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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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INNOVEDA, INC.
(NAME OF SUBJECT COMPANY)
INNOVEDA, INC.
(NAME OF PERSON(S) FILING STATEMENT)
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COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
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45769F102
(CUSIP NUMBER OF CLASS OF SECURITIES)
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PETER T. JOHNSON
VICE PRESIDENT, BUSINESS DEVELOPMENT AND CHIEF LEGAL OFFICER
INNOVEDA, INC.
293 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
JOHN A. BURGESS, ESQ.
MICHAEL J. LACASCIA, ESQ.
JONATHAN WOLFMAN, ESQ.
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 526-6000
FACSIMILE: (617) 526-5000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION
NAME AND ADDRESS
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (this "Schedule 14D-9") relates is Innoveda, Inc., a
Delaware corporation (the "Company"). The principal executive offices of the
Company are located at 293 Boston Post Road West, Marlboro, Massachusetts 01752.
The telephone number of the principal executive offices of the Company is (508)
480-0881.
SECURITIES
The title of the class of equity securities to which this Schedule 14D-9
relates is the common stock, par value $0.01 per share (the "Shares"), of the
Company. As of April 23, 2002, there were 40,086,376 Shares outstanding and
8,935,746 Shares issuable upon exercise of outstanding options.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
NAME AND ADDRESS
The name, business address and business telephone number of the Company,
which is the person filing this Schedule 14D-9 and is also the subject company,
are set forth in Item 1 above under the caption "Subject Company
Information -- Name and Address."
TENDER OFFER
This Schedule 14D-9 relates to the tender offer by Indiana Merger
Corporation, a Delaware corporation ("Purchaser") and a wholly-owned subsidiary
of Mentor Graphics Corporation, an Oregon corporation ("Mentor"), disclosed in a
Tender Offer Statement on Schedule TO (the "Schedule TO") filed by Purchaser and
Mentor with the Securities and Exchange Commission (the "SEC") on April 30,
2002.
As described in the Schedule TO, Purchaser has offered to purchase all of
the outstanding Shares at a price of $3.95 per Share, net to the selling
shareholders in cash (the "Offer Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 30, 2002 (the "Offer
to Purchase") and in the related Letter of Transmittal (the "Letter of
Transmittal" which, together with the Offer to Purchase, as they may be amended
and supplemented from time to time, constitute the "Offer"). Copies of the Offer
to Purchase and related Letter of Transmittal are filed as Exhibits (a)(1) and
(a)(2), respectively, to this Schedule 14D-9 and are incorporated herein by
reference.
As set forth in the Schedule TO, Purchaser's and Mentor's principal
executive offices are both located at 8005 S.W. Boeckman Road, Wilsonville,
Oregon 97070-7777.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of April 23, 2002 (as such agreement may be amended and supplemented from
time to time, the "Merger Agreement"), by and among Mentor, Purchaser and the
Company. The Merger Agreement provides, among other things, (1) for the making
of the Offer and (2) that as soon as practicable after the satisfaction or
waiver of the conditions set forth in the Merger Agreement, Purchaser will be
merged with and into the Company (the "Merger"). Following consummation of the
Merger, the Company will continue as the surviving corporation (the "Surviving
Corporation") and as a wholly-owned subsidiary of Mentor. At the effective time
of the Merger (the "Effective Time"), each Share then outstanding (other than
Shares (i) owned by Mentor, Purchaser, any wholly-owned subsidiary of Mentor or
Purchaser, in the treasury of the Company or by any wholly-owned subsidiary of
the Company, which shall be canceled, and (ii) held by holders who have properly
demanded and perfected their appraisal rights under Section 262 of the Delaware
General Corporation Law statute (the "DGCL")) will be converted into the right
to receive the Offer Price in cash, without interest thereon (the "Merger
Consideration"), upon surrender of the certificate formerly representing such
Share. The Merger Agreement is more fully described in Item 3 of this Schedule
14D-9. A copy of the Merger Agreement is filed as Exhibit (e)(1) to this
Schedule 14D-9 and is incorporated herein by reference.
2
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
Except as set forth in this Item 3 or in the Information Statement pursuant
to Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14f-1 thereunder that is attached as Annex B to this
Schedule 14D-9 (the "Information Statement"), which Information Statement is
incorporated herein by reference, to the knowledge of the Company, as of the
date hereof, there are no material agreements, arrangements or understandings
and no actual or potential conflicts of interest between the Company or its
affiliates and either (i) the Company's executive officers, directors or
affiliates, or (ii) Mentor, Purchaser, or their respective executive officers,
directors or affiliates.
EXCLUSIVITY AND CONFIDENTIALITY AGREEMENT
On March 25, 2002, Mentor and the Company entered into an Exclusivity and
Confidentiality Agreement in connection with Mentor's evaluation of the Company
and the Company's provision of certain information to Mentor (the
"Confidentiality Agreement"). The summary of the Confidentiality Agreement
contained in the section of the Offer to Purchase titled "THE OFFER -- The
Merger Agreement; Other Arrangements -- Exclusivity and Confidentiality
Agreement" is incorporated herein by reference. The Offer to Purchase is being
mailed to stockholders together with this Schedule 14D-9 and is filed herewith
as Exhibit (a)(1). The summary of the Confidentiality Agreement contained in the
Offer to Purchase, which describes the material terms of the agreement, is
qualified by reference to the Confidentiality Agreement, which is filed herewith
as Exhibit (e)(2) and is incorporated herein by reference.
MERGER AGREEMENT
The summary of the Merger Agreement contained in the section of the Offer
to Purchase titled "THE OFFER -- The Merger Agreement; Other Arrangements -- The
Merger Agreement and the Tender Agreements" is incorporated herein by reference.
The Offer to Purchase is being mailed to stockholders together with this
Schedule 14D-9 and is filed herewith as Exhibit (a)(1). The summary of the
Merger Agreement contained in the Offer to Purchase, which describes the
material terms of the agreement, is qualified by reference to the Merger
Agreement, which is filed herewith as Exhibit (e)(1) and is incorporated herein
by reference.
TENDER AND STOCKHOLDER SUPPORT AGREEMENT
As a condition to and inducement to Mentor and Purchaser's willingness to
enter into the Merger Agreement, Mentor and Purchaser entered into Tender and
Stockholder Support Agreements (the "Tender Agreements") with certain of the
Company's stockholders, including all of the Company's executive officers and
directors (the "Significant Stockholders"). The summary of the Tender Agreements
contained in the section of the Offer to Purchase titled "THE OFFER -- The
Merger Agreement; Other Arrangements -- The Merger Agreement and the Tender
Agreements" is incorporated herein by reference. The Offer to Purchase is being
mailed to stockholders together with this Schedule 14D-9 and is filed herewith
as Exhibit (a)(1). The summary of the Tender Agreements contained in the Offer
to Purchase, which describes the material terms of the agreements, is qualified
by reference to the forms of Tender Agreements, which are filed herewith as
Exhibits (e)(3) and (e)(4) and are incorporated herein by reference.
NON-COMPETE AGREEMENTS
Prior to the execution of the Merger Agreement, Mentor, Purchaser and the
Company entered into non-compete agreements (the "Non-Compete Agreements") with
William J. Herman, the Company's Chairman of the Board and Chief Executive
Officer, and Richard G. Lucier, the Company's President. The summary of the
Non-Compete Agreements contained in the section of the Offer to Purchase titled
"THE OFFER -- The Merger Agreement; Other Arrangements -- Non-Compete
Agreements" is incorporated herein by reference. The Offer to Purchase is being
mailed to stockholders together with this Schedule 14D-9 and is filed herewith
as Exhibit (a)(1). The summary of the Non-Compete Agreements contained in the
Offer to Purchase, which
3
describes the material terms of such agreements, is qualified by reference to
the Form of Non-Compete Agreement, which is filed herewith as Exhibit (e)(5) and
is incorporated herein by reference.
INTERESTS OF CERTAIN PERSONS
Certain members of the Company's management and the Board of Directors of
the Company (the "Board") may be deemed to have interests in the transactions
contemplated by the Merger Agreement that are different from or in addition to
their interests as Company stockholders generally. The Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated by the Merger Agreement.
EMPLOYMENT AGREEMENTS
Employment agreements that contain severance provisions are in effect
between the Company and each of William J. Herman, the Company's Chairman of the
Board and Chief Executive Officer, and Richard G. Lucier, the Company's
President. The summaries of the severance provisions in such employment
agreements contained in the section of the Information Statement titled
"EXECUTIVE COMPENSATION -- Employment Agreements" are incorporated herein by
reference. The Information Statement is being mailed to stockholders together
with this Schedule 14D-9 and is attached hereto as Annex B. The summaries of the
severance provisions in such employment agreements contained in the Information
Statement, which describe the material terms of such provisions, are qualified
by reference to these agreements, which are filed herewith as Exhibits (e)(6)
and (e)(7) and are incorporated herein by reference. These employment agreements
entitle the executives to receive certain severance payments if their employment
is terminated under certain circumstances. As of the date of this Schedule
14D-9, Mentor has not informed the Company of its intention to terminate the
employment of any of the Company's executives that is a party to an employment
agreement following consummation of the Offer. The estimated severance payments
that would be payable to such executives if their employment is terminated
following consummation of the Offer or the Merger are as follows:
<Table>
<Caption>
NAME OF EXECUTIVE SEVERANCE AMOUNT
- ----------------- ----------------
William J. Herman........................................... $236,250
Richard G. Lucier........................................... $202,500
</Table>
EMPLOYEE BENEFIT MATTERS
The summary of the employee benefit matters under the Merger Agreement
contained in the section of the Offer to Purchase titled "THE OFFER -- The
Merger Agreement; Other Arrangements -- Other Agreements of Mentor and The
Company -- Employee Benefit Matters" is incorporated herein by reference. The
Offer to Purchase is being mailed to stockholders together with this Schedule
14D-9 and is filed herewith as Exhibit (a)(1). The summary of the employee
benefit matters under the Merger Agreement contained in the Offer to Purchase,
which describes the material terms of such employee benefit matters, is
qualified by reference to the Merger Agreement, which has been filed as Exhibit
(e)(1) hereto and is incorporated herein by reference.
STOCK OPTIONS AND RESTRICTED STOCK
The summary of the treatment of stock options under the Merger Agreement
contained in the section of the Offer to Purchase titled "THE OFFER -- The
Merger Agreement; Other Arrangements -- Other Agreements of Mentor and The
Company -- Stock Options" is incorporated herein by reference. The Offer to
Purchase is being mailed to stockholders together with this Schedule 14D-9 and
is filed herewith as Exhibit (a)(1). The summary of the treatment of stock
options under the Merger Agreement contained in the Offer to Purchase, which
describes the material terms of the treatment of the stock options, is qualified
by reference to the Merger Agreement, which has been filed as Exhibit (e)(1)
hereto and is incorporated herein by reference.
4
Pursuant to the terms of the Merger Agreement, the Board has accelerated in
full the vesting of the stock options and shares of restricted stock described
in the table below effective immediately prior to the Effective Time. Without
that acceleration of vesting by the Board, those stock options and shares of
restricted stock would have nonetheless vested in full pursuant to their terms,
if the executive officer holding such stock options or restricted stock ceased
to be an employee, officer or director of, or a consultant to, the Company
within 24 months following the consummation of the Offer as a result of
termination without cause by the Company or for good reason by the executive.
This summary, which describes the material terms of such change of control
provisions, is qualified by reference to the applicable agreements, forms of
which are filed herewith as Exhibits (e)(8) and (e)(9) and are incorporated
herein by reference. As of April 23, 2002, the aggregate unvested stock options
held by executive officers of the Company that would become fully vested and
exercisable immediately prior to the Effective Time was 880,005 and the
aggregate unvested shares of restricted stock held by executive officers of the
Company that would become fully vested and free of restrictions immediately
prior to the Effective Time was 238,506.
<Table>
<Caption>
WEIGHTED AVERAGE WEIGHTED AVERAGE
PER SHARE EXERCISE NUMBER OF SHARES OF PER SHARE PURCHASE
NUMBER OF UNVESTED PRICE OF UNVESTED UNVESTED RESTRICTED PRICE OF UNVESTED
OPTIONS AS OF OPTIONS AS OF STOCK AS OF RESTRICTED STOCK AS
NAME AND TITLE APRIL 23, 2002 APRIL 23, 2002 APRIL 23, 2002 OF APRIL 23, 2002
- -------------- ------------------ ------------------- ------------------- -------------------
William J. Herman........ 302,501 $2.06 107,507 $0.49
Chairman of the
Board and Chief
Executive Officer
Richard G. Lucier........ 247,501 $2.06 84,911 $0.49
President
Paula J. Cassidy......... 99,001 $2.06 5,652 $0.49
Vice President,
Human Resources
Peter T. Johnson......... 99,001 $2.06 17,831 $0.49
Vice President,
Business Development
and Chief Legal Officer
Kevin P. O'Brien......... 132,001 $2.06 22,605 $0.49
Vice President, Finance
and Administration and
Chief Financial Officer
</Table>
Each of the executive officers named in the table above has entered into a
Tender Agreement with Mentor and Purchaser. See "Tender and Stockholder Support
Agreement" above. Among the Shares subject to such Tender Agreements for each
such executive officer are Shares of restricted stock and Shares which are being
held by the Company as security for amounts borrowed by the executive in August
1999 from a predecessor of the Company to purchase Shares upon the exercise of
stock options. The performance by each executive of its obligations under its
Tender Agreement is prohibited by the restrictions on transfer and security
provisions of the agreements entered into between the executive and the Company
with respect to the Shares subject to the Tender Agreements. The Company has
consented to the Tender Agreements entered into by its executive officers. The
Company has also consented to the performance by each executive officer of its
obligations under the Tender Agreements, including the tendering of Shares in
the Offer, the voting of, and the grant of an irrevocable proxy to vote, Shares
to approve the Merger and the grant of an option to purchase Shares. The
Company's consents with respect to Shares subject to Tender Agreements are
conditioned upon appropriate measures being taken by the executive officer to
provide for the cash proceeds of any tender or sale of Shares being held by the
Company as security for indebtedness to be used to repay such indebtedness. Set
forth in the table below for each executive officer of the Company are the
number of Shares of restricted stock which are subject to a Tender Agreement and
the number of Shares held by the Company as security for indebtedness which are
subject to a Tender Agreement, as well as the total amount of outstanding
indebtedness of the executive to the Company. Shares set forth in the table
below as being held by the
5
Company as security for indebtedness include Shares of restricted stock, all of
which are also held as security for indebtedness.
