ASPEC TECHNOLOGY INC, 424B1, 1998-04-29

ASPEC TECHNOLOGY INC
424B1, 1998-04-29
PREPACKAGED SOFTWARE

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<PAGE> 1
Filed pursuant to rule 424(b)(1)
Registration No. 333-22913

PROSPECTUS

6,000,000 SHARES

ASPEC LOGO
COMMON STOCK

All of the 6,000,000 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. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Stock has been approved for quotation
on the Nasdaq National Market under the symbol ASPC.

------------------

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING 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.

<TABLE>
<S> <C> <C> <C>
==================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
Per Share................................................ $13.00 $0.91 $12.09
- ------------------------------------------------------------------------------------------------------------------
Total(3)................................................. $78,000,000 $5,460,000 $72,540,000
==================================================================================================================
</TABLE>

(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company estimated at $700,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
900,000 additional shares of Common Stock solely to cover over-allotments,
if any. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $89,700,000,
$6,279,000 and $83,421,000, respectively. See "Underwriting."

------------------

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about May 1, 1998 at the office of the agent of Hambrecht &
Quist LLC in New York, New York.

HAMBRECHT & QUIST MERRILL LYNCH & CO.

April 27, 1998
<PAGE> 2

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

Aspec Technology(R) is a registered trademark of the Company. This
Prospectus also includes other trademarks of the Company and of other companies.
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PROSPECTUS SUMMARY

The following summary is qualified by the more detailed information and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. The Common Stock offered hereby involves a high degree of risk. See
"Risk Factors." This Prospectus contains forward-looking statements that involve
risks and uncertainties. Actual results could differ materially from those
discussed in the forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors." A
Glossary of certain technical terms is included on page 37 of this Prospectus.

THE COMPANY

Aspec is a leading provider of merchant semiconductor intellectual property
("SIP") solutions for high-performance, complex IC designs, including
system-on-a-chip ICs. Aspec's SIP consists of cell libraries, design tools,
design methodologies and related engineering services which, when used in
conjunction with EDA tools, simplify the process of designing complex ICs. The
Company believes that its SIP provides designers with quick access to cell
libraries at a lower cost than internally developed solutions. Aspec's SIP
includes its AdverPro design verification tool which manages the IC design
process, enabling EDA tools to exchange data while providing an accurate timing
function and helping to ensure compliance with proper design procedures. Aspec's
QuickPort design tool enables an IC designer to more rapidly and economically
port a design from one foundry to another to secure alternate sourcing and to
enable design reuse for next-generation process technologies. Aspec's SIP
currently supports a range of advanced, deep submicron process technologies at
leading semiconductor foundries, including Chartered Semiconductor, Hyundai
Electronics, IBM, LG Semicon, Samsung Electronics, Sanyo Electric, Taiwan
Semiconductor Manufacturing Corp. and United Microelectronics Corporation.

Improvements in semiconductor manufacturing technology have enabled the
design of complex ICs which integrate numerous silicon building blocks such as
microprocessors, memories, graphics and I/O functions on a single IC to create a
system-on-a-chip. Complex ICs are expected to proliferate as they enable a new
generation of electronic systems that are faster, smaller, cheaper, more
reliable and use lower power. The difficulties in designing increasingly complex
ICs coupled with market demands for the more rapid introduction of electronic
products has resulted in a significant and growing design gap. IC designers are
increasingly turning to merchant SIP suppliers to help meet their needs for the
more rapid design and development of complex ICs.

The Company's strategy is to expand its position as a leading independent
provider of merchant SIP solutions for the semiconductor industry. As part of
this strategy, Aspec is committed to establishing its SIP as an industry
standard by providing an open platform which supports most leading EDA tools and
process technologies at leading semiconductor foundries. The Company believes
that it has the broadest merchant SIP portfolio, and the Company intends to
increase its SIP portfolio through the addition of more complex functional
cores. Aspec also intends to broaden its SIP expertise by increasing its
capability to offer chip-level design services, specialized library development
services and collaborative engineering services.

Aspec's cell libraries and design tools run on UNIX workstations and
Windows NT-based PCs and currently support over 25 industry-standard EDA tools,
including those produced by Avant!, Cadence, Mentor Graphics and Synopsys
(including Viewlogic). The Company markets its products to customers primarily
through a direct sales force and through a limited number of independent
distributors. Aspec's products are used by ASIC and foundry companies, EDA
companies, electronic system companies and IC companies. The Company's current
customers include Acer, Advanced Micro Devices, Cadence Design Systems,
Chartered Semiconductor, CommQuest, Compaq, Hyundai Electronics, IBM, Matrox,
National Semiconductor, Nokia, Samsung Electronics, Sanyo Electric, United
Microelectronics Corporation and Vitesse.

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.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 6,000,000 shares
Common Stock to be outstanding after the
offering................................... 28,439,557 shares(1)
Use of proceeds.............................. Redemption of Series A Redeemable Preferred
Stock and for working capital and other
general corporate purposes.
Nasdaq National Market symbol................ ASPC
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED NOVEMBER 30, FEBRUARY 28,
-------------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenue............................ $3,689 $4,659 $6,640 $15,265 $22,392 $5,678 $6,925
Income from operations............. 1,398 1,366 1,408 4,122 3,539 1,820 1,646
Net income......................... 849 830 879 2,617 2,227 1,145 1,001
Accretion of Redeemable Preferred
Stock(2)........................ -- -- -- 392 823 202 212
Income attributable to common
stockholders.................... $ 849 $ 830 $ 879 $ 2,225 $ 1,404 $ 943 $ 789
Diluted earnings per share(3)...... $ 0.05 $ 0.04 $ 0.04 $ 0.10 $ 0.06 $ 0.04 $ 0.04
Diluted average shares
outstanding(3).................. 18,468 19,407 20,172 22,396 22,532 22,974 22,222
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-------------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 5,930 $59,275
Total assets.............................................. 17,116 70,461
Redeemable Preferred Stock................................ 14,380 --
Redeemable Common Stock................................... 7,116 --
Total stockholders' equity (deficiency)................... (11,378) 63,463
</TABLE>

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(1) Excludes outstanding options to purchase 2,275,190 shares of Common Stock at
February 28, 1998 at a weighted average exercise price of $7.43 per share.
At April 20, 1998, there were outstanding options to purchase 4,108,590
shares of Common Stock at a weighted average exercise price of $8.75 per
share. See "Management -- Compensation Plans" and Note 7 of Notes to
Consolidated Financial Statements.

(2) In connection with the redemption of all outstanding shares of Series A
Redeemable Preferred Stock from the proceeds of the offering, as required by
the terms of such shares, the difference between the book value and the
redemption value of approximately $4.1 million will be recorded as accretion
of Preferred Stock when determining income attributable to common
stockholders and earnings per share. This charge is expected to be recorded
in the second quarter of fiscal 1998 when the offering is completed and,
together with the anticipated charge to in-process research and development
related to the acquisition of SIS Microelectronics, Inc., will result in a
loss attributable to common stockholders and a loss per share in that
quarter. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 6 of Notes to Consolidated Financial
Statements.

(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net earnings per share.

(4) As adjusted to reflect the 6,000,000 shares of Common Stock offered by the
Company hereby after deducting underwriting discounts and commissions and
estimated offering expenses, and the application of the estimated proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

------------------------

Except as otherwise noted all information in this Prospectus assumes (i)
the redemption of all outstanding shares of the Series A Redeemable Preferred
Stock from the proceeds of the offering, (ii) the closing of the acquisition of
SIS Microelectronics, Inc. in exchange for the issuance of 400,000 shares of
Common Stock and (iii) no exercise of the Underwriters' over-allotment option.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Description of Capital Stock,"
"Underwriting" and Notes to Consolidated Financial Statements.

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RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.

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 on a quarterly and 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 competitors; the
Company's ability to successfully develop, introduce and market new products and
product enhancements; market acceptance of the Company's products; the
cancellation or delay of orders from major customers; the Company's ability to
hire additional personnel; and general economic conditions. These and other
factors could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, it is likely that in
some future quarter the Company's operating results may 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 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 a delay in the ability to bill for or collect payment for work
previously performed, 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 canceled 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."

Dependence on Emergence of Merchant SIP Market. The market for merchant SIP
is new and emerging. The Company's ability to achieve sustained revenue growth
and profitability in the future will depend on the continued development of this
market and, to a large extent, on the level of demand for complex ICs, including
system-on-a-chip designs. There can be no assurance that the merchant SIP market
will continue to develop or grow at a rate sufficient to support the Company's
business. If this market fails to grow or develops slower than expected, the
Company's business, operating results and financial condition would be
materially adversely affected. To date, the Company's SIP products have been
licensed only by a limited number of customers. Many of the Company's existing
and potential customers currently rely on SIP developed internally or offered by
other vendors. The Company's future growth will be dependent on the adoption of,
and increased reliance on, merchant SIP by both existing and potential
customers. Moreover, if the Company's
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products do not achieve broad market acceptance, the Company's business,
operating results and financial condition would be materially adversely
affected.

Management of Growth; Significant Anticipated Hiring Needs. The Company's
business has grown significantly with revenue increasing from $6.6 million in
fiscal 1995 to $15.3 million in fiscal 1996 to $22.4 million in fiscal 1997. 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. A number of key members of the Company's management,
including its Chief Operating Officer and Chief Financial Officer and its Vice
Presidents of Marketing, Business Development and Design Services, joined the
Company after January 1998, and certain other executive officers have joined the
Company during the past year. The Company's future success will depend on its
ability to integrate its new officers and 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 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. In this regard, the number of employees at the Company
increased from 46 at the end of fiscal 1995 to 121 at November 30, 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. Because experienced accounting and
financial personnel are in great demand, there can be no assurance that the
Company will be able to identify, attract and retain such 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 overall 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 and to recruit additional personnel to
expand its design services capabilities. 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.

Risks Associated With SIS Microelectronics Acquisition; Other Potential
Acquisitions. As part of the Company's strategy to expand its engineering design
services capability, in March 1998, the Company entered into an agreement to
acquire SIS Microelectronics, Inc. ("SIS Microelectronics") in exchange for the
issuance of an aggregate of 400,000 shares of Common Stock. SIS Microelectronics
is an engineering design services company located in Longmont, Colorado, has
approximately 20 employees and recorded revenues of approximately $1.7 million
for its fiscal year ended December 31, 1997. The acquisition was completed on
April 13, 1998, was accounted for using the purchase method and is expected to
result in a charge to in-process research and development in excess of $2.5
million in the Company's fiscal quarter ended May 31, 1998. The Company has no
prior experience with acquisitions and there can be no assurance that the
Company will be able to retain the key employees of SIS Microelectronics or
successfully integrate the operations of SIS Microelectronics.

From time to time, the Company expects to evaluate other potential
acquisitions to build its SIP expertise. However, other than the proposed
acquisition of SIS Microelectronics, the Company has no present plans with
respect to any such acquisition. There can be no assurance that the Company will

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be able to identify attractive acquisition candidates, that it will be able to
successfully complete any such acquisition or integrate any acquired company
with its other operations. In connection with the acquisition of SIS
Microelectronics or potential acquisitions of other companies, the failure to
successfully and efficiently integrate new employees and operations of the
acquired company with the Company's existing employees and operations or to
successfully manage an acquired company located in a different geographical
location could materially adversely effect the Company's business, operating
results and financial condition.

Risks Associated with Engineering Services Business. One of the Company's
strategies is to increase its revenue from collaborative engineering services.
The Company's ability to execute this strategy will depend in part on its
ability to successfully integrate SIS Microelectronics with its other
operations. The engineering services business is subject to a number of risks,
including potential competition from numerous other engineering service
companies and the ability to attract and retain qualified engineering personnel.
There can be no assurance that the Company can successfully expand its
collaborative engineering services, and the failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.

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."

Customer Concentration; Dependence on Customers in Asia. The Company has
been dependent on a relatively small number of customers for a substantial
portion of its annual revenue. In fiscal 1995, Samsung Electronics, National
Semiconductor 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. In fiscal 1997, although no customer accounted for 10%
or more of revenue, seven customers located in Asia accounted for 37.1% of
revenue and seven domestic customers accounted for 30.5% of revenue. The Company
anticipates that the majority of its revenue will be derived from a relatively
small number of customers through at least fiscal 1998 and that sales to
customers in Asia will continue to account for a significant portion of the
Company's revenue. 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
license additional SIP products or renew its maintenance agreement. The loss of
one or more of the Company's major

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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."

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 account for
a significant portion of its total revenue. Revenue from customers outside the
United States, substantially all of whom are located in Asia, accounted for
54.1%, 66.2% and 48.2% of revenue in fiscal 1995, 1996 and 1997, respectively.
Although the Company does not believe that it experienced any material adverse
impact in revenue as a result of the financial dislocations that occurred in
certain Asian countries during 1997 and 1998, it has experienced a lengthening
of the payment period for accounts receivables from certain Asian-based
customers from approximately one month to as long as six months. At November 30,
1997 and February 28, 1998, the outstanding balance for accounts receivable
greater than 120 days was approximately $0.8 million and $1.3 million
respectively. At February 28, 1998, approximately 63.6% of the Company's
accounts receivable (including unbilled receivables) were from Asian-based
customers. Although the Company currently believes, based in part on continuing
discussions with these customers, that its existing accounting reserves are
adequate given the estimated exposure related to all of its accounts receivable,
there can be no assurance that such accounting reserves will prove to be
adequate nor that present or future dislocations in Asian countries or elsewhere
or other factors will not have a material adverse effect on the Company's
ability to collect its accounts receivable or on its business, operating results
and financial condition.

The Company's international business involves a number of risks, including
the impact of possible recessionary environments in foreign economies, 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. Although the Company prices its products and services in United
States dollars, currency exchange fluctuations could have a material adverse
effect on the Company's business to the extent that the Company's pricing is not
competitive with products priced in local currencies. The Company does not
currently hedge against foreign currency fluctuations. In the event that the
Company commences transacting or accounting for certain items such as accounts
receivables in foreign currency, the lack of an adequate hedging program could
materially affect its results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Sales, Marketing and Customer Support."

