<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11 , 1997
REGISTRATION NO. 333-38395
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ORCAD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5045 93-1062832
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
9300 S.W. NIMBUS AVENUE
BEAVERTON, OREGON 97008
(503) 671-9500
(ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
MICHAEL F. BOSWORTH
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ORCAD, INC.
9300 S.W. NIMBUS AVENUE
BEAVERTON, OREGON 97008
(503) 671-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
WILLIAM C. CAMPBELL, ESQ.
BRENDA L. MELTEBEKE, ESQ.
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
222 S.W. COLUMBIA, SUITE 1800
PORTLAND, OREGON 97201
(503) 226-1191
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective and the
effective time of the merger (the "Merger") of OCA Merger Corporation, a
wholly owned subsidiary of OrCAD, Inc. with and into MicroSim Corporation as
described in the Agreement and Plan of Merger dated as of October 13, 1997
(the "Merger Agreement"), attached as Appendix A to the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ORCAD, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
NO. ITEMS OF FORM S-4 HEADING IN PROSPECTUS
--- ----------------- ---------------------
<C> <S> <C>
1 Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page
2 Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front Cover Page; Outside Back Cover
Page
3 Risk Factors, Ratio of
Earnings to Fixed Charges and Summary; Comparative Per Share Data;
Other Information............ Comparative Per Share Market Information;
4 Terms of the Transaction..... The Merger; Background of and Reasons for
the Merger; Description of OrCAD Capital
Stock; Comparative Rights of MicroSim
Shareholders and OrCAD Stockholders
5 Pro Forma Financial Unaudited Pro Forma Combined Condensed
Information.................. Financial Statements
6 Material Contracts with
Company Being Acquired....... Background of and Reasons for the Merger
7 Additional Information
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters.............. Not Applicable
8 Interests of Named Experts
and Counsel.................. Opinion of OrCAD's Financial Advisor
9 Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
10 Information with Respect to
S-3 Registrants.............. Not Applicable
11 Incorporation of Certain
Information by Reference..... Not Applicable
12 Information with Respect to
S-2 or S-3 Registrants....... Not Applicable
13 Incorporation of Certain
Information by Reference..... Not Applicable
14 Information with Respect to
Registrants Other than S-3 or Available Information; Summary; Selected
S-2 Registrants.............. Historical and Unaudited Pro Forma Combined
Condensed Financial Data; Comparative Per
Share Data; Comparative Per Share Market
Information; Unaudited Pro Forma Combined
Condensed Financial Statements; Business of
OrCAD; OrCAD Management's Discussion and
Analysis of Financial Condition and Results
of Operations; OrCAD Directors and
Executive Officers; OrCAD Executive
Compensation; Financial Statements
15 Information with Respect to
S-3 Companies................ Not Applicable
16 Information with Respect to
S-2 or S-3 Companies......... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. ITEMS OF FORM S-4 HEADING IN PROSPECTUS
--- ----------------- ---------------------
<C> <S> <C>
17 Information with Respect to
Companies Other than S-3 or Summary; Selected Historical and Unaudited
S-2 Companies............... Pro Forma Combined Condensed Financial
Data; Comparative Per Share Data;
Comparative Per Share Market Information;
Unaudited Pro Forma Combined Condensed
Financial Statements; Business of MicroSim;
MicroSim Management's Discussion and
Analysis of Financial Condition and Results
of Operations; MicroSim Directors and
Executive Officers; MicroSim Executive
Compensation; Financial Statements
18 Information if Proxies,
Consents or Authorizations Outside Front Cover Page of Joint Proxy
Are to Be Solicited......... Statement/Prospectus; Special Meeting of
OrCAD Stockholders; Special Meeting of
MicroSim Shareholders; The Merger--Rights
of Dissenting MicroSim Shareholders;
Conflicts of Interest; Stock Owned by OrCAD
Management and Principal Stockholders;
Stock Owned by MicroSim Management and
Principal Shareholders; OrCAD Directors and
Executive Officers; OrCAD Executive
Compensation; MicroSim Directors and
Executive Officers; MicroSim Executive
Compensation; Certain Transactions and
Relationships with OrCAD
19 Information if Proxies,
Consents or Authorizations
Are Not to Be Solicited..... Not Applicable
</TABLE>
<PAGE>
[LOGO OF ORCAD]