<Table>
<Caption>
NUMBER OF SHARES
NUMBER OF HELD BY THE COMPANY AMOUNT OF
SHARES OF AS SECURITY FOR OUTSTANDING
NAME RESTRICTED STOCK INDEBTEDNESS INDEBTEDNESS
- ---- ---------------- ------------------- ------------
William J. Herman............................... 107,507 860,046 $417,818
Richard G. Lucier............................... 84,911 679,280 $330,000
Paula J. Cassidy................................ 5,652 45,210 $ 21,963
Peter T. Johnson................................ 17,831 142,649 $ 69,300
Kevin P. O'Brien................................ 22,605 180,840 $ 87,854
</Table>
Pursuant to the terms of the stock option agreements granted to each
director of the Company, the unvested portions of those stock options become
vested in full, if the director is involuntarily removed from the Board
following a change of control of the Company. For purposes of those stock option
agreements, the consummation of the Offer constitutes a change of control of the
Company. This summary of the change of control provisions of such stock option
agreements, which describes the material terms of such provisions, is qualified
by reference to these agreements, a form of which is filed herewith as Exhibit
(e)(10) and is incorporated herein by reference. As of April 23, 2002, the
aggregate unvested stock options held by directors of the Company that would
become fully vested and exercisable upon an involuntary removal of the directors
from the Board following the consummation of the Offer is 119,795.
<Table>
<Caption>
WEIGHTED AVERAGE PER SHARE
NUMBER OF UNVESTED OPTIONS EXERCISE PRICE OF UNVESTED
NAME OF DIRECTOR AS OF APRIL 23, 2002 OPTIONS AS OF APRIL 23, 2002
- ---------------- -------------------------- ----------------------------
William V. Botts............................... 23,959 $4.85
Lorne J. Cooper................................ 20,834 $4.85
Steven P. Erwin................................ 23,959 $4.85
Keith B. Geeslin............................... 20,834 $4.85
Hiroshi Hashimoto.............................. 30,209 $3.69
</Table>
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that a corporation's certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director for monetary
damages for breach of the director's fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's Bylaws provide that it shall indemnify its directors and may
indemnify its employees and agents to the fullest extent permitted by law. The
Company believes that indemnification under its Bylaws covers at least
negligence and gross negligence on the part of indemnified parties.
The Company has entered into agreements to indemnify certain of its
directors in addition to the indemnification provided for in its Bylaws. These
agreements, among other things, indemnify those directors and officers for
certain expenses including attorney's fees, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by or in the right of the Company, arising out of such person's services
as a director of the Company, any subsidiary of the Company or any other company
or enterprise to which the person provides services at the Company's request.
The Company has obtained directors' and officers' insurance providing
indemnification for certain of the Company's directors, officers, affiliates,
partners or employees for certain liabilities.
6
The Merger Agreement provides that Mentor and the surviving corporation
will indemnify the present and former directors and officers of the Company on
certain terms and in certain circumstances as more fully described in the
section of the Offer to Purchase titled "THE OFFER -- The Merger Agreement;
Other Arrangements -- Other Agreements of Mentor and The Company," which is
incorporated herein by reference. The Offer to Purchase is being mailed to
stockholders together with this Schedule 14D-9 and is filed herewith as Exhibit
(a)(1). The summary of the indemnification and insurance provisions under the
Merger Agreement, which describes the material terms of such provisions, is
qualified by reference to the Merger Agreement, which has been filed as Exhibit
(e)(1) hereto and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
RECOMMENDATION OF THE BOARD
The Board, at a meeting duly called and held on April 23, 2002, by
unanimous vote of all directors present at the meeting:
- determined that each of the transactions contemplated by the Merger
Agreement, including each of the Offer and the Merger, is fair to and in
the best interests of the Company and its stockholders;
- approved the Offer and adopted the Merger Agreement in accordance with
the DGCL;
- recommended acceptance of the Offer and approval of the Merger Agreement
by the Company's stockholders (if such approval is required by applicable
law); and
- took all other action necessary to render the restrictions on business
combinations contained in Section 203 of the DGCL inapplicable to the
Offer, the Merger and the Tender Agreements.
REASONS FOR THE BOARD'S RECOMMENDATION
BACKGROUND
The Board regularly reviews the Company's long-term strategies and
objectives. In connection with these reviews, the Company has from time to time
considered various strategic alternatives to pursuing the Company's business
plan as an independent entity, including acquisitions, distribution arrangements
and business combinations.
During September 2001, William J. Herman, the Company's Chairman of the
Board and Chief Executive Officer, was contacted by telephone by Mentor and
another party each proposing business combinations with the Company. In
response, Mr. Herman and Richard G. Lucier, the Company's President, had
meetings with representatives of each of the interested parties to discuss
potential synergies between the Company and these two companies and their
respective potential interest in acquiring the Company.
On September 21, 2001, Messrs. Herman and Lucier met with Dennis Weldon,
Mentor's Treasurer, and Henry Potts, General Manager of Mentor's systems
division, in Chicago and discussed differences between Mentor's and the
Company's products in the context of a potential acquisition of the Company by
Mentor. The parties pursued these discussions on telephone calls during the week
of September 24, 2001 and agreed to meet again in October 2001.
During October 2001, Messrs. Herman and Lucier met with representatives of
the third party. During these meetings, the representatives of the third party
restated their interest in acquiring the Company and discussed a basis for
determining an acquisition price for the Company.
On October 10, 2001, Messrs. Herman and Lucier participated in a conference
call with the third party in which the third party indicated its interest in
acquiring the Company. Discussions following a presentation from the third party
to Messrs. Lucier and Herman resulted in a conclusion by Mr. Herman that the
indication of interest by the third party did not represent a sufficient premium
to the Company's current stock price to obtain the approval of the Board for an
acquisition of the Company by the third party.
7
On October 11, 2001, the Board met at a regularly scheduled Board meeting.
Among the topics discussed were the expressions of interest from Mentor and the
third party. The Board concluded that neither of the proposals was sufficient to
justify an acquisition of the Company by either party.
On October 18, 2001, Messrs. Herman and Lucier met with Messrs. Weldon and
Potts in Wilsonville, Oregon. Based upon differences between the parties'
perceptions of the Company's performance, the parties concluded that an
acquisition by Mentor was not practical at that time but agreed to pursue
discussions regarding a potential acquisition in the future.
On November 7, 2001, Bruce Alexander of the investment banking firm of
Needham & Company, or Needham, called Mr. Herman at Mentor's request to discuss
Mentor's potential interest in acquiring the Company.
On November 29, 2001, a representative of the third party called Mr. Herman
to express its continued interest in acquiring the Company. The acquisition
price discussed during this telephone call was unchanged from the price
discussed during early October.
On January 8, 2002, Mr. Herman and a high-level representative of the third
party met to discuss the continued interest in the Company by the third party
and such party's willingness to increase the acquisition price offered for the
Company if the Company was willing to enter into serious negotiations with such
third party.
On January 9, 2002, Messrs. Alexander and Herman met while attending an
investor conference in New York and discussed Mr. Herman's point of view of the
Company regarding a potential acquisition of the Company by Mentor. Given the
differences of opinion between the parties concerning this matter, the parties
did not pursue further discussions at this time.
On February 7, 2002, the Board met at a regularly scheduled Board meeting.
Mr. Herman informed the Board of the state of the discussions with Mentor and
the third party.
On February 26, 2002, Mr. Herman met with a representative of the third
party at the Company's offices in Marlboro, Massachusetts. The representative
expressed an interest in engaging in new discussions about acquiring the
Company. A meeting with additional representatives from the third party and
Messrs. Herman and Lucier was scheduled for the following week.
During early March 2002, Messrs. Herman and Lucier met with representatives
of the third party and engaged in discussions with such representatives
regarding the third party's potential interest in acquiring the Company. In
connection with such discussions, the Company provided the third party with
certain non-public business and financial information relating to the Company's
current fiscal year. Such information, which was based on information available
to the Company at the time, reflected slightly higher expected revenue and
profits than the financial information provided to Mentor and which is
summarized in Item 8 of this Schedule 14D-9. Following these discussions, a
senior executive of the third party expressed its intent to make a proposal to
the Company within the next few weeks.
On March 5, 2002, Mr. Herman left a voicemail message with Gregory
Hinckley, President and Chief Operating Officer of Mentor, suggesting they meet
at a trade show they would both be attending. Mr. Hinckley and Mr. Herman met at
the trade show in Paris on March 6, 2002 and discussed a potential acquisition
of the Company by Mentor.
From March 12, 2002 to March 18, 2002, Messrs. Herman, Alexander, Hinckley
and Weldon had daily telephone discussions with respect to a potential
acquisition of the Company by Mentor.
On March 13, 2002, Mr. Herman met with senior executives of the third party
at the offices of its investment bankers. At this meeting, the third party
discussed the possibility of acquiring the Company for $2.75 per share, which
represented an increase over the price previously discussed.
On March 14, 2002, Messrs. Weldon, Hinckley, Potts and Herman met in Denver
to discuss a potential acquisition of the Company by Mentor. The Mentor
representatives discussed the possibility of acquiring the Company for $3.00 per
share plus the net proceeds from the sale of the Company's system-level design
8
("SLD") business, which the Company was in the process of offering for sale or
winding down. This price represented an increase over the prices discussed in
September 2001. Mr. Herman agreed to discuss the matter further with the Board.
On March 15, 2002, the Board held a special meeting by conference call to
discuss the interest of both Mentor and the third party in acquiring the
Company. During this call, the Board authorized Company management to engage
both parties in further negotiations and to pursue a higher price from both
parties.
On March 18, 2002, Mr. Herman placed calls to other potential strategic
acquirers to ascertain their interest in acquiring the Company. One of these
parties took Mr. Herman's inquiry under consideration and replied the following
day that an acquisition of the Company was not in its immediate strategic plan.
The other parties indicated no interest.
On March 19, 2002, the Company received a draft term sheet and exclusivity
and confidentiality agreement from the third party, which contemplated an
acquisition of the Company at a purchase price of $3.15 per share. The agreement
contemplated a period of exclusivity ending in late May 2002.
On March 20, 2002, Mentor's management submitted a draft term sheet to the
Company (the "Term Sheet") and a draft letter agreement with respect to
exclusivity and confidentiality (the "Exclusivity and Confidentiality
Agreement"). The Term Sheet contemplated an acquisition of all of the
outstanding shares of the Company for $3.50 per share, plus the proceeds from
the sale of the SLD business, pursuant to a definitive agreement to be
negotiated during a period of exclusive negotiations between the parties, which
period of exclusivity would end in late April 2002.
On March 20, 2002, the Board held a special meeting by conference call to
discuss the then current state of negotiations with Mentor and with the third
party. The Board expressed the desire to continue with the discussions taking
place and asked Mr. Herman to negotiate with each party certain terms of the
proposed acquisition.
On March 20, 2002, Mr. Herman spoke with representatives of Robertson
Stephens, Inc. about retaining that firm to provide a fairness opinion to the
Board in connection with a potential acquisition of the Company. From March 20
to April 9, the terms of this engagement were negotiated. On April 10, 2002, the
Company formally engaged Robertson Stephens.
From March 20, 2002 to March 24, 2002, Mr. Alexander had several telephone
calls with Mr. Herman and Mentor management to discuss various potential
acquisition prices. At the outset of these discussions, Mentor suggested an
acquisition price of $3.50 per share, plus the proceeds from the sale of the SLD
business, which they subsequently increased to $3.95 per share, plus the
proceeds from the sale of the SLD business, immediately prior to the March 24,
2002 Board meeting.
From March 20, 2002 to March 24, 2002, Mr. Herman also had frequent
discussions with representatives of the third party. During these discussions,
terms of a proposed confidentiality and exclusivity agreement between the
Company and the third party were discussed as well as the potential price to be
offered for the acquisition of the Company. The third party did not accede to
Mr. Herman's requests to shorten the period of exclusivity contemplated by the
third party's term sheet.
On March 22, 2002, the Company received a revised term sheet from the third
party, contemplating the acquisition of the Company for $3.70 per share. The
term sheet also outlined the other terms of the acquisition, including
provisions relating to the Company's SLD business and various deal protection
devices.
From March 22, 2002 through March 24, 2002, Mr. Herman engaged in several
telephonic discussions with representatives of the third party. As a result of
these discussions, the third party nominally increased its proposed price for
the possible acquisition of the Company to $4.00 per share (which equated to an
offer at $3.98 per share after recalculating the nominal $4.00 per share price
to reflect the Company's actual issued and outstanding capital stock) plus the
net proceeds from the sale of the Company's SLD business.
On March 24, 2002, the Board held a special meeting by conference call to
discuss the terms of the proposals made by the third party and Mentor. During
the meeting, Hale and Dorr LLP, outside counsel to
9
the Company, reviewed with the Board the Board's responsibilities in connection
with the proposed transaction. After extensive discussion and deliberation,
including questions and answers between members of the Board and Hale and Dorr
and Robertson Stephens, the Board decided that the acquisition terms proposed by
Mentor, even though slightly lower in price than those proposed by the third
party, represented, on balance, a better offer for the Company's stockholders
because the Board believed there was a higher likelihood of the transaction
proposed by Mentor being promptly completed substantially in accordance with the
terms set forth in the Term Sheet. The Board based its determination, in part,
on the third party's insistence on a protracted period of exclusivity. This
factor, when coupled with the Company's financial condition and concomitant need
to determine its strategic direction (that is, whether to enter into a business
combination or pursue independent operations, including a financing), led the
Board to favor the Mentor proposal. The Board authorized management to enter
into the Confidentiality and Exclusivity Agreement with Mentor and to continue
to negotiate the terms of an acquisition.
After the March 24, 2002 Board meeting, Mr. Herman had a telephone call
with representatives of Mentor during which they agreed to first negotiate the
terms of the Exclusivity and Confidentiality Agreement and then proceed to
negotiate a definitive merger agreement, rather than pursue negotiations with
respect to the draft Term Sheet.
On March 25, 2002, Mentor and the Company entered into the Exclusivity and
Confidentiality Agreement, which provided that the Company would negotiate
exclusively with Mentor with respect to the sale of the Company until April 15,
2002, unless extended.
Between March 25, 2002 and April 23, 2002, representatives of Mentor,
together with its legal and financial advisors conducted due diligence with
respect to the Company.
From March 29, 2002 to April 23, 2002, representatives of the Company,
including Mr. Herman and Peter T. Johnston, Vice President, Business Development
and Chief Legal Officer of the Company, together with the Company's legal
advisors, continued to negotiate the terms and conditions of the proposed Merger
Agreement and proposed Tender Agreements with representatives of Mentor and its
legal and financial advisors.
On April 1, 4, 12, 15, 17, 18, 19, 20 and 22, the Board held a series of
special meetings by teleconference to discuss the status of negotiations and to
give guidance to management. At these meetings, the Board was also apprised of
the status of, and discussed, the Company's proposed sale of its SLD business.
The April 12 meeting included a presentation by Robertson Stephens in which they
discussed their view of potential strategic partners of the Company.
Between April 15, 2002 and April 23, 2002, the Company and Mentor extended
the expiration date of the Confidentiality and Exclusivity Agreement six times.
