development activities in the EDA and ASIC design markets. The Company also has 45 employees in Beaverton, Oregon at its IMS subsidiary. For the years ended December 31, 1993, 1992 and 1991 Cadence's research and development expenses were approximately $84.3 million, $81.2 million and $84.3 million (before capitalizing approximately $15.2 million, $14.7 million and $16.2 million of software development costs in 1993, 1992 and 1991), respectively. Cadence began capitalizing certain of its software development costs in 1986 in accordance with Statement of Financial Accounting Standards No. 86. See Note 3 of Notes to Consolidated Financial Statements at December 31, 1993 for a more complete description of Cadence's capitalization of certain software development costs. Certain faculty members from the University of California at Berkeley, considered to be a leading university for IC design software research, have served as consultants to Cadence since its inception. These consultants have helped Cadence to stay abreast of the latest developments and directions in the rapidly changing IC design software industry. COMPETITION Cadence competes with a number of companies in each of Cadence's tool categories, as well as with internal CAD development groups of potential customers. The EDA software industry is characterized by rapid technological change and is intensely competitive. In Cadence's opinion, the principal competitive factors in its markets include performance, ease of use, breadth of tool offering, open system architecture, software portability, pre-sales and post-sales support and price. 8 11 PROPRIETARY RIGHTS Cadence relies principally upon a combination of copyright and trade secret laws and license agreements to protect Cadence's proprietary interest in its products. Cadence's products are generally licensed to end users pursuant to a license agreement that restricts the use of the products to the customer's internal purposes. Cadence protects the source code version of its products as a trade secret and as an unpublished copyrighted work. Cadence has made portions of its source code available to certain customers under very limited circumstances, subject to confidentiality, use and other restrictions. Despite these precautions, it may be possible for third parties to copy aspects of Cadence's products or to obtain and use information that Cadence regards as proprietary without authorization. In addition, effective copyright and trade secret protection for software products may be unavailable in certain foreign countries. Cadence believes that patent, trade secret and copyright protection are less significant to Cadence's success than factors such as the knowledge, ability and experience of Cadence's personnel, new product development, frequent product enhancements, name recognition and ongoing reliable product maintenance. Cadence does not believe that its products or processes infringe on existing proprietary rights of others. DRACULA(R), Verilog(R), Prance(R), Verifault-XL(R) and Thermax(R) are registered trademarks of Cadence and substantially all of the other Cadence product and product family names used herein are trademarks of Cadence. MANUFACTURING AND BACKLOG Cadence's software production operations consist of configuring the proper version of a product, recording it on magnetic tape or other recording media and producing user manuals and other documentation. Shipments are generally made within two weeks of receiving an order. In light of the short time between order and shipment of Cadence's products, Cadence generally has relatively little backlog at any given date. Cadence's product line includes a series of design verification systems offered by IMS. Logic Master is a family of design verification systems designed to work with most computer systems, workstations, or terminals to receive and execute test commands and report the results of test procedures. These systems are designed to match varying customer requirements. Generally, they differ from one another as to speed, size of the device to be verified, flexibility in the number and variety of applications in which a system can be used and price. EMPLOYEES As of December 31, 1993, Cadence employed 2,476 persons, including 1,449 in sales, marketing, support and manufacturing activities, 750 in product development and 277 in management, administration and finance. Of these employees, 1,949 were located in the United States and 527 were located in 15 other countries. None of Cadence's employees are represented by a labor union and Cadence has experienced no work stoppages. Cadence believes that its employee relations are good. Competition in recruiting of personnel in the software industry is intense. Cadence believes that its future success will depend in part on its continued ability to recruit and retain highly skilled management, marketing and technical personnel. 9 12 ITEM 2. PROPERTIES Cadence leases approximately 692,000 square feet of facilities comprised of four buildings located at 535-575 River Oaks Parkway (the "555 Facility"), three buildings at Seely Road and three buildings at Plumeria Drive in San Jose, California for an annual rental of approximately $10,600,000. Cadence also leases approximately 100,000 square feet of facilities in Chelmsford, Massachusetts at an annual rate of approximately $450,000. Cadence leases additional facilities for its sales offices in the United States and various foreign countries, and research and development facilities in San Diego, Foster City and Santa Cruz, California, Lawrence, Kansas, Albany, New York, United Kingdom, France, Taiwan and India at an aggregate annual rental of approximately $7,000,000. Cadence leases design center facilities in Blue Bell, Pennsylvania and Torrance, California, of approximately 11,700 and 13,700 square feet, respectively, at a combined annual rate of approximately $500,000. Cadence has contracted for the early termination of the Torrance facility lease and expects this transaction will close by April 1994 for approximately $600,000. In connection with its sales of ASI, Cadence has entered into a sublease agreement with ASI for the rental of the Blue Bell facility. Cadence also leases approximately 75,000 square feet in a building in Beaverton, Oregon, at a current annual rental of approximately $540,000, which houses manufacturing, engineering, marketing and administrative operations for its IMS subsidiary. During June 1989 Cadence acquired a 49% interest as a limited partner in a real estate partnership. Also in 1989, the Company signed agreements to lease the four buildings of the 555 Facility from the limited partnership that is the owner of the 555 Facility for a period of ten years. During June 1991 the Company acquired a 46.5% interest as a limited partner in an additional real estate partnership, and signed agreements to lease upon completion of construction three buildings proximate to the 555 Facility in San Jose, California from the limited partnership for a period of fifteen years, which commenced during the second quarter of 1992. During June 1991 the Company acquired an 80% interest in a third real estate partnership which has purchased land for future expansion. This third partnership is consolidated in the accompanying financial statements. In March 1994 the Company acquired all third-party interests in two real estate partnerships in which it is 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 expects it will refinance the construction loan with permanent financing when it comes due in June 1994, although it may elect to pay off the construction loan with its cash reserves. Cadence believes that these facilities are adequate for its current needs and that suitable additional or substitute space will be available as needed to accommodate expansion of Cadence's operations. 10 13 ITEM 3. LEGAL PROCEEDINGS Stockholder 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 suits were subsequently consolidated into a single lawsuit and the class period changed to include purchasers of the Company's common stock during the period from October 18, 1990 through April 3, 1991. The lawsuit 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. The plaintiff in the suit seeks compensatory damages unspecified in amount. On June 2, 1993 the District Court granted in part and denied in part the Company's motion to dismiss the complaint in the class action originally filed in April 1991. The effect of the ruling was to limit the class period to include purchasers of the Company's common stock between January 29, 1991 and April 3, 1991. Trial of this matter is scheduled to commence on August 8, 1994. The Company is vigorously defending against the litigation. 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. Two additional complaints, identical to the complaint filed on March 23, 1993 except for the identities of the plaintiffs, were filed later in March and in April 1993. All three complaints were consolidated into a single lawsuit which seeks unspecified damages on behalf of all purchasers of the Company's common stock between October 12, 1992 and March 19, 1993. The lawsuit 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. The Company is vigorously defending against the litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE 11 14 EXECUTIVE OFFICERS OF THE REGISTRANT The executive corporate officers of Cadence are as follows:
NAME AGE POSITIONS AND OFFICES - ---- --- --------------------- Joseph B. Costello 40 President, Chief Executive Officer and Director Dr. Leonard Y. W. Liu 52 Chief Operating Officer and Director W. Douglas Hajjar 46 Vice Chairman and Director H. Raymond Bingham 48 Executive Vice President, Finance and Administration, Chief Financial Officer and Secretary M. Robert Leach 46 Senior Vice President, Consulting Scott W. Sherwood 42 Senior Vice President, Human Resources James E. Solomon 57 Vice President and Principal Technologist Douglas J. McCutcheon 45 Vice President, Corporate Finance William Porter 39 Vice President, Corporate Controller Assistant Secretary
Executive corporate officers are appointed by the Board of Directors and serve at the discretion of the Board. 12 15 JOSEPH B. COSTELLO was appointed as President and a director of Cadence in May 1988 and as Chief Executive Officer in June 1988 . He is also a director of Oracle Corporation, Microelectronics and Computer Technology Corporation and Pano Corporation Display Systems. DR. LEONARD Y.W. LIU was appointed to serve on the Board in June 1989. Dr. Liu was appointed as Chief Operating Officer of the Company in February 1993. From April 1989 until March 1992, Dr. Liu was Chairman and Chief Executive Officer of Acer America Corporation and President of Acer, Inc., two personal computer suppliers. From 1969 until 1989, Dr. Liu held various technical and general management positions at IBM Corporation, most recently Manager of its Santa Teresa Laboratory. Dr. Liu is a director of Pano Corporation Display Systems, Network Application Technology, Omni Science Corporation and CIMIC Corporation. W. DOUGLAS HAJJAR was Chief Executive Officer and a director of Valid from May 1987 and Chairman of the Board of Valid from February 1988 until Valid's merger with and into Cadence in December 1991, at which time he was appointed as Vice Chairman and a director of Cadence. He also served as President of Valid from February 1987 to September 1989 and as Chief Financial Officer from May 1987 until August 1989. Mr. Hajjar was Chairman of the Board, President and Chief Executive Officer of Telesis, a manufacturer of EDA workstations and related software, from 1985 until the acquisition of Telesis by Valid in 1987. Mr. Hajjar is a director of Control Data Corporation, Frame Technology and Lasersight, Inc. H. RAYMOND BINGHAM joined Cadence in June 1993 as Executive Vice President and Chief Financial Officer. From June 1985 to May 1993 he served as Executive Vice President and Chief Financial Officer of Red Lion Hotels and Inns, which owns and operates a chain of 54 hotels. From 1981 to 1985 Mr. Bingham was the Managing Director of Agrico Overseas Investment Company, a subsidiary of the Williams Companies and was responsibile for developing and managing international manufacturing joint ventures. M. ROBERT LEACH joined Cadence in June 1993 as Senior Vice President of Consulting. From September 1981 to June 1993 Mr. Leach served as a partner in the worldwide electronics industry consulting practice for Andersen Consulting. SCOTT W. SHERWOOD joined Cadence in July 1990 as Vice President Human Resources and was appointed Senior Vice President, Human Resources in February 1992. From 1983 to 1990, he was Vice President Human Resources of Mead Data Central, a division of Mead Corporation and provider of information services to the legal community. JAMES E. SOLOMON, a founder of SDA, served as its Chief Executive Officer from its inception in July 1983 to May 1988 and as its President from July 1983 to March 1987, at which time he was appointed Chairman of the Board. He became a director of Cadence in 1988 and was Co-Chairman of Cadence's Board of Directors from May 1988 until May 1989. He was appointed President of the Company's Analog Division in December 1988, Senior Vice President of the IC Design Group of Cadence in February 1993 and Vice President and Principal Technologist in February 1994. DOUGLAS J. MCCUTCHEON joined Cadence in January 1991 as its Director, Financial Planning and Analysis, and in July 1991 became its Vice President, Corporate Finance. From November 1989 to November 1990, Mr. McCutcheon was President of Toshiba America Medical Credit, Inc., the wholly-owned captive financing subsidiary of Toshiba America Medical Systems, Inc., which sells and provides maintenance services for diagnostic and therapeutic medical systems. From November 1980 to November 1989, Mr. McCutcheon held various positions with Diasonics, Inc., a medical equipment company, most recently as Vice President and Treasurer. WILLIAM PORTER joined Cadence in February 1994 as Vice President, Corporate Controller and Assistant Secretary. From September 1988 to February 1994 Mr. Porter served as Technical Accounting and Reporting Manager and most recently as Controller of Cupertino Operations with Apple Computer Corporation, a worldwide manufacturer of computer equipment. From 1976 until 1988 Mr. Porter held various positions with Arthur Andersen & Co., most recently as a Senior Audit Manager. 13 16 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock was traded on the NASDAQ National Market System under the NASDAQ symbol ECAD from the Company's initial public offering at $7.83 per share on June 10, 1987 until June 1, 1988 when it began trading under the NASDAQ symbol CDNC. Since September 17, 1990 the Company's Common Stock has traded on the New York Stock Exchange under the symbol CDN. The Company has not paid cash dividends in the past and none are planned to be paid in the future. As of December 31, 1993, the Company had approximately 2,400 stockholders of record. The following table sets forth the high and low bid prices for the Common Stock for each calendar quarter in the two year period ended December 31, 1993.
High Low ---- --- 1992: First Quarter $29.88 $19.75 Second Quarter 26.38 19.00 Third Quarter 22.13 16.00 Fourth Quarter 23.50 13.13 1993: First Quarter $24.38 $ 9.25 Second Quarter 14.13 8.25 Third Quarter 14.38 9.75 Fourth Quarter 13.13 10.38
ITEM 6. SELECTED FINANCIAL DATA For the years ended December 31, (In thousands, except per share amounts)
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Revenue $368,623 $418,724 $379,476 $374,357 $316,692 Restructuring costs 13,450 - - - 49,901 37,978 - - - Net income (loss) from continuing operations (607) 55,107 (17,068) (6,339) 37,778 Income (loss) from discontinued operations (12,172) 253 (5,335) (3,009) (1,567) Net income (loss) (12,779) 55,360 (22,403) (9,348) 36,211 Net income (loss) per share from continuing operations (.02) 1.19 (.44) (.18) .91 Total assets 339,301 367,243 347,074 340,945 306,613 Long-term obligations and redeemable convertible preferred stock 4,001 5,722 14,811 21,059 27,210
14 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cadence (the "Company") designs, develops, markets and supports electronic design automation ("EDA") software products primarily used to automate, enhance and accelerate the design, verification and testing of integrated circuits, electronic systems and printed circuit boards ("PCBs"). In December 1991 the Company merged with Valid Logic Systems Incorporated ("Valid"). Valid commenced operations in 1981 and was involved in the development, marketing and support of EDA products primarily used to design electronic systems and PCBs. The merger was accounted for by the pooling of interests method and all financial information prior to the merger has been restated to combine the results of the Company and Valid. In connection with the merger, the Company recorded $49.9 million of restructuring costs and $1.7 million of merger costs in the fourth quarter of 1991. In June 1993 the Company acquired the business and certain assets of Comdisco Systems, Inc. ("Comdisco"), a subsidiary of Comdisco, Inc. Comdisco develops, markets and supports digital signal processing software products in the electronic systems applications area. The acquisition was accounted for as a purchase. Accordingly, the results of Comdisco from the date of the acquisition forward have been recorded in the Company's consolidated financial statements. In December 1993 the Company sold its Automated Systems ("ASI") division. ASI manufactures and provides design services for complex printed circuit boards. The operating results of ASI have been reported as discontinued operations in the consolidated statements of income for all years presented. 15 18 Results of Operations The following table sets forth for the years indicated (a) the percentage of total revenue represented by each item reflected in the Company's consolidated statements of income and (b) the percentage increase (decrease) in each such item from the prior year.
(b) Period to Period Percentage Increase (Decrease) ------------------- (a) Percentage of Total Revenue 1993 1992 Year Ended December 31, Compared with -------------------------------- 1993 1992 1991 1992 1991 ---- ---- ---- ---- ---- Revenue: Product 65% 75% 77% (23)% 8% Maintenance 35 25 23 23 19 ---- ---- ---- Total revenue 100 100 100 (12) 10 --- --- --- Cost of revenue: Product 20 18 17 (3) 18 Maintenance 4 4 6 (12) (23) --- --- --- Total cost of revenue 24 22 23 (5) 7 -- -- -- Gross margin 76 78 77 (14) 11 -- -- -- Operating expenses: Marketing and sales 43 38 39 1 8 Research and development (1) 19 16 18 4 (3) General and administrative 10 8 9 14 (6) Restructuring costs 4 - - 13 * * --- --- -- Total operating expenses 76 62 79 9 (14) -- -- -- Income (loss) from continuing operations - - 16 (2) * * --- -- ---- Total other income - - - - - - (39) 4 --- --- --- Income (loss) from continuing operations before income taxes - - 16 (2) * * Provision for income taxes - - 3 3 * 27 --- -- - Net income (loss) from continuing operations - - 13 (5) * * --- -- --- Discontinued operations: Income (loss) from operations (2) - - (1) * * Loss on disposal (1) - - - - * * --- ---- --- Income (loss) from discontinued operations (3) - - (1) * * --- --- --- Net income (loss) (3) 13 (6) * * Series A-1 preferred stock dividend - - - - - - - -% (58)% --- --- --- Net income (loss) attributable to common stockholders (3)% 13% (6)% * * ==== == ===
* Not meaningful (1) The Company capitalizes software development costs in accordance with SFAS No. 86. Total research and development expenses incurred prior to capitalization represented 23%, 19% and 22% of total revenue for 1993, 1992 and 1991, respectively. The percentage change from 1992 to 1993 and from 1991 to 1992 was an increase of 4% and a decrease of 4%, respectively, on a pre-capitalization basis. 16 19 Revenue Total revenue was approximately $368.6 million, $418.7 million and $379.5 million for the years ended December 31, 1993, 1992 and 1991, respectively. Total revenue decreased approximately $50.1 million for the year ended December 31, 1993 as compared to the prior year and increased approximately $39.2 million in 1992 as compared to 1991. The decrease in total revenue in 1993 was primarily due to a $74.0 million decrease in product revenue due to weak economic conditions in certain areas and lower sales volume for the Company's products, as well as a shift in the Company's systems product strategy. This decrease in product revenue was offset somewhat by the acquisition of Comdisco. While product revenue decreased in 1993, maintenance revenue increased by $23.9 million due to increased focus on customer renewals, combined with a larger customer base. The growth in total revenue in 1992 compared to 1991 was comprised of $22.9 million in product revenue due to increased demand for the Company's products, including the new Valid products as a result of the merger, and improved economic conditions in 1992 as compared to 1991, and a $16.3 million increase in maintenance revenue. Maintenance revenue continued to increase each year as the Company's installed base of products has increased, growing by approximately $23.9 million in 1993 compared to 1992 and by approximately $16.3 million in 1992 compared to 1991. As a percentage of total revenue, maintenance revenue has grown over the last three years from approximately 23% to approximately 35% of total revenue. The increase in maintenance revenue as a percentage of total revenue is due in part to the Company's continued effort toward obtaining customer renewals of maintenance coverage as well as the decrease in total product revenue in 1993. Revenue from international sources was approximately $183.6 million, $215.4 million and $197.6 million or 50%, 51% and 52% of total revenue for each of the three years ended December 31, 1993, 1992 and 1991, respectively. The decrease in 1993 was principally related to decreased sales volume in Japan. It is anticipated that international revenue will continue to constitute a significant portion of total revenue. International revenues are subject to certain additional risks normally associated with international operations, including, among others, adoption and expansion of government trade restrictions, currency conversion risks, limitations on repatriation of earnings and reduced protection of intellectual property rights. Due to the continuing adverse business conditions in Japan, the Company has experienced and can expect to experience a reduced level of activity from this important market. A continued low level or further reduction of orders from Japan could have a material adverse impact on the Company's results of operations. Cost of Revenue Total cost of revenue was approximately $89.4 million, $94.0 million and $87.6 million for the years ended December 31, 1993, 1992 and 1991, respectively. Total cost of revenue decreased $4.6 million in 1993 compared to 1992 and increased $6.4 million in 1992 compared to 1991. The decrease in 1993 consisted of a $2.5 million decrease in product cost of revenue due to the decrease in product revenue and related costs, reduced costs due to restructure actions including related headcount reductions as well as the discontinuance in 1992 of sales of third- party hardware. This decrease was slightly offset by an increase in cost of product associated with the newly acquired Comdisco operations and a $4.0 million increase in amortization of software development costs, purchased software and other intangibles. Cost of maintenance also decreased $2.1 million in 1993 as compared to 1992 even though revenue increased due to the streamlining of the maintenance renewal process which includes a more cost-effective update program and lower cost media. The increase in total cost of revenue in 1992 as compared to 1991 consisted of an $11.7 million increase in cost of product, which was offset by a $5.4 million decrease in cost of maintenance. The increase in cost of product was primarily due to an increase in royalties of approximately $2.4 million and other related software product costs. The increase in software costs in 1992 was primarily a result of the expansion-related increase in personnel and capital expenditures in the Company's operations departments, which include software tape duplication, technical documentation and support, training and consulting services. The decrease in cost of maintenance in 1992 was primarily due to post-merger restructure and efficiencies, including the reduction of personnel and other duplicate costs in 1992 due to the merger of the Company with Valid, streamlining of the maintenance renewal process and a decrease in hardware maintenance contracts and costs related to Valid. As a percentage of total 17 20 revenue, cost of maintenance revenue has remained in the range of approximately 4% to 6% and cost of product revenue has been at approximately 17% to 20%. Gross Margin Gross margin was 76%, 78% and 77% for the years ended December 31, 1993, 1992 and 1991, respectively. Marketing and Sales Marketing and sales expenses increased $1.2 million in 1993 compared to 1992 and $11.8 million in 1992 compared to 1991. The increase in 1993 is primarily due to increased costs associated with the acquired Comdisco operations. This increase was partially offset by reduced costs related to restructure actions, including headcount reduction. The increase in 1992 was due to the establishment and continued growth of foreign subsidiaries and domestic field offices, and increased personnel and related expenses. As a result of the merger with Valid, there were a number of duplicate sales locations which were consolidated during 1992. Notwithstanding this, during 1992 the Company continued to focus on expanding its selling efforts. The costs associated with the consolidation of sales offices were included in the restructuring costs recorded in 1991. Marketing and sales expenses have increased as a percentage of revenue from 39% in 1991 to 43% in 1993. The higher percentage in 1993 is due primarily to the decrease in total revenue in 1993. Research and Development Total research and development expenditures incurred prior to capitalization of software development costs increased 4% in 1993 as compared to 1992 and decreased 4% in 1992 as compared to 1991, an increase of approximately $3.1 million and a decrease of approximately $3.2 million, respectively. The increase in 1993 is primarily due to increased expenses due to the addition of Comdisco's operations. The decrease in total research and development expenditures in 1992 compared to 1991 is due primarily to post-merger restructure and efficiencies, including the reduction of personnel and other duplicate costs in 1992 related to the merger with Valid. Prior to the deduction for capitalization of software development costs, research and development expenses comprised approximately 23%, 19% and 22% of total revenue or approximately $84.3 million, $81.2 million and $84.3 million for the years 1993, 1992 and 1991, respectively. The increase as a percentage of revenue in 1993 is primarily due to the decrease in total revenue in 1993 as compared to 1992. The decrease as a percentage of revenue in 1992 as compared to 1991 is due primarily to the elimination of duplicate costs in 1992 as a result of the merger with Valid. The Company capitalized approximately $15.2 million, $14.7 million and $16.2 million of software development costs in the years 1993, 1992 and 1991, respectively, which represented approximately 18%, 18% and 19% of total research and development expenditures made in those years. The amount of capitalized software development costs in any given period may vary depending on the exact nature of the development performed. General and Administrative General and administrative expenses increased approximately $4.9 million in 1993 compared to 1992 and decreased approximately $2.2 million in 1992 compared to 1991. The increase in 1993 is due to the addition of Comdisco's operations, increased bad debt expense due to the write-off of uncollectible accounts, increased professional services and employee-related expenses. The decrease in 1992 was due primarily to the result of post-merger efficiencies, including the reduction of personnel and related expenses and duplicate facilities in 1992 as a result of the merger with Valid. As a percentage of total revenue, general and administrative expenses have been in the range of approximately 8% to 10%. The higher percentage in 1993 is partially due to the decrease in total revenue in 1993. 18 21 Restructuring Costs 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 primarily reflects costs associated with excess facilities, the write-off of software development costs and purchased software and intangibles and employee terminations resulting from lower revenue levels. In the fourth quarter of 1991 the Company recorded restructuring costs of approximately $49.9 million associated with the merger of Valid with the Company. This amount included accruals for severance and payroll-related payments, costs of closing excess or duplicate facilities and write-offs of equipment, other assets and capitalized software development costs due to the overlap of products. Other Income and Expense Interest income was $3.2 million, $3.6 million and $6.2 million for the years ended December 31, 1993, 1992 and 1991, respectively. The decrease in interest income in 1993 and 1992 was primarily due to a decrease in interest rates which in 1992 was combined with a $20.7 million decrease in cash and cash investments and short-term investments. Interest expense was $.7 million, $.9 million and $2.6 million for the years ended December 31, 1993, 1992 and 1991, respectively. The decrease in 1993 as compared to 1992 is due to a decrease in capital lease borrowings and other debt obligations. The decrease of $1.8 million in 1992 as compared to 1991 was due to the repayment of $18.5 million in notes payable to banks in 1991. In addition, the Company incurred approximately $1.7 million of merger costs in the fourth quarter of 1991 related to the merger of the Company and Valid. Provision for Income Taxes Through December 31, 1992, the Company accounted for income taxes pursuant to Statement of Financial Accounting Standards ("SFAS") No. 96. Effective January 1, 1993, the Company retroactively adopted SFAS No. 109, "Accounting for Income Taxes." This pronouncement requires, among other things, recognition of future tax benefits, measured by enacted tax rates, attributable to (a) deductible temporary differences between the financial statement and income tax basis of assets and (b) liabilities and tax net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. The adoption of this accounting pronouncement did not have a material impact on amounts reported in prior years' financial statements. As of December 31, 1993 the Company had gross deferred tax assets of approximately $67.0 million against which the Company has recorded a valuation allowance of $54.6 million, resulting in a net deferred tax asset of $12.4 million. A significant portion of the net operating loss and credit carryforwards which created the deferred tax asset were generated by Valid prior to its merger with the Company and by restructure charges recorded as a result of the merger. Management has determined, based on the Company's history of prior operating earnings and its expectations for future years, that the recorded net deferred tax asset is realizable. However, no assurances can be given that sufficient taxable income will be generated in future years for the utilization of the net deferred tax asset. The Company's tax provision for 1993 was zero as a result of the operating loss in 1993 and the recording of the benefit of certain foreign withholding and income taxes. In 1992 the Company's effective tax rate was 19%. This rate reflects the utilization of foreign tax credits, Valid's net operating losses and temporary items generated in prior years but benefited currently. 19 22 The Company provided for income taxes in 1991 even though the Company reflected a pretax loss. This provision was primarily attributable to restructuring costs and foreign tax credits that the Company was not fully able to benefit for financial statement purposes. Net Income (Loss) From Continuing Operations The net loss from continuing operations for 1993 was $.6 million as compared with net income of $55.1 million in 1992 and net loss of $17.1 million in 1991. The net loss from continuing operations in 1993 was due to a decrease in product revenue and $13.5 million recorded for restructuring costs. The net income in 1992 compared to the net loss in 1991 was partially due to increased revenue in 1992. Net income from continuing operations was also favorably impacted by the post-merger restructure and efficiencies, including the reduction of personnel and other duplicate costs in 1992 related to the merger with Valid. The fourth quarter of 1991 also included $49.9 million of restructuring costs and $1.7 million of merger costs associated with the merger of the Company and Valid. Discontinued Operations As previously discussed, the Company sold its ASI division in December 1993 and restated the financial information of prior periods to report discontinued operations of ASI as a separate line item in the consolidated statements of income. The discontinued operations resulted in a loss of $12.2 million, income of $.3 million and a loss of $5.3 million for the years ended December 31, 1993, 1992 and 1991, respectively. The loss for 1993 includes $6.0 million recorded as a loss on disposal, which represents the loss on the sale of the net assets as well as amounts accrued for estimated costs to be incurred in connection with the disposal. In addition, the 1993 loss includes $6.2 million for ASI's operating loss. Quarterly Results of Operations The following table sets forth selected unaudited quarterly financial information for the Company's last eight quarters. This unaudited information has been prepared on the same basis as the audited information and in management's opinion reflects all adjustments (which include only normal recurring adjustments) necessary for the fair presentation of the information for the periods presented. 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. Although the Company's revenues are not generally seasonal in nature, the Company from time to time has experienced decreases in first quarter revenue versus the preceding fourth quarter which is believed to result primarily from the capital purchase cycle of the Company's customers. 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 period 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 net income may be impacted significantly by lower revenue. In addition, the Company's results of operations for a particular quarter or quarters could be materially adversely affected by the ultimate resolution of the disputes and litigation matters discussed in Note 9 of Notes to Consolidated Financial Statements. The Company's revenue decreased in each quarter in 1993 as compared to the same quarter in the prior year. This decrease was due to weak economic conditions and reduced demand for the Company's products as well as a shift in the Company's system product strategy. In addition, the first quarter of 1993 included approximately $13.5 million of restructuring costs related to the Company's planned restructure. 20 23
(In thousands, except per share data) 1993 1992 ---------------------------------------- ---------------------------------------- 4th 3rd 2nd 1st 4th 3rd 2nd 1st --------- -------- -------- -------- ---------- ---------- ------- ------- Total revenue $106,076 $97,616 $88,814 $76,117 $116,918 $102,436 $101,416 $97,954 Costs and expenses 93,838 91,598 87,211 98,191 93,953 88,032 86,275 85,007 Net income (loss) from continuing operations 8,249 5,073 1,909 (15,838) 20,089 12,307 12,384 10,327 Income (loss) from discontinued operations (9,286) (1,331) (1,077) (478) (101) 408 564 (618) Net income (loss) $ (1,037) $ 3,742 $ 832 $ (16,316) $ 19,988 $ 12,715 $ 12,948 $ 9,709 ======== ======= ===== ========= ====== ======= ======= ======= Net income (loss) per share from continuing operations $.18 $.11 $.04 $(.36) $.44 $.27 $.27 $.22 ==== ==== ==== ====== ==== ==== ==== ==== Weighted average common and common equivalent shares outstanding 46,565 45,016 43,011 44,136 45,798 45,629 45,785 45,574 ====== ====== ====== ====== ====== ====== ====== ======
The amounts in the table above reflect the results of the Company restated to reflect the sale of ASI in the fourth quarter of 1993 and reclassification of its operations to discontinued operations. The following table represents quarterly information as previously reported for the Company.
