IKOS Board Concludes That Mentor Proposal Would Result in Transaction More Favorable to IKOS Stockholders Than Synopsys Merger
-- IKOS Board Will Not Send Notice Seeking Termination of Synopsys Merger Agreement In View of Conditions in Mentor Proposal --
SAN JOSE, Calif.--(BUSINESS WIRE)--Jan. 22, 2002--
IKOS Systems, Inc. (Nasdaq:IKOS - news) today announced that its Board of
Directors has unanimously determined in good faith that the proposal
of Mentor Graphics Corporation (Nasdaq:MENT - news) submitted to IKOS by
correspondence from Mentor's outside counsel dated January 16, 2002,
would result in a transaction more favorable to IKOS stockholders than
the merger under the merger agreement with Synopsys, Inc.
(Nasdaq:SNPS - news). The Board has communicated this determination to
Synopsys as required under the Synopsys merger agreement. Despite this
determination, the IKOS Board unanimously concluded that it was not in
the best interests of IKOS stockholders to send a notice to terminate
the Synopsys merger agreement in favor of the Mentor proposal. The
IKOS Board reached this conclusion because of the continued
significant risk of nonconsummation in the Mentor proposal as a result
of conditions to the closing of the tender offer and the follow-on
merger, and the fact that the Mentor proposal contemplates that IKOS
will bear the risk of the $5.5 million termination fee in the event of
nonconsummation of the Mentor transaction. The IKOS Board reaffirmed
its recommendations that the IKOS stockholders reject the pending
unsolicited cash tender offer commenced by Mentor on December 7, 2001,
and that the IKOS stockholders not tender their shares in the Mentor
tender offer.
The IKOS Board has submitted a nondisclosure agreement to Mentor
Graphics for its execution, so that negotiations can commence on the
Mentor proposal in compliance with the Synopsys merger agreement. IKOS
will continue to comply with its obligations under the Synopsys merger
agreement. A summary of the IKOS Board's determinations and the
reasons for those determinations is contained in an amended Schedule
14D-9 filed today with the Securities and Exchange Commission and
attached to this press release.
IKOS Systems, Inc. (Nasdaq:IKOS - news) is a technology leader in
high-performance, hardware assisted design verification. IKOS' mission
is to develop and deliver high-performance solutions that enable its
customers to verify the functional correctness of their complex
electronic system designs. IKOS has direct sales operations in North
America, the U.K., France, Germany, The Netherlands, Japan, and India,
and a distribution network throughout Asia-Pacific. The corporate
headquarters is located at 79 Great Oaks Blvd., San Jose, Calif.,
95119, 408/284-0400. For more information, visit
http://www.ikos.com.
Forward-looking statements in this release relating to the Mentor
proposal, the Synopsys merger, and management's revenue plan are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
forward-looking statements involve risks and uncertainties, including,
without limitation, risks of litigation, current economic conditions,
continued acceptance and development of the company's existing and new
products, increased levels of competition for the company, new
products and technological changes, the company's ability to retain
its skilled workforce, the company's dependence upon third-party
suppliers, controlling product costs, customer demand for the
company's products and maintenance services, intellectual property
rights, achievement of cost controls, risks relating to compliance
with the operating covenants in connection with the merger agreement
with Synopsys, the potential distraction of management relating to the
pending cash tender offer commenced by Mentor Graphics Corporation and
other risks detailed from time-to-time in the company's periodic
reports filed with the Securities and Exchange Commission.
Additional Information: IKOS has filed a Schedule 14D-9 and
amendments thereto with the Securities and Exchange Commission ("SEC")
relating to the cash tender offer commenced by Mentor Graphics
Corporation on December 7, 2001 to acquire all outstanding shares of
IKOS common stock. These documents contain important information about
IKOS, the Mentor tender offer, the IKOS Board's determinations
regarding the tender offer, and related matters. Investors and
security holders are urged to read the Schedule 14D-9 and its
amendments when available. Investors are able to obtain free copies of
these documents through the website maintained by the SEC at
http://www.sec.gov.
