Aart de Geus, Synopsys' chief executive officer, said Monday (Dec. 3) in a conference call with analysts about Synopsys' acquisition of Avanti that he had spoken with Bingham, and many assumed he was referring to conversations about settling the law suit. "We agreed to not talk what we talked about," de Geus said later to clarify his conference call comments. "No one should characterize what we talked about. It is not constructive."

Bingham denied that he had a conversation about a settlement of the Avanti suit with de Geus. "Aart called me a few minutes before the announcement went down and expressed a desire to open settlement discussions," said Bingham. "I said I will look at the filings and look at what you have done and you know where I am."

Bingham said that Cadence plans to fully pursue its civil case against Avanti and will pursue damages in excess of $1 billion, not including punitive damages. "This amount is only for the tools we already know contain our IP," said Bingham. "We have really only just started discovery on the follow-on products. The crimes Avanti committed represent a huge cost to us as well as the rest of the industry."

Hsu issues

Bingham noted that the discovery process was paused a couple of years ago pending the resolution of the criminal case against Avanti and its executives. Bingham said the civil case was now on hold while the superior court awaits a clarification from the California supreme court on its interpretation of a liability release that Gerald Hsu, Avanti's former president and chief executive officer, had signed with Cadence when he left it in the early '90s to lead Avanti, then called ArcSys.

Bingham pointed out that Synopsys paid an incredibly high premium for a $500 million insurance policy to cover litigation expenses, which he said indicates the civil case would be very hard to defend.

"There is a side of me that is very disappointed that a company like Synopsys would take on the risks and get involved with what we believe is seriously tainted IP," said Bingham. "On top of that I'm disappointed that they felt so compelled to do it they are going to pay Gerry Hsu something like $40 million." Hsu could receive that amount based on a 'golden parachute' agreement he signed with Avanti plus his holdings in Avanti and related companies.

Hsu will likely receive an additional $6.5 million on top of the $40 million golden parachute. In an 8-K form filed with the Securities and Exchange Commission this week, Avanti said it will purchase the outstanding shares of its Japanese distributor, Maingate Electronics Inc., for $13 million to $14 million. Avanti owns 18.8 percent of Maingate, and Hsu owns 50 percent.

In one sense, the $6.5 million Hsu will receive for his holdings in Maingate is a concession. According to a 10-K statement that Avanti filed with the SEC last month, Avanti's board had approved a multiyear contract with Maingate and agreed to pay $117 million to Maingate if that agreement was severed. Hsu would have received roughly half of that payment. This week's 8-K filing says that Avanti's contract with Maingate, and its contracts with other distributors, has been modified and removed.

De Geus said he had been unaware of Hsu's golden parachute clause, which Avanti's board set up weeks before Synopsys announced its acquisition of Avanti. Synopsys had no say in the matter, de Geus said. "It's an issue between Avanti and its principals," he said. "It was none of our business."

Bingham said that such deals, especially this one, are fraught with pitfalls. "Customers and the FTC Federal Trade Commission will and should ask questions about this," he said.

Bingham predicts that Synopsys and Avanti will also have difficulty merging their different corporate cultures. "On paper it sounds like this will allow Synopsys to follow our lead as a broader supplier, but it will definitely take them a while to get there," he said.

During this transition time, Bingham said that Cadence does not plan to stand still. Cadence is already growing at a greater clip than Synopsys in the face of slumping semiconductor market, when customers are shortening their lists of tool suppliers, Bingham said.

"It also validates our market and the trend that for these advanced technologies customers want to partner with large suppliers," he said.

Sizing up the suits

The planned acquisition will require FTC and shareholder approval. Shareholders will weigh the financial risks of Synopsys assuming the Cadence civil lawsuit, and of other company and shareholder lawsuits.

Silicon Valley Research Inc. (SVR) is suing Avanti in a follow-on suit to the criminal action against Avanti, claiming it lost its number-two position in the place and route market in 1991 because Avanti had developed a competing technology with stolen code. SVR has not yet stated the amount of damages it seeks, but speculation holds that it will use the same counterargument Avanti employed in a June restitution hearing with Cadence, in which case SVR will seek from $60 million to $180 million. SVR's suit is slated to begin Dec. 14.

Sequence Design Inc. is also suing Avanti, claiming Avanti's Star-RCXT product violates a 1999 Sequence patent on extraction of parasitic impedance).

Two shareholder suits have also been filed against Avanti's board of directors for agreeing to pay the criminal fines and legal fees of Avanti's executives. One was filed in Alameda County, Calif., and the other in Delaware.

The company's board also faces a suit from shareholders for "breach of duty of loyalty and corporate waste" directly related to items revealed in a business journal, an Avanti spokesman said. The journal's article alleges that Hsu and Avanti's board gave exorbitant payments and contract terms to Hsu, Hsu's son John, and Noriko Ando, a former flight attendant turned Avanti executive.