December , 1997
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
OrCAD, Inc. ("OrCAD"), (the "OrCAD Special Meeting") which will be held on
Tuesday, December 30, 1997, at 10:00 a.m., local time, at the Crowne Plaza,
14811 Kruse Oaks Blvd., Lake Oswego, Oregon 97035.
At the OrCAD Special Meeting, you will be asked to consider and vote upon a
proposal to approve the issuance (the "Issuance") of shares of common stock of
OrCAD (the "OrCAD Common Stock") to the shareholders of MicroSim Corporation
("MicroSim") and to the holders of options to acquire shares of MicroSim's
common stock in connection with the Agreement and Plan of Merger by and among
OrCAD, OCA Merger Corporation, a wholly owned subsidiary of OrCAD ("Merger
Sub") and MicroSim (the "Merger Agreement"), which provides for the merger of
Merger Sub with and into MicroSim (the "Merger"). Pursuant to the Merger
Agreement, MicroSim will become a wholly owned subsidiary of OrCAD. In the
Merger, all of the outstanding shares of capital stock of MicroSim and all of
the outstanding options to acquire shares of common stock of MicroSim will be
converted into shares of OrCAD Common Stock based on an exchange ratio of .825
OrCAD shares per MicroSim share (as is more fully described in the
accompanying Joint Proxy Statement/Prospectus under the heading "THE MERGER--
Terms of the Merger--Conversion of MicroSim Stock and Options to Acquire
Shares of MicroSim Stock in the Merger").
Contingent upon your approval and the closing of the Merger, OrCAD's Board
of Directors will increase the size of the Board by one member and appoint
Wolfram H. Blume, Chairman of the Board, President and Chief Executive Officer
of MicroSim, to fill that vacancy effective as of the first Board meeting
following the consummation of the Merger. Mr. Blume will serve on the Board
until the next annual meeting of stockholders, and is expected to be a nominee
for re-election then.
ORCAD'S BOARD OF DIRECTORS BELIEVES THE ISSUANCE AND THE MERGER TO BE FAIR
TO AND IN THE BEST INTERESTS OF ORCAD AND ITS STOCKHOLDERS, HAS UNANIMOUSLY
APPROVED THE ISSUANCE OF SHARES OF ORCAD COMMON STOCK TO THE MICROSIM
SHAREHOLDERS AND OPTION HOLDERS AND THE MERGER AGREEMENT AND RECOMMENDS A VOTE
FOR APPROVAL OF THE ISSUANCE.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Joint Proxy Statement/Prospectus for details of the
Merger, including information about the exchange ratio and the number of
shares of OrCAD Common Stock to be issued in connection with the Merger and
additional related information.
9300 S.W. Nimbus Avenue . Beaverton, Oregon 97008 . USA
Phone: 503-671-9500 . Fax: 503-671-9501 . OrCAD Direct Sales: 800-671-9505
Internet: [email protected] . http://www.orcad.com
<PAGE>
Whether or not you plan to attend the OrCAD Special Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may be revoked at any time
before it is voted by signing and returning a later-dated proxy with respect
to the same shares, by filing with the Secretary of OrCAD a written revocation
bearing a later date or by attending and voting at the OrCAD Special Meeting.
If you attend the OrCAD Special Meeting, you may vote in person if you wish,
even though you previously have returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Sincerely,
/s/ Michael F. Bosworth
Michael F. Bosworth
Chairman of the Board,
President and Chief Executive
Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
<PAGE>
[LOGO OF ORCAD]
9300 S.W. NIMBUS AVENUE
BEAVERTON, OREGON 97008
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 30, 1997
TO THE STOCKHOLDERS OF ORCAD, INC.:
The Special Meeting of Stockholders of OrCAD, Inc., a Delaware corporation
("OrCAD") (the "OrCAD Special Meeting"), will be held on December 30, 1997, at
10:00 a.m., local time, at the Crowne Plaza, 14811 Kruse Oaks Blvd., Lake
Oswego, Oregon 97035, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance (the
"Issuance") of shares of common stock of OrCAD (the "OrCAD Common Stock")
to the shareholders of MicroSim Corporation ("MicroSim") and to the holders
of options to acquire shares of MicroSim's common stock in connection with
an Agreement and Plan of Merger, dated as of October 13, 1997 (the "Merger
Agreement"), by and among OrCAD, OCA Merger Corporation, an Oregon
corporation and a wholly owned subsidiary of OrCAD ("Merger Sub") and
MicroSim, which provides for the merger of Merger Sub with and into
MicroSim (the "Merger"). Pursuant to the Merger Agreement, MicroSim will
become a wholly owned subsidiary of OrCAD, and all of the shares of capital
stock of MicroSim issued and outstanding immediately prior to the Merger
will be converted into shares of OrCAD Common Stock based on an exchange
ratio which will be determined according to the Merger Agreement. In
addition, all of the outstanding options to acquire shares of MicroSim
common stock will be converted into shares of OrCAD Common Stock based on
an exchange ratio which will be determined according to the Merger
Agreement. The Merger, including the exchange ratio and the number of
shares of OrCAD Common Stock to be issued in connection with the Merger, is
more completely described in the accompanying Joint Proxy
Statement/Prospectus, and a copy of the Merger Agreement is attached as
Appendix A thereto.
2. To transact such other business as may properly come before the OrCAD
Special Meeting or any adjournments or postponements thereof.