In connection with the proposed merger, Synopsys, Inc. filed a
Registration Statement on Form S-4 (including a Proxy
Statement/Prospectus) and IKOS filed a Preliminary Proxy Statement on
Aug. 9, 2001, and an Amendment No. 1 to the Registration Statement on
Form S-4 and Proxy Statement/Prospectus was filed on Oct. 18, 2001
(Registration No. 333-67184), each containing information about the
proposed merger, with the Securities and Exchange Commission ("SEC").
At such time the SEC declares the Form S-4 Registration Statement
(including the Proxy Statement/Prospectus) to be effective, IKOS will
mail the Proxy Statement/Prospectus to IKOS stockholders. Investors
and security holders are urged to read the Registration Statement and
the Proxy Statement/Prospectus carefully when each document becomes
available. The Registration Statement and the Proxy
Statement/Prospectus contain important information about Synopsys,
IKOS, the proposed merger and related matters. Investors and security
holders will be able to obtain free copies of these documents through
the web site maintained by the SEC at http://www.sec.gov.
Free copies of the Registration Statement, Proxy
Statement/Prospectus and Synopsys' other filings may also be obtained
by accessing Synopsys' web site at http://www.synopsys.com or by
directing a request by mail or telephone to Synopsys, Inc., 700 East
Middlefield Rd., Mountain View, Calif. 94043, 650/584-5000. Free
copies of the Proxy Statement/Prospectus and IKOS' other filings may
also be obtained by accessing IKOS' web site at http://www.ikos.com or
by directing a request by mail or telephone to IKOS Systems, Inc., 79
Great Oaks Blvd., San Jose, Calif. 95119, 408/284-0400.
You may read and copy any reports, statements and other
information filed by Synopsys and IKOS at the SEC public reference
rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the
Commission's other public reference rooms in New York, N.Y. and
Chicago, Ill. Please call the Commission at 1-800-SEC-0330 for further
information on public reference rooms. Synopsys' and IKOS' filings
with the Commission are also available to the public from commercial
document-retrieval services and the web site maintained by the
Commission at http://www.sec.gov.
Synopsys and its directors and executive officers may be deemed to
be participants in the solicitation of proxies from IKOS stockholders
by IKOS and its Board of Directors in favor of the adoption and
approval of the merger agreement and approval of the merger.
IKOS and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from IKOS stockholders in
favor of the adoption and approval of the merger agreement and
approval of the merger. Investors and securities holders may obtain
additional information regarding the interests of the participants
from IKOS' filings with the SEC under Rule 14a-12 of the Exchange Act
of 1934, as amended.
-0-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
AMENDMENT NO. 6
TO
SCHEDULE 14D-9
Solicitation/Recommendation Statement under Section 14(d)(4)
of the Securities Exchange Act of 1934
IKOS SYSTEMS, INC.
(Name of Subject Company)
IKOS SYSTEMS, INC.
(Names of Persons Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
451716203
(CUSIP Number of Class of Securities)
Joseph W. Rockom
Chief Financial Officer and Secretary
IKOS Systems, Inc.
79 Great Oaks Boulevard
San Jose, California 95119
408/284-0400
(Name, address, and telephone numbers of person authorized to
receive notices and communications on behalf of the persons filing
statement)
With copies to:
Diane Holt Frankle, Esq.
P. James Schumacher, Esq.
Gray Cary Ware & Freidenrich, LLP
400 Hamilton Avenue
Palo Alto, California 94301
650/833-2000
-----------
__ Check the box if filing relates solely to preliminary
communications made before the commencement of a tender offer.
This Amendment No. 6 (the "Amendment") amends and supplements
the Schedule 14D-9 filed with the Securities and Exchange
Commission (the "SEC") on December 20, 2001, as amended on
December 21, 2001, December 26, 2001, December 28, 2001,
January 9, 2002 and January 17, 2002 by IKOS Systems, Inc., a
Delaware corporation ("IKOS" or the "Company"), relating to
the tender offer by Fresno Corporation, a Delaware corporation
("Purchaser") and a wholly-owned subsidiary of Mentor Graphics
Corporation, an Oregon corporation ("Mentor") to purchase all
of the issued and outstanding shares of IKOS common stock, par
value $0.01 per share (the "Shares"), at a purchase price of
$11.00 per Share, net to the seller in cash, subject to the
conditions described in the Schedule 14D-9. Unless otherwise
defined herein, all capitalized terms used herein shall have
the meanings given to such terms in the Schedule 14D-9.
