-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BEXQoP6TCuFo2ZGucX7iT2NEYABHxabjLb3/jRpAQAsHY1cUnN7MJsAFsbCUv32X LdZUeJBSb+CcMP6XaVUuKA== 0000891618-97-002235.txt : 19970514 0000891618-97-002235.hdr.sgml : 19970514 ACCESSION NUMBER: 0000891618-97-002235 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNOPSYS INC CENTRAL INDEX KEY: 0000883241 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 561546236 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19807 FILM NUMBER: 97601940 BUSINESS ADDRESS: STREET 1: 700 E MIDDLEFIELD RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-4033 BUSINESS PHONE: 4159625000 MAIL ADDRESS: STREET 1: 700 E MIDDLEFIELD RD CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043-4033 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MARCH 29, 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 29, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission file number: 0-19807 SYNOPSYS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 56-1546236 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 East Middlefield Road Mountain View, CA 94043 - -------------------------------------------------------------------------------- (Address of principal executive offices, including zip code) Registrant's Telephone No., including area code: (415) 962-5000 ----------------------------- 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 ----- ----- As of April 25, 1997, there were 51,434,684 shares of the Registrant's Common Stock outstanding. 1 2 SYNOPSYS, INC. INDEX
PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Condensed Consolidated Balance Sheets- March 31, 1997 and September 30, 1996 3 Condensed Consolidated Statements of Income- Three months and six months ended March 31, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows- Six months ended March 31, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SYNOPSYS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, SEPTEMBER 30, 1997 1996 ---- ---- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 43,747 $ 47,163 Short-term investments 251,839 228,931 --------- --------- Cash and short-term investments 295,586 276,094 --------- --------- Accounts receivable, net of allowances of $5,701 and $3,877, respectively 81,935 67,385 Prepaid expenses, deferred taxes and other 34,420 22,648 --------- --------- Total current assets 411,941 366,127 --------- --------- Property and equipment, net 59,469 56,033 Capitalized software development costs, net of accumulated amortization of $3,326 and $2,805, respectively 1,125 1,146 Long-term investments 30,149 30,495 Other assets 12,959 9,957 --------- --------- Total assets $ 515,643 $ 463,758 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 80,784 $ 83,008 Current portion of long-term debt 10,596 11,580 Income taxes payable 11,655 13,629 Deferred revenue 73,172 69,770 --------- --------- Total current liabilities 176,207 177,987 --------- --------- Long-term debt 12,260 15,970 Deferred compensation 1,976 -- Stockholders' equity: Preferred stock, $.01 par value; 2,000,000 shares authorized; no shares outstanding -- -- Common stock, $.01 par value; 100,000,000 shares authorized; 51,378,000 and 50,646,000 shares outstanding, respectively 514 506 Additional paid-in capital 228,929 196,693 Retained earnings 88,438 64,833 Deferred stock compensation (43) (110) Cumulative translation adjustment (698) (402) Net unrealized gain on investment 8,060 8,281 --------- --------- Total stockholders' equity 325,200 269,801 --------- --------- Total liabilities and stockholders' equity $ 515,643 $ 463,758 ========= =========
See accompanying notes 3 4 SYNOPSYS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ----------------------- ----------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Revenue: Product $ 79,514 $ 65,512 $156,914 $ 126,549 Service 44,686 30,010 83,996 57,412 -------- --------- -------- --------- Total revenue 124,200 95,522 240,910 183,961 -------- --------- -------- --------- Cost of revenue: Product 5,799 4,236 11,947 8,283 Service 8,893 5,694 15,832 10,805 -------- --------- -------- --------- Total cost of revenue 14,692 9,930 27,779 19,088 -------- --------- -------- --------- Gross margin 109,508 85,592 213,131 164,873 -------- --------- -------- --------- Operating expenses: Research and development 29,310 22,906 57,822 43,173 Sales and marketing 43,579 35,851 84,926 69,299 General and administrative 9,619 7,243 18,692 14,328 Merger-related costs 11,400 -- 11,400 -- In-process research and development -- 39,700 -- 39,700 -------- --------- -------- --------- Total operating expenses 93,908 105,700 172,840 166,500 -------- --------- -------- --------- Operating income (loss) 15,600 (20,108) 40,291 (1,627) Other income, net 4,000 1,980 8,054 4,112 -------- --------- -------- --------- Income (loss) before income taxes 19,600 (18,128) 48,345 2,485 Income tax provision (benefit) 9,200 (6,078) 18,869 1,018 -------- --------- -------- --------- Net income (loss) $ 10,400 $ (12,050) $ 29,476 $ 1,467 ======== ========= ======== ========= Earnings (loss) per share $ .19 $ (.25) $ .55 $ .03 ======== ========= ======== ========= Weighted average common shares and equivalents where dilutive 53,720 48,937 53,871 50,396
See accompanying notes 4 5 SYNOPSYS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS; UNAUDITED)
SIX MONTHS ENDED MARCH 31, ------------------------ 1997 1996 ---- ---- Cash flows from operating activities: Net income $ 29,476 $ 1,467 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,612 8,620 Interest accretion on notes payable 290 -- Provision for doubtful accounts and sales returns 1,824 134 Tax benefit associated with stock options 18,162 4,052 Deferred revenue 3,402 13,147 Deferred taxes (3,977) (14,811) Disposition of assets related to the merger 3,084 -- In-process research and development -- 39,700 Gain on sale of long-term investment (4,000) -- Net change in assets and liabilities: Accounts receivable (16,374) (9,979) Prepaid expenses and other (7,664) (747) Other assets (2,969) (350) Accounts payable and accrued liabilities (1,493) 6,344 Income taxes payable (1,974) (2,201) Deferred compensation 1,976 -- -------- --------- Net cash provided by operating activities 34,375 45,376 -------- --------- Cash flows from investing activities: Proceeds from sale of long-term investment 7,164 -- Purchase of long-term investment (3,186) -- Purchases and maturities of short-term investments (22,893) (22,225) Purchases of property and equipment (21,330) (20,486) Purchase of technology -- (11,375) Capitalization of software development costs (500) (500) -------- --------- Net cash used in investing activities (40,745) (54,586) -------- --------- Cash flows from financing activities: Principal payments on debt obligation (4,984) (500) Proceeds from sale of common stock, net 17,723 8,636 Purchases of treasury stock (9,489) -- -------- --------- Net cash provided by financing activities 3,250 8,136 -------- --------- Effect of exchange rate changes on cash (296) (47) Net decrease in cash and cash equivalents (3,416) (1,121) Cash and cash equivalents, beginning of period 47,163 102,440 -------- --------- Cash and cash equivalents, end of period $ 43,747 $ 101,319 ======== ========= Supplemental Disclosure: Cash paid during the period for: Interest $ 414 $ -- ======== ========= Income taxes $ 7,055 $ 12,143 ======== ========= Non-cash transactions: Purchase of technology $ -- $ 28,500 ========= =========
