<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1997
REGISTRATION NO. 333-22913
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ASPEC TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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DELAWARE 7372 77-0298386
(STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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830 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 774-2199
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CONRAD J. DELL'OCA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ASPEC TECHNOLOGY, INC.
830 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 774-2199
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
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JEFFREY D. SAPER, ESQ. JORGE A. DEL CALVO, ESQ.
J. ROBERT SUFFOLETTA, ESQ. KATHARINE A. MARTIN, ESQ.
WILSON SONSINI GOODRICH & ROSATI PILLSBURY MADISON & SUTRO LLP
PROFESSIONAL CORPORATION 2700 SAND HILL ROAD
650 PAGE MILL ROAD MENLO PARK, CALIFORNIA 94025
PALO ALTO, CALIFORNIA 94304-1050 (415) 233-4500
(415) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
MAY 14, 1997
4,000,000 SHARES
LOGO
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by Aspec
Technology, Inc. ("Aspec" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $8.00 and
$10.00 per share. See "Underwriting" for a discussion of factors to be
considered in determining the initial public offering price. The Company has
applied to have its Common Stock approved for quotation on the Nasdaq National
Market under the symbol "ASPC."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Per Share........................ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
==================================================================================================
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses of the offering estimated at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
600,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, total Underwriting Discounts
and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[A GRAPHICAL DIAGRAM APPEARS HERE THAT DEPICTS THE STEPS IN THE IC MANUFACTURING
PROCESS AND HOW EDA TOOLS AND DIT INTERACT WITH SUCH PROCESS.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
ASPEC TECHNOLOGY(R) is a registered trademark of the Company. This
Prospectus includes other trade names and trademarks of the Company and of other
companies.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such forward-
looking statements. Factors that may cause such a difference include, but are
not limited to, those discussed in "Risk Factors."
THE COMPANY
Aspec is a leading independent provider of commercially available design
implementation technology ("DIT") solutions for integrated circuit ("IC")
design. DIT consists of libraries of electrical circuits, often called cell
libraries, based on proprietary architectures, and a design methodology, which
together enable IC designers to implement the physical design of an IC in
silicon. Aspec's DIT supports many leading electronic design automation ("EDA")
tools and advanced process technologies at leading semiconductor foundries.
Aspec's DIT is designed to: (i) facilitate the rapid design of complex,
high-performance ICs in advanced process technologies, (ii) provide an
integrated design solution that increases productivity, (iii) preserve existing
EDA investments and (iv) allow customers to access multiple foundries for cost
control and alternate sourcing. Aspec's DIT provides designers with quick access
to accurate and complete cell libraries at a lower cost than developing an
equivalent internal solution. Aspec's DIT includes its AdverPro design
verification software which enables EDA tools to exchange data while maintaining
design intent, provides an accurate timing function across EDA tools and helps
to ensure compliance with proper design procedures.
IC designers utilize various methods to meet their DIT requirements.
Application specific integrated circuit ("ASIC") vendors and IC companies
typically rely on internally developed DIT solutions while electronic systems
manufacturers such as PC companies rely on ASIC companies for their DIT.
However, it is becoming increasingly difficult for these methods to meet the
challenges of increased design complexity and increased time-to-market pressures
which confront IC designers. ASIC vendors and IC companies are also finding it
increasingly impracticable, costly and time consuming to develop and maintain
their own proprietary DIT. In addition, ASIC vendors and IC companies find it
increasingly difficult to allocate sufficient resources to DIT as more and more
resources are required for complex semiconductor design. Electronic systems
manufacturers are finding it desirable to control the intellectual property
content of their design in order to more rapidly adopt new process technologies
and effectively integrate the various steps in their design flows and,
consequently, to decrease the time-to-market for their products. Thus, these
companies are increasingly seeking a third-party solution to their DIT
requirements.
The Company's strategy is to expand its position as a leading independent
provider of commercial DIT solutions for the semiconductor industry. As part of
this strategy, the Company intends to establish its DIT as an industry standard
by providing an open solution that supports many leading EDA tools and process
technologies at leading semiconductor foundries. Aspec is rapidly developing new
versions of its products to support the most advanced EDA tools and emerging
deep submicron process technologies. To broaden its customer base, the Company
is targeting companies that are currently relying on internal resources or ASIC
vendors for their DIT requirements. Another key element of Aspec's strategy is
to cultivate long-term relationships with its customers, leading semiconductor
foundries and EDA tool companies. Aspec believes that relationships with key
industry participants will enhance its ability to establish its DIT as an
industry standard.
Aspec's suite of DIT products includes electrical circuit libraries, memory
compilers and AdverPro. The Company's products, which run on UNIX workstations
and Windows NT-based PCs, support over 30 industry standard EDA tools, including
those produced by Avant!, Cadence, Epic, Mentor, Synopsys and Viewlogic. The
Company sells its products through a direct sales force in North America, Japan
and Korea. In other parts of Asia and Europe, the Company markets its products
primarily through a limited number of independent representatives and
distributors. By supporting many of the world's leading semiconductor foundries
and IC manufacturers, the Company offers its customers a wide variety of
manufacturing sources. The Company's customers include Cadence, Compaq, IDT,
Samsung, Sanyo and Winbond.
Aspec Technology, Inc. was incorporated in California in December 1991 and
reincorporated in Delaware in May 1997. The Company's executive offices are
located at 830 East Arques Avenue, Sunnyvale, CA 94086, and its telephone number
is (408) 774-2199.
3
<PAGE> 5
THE OFFERING
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Common Stock offered hereby....................... 4,000,000 shares
Common Stock to be outstanding after the
offering........................................ 26,720,234 shares(1)
Use of proceeds................................... For redemption of Series A Redeemable Preferred
Stock and for working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............ ASPC
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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THREE MONTHS ENDED
YEARS ENDED NOVEMBER 30, ---------------------------
---------------------------------------------- FEBRUARY 29, FEBRUARY 28,
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................... $ -- $ 3,689 $ 4,659 $ 6,640 $15,265 $2,518 $5,678
Costs and expenses:
Cost of revenue.......... 233 1,320 1,553 2,307 4,702 784 1,650
Research and
development............ 42 230 289 445 921 227 298
Sales and marketing...... 94 196 624 1,387 3,526 577 1,514
General and
administrative......... 512 545 827 1,093 1,994 472 396
Total costs and
expenses.......... 881 2,291 3,293 5,232 11,143 2,060 3,858
Income (loss) from
operations............... (881) 1,398 1,366 1,408 4,122 458 1,820
Other income, net.......... 7 17 17 56 310 21 89
Income (loss) before income
taxes.................... (874) 1,415 1,383 1,464 4,432 479 1,909
Provision for income
taxes.................... -- 566 553 585 1,815 197 764
Net income (loss).......... (874) 849 830 879 2,617 282 1,145
Accretion of redeemable
preferred stock(2)....... -- -- -- -- 392 -- 202
Income (loss) attributable
to common stockholders... $ (874) $ 849 $ 830 $ 879 $ 2,225 $ 282 $ 943
Net income (loss) per
share(3)................. $(0.06) $ 0.03 $ 0.03 $ 0.03 $ 0.09 $ 0.01 $ 0.04
Shares used in per share
computation(3)........... 14,215 24,439 25,534 26,234 25,834 26,731 23,157
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FEBRUARY 28, 1997
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ACTUAL AS ADJUSTED(4)
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BALANCE SHEET DATA:
Cash and equivalents....................................................... $ 4,469 $ 18,554
Working capital............................................................ 4,600 18,685
Total assets............................................................... 12,849 26,934
Redeemable preferred stock................................................. 13,547 --
Redeemable common stock.................................................... 7,116 --
Total stockholders' equity (deficiency).................................... (12,993) 21,755
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- ---------------
(1) Excludes outstanding options to purchase 1,142,100 shares of Common Stock at
February 28, 1997 at a weighted average exercise price of $6.01 per share.
See "Management -- Compensation Plans" and Note 7 of Notes to Financial
Statements.
(2) See Note 6 of Notes to Financial Statements for an explanation of the
determination of the accretion amount.
(3) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine net income (loss) per share and the number of shares used
to compute per share amounts.
(4) Adjusted to reflect the sale by the Company of the 4,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$9.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses, and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
------------------------
Except as otherwise specified, all information in this Prospectus assumes
(i) a two-for-one split of the outstanding shares of Common Stock to be effected
prior to the date of this Prospectus, (ii) the redemption of all outstanding
shares of the Company's Series A Redeemable Preferred Stock from the proceeds of
the offering and (iii) no exercise of the Underwriters' over-allotment option.
4
<PAGE> 6
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed below.
Fluctuations in Future Operating Results; Dependence Upon Timely Project
Completion. The Company's operating results have fluctuated in the past and are
expected to fluctuate significantly from quarter to quarter and on an annual
basis in the future as a result of a number of factors including the size and
timing of customer orders; the Company's ability to achieve progress on
percentage of completion contracts; the length of the Company's sales cycle; the
timing of new product announcements and introductions by the Company and its
existing or future competitors; the Company's ability to develop, introduce and
market new products and product enhancements; market acceptance of the Company's
products; and general economic conditions. The Company's future operating
results are expected to fluctuate as a result of these and other factors, which
could have a material adverse effect on the Company's business, operating
results and financial condition. It is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely decline, perhaps substantially.
A substantial majority of the Company's revenue is recognized on a
percentage of completion method based upon actual costs incurred. The completion
period typically ranges from three months to a year. Accordingly, revenue in any
quarter is dependent on progress towards completion of the project by the
Company. The Company has in the past experienced delays in the progress of
certain projects and there can be no assurance that such delays will not occur
with respect to future projects. Any delay or failure to achieve such progress
could result in damage to customer relationships and the Company's reputation,
diversion of engineering resources or a delay in the market acceptance of the
Company's products, any of which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
these contracts may generally be cancelled without cause, and if a customer
cancels or delays performance under any such contracts, the Company's business,
operating results and financial condition could be materially adversely
affected. A customer's license of the Company's products generally involves a
significant commitment of capital with the attendant delays frequently
associated with authorization procedures for substantial capital expenditures
within customer organizations. The Company plans to increase its operating
expenses in order to enhance certain of its existing products and to develop
additional cell libraries for emerging design processes. The Company also plans
to increase its sales and marketing expenses in an attempt to broaden its
customer base. These expenses will be based in part on the Company's
expectations of future revenue from product licenses. Accordingly, if the
Company does not realize its expected revenues, its business, operating results
and financial condition could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Market Acceptance of Commercial DIT. The Company has promoted the adoption
of commercial DIT which, to date, has been accepted by only a limited number of
customers. The vast majority of the Company's potential customers currently rely
on one or more DITs which were developed internally or by ASIC vendors. The
Company's future growth, if any, will depend upon the extent to which the
Company's current and potential customers choose to implement commercial DIT
solutions in general and the Company's commercial DIT solution in particular.
The failure of the Company's DIT to achieve market acceptance would result in a
material adverse effect on the Company's business, operating results and
financial condition. Substantially all of the Company's revenues in fiscal 1993,
1994 and 1995 were derived from vertically integrated semiconductor companies
that licensed the Company's DIT so that they could enter the merchant ASIC
market.
5
<PAGE> 7
Commencing in fiscal 1996, the Company began to generate meaningful revenue from
licensing its products to fabless semiconductor companies and electronic systems
manufacturers. If the Company is not able to generate substantial revenue from
the licensing of its products to such companies, its business, operating results
and financial condition would be materially adversely affected.
Customer Concentration. The Company has been dependent on a relatively
small number of customers for a substantial portion of its annual revenue. In
fiscal 1994, Thesys Gesellschaft fur Mikroelektronik mbH ("Thesys"), Sanyo
Electric Co., Ltd. ("Sanyo"), Hyundai Electronics Industries Co., Ltd.
("Hyundai") and Samsung Electronics Co., Ltd. ("Samsung") accounted for 28.9%,
21.3%, 19.3% and 12.7% of revenue, respectively. In fiscal 1995, Samsung,
National Semiconductor Corporation ("NSC") and Yamaha Corporation ("Yamaha")
accounted for 18.2%, 17.3% and 15.1%, respectively, of the Company's revenue. In
fiscal 1996, Asahi Glass Co., Ltd. ("Asahi Glass") accounted for 10.5% of the
Company's revenue, and the Company's six largest customers accounted for 51.8%
of the Company's revenue. The Company anticipates that the majority of its
revenue will be derived from a relatively small number of customers through
fiscal 1997. None of the Company's customers has a written agreement with the
Company that obligates it to license additional products or to renew its
maintenance agreement, and there can be no assurance that any customer will
purchase additional software licenses or renew its maintenance agreement. The
loss of one or more of the Company's major customers, or reduced orders by one
or more of such customers, could materially adversely affect the Company's
business, operating results and financial condition. See
"Business -- Customers."
Management of Growth. The Company's business has grown rapidly with
revenue increasing from $6.6 million in fiscal 1995 to $15.3 million in fiscal
1996. The growth of the Company's business and expansion of its customer base
has placed and is expected to continue to place a significant strain on the
Company's management and operations. Certain key members of the Company's
management, including its Chief Financial Officer, joined the Company within the
past 12 months. The Company's future success will depend on its ability to
identify, attract, hire and retain skilled employees and to hire replacements
for employees that leave the Company. In this regard, the Company is actively
recruiting a Vice President, Sales, a Vice President, Engineering and several
additional engineering personnel. The Company's failure to continue to expand
its engineering organization in a timely manner could result in delays in the
progress on percentage of completion contracts and the Company's research and
development efforts, either of which could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company's expansion has also resulted in substantial growth in the
number of its employees and the burden placed upon its financial, accounting and
operating systems, resulting in increased responsibility for both existing and
new management personnel. For example, the number of employees at the Company
increased from 46 at the end of fiscal 1995 to 100 at February 28, 1997. The
Company is in the process of hiring additional accounting and financial
personnel and in establishing and upgrading its financial and accounting systems
and procedures to support its growth. There can be no assurance that the Company
will be able to identify, attract and retain experienced accounting and
financial personnel. The Company's future operating results will depend on the
ability of its management and other key employees to implement and improve its
systems for operations, financial control and information management, and to
recruit, train and manage its employee base. In particular, the Company's
ability to effectively manage and support any future growth will be
substantially dependent on its ability to improve its financial and management
controls, reporting and order entry systems and other procedures on a timely
basis. The Company also expects to increase its customer support operations to
the extent the installed base of the Company's products continues to grow. There
can be no assurance that the Company will be able to manage or continue to
manage its recent or any future growth successfully or to implement and maintain
adequate financial and management controls and procedures, and any inability to
do so would have a material adverse effect on the Company's business, operating
results and financial condition. The Company does not expect to sustain the
rates of revenue growth that it has
6
<PAGE> 8
experienced in the past, and there can be no assurance that the Company will be
able to maintain or improve its operating results.
Dependence Upon Continuous Product Development; Risk of Product
Delays. The Company's customers operate in the semiconductor industry, which is
subject to rapid technological change, frequent introductions of new products,
short product life cycles, changes in customer demands and requirements and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. Accordingly, the Company's future success
will depend on its ability to continue to enhance its existing products and to
develop and introduce new products that satisfy increasingly sophisticated
customer requirements and that keep pace with product introductions by EDA tool
companies, emerging process technologies and other technological developments in
the semiconductor industry. Any failure by the Company to anticipate or respond
adequately to changes in technology or customer requirements, or any significant
delays in product development or introduction, would have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company will be successful in its product
development efforts, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of new
or enhanced products or that such new or enhanced products will achieve market
acceptance. The Company has in the past experienced delays in the release dates
of certain of its products. If release dates of any new significant products or
product enhancements are delayed, the Company's business, operating results and
financial condition would be materially adversely affected. The Company could
also be exposed to litigation or claims from its customers in the event it does
not satisfy its delivery commitments. There can be no assurance that any such
claim will not have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Research and
Development."
Dependence Upon Semiconductor and Electronics Industries. The Company is
dependent upon the semiconductor and electronics industries. Each of these
industries is characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Each of these industries is highly cyclical and has periodically
experienced significant downturns, often in connection with or in anticipation
of declines in general economic conditions during which the number of new IC
design projects often decreases. Revenue from new licenses of the Company's
products is influenced by the level of design efforts by its customers, and
factors negatively affecting any of these industries could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's business, operating results and financial condition may
fluctuate in the future from period to period as a consequence of general
economic conditions in the semiconductor or electronics industry.
Competition. The market for commercial DIT products is new and emerging,
and the Company has few direct competitors. The Company principally competes
with the engineering departments of potential customers that develop and
maintain internally developed DIT. Certain of the Company's other potential
customers rely on proprietary DIT developed and maintained by ASIC vendors.
Although the Company believes that none of its competitors offer a complete DIT
solution, the Company's current competitors with respect to one or more aspects
of its DIT solution include Cascade Design Automation (a subsidiary of Oki
Semiconductor Ltd.) ("Cascade"), Compass Design Automation (a subsidiary of VLSI
Technology, Inc.) ("Compass"), Silicon Architects (a subsidiary of Synopsys,
Inc.) ("Si-Arc") and Artisan Components, Inc ("Artisan"). In addition, certain
semiconductor foundries currently offer or may in the future offer one or more
elements of a DIT solution. The Company does not offer EDA tools, and its
products are designed to be compatible with leading EDA tools. The Company
expects that the market for its products will become increasingly competitive in
the future. Among the Company's potential competitors are a number of large
vertically integrated semiconductor companies and numerous EDA software
companies that may develop products that compete with those of the Company.
Increased competition could eventually result in price reductions or reduced
operating margins which could
7
<PAGE> 9
materially adversely affect the Company's business, operating results and
financial condition. Many of the Company's potential competitors have
significantly greater financial, technical, marketing and other resources than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products than
can the Company. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competitive
pressures will not materially adversely affect the Company's business, operating
results and financial condition. See "Business -- Competition."
Risks Associated With International Operations. A significant portion of
the Company's revenue is derived from customers outside the United States, and
the Company anticipates that international revenue will continue to be
significant in the future. Specifically, revenue from customers outside the
United States accounted for 83.7%, 54.2% and 66.2% of revenue in fiscal 1994,
1995 and 1996, respectively. The Company intends to continue to expand its sales
and marketing activities in Asia and Europe. The Company's international
business involves a number of risks, including the impact of possible
recessionary environments in economies outside the United States, political and
economic instability, exchange rate fluctuations, longer receivables collection
periods and greater difficulty in accounts receivable collection from
distributors and customers, difficulty in managing distributors or sales
representatives, unexpected changes in regulatory requirements, reduced or
limited protection for intellectual property rights, export license
requirements, tariffs and other trade barriers and potentially adverse tax
consequences. There can be no assurance that the Company will be able to sustain
or increase revenue derived from international licensing and services or that
the foregoing factors will not have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company prices
its products and services in United States dollars, currency exchange
fluctuations in countries in which the Company licenses its products could have
a material adverse effect on the Company's business, operating results and
financial condition by resulting in pricing that is not competitive with
products priced in local currencies. The Company does not currently hedge
against foreign currency fluctuations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Sales and
Marketing."
Limited Protection of Proprietary Rights. The Company's success is
dependent on its ability to protect its proprietary technology. The Company
relies upon a combination of copyright, patent, trade secret and trademark laws
to protect its proprietary technology. The Company enters into confidentiality
agreements with its employees, distributors and customers and limits access to
and distribution of the source code to its software and other proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to prevent misappropriation of its technology or
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology. Any such
misappropriation of the Company's technology or development of competitive
technologies could have a material adverse effect on the Company's business,
operating results and financial condition. Despite the Company's efforts to
protect its proprietary rights, there can be no assurance that the Company will
be able to protect its proprietary rights against unauthorized third party
copying or use. Attempts may be made to copy or reverse engineer aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary. Policing the unauthorized use of the Company's products is
difficult and the Company could incur substantial costs in protecting and
enforcing its intellectual property rights. Litigation may be necessary in the
future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition.
As of February 28, 1997, the Company held three U.S. patents which expire
from 2012 to 2013 and had six U.S. patent applications pending. The Company also
has 13 patent applications pending
8
<PAGE> 10
in various foreign jurisdictions. The Company expects to continue to file patent
applications where appropriate to protect its proprietary technologies; however,
the Company believes that its continued success depends primarily on factors
such as the technological skills and innovation of its personnel rather than on
its patents. The Company has registered the trademarks Aspec Technology and
Mastergen and has four trademark applications pending in the United States. The
process of seeking patent and trademark protection can be expensive and time
consuming. There can be no assurance that patents or trademarks will issue from
pending or future applications or that, if issued, such patents or trademarks
will not be challenged, invalidated or circumvented, or that rights granted
thereunder will provide meaningful protection or other commercial advantage to
the Company. Moreover, there can be no assurance that any patent or trademark
rights will be upheld in the future or that the Company will be able to preserve
any of its other intellectual property rights. In addition, the laws of certain
countries in which the Company's products are distributed do not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States. Accordingly, effective trademark, copyright and
patent protection may be unavailable in certain foreign countries.
As is common in the software industry, the Company may from time to time
receive notices from third parties claiming infringement by the Company's
products of third-party proprietary rights. While the Company is not currently
subject to any such claim, the Company believes that its products could
increasingly be subject to such claims as the market for its products grows and
as more competitors enter the market. Any such claim, with or without merit,
could result in significant litigation costs and require the Company to enter
into royalty and licensing agreements, which could have a material adverse
effect on the Company's business, operating results and financial condition.
Such royalty and licensing agreements, if required, may not be available on
terms acceptable by the Company or at all. See "Business -- Proprietary Rights."
Potential for Software Defects. Complex software products such as those
offered by the Company may contain undetected errors or defects commonly
referred to as "bugs." There can be no assurance that, despite significant
testing by the Company and by current and potential customers, errors will not
be found in products or enhancements to existing products after commencement of
commercial shipments. The Company does not presently maintain insurance with
respect to potential damages due to errors or defects in its products. Although
the Company has not experienced material adverse effects resulting from any such
errors or defects to date, there can be no assurance that errors or defects will
not be discovered in the future, potentially causing delays in product
introduction and shipments or requiring design modifications that could
materially adversely affect the Company's business, operating results and
financial condition.
Dependence on Key Personnel. The Company's business depends in significant
part on the continued service of the Company's executive officers and other
senior management and key employees, including certain technical, managerial and
marketing personnel. The loss of the services of any of these individuals or
groups of individuals could have a material adverse effect on the Company's
business, operating results and financial condition. None of the Company's
executive officers has an employment agreement with the Company. The Company
believes that its future business results will also depend in significant part
upon its ability to identify, attract, motivate and retain additional highly
skilled technical, managerial and marketing personnel. Competition for such
personnel in the computer software industry is intense. The Company is currently
engaged in a search for a Vice President, Sales, a Vice President, Engineering
and several additional engineering personnel. There can be no assurance the
Company will be successful in identifying, attracting and retaining such
personnel, and the failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition.
No Prior Market for the Shares; Expected Volatility of Share Price. Prior
to the offering, there has been no public market for the Company's Common Stock
and there can be no assurance that an active public market will develop upon
completion of the offering or, if it does develop, that such market will be
sustained. The initial public offering price of the Company's Common Stock will
be
9
<PAGE> 11
determined by negotiation between the Company and the Representatives of the
Underwriters. The market price of the shares of Common Stock is likely to be
highly volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, the Company's
failure to meet or exceed published earnings estimates, changes in earnings
estimates or recommendations by securities analysts, announcements of
technological innovations, new products or new contracts by the Company or its
existing or potential competitors, developments with respect to patents,
copyrights or proprietary rights, conditions and trends in the EDA,
semiconductor or electronics industries, adoption of new accounting standards
affecting the software industry, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stocks of technology companies which have often been unrelated to the
operating performance of such companies. These broad market fluctuations may
materially adversely affect the market price of the Company's Common Stock. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Underwriting."
Control by Officers, Directors and Affiliated Entities. Upon completion of
the offering, the Company's executive officers, directors and venture capital
funds affiliated with such directors will beneficially own in the aggregate
approximately 60.8% of the issued and outstanding shares of Common Stock. Such
stockholders will have sufficient voting power to control the outcome of all
matters (including the election of directors and any merger, consolidation or
sale of all or substantially all of the Company's assets) submitted to the
stockholders for approval and may be deemed to have effective control over the
affairs and management of the Company. This controlling interest in the Company
may also have the effect of making certain transactions more difficult or
impossible, absent the support of such stockholders. Such transactions could
include a proxy contest, mergers involving the Company, tender offers and open
market purchase programs involving Common Stock that could give stockholders of
the Company the opportunity to realize a premium over the then prevailing market
price for their shares of Common Stock. See "Principal Stockholders."