(In thousands, except per share data) 1993 1992 ------------------------------- -------------------------------------- 3rd 2nd 1st 4th 3rd 2nd 1st -------- ------- -------- -------- ------- -------- ------- Total revenue $100,464 $91,697 $79,339 $120,817 $106,468 $105,854 $101,361 Costs and expenses 95,758 91,150 101,886 97,920 91,665 90,153 89,027 Net income (loss) $ 3,742 $ 832 $(16,316) $19,988 $ 12,715 $ 12,948 $9,709 ======= ====== ========= ====== ======== ======= ====== Net income (loss) per share $.08 $.02 $(.37) $.44 $.28 $.28 $.21 ==== ==== ====== ==== ==== ==== ==== Weighted average common and common equivalent shares outstanding 45,016 43,011 44,136 45,798 45,629 45,785 45,574 ====== ====== ====== ====== ====== ====== ======
Inflation To date, the Company's operations have not been impacted significantly by inflation. 21 24 Liquidity and Capital Resources The Company raised approximately $10.8 million, $13.8 million and $14.9 million through the sale of common stock pursuant to employee benefit plans in 1993, 1992 and 1991, respectively. The Company purchased $52.2 million of treasury stock and repurchased $10.8 million and $1.8 million of common stock for the years ended December 31, 1993, 1992 and 1991, respectively. In addition, the Company realized approximately $90.7 million, $40.4 million and $74.7 million in cash provided by operations in 1993, 1992 and 1991, respectively. The Company's principal investing activities consist of the purchase of property, plant and equipment and the capitalization of software development costs, which in total were $34.5 million, $45.7 million and $44.6 million for the years ended December 31, 1993, 1992 and 1991, respectively. In addition, the other major component of investing activities is the change in short-term investments. Working capital at December 31, 1993 was $105.0 million compared with $153.3 million at December 31, 1992 and $119.0 million at December 31, 1991. The decrease in 1993 as compared to 1992 was primarily due to a decrease of $30.9 million in accounts receivable primarily due to lower revenue, a $12.8 million increase in deferred revenue and a $7.3 million increase in accrued liabilities related to restructuring accruals recorded in 1993. The increase in 1992 as compared with 1991 was primarily due to a $17.0 million increase in accounts receivable due to higher revenue, a $21.4 million decrease in accrued liabilities related to restructuring accruals recorded in 1991 associated with the Company's merger with Valid and an $11.9 million decrease in deferred revenue. These increases were offset by a decrease of $20.7 million in cash and cash investments and short-term investments. Long-term obligations decreased $1.7 million in 1993 as compared to 1992 due to a decrease in capital lease borrowings and increased $1.9 million in 1992 as compared to 1991 due to an increase in capital lease borrowings and other debt obligations. At December 31, 1993 the Company had available $15.0 million under equipment lease lines for future capital expenditures and $17.5 million under two bank lines, which had not been drawn upon at December 31, 1993 (see Notes 7 and 8 of Notes to Consolidated Financial Statements for further discussion). Anticipated cash requirements in 1994 are payments related to the purchase of treasury stock, contemplated additions of capital equipment and restructure costs accrued at December 31, 1993. Prior to 1993, the Company authorized the repurchase of up to 2.8 million shares of common stock in the open market over the next several years to satisfy its estimated requirements for shares to be issued under its employee stock option and stock purchase plans. In April 1993 the Company authorized the repurchase of an additional 4.0 million shares of common stock from time to time in the open market. In total, as of December 31, 1993, approximately 5.5 million shares had been repurchased. In addition, in February 1994 the Company authorized the repurchase of an additional 2.9 million shares. In March 1994 the Company acquired all third-party interests in two real estate partnerships in which it is a 46.5% and 80% limited partner for approximately $9 million in cash and the assumption of a secured construction loan of approximately $23.5 million. The Company leases buildings from one of the limited partnerships and the second limited partnership owns unencumbered land adjacent to the leased property (see Note 3 of Notes to Consolidated Financial Statements). The Company expects it will refinance the construction loan with permanent financing when it comes due in June 1994, although it may elect to pay off the construction loan with its cash reserves. The Company anticipates that current cash balances, cash flow from operations and unused balances on capital lease lines and lines of credit will be sufficient to meet its working capital and capital expenditure requirements for at least the next year. 22 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The quarterly supplementary data is included as part of Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." The financial statements required by this item are submitted as a separate section of this Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not required pursuant to Instruction 1 to Item 304 of Regulation S-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 as to directors is incorporated by reference from the section entitled "Election of Directors" in the Company's Proxy Statement for its annual stockholders' meeting to be held May 17, 1994. The information required by this Item as to executive officers is included in Part I under "Executive Officers of the Registrant." Pursuant to Item 405 of Regulation S-K, the Company has reviewed all Forms 3, 4 and 5 required to be filed with respect to 1993 and has determined that there are no delinquencies in filing reports required by Section 16(a) of the Exchange Act for 1993 or prior years at the time of the filing of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the Company's Proxy Statement for its annual stockholders' meeting to be held May 17, 1994. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the Company's Proxy Statement for its annual stockholders' meeting to be held May 17, 1994. 23 26 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the Company's Proxy Statement for its annual stockholders' meeting to be held May 17, 1994. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K _ PAGE (a)1. Financial Statements o Report of Independent Public Accountants..................... 29 o Independent Auditor's Report.................................... 30 o Consolidated Financial Statements: o Balance Sheets as of December 31, 1993 and 1992........... 31 o Statements of Income for the years ended December 31, 1993, 1992 and 1991.................... 32 o Statements of Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991.... 33 o Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991.................... 34 o Notes to Consolidated Financial Statements............. 35
(a)2. Financial Statement Schedules VIII Valuation and Qualifying Accounts and Reserves.............. 50 IX Short-Term Borrowings . . . . . . . . . . . . . . . . . . . 51 X Supplementary Income Statement Information................. 52
All other schedules are omitted because they are not required or the required information is shown in the financial statements or notes thereto. (a)3. Exhibits The following exhibits are filed herewith: 24 27 EXHIBIT NUMBER EXHIBIT TITLE 3.01 (a) The Registrant's Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on April 8, 1987 (incorporated by reference to Exhibit 3.01 to Registrant's Form S-1 Registration Statement (No. 33- 13845) originally filed on April 29, 1987 (the "1987 Form S-1")). (b) The Registrant's Certificate of Retirement of Stock as filed with the Secretary of State of the State of Delaware on September 28, 1987 (incorporated by reference to Exhibit 3.01(b) to Registrant's Form S-4 Registration Statement (No. 33-20724) originally filed on February 25, 1988). (c) The Registrant's Certificate of Ownership and Merger as filed with the Secretary of State of the State of Delaware on June 1, 1988 (incorporated by reference to Exhibit 3.02(c) to the Registrant's Form S-1 Registration Statement (No. 33-23107) originally filed on July 18, 1988 (the "1988 Form S-1")). (d) The Registrant's Certificate of Designations of Series A Junior Participating Preferred Stock as filed with the Secretary of State of the State of Delaware on June 8, 1989 (incorporated by reference to Exhibit 3A to the Registrant's Form 8-K originally filed on June 12, 1989). (e) The Registrant's Certificate of Amendment of Certificate of Incorporation as filed with the Secretary of State of the State of Delaware on July 26, 1991 (incorporated by reference to Exhibit 3.01(e) to the Registrant's Form S-4 Registration Statement (No. 33-43400) originally filed on October 7, 1991 (the "1991 Form S-4")). (f) The Registrant's Certificate of Designation of Series A Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on December 30, 1991 (incorporated by reference to Exhibit 3.01(f) from the Registrant's Form 10-K for the fiscal year ended December 31, 1991). 3.02 The Registrant's Bylaws, as currently in effect (incorporated by reference to Exhibit 3.02 to the 1987 Form S-1). 4.01 Specimen Certificate of the Registrant's Common Stock (incorporated by reference to Exhibit 4.01 to the 1991 Form S- 4). 4.02 Amended and Restated Rights Agreement, dated as of June 19, 1988, between the Registrant and Bank of America N.T. & S.A., as Rights Agent, which includes as exhibits thereto the form of Right Certificate and the Summary of Rights to Purchase Common Shares (incorporated by reference to Exhibit 4a to the Registrant's Form 8 filed on June 20, 1989).
25 28 EXHIBIT NUMBER EXHIBIT TITLE 4.03 Assumption of Obligations under Amended and Restated Rights Agreement between the registrant and Harris Trust Company of California (incorporated by reference to Exhibit 10.34 to the Registrant's 1991 Form S-4). 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. 33-48371) filed on June 4, 1992 (the "1992 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 1992 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. * 10.05 The Registrant's 1990 Stock Purchase Plan (incorporated by reference to Exhibit 4.03 of the 1992 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.* 10.09 The Registrant's Key Contributor Bonus Plan for 1994.* 10.10 The Registrant's Cash or Deferred Profit Sharing Plan, as currently in effect (certain amendments are attached; the Plan itself is incorporated by reference to Exhibit 10.12 Registrant's Form S-4 Registration Statement (No. 33- 31673), originally filed on October 18, 1989 (the "1989 Form S-4")).* 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 Registrant's Form 10-K for the fiscal year ended December 31, 1990) (the "1990 Form 10-K")).
26 29 EXHIBIT NUMBER EXHIBIT TITLE 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 Seperate 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 Leased 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). *
27 30 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. * 10.25 Offer letter to M. Robert Leach dated May 17, 1993. * 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.. 21.01 Subsidiaries of the Registrant 23.01 Consent of Arthur Andersen & Co. 23.02 Consent of Deloitte & Touche * A Management contract or compensatory plan required to be filed as an exhibit to Form 10-K. (b) Reports on Form 8-K None (c) Exhibits The Company hereby files as part of this Form 10-K the Exhibits listed in Item 14.(a)3. above. (d) Financial Statement Schedules See Item 14.(a)2. of this Form 10-K.