Export Control Matters. In May 1997, the Company was advised by the U.S.
Department of Commerce, Bureau of Export Administration (the "DOC") and the
United States Attorney's Office for the Northern District of California that an
investigation had been initiated with respect to the possible violation of U.S.
export laws by the Company and certain of its employees. In August 1997, the
Company was orally informed that the investigation had been closed, and no
action has been brought against the Company or, to the Company's knowledge, its
employees or former employees. The investigation and related diversion of
management time and attention and legal and other costs and expenses had a
material adverse impact on the Company's business and results of operations in
the second and third quarters of fiscal 1997. The Company engaged special
counsel with expertise in export matters and in order to help ensure compliance
with U.S. export control laws, the Company has adopted an export compliance
program, instituted special training for employees in the Company's sales and
shipment departments and increased employee awareness of export compliance
issues through internal memoranda. However, there can be no assurance that the
Company will not be subject to the same or a similar investigation in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Dependence Upon Semiconductor and Electronics Industries. The Company is
dependent upon the semiconductor and electronics industries. Each of these
industries is characterized by rapid technolog-
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ical 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. Although the market for merchant SIP is new and emerging and
the Company has few direct competitors, the Company expects that the market for
its products will become increasingly competitive in the future. The Company's
current competitors include Artisan Components, Inc., Cascade Design Automation
(a subsidiary of Oki Semiconductor Ltd.), Compass Design Automation (a division
of Avant!), Mentor Graphics and Silicon Architects (a division of Synopsys).
Duet Technology, Inc., a design services company, recently announced an
agreement to acquire Cascade Design Automation. The Company also experiences
significant indirect competition from the engineering departments of potential
customers that maintain and develop internally developed SIP. Certain of the
Company's other potential customers rely on proprietary SIP developed and
maintained by ASIC vendors. In addition, certain semiconductor foundries
currently offer or may in the future offer one or more elements of a SIP
solution. The Company's potential competitors also include a number of large
vertically integrated semiconductor companies and numerous EDA software
companies that may develop SIP products that compete with those of the Company.
To the extent the Company expands its capability to offer design services, it
could also experience competition from numerous small design engineering firms
and from large public companies that also offer such services. 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 "Business -- Competition."

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, 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
9
<PAGE> 10

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, 1998, the Company held 5 U.S. patents which expire from
2015 to 2017 and had 3 U.S. patent applications pending. The Company also has 12
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, ABOND, HDEA and Mastergen and has
one trademark application 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 technology 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 Product Defects. Complex products such as those offered by
the Company may contain undetected errors, defects or "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
maintains a key person life insurance policy on its President and Chief
Executive Officer in the amount of $1 million. The Company does not maintain key
person life insurance on any of its other executive officers. 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
10
<PAGE> 11

personnel. Competition for such personnel in the computer software industry is
intense. The Company is currently engaged in a search for 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.

Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. Although the Company
has conducted an internal review of such matters and believes that its products
and internal systems are Year 2000 compliant, the Company believes that the
purchasing patterns of customers and potential customers may be affected by Year
2000 issues as companies expend significant resources to upgrade their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase products such as those offered by the
Company, which 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 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 Common Stock was 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 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 55.4% 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."

11
<PAGE> 12

Benefits of the Offering to Current Stockholders. Immediately after the
closing of this offering, based upon shares outstanding as of February 28, 1998,
the existing stockholders of the Company will hold 22,039,557 shares of Common
Stock (excluding an aggregate of 400,000 shares of Common Stock to be issued in
connection with the acquisition of SIS Microelectronics), or approximately 78.6%
of the total number of shares of Common Stock then outstanding. The existing
stockholders of the Company paid an aggregate of approximately $10.3 million to
the Company for their shares of Common Stock. Based upon the initial public
offering price, the value of the shares held by such existing stockholders would
be approximately $286.5 million. Therefore, the aggregate unrealized gain to the
existing stockholders of the Company resulting from the offering would be
approximately $276.2 million. 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 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. The Company is also subject to
Section 203 of the Delaware General Corporation Law. See "Description of Capital
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 Common Stock. In addition to the
6,000,000 shares of Common Stock offered hereby, as of the date of this
Prospectus (the "Effective Date") there will be 22,439,557 shares of Common
Stock outstanding (assuming no exercise of options after February 28, 1998), all
of which are "restricted" shares (the "Restricted Shares") under the Securities
Act of 1933, as amended (the "Securities Act"). Approximately 111,000 Restricted
Shares will become eligible for sale immediately after the Effective Date
pursuant to Rule 144(k) under the Securities Act. Approximately 32,000
Restricted Shares will become eligible for sale prior to 90 days after the
Effective Date pursuant to Rule 144(k) under the Securities Act. However,
approximately 5,000 of these shares will be subject to a right of repurchase in
favor of the Company. Approximately 416,000 Restricted Shares will become
eligible for sale 90 days after the Effective Date, and approximately 21,453,000
Restricted Shares will become eligible for sale 180 days after the Effective
Date upon expiration of certain lockup agreements with the Company or the
Representatives of 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 290,000 of these shares will
be subject to a right of repurchase in favor of the Company. The remaining
approximately 428,000 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 365,000 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
Representatives of 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 6,050,000 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."
12
<PAGE> 13

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 Hambrecht & Quist
LLC. The Company has requested and the Representatives of the Underwriters have
agreed with the Company not to release any of such lockup restrictions prior to
the end of the 180-day period.

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
$10.74 in net tangible book value per share of Common Stock from the initial
public offering price and will incur additional dilution upon the exercise of
outstanding stock options. See "Dilution."

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 6,000,000 shares of
Common Stock offered by the Company hereby after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
$71.8 million ($82.7 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 Series A Redeemable
Preferred Stock as required by the terms of such shares. In connection with such
redemption, the difference between the book value and the redemption value of
approximately $4.1 million will be recorded as accretion of Preferred Stock when
determining income attributable to common stockholders and earnings per share.
This $4.1 million of accretion will be recorded in the second quarter of fiscal
1998 when the offering is completed and together with the anticipated charge to
in-process research and development related to the acquisition of SIS
Microelectronics will result in a loss attributable to common stockholders and a
loss per share in that quarter. See Note 6 of Notes to Consolidated Financial
Statements. 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

To date, the Company has neither declared nor paid any cash dividends on
its shares of Common Stock. The Company currently intends to retain its earnings
for future growth and, therefore, does not anticipate paying any cash dividends
in the foreseeable future.

14
<PAGE> 15

CAPITALIZATION

The following table sets forth as of February 28, 1998 (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 $53.3 million of net proceeds from the sale of the
6,000,000 shares of Common Stock offered by the Company hereby 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, 1998
------------------------------------
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)............................................. $ 14,380 $14,380 $ --
-------- ------- --------
Redeemable Common Stock, $.001 par value: shares
outstanding: actual -- 4,778,804; proforma and as
adjusted -- none......................................... 7,116 -- --
-------- ------- --------
Stockholders' equity (deficiency):
Preferred Stock, $.001 par value: 5,000,000 shares
authorized (including Series A Redeemable Preferred
Stock): shares outstanding: none...................... -- -- --
Common Stock, $.001 par value: 75,000,000 shares
authorized: shares outstanding: actual -- 17,260,753;
pro forma -- 22,039,557; as
adjusted -- 28,039,557(1)............................. 3,143 10,259 82,099
Stockholder notes receivable............................. (292) (292) (292)
Deferred stock compensation.............................. (139) (139) (139)
Retained earnings (deficit).............................. (14,090) (14,090) (18,205)
-------- ------- --------
Total stockholders' equity (deficiency)............. (11,378) (4,262) 63,463
-------- ------- --------
Total capitalization............................. $ 10,118 $10,118 $ 63,463
======== ======= ========
</TABLE>

- ------------------------------

(1) As of February 28, 1998, excludes (i) 2,250,190 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
$7.42 per share, (ii) 2,191,030 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 an 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 "Management -- Director Compensation,"
"-- Compensation Plans" and Note 7 of Notes to Consolidated Financial
Statements. The foregoing computations also exclude 400,000 shares of Common
Stock issued in connection with the acquisition of SIS Microelectronics.

15
<PAGE> 16

DILUTION

The pro forma net tangible book value of the Company as of February 28,
1998 was a deficit of approximately $8.4 million, or $0.38 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. Without taking into account any other changes in the
pro forma net tangible book value after February 28, 1998, other than to give
effect to the receipt by the Company of the net proceeds from the sale of
6,000,000 shares of Common Stock offered hereby (after deducting the
underwriting discounts and commissions and estimated offering expenses), the pro
forma net tangible book value of the Company as of February 28, 1998 would have
been approximately $63.5 million, or $2.26 per share. This represents an
immediate increase in net tangible book value of $2.64 per share to existing
stockholders and an immediate dilution of $10.74 per share to new investors. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $13.00
Pro forma net tangible book value per share as of
February 28, 1998..................................... $(.38)
Increase per share attributable to new investors....... 2.64
-----
Pro forma net tangible book value per share after the
offering.................................................. 2.26
------
Net tangible book value dilution per share to new
investors................................................. $10.74
======
</TABLE>

The following table summarizes, on a pro forma basis as of February 28,
1998, the differences between the existing stockholders and the purchasers of
shares in the offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid:

<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
-------------------- --------------------- -------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 22,039,557 78.6% $10,259,000 11.6% $ 0.47
New investors................ 6,000,000 21.4 78,000,000 88.4 $13.00
---------- ----- ----------- -----
Total.............. 28,039,557 100.0% $88,259,000 100.0%
========== ===== =========== =====
</TABLE>

The foregoing computations exclude, as of February 28, 1998 (i) 2,250,190
shares of Common Stock issuable upon exercise of outstanding options under the
Option Plan at a weighted average exercise price of $7.42 per share, (ii)
2,191,030 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 an 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 Purchase Plan. See "Management -- Director Compensation," "-- Compensation
Plans" and Note 7 of Notes to Consolidated Financial Statements. The foregoing
computations also exclude 400,000 shares of Common Stock issued in connection
with the acquisition of SIS Microelectronics.

16
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data of the Company should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated 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, 1995, 1996 and 1997 and with respect to the Company's
balance sheets as of November 30, 1996 and 1997 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 years ended November 30, 1993 and 1994
and with respect to the Company's balance sheets as of November 30, 1994 and
1995 are derived from the audited Financial Statements of the Company, which are
not included herein. The selected financial data set forth below for the three
months ended February 28, 1997 and 1998 and with respect to the Company's
balance sheet as of November 30, 1993 and February 28, 1998 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, 1998 are
not necessarily indicative of the results that may be expected for any future
period.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED NOVEMBER 30, FEBRUARY 28,
------------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ -------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue.................................... $3,689 $4,659 $6,640 $ 15,265 $22,392 $5,678 $6,925
Cost of revenue............................ 1,320 1,553 2,307 4,702 8,763 1,650 2,709
------ ------ ------ -------- ------- ------ ------
Gross profit............................... 2,369 3,106 4,333 10,563 13,629 4,028 4,216
------ ------ ------ -------- ------- ------ ------
Operating expenses:
Research and development................. 230 289 445 921 1,190 298 431
Sales and marketing...................... 196 624 1,387 3,526 6,537 1,514 1,266
General and administrative............... 545 827 1,093 1,994 2,363 396 873
------ ------ ------ -------- ------- ------ ------
Total operating expenses............ 971 1,740 2,925 6,441 10,090 2,208 2,570
------ ------ ------ -------- ------- ------ ------
Income from operations..................... 1,398 1,366 1,408 4,122 3,539 1,820 1,646
Other income, net.......................... 17 17 56 310 173 89 22
------ ------ ------ -------- ------- ------ ------
Income before income taxes................. 1,415 1,383 1,464 4,432 3,712 1,909 1,668
Provision for income taxes................. 566 553 585 1,815 1,485 764 667
------ ------ ------ -------- ------- ------ ------
Net income................................. 849 830 879 2,617 2,227 1,145 1,001
Accretion of Redeemable Preferred
Stock(1)................................. -- -- -- 392 823 202 212
------ ------ ------ -------- ------- ------ ------
Income attributable to common
stockholders............................. $ 849 $ 830 $ 879 $ 2,225 $ 1,404 $ 943 $ 789
====== ====== ====== ======== ======= ====== ======
Diluted earnings per share(2).............. $ 0.05 $ 0.04 $ 0.04 $ 0.10 $ 0.06 $ 0.04 $ 0.04
====== ====== ====== ======== ======= ====== ======
Diluted average shares outstanding......... 18,468 19,407 20,172 22,396 22,532 22,974 22,222
</TABLE>

<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------------------------------- FEBRUARY 28,
1993 1994 1995 1996 1997 1998
------ ------ ------ -------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................ $ (255) $ 420 $ 944 $ 3,704 $ 4,505 $ 5,930
Total assets............................... 1,028 2,353 5,046 15,760 17,101 17,116
Redeemable Preferred Stock................. -- -- -- 13,345 14,168 14,380
Redeemable Common Stock.................... -- -- -- 7,116 7,116 7,116
Total stockholders' equity (deficiency).... 48 904 1,798 (14,063) (12,431) (11,378)
</TABLE>

- ------------------------------

(1) In connection with the redemption of all outstanding shares of Series A
Redeemable Preferred Stock from the proceeds of the offering, as required by
the terms of such shares, the difference between the book value and the
redemption value of approximately $4.1 million will be recorded as accretion
of Preferred Stock when determining income attributable to common
stockholders and earnings per share. This charge is expected to be recorded
in the second quarter of fiscal 1998 when the offering is completed and,
together with the anticipated charge to in-process research and development
related to the acquisition of SIS Microelectronics, will result in a loss
attributable to common stockholders and a loss per share in that quarter.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 6 of Notes to Consolidated Financial Statements.

(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing earnings per share.

17
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.

OVERVIEW

Aspec was founded in December 1991 to develop, market and support SIP to
enable customers to develop complex ICs. 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 SIP 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 SIP 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 SIP products for gate
array-based ICs and had developed SIP 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 SIP products.
A license is required for each foundry used by the customer as well as for each
process technology employed. The Company also realizes revenue from service and
maintenance fees. Typically a customer licenses a bundle of products which is
accompanied by 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 SIP is either replacing a customer's proprietary SIP or
introducing entirely new SIP. These SIP 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 $200,000 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 recorded as cost of revenue.
Engineering efforts devoted to developing the Company's core technology and
products not requiring adaptation are recorded as

18
<PAGE> 19

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 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 account for a significant portion of its total revenue.
Revenue from customers outside the United States, substantially all of whom are
located in Asia, accounted for 54.1%, 66.2% and 48.2% of revenue in fiscal 1995,
1996 and 1997, respectively. Although the Company does not believe that it
experienced any material adverse impact in revenue as a result of the financial
dislocations that occurred in certain Asian countries during 1997 and 1998, it
has experienced a lengthening of the payment period for accounts receivables
from certain Asian-based customers from approximately one month to as long as
six months. At November 30, 1997 and February 28, 1998, the outstanding balance
for accounts receivable greater than 120 days was approximately $0.8 million and
$1.3 million, respectively. At February 28, 1998, approximately 63.6% of the
Company's accounts receivable (including unbilled receivables) were from
Asian-based customers. Although the Company currently believes, based in part on
continuing discussions with these customers, that its existing accounting
reserves are adequate given the estimated exposure related to all of its
accounts receivable, there can be no assurance that such accounting reserves
will prove to be adequate nor that present or future dislocations in Asian
countries or elsewhere or other factors will not have a material adverse effect
on the Company's ability to collect its accounts receivable or on its business,
operating results and financial condition.