Benefits of the Offering to Current Stockholders. Immediately after the
closing of this offering, based upon shares outstanding as of February 28, 1997,
the existing stockholders of the Company will hold 22,720,234 shares of Common
Stock, or approximately 85% of the total number of shares of Common Stock then
outstanding. The existing stockholders of the Company paid an aggregate of
approximately $10,460,000 to the Company for their shares of Common Stock.
Assuming an initial public offering price of $9.00 per share, the value of the
shares held by such existing stockholders would be approximately $204,482,000.
This offering will create a public market for the resale of shares held by these
existing stockholders. The existing holders of Common Stock will benefit from
the redemption of the Series A Redeemable Preferred Stock due to the termination
of the senior rights, preferences and privileges attributable to the Series A
Redeemable Preferred Stock. In addition, the holders of the Company's Series A
Redeemable Preferred Stock will benefit by having their shares of stock redeemed
using a portion of the proceeds of the offering.
Effect of Anti-takeover Provisions. The Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of such shares without
any further vote or action by the Company's stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any shares of Preferred Stock that may be issued in
the future. While the Company has no present intention to issue shares of
Preferred Stock, such issuance, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. In addition, such Preferred
Stock may have other rights, including
10
<PAGE> 12
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock.
Shares Eligible for Future Sale. Sales of a substantial number of shares
of Common Stock in the public market following this offering could materially
adversely affect the market price for the Company's Common Stock. In addition to
the 4,000,000 shares of Common Stock offered hereby, as of the date of this
Prospectus (the "Effective Date") there will be 22,720,234 shares of Common
Stock outstanding (assuming no exercise of options after February 28, 1997), all
of which are "restricted" shares (the "Restricted Shares") under the Securities
Act of 1933, as amended (the "Securities Act"). Approximately 1,087,000
Restricted Shares will become eligible for sale 90 days after the Effective Date
pursuant to Rule 701 under the Securities Act. However, approximately 213,000 of
these shares will be subject to a right of repurchase in favor of the Company.
Approximately 17,272,000 Restricted Shares will become eligible for sale 180
days after the Effective Date upon expiration of certain lockup agreements with
the Company or the Underwriters and pursuant to Rules 144 and 701 under the
Securities Act, subject in certain cases to certain volume and other resale
restrictions under Rule 144. However, approximately 642,000 of these shares will
be subject to a right of repurchase in favor of the Company. The remaining
approximately 4,361,000 shares held by existing stockholders will become
eligible for sale from time to time in the future under Rule 144. Additionally,
an aggregate of approximately 69,250 shares issuable upon the exercise of stock
options will become eligible for sale in the public market 180 days after the
Effective Date upon expiration of lockup agreements with the Company or the
Underwriters and pursuant to a Registration Statement on Form S-8 which the
Company intends to file with the Securities and Exchange Commission
approximately 90 days after the Effective Date. In addition, holders of
approximately 4,779,000 shares of Common Stock have rights under certain
circumstances to require the Company to register their shares for future sale.
See "Shares Eligible for Future Sale."
As described above, the number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act and
lockup agreements under which the holders of such shares have agreed not to sell
or otherwise dispose of any of their shares for a period of 180 days after the
date of this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated. However, Alex. Brown & Sons Incorporated, may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lockup agreements. Alex. Brown & Sons Incorporated
currently has no plans to release any portion of the securities subject to
lockup agreements. When determining whether or not to release shares from the
lockup agreements, Alex. Brown & Sons Incorporated will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time.
Dilution. The initial public offering price is substantially higher than
the book value per share of the Common Stock. Investors purchasing shares of
Common Stock in the offering will incur immediate and substantial dilution of
$8.19 in net tangible book value per share of Common Stock (based upon an
assumed initial public offering price of $9.00 per share and after deducting
estimated underwriting discounts and commissions and offering expenses) from the
initial public offering price and will incur additional dilution upon the
exercise of outstanding stock options. See "Dilution."
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $9.00 per share, after deducting underwriting discounts and commissions
and estimated offering expenses, are estimated to be $32.6 million ($37.6
million if the Underwriters' over-allotment option is exercised in full). The
Company will use approximately $18.5 million of the proceeds of the offering to
redeem all outstanding shares of the Company's Series A Redeemable Preferred
Stock. The Company intends to use the remaining net proceeds of the offering for
working capital and general corporate purposes. A portion of the net proceeds
may also be used for investments in or acquisitions of complementary businesses,
products or technologies, although no such transactions are currently under
negotiation. Pending such uses, the Company expects to invest the net proceeds
in interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth as of February 28, 1997: (i) the actual
capitalization of the Company; (ii) the capitalization of the Company on a pro
forma basis to reflect the termination of the redemption provisions of the
redeemable Common Stock upon the closing of the offering; and (iii) the
capitalization of the Company on an as adjusted basis to reflect the receipt by
the Company of approximately $14.1 million of net proceeds from the sale of the
4,000,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $9.00 per share after deducting the
underwriting discounts and commissions and the estimated offering expenses and
the application of a portion of the net proceeds therefrom to redeem all
outstanding shares of Series A Redeemable Preferred Stock. See "Use of
Proceeds."
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Series A Redeemable Preferred Stock, $.001 par
value: 130,385 shares designated; shares
outstanding: actual -- 130,378; pro forma --
130,378; as adjusted -- none (actual and pro
forma liquidation value: $18,495,000)........... $ 13,547 $ 13,547 $ --
-------- -------- -----
Redeemable Common Stock, $.001 par value; shares
outstanding: actual -- 4,778,804; pro forma and
as adjusted -- none............................. 7,116 -- --
-------- -------- -----
Stockholders' equity (deficiency):
Preferred stock, $.001 par value; 5,000,000
authorized (excluding Series A Redeemable
Preferred Stock): none outstanding........... -- -- --
Common Stock, $.001 par value: 75,000,000 shares
authorized; shares outstanding: actual --
17,941,430; pro forma -- 22,720,234; as
adjusted -- 26,720,234(1).................... 3,344 10,460 43,040
Stockholder notes receivable.................... (557) (557) (557)
Deferred stock compensation..................... (440) (440) (440)
Retained earnings (deficit)..................... (15,340) (15,340) (20,288)
-------- -------- -----
Total stockholders' equity
(deficiency).......................... (12,993) (5,877) 21,755
-------- -------- -----
Total capitalization.................. $ 7,670 $ 7,670 $21,755
======== ======== =====
</TABLE>
- ---------------
(1) As of February 28, 1997, excludes (i) 1,117,100 shares of Common Stock
issuable upon exercise of outstanding options under the Company's 1996 Stock
Option Plan (the "Option Plan") at a weighted average exercise price of
$5.95 per share; (ii) 3,382,900 shares of Common Stock available for future
issuance under the Option Plan; (iii) 25,000 shares of Common Stock issuable
upon exercise of outstanding options under the Company's 1997 Director
Option Plan (the "Director Plan") at a weighted average exercise price of
$8.50 per share; (iv) 225,000 shares of Common Stock available for future
issuance under the Director Plan and (v) 500,000 shares of Common Stock
available for future issuance under the Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan"). See Notes 7 and 11 of Notes to
Financial Statements.
13
<PAGE> 15
DILUTION
The pro forma net tangible book value of the Company as of February 28,
1997 was a deficit of approximately $10.8 million, or $(0.48) per share of
Common Stock. "Pro forma net tangible book value" per share represents the
amount of total assets of the Company less total liabilities and the liquidation
value of the Series A Redeemable Preferred Stock, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of 4,000,000 shares of Common Stock offered hereby (after deducting the
underwriting discounts and commissions and estimated offering expenses) at an
assumed initial public offering price of $9.00 per share, the pro forma net
tangible book value of the Company as of February 28, 1997 would have been $21.8
million, or $0.81 per share. This represents an immediate increase in net
tangible book value of $1.29 per share to existing stockholders and an immediate
dilution of $8.19 per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share........................... $9.00
Pro forma net tangible book value per share as of November 30, 1996..... $(0.48)
Increase per share attributable to new investors........................ 1.29
------
Pro forma net tangible book value per share after the offering............ 0.81
------
Net tangible book value dilution per share to new investors............... $8.19
======
</TABLE>
The following table summarizes, on a pro forma basis as of February 28,
1997, the difference between the existing stockholders and the purchasers of
shares in the offering (at an assumed initial public offering price of $9.00 per
share) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 22,720,234 85.0% $10,460,000 22.5% $0.46
New investors................ 4,000,000 15.0 36,000,000 77.5 $9.00
---------- ---- ----------- -----
Total.............. 26,720,234 100.0% $46,460,000 100.0%
========== ==== =========== =====
</TABLE>
The foregoing computations exclude, as of February 28, 1997: (i) 1,117,100
shares of Common Stock issuable upon exercise of outstanding options under the
Option Plan at a weighted average exercise price of $5.95 per share; (ii)
3,382,900 shares of Common Stock available for future issuance under the Option
Plan; (iii) 25,000 shares of Common Stock issuable upon exercise of outstanding
options under the Director Plan at a weighted average price of $8.50 per share;
(iv) 225,000 shares of Common Stock available for future issuance under the
Director Plan and (v) 500,000 shares of Common Stock available for future
issuance under the Purchase Plan. See "Management -- Director Compensation,"
"Management -- Compensation Plans" and Notes 7 and 11 of Notes to Financial
Statements.
14
<PAGE> 16
SELECTED FINANCIAL DATA
The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Financial Statements, related Notes and other financial information included
elsewhere in this Prospectus. The selected financial data set forth below for
each of the years ended November 30, 1994, 1995 and 1996 and with respect to the
Company's balance sheets as of November 30, 1995 and 1996 are derived from the
Financial Statements of the Company audited by Deloitte & Touche LLP,
independent auditors, which are included elsewhere in this Prospectus. The
selected financial data set forth below for the year ended November 30, 1993 and
with respect to the Company's balance sheet as of November 30, 1994 are derived
from the audited Financial Statements of the Company, which are not included
herein. The selected financial data set forth below for the year ended November
30, 1992 and for the three months ended February 29, 1996 and February 28, 1997
and with respect to the Company's balance sheets as of November 30, 1992 and
1993 and February 28, 1997 are derived from the Company's unaudited financial
statements, which are not included herein. The unaudited financial statements
have been prepared by the Company on a basis consistent with the Company's
audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, that management considers necessary for a fair
presentation of the information for the periods presented. Operating results for
the three months ended February 28, 1997 are not necessarily indicative of the
results that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED NOVEMBER 30, --------------------------
-------------------------------------------------------- FEBRUARY 29, FEBRUARY 28,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue................................ $ -- $ 3,689 $ 4,659 $ 6,640 $ 15,265 $2,518 $ 5,678
------- ------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of revenue...................... 233 1,320 1,553 2,307 4,702 784 1,650
Research and development............. 42 230 289 445 921 227 298
Sales and marketing.................. 94 196 624 1,387 3,526 577 1,514
General and administrative........... 512 545 827 1,093 1,994 472 396
------- ------ ------ ------ ------ ------ ------
Total costs and expenses......... 881 2,291 3,293 5,232 11,143 2,060 3,858
------- ------ ------ ------ ------ ------ ------
Income (loss) from operations.......... (881) 1,398 1,366 1,408 4,122 458 1,820
Other income, net...................... 7 17 17 56 310 21 89
------- ------ ------ ------ ------ ------ ------
Income (loss) before income taxes...... (874) 1,415 1,383 1,464 4,432 479 1,909
Provision for income taxes............. -- 566 553 585 1,815 197 764
------- ------ ------ ------ ------ ------ ------
Net income (loss)...................... (874) 849 830 879 2,617 282 1,145
Accretion of redeemable preferred
stock(1)............................. -- -- -- -- 392 -- 202
------- ------ ------ ------ ------ ------ ------
Income (loss) attributable to common
stockholders......................... $ (874) $ 849 $ 830 $ 879 $ 2,225 $ 282 $ 943
======= ====== ====== ====== ====== ====== ======
Net income (loss) per share(2)......... $ (0.06) $ 0.03 $ 0.03 $ 0.03 $ 0.09 $ 0.01 $ 0.04
======= ====== ====== ====== ====== ====== ======
Shares used in per share
computation(2)....................... 14,215 24,439 25,534 26,234 25,834 26,731 23,157
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------------------------------------- FEBRUARY 28,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- -------- --------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and equivalents................... $ 347 $ 347 $ 770 $ 2,317 $ 6,341 $ 4,469
Working capital........................ (1,108) (255) 420 944 3,704 4,600
Total assets........................... 622 1,028 2,353 5,046 15,760 12,849
Redeemable preferred stock............. -- -- -- -- 13,345 13,547
Redeemable common stock................ -- -- -- -- 7,116 7,116
Total stockholders' equity
(deficiency)......................... (833) 48 904 1,798 (14,063) (12,993)
</TABLE>
- ---------------
(1) See Note 6 of Notes to Financial Statements for an explanation of the
determination of the accretion amount.
(2) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine earnings per share and the number of shares used to
compute per share amounts.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in such forward-looking
statements. Factors that may cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
OVERVIEW
Aspec was founded in December 1991 to develop, market and support a
commercial DIT. Through fiscal 1992, the Company was principally engaged in the
development of its first products and the establishment of customer
relationships. The Company recognized its initial revenue in fiscal 1993 as DIT
products were completed for customers designing gate array-based ASICs. In
fiscal 1993, 1994 and 1995, a substantial portion of the Company's revenue was
derived from the license of DIT products to vertically integrated semiconductor
manufacturers that were seeking to enter the merchant ASIC market. During these
years, the Company also expanded its development efforts. By fiscal 1996, the
Company had enhanced its DIT products for gate array-based ICs and had developed
DIT products for standard cell-based ICs supporting a number of foundry
processes. These developments allowed the Company to expand its customer base to
include other integrated semiconductor companies, fabless semiconductor
companies, electronics systems manufacturers and distributors that sell to such
entities.
Revenue consists primarily of license fees for the Company's DIT products
which are adapted for the specific process technology used by the customer. To a
lesser extent, the Company realizes revenue from service and maintenance fees.
Typically a customer licenses a bundle of products which is accompanied by
design methodology documentation and training. The license of the Company's
products typically involves a lengthy sales cycle of up to 12 months because the
license generally involves a significant commitment of capital by the customer
and because Aspec's DIT is either replacing a customer's proprietary DIT or
introducing an entirely new DIT. These DIT products are licensed to customers on
a per design basis, a per site basis or an enterprise basis. The price for a
typical bundle of products ranges from approximately $50,000 on a per design
basis to over $2.0 million on an enterprise basis.
Engineering efforts devoted to developing products for which revenue is
recognized on a percentage of completion basis are recognized as cost of
revenue. Engineering efforts devoted to developing the Company's core technology
and products not requiring adaptation are recognized as research and development
expense. As a result of its engineering efforts, the Company has developed a
substantial base of technology which the Company is able to reuse in other DIT
product offerings. The Company expects to continue to devote significant
resources to its various engineering efforts.
A significant portion of the Company's revenue is derived from customers
outside the United States, and the Company anticipates that international
revenue will continue to be significant in the future. Specifically, revenue
from customers outside the United States accounted for 83.7%, 54.2% and 66.2% of
revenue in fiscal 1994, 1995 and 1996, respectively. The Company's international
operations are subject to risks inherent in the conduct of international
business, including unexpected changes in regulatory requirements, exchange
rates, export license requirements, tariffs and other barriers, political and
economic instability, limited intellectual property protection, difficulties in
collecting payments due from distributors or customers, difficulties in managing
distributors or representatives, and potentially adverse tax consequences.
Although the Company prices its products and services in United States dollars,
currency exchange fluctuations in countries in which the Company licenses its
products could have a material adverse effect on the Company's business,
operating results or financial condition by resulting in pricing that is not
competitive with products
16
<PAGE> 18
priced in local currencies. The Company does not currently hedge against foreign
currency fluctuations. To date, currency exchange fluctuations have not had a
material impact on the Company's financial results. See "Risk Factors -- Risks
Associated With International Operations."
In May and June 1996, the Company issued an aggregate of 130,378 shares of
its Series A Redeemable Preferred Stock. The aggregate liquidation and
redemption value of the Series A Redeemable Preferred Stock is approximately
$18.5 million. The Company is accreting the difference between the book value of
the Series A Redeemable Preferred Stock and its redemption value over the period
from the issuance date through the mandatory redemption dates resulting in
accretion of approximately $0.8 million per year. In addition, in connection
with the redemption of all outstanding shares of such Series A Redeemable
Preferred Stock from the proceeds of the offering, the difference between the
book value and the redemption value of approximately $4.9 million will be
recorded as accretion for Preferred Stock when determining income attributable
to common stockholders and earnings per share. This $4.9 million of accretion
will be recorded in the third quarter of fiscal 1997 when the offering is
completed. See Note 6 of Notes to Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data of the Company expressed as a percentage of
revenue.
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................................... 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of revenue............................................... 33.3 34.7 30.8
Research and development...................................... 6.2 6.7 6.0
Sales and marketing........................................... 13.4 20.9 23.1
General and administrative.................................... 17.8 16.5 13.1
----- ----- -----
Total costs and expenses................................. 70.7 78.8 73.0
----- ----- -----
Income from operations........................................... 29.3 21.2 27.0
Interest income.................................................. 0.4 0.8 2.0
----- ----- -----
Income before income taxes....................................... 29.7 22.0 29.0
Provision for income taxes....................................... 11.9 8.8 11.9
----- ----- -----
Net income....................................................... 17.8% 13.2% 17.1%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL 1994, 1995 AND 1996
Revenue. Revenue increased 42.5% from $4.7 million in fiscal 1994 to $6.6
million in fiscal 1995 as the Company expanded sales of gate array-based DIT
products and initiated sales of standard cell-based DIT products to new
customers. Revenue increased 129.9% from $6.6 million in fiscal 1995 to $15.3
million in fiscal 1996 as the Company continued to expand its sales of standard
cell-based and gate array DIT products to a broader customer base.
International revenue accounted for 83.7%, 54.2% and 66.2% of revenue in
fiscal 1994, 1995 and 1996, respectively. In fiscal 1994, Thesys, Sanyo, Hyundai
and Samsung accounted for 28.9%, 21.3%, 19.3% and 12.7% of revenue,
respectively. In fiscal 1995, Samsung, NSC and Yamaha accounted for 18.2%, 17.3%
and 15.1% of revenue, respectively. In fiscal 1996, Asahi Glass accounted for
10.5% of revenue, and the Company's six largest customers accounted for 51.8% of
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<PAGE> 19
revenue. The Company anticipates that the majority of its revenue will be
derived from a relatively small number of customers through fiscal 1997.
Cost of revenue. Cost of revenue primarily represents the costs of
personnel and other operating expenses incurred in the development and
production of DIT products to customer specifications. Cost of revenue increased
from $1.6 million in fiscal 1994 to $2.3 million in fiscal 1995 and $4.7 million
in fiscal 1996. Cost of revenue has fluctuated from 33.3% of revenue in fiscal
1994 to 34.7% of revenue in 1995 and 30.8% of revenue in fiscal 1996. The
reduction in cost of revenue as a percentage of revenue in fiscal 1996 reflects
increased revenue in the second half of the year from products that did not
require significant adaptation.
Research and development. Research and development expense represents the
cost of engineering personnel and other operating expenses incurred in the
development and enhancement of the Company's core technology and products not
requiring significant adaptation. Research and development expense increased
from $289,000 in fiscal 1994 to $445,000 in fiscal 1995 and $921,000 in fiscal
1996. These increases primarily reflect increases in engineering personnel and
related expenses. As a percentage of revenue, research and development expense
fluctuated from 6.2% in fiscal 1994 to 6.7% in fiscal 1995 and 6.0% in fiscal
1996. The Company expects research and development expense to increase in
absolute dollars in future periods as the Company expands its engineering
efforts. The expected increase in the Company's research and development expense
could have a material adverse effect on the Company's business, operating
results and financial condition if the Company's revenue does not also increase.
Sales and marketing. Sales and marketing expense consists of salaries,
commissions paid to internal sales and marketing personnel and sales
representative promotional costs and related operating expenses. Sales and
marketing expense increased from $624,000 in fiscal 1994 to $1.4 million in
fiscal 1995 and $3.5 million in fiscal 1996. These increases primarily reflect
the increases in personnel required to support the Company's revenue growth and
increases in agent and sales representative commissions. Sales and marketing
expense fluctuated as a percentage of revenue from 13.4% in fiscal 1994 to 20.9%
in fiscal 1995 and 23.1% in fiscal 1996. The Company expects sales and marketing
expense to increase in absolute dollars in future periods as the Company expands
its sales and marketing efforts. The expected increase in the Company's sales
and marketing expense could have a material adverse effect on the Company's
business, operating results and financial condition if the Company's revenue
does not also increase.
General and administrative. General and administrative expense increased
from $827,000 in fiscal 1994 to $1.1 million in fiscal 1995 and to $2.0 million
in fiscal 1996. The increases in general and administrative expense in each
period resulted primarily from the addition of new management and administrative
personnel and increased administrative costs to support the Company's growth. As
a percentage of revenue, general and administrative expense decreased from 17.8%
in fiscal 1994 to 16.5% in fiscal 1995 and 13.1% in fiscal 1996 as revenue
increased in each period. The Company expects general and administrative expense
to increase in absolute dollars in future periods as the Company expands its
operations.
Provision for income taxes. The Company's tax rates of 40.0%, 40.0% and
41.0% in fiscal 1994, 1995 and 1996, respectively, approximate the combined
federal and state statutory income tax rates.
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<PAGE> 20
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth selected statement of operations data for
each of the nine fiscal quarters ended February 28, 1997 as well as the
percentage of the Company's revenue represented by such data. This information
has been derived from the Company's unaudited quarterly financial statements.
The unaudited quarterly financial statements have been prepared on the same
basis as the audited financial statements contained herein and include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of such information when read in
conjunction with the Company's annual audited financial statements and notes
thereto appearing elsewhere in this Prospectus. The operating results for any
interim period are not necessarily indicative of results to be expected for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
FEB. 28, MAY 31, AUG. 31, NOV. 30, FEB. 29, MAY 31, AUG. 31, NOV. 30, FEB. 28,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- ------- -------- -------- -------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $1,021 $1,525 $1,553 $2,541 $2,518 $2,840 $4,570 $5,337 $5,678
------ ------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of revenue............... 513 527 573 694 784 1,000 1,357 1,561 1,650
Research and development...... 85 92 107 161 227 211 241 242 298
Sales and marketing........... 216 256 377 538 577 633 991 1,325 1,514
General and administrative.... 211 250 303 329 472 448 500 574 396
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses................ 1,025 1,125 1,360 1,722 2,060 2,292 3,089 3,702 3,858
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations... (4) 400 193 819 458 548 1,481 1,635 1,820
Interest income................. 4 17 18 17 21 19 199 71 89
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes...... -- 417 211 836 479 567 1,680 1,706 1,909
Provision for income taxes...... -- 167 84 334 197 232 689 697 764
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income...................... $ -- $ 250 $ 127 $ 502 $ 282 $ 335 $ 991 $1,009 $1,145
====== ====== ====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF REVENUE
------
Revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of revenue............... 50.2 34.6 36.9 27.3 31.1 35.2 29.7 29.3 29.1
Research and development...... 8.3 6.0 6.9 6.3 9.0 7.4 5.3 4.5 5.2
Sales and marketing........... 21.2 16.8 24.3 21.2 22.9 22.3 21.7 24.8 26.7
General and administrative.... 20.7 16.4 19.5 13.0 18.8 15.8 10.9 10.8 7.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses................ 100.4 73.8 87.6 67.8 81.8 80.7 67.6 69.4 68.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations... (0.4) 26.2 12.4 32.2 18.2 19.3 32.4 30.6 32.0
Other income, net............... 0.4 1.1 1.2 0.7 0.8 0.7 4.4 1.3 1.6
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes...... -- 27.3 13.6 32.9 19.0 20.0 36.8 31.9 33.6
Provision for income taxes...... -- 10.9 5.4 13.1 7.8 8.2 15.1 13.0 13.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income...................... --% 16.4% 8.2% 19.8% 11.2% 11.8% 21.7% 18.9% 20.2%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company's revenue increased on a quarterly basis from the first quarter
of fiscal 1995 to the first quarter of fiscal 1997, except for a slight decrease
from the fourth quarter of fiscal 1995 to the first quarter of fiscal 1996.