On April 23, 2002, at a special meeting of the Board held by teleconference
during which a quorum was present and acting throughout, the Board reviewed the
terms of the Merger Agreement, the Tender Agreements and other related
documents. Company management reviewed the benefits of the transaction and
Robertson Stephens reviewed the financial analyses performed by it in connection
with its opinion. Robertson Stephens presented its oral opinion, subsequently
confirmed in writing, that, as of the date of its opinion and based on the
matters considered and subject to the assumptions, conditions and qualifications
set forth in the written opinion, the cash consideration to be received by
holders of Shares (other than Mentor, Purchaser, affiliates of Mentor or
Purchaser or holders of Shares for which appraisal rights have been properly
exercised) was fair from a financial point of view to such holders. Hale and
Dorr described provisions of the Merger Agreement, the Tender Agreements and
related agreements and reviewed the Board's responsibilities in connection with
the proposed transaction. The Board, after considering the terms of the
definitive agreements and the various presentations, by unanimous vote of all
directors present at the meeting:
- approved the Merger Agreement, the Offer, the Merger and the other
transactions contemplated by the Merger Agreement;
10
- determined that the terms of the Offer, the Merger and the other
transactions contemplated by the Merger Agreement are fair to and in the
best interests of the Corporation and its stockholders;
- recommended that the Company's stockholders accept the Offer and tender
their Shares pursuant to the Offer;
- recommended that the Company's stockholders adopt the Merger Agreement if
required; and
- declared that the Merger Agreement is advisable.
The Board then authorized Company management to execute the Merger Agreement and
certain other related documents.
As a condition to and an inducement for Mentor and Purchaser entering into
the Merger Agreement, on April 23, 2002, Mentor entered into separate Tender
Agreements with each of the Significant Stockholders.
On April 23, 2002, Mentor and the Company issued a joint press release
announcing the Merger Agreement and the Offer. Separately, also on April 23,
2002, the Company transferred substantially all of the assets of its SLD
business to Divestiture Growth Capital, a technology investment fund, in return
for the fund's assumption of substantially all of the liabilities of the SLD
business.
On April 30, 2002, Purchaser and Mentor commenced the Offer in accordance
with the Merger Agreement.
FACTORS CONSIDERED BY THE BOARD
In approving the Merger Agreement and the other transactions contemplated
thereby, including the Offer and the Merger, and recommending that all holders
of Shares accept the Offer and tender their Shares pursuant to the Offer,
approve the Merger and approve and adopt the Merger Agreement (to the extent
such approval is required by applicable law), the Board considered the following
factors:
- the historical market prices and recent trading activity and trading
range of the Shares, including the fact that the Offer Price represented
(a) a premium of approximately 67% over the $2.31 closing price of the
Shares on The Nasdaq Stock Market on April 23, 2002, the last full
trading day prior to the meeting of the Board to approve the Merger
Agreement and (b) a premium of approximately 92% over the $2.05 average
closing price of the Shares for the preceding twelve months;
- the financial condition, results of operations and cash flows of the
Company, including the fact that the Company's results of operations and
cash flows from the first quarter, and Company management's forecasts for
the remainder of the fiscal year, indicated that the Company would
encounter significant difficulty in meeting the operating and other
objectives contained in the Company's business plan;
- the consolidation trend taking place in the Company's industry;
- the Company's future prospects, particularly its limited ability to
invest significant amounts of capital in sales and marketing in order to
improve its multichannel distribution networks;
- certain challenges facing the Company, including competition in each
segment of the Company's businesses from other companies, particularly
those with greater financial resources and more productive distribution
channels;
- that the Offer and the Merger provide for a prompt cash tender offer for
all Shares to be followed by a merger for the same consideration, thereby
enabling the Company's stockholders, at the earliest possible time, to
obtain the benefits of the transaction in exchange for their Shares;
- the fact that the cash Offer provides stockholders of the Company with
liquidity to dispose of their Shares which may not be available in the
public market due to the low level of trading volume of the Shares;
- the results of the Company's discussions with the other companies in its
industry which the Company viewed as the most likely to be interested in
and able to complete a strategic alliance, partnership,
11
business combination, acquisition or similar transaction with the
Company, which discussions generated serious interest from only one other
company;
- presentations by, and discussions with, senior management of the Company
and representatives of the Company's financial and legal advisors
regarding the Offer and the Merger;
- the fairness opinion of Robertson Stephens rendered orally at the meeting
of the Board held on April 23, 2002 and subsequently confirmed in
writing, as well as the presentation made by Robertson Stephens to the
Board relating to the analyses performed by Robertson Stephens in
connection with such opinion. The full text of the written opinion of
Robertson Stephens, dated as of April 23, 2002, which sets forth the
assumptions made, matters considered and limitations on the review
undertaken, is attached to this Schedule 14D-9 as Annex A and is
incorporated herein by reference. The opinion was not intended to be and
does not constitute a recommendation to any holder of Shares whether or
not to tender his or her Shares in the Offer or, if required, how to
vote, or whether or not to take any action, with respect to the Offer and
the Merger. Holders of Shares are urged to read carefully such opinion in
its entirety;
- the fact that the terms of the Merger Agreement were determined through
arm's-length negotiations between the Company and its legal advisors, on
the one hand, and Mentor and its legal advisors, on the other;
- the provisions of the Merger Agreement, including the respective
representations, warranties and covenants proposed by the parties;
- the fact that, pursuant to the Merger Agreement, the Company and its
representatives may not (i) furnish to any third party who might submit
an unsolicited Acquisition Proposal (as defined in the Merger Agreement)
(a "Third Party Acquiror") information concerning the Company's business,
properties or assets, or (ii) participate in discussions or negotiations
with such Third Party Acquiror concerning an unsolicited Acquisition
Proposal, unless in response to a Superior Proposal (as defined in the
Merger Agreement) the Board determines, in good faith, after consultation
with outside counsel, that it would otherwise constitute a breach of its
fiduciary duty to stockholders;
- the fact that, pursuant to the Merger Agreement, the Board has the right,
prior to the purchase of Shares pursuant to the Offer, to terminate the
Merger Agreement in order to accept a Superior Proposal, if (i) the Board
has determined, in good faith that it is required to accept such proposal
to discharge properly its fiduciary duties under applicable law, (ii) the
Company gives Mentor five business days advance notice of the Company's
intention to accept such Superior Proposal and negotiates with Mentor
during such five business day period, and (iii) the Company, prior to
termination, pays to Mentor an amount not to exceed $7,342,500;
- the business reputation and capabilities of Mentor and its management,
including the Board's favorable assessment of Mentor's ability to
promptly consummate the Offer substantially in accordance with the terms
set forth in the Merger Agreement;
- the current regional, national and international economic climate;
- the reasonable likelihood of the consummation of the transactions
contemplated by the Merger Agreement due to (i) the fact that the Offer
and the Merger are not subject to any material consents and approvals,
other than the filing required under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the fact that
Purchaser's obligations under the Offer are not subject to any financing
condition, (iii) the representations of Mentor in the Merger Agreement
that it or Purchaser has available sufficient funds to consummate the
Offer and the Merger, and (iv) Mentor's financial strength; and
- the ability of the Company's stockholders who object to the Merger to
obtain "fair value" for their Shares if they exercise and perfect their
appraisal rights under Delaware law.
12
The foregoing discussion of information and factors considered by the Board
is not intended to be exhaustive, but is believed to include all of the material
factors, both positive and negative, considered by the Board. In evaluating the
Offer and the Merger, the members of the Board considered their knowledge of the
business, financial condition and prospects of the Company, and the views of
Company management and its financial and legal advisors. In view of the variety
of factors considered in connection with its evaluation of the Offer and the
Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determinations and recommendations. In addition, individual members of the
Board may have given different weights to different factors.
The Board recognized that, while the Offer and the Merger give the
Company's stockholders the opportunity to realize a significant premium over the
price at which the Shares were traded immediately prior to the public
announcement of the execution of the Merger Agreement, the consummation of the
Offer and the Merger would eliminate the opportunity for the Company's
stockholders to participate in the future growth and profits of the Company. The
Board also realized that the termination fee required by the terms of the Merger
Agreement to be paid by the Company in certain circumstances would make it more
costly for another potential purchaser to propose to acquire the Company. The
Board believed that the loss of the opportunity to participate in the growth and
profits of the Company following the consummation of the Offer and the Merger
and the risks associated with the termination fee were reflected in the $3.95
per share price offered by Mentor in the Offer.
INTENT TO TENDER
As described above in Item 3, Mentor and Purchaser have entered into the
Tender Agreements with certain of the Company's stockholders, including all of
the Company's executive officers and directors, pursuant to which such
stockholders have agreed to accept the Offer and tender all Shares held by them.
The summary of the Tender Agreements contained in the section of the Offer to
Purchase titled "THE OFFER -- The Merger Agreement; Other Arrangements -- The
Merger Agreement and the Tender Agreements" is incorporated herein by reference.
The Offer to Purchase is being mailed to stockholders together with this
Schedule 14D-9 and is filed herewith as Exhibit (a)(1). The summary of the
Tender Agreements contained in the Offer to Purchase, which describes the
material terms of such agreements, is qualified by reference to the forms of
Tender Agreements, which are filed herewith as Exhibits (e)(3) and (e)(4) and
are incorporated herein by reference.
To the Company's knowledge after reasonable inquiry, all of the Company's
executive officers, directors and affiliates currently intend to tender all
Shares held of record or beneficially owned by them pursuant to the Offer. The
foregoing does not include any Shares over which, or with respect to which, any
such executive officer, director or affiliate acts in a fiduciary or
representative capacity or is subject to the instructions of a third party with
respect to such tender.
ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED
The Company retained Robertson Stephens, Inc. to opine as to the fairness
from a financial point of view of the cash consideration to be received by the
Company's stockholders in the Offer and the Merger and to provide certain other
financial advisory services. Pursuant to the terms of an engagement letter dated
April 10, 2002, the Company agreed to pay Robertson Stephens a fee of $650,000
for its engagement, a portion of which was in respect of and payable upon the
delivery of its opinion, whether or not a favorable opinion was delivered, and a
portion of which is payable in respect of other financial advisory services and
is subject to the consummation of the Offer and the Merger. The Company also
agreed to reimburse Robertson Stephens for reasonable out-of-pocket expenses
related to its engagement, including reasonable fees and expenses of its legal
counsel. The Company further agreed to indemnify Robertson Stephens and its
directors, officers, agents, employees and controlling persons for certain
costs, expenses and liabilities related to or arising out of its engagement.
Robertson Stephens is an internationally recognized investment banking firm
and was retained based on its experience as a financial advisor in connection
with mergers and acquisitions and in securities valuations
13
generally. As part of its investment banking business, Robertson Stephens is
frequently engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and other purposes.
Robertson Stephens maintains a market in the Shares and the shares of
Mentor's common stock. In the ordinary course of business, Robertson Stephens
and its affiliates may trade in the Company's securities and Mentor's securities
for their own account or for the account of customers and, accordingly, may at
any time hold a long or short position in such securities.
Except as described above, neither the Company nor any other person acting
on its behalf currently intends to employ, retain or compensate any other person
to make solicitations or recommendations to the Company's stockholders on its
behalf concerning the Offer or the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
No transactions in Shares have been effected during the past 60 days by the
Company or any subsidiary of the Company or, to the knowledge of the Company, by
any executive officer, director or affiliate of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
Except as set forth in this Schedule 14D-9, the Company is not undertaking
or engaged in any negotiations in response to the Offer that relate to:
- a tender offer or other acquisition of the Company's securities by the
Company, any of its subsidiaries or any other person;
- an extraordinary transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries;
- a purchase, sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; or
- any material change in the present dividend rate or policy, or
indebtedness or capitalization of the Company.
Except as set forth in this Schedule 14D-9, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to one or more of the matters described above.
ITEM 8. ADDITIONAL INFORMATION
SECTION 14(f) INFORMATION STATEMENT
The Information Statement attached as Annex B hereto is being furnished in
connection with the possible designation by Mentor, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board other than at a
meeting of the Company's stockholders. The summary description of the possible
designation by Mentor of certain persons to be appointed to the Board contained
in the section of the Offer to Purchase titled "THE OFFER -- The Merger
Agreement; Other Arrangements -- The Merger Agreement and the Tender Agreements"
is incorporated herein by reference. The Offer to Purchase is being mailed to
stockholders together with this Schedule 14D-9 and is filed herewith as Exhibit
(a)(1). The summary description of the possible designation by Mentor of certain
persons to be appointed to the Board contained in the Offer to Purchase, which
describes the material terms of such possible designation, is qualified by
reference to the Merger Agreement, which is filed herewith as Exhibit (e)(1) and
is incorporated herein by reference.
FINANCIAL FORECASTS
The Company provided to Mentor certain non-public business and financial
information in connection with its analysis of the Company as described in Item
4 "The Solicitation or Recommendation." The summary description of this
information contained in the section of the Offer to Purchase titled "THE
14
OFFER -- Certain Information Concerning the Company -- Certain Financial
Forecasts is incorporated herein by reference. The Offer to Purchase is being
mailed to stockholders together with this Schedule 14D-9 and is filed herewith
as Exhibit (a)(1).
In addition to the above-referenced information, on April 8, 2002 the
Company provided Robertson Stephens with the following information relating to
the two fiscal quarters subsequent to those covered by the information provided
to Mentor. The following information is subject to the same limitations and
uncertainties described in the Offer to Purchase.
INNOVEDA, INC.
CONSOLIDATED FORECAST
FIRST AND SECOND QUARTER 2003 (ASSUMES SALE OF SLD)
(IN THOUSANDS)
<Table>
<Caption>
FORECAST FORECAST
-------- --------
Q1 Q2
2003 2003
-------- --------
Total revenue: ............................................. $14,917 $16,238
Total operating expenses excluding amortization: ........... 14,867 14,748
Operating income before amortization: ...................... 51 1,490
Operating income before tax: ............................... (1,693) (254)
Income/(loss) before tax: .................................. (1,758) (299)
Net income: ................................................ (1,125) (191)
</Table>
INNOVEDA, INC.
CONSOLIDATED FORECAST
FIRST AND SECOND QUARTER 2003 (ASSUMES NO SALE OF SLD)
(IN THOUSANDS)
<Table>
<Caption>
FORECAST FORECAST
-------- --------
Q1 Q2
2003 2003
-------- --------
Total revenue: ............................................. $16,942 $18,071
Total operating expenses excluding amortization: ........... 16,019 16,245
Operating income before amortization: ...................... 923 1,826
Operating income before tax: ............................... (1,219) (116)
Income/(loss) before tax: .................................. (1,284) (161)
Net income: ................................................ (822) (103)
</Table>
Although the Company provided this information to Robertson Stephens,
Robertson Stephens has advised the Company that it did not use or rely on any of
the forecasts provided by the Company in connection with its fairness opinion.
