Filed by Cadence Design Systems, Inc. Pursuant to Rule 425
Under the Securities Act of 1933
Subject Company: Simplex Solutions, Inc.
Commission File No.: 000-32487
This filing relates to a proposed merger between Cadence Design Systems,
Inc. ("Cadence") and Simplex Solutions, Inc. ("Simplex") pursuant to the terms
of an Agreement and Plan of Merger, dated as of April 24, 2002, by and among
Cadence, Simplex and Zodiac Acquisition, Inc.
On April 24, 2002, Cadence and Simplex held a conference call relating
to the proposed merger described above, which was also made available for replay
via a webcast. The following is a transcript of the question and answer portion
of the conference call:
TRANSCRIPT OF CADENCE DESIGN SYSTEMS, INC. AND SIMPLEX SOLUTIONS, INC.
QUESTION AND ANSWER PORTION OF THE CONFERENCE CALL ON APRIL 24, 2002
Operator: Thank you. Ladies and gentlemen, if you wish to
register a question for today's question and answer
session, you will need to press the one followed by the
four on your telephone. You will hear a three tone
prompt to acknowledge your request. If your question
has been answered and you would like to withdraw your
polling request, you may do so by pressing the one
followed by the three. If you are using a speaker
phone, please pick up your handset before entering your
request. One moment, please, for the first question.
Jay Vleeschhouwer from Merrill Lynch, please go ahead
with your question.
Jay Vleeschhouwer: Thanks. Good afternoon. A couple questions. Ray, why is
acquiring Simplex a better solution than continuing
with the OEM deal that you had with them or perhaps
embellishing that deal? Secondly, the company has
recently issued a fairly detailed road map for SoC
encounter for some of the enhancements you'll expect
there for the remainder of this year and into the first
half of next. Can you talk about how you plan to
integrate the Simplex technology into that planned road
map? Finally, you referred to the benefits of some of
the acquisitions we've made over the last year or year
and a half. Could you talk about some of the most
significant internally developed technology that you've
developed or brought to market over that same period,
or which you plan to develop and bring to market over,
let's say, the next year? Thanks.
Ray Bingham: Jay, thank you. Let me start with the OEM experience
that was announced last fall. There's a reason to move
beyond this, it is because we liked enormously what we
saw in technology and in teams in working with the
OEM agreement. It worked very well in the channel. It's
working very well with customers and, importantly, it
gave us an opportunity to in a very concrete way
develop a much deeper experience with the Simplex team.
Taking it further gives us the ability to address all
of the Simplex technology to participate and allow
Simplex to participate with us in a much more
integrated solution which customers are asking for. It
allows us to leverage the Simplex technology across our
entire portfolio and capitalize on all of what Simplex
is [unintelligible], which brings me to the people.
Whenever you talk about bringing technology companies
together, you talk about people. But here, more than
ever before, we're finding that that is the secret to
leveraging great technology into the marketplace. We
found it with Silicon Perspective, with CadMOS; their
leaders are providing huge leverage of an integrated
team. I believe that with Penny, with Aki, with Steve,
and with the considerable talents that come with
Simplex that's going to be all the more true while
those teams continue to develop with much more
resources and with a vastly more powerful channel the
things that they're already working on. It just
accelerates everything. An OEM agreement wouldn't allow
us to do that, and the results are showing it just a
few months into that.
As to road maps, premature to talk about road maps.
Obviously, we've got ideas and work that we will
extend. We'll talk more about it as the two teams are
allowed to do more detailed work. For now, Simplex
becomes an important part, an important extension to
SoC encounter. The addition of the Simplex technology
adds more capability everywhere and all of this will
be added to the interesting encounter road map as we
go forward. Look for more later. Next question,
operator.
Operator: The next question comes from John Barr with Robertson
Stephens. Please go ahead.
John Barr: I wondered, Ray, your thoughts on the X-Architecture.
Simplex has done a lot to establish this in putting
together the supply chain and all, but Cadence has
really not had much presence in that, although it's
certainly still the early stages. What is Cadence's
official thinking on the X-Architecture and how does
that change here?
Ray Bingham: John, we have looked very hard at the X-Architecture,
both as it was being rolled out and as we have had the
opportunity to look much more closely at due diligence.