Revenue in the third quarter of fiscal 1996 increased from the second quarter of
fiscal 1996 because of increased revenue from gate array products sold to
merchant ASIC customers. Revenue continued to grow in the fourth quarter of
fiscal 1996 and the first quarter of fiscal 1997 primarily because of increased
revenue from standard cell-based DIT products sold to new customers.
Cost of revenue increased on a quarterly basis from the first quarter of
fiscal 1995 to the first quarter of fiscal 1997. As a percentage of revenue,
cost of revenue has fluctuated over this period but
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<PAGE> 21
generally has declined as a percentage of revenue. The reduction in cost of
revenue as a percentage of revenue after the second quarter of fiscal 1996
reflects increased revenue from products that did not require significant
adaptation.
Research and development expense generally increased in absolute dollars
over the nine quarter period. As a percentage of revenue, research and
development expense has fluctuated but generally has declined after the second
quarter of fiscal 1996 due to rapid revenue growth. The Company expects research
and development expense to increase in absolute dollars over future periods as
it expands its engineering efforts.
Sales and marketing expense increased in each of the nine quarters as the
Company established a North American direct sales force and relationships with
distributors and sales representatives in North America and Asia. Sales and
marketing expense increased substantially in the third and fourth quarters of
fiscal 1996 and the first quarter of fiscal 1997 due to increased personnel
costs, commissions paid to sales representatives in Taiwan and Singapore and
increased commissions paid to employees in North America associated with
increased revenue in those periods. In addition, sales and marketing expense
increased in the first quarter of fiscal 1997 due to increased personnel as
certain general and administrative personnel were transferred into sales and
marketing.
General and administrative expense generally increased in absolute dollars
as the Company increased its administrative efforts to manage its growth and
decreased as a percentage of revenue due to more rapidly increasing revenue in
the quarters shown. General and administrative expense declined in both absolute
dollars and as a percentage of revenue in the first quarter of fiscal 1997 due
to reduced personnel and other administrative costs as certain personnel were
transferred into sales and marketing.
Interest income increased substantially in the third quarter of fiscal 1996
because of interest on the proceeds of sales of the Company's stock. Interest
income decreased in the fourth quarter of fiscal 1996 as the Company used funds
to repurchase common stock.
The Company's operating results have fluctuated in the past and are
expected to fluctuate significantly from quarter to quarter and on an annual
basis in the future as a result of a number of factors including the size and
timing of customer orders; the Company's ability to achieve progress on
percentage of completion contracts; the length of the Company's sales cycle;
timing of new product announcements and introductions by the Company and its
existing or future competitors; the Company's ability to develop, introduce and
market new products and product enhancements; market acceptance of the Company's
products; and general economic conditions. The Company's future operating
results are expected to fluctuate as a result of these and other factors, which
could have a material adverse effect on the Company's business, operating
results and financial condition. It is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely decline, perhaps substantially.
A substantial majority of the Company's revenue is recognized on a
percentage of completion method based upon actual costs incurred. The completion
period typically ranges from three months to a year. Accordingly, revenue in any
quarter is dependent on progress towards completion of the project by the
Company. The Company has in the past experienced delays in the progress of
certain projects and there can be no assurance that such delays will not occur
with respect to future projects. Any delay or failure to achieve such progress
could result in damage to customer relationships and the Company's reputation,
diversion of engineering resources or a delay in the market acceptance of the
Company's products, any of which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
these contracts may generally be cancelled without cause, and if a customer
cancels or delays performance under any such contracts, the Company's business,
operating results and financial condition could be materially adversely
affected. See "Risk Factors -- Fluctuations in Future Operating Results;
Dependence Upon Timely Project Completion."
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<PAGE> 22
COMPARISON OF THREE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1997
Revenue. Revenue increased 125.5% from $2.5 million in the first quarter of
fiscal 1996 to $5.7 million in the first quarter of fiscal 1997 primarily from
increased revenue from standard cell-based DIT products sold to new customers.
Cost of revenue. Cost of revenue increased 110.5% from $784,000 in the
first quarter of fiscal 1996 to $1.7 million in the first quarter of fiscal 1997
reflecting increases in engineering personnel and related expenses. As a
percentage of revenue, the cost of revenue decreased from 31.1% in the first
quarter of fiscal 1996 to 29.1% in the first quarter of fiscal 1997 reflecting
the increases in revenue from products that did not require significant
adaptation.
Research and development. Research and development expense increased 31.3%
from $227,000 in the first quarter of fiscal 1996 to $298,000 in the first
quarter of fiscal 1997 reflecting increases in engineering personnel and related
expenses. Although research and development expense increased in absolute
dollars, it decreased as a percentage of revenue from 9.0% in the first quarter
of fiscal 1996 to 5.2% in the first quarter of fiscal 1997 as revenues increased
at a faster rate.
Sales and marketing. Sales and marketing expense increased 162.4% from
$577,000 in the first quarter of fiscal 1996 to $1.5 million in the first
quarter of fiscal 1997 primarily due to increases in personnel and personnel
related costs and agent and sales representative commissions. As a percentage of
revenue, sales and marketing expense increased from 22.9% in the first quarter
of fiscal 1996 to 26.7% in the first quarter of fiscal 1997.
General and administrative. General and administrative expense decreased
16.1% from $472,000 in the first quarter of fiscal 1996 to $396,000 in the first
quarter of fiscal 1997 primarily due to the reduction in personnel cost
associated with the transfer of personnel to sales and marketing and the
reduction in other administrative costs. As a percentage of revenue, general and
administrative expense declined from 18.8% in the first quarter of fiscal 1996
to 7.0% in the first quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date with cash flow from
operations and through the private sale of equity securities. Net cash provided
by operating activities was $780,000, $2.1 million and $4.6 million in fiscal
1994, 1995 and 1996, respectively. Cash provided by operating activities
included net income of $830,000, $879,000 and $2.6 million in fiscal 1994, 1995
and 1996, respectively, increases in deferred revenue of $1.3 million and $3.0
million in fiscal 1995 and 1996, respectively, increases in accrued liabilities
of $293,000 and $1.3 million in fiscal 1995 and 1996, respectively, increases in
taxes payable of $424,000, $415,000 and $1.0 million in fiscal 1994, 1995 and
1996, respectively, offset in part by increased accounts receivable of $687,000,
$762,000 and $3.9 million in fiscal 1994, 1995 and 1996, respectively. In the
first quarter of fiscal 1997, net cash used by operations was $1.3 million. Cash
provided by operating activities, including net income of $1.1 million and
decreases in accounts receivable of $1.4 million, was more than offset by uses
of cash including reductions in income taxes payable of $1.8 million and
deferred revenue of $1.9 million.
Cash used in investing activities resulted primarily from additions to
property and equipment. Purchases of property and equipment, consisting
primarily of computer equipment and software, were $376,000, $594,000, $2.5
million and $707,000 in fiscal 1994, 1995, 1996 and the first quarter of fiscal
1997, respectively. The Company expects to invest approximately $4.0 million in
computer equipment and software in the next twelve months.
Cash provided from financing activities was $1.9 million in fiscal 1996. In
fiscal 1996, the Company sold $13.0 million of its Series A Redeemable Preferred
Stock, $2.0 million of Common Stock and $7.1 million of redeemable Common Stock.
In fiscal 1996, the Company repurchased $20.2 million of Common Stock from
certain founders. See "Certain Transactions."
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<PAGE> 23
As of February 28, 1997, the Company had working capital of $4.6 million
and cash and equivalents of $4.5 million. The Company has a bank line of credit
which provides for borrowings of up to $1.0 million through July 1, 1997. As of
February 28, 1997, the Company had no outstanding indebtedness under its line of
credit and no long-term commitments other than operating lease obligations.
The Company believes that the net proceeds from the offering, together with
existing cash balances and funds expected to be generated from operations, will
provide the Company with sufficient funds to finance its operations through at
least the next twelve months.
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<PAGE> 24
BUSINESS
This Business section and other parts of this Prospectus contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, those discussed in "Risk Factors."
INTRODUCTION
Aspec is a leading independent provider of commercially available DIT
solutions for IC design. DIT consists of libraries of electrical circuits, often
called cell libraries, based on proprietary architectures, and a design
methodology, which together enable IC designers to implement the physical design
of an IC in silicon. Aspec's DIT supports many leading EDA tools and advanced
process technologies at leading semiconductor foundries. Aspec's DIT is designed
to: (i) facilitate the rapid design of complex, high-performance ICs in advanced
process technologies, (ii) provide an integrated design solution that increases
productivity, (iii) preserve existing EDA investments and (iv) allow customers
to access multiple foundries for cost control and alternate sourcing. Aspec's
DIT provides designers with quick access to accurate and complete cell libraries
at a lower cost than developing an equivalent internal solution. Aspec's DIT
includes its AdverPro design verification software which enables EDA tools to
exchange data while maintaining design intent, provides an accurate timing
function across EDA tools and helps to ensure compliance with proper design
procedures.
INDUSTRY BACKGROUND
Semiconductors have become a critical component of technology in numerous
electronic products manufactured today. Advances in semiconductor technology
have contributed to the rapid proliferation of personal computers, consumer
electronics, networking equipment, cellular telephones and other communications
devices, as well as a variety of medical, scientific and industrial instruments.
Moreover, complex electronics products continue to be introduced at rapid rates
while increasing worldwide competition continues to shorten product life cycles.
These developments have driven continued improvements in IC design methodologies
and manufacturing process technologies, enabling the design and fabrication of
smaller, faster, more complex ICs that are produced more rapidly and at a lower
cost per function. These trends have also resulted in a significant change in
the semiconductor industry as fewer IC companies are adopting a vertically
integrated approach to design and manufacturing and are instead relying on
third-party specialists for their EDA tools and semiconductor foundries for
their manufacturing needs.
The emergence of ASIC companies in the 1980s is a key example of
specialization in the semiconductor industry. Prior to this emergence,
semiconductor companies were typically vertically integrated and were
responsible for all aspects of the IC development process from design to
manufacturing. ASIC companies developed a new approach that allowed their
customers to define the functional logic of an IC while the ASIC company
performed the physical level design and manufactured the IC.
The ASIC design model relies upon EDA tools, captive wafer foundries and a
process for implementing the physical design in silicon. This process is known
as DIT. DIT consists of (i) a set of electrical circuit libraries, (ii) a common
design architecture upon which these libraries are based and (iii) an overall
design methodology. The circuit libraries define the physical and operating
parameters of the individual logic elements which are the core building blocks
of an IC. These libraries are based on a proprietary architecture that consists
of a set of circuit-level design rules which specify certain key operating and
physical characteristics of the individual electrical components which comprise
these logic elements. The quality of the architecture determines in large part
the circuit's operating performance and power consumption and its ability to
perform as expected when implemented in silicon. The design methodology is a set
of chip-level design guidelines and rules that determine how the circuit
libraries are used in conjunction with EDA tools
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<PAGE> 25
to produce the IC design in silicon. The quality of the design methodology
substantially determines the IC designer's ability to successfully complete the
design and provide for successful manufacturing in a timely manner. The success
that ASIC companies experienced using DIT-based design models influenced
traditional IC companies to adopt a similar model. Today virtually every IC is
developed using EDA tools and DIT.
The following chart illustrates the IC design process and how DIT forms an
integral part of this process:
[A graphical diagram appears here that depicts the steps in the
IC manufacturing
process and how EDA tools and DIT interact with such process.]
Development of a DIT requires highly specialized expertise in IC design,
EDA tools and foundry processes and is complicated for a number of reasons.
First, each step in the IC design process requires at least one specialized EDA
tool, and a complex design typically requires more than ten different tools.
Each EDA tool uses the circuit libraries to perform its analysis. However, each
EDA tool utilizes the same base library in a different format and, therefore, a
design may require access to more than 30 different formats of libraries.
Additionally, each IC designer usually selects EDA tools from different vendors
to optimize the requirements of a specific design process. However, different
tools do not easily interface with each other. Thus, a DIT must also effectively
manage the interrelationship among multiple EDA tools.
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<PAGE> 26
In addition, DIT must be reconfigured for each semiconductor process
technology and also for each semiconductor manufacturer used by the IC designer.
For example, to migrate from a manufacturer's 0.5m to a 0.35m process, each
library must be reconfigured, which requires reoptimization of circuit size and
physical layout. This reconfiguration involves significant engineering resources
and time to complete. The reconfiguration process becomes especially complex for
deep submicron designs, which are required to satisfy the demands of smaller,
faster and more complex ICs.
IC designers utilize various methods to meet their DIT requirements. ASIC
vendors and IC companies typically rely on internally developed DIT solutions.
Electronic systems manufacturers such as PC companies rely on ASIC companies for
DIT. However, it is becoming increasingly difficult for these methods to meet
the challenges of increased design complexity and increased time-to-market
pressures which confront IC designers. ASIC vendors and IC companies are also
finding it increasingly impracticable, costly and time consuming to develop and
maintain their own proprietary DIT. In addition, ASIC vendors and IC companies
find it increasingly difficult to allocate sufficient resources to DIT as more
and more resources are required for complex semiconductor design. Electronic
systems manufacturers are finding it desirable to control the intellectual
property content of their designs, to more rapidly adopt new process
technologies and effectively integrate the various steps in their design flows
and, consequently, to decrease the time-to-market for their products. Thus,
these companies are increasingly seeking a third-party solution to their DIT
requirements.
ASPEC SOLUTION
Aspec is a leading independent provider of commercially available DIT
solutions for IC design. Aspec's DIT supports many leading EDA tools and
advanced process technologies at leading semiconductor foundries. Aspec's DIT is
designed to: (i) facilitate the rapid design of complex, high-performance ICs in
advanced process technologies, (ii) provide an integrated design solution that
increases productivity, (iii) preserve existing EDA investments and (iv) allow
customers to access multiple foundries for cost control and alternate sourcing.
The Company also believes its DIT enables IC companies to create high quality,
reliable and high performance ICs while reducing time-to-market and lowering
production and design costs. Aspec's DIT solution provides quick access to
accurate and complete cell libraries at lower cost than developing an equivalent
internal solution. Aspec's DIT also includes its AdverPro design verification
software which enables EDA tools to exchange data while maintaining design
intent, provides an accurate timing function across EDA tools and helps to
ensure compliance with proper design procedures. Aspec's DIT is also designed to
facilitate the porting of circuit designs to different foundries and process
technologies quickly and at reduced cost, which can be accomplished using
Aspec's QuickPort software. The Company believes its products provide the
following benefits:
Access to Sophisticated Process Technology. Companies obtain access to
advanced process technology quickly and cost effectively by licensing Aspec's
DIT. By selecting a commercial solution, companies are able to dedicate more of
their internal engineering resources to semiconductor design. Aspec reconfigures
and optimizes its architecture and libraries for leading foundries and IC
manufacturers.
Control of Intellectual Property and Design. With Aspec's DIT, IC
designers can establish a standard DIT for all of their design processes and
maintain ownership of the intellectual property content of their designs.
Aspec's DIT also enables electronic systems manufacturers to exercise control
over their designs instead of relying on ASIC companies to control the design
process. This control is especially critical as the time-to-market for new
products continues to contract.
Support of Leading EDA Software Tools. Aspec's DIT supports many leading
third-party EDA tools including those from Avant! Corporation ("Avant!"),
Cadence Design Systems, Inc. ("Cadence"), Epic Design Technology, Inc. ("Epic"),
Mentor Graphics Corp. ("Mentor"), Synopsys
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<PAGE> 27
Inc. ("Synopsys") and Viewlogic Systems Inc. ("Viewlogic"). This open DIT
structure enables EDA tools from different vendors to interface with one another
and permits an IC designer to select the best tool for each step in the design
process. Aspec's DIT also enables an IC designer to exchange data between
different design processes even if different tools are used in each flow. By
supporting a range of EDA tools, Aspec enables an IC designer to preserve the
substantial investment made to acquire such tools.
Facilitation of Deep Submicron Design. Aspec's DIT helps ensure that EDA
tools and design processes work together to design complex deep submicron ICs.
As an integral part of its DIT, Aspec's AdverPro software provides the interface
that enables EDA tools to exchange data while maintaining design intent. As part
of this interface, AdverPro is designed to provide an accurate timing function
across EDA tools which is a critical requirement for deep submicron design.
Aspec's DIT is also designed to help to ensure compliance with proper design
procedures and enables the IC designer to develop a logic description which is
qualified for physical layout.
Design Portability. Aspec's DIT is designed to enable circuit designs to
be transferred from one process technology to another. The increasing demand for
semiconductor manufacturing capacity and access to advanced process technology
has created a strong demand for second sourcing alternatives. However, the
process of reconfiguring a design to a new manufacturing source may require many
weeks of engineering time. Aspec's QuickPort software can significantly reduce
this reconfiguration time by providing IC designers with the flexibility to port
their designs across multiple foundries and process technologies.
STRATEGY
The Company's objective is to expand its position as a leading independent
provider of commercial DIT solutions for the semiconductor industry. To achieve
this objective, the Company has adopted the following strategies:
Establish Aspec DIT as an Industry Standard. Aspec believes it was one of
the first companies to deliver commercial DIT solutions for the semiconductor
industry and is committed to establishing its DIT as an industry standard.
Aspec's DIT provides an open solution by supporting many leading EDA tools and
process technologies at leading semiconductor foundries. The Company's DIT
allows its customers to complete their designs rapidly and precisely, to
preserve their existing investment in EDA tools and to utilize cost-effectively
multiple foundries. Aspec believes its DIT is well-positioned to become an
industry standard because many of its existing and potential competitors are
dedicated to one EDA tool supplier.
Maintain Technological Leadership. Aspec's goal is to maintain its
position as an independent leader in providing commercial DIT solutions by
rapidly developing new versions of its products to support the most advanced EDA
tools and emerging deep submicron process technologies. The Company is
continuing to enhance its DIT and to add functionality to its AdverPro software
to meet the challenges of new processes. Aspec is also developing selected
specialized software tools that enhance its DIT and is developing a process that
facilitates the creation of enhanced cell libraries. The Company intends to
continue to recruit and retain key technical personnel who have the experience
and skills to strengthen Aspec's position as an independent leader in commercial
DIT development.
Broaden Customer Base. Aspec's goal is to expand its customer base by
leveraging the products and expertise it initially developed to meet the
requirements of vertically integrated semiconductor companies that were seeking
to enter the merchant ASIC market. Specifically, the Company is targeting its
sales and marketing efforts towards fabless semiconductor companies that have
historically relied on internal resources to meet their DIT needs. Due to the
increasing cost of such proprietary DITs and the shortening product life cycles
for their products, Aspec believes that these companies will increasingly seek a
third-party solution to their DIT requirements. Aspec is also targeting
electronic systems manufacturers that currently rely on ASIC vendors for DIT. By
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<PAGE> 28
utilizing Aspec's DIT, electronic systems manufacturers can more effectively
control the intellectual property content of their designs.
Promote Long-Term Commercial Relationships. A key element of Aspec's
strategy is to cultivate long-term relationships with its customers, leading
semiconductor foundries and EDA tool companies. Aspec believes that
relationships with key industry participants will enhance its ability to
establish its DIT as an industry standard. The Company emphasizes commercial and
technical discussions to receive feedback on products, support and market
requirements. The Company believes the breadth and quality of this information
is a valuable source of strategic direction and validation.
PRODUCTS AND SERVICES
Aspec markets a suite of DIT products on a per design basis, a per site
basis or an enterprise basis to its customers. These products include electrical
circuit libraries, memory compilers and AdverPro. Typically a customer licenses
a bundle of products which is accompanied by design methodology documentation
and training. These products are also licensed separately. Aspec's DIT products
include licenses for libraries for logic functions based on gate array/embedded
array or standard cell architectures, input/output ("I/O") functions, compilers
to automatically generate memory blocks and software that ensures that various
commercially available EDA tools work together to accurately produce the IC
design in silicon. In addition, Aspec provides software that enables the
portability of designs as well as various design services and consulting to its
DIT licensees on a per project basis. The Company's products, which run on UNIX
workstations and Windows NT-based PCs, support over 30 industry standard EDA
tools, including those produced by Avant!, Cadence, Epic, Mentor, Synopsys and
Viewlogic.
A description of the Company's principal products and services is provided
below:
HDA Libraries. High Density Array ("HDA") is Aspec's proprietary,
patented gate array/ embedded array architecture for silicon processes from
0.8m to 0.35m and smaller. Benchmarks have shown HDA to be 10% to 50%
denser than competitive offerings. In addition, various HDA circuit design
features enable designers to complete the layout of the design faster than
other gate array architectures. With an HDA license, the customer obtains
access to silicon process optimized libraries for commonly used logic
functions, such as Boolean logic.
HDC Libraries. High Density Cell ("HDC") is Aspec's proprietary
standard cell architecture for silicon processes from 0.6m to 0.5m.
Compared to other proprietary or commercially available standard cell
libraries, Aspec's HDC requires less interconnection (routing) overhead. As
a result, not only is an HDC-based IC smaller than competitive offerings,
it is also faster and requires less power. With an HDC license, the
customer obtains access to silicon process optimized libraries for commonly
used logic functions.
SSC Libraries. Super Standard Cell ("SSC") is Aspec's recently
introduced, proprietary standard cell architecture for deep submicron
processes from 0.35m and smaller. When using the same process technology,
SSC libraries will usually be 15% smaller than Aspec's HDC libraries. In
addition, ICs implemented in SSC libraries will consume less power and
yield higher performance, due to library features that are designed to take
advantage of silicon processes from 0.35m and smaller. With an SSC license,
the customer obtains access to silicon process optimized libraries for
commonly used logic functions.
I/O Circuit Libraries. Aspec offers a set of silicon process
optimized circuit libraries for commonly used I/O functions for silicon
processes from 0.8m to 0.35m and smaller. These I/O libraries enable Aspec
customers to provide interconnection to other ICs in the system. As these
interconnections have become more application specific, Aspec has developed
specialized I/O libraries for these interfaces.
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<PAGE> 29
Each of these cell and I/O libraries is licensed on a per silicon
process basis, and prices range from $100,000 to over $800,000.
Memory Compilers. Most IC designs contain large blocks of memory to
store data. Aspec offers various memory compilers which automate the
process of creating these memory blocks. As with all other libraries, the
memory compilers are optimized for each silicon process. Prices for memory
compilers range from $100,000 to $450,000.
EDA Design Kits. In the IC development process, the designer uses
many EDA tools. Each of these EDA tools requires that the HDA/HDC/SSC
libraries, I/O libraries and memory blocks be described in a way that is
understood by the EDA tools. Collectively, these different representations
are called EDA Design Kits. Aspec's EDA Design Kits can support more than
30 different EDA tools. EDA Design Kits are typically licensed with cell
and I/O libraries. The price of each EDA Design Kit ranges from $10,000 to
over $250,000, depending upon how many EDA tools are supported.
AdverPro. Aspec's AdverPro software is designed to manage the design
process, provide an accurate timing function across EDA tools and help
ensure compliance with proper design procedures. AdverPro is sold as
licensed software, and its price ranges from $45,000 for a single user
license to over $1,000,000 for an enterprise license.
QuickPort. Aspec's QuickPort software is designed to enable an IC
company to economically and timely port a design developed in Aspec's DIT
from one silicon process to another. QuickPort also enables the transfer of
circuit designs from one IC to another by providing for the reuse of
designs developed in Aspec's DIT. QuickPort is sold as licensed software,
and its price ranges from $100,000 for a single user license to $500,000
for an enterprise license.
ASIC Design Service. Aspec maintains a design center to test the
functionality of its software and to assist customers that lack experience
in completing full circuit designs. These design services are offered on a
per project basis.
Foundry Processes Supported by Aspec
Aspec's DIT supports many of the world's leading semiconductor foundries,
including Chartered Semiconductor Manufacturing Ltd., International Business
Machines Corp. ("IBM"), Taiwan Semiconductor Manufacturing Corp. ("TSMC") and
United Microelectronics Corporation ("UMC"), thus offering its customers a wide
variety of manufacturing sources. Aspec's DIT products are generally licensed on
a per process technology basis and are available to support submicron processes
from 0.8m to 0.35m, depending on the foundry.