Only holders of record of OrCAD Common Stock at the close of business on
November 3, 1997, the record date of the OrCAD Special Meeting, are entitled
to notice of and to vote at the OrCAD Special Meeting and any adjournments or
postponements thereof.
9300 S.W. Nimbus Avenue . Beaverton, Oregon 97008 . USA
Phone: 503-671-9500 . Fax: 503-671-9501 . OrCAD Direct Sales: 800-671-9505
Internet: [email protected] . http://www.orcad.com
<PAGE>
Whether or not you plan to attend the OrCAD Special Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may be revoked at any time
before it is voted by signing and returning a later-dated proxy with respect
to the same shares, by filing with the Secretary of OrCAD a written revocation
bearing a later date or by attending and voting at the OrCAD Special Meeting.
OrCAD, INC.
/s/ Michael F. Bosworth
Michael F. Bosworth
Chairman of the Board,
President and Chief Executive
Officer
Beaverton, Oregon
December , 1997
IMPORTANT: Even if you plan to be present at the meeting, please complete,
sign and date the enclosed proxy or proxies and return promptly in the
postage prepaid envelope provided to ensure that your shares are represented
at the meeting. If you attend the meeting, you may vote in person if you
wish to do so even though you have previously sent in your proxy or proxies.
<PAGE>
[LOGO OF MICROSIM]
MICROSIM CORPORATION
16275 LAGUNA CANYO ROAD
IRVINE, CALIFORNIA 92618 USA
PHONE 714-788-6080
FAX 714-788-6099
FAX 714-788-6099
[email protected]
Dear Shareholder:
A Special Meeting of Shareholders of MicroSim Corporation ("MicroSim") (the
"MicroSim Special Meeting") will be held on Tuesday, December 30, 1997, at
9:00 a.m., local time, at MicroSim's offices at 16275 Laguna Canyon Road,
Irvine, California.
At the MicroSim Special Meeting, you will be asked to consider and vote upon
the approval and adoption of an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger (the "Merger") of MicroSim with a
subsidiary of OrCAD, Inc., a Delaware corporation ("OrCAD"), as described in
the accompanying Joint Proxy Statement/Prospectus. Pursuant to the Merger,
MicroSim will become a wholly owned subsidiary of OrCAD, all outstanding
shares of MicroSim's common stock, other than dissenters' shares, will be
converted into and exchanged for shares of common stock, $.01 par value, of
OrCAD (the "OrCAD Common Stock"). Each holder of MicroSim common stock (other
than dissenting shareholders) will receive shares of OrCAD Common Stock in
exchange for shares of MicroSim common stock owned by such shareholder based
upon an exchange ratio of .825 OrCAD shares per MicroSim share (as is more
fully described in the accompanying Joint Proxy Statement/Prospectus under the
heading "THE MERGER--Terms of the Merger--Conversion of MicroSim Stock and
Options to Acquire Shares of MicroSim Stock in the Merger"). In addition, each
holder of outstanding options to acquire shares of MicroSim common stock will
receive shares of OrCAD Common Stock in exchange for such options based upon
an exchange ratio which will be determined according to the Merger Agreement.
For more information regarding the consideration to be received by MicroSim
shareholders in the Merger, please refer to the accompanying Joint Proxy
Statement/Prospectus, under "Terms of the Merger--Conversion of MicroSim Stock
and Options to Acquire Shares of MicroSim Stock in the Merger."
THE MICROSIM BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT DESCRIBED IN THE ATTACHED MATERIAL AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF
MICROSIM AND ITS SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD OF
DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE MERGER.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by MicroSim shareholders at the MicroSim Special Meeting,
and a form of proxy. The Joint Proxy Statement/Prospectus more fully describes
the proposed Merger and includes information about OrCAD and MicroSim.
All shareholders are cordially invited to attend the MicroSim Special
Meeting in person. However, whether or not you plan to attend the MicroSim
Special Meeting, please complete, sign, date and return your proxy or proxies
in the enclosed postage paid envelope. A shareholder who attends the MicroSim
Special Meeting will be able to vote his or her shares whether or not he or
she has granted a proxy and will be able to revoke such proxy at any time
before the shares covered thereby are voted at the MicroSim Special Meeting by
filing with the
<PAGE>
Secretary of MicroSim an instrument revoking it or a duly executed proxy
bearing a later date or by attendance at the MicroSim Special Meeting and
voting in person. It is important that your shares be represented and voted at
the MicroSim Special Meeting. For information regarding the procedures
necessary to exercise dissenters' rights, please refer to the accompanying
Joint Proxy Statement/Prospectus under "THE MERGER--Rights of Dissenting
MicroSim Shareholders."