We are extremely pleased with what we see, both with
what's in the public domain, the progress that the team
has made in amassing the most concrete, most advanced
assembly of the design chain and supply chain elements
that are needed to move design much more tightly into
the manufacturing domain, and that is key to design
productivity. As the geometries are smaller, the chips
are bigger and our customers struggle with yield in
this area. There are various elements of the
X-Architecture, as we
2
look at it, and aid in exactly the right direction. We
think that they have demonstrated a lot of what they
promised when they first announced it and we believe
that the combination of Simplex leadership in this
area, the supply chain work that they have put together
and Cadence resources, bring the promise much nearer to
being realized. It's something that is a great deal
more exciting than the day before. Nonetheless,
premature to say we've got working silicon. We think
that's around the corner. We like what we have seen so
far and look forward to be able to talk about it more
as we get closer to concluding this transaction.
Jay Vleeschhouwer: OK. Then when do you see this closing?
Ray Bingham: It all depends on the approval process. Given the fact
that there is virtually no over last year, we don't
anticipate any big problems. So early in Q3.
Jay Vleeschhouwer: OK. Thank you.
Operator: The next question comes from Garo Toomajanian with RBC
Capital Markets. Please go ahead.
Garo Toomajanian: I don't know if you'll be able to answer this question,
but I think that analyst at Simplex for revenue in
calendar 2002 was around $46 million. I would expect --
I guess the question is, do you think that Cadence
might be able to do better than that given that there's
a much larger sales force that will be able to sell
the Simplex tool suite?
Penny Herscher: Garo, we haven't given annual guidance, but we guided
to pretty much flat; and as you can imagine, we saw
what was possible through the Cadence channel to the
OEM. I'll let Ray comment on where we'll go from here.
Ray Bingham: Garo, let me respond in this way: first of all, we like
very much what we saw in the diligence process, what we
saw that Simplex had done with their bookings model and
the way that they're managing their licensing model. We
think that that makes a lot of sense and is very
consistent.
Secondly, we look at what we've been able to accomplish
through our channel with these other technologies and
see that the combination of best in class technology
integrated into our solution, combined with Silicon
Perspectives, CadMOS and the SPC Encounter offering
gives us the confidence that there is a great deal more
possible through our channels.
Garo Toomajanian: That's great. Thank you.
Operator: The next question comes from Jeff Macy with Needham &
Company. Please go ahead.
3
Jeff Macy: Good afternoon. Quick question about the SoC foundry.
How do you see that fitting in with Cadence? Will that
be grafted in to Tality or will that be kind of
standing out there alone?
Ray Bingham: I think that's a question that has to be answered, and
we haven't been able to do enough work to be able to be
definitive. What I do see, however, is probably the
world's best digital IC implementation team and that,
of course, is very interesting broadly in the kind of
work that Tality is focused on. Tality has accomplished
a lot on the analog side of the design implementation
house, they have some very considerable offerings on
the digital side. At the very high end of the market,
though, I don't think anyone matches what the design
foundry team has accomplished, and we see that there is
a lot to complement both businesses by bringing them in
to the same company.
Jeff Macy: A quick question. The press release said something
about outstanding shares Simplex will converted to be
between .924 and .756, depending on price of Cadence
stock prior to closing. Can you tell me how that works
and what determines which percentage gets used?
Ray Bingham: It's a collar in financial terms, Jeff, and it is
simply intended to provide more certainty for both sets
of shareholders as long as Cadence's stock trades
between 19.47 on the low end and 23.80 on the high end.
Between those two numbers, the price of the Simplex
shares that will be paid is $18. Should Cadence's stock
trade outside that level, then it converts into a fixed
exchange ratio, which I think is indicated in the press
release. Below 19.47, there's a fixed exchange ratio of
.924 and above 23.80 the fixed exchange ratio is .756.
So they're sharing on the upside and the down side for
shareholders outside of those bounds.
Jeff Macy: Great. Thanks a lot.
Operator: The next question comes from Dennis Wassungg from Adams
Harkness & Hill. Please go ahead.
Dennis Wassung: Thank you. Just a quick question on the X-Architecture.