See accompanying notes 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited financial information furnished herein reflects all adjustments, consisting only of normal recurring adjustments which in the opinion of management are necessary to fairly state the Company's and its subsidiaries' condensed consolidated financial position, the results of their operations, and their cash flows for the periods presented. This report on Form 10-Q should be read in conjunction with the Company's Annual Report to Stockholders for the year ended September 30, 1996. For financial reporting purposes, the Company reports on a 13-week quarter and a 52 or 53-week year. For presentation purposes, the consolidated financial statements refer to the quarter's calendar month end. The consolidated results of operations for the period ended March 31, 1997 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year. 2. New Accounting Standard The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation of basic earnings per share ("EPS") and for companies with complex capital structures or potentially dilutive securities, diluted EPS. SFAS No. 128 is effective for annual and interim periods ending after December 31, 1997. The Company expects that basic EPS will be higher than earnings per share as presented in the accompanying consolidated financial statements and that diluted EPS will not differ materially from earnings per share as presented in the accompanying consolidated financial statements. 3. Earnings Per Share Earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options and warrants using the treasury stock method. 4. Business Combination On February 28, 1997, the Company issued approximately 10,346,000 shares of its common stock in exchange for all the outstanding shares of common stock of EPIC Design Technology, Inc. ("EPIC"), a developer of design automation tools for deep submicron design in the area of integrated circuit power, timing, and reliability analysis. In addition, options to acquire EPIC's common stock were exchanged for options to acquire approximately 1,517,000 shares of the Company's common stock. The merger was accounted for as a pooling of interests, and accordingly, the Company's condensed consolidated financial statements have been restated to include the financial position and results of EPIC for all periods presented. In February 1997, the Company announced that it had rescinded its stock repurchase program in connection with its merger with EPIC, in order to comply with pooling of interests accounting guidance provided in SEC Staff Accounting Bulletin No. 96. 6 7 Total revenue and net income for the individual entities are as follows:
(in thousands) Synopsys EPIC Combined -------- ---- -------- Six months ending March 31, 1996 Total revenue $164,000 $19,961 $183,961 Net income (loss) (2,650) 4,117 1,467 Six months ending March 31, 1997 Total revenue 211,042 29,868 240,910 Net income 26,572 2,904 29,476
5. Long-Term Investments In May 1996, the Company purchased 1,206,542 shares, approximately 9.9 percent of the outstanding shares of Cooper and Chyan Technology, Inc. (CCT), for $14.50 per share, pursuant to a strategic relationship between the companies. In accordance with FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the investment has been classified as "available for sale." In October 1996, CCT and Cadence Design Systems, Inc. announced that they had reached an agreement to merge. It is currently the Company's intent to dispose of the investment over time, however, there can be no assurance that the Company will be successful in doing so. Accordingly, the investment has been classified as a long-term asset. During the second quarter of fiscal year 1997, the Company sold 95,292 shares of CCT and realized a gain of approximately $2.0 million. The net unrealized gain recorded as a separate component of stockholders' equity decreased by $4.3 million during the second quarter. In December 1996, the Company made an investment of $3.2 million in a company which is not publicly traded. The investment is carried at cost and is included in long-term investments. 6. Long-Term Debt In February 1996, the Company and International Business Machines Corporation ("IBM") entered into a six-year Joint Development and License Agreement Concerning EDA Software and Related Intellectual Property (the "Agreement"). In accordance with the Agreement, the Company paid IBM $11.0 million in cash and issued $30.0 million in notes, which bear interest at 3%, and are payable to IBM upon the earlier of achievement of scheduled milestones or at maturity in 2006. The notes were recorded at fair value of $28.5 million, using a discount rate commensurate with the risks involved. As of March 31, 1997, the notes had a balance of $20.3 million, of which $12.3 million is included in long-term obligations. The carrying amount of the debt, including the long-term portion, approximates the fair value. 7. Deferred Compensation The Company has established the Synopsys Deferred Compensation Plan that allows certain eligible employees to defer a portion of their compensation. The deferred compensation and accumulated earnings are accrued but unfunded. Such deferred compensation is included in long-term liabilities. 7 8 SYNOPSYS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. When used in the following discussion, the words "projects," "expects," "believes," and similar expressions are intended to identify forward-looking statements. Such statements, and the Company's results, are subject to certain risks and uncertainties, including those discussed below, that could cause actual results to differ materially from those projected or estimated. Results of Operations Revenue for the second quarter of fiscal 1997 increased 30% to $124.2 million from $95.5 million in the second quarter of fiscal 1996. Revenue for the first six months of fiscal 1997 increased 31% to $240.9 million from $184.0 million for the comparable period in fiscal 1996. The increase in revenue was attributable to increased worldwide licensing and sales of the Company's software and systems products and the renewal of maintenance and support contracts. Product revenue as a percentage of total revenue decreased to 64% and 65% in the second quarter and first half of fiscal 