The Company's international business involves a number of risks, including
the impact of possible recessionary environments in foreign economies, 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. Although the Company prices its products and services in United
States dollars, currency exchange fluctuations could have a material adverse
effect on the Company's business to the extent that the Company's pricing is not
competitive with products priced in local currencies. The Company does not
currently hedge against foreign currency fluctuations. In the event that the
Company commences transacting or accounting for certain items such as accounts
receivables in foreign currency, the lack of an adequate hedging program could
materially affect its results of operations and financial condition. See "Risk
Factors -- Risks Associated With International Operations and
"Business -- Sales, Marketing and Customer Support."

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, as required by the terms of
such shares, the difference between the book value and the redemption value of
approximately $4.1 million will be recorded as accretion for Preferred Stock
when determining income attributable to common stockholders and earnings per
share. This $4.1 million of accretion will be recorded in the second quarter of
fiscal 1998 when the offering is completed and, together with the charge to
in-process research and development related to the proposed acquisition of SIS
Microelectronics, will result in a loss attributable to common stockholders and
a loss per share in that quarter. See Note 6 of Notes to Consolidated Financial
Statements.

As part of the Company's strategy to expand its engineering design services
capability, in March 1998, the Company entered into an agreement to acquire SIS
Microelectronics in exchange for the issuance of an aggregate of 400,000 shares
of Common Stock. SIS Microelectronics is an engineering
19
<PAGE> 20

design services company located in Longmont, Colorado, has approximately 20
employees and recorded revenues of approximately $1.7 million for its fiscal
year ended December 31, 1997. The acquisition was completed on April 13, 1998,
was accounted for using the purchase method and is expected to result in a
charge to in-process research and development in excess of $2.5 million in the
Company's fiscal quarter ended May 31, 1998. The Company has no prior experience
with acquisitions and there can be no assurance that the Company will be able to
retain the key employees of SIS Microelectronics or successfully integrate the
operations of SIS Microelectronics. This charge, in addition to the $4.1 million
of accretion of the Series A Redeemable Preferred Stock, will result in a loss
attributable to common stockholders and a loss per share in the second quarter
of fiscal 1998. See "Risk Factors -- Risks Associated With SIS Microelectronics
Acquisition; Other Potential Acquisitions."

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
consolidated statement of income data of the Company expressed as a percentage
of revenue.

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-----------------------------------------
THREE MONTHS
FISCAL YEAR ENDED ENDED
NOVEMBER 30, FEBRUARY 28,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................................... 34.7 30.8 39.1 29.1 39.1
----- ----- ----- ----- -----
Gross profit....................................... 65.3 69.2 60.9 70.9 60.9
----- ----- ----- ----- -----
Operating expenses:
Research and development......................... 6.7 6.0 5.3 5.2 6.2
Sales and marketing.............................. 20.9 23.1 29.2 26.7 18.3
General and administrative....................... 16.5 13.1 10.6 7.0 12.6
----- ----- ----- ----- -----
Total operating expenses...................... 44.1 42.2 45.1 38.9 37.1
----- ----- ----- ----- -----
Income from operations............................. 21.2 27.0 15.8 32.0 23.8
Interest income.................................... 0.8 2.0 0.8 1.6 0.3
----- ----- ----- ----- -----
Income before income taxes......................... 22.0 29.0 16.6 33.6 24.1
Provision for income taxes......................... 8.8 11.9 6.7 13.4 9.6
----- ----- ----- ----- -----
Net income......................................... 13.2% 17.1% 9.9% 20.2% 14.5%
===== ===== ===== ===== =====
</TABLE>

COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 28, 1998

Revenue. Revenue increased 22.0% from $5.7 million in the first quarter of
fiscal 1997 to $6.9 million in the first quarter of fiscal 1998 primarily from
increased revenue from SIP products that did not require significant adaptation
being sold to new customers.

Cost of revenue. Cost of revenue primarily represents the costs of
personnel and other operating expenses incurred in the development and
production of SIP products to customer specifications. Cost of revenue increased
64.2% from $1.7 million in the first quarter of fiscal 1997 to $2.7 million in
the first quarter of fiscal 1998. The incremental cost reflects an increase in
engineering personnel and related expenses to support additional work related to
customer funded development programs and anticipated future revenue growth. As a
percentage of revenue, cost of revenue increased from 29.1% in the first quarter
of fiscal 1997 to 39.1% in the first quarter of fiscal 1998 due to expenses
increasing at a faster rate than revenue.

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

20
<PAGE> 21

Company's core technology and products not requiring significant adaption.
Research and development expense increased from $0.3 million in the first
quarter of fiscal 1997 to $0.4 million in the first quarter of fiscal 1998. The
incremental cost reflects an increase in engineering personnel and related
expenses to support additional development work not funded by customers. As a
percentage of revenue, research and development expense increased from 5.2% in
the first quarter of fiscal 1997 to 6.2% in the first quarter of fiscal 1998 as
the Company expanded its engineering efforts. The Company expects research and
development expense to increase in absolute dollars in future periods as the
Company continues to expand 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
representatives, promotional costs and related operating expenses. Sales and
marketing expense decreased from $1.5 million in the first quarter of fiscal
1997 to $1.3 million in the first quarter of fiscal 1998 primarily due to lower
travel, advertising and promotional expenses. As a percentage of revenue, sales
and marketing expense decreased from 26.7% in the first quarter of fiscal 1997
to 18.3% in the first quarter of fiscal 1998 as sales and marketing expense
decreased while revenue increased over the periods. 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 $0.4 million in the first quarter of fiscal 1997 to $0.9 million in the
first quarter of fiscal 1998 primarily due to an increase in the accounts
receivable reserve of $0.4 million in the first quarter of 1998. As a percentage
of revenue, general and administrative expense increased from 7.0% in the first
quarter of fiscal 1997 to 12.6% in the first quarter of fiscal 1998. The Company
expects general and administrative expense to increase in absolute dollars in
future periods as the Company expands its operations and operates as a public
company. The expected increase in the Company's general and administrative
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.

COMPARISON OF FISCAL 1995, 1996 AND 1997

Revenue. Revenue increased 129.9% from $6.6 million in fiscal 1995 to $15.3
million in fiscal 1996 as the Company expanded its sales of SIP products to a
broader customer base. Revenue increased 46.7% from $15.3 million in fiscal 1996
to $22.4 million in fiscal year 1997 as the Company continued to expand its
sales of standard cell-based SIP products to a broader customer base,
principally in North America.

International revenue accounted for 54.1%, 66.2% and 48.2% of revenue in
fiscal 1995, 1996 and 1997, respectively. In fiscal 1995, Samsung Electronics,
National Semiconductor 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. In fiscal 1997, no customer accounted for more than 10% of revenue.

Cost of revenue. Cost of revenue increased from $2.3 million in fiscal 1995
to $4.7 million in fiscal 1996 and $8.8 million in fiscal 1997. These increases
primarily reflect increases in engineering personnel and related expenses
primarily associated with customer funded development programs. Cost of revenue
has fluctuated from 34.7% of revenue in fiscal 1995 to 30.8% of revenue in 1996
and 39.1% of revenue in fiscal 1997. The reduction in cost of revenue as a
percentage of revenue in fiscal 1996 compared to fiscal 1995 reflects increased
revenue in the second half of fiscal 1996 from products that did not require
significant adaptation. The increase in cost of revenue as a percentage of
revenue in fiscal 1997 compared to fiscal 1996 reflects (i) higher costs for
engineering personnel and related expenses incurred in anticipation of future
revenue growth and (ii) lower overall revenue due to

21
<PAGE> 22

lower than expected revenue from the Company's Japanese distributor and to the
diversion of management time resulting from the DOC investigation in the second
half of fiscal 1997. The Company expects cost of revenue as a percentage of
revenue to fluctuate in future periods depending on the mix between development
program revenues and revenues from previously developed products.

Research and development. Research and development expense increased from
$0.4 million in fiscal 1995 to $0.9 million in fiscal 1996 and $1.2 million in
fiscal 1997. These increases primarily reflect increases in engineering
personnel and related expenses. As a percentage of revenue, research and
development expense decreased from 6.7% in fiscal 1995 to 6.0% in fiscal 1996
and 5.3% in fiscal 1997. 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 increased from $1.4
million in fiscal 1995 to $3.5 million in fiscal 1996 and $6.5 million in fiscal
1997. 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 increased as a
percentage of revenue from 20.9% in fiscal 1995 to 23.1% in fiscal 1996 and
29.2% in fiscal 1997. 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 $1.1 million in fiscal 1995 to $2.0 million in fiscal 1996 and $2.4 million
in fiscal 1997. 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. In
fiscal 1996, the Company established a bad debt reserve of approximately $0.3
million and in fiscal 1997 the Company incurred approximately $0.7 million of
costs related to its delayed initial public offering. As a percentage of
revenue, general and administrative expense decreased from 16.5% in fiscal 1995
to 13.1% in fiscal 1996 and 10.6% in fiscal 1997 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. The
expected increase in the Company's general and administrative 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.

Provision for income taxes. The Company's tax rates of 40.0%, 41.0% and
40.0% in fiscal 1995, 1996 and 1997, respectively, approximate the combined
federal and state statutory income tax rates.

22
<PAGE> 23

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth selected statement of operations data for
the nine fiscal quarters ended February 28, 1998, as well as the percentage of
the Company's revenue represented by such data. This data 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>
QUARTER ENDED
------------------------------------------------------------------------------------------------
FISCAL
FISCAL 1996 FISCAL 1997 1998
----------------------------------------- ----------------------------------------- --------
FEB. 29, MAY 31, AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30, FEB. 28,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........................ $2,518 $2,840 $4,570 $5,337 $5,678 $5,042 $5,105 $6,567 $6,925
Cost of revenue................ 784 1,000 1,357 1,561 1,650 2,078 2,498 2,537 2,709
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit................... 1,734 1,840 3,213 3,776 4,028 2,964 2,607 4,030 4,216
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development... 227 211 241 242 298 288 317 287 431
Sales and marketing........ 577 633 991 1,325 1,514 1,836 1,814 1,373 1,266
General and
administrative........... 472 448 500 574 396 534 340 1,093 873
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 1,276 1,292 1,732 2,141 2,208 2,658 2,471 2,753 2,570
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations......... 458 548 1,481 1,635 1,820 306 136 1,277 1,646
Interest income................ 21 19 199 71 89 39 24 21 22
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes..... 479 567 1,680 1,706 1,909 345 160 1,298 1,668
Provision for income taxes..... 197 232 689 697 764 138 64 519 667
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income..................... 282 335 991 1,009 1,145 207 96 779 1,001
Accretion of Redeemable
Preferred Stock(1)........... -- -- 191 201 202 204 207 210 212
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) attributable to
common stockholders.......... $ 282 $ 335 $ 800 $ 808 $ 943 $ 3 $ (111) $ 569 $ 789
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUE
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................ 31.1 35.2 29.7 29.3 29.1 41.2 48.9 38.6 39.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit................... 68.9 64.8 70.3 70.7 70.9 58.8 51.1 61.4 60.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development... 9.0 7.4 5.3 4.5 5.2 5.7 6.2 4.4 6.2
Sales and marketing........ 22.9 22.3 21.7 24.8 26.7 36.4 35.5 20.9 18.3
General and
administrative........... 18.8 15.8 10.9 10.8 7.0 10.6 6.7 16.6 12.6
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 50.7 45.5 37.9 40.1 38.9 52.7 48.4 41.9 37.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations......... 18.2 19.3 32.4 30.6 32.0 6.1 2.7 19.5 23.8
Interest income................ 0.8 0.7 4.4 1.3 1.6 0.7 0.5 0.3 0.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes..... 19.0 20.0 36.8 31.9 33.6 6.8 3.2 19.8 24.1
Provision for income taxes..... 7.8 8.2 15.1 13.0 13.4 2.7 1.3 7.9 9.6
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income..................... 11.2 11.8 21.7 18.9 20.2 4.1 1.9 11.9 14.5
Accretion of Redeemable
Preferred Stock(1)........... -- -- 4.2 3.8 3.6 4.0 4.1 3.2 3.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) attributable to
common stockholders.......... 11.2% 11.8% 17.5% 15.1% 16.6% 0.1% (2.2%) 8.7% 11.4%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

- ---------------
(1) In connection with the redemption of all outstanding shares of Series A
Redeemable Preferred Stock from the proceeds of the offering, as required by
the terms of such shares, the difference between the book value and the
redemption value of approximately $4.1 million will be recorded as accretion
of Preferred Stock when determining income attributable to common
stockholders and earnings per share. This charge is expected to be recorded
in the second quarter of fiscal 1998 when the offering is completed and,
together with the anticipated charge to in-process research and development
related to the acquisition of SIS Microelectronics, will result in a loss
attributable to common stockholders and a loss per share in that quarter.
See Note 6 to Notes to Consolidated Financial Statements.

23
<PAGE> 24

The Company's revenue increased on a quarterly basis during the four
quarters of fiscal 1996 and the first quarter of fiscal 1997. The Company's
revenue decreased in the second quarter of fiscal 1997 compared to the first
quarter and increased only slightly from the second quarter of fiscal 1997 to
the third quarter of 1997. The lower revenue levels in the second and third
quarters of fiscal 1997 were due principally to lower than expected revenue from
the Company's Japanese distributor and to management distraction resulting from
the DOC investigation which was initiated in May 1997 and closed in August 1997.
Revenue increased in the fourth quarter of fiscal 1997 and the first quarter of
fiscal 1998 primarily because of increased revenue from previously developed SIP
products sold to new customers, principally in North America.

Cost of revenue as a percentage of revenue increased significantly in the
second and third quarters of fiscal 1997 compared to the preceding three
quarters. These increases reflect (i) higher costs for engineering personnel and
related expenses incurred in anticipation of future revenue growth and (ii)
lower overall revenue due to lower than expected revenue from the Company's
Japanese distributor and to management distraction resulting from the DOC
investigation. Cost of revenue as a percentage of revenue decreased
significantly in the fourth quarter of fiscal 1997 compared to the third quarter
of fiscal 1997 due to the significant increase in revenue during such period,
lower growth in engineering personnel and related expenses and the resolution of
the DOC investigation in August 1997. The Company expects cost of revenue as a
percentage of revenue to fluctuate in future periods depending on the mix
between development program revenues which are recognized based on costs
associated with those revenues and revenues from products for which the related
development costs have already been charged to cost of development program
revenue.