CUSTOMERS
Aspec's principal customers include vertically integrated semiconductor
companies, fabless semiconductor companies and semiconductor foundries. The
Company has been dependent on a relatively small number of customers for a
substantial portion of its annual revenue. In fiscal 1994, Thesys, Sanyo,
Hyundai and Samsung accounted for 28.9%, 21.3%, 19.3% and 12.7%, respectively,
of the Company's revenue. In fiscal 1995, Samsung, NSC and Yamaha accounted for
18.2%, 17.3% and 15.1%, respectively, of the Company's revenue. In fiscal 1996,
Asahi Glass accounted for 10.5% of the Company's revenue, and the Company's six
largest customers accounted for 51.8% of the Company's revenue. The Company
anticipates that the majority of its revenue will be derived from a relatively
small number of customers through fiscal 1997. None of the Company's customers
has a written agreement with the Company that obligates it to license additional
products or to renew its maintenance agreement, and there can be no assurance
that any customer will purchase additional software licenses or renew its
maintenance agreement. See "Risk Factors -- Customer Concentration."
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The following is a representative list of Aspec's customers, each of which
represented at least $100,000 of the Company's revenue in fiscal 1996.
<TABLE>
<S> <C>
ASIC COMPANIES IC COMPANIES
Asahi Glass Co., Ltd. Analog Devices, Inc.
Hyundai Electronics Industries Co., Ltd. Accton Technology Corp./Bridgecom
National Semiconductor Corporation Cirrus Logic, Inc.
Samsung Electronics Co., Ltd. CommQuest Technologies, Inc.
Sanyo Electric Co., Ltd. Integrated Circuit Systems, Inc.
Tritech Microelectronics International, Inc. Integrated Device Technology Corporation
Yamaha Corporation Media Reality Technologies, Inc.
PMC-Sierra, Inc.
EDA COMPANIES Siliconians, Inc.
TranSwitch Corp.
Cadence Design Systems, Inc. Welldo Strong Ltd./Beijing
Microelectronics
ELECTRONIC SYSTEMS MANUFACTURERS Institute
Acer Laboratories, Inc. Winbond Electronic Ltd.
Compaq Computer Corporation
</TABLE>
SALES AND MARKETING
The Company's current and potential customers are principally located in
North America, Japan, Korea and parts of Asia. The Company markets its products
in North America, Japan and Korea primarily through its direct sales force. The
Company employs highly skilled engineers and technical sales persons capable of
serving the sophisticated needs of its customers. In addition to its direct
sales and marketing efforts, the Company participates in industry trade shows
and seminars to promote the adoption of its products. In parts of Asia and
Europe, the Company markets its products primarily through a limited number of
independent distributors that license and service the Company's products in
these markets. The Company also supports these distributors with technical,
sales and management personnel. The Asian and European countries that have
constituted the primary foreign markets for the Company's products are Korea,
Japan, Taiwan, Singapore and Germany.
International revenue accounted for 83.7%, 54.2% and 66.2% of the revenue
in fiscal 1994, 1995 and 1996, respectively. The Company expects that
international revenue will continue to account for a significant portion of its
revenue in the future. The Company intends to continue to expand its sales and
marketing activities in Asia and Europe. The Company's international business
involves a number of risks, including the impact of possible recessionary
environments in economies outside the United States, political and economic
instability, exchange rate fluctuations, longer receivables collection periods
and greater difficulty in accounts receivable collection from distributors and
customers, difficulty in managing distributors or sales representatives,
unexpected changes in regulatory requirements, reduced or limited protection for
intellectual property rights, export license requirements, tariffs and other
trade barriers and potentially adverse tax consequences. There can be no
assurance that the Company will be able to sustain or increase revenue derived
from international licensing and service or that the foregoing factors will not
have a material adverse effect on the Company's business, operating results and
financial condition. Although the Company prices its products and services in
United States dollars, currency exchange fluctuations in countries in which the
Company licenses its products could have a material adverse effect on the
Company's business, operating results and financial condition by resulting in
pricing that is not competitive with products priced in local currencies. The
Company does not hedge against foreign currency fluctuations. See "Risk
Factors -- Risks Associated With International Operations."
The Company licenses its software to customers under nonexclusive
agreements that do not transfer title and that restrict use of the products to
specified purposes. The Company offers customers the option of licensing its
products enterprise-wide or for use at a particular site or on
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<PAGE> 31
designated computers at specific sites. License fees are dependent on the type
of license, product mix and number of copies of each product subject to the
license.
CUSTOMER SUPPORT
The Company provides customers with technical support as well as training
and consulting services. The Company believes that a high level of customer
service and support is important to the adoption and successful utilization of
its products. The Company's customers typically pay an additional fee for
maintenance agreements that entitle them to technical support and periodic
product upgrades. The Company also offers additional training and consulting
services on a fee basis. To address technical issues, the Company has
established a technical support group comprised of field and headquarters
applications engineers who understand the design methodologies of the Company's
customers. Through its technical support group, the Company provides customers
with software updates, documentation updates and assistance with problem
identification and resolution.
RESEARCH AND DEVELOPMENT
The Company believes that its future competitive position will depend in
large part on its ability to quickly and cost effectively develop new products,
maintain and enhance its current product line, maintain technological
competitiveness and meet an expanding range of customer requirements. During
fiscal 1994, 1995 and 1996, research and development expenses were $289,000,
$445,000 and $921,000, respectively. Aspec is committed to devoting significant
resources to research and development. To date, all software development costs
have been expensed as incurred. The Company's research and development efforts
are focused on continued development of proprietary cell architecture,
enhancements to existing software designs and support of additional design
flows.
The Company's customers operate in the semiconductor industry, which is
subject to rapid technological change, frequent introductions of new products,
short product life cycles, changes in customer demand and requirements and
evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. Accordingly, the Company's future success
will depend on its ability to continue to enhance its existing products and to
develop and introduce new products that satisfy increasingly sophisticated
customer requirements and that keep pace with product introductions by EDA tool
companies, emerging process technologies and other technological developments in
the semiconductor industry. Any failure by the Company to anticipate or respond
adequately to changes in technology or customer requirements, or any significant
delays in product development or introduction, would have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company will be successful in its product
development efforts, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of new
or enhanced products or that such new or enhanced products will achieve market
acceptance. The Company has in the past experienced delays in the release dates
of certain of its products. If release dates of any new significant products or
product enhancements are delayed, the Company's business, operating results and
financial condition would be materially adversely affected. The Company could
also be exposed to litigation or claims from its customers in the event it does
not satisfy its delivery commitments. There can be no assurance that any such
claim will not have a material adverse effect on the Company's business,
operating results and financial condition. See "Risk Factors -- Dependence Upon
Continuous Product Development; Risk of Product Delays."
COMPETITION
The market for commercial DIT products is new and emerging, and the Company
has few direct competitors. The Company principally competes with the
engineering departments of potential customers that develop and maintain
internally developed DIT. Certain of the Company's other
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<PAGE> 32
potential customers rely on proprietary DIT developed and maintained by ASIC
vendors. Although the Company believes that none of its competitors offer a
complete DIT solution, the Company's current competitors with respect to one or
more aspects of its DIT solution include Cascade, Compass, Si-Arc and Artisan.
In addition, certain semiconductor foundries currently offer or may in the
future offer one or more elements of a DIT solution. The Company does not offer
EDA tools, and its products are designed to be compatible with leading EDA
tools. The Company expects that the market for its products will become
increasingly competitive in the future. Among the Company's potential
competitors are a number of large vertically integrated semiconductor companies
and numerous EDA software companies that may develop products that compete with
those of the Company. Increased competition could eventually result in price
reductions or reduced operating margins which could materially adversely affect
the Company's business, operating results and financial condition. Many of the
Company's potential competitors have significantly greater financial, technical,
marketing and other resources than the Company. As a result, they may be able to
respond more quickly to new or emerging technologies and to changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than can the Company. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures will not materially adversely affect
the Company's business, operating results and financial condition. The Company
believes the principal elements of competition in its market are the range of
EDA tools and process technologies supported, technological leadership, product
functionality, the level of technical support provided, software reliability and
price. The Company believes that it competes favorably with respect to each of
these factors. See "Risk Factors -- Competition."
PROPRIETARY RIGHTS
The Company's success is dependent on its ability to protect its
proprietary technology. The Company relies upon a combination of copyright,
patent, trade secret and trademark laws to protect its proprietary technology.
The Company enters into confidentiality agreements with its employees,
distributors and customers and limits access to and distribution of the source
code to its software and other proprietary information. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. Any such misappropriation of the Company's
technology or development of competitive technologies could have a material
adverse effect on the Company's business, operating results and financial
condition. Despite the Company's efforts to protect its proprietary rights,
there can be no assurance that the Company will be able to protect its
proprietary rights against unauthorized third party copying or use, and attempts
may be made to copy or reverse engineer aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing the
unauthorized use of the Company's products is difficult and the Company could
incur substantial costs in protecting and enforcing its intellectual property
rights. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition.
As of February 28, 1997, the Company held three U.S. patents which expire
from 2012 to 2013 and had six U.S. patent applications pending. The Company also
has 13 patent applications pending in various foreign jurisdictions. The Company
expects to continue to file patent applications where appropriate to protect its
proprietary technologies; however, the Company believes that its continued
success depends primarily on factors such as the technological skills and
innovation of its personnel rather than on its patents. The Company has
registered the trademarks Aspec Technology and Mastergen and has four trademark
applications pending in the United States. The process of seeking patent and
trademark protection can be expensive and time consuming. There can be no
assurance that patents or trademarks will issue from pending or future
applications or that, if issued,
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<PAGE> 33
such patents or trademarks will not be challenged, invalidated or circumvented,
or that rights granted thereunder will provide meaningful protection or other
commercial advantage to the Company. Moreover, there can be no assurance that
any patent or trademark rights will be upheld in the future or that the Company
will be able to preserve any of its other intellectual property rights. In
addition, the laws of certain countries in which the Company's products are
licensed or distributed do not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
Accordingly, effective trademark, copyright and patent protection may be
unavailable in certain foreign countries.
As is common in the software industry, the Company may from time to time
receive notices from third parties claiming infringement by the Company's
products of third-party proprietary rights. While the Company is not currently
subject to any such claim, the Company believes that its products could
increasingly be subject to such claims as the market for its products grows and
as more competitors enter the market. Any such claim, with or without merit,
could result in significant litigation costs and require the Company to enter
into royalty and licensing agreements, which could have a material adverse
effect on the Company's business, operating results and financial condition.
Such royalty and licensing agreements, if required, may not be available on
terms acceptable by the Company or at all. See "Risk Factors -- Limited
Protection of Proprietary Rights."
EMPLOYEES
As of February 28, 1997, the Company had 100 employees, including 60 in
operations, 13 in research and development, 20 in sales and marketing and 7 in
finance and administration. None of the Company's employees is represented by a
collective bargaining agreement, nor has the Company experienced any work
stoppage. The Company considers its relations with its employees to be good.
FACILITIES
The Company occupies approximately 29,000 square feet of office space in
Sunnyvale, California, pursuant to a lease which expires in November 2001. The
Company believes that its existing facility is adequate for its current needs
but that it may need to seek additional space in the future. The Company
believes that suitable additional or alternative space will be available in the
future on commercially reasonable terms as needed.
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GLOSSARY OF TERMS
APPLICATION SPECIFIC INTEGRATED CIRCUIT ("ASIC"): A custom/semi-custom IC
designed for a particular product or application.
COMPILER: A software application that creates multiple circuit layouts based on
pre-defined design rules.
DEEP SUBMICRON DESIGNS: Design rules, generally of less than 0.6m geometry,
resulting in an IC with extremely high levels of integration and a very small
die size area as measured in millimeters.
DESIGN ARCHITECTURE: A set of circuit-level design rules which specify certain
key operating and physical characteristics of the circuit.
DESIGN IMPLEMENTATION TECHNOLOGY ("DIT"): A process for implementing the
physical design of an IC in silicon. DIT consists of a set of electrical circuit
libraries, a common design architecture upon which these libraries are based and
an overall design methodology.
DESIGN METHODOLOGY: A set of chip-level design guidelines and rules that
determine how the circuit libraries are used in conjunction with EDA tools to
produce the IC design in silicon.
ELECTRICAL CIRCUIT LIBRARIES: Also referred to as cell libraries. Functions
available in a semi-custom IC design environment used to define the physical and
operating parameters of the individual logic elements which are the core
building blocks of an IC.
ELECTRONIC DESIGN AUTOMATION ("EDA"): Technology and process by which
electronic products (including custom and semi-custom ICs) are designed using
computer-aided engineering tools.
EMBEDDED ARRAY: A standard cell incorporated in a gate array.
FABLESS SEMICONDUCTOR COMPANY: A company that designs ICs but outsources
manufacturing to foundries.
FOUNDRY: Semiconductor or silicon manufacturing company that manufactures
custom and semi-custom ICs.
GATE ARRAY: A library of standard functional blocks available to a designer and
pre-existing on the IC, but not interconnected. The EDA software arranges the
interconnections of these cells to form almost any type of electronic function.
INPUT/OUTPUT ("I/O") FUNCTIONS: The circuitry residing at the periphery of the
IC, the purpose of which is to communicate with other parts of the system.
INTEGRATED CIRCUIT ("IC"): The chip, also referred to as a semiconductor.
INTELLECTUAL PROPERTY ("IP"): Proprietary functions/capabilities of an end
user's electronic design.
MICRON ("m"): One millionth of a meter, a standard unit of measure in IC
design.
PORTABILITY: The ability to transfer a circuit design to a new silicon process
technology or to a new foundry source.
STANDARD CELL: An architecture with pre-determined building blocks which, when
arranged in certain combinations, can make up almost any complex semi-custom IC.
More customizable than a gate array.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of April 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Conrad J. Dell'Oca............... 56 President, Chief Executive Officer and Chairman of
the Board
Jai P. Shin...................... 55 Executive Vice President, Business Development and
Director
Patrick Y. Yin................... 46 Senior Vice President, Engineering
James T. Lindstrom............... 51 Vice President, Finance and Administration and Chief
Financial Officer
Y.S. Fu(1)(2).................... 49 Director
Walter G. Kortschak(1)(2)........ 37 Director
Cheng Ming Lee................... 54 Director
Jeffrey D. Saper(2).............. 49 Director and Secretary
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Dell'Oca has served as President and a director of the Company since
January 1992 and as Chief Executive Officer of the Company since February 1992.
In addition, since February 1997, Mr. Dell'Oca has served as Chairman of the
Board. From May 1981 to 1991, Mr. Dell'Oca was Vice President, Research and
Development of LSI Logic Corporation ("LSI Logic"), a semiconductor
manufacturer. Mr. Dell'Oca received a B.A.Sc. and M.A.Sc. in Engineering Physics
and a Ph.D. in Electrical Engineering from the University of British Columbia.
Mr. Shin has served as Executive Vice President, Business Development of
the Company since November 1996 and as a director of the Company since January
1992. From January 1992 to November 1996, Mr. Shin served as Vice President,
Business Development of the Company, and from January 1992 to November 1996, Mr.
Shin served as Chief Financial Officer of the Company. From January 1986 to
December 1989, Mr. Shin served as President of LSI Logic Korea. Mr. Shin
received a B.A. in Economics from San Jose State University.
Mr. Yin has served as Senior Vice President, Engineering of the Company
since February 1997. From January 1992 to February 1997, Mr. Yin served as Vice
President, Engineering. From July 1989 to November 1991, Mr. Yin served as
Design Group Manager of Chips and Technologies, Inc., a supplier of
semiconductor and software solutions. From October 1981 to July 1989, Mr. Yin
served as Director of Engineering of LSI Logic. Mr. Yin received an A.C.G.I. in
Electrical Engineering from the Imperial College of Science and Technology and a
B.Sc.E.E. from the University of London.
Mr. Lindstrom has served as Vice President, Finance and Administration and
Chief Financial Officer of the Company since November 1996. From August 1992 to
November 1996, Mr. Lindstrom served as Vice President, Finance and Chief
Financial Officer of Trident Microsystems, Inc., a semiconductor design company.
From February 1990 to August 1992, he served as Vice President, Finance and
Chief Financial Officer of C-Cube Microsystems, Inc., a semiconductor design
company. Mr. Lindstrom received a B.S. in Finance from the University of
California, Berkeley and an M.B.A. from the University of Southern California.
Mr. Fu has been a director of the Company since May 1996. Since January
1996, Mr. Fu has served as Partner of WK Technology. WK Technology manages a
number of venture capital funds, including WK Technology Fund, WK Technology
Fund II, WK Technology Fund III and WK Tech-
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nology Fund IV, which are principal stockholders of the Company. From April 1993
to December 1995, Mr. Fu served as Senior Vice President, Worldwide OEM Division
and Chairman of the Board of Logitech Far East Ltd. ("Logitech Far East"), a
computer hardware manufacturer. From January 1992 to April 1993, Mr. Fu served
as General Manager and Chairman of the Board of Logitech Far East. From July
1986 to January 1992, Mr. Fu served as General Manager of Logitech Far East.
Mr. Kortschak has been a director of the Company since May 1996. Mr.
Kortschak is a General Partner of Summit Partners, L.P., where he has been
employed since June 1989. Summit Partners and its affiliates manage a number of
venture capital funds, including Summit Ventures IV, L.P. and Summit Investors
III, L.P., which are principal stockholders of the Company. Mr. Kortschak also
serves as a director of Diamond Multimedia Systems, Inc., HMT Technology
Corporation, Mecon, Inc. and Simulation Sciences, Inc. Mr. Kortschak formerly
served as a director of McAfee Associates, Inc.
Mr. Lee has been a director of the Company since October 1996. Since
January 1997, Mr. Lee has served as President of Apex Venture Capital Corp., a
venture capital fund. Since February 1996, Mr. Lee has served as President of
Win Win Venture Capital Corp., a venture capital fund and principal stockholder
of the Company. Since January 1990, Mr. Lee has served as President of Fidelity
Venture Capital Corp., a venture capital fund. Since April 1987, Mr. Lee has
served as President of Taiwan Venture Capital Corp., a venture capital fund. Mr.
Lee also serves as a director of Award Software International Inc. and Taiwan
Opportunity Fund Limited.
Mr. Saper has been Secretary and a director of the Company since May 1996.
Mr. Saper has been a member of Wilson Sonsini Goodrich & Rosati, P.C., legal
counsel to the Company, since 1980. Mr. Saper is also a director of Diamond
Multimedia Systems, Inc. and Unison Software, Inc.
All directors hold office until the next annual meeting of stockholders or
until their successors have been duly elected and qualified. Officers serve at
the discretion of the Board and are appointed annually. There are no family
relationships between any of the directors or executive officers of the Company.
BOARD COMMITTEES
The Compensation Committee of the Board of Directors consists of Messrs. Fu
and Kortschak. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for the Company's executive
officers, directors and employees and administers the Company's Option Plan and
Purchase Plan.
The Audit Committee of the Board of Directors consists of Messrs. Fu,
Kortschak and Saper. The Audit Committee aids management in the establishment
and supervision of the Company's financial controls, evaluates the scope of the
annual audit, reviews audit results, consults with management and the Company's
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into aspects of the
Company's financial affairs.
DIRECTOR COMPENSATION
Outside directors receive $5,000 per year for serving on the Board of
Directors, $1,500 for each regular meeting of the Board of Directors in which
they participate and $2,500 per year for serving as a member of the Audit or
Compensation Committee of the Board. Outside directors are also reimbursed for
all reasonable expenses incurred by them in attending Board and Committee
meetings. In addition, outside directors are eligible to participate in the
Company's Director Plan, which was adopted in February 1997. For purposes of
director compensation and participation in the Director Plan, outside directors
are defined as directors who are not employees of the Company and are not
partners or members of any venture capital firm or institutional investor which
owns securities of the Company having more than five percent of the total voting
power of the Company. A total of 250,000 shares of Common Stock has been
reserved for issuance under the Director Plan. As
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of February 28, 1997, options to purchase an aggregate of 25,000 shares of
Common Stock were outstanding under the Director Plan, and an aggregate of
225,000 shares of Common Stock remained available for future grants. The
Director Plan provides for the grant of nonstatutory stock options to outside
directors of the Company pursuant to an automatic, nondiscretionary grant
mechanism. The Director Plan provides that each outside director, except for
employee directors who become outside directors, shall be granted a nonstatutory
stock option to purchase 25,000 shares of Common Stock on the date upon which
such person first becomes an outside director (the "First Option"). Thereafter,
each outside director shall be automatically granted an option to purchase 5,000
shares of Common Stock upon his or her reelection to the Board on the date of
the Company's annual meeting of stockholders of each year (a "Subsequent
Option"), if on such date such outside director shall have served on the
Company's Board of Directors for at least six (6) months. The Director Plan
provides that each option shall become exercisable as to 25% of the shares
subject to the option on the day before the date of the Company's annual meeting
of stockholders of each year as long as the optionee remains a director. The
exercise price per share of all options granted under the Director Plan shall be
equal to the fair market value of a share of the Company's Common Stock on the
date of grant. Options granted to Outside Directors under the Director Plan have
a ten year term, but will expire unless exercised within three months following
the termination of an Outside Director's status as a director. In the event of
the merger or sale of substantially all of the assets of the Company, all
outstanding options shall be assumed or substituted by the successor
corporation, or if they are not assumed or substituted, they shall become fully
vested and exercisable. If not terminated earlier, the Director Plan will have a
term of ten years. Directors are also eligible to receive stock options under
the Option Plan. Pursuant to the Director Plan, Mr. Saper was granted an option
to purchase 25,000 shares at an exercise price of $8.50 per share on February
25, 1997. See "Management -- Compensation Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Fu and Kortschak. Neither of these individuals were at any time since
the formation of the Company an executive officer or employee of the Company. No
executive officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not currently have any employment contract in effect with
its Chief Executive Officer or any other Named Executive Officer (as defined
below).
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EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by the
Company during the fiscal year ended November 30, 1996 to the Company's Chief
Executive Officer and the Company's three other most highly compensated
executive officers whose salary and bonus exceeds $100,000 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMPENSATION(2)(3) COMPENSATION(4)
- --------------------------------- -------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Conrad J. Dell'Oca............... $174,372 $50,000 $103,070 $29,682
President, Chief Executive
Officer and Director
Jai P. Shin...................... 159,831 50,000 103,070 6,239
Executive Vice President,
Business Development and
Director
Patrick Y. Yin................... 151,161 50,000 55,500 3,130
Senior Vice President,
Engineering
Perry G. Constantine(5).......... 103,503 22,500 -- 1,612
Executive Vice President,
Worldwide Sales and Marketing
</TABLE>
- ---------------
(1) Includes bonus payments earned in fiscal 1996 but paid in fiscal 1997.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the Named Executive
Officer for such year.
(3) Represents incentive payments based on revenue from certain contracts.
Includes incentive payments earned in fiscal 1996 but paid in fiscal 1997.
(4) Represents payments for life insurance and long-term disability insurance
premiums.
(5) Mr. Constantine joined the Company in 1996, and his employment with the
Company terminated in April 1997. Mr. Constantine's annual salary was
$215,000.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant stock options to any of the Named Executive
Officers during the fiscal year ended November 30, 1996. In addition, none of
the Named Executive Officers held options or exercised options during the fiscal
year ended November 30, 1996.
COMPENSATION PLANS
1996 Stock Option Plan
The Company's Option Plan was approved by the Board of Directors and the
stockholders in June 1996 and was amended in February 1997. The 1996 Plan
provides for the grant to employees of the Company (including officers and
employee directors) of incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), and for the grant
of nonstatutory stock options to employees, directors and consultants of the
Company. The Option Plan is currently administered by the Compensation Committee
of the Board of Directors (the "Administrator"), which selects the optionees,
determines the number of shares to be subject to each option and determines the
exercise price of each option. The Option Plan authorizes the issuance of an
aggregate of up to 4,500,000 shares of Common Stock. As of February 28, 1997,
37
<PAGE> 39
options to purchase an aggregate of 1,117,100 shares of Common Stock were
outstanding under the Option Plan, and an aggregate of 3,382,900 shares of
Common Stock remained available for future grants. The exercise price of all
incentive stock options granted under the Option Plan must be at least equal to
the fair market value of the Common Stock on the date of grant. The exercise
price of all nonstatutory stock options granted under the Option Plan shall be
determined by the Administrator. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of stock of the
Company, the exercise price of any incentive stock option granted must equal at
least 110% of the fair market value on the grant date and the maximum term of
the incentive stock option must not exceed five years. The term of all other
options granted under the Option Plan may not exceed ten years.