ANTI-TAKEOVER STATUTE
As the Company is a Delaware corporation, the provisions of Section 203 of
the DGCL by their terms apply to the approval of the Offer and the Merger. The
description of these provisions and their applicability to the approval of the
Offer and the Merger contained in the section of the Offer to Purchase titled
"THE OFFER -- Certain Legal Matters; Regulatory Approvals -- State Takeover
Laws" is incorporated herein by reference. The Offer to Purchase is being mailed
to stockholders together with this Schedule 14D-9 and is filed herewith as
Exhibit (a)(1). At its meeting held on April 23, 2002, the Board approved the
Merger Agreement and the transactions contemplated thereby, including the Tender
Agreements and the transactions contemplated thereby, which approval rendered
Section 203 of the DGCL inapplicable to the Merger
15
Agreement and the transactions contemplated thereby, including the Offer, the
Merger and the Tender Agreements and the transactions contemplated thereby.
APPRAISAL RIGHTS
The description of the appraisal rights applicable to the Merger (such
rights not being applicable to the Offer) contained in the section of the Offer
to Purchase titled "THE OFFER -- Purpose and Structure of the Offer; Plans for
the Company; Appraisal Rights -- Appraisal Rights" is incorporated herein by
reference. The Offer to Purchase is being mailed to stockholders together with
this Schedule 14D-9 and is filed herewith as Exhibit (a)(1).
MERGER PROVISIONS
Under Delaware law, if Purchaser acquires, pursuant to the Offer or
otherwise, at least 90% of the outstanding shares of Common Stock, Purchaser
will be able to effect the Merger after consummation of the Offer without a vote
of the Company's stockholders. However, if Purchaser does not acquire at least
90% of the outstanding shares of Common Stock pursuant to the Offer or otherwise
and a vote of the Company's stockholders is required under Delaware law, a
significantly longer period of time will be required to effect the Merger. In
the Merger Agreement, the Company granted to Purchaser an irrevocable option
(the "Top-Up Option") to purchase a sufficient number of Shares such that, when
such Shares are added to the number of Shares owned by Purchaser at the time of
such exercise, the Purchaser shall own one share more than 90% of the Shares
then outstanding. The summary of the Top-Up Option contained in the section of
the Offer to Purchase titled "THE OFFER -- The Merger Agreement; Other
Arrangements -- The Merger Agreement and the Tender Agreements" is incorporated
herein by reference. The Offer to Purchase is being mailed to stockholders
together with this Schedule 14D-9 and is filed herewith as Exhibit (a)(1). The
summary of the Top-Up Option contained in the Offer to Purchase, which describes
the material terms of such Top-Up Option, is qualified by reference to the
Merger Agreement, which has been filed as Exhibit (e)(1) hereto and is
incorporated herein by reference.
REGULATORY APPROVALS
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares in the Offer may be consummated after the expiration or termination of
the applicable waiting period following the filing by Mentor of a Notification
and Report Form with respect to the Offer, unless Mentor receives a request for
additional information or documentary material from the Antitrust Division of
the United States Department of Justice or the Federal Trade Commission. The
description of this regulatory approval process contained in the section of the
Offer to Purchase titled "THE OFFER -- Certain Legal Matters; Regulatory
Approvals -- Antitrust" is incorporated herein by reference. The Offer to
Purchase is being mailed to stockholders together with this Schedule 14D-9 and
is filed herewith as Exhibit (a)(1).
ITEM 9. EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(a)(1) Offer to Purchase dated April 30, 2002 (incorporated herein
by reference to Exhibit (a)(1)(A) to Purchaser's Tender
Offer Statement on Schedule TO, filed by Mentor and
Purchaser with respect to the Company on April 30, 2002 (the
"Schedule TO")).
(a)(2) Letter of Transmittal (incorporated herein by reference to
Exhibit (a)(1)(B) to the Schedule TO).
(a)(3) Notice of Guaranteed Delivery (incorporated herein by
reference to Exhibit (a)(1)(C) to the Schedule TO).
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (incorporated herein by
reference to Exhibit (a)(1)(D) to the Schedule TO).
(a)(5) Letter to Clients for Use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees (incorporated
herein by reference to Exhibit (a)(1)(E) to the Schedule
TO).
</Table>
16
<Table>
<Caption>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
(a)(6) Summary Advertisement published April 30, 2002 (incorporated
herein by reference to Exhibit (a)(1)(H) to the Schedule
TO).
(a)(7) Joint Press Release, dated April 23, 2002, regarding the
proposed transaction between the Company, Purchaser and
Mentor (incorporated herein by reference to the Joint Press
Release filed under the cover of Schedule 14D-9 by the
Company on April 24, 2002).
(a)(8) Letter to Stockholders of the Company dated April 30, 2002.*
(e)(1) Agreement and Plan of Merger dated as of April 23, 2002 by
and among the Company, Purchaser and Mentor (incorporated by
reference to Exhibit 2.1 to the Form 8-K filed by Mentor
with the SEC on April 24, 2002.)
(e)(2) Exclusivity and Confidentiality Agreement dated as of March
25, 2002, as amended, by and between Mentor and the Company
(incorporated herein by reference to Exhibit (d)(2) to the
Schedule TO).
(e)(3) Form of Tender and Stockholder Support Agreement dated as of
April 23, 2002 by and among Mentor, Purchaser and each of
William Herman, Richard Lucier, Kevin O'Brien, Peter
Johnson, Kyoden Company Limited, DLJ Capital Corporation and
DLJ ESC II, L.P. (incorporated by reference to Exhibit
(d)(4) to the Schedule TO).
(e)(4) Form of Tender and Stockholder Support Agreement dated as of
April 23, 2002, by and among Mentor, Purchaser, and each of
William Botts, Keith Geeslin, Lorne Cooper, Steven Erwin,
Hiroshi Hashimoto and Paula Cassidy (incorporated by
reference to Exhibit (d)(5) to the Schedule TO).
(e)(5) Form of Non-Compete Agreement dated as of April 23, 2002 by
and among Mentor, Purchaser, the Company and each of William
J. Herman and Richard Lucier (incorporated by reference to
Exhibit (d)(6) of the Schedule TO).
(e)(6) Employment Agreement dated as of October 2, 1998 between
Viewlogic Systems Inc. ("Viewlogic") and William J. Herman
(incorporated herein by reference to the Company's
Registration Statement on Form S-4 (Commission File No.
333-89491) as declared effective by the SEC on February 14,
2000 (the "Form S-4")).
(e)(7) Employment Agreement dated as of October 2, 1998 between
Viewlogic and Richard G. Lucier (incorporated herein by
reference to the Form S-4).
(e)(8) Form of Stock Option Agreement used for option grants in
1998 to current executive officers of the Company and a
summary of grants utilizing the form.**
(e)(9) Form of Stock Option Agreement used for option grants in
2001 to current executive officers of the Company and a
summary of grants utilizing the form.**
(e)(10) Form of Stock Option Agreement used for option grants in
2000 to current directors of the Company and a summary of
grants utilizing the form.**
(e)(11) Opinion of Robertson Stephens, Inc., dated April 23, 2002
(included as Annex A hereto).*
(e)(12) Mutual Non-Disclosure Agreement dated as of October 5, 2001
between Mentor and the Company (incorporated herein by
reference to Exhibit (d)(1) to the Schedule TO).
(e)(13) Form of Indemnification Agreement between the Company and
each of William V. Botts and Steven P. Erwin (incorporated
herein by reference to Exhibit 10.1 to the Form 10-K filed
by the Company on March 29, 2002).
(e)(14) Rule 14f-1 Information Statement of the Company, dated April
30, 2002 (included as Annex B hereto).*
</Table>
- ---------------
* Filed herewith and included in the copy of the Schedule 14D-9 mailed to the
Company's stockholders.
** Filed herewith.
17
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
By: /s/ WILLIAM J. HERMAN
------------------------------------
Name: William J. Herman
Title: Chief Executive Officer
Dated: April 30, 2002
18
Annex A
555 California Street
Suite 2600
San Francisco, CA 94104 ROBERTSON STEPHENS
415.781.9700 Investment Bankers
April 23, 2002
Board of Directors
Innoveda, Inc.
293 Boston Post Road West
Marlboro, MA 01752-4615
Members of the Board:
We understand that Innoveda, Inc. (the "Company"), Mentor Graphics Corporation
("Acquiror") and Indiana Merger Corporation (a wholly owned subsidiary of
Acquiror, "Merger Sub") are proposing to enter into an Agreement and Plan of
Merger (the "Agreement") which will provide, among other things, for the Offer
and the Merger (as such terms are defined below). Under the terms, and subject
to the conditions, set forth in a draft of the Agreement dated April 23, 2002
(the "Draft Agreement"), (i) Merger Sub will commence a tender offer (the
"Offer") to purchase all of the outstanding shares of common stock of the
Company, par value $0.01 per share ("Company Common Stock"), at a price per
share equal to $3.95 net to the seller in cash, or any higher price paid for a
share of Company Common Stock in the Offer (the "Offer Price"), and (ii)
following the Offer, Merger Sub will be merged with and into the Company (the
"Merger"). Pursuant to the Merger, the Company will become a wholly owned
subsidiary of Acquiror and each share of Company Common Stock (other than shares
of Company Common Stock held in treasury or owned by Acquiror or any of its
subsidiaries or as to which dissenters' rights have been properly exercised
("Dissenting Shares")) shall be converted into the right to receive the Offer
Price in cash, without interest. In addition, pursuant to the Draft Agreement,
the Company will irrevocably grant to Merger Sub an irrevocable option to
purchase that number of shares of Company Common Stock equal to the lowest
number of shares of Company Common Stock that, when added to the number of
shares of Company Common Stock owned by Merger Sub at the time of exercise, will
constitute one share more than 90% of the shares of Company Common Stock then
outstanding (assuming the exercise of such option and the exercise of all
outstanding exercisable options to purchase Company Common Stock with an
exercise price less than the Offer Price) at a price per share equal to the
Offer Price. Such option will be exercisable after Merger Sub's acceptance for
payment pursuant to the Offer or acquisition pursuant to the Support Agreements
(as defined below) of shares of Company Common Stock constituting at least 85%
of the shares of Company Common Stock then outstanding. The terms and conditions
of the Offer and the Merger are set out more fully in the Draft Agreement. In
addition, we understand that concurrently with signing the Agreement, the
Company will enter into an agreement to sell its system level design business to
a third party.
You have asked us whether, in our opinion, the cash consideration to be received
by the "Holders of Company Common Stock" in the Offer and the Merger is fair
from a financial point of view and as of the date hereof to the Holders of
Company Common Stock. The "Holders of Company Common Stock" shall be defined as
all holders of Company Common Stock other than Acquiror, Merger Sub, any
affiliates of Acquiror or Merger Sub or any holders of Dissenting Shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and other
business and financial information of the Company;
Board of Directors
Innoveda, Inc.
April 23, 2002
Page
(ii) reviewed certain publicly available estimates of research analysts
relating to the Company;
(iii) held discussions with the management of the Company concerning the
business, past and current operations, financial condition and future
prospects of the Company;
(iv) reviewed the financial terms and conditions set forth in the Draft
Agreement and drafts, dated April 19, 2002, of the forms of Tender and
Stockholder Support Agreements (the "Support Agreements" and together
with the Draft Agreement, the "Draft Agreements");
(v) reviewed the stock price and trading history of Company Common Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of Company Common Stock with that of certain other
publicly traded companies comparable with the Company;
(vii) compared the financial terms of the Offer and the Merger with the
financial terms, to the extent publicly available, of other
transactions that we deemed relevant;
(viii) participated in discussions and negotiations among representatives
of the Company and Acquiror and their financial and legal advisors;
and
(ix) made such other studies and inquiries, and reviewed such other data,
as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the Company's management) or publicly available
and have neither attempted to verify, nor assumed responsibility for verifying,
any of such information. We have relied upon the assurances of the Company's
management that it is not aware of any facts that would make such information
inaccurate or misleading. Furthermore, we did not obtain or make, or assume any
responsibility for obtaining or making, any independent evaluation or appraisal
of the properties, assets or liabilities (contingent or otherwise) of the
Company, nor were we furnished with any such evaluation or appraisal. With
respect to publicly available forecasts and projections for the Company that we
have reviewed, we have assumed that such forecasts and projections have been
reasonably prepared on the basis of reasonable assumptions and reflect the best
currently available estimates as to the future financial condition and
performance of the Company, and we have further assumed that such projections
and forecasts will be realized in the amounts and in the time periods currently
estimated. We have assumed that the Offer and the Merger will be consummated
upon the terms set forth in the Draft Agreements without material alteration
thereof. In addition, we have assumed that the historical financial statements
of the Company reviewed by us have been prepared and fairly presented in
accordance with U.S. generally accepted accounting principles consistently
applied.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as to the date
hereof, to the Holders of Company Common Stock of the cash consideration to be
received in the Offer and the Merger. We do not express any opinion as to (i)
the value of any employee agreement or other arrangement entered into in
connection with the Offer and the Merger or (ii) any tax or other consequences
that might result from the Offer and the Merger. Our opinion does not address
the relative merits of the Offer and the Merger and the other business
strategies that the Company's Board of Directors has considered or may be
considering, nor does it address the decision of the Company's Board of
Directors to proceed with the
2
Board of Directors
Innoveda, Inc.
April 23, 2002
Page
Offer and the Merger. Neither does our opinion address any legal or accounting
matters, as to which we understand that the Company obtained such advice as it
deemed necessary from qualified professionals.
In connection with the preparation of our opinion, we were not authorized to
solicit, and did not solicit, third-parties regarding alternatives to the Offer
and the Merger.
We will receive (i) a fee contingent upon the delivery of this opinion and (ii)
an additional fee contingent upon the consummation of the Offer and the Merger.
In addition, the Company has agreed to indemnify us for certain liabilities that
may arise out of our engagement. We maintain a market in the shares of Company
Common Stock and the shares of common stock of Acquiror, without par value. In
the ordinary course of business, we may trade in the Company's securities and
Acquiror's securities for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in the Company's
securities or Acquiror's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Offer and the
Merger. Our opinion is not intended to be and does not constitute a
recommendation to any stockholder of the Company whether or not to tender
his/her shares of Company Common Stock in the Offer or, if required, how to
vote, or whether or not to take any action, with respect to the Offer and the
Merger. This opinion may not be summarized, described or referred to or
furnished to any party except with our express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the cash consideration to be received in the Offer
and the Merger is fair to the Holders of Company Common Stock from a financial
point of view.
Very truly yours,
ROBERTSON STEPHENS, INC.
3
ANNEX B
INNOVEDA, INC.
293 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14f-1 THEREUNDER
---------------------
This Information Statement is being mailed on or about April 30, 2002 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Innoveda, Inc. (the "Company"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Mentor Graphics Corporation, an Oregon corporation ("Mentor"), to
a majority of seats on the Board of Directors of the Company (the "Board").