Research and development expense generally increased in absolute dollars
over the nine quarter period, and such expenses fluctuated as a percentage of
revenue. Research and development expense increased significantly in the first
quarter of fiscal 1998 compared to the fourth quarter of fiscal 1997 due to
increased personnel and related costs and increased focus on SIP products for
0.18(LOGO) process technologies. Because a significant portion of the Company's
development programs are customer funded, only the residual unfunded development
activities of the Company are reported as research and development expense. The
Company expects research and development expense to increase in absolute dollars
over future periods as it continues to expand its engineering efforts. In
addition to its research and development efforts, the Company has significant
engineering efforts devoted to developing products on which revenue is
recognized on a percentage of completion basis which are recognized as cost of
revenue. The total development engineering spending, including cost of revenue,
has increased from $1.0 million in the first quarter of fiscal 1996 to $3.1
million in the first quarter of fiscal 1998.

Sales and marketing expense generally increased during each quarter of
fiscal 1996 and fiscal 1997 primarily as a result of the Company establishing a
North American direct sales force and relationships with distributors and sales
representatives in North America and Asia. As a percentage of revenue, sales and
marketing expense increased significantly in the second quarter of fiscal 1997
compared to the first quarter of fiscal 1997 due to a higher proportion of
revenue in Asia on which outside sales representatives earned commissions. In
the third quarter of fiscal 1997, sales and marketing expense remained
consistent with second quarter levels due to costs associated with a significant
trade show in which the Company participated.

General and administrative expense generally increased in absolute dollars
as the Company increased its administrative efforts to manage its growth and
such expenses generally decreased as a percentage of revenue due to higher
revenue during the periods. 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. General and administrative
expense increased in the second quarter of fiscal 1997 due to increased
personnel and other administrative costs. General and administrative expenses in
the fourth quarter of fiscal 1997 were significantly higher than the prior
quarter due to expenses of approximately $0.7 million related to the Company's
delayed initial public offering.
24
<PAGE> 25

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 on a quarterly and 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 competitors; the
Company's ability to successfully develop, introduce and market new products and
product enhancements; market acceptance of the Company's products; the
cancellation or delay of orders from major customers; the Company's ability to
hire additional personnel; and general economic conditions. These and other
factors could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, it is likely that in
some future quarter the Company's operating results may 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 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 a delay in the ability to bill for or collect payment for work
previously performed, 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 canceled 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 "Risk
Factors -- Fluctuations in Future Operating Results; Dependence Upon Timely
Project Completion."

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company has financed its operations principally from cash flow
from operations and through the private sale of equity securities. The Company
had positive cash flow from operating activities in fiscal 1995 of $2.1 million
and in fiscal 1996 of $4.6 million. Cash provided by operating activities
included net income of $0.9 million and $2.6 million in fiscal 1995 and 1996,
respectively, increases in customer advances of $1.3 million and $3.0 million in
fiscal 1995 and 1996, respectively, increases in accrued liabilities of $0.3
million and $1.3 million in fiscal 1995 and 1996, respectively, increases in
taxes payable of $0.4 million and $1.0 million in fiscal 1995 and 1996,
respectively, offset in part by increased accounts receivable of $0.8 million
and $3.9 million in fiscal 1995 and 1996, respectively. In fiscal 1997,
operating activities used $0.7 million in cash, primarily the result of growth
in accounts receivable of $2.2 million, an increase in deferred income taxes of
$1.4 million and the decrease in income taxes payable of $1.7 million. In the
first quarter of fiscal 1998, net cash provided by operations was $0.3 million.
Cash provided by operating activities, including net income of $1.0 million,

25
<PAGE> 26

an increase in income taxes payable of $0.6 million and depreciation and
amortization of $0.5 million, more than offset the use of cash including a
reduction in customer advances of $1.7 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 $0.6 million, $2.5 million,
$3.2 million and $0.4 million in fiscal 1995, 1996, 1997 and the first quarter
of fiscal 1998, respectively. The Company expects to invest approximately $5.4
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."

As of February 28, 1998, the Company had working capital of $5.9 million
and cash and equivalents of $2.7 million. During the three-year period, the
Company's cash balances have varied from $0.8 million at the beginning of fiscal
1995 to $6.3 million at the end of fiscal 1996 to $2.5 million at the end of
fiscal 1997. During fiscal 1995 through 1997, the Company had a bank line of
credit of $1 million, which was increased to $4 million in March 1998. The
Company has not borrowed under its credit facility.

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.

26
<PAGE> 27

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 provider of merchant SIP solutions for high-performance,
complex IC designs, including system-on-a-chip ICs. Aspec's SIP consists of cell
libraries, design tools, design methodologies and related engineering services
which, when used in conjunction with EDA tools, simplify the process of
designing complex ICs. The Company believes that its SIP provides designers with
quick access to cell libraries at a lower cost than internally developed
solutions. Aspec's SIP includes its AdverPro design verification tool which
manages the IC design process, enabling EDA tools to exchange data while
providing an accurate timing function and helping to ensure compliance with
proper design procedures. Aspec's QuickPort design tool enables an IC designer
to more rapidly and economically port a design from one foundry to another to
secure alternate sourcing and to enable design reuse for next-generation process
technologies. Aspec's SIP currently supports a range of advanced, deep submicron
process technologies at leading semiconductor foundries, including Chartered
Semiconductor, Hyundai Electronics, IBM, LG Semicon, Samsung Electronics, Sanyo
Electric, Taiwan Semiconductor Manufacturing Corp. and United Microelectronics
Corporation.

INDUSTRY BACKGROUND

Semiconductors have become the critical technology component in most
electronic products manufactured today. Advances in semiconductor technologies
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.
Complex electronic products continue to be introduced at rapid rates while
increasing competition continues to shorten product life cycles. Such market
forces have driven continued improvements in semiconductor design methodologies
and manufacturing processes, most recently reflected in the migration to deep
submicron process technologies. These improvements have enabled the number of
transistors on an IC to double every 18 to 24 months, enabling entire electronic
systems to be integrated on to a single complex IC to create a system-on-a-chip.
Increased IC complexity has also resulted in a significant change in the
semiconductor industry over the past several years as more IC companies have
moved away from vertically integrated business models and begun to rely on
third-party specialists for their IC designs and EDA tools and on semiconductor
foundries for their manufacturing needs.

Complex IC designs integrate silicon building blocks such as
microprocessors, memories, graphics and I/O functions on a single IC and
typically replace multiple ICs mounted on a printed circuit board. By
integrating multiple functions, complex ICs reduce the number of electronic
connections, require less power and result in smaller board size, thus enabling
a new generation of electronic systems that are faster, smaller, cheaper, more
reliable and use lower power. With the increasing trend to deep submicron
fabrication capacity, complex IC designs are expected to proliferate as system
companies seek to provide differentiated products to their end customers.

In spite of the forces driving the growth of complex ICs, there are
significant challenges in bringing products to market. Complex ICs can contain
millions of gates and are increasingly difficult and time-consuming to design.
In addition, increasing competition in the market for electronic systems
continues to place pressure on product design cycle time. Being first-to-market
is critical for system companies, as it can result in significant financial and
market share advantages. However, the combination of increased IC complexity and
reduced design time requirements have resulted in a significant and growing
"design gap." Since existing leading-edge manufacturing capacity can already

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accommodate complex IC designs, the capability to develop such designs remains
the bottleneck in the development of complex ICs.

Merchant EDA software and ASIC design methodologies were introduced in the
1980s as tools to enable IC designers to automate portions of the design process
and to increase productivity by eliminating tedious handcrafting. While this
approach has substantially increased design productivity over the years, it has
not kept pace with the rapid increase in the capability to manufacture complex
ICs. To address the design gap, certain companies have created multiple design
teams to concurrently develop different components of complex ICs while others
have utilized merchant ASIC design services. However, each of these approaches
has become less effective as IC designs have become more complex. The challenges
associated with managing and integrating disparate design efforts and the high
costs of attracting IC design talent and maintaining separate teams have made a
multiple design team approach inadequate. Companies that adopted the merchant
ASIC design service approach are finding that although such services
historically proved to be economic and effective for many smaller designs, they
are less able to provide the desired control, flexibility and support for more
complex ICs. ASIC vendors are also finding it increasingly difficult, costly and
time consuming to develop and maintain a portfolio of proprietary SIP. Further,
companies that rely on ASIC vendors are limited to a single source for their
designs. Thus, IC designers are increasingly turning to merchant SIP suppliers
to meet their needs for rapid complex IC development.

The merchant SIP market includes providers of cell libraries, design tools,
design methodologies and related engineering services. SIP libraries are
pre-designed, reusable circuit building blocks or cores, that can be combined
using a design procedure, design methodology and design tools to create complex
IC designs. SIP libraries, for example, include basic elements such as
individual gates or I/O elements and complex cores such as microprocessors or
DSPs. However, SIP libraries alone are not enough to allow the cost-effective
reuse of intellectual capital and engineering resources. SIP design tools and
design services are also required to enable the development and subsequent
integration of SIP libraries into functional complex ICs. SIP tools enable the
representation of SIP libraries in different formats, automate or control the
design flow around EDA tools, automate the development of libraries and
facilitate the porting of a design to multiple foundries. Design services
include third-party support for in-house engineers in using merchant SIP,
porting existing in-house SIP to new processes and integrating both merchant and
in-house SIP effectively in new designs.

There are multiple requirements for merchant SIP to be used effectively in
complex IC design. SIP libraries must be flexible and adaptable to enable IC
designers to customize these libraries for their design flow and manufacturing
process to achieve maximum performance and product differentiation. Design tools
supporting design reuse must be compatible with existing EDA tools, allowing SIP
representation in the appropriate formats. Libraries and design tools must
jointly provide flexibility to allow rapid porting from one manufacturing
process to another and must be customizable to fully utilize the capabilities of
a particular manufacturing process. In addition, IC designers require services
to help aggregate SIP, test functionality and complete circuit designs in order
to achieve rapid time-to-market. Accordingly, merchant SIP solutions must
integrate libraries seamlessly with design and EDA tools so that engineers can
more rapidly design complex ICs.

SOLUTION

Aspec is a leading provider of merchant SIP solutions for high-performance,
complex IC designs, including system-on-a-chip ICs. The Company believes its
products provide the following benefits:

Accelerated Time-to-Market. Aspec's SIP facilitates the rapid design of
complex ICs by providing pre-designed, reusable cell libraries which reduce the
customer's design time requirements. Aspec's cell libraries have been used in
designs in over 30 different manufacturing processes, thus providing IC
designers with a higher probability of more quickly achieving working silicon.
The Company's AdverPro design tool manages the IC design process and is designed
to provide fast and seamless integration of cell libraries with design flow and
EDA tools.

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Cost-effective SIP Solutions. Aspec's SIP allows customers to outsource
libraries, tools and services critical for complex IC design, thereby
eliminating the need for costly engineering resources required for internally
developed solutions. By providing proven SIP solutions with time-to-market
advantages, Aspec enables customers to reduce design costs, minimize integration
costs and increase manufacturing yields. In addition, Aspec's broad
compatibility with leading EDA tools permits an IC designer to select the best
tool for each step in the design process. As a result, Aspec's SIP enables IC
designers to preserve or optimize the substantial financial and training
investments in these tools.

Access to Advanced Process Technologies. Aspec provides a suite of cell
libraries that are compatible with process technologies at the most advanced
merchant semiconductor foundries. Aspec's libraries have been successfully
implemented at Chartered, Hyundai, IBM, LG Semicon, Samsung, Sanyo, TSMC and
UMC. Aspec has years of experience with leading foundries, having successfully
developed cell libraries for use with advanced process technologies which allow
minimum feature sizes from 0.8(LOGO) to 0.25(LOGO). To maximize performance and
density, Aspec reconfigures and optimizes its libraries for each foundry's
process.

Portability to Multiple Foundries. Aspec's QuickPort design tool enables
complex IC designs to be transferred from one foundry to another. By providing
the flexibility to port their designs across foundries, Aspec enables customers
to secure multiple manufacturing sources to quickly access available
leading-edge capacity. This also reduces design time by eliminating the
reconfiguration process required to design-in a new manufacturing source.

Facilitate Design Reuse. Aspec's SIP is designed to facilitate the rapid
creation of complex ICs by enabling the reuse of internally developed or
third-party cell designs in new complex ICs. Aspec's SIP also allows designers
the flexibility to migrate pre-existing cell designs to more advanced
generations of manufacturing technology. Design reuse reduces the amount of
engineering time required to design complex ICs, thereby reducing design cost
and time-to-market.

Control of Intellectual Property and Design. With Aspec's SIP, IC designers
can establish a standard SIP for all of their design processes and maintain
ownership of the intellectual property content of their designs. Aspec's SIP
also enables electronic system 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.

STRATEGY

The Company's objective is to expand its position as a leading independent
provider of merchant SIP solutions for the semiconductor industry. To achieve
this objective, the Company has adopted the following strategies:

Establish Aspec's SIP as an Industry Standard. Aspec believes it was one of
the first companies to deliver merchant SIP for the design and development of
complex ICs, and the Company is committed to establishing its SIP as an industry
standard. Aspec's SIP provides an open solution by supporting most leading EDA
tools and process technologies at leading semiconductor foundries. The Company
believes that by establishing its SIP as an industry standard, customers will be
able to complete their designs more rapidly and precisely, preserve their
existing investment in EDA tools and utilize multiple foundries
cost-effectively. In addition, customers can more effectively maintain, reuse or
license their designs since the use of an industry standard SIP facilitates
compatibility between designs. Aspec believes that its SIP is well-positioned to
become an industry standard because certain of its existing and potential
competitors are either owned by or aligned with one EDA tool supplier and do not
allow portability of designs across the wide range of process technologies.

Leverage Leadership Position in SIP. Aspec believes that it has the
broadest merchant SIP portfolio. The Company has designed its SIP to simplify
the migration of silicon designs to future generations of deep submicron
semiconductor process technology. As a result, Aspec enables its customers to
bring quickly to market new products which utilize the most advanced
manufacturing

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processes. The Company intends to leverage its leadership position in SIP to
create high-performance, cost-effective SIP solutions for next-generation
process technologies such as 0.18(LOGO). In addition, the Company intends to
build on its current SIP portfolio through the addition of more complex
functional cores which provide increasing value to its customers. The Company
intends to continue to recruit and retain key technical personnel who have the
experience and skills to strengthen Aspec's position as a leader in merchant SIP
development. From time to time, Aspec may acquire companies which focus on the
development of SIP to continue to build its SIP expertise.

