SAN JOSE, Calif.A class-action lawsuit filed in U.S. District Court here is charging Cadence Design Systems with making illegal payments to five former OrCAD executives. It's unknown whether the suit poses a serious threat to Cadence, but investors so far appear unconcerned.
The suit was filed by the law firm Milberg Weiss, with the involvement of William Lerach, an attorney well known for filing class-action suits against Silicon Valley high-tech companies. The lawsuit names Arnold Maxick, an OrCAD stockholder, as plaintiff, and demands a jury trial and "compensatory damages in an amount which may be proven in trial."
The lawsuit alleges that five OrCAD executives were given additional compensation of more than $1.5 million as an inducement to support Cadence's acquisition proposal. The suit charges that these payments violated the Securities Exchange act of 1934 as well as Securities and Exchange Commission (SEC) regulations, and resulted in the executives receiving over $5.35 per share more than other shareholders.
A Cadence spokesperson said the company will not comment until it has had a chance to review the case.
The allegations, however, are not new. Messages charging that Cadence made illegal payments to OrCAD executives have been periodically appearing on the quote.yahoo.com bulletin board for months, but the origin of the messages could not be traced, and the unidentified individual who posted the messages did not respond to inquiries.
Darren Robbins, attorney at Milberg Weiss, said the payments were disguised as retention or transition bonuses. In reality, he said, the recipients only had to commit to staying one day at Cadence after the closing of the acquisition.
"If they stayed for that one day, they would get hundreds of thousands of dollars. Now I suspect they're pretty valuable individuals, but I don't think they're worth several hundred thousand dollars a day," Robbins said.
Robbins said OrCAD shareholders are hurt in two ways. One is that the payments may have influenced OrCAD management's decision to accept Cadence's $13 per share offer, and the other is the diversion of $1.5 million that otherwise would have gone to public shareholders.
The OrCAD executives named in the lawsuit are Mike Bosworth, president and CEO; Jim Plymale, vice president; William Cibulsky, senior vice president; P. David Bundy, CFO; and Philip Kilcoin, vice president. Bosworth allegedly received $500,000, and the others $250,000.
The lawsuit states that negotiations between Cadence and OrCAD broke down in late May 1999, when the two companies could not agree on terms. It claims the payments induced OrCAD executives to accept the $121 million acquisition offer, which was announced in June 1999.
A press release issued by Milberg Weiss states that the firm is looking for a lead plaintiff. Robbins said the firm has 60 days to designate one.
John Barr, financial analyst at Needham and Co., was not impressed with the filing. "This was all quite adequately disclosed in the merger filings," he said. "The OrCAD shareholders I know where quite pleased about the Cadence takeover terms. I believe this is another case of the class-action lawyers searching for a case and hoping for a settlement. Milberg Weiss is usually the winner, not the shareholders."