28 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Cadence Design Systems, Inc.: We have audited the accompanying consolidated balance sheets of Cadence Design Systems, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements of Valid Logic Systems Incorporated, a company acquired during 1991 in a transaction accounted for as a pooling of interests, as discussed in Note 1. Such statements are included in the consolidated financial statements of Cadence Design Systems, Inc. and reflect total revenues of 40 percent of the consolidated total for the year ended December 31, 1991. These statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to amounts included for Valid Logic Systems Incorporated, is based solely upon the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Cadence Design Systems, Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in Item 14. (a) 2. are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen & Co. San Jose, California Arthur Andersen & Co. January 26, 1994 29 32 INDEPENDENT AUDITORS' REPORT Cadence Design Systems, Inc. San Jose, California We have audited the consolidated statements of operations, stockholders' equity, and cash flows of Valid Logic Systems Incorporated (a wholly- owned subsidiary of Cadence Design Systems, Inc.) and subsidiaries for the year ended December 31, 1991. These financial statements (which are not presented separately herein) are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of Valid Logic Systems Incorporated and subsidiaries for the year ended December 31, 1991 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche DELOITTE & TOUCHE San Jose, California January 27, 1992 30 33 CADENCE DESIGN SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1993 AND 1992 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS
1993 1992 ---- ---- CURRENT ASSETS: Cash and cash investments . . . . . . . . . . . . . . . . . . . . $ 61,382 $78,976 Short-term investments . . . . . . . . . . . . . . . . . . . . . . 31,423 10,943 Accounts receivable, less allowance of $3,471 in 1993 and $3,154 in 1992 for doubtful accounts . . . . . . . . . 101,890 132,832 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,744 6,062 Prepaid expenses and other . . . . . . . . . . . . . . . . . . . 18,036 18,638 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . 218,475 247,451 -------- -------- PROPERTY, PLANT AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . 61,477 63,460 SOFTWARE DEVELOPMENT COSTS, net . . . . . . . . . . . . . . . . . . . . . 31,265 30,618 PURCHASED SOFTWARE AND INTANGIBLES, net . . . . . . . . . . . . . . . . . 12,787 7,343 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,297 18,371 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . $339,301 $367,243 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term obligations . . . . . . . . . . . . . $ 3,962 $ 5,355 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 13,513 17,998 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 51,352 44,080 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 6,541 1,377 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . - - - - - 20 Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . 38,111 25,355 -------- ------- Total current liabilities . . . . . . . . . . . . . . . . 113,479 94,185 --------- ------- LONG-TERM LIABILITIES: Long-term obligations . . . . . . . . . . . . . . . . . . . . . . 4,001 5,722 Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . 10,722 10,119 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 2,243 7,123 Other noncurrent liabilities. . . . . . . . . . . . . . . . . . . 2,734 946 ------- ------- Total long-term liabilities . . . . . . . . . . . . . . . 19,700 23,910 ------ ------ COMMITMENTS AND CONTINGENCIES (NOTE 9) . . . . . . . . . . . . . . . . . STOCKHOLDERS' EQUITY: Common stock - - $.01 par value; authorized 150,000,000 shares Issued: 46,038,646 shares for 1993 and 43,910,394 shares for 1992 Outstanding: 41,181,446 shares for 1993 and 43,910,394 shares for 1992 . . . . . . . . . . . . . . . . . . . . . . . . . 460 439 Additional paid-in capital . . . . . . . . . . . . . . . . . . . 250,501 227,972 Treasury stock, at cost (4,857,200 shares for 1993) . . . . . . . (52,178) - - - - - Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 8,527 21,306 Accumulated translation adjustment . . . . . . . . . . . . . . . . (1,188) (569) ------------ ---------- Total stockholders' equity . . . . . . . . . . . . . . . . 206,122 249,148 --------- --------- Total liabilities and stockholders' equity . . . . . . . $339,301 $367,243 ======== ========
The accompanying notes are an integral part of these balance sheets. 31 34 CADENCE DESIGN SYSTEMS, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1993 1992 1991 ---- ---- ---- REVENUE: Product . . . . . . . . . . . . . . . . . . . . . . $241,011 $315,024 $292,126 Maintenance . . . . . . . . . . . . . . . . . . . . 127,612 103,700 87,350 -------- -------- --------- Total revenue . . . . . . . . . . . . . . . 368,623 418,724 379,476 -------- -------- -------- COST OF REVENUE: Product . . . . . . . . . . . . . . . . . . . . . . 73,594 76,104 64,374 Maintenance . . . . . . . . . . . . . . . . . . . . 15,757 17,850 23,208 ------- -------- -------- Total cost of revenue . . . . . . . . . . . 89,351 93,954 87,582 ------- -------- ------ GROSS MARGIN . . . . . . . . . . . . . . . . . . . . . . 279,272 324,770 291,894 -------- -------- ------- OPERATING EXPENSES: Marketing and sales . . . . . . . . . . . . . . . . 160,212 159,009 147,180 Research and development . . . . . . . . . . . . . . 69,088 66,432 68,157 General and administrative . . . . . . . . . . . . . 38,737 33,872 36,065 Restructuring costs . . . . . . . . . . . . . . . . 13,450 ------ 49,901 --------- -------- ------- Total operating expenses . . . . . . . . . . 281,487 259,313 301,303 --------- -------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS . . . . . . . . . (2,215) 65,457 (9,409) ----------- -------- -------- OTHER INCOME (EXPENSE): Interest income . . . . . . . . . . . . . . . . . . 3,159 3,586 6,151 Interest expense . . . . . . . . . . . . . . . . . . (723) (853) (2,641) Merger costs . . . . . . . . . . . . . . . . . . . . ------- -------- (1,660) Other, net . . . . . . . . . . . . . . . . . . . . . (828) (97) 691 --------- -------- --------- Total other income . . . . . . . . . . . . 1,608 2,636 2,541 --------- -------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . (607) 68,093 (6,868) PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . -------- 12,986 10,200 --------- -------- --------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS . . . . . . . (607) 55,107 (17,068) --------- -------- --------- DISCONTINUED OPERATIONS (NOTE 2): INCOME (LOSS) FROM OPERATIONS . . . . . . . . . . . . . (6,200) 253 (5,335) LOSS ON DISPOSAL . . . . . . . . . . . . . . . . . . . (5,972) -------- -------- -------- -------- ---------- INCOME (LOSS) FROM DISCONTINUED OPERATIONS . . . . . . . . (12,172) 253 (5,335) --------- -------- ---------- NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . (12,779) 55,360 (22,403) SERIES A-1 PREFERRED STOCK DIVIDEND . . . . . . . . . . . . -------- 559 1,344 ---------- -------- --------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS . . . . . . . . . . . . . . . . . $ (12,779) $ 54,801 $ (23,747) ========= ======== ========== NET INCOME (LOSS) PER SHARE: From continuing operations . . . . . . . . . . . . . . $ (.02) $ 1.19 $ (.44) From discontinued operations . . . . . . . . . . . . . (.28) .01 (.13) --------- -------- ---------- Net income (loss) per share . . . . . . . . $ (.30) $ 1.20 $ (.57) ========= ======== ========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . . . 43,060 45,689 41,355 ======== ======== =========
The accompanying notes are an integral part of these financial statements 32 35 CADENCE DESIGN SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
Retaomed Additional Earnings Accumulated Common Stock Paid-In Treasury Stock (Accumulated Translation Shares Amount Capital Shares Amount Deficit) Adjustment Total ------ ------ ------- ------ ------ ---------- ---------- ----- BALANCE, DECEMBER 31, 1990 40,271 $403 $199,614 - - - - - $ - - - - - $(9,748) $5,368 $195,637 Repurchase of common stock (80) (1) (1,824) - - - - - - - - - - - - - - - - - - (1,825) Issuance of common stock to employees 1,806 18 14,839 - - - - - - - - - - - - - - - - - - 14,857 Payment of stock notes receivable - - - - - - - 130 - - - - - - - - - - - - - - - - - - 130 Exchange of warrant for common stock 199 2 (2) - - - - - - - - - - - - - - - - - - - - - - - Tax benefits from employee stock transactions - - - - - - - 477 - - - - - - - - - - - - - - - - - - 477 Series A-1 preferred stock dividends - - - - - - - - - - - - - - - - - - - - - (1,344) - - - - (1,344) Translation adjustment - - - - - - - - - - - - - - - - - - - - - - - - - (356) (356) Net loss - - - - - - - - - - - - - - - - - - - - - (22,403) - - - - (22,403) ------- ----- -------- --------- --------- --------- ------- --------- BALANCE, DECEMBER 31, 1991 42,196 422 213,234 - - - - - - - - - - (33,495) 5,012 185,173 Repurchase of common stock (557) (6) (10,792) - - - - - - - - - - - - - - - - - - (10,798) Issuance of common stock to employees 1,410 15 13,801 - - - - - - - - - - - - - - - - - - 13,816 Conversion of preferred stock 861 8 10,989 - - - - - - - - - - - - - - - - - - 10,997 Payment of stock notes receivable - - - - - - - 1 - - - - - - - - - - - - - - - - - - 1 Tax benefits from employee stock transactions - - - - - - - 739 - - - - - - - - - - - - - - - - - - 739 Series A-1 preferred stock dividends - - - - - - - - - - - - - - - - - - - - - (559) - - - - (559) Translation adjustment - - - - - - - - - - - - - - - - - - - - - - - - - (5,581) (5,581) Net income - - - - - - - - - - - - - - - - - - - - - 55,360 - - - - 55,360 ------- ----- -------- --------- --------- --------- ------- --------- BALANCE, DECEMBER 31, 1992 43,910 439 227,972 - - - - - - - - - - 21,306 (569) 249,148 Purchase of treasury stock - - - - - - - - - - - (4,857) (52,178) - - - - - - - - (52,178) Issuance of common stock to employees 1,079 11 10,794 - - - - - - - - - - - - - - - - - - 10,805 Tax benefits from employee stock transactions - - - - - - - 842 - - - - - - - - - - - - - - - - - - 842 Common stock issued in connection with Comdisco acquisition 1,050 10 9,046 - - - - - - - - - - - - - - - - - - 9,056 Issuance of warrant in connection with Comdisco acquisition - - - - - - - 1,847 - - - - - - - - - - - - - - - - - - 1,847 Translation adjustment - - - - - - - - - - - - - - - - - - - - - - - - - (619) (619) Net loss - - - - - - - - - - - - - - - - - - - - - (12,779) - - - - (12,779) ------- ----- -------- --------- --------- --------- ------- --------- BALANCE, DECEMBER 31, 1993 46,039 $460 $250,501 (4,857) $(52,178) $8,527 $(1,188) $206,122 ======= ===== ========= ========= ========= ========== ======== =========
The accompanying notes are an integral part of these financial statements. 33 36 CADENCE DESIGN SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
1993 1992 1991 ---- ---- ---- CASH AND CASH INVESTMENTS AT BEGINNING OF YEAR...................................................... $ 78,976 $ 87,681 $ 71,058 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)...................................................... (12,779) 55,360 (22,403) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..................................... 43,966 36,424 38,884 Lease liabilities................................................. (2,970) (3,245) 35 Deferred income taxes, noncurrent................................. (4,834) (352) (913) Write down and reserve of assets related to restructure........... 3,500 - - - - - - - - - - Other noncurrent liabilities...................................... 4,826 396 (628) Accruals for severance and facilities restructure costs........... 7,210 - - - - - 30,566 Write-offs of equipment and other assets.......................... 400 1,516 2,334 Write-offs of capitalized software development costs and purchased software and intangibles.............................. 2,740 2,794 10,896 Provisions for doubtful accounts.................................. 2,648 1,087 936 Provisions for inventory write-offs............................... 381 1,006 363 Changes in current assets and liabilities, net of acquisition of Comdisco and Japan distributorship--- (Increase) decrease in accounts receivable........................ 28,724 (14,342) (2,766) (Increase) decrease in inventories................................ (32) (579) 892 (Increase) decrease in prepaid expenses and other................. (3,668) (6,516) 4,067 Increase (decrease) in accrued liabilities and payables........... 9,238 (20,581) 918 Increase (decrease) in deferred revenue........................... 11,134 (12,637) 11,812 Increase (decrease) in deferred income taxes...................... 253 20 (252) -------- -------- -------- Net cash provided by operating activities............................ 90,737 40,351 74,741 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in short-term investments.......................... (20,480) 11,973 6,890 Purchase of property, plant and equipment ............................. (19,274) (30,958) (28,388) Capitalization of software development costs........................... (15,207) (14,741) (16,188) Increase in purchased software and intangibles and other assets..................................................... (4,228) (2,409) (2,994) Proceeds from sale of equipment........................................ 774 - - - - - 1,704 Cash acquired from purchase of distributorship, net of cash paid....... - - - - - 1,523 - - - - - -------- -------- -------- Net cash used for investing activities............................... (58,415) (34,612) (38,976) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term obligations............................ (8,117) (13,512) (52,142) Proceeds from borrowings............................................... - - - - - - - - - - 24,099 Sales of common stock, net of notes receivable from stockholders....... 10,805 13,816 14,857 Payment of stock notes receivable...................................... - - - - - 1 130 Repurchase of common stock............................................. (52,178) (10,798) (1,825) Payment of dividend on preferred stock................................. - - - - - (559) (2,300) -------- -------- -------- Net cash used for financing activities............................... (49,490) (11,052) (17,181) -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................... (426) (3,392) (1,961) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS........................... (17,594) (8,705) 16,623 -------- -------- -------- CASH AND CASH INVESTMENTS AT END OF YEAR................................... $ 61,382 $ 78,976 $ 87,681 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 34 37 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 1. ORGANIZATION OF THE COMPANY Cadence Design Systems, Inc. (the "Company") develops, markets and supports computer-aided design software products that automate, enhance and accelerate the design, verification and testing of integrated circuits and complex electronic circuits and systems. In December 1991 the Company acquired all of the outstanding common and preferred stock of Valid Logic Systems Incorporated ("Valid") in exchange for approximately 10,816,000 shares of the Company's common stock and 86,133 shares of the Company's preferred stock. Valid was involved in the design, development, marketing and support of electronic design automation software products primarily used to design electronic systems and printed circuit boards ("PCBs"). In connection with the merger, each share of Valid common and preferred stock was converted into .323 shares of the Company's common and preferred stock, respectively. The Company also issued approximately 199,000 shares of common stock in exchange for an outstanding warrant to purchase common stock of Valid. The Company also assumed Valid's outstanding stock options and all other outstanding warrants. Each such option and warrant to purchase one share of Valid common stock was converted into an option and warrant, respectively, to purchase .323 shares of the Company's common stock. The merger was accounted for as a pooling of interests and, accordingly, the financial statements for periods prior to the merger have been restated to include the results of Valid. 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, 1992 and 1991. The acquisition costs of $10,903,000 include amounts paid for the net tangible assets of Comdisco and purchased software and other intangibles. 2. DISCONTINUED OPERATIONS In December 1993 the Company sold its Automated Systems ("ASI") division. ASI was sold for a nominal amount of cash and future royalties amounting to 5% of gross revenues of ASI for the period from January 1, 1994 through December 31, 2003, up to maximum royalties of $12,000,000. The royalties will be recorded in future periods as earned. The sale of ASI resulted in a loss on disposal of $6.0 million (the income tax effect of which was not material). This loss includes the loss on the sale of the net assets, as well as amounts accrued for estimated costs to be incurred in connection with the disposal. As of December 31, 1993, the Company has recorded $1.4 million in accrued liabilities and $2.0 million in other noncurrent liabilities for liabilities associated with the discontinued division. The operating results of the discontinued division have been reported as discontinued operations in the consolidated statements of income for all years presented. The prior year balance sheet has also been adjusted to reflect the net current assets of ASI as of December 31, 1992 of $4.8 million as a single line item in other current assets and to reflect the net noncurrent assets of $3.0 million as a single line item in other assets. There were no remaining assets related to ASI on the Company's balance sheet as of December 31, 1993. Revenue of the discontinued division was $11,165,000, $15,776,000 and $12,079,000 for the years ending December 31, 1993, 1992 and 1991, respectively. 35 38 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of intercompany accounts and transactions. The ownership interest of minority participants in subsidiaries that are not wholly owned was approximately $725,000 and $946,000 at December 31, 1993 and 1992, respectively, and is included in other noncurrent liabilities in the accompanying balance sheets. Minority interest income was approximately $134,000 and $196,000 and minority interest expense was $268,000 for the years ended December 31, 1993, 1992 and 1991, respectively, and is included in other income and expense in the accompanying statements of income. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation and amortization are provided over the following estimated useful lives, by the straight-line method. Equipment 2-7 years Furniture and fixtures 5 years Leasehold improvements Shorter of the lease term or the estimated useful life
CASH AND CASH INVESTMENTS For purposes of the statements of cash flows, the Company considers all commercial paper, medium-term notes, bankers' acceptances, certificates of deposit, municipal bonds, Euro certificates of deposit and money market accounts with an original maturity of ninety days or less to be cash and cash investments. SHORT-TERM INVESTMENTS Short-term investments are stated at cost, which approximates market value, and consist principally of Euro certificates of deposit, medium-term notes, money market accounts, commercial paper, bankers' acceptances and certificates of deposit with an original maturity of greater than ninety days that the Company intends to sell within one year. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes labor, material and manufacturing overhead. Inventories include testing equipment and accelerators. Inventories consisted of the following (in thousands):
December 31, ----------------------------- 1993 1992 ---- ---- Raw materials and supplies $2,240 $1,642 Work-in-progress 2,214 2,527 Finished goods 1,290 1,893 ------ ------ Total inventories $5,744 $6,062 ====== ======
36 39 REAL ESTATE PARTNERSHIPS During 1989 and 1991 the Company acquired a 49% and 46.5% interest as a limited partner in two real estate partnerships and signed agreements to lease buildings from the limited partnerships. Both of the above commitments are included in future operating lease commitments in Note 7. The investment in these partnerships of approximately $5.2 million at December 31, 1993 and 1992 is included in other assets in the accompanying balance sheets. The Company accounts for these investments under the equity method of accounting. During June 1991 the Company acquired an 80% interest in a third real estate partnership which has purchased land for future expansion. This partnership is consolidated in the accompanying financial statements. REVENUE RECOGNITION Product revenue consists principally of revenue earned under software license agreements. Revenue earned under license agreements to end users is generally recognized when a customer purchase order has been received, the software has been shipped, the Company has a right to invoice the customer and there are no significant obligations remaining. Design services revenue and test equipment revenue are recognized upon delivery of the final design or shipment of the test equipment. Nonrefundable revenue earned under guaranteed revenue commitments from products relicensed through OEMs, system integrators and software value-added relicensors is recognized at the latter of the beginning of the commitment period or shipment of the initial product master. Additional revenue under these agreements is recognized at the time such amounts are reported to the Company. Maintenance revenue consists of fees for providing system updates, user documentation and technical support for software products. Maintenance revenue is recognized ratably over the term of the agreement. In 1993, 1992 and 1991 one customer (a distributor) accounted for 13%, 14% and 13% of total revenue, respectively. SOFTWARE DEVELOPMENT COSTS The Company capitalizes internally generated software development costs in compliance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Capitalization of software development costs begins upon the establishment of technological feasibility for the product. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future gross product revenue, estimated economic life and changes in software and hardware technology. Software development costs capitalized were $15,207,000, $14,741,000 and $16,188,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Amortization of capitalized software development costs begins when the products are available for general release to customers and is generally computed on a straight-line basis over the remaining estimated economic life of the product (three to five years). Amortization, which is included in cost of revenue in the accompanying statements of income, amounted to $13,065,000, $11,043,000 and $11,904,000 for the years ended December 31, 1993, 1992 and 1991, respectively. The Company wrote off $1,495,000 of capitalized software in 1993 for projects discontinued during the year. In connection with the merger with Valid, the Company also wrote off $2,794,000 and $10,896,000 of capitalized software in 1992 and 1991, respectively, due to an overlap of products. 37 40 PURCHASED SOFTWARE AND INTANGIBLES Purchased software and intangibles are stated at cost less accumulated amortization. Amortization is generally computed on a straight-line basis over the remaining estimated economic life of the underlying product (two to seven years). The cost and related accumulated amortization of purchased software and intangibles were as follows (in thousands):
December 31, ------------------------------ 1993 1992 ---- ---- Cost $24,587 $16,557 Less: Accumulated amortization 11,800 9,214 -------- ---------- Net purchased software and intangibles $ 12,787 $ 7,343 ======== ========
INCOME TAXES Through December 31, 1992 the Company accounted for income taxes pursuant to Statement of Financial Accounting Standards ("SFAS") No. 96, "Accounting for Income Taxes." Effective January 1, 1993 the Company retroactively adopted the provisions of SFAS No.109, "Accounting for Income Taxes." This statement provides for a liability approach under which deferred income taxes are provided based upon enacted tax laws and rates applicable to the periods in which the taxes become payable. The adoption of this accounting pronouncement did not have a material impact on the prior years' financial statements (see Note 11). FOREIGN CURRENCY TRANSLATION As of December 31, 1991 the functional currency of certain of the Company's foreign subsidiaries was the U.S. dollar, whereas the functional currency of the former Valid subsidiaries was the local currency. During 1992, the Company made certain changes in the manner in which the subsidiaries' operations were conducted to conform more closely to the Valid business model. Accordingly, the functional currency of the U.S. dollar foreign subsidiaries was changed to the respective local currency effective for the first quarter of 1992. Gains and losses resulting from the translation of the financial statements for the subsidiaries are reported as a separate component of stockholders' equity. MERGER COSTS Total costs incurred by the Company and Valid in 1991 in connection with the merger of the two companies were $1,660,000. These costs, consisting primarily of legal, accounting and other related expenses, were charged to operations in the fourth quarter of 1991. NET INCOME (LOSS) PER SHARE Net income per share for each period is calculated by dividing net income attributable to common stockholders 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 and the conversion of Series A-1 preferred stock. Net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares. Fully diluted net income (loss) per share is substantially the same as primary net income (loss) per share. 38 41 SUPPLEMENTAL STATEMENTS OF CASH FLOWS DISCLOSURES Cash paid for interest and income taxes, including foreign withholding taxes, was as follows (in thousands):
Income Interest Taxes -------- ----- Year Ended December 31, 1993 $ 541 $ 3,884 1992 $ 803 $ 9,151 1991 $ 2,837 $ 10,921
DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES Notes payable and capital lease obligations incurred for property, plant and equipment placed into service in 1993, 1992 and 1991 were $4,441,000, $5,498,000 and $2,195,000, respectively. As discussed in Note 1, in June 1993 the Company acquired the business and certain assets of Comdisco 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 cost in excess of net assets acquired was $6,500,000 which is being amortized over seven years and is included in purchased software and intangibles in the accompanying balance sheet. The accumulated amortization as of December 31, 1993 was approximately $436,000. In connection with the acquisition, net assets acquired were as follows (in thousands): Trade accounts receivables and other current assets $ 4,381 Purchased software and other intangibles 6,500 Property, equipment and other long-term assets 1,909 Liabilities assumed (1,887) ----------- Net assets acquired $10,903 ==========
In March 1992 the Company acquired a distributorship in Japan, which, as its sole operation, had distributed the Company's system products. As part of this transaction, the Company paid approximately $400,000 in cash and issued a note for $3,100,000 in exchange for stock and a consulting agreement. This acquisition was accounted for as a purchase. The cost in excess of the net assets acquired was approximately $5.2 million which is being amortized over five years and is included in other assets in the accompanying balance sheets. The accumulated amortization as of December 31, 1993 and 1992 was approximately $2,079,000 and $854,000, respectively. During 1992 all of the Company's outstanding Series A-1 preferred stock was converted to approximately 861,000 shares of the Company's common stock. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. The carrying amount of cash and cash investments and short-term investments is a reasonable estimate of fair value because of the short maturity of those instruments. The fair value of the Company's long-term obligations, excluding capital leases, is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The carrying amount of the Company's long-term debt at December 31, 1993 approximates its fair value. 39 42 The Company enters into forward exchange contracts to reduce the impact of foreign currency fluctuations on those accounts that give rise to transaction gains or losses. As of December 31, 1993 the Company had entered into forward exchange contracts in the amount of $33,058,000, maturing January 31, 1994. The fair value of foreign currency contracts is estimated by obtaining quotes from banks. The market value was approximately the same as the carrying value as of December 31, 1993. CONCENTRATION OF CREDIT RISK Financial instruments which may potentially subject the Company to concentrations of credit risk consist principally of cash and cash investments, short-term investments and accounts receivable. The Company's investment policy limits investments to short-term, low-risk instruments. Concentration of credit risk related to accounts receivable is limited due to the varied customers comprising the Company's customer base and their dispersion across geographies. RESTRUCTURING COSTS In March 1993 the Company recorded restructuring costs of $13,450,000 associated with a planned restructure of certain areas of sales, operations and administration due to business conditions. The restructuring charge primarily reflects costs associated with excess facilities, the write-off of software development costs and purchased software and intangibles and employee terminations resulting from the change in product strategy and lower revenue levels. In December 1991 the Company recorded restructuring costs of $49,901,000 associated with the merger of Valid with the Company. This amount included approximately $5,530,000 for excess fixed assets and other assets, $13,385,000 for severance and payroll-related payments, $16,475,000 for closing of excess and duplicate facilities, $10,896,000 for write-offs of capitalized software due to overlap of products and $3,615,000 for other items. POST RETIREMENT BENEFITS Statement of Financial Accounting Standards No. 106, "Accounting for Post Retirement Benefits other than Pensions," which was effective for the Company in fiscal 1993, has no effect on the Company as the Company has not offered such post retirement benefits. INVESTMENTS IN DEBT AND EQUITY SECURITIES Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which will be effective for the Company in fiscal 1994, is not expected to have a material impact on the Company. 40 43 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of (in thousands):