On April 23, 2002, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Mentor and Indiana Merger Corporation, a Delaware
corporation and a wholly-owned subsidiary of Mentor ("Purchaser"), pursuant to
which Purchaser is commencing a tender offer to purchase all outstanding shares
of common stock, par value $0.01 per share, of the Company (the "Common Stock"),
at a price per share of $3.95, net to the seller in cash (the "Offer Price"),
upon the terms and conditions set forth in Purchaser's Offer to Purchase, dated
April 30, 2002, and in the related Letter of Transmittal (the "Letter of
Transmittal" which, together with the Offer to Purchase, as each may be amended
or supplemented from time to time, constitutes the "Offer"). Copies of the Offer
to Purchase and the Letter of Transmittal have been mailed to stockholders of
the Company and are filed as Exhibits to both the Schedule 14D-9 and the Tender
Offer Statement on Schedule TO (as amended from time to time, the "Schedule TO")
filed by Purchaser and Mentor with the Securities and Exchange Commission (the
"SEC") on April 30, 2002. The Merger Agreement provides that, subject to the
satisfaction or waiver of certain conditions, following completion of the Offer,
and in accordance with Delaware law, Purchaser will be merged with and into the
Company (the "Merger"). Following consummation of the Merger, the Company will
continue as the surviving corporation (the "Surviving Corporation") and will be
a wholly-owned subsidiary of Mentor. At the effective time of the Merger (the
"Effective Time"), each issued and outstanding share of Common Stock (other than
shares of Common Stock that are owned by Mentor, Purchaser, any of their
respective wholly-owned subsidiaries, the Company or any of its wholly-owned
subsidiaries, and shares held by stockholders of the Company who have properly
demanded and perfected appraisal rights under Section 262 of Delaware law) will
be converted into the right to receive the Offer Price, without interest
thereon.
The Offer, the Merger, and the Merger Agreement are more fully described in
the Schedule 14D-9 to which this Information Statement forms Annex B. The
Schedule 14D-9 was filed by the Company with the SEC on April 30, 2002 and is
being mailed to stockholders of the Company along with this Information
Statement.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Rule 14f-1 promulgated thereunder. The information set forth herein
supplements certain information set forth in the Schedule 14D-9. Information set
forth herein related to Mentor, Purchaser or Mentor's Designees (as defined
herein) has been provided by Mentor. You are urged to read this Information
Statement carefully. You are not, however, required to take any action in
connection with the matters set forth herein.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on Tuesday,
April 30, 2002. The Offer is scheduled to expire at 12:00 p.m. Midnight, New
York City time, on Tuesday, May 28, 2002, unless extended by Purchaser in
accordance with the terms of the Merger Agreement.
B-1
GENERAL
The Common Stock is the only class of equity securities of the Company
outstanding which is entitled to vote at a meeting of the stockholders of the
Company. Each share of Common Stock is entitled to one vote. As of April 23,
2002, there were 40,086,376 shares of Common Stock outstanding. See "Security
Ownership of Certain Beneficial Owners and Management -- Security Ownership"
below.
RIGHT TO DESIGNATE DIRECTORS AND THE MENTOR DESIGNEES
THE BOARD OF DIRECTORS OF THE COMPANY
Subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, promptly upon the payment by Purchaser for shares of
Common Stock pursuant to the Offer representing at least a majority of the total
number of outstanding shares of Common Stock on a fully diluted basis on the
date of purchase, and from time to time thereafter, Mentor shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board as is equal to the product of the total number of directors on the Board
(determined after giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of shares of
Common Stock beneficially owned by Mentor or any of its affiliates bears to the
total number of shares of Common Stock then outstanding ("Mentor Designees"). At
such time, the Company is obligated to take all actions necessary to cause the
Mentor Designees to be elected to the Board, including seeking the resignation
of one or more existing directors. However, even if the Mentor Designees are
elected to the Board, until the Effective Time, the Company, Mentor and
Purchaser have agreed that the Board shall include at least two "Continuing
Directors." Continuing Directors are directors of the Company who were members
of the Board on the date of the Merger Agreement.
NAME, AGE, PRINCIPAL OCCUPATION AND EMPLOYMENT HISTORY
Mentor has informed the Company that it will select the Mentor Designees
from the individuals named below to serve on the Board and that each of the
following individuals has consented to serve as a director of the Company if
appointed or elected. None of the Mentor Designees is currently a director of,
or holds any position with, the Company. Mentor has advised the Company that to
Mentor's knowledge, except as set forth below and in the Offer to Purchase, none
of the Mentor Designees or any of their associates beneficially owns any equity
securities or rights to acquire securities of the Company, nor has any such
person been involved in any transaction with the Company or any of its
directors, executive officers or affiliates that is required to be disclosed
pursuant to the rules and regulations of the SEC. The name, age, present
principal occupation or employment and five-year employment history of each of
the following individuals are set forth below. The current business address for
each individual listed below, unless indicated below, is c/o Mentor Graphics
Corporation, 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777, Telephone:
(503) 685-7000. Each such person is a citizen of the United States.
Walden C. Rhines, 55, has served as Chairman of the Board and Chief
Executive Officer of Mentor since 2000. From 1993 to 2000 he was Director, Chief
Executive Officer and President of Mentor.
Gregory K. Hinckley, 55, has served as Director and President of Mentor
since 2000. From 1997 to 2000 he served as Executive Vice President, Chief
Operating Officer and Chief Financial Officer of Mentor. From 1995 until 1996
Mr. Hinckley was Senior Vice President of VLSI Technology, Inc.
Dean Freed, 43, has served as Vice President, General Counsel and Secretary
of Mentor since July 1995. Mr. Freed served as Deputy General Counsel and
Assistant Secretary of Mentor from April 1994 to July 1995. He has been employed
by Mentor since January 1989.
Dennis Weldon, 54, has served as Treasurer and Director of Corporate
Business Development since February 1996. Mr. Weldon served as Director of
Business Development from June 1994 to January 1996. He has been employed by
Mentor since July 1988.
B-2
CURRENT BOARD OF DIRECTORS OF THE COMPANY
The Company has a classified Board consisting of two Class I directors, two
Class II directors and two Class III directors. The Class I, Class II and Class
III directors were elected to serve until the annual meeting of stockholders to
be held in 2004, 2002 and 2003, respectively, and until their respective
successors are duly elected and qualified. At each annual meeting of
stockholders, directors are elected for a full term of three years to succeed
those whose terms are expiring.
For each current member of the Board there follows information concerning
his principal occupation and business experience for at least the past five
years, the names of other public reporting companies of which he serves as a
director and his age and length of service as a director of the Company. There
are no family relationships among any of the directors and the executive
officers of the Company.
CLASS I DIRECTORS
Lorne J. Cooper, 45, has served as a director of the Company since March
2000. From December 1999 to March 2000, Mr. Cooper was a director of Viewlogic
Systems, Inc. ("Viewlogic"), an electronic design automation company. From 1994
to June 2000, Mr. Cooper served as the President of Sente, Inc., an electronic
design automation company. From June 2000 to June 2001, Mr. Cooper served as the
Vice Chairman and a director of Sequence Design, a software company. Since
February 2001, Mr. Cooper has served as the President of NuSphere Corporation,
which develops software for building database-driven web sites.
Steven P. Erwin, 58, has served as a director of the Company since May
1997. Mr. Erwin served as Executive Vice President and Chief Financial Officer
of Health Net, Inc., a managed health care company, from March 1998 until
January 2002. From 1994 to July 1997, Mr. Erwin was Executive Vice President and
Chief Financial Officer of U.S. Bancorp, Portland, Oregon.
CLASS II DIRECTORS
William V. Botts, 66, has served as a director of the Company since May
1997. Since March 2000, Mr. Botts has served as an independent management
consultant. Mr. Botts served as Interim Chief Executive Officer and Chairman of
the Board of the Company from July 1999 to March 2000. From August 1997 to July
1999, Mr. Botts was the Interim Chief Executive Officer of California
Lifestyles, Inc., a footwear company. From 1996 to 1997, Mr. Botts served as
Chief Executive Officer of Hard Candy, Inc., a cosmetics company. From 1993 to
1996, Mr. Botts was the owner and President of WV Associates, a consulting firm
for business combinations, acquisitions, business turnarounds and strategic
planning.
Keith B. Geeslin, 49, has served as a director of the Company since March
2000. Mr. Geeslin was a director of Viewlogic, an electronic design automation
company, from October 1998 to March 2000. Since 1984, Mr. Geeslin has served in
various capacities at The Sprout Group, a venture capital firm, most recently as
Managing General Partner. In addition, Mr. Geeslin is a general or limited
partner in a series of investment funds associated with The Sprout Group, a
division of DLJ Capital Corporation (at which he serves as a Managing Director),
which is a wholly-owned subsidiary of Credit Suisse First Boston (USA), Inc. Mr.
Geeslin is also a director of CommVault Systems, GoBeam, Inc., Legerity,
Paradyne Networks, Inc., Synaptics, Inc., ylPes Communications and Rhythms
NetConnections, Inc.
CLASS III DIRECTORS
William J. Herman, 42, has served as the Company's Chief Executive Officer
and Chairman of the Board since March 2000 and as President of the Company from
March 2000 to February 2002. From October 1998 to March 2000, Mr. Herman served
as President and Chief Executive Officer and a director of Viewlogic, an
electronic design automation company. From December 1997 to September 1998, Mr.
Herman served as President of the Viewlogic Systems Group of Synopsys, Inc., an
electronic design automation company. From 1995 to November 1997, Mr. Herman
served in various senior management capacities, most recently as
B-3
President and Chief Executive Officer, at Viewlogic Systems, Inc., an electronic
design automation company distinct from Viewlogic, which Mr. Herman co-founded
in 1984.
Hiroshi Hashimoto, 50, has served as a director of the Company since
September 2000. From 1992 to September 2000, Mr. Hashimoto was a director of
PADS Software, Inc., an electronic design automation company that was acquired
by the Company in September 2000. Since 1983, Mr. Hashimoto has served as the
Chairman of Kyoden Company, Ltd., a manufacturer of printed circuit boards. Mr.
Hashimoto served as President of Kyoden Company Limited from 1983 until June
1999. Mr. Hashimoto is also a director of Sotec Company, Ltd.
Mr. Cooper, Mr. Geeslin and Mr. Herman were initially elected to the Board
pursuant to the terms of the agreement under which the Company acquired
Viewlogic in March 2000. Mr. Cooper, Mr. Geeslin and Mr. Herman were directors
of Viewlogic prior to its acquisition by the Company. Also pursuant to the terms
of that agreement, Mr. Botts and Mr. Erwin remained directors of the Company.
Mr. Herman was re-elected to the Board by the Company's stockholders at the
Company's 2000 Annual Meeting of Stockholders. Mr. Cooper and Mr. Erwin were
re-elected to the Board by the Company's stockholders at the Company's 2001
Annual Meeting of Stockholders. Mr. Hashimoto was elected to the Board pursuant
to the terms of the agreement under which the Company acquired PADS Software,
Inc. in September 2000. Mr. Hashimoto was a director of PADS Software, Inc.
prior to its acquisition by the Company.
DIRECTOR COMPENSATION
Each non-employee director currently receives compensation for his service
as a director of the Company as follows: (i) an annual cash retainer of $7,500
and (ii) $1,000 for each day of each meeting of the Board or any committee
thereof attended by such director. In addition, Messrs. Botts, Cooper, Erwin and
Geeslin were each granted a stock option in April 2000 to purchase 50,000 shares
of Common Stock at an exercise price of $4.85 per share. Mr. Hashimoto was
granted an option in September 2000 to purchase 50,000 shares of Common Stock at
a purchase price of $3.69 per share. The practice of the Board has been to grant
each new non-employee director a stock option to purchase 50,000 shares of
Common Stock upon first being elected to the Board of Directors. All of these
options vest in equal monthly installments over the 48-month period succeeding
the date of grant. If a director is involuntarily removed from the Board
following a change in control of the Company, the unvested portion of these
options immediately becomes fully vested. Directors are also reimbursed for all
reasonable travel expenses related to attending Board and committee meetings. No
options were granted to non-employee directors in 2001.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
During 2001, the Board met five times and took action by unanimous written
consent five times. All directors attended at least 75% of the meetings of the
Board and of the committees on which they served, except that Mr. Hashimoto did
not attend any meetings of the Board held in 2001.
The Board has a standing Audit Committee, which is composed of three
members. The Audit Committee reviews the effectiveness of our independent
accountants during the annual audit, reviews the adequacy of financial statement
disclosures, discusses our internal control policies and procedures and
considers and recommends the selection of our independent accountants.
Currently, the members of the Audit Committee are Messrs. Erwin, Cooper and
Geeslin. The Audit Committee held eight meetings during 2001.
The Board also has a standing Compensation Committee, which is composed of
two members. The Compensation Committee establishes compensation policies with
respect to the Company's executive officers, including the Chief Executive
Officer, and sets the compensation levels for these individuals. The
Compensation Committee also exercises all rights and powers of the Board under
the Company's stock incentive and stock purchase plans. Currently, the members
of the Compensation Committee are Messrs. Cooper and Erwin. The Compensation
Committee held no meetings during 2001, but took action by unanimous written
consent five times.
The Board does not have a standing Nominating Committee.
B-4
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Company's Board of Directors is composed of
three members and acts under a written charter adopted and approved in June
2001. A copy of this charter is attached to this Information Statement as
Appendix A. The members of the Audit Committee are independent directors, as
defined by its charter and the rules of the Nasdaq Stock Market. The Audit
Committee held eight meetings during the fiscal year ended December 29, 2001.
The Audit Committee reviewed the Company's audited financial statements for
the fiscal year ended December 29, 2001 and discussed these financial statements
with the Company's management. The Audit Committee also reviewed and discussed
the audited financial statements and the matters required by Statement on
Auditing Standards 61 (Communication with Audit Committees) with Deloitte and
Touche, the Company's independent auditors.
The Company's independent auditors provided the Audit Committee with the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). The Audit
Committee discussed with the independent auditors the matters disclosed in this
letter and their independence from the Company. The Audit Committee also
considered whether the independent auditors' provision of other, non-audit
related services to the Company is compatible with maintaining such auditors'
independence.
Based on its discussions with management and the independent auditors, and
its review of the representations and information provided by management and the
independent auditors, the Audit Committee recommended to the Board of Directors
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 29, 2001.
By the Audit Committee of the Board of
Directors of Innoveda, Inc.
Steven P. Erwin, Lorne J. Cooper and
Keith B. Geeslin
B-5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
SECURITY OWNERSHIP
The following table sets forth information as of April 23, 2002 with
respect to the beneficial ownership of the Common Stock by (i) each person or
entity known to the Company to beneficially own more than 5% of the outstanding
shares of the Common Stock, (ii) each director of the Company, (iii) each of the
Named Executive Officers (as defined in the Summary Compensation Table set forth
under the heading "Executive Compensation -- Summary Compensation" below) and
(iv) all directors and executive officers of the Company, as a group.