1997, respectively, from 69% in the second quarter and first half of fiscal 1996, principally due to an increase in the Company's base of installed software and the associated increase in maintenance and support, customer training, and consulting revenue. International revenue as a percentage of total revenue decreased to 47% in the second quarter of fiscal 1997 from 50% in the second quarter of fiscal 1996. For the first six months of fiscal 1997, international revenue as a percentage of total revenue decreased to 46% from 48% for the comparable period in fiscal 1996. The decrease in fiscal 1997 was primarily due to decreased revenue in Japan as a percentage of total revenue, mostly related to a decline in the value of the yen versus the dollar. Cost of revenue as a percentage of total revenue increased to 12% in the second quarter and first six months of fiscal 1997 from 10% in the second quarter and first half of fiscal 1996, primarily due to an increase in the cost of service revenue for training and consulting as a percentage of total revenue. Cost of revenue includes personnel and related costs, production costs, product packaging, documentation, amortization of capitalized software development and purchased software costs, and costs of the Company's system products. Research and development expenses as a percentage of total revenue remained at 24% in the second quarter of fiscal 1997 and fiscal 1996, but increased in absolute dollars to $29.3 million from $22.9 million. Research and development expenses as a percentage of total revenue increased slightly to 24% in the first half of fiscal 1997 from 23% in the comparable period in fiscal 1996, and increased in absolute dollars to $57.8 million from $43.2 million. Increased research and development expenses were attributable to increases in personnel and personnel-related costs associated with the continued development of new products and the enhancement of existing products. Sales and marketing expenses as a percentage of total revenue decreased to 35% in the second quarter and first six months of fiscal 1997 from 38% in the second quarter and first six months of fiscal 1996. In absolute dollars, sales and marketing expenses increased to $43.6 million in the second quarter of fiscal 1997 from $35.9 million in the second quarter of fiscal 1996. Sales and marketing expenses increased to $84.9 million in the first half of fiscal 1997 from $69.3 million in the first half of fiscal 1996. Total sales and marketing expenses increased as a result of continued expansion of the Company's worldwide sales and 8 9 marketing organizations and participation in conferences, trade shows and promotional activities. General and administrative expenses as a percentage of total revenue remained flat at 8% in the second quarter and first six months of fiscal 1997 and fiscal 1996. In absolute dollars, general and administrative expenses were $9.6 million in the second quarter of fiscal 1997, compared to $7.2 million in the second quarter of fiscal 1996. For the first half of fiscal 1997, general and administrative expenses increased to $18.7 million from $14.3 million in the first half of fiscal 1996. The increase in total expenses was due primarily to increases in personnel and operating expenses associated with the continued growth of the Company. In the second quarter of fiscal 1997, the Company recorded a charge of $11.4 million related to the merger and integration of Synopsys and EPIC. This charge included direct transaction fees for investment bankers, attorneys, accountants, and other related costs of $4.7 million, and costs associated with integrating the operations of the two companies of $6.7 million. Included in integration charges were redundant facility costs, computer and other equipment abandonment costs, contract termination charges and other related expenses. Of the $11.4 million of merger-related costs, approximately $8.3 million related to cash expenditures while approximately $3.1 million related to noncash reductions of recorded assets. As of March 31, 1997, there was a balance of $7.6 million in accrued liabilities for expected future cash expenditures. The Company anticipates that the majority of these expenditures will be made by the end of the year. There can be no assurance that the Company will not incur additional charges associated with the merger or that management will be successful in its efforts to integrate the operations of the two companies. In the second quarter of fiscal 1996, the Company incurred an in-process research and development charge of $39.7 million in connection with the acquisition of certain IBM technology. The provision for income taxes as a percentage of income was 47% in the second quarter of fiscal 1997 compared to an income tax benefit of 34% of the loss before income taxes in the second quarter of fiscal 1996. The increase in the Company's tax rate in fiscal 1997 was due to nondeductible expenses for merger-related costs. Net income of $10.4 million was recorded in the second quarter of fiscal 1997, compared to a net loss of $12.1 million in the second quarter of fiscal 1996. For the first half of fiscal 1997, net income was $29.5 million, compared to net income of $1.5 million in the first half of fiscal 1996. The Company's book-to-bill ratio for the second quarter of fiscal 1997 was greater than one-to-one. The book-to-bill ratio measures the ratio of accepted orders to revenue. Liquidity and Capital Resources For the first six months of fiscal 1997, cash and short-term investments increased $19.5 million to $295.6 million. The increase in cash and short-term investments was due primarily to cash generated from operations and proceeds from the issuance of common stock, partially offset by purchases of property and equipment and repurchases of common stock. The Company believes that the existing cash and short-term investments balance of $295.6 million and anticipated cash flow from operations will be sufficient to meet its currently anticipated liquidity and capital expenditure requirements for at least the next twelve months. See Note 4 of Notes to Condensed Consolidated Financial Statements regarding the Company's merger with EPIC. 9 10 Factors that Could Cause Actual Results to Differ Materially from Those Projected Synopsys completed a merger with EPIC Design Technology, Inc. on February 28, 1997, and the two companies' operations are currently being integrated. Successful integration requires, among other things, coordination of the companies' respective product offerings, sales and marketing efforts and research and development efforts. Successful integration also requires the smooth integration of personnel with disparate business backgrounds and combining two different, although similar, corporate cultures. Achieving the anticipated benefits of the merger will depend in part upon whether the