December 31, ------------------------------- 1993 1992 ---- ---- Equipment $ 98,675 $109,001 Furniture and fixtures 20,474 18,471 Land and improvements 8,378 8,324 Leasehold improvements 17,334 18,697 -------- -------- Total cost 144,861 154,493 Less: Accumulated depreciation and amortization 83,384 91,033 -------- ------- Property, plant and equipment, net $ 61,477 $ 63,460 ======== ========
The cost of equipment, furniture and fixtures under capital leases included in property, plant and equipment at December 31, 1993 and 1992 was $22,178,000 and $25,622,000, respectively. Accumulated amortization of the leased equipment, furniture and fixtures at such dates was $16,199,000 and $19,568,000, respectively. 5. ACCRUED LIABILITIES Accrued liabilities consisted of (in thousands):
December 31, ------------------------------- 1993 1992 ---- ---- Payroll and payroll-related accruals $27,837 $26,076 Accrued merger and restructuring costs 3,669 4,658 Other accrued liabilities 19,846 13,346 -------- -------- Total accrued liabilities $51,352 $44,080 ======= =======
Accrued merger and restructuring costs consist principally of severance obligations and the current portion of lease obligations for closing of excess facilities. 6. LONG-TERM OBLIGATIONS Long-term obligations consisted of (in thousands):
December 31, ------------------------------- 1993 1992 ---- ---- Capital lease obligations (Note 7) $6,103 $6,615 Note payable related to the acquisition of Japan distributorship, due in annual installments 1,860 2,480 Other notes payable ----- 1,982 ------ ------ Total 7,963 11,077 Less: Current portion 3,962 5,355 ------ ------ Long-term obligations $4,001 $5,722 ====== ======
At December 31, 1993 future principal payments on long-term obligations, excluding capital lease obligations, were $620,000 for each of the years ending December 31, 1994, 1995 and 1996, respectively. 41 44 7. LEASES Facilities and equipment are leased under various capital and operating leases expiring on different dates through the year 2008. Certain of these leases contain renewal options. The terms of several of the facilities agreements, accounted for as operating leases, provide for the deferral of several months' rental payments or scheduled rent increases. Rental expense under these agreements is recognized on a straight-line basis. Rental expense was approximately $19,983,000, $21,287,000 and $16,798,000 for the years ended December 31, 1993, 1992 and 1991, respectively. In connection with the merger with Valid and planned restructure, the Company has closed certain excess and duplicate facilities. Accordingly, the Company has accrued for estimated future minimum rent and maintenance costs related to these facilities. Total costs accrued at December 31, 1993 were $8,557,000, of which $1,193,000 is included in accrued liabilities and $7,364,000 is included in lease liabilities in the accompanying balance sheet. In connection with the disposition of ASI, the Company has accrued for estimated future rent on facilities not assumed by the purchaser. Total costs accrued at December 31, 1993 were $1,911,000, of which $102,000 is included in accrued liabilities and $1,809,000 is included in other noncurrent liabilities in the accompanying balance sheet. At December 31, 1993 future minimum lease payments under capital and operating leases and the present value of the capital lease payments were as follows (in thousands):
Capital Operating Leases Leases ------ ----------- Years ending December 31, 1994 $3,661 $ 19,451 1995 1,984 18,421 1996 564 17,278 1997 287 16,516 1998 147 14,212 Thereafter - - - 59,736 ------- ------ Total lease payments 6,643 $ 145,614 ========== Less: Amount representing interest (average rate of 7.5%) 540 -------- Present value of lease payments 6,103 Less: Current portion 3,342 -------- Long-term portion $2,761 ========
As of December 31, 1993 the Company had $15.0 million available for future borrowings under capital lease agreements which expire in September 1994. 8. LINES OF CREDIT The Company has unsecured lines of credit with two banks allowing for combined maximum borrowings of $17,500,000 in the form of (a) domestic rate revolving loans with interest at the banks' prime lending rate, (b) Eurodollar rate loans with interest that exceeds three- quarters of one percent of the banks' current Eurodollar rate quoted for the same amount and maturity, or (c) issuances of letters of credit. There were no outstanding borrowings at December 31, 1993 or 1992 under these agreements. Certain financial covenants and restrictions are included in these agreements. As a result of its treasury stock purchase activity during 1993, the Company was not in compliance with certain covenants related to one of its lines of credit, with a borrowing amount of $10,000,000, as of December 31, 1993. The Company subsequently obtained a waiver of the noncompliance from the bank. These lines of credit will expire in May 1994 and June 1994. 42 45 9. COMMITMENTS AND CONTINGENCIES The Company has entered into an executive compensation agreement with one of its executive officers. This agreement provides severance benefits to the executive in the event that within 120 days before or two years after any change in control, or sale of all or substantially all assets of the Company, the executive's employment is terminated by the Company or the executive, in circumstances described in the agreement. The severance benefits are a cash payment of two times the executive's base salary, plus accelerated vesting of all outstanding stock options. The Company assumed as part of the ASI acquisition an agreement dated April 22, 1985 under which the Company is obligated to pay to a former ASI officer a monthly annuity for a fifteen-year period after his retirement date or a lump sum payment subject to the terms of the agreement. The Company has accrued an amount equal to the present value of the estimated future payments at the eligible retirement date. Such accrual amount is included in accrued liabilities in the accompanying balance sheet. The Company is involved in various disputes and litigation matters which have arisen in the ordinary course of business. These include disputes and lawsuits related to intellectual property, contract law and employee relations matters and the stockholder class action lawsuits described below, which 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. Stockholder 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 suits were subsequently consolidated into a single lawsuit and the class period changed to include purchasers of the Company's common stock during the period from October 18, 1990 through April 3, 1991. The plaintiff in the suit seeks compensatory damages unspecified in amount. On June 2, 1993 the District Court granted in part and denied in part the Company's motion to dismiss the Complaint in the class action originally filed in April 1991. The effect of the ruling was to limit the class period to include purchasers of the Company's common stock between January 29, 1991 and April 3, 1991. Trial of this matter is scheduled to commence on August 8, 1994. The Company is vigorously defending against the litigation. 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. Two additional complaints, identical to the complaint filed on March 23, 1993 except for the identities of the plaintiffs, were filed later in March and in April 1993. All three complaints were consolidated into a single lawsuit which seeks unspecified damages on behalf of all purchasers of the Company's common stock between October 12, 1992 and March 19, 1993. 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. The Company is vigorously defending against the litigation. Management believes that the ultimate resolution of the disputes and litigation matters discussed above will not have a material adverse impact on the Company's financial position or results of operations. 43 46 10. STOCKHOLDERS' EQUITY REDEEMABLE CONVERTIBLE PREFERRED STOCK The Company has 2,000,000 shares of authorized and unissued preferred stock at $.01 par value per share. At December 31, 1993 and 1992 there were no shares of preferred stock outstanding. In 1990 a corporation acquired a minority interest in Valid through an initial investment of $10,998,000, in exchange for 86,133 shares of newly issued Series A-1 voting, convertible preferred stock, convertible into 861,330 common shares, at a purchase price equivalent to $13.00 per common share. All of the preferred stock was converted to common stock during 1992. In 1990 the corporation also purchased, for $1,187,500, a warrant to acquire up to 4,750,000 shares of Valid's common stock. This warrant was exchanged for approximately 199,000 shares of common stock upon the merger of Valid with the Company. Each share of Series A-1 preferred stock was entitled to receive cumulative annual dividends. The dividends were payable in cash. In 1992 and 1991 the Company recorded $559,000 and $1,344,000, respectively, for dividends paid to the corporation. EMPLOYEE STOCK OPTION PLANS The Company's Employee Stock Option Plan (the "Plan") provides for employees to be granted options to purchase up to 13,637,800 shares of common stock. The Plan provides for the issuance of either incentive or nonqualified options at an exercise price not less than fair market value of the stock on the date of grant. Options granted under the Plan become exercisable over periods of one to four years and expire five to ten years from the date of grant. At December 31, 1993 options to purchase 8,320,101 shares were outstanding under the Plan, of which options for 1,317,646 shares were exercisable at prices ranging from $2.00 to $28.75. Options to purchase 1,284,864 shares were available for future grant under the Plan. During 1993 holders of the Company's options were given the opportunity to exchange previously granted stock options for new common stock options exercisable at $8.81 per share, the fair market value of the common stock on the date of exchange. Under the terms of the new options, one-third of the shares vest one year from the date of grant and the remaining shares vest in 24 equal monthly installments. Options to purchase 4,856,026 shares were exchanged. Options to purchase 4,032,835 shares of common stock have been exercised as of December 31, 1993. During 1993 the Company adopted a Non-Statutory Stock Option Plan (the "Non-Statutory Plan"). The Company has reserved 2,500,000 shares of common stock for issuance under the Non-Statutory Plan. Since directors and officers of the Company are not eligible to receive options under the Non-Statutory Plan, stockholder approval is not required nor will it be sought. Options granted under the Non-Statutory Plan become exercisable over a four-year period, with one-fourth of the shares vesting one year from the vesting commencement date and the remaining shares vesting in 36 equal monthly installments. The Non-Statutory options generally expire ten years from the date of grant. At December 31, 1993 options to purchase 1,230,225 shares were outstanding, none of which were exercisable. Options to purchase 1,269,775 shares were available for future grant under the Non-Statutory Plan. 44 47 STOCK OPTION PLANS - COMPANIES ACQUIRED The Company has reserved a total of 1,313,996 shares of its authorized common stock for issuance upon the exercise of options granted to former employees of companies acquired (the "Acquired Options"). The Acquired Options were assumed by the Company outside the Plan, but all are administered as if assumed under the Plan. All of the Acquired Options have been adjusted to effectuate the conversion under the terms of the Agreements and Plans of Reorganization between the Company and the companies acquired. The Acquired Options generally become exercisable over a four-year period and generally expire either five or ten years from the date of grant. At December 31, 1993 Acquired Options to purchase a total of 1,313,996 shares were outstanding, of which 1,128,756 were exercisable at prices ranging from $.41 to $21.52. No additional options will be granted under any of the acquired companies' plans. Combined activity with respect to the Employee Stock Option Plans and Stock Option Plans - Companies Acquired was as follows:
Number Option of Shares Price --------- ----- Outstanding, December 31, 1990 7,880,956 $ .41 - $27.69 Granted 1,754,754 3.68 - 34.13 Exercised (1,479,274) .41 - 25.25 Canceled (474,612) .72 - 28.75 ----------- -------------- Outstanding, December 31, 1991 7,681,824 .41 - 34.13 Granted 4,877,991 15.69 - 28.50 Exercised (1,086,173) .41 - 26.31 Canceled (3,638,691) .96 - 34.13 ----------- ----------------- Outstanding, December 31, 1992 7,834,951 .41 - 28.75 Granted 9,456,161 8.63 - 23.13 Exercised ( 550,051) .41 - 21.52 Cancelled (5,876,739) 1.22 - 27.44 ----------- ---------------- Outstanding, December 31, 1993 10,864,322 $ .41 - $28.75 =========== ================
OPTION AGREEMENTS The Company occasionally has issued options outside of the Plan. As of December 31, 1993 options to purchase 70,313 shares were outstanding under these agreements, of which 21,250 were exercisable at prices ranging from $18.25 to $20.94 per share. DIRECTORS STOCK OPTION PLANS The Company's Board of Directors has adopted the 1988 and 1993 Directors Stock Option Plans (the "Directors Plans") in the indicated years. The Company has reserved 445,000 shares of common stock for issuance under the Directors Plans. The Directors Plans provide for the issuance of nonqualified stock options to nonemployee directors of the Company with an exercise price equal to the fair market value of the common stock on date of grant. Options granted under the Directors Plans have a term of up to ten years and vest one-third one year from the date of grant and two-thirds ratably over the subsequent two years. As of December 31, 1993 options to purchase 265,000 shares of common stock at $9.31 to $29.88 per share were outstanding under the Directors Plans, of which options for 99,717 shares were exercisable at prices ranging from $16.25 to $29.88 per share. Options to purchase 87,223 shares are available for future grant under the Directors Plans. Options to purchase 92,777 shares of common stock have been exercised as of December 31, 1993 under the Directors Plans. No additional options will be granted under the 1988 Directors Plan. 45 48 EMPLOYEE STOCK PURCHASE PLANS The Company has reserved 1,500,000 shares of common stock for issuance under the 1990 Employee Stock Purchase Plan (the "ESPP"). Under the ESPP the Company's employees may purchase shares of common stock at a price per share that is 85% of the lesser of the fair market value as of the beginning or the end of the semiannual option periods. In addition, Valid had a similar plan for which shares were approved for issuance in 1983. For the years ended December 31, 1993, 1992 and 1991 shares issued under the combined plans were 487,941, 324,183 and 286,586, respectively. As of December 31, 1993, 449,668 shares were available for future purchase under the ESPP. No additional shares will be issued under the Valid stock purchase plan. WARRANT In connection with the purchase of Comdisco, the Company issued a warrant to purchase 1,300,000 shares of the Company's common stock at $14.50 per share. The warrant expires in June 2003 and can be exercised at any time in increments of not less than 50,000 shares. The warrant was valued at approximately $1,847,000 which was included as part of the total purchase price of Comdisco. RESERVED FOR FUTURE ISSUANCE As of December 31, 1993 the Company has reserved the following shares of authorized but unissued common stock for future issuance: Employee Stock Option Plans 12,104,965 Stock Option Plans - Companies Acquired 1,313,996 Other Option Agreements 70,313 Directors Stock Option Plans 352,223 Employee Stock Purchase Plan 449,668 Warrant 1,300,000 ---------- Total 15,591,165 ==========
STOCKHOLDER RIGHTS PLAN During 1989 the Company adopted a Stockholder Rights Plan. As part of this plan the Company's Board of Directors declared a dividend of one Common Share Purchase Right (the "Right") for each share of the Company's common stock outstanding on July 20, 1989. The Board also authorized the issuance of one such Right for each share of the Company's common stock issued after July 20, 1989 until the occurrence of certain events. Each Right entitles the holder thereof to purchase one share of the Company's common stock for $100, subject to adjustment in certain events. The Rights are not exercisable until the occurrence of certain events related to a person acquiring, or announcing the intention to acquire, 20% or more of the Company's common stock. Upon such acquisition, each Right (other than those held by the acquiring person) will be exercisable for that number of shares of the Company's common stock having a market value of two times the exercise price of the Right. If the Company subsequently enters into certain business combinations, each Right (other than those held by the acquiring person) will be exercisable for that number of shares of common stock of the other party to the business combination having a market value of two times the exercise price of the Right. The Rights currently trade with the Company's common stock. The Rights are subject to redemption at the option of the Board of Directors at a price of $.01 per Right until the occurrence of certain events, and are exchangeable for the Company's common stock, at the discretion of the Board of Directors, under certain circumstances. The Rights expire on May 30, 1999. 46 49 11. INCOME TAXES Through December 31, 1992 the Company accounted for income taxes pursuant to Statement of Financial Accounting Standards ("SFAS") No. 96, "Accounting for Income Taxes." Effective January 1, 1993 the Company retroactively adopted the provisions of SFAS No. 109, "Accounting for Income Taxes." The adoption of this accounting pronouncement did not have a material impact on amounts reported in prior years' financial statements. The provision for income taxes for the year ended December 31, consisted of the following components (in thousands):
1993 1992 1991 ---- ---- ---- Current: Federal $ 730 $1,227 $ 1,688 State 180 2,104 516 Foreign 8,939 10,447 10,168 ------- ------ -------- Total current 9,849 13,778 12,372 ------- ------ -------- Deferred (prepaid): Federal (1,749) (987) (692) State (1,220) (225) (510) Foreign (6,880) 420 (970) ---------- --------- -------- Total prepaid (9,849) (792) (2,172) ---------- ---------- -------- Total provision for income taxes $ ------- $12,986 $10,200 ============ ======= =======
Income (loss) from continuing operations before income taxes for the years ended December 31, 1993, 1992 and 1991 included income (loss) of $9,166,000, $5,478,000 and $(4,493,000), respectively, from the Company's foreign subsidiaries. The provision for income taxes at December 31, differs from the amount estimated by applying the statutory federal income tax rate to income (loss) from continuing operations before taxes as follows (in thousands):
1993 1992 1991 ---- ---- ---- Provision (benefit) computed at federal $ (212) $ 23,237 $ (3,911) statutory rate State income tax (benefit), net of federal tax effect 117 993 (147) Change in valuation allowance 2,014 (11,619) 8,848 Research and development tax credits (1,020) - - - - - - Foreign income taxed at higher tax rate 372 123 1,040 Merger costs not deductible - - - - - 680 Foreign tax credits utilized (6,958) (8,675) (3,215) Foreign taxes incurred 6,958 9,627 5,021 Other (1,271) (700) 1,884 ------- --------- --------- Provision for income taxes $ - - - - $12,986 $10,200 ========= ======= =======
47 50 The components of deferred tax assets and liabilities consisted of the following (in thousands):
Year Ended December 31, ---------------------------- 1993 1992 ---- ---- Deferred tax assets: Restructure reserves $ 7,938 $ 9,092 Net operating losses 20,792 24,264 Tax credits 30,163 21,956 Other 8,097 - - - -------- ---------- Total assets 66,990 55,312 Valuation allowance-provision for income taxes (38,847) (36,833) Valuation allowance-equity/ intangibles (15,751) (11,882) -------- -------- Net assets 12,392 6,597 ------ ----- Deferred tax liabilities: Capitalized software (11,467) (11,261) Other - - - (2,479) -------- --------- Total liabilities (11,467) (13,740) -------- -------- Total net deferred tax assets (liabilities) $ 925 $(7,143) ======== ========
The deferred assets which will affect equity or intangibles and which will not be available to offset future provisions for income taxes are stated in the above table as "Valuation allowance-equity/intangibles." The net operating losses will expire at various dates from 1998 through the year 2006 and tax credit carry forwards will expire at various dates from 1997 through the year 2008. 12. RELATED PARTY TRANSACTIONS During 1993 a customer of the Company entered into a consulting joint venture with the Company. Revenue related to this customer was approximately $5,928,000 for the year ended December 31, 1993. Outstanding trade accounts receivable from this related party were $2,268,000 at December 31, 1993. A minority interest participant in a subsidiary of the Company is also a major customer of the Company. Revenue related to this customer (a distributor) was approximately $48,655,000, $57,133,000 and $49,672,000 for the years ended December 31, 1993, 1992 and 1991, respectively. Outstanding trade accounts receivable from this related party were approximately $10,304,000 and $17,021,000 as of December 31, 1993 and 1992, respectively. During 1990 a customer of the Company entered into a research and development joint venture with the Company. During 1992 the Company acquired the minority interest in the joint venture. Revenue related to this customer was approximately $777,000 and $1,276,000 for the years ended December 31, 1992 and 1991, respectively. There were no accounts receivable outstanding for this customer at December 31, 1992. 48 51 13. OPERATIONS BY GEOGRAPHIC AREA The Company operates primarily in one industry segment -- the development and marketing of computer-aided design software. The Company's products have been marketed internationally through distributors and through the Company's subsidiaries in Europe, Japan and the Far East. Intercompany revenue results from licenses that are based on a percentage of the subsidiaries' revenue from unaffiliated customers. The following table presents a summary of operations by geographic area (in thousands):
Year Ended December 31, ------------------------------------------- 1993 1992 1991 ---- ---- ---- Revenue: Domestic operations (1) $298,366 $344,370 $350,547 European operations 73,181 76,196 75,018 Asia/Pacific operations 69,320 71,113 61,540 Eliminations (72,244) (72,955) (107,629) --------- ----------- ---------- Consolidated $368,623 $418,724 $379,476 ======== ========== ========== Intercompany revenue (eliminated in consolidation): Domestic operations $ 54,224 $ 54,084 $ 92,062 European operations 9,494 8,824 6,204 Asia/Pacific operations 8,526 10,047 9,363 ------- ---------- ---------- Consolidated $ 72,244 $ 72,955 $107,629 ========= ========== ========= Income (loss) from continuing operations: Domestic operations $ (8,924) $ 61,023 $ (4,832) European operations 4,107 3,919 (9,319) Asia/Pacific operations 2,602 515 4,742 ---------- ---------- ---------- Consolidated $ (2,215) $ 65,457 $ (9,409) ========== ========== ========= Identifiable assets: Domestic operations $339,897 $370,289 $ 355,561 European operations 50,186 52,536 36,221 Asia/Pacific operations 52,401 40,108 26,245 Eliminations (103,183) (95,690) (70,953) --------- ----------- ----------- Consolidated $339,301 $367,243 $ 347,074 ======== ======== =========
(1) Domestic operations revenue includes export revenue of approximately $10,137,000, $11,500,000 and $4,900,000 to Europe for the years ended December 31, 1993, 1992 and 1991, respectively, and approximately $48,971,000, $75,400,000 and $71,700,000 to Asia/Pacific for the years ended December 31, 1993, 1992 and 1991, respectively. 49 52 SCHEDULE VIII CADENCE DESIGN SYSTEMS, INC. VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
Additions Balance at Charged to Deductions Balance at Beginning of Costs and From End of Description Period Expenses Reserves Period - ------------------------------------- -------------- --------- -------- --------- Year Ended December 31, 1993 Allowance for doubtful accounts $3,154 $5,648 $(5,331)(1) $3,471 Inventory reserve 538 381 (331)(2) 588 Accrued restructuring costs 4,658 7,210 (8,199)(3) 3,669 Accrued discontinued operations costs - 3,382 (2,009)(4) 1,373 Year Ended December 31, 1992 Allowance for doubtful accounts 3,068 1,087 (1,001)(1) 3,154 Inventory reserve 1,271 1,006 (1,739)(2) 538 Accrued restructuring costs 22,015 - (17,357)(3) 4,658 Year Ended December 31, 1991 Allowance for doubtful accounts 3,754 936 (1,622)(1) 3,068 Inventory reserve 4,254 363 (3,346)(2) 1,271 Accrued restructuring costs 6,487 34,616 (19,088)(3) 22,015
(1) Uncollectible accounts written-off (2) Inventory costs written-off (3) Incurred severance and facilities costs relating to the Company's restructuring and a reclassification of $3,500 and $13,135 in 1993 and 1991, respectively, from accrued operating lease obligations to lease liabilities. (4) Reflects a reclassification of $2,009 from accrued liabilities to other noncurrent liabilities. 50 53 SCHEDULE IX CADENCE DESIGN SYSTEMS, INC. SHORT-TERM BORROWINGS (DOLLARS IN THOUSANDS)
Maximum Average Weighted Weighted Amount Amount Average Average Outstanding Outstanding Interest Rate Category of Aggregate Balance at Interest During the During the During the Short-term Borrowings End of Year Rate Year Year (1) Year (2) - --------------------- ----------- --------- --------------- --------- --------- Year ended December 31, 1991 $ - - - - - - -% $17,370 $11,274 9.8% Bank line of credit borrowings
(1) Computed by dividing the average month-end balance (2) Computed by averaging month-end balance interest rates 51 54 SCHEDULE X CADENCE DESIGN SYSTEMS, INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS)
Amounts Charged to Costs and Expenses ------------------------------ Year Ended December 31, ------------------------------ Item 1993 1992 1991 - --------------------------------------------------- ---- ---- ---- Repairs and maintenance $5,538 $6,007 $6,732 Amortization of software development costs and purchased software and intangibles 18,293 14,136 14,422 Royalties 5,403 6,577 4,213
52 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Cadence Design Systems, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, March 30, 1994. CADENCE DESIGN SYSTEMS, INC. /s/ Joseph B. Costello --------------------------------- Joseph B. Costello President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capabilities and on the date indicated.
NAME/TITLE DATE - ---------- ---- PRESIDENT, CHIEF EXECUTIVE OFFICER /s/ Joseph B. Costello March 30, 1994 - ------------------------------- Joseph B. Costello CHIEF FINANCIAL OFFICER /s/ H. Raymond Bingham March 30, 1994 - ----------------------- H. Raymond Bingham CONTROLLER (Chief Accounting Officer) /s/ William Porter March 30, 1994 - -------------------------------- William Porter DIRECTORS /s/ Donald L. Lucas March 30, 1994 - -------------------- Donald L. Lucas _________________________________ March 30, 1994 W. Douglas Hajjar
53 56
NAME/TITLE DATE - ---------- ---- /s/ Carol Bartz March 30, 1994 - ---------------- Carol Bartz _________________________________ March 30, 1994 Raymond J. Lane /s/ Dr. Leonard Y.W. Liu March 30, 1994 - ------------------------- Dr. Leonard Y.W. Liu _________________________________ March 30, 1994 Dr. Alberto Sangiovanni-Vincentelli /s/ George M. Scalise March 30, 1994 - --------------------- George M. Scalise /s/ James E. Solomon March 30, 1994 - -------------------- James E. Solomon /s/ Dr. John B. Shoven March 30, 1994 - ------------------------ Dr. John B. Shoven
54 57 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT TITLE LOCATION - ------ ------------- -------- 3.01 (a) The Registrant's Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on April 8, 1987 (incorporated by reference to Exhibit 3.01 to Registrant's Form S-1 Registration Statement (No. 33-13845) originally filed on April 29, 1987 (the "1987 Form S-1")). (b) The Registrant's Certificate of Retirement of Stock as filed with the Secretary of State of the State of Delaware on September 28, 1987 (incorporated by reference to Exhibit 3.01(b) to Registrant's Form S-4 Registration Statement (No. 33-20724) originally filed on February 25, 1988). (c) The Registrant's Certificate of Ownership and Merger as filed with the Secretary of State of the State of Delaware on June 1, 1988 (incorporated by reference to Exhibit 3.02(c) to the Registrant's Form S-1 Registration Statement (No. 33-23107) originally filed on July 18, 1988 (the "1988 Form S-1")). (d) The Registrant's Certificate of Designations of Series A Junior Participating Preferred Stock as filed with the Secretary of State of the State of Delaware on June 8, 1989 (incorporated by reference to Exhibit 3A to the Registrant's Form 8-K originally filed on June 12, 1989). (e) The Registrant's Certificate of Amendment of Certificate of Incorporation as filed with the Secretary of State of the State of Delaware on July 26, 1991 (incorporated by reference to Exhibit 3.01(e) to the Registrant's Form S-4 Registration Statement (No. 33-43400) originally filed on October 7, 1991 (the "1991 Form S-4")). (f) The Registrant's Certificate of Designation of Series A Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on December 30, 1991 (incorporated by reference to Exhibit 3.01(f) from the Registrant's Form 10-K for the fiscal year ended December 31, 1991). 3.02 The Registrant's Bylaws, as currently in effect (incorporated by reference to Exhibit 3.02 to the 1987 Form S-1). 4.01 Specimen Certificate of the Registrant's Common Stock (incorporated by reference to Exhibit 4.01 to the 1991 Form S-4). 4.02 Amended and Restated Rights Agreement, dated as of June 19, 1988, between the Registrant and Bank of America N.T. & S.A., as Rights Agent, which includes as exhibits thereto the form of Right Certificate and the Summary of Rights to Purchase Common Shares (incorporated by reference to Exhibit 4a to the Registrant's Form 8 filed on June 20, 1989).