In the event of a merger of the Company with or into another corporation or
a sale of substantially all of the assets of the Company, the Option Plan
requires that each outstanding option be assumed or an equivalent option
substituted by the successor corporation; provided, however, that in the event
the successor corporation refuses to assume or substitute for the outstanding
options, such options will become fully vested and exercisable for a period of
fifteen days after notice from the Administrator. Unless terminated sooner, the
Option Plan will terminate ten years from its effective date. The Board has
authority to amend or terminate the Option Plan, provided that no such action
may impair the rights of the holder of any outstanding options without the
written consent of such holder.
1997 Employee Stock Purchase Plan
The Company's Purchase Plan was approved by the Board of Directors in
February 1997 and will become effective upon the closing of the offering. A
total of 500,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan. The Purchase Plan is intended to qualify under Section 423 of the
Code. The Purchase Plan includes offering periods lasting six months with a new
offering period commencing every six months. The initial offering period will
commence on the date of the offering and end on the last business day on or
prior to September 30, 1997, and subsequent offering periods are initially
expected to be from October 1 to March 31 and April 1 to September 30 of each
year. Employees are eligible to participate if they are regularly employed by
the Company for at least twenty hours per week and more than five months in any
calendar year.
The Purchase Plan permits eligible employees to purchase Common Stock
through payroll deductions, which may not exceed 10% of an employee's base
compensation, including commissions, bonuses and overtime, at a price equal to
85% of the fair market value of the Common Stock at the beginning of each
offering period or the last date of the offering period, whichever is lower. In
the event of a merger of the Company into another corporation or a sale of
substantially all of the assets of the Company, the Purchase Plan provides that
the Board of Directors will shorten the offering period by setting a new
exercise date to occur before the proposed sale or merger. Unless terminated
sooner, the Purchase Plan will terminate ten years after its effective date. The
Board of Directors has authority to amend or terminate the Purchase Plan
provided no such action may adversely affect the rights of any participant.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the fullest extent permitted by the Delaware General Corporation
Law (the "Delaware Law"). Under the Delaware Law, a director's liability to a
company or its stockholders may not be limited with respect to (i) any breach of
his duty of loyalty to the Company or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) unlawful payments or dividends or unlawful stock repurchases or
redemptions or (iv) transactions from which the director derived an improper
personal benefit.
38
<PAGE> 40
The Company's Bylaws provide that the Company shall indemnify its officers
and directors and may indemnify its employees and other agents to the fullest
extent permitted under the Delaware Law. The Company has also entered into
agreements to indemnify its directors and executive officers, in addition to the
indemnification provided for in the Company's Bylaws. The Company believes that
these provisions and agreements are necessary to attract and retain qualified
directors and executive officers. The Company's Bylaws also permit it to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions, regardless of whether the Delaware
Law would permit indemnification. In addition, the Company maintains directors'
and officers' liability insurance.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification will be required
or permitted. The Company is not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification.
39
<PAGE> 41
CERTAIN TRANSACTIONS
In October 1996, the Company issued an aggregate of 508,260 shares of
Common Stock to investors for an aggregate purchase price of $2,160,105. The
investors included Win Win Venture Capital Corporation, which purchased 139,962
shares of Common Stock from the Company for an aggregate purchase price of
$594,839 and 560,038 shares of Common Stock from certain of the Company's
directors and officers for an aggregate purchase price of $2,380,162. In
connection with certain services rendered in connection with such transaction,
the Company paid $159,956 to Win Win Venture Capital Corporation. Cheng Ming
Lee, a director of the Company, is President of Win Win Venture Capital
Corporation.
In August 1996, the Company repurchased certain shares of the Company's
Common Stock held by certain directors and officers of the Company.
Specifically, the Company repurchased 1,194,696 shares of Common Stock from
Conrad J. Dell'Oca, President, Chief Executive Officer and Chairman of the
Board, for an aggregate purchase price of $5,049,980, 1,194,698 shares of Common
Stock from Jai P. Shin, Vice President, Business Development and director, for
an aggregate purchase price of $5,049,988 and 1,194,696 shares of Common Stock
from Patrick Y. Yin, Senior Vice President, Engineering, for an aggregate
purchase price of $5,049,980.
In May and June 1996, the Company issued an aggregate of 130,378 shares of
Series A Redeemable Preferred Stock to investors for an aggregate purchase price
of $13,037,800. The investors included Summit Ventures IV, L.P. and Summit
Investors III, L.P., WK Technology Fund, WK Technology Fund II and WK Technology
Fund III and Jeffrey D. Saper. The holders of the Series A Redeemable Preferred
Stock are entitled to receive cumulative dividends from the Company at the rate
of 6% per annum, compounded annually. The Company must redeem 33 1/3% of the
outstanding shares of Series A Redeemable Preferred Stock on June 1, 2001, 50%
of the outstanding shares of Series A Redeemable Preferred Stock on June 1, 2002
and 100% of the outstanding shares of Series A Redeemable Preferred Stock on
June 1, 2003. In addition, the Company must redeem the outstanding shares of
Series A Redeemable Stock under certain other conditions, including an initial
public offering of the Company's Common Stock to the extent the Company receives
more than $20,000,000 of net cash proceeds. Accordingly, a portion of the
proceeds from the offering will be used to redeem all of the outstanding shares
of Series A Redeemable Preferred Stock. See "Use of Proceeds." The Series A
Redeemable Preferred Stock is not convertible into Common Stock. Summit Ventures
IV, L.P. and Summit Investors III, L.P. purchased an aggregate of 64,544 shares
of Series A Redeemable Preferred Stock for an aggregate purchase price of
$6,454,400. Walter G. Kortschak, a director of the Company, is a general partner
of Summit Ventures IV, L.P. and Summit Investors III, L.P. WK Technology Fund,
WK Technology Fund II and WK Technology Fund III purchased an aggregate of
64,544 shares of Series A Redeemable Preferred Stock for an aggregate purchase
price of $6,454,400. Y.S. Fu, a director of the Company, is a partner of WK
Technology Fund, WK Technology Fund II and WK Technology Fund III. Jeffrey D.
Saper, a director of the Company, purchased 484 shares of Series A Redeemable
Preferred Stock for an aggregate purchase price of $48,400.
In May and June 1996, the Company also issued an aggregate of 4,778,804
shares of Common Stock to investors for an aggregate purchase price of
$7,162,205. The investors included Summit Ventures IV, L.P. and Summit Investors
III, L.P., WK Technology Fund, WK Technology Fund II and WK Technology Fund III
and Jeffrey D. Saper. Summit Ventures IV, L.P. and Summit Investors III, L.P.
purchased an aggregate of 2,365,714 shares of Common Stock for an aggregate
purchase price of $3,545,600, WK Technology Fund, WK Technology Fund II and WK
Technology Fund III purchased an aggregate of 2,365,714 shares of Common Stock
for an aggregate purchase price of $3,545,600 and Jeffrey D. Saper purchased
17,766 shares of Common Stock for an aggregate purchase price of $26,627.
Beginning in May 2003, purchasers holding at least 55% of the shares of Common
Stock then held by all such purchasers shall have the right to require the
Company to repurchase all or any portion of such shares of Common Stock at the
then fair market value of such shares as determined by the Company and the
investors, or in the event such parties cannot agree upon the fair market
40
<PAGE> 42
value, the fair market value shall be determined by an independent appraiser.
The right of the purchasers to cause the Company to purchase their shares of
Common Stock will terminate upon the closing of the offering.
In April 1996, pursuant to the terms of a Restricted Stock Purchase
Agreement, the Company issued 650,000 shares of Common Stock to Perry G.
Constantine, its former Executive Vice President, Worldwide Sales and Marketing
of the Company, for an aggregate purchase price of $243,750. Mr. Constantine
paid for such shares with a promissory note. The promissory note is secured by
the shares of Common Stock purchased with such note and provides for full
recourse in the event such shares are not sufficient to secure the repayment.
The promissory note bears interest at the rate of 6.5% per annum and is due and
payable four years from the date of issuance. The largest amount of principal
and interest due on the promissory note since the note was issued and the amount
outstanding at November 30, 1996 was $253,517. Mr. Constantine's employment with
the Company terminated in April 1997 and the Company repurchased 487,500 shares
purchased by Mr. Constantine at the original purchase price paid for such shares
by means of a reduction of the amount payable under the promissory note.
41
<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of February 28, 1997 and as
adjusted to reflect the sale of the shares of Common Stock offered hereby with
respect to (i) each person (or group of affiliated persons) known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers, and
(iv) all directors and executive officers as a group. Except as otherwise
indicated in the footnotes to the table, each of the stockholders has sole
voting and investment power with respect to the shares of beneficially owned by
such stockholders, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF ------------------------
SHARES BENEFICIALLY BEFORE THE AFTER THE
NAME OF BENEFICIAL OWNER OWNED OFFERING(1) OFFERING(1)
- --------------------------------------------------- ------------------- ---------- ---------
<S> <C> <C> <C>
Conrad J. Dell'Oca (2)............................. 2,625,304 11.6% 9.8%
830 East Arques Avenue
Sunnyvale, California 94086
Summit Partners, L.P. (3).......................... 2,601,008 11.4 9.7
Walter G. Kortschak
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
WK Technology (4).................................. 2,601,008 11.4 9.7
Y.S. Fu
10th Floor, 115, Sec. 3
Ming Sheng E. Road
Taipei, Taiwan R.O.C.
Patrick Y.C. Yin (5)............................... 2,464,170 10.8 9.2
830 East Arques Avenue
Sunnyvale, California 94086
Yen C. Chang (6)................................... 2,446,570 10.8 9.2
830 East Arques Avenue
Sunnyvale, California 94086
Jai P. Shin (7).................................... 2,012,126 8.9 7.5
830 East Arques Avenue
Sunnyvale, California 94086
Cheng Ming Lee (8)................................. 700,000 3.1 2.6
Perry G. Constantine(9)............................ 632,800 2.8 2.4
Jeffrey D. Saper (10).............................. 176,046 * *
All directors and executive officers as a group (10
persons)......................................... 16,259,032 71.6 60.8
</TABLE>
- ---------------
* Less than 1%
(1) Applicable percentage ownership is based on 22,720,234 shares of Common
Stock outstanding as of February 28, 1997 and 26,720,234 shares immediately
following the completion of this offering (assuming no exercise of the
Underwriters' over-allotment option).
(2) Shares held by Conrad J. Dell'Oca, Trustee of the Conrad J. and Nellie A.
Dell'Oca Family Trust dated July 15, 1980. Mr. Dell'Oca is a director of
the Company.
(3) Includes 2,490,724 shares held by Summit Ventures IV, L.P. ("Summit IV")
and 110,284 shares held by Summit Investors III, L.P. ("Summit Investors
III"). Mr. Kortschak, a director of the Company, is a general partner of
Summit Partners, L.P. and the general partner of Summit IV and Summit
Investors III. Mr. Kortschak disclaims beneficial ownership of such shares
held by Summit IV and Summit Investors III, except to the extent of his
pecuniary interest therein.
42
<PAGE> 44
(4) Includes 510,992 shares held by WK Technology Fund, 510,992 shares held by
WK Technology Fund II, 1,343,730 shares held by WK Technology III and
235,294 held by WK Technology Fund IV. Mr. Fu is a director of the Company
and a partner of WK Technology. Mr. Fu disclaims any beneficial ownership
of the shares held by WK Technology Fund, WK Technology Fund II, WK
Technology Fund III and WK Technology Fund IV, except to the extent of his
proportionate partnership interests in the respective entities.
(5) Shares held by Patrick Y.C. Yin and Irene P.S. Yin, as Trustees of The Yin
Family Trust, Created on March 16, 1992.
(6) Shares held by Yen C. Chang & Lina W. Chang, as Trustees of The Chang
Family Trust, Created on December 12, 1994.
(7) Mr. Shin is a director of the Company.
(8) Includes 700,000 shares held by Win Win Venture Capital Corporation. Mr.
Lee is a director of the Company and President of Win Win Venture
Corporation. Mr. Lee disclaims any beneficial ownership of the shares held
by Win Win Venture Corporation, except to the extent of his proportionate
partnership interests in the respective entities.
(9) Includes 8,600 shares held by Perry Constantine as custodian for Katherine
Constantine. Mr. Constantine's employment with the Company terminated in
April 1997. On April 19, 1997 the Company repurchased 487,500 shares held
by Mr. Constantine.
(10) Includes 140,922 shares held by WS Investment Company 96-A, an investment
fund of Wilson Sonsini Goodrich & Rosati, P.C. ("WSG&R"). Mr. Saper
disclaims any beneficial ownership of the shares held by WSG&R, except to
the extent of his proportionate partnership interest therein. Mr. Saper is
Secretary and a director of the Company and a member of WSG&R. Of the
shares included in the table, 150,000 are subject to a right of repurchase
in favor of the Company in the event that Mr. Saper and WSG&R cease to
serve as legal counsel to the Company. Such repurchase right expired as to
25% of the shares in April 1997 and expires as to 1/48 of the shares on a
monthly basis thereafter through April 2000.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
After giving effect to the reincorporation of the Company in the State of
Delaware prior to the date of this Prospectus, the authorized capital stock of
the Company will consist of 75,000,000 shares of Common Stock, par value $0.001
per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share.
The following summary of certain provisions of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Certificate of Incorporation, which
is included as an exhibit to the Registration Statement of which this Prospectus
is a part, and by the provisions of applicable law.
COMMON STOCK
As of February 28, 1997, there were 22,720,234 shares of Common Stock
outstanding held of record by approximately 135 stockholders. The holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
the stockholders. Subject to preferences that may be applicable to outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive conversion rights or other
subscription rights. There are no redemption or sinking funds provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
completion of the offering will be fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of undesignated
Preferred Stock. The Board of Directors will have the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock and to fix the number of shares
constituting any series in the designations of such series, without any further
vote or action by the stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue Preferred Stock.
REGISTRATION RIGHTS
Under the terms of the Registration Agreement dated as of May 28, 1996, as
amended (the "Registration Agreement"), the holders of approximately 4,779,000
shares of Common Stock (the "Registrable Securities") will be entitled to
certain rights with respect to the registration of such shares of Common Stock
under the Securities Act. Under the Registration Agreement, if at any time after
this offering the Company proposes to register any of its Common Stock under the
Securities Act, certain holders of Registrable Securities are entitled to notice
of such registration and to include their Registrable Securities therein;
provided, among other conditions, that the underwriters have the right to limit
the number of shares included in any such registration. Beginning six months
after the closing of the offering, the holders of at least fifty-five percent
(55%) of the Registrable Securities have the right to require the Company, on
not more than four occasions, to file a registration statement under the
Securities Act in order to register all or any part of their Registrable
Securities. The Company may, in certain circumstances, defer such registration
and the underwriters have the right, subject to certain limitations, to limit
the number of shares included in such registrations. Further, the holders of
Registrable Securities may require the Company to register all or any portion of
their Registrable Securities on Form S-3, when such form becomes available to
the Company, subject to certain conditions and limitations.
44
<PAGE> 46
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware Law ("Section 203").
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (i) prior to such date, the board of directors of the
corporation approves either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, excluding certain shares held by employee directors
and employee stock plans, or (iii) on or after the consummation date the
business combination is approved by the board of directors and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. For purposes of Section 203, a "business
combination" includes, among other things, a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is generally a person who, together with affiliates
and associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C. Its telephone number is (415) 954-9512.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "ASPC."
45
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for securities of
the Company. No prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market price
and the ability of the Company to raise equity capital in the future.
Upon completion of the offering, the Company will have 26,720,234 shares of
Common Stock outstanding, assuming no exercise of outstanding options after
February 28, 1997. Of this amount, the 4,000,000 shares offered hereby will be
available for immediate sale in the public market as of the date of this
Prospectus. Approximately 1,087,000 additional shares will be available for sale
in the public market 90 days after the date of this Prospectus pursuant to Rule
701. However, approximately 213,000 of these shares will be subject to a right
of repurchase in favor of the Company in the event that the stockholder's
employment with the Company is terminated. Approximately 17,272,000 additional
shares will be available for sale in the public market following the expiration
of the 180-day lockup agreements with the Representatives of the Underwriters or
the Company, subject in some cases to compliance with the volume and other
limitations of Rule 144. However, approximately 642,000 of these shares will be
subject to a right of repurchase possessed by the Company. The remaining
approximately 4,361,000 shares held by existing stockholders will become
eligible for sale from time to time in the future under Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES ELIGIBLE
OF THIS PROSPECTUS FOR SALE COMMENT
- ------------------------------ --------------- -----------------------------------------------
<S> <C> <C>
Upon Effectiveness............ 4,000,000 Freely tradeable shares sold in offering and
shares saleable under Rule 144(k) that are not
subject to 180-day lockup
90 days....................... 1,087,000 Saleable under Rule 701; not subject to
repurchase by the Company
180 days...................... 17,272,000 Lockup released; shares saleable under Rules
144 and 701
Thereafter.................... 4,361,000 Restricted securities held for one year or less
</TABLE>
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
Prospectus a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately 267,202 shares
immediately after the offering) or (ii) the average weekly trading volume during
the four calendar weeks preceding such sale, subject to the filing of a Form 144
with respect to such sale. A person (or persons whose shares are aggregated) who
is not deemed to have been an affiliate of the Company at any time during the 90
days immediately preceding the sale who has beneficially owned his or her shares
for at least two years is entitled to sell such shares pursuant to Rule 144(k)
without regard to the limitations described above. Persons deemed to be
affiliates must always sell pursuant to Rule 144, even after the applicable
holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, as this will depend on the market price for the Common Stock of
the Company, the personal circumstances of the sellers and other factors. Prior
to the offering, there has been no public market for the Common Stock, and there
can be no assurance that a significant public market for the Common Stock will
develop or be sustained after the offering. Any future sale of substantial
amounts of the Common Stock in the open market may adversely affect the market
price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that
46
<PAGE> 48
they will not sell any Common Stock without the prior consent of Alex. Brown &
Sons Incorporated for a period of 180 days from the effective date of this
Prospectus, except that the Company may, without such consent, grant options and
sell shares pursuant to the 1996 Plan, the Director Plan and the Purchase Plan.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register approximately 5,250,000 shares of Common Stock
subject to options outstanding or reserved for issuance under the 1996 Plan, the
Director Plan and the Purchase Plan within 90 days after the date of this
Prospectus, thus permitting the resale of such shares by nonaffiliates in the
public market without restriction under the Securities Act.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus.
In addition, after the offering, the holders of approximately 4,779,000
shares of Common Stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock -- Registration Rights."
47
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC and Wessels, Arnold &
Henderson, L.L.C., have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated..................................................
Hambrecht & Quist LLC............................................................
Wessels, Arnold & Henderson, L.L.C. .............................................
---------
Total.................................................................. 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 600,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 4,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 4,000,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Stockholders of the Company, holding approximately 17,272,000 shares of
Common Stock, have agreed not to offer, sell or otherwise dispose of any of such
Common Stock for a period of 180 days after the effective date of this
Prospectus without the prior consent of Alex. Brown & Sons Incorporated (see
"Shares Eligible for Future Sale"), except that the Company may issue, and grant
options to purchase, shares of Common Stock under its current stock option and
purchase plans and other currently outstanding options.
48
<PAGE> 50
During and after the offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Underwriters also may impose
penalty bids, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the offering for their
account may be reclaimed by the syndicate if such securities are repurchased by
the syndicate in stabilizing or short-covering transactions. These activities
may stabilize, maintain or otherwise affect the market price of Common Stock,
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the Nasdaq National Market or
otherwise and these activities, if commenced, may be discontinued at any time.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations will be prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations, the price-earnings
ratios, the price-sales ratios, the market prices generally of securities and
stages of development of other companies that the Company and the
Representatives of the Underwriters believe to be comparable to the Company,
estimates of the business potential of the Company and its industry in general
and the present state of the Company's development and other factors deemed
relevant.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, P.C.
("WSG&R"), Palo Alto, California. Pillsbury Madison & Sutro LLP, Menlo Park,
California, is acting as counsel for the Underwriters in connection with certain
legal matters relating to the shares of Common Stock offered hereby. Jeffrey D.
Saper, a member of WSG&R, is Secretary and a director of the Company. Mr. Saper
owns 35,124 shares of Common Stock and 484 shares of Series A Redeemable
Preferred Stock. On February 25, 1997, Mr. Saper was granted an option to
purchase 25,000 shares of Common Stock pursuant to the Director Plan. As of the
date of this Prospectus, certain members of WSG&R, and investment partnerships
of which such persons are partners, beneficially own 140,922 shares of Common
Stock and 161 shares of Series A Redeemable Preferred Stock. A portion of the
proceeds from the offering will be used to redeem all of the outstanding Series
A Redeemable Preferred Stock. See "Use of Proceeds."
EXPERTS
The financial statements as of November 30, 1995 and 1996 and for each of
the three years in the period ended November 30, 1996 included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
In December 1996, the Company appointed Deloitte & Touche LLP to replace
KPMG Peat Marwick LLP as its principal accountants. There were no disagreements
with the former accountants during the preceding two fiscal years or during any
subsequent interim period preceding their replacement on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to the former
accountants' satisfaction, would have caused them to make reference to the
subject matter of the disagreement in
49
<PAGE> 51
connection with their reports. KMPG Peat Marwick LLP issued an unqualified
opinion on the financial statements as of November 30, 1994 and 1995 and for the
three years in the period ended November 30, 1995. The Company did not consult
with Deloitte & Touche LLP on any accounting or financial reporting matters in
the two years prior to their appointment. The change in accountants was approved
by the Board of Directors.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 with respect to the shares of
Common Stock offered hereby, of which this Prospectus forms a part. In
accordance with the rules of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is made
to the Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus concerning the provisions of such
documents are necessarily summaries of such documents and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission as an exhibit to the Registration Statement. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center, 13th
Floor New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's Web site is http://www.sec.gov.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Company's Common Stock, the Company will become
subject to the informational requirements of the Exchange Act.
50
<PAGE> 52
ASPEC TECHNOLOGY, INC.
------------------
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets at November 30, 1995 and 1996 and February 28, 1997.................... F-3
Statements of Income for the Years Ended November 30, 1994, 1995 and 1996 and for the
Three Months Ended February 29, 1996 and February 28, 1997.......................... F-4
Statements of Stockholders' Equity (Deficiency) for the Years Ended November 30, 1994,
1995 and 1996 and for the Three Months Ended February 28, 1997...................... F-5
Statements of Cash Flows for the Years Ended November 30, 1994, 1995 and 1996 and for
the Three Months Ended February 29, 1996 and February 28, 1997...................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Aspec Technology, Inc.:
We have audited the accompanying balance sheets of Aspec Technology, Inc.
as of November 30, 1995 and 1996, and the related statements of income,
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended November 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Aspec Technology, Inc. at November 30, 1995
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended November 30, 1996 in conformity with generally
accepted accounting principles.