<Table>
<Caption>
NUMBER OF SHARES
BENEFICIALLY OWNED(1) PERCENT OF TOTAL
--------------------- ----------------
Mentor Graphics Corporation(2).............................. 15,633,687 39.0%
8005 S.W. Boeckman Road
Wilsonville, Oregon 97070-7777
Keith B. Geeslin(3)......................................... 9,541,165 23.8%
c/o The Sprout Group
300 Sand Hill Road
Building 3, Suite 170
Menlo Park, CA 94025
The Sprout Group(4)......................................... 9,509,916 23.7%
300 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Kyoden Company Limited(5)................................... 4,741,491 11.8%
30-13 Motoyoyogi
Shibuya-Ku
Tokyo, Japan
Hiroshi Hashimoto(6)........................................ 4,763,365 11.9%
Kyoden Company Limited
30-13 Motoyoyogi
Shibuya-Ku
Tokyo, Japan
Synopsys, Inc. ............................................. 3,583,314 8.9%
700 East Middlefield Road
Mountain View, CA 93404
William J. Herman(7)........................................ 1,377,778 3.4%
William V. Botts(8)......................................... 100,624 *
Lorne J. Cooper(9).......................................... 31,249 *
Steven P. Erwin(10)......................................... 62,083 *
Richard G. Lucier(11)....................................... 1,042,847 2.6%
Peter T. Johnson(12)........................................ 294,142 *
Guy Moshe(13)............................................... 287,125 *
Kevin P. O'Brien(14)........................................ 372,839 *
Gary Kiaski(15)............................................. 98,437 *
All directors and executive officers as a group (10
persons)(16).............................................. 17,780,912 42.8%
</Table>
- ---------------
* Less than 1%.
(1) Unless otherwise noted, reflects beneficial ownership as of April 23, 2002.
The inclusion herein of any shares of Common Stock deemed beneficially
owned does not constitute an admission of beneficial ownership of those
shares. Unless otherwise indicated, each person listed above has sole
voting and
B-6
investment power with respect to the shares listed or shares voting and/or
investment power with his spouse. For purposes of this table, each person
is deemed to beneficially own any shares subject to stock options, warrants
or other securities or rights convertible into Common Stock, held by such
person that are currently exercisable (or convertible) or exercisable (or
convertible) within 60 days after April 23, 2002. As of April 23, 2002, the
Company had 40,086,376 shares of Common Stock outstanding.
(2) On April 23, 2002, the Company entered into the Merger Agreement. Under the
terms of the Merger Agreement, Purchaser has commenced a tender offer to
purchase all of the outstanding shares of Common Stock at a per share
purchase price of $3.95 in cash. The Merger Agreement provides for the
tender offer to be followed by a second step merger in which those shares
of Common Stock not tendered in the tender offer will be converted into the
right to receive the same $3.95 per share in cash. In connection with the
Merger Agreement, 13 affiliates of the Company have entered into Tender and
Stockholder Support Agreements (the "Tender Agreements") with Mentor and
Purchaser. Pursuant to the Tender Agreements, the Company affiliates party
thereto have, among other things: (1) agreed to tender, to the extent such
shares are outstanding, an aggregate of approximately 39% of the
outstanding shares of Common Stock in the tender offer; and (2) granted to
Mentor an irrevocable option to purchase, to the extent such shares are
outstanding, up to an aggregate of approximately 39% of the outstanding
shares of Common Stock upon the occurrence of certain events generally
relating to acquisition proposals which are competitive with the
transactions contemplated by the Merger Agreement. In addition, six of
those Company affiliates have agreed, pursuant to their Tender Agreements,
to vote, to the extent such shares are outstanding, an aggregate of
approximately 39% of the outstanding shares of Common Stock in favor of the
merger contemplated by the Merger Agreement and against any competing
acquisition proposal (and have granted irrevocable proxies to Walden C.
Rhines, Mentor's Chairman of the Board and Chief Executive Officer, and
Gregory K. Hinckley, Mentor's President, or to either of them, to vote such
shares in such manner). Shares of Common Stock acquired by the Company
affiliates party to Tender Agreements after April 23, 2002, by exercise of
stock options or otherwise, will be subject to the terms and provisions of
the Tender Agreements.
(3) Consists of 31,249 shares issuable upon the exercise of stock options held
by Mr. Geeslin that are exercisable within the 60-day period following
April 23, 2002 and an aggregate of 9,509,916 shares beneficially owned by
The Sprout Group, as more fully described in note (4) below. Mr. Geeslin is
a Managing Director of DLJ Capital Corporation and a Managing General
Partner of The Sprout Group, which is a division of DLJ Capital
Corporation. DLJ Capital Corporation is a wholly owned subsidiary of Credit
Suisse First Boston (USA), Inc., which itself is a subsidiary of Credit
Suisse First Boston, Inc. Mr. Geeslin disclaims beneficial ownership of all
shares owned by The Sprout Group. Mr. Geeslin has entered into a Tender
Agreement with respect to the 28,125 shares of Common Stock issuable upon
the exercise of stock options held by Mr. Geeslin, which shares were not
outstanding as of April 23, 2002. See note (2) above. The Tender Agreement
to which Mr. Geeslin is a party does not include the voting and irrevocable
proxy provisions referenced in note (2) above.
(4) Consists of 771,715 shares owned by DLJ ESC II, L.P., 6,440,804 shares
owned by Sprout Capital VIII, L.P., 1,755,195 shares owned by Sprout Growth
II, L.P., 29,273 shares owned by Sprout CEO Fund, L.P., 126,481 shares
owned by DLJ Capital Corporation and 386,448 shares owned by Sprout Venture
Capital, L.P. DLJ LBO Plans Management Corporation is the General Partner
of DLJ ESC II, L.P. DLJ Capital Corporation is the Managing General Partner
of Sprout Capital VIII, L.P. and Sprout Growth II, L.P. and is the General
Partner of Sprout CEO Fund, L.P. and Sprout Venture Capital, L.P. DLJ LBO
Plans Management Corporation is an indirect subsidiary of Credit Suisse
First Boston (USA), Inc. DLJ Capital Corporation is a wholly owned
subsidiary of Credit Suisse First Boston (USA), Inc. Credit Suisse First
Boston (USA), Inc. is a subsidiary of Credit Suisse First Boston, Inc.
Keith B. Geeslin is a General Partner of DLJ Associates VIII, L.P., which
is a General Partner of Sprout Capital VIII, L.P., and a General Partner of
DLJ Growth Associates II, L.P., which is a General Partner of Sprout Growth
II, L.P. See note (3) above. DLJ ESC II, L.P. has entered into a Tender
Agreement with respect to the 771,715 shares of Common Stock owned by DLJ
ESC II, L.P. See note (2) above. The Tender Agreement to which DLJ ESC II,
L.P. is a party includes the voting and
B-7
irrevocable proxy provisions referenced in note (2) above. DLJ Capital
Corporation has entered into a Tender Agreement with respect to an
aggregate of 8,390,609 of the shares of Common Stock owned by Sprout
Capital VIII, L.P., Sprout Growth II, L.P., Sprout CEO Fund, L.P., DLJ
Capital Corporation and Sprout Venture Capital, L.P. See note (2) above.
The Tender Agreement to which DLJ Capital Corporation is a party includes
the voting and irrevocable proxy provisions referenced in note (2) above.
(5) Represents shares owned by Kyoden Holding Company, a wholly owned
subsidiary of Kyoden Company Limited. Hiroshi Hashimoto, a director of the
Company, is Chairman, a director and 58% shareholder of Kyoden Company
Limited. Mr. Hashimoto disclaims beneficial ownership of all shares owned
by Kyoden Holding Company. Kyoden Company Limited has entered into a Tender
Agreement with respect to 4,552,882 of the shares of Common Stock owned by
Kyoden Holding Company. See note (2) above. The Tender Agreement to which
Kyoden Company Limited is a party includes the voting and irrevocable proxy
provisions referenced in note (2) above.
(6) Consists of 21,874 shares issuable upon the exercise of stock options held
by Mr. Hashimoto that are exercisable within the 60-day period following
April 23, 2002 and 4,741,491 shares owned by Kyoden Holding Company, a
wholly owned subsidiary of Kyoden Company Limited. Mr. Hashimoto, a
director of the Company, is Chairman, a director and 58% shareholder of
Kyoden Company Limited. Mr. Hashimoto has entered into a Tender Agreement
with respect to the 18,750 shares of Common Stock issuable upon the
exercise of stock options held by Mr. Hashimoto, which shares were not
outstanding as of April 23, 2002. See note (2) above. The Tender Agreement
to which Mr. Hashimoto is a party does not include the voting and
irrevocable proxy provisions referenced in note (2) above.
(7) Includes 440,000 shares issuable upon the exercise of stock options held by
Mr. Herman that are exercisable within the 60-day period following April
23, 2002. Mr. Herman has entered into a Tender Agreement with respect to
900,475 of the outstanding shares of Common Stock owned by Mr. Herman and
440,000 shares of Common Stock issuable upon the exercise of stock options
held by Mr. Herman (which shares were not outstanding as of April 23,
2002). See note (2) above. The Tender Agreement to which Mr. Herman is a
party includes the voting and irrevocable proxy provisions referenced in
note (2) above.
(8) Includes 78,124 shares issuable upon the exercise of stock options held by
Mr. Botts that are exercisable within the 60-day period following April 23,
2002. Mr. Botts has entered into a Tender Agreement with respect to 21,605
of the outstanding shares of Common Stock owned by Mr. Botts and 75,000
shares of Common Stock issuable upon the exercise of stock options held by
Mr. Botts (which shares were not outstanding as of April 23, 2002). See
note (2) above. The Tender Agreement to which Mr. Botts is a party does not
include the voting and irrevocable proxy provisions referenced in note (2)
above.
(9) Represents shares issuable upon the exercise of stock options held by Mr.
Cooper that are exercisable within the 60-day period following April 23,
2002. Mr. Cooper has entered into a Tender Agreement with respect to the
28,125 shares of Common Stock issuable upon the exercise of stock options
held by Mr. Cooper, which shares were not outstanding as of April 23, 2002.
See note (2) above. The Tender Agreement to which Mr. Cooper is a party
does not include the voting and irrevocable proxy provisions referenced in
note (2) above.
(10) Includes 57,083 shares issuable upon the exercise of stock options held by
Mr. Erwin that are exercisable within the 60-day period following April 23,
2002. Mr. Erwin has entered into a Tender Agreement with respect to 4,801
of the outstanding shares of Common Stock owned by Mr. Erwin and 55,000
shares of Common Stock issuable upon the exercise of stock options held by
Mr. Erwin (which shares were not outstanding as of April 23, 2002). See
note (2) above. The Tender Agreement to which Mr. Erwin is a party does not
include the voting and irrevocable proxy provisions referenced in note (2)
above.
(11) Includes 360,000 shares issuable upon the exercise of stock options held by
Mr. Lucier that are exercisable within the 60-day period following April
23, 2002. Mr. Lucier has entered into a Tender Agreement with respect to
655,684 of the outstanding shares of Common Stock owned by Mr. Lucier and
360,000 shares of Common Stock issuable upon the exercise of stock options
held by Mr. Lucier (which shares were not outstanding as of April 23,
2002). See note (2) above. The Tender Agreement
B-8
to which Mr. Lucier is a party includes the voting and irrevocable proxy
provisions referenced in note (2) above.
(12) Includes 144,000 shares issuable upon the exercise of stock options held by
Mr. Johnson that are exercisable within the 60-day period following April
23, 2002. Mr. Johnson has entered into a Tender Agreement with respect to
144,170 of the outstanding shares of Common Stock owned by Mr. Johnson and
144,000 shares of Common Stock issuable upon the exercise of stock options
held by Mr. Johnson (which shares were not outstanding as of April 23,
2002). See note (2) above. The Tender Agreement to which Mr. Johnson is a
party includes the voting and irrevocable proxy provisions referenced in
note (2) above.
(13) Represents shares issuable upon the exercise of stock options held by Mr.
Moshe that are exercisable within the 60-day period following April 23,
2002. Mr. Moshe's employment with the Company ceased in April 2002.
(14) Includes 192,000 shares issuable upon the exercise of stock options held by
Mr. O'Brien that are exercisable within the 60-day period following April
23, 2002. Mr. O'Brien has entered into a Tender Agreement with respect to
173,646 of the outstanding shares of Common Stock owned by Mr. O'Brien and
192,000 shares of Common Stock issuable upon the exercise of stock options
held by Mr. O'Brien (which shares were not outstanding as of April 23,
2002). See note (2) above. The Tender Agreement to which Mr. O'Brien is a
party includes the voting and irrevocable proxy provisions referenced in
note (2) above.
(15) Mr. Kiaski's employment with the Company ceased in August 2001.
(16) Includes 1,499,579 shares issuable upon the exercise of stock options held
by such officers and directors that are exercisable within the 60-day
period following April 23, 2002. Excludes an aggregate of 385,562 shares
beneficially owned by Mr. Kiaski and Mr. Moshe, former executive officers
of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities ("Reporting Persons"), to file with the SEC reports of
ownership and reports of changes in ownership of the Common Stock and other
equity securities of the Company. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file.
To the Company's knowledge, based on a review of the copies of Section
16(a) reports furnished to the Company or written representations from certain
Reporting Persons that no Form 5 filing was required for such person, during
fiscal 2001 all of the Company's Reporting Persons complied with the applicable
Section 16(a) filing requirements, except that Mr. Herman filed a Form 4
reporting his purchase in March 2001 of 3,000 shares of Common Stock one day
late.