55 58 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT TITLE LOCATION - ------ ------------- -------- 4.03 Assumption of Obligations under Amended and Restated Rights Agreement between the registrant and Harris Trust Company of California (incorporated by reference to Exhibit 10.34 to the Registrant's 1991 Form S-4). 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. 33-48371) filed on June 4, 1992 (the "1992 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 1992 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. * 59 10.05 The Registrant's 1990 Stock Purchase Plan (incorporated by reference to Exhibit 4.03 of the 1992 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.* 66 10.09 The Registrant's Key Contributor Bonus Plan for 1994.* 67 10.10 The Registrant's Cash or Deferred Profit Sharing Plan, as currently in effect (certain amendments 68 are attached; the Plan itself is incorporated by reference to Exhibit 10.12 Registrant's Form S-4 Registration Statement (No. 33-31673), originally filed on October 18, 1989 (the "1989 Form S-4")).* 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 Registrant's Form 10-K for the fiscal year ended December 31, 1990) (the "1990 Form 10-K")).
56 59 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT TITLE LOCATION - ------ ------------- -------- 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 Seperate 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 Leased 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). *
57 60 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT TITLE LOCATION - ------ ------------- -------- 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. * 89 10.25 Offer letter to M. Robert Leach dated May 17, 1993. * 91 10.26 Letter agreement dated March 9, 1994 by and among C.T. Properties, Inc. ("General 93 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. 21.01 Subsidiaries of the Registrant 112 23.01 Consent of Arthur Andersen & Co. 113 23.02 Consent of Deloitte & Touche 114 * A Management contract or compensatory plan required to be filed as an exhibit to Form 10-K. (b) Reports on Form 8-K None (c) Exhibits The Company hereby files as part of this Form 10-K the Exhibits listed in Item 14.(a)3. above. (d) Financial Statement Schedules See Item 14.(a)2. of this Form 10-K.
58 EX-10 2 1993 DIRECTORS STOCK OPTION PLAN 1 Exhibit 10.04 CADENCE DESIGN SYSTEMS, INC. A DELAWARE CORPORATION 1993 DIRECTORS STOCK OPTION PLAN AS ADOPTED JULY 22, 1993 1. PURPOSE. This Stock Option Plan ("Plan") is established to provide equity incentives for members of the Board of Directors of Cadence Design Systems, Inc., a Delaware corporation (the "Company") who are not employees of the Company, by granting such persons options to purchase shares of stock of the Company. 2. ADOPTION AND STOCKHOLDER APPROVAL. This Plan shall become effective on the date that it is adopted by the Board of Directors (the "Board") of the Company. This Plan shall be approved by the stockholders of the Company within twelve months before or after the date this Plan is adopted by the Board. 3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the "Options") shall be nonqualified stock options ("NQSOs"). The shares of stock that may be purchased upon exercise of Options granted under this Plan (the "Shares") are shares of the common stock of the Company. 4. NUMBER OF SHARES. The maximum number of Shares that may be issued pursuant to Options granted under this Plan is 107,223 Shares*, subject to adjustment as provided in this Plan. If any Option is terminated for any reason without being exercised in whole or in part, the Shares thereby released from such Option shall be available for purchase under other Options subsequently granted under this Plan. At all times during the term of this Plan, the Company shall reserve and keep available such number of Shares as shall be required to satisfy the requirements of outstanding Options under this Plan. 5. ADMINISTRATION. This Plan shall be administered by the Board or by a committee of not less than two members of the Board appointed to administer this Plan (the "Committee"). As used in this Plan, references to the Committee shall mean either such Committee or the Board if no committee has been established. The interpretation by the Committee of any of the provisions of this Plan or any Option granted under this Plan shall be final and binding upon the Company and all persons having an interest in any Option or any Shares purchased pursuant to an Option. *Does not include 337,777 Options granted under the predecessor plan (the 1988 Directors Stock Option Plan). 59 2 6. ELIGIBILITY. The Directors Plan provides that options may be granted only to such directors of the Company (collectively, "Optionees" and individually "Optionee") as the Committee shall select from time to time; provided, however, that no director of the Company who is also an employee of the Company or of any parent or subsidiary of the Company may be granted an Option. Optionees may be granted more than one Option; provided, however, that the aggregate number of shares subject to all Options granted to an Optionee will be as follows: (i) 100,000 shares, in the case of Options granted to the Chairman of the Board, (ii) 75,000 shares, in the case of Options granted to the Chairman of the Compensation Committee of the Board, and (iii) 50,000 shares, in the case of Options granted to any other director. Options will be granted on the date or dates specified in Section 7(d) below. The provisions of this Section 6 shall not be amended more than once every six months, other than to comply with changes in the Internal Revenue Code of 1986, as amended or the rules thereunder. 7. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine all terms and conditions of the Option, subject to the following terms and conditions: (a) Form of Option Grant. Each Option granted under this Plan shall be evidenced by a written Stock Option Grant ("Grant") in such form (which need not be the same for each Optionee) as the Committee shall from time to time approve, which Grant shall comply with and be subject to the terms and conditions of this Plan. (b) Exercise Price. The exercise price of an Option shall be the fair market value of the Shares, at the time that the Option is granted, as determined by the Committee in good faith; provided, however, that where there is a public market for the Company's Common Stock, the fair market value per Share shall be the average of the high and low closing sales price of the Company's Common Stock on the date of grant, as quoted on the New York Stock Exchange. (c) Exercise Period. Options shall be exercisable as to 1/3rd of the Shares on the first anniversary of the Grant Date and as to an additional 1/36th of the Shares for each full month thereafter, and remain exercisable for a period of ten years; provided, however, that no Option shall be exercisable after the expiration of ten years from the date of grant, and provided further that notwithstanding anything to the contrary, with respect to the initial grant of an Option, if an Optionee ceases to serve as Chairman of the Board or as Chairman of the Compensation Committee of the Board but continues to serve as a member of the Board, then Options to purchase in excess of an aggregate of 50,000 shares ("Extra Options") held by such Optionee shall terminate and may not be exercised, except within the time periods and to the extent described in the Grant, with the date of such cessation deemed the Termination Date, and the fact of such cessation deemed the cessation or termination of service as a Director, within the meaning of those Sections with respect only to such Extra Options. (d) Date of Grant. The initial Option grant to a director shall be for 20,000 shares and such Option will be deemed granted on the date of appointment to the position of director. Subsequent grants in increments of 15,000 shares up to the maximum of 50,000 shares shall be immediately after the date on which his or her outstanding options become fully exercisable. The date of grant of an Extra Option for the Chairman of the Board and Chairman of the Compensation Committee shall be immediately upon election to such position, whichever is later, or upon stockholder approval of an amendment to the Plan, authorizing such Extra Option. The Grant representing the Option shall be delivered to the Optionee within a reasonable time after the granting of the Option. 60 3 8. EXERCISE OF OPTIONS. (a) Notice. Options may be exercised only by delivery to the Company of written notice and exercise agreement in a form approved by the Committee, stating the number of Shares being purchased, the restrictions imposed on the Shares and such representations and agreements regarding the Optionee's investment intent and access to information as may be required by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased. (b) Payment. Payment for the Shares may be made (i) in cash (by check), (ii) by surrender of shares of common stock of the Company having a fair market value equal to the exercise price of the Option: (iii) where permitted by applicable law, by tender of a full recourse promissory note having such terms as may be approved by the Committee; or (iv) by any combination of the foregoing. (c) Withholding Taxes. Prior to issuance of the Shares upon exercise of an Option, the Optionee shall pay or make adequate provision for federal or state withholding obligations of the Company, if applicable. (d) Limitations on Exercise. Notwithstanding the exercise periods set forth in the Grant, exercise of an Option shall always by subject to the following limitations: (i) An Option shall not be exercisable unless such exercise is in compliance with the Securities Act of 1933, as amended, and all applicable state securities laws, as they are in effect on the date of exercise. (ii) An Option shall not be exercisable until this Plan has been approved by the stockholders of the Company. (iii) The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent the Optionee from exercising the full number of Shares as to which the Option is then exercisable. 9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee. No Option may be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. 10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the rights of a stockholder with respect to any Shares subject to an Option until the Option has been validly exercised. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date of exercise, except as provided in this Plan. The Company shall provide to each Optionee a copy of the annual financial statements of the Company, at such time after the close of each fiscal year of the Company as they are released by the Company to its stockholders. 11. ADJUSTMENT OF OPTION SHARES. In the event that the number of outstanding shares of common stock of the Company is changed by a stock dividend, stock split, reverse stock split, combination, reclassification or similar change in the capital structure of the Company without consideration, the number of Shares available under this Plan and the number of Shares subject to outstanding Options and the exercise price per 61 4 share of such Options shall be proportionately adjusted, subject to any required action by the Board or stockholders of the Company and compliance with applicable securities laws; provided, however, that no certificate or scrip representing fractional shares shall be issued upon exercise of any Option and any resulting fractions of a Share shall be ignored. 12. NO OBLIGATION TO RETAIN. Nothing in this Plan or any Option granted under this Plan shall confer to any Optionee any right to continue as a Director of the Company. 13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares upon exercise of any Options shall be subject to and conditioned upon compliance with all applicable requirements of law, including without limitation compliance with the Securities Act of 1933, as amended, any required approval by the Commissioner of Corporations of the State of California, compliance with all other applicable state securities laws and compliance with the requirements of any stock exchange on which the Shares may be listed. The Company shall be under no obligation to register the Shares with the Securities and Exchange Commission or to effect compliance with the registration or qualification requirement of any state securities laws or stock exchange. 14. ACCELERATION OF OPTIONS ON ACQUISITION. In the event of a dissolution or liquidation of the Company, a merger in which the Company is not the surviving corporation, or the sale of substantially all of the assets of the Company, any or all outstanding Options shall, notwithstanding any contrary terms of the Grant, accelerate and become exercisable in full prior to the consummation of such dissolution, liquidation, merger or sale of assets. 15. AMENDMENT OR TERMINATION OF PLAN. Subject to the limitations set forth in Section 6 above, the Committee may at any time terminate or amend this Plan in any respect (including, but not limited to, any form of Grant, agreement or instrument to be executed pursuant to this Plan); provided, however, that the Committee shall not, without the approval of the stockholders of the Company, increase the total number of Shares available under this Plan (except by operation of the provisions of this Plan) or change the class of persons eligible to receive Options. In any case, no amendment of this Plan may adversely affect any then outstanding Options or any unexercised portions thereof without the written consent of the Optionee. 16. TERM OF PLAN. Options may be granted pursuant to this Plan from time to time within a period of ten years from the date this Plan is adopted by the Board of Directors. # # # 62 5 CADENCE DESIGN SYSTEMS, INC. STOCK OPTION GRANT AGREEMENT 1993 DIRECTORS STOCK OPTION PLAN OPTIONEE:___________________________________________________ ADDRESS: ___________________________________________________ TOTAL OPTIONS GRANTED: ___________________________________ EXERCISE PRICE PER SHARE: _________________________________ DATE OF GRANT: _____________________________________________ EXPIRATION DATE: ___________________________________________ TYPE OF STOCK OPTION: NONQUALIFIED 1. GRANT OF OPTION. Cadence Design Systems, Inc., a Delaware corporation (the "Company"), hereby grants to the optionee named above ("Optionee") an option (this "Option") to purchase the total number of shares of common stock of the Company set forth above (the "Shares") at the exercise price per share set forth above (the "Exercise Price:), subject to all of the terms and conditions of this Grant and the Company's 1988 Directors Stock Option Plan as adopted July 22, 1993 (the "Plan"). 2. EXERCISE PERIOD OF OPTION. Subject to the terms and conditions of the Plan and this Grant, this Option shall become exercisable as to portions of the Shares as follows: this Option shall vest over a three-year period, becoming exercisable as to 1/3rd of the Shares on the first anniversary of the Grant Date and as to an additional 1/36th of the Shares for each full month thereafter, with the number of Shares as to which this Option may be exercised at a given time being rounded to the nearest whole number, not to exceed the total number of Shares; provided, however, that this Option shall expire on the Expiration Date set forth above and must be exercised, if at all, on or before the Expiration Date. 3. RESTRICTIONS ON EXERCISE. Exercise of this Option is subject to the following limitations: (a) This Option may not be exercised unless such exercise is in compliance with the Securities Act of 1933, as amended, and all applicable state securities laws, as they are in effect on the date of exercise. (b) This Option may not be exercised as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. 63 6 4. TERMINATION OF OPTION. Except as provided below in this Section, this Option shall terminate and may not be exercised if Optionee ceases to serve as a Director of the Company. The Board of Directors of the Company shall have discretion to determine whether Optionee has ceased to serve as a Director of the Company and the effective date on which such service terminated (the "Termination Date"). (a) If Optionee ceases to serve as a Director of the Company for any reason except death or disability, this Option, to the extent (and only to the extent) that it would have been exercisable by Optionee on the Termination Date, may be exercised by Optionee within seven months after the Termination Date, but in any event no later than the Expiration Date. (b) If Optionee's service as a Director of the Company is terminated because of the death of Optionee or disability of Optionee within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, this Option, to the extent that it is exercisable by Optionee on the Termination Date, may be exercised by Optionee (or Optionee's legal representative) within twelve months after the Termination Date but in any event no later than the Expiration Date. Nothing in the Plan or this Grant shall confer on Optionee any right to continue to serve as a Director of the Company. 5. MANNER OF EXERCISE. (a) This Option shall be exercisable by delivery to the Company of an executed written Notice and Agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Company, which shall set forth Optionee's election to exercise this Option, the number of Shares being purchased, any restrictions imposed on the Shares and such other representations and agreements regarding Optionee's investment intent and access to information as may be required by the Company to comply with applicable securities laws. (b) Such notice shall be accompanied by full payment of the exercise Price for the Shares being purchased (i) in cash (by check); (ii) by surrender of Shares of Common Stock of the Company having a fair market value equal to the Exercise Price; (iii) where permitted by applicable law, by tender of a full recourse promissory note having such terms as the Board of Directors or the committee thereof that administers the Plan may approve; or (iv) by any combination thereof. (c) Prior to the issuance of the Shares upon exercise of this Option, Optionee must pay or make adequate provision for any applicable federal or state withholding obligations of the Company. (d) Provided that such notice and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Optionee or Optionee's legal representative. 6. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of Shares shall be subject to compliance by the Company and the Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the Securities and Exchange 64 7 Commission, any state securities commission or any stock exchange to effect such compliance. 7. NON TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of the Optionee. 8. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal and California tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. There may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, of any, of the fair market value of the Shares on the date of exercise over the Exercise Price. The Company may be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. Any gain on sale of the Shares will be taxed as capital gain. 9. INTERPRETATION. Any dispute regarding the interpretation of this Grant shall be submitted by Optionee or the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee. ACCEPTANCE Optionee hereby acknowledges receipt of a copy of the Plan, represents that Optionee has read and understands the terms and provisions thereof, and accepts this Option subject to all the terms and provisions of the Plan and this Grant. Optionee acknowledges that there may be adverse tax consequences upon exercise of this Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition. ____________________________________ Optionee 65 EX-10 3 SENIOR EXECUTIVE BONUS PLAN 1 Exhibit 10.08 CADENCE DESIGN SYSTEMS, INC. SENIOR EXECUTIVE BONUS PLAN JANUARY 1, 1994 - DECEMBER 31, 1994 The purpose of the Senior Executive Bonus Plan is to motivate and reward the Senior Executives of the company to profitably grow Cadence and achieve corporate goals. The plan provides for a cash payment after January 1, 1995. The financial performance will be based on the audited financial statements. The Target Bonus Pool will be made up of the sum of each participant's salary times a percentage as assigned by the Compensation Committee. The Actual Bonus Pool will be a percentage of the Target Bonus Pool determined based on Cadence's performance against Earnings Per Share (EPS) targets. The Bonus Pool will be generated as a percentage of the target Bonus Pool as follows:
EPS Bonus Pool Percentage --- --------------------- $0.84 75% $0.92 100% $1.00 125% $1.20 150%
If Earnings Per Share fall below $0.84 or exceed $1.20, the Bonus Pool will be determined at the sole discretion of the Board of Directors. The target bonus for each Senior Executive will be pre-established by the Compensation Committee of the Board of Directors. The individual Senior Executive bonus target will be adjusted in proportion to the adjustment of the Bonus Pool, the portion of 1994 actively employed by Cadence as a Senior Executive and an individual performance factor with a range of .5 to 1.5 as assigned or approved by the Compensation Committee of the Board of Directors. There will be no adjustment for the other Senior Executives if a Senior Executive leaves the Company. The total of the individual bonuses will be controlled to the bonus pool, as adjusted by the Earnings Per Share performance factor. The Board of directors reserves the right to terminate or modify this plan at any time. The plan is only effective for 1994, and any future Senior Executive Bonus or other bonus plan is at the discretion of the Board of Directors. In order for the Bonus to be paid to a Senior Executive, he/she must be in the active employment of Cadence as of December 31, 1994. All forfeitures revert to Cadence. 66 EX-10 4 KEY CONTRIBUTOR BONUS PLAN 1 Exhibit 10.09 CADENCE, INC. KEY CONTRIBUTOR BONUS PLAN JANUARY 1, 1994 - JUNE 30, 1994 The purpose of the Key Contributor Bonus Plan is to motivate and reward key employees to profitably grow Cadence and achieve individual pre- determined goals. The plan provides for a cash payment payable by September 1, 1994. The participants will normally be Direct Reports to Officers (excluding Sales), Directors and Managers as well as other selected key individual contributors. The participants will be selected on a semi-annual basis for the appropriate one half year participation in the Plan. The Bonus Pool will be determined as follows: o Performance Gate: The Bonus Pool will be determined based on Cadence's performance against Earnings Per Share (EPS) targets. The Bonus Pool will be generated as a percentage of the target Bonus Pool as follows:
EPS Bonus Pool Percentage --- --------------------- $0.24 75% $0.26 100% $0.28 125% $0.33 150%
If Earnings Per Share fall below $0.24 or exceed $0.33 the Bonus Pool will be determined at the sole discretion of the Board of Directors. o Bonus Fund: Plan participants will be targeted for 10%, 15% or 25% of base salary during the plan period. The target level is determined by the position held. The target bonus fund will be made up of the sum of the target bonuses. o Management Judgment Bonus Fund: In addition to the target pool described above, a fund equivalent to 5% of base salary paid to participants during the plan period will be established. The fund will be adjusted up or down based on the EPS performance targets described above. This will be used to further reward individuals or work teams based on such factors as difficulty and value of objectives achieved, overall performance level on a sustained basis, contribution to the success of Cadence over time, or any other considerations determined applicable by the management of Cadence. Individual bonus awards are based on performance against specific objectives for the plan period. The award can be varied from 50% to 150% of target as follows: Minimum individual performance rating to receive a bonus is .50 and below .50 no bonus is to be paid. Maximum rating is 1.50. Rating scale is: Performance Significantly Exceeds Objectives - 1.26 to 1.50 Performance Exceeds Objectives - up to 1.25 Performance Meets Objectives - 1.00 Performance Meets Most Objectives - .75 to .99 Performance Meets Some Objectives - .50 to .74 Performance Does Not Meet Objectives - under .50 (No Bonus)