integration of the two companies' businesses is accomplished in an efficient and effective manner. The failure of management to successfully integrate the operations and cultures of the two companies could have a material adverse effect on Synopsys' business, financial condition and results of operations. The EDA industry is highly competitive. The Company's products compete with similar products from other vendors and compete with other EDA products and services for a share of the EDA budgets of their customers. Historically, much of the Company's growth has been attributable to the strength of its synthesis products, an area in which the Company is currently the leading supplier. Opportunities for growth in market share in this area are limited and overall rates for growth appear to be declining. The EDA industry as a whole is experiencing rapid change. Technology advances and customer requirements are fueling a change in the nature of competition among EDA vendors. Advances in semiconductor technology are expected to create a need for tighter integration between logic design and physical design, and companies will increasingly compete over "design flows" involving a broad range of products and services rather than individual design tools. No single EDA company currently offers its customers industry leading products for a complete design flow. As a result of the merger with EPIC, the Company offers analysis and verification tools used in the physical design portion of IC design, but the Company does not offer a full range of physical design tools, a field which is currently dominated by Cadence Design Systems, Inc. and Avant! Corporation. In addition, the Company trails Cadence in its capacity to offer design services. In May 1996, the Company entered into a strategic relationship with Cooper & Chyan Technology, Inc. (CCT) involving the acquisition of 9.9% of CCT's stock and a link between the Company's existing synthesis products and its design planning products under development and CCT's routing technology. Cadence and CCT have announced their intention to merge. The Company has sold a portion of its holdings of CCT stock and is evaluating the effect of such a merger on its overall relationship with CCT. The Company is seeking to develop a balanced product portfolio. Among the most important new products offered by the Company are its Behavioral Compiler, Cell-Based Array, ARKOS hardware emulator, and Cyclone simulation accelerator products. These products have achieved initial customer acceptance, but the Company will only derive significant revenue from these products if they are accepted by a broad range of customers, which cannot be assured. In the second quarter of fiscal 1997, the overall market for verification products (including the Company's emulation and cycle-based simulation products) was relatively soft, as a number of companies introduced new products and customers deferred buying decisions. It is unclear whether these conditions will persist in the third quarter and beyond, but if they do the Company's sale of its emulation and simulation products could be adversely affected. In addition, there can be no assurnace that if the market improves the Company will enjoy increased sales of its emulation and cycle-based simulation products. The Company's business has benefited from the rapid worldwide growth of the semiconductor industry. Purchases of the Company's products is largely dependent upon the commencement of new design projects by semiconductor manufacturers and users. The semiconductor industry has experienced moderate growth in 1997 and the outlook for the 10 11 remainder of 1997 is uncertain. Slower growth in the semiconductor industry, and/or a reduced number of design starts, could have an adverse effect on the Company's performance. The Company attempts to manage its business to achieve quarter-to-quarter revenue and earnings growth. The ability to manage such growth is affected by a number of factors, including customer product demand, product license terms, the size of the Company's backlog, and decisions regarding the timing of revenue recognition. In recent years, the management of revenue and earnings growth has become more difficult as a result of a number of factors. The Company's orders have become more seasonal, with higher volumes in the second and fourth quarters of the Company's fiscal year, and the average order size has also increased. The Company increasingly receives a disproportionate volume of orders in the last month of the quarter. This trend has grown more pronounced in recent quarters. In addition, an increasing amount of the Company's orders involve products and services which yield revenue over multiple quarters (often extending beyond the current fiscal year) or upon completion of performance rather than at the time of sale, including time-based product licenses, consulting services, development contracts, and CBA licenses and royalties. Because of these trends, the Company's ability to convert orders, particularly those received late in a quarter, or backlog to revenue in any quarter is less certain than it historically has been, and it is therefore possible for the Company to fall short in its revenue and/or earnings plan for a given quarter even while orders and backlog remain on plan. Ultimately, long-term revenue and earnings growth is dependent upon the successful development and sale of the Company's products and services over a sustained period of time. The Company's operating expenses are based in part on its expectations of future revenue, and expense levels are generally committed in advance of revenue. The Company continues to expand and increase its operating expenses in order to generate and support additional revenue in the future. If revenue does not materialize as expected, the Company's results of operations are likely to be adversely affected. Net income may be disproportionately affected by a reduction in revenue because only a small portion of the Company's expenses varies with its revenue. In recent years, international revenue has accounted for approximately half of the Company's revenue. The Company expects that international revenue will continue to account for a significant portion of its revenues in the future. As a result, the Company's financial performance could be negatively affected by such factors as changes in foreign currency exchange rates and changes in regional or worldwide economic or political conditions. In particular, revenue from sales in Japan during the first half of fiscal 1997 was adversely affected by a decline in the value of the yen against the dollar. Continued weakness in the value of the yen could adversely affect revenue from Japan during the remainder of fiscal year 1997. In February 1996, the Company entered into a six-year joint development and license agreement with IBM, pursuant to which the Company and IBM will jointly develop certain new products that the Company believes are important to the long-term growth of its business. The Company has not previously entered into a joint development agreement of this scope. Joint development of products is subject to risks and uncertainties over and above those affecting internal development, and there can be no assurance that the Company's joint development efforts will be successful. The Company's success is dependent on technical and other contributions of key individuals, including individuals who joined the Company in connection with the merger with EPIC. In particular, there are only a limited number of qualified EDA engineers, and the competition for such individuals is especially intense. There can be no assurance that the Company can continue to recruit and retain such key personnel. 