San Jose, California
February 28, 1997
(May , 1997 as to Note 11)
------------------------
To the Board of Directors and Stockholders of
Aspec Technology, Inc.:
The financial statements included herein have been adjusted to give effect
to the two-for-one split of common stock as described in Note 11 to the
financial statements. The above report is in the form that will be signed by
Deloitte & Touche LLP upon the effectiveness of such event assuming that from
February 28, 1997 to the effective date of such event, no other events shall
have occurred that would affect the accompanying financial statements or notes
thereto.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Jose, California
February 28, 1997
F-2
<PAGE> 54
ASPEC TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 30, PRO FORMA
----------------- FEBRUARY 28, FEBRUARY 28,
1995 1996 1997 1997
------ -------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................... $2,317 $ 6,341 $ 4,469
Accounts receivable (net of allowances of $300
in 1996 and 1997)........................... 1,792 5,741 4,317
Prepaid expenses............................... -- 586 595
Deferred income taxes.......................... 83 398 398
----- ------- -------
Total current assets................... 4,192 13,066 9,779
Property and equipment -- net.................. 751 2,478 2,886
Other assets................................... 103 216 184
----- ------- -------
Total.................................. $5,046 $ 15,760 $ 12,849
===== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable............................... $ 96 $ 941 $ 946
Accrued liabilities............................ 668 1,937 1,475
Income taxes payable........................... 1,086 2,050 223
Deferred revenue............................... 1,398 4,434 2,535
----- ------- -------
Total current liabilities.............. 3,248 9,362 5,179
----- ------- -------
Commitments and contingencies (Note 5)
Series A redeemable preferred stock, $.001 par
value: 130 shares designated; shares
outstanding: 1995 -- none; 1996 and
1997 -- 130; pro forma -- 130 (1996, 1997 and
pro forma liquidation value: $18,495).......... -- 13,345 13,547 $ 13,547
----- ------- ------- -------
Redeemable common stock, $.001 par value; shares
outstanding: 1995 -- none; 1996 and 1997 --
4,779; pro forma -- none....................... -- 7,116 7,116 --
----- ------- ------- -------
Stockholders' equity (deficiency):
Preferred stock, $.001 par value; 5,000 shares
authorized (excluding Series A redeemable
preferred stock): none outstanding.......... -- -- -- --
Common stock, $.001 par value: 75,000 shares
authorized; shares outstanding:
1995 -- 18,929; 1996 and 1997 -- 17,941; pro
forma -- 22,720............................. 114 3,344 3,344 10,460
Stockholder notes receivable................... -- (648) (557) (557)
Deferred stock compensation.................... -- (476) (440) (440)
Retained earnings (deficit).................... 1,684 (16,283) (15,340) (15,340)
----- ------- ------- -------
Total stockholders' equity (deficiency)..... 1,798 (14,063) (12,993) (5,877)
----- ------- ------- -------
Total.................................. $5,046 $ 15,760 $ 12,849 $ 12,849
===== ======= ======= =======
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 55
ASPEC TECHNOLOGY, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED NOVEMBER 30, ---------------------------
----------------------------- FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
------ ------ ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue............................... $4,659 $6,640 $15,265 $2,518 $5,678
----- ----- ------
Costs and expenses:
Cost of revenue..................... 1,553 2,307 4,702 784 1,650
Research and development............ 289 445 921 227 298
Sales and marketing................. 624 1,387 3,526 577 1,514
General and administrative.......... 827 1,093 1,994 472 396
----- ----- ------
Total costs and expenses.... 3,293 5,232 11,143 2,060 3,858
----- ----- ------
Income from operations................ 1,366 1,408 4,122 458 1,820
Interest income....................... 17 56 310 21 89
----- ----- ------
Income before income taxes............ 1,383 1,464 4,432 479 1,909
Provision for income taxes............ 553 585 1,815 197 764
----- ----- ------
Net income............................ 830 879 2,617 282 1,145
Accretion of redeemable preferred
stock............................... -- -- 392 -- 202
----- ----- ------
Income attributable to common
stockholders........................ $ 830 $ 879 $ 2,225 $ 282 $ 943
===== ===== ======
Net income per share (Note 1)......... $ 0.03 $ 0.03 $ 0.09 $ 0.01 $ 0.04
===== ===== ======
Shares used in per share
computation......................... 25,534 26,234 25,834 26,731 23,157
===== ===== ======
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 56
ASPEC TECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON REDEEMABLE
COMMON STOCK STOCKHOLDER DEFERRED RETAINED TOTAL
-------------- NOTES STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT RECEIVABLE COMPENSATION (DEFICIT) EQUITY
------ ------ ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 1, 1993...... 18,357 $ 73 $ -- $ -- $ (25) $ 48
Issuance of common stock under
stock purchase plan........... 162 19 -- -- -- 19
Stock compensation expense...... -- 7 -- -- -- 7
Net income...................... -- -- -- -- 830 830
------ ------ ----- --- -------- --------
Balances, November 30, 1994..... 18,519 99 -- -- 805 904
Issuance of common stock under
stock purchase plan........... 677 28 (28) -- -- --
Collection of stockholder notes
receivable.................... -- -- 28 -- -- 28
Repurchase of common stock from
employee...................... (267) (13) -- -- -- (13)
Net income...................... -- -- -- -- 879 879
------ ------ ----- --- -------- --------
Balances, November 30, 1995..... 18,929 114 -- -- 1,684 1,798
Sale of common stock (net of
costs of $260)................ 508 1,900 -- -- -- 1,900
Issuance of common stock under
stock purchase plan........... 3,293 1346 (648) (582) -- 116
Repurchase of common stock from
founders and employees........ (4,789) (16) -- -- (20,192) (20,208)
Accretion of redeemable
preferred stock............... -- (392) (392)
Amortization of deferred stock
compensation.................. -- -- -- 106 -- 106
Net income...................... -- -- -- -- 2,617 2,617
------ ------ ----- --- -------- --------
Balances, November 30, 1996..... 17,941 3,344 (648) (476) (16,283) (14,063)
Accretion of redeemable
preferred stock*.............. -- -- -- -- (202) (202)
Amortization of deferred stock
compensation*................. -- -- -- 36 -- 36
Collection of stockholder notes
receivable*................... -- -- 91 -- -- 91
Net income*..................... -- -- -- -- 1,145 1,145
------ ------ ----- --- -------- --------
Balances, February 28, 1997*.... 17,941 $3,344 $(557) $ (440) $(15,340) $ (12,993)
====== ====== ===== === ======== ========
</TABLE>
- ---------------
* Unaudited
See Notes to Financial Statements.
F-5
<PAGE> 57
ASPEC TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED NOVEMBER 30, ---------------------------
------------------------ FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
----- ------ ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 830 $ 879 $ 2,617 $ 282 $ 1,145
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 204 313 736 99 299
Deferred income taxes................ 180 (230) (315) 324 --
Stock compensation expense........... 7 -- 106 -- 36
Changes in assets and liabilities:
Accounts receivable................ (687) (762) (3,949) 678 1,424
Prepaid expenses and other
assets.......................... (8) (88) (699) (56) 23
Accounts payable................... 28 11 845 176 5
Accrued liabilities................ -- 293 1,269 (48) (462)
Income taxes payable............... 424 415 964 (896) (1,827)
Deferred revenue................... (198) 1,295 3,036 (676) (1,899)
----- ------ -------
Net cash provided by (used for)
operating activities.......... 780 2,126 4,610 (117) (1,256)
----- ------ -------
Cash flows from investing activities --
Purchases of property and equipment..... (376) (594) (2,463) (185) (707)
----- ------ -------
Cash flows from financing activities:
Sale of common stock.................... 19 -- 2,016 -- --
Sale of redeemable common stock......... -- -- 7,116 -- --
Sale of redeemable preferred stock...... -- -- 12,953 -- --
Proceeds from borrowings................ -- 200 -- -- --
Repayment of borrowings................. -- (200) -- -- --
Repurchase of common stock.............. -- (13) (20,208) -- --
Collection of stockholder notes
receivable........................... -- 28 -- -- 91
----- ------ -------
Net cash provided by financing
activities.................... 19 15 1,877 -- 91
----- ------ -------
Net increase (decrease) in cash and
equivalents............................. 423 1,547 4,024 (302) (1,872)
Cash and equivalents, beginning of
period.................................. 347 770 2,317 2,317 6,341
----- ------ -------
Cash and equivalents, end of period....... $ 770 $2,317 $ 6,341 $ 2,015 $ 4,469
===== ====== =======
Supplemental disclosure of cash flow
information -- Cash paid for income
taxes................................... $ 188 $ 404 $ 1,166 $ 769 $ 2,589
===== ====== =======
Supplemental schedule of noncash investing
and financing activities:
Issuance of common stock for notes
receivable........................... $ -- $ 28 $ 648 $ -- $ --
===== ====== =======
Accretion of redeemable preferred
stock................................ $ -- $ -- $ 392 $ -- $ 202
===== ====== =======
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 58
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1994, 1995 AND 1996
(INFORMATION AT FEBRUARY 28, 1997 AND FOR THE THREE MONTHS ENDED
FEBRUARY 29, 1996 AND FEBRUARY 28, 1997 IS UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business -- Aspec Technology, Inc. (the Company) develops, markets and
supports a commercial design implementation technology for use in the
semiconductor industry. The Company's primary customers are vertically
integrated semiconductor companies, fabless semiconductor companies, electronics
systems manufacturers and distributors that sell to such entities in Asia, North
America and Europe.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates,
and such differences may be material to the financial statements.
Cash Equivalents -- Cash equivalents consist of short-term highly liquid
debt investments with original maturities of 90 days or less.
Accounts Receivable -- At November 30, 1996 and February 28, 1997, accounts
receivable included $121,000 and $732,000 of unbilled receivables, respectively
(none in 1995).
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line method over the estimated useful lives, generally three to five
years.
Software Development Costs -- Development costs incurred in the research
and development of new software products and enhancements to existing software
products are expensed as incurred until technological feasibility has been
established, at which time certain development costs required to attain general
production release would be capitalized. To date, the Company's software
development has essentially been completed concurrent with the establishment of
technological feasibility, and, accordingly, no costs have been capitalized.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
and equivalents and trade receivables. Cash equivalents consist primarily of
money market instruments carried at cost, which approximates fair market value.
Management believes the credit risk associated with such instruments is minimal.
The Company licenses its products to customers which are primarily designers and
manufacturers of integrated circuits. Management believes that risk of credit
loss is significantly reduced due to the diversity of its customers and their
dispersion across many geographic areas.
Revenue Recognition -- A substantial majority of the Company's license
revenue has been recognized on a percentage of completion basis based upon
actual costs incurred since Aspec's products typically involve levels of
adaptation or completion. License terms typically include a payment upon
execution of the agreement with further payments upon completion of milestones.
Revenue is recognized ratably as the work is performed on the project. Billings
in excess of revenue are recorded as deferred revenue, while revenue in excess
of billings is recorded as unbilled receivables. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. The time required to adapt a product for a specific customer
application generally ranges from three to twelve months. License revenue for
products not requiring adaptation is recognized upon delivery and when
collection is reasonably assured.
F-7
<PAGE> 59
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue from software support and maintenance contracts is deferred and
recognized ratably over the term of the agreement, which is typically one year.
Royalty revenues are earned and recognized in the period reported by the
customer or when cash is received.
Income Taxes -- The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences of temporary differences between the financial statement
carrying amounts and the tax bases of assets and liabilities.
Effects of Recent Accounting Standard -- In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation. The new standard defines a
fair value method of accounting for stock options and other equity instruments.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income and
income per share as if the Company had applied the new method of accounting.
Commencing in fiscal 1997, the Company intends to follow the disclosure
alternative for its employee stock compensation plans. Adoption of the new
standard will have no effect on the Company's financial position or results of
operations.
Net Income Per Share -- Net income per share is based upon the weighted
average number of common and dilutive common equivalent shares (common stock
options, stock purchase rights and redeemable common stock) outstanding.
Pursuant to rules of the Securities and Exchange Commission (SEC), all common
shares issued and options and other rights granted to acquire shares of common
stock at a price less than the initial public offering price during the twelve
month period preceding the filing date (using the treasury stock method until
shares are issued) have been included in the computation of common and common
equivalent shares outstanding for all periods presented.
For the purposes of the net income per share computation, net income has
been reduced by the amount of the periodic accretion for redeemable preferred
stock (see Note 6).
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company is required to adopt SFAS 128 in the first quarter of fiscal 1998 and
will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income attributable to common stockholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
However, the SEC rules regarding share issuances and option and other rights
granted to acquire shares prior to an initial public offering, as stated above,
are still applicable and such amounts are included in both basic and diluted
EPS.
F-8
<PAGE> 60
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma amounts for basic and diluted EPS assuming SFAS 128 had been in
effect for the periods presented are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED NOVEMBER 30, ----------------------------
------------------------- FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Basic.................................. $0.03 $0.04 $0.09 $ 0.01 $ 0.04
Diluted................................ $0.03 $0.03 $0.09 $ 0.01 $ 0.04
</TABLE>
Unaudited Interim Financial Information -- The unaudited interim financial
information as of February 28, 1997 and for the three months ended February 28,
1997 and 1996 has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results of the three
months ended February 28, 1997 are not necessarily indicative of the results
that may be expected for any future period.
Unaudited Pro Forma Information -- Upon the closing of the initial public
offering contemplated by this Prospectus, the redemption privileges of the
redeemable common stock will terminate. The pro forma amounts in the
accompanying balance sheet present the Company's stockholders' equity as if all
such redemption privileges had terminated as of February 28, 1996.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
------------------ -------------
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
Computer equipment and software............................. $1,335 $ 3,674 $ 4,300
Office and other equipment.................................. 119 243 323
------ -------
1,454 3,917 4,623
Less accumulated depreciation and amortization.............. (703) (1,439) (1,737)
------ -------
$ 751 $ 2,478 $ 2,886
====== =======
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
--------------- ------------
1995 1996 1997
---- ------ ------------
<S> <C> <C> <C>
Accrued compensation and related benefits...................... $652 $1,140 $ 764
Accrued commissions to outside sales representatives........... -- 484 341
Other.......................................................... 16 313 370
---- ------ ------
$668 $1,937 $1,475
==== ====== ======
</TABLE>
4. LINE OF CREDIT
The Company has a $1,000,000 bank line of credit available through July 1,
1997. Borrowings under this line are collateralized by substantially all of the
Company's assets and bear interest at the prime rate published by the Wall
Street Journal (8.25% at November 30, 1996) plus 0.5%. As of November 30, 1996
and February 28, 1997, there were no borrowings outstanding under the line. The
Company must maintain compliance with certain current and net worth ratio
covenants under
F-9
<PAGE> 61
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
this agreement. As of November 30, 1996 and February 28, 1997, the Company was
in compliance with these covenants.
5. LEASE COMMITMENTS
The Company leases its primary operating facility under an operating lease
agreement which expires in November 2001. Rent expense incurred under the
operating leases was approximately $100,000, $144,000 and $186,000 for the years
ended November 30, 1994, 1995 and 1996, respectively.
Future minimum lease commitments under this lease as of November 30, 1996
(including commitments under a new lease dated December 1, 1996) are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
NOVEMBER 30,
- ------------------------------------------------------------------------------------
<S> <C>
1997.............................................................................. $ 407
1998.............................................................................. 411
1999.............................................................................. 400
2000.............................................................................. 418
2001.............................................................................. 435
------
Total minimum lease payments........................................................ $2,071
======
</TABLE>
6. REDEEMABLE STOCK
Redeemable Preferred Stock
During 1996, the Board of Directors authorized and designated 130,385
shares of Series A redeemable preferred stock. In May and June 1996, the Company
sold an aggregate of 130,378 shares of Series A redeemable preferred stock at
$100 per share, resulting in net proceeds of approximately $12,953,000. The
significant terms of the Series A redeemable preferred stock are as follows:
- In the event of liquidation, dissolution or winding up of the Company,
the redeemable preferred stockholders shall receive, per share, the
greater of (1) the initial issue price ($100) plus all accrued but unpaid
dividends or (2) $141.86, prior to any distribution to be made to holders
of the Company's common stock.
- Dividends shall accrue on a daily basis at the rate of 6% per annum on
the sum of the liquidation value plus all accrued but unpaid dividends.
- The redeemable preferred shares have no voting rights except that:
- The Series A preferred stockholders, voting as a class, shall be
entitled to elect two directors as long as the holders of record on
June 30, 1996 continue to hold 50% or more of the Series A preferred
shares (or to elect one director if the holders of record on June
30, 1996 continue to hold 25% to 50% of the Series A preferred
shares).
- So long as any Series A preferred shares remain outstanding, the
corporation shall not, without a vote of 55% of the outstanding
Series A preferred shares, issue securities with equity features
senior to Series A preferred stock, liquidate, change the Series A
preferred rights or merge or consolidate with another entity which
results in the Company's common stockholders immediately prior to
the transaction owning less than 66.7% of the common stock after the
transaction.
F-10
<PAGE> 62
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- The redeemable preferred shares are not convertible into common stock.
- The Company is obligated to redeem the corresponding percentage of
preferred shares on the following dates:
<TABLE>
<S> <C>
June 1, 2001.................................................................. 33 1/3%
June 1, 2002.................................................................. 50%
June 1, 2003.................................................................. 100%
</TABLE>
- In the event of an initial public offering (IPO), the Company shall apply
the net proceeds of the offering, less $20 million to be retained by the
Company, to the redemption of the Series A redeemable preferred shares at
the redemption value, which is, on a per share basis, greater of (1) the
original issue price plus all accrued but unpaid dividends or (2)
$141.86. In the event of a change in ownership prior to an IPO, the
Company shall redeem the Series A preferred stock at the redemption
value. The aggregate liquidation and redemption value as of November 30,
1996 was approximately $18,495,000. The Company is accreting the
difference between the book value of the preferred stock and its
redemption value over the period from the issuance date through the
mandatory redemption dates. In the event of an IPO resulting in a
redemption, the difference between the book value and the redemption
value will be considered as additional accretion for preferred stock in
the quarter of the IPO when determining income attributable to common
stockholders and earnings per share.
Redeemable Common Stock
During May and June 1996, the Company sold an aggregate of 4,778,804 shares
of redeemable common stock to the preferred stock investors for net proceeds of
approximately $7,116,000. Under a stockholder rights agreement, these investors
have a put option, exercisable at any time after the seventh anniversary of the
agreement, to require the Company to repurchase for cash all of the common
shares held by such investors at a price determined based upon the then market
value of the Company divided by the number of common shares outstanding. This
right terminates upon an IPO. The holders of these shares have certain
registration rights.
7. STOCKHOLDERS' EQUITY
Repurchase of Common Stock
During August 1996, the Company repurchased an aggregate of 4,778,786
shares of common stock held by certain founders of the Company at $4.227 per
share for an aggregate purchase price of approximately $20,200,000.
Employee Stock Plans
Under the 1992 Employee Stock Purchase Plan (the 1992 Plan), 4,000,000
shares of the Company's common stock were reserved and available for issuance to
officers, directors, employees and consultants of the Company. The 1992 Plan
provides that the purchase or exercise price of the stock covered by the Plan
shall be no less than the fair value of the Company's common stock at the date
of the grant, as determined by the Board of Directors. The Board of Directors
also has the authority to set exercise dates (generally no longer than ten years
from the date of grant), payment terms and other provisions for each grant.
Stock purchase rights and options granted under the plan generally vest as to
25% of the shares on the first anniversary of the date of grant and thereafter
vest ratably over three years. The Company has the option to repurchase
exercised shares that have not vested at the original purchase price upon
termination of employment. As of November 30, 1996, there were no stock purchase
rights outstanding under the 1992 Plan and in December 1996, the
F-11
<PAGE> 63
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's Board of Directors determined not to grant or issue any additional
shares under the 1992 Plan.
In 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
1996 Plan). Under this plan, 2,000,000 shares (4,500,000 shares as amended in
February 1997) have been reserved for issuance to directors, officers, employees
and consultants to the Company at prices not less than the fair market value for
incentive options. These options generally expire five to ten years from the
date of grant. Incentive and nonstatutory options normally vest and become
exercisable at an annual rate of 25%.
In February 1997, the Board of Directors adopted the 1997 Director Option
Plan and reserved 250,000 shares of common stock for grants of options to each
outside director. The Director Plan provides for the automatic grant to outside
directors of an option to purchase 25,000 shares of Common Stock at the time the
director joins the board and an option to purchase 5,000 shares of Common Stock
upon the outside director's annual reelection to the Board.
A summary of activity of rights or options to acquire stock under the
plans, along with 650,000 shares issued outside of the Plan in fiscal 1996, is
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
RIGHTS OR
OPTIONS
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Outstanding, December 1, 1993.................................. 637 $0.01 - $0.03
Granted........................................................ 1,379 0.03 - 0.25
Exercised...................................................... (162) 0.01 - 0.05
Canceled....................................................... (24) 0.01
------
Outstanding, November 30, 1994................................. 1,830 0.01 - 0.25
Granted........................................................ 369 0.25
Exercised...................................................... (677) 0.01 - 0.05
------
Outstanding, November 30, 1995................................. 1,522 0.05 - 0.25
Granted........................................................ 2,325 0.25 - 4.25
Exercised...................................................... (3,293) 0.05 - 0.38
------
Outstanding, November 30, 1996................................. 554 0.25 - 4.25
Granted........................................................ 588 6.00 - 8.50
------
Outstanding, February 28, 1997................................. 1,142 $0.25 - $8.50
======
</TABLE>
At November 30, 1996 and February 28, 1997, the weighted average exercise
price of options outstanding was $4.05 and $6.01, respectively, and
approximately 1,446,000 and 3,383,000 shares, respectively, were available for
future grant under the 1996 Plan. At February 28, 1997, 225,000 shares were
available for future grant under the 1997 Director Option Plan. As of November
30, 1996 and February 28, 1997, approximately 1,240,000 and 1,144,000 shares,
respectively, exercised and outstanding under the 1992 Plan were subject to
repurchase by the Company at the original purchase price.
In connection with certain issuances of stock purchase rights or options
under the Plans, the Company recorded stock compensation for the difference
between the deemed fair value for accounting purposes and the issuance or
exercise price. Such amounts are amortized to expense over the related vesting
periods.
Recently Issued Accounting Standard -- In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." The new standard defines a
fair value method of accounting for stock options and
F-12
<PAGE> 64
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
other equity instruments, such as stock purchase plans. Under this method,
compensation cost is measured based on the fair value of the stock award when
granted and is recognized as an expense over the service period, which is
usually the vesting period. This standard is effective for the Company beginning
in fiscal 1997 and requires measurement of awards made beginning in fiscal 1996.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma net income and
earnings per share as if the Company had applied the new method of accounting.
The Company intends to implement these disclosure requirements for its employee
stock plans beginning with its annual financial statements for the year ending
November 30, 1997. Based on the Company's current use of equity instruments,
adoption of the new standard will not impact reported net income per share, and
will have no effect on the Company's cash flows.
8. INCOME TAXES
The provision for income taxes for the years ended November 30 consists of
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ----- ------
<S> <C> <C> <C>
Current:
Federal........................................................ $235 $ 556 $1,484
State.......................................................... 54 172 469
Foreign........................................................ 84 87 177
---- ----- ------
Total current.................................................... 373 815 2,130
---- ----- ------
Deferred:
Federal........................................................ 154 (197) (276)
State.......................................................... 26 (33) (39)
---- ----- ------
Total deferred................................................... 180 (230) (315)
---- ----- ------
Total provision for income taxes................................. $553 $ 585 $1,815
==== ===== ======
</TABLE>
The provisions for income taxes differs from the amounts computed by
applying the statutory federal income tax rate to income before taxes as a
result of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
<S> <C> <C> <C>
Income tax expense................................................. $470 $498 $1,507
State income taxes, net of federal benefit......................... 53 87 266
Other.............................................................. 30 -- 42
---- ---- ------
Total provision for income taxes................................... $553 $585 $1,815
==== ==== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and liabilities as of November 30 are
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--- ----
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not currently deductible.............................. $ 7 $213
State taxes................................................................. 37 169
Depreciation and amortization............................................... 39 16
---- ----
Net deferred tax assets....................................................... $83 $398
==== ====
</TABLE>
F-13
<PAGE> 65
ASPEC TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. MAJOR CUSTOMERS AND INTERNATIONAL SALES
In fiscal 1994, four customers accounted for 28.9%, 21.3%, 19.3% and 12.7%
of total revenue, respectively. In fiscal 1995, three customers accounted for
18.2%, 17.3% (which is the 12.7% customer in 1994) and 15.1% of total revenue,
respectively. In fiscal 1996, one customer accounted for 10.5% of revenue;
furthermore, six customers accounted for a total of 51.8% of total revenue.
Export sales to Asia, Europe and North America, accounted for approximately
83.7%, 54.2% and 66.2% of total revenue for the years ended November 30, 1994,
1995 and 1996, respectively. Export sales to Asia accounted for approximately
54.8%, 50.2% and 55.3% of total revenue in fiscal 1994, 1995 and 1996,
respectively; export sales to Europe accounted for 28.9% of total revenue in
fiscal 1994.
10. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) tax-deferred savings plan. Employees
meeting the eligibility requirements, as defined, may contribute specified
percentages of their salaries. The Company has not contributed to the plan to
date.
11. SUBSEQUENT EVENTS
In February 1997 and March 1997, the Board of Directors and stockholders,
respectively, approved the following:
- Effective upon the closing of this initial public offering, the 1997
Employee Stock Purchase Plan, and reserved 500,000 shares of common stock
for sale to employees thereunder at a price no less than 85% of the lower
of the fair market value at the beginning of the six-month offering
period or the end of each such offering period.
- The 1997 Director Option Plan (see Note 7).
- A two for one split of the outstanding shares of Common Stock, subject to
the officers of the Company taking the acts necessary to effect the stock
split.
- The Company's reincorporation in the state of Delaware, at which time the
authorized shares of preferred stock were increased to 5,130,385
(including 130,385 designated as Series A Redeemable Preferred Stock).
On May , 1997, the stock split became effective. All share and per share
data in the accompanying financial statements have been retroactively adjusted
to reflect the stock split.