B-9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information concerning the
compensation of (i) the Company's Chief Executive Officer as of December 29,
2001, (ii) the Company's other four most highly compensated executive officers
who were serving as executive officers of the Company as of December 29, 2001
and (iii) one former executive officer of the Company who was not serving in
such capacity as of December 29, 2001 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE(1)
<Table>
<Caption>
ANNUAL COMPENSATION (2) LONG-TERM AWARDS
--------------------------------------- ----------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
SALARY BONUS COMPENSATION STOCK AWARDS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION(3) YEAR ($)(4) ($)(5) ($)(6) ($)(7) OPTIONS(8) ($)(9)
- ------------------------------ ---- ------- ------- ------------ ------------ ---------- ------------
William J. Herman............ 2001 315,000 -- 6,000 -- 440,000 2,000
Chairman of the Board, and 2000 263,212 235,783 6,000 -- -- 1,500
Chief Executive Officer(10) 1999 228,212 69,800 6,000 1,658,611 -- 1,500
Richard G. Lucier............ 2001 270,000 -- 6,000 -- 360,000 2,000
President(10) 2000 239,693 167,856 6,000 -- -- 1,500
1999 219,692 71,611 6,000 1,290,000 -- 1,500
Peter T. Johnson............. 2001 215,000 -- -- -- 144,000 2,000
Vice President, Business 2000 203,519 97,738 -- -- -- 1,500
Development and Chief Legal 1999 188,519 43,383 -- 275,100 -- 1,500
Officer
Guy Moshe(11)................ 2001 242,715 -- 22,701 -- 81,360
Senior Vice President and 2000 220,143 91,255 16,871 -- 2,962 --
General Manager-Israel 1999 180,000 -- 12,804 -- 256,681 --
Kevin P. O'Brien............. 2001 185,000 -- -- 192,000 2,000
Vice President, Finance and 2000 175,866 77,077 -- -- 1,500
Administration and Chief 1999 150,000 28,646 348,752 -- 1,500
Financial Officer
Gary Kiaski(12).............. 2001 200,081 -- 3,692 -- -- 217,000(13)
Vice President, 2000 270,733 28,260 6,000 -- -- 1,500
Worldwide Sales 1999 262,600 16,542 6,000 -- -- 1,500
</Table>
- ---------------
(1) In March 2000, Viewlogic merged (the "Viewlogic Merger") with and into a
wholly owned subsidiary of the Company, with Viewlogic surviving the
Viewlogic Merger and each outstanding share of capital stock of Viewlogic
being converted into 0.67928 of a share of Common Stock (the "Exchange
Ratio"). Upon the effective time of the Merger, Mr. Herman, Mr. Lucier, Mr.
Johnson, Mr. O'Brien and Mr. Kiaski joined the Company as executive
officers. With respect to Mr. Herman, Mr. Lucier, Mr. Johnson, Mr. O'Brien
and Mr. Kiaski, (i) all compensation data for the periods prior to March
2000 reflects compensation paid to each in his capacity as an executive
officer of Viewlogic and (ii) stock-based compensation paid to each during
that period is adjusted to reflect the Exchange Ratio.
(2) In accordance with the rules of the SEC, the compensation set forth in the
table above does not include (i) medical, group life or other benefits
which are available to all of the Company's salaried employees, and (ii)
perquisites and other personal benefits, securities or property which do
not exceed the lesser of $50,000 or 10% of the total annual salary and
bonuses for each of the Named Executive Officers.
(3) Unless otherwise noted, lists the principal position with the Company as of
December 29, 2001.
(4) Amounts shown include cash and non-cash compensation earned and received by
executive officers as well as amounts earned but deferred at the election
of those officers.
B-10
(5) Represents annual incentive bonuses.
(6) Represents automobile allowances.
(7) All shares of restricted stock were issued upon the exercise of stock
options. On November 23, 1998, Mr. Herman was granted options to purchase
860,046 shares of Common Stock, Mr. Lucier was granted options to purchase
679,280 shares of Common Stock, Mr. Johnson was granted options to purchase
142,648 shares of Common Stock, Mr. O'Brien was granted options to purchase
180,839 shares of Common Stock and Mr. Kiaski was granted options to
purchase 180,839 shares of Common Stock. All of these options were
exercisable in full immediately upon grant, but the shares issuable upon
exercise are restricted shares, subject to a repurchase right of the
Company if the executive officer ceases to be an employee, officer or
director of, or a consultant to, the Company. The shares issuable upon
exercise of the options vest from this repurchase right over time.
Twenty-five percent of the shares for Mr. Herman, Mr. Lucier, Mr. O'Brien
and Mr. Kiaski vested as of October 2, 1999. Twenty-five percent of the
shares for Mr. Johnson vested as of October 19, 1999. The remaining 75%
vest in equal monthly installments over the succeeding 36 months. If,
within 24 months after a change of control of the Company, the executive
officer ceases to be an employee, officer or director of, or a consultant
to, the Company as a result of termination without cause by the Company or
for good reason by the executive, 100% of the original number of shares
subject to the executive's options vest. Each holder of restricted stock is
entitled to the same dividends with respect to his restricted stock as are
paid to holders of unrestricted shares of Common Stock. Mr. Herman, Mr.
O'Brien and Mr. Johnson exercised their options in full on August 11, 1999.
Mr. Lucier exercised his options in full on August 12, 1999. As of those
dates, all shares of stock issued upon exercise were restricted stock. All
amounts set forth under the heading "Restricted Stock Awards" represent the
aggregate dollar value of all shares of restricted stock issued to the
executive officer based upon the fair market value of the restricted stock
on the date of the issuance minus the aggregate exercise price of the stock
options. On December 28, 2001, the last trading day in fiscal 2001, the
closing per share sale price of the Common Stock was $1.93. Mr. Herman held
179,176 shares of restricted stock with a value, if vested, of $204,261,
Mr. Lucier held 141,516 shares of restricted stock with a value, if vested,
of $161,328, Mr. O'Brien held 37,675 shares of restricted stock with a
value, if vested, of $42,950 and Mr. Johnson held 29,718 shares of
restricted stock with a value, if vested, of $33,879. Mr. Botts, Mr. Moshe
and Mr. Kiaski held no shares of restricted stock on December 28, 2001.
(8) Represents the grant of options to purchase shares of Common Stock.
(9) Unless otherwise noted, represents matching contributions by the Company to
the Company's 401(k) plan.
(10) In February 2002, Mr. Lucier began serving as the Company's President. As
of December 29, 2001, Mr. Herman served as the Company's Chairman of the
Board, President and Chief Executive Officer, and Mr. Lucier served as the
Company's Executive Vice President and Chief Operating Officer.
(11) Mr. Moshe's employment with the Company ceased in April 2002.
(12) Mr. Kiaski's employment with the Company ceased in August 2001.
(13) Consists of $215,000 in severance payments by the Company and $2,000 in
matching contributions by the Company to the Company's 401(k) plan.
B-11
OPTION GRANTS, EXERCISES AND YEAR-END VALUES
The following table sets forth certain information concerning grants of
stock options to each of the Named Executive Officers during the fiscal year
ended December 29, 2001. The Company granted no stock appreciation rights during
the fiscal year ended December 29, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE ($/ EXPIRATION ---------------------------
GRANTED(2) 2001(3) SHARE)(4) DATE 5%($) 10%($)
---------- ------------- --------- ---------- ----------- -------------
William J. Herman....... 440,000 8.24% $2.06 1/3/11 $570,722 $1,446,321
Richard G. Lucier....... 360,000 6.742% $2.06 1/3/11 $466,955 $1,183,354
Peter T. Johnson........ 144,000 2.697% $2.06 1/3/11 $186,782 $ 473,342
Guy Moshe(5)............ 75,000 1.405% $2.06 1/3/11 $ 97,282 $ 246,532
2,942(6) 0.055% $3.88 3/1/11 $ 7,170 $ 18,169
3,418(6) 0.064% $0.90 10/11/11 $ 1,935 $ 4,903
Kevin P. O'Brien........ 192,000 3.596% $2.06 1/3/11 $249,042 $ 631,122
Gary Kiaski(7).......... 240,000 4.495% $2.06 1/3/11 $311,303 $ 788,903
</Table>
- ---------------
(1) As required by the rules of the SEC, amounts represent hypothetical gains
that could be achieved for the respective options if exercised at the end of
the option term. These gains are based on the prescribed assumed rates of
stock appreciation of 5% and 10% compounded annually from the date the
respective options were granted to their expiration date. Actual gains, if
any, on stock option exercises will depend on the future performance of the
Common Stock and the date on which the options are exercised. No gain to the
optionees is possible without an appreciation in stock price, which will
benefit all stockholders commensurately.
(2) Represents the grant of options to purchase shares of Common Stock. All of
these options, except those granted to Mr. Moshe, were exercisable in full
immediately upon grant, but the shares issuable upon exercise will be
restricted shares, subject to a repurchase right of the Company if the
executive officer ceases to be an employee, officer or director of, or a
consultant to, the Company. The shares issuable upon exercise of the options
vest from this repurchase right in equal monthly installments over 48 months
from the date of grant. Except as indicated in note (5) below, Mr. Moshe's
options become exercisable and vest in equal monthly installments over 48
months from the date of grant. For all Named Executive Officers, including
Mr. Moshe, if the closing price of the Common Stock is $10 or more for any
twenty consecutive trading days, an additional 25% of the shares become
vested, and if the closing price of the Common Stock is $20 or more for any
twenty consecutive trading days, an additional 25% of the shares become
vested. If, within 24 months after a change of control of the Company, the
Named Executive Officer ceases to be an employee, officer or director of, or
a consultant to, the Company as a result of termination without cause by the
Company or for good reason by the executive, 100% of the remaining unvested
shares vest in full.
(3) Based on a total of 5,339,574 shares subject to options granted by the
Company to its employees and consultants during fiscal 2001.
(4) Equals the per share fair market value of the underlying shares of Common
Stock on the date of grant.
(5) Mr. Moshe's employment with the Company ceased in April 2002.
(6) This option was fully vested on the date of grant.
(7) Mr. Kiaski's employment with the Company ceased in August 2001.
B-12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE
The following table sets forth certain information concerning the value of
unexercised stock options held by each of the Named Executive Officers as of
December 29, 2001. No Named Executive Officer exercised an option to purchase
Common Stock during fiscal 2001, other than Mr. Kiaski.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE -------------------------- -------------------------
NAME ON EXERCISE REALIZED(2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- ----------------- -------------------------- -------------------------
William J. Herman.... -- -- 100,832/339,168 $0/$0
Richard G. Lucier.... -- -- 82,499/277,501 $0/$0
Peter T. Johnson..... -- -- 32,999/111,001 $0/$0
Guy Moshe(3)......... -- -- 267,711/123,438 $3,521/$0
Kevin P. O'Brien..... -- -- 43,999/148,001 $0/$0
Gary Kiaski(4)....... 128,094 $96,211 0/0 $0/$0
</Table>
- ---------------
(1) Represents the aggregate fair market value of the underlying shares of
Common Stock on December 28, 2001, the last trading day of fiscal 2001
($1.93 per share), minus the aggregate exercise price.
(2) Represents the difference between the aggregate fair market value of the
underlying shares of Common Stock on the date of exercise and the aggregate
exercise price.
(3) Mr. Moshe's employment with the Company ceased in April 2002.
(4) Mr. Kiaski's employment with the Company ceased in August 2001.
EMPLOYMENT AGREEMENTS
William J. Herman. In connection with its acquisition of Viewlogic in
March 2000, the Company assumed the employment agreement of William J. Herman,
the Company's Chairman of the Board and Chief Executive Officer. Under the terms
of Mr. Herman's employment agreement, Mr. Herman's employment will continue
until October 2, 2002, unless Mr. Herman resigns or the Company terminates his
employment. Mr. Herman receives a base salary of $315,000 annually and standard
benefits afforded other employees of the Company. If the Company terminates Mr.
Herman's employment without cause, he will continue to receive his benefits and
base salary for a period of nine months. This agreement includes
post-termination restrictions for a period of one year which restrict Mr. Herman
from competing with the Company and which prohibit him from soliciting the
Company's employees and customers during that period. Mr. Herman's compensation
is subject to adjustment but his base salary may not be decreased.
Richard G. Lucier. Also in connection with its acquisition of Viewlogic in
March 2000, the Company assumed the employment agreement of Richard G. Lucier,
the Company's President. Mr. Lucier's employment agreement provides that Mr.
Lucier's employment will continue until October 2, 2002, unless Mr. Lucier
resigns or the Company terminates his employment. Mr. Lucier receives a base
salary of $270,000 annually and standard benefits afforded other employees of
the Company. If the Company terminates Mr. Lucier's employment without cause, he
will continue to receive his benefits and base salary for a period of nine
months. This agreement includes post-termination restrictions for a period of
one year which restrict Mr. Lucier from competing with the Company and which
prohibit him from soliciting the Company's employees and customers during that
period. Mr. Lucier's compensation is subject to adjustment but his base salary
may not be decreased.
B-13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee is responsible for establishing compensation
policies with respect to the Company's executive officers, including the Chief
Executive Officer, and setting the compensation levels for these individuals.
The Compensation Committee also exercises all rights and powers of the Board
under the Company's stock incentive and stock purchase plans. The Compensation
Committee is currently composed of two directors who are not employees of the
Company. This report addresses the Company's compensation policies for 2001 and
how they affected the Company's Chief Executive Officer and the Company's other
executive officers, including the Named Executive Officers.
COMPENSATION PHILOSOPHY AND POLICY
The policy of the Committee is to attract and retain executive officers and
employees through the payment of competitive base salaries and to encourage and
reward performance through bonuses and stock ownership. The objectives of the
Compensation Committee are to:
- attract, retain and motivate highly qualified executive officers and
employees who contribute to the long-term success of the Company;
- align the compensation of executive officers with the Company's business
objectives and performance; and
- align incentives for executive officers with the interests of
stockholders.
ELEMENTS OF COMPENSATION
The principal components of compensation for the Company's executive
officers are cash components, in the form of salary and variable pay, and
non-cash compensation in the form of equity compensation.
Cash Compensation. Cash compensation consists of (i) base salary which is
determined in the discretion of the Compensation Committee after subjectively
considering the level of responsibility, expertise and experience of the
executive officer, taking into account competitive conditions in the industry
and (ii) cash bonuses up to an established percentage of base salary, subject to
meeting all or a portion of targeted objectives.
Equity Compensation. Ownership of Common Stock is a key element of
executive compensation. Executive officers and other employees of the Company
are eligible to participate in the Company's Amended and Restated 2000 Stock
Incentive Plan (the "2000 Stock Incentive Plan") and the Company's 2000 Employee
Stock Purchase Plan. The 2000 Stock Incentive Plan permits the Board or the
Compensation Committee to grant stock options to employees on such terms as the
Board or the Compensation Committee may determine. The 2000 Stock Incentive Plan
also permits the Board or the Compensation Committee to grant restricted stock
to employees. The 2000 Employee Stock Purchase Plan permits employees to acquire
Common Stock through payroll deductions and promotes broad-based equity
participation throughout the Company. The Committee believes that such stock
plans align the interests of the employees with the long-term interests of the
stockholders.
In determining the size of a stock option grant to a new executive officer,
the Compensation Committee subjectively takes into account equity participation
by comparable executives within the Company, external competitive circumstances
and other relevant factors. Additional options may be granted to current
executive officers and employees to reward exceptional performance or to provide
additional unvested equity incentives. Although the Compensation Committee may,
as it deems appropriate, grant stock options under different terms, stock
options are typically granted with an exercise price equal to the fair market
value of the Common Stock on the date of grant and vest over a four-year period.
Therefore, in order for an executive officer to derive the full compensatory
benefit from a stock option, there must be an appreciation in the fair market
value of the Common Stock and the executive's service with the Company must
continue.