The total of the individual bonuses will be controlled to the Bonus Pool as adjusted by the plan performance factors described above. In order to receive a bonus, the individual must be an active employee as of June 30, 1994. The bonus pool will be reduced or increased for any additions or deletions during the year. No additions will be made for less than one quarter year participation. All forfeitures revert to Cadence. In the event of a death or disability, a pro-rata bonus (of target) will be paid to the employee or his/her estate if there is a Bonus Pool per this Plan. Cadence reserves the right to modify or cancel the Key Contributor Bonus Plan at any time. This Plan is only effective for the period - January 1, 1994 to June 30, 1994. Any future plan is at the discretion of Cadence. Participation in the Plan does not constitute an agreement to employ the participant for any length of time and shall not restrict the Company's right to terminate the employment of the participant for any reason and at any time. 67 EX-10 5 FIRST AMENDMENT TO THE CADENCE DESIGN 401(K) PLAN 1 EXHIBIT 10.10 FIRST AMENDMENT TO THE CADENCE DESIGN SYSTEMS, INC. 401(K) PLAN WHEREAS, Cadence Design Systems, Inc. (the "Company") amended and restated its 401(k) Plan (the "Plan"), effective January 1, 1989; and WHEREAS, effective January 1, 1990, the Company will merge the Plan with the Gateway Design Automation Corporation 401(k) Profit Sharing Plan; and WHEREAS, due to such merger the Company must amend the Plan to provide for distributions from the Plan in the form of annuities; and WHEREAS, the Company may amend the Plan pursuant to Article 18.1 thereof: NOW, THEREFORE, effective January 1, 1990, the Plan is amended as follows: 1. Subparagraph (a) of Article 1.1 shall read as follows: (a) "Accounts" shall mean a Participant's 401(k) Account, Rollover Account, Profit Sharing Account, Matching Account and Voluntary Account, or any one of such Accounts as the context may require. 2. Subparagraph (11) of Article 1.1 shall read as follows: (11) "Trust Agreement" shall mean that trust agreement entered into between the Employer and Trustee effective as of January 1, 1989, as may be amended from time to time. 68 2 3. New Subparagraph (pp) is added to Article 1.1 to read as follows: (pp) "Voluntary Account" shall mean that account of a Participant to which nondeductible employee contributions made by a Participant prior to January 1, 1990, under the terms of the Gateway Design Automation Corporation 401(k) Profit Sharing Plan shall be credited. 4. Article 4 is renamed "Rollover Contributions and Voluntary Contributions" and the following new Article 4.2 is added thereto: 4.2 Voluntary Contributions. Voluntary contributions made by a Participant prior to January 1, 1990 under the terms of the Gateway Design Automation Corporation 401(k) Profit Sharing Plan shall be held in the Participant's Voluntary Account separate from any other contributions under the Plan and any allocable forfeitures. No additional Voluntary Contributions shall be made to such Account or the Plan. 5. Articles 8.5 and 8.6 shall be redesignated Articles 8.6 and 8.7 and a new Article 8.5 shall be added to read as follows: 8.5 Voluntary Account. A separate Voluntary Account shall be established and maintained for each Participant who has made Voluntary Contributions prior to January 1, 1990, pursuant to Article 4.2 which shall be credited with such Voluntary Contributions and the Trust income allocable thereto and shall be charged with distributions therefrom and Trust losses allocable thereto. 6. Article 10.1 shall be amended to read as follows: 10.1 401(k) Accounts, Rollover Accounts and Voluntary Accounts. The full amount credited to a Participant's 401(k) Account, Rollover Account and Voluntary Account, if any, shall be one hundred percent (100%) vested and nonforfeitable at all times. 7. Article 11 shall be amended by adding the following new Article 11.4 thereto: 69 3 11.4 Notwithstanding any other provisions in this Article 11, any Employee who was employed by Gateway Design Automation Corporation ("Gateway") prior to the merger of Gateway and the Company shall be credited with all service with Gateway prior to the merger in accordance with Article 11.2. 8. Article 12.1(a) is amended by adding the following new subparagraph (3) thereto: (3) With respect only to Participants who were participants in the Gateway Design Automation Corporation 401(k) Plan which was merged into this Plan, in an annuity form of benefit. If a Participant elects such annuity form of benefit pursuant to this subparagraph, his distribution shall be made pursuant to Article 12.6. The annuity form of benefit shall not be available if the value of the Participant's vested Account does not exceed $3,500. 9. Article 12 is amended by adding the following new Article 12.6 thereto: 12.6 Payment of Benefit in the Form of Annuities. If a Participant elects an annuity form of benefit pursuant to Article 12.1(a)(3), the benefits provided by the Plan shall be distributed as follows: (a) (1) Married Participants. The benefits under the Plan for a Participant who has been married for at least one (1) year on the date the benefit payments commence, shall be in the form of a qualified joint and survivor annuity, payable in equal monthly installments, commencing on the Participant's Normal Retirement Date, or such earlier date as the Participant may elect which is after such Participants' termination of employment, for the life of the Participant with a survivor annuity for the life of the spouse which is fifty percent (50%) of the amount of the annuity payable during the joint lives of the Participant and the Participant's spouse. This qualified joint and survivor annuity shall be the Actuarial Equivalent of the value of the Participant's vested Accounts determined as of the Valuation Date coinciding with or next following the Participant's termination of employment. For purposes of this Article 12.6, "Actuarial Equivalent" shall mean a payment or series of payments mathematically equivalent to another amount based on consistently applied reasonable actuarial assumptions selected by the 70 4 Employer, if such assumptions do not result in discrimination in favor of Employees who are Highly Compensated Employees. (2) Unmarried Participants. If a Participant has not been married for at least one year on the date benefit payments commence, and does not have a former spouse or spouses who is/are entitled to survivor annuity benefits under a qualified domestic relations order as provided in Article 22.4 the benefits under the Plan for such Participant shall be in the form of a life annuity, payable in equal monthly installments, commencing on the Participants' Normal Retirement Date, or such earlier date after termination of employment as the Participant may elect, for the life of the Participant. This life annuity shall be the Actuarial Equivalent of the value of the Participants' vested Accounts determined as of the Valuation Date coinciding with or next following the Participants' termination of employment. Any Participant who has elected an annuity form of benefit, may at any time prior to the annuity starting date, revoke such election and elect to have benefits paid in one of the options set forth in Article 12.1(a), subject, however, to the provisions of Article 12.6(c). (b) Death Benefits. Upon the death of a Participant who has elected an annuity form of benefit pursuant to Article 12.1(a)(1), his or her Beneficiary shall be entitled to receive a death benefit determined as follows: (1) The death benefits, if any, payable upon the death of any Participant who is receiving (or has received) retirement benefits under the Plan will depend upon whether the particular form of annuity which such Participant is receiving (e.g., life annuity or joint and survivor annuity) provides for any survivor or other death benefits and shall be paid in accordance with the form of benefit which such Participant had been receiving. (2) If a Participant who has not begun to receive payments under the Plan either dies while in active service of the Employer, or separates from service with vested benefits and thereafter dies before the annuity starting date, the surviving spouse, if any, and the Beneficiary of the Participant shall be entitled to a death benefit determined as follows: 71 5 (A) If the Participant has been married for at least one (1) year at the time of his death, the Participant's surviving spouse shall be entitled to a qualified preretirement survivor annuity for the life of such surviving spouse which annuity shall be the Actuarial Equivalent of the amount equal to the value of fifty percent (50%) of the deceased Participant's vested Accounts as of the date of such Participant's death. Notwithstanding the foregoing however, the surviving spouse of a deceased Participant may elect, in lieu of receiving the qualified preretirement survivor annuity, to have fifty percent (50%) of the Participant's vested Accounts paid in one of the options as set forth in Article 12.1(a). Any such election shall comply with the requirements of Article 12.6(c). (B) A death benefit will be paid to the Participant's Beneficiary in an amount equal to the Participant's vested benefits at the time of the Participant's death reduced by any amount payable to a surviving spouse pursuant to Article 12.6(b)(2)(A), above. The Beneficiary may elect, with respect to any death benefit paid pursuant to this provision, that the benefit be paid in one of the options as set forth in Article 12.1(a). (c) Revocation of Election. A Participant who has elected an annuity form of benefit and the spouse or former spouse of a deceased Participant who is entitled to a qualified preretirement survivor annuity, may elect to have benefits paid in one of the options set forth in Article 12.1(a), subject to the provisions of this Article 12.6(c). (1) The election to waive the qualified joint and survivor annuity must be made within the 90-day period ending on the annuity starting date. (2) The election by the Participant to waive the qualified preretirement survivor annuity may be made or revoked at any time after the first day of the Plan Year in which the Participant attains age 35 years, but it shall become irrevocable on the Participant's death. (3) The election by the Participant's spouse to waive the qualified preretirement survivor annuity may be made any time prior to the annuity starting date. 72 6 (4) Any waiver of a qualified joint and survivor annuity or a qualified preretirement survivor annuity shall not be effective unless: (i) the Participant's spouse consents in writing to the waiver; (ii) the election designates a specific beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent); (iii) the spouse's consent acknowledges the effect of the election; and (iv) the spouse's consent is witnessed by a representative of the Plan or a notary public. Additionally, a Participant's waiver of a qualified joint and survivor annuity shall not be effective unless the election designates a form of benefit which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent). The spousal consent requirement may be waived by the Committee if there is no spouse or the spouse cannot be located, or for such other reasons authorized in applicable Treasury Regulations. (5) Any consent by a spouse obtained under Article 12.6(c)(4) (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to such spouse. A consent that permits designations by the Participant without any requirement of further consent by such spouse must acknowledge that the spouse has the right to limit consent to a specific beneficiary, and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of such rights. (6) The Committee shall furnish each Participant with an explanation of the Plan's qualified joint and survivor annuity provisions, the Participant's rights to waive such qualified joint and survivor annuity, the effect of such waiver, a general description of the eligibility conditions and other material features of the optional forms of benefit and sufficient additional information to explain the relative values of the optional forms of benefit available under the Plan, the right of a Participant's spouse to consent to such waiver, and the right to make, and the effect of a revocation of waiver. This explanation shall be furnished no less than 30 days and no more than 90 days prior to the annuity starting date and in the manner required under applicable Treasury Regulations. 73 7 (7) The Committee shall furnish each Participant with an explanation of the qualified preretirement survivor annuity, the Participant's right to waive such qualified preretirement survivor annuity, the requirement that the Participant's spouse consent to any such waiver, and the right to make, and the effect of, a revocation of such waiver. This explanation shall be furnished to the Participant within the applicable period with respect to a Participant, whichever of the following periods ends last: (i) the period beginning on the first day of the Plan Year in which the Participant attains age 32 years and ending on the last day of the Plan Year preceding the Plan Year in which the Participant attains age 35 years, (ii) a reasonable period after the individual becomes a Participant, (iii) a reasonable period ending after the qualified preretirement survivor annuity is no longer fully subsidized, (iv) a reasonable period ending after section 401(a)(11) of the Code first applies to the Participant, and (v) a reasonable period after separation from service in case of a Participant who separates before attaining age 35. For purposes of applying (ii), (iii) and (iv), a reasonable period is the one-year period ending after the date the applicable event occurs and the applicable period of such events begins one year prior to the occurrence of the enumerated events. For purposes of applying (v), the applicable period means the period beginning one year before the separation from service and ending one year after such separation. (d) Provision of Annuity Benefits Through Commercial Annuity. The Plan may provide the annuity and qualified preretirement survivor annuity benefits provided under this Article 12.6 through the purchase of an annuity contract which provides such benefits and which is owned by the Plan or distributed to the Participant, provided that such contract shall provide for the notice, election and consent provisions applicable to such benefits which are set forth in this Article 12.6 and Sections 401(a)(11) and 417 of the Code. Executed this 30th day of April 1990. CADENCE DESIGN SYSTEMS, INC. By /s/ Leonard J. LeBlanc Leonard J. LeBlanc 74 8 SECOND AMENDMENT TO THE CADENCE DESIGN SYSTEMS, INC. 401 (K) PLAN WHEREAS, Cadence Design Systems, Inc. (the "Company") amended and restated its 401(k) Plan (the "Plan", effective January 1, 1989; and WHEREAS, effective July 12, 1990, the Company will permit certain employees of Automated Systems, Inc. to participate in the Plan; and WHEREAS, the Company may amend the Plan pursuant to Article 18.1 thereof; NOW, THEREFORE, effective July 1, 1990, the Plan is amended as follows: 1 Article 1 shall be amended by modifying subparagraph (j) of Article 1.1 to read as follows: "Eligible Employee" shall mean every Employee except any Employee (1) who is not a non-resident alien, and who receives no earned income within the meaning of the Code from the Employer which constitutes income from sources within the United States within the meaning of section 861(a)(3) of the Code, (2) who is a member of a collective bargaining unit and who is covered by a collective bargaining agreement, which agreement does not specifically provide for coverage of such Employee under the Plan, or (3) who performs services as a non-exempt Employee at the Company's offices or facilities in Brookfield, Wisconsin and who is compensated on an hourly basis. 75 9 2. Article 11 shall be amended by adding the following new Article 11.5 thereto: 11.5 Notwithstanding any other provisions in this Article 11, any Eligible Employee who was employed by Automated Systems, Inc. ("ASI") prior to the merger of ASI and the Company shall be credited with all service with ASI prior to the merger in accordance with Article 11.2 Executed this 27th day of July 1990. CADENCE DESIGN SYSTEMS, INC. By: /s/ Leonard J. LeBlanc Leonard J. LeBlanc 76 10 THIRD AMENDMENT TO THE CADENCE DESIGN SYSTEMS, INC. 401(K) PLAN WHEREAS, Cadence Design Systems, Inc. (the "Company") amended and restated its 401(k) Plan (the "Plan"), effective January 1, 1989; WHEREAS, the Plan received a favorable determination letter from the Internal Revenue Service ("IRS") on March 25, 1991; WHEREAS, in order to rely on such determination letter the IRS has requested that various amendments to the Plan be adopted; WHEREAS, the Company wishes to amend the Plan to comply with the Department of Labor loan regulations; and WHEREAS, the Company may amend the Plan pursuant to Article 18.1 thereof; NOW, THEREFORE, effective January 1, 1989, unless otherwise noted, the Plan is amended as follows: 1. The first sentence of Article 1.1(h) shall be deleted in its entirety and the following shall be inserted in lieu thereof: "Compensation" shall mean for any Plan Year all wages, salaries, bonuses, commissions, fees for professional services, car allowances and other amounts received for personal services actually rendered in the course of employment with the Employer (up to $200,000, multiplied by the Adjustment Factor for Plan Years beginning after 1989) which are paid in cash or in kind to an Employee during such Plan Year or, for Plan Years beginning before January 1, 1992, if the Employer is an accrual basis taxpayer, which are accrued with respect to an Employee during such Plan Year. In applying the $200,000 limitation, the rules of section 414(q)(6) shall apply, except that "family" shall include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If in complying with section 414(q)(6) of the Code, the $200,000 limitation (as adjusted if 77 11 permitted) is exceeded, then the $200,000 limitation shall be prorated among the affected individuals in proportion to each individual's Compensation prior to the application of the $200,000 limitation." 2. Article 1.1(s) shall be deleted in its entirety and the following shall be inserted in lieu thereof: "(s) "Highly Compensated Employee" shall mean: (1) Any Employee who, during the current Plan Year or the 12month period immediately preceding the current Plan Year: (A) Was at any time a 5% owner, as defined in section 416(i)(1)(A)(iii) of the Code; (B) Received compensation in excess of $75,000 (adjusted for the Adjustment Factor); (C) Received compensation in excess of $50,000 (adjusted for the Adjustment Factor) and was in the top twenty percent (20%) of Employees, ranked on the basis of compensation for such Plan Year; or (D) Was at any time as officer, within the meaning of section 416(i) of the Code, and received compensation greater than fifty percent (50%) of the dollar limitation in effect under section 415(b)(1)(A) of the Code for such Plan Year. (2) Notwithstanding any other provision in the Plan, subparagraphs (1)(B), (1)(C) or (1)(D) above shall not apply to an Employee for the current Plan Year unless: (A) Such Employee was a Highly Compensated Employee for the preceding 12-month period by application of subparagraphs (1)(B), (1)(C) or (1)(d) above; or (B) Such Employee is a member of the group of the 100 Employees paid the greatest compensation for the current Plan Year. (3) For purposes of subparagraph (1)(D) above, no more than 50 Employees (or, if lesser, the greater of three Employees or ten percent (10%) of Employees) shall be treated as officers. If, for any Plan Year, no officer is described 78 12 in subparagraph (1)(D), the highest paid officer of the Employer for such Plan Year shall be treated as described in subparagraph (1)(D). (4) For purposes of this Article 1.1(s), a former Employee shall be treated as a Highly Compensated Employee if (A) Such Employee was a Highly Compensated Employee when such Employee separated from service; or (B) Such Employee was a Highly Compensated Employee at any time after attaining age 55. (5) For purposes of determining Highly Compensated Employees under subparagraphs (1)(C) and (1)(D), the Employees described in section 414(q)(8) of the Code shall be excluded. (6) For purposes of this Article 1.1(s), compensation shall be defined as in Article 1.1(h), except that compensation shall include any amount which is contributed by the Employer pursuant to a salary reduction agreement and which is not includable in the Employee's gross income under section 125, 402(a)(8), 402(h)(1)(B) or 403(b) of the Code. (7) If the Employer is eligible under section 414(q)(12)(B) of the Code to elect to determine Highly Compensated Employees pursuant to the method described in section 414(q)(12)(A) of the Code, then for purposes of determining the Highly Compensated Employees of such Employer, subparagraph (1)(B) above shall be applied by substituting "$50,000" for "75,000," and subparagraph (1)(C) above shall not apply. (8) For purposes of this Article 1.1(s), the Employer and any Related Company shall be treated as a single Employer of an Employee. (9) Notwithstanding any other provision in the Plan, the Employer may elect to determine Highly Compensated Employees on the basis of the "calendar year calculation election" set forth in the regulations promulgated under the Internal Revenue Code. (10) Notwithstanding any other provision in the Plan, the determination of Highly Compensated Employees shall be made in accordance with section 414(q) of the Code and the regulations promulgated thereunder. 79 13 3. A new Article 3.3(d) shall be added as follows: "(d) The Excess Deferrals which would otherwise be distributed to a Participant pursuant to this Article 3.3 shall be reduced by the amount of Excess Contributions previously distributed to such Participant for the Plan Year, in accordance with regulations promulgated by the Secretary of the Treasury." 4. Article 3.7(c)(2) shall be deleted in its entirety and the following inserted in lieu thereof: (2) For purposes of determining the Deferral Percentage of a Participant who is a Highly Compensated Employee and is either a 5% owner as defined in Article 21.5(3)(a) or one of the ten most Highly Compensated Employees of the Employer, the 401(k) Contributions and compensation of such Participant shall include the 401(k) Contributions and compensation of Family Members, and such Family Members shall be disregarded in determining the Deferral Percentages for Participants who are Non-Highly Compensated Employees." 5. A new Article 3.7(c)(6) shall be added as follows: "(6) 401(k) Contributions shall relate to a Participant's compensation that either would have been received by the Participant during the Plan Year but for the Participant's election to make 401(k) Contributions or is attributable to services performed by the Participant during the Plan Year and, but for the Participant's election to make 401(k) Contributions, would have been received by the Participant within two and one-half months after the close of the Plan Year." 6. Article 3.8(b)(ii) shall be deleted in its entirety and the following shall be inserted in lieu thereof: "(ii) The income allocable to Excess Contributions shall be equal to the sum of the allocable gain or loss for the Plan Year for which the Excess Contributions were made, and the allocable gain or loss for the period between the end of such Plan Year and the date of distribution, as determined as follows: (A) The income allocable to a Participant's Excess Contributions for a Plan Year shall be determined by multiplying the total income for the Plan Year allocable to the Participant's 401(k) Contributions (including amounts treated as 401(k) Contributions) by a fraction, the numerator of which shall be the Participant's Excess Contributions, and the denominator of which shall be the total balance of the Participant's 401(k) Account (including amounts treated as 401(k) Contributions) as of 80 14 the end of the Plan Year, reduced by the gain allocable to such Account for the Plan Year, and increased by the loss allocable to such Account for the Plan Year. (B) The allocable income shall include income for the period between the end of the Plan Year for which the Excess Contributions were made, and the date on which the corrective distribution is made to the Participant. For purposes of calculating the allocable income for this period, the Committee, in its sole discretion, shall select one of the two following methods, provided that the method selected shall be applied on a uniform and nondiscriminatory basis for all Participants with Excess Contributions: (1) The "fractional method," under which the income for the period between the end of the Plan Year and the last day of the month preceding the distribution date shall be multiplied by a fraction determined under the method described in Article 3.8(b)(ii)(A) above, or (2) The "10% method," under which 10% of the allocable income determined pursuant to Article 3.8(b)(ii)(A) above shall be multiplied by the number of calendar months that have elapsed between the end of the Plan Year and the distribution date. For purposes of determining the number of calendar months under the 10% method, a distribution made on or before the fifteenth day of a month shall be treated as having been made on the last day of the preceding month and a distribution occurring after the fifteenth day of a month shall be treated as having been made on the first day of the following month." 7. A new Article 3.8(b)(iii) shall be added as follows and Article 3.8(b)(iii) shall be redesignated as Article 3.8(b)(iv): "(iii) For purposes of this Article 3.8(b), if the Highly Compensated Employee's Deferral Percentage is determined by combining the 401(k) Contributions and compensation of all Family Members pursuant to Article 3.7(c)(2), then the maximum amount of 401(k) Contributions permitted is determined in accordance with the leveling method set forth above in Article 3.8(b)(i)(B), and the Excess Contributions for the Family Members are allocated among the Family Members in proportion to their 401(k) Contributions." 8. A new Article 3.8(b)(v) shall be added as follows: "(v) If Excess Contributions and allocable income for a Plan Year are not corrected by distribution before the close of the first 2-1/2 months of the following Plan Year, the Employer shall be subject to a 10% excise tax on the amount of such Excess Contributions, pursuant to section 4979 of the Code. Such excise tax shall be 81 15 due at the same time as the Employer's income tax for its taxable year with or within which the Plan Year ends." 9. A new Article 6.2(c)(5) shall be added as follows and Article 6.2(c)(5) shall be redesignated as Article 6.2(c)(6): "(5) Any Matching Contributions which are taken into account for purposes of determining a Participant's Deferral Percentage pursuant to Article 3.7(c)(4) for any Plan Year shall not be taken into account for purposes of determining such Participant's Contribution Percentage." 10. Article 6.3(c) shall be deleted in its entirety and the following shall be inserted in lieu thereof "(c) The income allocable to Excess Matching Contributions shall be equal to the sum of the allocable gain or loss for the Plan Year for which the Excess Matching Contributions were made, and the allocable gain or loss for the period between the end of such Plan Year and the date of distribution or forfeiture, determined in accordance with the method set forth in Article 3.8(b)(ii), except that "Excess Matching Contributions," "Matching Contributions," and "Matching Contributions Account" shall be substituted for "Excess Contributions," "401(k) Contributions," and "401(k) Account," respectively. 11. A new Article 6.3(e) shall be added as follows: "(e) For purposes of this Article 6.3, if the Highly Compensated Employee's Contribution Percentage is determined by combining the Matching Contributions and compensation of all Family Members pursuant to Article 6.2(c)(2), then the maximum amount of Matching Contributions permitted is determined in accordance with the leveling method set forth above in Article 6.3(b)(2), and the Excess Matching Contributions for the Family Members are allocated among the Family Members in proportion to their Matching Contributions." 12. A new Article 6.5 shall be added as follows: 6.5 Multiple Use of Alternative Limitation. (a) In order for the Plan to comply with the requirements of sections 401(k) and 401(m) of the Code, the Plan must satisfy the tests set forth in Articles 3.7(a) and 6.2(a). However, the Employer must avoid the multiple use of the alternative limitation as set forth in Articles 3.7(a)(2) and 6.2(a)(2) with respect to Highly Compensated Employees. 82 16 (b) For purposes of this Article 6.5, a multiple use of the alternative limitation is present when all of the following conditions occur: (1) One or more Highly Compensated Employees of the Employer are eligible to participate in a cash or deferred arrangement subject to section 401(k) of the Code, and in the plan maintained by the Employer subject to section 401(m) of the Code; (2) The sum of the Actual Deferral Percentage of the entire group of eligible Highly Compensated Employees under such arrangement subject to section 401(k) of the Code and Actual Contribution Percentage of the entire group of eligible Highly Compensated Employees under such plan subject to section 401(m) of the Code exceeds the Aggregate Limit; (3) The Actual Deferral Percentage of the entire group of eligible Highly Compensated Employees under the arrangement subject to section 401(k) of the Code exceeds 125 percent of the Actual Deferral Percentage of the entire group of eligible NonHighly Compensated Employees; and (4) The Actual Contribution Percentage of the entire group of eligible Highly Compensated Employees under such plan subject to section 401(m) of the Code exceeds 125 percent of the Actual Contribution Percentage of the entire group of eligible NonHighly Compensated Employees. (c) For purposes of the this Article 6.5, the Aggregate Limit is defined as the greater of: (1) The sum of: (A) 125 percent of the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage, and (B) Two (2) percentage points plus the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. In no event, however, shall this amount exceed twice the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage; or (2) The sum of. (A) 125 percent of the lesser of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage, and 83 17 (B) Two (2) percentage points plus the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. In no event, however, shall this amount exceed twice the greater of the Relevant Actual Deferral Percentage or the Relevant Actual Contribution Percentage. (d) For purposes of this Article 6.5, the term "Relevant" Actual Deferral Percentage and term "Relevant" Actual Contribution Percentage mean the Actual Deferral Percentage or the Actual Contribution Percentage of the eligible group of Non-Highly Compensated Employees. (e) In the event a multiple use of the alternative limitation as described in Article 6.5(b) is present, such multiple use shall be corrected by reducing the Actual Contribution Percentage of the Highly Compensated Employees so that the combined Actual Deferral Percentage and the Actual Contribution Percentage does not exceed the Aggregate Limit. The required reduction shall be treated as an Excess Matching Contribution as described in Article 6.3(b). The method of correct to be used to reduce the Actual Contribution Percentage shall be the method as set forth in Article 6.3(b)(2)." 13. Article 9.1 shall be deleted in its entirety and the following shall be inserted in lieu thereof: "9.1 Allocation of 401(k) Contributions. Any 401(k) Contributions made by the Employer on behalf of a Participant shall be allocated to that Participant's 401(k) Account as of a date no later than the last day of the Plan Year for which such 401(k) Contributions were made." 14. Article 12.3(a) shall be deleted in its entirety and the following shall be inserted in lieu thereof: "(a) Distribution of the balance then standing in the Participant's Accounts shall be made or commenced as soon as administratively feasible after the value of such Participant's Accounts is determined pursuant to Article 12.2, except that if the value of the Participant's Accounts exceeds $3,500, no distribution shall be made prior to the Participant's Normal Retirement Date without the prior written consent of the Participant and, when applicable, the Participant's spouse." 