* * * * *
F-14
<PAGE> 66
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 34
Certain Transactions.................. 40
Principal Stockholders................ 42
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Additional Information................ 50
Index to Financial Statements......... F-1
</TABLE>
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
4,000,000 SHARES
LOGO
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
, 1997
======================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Common Stock being registered hereby. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY
REGISTRANT
------------
<S> <C>
SEC Registration Fee........................................................ $ 16,728
NASD Filing Fee............................................................. 6,020
Nasdaq National Market Listing Fee.......................................... 50,000
Printing.................................................................... 135,000
Legal Fees and Expenses..................................................... 325,000
Accounting Fees and Expenses................................................ 250,000
Blue Sky Fees and Expenses.................................................. 5,000
Transfer Agent and Registrar Fees........................................... 10,000
Miscellaneous............................................................... 102,252
--------
Total............................................................. $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article Ten of the Registrant's Certificate
of Incorporation (Exhibit 3.1 hereto) and Article VI of the Registrant's Bylaws
(Exhibit 3.3 hereto) provide for indemnification of the Registrant's directors,
officers, employees and other agents to the maximum extent permitted by Delaware
Law. In addition, the Registrant has entered into Indemnification Agreements
(Exhibit 10.1 hereto) with its officers and directors. The Underwriting
Agreement (Exhibit 1.1) also provides for cross-indemnification among the
Company and the Underwriters with respect to certain matters, including matters
arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1, 1994, the Registrant has issued and sold the following
unregistered securities:
1. The Registrant has issued an aggregate of 4,081,000 shares of Common
Stock to employees and consultants of the Registrant pursuant to
restricted stock purchase agreements for an aggregate amount of
$809,364.50.
2. On May 28, 1996 and June 14, 1996, the Registrant issued and sold an
aggregate of 130,378 shares of Series A Redeemable Preferred Stock and
4,778,804 shares of Common Stock to Summit Ventures IV, L.P., Summit
Investors III, L.P., WK Technology Fund, WK Technology Fund II, WK
Technology Fund III, WS Investment Company 96-A, Jeffrey D. Saper and
K&E Partners II pursuant to a Purchase Agreement for aggregate cash
consideration of $20,200,005.
3. On October 3, 1996, the Registrant issued and sold an aggregate of
508,260 shares of Common Stock to Winbond International Corp., Concord
V.C., Concord II, V.C., Wang Hsiu-Fong, Hantech V.C. Corp., Hwa Chuan
Co., Ltd., Golden Technology C.V. Investment Corp.,
II-1
<PAGE> 68
Lo-hou Chew, Chyong Ven Chang, Shao-Fu Chen, Chinatrust V.C. Co., Ltd.,
Pacific V.C. Co., Ltd., Win Win Venture Capital Corporation, Ai-Lin Chen
Tsai, Chen Chu Yin Yeh, Chiu-Hsiang Lin and Hung Tien Investment
Corporation pursuant to a Purchase Agreement for aggregate cash
consideration of $2,160,105.
4. Between July 1996 and February 1997, the Registrant granted and issued
options to purchase an aggregate of 1,117,100 shares of Common Stock to
employees and consultants of the Registrant pursuant to the Registrant's
1996 Stock Option Plan for an aggregate exercise price of $6,650,250.
5. On February 25, 1997, the Registrant granted and issued options to
purchase 25,000 shares of Common Stock to Jeffrey D. Saper pursuant to
the Registrant's 1997 Director Option Plan for an exercise price of
$212,500.
There was no underwriter involved in connection with any transaction set
forth above. The issuances of the securities set forth in paragraphs 1, 4 and 5
of this Item 15 were deemed to be exempt from registration under the Securities
Act in reliance upon Rule 701 promulgated thereunder. The other issuances set
forth in this Item 15 were deemed to be exempt from registration pursuant to
Section 4(2) of the Securities Act and Regulation D promulgated thereunder as a
transaction by an issuer not involving a public offering.
In all of such transactions, the recipients of securities represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the securities issued.
II-2
<PAGE> 69
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger of Aspec Technology, Inc., a Delaware corporation,
and Aspec Technology, Inc., a California corporation.
3.1(1) Certificate of Incorporation of Registrant.
3.2(1) Bylaws of Registrant.
3.3(1) Form of Certificate of Amendment of the Certificate of Incorporation of
Registrant.
3.4(1) Form of Amended and Restated Certificate of Incorporation of Registrant.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1(1) Form of Indemnification Agreement.
10.2(1) 1996 Stock Option Plan and form of Stock Option Agreement.
10.3(1) 1997 Director Option Plan and form of Director Option Agreement.
10.4(1) 1997 Employee Stock Purchase Plan and form of Subscription Agreement.
10.5(1) Registration Agreement dated May 28, 1996 among the Registrant and certain
stockholders of the Registrant, as amended October 3, 1996.
10.6(1) Lease Agreement by and between Wolfe Road Investments No. 3 and the Registrant
dated December 5, 1996.
10.7(1) Commercial Security Agreement dated March 24, 1994, Business Loan Agreement dated
July 18, 1996, Promissory Note dated July 18, 1996 and Disbursement Request and
Authorization dated July 18, 1996 between the Registrant and Commercial Bank of
Fremont.
11.1 Computation of Net Income Per Share.
16.1(1) Letter from KMPG Peat Marwick LLP to the Securities and Exchange Commission dated
March 6, 1997.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1).
24.1(1) Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
(1) Previously filed.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
II-3
<PAGE> 70
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on May 14, 1997.
Aspec Technology, Inc.
By: /s/ CONRAD J. DELL'OCA
--------------------------------------
Conrad J. Dell'Oca
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1933, on May
14, 1997 this Amendment to the Registration Statement has been signed by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ CONRAD J. DELL'OCA Chairman of the Board, President and Chief
- --------------------------------------------- Executive Officer (Principal Executive
Conrad J. Dell'Oca Officer)
/s/ JAMES T. LINDSTROM* Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting Officer)
James T. Lindstrom
/s/ JAI P. SHIN* Director
- ---------------------------------------------
Jai P. Shin
/s/ Y.S. FU* Director
- ---------------------------------------------
Y.S. Fu
/s/ CHENG MING LEE* Director
- ---------------------------------------------
Cheng Ming Lee
/s/ WALTER G. KORTSCHAK* Director
- ---------------------------------------------
Walter Kortschak
/s/ JEFFREY D. SAPER* Director
- ---------------------------------------------
Jeffrey D. Saper
*By: /s/ CONRAD J. DELL'OCA
---------------------------------------
Conrad J. Dell'Oca
Attorney-in-fact
</TABLE>
II-5
<PAGE> 72
SCHEDULE II
ASPEC TECHNOLOGY, INC.
------------------
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS(1) AT PERIOD
--------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
1994........................................... $ -- $ -- $ -- $ --
1995........................................... -- -- -- --
1996........................................... -- 300 -- 300
</TABLE>
- ---------------
(1) Write-off of accounts, net of recoveries.
<PAGE> 73
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
DESCRIPTION OF DOCUMENT
- ------
- --------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger of Aspec Technology, Inc., a Delaware corporation,
and Aspec Technology, Inc., a California corporation.
3.1(1) Certificate of Incorporation of Registrant.
3.2(1) Bylaws of Registrant.
3.3(1) Form of Certificate of Amendment of the Certificate of Incorporation of
Registrant.
3.4(1) Form of Amended and Restated Certificate of Incorporation of Registrant.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1(1) Form of Indemnification Agreement.
10.2(1) 1996 Stock Option Plan and form of Stock Option Agreement.
10.3(1) 1997 Director Option Plan and form of Director Option Agreement.
10.4(1) 1997 Employee Stock Purchase Plan and form of Subscription Agreement.
10.5(1) Registration Agreement dated May 28, 1996 among the Registrant and certain
stockholders of the Registrant, as amended October 3, 1996.
10.6(1) Lease Agreement by and between Wolfe Road Investments No. 3 and the Registrant
dated December 5, 1996.
10.7(1) Commercial Security Agreement dated March 24, 1994, Business Loan Agreement
dated July 18, 1996, Promissory Note dated July 18, 1996 and Disbursement
Request and Authorization dated July 18, 1996 between the Registrant and
Commercial Bank of Fremont.
11.1 Computation of Net Income Per Share.
16.1(1) Letter from KPMG Peat Marwick LLP to the Securities and Exchange Commission
dated March 6, 1997.
21.1 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit 5.1).
24.1(1) Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
(1) Previously filed.
<PAGE> 1
__________ Shares
ASPEC TECHNOLOGY, INC.
Common Stock
($.001 Par Value)
UNDERWRITING AGREEMENT
June __, 1997
ALEX. BROWN & SONS INCORPORATED
HAMBRECHT & QUIST LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
Aspec Technology, Inc., a Delaware corporation (the "Company@), proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") an
aggregate of 4,000,000 shares of the Company's Common Stock, $0.001 par value
(the "Firm Shares"). The respective amounts of the Firm Shares to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company also proposes to sell at the Underwriters'
option an aggregate of up to 600,000 additional shares of the Company's Common
Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option
Shares if you elect to exercise the overallotment option in whole or in part
for the accounts of the several Underwriters. The Firm Shares and the Option
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
<PAGE> 2
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters
as follows:
(a) A registration statement on Form S-1 (File No. 333-22913)
with respect to the Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and
has been filed with the Commission. Copies of such registration
statement, including any amendments thereto, the preliminary prospectuses
(meeting the requirements of the Rules and Regulations) contained therein
and the exhibits, financial statements and schedules, as finally amended
and revised, have heretofore been delivered by the Company to you. Such
registration statement, together with any registration statement filed by
the Company pursuant to Rule 462 (b) of the Act, herein referred to as
the "Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and
no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of
prospectus first filed with the Commission pursuant to Rule 424(b) or (b)
the last preliminary prospectus included in the Registration Statement
filed prior to the time it becomes effective or filed pursuant to Rule
424(a) under the Act that is delivered by the Company to the Underwriters
for delivery to purchasers of the Shares, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule
424(b)(7) under the Act. Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus
shall be deemed to refer to and include any supplements or amendments to
any Prospectus filed with the Commission after the date of filing of the
Prospectus under Rules 424(b) or 430A, and prior to the termination of
the offering of the Shares by the Underwriters.
(b) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. The Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such
qualification except where the failure to be so qualified would not have
a material adverse effect on the business or financial condition of the
Company.
(c) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and
non-assessable; the Shares to be issued and sold by the Company have been
duly authorized and when issued and paid for as contemplated herein will
be validly issued, fully paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any of the Shares or the
issue and
2
<PAGE> 3
sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives
rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any shares of Common Stock.
(d) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct as of the date set forth therein
and under the stated assumptions. All of the Shares conform in all
material respects to the description thereof contained in the
Registration Statement. The form of certificates for the Shares
conforms in all material respects to the corporate law of the
jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of
the Shares nor instituted proceedings for that purpose. The Registration
Statement contains, and the Prospectus and any amendments or supplements
thereto will contain, all statements which are required to be stated
therein by, and will conform in all material respects, to the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not through
the Closing Date and, if later, the Option Closing Date (as such date is
hereinafter defined) contain, any untrue statement of a material fact and
do not omit, and will not through the Closing Date and, if later, the
Option Closing Date (as such date is hereinafter defined) omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not through the Closing Date
and, if later, the Option Closing Date (as such date is hereinafter
defined) contain, any untrue statement of material fact; and do not omit,
and will not through the Closing Date and, if later, the Option Closing
Date (as such date is hereinafter defined) omit, to state any material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment
or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter
through the Representatives, specifically for use in the preparation
thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement,
present fairly in all material respects the financial position and the
results of operations and cash flows of the Company, at the indicated
dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the
periods involved, except as disclosed herein, and all adjustments
necessary for a fair presentation of results for such periods have been
made. The summary financial and statistical data included in the
Registration Statement presents fairly in all material respects the
information shown therein and such
3
<PAGE> 4
data has been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company.
(g) Deloitte & Touche LLP, who have certified certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by
the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company before any
court or administrative agency or otherwise which if determined adversely
to the Company might result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
financial condition of the Company or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except
those reflected in such financial statements (or as described in the
Registration Statement) or which are not material in amount. The Company
occupies its leased properties under a valid and binding lease filed as
Exhibit 10.6 to the Registration Statement.
(j) The Company has filed all Federal, State, local and foreign
income tax returns which have been required to be filed and have paid all
taxes indicated by said returns and all assessments received by them or
any of them to the extent that such taxes have become due. All tax
liabilities have been adequately provided for in the financial statements
of the Company.
(k) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented,
there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
business operations or financial condition of the Company, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is
probable of being entered into by the Company, other than transactions in
the ordinary course of business and changes and transactions described in
the Registration Statement, as it may be amended or supplemented. The
Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(l) The Company is not, nor with the giving of notice or lapse
of time or both, will be, in violation of or in default under its Charter
or Bylaws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any of
its properties, is bound and which default is of material significance in
respect of the business, management, properties, assets, rights,
operations or financial
4
<PAGE> 5
condition of the Company. The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party, or of the Charter or bylaws
of the Company or any order, rule or regulation applicable to the Company
of any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction, except where such conflict, breach,
violation or default would not have a material adverse effect on business
or financial condition of the Company.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions
herein contemplated (except such additional steps as may be required by
the Commission, the National Association of Securities Dealers, Inc. (the
"NASD") or such additional steps as may be necessary to qualify the
Shares for public offering by the Underwriters under state securities or
Blue Sky laws) has been obtained or made and is in full force and effect.
(n) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to the conduct
of its business; and, to the Company's knowledge, the Company has not
infringed any patents, patent rights, trade names, trademarks or
copyrights, which infringement is material to the business of the
Company. The Company has no actual knowledge of any infringement by
others of patents, patent rights, trade names, trademarks or copyrights
owned by or licensed to the Company which infringement is material to the
business of the Company.
(o) Neither the Company, nor to the Company's best knowledge,
any of its affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the
sale or resale of the Shares.
(p) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
5
<PAGE> 6
(r) The Company carries, or is covered by, insurance in such
amounts and of the types generally deemed adequate for the conduct of its
business and the value of its respective properties and as is consistent
with insurance maintained by companies engaged in similar industries.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined
in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has
not incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986,
as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company
would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(t) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 517.075 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of doing Business with
Cuba.
[(u) The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
imposing liability or standards of conduct concerning any Hazardous
Material (as hereinafter defined) ("Environmental Laws"), (ii) has
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses
or approvals would not, individually or in the aggregate, result in a
material adverse effect on the financial condition or on the earnings,
business, properties, business prospects or operations of the Company.
The term "Hazardous Material" means (1) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, (2) any "hazardous waste" as defined
by the Resource Conservation and Recovery Act, as amended, (3) any
petroleum or petroleum product, (4) any polychlorinated biphenyl and (5)
any pollutant or contaminant or hazardous, dangerous, or toxic chemical,
material, waste or substance regulated under or within the meaning of any
other Environmental Law.]
6
<PAGE> 7
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set
forth, the Company agrees to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price of
$_____ per share, the number of Firm Shares set forth opposite the name
of each Underwriter in Schedule I hereof, subject to adjustments in
accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in same-day funds by wire transfer to the order of the Company
against delivery of certificates therefor to the Representatives for the
several accounts of the Underwriters. Such payment and delivery are to
be made at the offices of Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on
the third business day after the date of this Agreement or at such other
time and date not later than five business days thereafter as you and the
Company shall agree upon, such time and date being herein referred to as
the "Closing Date." (As used herein, "business day" means a day on which
the New York Stock Exchange is open for trading and on which banks in New
York are open for business and are not permitted by law or executive
order to be closed.) The certificates for the Firm Shares will be
delivered in such denominations and in such registrations as the
Representatives request in writing not later than the second full
business day prior to the Closing Date, and will be made available for
inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase the Option Shares at the price per share as set
forth in the first paragraph of this Section 2. The option granted
hereby may be exercised in whole or in part by giving written notice (i)
at any time before the Closing Date and (ii) only once thereafter within
30 days after the date of this Agreement, by you, as Representatives of
the several Underwriters, to the Company setting forth the number of
Option Shares as to which the several Underwriters are exercising the
option, the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be
delivered. The time and date at which certificates for Option Shares are
to be delivered shall be determined by the Representatives but shall not
be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such
time and date being herein referred to as the "Option Closing Date"). If
the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the
Option Closing Date. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by
such Underwriter bears to the total number of Firm Shares, adjusted by
you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised only to
cover over-allotments in the sale of the Firm Shares
7
<PAGE> 8
by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option
Shares shall be made on the Option Closing Date by wire transfers in
same-day funds to the order of the Company against delivery of
certificates therefor at the offices of Alex. Brown & Sons Incorporated,
135 East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the
public at the initial public offering price set forth in the Prospectus.
The Representatives may from time to time thereafter change the public
offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives
for the Underwriters in the offering and sale of the Shares in accordance
with a Master Agreement Among Underwriters entered into by you and the
several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (A) use its reasonable best efforts to
cause the Registration Statement to become effective, if not effective at
the time and date that this Agreement is executed and delivered by the
parties hereto, or, if the procedure in Rule 430A of the Rules and
Regulations is followed, to prepare and timely file with the Commission
under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on
Rule 430A of the Rules and Regulations, (B) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with
a copy or to which the Representatives shall have reasonably objected in
writing or which is not in compliance with the Rules and Regulations and
(C) file on a timely basis all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto
shall have become effective, (B) of receipt of any comments from the
Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the
8
<PAGE> 9
Prospectus or for any additional information, and (D) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution
of any proceedings for that purpose. The Company will use its reasonable
best efforts to prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus and to obtain as soon as possible
the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have designated
in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The Company
will deliver to the Representatives at or before the Closing Date, four
signed copies of the Registration Statement and all amendments thereto
including all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the
Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during
the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading,
or, if it is necessary at any time to amend or supplement the Prospectus
to comply with any law, the Company promptly will prepare and file with
the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the
9
<PAGE> 10
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(f) Unless this requirement is otherwise satisfied, the Company
will make generally available to its security holders, as soon as it is
practicable to do so, but in any event not later than 16-1/2 months after
the effective date of the Registration Statement, an earning statement
(which need not be audited) in reasonable detail, covering a period of at
least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been
so made available.
(g) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and
copies of all other documents, reports and information furnished by the
Company to its stockholders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Exchange Act. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries,
as that term is defined in the Rules and Regulations, which are not
consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible
into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a
period of 180 days after the date of this Agreement, directly or
indirectly, by the Company otherwise than (i) hereunder, (ii) with the
prior written consent of Alex. Brown & Sons Incorporated, (iii) pursuant
to the stock option or stock purchase plans of the Company which are
described in the Registration Statement and the Prospectus or (iv) by
the Company pursuant to a merger or acquisition; provided, however, that
the recipients of any securities of the Company pursuant to any such
merger or acquisition either agree to be bound by a lockup agreement
substantially similar to the letters to be provided to the
Representatives at the Closing pursuant to paragraph (j) below or will
not, pursuant to the terms of the acquisition transaction, be able to
make a public sale of Common Shares during such 180-day period.
(i) The Company will use its reasonable best efforts to list,
subject to notice of issuance, the Shares on The Nasdaq National Market.
(j) The Company has caused each officer and director and
specific stockholders of the Company to furnish to you, on or prior to
the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person
shall agree not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the
Company, or any other securities convertible, exchangeable or exercisable
for Common Shares or derivative of Common Shares owned by such person or
request the registration for the offer or sale of
10
<PAGE> 11
any of the foregoing (or as to which such person has the right to direct
the disposition of) for a period of 180 days after the date of this
Agreement, directly or indirectly, except with the prior written consent
of Alex. Brown & Sons Incorporated ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with
the Commission with respect to the sale of the Shares and the application
of the proceeds therefrom as may be required in accordance with Rule 463
under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company to register as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act").
(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for
the Common Stock.
(n) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of
counsel for the Company; the cost of printing and delivering to, or as
requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Selling Memorandum, the Underwriters' Invitation Letter,
the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Shares; the Listing Fee of The Nasdaq National Market; and the expenses,
including the fees and disbursements of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under State
securities or Blue Sky laws. The Company shall not, however, be required
to pay for any of the Underwriters expenses (other than those related to
qualification under NASD regulation and State securities or Blue Sky
laws) except that, if this Agreement shall not be consummated because the
conditions in Section 6 (other than paragraph (c)) hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11[(b)(i), (vi) or (vii)] hereof, or by reason of any
failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with
any of the terms hereof on its part to be performed, unless such failure
to satisfy said condition or to comply with said
11
<PAGE> 12
terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable
out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company shall not in any event be liable
to any of the several Underwriters for damages on account of loss of
anticipated profits from the sale by them of the Shares. Except as
specifically identified in this Section 5, the Company shall not be
responsible for fees of counsel to the Underwriters in connection with
the transaction contemplated hereby.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, in all material respects, as of
the Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company contained herein, and to
the performance by the Company of its covenants and obligations hereunder
and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been made,
and any request of the Commission for additional information (to be
included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been
issued and no proceedings for that purpose shall have been taken or, to
the knowledge of the Company, shall be contemplated by the Commission and
no injunction, restraining order, or order of any nature by a Federal or
state court of competent jurisdiction shall have been issued as of the
Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Wilson
Sonsini Goodrich & Rosati, P.C., counsel for the Company, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters (and stating that it may be relied upon by counsel to
the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Delaware with corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement and the Company is duly qualified to
transact business in all jurisdictions in which the conduct of
its business requires such qualification, or in which the failure
to qualify would have a materially adverse effect upon the
business of the Company.
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(ii) The Company had authorized and outstanding capital
stock as of February 28, 1997 as set forth under the caption
"Capitalization" in the Prospectus and on the assumptions stated
therein; the authorized shares of the Company's Common Stock have
been duly authorized; the outstanding shares of the Company's
Common Stock have been duly authorized and validly issued and are
fully paid and non-assessable; the statements set forth in the
Prospectus under the caption "Description of Capital Stock,"
insofar as they purport to constitute a summary of the terms of
the Company's Common Stock, fairly summarize such terms in all
material respects; the certificates for the Shares, assuming they
are in the form filed with the Commission, are in due and proper
form in all material respects; the shares of Common Stock,
including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and
paid for as contemplated by this Agreement; and no preemptive
rights of stockholders exist under Delaware law, in the Charter
or Bylaws of the Company or in any agreement filed as an exhibit
to the Registration Statement with respect to any of the Shares
or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or exchangeable
into or evidencing the right to purchase or subscribe for any
shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into
or evidencing the right to purchase or subscribe for any shares
of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived,
to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the Shares or the
right to have any Common Shares or other securities of the
Company included in the Registration Statement or the right, as a
result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other
securities of the Company.
(iv) Based solely on the oral advice of the staff of
the Commission, the Registration Statement has become effective
under the Act and, to the knowledge of such counsel, no stop
order proceedings with respect thereto have been instituted or
are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable
rules and regulations thereunder (except that such counsel need
express no opinion as to the financial statements, related notes
and schedules therein or the other financial and statistical data
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<PAGE> 14
included therein or as to information supplied by the
Underwriters for use therein).
(vi) The statements under the captions "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly summarize
in all material respects the information called for with respect
to such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required, and
such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized in
all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened in writing against
the Company except as set forth in the Prospectus where such
proceeding would be reasonably likely to have a material adverse
effect on the Company's financial condition or results of
operations.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not
and will not result in a breach of any of the terms or provisions
of, or constitute a default under, the Charter or bylaws of the
Company, or any agreement or instrument known to such counsel
[and filed as an exhibit to the Registration Statement] to which
the Company is a party or by which the Company may be bound,
except where such breach or default would not have a material
adverse effect on the business or financial condition of the
Company.
(x) This Agreement has been duly authorized, executed
and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement and
the consummation of the transactions herein contemplated (other
than as may be required by the NASD or as required by State
securities and Blue Sky laws as to which such counsel need
express no opinion) except such as have been obtained or made,
specifying the same.
(xii) The Company is not an investment company as such
term is defined in the 1940 Act.
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<PAGE> 15
In rendering such opinion Wilson Sonsini Goodrich & Rosati, P.C.,
may rely as to matters governed by the laws of states other than
California or federal laws on local counsel in such jurisdictions,
provided that in each case Wilson Sonsini Goodrich & Rosati, P.C., shall
state that they believe that they and the Underwriters are justified in
relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the
Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, related notes,
schedules and other financial and statistical information therein). With
respect to such statement, Wilson Sonsini Goodrich & Rosati, P.C., may
state that their belief is based upon the procedures set forth therein,
but is without independent check and verification.