Item 4. The Solicitation or Recommendation The subsection of this
Item entitled Background is hereby amended to add, at the end of such
subsection, the following:
At a special meeting of the IKOS Board of Directors on January 21,
2002, the IKOS Board reviewed the January 16, 2002 correspondence from
Mentor's outside counsel and the terms and conditions of the merger
agreement proffered in executed form by Mentor pursuant to that
correspondence (the "Mentor Proposal"). The IKOS Board received advice
from Gray Cary on its fiduciary duties regarding the Mentor proposal
and IKOS' contractual rights and obligations under the Synopsys merger
agreement, including IKOS' right to engage in discussions and
negotiate with regard to a superior proposal (as defined in the
Synopsys merger agreement) and IKOS' right to terminate in favor of a
proposal "constituting a Superior Proposal." The IKOS Board took note
that the Mentor Proposal was irrevocable until January 31, 2002.
Needham & Company presented to the IKOS Board financial analyses
comparing the terms of the Mentor Proposal to the Merger from a
financial point of view; these analyses did not differ in any material
respect from the financial analyses presented on December 12, 2001 as
the financial terms of the Mentor Proposal were identical to the Offer
and the terms of the Synopsys merger had remained unchanged. The IKOS
Board considered the advice of management regarding the Company's
business and prospects and the risks attendant to the management
revenue plan and determined that the outlook for the revenue plan was
more conservative than on December 12, 2001, in light of recent
announcements of potential customers indicating no improvement in
their outlook in the near term; the IKOS Board concluded that there
continued to be significant risks associated with management's revenue
plan. The IKOS Board recognized that the consideration paid under the
Synopsys merger agreement was tied to IKOS' performance under the
revenue plan, with the associated risks, which compared unfavorably to
the fixed consideration of $11.00 cash provided by the Mentor
Proposal. Statements regarding the management revenue plan and IKOS'
expected performance under that plan are forward looking statements
and involve risks and uncertainties, including without limitation,
current economic conditions, continued acceptance and development of
IKOS' existing and new products, increased levels of competition,
technological changes, IKOS' ability to retain its skilled workforce,
customer demand, the potential distraction of management relating to
the pending cash tender offer commenced by Mentor and other risks
detailed from time-to-time in IKOS' periodic reports filed with the
SEC.
The IKOS Board then reviewed the conditions in the Mentor
Proposal, noting that the closing of the tender offer was no longer
conditioned on IKOS' not paying the termination fee to Synopsys, which
removed the condition that IKOS had been unable to satisfy. The IKOS
Board noted, however, that although a few other conditions to the
Mentor Offer were eliminated in the Mentor Proposal, the Mentor
Proposal contained significant conditions which were unusual for a
negotiated acquisition agreement, and which created a very high risk
of nonconsummation. In particular, the IKOS Board noted that the
closing of the tender offer was conditioned on there being no
litigation threatened or pending by any person, foreign or domestic,
challenging or seeking to make the transaction illegal or seeking to
restrain the making or consummation of the tender offer, challenging
or seeking to or reasonably likely to impose voting, procedural price
or other requirements on the tender offer or merger, or seeking
material damages in connection with the tender offer, or imposing
limitations in Mentor's ownership rights or "which in the reasonable
discretion of [Mentor], might result in a diminution of the value of
the Shares or the benefits expected to be derived by Parent as a
result of the" tender offer or the merger agreement. The IKOS Board
recognized that plaintiff stockholder litigation was likely, in light
of the litigation pending currently, and that a lawsuit by Synopsys,
even if without merit, was possible. The IKOS Board took note that
these lawsuits would cause the "no litigation" condition in the tender
offer to fail, even though Mentor would not be unduly harmed. The IKOS
Board recognized that negotiated merger agreements rarely contained a
"no litigation" condition extending to either threatened litigation or
litigation brought by persons other than governmental authorities, or
to litigation which "might" or "could reasonably be expected to"
result in adverse effects, due to the highly conditional nature of
such provisions, and the fact that in a negotiated acquisition the
seller would be unwilling to accept the high risk of nonconsummation
from such a condition.