Ray, I was just curious as to any implementation of
that X-Architecture once it reaches production. Do you
intend to use the same business model that Simplex has
been talking about in terms of the license plus royalty
model, or do you intend to use more of a traditional
EDA tool base methodology?
Ray Bingham: Not completely clear yet, but I will tell you this: I
think that Simplex is, in pioneering in that direction
is creating great promise for an EDA industry that has
been kind of stuck in a licensing and value creation
model that doesn't reflect the kind of value that EDA
delivers in product development. So very interested in
understanding it better than we do today. I think we
need to see
4
the customer interaction that happens around it, but
like a [unintelligible] the vision that Simplex has
created.
Dennis Wassung: OK. And also on the competitive side, can you just talk
a little bit about how this better situates you in
terms of competition with Synopsys on the digital side
and then talk a little bit about it in terms of
[unintelligible] the encounter line and just any
additional thoughts in terms of areas that may not be a
strong in that you just strengthened? Any comments
there would be great.
Ray Bingham: Sure. I think what this does is take best in class
extraction and analysis capability and puts it in the
context of by far the leading SP&R, IC design
capability. Synopsys really doesn't have this
capability and certainly not in the context of a total
flow. So it gives us more than any of the competitors
that you mentioned, it gives us the virtual
prototyping, together with optimization placing routes
together with signal integrity and, of course, the
combination that we uniquely provide of analog mixed
signals. I think that this accelerates everything in
terms of our ability to deliver what customers are
looking for.
Dennis Wassung: Great. And last question: you mentioned that the Plato
Design acquisition closed today. Just curious as to any
impact there, what type of revenue level they might be
bringing into the Cadence organization, if you can talk
about that?
Ray Bingham: Actually we haven't given any information about the
specific bookings or revenues that they will
contribute, but I will tell you that the book of
business that we can see that they're bringing with
them, including business that we expect to close in the
next days or weeks, is in excess of what we are looking
at as we announce this transaction. It's a very
consistent story to both CadMOS and Silicon Perspective
in out performing our merger cases as we planned them
going into the deal.
Dennis Wassung: Great. Thank you very much.
Operator: The next question comes from Bill Frerichs with DA
Davidson & Company. Please go ahead.
Bill Frerichs: Good afternoon Ray and Penny. I'm wondering with Penny
moving into marketing and Tality moving under her, what
the senior executive management lineup at Cadence is
going to be after these changes?
Ray Bingham: Bill, it's a very good question. First of all, I am
delighted that we're going to be able to bring Penny
and her very significant talent in the area of strategy
marketing and her experience in bringing what they have
accomplished with the SoC foundry work together with
the obvious capabilities of Tality together in one
place. In addition to that, there will be some moves on
my
5
senior team; Lavi obviously leads Dave DeMaria, who has
been responsible for marketing, so not responsible for
the services business that we're focusing under Penny's
leadership will have a very senior and significant
business responsibility. We won't be able to talk about
that today as we haven't announced it internally, but
look for us to be able to talk about that early next
week.
Bill Frerichs: OK, Ray. Thank you.
Operator: Jay Vleeschhouwer with Merrill Lynch, please go ahead
with your follow-up.
Jay Vleeschhouwer: Hi, Ray. Just a couple of quick follow-ups and actually
one for Penny first. Penny, what percentage of your
business currently goes into non Cadence accounts, if
you have any breakdown along those lines. And Bill
actually asked my question about the management. So my
final question is, depending, in your prepared remarks
you talked about the concept of bringing physical and
logical as it was defined a year and a half ago has now
since evolved. Does that mean that the conception of
SP&R or the terminology of SP&R needs to evolve as well
since you've suggested that a shift in thinking there
from what we were looking for any technology a year and
a half ago?
Penny Herscher: Thanks. So the percentage in non Cadence accounts
breaks down by -- if you look at the SoC verification
business which is the software business, it breaks down
by extraction analysis. So in the extraction business,
prior to the OEM agreement, the majority of our
business was in the Cadence installed base; maybe 80%
of our extraction revenue. And that's why the OEM at
the time made perfect sense. The analysis business is
split pretty evenly, 50/50, between the Cadence
environment and the Avant! environment. So we are very
delighted to be able to continue to service the Avant!
environment with our technology. We've always been very
passive about openness. We were the first EDA company
on open access. So we'll continue to integrate with the
Synopsys and Avant! environment on our analysis side as
much as with the Cadence environment.