15. Effective January 1, 1990, the last sentence of Article 12.4 of the Plan shall be deleted in its entirety and the following shall be inserted in lieu thereof: 84 18 "Except as provided in Article 13.1, no terminated Participant shall be eligible for a loan pursuant to Article 13 or a financial hardship withdrawal in accordance with Article 14.1." 16. Effective October 19, 1989, Article 13.1 of the Plan shall be deleted in its entirety and the following shall be inserted in lieu thereof: "13.1 Requirements. Upon written application, the Committee may direct the Trustee to make a loan to a Participant or a former Participant who is a "party in interest" within the meaning of Section 3(14) of ERISA and who has not received the entire amount of his or her vested benefit, in accordance with the following rules: (a) The principal amount of a loan shall not exceed the lesser of either paragraph (1) or (2) below: (1) $50,000, reduced by the Participant's highest outstanding loan balance during the 1 year period ending on the day before the day on which the current loan is made. For purposes of determining the Participant's highest outstanding loan balance, all loans made to the Participant from the Plan and any other qualified plan maintained by the Company or a Related Company shall be aggregated. (2) 50% of the Participant's vested interest in his Accounts, reduced in either case by the current outstanding balance of all other loans to the Participant from the Plan and any other qualified plan maintained by the Company or a Related Company. Notwithstanding the foregoing, the principal amount of a loan from the Plan to the Participant may not exceed seventy percent (70%) of the vested account balance of the Participant's Accounts (as of the last Valuation Date for which valuation is available at the time of such loan, less subsequent distributions and outstanding loans) which are invested in investment funds other than a money market fund and one hundred percent (100%) of the vested account balance of the Participant's Accounts (as of the last Valuation Date for which valuation is available at the time of such loan, less subsequent distributions and outstanding loans) which are invested in a money market fund. (b) Loans shall be made available to all Participants on a reasonably equivalent basis. (c) Loans must be secured by the Participant's vested interest in his Accounts. 85 19 (d) Loans must be evidenced by the borrowing Participant's promissory note for a fixed term not to exceed five (5) years unless the proceeds of the loan are used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the Participant, in which case such loan must be required to be repaid within thirty (30) years (effective June 1, 1990, ten (10) years). Loans for the acquisition of the Participant's principal residence are referred to herein as Residence Loans and all other loans are to be referred to as General Loans. (e) A loan shall bear a reasonable rate of interest and require regular, periodic repayment through substantially level amortization and payments not less frequently than quarterly over the life of the loan. (f) A loan shall not be made is such loan would constitute a prohibited transaction under the applicable sections of ERISA and the Code, and the regulations promulgated thereunder. (g) A Participant may not obtain more than two loans from the Plan in any Plan Year. (h) Loans shall be for the minimum amount of Five Hundred Dollars ($500.00). (i) Loans may be prepaid in full without penalty. No partial payment is permitted. (j) Repayment of all loans shall be through payroll deduction, unless the Participant is on an unpaid leave of absence or on disability leave, in which case repayment of the loan may be made by personal check. A Participant may not terminate his payroll deduction authorization. (k) Loans shall become immediately due and payable on the Participant's termination of employment with the Employer, unless the Participant is a "party in interest" within the meaning of Section 3(14) of ERISA. (1) Loans may be immediately due and payable, in the sole discretion of the Committee, if the Participant fails to make any installment when due. (m) In the event of default by a Participant, such Participant's Accounts may be offset by the outstanding loan balance at the time the Participant becomes entitled to a distribution from the Plan. 86 20 (n) Loans must be made in accordance with such other guidelines and policies as shall be adopted from time to time by the Committee which, upon adoption, shall constitute part of the Plan and which shall include such provisions as may be required by final regulations promulgated by the Department of Labor." 17. Effective January 1, 1990, the first sentence of Article 13.2 shall be deleted in its entirety and the following shall be inserted in lieu thereof: "The principal borrowed by the Participant shall be funded first from the Participant's Voluntary Account, then from the Participant's Rollover Account, then from the Participant's Profit Sharing Account, then from the Participant's Matching Account, and then from the Participant's 401(k) Account." 18. Effective January 1, 1990, the first sentence of Article 14.1(f) shall be deleted in its entirety and the following shall be inserted in lieu thereof: "Financial hardship withdrawals shall first be made from a Participant's Voluntary Account, then from the Participant's Rollover Account, then from the Participant's Profit Sharing Account, then from the Participant's Matching Account, and then from the Participant's 401(k) Account." 19. The first sentence of the second paragraph of Article 21.1 shall be deleted in its entirety and the following shall be inserted in lieu thereof: "In determining the value of Accounts of the Participants for purposes of the 60% Test, any distributions made with respect to an Employee under the Plan during the five year period ending on the determination date or any distributions under a terminated plan which if it had not been terminated would have been part of a Required Aggregation Group, shall be taken into account. In determining the value of Accounts of Participants for purposes of the 60% Test, any contributions to the Plan made pursuant to Article 4 initiated by an Employee and not made from a plan maintained by the Employer shall not, except to the extent provided by Treasury Regulations promulgated under section 416(g)(4)(A) of the Code, be taken into account." Executed this 24th day of July 1991. CADENCE DESIGN SYSTEMS, INC. By: /s/ Leonard J. LeBlanc Leonard J. LeBlanc 87 21 EXHIBIT A FOURTH AMENDMENT TO THE CADENCE DESIGN SYSTEMS, INC. 401(K) PLAN WHEREAS, Cadence Design Systems, Inc. (the "Company") amended and restated the Cadence Design Systems, Inc. 401(k) Plan (the "Plan"), effective January 1, 1989; WHEREAS, the Company wishes to amend the Plan in order to provide that a participant may not have more than two loans outstanding at one time; and WHEREAS, the Company may amend the Plan pursuant to Article 18.1 thereof. NOW, THEREFORE, effective, September 1, 1991, the Plan is amended as follows: Article 13.1(g) of the Plan shall be deleted in its entirety and the following shall be inserted in lieu thereof: "(g) A Participant may not have more than two loans outstanding from the Plan at any time." Executed this 29th day of October 1991. CADENCE DESIGN SYSTEMS, INC. By: /s/ Leonard J. LeBlanc Leonard J. LeBlanc 88 EX-10 6 RAY BINGHAM LETTER 1 Exhibit 10.24 May 12, 1993 Ray Bingham 11645 Southwest Military Lane Portland, OR 97219 Dear Ray, We are pleased to offer you the position of Executive Vice President and CFO reporting to me. Your salary will be paid at the annualized rate of $300,000. In this position you will become eligible for the Executive Bonus Program targeted at $200,000 annually. Actual bonus payment is based on company performance and your individual achievements and is payable in February of the following year. For 1993 we will guarantee a pro-rata share of the Executive Bonus at target, with upside based upon company and individual performance. In addition, you will be issued an option to purchase 300,000 shares of Cadence Design Systems Common Stock, subject to approval by the Compensation Committee of the Board of Directors. Options are generally approved and granted every two weeks by the Compensation Committee at the average of the high and low market price of the Company's Common Stock on that date. Your options will vest 25% at the end of your first year of employment and monthly thereafter with full vesting occurring at the end of four years. Please note that this offer is contingent upon receipt of positive reference checks by Cadence to be completed no later than Tuesday, May 18, 1993. Cadence offers three weeks vacation and 11 paid holidays per year. We also provide a wide variety of health and welfare benefits through Cadence Compositions, our cafeteria style benefits plan. Under this plan, you will be able to choose from several different options in each benefit area including Medical, Dental, Vision, Life and Disability Insurance. You also have the option of enrolling in reimbursement accounts which allow you to pay for health and dependent care expenses on a pre-tax basis. (Enclosed is a "Benefits Portfolio" containing detailed information about all of our programs.) Since joining Cadence will require you to relocate to the San Jose area, we will reimburse you for your relocation expenses outlined in our summary, a copy of which is attached for your information. Please contact Mary Dyer at (408) 894-3436 for assistance in the relocation process. If you voluntarily terminate prior to 12 months after initially reporting to Cadence, all reimbursements and/or payments for relocation will become immediately due and payable to Cadence according to the following schedule: 1-90 days after reporting 100% 91-180 days after reporting 70% 181-365 days after reporting 40% after 1 year 0%
In accordance with the Immigration Reform and Control Act of 1986, you must be a United States citizen, or have authorization to work in the United States. In either case, verification is required before you can be placed on the Cadence payroll. 89 2 We wish to remind you that Cadence has a policy of non-disclosure to anyone within our company of any confidential and/or proprietary information regarding your current employer and/or anyone else with whom you have signed a non-disclosure or similar agreement. While we hope and expect that this will be the beginning of a long and rewarding employment relationship, you are not being promised any particular term of employment and you should be aware that either you or Cadence may terminate the employment relationship at any time for any reason. No one at Cadence is empowered, unless specifically authorized in writing by the Board of Directors, to make any promise, expressed or implied, that employment is for any minimum or fixed term or that cause is required for the termination of the employment relationship. In the first year of employment, if you are terminated by Cadence for reasons other than "cause", Cadence will provide you severence at your current base salary, including medical benefits and stock vesting for one year from the date of termination notification. This severence agreement shall terminate in the event that you take a new position with an electronic design automation company that is a direct competitor with our then current tools and technologies. Ray, I am confident that you will quickly become a key contributor. Your experience and our needs are a great match! For various reasons, offers of employment remain open for a short period of time. Unless otherwise notified, this offer will expire on May 28, 1993. Please return a signed copy of this offer letter and the Employee Profile in the enclosed envelope and retain the original offer letter for your files. If you have any questions, please feel free to call me. I can't wait to get going! Sincerely, /s/ Joseph B. Costello Joseph Costello President and CEO Enclosures: Cadence Compositions Employee Profile Relocation Summary XXXXXX This is to verify my acceptance of the above stated offer: /s/ Ray Bingham May 12, 1993 Ray Bingham Date June 14, 1993 Starting Date 90 EX-10 7 ROBERT LEACH LETTER 1 Exhibit 10.25 May 17, 1993 Robert Leach 4400 Dulcinea Court Woodland Hills, CA 91364 Dear Bob, We are pleased to offer you the position of Senior Vice President, Consulting reporting to me. Your salary will be paid at the annualized rate of $300,000. In this position you will become eligible for the Executive Bonus Program targeted at $150,000 annually. Actual bonus payment is based on company performance and your individual achievements and is payable in February of the following year. For 1993 we will guarantee a pro-rata share of the Executive Bonus at target, with upside based upon company and individual performance. In addition, you will be issued an option to purchase 200,000 shares of Cadence Design Systems Common Stock, subject to approval by the Compensation Committee of the Board of Directors. Options are generally approved and granted every two weeks by the Compensation Committee at the average of the high and low market price of the Company's Common Stock on that date. Your options will vest 25% at the end of your first year of employment and monthly thereafter with full vesting occurring at the end of four years. Please note that this offer is contingent upon receipt of positive reference checks by Cadence to be completed no later than May 24,1993. Cadence offers three weeks vacation and 11 paid holidays per year. We also provide a wide variety of health and welfare benefits through Cadence Compositions, our cafeteria style benefits plan. Under this plan, you will be able to choose from several different options in each benefit area including Medical, Dental, Vision, Life and Disability Insurance. You also have the option of enrolling in reimbursement accounts which allow you to pay for health and dependent care expenses on a pre-tax basis. (Enclosed is a "Benefits Portfolio" containing detailed information about all of our programs.) Since joining Cadence will require you to relocate to the San Jose area, we will reimburse you for your relocation expenses outlined in our summary, a copy of which is attached for your information. Please contact Mary Dyer at (408) 894-3436 for assistance in the relocation process. If you voluntarily terminate prior to 12 months after initially reporting to Cadence, all reimbursements and/or payments for relocation will become immediately due and payable to Cadence according to the following schedule: 1-90 days after reporting 100% 91-180 days after reporting 70% 181-365 days after reporting 40% after 1 year 0%
In accordance with the Immigration Reform and Control Act of 1986, you must be a United States citizen, or have authorization to work in the United States. In either case, verification is required before you can be placed on the Cadence payroll. 91 2 We wish to remind you that Cadence has a policy of non-disclosure to anyone within our company of any confidential and/or proprietary information regarding your current employer and/or anyone else with whom you have signed a non-disclosure or similar agreement. While we hope and expect that this will be the beginning of a long and rewarding employment relationship, you are not being promised any particular term of employment and you should be aware that either you or Cadence may terminate the employment relationship at any time for any reason. No one at Cadence is empowered, unless specifically authorized in writing by the Board of Directors, to make any promise, expressed or implied, that employment is for any minimum or fixed term or that cause is required for the termination of the employment relationship. Bob, I am confident that you will quickly become a key contributor. Your experience and our needs are a great match! For various reasons, offers of employment remain open for a short period of time. Unless otherwise notified, this offer will expire on May 28, 1993. Please return a signed copy of this offer letter and the Employee Profile in the enclosed envelope and retain the original offer letter for your files. If you have any questions, please feel free to call me. I can't wait to get going! Sincerely, /s/Scott Sherwood For Joseph Costello President and CEO Enclosures: Cadence Compositions Employee Profile Relocation Summary XXXXXX This is to verify my acceptance of the above stated offer: /s/ Robert Leach May 19, 1993 Robert Leach Date June 14, 1993 Starting Date 92 EX-10 8 MONTAGUE INVESTORS, L.P. ACQUISITION LETTER 1 Exhibit 10.26 March 9, 1994 Montague Investors, L.P. c/o Taube Investments, Inc. 1050 Ralston Avenue Belmont, CA 94022 Attention: Thaddeus N. Taube David M. Thede Thede Investments, Inc. 19400 Stevens Creek Blvd., Suite 200 Cupertino, CA 95104 Re: Acquisition of Interests in C.T. Montague I and II, L.P. Gentlemen; As of June 17, 1991, C.T. Properties, Inc. (the "General Partner"), as general partner, and Cadence Design Systems, Inc. ("Cadence"), Montague Investors, L.P. ("Montague") and David M. Thede ("Thede"), as limited partners, entered into a limited partnership agreement and thereby formed C.T. Montague I, L.P. (the "Partnership"). Cadence and Thede are the sole shareholders of the General Partner, which has two directors. Thede is the President and one director of the General Partner; H. Raymond Bingham, Executive Vice President and Chief Financial Officer of Cadence, is the Secretary and the other director of the General Partner. Thede and Cadence entered into a voting agreement dated as of June 14, 1991 (the "Voting Agreement") in order to facilitate certain management functions of the General Partner. The General Partner has a one percent interest in the Partnership as a general partner; Cadence, Thede and Montague have, respectively, 46.5%, 22.5% and 30% limited partner interests in the Partnership. The Partnership owns land improved with an office building (the "Project"), which is leased to Cadence and encumbered by a mortgage in favor of the Bank of Boston. The General Partner, as general partner, and Thede and Cadence, as limited partners, are also partners in C.T. Montague lI, L.P. (the "Second Partnership"), which owns unimproved land adjacent to the Project. By this letter, Cadence offers to acquire, on the terms and conditions set forth below, all of Thede's ownership interests in the Partnership, the Second Partnership and the General Partner and all of Montague's ownership interests in the Project (which Montague will hold, at Closing, after redemption of Montague's entire interest in the Partnership in exchange for conveyance to Montague of an undivided ownership interest in the Project). By accepting this offer and consummating the transactions contemplated hereby, Cadence will be the only limited partner of the Partnership and Second Partnership and the only shareholder of the General Partner, and all parties will waive any prior claims against the others, the General Partner, the Partnership and the Second Partnership. 93 2 1. Price, Cadence will pay Thede, in cash at the Closing, $3,290,299 subject to adjustment as provided below (the "Thede LP Price") for his entire limited partner interest in the Partnership (the "Thede LP Interest") and $74,619 subject to adjustment as provided below (the "Thede GP Price") for his entire stock interest in the General Partner (the "Thede GP Interest"). Cadence will pay Montague in cash at the closing, $7,841,972 subject to adjustment as provided below (the "Montague Price") for all of the Montague Project Interest (as defined in Paragraph 2 below). As of March 15, 1994, the Partnership will have approximately $3,700,000 of cash on hand. Cadence will also pay Thede in cash at the Closing $1,300,000, without further adjustment, for his entire limited partner interest in the Second Partnership (the "Thede SP Price"). The consideration described above and the mutual covenants set forth below are acknowledged by all parties to be adequate. If, through no fault of Thede or Montague, the Closing occurs after March 15, 1994, the Thede LP Price, the Thede GP Price and the Montague Price will be increased by, respectively, $902.35, $20.46, and $2,149.68 for each day of such delay. 2. Exchange. The Partnership will convey to Montague, prior to Closing and in complete redemption of Montague's entire interest in the Partnership (the "Montague LP Interest"), a 30% undivided interest in the Project (the "Montague Project Interest"). Montague will convey its interest in the Partnership back to the Partnership by execution and delivery of a redemption in the form attached hereto as Exhibit A-1; and the Partnership will convey the Montague Project Interest to Montague by execution and delivery of a standard form grant deed. At the Closing, Montague will consummate a tax deferred exchange for the Montague Project Interest pursuant to Section 1031 of the Internal Revenue Code (the "Exchange"); provided that Montague will pay all expenses in connection with the Exchange and will indemnify Cadence, Thede and the Partnership against any adverse tax consequences or governmental claims resulting from the Exchange (including any and all transfer taxes); and provided further that the Exchange will not delay the Closing. Cadence, Thede and the Partnership agree to cooperate with and accommodate Montague in connection with the Exchange. Notwithstanding any other provision of this agreement, Montague will have the right and option, exercisable by notice to Cadence and the Partnership at any time prior to the conveyance of the Montague Project Interest to Montague as provided above, to sell the Montague LP Interest to Cadence in lieu of consummating the Exchange, in which event at the Closing (i) Montague will convey the Montague LP Interest to Cadence by execution and delivery of an assignment in the form attached hereto as Exhibit A-5, (ii) Cadence will pay the Montague Price to Montague by cashiers check or wire transfer as Montague may elect, and (iii) Paragraphs 3(a), 3(b) and 6(d)(3) shall be deemed modified accordingly. 3. Closing. Subject to the provisions of Paragraph 10 below, the Closing will take place at 1:30 PM on March 15, 1994, at the Cadence offices; provided that the date, time and/or place of the Closing may be changed by mutual agreement of all parties, and provided further that if any of the conditions to the Closing set forth in Paragraph 6 below are not satisfied by March 15, 1994, the party to be benefited by such unsatisfied conditions shall have the right and option, but not the obligation, to extend the date of the Closing until a weekday selected by such party that is no more than five days following the subsequent satisfaction or waiver of such condition. At the Closing (or, in the case of delivery of the Partnership books and records), within 15 days after the Closing), the following will occur: a. Thede will convey the Thede SP, LP and GP Interests to Cadence by execution and delivery of assignments in the forms attached hereto as Exhibits A-2, A-2a and A-3, and, consistent with its use of the Exchange, Montague will cause the Montague Project Interest to be conveyed to Cadence by execution and delivery of a standard form grant deed. 94 3 b. Cadence will pay, by cashiers check or wire transfer as the recipient may elect, (i) to Thede, the Thede SP Price, the Thede LP Price and the Thede GP Price, and (ii) to a party other than Montague, as Montague may direct to effectuate the Exchange, the Montague Price. c. The parties will execute and deliver to each other mutual releases in the form of Exhibit B. d. Thede will deliver to the Secretary of the General Partner his resignation as President and a director of the General Partner. e. Thede and Cadence will execute and deliver to each other the Termination of Voting Agreement in the form attached hereto as Exhibit C, which will include Montague's and Mr. Taube's consent. f. Thede will execute and deliver to the Secretary of the General Partner whatever documents are required to remove Thede as a signatory of all bank accounts of the Partnership and the General Partner. g. Thede will deliver all of the Partnership books and records to Cadence; provided that (i) prior to the Closing Thede may make copies (at the Partnership's expense up to $2500) of any such books and records which Thede may wish to retain following the Closing and (ii) for a period of at least five years following the Closing, Cadence will retain the originals of, and provide Thede reasonable access to, all books and records it receives hereunder. h. The General Partner will deliver its consent to all assignments of limited partner interests in the form of Exhibit A-4. 4. Due Diligence. Cadence, Thede and Montague acknowledge that they had access to all books, records and other information relating to the Partnership, the Second Partnership and the Project necessary for them to make an informed decision whether to purchase and sell the interests pursuant to this agreement; all are sophisticated and capable of protecting their own interests. Without limiting the generality of the foregoing, and without negating its reliance on the representations and warranties of Thede and Montague set forth in Paragraph 5 below, Cadence acknowledges that it has reviewed the preliminary title report for the Project attached hereto as Exhibit E-1 (the "Title Report") and the UCC search reports for the Partnership and the General Partner attached hereto as Exhibit E-2 (the "UCC Reports") and that it is satisfied with, and accepts, the status of title to the Project and the existence of security interests in Partnership property disclosed by the Title Report and the UCC Reports. 5. Representations and Warranties. Each of the parties makes the representations and warranties set forth for it below, hereby certifying that such representations and warranties are true and complete as of the date hereof and/or will be true and complete at the Closing, and acknowledges that the other parties will rely upon such representations and warranties in entering into and undertaking their respective obligations under this agreement. Such representations and warranties will survive the Closing; provided that the representations and warranties in Subparagraph (a)(3) below will terminate one year following the Closing. a. Thede. Thede represents and warrants that: (1) He owns the Thede SP, LP and GP Interests free and clear of all forms of claims by third parties, including governmental agencies. 95 4 (2) He has the requisite authority, and the consent of any third parties whose consent is required (including his spouse), to convey the Thede SP, LP and GP Interests to Cadence under the terms of this agreement and to enter into this agreement. (3) To the best of his actual knowledge, neither the General Partner, the Second Partnership nor the Partnership (i) is a party to or otherwise bound by any agreements imposing a material obligation on the General Partner, the Second Partnership or the Partnership other than the contracts identified in the List of Material Contracts attached hereto as Exhibit F, complete copies of which contracts have been delivered to Cadence for review, or (ii) is subject to any material liabilities, obligations (other than the usual obligations incurred in the ordinary course of business), pending claims or governmental actions other than as disclosed in the Title Report, the UCC Reports or the Schedule of Exceptions to Representations and Warranties attached hereto as Exhibit G. As used herein, "material" means involving an obligation exceeding $10,000 within any one year period or a liability, claim or action exceeding $10,000. b. Montague. Montague represents and warrants that: (1) It owns the Montague LP Interest and, assuming the Partnership conveys the Montague Project Interest to Montague pursuant to Paragraph 2 above, it will own the Montague Project Interest, in each case free and clear of all forms of claims by third parties, including governmental agencies, other than, in the case of the Montague Project Interest, any liens, claims or encumbrances affecting the Partnership's title to the Project at the time the Montague Project Interest is conveyed to Montague pursuant to Paragraph 2 above. (2) It has the requisite authority, and the consent of any third parties whose consent is required (including general and limited partners of Montague and their spouses), to enter into this agreement, to convey the Montague LP Interest back to the Partnership in exchange for conveyance from the Partnership of the Montague Project Interest, and to cause the Montague Project Interest to be conveyed to Cadence under the terms of this agreement. (3) All requisite partnership action of Montague necessary to authorize and implement this transaction has been duly taken. c. Cadence. Cadence represents and warrants that: (1) It has the requisite authority, and the consent of any third parties whose consent is required, to enter into this agreement and to purchase and pay for the Thede SP, LP and GP Interests and the Montague Project Interest under the terms of this agreement. (2) All requisite action of the Cadence Board of Directors necessary to authorize and implement this transaction has been duly taken. (3) It is, to the best of its actual knowledge, an accredited investor within the meaning of Regulation D under the Securities Act of 1933; and it is acquiring the Thede LP, SP and GP Interests for its own account, for investment, without a view to distribution of the same. d. Partnership. Partnership represents and warrants that: (1) It has the requisite authority, and the consent of any third parties whose consent is required, to enter into this agreement and to convey the Montague Project Interest to Montague in exchange for redemption of Montague's entire interest in the Partnership under the terms of this agreement. 