(c) The Representatives shall have received from Pillsbury
Madison & Sutro LLP, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be,
substantially to the effect specified in subparagraphs (ii) and (iv) of
Paragraph (b) of this Section 6, and that the Company is a duly organized
and validly existing corporation under the laws of the State of Delaware.
In rendering such opinion Pillsbury Madison & Sutro LLP may rely as to
all matters governed other than by the laws of the State of California,
the State of Delaware or federal laws on the opinion of counsel referred
to in Paragraph (b) of this Section 6. In addition to the matters set
forth above, such opinion shall also include a statement to the effect
that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving effect
to any modifications incorporated therein pursuant to Rule 430A under the
Act) as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted
to state a material fact, necessary in order to make the statements, in
the light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial
statements, related notes, financial data, schedules and other financial
and statistical information therein). With respect to such statement,
Pillsbury Madison & Sutro LLP may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
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<PAGE> 16
(d) The Representatives shall have received at or prior to the
Closing Date from Pillsbury Madison & Sutro LLP a memorandum or summary,
in form and substance satisfactory to the Representatives, with respect
to the qualification for offering and sale by the Underwriters of the
Shares under the State securities or Blue Sky laws of such jurisdictions
as the Representatives may reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter
dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to you, of Deloitte &
Touche LLP confirming that they are independent public accountants within
the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating that in their opinion the financial statements and
schedules examined by them and included in the Registration Statement
comply in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations;
and containing such other statements and information as is ordinarily
included in accountants' "comfort letters" to Underwriters with respect
to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that, as of the Closing Date or the
Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for such purpose have been taken or are, to his knowledge,
contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the
Closing Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration
Statement and the Prospectus and, in his opinion, as of the
effective date of the Registration Statement, the statements
contained in the Registration Statement were true and correct,
and such Registration Statement and Prospectus did not omit to
state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, and since
the effective date of the Registration Statement, no event has
occurred which should have been set forth in a
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<PAGE> 17
supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information
is given in the Registration Statement and Prospectus, there has
not been any material adverse change or any development involving
a prospective material adverse change in or affecting the
financial condition of the Company or the earnings, business,
management, properties, assets, rights, operations or financial
condition of the Company, whether or not arising in the ordinary
course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters
as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq National
Market.
(i) The Lockup Agreements described in Section 4 (j) are in full
force and effect.
The opinions and certificates mentioned in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to
Pillsbury Madison & Sutro LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section
6 shall not have been fulfilled when and as required by this Agreement to
be fulfilled, the obligations of the Underwriters hereunder may be
terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in
Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of
the Shares required to be delivered as and when specified in this
Agreement are subject to the conditions that at the Closing Date or the
Option Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and in
effect or proceedings therefor initiated or threatened.
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<PAGE> 18
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or any such controlling person may
become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will
reimburse each Underwriter and each such controlling person upon demand
for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating or defending
any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering
of the Shares, whether or not such Underwriter or controlling person is a
party to any action or proceeding; provided, however, that the Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability (i) arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation
thereof or (ii) to the extent it is finally judicially determined by a
court of competent jurisdiction that such loss, claim, damage or
liability resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct; and provided further that the Company
will not be liable to the extent that such loss, claim, damage or
liability results from an untrue statement of a material fact contained
in, or the omission of a material fact from, the Preliminary Prospectus,
which untrue statement or omission was corrected in the Prospectus (as
then amended or supplemented) if the Underwriters sold Shares to the
person alleging such loss, claim, damage or liability without sending or
giving, at or prior to the written confirmation of such sale, a copy of
the Prospectus (as then amended or supplemented) if the Company had
previously furnished copies thereof to the Underwriters within a
reasonable amount of time prior to such sale or such confirmation, and
the Underwriters failed to deliver the corrected Prospectus to such
person. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if
any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, or controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect
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<PAGE> 19
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability
which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to
any party who shall fail to give notice as provided in this Section 8(c)
if the party to whom notice was not given was unaware of the proceeding
to which such notice would have related and was materially prejudiced by
the failure to give such notice, but the failure to give such notice
shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In
case any such proceeding shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party and shall pay as incurred the fees
and disbursements of such counsel related to such proceeding. In any
such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them or [(iii) the indemnifying party shall have failed to assume
the defense and employ counsel acceptable to the indemnified party within
a reasonable period of time after notice of commencement of the action].
It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be
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<PAGE> 20
liable for the reasonable fees and expenses of more than one separate
firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section
8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement
or judgment. In addition, the indemnifying party will not, without the
prior written consent of the indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action or proceeding of which indemnification may be sought hereunder
(whether or not any indemnified party is an actual or potential party to
such claim, action or proceeding) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from
all liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law
then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of
the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to
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<PAGE> 21
above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to above in this
Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required
to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and
(ii) no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 8(d) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other
contributing party and consents to the service of such process and agrees
that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party
is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution
under this Section 8 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or
expenses are incurred. The indemnity and contribution agreements
contained in this Section 8 and the representations and warranties of the
Company set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter, the
Company, its directors or officers or any persons controlling the
Company, (ii) acceptance of any Shares and payment therefor hereunder,
and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of
the Shares which such Underwriter has agreed to purchase and pay for on
such date (otherwise than by reason of any default on the part of the
Company), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company such
amounts as may be agreed upon and upon the terms set forth herein, the
Firm Shares or Option Shares,
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as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Firm Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters,
then (a) if the aggregate number of shares with respect to which such
default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall
be obligated, severally, in proportion to the respective numbers of Firm
Shares or Option Shares, as the case may be, which they are obligated to
purchase hereunder, to purchase the Firm Shares or Option Shares, as the
case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or
Option Shares, as the case may be, with respect to which such default
shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company or you as the Representatives of the
Underwriters will have the right, by written notice given within the next
36-hour period to the parties to this Agreement, to terminate this
Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as
set forth in this Section 9, the Closing Date or Option Closing Date, as
the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the
required changes in the Registration Statement or in the Prospectus or in
any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland
21202, Attention: __________; with a copy to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202,
Attention: General Counsel; if to the Company, to:
Conrad Dell'Oca
Chief Executive Officer
ASPEC Technology, Inc.
830 East Arques Avenue
Sunnyvale, CA 94086
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with a copy to:
Jeffrey D. Saper, Esq.
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
11. Termination.
This Agreement may be terminated by you by notice to the Company
as follows:
(a) at any time prior to the earlier of (i) the time the Shares
are released by you for sale by notice to the Underwriters, or (ii) 11:30
a.m. on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change or any development involving a prospective
material adverse change in or affecting the financial condition of the
Company or the earnings, business or management of the Company, whether
or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or
other national or international calamity or crisis or change in economic
or political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale
of the Shares, or (iii) suspension of trading in securities generally on
the New York Stock Exchange or the American Stock Exchange or limitation
on prices (other than limitations on hours or numbers of days of trading)
for securities on either such Exchange, (iv) the enactment, publication,
decree or other promulgation of any statute, regulation, rule or order of
any court or other governmental authority which in your reasonable
opinion materially and adversely affects or may materially and adversely
affect the business or operations of the Company, (v) declaration of a
banking moratorium by United States or New York State authorities, (vi)
any downgrading in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of
trading of the Company's common stock by the Commission on the Nasdaq
National Market or (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities
markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
23
<PAGE> 24
12. Successors.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any
right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of
such purchase.
[13. Information Provided by Underwriters.
The Company and the Underwriters acknowledge and agree that the
only information furnished or to be furnished by any Underwriter to the
Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.]
14. Miscellaneous.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its directors or
officers and (c) delivery of and payment for the Shares under this
Agreement.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
24
<PAGE> 25
Very truly yours,
ASPEC Technology, Inc.
By ___________________________________
President
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
HAMBRECHT & QUIST LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By ______________________________________________________
Authorized Officer
25
<PAGE> 26
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Underwriter
----------- Number of Firm
Shares to be Purchased
----------------------
<S> <C> <C>
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C.
---------------------------
Total 4,000,000
===========================
</TABLE>
<PAGE> 27
SCHEDULE III
Schedule of Option Shares
<TABLE>
<CAPTION>
Name of Seller
- -------------- Maximum Number Percentage of
of Option Total Number
Shares to be Sold of Option Shares
----------------- ----------------
<S> <C> <C>
----------------------- -----------------------
Total 600,000 100%
======================= =======================
</TABLE>
II-2
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER OF
ASPEC TECHNOLOGY, INC., A DELAWARE CORPORATION,
AND ASPEC TECHNOLOGY, INC., A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of May 9, 1997 (the
"Agreement") is between Aspec Technology, Inc., a Delaware corporation ("Aspec
Delaware"), and Aspec Technology, Inc., a California corporation ("Aspec
California"). Aspec Delaware and Aspec California are sometimes referred to
herein as the "Constituent Corporations."
RECITALS
A. Aspec Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 80,130,385
shares, $0.001 par value, 75,000,000 of which are designated "Common Stock" and
5,130,385 of which are designated "Preferred Stock." The Preferred Stock of
Aspec Delaware consists of 130,385 shares of Series A Redeemable Preferred
Stock and 5,000,000 shares of undesignated Preferred Stock. As of April 30,
1997, 100 shares of Common Stock of Aspec Delaware were issued and outstanding,
all of which are held by Aspec California.
B. Aspec California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital of 75,130,385
shares, 75,000,000 of which are designated "Common Stock," and 130,385 of which
are designated "Preferred Stock." The Preferred Stock of Aspec California
consists of 130,385 shares of Series A Redeemable Preferred Stock. As of April
30, 1997, 11,090,471 shares of Common Stock and 130,378 shares of Series A
Redeemable Preferred Stock were issued and outstanding.
C. The Board of Directors of Aspec California has determined that, for
the purpose of effecting the reincorporation of Aspec California in the State of
Delaware, it is advisable and in the best interests of Aspec California and its
shareholders that Aspec California merge with and into Aspec Delaware upon the
terms and conditions herein provided.
D. The respective Boards of Directors and shareholders or stockholders
of Aspec Delaware and Aspec California have approved this Agreement and have
directed that this Agreement be executed by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Aspec Delaware and Aspec California hereby agree, subject to
the terms and conditions hereinafter set forth, as follows:
I
MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
Aspec California shall be merged with and into Aspec Delaware (the "Merger"),
the separate existence of Aspec California shall cease, Aspec Delaware shall be,
and is herein sometimes referred to as, the "Surviving Corporation," and the
name Corporation shall be Aspec Technology, Inc.
<PAGE> 2
1.2 Filing and Effectiveness. The Merger shall become effective when
the following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the shareholders or stockholders of each Constituent
Corporation in accordance with the requirements of the Delaware General
Corporation Law and the California General Corporation Law;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed Agreement of Merger or an executed counterpart
of this Agreement meeting the requirements of the Delaware General
Corporation Law shall have been filed with the Secretary of State of
the State of Delaware; and
(d) An executed Agreement of Merger or an executed counterpart
of this Agreement meeting the requirements of the California General
Corporation Law shall have been filed with the Secretary of State of
the State of California.
The date and time when the Merger shall become effective, as aforesaid,
is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Aspec California shall cease, and Aspec Delaware, as the
Surviving Corporation, (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) shall be subject to all actions previously taken by its and
Aspec California's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Aspec California
in the manner as more fully set forth in Section 259 of the Delaware General
Corporation Law, (iv) shall continue to be subject to all of its debts,
liabilities and obligations as constituted immediately prior to the Effective
Date of the Merger, and (v) shall succeed, without other transfer, to all of the
debts, liabilities and obligations of Aspec California in the same manner as if
Aspec Delaware had itself incurred them, all as more fully provided under the
applicable provisions of the Delaware General Corporation Law and the California
General Corporation Law.
II
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Aspec Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Aspec Delaware as in effect immediately prior
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
-2-
<PAGE> 3
2.3 Directors and Officers. The directors and officers of Aspec
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III
MANNER OF CONVERSION OF STOCK
3.1 Aspec California Common Stock. Upon the Effective Date of the
Merger, each share of Aspec California Common Stock issued and outstanding
immediately prior thereto shall, by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such shares or any other person,
be converted into and exchanged for one fully paid and nonassessable share of
Common Stock, $0.001 par value, of the Surviving Corporation.
3.2 Aspec California Preferred Stock. Upon the Effective Date of the
Merger, each share of Aspec California Series A Redeemable Preferred Stock
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by the Constituent Corporations, the holder of such
shares or any other person, be converted into and exchanged for one fully paid
and nonassessable share of Series A Redeemable Preferred Stock, $0.001 par
value, of the Surviving Corporation.
3.3 Aspec California Plans and Options. Upon the Effective Date of the
Merger, the Surviving Corporation shall assume and continue the 1996 Stock
Option Plan and 1992 Employee Stock Purchase Plan of Aspec California. Each
outstanding and unexercised option convertible into Aspec California Common
Stock shall become an option convertible into the Surviving Corporation's Common
Stock on the basis of one share of the Surviving Corporation's Common Stock for
each share of Aspec California Common Stock issuable pursuant to any such option
on the same terms and conditions and at an exercise price per share equal to the
exercise price applicable to any such Aspec California option at the Effective
Date of the Merger.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options equal to the number of shares
of Aspec California Common Stock so reserved immediately prior to the Effective
Date of the Merger.
3.4 Aspec Delaware Common Stock. Upon the Effective Date of the Merger,
each share of Common Stock, $0.001 par value, of Aspec Delaware issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by Aspec Delaware, the holder of such shares or any other person, be
cancelled and returned to the status of authorized but unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of Aspec
California capital stock may, at such stockholder's option, surrender the same
for cancellation to the exchange agent designated by the Surviving Corporation
(the "Exchange Agent"), and each such holder shall be entitled to receive in
exchange therefor a certificate or certificates representing the number of
shares of the appropriate class and series of the Surviving Corporation's
capital stock into which the surrendered shares were converted as herein
provided. Until so surrendered, each outstanding certificate theretofore
representing shares of Aspec California capital stock shall be deemed for all
purposes to represent the number of whole shares of the appropriate class and
series of the Surviving
-3-
<PAGE> 4
Corporation's capital stock into which such shares of Aspec California capital
stock were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of capital stock of
the Surviving Corporation represented by such outstanding certificate as
provided above.
Each certificate representing capital stock of the Surviving
Corporation so issued in the Merger shall bear the same legends, if any, with
respect to the restrictions on transferability as the certificates of Aspec
California so converted and given in exchange therefor, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws.
If any certificate for shares of Aspec Delaware stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and that the person
requesting such transfer pay to the Exchange Agent any transfer or other taxes
payable by reason of the issuance of such new certificate in a name other than
that of the registered holder of the certificate surrendered or establish to the
satisfaction of Aspec Delaware that such tax has been paid or is not payable.
IV
GENERAL
4.1 Covenants of Aspec Delaware. Aspec Delaware covenants and agrees
that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the
State of California and in connection therewith irrevocably appoint an
agent for service of process as required under the provisions of
Section 2105 of the California General Corporation Law;
(b) File any and all documents with the California Franchise
Tax Board necessary for the assumption by Aspec Delaware of all of the
franchise tax liabilities of Aspec California; and
(c) Take such other actions as may be required by the
California General Corporation Law.
4.2 Further Assurances. From time to time, as and when required by
Aspec Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Aspec California such deeds and other instruments, and
there shall be taken or caused to be taken by Aspec Delaware and Aspec
California such further and other actions, as shall be appropriate or necessary
in order to vest or perfect in or confirm of record or otherwise by Aspec
Delaware the title to and possession of all the property, interests, assets,
rights, privileges, immunities, powers, franchises and authority of Aspec
California and otherwise to carry out the
-4-
<PAGE> 5
purposes of this Agreement, and the officers and directors of Aspec Delaware are
fully authorized in the name and on behalf of Aspec California or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Aspec California or Aspec
Delaware, or both, notwithstanding the approval of this Agreement by the
shareholders of Aspec California or by the sole stockholder of Aspec Delaware,
or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretaries of State of the States of
California and Delaware, provided that an amendment made subsequent to the
adoption of this Agreement by the shareholders or stockholders of either
Constituent Corporation shall not: (1) alter or change the amount or kind of
shares, securities, cash, property and/or rights to be received in exchange for
or on conversion of all or any of the shares of any class or series thereof of
such Constituent Corporation, (2) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the Merger, or (3)
alter or change any of the terms and conditions of this Agreement if such
alteration or change would materially adversely affect the holders of any class
of shares or series thereof of such Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at Corporation Trust Center,
1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle, and The Corporation Trust Company is the registered agent of the
Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 830 East Arques
Avenue, Sunnyvale, California 94086 and copies thereof will be furnished to any
shareholder or stockholder of either constituent Corporation, upon request and
without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 Counterparts. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolutions of the Boards of Directors of Aspec Delaware and Aspec California,
is hereby executed on behalf of each of such two corporations and attested by
their respective officers thereunto duly authorized.
Aspec Technology, Inc.
a Delaware corporation
By: /s/ Conrad J. Dell'Oca
-------------------------------------
Conrad J. Dell'Oca, President
ATTEST:
/s/ Jeffrey D. Saper Aspec Technology, Inc.
- ------------------------------- a California corporation
Jeffrey D. Saper, Secretary
By: /s/ Conrad J. Dell'Oca
-------------------------------------
Conrad J. Dell'Oca, President
ATTEST:
/s/ Jeffrey D. Saper
- -------------------------------
Jeffrey D. Saper, Secretary
-6-
<PAGE> 7
Aspec Technology, Inc.
(California Corporation)
OFFICERS' CERTIFICATE
Conrad J. Dell'Oca and Jeffrey D. Saper certify that:
1. They are the President and the Secretary, respectively, of Aspec
Technology, Inc., a corporation organized under the laws of the State of
California.
2. The corporation has authorized capital of 75,130,385 shares, no par
value, of which 75,000,000 shares are designated "Common Stock," and 130,385
shares are designated "Preferred Stock." The Preferred Stock of Aspec California
consists of 130,385 shares of Series A Redeemable Preferred Stock.
3. There were 11,360,117 shares of Common Stock and 130,378 shares of
Series A Redeemable Preferred Stock issued and outstanding as of the date of the
shareholders' written consent approving the Agreement and Plan of Merger
attached hereto (the "Merger Agreement"). All shares of Common Stock and
Preferred Stock outstanding were entitled to vote on the merger.
4. The principal terms of the Merger Agreement were approved by the
Board of Directors and by the vote of a number of shares of each class of stock
which equaled or exceeded the vote required.
5. The percentage vote required was (i) greater than 50% of the votes
entitled to be cast by holders of Common Stock outstanding as of March 25, 1997,
voting together as a separate class, and (ii) greater than 55% of the votes
entitled to be cast by the holders of the Preferred Stock, voting separately as
a class.
6. Conrad J. Dell'Oca and Jeffrey D. Saper further declare under
penalty of perjury under the laws of the State of California that each has read
the foregoing certificate and knows the contents thereof and that the same is
true of their own knowledge.
Executed in Sunnyvale, California on May 9, 1997.
/s/ Conrad J. Dell'Oca
-----------------------------------
Conrad J. Dell'Oca, President
/s/ Jeffrey D. Saper
-----------------------------------
Jeffrey D. Saper, Secretary
<PAGE> 8
Aspec Technology, Inc.
(Surviving Corporation)
OFFICERS' CERTIFICATE
Conrad J. Dell'Oca and Jeffrey D. Saper certify that:
1. They are the President and the Secretary, respectively, of Aspec
Technology, Inc., a corporation organized under the laws of the State of
Delaware.
2. The corporation has authorized capital of 80,130,385 shares, $0.001
par value, of which 75,000,000 shares are designated "Common Stock," and
5,130,385 shares are designated "Preferred Stock." The Preferred Stock of Aspec
Delaware consists of 130,385 shares of Series A Redeemable Preferred Stock and
5,000,000 shares of undesignated Preferred Stock.
3. There were 100 shares of Common Stock outstanding and entitled to
vote on the Agreement and Plan of Merger attached hereto (the "Merger
Agreement"). There were no shares of Preferred Stock outstanding.
4. The principal terms of the Merger Agreement were approved by the
Board of Directors and by the vote of 100% of the outstanding shares of Common
Stock of Aspec Delaware.
5. The percentage vote required was more than 50% of the votes entitled
to be cast by holders of outstanding shares of Common Stock.
6. Conrad J. Dell'Oca and Jeffrey D. Saper further declare under
penalty of perjury under the laws of the State of Delaware that each has read
the foregoing certificate and knows the contents thereof and that the same is
true of their own knowledge.
Executed in Sunnyvale, California on May 9, 1997.
/s/ Conrad J. Dell'Oca
-----------------------------------
Conrad J. Dell'Oca, President
/s/ Jeffrey D. Saper
-----------------------------------
Jeffrey D. Saper, Secretary
<PAGE> 1
EXHIBIT 5.1
May 14, 1997
Aspec Technology, Inc.
830 East Arques Avenue
Sunnyvale, CA 94086
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you
with the Securities and Exchange Commission on March 6, 1997 (Registration
No. 333-22913), as amended (the "Registration Statement"), in connection with
the registration under the Securities Act of 1933, as amended, of up to
4,600,000 shares of your Common Stock, par value $0.001 per share (the
"Shares"). The Shares include an over-allotment option granted to the
underwriters of the offering to purchase 600,000 shares. We understand that the
Shares are to be sold to the underwriters of the offering for resale to the
public as described in the Registration Statement. As your legal counsel, we
have examined the proceedings taken, and are familiar with the proceedings
proposed to be taken, by you in connection with the sale and issuance of the
Shares.
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 11.1
ASPEC TECHNOLOGY, INC.
------------------
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED NOVEMBER 30, ---------------------------
------------------------ FEBRUARY 29, FEBRUARY 28,
1994 1995 1996 1996 1997
------ ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income................................. $830 $879 $2,617 $282 $1,145
Accretion of redeemable preferred stock.... -- -- 392 -- 202
------ ------ ------ ------ ------
Income attributable to common
stockholders............................. $830 $879 $2,225 $282 $943
====== ====== ====== ====== ======
Weighted average common shares
outstanding.............................. 18,460 18,912 21,915 18,929 22,720
Weighted average common share equivalents
related to stock purchase rights and
options.................................. 993 1,242 695 1,722 --
Common shares issued, purchase rights and
stock options granted (using the treasury
stock method assuming an initial public
offering price of $9.00) between March
1996 and the initial public offering
included pursuant to Securities and
Exchange Commission rules................ 6,080 6,080 3,224 6,080 436
------ ------ ------ ------ ------
Shares used in per share computation....... 25,534 26,234 25,834 26,731 23,156
====== ====== ====== ====== ======
Net income per share....................... $0.03 $0.03 $0.09 $0.01 $0.04
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
Subsidiary Jurisdiction of Formation
---------- -------------------------
Aspec Technology (Barbados), Inc. Barbados
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Aspec Technology, Inc.
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-22913 of Aspec Technology, Inc. of our report dated February 28, 1997
(May __, 1997 as to Note 11), appearing in the Prospectus, which is a part of
such Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Aspec Technology, Inc.,
"Valuation and Qualifying Accounts." This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
San Jose, California
May __, 1997
--------------------
To the Board of Directors and Stockholders of
Aspec Technology, Inc.:
The financial statements included herein have been adjusted to give effect to
the two-for-one split of common stock, as described in Note 11 to the financial
statements. The above independent auditors' consent and report on schedule is in
the form that will be signed by Deloitte & Touche LLP upon the effectiveness of
such events assuming that from February 28, 1997 to the effective date of such
events, no other events shall have occurred that would affect the accompanying
financial statements or notes thereto.
Deloitte & Touche LLP
San Jose, California
May 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> NOV-30-1996
<PERIOD-END> FEB-28-1997
<CASH> 4,469
<SECURITIES> 0
<RECEIVABLES> 4,317
<ALLOWANCES> 300
<INVENTORY> 0
<CURRENT-ASSETS> 9,779
<PP&E> 4,623
<DEPRECIATION> 1,737
<TOTAL-ASSETS> 12,849
<CURRENT-LIABILITIES> 5,179
<BONDS> 0
13,547
0
<COMMON> 10,460
<OTHER-SE> (16,337)
<TOTAL-LIABILITY-AND-EQUITY> 12,849
<SALES> 5,678
<TOTAL-REVENUES> 5,678
<CGS> 1,650
<TOTAL-COSTS> 1,650
<OTHER-EXPENSES> 2,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,909
<INCOME-TAX> 764
<INCOME-CONTINUING> 1,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