The IKOS Board also took note of the condition to the tender offer
relating to extension of credit, which seemed to have no relationship
to Mentor's ability to consummate the tender offer, and particularly
the condition relating to market decline, which conditioned the
transaction on there being no drop in any of three trading markets
during the period the Offer had been pending (i.e. since December 7,
2001) of more than 10%. The IKOS Board viewed the market decline
condition as a proxy for one of the few conditions Mentor had
eliminated (no armed hostilities or other calamities) and noted the
condition could easily be triggered by the effect on the market of a
war, other armed conflict, natural disaster or simply high volatility
in the market typical in the current troubled economic environment,
and that it was particularly risky given the lengthy measurement
period from December 7, 2001. The IKOS Board recognized that
negotiated acquisition agreements rarely had a market decline
condition due to the increased risk of nonconsummation which was
unacceptable to the seller.
Moreover, the IKOS Board considered the "truth of representation"
condition to the tender offer which, unlike the Synopsys condition,
was not measured only at closing, but instead was measured at any
point in time during the tender period. The IKOS Board recognized that
this condition in the Mentor Proposal presented more risk than the
similar condition in the Synopsys proposal. The IKOS Board also
reviewed the minimum condition, which required stockholders to tender
at least a majority of outstanding Shares (when added to those shares
owned by Mentor) on a fully diluted basis and noted that Mentor had
deleted the definition of "fully diluted," making it unnecessarily
difficult to determine if the condition had been satisfied. The IKOS
Board also reviewed the conditions to the merger, only applicable
after Mentor would have purchased more than a majority of the
outstanding shares of IKOS, and noted that Mentor had conditioned the
closing of the merger on the truth of representations and receipt of
third party consents other than consents of governmental agencies,
even though Mentor would own a majority of the IKOS outstanding shares
at the time of the closing. The IKOS Board viewed this condition as
creating a risk that stockholders who failed to tender would be
stranded, and caused the Mentor Proposal to have a potential coercive
effect.
The IKOS Board also took note that although under the Mentor
Proposal, Mentor was assuming that IKOS would pay Synopsys the $5.5
million termination fee due under the Synopsys merger agreement,
Mentor had not, as is typical in a proposal by a competing bidder,
offered to reimburse IKOS for such payment following IKOS' execution
of the merger agreement. The IKOS Board understood that Mentor had
left IKOS at risk for the $5.5 million payment if the Mentor
transaction was not consummated, and the concluded that the risk to
IKOS as to the payment of the fee was particularly acute due to the
highly conditional nature of the Mentor Proposal.
The IKOS Board concluded that if IKOS signed the agreement "as
is," there would be a significant risk of nonconsummation. The IKOS
Board took note that if IKOS terminated the Synopsys merger agreement
and executed the Mentor agreement, and if one of the conditions to the
Mentor transaction were not satisfied, Mentor could walk away from the
transaction, leaving IKOS out the $5.5 million termination fee, or
instead force IKOS to accept reduced consideration for IKOS
stockholders. The IKOS Board took note of the much shorter time during
which the conditions to the Mentor Proposal were likely applicable,
which could be as short as ten business days after execution of the
agreement, but which the IKOS Board believed would not likely be
longer than 30 business days after such execution (although a
provision in the merger agreement extended the offer through September
14, 2002 if conditions were not satisfied). The IKOS Board took note
of the period the conditions in the Synopsys merger agreement were
applicable, which was until a closing estimated for August or
September 2002. The IKOS Board also took note of the Synopsys merger
agreement's financial performance condition and the employee retention
condition, which provided significant risk of nonconsummation for the
Synopsys merger, given the uncertain economy and the potential for
employee turnover during a lengthy preclosing period. The IKOS Board
concluded that, given the risks associated with the management's
revenue plan, the fact that the Mentor transaction offered $11.00 per
share in cash regardless of IKOS' financial performance, the
significantly shorter time to close the Mentor Proposal, and the fact
that the IKOS Board believed in good faith, based on the terms of
other negotiated acquisition agreements, that the conditions in the
Mentor Proposal creating significant risk of nonconsummation would
likely be able to be negotiated out of the merger agreement and that
Mentor would likely be willing to reimburse IKOS for the $5.5 million
breakup fee, given the fact that typically acquirors do reimburse the
target for such fees, that the Mentor Proposal would result in a
transaction more favorable to the IKOS stockholders than the Synopsys
merger agreement under Section 5.2 of the Synopsys merger agreement.