Sincerely,
/s/ Wolfram H. Blume
Wolfram H. Blume
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
[LOGO OF MICROSIM]
MICROSIM CORPORATION
16275 LAGUNA CANYON ROAD
IRVINE, CALIFORNIA 92618 USA
PHONE 714-788-6080
FAX 714-788-6099
[email protected]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 30, 1997
TO THE SHAREHOLDERS:
A Special Meeting of Shareholders of MicroSim Corporation, a California
corporation ("MicroSim") (the "MicroSim Special Meeting") will be held on
Tuesday, December 30, 1997, at 9:00 a.m., local time, at MicroSim's offices at
16275 Laguna Canyon Road, Irvine, California.
At the MicroSim Special Meeting, MicroSim's shareholders will be asked to
consider and vote upon a proposal to approve and adopt the Agreement and Plan
of Merger dated as of October 13, 1997 by and among OrCAD, Inc., a Delaware
corporation ("OrCAD"), OCA Merger Corporation, an Oregon corporation and
wholly owned subsidiary of OrCAD ("Merger Sub") and MicroSim (the "Merger
Agreement"). The Merger Agreement provides for the merger of Merger Sub into
MicroSim, with MicroSim becoming a wholly owned subsidiary of OrCAD (the
"Merger"). All outstanding shares of MicroSim's common stock, no par value
(the "MicroSim Stock"), other than dissenters' shares, will be converted into
and exchanged for shares of common stock, $0.01 par value, of OrCAD (the
"OrCAD Common Stock"), and all outstanding options to acquire shares of
MicroSim Stock (the "MicroSim Options") will be converted into and exchanged
for shares of OrCAD Common Stock in the Merger. Each holder of MicroSim Stock
(other than dissenting shareholders) will receive shares of OrCAD Common Stock
in exchange for shares of MicroSim Stock owned by such shareholder based upon
an exchange ratio which will be determined according to the Merger Agreement.
Each holder of MicroSim Options will receive shares of OrCAD Common Stock in
exchange for the MicroSim Options owned by such holder based upon an exchange
ratio which will be determined according to the Merger Agreement. The exchange
ratio is described in more detail in the accompanying Joint Proxy
Statement/Prospectus under "Terms of the Merger--Conversion of MicroSim Stock
and Options to Acquire Shares of MicroSim Stock in the Merger." The Merger is
more fully described in, and the Merger Agreement is attached in its entirety
to, the accompanying Joint Proxy Statement/Prospectus.
Only shareholders of record at the close of business on November 3, 1997,
are entitled to notice of and to vote at the MicroSim Special Meeting, or at
any continuance(s) or adjournment(s) thereof. APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF SHARES
REPRESENTING A MAJORITY OF THE NUMBER OF SHARES OF MICROSIM STOCK OUTSTANDING.
AS DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT, SHAREHOLDERS OF
MICROSIM WILL BE ENTITLED TO PAYMENT OF THE FAIR MARKET VALUE OF THOSE SHARES
WHICH ARE NOT VOTED IN FAVOR OF THE MERGER AGREEMENT, IF WRITTEN NOTICE OF THE
SHAREHOLDERS' INTENT TO DEMAND PAYMENT IF THE MERGER AGREEMENT AND MERGER ARE
APPROVED IS DELIVERED TO MICROSIM WITHIN 30 DAYS AFTER THE DATE ON WHICH
MICROSIM MAILED TO THE SHAREHOLDERS THE NOTICE OF APPROVAL OF THE MERGER BY
MICROSIM'S OUTSTANDING SHARES AND THE REQUIREMENTS OF SECTIONS 1300 THROUGH
1312 OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA ARE MET. FOR
INFORMATION REGARDING THE PROCEDURES NECESSARY TO EXERCISE DISSENTERS' RIGHTS,
PLEASE REFER TO THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS UNDER "THE
MERGER--RIGHTS OF DISSENTING MICROSIM SHAREHOLDERS."
Shareholders of MicroSim, regardless of whether they plan to attend the
MicroSim Special Meeting, are requested to execute and return promptly the
accompanying Proxy, which is solicited by the Board of Directors of MicroSim.
A shareholder who attends the MicroSim Special Meeting will be able to vote
his or her shares whether or not he or she has granted a Proxy and will be
able to revoke such Proxy at any time before the shares covered thereby are
voted at the MicroSim Special Meeting by filing with the Secretary of MicroSim
an instrument revoking it or a duly executed proxy bearing a later date or by
attendance at the MicroSim Special Meeting and voting in person. If you are
<PAGE>
represented at the MicroSim Special Meeting, either in person or by proxy, and
you abstain from voting on a particular matter or matters, you will still be
considered to be present at the MicroSim Special Meeting for purposes of
determining whether a quorum is present. A prompt response is helpful and your
cooperation will be appreciated.
By Order of the Board of Directors,
/s/ Wolfram H. Blume
Wolfram H. Blume
Chairman of the Board, President
and Chief Executive Officer
Irvine, California
December , 1997
<PAGE>
JOINT PROXY STATEMENT
OF
ORCAD, INC.
AND
MICROSIM CORPORATION
----------------
PROSPECTUS
OF
ORCAD, INC.