B-14
The Company also maintains a 401(k) Plan to provide retirement benefits
through tax deferred salary deductions for all its employees, including
executive officers. In fiscal 2001, the Company contributed to the 401(k) Plan
by partially matching the employees' contribution at a one-to-two ratio;
provided, however, that the Company's matching contribution for any employee
cannot exceed $2,000.
2001 Executive Compensation and Compensation of the Chief Executive
Officer. Executive compensation for fiscal 2001 included base salary and
severance payments. In addition, executive officers, like other employees, were
eligible to participate in the 2000 Employee Stock Purchase Plan. No cash
bonuses were accrued for 2001 because the Company did not meet its financial
goals.
William J. Herman, who served as the Company's President and Chief
Executive Officer for 2001, received $315,000 as a base salary. Mr. Herman's
base salary was subjectively determined by the Compensation Committee based on
his twenty years experience in the EDA industry, the level of responsibility
required to implement the Company's strategy and competitive compensation data.
Mr. Herman did not receive a bonus for 2001 because the Company did not achieve
its sales, revenue or operating income targets. During fiscal 2001, Mr. Herman
was granted an option, under the 2000 Stock Incentive Plan to purchase 440,000
shares of Common Stock at $2.06 per share. The option was granted in January
2001, after an analysis of the remaining vesting terms of Mr. Herman's
outstanding equity awards, with the goal of providing Mr. Herman with a
long-term equity compensation incentive.
Deductibility of Executive Compensation. Section 162(m) ("Section 162m") of
the Internal Revenue Code of 1986, as amended (the "Code") generally disallows a
tax deduction to public companies for certain compensation in excess of $1.0
million paid to the company's chief executive officer and the four other most
highly compensated executive officers. Certain performance-based compensation
will not be subject to the deduction limit if certain requirements are met. The
Compensation Committee periodically reviews the potential consequences of
Section 162(m) and may structure the performance-based portion of its executive
compensation in a manner that is intended to avoid disallowance of deductions
under Section 162(m). However, the Compensation Committee reserves the right to
use its judgment to authorize compensation payments that may be in excess of
that limit when the Compensation Committee believes that such payments are
appropriate and in the best interests of the stockholders, after taking into
consideration changing business conditions or the executive officer's
performance. In any event, there can be no assurance that compensation
attributable to stock options and other awards granted under the Company's stock
plans will be exempt from Section 162(m).
By the Compensation Committee of the
Board of
Directors of Innoveda, Inc.
Steven P. Erwin, Lorne J. Cooper and
Keith B. Geeslin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, the Compensation Committee of the Board of Directors consists of
Lorne J. Cooper and Steven P. Erwin. From January to April 2001, the
Compensation Committee consisted of Mr. Erwin and Keith B. Geeslin. No executive
officer of the Company served during fiscal 2001 as a director or member of the
compensation committee (or other committee serving an equivalent function) of
any other entity, whose executive officers served on the Board or the
Compensation Committee of the Board of the Company.
B-15
COMPARATIVE STOCK PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Common Stock with the cumulative return of (i) the Nasdaq Stock Market -- U.S.
Index and (ii) the Dow Jones Software Index. The graph assumes the investment of
$100 on the last trading day of 1996 in the Common Stock, the Nasdaq Stock
Market -- U.S. Index and the Dow Jones Software Index, and assumes dividends are
reinvested. Measurement points are the last trading days for the years ended in
December 1997, 1998, 1999, 2000 and 2001. No dividends have been declared or
paid on the Common Stock.
[Comparative Stock Performance Graph]
<Table>
<Caption>
INITIAL INVESTMENT CUMULATIVE DATA RETURN FOR FISCAL YEAR
---------------------------------------------------------
COMPANY/MARKET INDEX 1996 1997 1998 1999 2000 2001
- -------------------- ---- ---- ---- ---- ---- ----
Innoveda, Inc. .......................... $100.00 $101.22 $ 90.85 $ 34.15 $ 20.12 $ 17.55
Nasdaq Stock Market (U.S.)............... 100.00 132.61 225.17 436.15 237.52 205.42
Dow Jones Software....................... 100.00 122.32 172.52 304.29 191.25 152.46
</Table>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Executive Promissory Notes. In August 1999, each of the executive officers
of the Company identified in the table below executed and delivered to Viewlogic
promissory notes in the principal amounts set forth beside their respective
names. In connection with the Company's acquisition of Viewlogic in March 2000,
the Company acquired these promissory notes.
<Table>
<Caption>
PRINCIPAL AMOUNT OF
NAME CURRENT TITLE PROMISSORY NOTE
- ---- ------------- -------------------
William J. Herman.................... Chairman of the Board and Chief $417,818
Executive Officer
Richard G. Lucier.................... President $330,000
Peter T. Johnson..................... Vice President, Business Development $ 69,300
and Chief Legal Officer
Kevin P. O'Brien..................... Vice President, Finance and $ 87,854
Administration and Chief Financial
Officer
</Table>
Each of the executives identified in the table above executed and delivered
his respective promissory notes in connection with amounts borrowed to purchase
shares of restricted stock upon the exercise of stock options. The promissory
notes bear no interest and are secured by a pledge of the shares of restricted
stock acquired upon exercise of the stock options. In the event of a default
under a promissory note, if the value of the restricted stock is not sufficient
to insure full payment of the promissory note, the maximum liability of each
executive is limited to the lesser of one-half of the original principal amount
of the promissory note and the then current balance under the promissory note.
Since December 31, 2000, the amount of indebtedness to
B-16
the Company of each of the executive officers under their respective promissory
notes has been equal to the principal amount of such promissory notes. Mr.
Johnson's spouse is also an obligor under his promissory note.
Eric Benhayoun. The Company entered into a four-year employment agreement
with Eric Benhayoun, the Company's Vice President of Sales for Europe, in April
1999 pursuant to which his annual base salary was set at 1,040,853 French Francs
(or approximately $137,323 U.S. Dollars, based on the exchange rate on March 1,
2002), he received commissions based on sales generated, and he received all
standard benefits afforded other executives of the Company. In April 2002, the
Company terminated Mr. Benhayoun's employment. Pursuant to the terms of Mr.
Benhayoun's employment agreement, he is entitled to severance equal to his
monthly base salary, plus benefits for a period of twelve months following his
termination. In addition, all of the 17,188 shares remaining unvested as of
April 2002 under the stock option granted by the Company to Mr. Benhayoun on
February 25, 1999 became vested in full upon the termination of his employment.
Gary Kiaski. The Company terminated the employment of Gary Kiaski, then
the Company's Vice President of Worldwide Sales, in August 2001. In connection
with that termination, Innoveda paid to Mr. Kiaski $215,000, less applicable
taxes and other appropriate deductions, representing one year of his base
salary. The Company also agreed to pay the COBRA cost for medical coverage for
Mr. Kiaski and his family for up to one year or until Mr. Kiaski obtains other
employment that offers medical coverage.
Guy Moshe. In May 2000, the Company entered into an employment agreement
with Guy Moshe, then the Company's Senior Vice President and General
Manager -- Israel, which terminated pursuant to its terms in March 2002.
Pursuant to the employment agreement, Mr. Moshe's annual base salary was set at
1,050,500 New Israeli Shekels (or approximately $224,035 U.S. Dollars, based on
the exchange rate on March 1, 2002), his annual bonus was set at up to 50% of
his base salary, and he received all standard benefits afforded other executives
of the Company. Mr. Moshe voluntarily terminated his employment with the Company
in April 2002.
Kyoden Company Limited. Kyoden Company Limited, which as of April 23, 2002
beneficially owned 4,741,491, or 11.8%, of the outstanding Common Stock, owns
50% of PADS Japan. Hiroshi Hashimoto, a director of the Company, is the Chairman
and 58% shareholder of Kyoden Company Limited. PADS Japan distributes certain
products of the Company in Japan. The Company has no ownership interest in PADS
Japan. Since December 30, 2000 and through March 30, 2002, the Company's sales
to PADS Japan were $1,586,930, which represents a discount of fifty percent from
the list price of the products purchased.
Synopsys, Inc. The Company licenses certain products for resale from
Synopsys, Inc., which as of April 23, 2002 beneficially owned 3,583,314, or
8.9%, of the outstanding Common Stock. Since December 30, 2000 and through March
30, 2002, the Company has paid to Synopsys, Inc. $1,501,798, and accrued an
additional $820,472, in royalties based on the sale of those products.
Mentor Graphics Corporation. The information in the Schedule 14D-9 to
which this Information Statement forms Annex B is incorporated herein by
reference.
B-17
APPENDIX A
INNOVEDA, INC.
AUDIT COMMITTEE CHARTER
I. MEMBERSHIP
A. Number. The Audit Committee shall consist of at least three
independent, financially literate members of the board of directors meeting the
requirements set forth in Sections I.B and I.C. below.
B. Independence. A director is independent if he or she is not an officer
or employee of the Company or its subsidiaries, if he or she has no relationship
which, in the opinion of the Company's board of directors, would interfere with
his or her exercise of independent judgment in carrying out the responsibilities
of a director, and if he or she:
1. Has not been an employee of the Company or any affiliate of the
Company in the current year or in any of the past three years;
2. Has no immediate family member who has been employed by the
Company or an affiliate of the Company in any of the past three years (an
immediate family member includes a person's spouse, parents, children,
siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, and anyone who resides in a person's home);
3. Is not employed as an executive of an entity other than the
Company having a compensation committee which includes any of the Company's
executives;
4. Did not within the last fiscal year receive from the Company or
any affiliate of the Company compensation -- other than benefits under at
tax qualified retirement plan, compensation for director service or
nondiscretionary compensation -- greater than $60,000; and
5. Has not in any of the past three years been a partner in, or
controlling shareholder or executive of, a for profit business organization
to which the Company made or from which the Company received payment (other
than payment arising solely from investments in the Company's securities)
that exceeds the greater of: (i) $200,000; or (ii) more than 5% of the
Company's or business organization's consolidated gross revenues.
Under exceptional and limited circumstances, one director who has a
relationship making him or her not independent, and who is not a Company
employee or an immediate family member of a Company employee, may serve on
the Audit Committee if the board of directors determines that the
director's membership on the Audit Committee is required by the best
interests of the Company and its shareholders, and discloses in the next
annual proxy statement after such determination the nature of the
relationship and the reasons for the determination.
C. Financial Literacy. Each member of the Audit Committee must be able to
read and understand fundamental financial statements, including the Company's
balance sheet, income statement, and cash flow statement, or must become able to
do so within a reasonable time after his or her appointment to the Audit
Committee. At least one member of the Audit Committee must have past employment
experience in finance or accounting, professional certification in accounting,
or other comparable experience or background which result in the member having
financial sophistication (such as being or having been a chief executive
officer, chief financial officer or other senior officer with financial
oversight responsibilities).
D. Chairman. Unless a Chairman is elected by the board of directors, the
Audit Committee shall elect a Chairman by majority vote.
II. RESPONSIBILITIES OF THE AUDIT COMMITTEE
The Audit Committee shall assist the board of directors in fulfilling their
responsibilities to shareholders concerning the Company's accounting and
reporting practices, and shall facilitate open communication between the Audit
Committee, board of directors, outside auditors, and management. The Audit
Committee
APP-A-1
shall discharge its responsibilities, and shall assess the information provided
by the Company's management and the outside auditor, in accordance with its
business judgment. The responsibilities set forth herein do not reflect or
create any duty or obligation of the Audit Committee to plan, conduct, oversee
or determine the appropriate scope of any audit, or to determine that the
Company's financial statements are complete, accurate, fairly presented, or in
accordance with Generally Accepted Accounting Principles or applicable law. In
exercising its business judgment, the Audit Committee shall rely on the
information and advice provided by the Company's management and/or its outside
auditor.
A. The Audit Committee shall review and reassess the adequacy of this
charter at least annually.
B. The outside auditor shall be accountable to the Audit Committee
and the board of directors, which together shall have the ultimate
authority and responsibility to nominate the outside auditor to be proposed
for shareholder approval in any proxy statement, and to select, evaluate,
and (where appropriate) replace the outside auditor.
C. The Audit Committee shall ensure that they receive from the
outside auditor the written disclosures and letter from the outside auditor
required by Independence Standards Board Standard No. 1.
D. The Audit Committee shall discuss with the outside auditor its
independence, and shall actively engage in a dialogue with the outside
auditor regarding any disclosed relationships or services that might impact
the objectivity and independence of the auditor. The Audit Committee shall
take, or recommend that the full board of directors take, appropriate
action to oversee the independence of the outside auditor.
E. The Audit Committee shall review and discuss with the Company's
management the Company's audited financial statements.
F. The Audit Committee shall discuss with the outside auditor the
matters about which Statement on Auditing Standards No. 61 requires
discussion.
G. Based upon its discharge of its responsibilities pursuant to
Sections II.C through II.F and any other information, discussion or
communication that the Audit Committee in its business judgment deems
relevant, the Audit Committee shall consider whether they will recommend to
the board of directors that the Company's audited financial statements be
included in the Company's annual reports on Forms 10-K.
H. The Audit Committee shall prepare for inclusion where necessary in
a proxy or information statement of the Company relating to an annual
meeting of security holders at which directors are to be elected (or
special meeting or written consents in lieu of such meeting), the report
described in Item 306 of Regulation S-K.
I. The Audit Committee shall annually inform the outside auditor, the
Chief Financial Officer, the Controller, and the most senior other person,
if any, responsible for the internal audit activities, that they should
promptly contact the Audit Committee or its Chairman about any significant
issue or disagreement concerning the Company's accounting practices or
financial statements that is not resolved to their satisfaction. Where such
communications are made to the Chairman, he or she shall confer with the
outside auditor concerning any such communications, and shall notify the
other members of the Audit Committee of any communications which the
outside auditor or the Chairman in the exercise of his or her business
judgment believes should be considered by the Audit Committee prior to its
next scheduled meeting.
J. The Audit Committee shall direct the outside auditor to use its
best efforts to perform all reviews of interim financial information prior
to disclosure by the Company of such information, and to discuss promptly
with the Chairman of the Audit Committee and the Chief Financial Officer
any matters identified in connection with the auditor's review of interim
financial information which are required to be discussed by Statement on
Auditing Standards No. 61. The Chairman of the Audit Committee shall
discuss any such matters with the outside auditor, and shall notify the
other members of the Audit Committee of any discussions which the outside
auditor or the Chairman in the exercise of his or her
APP-A-2
business judgment believes should be considered by the Audit Committee
prior to disclosure or filing of the interim financial information, or the
Audit Committee's next scheduled meeting.
K. The Audit Committee shall direct management to advise the Audit
Committee in the event that the Company proposes to disclose or file
interim financial information prior to completion of review by the outside
auditor.
L. The Audit Committee shall meet privately at least once per year
with: (i) the outside auditor; (ii) the Chief Financial Officer; (iii) the
Controller; and (iv) the most senior person (if any) responsible for the
internal audit activities of the Company.
APP-A-3