11 12 In May 1996, the Company acquired 9.9% of the outstanding shares of CCT at a price of $14.50 per share, and in April 1997 the Company purchased 85,552 shares from CCT at a below market price of $15.00 per share. Following announcement of the Cadence-CCT merger, the Company commenced a program of selling its CCT shares (and, if the proposed merger of CCT with Cadence is consummated, its Cadence shares) in an amount per quarter sufficient to generate a profit of $2.0 million per quarter. The amount of gain that the Company will be able to realize on sales of CCT shares depends upon the price of CCT (or Cadence) stock at the time of sale, which is subject to significant fluctuation, and on the status of the companies' shares as registered shares. During the second quarter of fiscal 1997, the prices of Cadence and CCT stock declined significantly, which will require Synopsys to sell more CCT shares in the third quarter than it sold in the second quarter in order to generate a profit of $2.0 million. In addition, such decline reduced the total amount of the Company's potential profit from the sale of CCT shares as of the end of the quarter. In May 1996, the Company's Board of Directors authorized a program to repurchase up to 2.0 million shares of Synopsys Common Stock over two years, subject to a maximum expenditure of $80.0 million. In February 1997, the Company announced that it had rescinded the stock repurchase program in connection with its merger with EPIC, in order to comply with pooling of interests accounting guidance provided in SEC Staff Accounting Bulletin No. 96. Although the Company's purchases have been insignificant as a proportion of trading in Synopsys Common Stock since May 1996, rescission of the repurchase program could have an adverse effect on the price of Synopsys Common Stock. The Company's stock price, like that of other technology companies, is subject to significant volatility. Past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. If revenues or earnings in any quarter fail to meet expectations, there could be an immediate and significant impact on the Company's stock price. In addition, the Company's stock price may be affected by broader market trends that may be unrelated to the Company's performance. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the recorded amounts of assets and liabilities, disclosure of those assets and liabilities at the date of the financial statements and the recorded amounts of expenses during the reporting period. A change in the facts and circumstances surrounding these estimates could result in a change to the estimates and impact future operating results. 12 13 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's 1996 annual meeting of stockholders was held on February 28, 1997. The following directors were elected by the stockholders: Harvey C. Jones, Jr. Aart J. de Geus Deborah A. Coleman William W. Lattin A. Richard Newton Steven C. Walske The following additional matters were submitted to the stockholders for vote at the meeting: 1. Approval of an amendment to the Company's 1994 Non-Employee Directors Stock Option Plan to increase the number of options to purchase shares of Common Stock granted to non-employee directors who are re-elected to the Board of Directors from 5,000 shares per year to 8,000 shares per year. Of the total shares voting on the foregoing resolution, 36,079,197 voted in favor, 1,834,495 against and 29,246 abstained. 2. Ratification of the appointment of KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal year ending September 30, 1997. Of the total shares voting on the foregoing resolution, 37,990,714 voted in favor, 13,171 against and 18,040 abstained. The Company also held a special meeting of stockholders on February 28, 1997. The following proposal was submitted to the stockholders for vote at the meeting: To approve the issuance of shares of Common Stock, par value $.01 per share, of Synopsys Common Stock, pursuant to the Agreement and Plan of Merger, dated as of January 16, 1997, by and among Synopsys, EPIC Merger Co., Inc., a Delaware corporation and a wholly-owned subsidiary of Synopsys ("Sub"), and EPIC Design Technology, Inc., a California corporation, pursuant to which, among other things (a) Sub will be merged with and into EPIC, which will be the surviving corporation, and EPIC will become a wholly-owned subsidiary of Synopsys, and (b) each outstanding share of Common Stock, no par value per share, of EPIC will be converted into the right to receive 0.7485 of a share of Synopsys Common Stock. Of the total shares voting on the foregoing resolution, 31,198,684 voted in favor, 8,403 against and 2,935 abstained. 13 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a.) Exhibits 10.15 1994 Non-Employee Directors Stock Option Plan 27 Financial Data Schedule (b.) Reports on Form 8-K The Company filed a report on Form 8-K on February 28, 1997 related to the completion of its merger with EPIC Design Technology, Inc. 14 15 SYNOPSYS, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 13, 1997 SYNOPSYS, INC. (Registrant) By: /s/ Tammy Liu ----------------------------------- Tammy Liu Acting Chief Financial Officer (Principal Financial and Accounting Officer) 15 16 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------------------------- 10.15 1994 Non-Employee Directors Stock Option Plan 27 Financial Data Schedule EX-10.15 2 1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN 1 EXHIBIT 10.15 SYNOPSYS, INC. 1994 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN (REFLECTING AMENDMENTS THROUGH FEBRUARY 28, 1997) I. PURPOSE OF THE PLAN This 1994 Non-Employee Directors Stock Option Plan (the "Plan") is intended to promote the interests of Synopsys, Inc., a Delaware corporation (the "Corporation"), by providing the non-employee members of the Board of Directors with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. II. DEFINITIONS For purposes of the Plan, the following definitions shall be in effect: ANNUAL MEETING: the annual