Broaden Customer Base. Aspec's goal is to continue 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 toward fabless semiconductor companies that have
historically relied on internal resources to meet their SIP needs. Due to the
increasing costs of such proprietary SIP and the shortening product life cycles
for their products, Aspec believes that these companies will increasingly seek a
third-party solution to meet their SIP requirements. Aspec is also targeting
electronic system manufacturers that currently rely on ASIC vendors for SIP. By
utilizing Aspec's SIP, electronic system manufacturers can more effectively
control the design process, intellectual property content and cost of their
designs. Aspec also intends to offer additional chip-level design services,
specialized cell development services and specialized customer support services.

Provide Collaborative Engineering Services. The Company believes that its
expertise in SIP development gives it a competitive advantage in the design of
system-level silicon products and it intends to leverage this advantage to offer
collaborative engineering services. Aspec intends to expand its ability to offer
collaborative engineering services to strengthen existing customer relationships
and attract new customers. As part of this strategy, Aspec recently acquired SIS
Microelectronics, an engineering design firm of approximately 20 persons. By
utilizing Aspec's libraries, design methodologies and design tools as well as
Aspec's collaborative engineering services, Aspec believes that it can lower its
customers' product development costs and shorten their product development
times.

PRODUCTS AND SERVICES

Aspec offers a suite of products on a per design basis, a per site basis or
an enterprise basis to its customers. Typically a customer licenses a bundle of
products which is accompanied by documentation and training. These products are
also licensed separately. Aspec's products include SIP libraries which consist
of logic functions based on gate array/embedded array or standard cell
architectures, I/Os and memories. The Company also offers SIP design tools to
ensure that various commercially available EDA tools work together to accurately
produce the IC design in silicon and to enable the portability of designs. The
Company's SIP design tools include memory compilers which allow customers to
automatically generate memory libraries. The Company also offers various design
and consulting services to its licensees on a per project basis. The Company's
products, which run on UNIX workstations and Windows NT-based PCs, currently
support over 25 industry standard EDA tools, including those produced by Avant!,
Cadence Design Systems, Mentor Graphics and Synopsys (including Viewlogic).
Aspec's SIP supports many of the world's leading merchant semiconductor
foundries, including Chartered Semiconductor, Hyundai Electronics, IBM, LG
Semicon, Samsung Electronics, Sanyo Electric, Taiwan Semiconductor Manufacturing
Corp. and United Microelectronics Corporation. Aspec's SIP products are
generally licensed on a per process technology basis and are available to
support submicron processes from 0.8(LOGO) to 0.25(LOGO), depending on the
foundry.

A description of the Company's principal products and services is provided
below:

SIP LIBRARIES

HDA Libraries. High Density Array ("HDA") is Aspec's proprietary, patented
gate array/ embedded array architecture for silicon processes from 0.8(LOGO) to
0.25(LOGO) and smaller. Benchmarks have

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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 0.6(LOGO) to 0.5(LOGO). 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 proprietary standard
cell architecture for deep submicron processes for 0.35(LOGO), 0.25(LOGO) 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
0.35(LOGO) 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
0.8(LOGO) to 0.25(LOGO). 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.

Memory Libraries. Aspec provides a range of static random access memory
("SRAM") libraries and read only memory ("ROM") libraries for process
technologies that range from 0.8(LOGO) to 0.25(LOGO). These products include
high density, high speed and low power memories available in a variety of
configurations to meet the customer's specifications.

Each of these cell libraries is licensed on a process specific basis, and
prices range from $100,000 for a per design license to over $800,000 for an
enterprise license.

SIP DESIGN TOOLS

AdverPro. Aspec's AdverPro design tool 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 licensed, 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 design tool is designed to enable an IC
company to port economically and timely a design developed in Aspec's SIP 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 SIP. QuickPort is licensed, and its price ranges from $100,000 for a
single user license to $500,000 for an enterprise license.

Memory Compilers. Aspec offers various memory compilers for each of its
process specific libraries which allow customers to automate the process of
creating a variety of SRAM and ROM memory blocks. These memory compilers enable
customers to create memories that are optimized for each silicon process. Prices
for memory compilers range from $100,000 for a single user license to over
$450,000 for an enterprise license.

SIP SERVICES

Complex IC Design Services. Aspec maintains a design center to test the
functionality of its design tools and to assist customers that lack experience
in completing full-circuit designs. With its acquisition of SIS
Microelectronics, Aspec is expanding its capability to offer collaborative
engineering

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services. These design services are offered on a per project basis and project
costs may range from $100,000 to over $300,000 depending on the complexity of
the design.

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 support leading 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.

CUSTOMERS

Aspec's principal customers include ASIC and foundry companies, EDA
companies, electronic system companies and IC companies. The Company has been
dependent on a relatively small number of customers for a substantial portion of
its annual revenue. In fiscal 1995, Samsung Electronics, National Semiconductor
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. In fiscal 1997, although no customer accounted for 10% or
more of revenue, seven customers located in Asia accounted for 37.1% of revenue
and seven domestic customers accounted for 30.5% of revenue. The Company
anticipates that the majority of its revenue will be derived from a relatively
small number of customers through at least fiscal 1998 and that sales to
customers in Asia will continue to account for a significant portion of the
Company's revenue. 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 "Risk Factors --
Customer Concentration; Dependence on Customers in Asia."

The following is a representative list of Aspec's customers, each of which
represented at least $100,000 of the Company's revenue since the beginning of
fiscal 1997:
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASIC AND FOUNDRY COMPANIES ELECTRONIC SYSTEM COMPANIES
Asahi Glass Co., Ltd. Acer Laboratories, Inc.
Hyundai Electronics Industries Co., Ltd. Compaq Computer Corporation
IBM Corporation Credence Systems Corporation
LG Semicon Co. Ltd. Matrox Graphics Inc.
National Semiconductor Corporation Nokia Phone Produktions GmbH
Samsung Electronics Co., Ltd.
Sanyo Electric Co., Ltd. IC COMPANIES
Tritech Microelectronics International, Advanced Micro Devices, Inc.
Inc. CommQuest Technologies, Inc.
United Microelectronics Corporation Integrated Device Technology, Inc.
Winbond Electronics Corp. Lattice Semiconductor Corporation
Yamaha Corporation Oak Technology Inc.
PMC-Sierra, Inc.
EDA COMPANIES Vitesse Semiconductor Corporation
Cadence Design Systems, Inc.
Silicon Valley Research, Inc.
</TABLE>

- --------------------------------------------------------------------------------

SALES, MARKETING AND CUSTOMER SUPPORT

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

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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.

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 account for a significant portion of its total revenue.
Revenue from customers outside the United States, substantially all of whom are
located in Asia, accounted for 54.1%, 66.2% and 48.2% of revenue in fiscal 1995,
1996 and 1997, respectively. Although the Company does not believe that it
experienced any material adverse impact in revenue as a result of the financial
dislocations that occurred in certain Asian countries during 1997 and 1998, it
has experienced a lengthening of the payment period for accounts receivables
from certain Asian-based customers. At February 28, 1998, approximately 63.6% of
the Company's accounts receivable (including unbilled receivables) were from
Asian-based customers. Although the Company currently believes, based in part on
continuing discussions with these customers, that its existing accounting
reserves are adequate given the estimated exposure related to all of its
accounts receivable, there can be no assurance that such accounting reserves
will prove to be adequate nor that present or future dislocations in Asian
countries or elsewhere or other factors will not have a material adverse effect
on the Company's ability to collect its accounts receivable or on its business,
operating results and financial condition.

The Company's international business involves a number of risks, including
the impact of possible recessionary environments in foreign economies, 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. Although the Company prices its products and services in United
States dollars, currency exchange fluctuations could have a material adverse
effect on the Company's business to the extent that the Company's pricing is not
competitive with products priced in local currencies. The Company does not
currently hedge against foreign currency fluctuations. See "Risk
Factors -- Risks Associated With International Operations" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

The Company licenses its SIP products 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 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.

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.

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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 1995, 1996 and 1997, research and development expenses were $0.4 million,
$0.9 million and $1.2 million, respectively. In addition to research and
development expenses, engineering efforts devoted to developing products for
which revenue is recognized on a percentage of completion basis are recognized
as cost of revenue. 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 product offerings. The Company expects to continue to devote
significant resources to its various engineering efforts. To date, all SIP
product 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 design tools 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 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 "Risk Factors -- Dependence Upon
Continuous Product Development; Risk of Product Delays."

COMPETITION

Although the market for merchant SIP is new and emerging and the Company
has few direct competitors, the Company expects that the market for its products
will become increasingly competitive in the future. The Company's current
competitors include Artisan Components, Inc., Cascade Design Automation (a
subsidiary of Oki Semiconductor Ltd.), Compass Design Automation (a division of
Avant!), Mentor Graphics and Silicon Architects (a division of Synopsys). Duet
Technology, Inc., a design services company, recently announced an agreement to
acquire Cascade Design Automation. The Company also experiences significant
indirect competition from the engineering departments of potential customers
that maintain and develop internally developed SIP. Certain of the Company's
other potential customers rely on proprietary SIP developed and maintained by
ASIC vendors. In addition, certain semiconductor foundries currently offer or
may in the future offer one or more elements of a SIP solution. The Company's
potential competitors also include a number of large vertically integrated
semiconductor companies and numerous EDA software companies that may develop SIP
products that compete with those of the Company. To the extent the Company
expands its capability to offer design services, it could also experience
competition from numerous small design

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engineering firms and from large public companies that also offer such services.
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, 1998, the Company held 5 U.S. patents which expire from
2015 to 2017 and had 3 U.S. patent applications pending. The Company also has 12
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, ABOND, HDEA and Mastergen and has
one trademark application 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 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.
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EMPLOYEES

As of February 28, 1998, the Company had 127 employees, including 80 in
operations, 15 in research and development, 21 in sales and marketing and 11 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. As
a result of its acquisition of SIS Microelectronics, the Company added
approximately 20 employees.

FACILITIES

The Company occupies approximately 29,000 square feet of office space in
Sunnyvale, California, pursuant to a lease which expires in November 2001. As a
result of its acquisition of SIS Microelectronics, the Company also occupies
approximately 9,600 square feet of office space in Longmont, Colorado under a
lease which expires in February 2002. The Company also maintains sales offices
in Phoenix, Arizona, Boca Raton, Florida, Boston, Massachusetts, San Diego,
California and Tokyo, Japan. The Company believes that its existing facilities
are 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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<PAGE> 37

GLOSSARY

APPLICATION SPECIFIC INTEGRATED CIRCUIT ("ASIC"): A custom/semi-custom IC
designed for a particular customer 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 0.5(LOGO)
geometry, resulting in an IC with extremely high levels of integration and a
very small die size area.

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.

FOUNDRY: Semiconductor or silicon manufacturing company that manufactures
custom and semi-custom ICs.

GATE ARRAY: A design approach, consisting of a standard architecture of
pre-designed, repetitive transistors which are used to form cell libraries, that
when connected, form a complex IC.

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.

MICRON ("(LOGO)"): 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.

SEMICONDUCTOR INTELLECTUAL PROPERTY ("SIP"): SIP consists of a set of cell
libraries from which all circuits are derived, design tools, design
methodologies and related engineering services.

STANDARD CELL: A design approach, consisting of pre-designed building
blocks, which, when arranged in certain combinations, can create a complex IC.

SYSTEM-ON-A-CHIP: A complex IC design that integrates silicon building
blocks such as cell libraries, microprocessors, memories, graphics and I/O
functions on a single IC and typically replaces multiple ICs mounted on a
printed circuit board.

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<PAGE> 38

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of the Company as of March 13, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Conrad J. Dell'Oca(1).................. 56 President, Chief Executive Officer and Chairman of
the Board
Mitchell D. Bohn(1).................... 50 Chief Operating Officer, Chief Financial Officer and
Director
Jai P. Shin............................ 56 Executive Vice President and Director
Patrick Y.C. Yin....................... 47 Senior Vice President
Yen C. Chang........................... 46 Senior Vice President, Engineering
Charles R. Olson....................... 42 Vice President, Sales
Charles Kummeth........................ 37 Vice President, Marketing
James D. Behrens....................... 46 Vice President, Business Development
Charles R. Schadewitz.................. 37 Vice President, North American Sales
Martin J. Baynes....................... 50 Vice President, Engineering Operations
Edward Wan............................. 41 Vice President, Design Services
Y.S. Fu(2)(3).......................... 49 Director
Walter G. Kortschak(2)(3).............. 38 Director
Cheng Ming Lee......................... 55 Director
Jeffrey D. Saper(3).................... 49 Director and Secretary
</TABLE>

- ------------------------------

(1) Member of the Option Committee.

(2) Member of the Compensation Committee.

(3) Member of the Audit Committee.

Conrad J. 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.

Mitchell D. Bohn has served as Chief Operating Officer and Chief Financial
Officer and a director of the Company since February 1998. From June 1997 to
February 1998, Mr. Bohn served as Executive Vice President and Chief Financial
Officer of Thomas Group, a management consulting firm. From May 1994 to June
1996, Mr. Bohn served as President and Chief Operating Officer of EMASS, Inc., a
developer of data-storage solutions for computers which is owned by Raytheon.
From January 1990 to January 1998, Mr. Bohn owned and operated Bohn Enterprises,
a management consulting firm and investor in start-up and emerging-growth
companies in the electronics and medical technology markets. Mr. Bohn was a
founder of LSI Logic, and served as Chief Financial Officer of LSI Logic and in
various other executive management capacities of LSI Logic's foreign operations
from 1981 through 1989. Mr. Bohn received B.S. and M.S. degrees in Business
Administration from the University of North Dakota.

Jai P. Shin has served as Executive Vice President 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,

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<PAGE> 39

Mr. Shin served as President of LSI Logic Korea. Mr. Shin received his B.A. and
M.A. degrees in Economics from San Jose State University.

Patrick Y. Yin has served as Senior Vice President of the Company since
February 1997. From September 1997 to March 1998, he served as the Company's
Chief Technical Officer. 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.

Yen C. Chang has served as Senior Vice President, Engineering of the
Company since March 1998. From September 1997 to March 1998, he served as Vice
President, Engineering of the Company. He served as the Company's Vice
President, Engineering Asia from January 1997 to September 1997. From September
1995 to December 1996, Mr. Chang served as Vice President, Engineering of the
Company. From January 1992 to September 1997, Mr. Chang served as Director,
Engineering of the Company. From June 1982 to January 1992, Mr. Chang served as
Department Head, Megafunction Development for LSI Logic. Mr. Chang received B.S.
and M.S. degrees in Electrical Engineering from Oregon State University.