----------------
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
OrCAD, Inc., a Delaware corporation ("OrCAD"), in connection with the
solicitation of proxies by OrCAD's Board of Directors (the "OrCAD Board") for
use at the Special Meeting of Stockholders to be held on December 30, 1997, at
the Crowne Plaza, 4811 Kruse Oaks Blvd., Lake Oswego, Oregon 97035, commencing
at 10:00 a.m., local time, and at any adjournments or postponements thereof
(the "OrCAD Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to
shareholders of MicroSim Corporation, a California corporation ("MicroSim"),
in connection with the solicitation of proxies by the Board of Directors of
MicroSim (the "MicroSim Board") for use at the Special Meeting of Shareholders
to be held on December 30, 1997, at MicroSim's offices at 16275 Laguna Canyon
Road, Irvine, California 92618, commencing at 9:00 a.m., local time, and at
any adjournments or postponements thereof (the "MicroSim Special Meeting").
This Joint Proxy Statement/Prospectus relates to the proposed merger of OCA
Merger Corporation, a newly formed Oregon corporation and wholly owned
subsidiary of OrCAD, with and into MicroSim, with MicroSim becoming a wholly
owned subsidiary of OrCAD (the "Merger"). OrCAD has filed a Registration
Statement on Form S-4 with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to up to 2,428,057 shares of
common stock, par value $.01 per share of OrCAD ("OrCAD Common Stock"),
issuable in connection with the Merger for an aggregate value of approximately
$20,347,118. (The total number and the aggregate value of shares of OrCAD
Common Stock to be issued in the merger, and to be registered in the
Registration Statement, is subject to adjustment for fractional shares and for
variations in the in-the-money value of MicroSim options as the price of OrCAD
Common Stock fluctuates, as described below; this number and value assume an
OrCAD fair market value of $8.38). This Joint Proxy Statement/Prospectus
constitutes the Prospectus of OrCAD with respect to the shares of OrCAD Common
Stock to be issued in the Merger. All information contained in this Joint
Proxy Statement/Prospectus relating to OrCAD has been supplied by OrCAD, and
all information contained herein relating to MicroSim has been supplied by
MicroSim.
This Joint Proxy Statement/Prospectus is first being mailed to stockholders
of OrCAD and shareholders of MicroSim on or about December , 1997.
THE SHARES OF ORCAD COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
FOR A DESCRIPTION OF CERTAIN IMPORTANT ISSUES MICROSIM SHAREHOLDERS SHOULD
CONSIDER IN EVALUATING THE MERGER AND THE ACQUISITION OF THE ORCAD COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" AT PAGE 12.
----------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DECEMBER , 1997.
<PAGE>
AVAILABLE INFORMATION
OrCAD is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at certain regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such information can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. Shares of OrCAD Common Stock are traded on the Nasdaq Stock
Market. Material filed by OrCAD can be inspected at the offices of the
National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington D.C. 20006. This Joint Proxy Statement/Prospectus
does not contain all the information set forth in the Registration Statement
on Form S-4 (the "Registration Statement") filed by OrCAD with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement and any amendments thereto, including
exhibits as a part thereof, are available for inspection and copying as set
forth above.
MicroSim is not subject to the information and reporting requirements of the
Exchange Act.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH
RESPECT TO SUCH MATTERS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY ORCAD OR MICROSIM. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ORCAD OR MICROSIM SINCE THE DATE HEREOF OR THAT THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THEREOF.
Certain statements contained in this Joint Proxy Statement/Prospectus that
are not related to historical results are "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act and involve risks and uncertainties. Although each of OrCAD and
MicroSim believes that the assumptions on which their respective forward-
looking statements are based are reasonable, there can be no assurance that
such assumptions will prove to be accurate and actual results could differ
materially from those discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not
limited to, those discussed herein under "Risk Factors," "OrCAD Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"MicroSim Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as those discussed elsewhere in this Joint
Proxy Statement/Prospectus. All forward-looking statements contained in this
Joint Proxy Statement/Prospectus or incorporated by reference are qualified in
their entirety by this cautionary statement. Neither OrCAD nor MicroSim intend
to update or otherwise revise the forward-looking statements contained herein
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
OrCAD, OrCAD CAPTURE, OrCAD DESIGN DESKTOP, OrCAD EXPRESS, OrCAD LAYOUT,
OrCAD SIMULATE, ENTERPRISE BRIDGE, OrCAD/SDT, OrCAD/VST, OrCAD/PCB and
OrCAD/PLD are trademarks of OrCAD, Inc.