meeting of the Corporation's stockholders. BOARD: the Corporation's Board of Directors. CODE: the Internal Revenue Code of 1986, as amended. COMMON STOCK: shares of the Corporation's common stock. CHANGE IN CONTROL: a change in ownership or control of the Corporation effected through either of the following transactions: a. any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or b. there is a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. CORPORATE TRANSACTION: any of the following stockholder- approved transactions to which the Corporation is a party: 1 2 a. a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Corporation's incorporation, b. the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation, or c. any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to holders different from those who held such securities immediately prior to such merger. EFFECTIVE DATE: October 27, 1994, the date on which the Plan was adopted by the Board. FAIR MARKET VALUE: the Fair Market Value per share of Common Stock determined in accordance with the following provisions: a. If the Common Stock is not at the time listed or admitted to trading on any national securities exchange but is traded on the Nasdaq National Market, the Fair Market Value shall be the closing selling price per share on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of Fair Market Value. b. If the Common Stock is at the time listed or admitted to trading on any national securities exchange, then the Fair Market Value shall be the closing selling price per share on the date in question on the exchange serving as the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. HOSTILE TAKE-OVER: a change in ownership of the Corporation effected through the following transaction: a. any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept, and 2 3 b. more than fifty percent (50%) of the securities so acquired in such tender or exchange offer are accepted from holders other than the officers and directors of the Corporation subject to the short-swing profit restrictions of Section 16 of the 1934 Act. 1934 ACT: the Securities Exchange Act of 1934, as amended. OPTIONEE: any person to whom an option is granted under the Plan. PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. TAKE-OVER PRICE: the greater of (a) the Fair Market Value per share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or (b) the highest reported price per share of Common Stock paid by the tender offeror in effecting such Hostile Take-Over. III. ADMINISTRATION OF THE PLAN The terms and conditions of each automatic option grant (including the timing and pricing of the option grant) shall be determined by the express terms and conditions of the Plan, and neither the Board nor any committee of the Board shall exercise any discretionary functions with respect to option grants made pursuant to the Plan. IV. STOCK SUBJECT TO THE PLAN A. Shares of the Corporation's Common Stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of Common Stock or from reacquired shares of Common Stock, including shares repurchased by the Corporation on the open market. The number of shares of Common Stock reserved for issuance over the term of the Plan shall initially be fixed at 100,000 shares. B. The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the first trading day of each calendar year during the term of the Plan, beginning with the 1996 calendar year, by an additional 12,500 shares. C. Should one or more outstanding options under this Plan expire or terminate for any reason prior to exercise in full, then the shares subject to the portion of each option not so exercised shall be available for subsequent option grant under the Plan. Shares subject to any option or portion thereof surrendered in accordance with Article VII and all share issuances under the Plan, whether or not the shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent option grant under the Plan. In addition, should the exercise price of an outstanding option under the Plan be paid with shares of Common Stock, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised, and not by the net number of shares of Common Stock actually issued to the holder of such option. D. Should any change be made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of 3 4 shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the number and/or class of securities by which the share reserve is to increase automatically each calendar year, (iii) the number and/or class of securities for which automatic option grants are to be subsequently made to each newly-elected or continuing non-employee Board member under the Plan, and (iv) the number and/or class of securities and price per share in effect under each option outstanding under the Plan. The adjustments to the outstanding options shall be made by the Board in a manner which shall preclude the enlargement or dilution of rights and benefits under such options and shall be final, binding and conclusive. V. ELIGIBILITY A. Eligible Optionees. The individuals eligible to receive automatic option grants pursuant to the provisions of this Plan shall be limited to (i) those individuals serving as non-employee Board members on the Effective Date who have indicated their intention to stand for re-election to the Board at the 1995 Annual Meeting and who have not otherwise previously received a stock option grant from the Corporation, (ii) those individuals who are first elected or appointed as non-employee Board members after the Effective Date, whether through appointment by the Board or election by the Corporation's stockholders, and (iii) those individuals who are re-elected as non-employee Board members at one or more Annual Meetings held after the Effective Date. A non-employee Board member shall not be eligible to receive the initial automatic option grant under clause (i) or clause (ii) if such individual has previously been in the employ of the Corporation (or any parent or subsidiary). However, a non-employee Board member shall be eligible to receive one or more clause (iii) option grants, whether or not he or she has previously been in the employ of the Corporation (or any parent or subsidiary). Each non-employee Board member eligible to participate in the Plan pursuant to the foregoing criteria is hereby designated an Eligible Director. B. Limitation. Except for the grants to be made pursuant to this Plan, non-employee Board members shall not be eligible to receive any stock options, stock appreciation rights, direct stock issuances or other stock awards under this Plan or any other stock plan of the Corporation or any parent or subsidiary. VI. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS A. Grant Date. Option grants shall be made on the dates specified below: - Each individual serving as an Eligible Director on the Effective Date who has indicated his or her intention to stand for re-election to the Board at the 1995 Annual Meeting and who has not otherwise previously received a stock option grant from the Corporation year shall automatically be granted at that time a non-statutory stock option to purchase 20,000 shares of Common Stock. - Each individual who first becomes an Eligible Director after the Effective Date, whether through election by the Corporation's stockholders or appointment by the Board, shall automatically be granted, at the time of such initial election or appointment, a non-statutory option to purchase 20,000 shares of Common Stock. - On the date of each Annual Meeting, beginning with the 1995 Annual Meeting, each Eligible Director who is re-elected to the Board at that Annual 4 5 Meeting shall automatically be granted a non-statutory option to purchase an additional 8,000 shares of Common Stock. There shall be no limit on the number of such annual 8,000-share option grants any one Eligible Director may receive over his or her period of continued Board service. B. Exercise Price. The exercise price per share of Common Stock subject to each automatic option grant shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the automatic grant date. C. Payment. The exercise price shall become immediately due upon exercise of the option and shall be payable in one of the alternative forms specified below: (i) full payment in cash or check made payable to the Corporation's order; or (ii) full payment in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial-reporting purposes and valued at Fair Market Value on the Exercise Date (as such term is defined below); or (iii) full payment in a combination of shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial-reporting purposes and valued at Fair Market Value on the Exercise Date and cash or check payable to the Corporation's order; or (iv) to the extent the option is exercised for vested shares, full payment through a broker-dealer sale and remittance procedure pursuant to which the non-employee Board member (I) shall provide irrevocable written instructions to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares and (II) shall concurrently provide written directives to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction. For purposes of this Section VI.C, the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Corporation. Except to the extent the sale and remittance procedure specified above is utilized in connection with the exercise of the option for vested shares, payment of the exercise price for the purchased shares must accompany the exercise notice. However, if the option is exercised for any unvested shares, then the Optionee must also execute and deliver to the Corporation a stock purchase agreement for those unvested shares which provides the Corporation with the right to repurchase, at the exercise price paid per share, any unvested shares held by the Optionee at the time of his or her cessation of Board service and which precludes the sale, transfer or other disposition of any shares purchased under the option, to the extent those shares are at the time subject to the Corporation's repurchase right. D. Exercisability/Vesting. Each automatic grant shall be immediately exercisable for any or all of the option shares; provided, however, that no such grant shall become exercisable in whole or in part unless the stockholders approve this Plan at the 1995 Annual 5 6 Meeting. Any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares in accordance with the applicable schedule below. - The initial automatic grant for 20,000 shares made to each Eligible Director shall vest, and the Corporation's repurchase right shall lapse, in a series of four (4) successive equal installments as such individual continues in Board service through the date immediately preceding each of the first four (4) Annual Meetings following the grant date of that option. - Each annual 8,000-share automatic grant made to an Eligible Director shall vest in full, and the Corporation's repurchase right shall lapse in its entirety, on the date immediately prior to the fourth Annual Meeting following the grant date of that option, provided the Optionee continues in Board service through that vesting date. Vesting of the option shares shall be subject to acceleration as provided in Section VI.G and Article VII. In no event, however, shall any additional option shares vest after the Optionee's cessation of Board service. E. Option Term. Each automatic grant under the Plan shall have a maximum term of ten (10) years measured from the automatic grant date. F. Non-Transferability. During the lifetime of the Optionee, each automatic option grant, together with the limited stock appreciation right pertaining to such option, shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee other than a transfer of the option effected by will or by the laws of descent and distribution following Optionee's death. G. Effect of Termination of Board Service. 1. Should the Optionee cease to serve as a Board member for any reason (other than death or Permanent Disability) while holding one or more automatic option grants under the Plan, then such individual shall have a six (6)-month period following the date of such cessation of Board service in which to exercise each such option for any or all of the option shares in which the Optionee is vested at the time of his or her cessation of Board service. Each such option shall immediately terminate and cease to be outstanding, at the time of such cessation of Board service, with respect to any option shares in which the Optionee is not otherwise at that time vested. 2. Should the Optionee die within six (6) months after cessation of Board service, then any automatic option grant held by the Optionee at the time of death may subsequently be exercised, for any or all of the option shares in which the Optionee is vested at the time of his or her cessation of Board service (less any option shares subsequently purchased by the Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. The right to exercise each such option shall lapse upon the expiration of the twelve (12)-month period measured from the date of the Optionee's death. 3. Should the Optionee die or become Permanently Disabled while serving as a Board member, then any automatic option grant held by the Optionee at the time of his or her death or Permanent Disability may subsequently be exercised for any or all of the option 6 7 shares in which the Optionee is vested at that time plus an additional number of option shares equal to the number of option shares (if any) in which the Optionee would have vested had he or she continued in Board service until the next Annual Meeting. The Optionee (or the personal representative of the Optionee's estate or the person or persons to whom the option is transferred upon the Optionee's death) shall have the right to exercise the option for such number of option shares at any time prior to the expiration of the twelve (12)-month period measured from the date of the Optionee's death or Permanent Disability. 