What are the key terms of the new convertible notes?

Cadence issued $250 million of 1.375% Convertible Senior Notes due 2011 and $250 million of 1.500% Convertible Senior Notes due 2013. These notes mature on December 15, 2011, and December 15, 2013, respectively, and pay interest semiannually. They are convertible into Cadence common stock under specific conditions and may require Cadence to repurchase them upon a fundamental change.

How does Cadence plan to mitigate dilution from these convertible notes?

Cadence entered into convertible note hedge transactions, using approximately $120 million of the net proceeds from the note issuance. These hedges are designed to offset potential dilution that could arise if the company's stock price increases significantly, leading to note conversions.

What other significant financial activities occurred around this time?

Cadence also sold warrants to acquire its common stock and repurchased approximately 45% of its outstanding zero coupon convertible notes due 2023 for $228 million. These actions, along with the termination of related hedging and warrant transactions, were part of a broader financial restructuring.

CDNS 8-K: Financial Events & Securities & Listing

Q: Were these notes registered with the SEC?

No, the notes and the underlying common stock issuable upon conversion were not registered under the Securities Act of 1933. They were sold to qualified institutional buyers under Rule 144A. Cadence has agreed to use its best efforts to file a shelf registration statement for the resale of these securities within 270 days.

Summary

Cadence Design Systems, Inc. (CDNS) filed an 8-K on December 20, 2006, detailing significant financing activities. The company issued $500 million in aggregate principal amount of convertible senior notes, split between $250 million due in 2011 (1.375% interest) and $250 million due in 2013 (1.500% interest). These notes were sold to qualified institutional buyers under Rule 144A and are convertible into Cadence common stock under certain conditions. In conjunction with this issuance, Cadence entered into convertible note hedge transactions to mitigate potential dilution from the note conversions, utilizing approximately $120 million of the net proceeds.

Key Highlights

1Issued $500 million in aggregate principal amount of convertible senior notes (2011 and 2013 maturities) carrying low interest rates of 1.375% and 1.500% respectively.
2The notes were sold to qualified institutional buyers via Rule 144A, indicating a private placement to sophisticated investors.
3Notes are convertible into Cadence common stock, with provisions for make-whole premiums and mandatory repurchase upon a fundamental change.
4Entered into convertible note hedge transactions using $120 million of proceeds to offset potential dilution from note conversions.
5Also sold warrants to acquire common stock with an exercise price 75% higher than the stock price on December 13, 2006.
6Repurchased approximately 45% of its outstanding zero coupon senior convertible notes due 2023 for $228 million.
7Terminated related convertible note hedge transactions and certain 2003 warrant transactions as part of the financing and repurchase activities.

CADENCE DESIGN SYSTEMS INC 8-K Report, Financial Obligation (Dec 20, 2006)

Summary

Key Highlights

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