MICROSIM, PSPICE, PLOGIC, POLARIS, PLSYN, DESIGNLAB, DESIGN JOURNAL and
SETTING THE STANDARD FOR DESKTOP EDA are trademarks of MicroSim Corporation.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................................................... 1
General................................................................. 1
The Companies........................................................... 1
Meetings of Stockholders................................................ 2
The Merger.............................................................. 2
Risk Factors............................................................ 7
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
DATA..................................................................... 8
COMPARATIVE PER SHARE DATA................................................ 10
COMPARATIVE PER SHARE MARKET INFORMATION.................................. 11
OrCAD................................................................... 11
MicroSim................................................................ 11
RISK FACTORS.............................................................. 12
Risks Relating to the Merger............................................ 12
Risks Relating to Both OrCAD and MicroSim............................... 16
SPECIAL MEETING OF OrCAD STOCKHOLDERS..................................... 18
General................................................................. 18
Matters to be Considered at the Meeting................................. 18
Record Date; Shares Entitled to Vote; Vote Required..................... 18
Proxies; Proxy Solicitation............................................. 18
SPECIAL MEETING OF MICROSIM SHAREHOLDERS.................................. 20
General................................................................. 20
Matters to be Considered at the Meeting................................. 20
Record Date; Shares Entitled to Vote; Vote Required..................... 20
Proxies; Proxy Solicitation............................................. 21
BACKGROUND OF AND REASONS FOR THE MERGER.................................. 22
Background.............................................................. 22
Joint Reasons for the Merger............................................ 23
OrCAD's Reasons for the Merger.......................................... 24
MicroSim's Reasons for the Merger....................................... 25
Recommendation of OrCAD Board........................................... 25
Opinion of OrCAD Financial Advisor...................................... 26
Recommendation of MicroSim Board........................................ 28
THE MERGER................................................................ 29
Terms of the Merger..................................................... 29
Effective Time of the Merger............................................ 30
Exchange of MicroSim Stock and Options to Acquire Shares of MicroSim
Stock.................................................................. 30
Escrow of OrCAD Common Stock............................................ 30
Quotation of OrCAD Common Stock on Nasdaq National Market............... 30
Representations and Warranties.......................................... 31
Business of MicroSim Pending the Merger................................. 32
Business of OrCAD Pending the Merger.................................... 33
Irrevocable Proxy....................................................... 34
No Solicitation......................................................... 34
Conditions; Waivers..................................................... 34
Termination; Amendment.................................................. 36
Indemnification......................................................... 36
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Certain Federal Income Tax Considerations............................... 37
Resale of OrCAD Common Stock Issued in the Merger; Affiliates........... 39
Accounting Treatment.................................................... 40
Management and Operations of MicroSim After the Merger.................. 40
Expenses and Fees....................................................... 40
Rights of Dissenting MicroSim Shareholders.............................. 40
CONFLICTS OF INTEREST..................................................... 41
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 43
BUSINESS OF OrCAD......................................................... 48
Overview................................................................ 48
Industry Background..................................................... 48
Products................................................................ 48
Marketing and Sales..................................................... 49
Service and Support..................................................... 50
Product Development..................................................... 51
Competition............................................................. 51
Proprietary Rights...................................................... 52
Employees............................................................... 52
Properties.............................................................. 52
Legal Proceedings....................................................... 52
Selected OrCAD Consolidated Financial Data.............................. 53
OrCAD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 54
BUSINESS OF MICROSIM...................................................... 64
Overview................................................................ 64
Products................................................................ 64
Marketing and Sales..................................................... 65
Research and Development................................................ 65
Competition............................................................. 66
Proprietary Rights...................................................... 66
Revenue Mix............................................................. 66
Employees............................................................... 66
Properties.............................................................. 66
Legal Proceedings....................................................... 67
Selected MicroSim Consolidated Financial Data........................... 68
MICROSIM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 69
OrCAD DIRECTORS AND EXECUTIVE OFFICERS.................................... 76
OrCAD EXECUTIVE COMPENSATION.............................................. 78
Summary of Cash and Certain Other Compensation.......................... 78
Stock Options........................................................... 78
Option Exercises and Holdings........................................... 78
Director Compensation................................................... 79
Section 16 Reports...................................................... 79
STOCK OWNED BY OrCAD MANAGEMENT AND PRINCIPAL STOCKHOLDERS................ 80
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH OrCAD......................... 81
MICROSIM DIRECTORS AND EXECUTIVE OFFICERS................................. 82
MICROSIM EXECUTIVE COMPENSATION........................................... 83
Summary of Cash and Certain Other Compensation.......................... 83
</TABLE>
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Stock Options............................................................ 83
Option Exercises and Holdings............................................ 84
Director Compensation.................................................... 84
STOCK OWNED BY MICROSIM MANAGEMENT AND PRINCIPAL SHAREHOLDERS.............. 84
DESCRIPTION OF OrCAD CAPITAL STOCK......................................... 85
Common Stock............................................................. 85
Preferred Stock.......................................................... 85
Delaware Business Combination Statute; Certain Provisions of Restated
Certificate of Incorporation and Restated Bylaws........................ 85
Transfer Agent........................................................... 86
COMPARATIVE RIGHTS OF MICROSIM SHAREHOLDERS AND OrCAD STOCKHOLDERS......... 86
Classes of Stock......................................................... 87
Amendments To Articles of Incorporation and Bylaws....................... 87
Shareholder Power To Call Special Shareholders' Meeting.................. 88
Approval of Certain Corporate Transactions............................... 88
Dissenters' Rights....................................................... 89
Anti-Takeover Provisions................................................. 89
"Blank Check" Preferred Stock............................................ 90
Removal of Directors..................................................... 90
Classified Board of Directors............................................ 90
Size of Board of Directors............................................... 90
Dividends and Repurchase of Shares....................................... 91
Class Voting............................................................. 91
LEGAL OPINION.............................................................. 91
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS............................... 91
EXPERTS.................................................................... 92
FINANCIAL STATEMENTS....................................................... F-1
Appendix A--Agreement and Plan of Merger................................... A-1
Appendix B--Fairness Opinion of Redwood Partners LLC....................... B-1
Appendix C--California Dissenters' Rights Provisions....................... C-1
</TABLE>
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SUMMARY
Certain significant matters discussed in this Joint Proxy
Statement/Prospectus are summarized below. This summary is not intended to be
complete and is qualified in all respects by reference to the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Joint Proxy Statement/Prospectus (including the Appendices hereto).