Nevertheless, the IKOS Board concluded that it was not in the best
interests of the IKOS stockholders to terminate the Synopsys merger
agreement in favor of the Mentor Proposal, as it was presented by the
letter dated January 16, 2002, in light of the continued significant
risk of nonconsummation inherent in the Mentor Proposal and the fact
that the Mentor Proposal caused IKOS to bear the risk of the $5.5
million termination fee in the event of non-consummation of the Mentor
transaction.
The IKOS Board recognized that Section 5.2 and Section 8.1(g) of
the Synopsys merger agreement contemplated that a proposal the IKOS
Board believed in good faith would result in a transaction more
favorable to the IKOS stockholders would involve negotiation between
the competing bidder and IKOS prior to it being reasonable for IKOS to
request a termination of the Synopsys merger agreement. The IKOS Board
recognized that such negotiation could not take place in compliance
with the no-shop covenant under the Synopsys merger agreement unless
Mentor executed a nondisclosure agreement with terms at least as
restrictive as those in the agreement between Synopsys and IKOS. The
IKOS Board believed that if Mentor were to execute such a
nondisclosure agreement, the issues relating to the conditionality of
the deal could be resolved. The IKOS Board recognized that Mentor had
been unwilling to execute such an agreement and the Mentor was
potentially concerned that the IKOS Board might not consider a Mentor
proposal. The IKOS Board believed, however that the IKOS Board is
required to consider any proposal that would result in a transaction
more favorable to IKOS stockholders in order to comply with its
fiduciary duties, and that the Synopsys merger agreement by its terms
permitted the IKOS Board to comply with those duties.
Accordingly, the IKOS Board unanimously concluded that the Mentor
Proposal would result in a Superior Proposal, and authorized and
directed Gray Cary to communicate this determination to Synopsys in
compliance with the Synopsys merger agreement. The IKOS Board also
unanimously authorized and directed Gray Cary to deliver again to
Mentor's outside counsel the form of nondisclosure agreement identical
to that in place with Synopsys in order to permit negotiations to
proceed on the Mentor Proposal. The IKOS Board unanimously concluded
that it was not in the best interest of the stockholders to send
notice to Synopsys under Section 8.1(g) seeking to terminate the
Synopsys merger agreement in favor of the Mentor Proposal, in light of
the continued significant risk of nonconsummation in the Mentor
Proposal. Accordingly, the IKOS Board unanimously reaffirmed its
recommendations that the IKOS stockholders reject the pending
unsolicited cash tender offer commenced by Mentor on December 7, 2001,
and that the IKOS stockholders not tender their shares in the Mentor
tender offer for the reasons stated in "--Reasons for IKOS Board
Recommendation." Finally, the IKOS Board considered a request made by
Synopsys' outside counsel, on behalf of Synopsys, by letter dated
December 19, 2001, that the IKOS Board reconsider its determinations
with respect to the Mentor tender offer. For the reasons stated in
"--Reasons for IKOS Board Recommendation," the IKOS Board declined to
reconsider the determinations it previously made with respect to the
Mentor tender offer. Item 9. Exhibits Amended to add the following:
(a)(5)(Q) Press release issued by IKOS dated January 22, 2002
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.
IKOS Systems, Inc.
By:
/S/JOSEPH W. ROCKOM
Joseph W. Rockom
Chief Financial Officer and Secretary
Dated January 22, 2002
Contact:
IKOS Systems, Inc., San Jose
Joe Rockom, 408/284-8514 (CFO)
joe@ikos.com