96 5 (2) All requisite action of the Partnership necessary to authorize and implement this transaction has been duly taken. 6. Conditions. a. Mutual. The respective obligations of the parties hereto are mutually conditioned on the occurrence (or each party's waiver of the occurrence) of simultaneous delivery of all items to be delivered at the Closing pursuant to Paragraph 3 above. b. Thede. Thede's obligations under this agreement are further conditioned on the truth and completeness (or Thede's waiver of the truth and completeness) of all representations and warranties of Montague, Cadence and the Partnership under this agreement. c. Montague. Montague's obligations under this agreement are further conditioned on the satisfaction (or Montague's waiver of the satisfaction) of each of the following: (1) All representations and warranties of Thede, Cadence and the Partnership under this agreement shall be true and complete. (2) The Partnership shall have conveyed the Montague Project Interest to Montague in redemption of Montague's entire interest in the Partnership. d. Cadence. Cadence's obligations under this agreement are further conditioned on the satisfaction (or Cadence's waiver of the satisfaction) of each of the following: (1) All representations and warranties of Thede, Montague and the Partnership under this agreement shall be true and complete. (2) All covenants of Thede to be performed prior to the Closing shall have been performed. (3) Cadence shall receive at the Closing (i) all of the Thede LP Interest, (ii) all of the Thede GP Interest, (iii) all of the Thede SP Interest, and (iv) all of the Montague Project Interest. (4) The Bank of Boston shall have consented to the consummation of the transactions contemplated hereby on terms substantially similar to the draft consent dated March 11, 1994 as transmitted to Cadence. (5) There shall have been no material adverse change in the financial condition of the Partnership, the Second Partnership or Project from the date of this letter until Closing. e. Partnership. The Partnership's obligations under this agreement are further conditioned on the truth and completeness (or the Partnership's waiver of the truth and completeness) of all representations and warranties of Thede, Montague and Cadence under this agreement. 7. Operations Through Closing. Thede represents and covenants, in his capacity as President of the General Partner, that since February 28, 1994 he has conducted the business of the General Partner and the General Partner has conducted the business of the Partnership in the ordinary course, and that through the Closing he will continue to conduct the business of the General Partner and will cause the General Partner to continue to conduct the business of the Partnership in the ordinary course. Upon the Closing, the management agreement between the 97 6 Partnership and Thede will terminate and the management fees which have accrued to that date will be paid by the Partnership in the ordinary course of business. 8. Confidentiality. All parties, unless under compulsory process or obligation to disclose in connection the provisions of the Securities and Exchange Act of 1934, will maintain the confidentiality of the price provisions of this agreement, and no party will issue a press release in connection with this proposed transaction without the prior consent of all other parties. This covenant will not limit a party's ability to share relevant information with his or its professional advisors, such as attorneys and accountants, and with the Project's lender, however. Moreover, and notwithstanding any contrary provision of this agreement, this covenant will survive any termination of this agreement. 9. Thede Consultation. Following the Closing, Thede will provide, at no charge, up to two days of consultation with Cadence's project manager to assist an orderly transition of the management of the General Partner, the Partnership and the Project. 10. Termination. This agreement may be terminated (i) by the mutual agreement of all parties or (ii) if any of the conditions to the Closing set forth in Paragraph 6 above are not satisfied and not waived in accordance herewith, by any party to be benefited by such unsatisfied and unwaived condition, in which case the termination shall occur upon notice by such party to all other parties. This agreement will automatically terminate at 5:00 p.m. on March 31, 1994, unless the Closing occurs prior thereto. Upon termination of this agreement, all parties will be relieved of all further obligations hereunder; provided that any party whose breach of this agreement resulted in such termination shall not be relieved of any liability resulting therefrom. 11. Miscellaneous. This agreement constitutes the entire agreement between the parties on the subject matter hereof and may be amended only by a written amendment signed by all parties. All references to the agreement will include the provisions of the exhibits attached to this agreement. This agreement will be governed by California law as applied to contracts entered into between residents of California. The parties acknowledge that specific performance is an appropriate remedy for any breach of this agreement. All parties will bear their own legal expenses in connection with the preparation of this agreement and any modifications and the effectuation of the transactions contemplated hereby. This agreement may be signed in counterparts, all of which together shall constitute a single agreement. The validity of any portion of this agreement will not invalidate any other portion; provided that in no event will Cadence be obligated to acquire less than all interests in the Project, Second Partnership and Partnership. No waivers permitted by this agreement shall be implied by conduct. Time is of the essence in this agreement. The provisions of this agreement may not be introduced into evidence by any party hereto in any matter of dispute between them, except in connection with a claim of breach of this agreement. In the event of any inconsistency between the provisions of this agreement and the provisions of the limited partnership agreements or the Voting Agreement, then the provisions of this agreement will supersede such other provisions. Finally, the parties agree to execute such other documents as may be necessary in the future without additional risk or expense in order to implement the provisions of this agreement. If the offer set forth above is acceptable, please so indicate by executing the enclosed copy of this letter where indicated below and returning it to me. Upon receipt of copies of this letter signed by all parties by 3:00 p.m. on March 14, 1994, this letter will constitute a binding agreement among all parties; otherwise, this offer will lapse. 98 7 Thank you for your thoughtful consideration of this matter. Sincerely, Cadence Design Systems, Inc. By: /s/ H. Raymond Bingham H. Raymond Bingham, Executive Vice President and Chief Financial Officer ACCEPTED: /s/ David M. Thede Date: March 14, 1994 -------------------------------------------- ------------------------------------- David M. Thede Montague Investors, L.P. By: TFT Properties, Inc., General Partner By:/s/ Kenneth A. Moline Date: March 14, 1994 ---------------------------------- ----------------------------- Kenneth A. Moline, President
C.T. Properties, Inc. (for itself and for the Partnership and Second Partnership as General Partner) By: /s/ David M. Thede Date: March 14, 1994 ---------------------------------- ----------------------------- President and Director By: /s/ H. Raymond Bingham Date: March 11, 1994 ---------------------------------- ----------------------------- H. Raymond Bingham Secretary and Director
99 8 List of Exhibits Exhibit A-1: Redemption of Montague Limited Partner Interest Exhibit A-2: Assignment of Thede Limited Partner Interest Exhibit A-2a: Assignment of Thede Second Partnership Interest Exhibit A-3: Assignment of Thede General Partner Interest Exhibit A-4: General Partner Consent Exhibit A-5: Assignment of Montague Limited Partner Interest Exhibit B: Mutual General Release Exhibit C: Termination of Voting Agreement Exhibit D: Deliberated Omitted Exhibit E-1: Title Report Exhibit E-2: UCC Report Exhibit F: List of Material Contracts Exhibit G: Schedule of Exceptions
100 9 Exhibit A-2 Assignment of Thede Limited Partnership Interest For value received, David M. Thede, hereby assigns, conveys and transfers to Cadence Design Systems, Inc. all of his right, title and interest as a limited partner of C.T. Montague I., L.P., a California limited partnership. Dated: March 15, 1994 /s/ David M. Thede David M. Thede Spousal Consent The undersigned spouse has read, understands and approves of the letter agreement dated March 9, 1994 among the David M. Thede, Cadence Design Systems, Inc. and others. In consideration of the potential benefits which the undersigned may derive from these transactions, the undersigned agrees to this transfer, it being understood that the transfer could not take place if there were any adverse claims against the interest or David M. Thede's authority to convey the same. Cadence Design Systems, Inc. will rely on this consent. Spouse /s/ Kerry H. Thede 3/15/94 101 10 Exhibit A-2a Assignment of Thede Second Partnership Interest For value received, David M. Thede, hereby assigns, conveys and transfers to Cadence Design Systems, Inc. all of his right, title and interest as a limited partner of C.T. Montague II., L.P., a California limited partnership. Dated: March 15, 1994 /s/ David M. Thede David M. Thede Spousal Consent The undersigned spouse has read, understands and approves of the letter agreement dated March 9, 1994 among the David M. Thede, Cadence Design Systems, Inc. and others. In consideration of the potential benefits which the undersigned may derive from these transactions, the undersigned agrees to this transfer, it being understood that the transfer could not take place if there were any adverse claims against the interest or David M. Thede's authority to convey the same. Cadence Design Systems, Inc. will rely on this consent. Spouse /s/ Kerry H. Thede 3/15/94 102 11 Exhibit A-3 Assignment of Thede General Partner Interest For value received, David M. Thede, hereby assigns, conveys and transfers to Cadence Design Systems, Inc. 5100 shares of the common stock of C.T. Properties, Inc. standing in his name on the books of this corporation and represented by Certificate No. 2 and does hereby irrevocably constitute and appoint H. Raymond Bingham attorney-in-fact to transfer the shares on the books of the corporation with full power of substitution. Dated: March 15, 1994 /s/ David M. Thede David M. Thede Spousal Consent The undersigned spouse has read, understands and approves of the letter agreement dated March 9, 1994 among the David M. Thede, Cadence Design Systems, Inc. and others. In consideration of the potential benefits which the undersigned may derive from these transactions, the undersigned agrees to this transfer, it being understood that the transfer could not take place if there were any adverse claims against the interest or David M. Thede's authority to convey the same. Cadence Design Systems, Inc. will rely on this consent. Spouse /s/ Kerry H. Thede 3/15/94 103 12 Exhibit A-4 General Partner Consent C.T. Properties, Inc. as general manager of C.T. Montagbue I., L.P., and C.T. Montague II, L.P., hereby consents to the assignment of all limited partner interest in the two partnerships, as well as the redemption of the Montague Investors limited partner interest in the former partnership, as set forth in the letter agreement dated March 9, 1994 among Cadence Design Systems, Inc., David M. Thede and Montague Investors L.P., and others, effective as of the closing of such agreement. C.T. Properties, Inc. By: /s/ David M. Thede David M. Thede, president By: /s/ H. Raymond Bingham Raymond H. Bingham, secretary 104 13 Exhibit A-5 Assignment of Montague Limited Partnership Interest For value received, Montague Investors, L.P., hereby assigns, conveys and transfers to Cadence Design Systems, Inc. all of its right, title and interest as a limited partner of C.T. Montague I., L.P., a California limited partnership. Dated: March 15, 1994 Montague Investors, L.P. By: TFT Properties, Inc. General Partner By: /s/ Kenneth A. Moline Kenneth A. Moline, President Partner and Spousal Consent The undersigned partner or spouse of a partner has read, understands and approves of the letter agreement dated March 9, 1994 among the Partnership, Montague Investors, L.P., and others. In consideration of the potential benefits which the undersigned may derive from these transactions, the undersigned agrees to this and related ransfers, it being understood that the transfers could not take place if there were any adverse claims against the interests and Montague Investors', L.P., authority to convey the same. Cadence Design Systems, Inc. is an intended beneficiary and will rely on this consent. Partner Spouse ________________________________________________________________________________ Tad Taube ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 105 14 EXHIBIT B MUTUAL GENERAL RELEASE Introduction. This release is entered into in connection with a letter agreement dated March 9, 1994 among Cadence Design Systems, Inc., Mr. David Thede and others (the "Letter Agreement"). The parties and terms referred to below are defined in the Letter Agreement. Therefore: Release. Except with respect to obligations created by the Letter Agreement and as set forth below, each of Cadence, Thede, Thede Properties, Inc., Mr. Tad Taube, Montague, the General Partner, the Partnership and the Second Partnership for itself (or himself as applicable) and its (or his) respective successors, predecessors, assigns, agents, officers, employees, heirs and personal representatives, hereby release and absolutely and forever discharge the other parties to this release and their respective attorneys, successors, assigns, officers, employees, shareholders, agents, heirs, and personal representatives, of and from all claims, demands, damages, debts, liabilities, accounts, obligations, costs, expenses, liens, actions, and causes of action of every kind and nature whatsoever, including attorneys' and experts' fees, whether now known or unknown, suspected or unsuspected, which any party now has, owns, or holds or at anytime heretofore ever had, owned, or held, or could, shall, or may hereafter have, own, or hold, against any other based on or arising out of any matter, cause, fact, transaction, act, or omission whatsoever occurring or existing at any time prior to and including the effective date hereof, bearing any logical or factual connection whatsoever to the limited partnership agreements for C.T. Montague I and II, L.P., the development agreements between Thede or Thede Properties Inc., the Partnership and the Second Partnership, the management agreement dated June 17, 1991 between Thede and the Partnership and the Voting Agreement and the By-laws with respect to the General Partner (collectively the "Released Agreements"), either party's performance, nonperformance or breach of the Released Agreements, and any liabilities arising or alleged to have arisen under or in the course of performance under the Released Agreements (all of which are hereinafter referred to as and included within the "Released Matters"). Covenant Not To Sue or Offset Each party agrees that it will not bring, commence, institute, maintain, prosecute or voluntarily aid any action at law, proceeding in equity, or otherwise prosecute or sue the other party hereto or its agents, representatives, heirs, partners, directors, officers, employees, servants, affiliates, subsidiaries, stockholders, predecessors, successors and assigns, or any person acting for, through, under or in concert with any of the foregoing, either affirmatively or by way of cross-complaint, defense, equitable offset or counter-claim or by any other way or manner at all, in any court, on any alleged claims, demands, liabilities, causes of action, suits, debts, liens, contracts, agreements, promises, losses, damages, costs or expenses, of any nature whatsoever, known or unknown, fixed or contingent, arising out of the Released Matters. General Release. Each party acknowledges that it is familiar with Section 1542 of the Civil Code of the State of California, which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT 106 15 THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." EACH PARTY WAIVES AND RELINQUISHES ANY RIGHT OR BENEFIT WHICH IT HAS OR MAY HAVE UNDER SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA RELATING TO THE RELEASED MATTERS. In connection with such waiver and relinquishment, each party acknowledges that it is aware that it or its attorneys or agents may hereafter discover claims or facts in addition to or different from those which they now know or believe to exist with respect to the subject matter of the Released Matters or the other party hereto, but that it is each party's intention hereby fully, finally, and forever to settle and release all Released Matters, disputes and differences, known or unknown, suspected or unsuspected, which now exist, may exist or heretofore, may have existed between the parties relating to the Released Matters, except as otherwise expressly provided herein. In furtherance of this intention, the mutual releases herein given shall be and remain in effect as a full and complete general release notwithstanding the discovery or existence of any such additional or different claim or fact. Authorized Release. Each party warrants and represents that it is the sole and lawful owner of all rights, title and interest in and to all the Released Matters, that it has the right and the authority to execute this Agreement and that it has not heretofore voluntarily, by operation of law, or otherwise, assigned or transferred or purported to assign or transfer to any person whatsoever any Released Matters or any part or portion thereof or any claim, demand or right against the other party. Indemnity for Undisclosed Assignment of Claims. Each party shall indemnify and hold the others harmless from and against any claim, demand, damage, debt, liability, account, obligation, cost, expense, lien, action, or cause of action (including payment of reasonable attorneys' and experts' fees and costs actually incurred whether or not litigation is commenced) based on or in connection with or arising out of any assignment or transfer or purported or claimed assignment or transfer by such party of the type referred to in the preceding paragraph (all of which are hereinafter referred to as the "Claim"). Each party's right to indemnification under this paragraph is subject to it promptly giving the indemnifying party notice of any Claim, including in such notice a brief description of the facts upon which the Claim is based and the amount thereof. No Admissions. Nothing contained herein shall be construed as an admission by any party of any liability of any kind to any other party. Each party expressly denies that it is in any way liable or indebted to the other party, except with respect to obligations created or expressly renewed by this Agreement and the letter agreement. Informed Consent to Release. Each party acknowledges to each other party that it has been represented by legal counsel of its own choice throughout all of the negotiations which preceded the execution of this Agreement, and that each party has had ample opportunity to have this Agreement and the releases contained herein reviewed by its respective legal counsel. Each party further acknowledges that it and its counsel has had adequate opportunity to make whatever investigation or inquiry deemed necessary or desirable in connection with this Agreement and the Released Matters prior to the execution hereof. 107 16 Limited Third Party Beneficiaries. In addition to the named parties, the provisions of this Agreement shall extend to and inure to the benefit of and be binding upon the respective successors, assigns, representatives, predecessors, agents, officers, employees, shareholders, directors, heirs and attorneys of each of the parties, just as if they had executed this Agreement. Further, the provisions of this Agreement shall also extend to and inure to the benefit of each of The First National Bank of Boston, for itself and as Agent ("Bank of Boston") under a certain Amended and Restated Construction Loan Agreement (the "Loan Agreement") dated as of December 9, 1991 among the Partnership, Bank of Boston and Banque Nationale De Paris ("BNP"), and BNP. There are no other intended third party beneficiaries of this Agreement. Excluded Matters. Notwithstanding the foregoing, Cadence and the General Partner affirm their prospective obligations under the CT Montague I and II, L.P., limited partnership agreementS, which agreementS survive this release, and Cadence and the Partnership affirm their prospective obligations under the lease dated as of June 18, 1991, which lease survives this release. Moreover, the provisions of the letter dated June 18, 1991 between Mr. Tad Taube, Cadence, the General Partner and both limited partnerships and attached hereto will survive this release. Supplemental Matters. Notwithstanding the foregoing, the Released Agreements and Released Matters referred to above will include the Loan Agreement, including all prior loan agreements, all extensions and related documents and all instruments and agreements related thereto, with respect to Thede, Thede Properties, Inc., Montague Investors, L.P., Mr. Tad Taube, Bank of Boston and BNP only (and none of the other parties), provided that the Bank of Boston and BNP sign and return a counterpart of this release within thirty days after the Closing. The parties named in this paragraph therefore release each other from any and all claims related to the Released Agreements and Released Matters subject to all of the provisions of this release. The Loan Agreement and related documentation referred to above shall survive this release in any event. Effective Date. This Agreement will take effect upon the Closing. IN WITNESS WHEREOF THE PARTIES SUBSCRIBE THEIR NAMES: CADENCE DESIGN SYSTEMS, INC. MR. DAVID THEDE /s/ H. Raymond Bingham /s/ David M. Thede by: H. Raymond Bingham Executive Vice President and Chief Financial Officer MONTAGUE INVESTORS, L.P. MR. TAD TAUBE /s/ Kenneth Moline /s/ Tad Taube by: Kenneth Moline, pres. TFT Properties, Inc., general partner 108 17 C.T. MONTAGUE I, L.P. C.T. PROPERTIES, INC. /s/ David M. Thede and H. Raymond Bingham /s/ David M. Thede and H. Raymond Bingham by: David Thede, pres. & H. Raymond Bingham, Sec'y by: David Thede, pres. & H. Raymond Bingham, Sec'y C.T. Properties, Inc., general partner C.T. MONTAGUE II. L.P. /s/ David M. Thede and H. Raymond Bingham by: David Thede, pres., and H. Raymond Bingham, Secretary C.T. Properties, Inc., general partner Thede Properties, Inc. By /s/ David M. Thede David M. Thede, president
The foregoing is hereby being agreed to solely in connection with the "Supplemental Matters" (second to last) paragraph of the within release: THE FIRST NATIONAL BANK OF BOSTON, for itself and as Agent BY __________________________________ ITS______________________________ BANQUE NATIONALE DE PARIS BY __________________________________ ITS _____________________________ 109 18 EXHIBIT C TERMINATION OF VOTING AGREEMENT By signing below the partners agree to terminate the Voting Agreement dated as of June 14, 1991 among or for the benefit of the parties. This agreement will take effect as of March 15, 1994. Thereafter, no party is entitled to any right or benefit conferred by the Voting Agreement. Lawful and adequate consideration is acknowledged by all parties. CADENCE DESIGN SYSTEMS, INC. /s/ H. Raymond Bingham H. Raymond Bingham Executive Vice President and Chief Financial Officer MR. DAVID M. THEDE /s/ David M. Thede C.T. PROPERTIES, INC. /s/ David M. Thede/H. Raymond Bingham by: David M. Thede, President & H. Raymond Bingham, Secty. MONTAGUE INVESTORS, L.P. /s/ Kenneth Moline by: Kenneth Moline, president TFT Properties, Inc. general partner MR. TAD TAUBE /s/ Tad Taube 110 19 March 15, 1994 Mr. H. Raymond Bingham, Secretary C.T. Properties, Inc. c/o Cadence Design Systems, Inc. 555 River Oaks Parkway San Jose, CA 95134 Re: resignation as officer and director of C.T. Properties, Inc. Dear Mr. Bingham: By this letter and effective as of this date, I resign as president and director of C.T. Properties, Inc. Thank you. Sincerely, /s/ David M. Thede David M. Thede 111 EX-21 9 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21.01 SUBSIDIARIES OF THE REGISTRANT The Registrant's subsidiaries and the state or country in which each is incorporated, are as follows: C.T. Properties, Inc. California Cadence Design Systems (Canada) Ltd. Canada Cadence Design Sytems S.A. France Cadence Design Sytems GmbH Germany Cadence Design Sytems Asia, Ltd. Hong Kong Cadence Design Sytems (Israel) Ltd. Israel Cadence Design Sytems S.r.l. Italy Cadence Design Sytems K.K. Japan Cadence Korea Ltd. Korea Cadence Design Sytems B.V. Netherlands Cadence Design Sytems AB Sweden Cadence Taiwan, Inc. Taiwan Cadence Europe Limited United Kingdom Cadence Design Sytems, Limited United Kingdom Cadence International Sales Corporation U.S. Virgin Islands European CAD Development Limited United Kingdom Cadence Design Sytems (India) Private Limited India Integrated Measurement Systems, Inc. Oregon Cadence Consulting Ltd. United Kingdom Cadence Design Systems AG Switzerland Valid Europe S.A. Belgium Valid Logic Systems GmbH Germany Accent S.r.l. Italy C.T. Montague II, L.P. California
112 EX-23 10 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 Exhibit 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements (File Nos. 33-36110, 33-43025, 33-45001 and 33-48371) on Form S-8. /s/ Arthur Andersen & Co. ARTHUR ANDERSEN & CO. San Jose, California March 28, 1994 113 EX-23 11 CONSENT OF DELOITTE & TOUCHE 1 Exhibit 23.02 CONSENT OF DELOITTE & TOUCHE We consent to the incorporation by reference in Registration Statement Numbers 33-48371, 33-45001, 33-43025 and 33-36110 of Cadence Design Systems, Inc. on Form S-8 of our report dated January 27, 1992 (relating to the consolidated financial statements of Valid Logic Systems Incorporated, not presented separately herein) appearing in this Annual Report on Form 10-K of Cadence Design Systems, Inc. for the year ended December 31, 1993. Our audit of the financial statements referred to in our aforementioned report also included the financial statement schedules of Valid Logic Systems Incorporated for the year ended December 31, 1991 listed below (which are not presented separately herein). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. Schedule VIII - Valuation and qualifying accounts and reserves Schedule IX - Short-term borrowings Schedule X - Supplementary income statement information /s/ Deloitte & Touche DELOITTE & TOUCHE San Jose, California March 28, 1994 114 -----END PRIVACY-ENHANCED MESSAGE-----