4. In no event shall any automatic grant under this Plan remain exercisable after the expiration date of the maximum ten (10)-year option term. Upon the expiration of the applicable post-service exercise period under subparagraphs 1 through 3 above or (if earlier) upon the expiration of the maximum ten (10)-year option term, the automatic grant shall terminate and cease to be outstanding for any option shares in which the Optionee was vested at the time of his or her cessation of Board service but for which such option was not otherwise exercised. H. Stockholder Rights. The holder of an automatic option grant shall have none of the rights of a stockholder with respect to any shares subject to such option until such individual shall have exercised the option and paid the exercise price for the purchased shares. I. Remaining Terms. The remaining terms and conditions of each automatic option grant shall be as set forth in the form Stock Option Agreement attached as Exhibit A. VII. SPECIAL ACCELERATION EVENTS A. In the event of any Corporate Transaction, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the shares of Common Stock at the time subject to that option and may be exercised for all or any portion of such shares as fully-vested shares of Common Stock. Immediately following the consummation of the Corporate Transaction, each automatic option grant under the Plan shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or its parent company. B. In connection with any Change in Control of the Corporation, the shares of Common Stock at the time subject to each outstanding option but not otherwise vested shall automatically vest in full so that each such option shall, immediately prior to the specified effective date for the Change in Control, become fully exercisable for all of the shares of Common Stock at the time subject to that option and may be exercised for all or any portion of such shares as fully-vested shares of Common Stock. Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the cash-out of the option in accordance with Section VII.C. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each automatic option grant held by him or her for a period of at least six (6) months. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the Corporation. No approval or consent of the Board shall be required in connection with such option surrender and cash distribution. 7 8 D. The shares of Common Stock subject to each option surrendered in connection with the Hostile Take-Over shall NOT be available for subsequent option grant under this Plan. E. The automatic option grants outstanding under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. VIII. AMENDMENT OF THE PLAN AND AWARDS The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. However, (i) the Plan, together with the option grants outstanding under the Plan, may not be amended at intervals more frequently than once every six (6) months, other than to the extent necessary to comply with applicable Federal income tax laws and regulations, and (ii) no such amendment or modification shall adversely affect rights and obligations with respect to options at the time outstanding under the Plan, unless the affected Optionees consent to such amendment. In addition, the Board may not, without the approval of the Corporation's stockholders, amend the Plan to (i) materially increase the maximum number of shares issuable under the Plan or the number of shares issuable per newly-elected or continuing Eligible Director, except for permissible adjustments under Section IV.B., (ii) materially modify the eligibility requirements for participation in the Plan or (iii) materially increase the benefits accruing to participants in the Plan. IX. EFFECTIVE DATE AND TERM OF PLAN A. The Plan became effective immediately upon adoption by the Board on the Effective Date, and one or more automatic option grants may be made under the Plan at any time on or after such Effective Date. However, no options granted under the Plan shall become exercisable in whole or in part prior to approval of the Plan by the Corporation's stockholders at the 1995 Annual Meeting. If such approval is not obtained, then all options previously granted under the Plan shall terminate and cease to be outstanding, and no further option grants shall be made under the Plan. B. The Plan shall terminate upon the earlier of (i) October 26, 2004 or (ii) the date on which all shares available for issuance under the Plan shall have been issued or canceled pursuant to the exercise or cash-out of the options granted under the Plan. If the date of termination is determined under clause (i) above, then all option grants and unvested stock issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the agreements evidencing those option grants or stock issuances. X. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants or share issuances under the Plan shall be used for general corporate purposes. 8 9 XI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option under the Plan and the issuance of Common Stock upon the exercise of the option grants made hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it, and the Common Stock issued pursuant to it. B. No shares of Common Stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which the Common Stock is then listed for trading. XII. NO IMPAIRMENT OF RIGHTS Neither the action of the Corporation in establishing the Plan nor any provision of the Plan shall be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove any individual from the Board at any time in accordance with the provisions of applicable law. XIII. MISCELLANEOUS PROVISIONS A. The right to acquire Common Stock or other assets under the Plan may not be assigned, encumbered or otherwise transferred by any Optionee. B. The provisions of the Plan relating to the exercise of options and the vesting of shares shall be governed by the laws of the State of California, as such laws are applied to contracts entered into and performed in such State. C. The provisions of the Plan shall inure to the benefit of, and be binding upon, the Corporation and its successors or assigns, whether by Corporate Transaction or otherwise, and the Optionees, the legal representatives of their respective estates, their respective heirs or legatees and their permitted assignees. 9 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS SEP-30-1997 OCT-01-1996 MAR-31-1997 1 43,747 251,839 87,636 5,701 0 411,941 116,708 57,239 515,643 176,207 12,260 0 0 514 324,686 515,643 240,910 240,910 27,779 27,779 172,840 0 745 48,345 18,869 29,476 0 0 0 29,476 .55 .55
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