Now with respect to my opinions on SP&R, I'm not going
to comment on Cadence's SP&R because that would be
inappropriate. I think that the merger of synthesis and
place and route is critical. The point I was trying to
make is that it's not enough; it's necessary but not
sufficient to solve the problem. So it was very
important to 0.18. But as we've been saying for a while
now, the world has been coming interconnect-centric,
and so what is needed now for 0.13-micron and for 0.1
and nanometers design is that you really think about
your entire flow in terms of what's happening in the
process and what's happening in the manufacturing of
the metal. So what we see is the opportunity to take
our leading technology and integrate it up and
6
down the Cadence flow so that Cadence customers get
absolutely the best process understanding during the
design of their Internet.
Jay Vleeschhouwer: OK. And Ray, if you could just go back to my question
in the first round about internal development at
Cadence, either over the last year or what you expect
materially over the next year.
Ray Bingham: You're asking, Jay, about not the road map, but Cadence
R&D programs not related to some of the acquisitions?
Jay Vleeschhouwer: Yes, exactly. You talked about the benefits of the
acquisitions, which is fine. I'm just trying to get a
sense of what some of the more compelling technologies
have been that you've developed or are working on that
you might come out with over the next year, let's say.
Ray Bingham: Sure. Jay, I'll confine my comments to the digital IC
space. Obviously, there's a great deal more that we
could talk about in the analog and signal space that it
becomes increasingly important as chips get larger and
geometry smaller and people are putting more and more
of that capability on to chips. But in the digital
space alone, I think that what we're building on with
these acquisitions is Cadence's poor digitalized
capability that builds around the placement route
capability of world routes and extensions of world
routes that with multi-processing 0.13-micron
capability and the integration of our existing IC core
or on to our existing IC core of these additional
capabilities from CadMOS, Silicon Perspective and now
Simplex.
Jay Vleeschhouwer: Thanks, Ray.
Operator: The next question comes from Andrew Gundlach with ING.
Please go ahead.
Andrew Gundlach: Good afternoon. A quick question on the Simplex
options. Do they convert to Cadence options, or do they
get turned into cash?
Ray Bingham: They're Cadence options.
Andrew Gundlach: And is there a lock-up on them, or are they immediately
exerciseable?
Ray Bingham: No, they're not immediately exerciseable. There's a
very large pool of unvested Simplex options that I
think provide a continuing incentive for Simplex in
place as they come across; and in addition, one of the
things that I think we've been very good about in
earlier acquisitions, and certainly in the Simplex
case, is to be sure that the Simplex employees, or any
employee that comes into Cadence from anywhere, is
appropriately incented with the combination of options
and cash related incentives that we think have been
pretty effective.
7
Andrew Gundlach: So they will keep their old vesting periods?
Ray Bingham: Yes, they will.
Andrew Gundlach: And is there any special compensation or management
guarantees either internally at Cadence or to the
people coming over as a result of the deal?
Ray Bingham: No. Every employee has a package of cash and option
incentive that is particular to their assignment, but
these are not deals as you might think about an
earn-out, for example.
Andrew Gundlach: Right, OK. Lastly, on the Mayfield Fund [sp], I don't
know if they still own 15% of Simplex, but are they
selling, are they locked up? Can you talk about some of
the larger shareholders?
Penny Herscher: Let me take that one. Mayfield notified us that they
were distributing back in November when our lock up
originally came up on October 29th. So obviously, the
distribution has gone out for the various limited
partners, but certainly there's a block.
Andrew Gundlach: So that's beyond your control?
Penny Herscher: That's beyond our control. And we don't have perfect
disability, but we think most of our major shareholders
on the private side contributed in the October/November
time frame.
Andrew Gundlach: OK. Thank you.