Charles R. Olson has served as Vice President, Sales of the Company since
February 1998. From July 1997 to February 1998, Mr. Olson served as Vice
President, Sales and Marketing of the Company. From May 1997 to July 1997, Mr.
Olson served as Vice President, Sales of Precedence, Inc., a provider of
multi-simulator software environments for design engineers. From October 1988 to
October 1996, Mr. Olson served as General Manager and Vice President of Zycad
Corporation, a semiconductor simulation systems manufacturer.

Charles Kummeth has served as Vice President, Marketing of the Company
since February 1998. From July 1996 to February 1998, Mr. Kummeth served as
Business Development Director for Imation Corporation, a producer of product and
service solutions for the handling of information (formerly part of 3M
Corporation). From August 1982 to July 1996, Mr. Kummeth served in various
progress positions at 3M Corporation in Electronics and Software Design
Engineering, Embedded Systems and Hardware Design, Product Development
Laboratory, Marketing and Business Operations. Mr. Kummeth received his B.S.
degree in Electrical Engineering from the University of North Dakota, an M.S.
degree in Software Design and Development from St. Thomas University in
Minnesota and an M.B.A. from the Carlson School of Business of the University of
Minnesota.

James D. Behrens has served as Vice President, Business Development of the
Company since February 1998. From August 1997 to January 1998, he served as
President of SIS Microelectronics. From March 1997 to August 1997, Mr. Behrens
served as General Partner for Quanah Consulting, a consulting firm. From October
1989 to March 1997, Mr. Behrens served in various vice president and consulting
executive roles for Cadence Design Systems, an electronic design automation
supplier. From March 1985 to October 1989, Mr. Behrens served as Director of
Marketing for Mentor Graphics Corporation. Mr. Behrens received a B.S. in
Physical Science from Colorado State University.

Charles R. Schadewitz has served as Vice President, North American Sales of
the Company since April 1996 and as Director, North American Sales of the
Company from February 1994 to March 1996. From October 1990 to November 1993,
Mr. Schadewitz was a Senior Account Manager of Mentor Graphics Corporation, an
EDA company. From December 1987 to October 1990, Mr. Schadewitz was a Senior
Account Manager of Hewlett-Packard Company. Mr. Schadewitz received a B.S.M.E.
from the University of California, Berkeley.

Martin J. Baynes has served as Vice President, Engineering Operations of
the Company since September 1997. From January 1992 until August 1997, Mr.
Baynes served as Vice President, Engineering for Zycad Corporation, an
electronic design automation company. Previously, Mr. Baynes has served as a
Director of Engineering for Genrad, National Semiconductor Corporation and

39
<PAGE> 40

Fairchild Semiconductor Corporation. Mr. Baynes received a MSc in Computer
Engineering from Brunel University, England and a BSc in Electronics from
Southampton University, England.

Edward Wan has served as Vice President, ASIC Design Services of the
Company since March 1998. From January 1998 to March 1998, he served as Vice
President in the Worldwide Services group for Cadence Design Services, Inc., an
EDA tools company. From 1985 to 1993, Mr. Wan held various positions at LSI
Logic. From 1993 to 1997, Mr. Wan served as Vice President of the North American
Engineering group at LSI Logic. He also served as a Senior Director of Corporate
Product Marketing and Vice President of Engineering for LSI Logic Canada. Prior
to LSI Logic, he spent four years at Signetics in various design and product
engineering positions. Mr. Wan received his B.S. E.E.C.S. degree from University
of California at Berkeley.

Y.S. 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 Technology 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.

Walter G. 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, Simulation Sciences, Inc. and SteriGenics International, Inc.

Cheng Ming Lee has been a director of the Company since November 1996.
Since January 1997, Mr. Lee has served as President of Apex Venture Capital
Corporation, a venture capital fund. Since December 1997, Mr. Lee has served as
President of Win Plus Venture Capital Corporation, a venture capital fund. Since
February 1996, Mr. Lee has served as President of Win Win Venture Capital
Corporation, a venture capital fund and principal stockholder of the Company.
Since January 1990, Mr. Lee has served as President of Fidelity Venture Capital
Corporation, a venture capital fund. Since April 1987, Mr. Lee has served as
President of Taiwan Venture Capital Corporation, a venture capital fund. Mr. Lee
also serves as a director of Award Software International Inc. and Taiwan
Opportunity Fund Limited.

Jeffrey D. 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 Proxim, 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
40
<PAGE> 41

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.

The Option Committee consists of Conrad J. Dell'Oca and Mitchell D. Bohn.
The Option Committee has the ability to grant options (not to exceed 50,000
shares) to non-executive officers under the Corporation's 1996 Stock Option
Plan.

DIRECTOR COMPENSATION

Outside directors receive $10,000 per year for serving on the Board of
Directors, $1,000 for each regular meeting of the Board of Directors in which
they participate and $2,000 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 (the "Director Plan"), which was adopted in February
1997 and amended in March 1998. 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 of February 28, 1998, 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 or, if no such meeting is held, on the anniversary
of the date of grant, 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 (3) months following
the termination of an Outside Director's status as a director or twelve (12)
months if the termination is due to death or total and permanent disability. 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. If the Outside Director's options are not assumed or
substituted, they shall become fully vested and exercisable. In addition, if an
Outside Director ceases to be a director of the Company or the successor
corporation after the merger or sale, other than upon a voluntary resignation,
the Outside Director's options shall be 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. Pursuant to the
Option Plan, Mr. Saper was granted an option to purchase 5,000 shares at an
exercise price of $8.00 per share on February 4, 1998. 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

41
<PAGE> 42

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).

EXECUTIVE COMPENSATION

The following table sets forth a summary of the compensation paid by the
Company during the fiscal years ended November 30, 1996 and 1997 to the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers whose salary and bonus exceeded $100,000 in
fiscal 1997 (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 POSITIONS YEAR SALARY BONUS(1) COMPENSATION(2)(3) COMPENSATION(4)
---------------------------- ---- -------- -------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Conrad J. Dell'Oca.................. 1997 $191,617 $120,000 $ -- $30,772
President, Chief Executive Officer 1996 174,372 50,000 103,070 29,682
and Director
Jai P. Shin......................... 1997 175,628 120,000 -- 7,059
Executive Vice President and 1996 159,831 50,000 103,070 6,239
Director
Patrick Y. Yin...................... 1997 166,109 120,000 80,676 4,122
Senior Vice President 1996 151,161 50,000 55,500 3,130
Yen C. Chang........................ 1997 156,281 120,000 80,676 3,944
Senior Vice President, Engineering 1996 142,206 50,000 55,500 3,504
Charles R. Schadewitz............... 1997 94,853 13,892 45,553 556
Vice President, North American 1996 84,865 -- 93,443 515
Sales
</TABLE>

- ---------------

(1) Includes bonus payments earned in the fiscal year indicated even if such
bonuses were paid in a subsequent fiscal year.

(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 the fiscal year indicated even if such
bonuses were paid in a subsequent fiscal year.

(4) Represents payments for life insurance and long-term disability insurance
premiums.

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<PAGE> 43

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information for the fiscal year
ended November 30, 1997 with respect to each grant of stock options to the Named
Executive Officers:

OPTION GRANTS DURING YEAR ENDED NOVEMBER 30, 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED EXERCISE OPTION TERM(3)
OPTIONS TO EMPLOYEES PRICE PER EXPIRATION --------------------
NAME GRANTED IN 1997(1) SHARE(2) DATE 5% 10%
---- ------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Schadewitz........... 20,000 1.5 $8.00 01/10/07 $100,623 $254,999
</TABLE>

- ---------------
(1) In 1997, the Company granted employees and consultants options to purchase
an aggregate of 1,346,600 shares of Common Stock.

(2) The Common Stock was not publicly traded at the time such options were
granted. The exercise price per share was equal to the fair market value of
the Common Stock as of the date of grant as determined by the Board of
Directors in good faith based on the Company's operating results and
business prospects on the date of grant.

(3) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted over the full option term. These assumed annual compound
rates of stock price appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.

AGGREGATED OPTION EXERCISES IN 1997 AND NOVEMBER 30, 1997 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED
OPTIONS AT NOVEMBER 30, VALUE OF UNEXERCISED
1997 IN-THE-MONEY OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles R. Schadewitz.......................... -- 20,000 -- $0.00
</TABLE>

- ---------------
(1) Based upon an assumed fair market value of $8.00 per share as of November
30, 1997 less the exercise price per share. The Common Stock was not
publicly traded as of November 30, 1997. Accordingly, the fair market value
as of such date was determined by the Board of Directors in good faith.

No Named Executive Officer exercised any options during the fiscal year ended
November 30, 1997.

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 and March 1998. 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, approves the forms of option agreements, 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 April 20, 1998, options to purchase an
aggregate of 4,083,590 shares of Common Stock were outstanding under the Option
Plan, and an aggregate of 351,980 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

43
<PAGE> 44

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. No optionee shall be granted options in any fiscal year of the Company
covering more than 500,000 shares, although in connection with the optionee's
initial service, an option to purchase up to an additional 500,000 shares may be
granted which will not count against this limit. 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 or a parent or subsidiary of 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 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors and by the stockholders in February 1997
and amended in March 1998 and will become effective upon the date of this
Prospectus. A total of 500,000 shares of Common Stock has been reserved for
issuance under the 1997 Purchase Plan, plus annual increases (beginning December
1999) equal to the lesser of (i) the number of shares needed to restore the
maximum aggregate number of shares available under the 1997 Purchase Plan to
500,000 or (ii) a lesser amount determined by the Board.

The 1997 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended, contains successive six-month
offering periods. The offering periods generally start on the first trading day
on or after April 1 and October 1 (beginning 1998) of each year, except for the
first such offering period which commences on the first trading day on or after
the effective date of this offering and ends on the last trading day on or
before March 31, 1999.

Employees are eligible to participate if they are customarily employed by
the Company or any participating subsidiary for at least 20 hours per week and
more than five months in any calendar year. However, any employee who (i)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of the Company, or
(ii) whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 worth of stock for each
calendar year may be not be granted an option to purchase stock under the 1997
Purchase Plan. The 1997 Purchase Plan permits participants to purchase Common
Stock through payroll deductions of up to 10% of the participant's
"compensation." Compensation is defined as the participant's base straight time
gross earnings, commissions, payments for overtime, profit sharing payments,
shift premium payments, incentive compensation, incentive payments and bonuses,
but exclusive of other compensation. The maximum number of shares a participant
may purchase during a single offering period is 2,500 shares.

Amounts deducted and accumulated by the participant are used to purchase
shares of Common Stock at the end of each offering period. The price of stock
purchased under the 1997 Purchase Plan is 85% of the lower of the fair market
value of the Common Stock at the beginning or end of the offering period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with the Company.

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<PAGE> 45

Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan provides
that, in the event of a merger of the Company with or into another corporation
or a sale of substantially all of the Company's assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened and a new exercise date will
be set. The 1997 Purchase Plan will terminate in February 2007. The Board of
Directors has the authority to amend or terminate the 1997 Purchase Plan, except
that no such action may adversely affect any outstanding rights to purchase
stock under the 1997 Purchase Plan.

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. 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.

45
<PAGE> 46

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 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 for an
aggregate purchase price of $5,049,980, 1,194,696 shares of Common Stock from
Yen C. Chang for an aggregate purchase price of $5,049,980, 1,194,698 shares of
Common Stock from Jai P. Shin, for an aggregate purchase price of $5,049,988 and
1,194,696 shares of Common Stock from Patrick Y. Yin for an aggregate purchase
price of $5,049,980. Messrs. Dell'Oca, Chang, Shin and Yin are executive
officers of the Company.

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 Stamps, Woodsum & Co. IV and Summit Investors III, L.P. Stamps, Woodsum & Co.
IV is the general partner of Summit Partners IV, L.P. Summit Partners IV, L.P.
is the general partner of Summit Ventures IV, 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 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 February 1998, the Company granted to Mr. Saper an option to purchase
5,000 shares of Common Stock at an exercise price of $8.00 per share under the
Option Plan. In February 1997, the Company granted to Mr. Saper an option to
purchase 25,000 shares of Common Stock at an exercise price of $8.50 per share
under the Director Plan.

46
<PAGE> 47

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of February 28, 1998 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 BEFORE THE AFTER THE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING(1) OFFERING(1)
------------------------ ------------------ ----------- -----------
<S> <C> <C> <C>
Conrad J. Dell'Oca(2).............................. 2,625,304 11.7% 9.2%
830 East Arques Avenue
Sunnyvale, California 94086
Summit Partners, L.P.(3)........................... 2,601,008 11.6 9.1
Walter G. Kortschak
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
WK Technology(4)................................... 2,601,008 11.6 9.1
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 11.0 8.7
830 East Arques Avenue
Sunnyvale, California 94086
Yen C. Chang(6).................................... 2,446,570 10.9 8.6
830 East Arques Avenue
Sunnyvale, California 94086
Jai P. Shin(7)..................................... 2,012,126 9.0 7.1
830 East Arques Avenue
Sunnyvale, California 94086
Cheng Ming Lee(8).................................. 700,000 3.1 2.5
Mitchell D. Bohn(9)................................ -- -- --
Jeffrey D. Saper(10)............................... 183,546 * *
Charles R. Schadewitz(11).......................... 125,000 * *
All directors and executive officers as a group
(14 persons)(12)................................. 15,758,732 70.2 55.4
</TABLE>

- ------------------------------
* Less than 1%

(1) Applicable percentage ownership is based on 22,439,557 shares of Common
Stock outstanding as of February 28, 1998 and 28,439,557 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"). Summit Partners IV, L.P. is the general partner of Summit IV.
Stamps, Woodsum & Co. IV is the general partner of Summit Partners IV, L.P.
Mr. Kortschak, a director of the Company, is a general partner of Stamps,
Woodsum & Co. 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.

47
<PAGE> 48

(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 Capital
Corporation. Mr. Lee disclaims any beneficial ownership of the shares held
by Win Win Venture Capital Corporation, except to the extent of his
proportionate partnership interests in the respective entities.

(9) Mr. Bohn is a director of the Company.

(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, 95,000 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 expires as to
3,125 shares per month through April 2000. Includes 7,500 shares subject to
an option exercisable within 60 days of February 28, 1998.