Stockholders of OrCAD and shareholders of MicroSim are urged to review the
entire Joint Proxy Statement/Prospectus and to carefully review the matters set
forth under "Risk Factors" before voting upon the matters to be considered.
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of OCA Merger Corporation ("Merger Sub"), a newly formed, wholly
owned subsidiary of OrCAD, Inc., a Delaware corporation ("OrCAD"), with and
into MicroSim Corporation, a California corporation ("MicroSim"). As a result
of the Merger, MicroSim will become a wholly owned subsidiary of OrCAD. Subject
to the approval of the Merger by the shareholders of MicroSim at the Special
Meeting of MicroSim shareholders scheduled to be held on December 30, 1997 (the
"MicroSim Special Meeting"), the approval of the issuance of shares of OrCAD
Common Stock to MicroSim shareholders and option holders in the Merger by the
stockholders of OrCAD at the Special Meeting of OrCAD stockholders scheduled to
be held on December 30, 1997 (the "OrCAD Special Meeting") and the satisfaction
of certain other conditions, the Merger will be effected pursuant to the terms
of an Agreement and Plan of Merger dated as of October 13, 1997 (the "Merger
Agreement") by and among OrCAD, Merger Sub and MicroSim, a copy of which is
attached hereto as Appendix A. For a description of the conditions to OrCAD's
and MicroSim's obligations to effect the Merger, see "THE MERGER--Conditions;
Waivers."
THE COMPANIES
OrCAD, Inc. OrCAD develops, markets and supports Microsoft Windows-based
electronic design automation ("EDA") software products that assist electronics
designers in designing printed circuit boards ("PCBs"), field-programmable gate
arrays ("FPGAs") and complex programmable logic devices ("CPLDs"). PCBs, FPGAs
and CPLDs are found in a majority of today's electronic products, and are often
referred to as "mainstream" components. OrCAD's products enable electronics
designers working on personal computers (PCs) to reduce time to market, improve
product capability, and reduce design costs. OrCAD's Windows-based EDA
solutions support the design process for mainstream components, from schematic
capture to programmable logic design and verification to printed circuit board
layout. Over 200,000 products bearing the OrCAD name have been sold worldwide
since 1986. The mailing address of OrCAD's principal executive office is 9300
S.W. Nimbus Avenue, Beaverton, Oregon 97008 and its telephone number is (503)
671-9500. See "BUSINESS OF OrCAD."
OCA Merger Corporation. Merger Sub, a wholly owned subsidiary of OrCAD, was
formed by OrCAD solely for the purpose of effecting the Merger. The mailing
address of Merger Sub's principal executive offices is c/o OrCAD, Inc., 9300
S.W. Nimbus Avenue, Beaverton, Oregon 97008 and its telephone number is
(503) 671-9500.
MicroSim Corporation. MicroSim, founded in 1984, develops, markets and
supports Microsoft Windows-based and Unix-based EDA software products that
assist electronics designers in designing integrated circuits ("ICs") and PCBs,
including circuits that contain both analog and digital components ("mixed-
signal" circuits). MicroSim is one of the desktop EDA industry's leading brand
names and suppliers for analog and mixed-signal simulation products. These
product areas have accounted for over 90% of MicroSim's revenue since its
inception. MicroSim products enable electronic circuit designers to reduce time
to market, improve product capability and reduce design costs. MicroSim's EDA
solutions support the design process for mainstream components, from schematic
capture to verification to programmable logic design to printed circuit board
layout.
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Over 30,000 products bearing the MicroSim name have been sold worldwide since
1984. The mailing address of MicroSim is 16275 Laguna Canyon Road, Irvine,
California 92618 and its telephone number is (714) 788-6080. See "BUSINESS OF
MICROSIM."