Ray Bingham: Rozette, if there are no other questions, let me bring
this to a close. I'd like to thank everyone for their
participation. I'd like to emphasize the very strong
view that we take as a team that this opportunity is
something that we believe has the kind of vision match
that makes this merger and this business combination
absolutely compelling. We think that this is being done
with the encouragement and with the customers in mind.
We think it's good for employees on both sides. We
think in particular this will allow the Simplex team to
continue in a very leveraged way to be able to drive
the initiatives that they have been working on for a
number of years. Thanks for your participation and
we'll bring this call to a close.
Operator: Ladies and gentlemen, that does conclude the conference
call for today. We thank you for your participation and
ask that you please disconnect your lines.
Additional Information about the Proposed Merger and Where to Find It
8
Cadence Design Systems, Inc. and Simplex Solutions, Inc. intend to file
with the Securities and Exchange Commission a registration statement, including
a proxy statement/prospectus, and other relevant materials in connection with
the proposed merger. The proxy statement/prospectus will be mailed to the
stockholders of Simplex. Investors and security holders of Simplex are urged to
read the proxy statement/prospectus and the other relevant materials when they
become available because they will contain important information about Cadence,
Simplex and the proposed merger. The proxy statement/prospectus and other
relevant materials (when they become available), and any other documents filed
by Cadence or Simplex with the Securities and Exchange Commission, may be
obtained free of charge at the Securities and Exchange Commission's web site at
www.sec.gov. In addition, investors and security holders may obtain free copies
of the documents filed with the Securities and Exchange Commission by Cadence by
contacting Cadence Investor Relations, 2655 Seely Avenue, Building 5, San Jose,
California 95134, (408) 943-1234. Investors and security holders may obtain free
copies of the documents filed with the Securities and Exchange Commission by
Simplex by contacting Simplex Investor Relations, 521 Almanor Avenue, Sunnyvale,
California 94085, (408) 617-6100. Investors and security holders are urged to
read the proxy statement/prospectus and the other relevant materials when they
become available before making any voting or investment decision with respect
to the proposed merger.
Simplex and its executive officers and directors may be deemed to be
participants in the solicitation of proxies from the stockholders of Simplex in
favor of the proposed merger. A description of the interests of the executive
officers and directors in Simplex is set forth in the proxy statement for
Simplex's 2002 Annual Meeting of Stockholders, which was filed with the
Securities and Exchange Commission on January 10, 2002. This document is
available free of charge at the Securities and Exchange Commission's web site at
www.sec.gov and from Simplex by directing a request to Simplex Investor
Relations, 521 Almanor Avenue, Sunnyvale, California 94085, (408) 617-6100.
Investors and security holders may obtain more detailed information regarding
the direct and indirect interests of the executive officers and directors in the
proposed merger by reading the proxy statement/prospectus when it becomes
available.
Cautionary Note Regarding Forward-Looking Statements
This transcript contains forward-looking statements within the meaning
of the federal securities laws, including, without limitation, statements
regarding the following: the proposed merger between Cadence and Simplex and the
strategies, benefits, opportunities and financial results relating to the
proposed merger; Cadence's and Simplex's businesses, competitors, employees and
revenues; strategies, beliefs and expectations regarding recent acquisitions;
Simplex's leadership team and technology team; beliefs and expectations
regarding customers; Simplex's stockholders; and beliefs, expectations and
intentions regarding products and technologies. These statements are subject
to risks and uncertainties that could cause actual results and events to
differ materially, including, without limitation, the following: the approval
of the proposed merger by Simplex's stockholders; the satisfaction of closing
conditions, including the receipt of regulatory approvals; the successful
integration of Simplex's employees and technologies; the rapid pace of
technological change in the electronics and semiconductor industries;
fluctuations in the demand for Cadence's and Simplex's products, services and
solutions; possible development or marketing delays relating to product
offerings; shifts in strategies due to changes in demand, action by competitors
or other factors and the introduction of new products by competitors or the
entry of new competitors into the
9
markets for Cadence's and Simplex's products. A detailed discussion of other
risks and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is included in Cadence's and
Simplex's most recent filings with the Securities and Exchange Commission.
Neither Cadence nor Simplex undertakes any obligation to update forward-looking
statements to reflect events or circumstances occurring after the date of this
transcript.
10