(11) All the shares are subject to a right of repurchase in favor of the Company
in the event that Mr. Schadewitz terminates as an employee or consultant of
the Company. The repurchase right of 1,042 shares expires in March 1998.
The repurchase right of 21,667 shares expires as to 1,041 shares through
April 1999. The repurchase right of 12,667 shares expires as to 416 shares
through April 2000. Includes 5,000 shares subject to an option exercisable
within 60 days of February 28, 1998.

(12) Includes an aggregate of 12,500 shares subject to an option exercisable
within 60 days of February 28, 1998.

48
<PAGE> 49

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists 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, 1998, there were 22,439,557 shares of Common Stock
outstanding held of record by approximately 140 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") (including funds
associated with Summit Partners, WK Technology and Win Win Venture Capital,
Messrs. Dell'Oca, Shin, Yin and Chang and the former shareholders of SIS
Microelectronics) 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

49
<PAGE> 50

Securities on Form S-3, when such form becomes available to the Company, subject
to certain conditions and limitations.

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) 743-1444.

LISTING

The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the trading symbol "ASPC."

50
<PAGE> 51

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 28,439,557 shares of
Common Stock outstanding, assuming no exercise of outstanding options after
February 28, 1998. Of this amount, the 6,000,000 shares offered hereby will be
available for immediate sale in the public market as of the date of this
Prospectus. Approximately 111,000 additional shares will be available for sale
in the public market immediately after the date of this Prospectus pursuant to
Rule 144(k). Approximately 32,000 Restricted Shares will become eligible for
sale prior to 90 days after the Effective Date pursuant to Rule 144(k) under the
Securities Act. However, approximately 5,000 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 416,000
Restricted Shares will become eligible for sale 90 days after the Effective
Date, and approximately 21,453,000 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 290,000 of these shares will be subject to a right of repurchase
possessed by the Company. The remaining approximately 428,000 shares held by
existing stockholders will become eligible for sale from time to time in the
future under Rule 144.

<TABLE>
<CAPTION>
SHARES ELIGIBLE
DAYS AFTER DATE OF THIS PROSPECTUS FOR SALE COMMENT
---------------------------------- --------------- -------
<S> <C> <C>
Upon Effectiveness..................... 6,000,000 Shares sold in offering
Upon Effectiveness..................... 111,000 Freely tradeable shares saleable under
Rule 144(k) that are not subject to
180-day lockup
0-90 days.............................. 32,000 Freely tradeable shares that become
saleable under Rule 144(k) that are not
subject to 180-day lockup
90 days................................ 416,000 Shares saleable under Rules 701 and 144
180 days............................... 21,453,000 Lockup released; shares saleable under
Rules 144 and 701
Thereafter............................. 428,000 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 284,000 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

51
<PAGE> 52

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 they will not sell any Common
Stock without the prior consent of Hambrecht & Quist LLC 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 6,050,000
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."

52
<PAGE> 53

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, have severally agreed to
purchase from the Company the following respective numbers of shares of Common
Stock:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC....................................... 2,160,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................. 1,440,000
CIBC Oppenheimer Corp. ..................................... 200,000
Cowen & Co. ................................................ 200,000
Donaldson, Lufkin & Jenrette Securities Corp. .............. 200,000
Furman Selz LLC............................................. 200,000
Lazard Freres & Co. LLC..................................... 200,000
NationsBanc Montgomery Securities, Inc. .................... 200,000
Morgan Stanley Dean Witter.................................. 200,000
Charles Schwab & Co., Inc. ................................. 200,000
Adams Harkness & Hill, Inc. ................................ 100,000
Dain Rauscher Wessels....................................... 100,000
First Albany Corporation.................................... 100,000
McDonald & Company Securities, Inc. ........................ 100,000
Needham & Co. Inc. ......................................... 100,000
Raymond James & Associates Inc. ............................ 100,000
SoundView Financial Group, Inc. ............................ 100,000
Sutro & Company Inc. ....................................... 100,000
---------
Total............................................. 6,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly 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 $0.55 per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $0.10 per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters. The
Representatives have advised the Company that the Underwriters do not intend to
confirm discretionary sales in excess of 5% of the shares of Common Stock
offered hereby.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 900,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option

53
<PAGE> 54

only to cover over-allotments made in connection with the sale of shares of
Common Stock offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

Certain stockholders of the Company, including executive officers and
directors, who will own in the aggregate 20,545,099 shares of Common Stock after
this offering, have agreed that they will not, without the prior written consent
of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them during the 180-day period following the date of this Prospectus. The
Company has requested and the Representatives of the Underwriters have agreed
with the Company not to release any of such lockup restrictions prior to the end
of the 180-day period. In addition, stockholders who will own an aggregate of
924,980 shares of Common Stock after this offering have entered into similar
lockup agreements with the Company, and the Company has agreed that, during the
180-day period following this Prospectus, it will not waive any of such
agreements without the prior written consent of Hambrecht & Quist LLC. The
Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock during the 180-day
period following the date of this Prospectus, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under its stock option plans, provided that, without
the prior written consent of Hambrecht & Quist LLC, such additional options
shall not be exercisable during such period.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.

Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiation among the Company and the Representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.

At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price to persons designated by the Company a number
of shares of Common Stock not to exceed 5% of the total number of shares of
Common Stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such shares.

54
<PAGE> 55

Any such shares not so purchased will be offered by the Representatives to the
general public on the same basis as other shares offered hereby.

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, Palo Alto,
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 and he has been granted options to acquire an aggregate of
30,000 shares of Common Stock. 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 consolidated financial statements of the Company as of November 30,
1996 and 1997 and for each of the years in the three-year period ended November
30, 1997 included in this Prospectus and the related consolidated 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 connection with their reports. KPMG 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, Illi-

55
<PAGE> 56

nois 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.

56
<PAGE> 57

ASPEC TECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity
(Deficiency).............................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 58

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Aspec Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Aspec
Technology, Inc. as of November 30, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity (deficiency) and cash flows for each
of the three years in the period ended November 30, 1997. 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 consolidated financial statements present fairly, in
all material respects, the financial position of Aspec Technology, Inc. at
November 30, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 1997 in conformity
with generally accepted accounting principles.

Deloitte & Touche LLP

San Jose, California
March 12, 1998

F-2
<PAGE> 59

ASPEC TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
NOVEMBER 30, PRO FORMA
------------------- FEBRUARY 28, FEBRUARY 28,
1996 1997 1998 1998
-------- -------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents............................ $ 6,341 $ 2,524 $ 2,690 $ 2,690
Accounts receivable (net of allowances of $300,
$300 and $700):
Billed....................................... 5,620 6,996 5,247 5,247
Unbilled..................................... 121 948 2,765 2,765
Prepaid expenses................................ 586 507 448 448
Deferred income taxes........................... 398 1,778 1,778 1,778
-------- -------- -------- --------
Total current assets.................... 13,066 12,753 12,928 12,928
Property and equipment -- net..................... 2,478 4,105 3,961 3,961
Other assets...................................... 216 243 227 227
-------- -------- -------- --------
TOTAL............................................. $ 15,760 $ 17,101 $ 17,116 $ 17,116
======== ======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................................ $ 941 $ 801 $ 616 $ 616
Accrued liabilities............................. 1,937 2,379 2,379 2,379
Income taxes payable............................ 2,050 321 918 918
Customer advances............................... 4,434 4,747 3,085 3,085
-------- -------- -------- --------
Total current liabilities............... 9,362 8,248 6,998 6,998
-------- -------- -------- --------
Commitments and contingencies (Note 5)
Series A redeemable preferred stock, $.001 par
value: 130 shares designated and outstanding
(liquidation value: $18,495).................... 13,345 14,168 14,380 14,380
-------- -------- -------- --------
Redeemable common stock, $.001 par value; shares
outstanding: 1996, 1997 and 1998 -- 4,779; pro
forma -- none................................... 7,116 7,116 7,116 --
-------- -------- -------- --------
Stockholders' equity (deficiency):
Preferred stock, $.001 par value; 5,000
authorized (excluding Series A redeemable
preferred stock): none outstanding........... -- -- -- --
Common stock, $.001 par value: 75,000 shares
authorized; shares outstanding:
1996 -- 17,941; 1997 -- 17,234;
1998 -- 17,260; pro forma -- 22,039.......... 3,344 2,914 3,143 10,259
Stockholder notes receivable.................... (648) (301) (292) (292)
Deferred stock compensation..................... (476) (165) (139) (139)
Retained earnings (deficit)..................... (16,283) (14,879) (14,090) (14,090)
-------- -------- -------- --------
Total stockholders' deficiency.......... (14,063) (12,431) (11,378) (4,262)
-------- -------- -------- --------
TOTAL............................................. $ 15,760 $ 17,101 $ 17,116 $ 17,116
======== ======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements.
F-3
<PAGE> 60

ASPEC TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED NOVEMBER 30, FEBRUARY 28,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................................... $ 6,640 $15,265 $22,392 $ 5,678 $ 6,925
Costs of revenue................................. 2,307 4,702 8,763 1,650 2,709
------- ------- ------- ------- -------
Gross profit..................................... 4,333 10,563 13,629 4,028 4,216
------- ------- ------- ------- -------
Operating expenses:
Research and development....................... 445 921 1,190 298 431
Sales and marketing............................ 1,387 3,526 6,537 1,514 1,266
General and administrative..................... 1,093 1,994 2,363 396 873
------- ------- ------- ------- -------
Total operating expenses............... 2,925 6,441 10,090 2,208 2,570
------- ------- ------- ------- -------
Income from operations........................... 1,408 4,122 3,539 1,820 1,646
Interest income.................................. 56 310 173 89 22
------- ------- ------- ------- -------
Income before income taxes....................... 1,464 4,432 3,712 1,909 1,668
Provision for income taxes....................... 585 1,815 1,485 764 667
------- ------- ------- ------- -------
Net income....................................... 879 2,617 2,227 1,145 1,001
Accretion of redeemable preferred stock.......... -- 392 823 202 212
------- ------- ------- ------- -------
Income attributable to common stockholders....... $ 879 $ 2,225 $ 1,404 $ 943 $ 789
======= ======= ======= ======= =======
Basic earnings per share......................... $ 0.05 $ 0.11 $ 0.07 $ 0.04 $ 0.04
======= ======= ======= ======= =======
Basic average shares outstanding................. 18,338 21,057 21,362 21,574 21,286
======= ======= ======= ======= =======
Diluted earnings per share....................... $ 0.04 $ 0.10 $ 0.06 $ 0.04 $ 0.04
======= ======= ======= ======= =======
Diluted average shares outstanding............... 20,172 22,396 22,532 22,974 22,222
======= ======= ======= ======= =======
</TABLE>

See Notes to Consolidated Financial Statements.
F-4
<PAGE> 61

ASPEC TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON REDEEMABLE TOTAL
COMMON STOCK STOCKHOLDER DEFERRED RETAINED STOCKHOLDERS'
----------------- NOTES STOCK EARNINGS EQUITY
SHARES AMOUNT RECEIVABLE COMPENSATION (DEFICIT) (DEFICIENCY)
------- ------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 1, 1994...... 18,519 $ 99 $ -- $ -- $ 805 $ 904
Issuance of common stock under
employee 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 1,346 (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)
Issuance of common stock under
stock option plans............ 2 10 -- -- -- 10
Repurchase of common stock from
employees..................... (709) (440) 239 197 -- (4)
Accretion of redeemable
preferred stock............... -- -- -- -- (823) (823)
Collection of stockholder notes
receivable.................... -- -- 108 -- -- 108
Amortization of deferred stock
compensation.................. -- -- -- 114 -- 114
Net income...................... -- -- -- -- 2,227 2,227
------ ------ ----- ----- -------- --------
BALANCES, November 30, 1997..... 17,234 2,914 (301) (165) (14,879) (12,431)
Issuance of common stock under
stock option plans*........... 57 246 -- -- -- 246
Repurchase of common stock from
employees*.................... (31) (17) 9 7 -- (1)
Accretion of redeemable
preferred stock*.............. -- -- -- -- (212) (212)
Amortization of deferred stock
compensation*................. -- -- -- 19 -- 19
Net income...................... -- -- -- -- 1,001 1,001
------ ------ ----- ----- -------- --------
BALANCES, February 28, 1998*.... 17,260 $3,143 $(292) $(139) $(14,090) $(11,378)
====== ====== ===== ===== ======== ========
</TABLE>

- ---------------

* Unaudited

See Notes to Consolidated Financial Statements.
F-5
<PAGE> 62

ASPEC TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED NOVEMBER 30, FEBRUARY 28,
-------------------------- ---------------
1995 1996 1997 1997 1998
------ -------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 879 $ 2,617 $2,227 $1,145 $1,001
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 313 736 1,570 299 524
Deferred income taxes.......................... (230) (315) (1,380) -- --
Stock compensation expense..................... -- 106 114 36 19
Changes in assets and liabilities:
Accounts receivable.......................... (762) (3,949) (2,203) 1,424 (68)
Prepaid expenses and other assets............ (88) (699) 52 23 75
Accounts payable............................. 11 845 (140) 5 (185)
Accrued liabilities.......................... 293 1,269 442 (462) --
Income taxes payable......................... 415 964 (1,729) (1,827) 597
Customer advances............................ 1,295 3,036 313 (1,899) (1,662)
------ -------- ------ ------ ------
Net cash provided by (used for) operating
activities.............................. 2,126 4,610 (734) (1,256) 301
------ -------- ------ ------ ------
Cash flows from investing activities --
Purchases of property and equipment............... (594) (2,463) (3,197) (707) (380)
------ -------- ------ ------ ------
Cash flows from financing activities:
Sale of common stock.............................. -- 2,016 10 -- 246
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) (4) -- (1)
Collection of stockholder notes receivable........ 28 -- 108 91 --
------ -------- ------ ------ ------
Net cash provided by financing
activities.............................. 15 1,877 114 91 245
------ -------- ------ ------ ------
Net increase (decrease) in cash and equivalents..... 1,547 4,024 (3,817) (1,872) 166
Cash and equivalents, beginning of period........... 770 2,317 6,341 6,341 2,524
------ -------- ------ ------ ------
Cash and equivalents, end of period................. $2,317 $ 6,341 $2,524 $4,469 $2,690
====== ======== ====== ====== ======
Supplemental disclosure of cash flow information --
Cash paid for income taxes........................ $ 404 $ 1,166 $4,594 $2,589 $ 70
====== ======== ====== ====== ======
Supplemental schedule of noncash investing and
financing activities:
Issuance of common stock for notes receivable..... $ 28 $ 648 $ -- $ -- $ --
====== ======== ====== ====== ======
Accretion of redeemable preferred stock........... $ -- $ 392 $ 823 $ 202 $ 212
====== ======== ====== ====== ======
</TABLE>

See Notes to Consolidated Financial Statements.
F-6
<PAGE> 63

ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

(INFORMATION AT FEBRUARY 28, 1998 AND FOR THE THREE MONTHS ENDED
FEBRUARY 28, 1997 AND 1998 IS UNAUDITED)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Business -- Aspec Technology, Inc. (the Company) is a leading provider of
merchant semiconductor intellectual property ("SIP") solutions for
high-performance, complex IC designs, including system-on-a-chip ICs.

Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany accounts and transactions are eliminated.

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.

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. A significant portion of the Company's
revenues are derived from customers in Asia, a region experiencing economic
volatility. The Company has experienced a lengthening of the payment period for
accounts receivables from certain Asian-based customers. At November 30, 1997
and February 28, 1998, approximately 58.9% and 63.6%, respectively, of the
Company's accounts receivable (including unbilled receivables) were from
Asian-based customers. Although the Company currently believes, based in part on
continuing discussions with these customers, that its existing accounting
reserves are adequate given the estimated exposure related to all of its
accounts receivable, there can be no assurance that such accounting reserves
will prove to be adequate nor that present or future dislocations in Asian
countries or elsewhere or other factors will not have a material adverse effect
on the Company's ability to collect its accounts receivable or on its business,
operating results and financial condition.

Revenue Recognition -- A 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
F-7
<PAGE> 64
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

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 customer advances, 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.

Revenue from support and maintenance contracts is deferred as customer
advances 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.

Stock Compensation -- The Company accounts for stock-based awards granted
to employees based on the intrinsic value method in accordance with APB Opinion
No. 25, "Accounting for Stock Issued to Employees" (see Note 7).

Earnings Per Share -- In the period ended February 28, 1998, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). All earnings per share (EPS) data for prior periods have been
restated to conform with SFAS 128.

SFAS 128 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 common shares less shares subject to
repurchase rights 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.

For the purposes of the earnings per share computation, net income has been
reduced by the amount of the periodic accretion for redeemable preferred stock
(see Note 6).

A reconciliation between basic average and diluted average shares
outstanding follows:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED NOVEMBER 30, FEBRUARY 28,
--------------------------- -----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic average shares outstanding......... 18,338 21,057 21,362 21,574 21,286
Weighted average common shares subject to
repurchase rights...................... 575 859 982 1,149 731
Weighted average common share equivalents
related to stock purchase rights and
options................................ 1,259 480 188 251 205
------- ------- ------- ------- -------
Diluted average shares outstanding....... 20,172 22,396 22,532 22,974 22,222
======= ======= ======= ======= =======
</TABLE>

Unaudited Interim Financial Information -- The unaudited interim financial
information as of February 28, 1998 and for the three months ended February 28,
1997 and 1998 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 for the three
months ended February 28, 1998 are not necessarily indicative of the results
that may be expected for any future period.

F-8
<PAGE> 65
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

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 consolidated balance sheet present the Company's stockholders'
equity (deficiency) as if all such redemption privileges had terminated as of
February 28, 1998.

Recently Issued Accounting Standards -- In June 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income," which requires an enterprise to
report, by major components and as a single total, the change in net assets
during the period from nonowner sources; and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the Company's financial position,
results of operations or cash flows. Both statements are effective for fiscal
years beginning after December 15, 1997, with earlier application permitted.

2. PROPERTY AND EQUIPMENT

Property and equipment consist of (in thousands):

<TABLE>
<CAPTION>
NOVEMBER 30,
------------------ FEBRUARY 28,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Computer equipment and software.................... $ 3,674 $ 6,621 $ 6,954
Office and other equipment......................... 243 492 539
------- ------- -------
3,917 7,113 7,493
Less accumulated depreciation and amortization..... (1,439) (3,008) (3,532)
------- ------- -------
$ 2,478 $ 4,105 $ 3,961
======= ======= =======
</TABLE>

3. ACCRUED LIABILITIES

Accrued liabilities consist of (in thousands):

<TABLE>
<CAPTION>
NOVEMBER 30,
------------------ FEBRUARY 28,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Accrued compensation and related benefits.......... $ 1,140 $ 1,089 $ 1,049
Accrued commissions to outside sales
representatives.................................. 484 651 757
Other.............................................. 313 639 573
------- ------- -------
$ 1,937 $ 2,379 $ 2,379
======= ======= =======
</TABLE>

4. LINE OF CREDIT

In March 1998, the Company increased its bank line of credit from
$1,000,000 to $4,000,000. Borrowings under this line are due on demand, are
collateralized by substantially all of the Company's assets and bear interest at
the bank's prime rate (8.5% at February 28, 1998) plus 0.5%. As of November 30,
1997 and February 28, 1998, there were no borrowings outstanding under the line.
The Company must maintain compliance with certain current and net worth ratio
covenants under this agreement. As of November 30, 1997 and February 28, 1998,
the Company was in compliance with these covenants.

F-9
<PAGE> 66
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

5. LEASE COMMITMENTS

The Company leases its primary operating facility under a noncancelable
operating lease agreement which expires in November 2001. Rent expense incurred
under operating leases was approximately $144,000, $186,000 and $465,000 for the
years ended November 30, 1995, 1996 and 1997, respectively.

Future minimum lease commitments under operating leases as of November 30,
1997 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
NOVEMBER 30,
------------
<S> <C>
1998..................................................... $ 417
1999..................................................... 400
2000..................................................... 418
2001..................................................... 435
------
Total minimum lease payments................................ $1,670
======
</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.

- The redeemable preferred shares are not convertible into common stock.

F-10
<PAGE> 67
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

- The Company is obligated to redeem the corresponding percentage of
preferred shares on the following dates:

- 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, the 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,
1997 and February 28, 1998 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 ($4,115,000 at February 28, 1998) will be considered as additional
accretion for preferred stock in the quarter of the IPO which is expected
to result in a loss attributable to common stockholders and a loss per
share during that quarter.

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 (DEFICIENCY)

Retained Earnings (Deficit)

The Company's retained earnings (deficit) at November 30, 1997 and February
28, 1998 is comprised of (in thousands):

<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1997 1998
------------ ------------
<S> <C> <C>
Cumulative net income from inception...................... $ 6,528 $ 7,529
Cumulative accretion of redeemable preferred stock........ (1,215) (1,427)
Repurchase of common stock................................ (20,192) (20,192)
-------- --------
$(14,879) $(14,090)
======== ========
</TABLE>

Stock Split

During 1997, the Company effected a two for one split of the outstanding
shares of common stock. All shares and per share data in the accompanying
financial statements have been retroactively adjusted to reflect the stock
split.

F-11
<PAGE> 68
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

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 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, 4,500,000 shares 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 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.

During 1997, the Company adopted the 1997 Employee Stock Purchase Plan and,
as amended in March 1998, reserved 500,000 shares of common stock (plus annual
increases equal to the lesser of (i) the shares underlying options granted in
the immediately preceding year or (ii) a lesser amount determined by the Board)
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 such offering. At February 28, 1998, no shares have been issued under this
plan.

F-12
<PAGE> 69
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

A summary of activity of rights or options to acquire stock under the plans
is as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
RIGHTS OR WEIGHTED
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Outstanding, December 1, 1994........................ 1,830 $0.05
Granted.............................................. 369 0.23
Exercised............................................ (677) 0.02
------ -----
Outstanding, November 30, 1995....................... 1,522 0.11
Granted.............................................. 2,325 1.14
Exercised............................................ (3,293) 0.23
------ -----
Outstanding, November 30, 1996....................... 554 4.05
Granted.............................................. 1,372 7.58
Exercised............................................ (2) 5.00
Cancelled............................................ (475) 5.81
------ -----
Outstanding, November 30, 1997....................... 1,449 6.82
Granted.............................................. 974 8.00
Exercised............................................ (57) 4.19
Cancelled............................................ (91) 5.82
------ -----
Outstanding, February 28, 1998....................... 2,275 $7.43
====== =====
</TABLE>

At November 30, 1997 and February 28, 1998, approximately 574,000 and
2,191,000 shares, respectively, were available for future grant under the 1996
Plan. At November 30, 1997 and February 28, 1998, 225,000 shares were available
for future grant under the 1997 Director Option Plan. As of November 30, 1997
and February 28, 1998, approximately 858,000 and 765,000 shares, respectively,
exercised and outstanding under the 1992 Plan were subject to repurchase by the
Company at the original purchase price.

The weighted average fair value of rights or options granted in fiscal 1996
and 1997 was $0.56 and $2.11, respectively. At November 30, 1995, all of the
rights outstanding were exercisable while at November 30, 1996, no options were
exercisable.

In connection with certain issuances of stock 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.

Additional information regarding options outstanding as of November 30,
1997 is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED AVE. EXERCISABLE OPTIONS
RANGE OF REMAINING -----------------------------
EXERCISE NUMBER CONTRACTUAL WEIGHTED AVE. NUMBER WEIGHTED AVE.
PRICES OUTSTANDING LIFE (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------- ----------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$2.20-$4.25 328,250 6.1 $4.03 125,749 $4.08
$5.00-$6.80 325,700 8.2 6.68 4,750 6.80
$8.00-$8.50 795,240 9.1 8.02 13,840 9.00
---------- --- ----- ------- -----
1,449,190 8.2 $6.82 144,339 $4.55
========== === ===== ======= =====
</TABLE>

F-13
<PAGE> 70
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

Additional Stock Plan Information

Effective for fiscal 1997, the Company was required to adopt the disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123). SFAS 123 defines a fair value method
of accounting for stock-based compensation awards to employees. The Company has
elected to continue to follow the provisions of Accounting Principals Board No.
25, "Accounting for Stock Issued to Employees," and its related interpretations.

SFAS 123 requires that the fair value of stock-based awards to employees be
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective assumptions,
which greatly affect the calculated values. The Company's calculations were made
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected life, five years; no stock volatility; risk free interest
rate, approximately 6.0% in 1996 and 6.1% in 1997; and no dividend payments
during the expected term. Forfeitures are recognized as they occur. If the
computed fair values of the 1996 and 1997 awards had been amortized to expense
over the vesting period of the awards, pro forma income attributable to common
stockholders and diluted earnings per share would have been approximately
$2,195,000 ($0.10 per share) in 1996 and $449,000 ($0.02 per share) in 1997.
However, the impact of outstanding non-vested options granted prior to 1996 has
been excluded from the pro forma calculation; accordingly, the 1996 and 1997 pro
forma adjustments are not indicative of future period pro forma adjustments,
when the calculation will apply to all applicable stock options.

8. INCOME TAXES

The provision for income taxes for the years ended November 30 consists of
(in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
----- ------ -------
<S> <C> <C> <C>
Current:
Federal................................................ $ 556 $1,484 $ 1,884
State.................................................. 172 469 401
Foreign................................................ 87 177 580
----- ------ -------
Total current............................................ 815 2,130 2,865
----- ------ -------
Deferred:
Federal................................................ (197) (276) (1,174)
State.................................................. (33) (39) (206)
----- ------ -------
Total deferred........................................... (230) (315) (1,380)
----- ------ -------
Total provision for income taxes......................... $ 585 $1,815 $ 1,485
===== ====== =======
</TABLE>

The provision 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>
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Income tax expense......................................... $498 $1,507 $1,262
State income taxes, net of federal benefit................. 87 266 189
Other...................................................... -- 42 34
---- ------ ------
Total provision for income taxes........................... $585 $1,815 $1,485
==== ====== ======
</TABLE>

F-14
<PAGE> 71
ASPEC TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

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>
1996 1997
---- ------
<S> <C> <C>
Deferred tax assets:
Customer advances included in taxable income.............. $ -- $ 978
Reserves and accruals not currently deductible............ 213 664
State taxes............................................... 169 136
Depreciation and amortization............................. 16 --
---- ------
Net deferred tax assets..................................... $398 $1,778
==== ======
</TABLE>

9. MAJOR CUSTOMERS AND INTERNATIONAL SALES

In fiscal 1995, three customers accounted for 18.2%, 17.3% and 15.1% of
total revenue, respectively. In fiscal 1996, one customer accounted for 10.5% of
revenue. In fiscal 1997, no customer accounted for more than 10% of revenue.

Export sales to Asia, Europe and North America accounted for approximately
54.1%, 66.2% and 48.2% of total revenue for the years ended November 30, 1995,
1996 and 1997, respectively. Export sales to Asia accounted for approximately
50.1%, 57.6% and 44.3% of total revenue in fiscal 1995, 1996 and 1997,
respectively.

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.

F-15
<PAGE> 72

DESCRIPTION OF GRAPHICS

Inside front cover:

A graphical diagram appears here that depicts the steps in the IC manufacturing
process and how EDA tools and Aspec's SIP interact with such process.

Captions read as follows:

ASPEC TECHNOLOGY

ASPEC IS A LEADING PROVIDER OF SEMICONDUCTOR INTELLECTUAL PROPERTY (SIP)
SOLUTIONS FOR HIGH-PEROFRMANCE, COMPLEX IC DESIGNS, INCLUDING SYSTEM-ON-A-CHIP
ICs.

I/O MEMORY COMPLEX CORE CHARTERED SANYO
DSP CPU MPEG SAMSUNG LG SEMICON
MEMORY I/O COMPLEX CORE TSMC HYUNDAI
IBM UMC

Complex IC IC design optimized
Design for manufacture at a
variety of leading
merchant semiconductor
founderies.

Aspec provides cell
libraries, design tools,
design methodologies
ASPEC DESIGN and engineering
TOOLS, DESIGN services to accelerate
METHODOLOGY & complex IC design.
SERVICES

COMPLEX IC
DESIGN AND
DEVELOPMENT
PROCESS
Complex
ICs

Reduced
CUSTOMER THIRD-PARTY time-to-market
SIP SIP for electronic
systems.
CELL ASPEC
LIBRARIES SIP
<PAGE> 73

============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 5
Use of Proceeds................................. 14
Dividend Policy................................. 14
Capitalization.................................. 15
Dilution........................................ 16
Selected Consolidated Financial Data............ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business........................................ 27
Glossary........................................ 37
Management...................................... 38
Certain Transactions............................ 46
Principal Stockholders.......................... 47
Description of Capital Stock.................... 49
Shares Eligible for Future Sale................. 51
Underwriting.................................... 53
Legal Matters................................... 55
Experts......................................... 55
Additional Information.......................... 55
Index to Consolidated Financial Statements...... F-1
</TABLE>

------------------
UNTIL MAY 22, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================================
============================================================

6,000,000 SHARES

LOGO

COMMON STOCK

--------------------
PROSPECTUS
--------------------

HAMBRECHT & QUIST

MERRILL LYNCH & CO.

APRIL 27, 1998

============================================================