MEETINGS OF STOCKHOLDERS
OrCAD Special Meeting. The OrCAD Special Meeting is scheduled to be held on
Tuesday, December 30, 1997 at 10:00 a.m., local time, at the Crowne Plaza,
14811 Kruse Oaks Blvd., Lake Oswego, Oregon 97035. At the OrCAD Special
Meeting, stockholders of OrCAD will consider and vote upon (i) the issuance of
OrCAD Common Stock in exchange for all of the issued and outstanding shares of
capital stock of MicroSim and all of the outstanding options to acquire shares
of MicroSim common stock in connection with the Merger Agreement (the
"Issuance"); and (ii) such other business as may be properly brought before the
OrCAD Special Meeting.
Only holders of record of OrCAD Common Stock at the close of business on
November 3, 1997, are entitled to notice of and to vote at the OrCAD Special
Meeting. At the close of business on that date, 6,771,147 shares of OrCAD
Common Stock were outstanding and entitled to vote, of which, 214,990 shares
(approximately three percent (3%)) were held by members of the OrCAD Board,
OrCAD's executive officers and their affiliates. The affirmative vote of the
holders of a majority of the votes cast on the proposal is required for
approval of the Issuance. See "SPECIAL MEETING OF OrCAD STOCKHOLDERS--Record
Date; Shares Entitled to Vote; Vote Required."
MicroSim Special Meeting. The MicroSim Special Meeting is scheduled to be
held on Tuesday, December 30, 1997, at 9:00 a.m., local time, at MicroSim's
offices at 16275 Laguna Canyon Road, Irvine, California 92618. At the MicroSim
Special Meeting, shareholders of MicroSim will consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement and the Merger; and (ii)
such other business as may be properly brought before the MicroSim Special
Meeting.
Only holders of record of MicroSim common stock, no par value per share
("MicroSim Stock") at the close of business on November 3, 1997, are entitled
to notice of and to vote at the MicroSim Special Meeting. At the close of
business on that date, 2,804,615 shares of MicroSim Stock were outstanding and
entitled to vote, of which, 2,352,725 shares (eighty-four percent (84%)) were
held by members of the MicroSim Board, MicroSim's executive officers and their
affiliates. The affirmative vote of the holders of shares representing a
majority of the number of shares of MicroSim Stock outstanding is necessary to
approve and adopt the Merger Agreement and Merger. It is a condition to
consummation of the Merger that holders of not more than six percent (6%) of
the total number of shares of MicroSim Stock outstanding on the closing date of
the Merger (the "Closing Date") exercise dissenters' rights. See "SPECIAL
MEETING OF MICROSIM SHAREHOLDERS--Record Date; Shares Entitled to Vote; Vote
Required."
THE MERGER
General. Upon consummation of the Merger, Merger Sub will merge with and into
MicroSim, MicroSim will become a wholly owned subsidiary of OrCAD, and the
shares of MicroSim Stock then outstanding (other than shares as to which
dissenters' rights have been exercised) and the options to acquire shares of
MicroSim Stock which are then outstanding will be converted as described below.
Effective Time of the Merger. Following receipt of all required approvals and
satisfaction or waiver of the other conditions to the Merger, the Merger will
be consummated and become effective at the time (the "Effective Time") at which
the articles of merger to be filed pursuant to the California Corporations Code
(the "Corporations Code") and the articles of merger to be filed pursuant to
the Oregon Business Corporation Act (the "Business Corporation Act") are
accepted for filing by the Secretary of State of California and the Secretary
of State of Oregon, respectively, or such later date and time as may be
specified in such articles of merger. See "THE MERGER--Effective Time of the
Merger" and "Conditions; Waivers."
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Conversion of MicroSim Stock and Options to Acquire Shares of MicroSim Stock
in the Merger. At the Effective Time, all shares of MicroSim Stock issued and
outstanding immediately prior to the Effective Time (other than shares as to
which dissenters' rights of appraisal have been duly sought, perfected and are
not subsequently withdrawn), and all options to acquire shares of MicroSim
Stock outstanding immediately prior to the Effective Time, will be exchanged
for OrCAD Common Stock. The 2,697,795 issued and outstanding fully vested
shares of MicroSim Stock (including vested shares held under stock purchase
agreements) will each be exchanged for .825 shares of OrCAD Common Stock, for
an aggregate total of 2,225,680 shares of OrCAD Common Stock (subject to
adjustment for fractional shares). The 106,820 shares of unvested MicroSim
Stock held under stock purchase agreements will each be valued at .91 shares of
fully vested MicroSim Stock, and then the discounted shares exchanged for .825
shares of OrCAD Common Stock, for an aggregate total of 80,195 shares of OrCAD
Common Stock (subject to adjustment for fractional shares). The options to
acquire 95,640 shares of MicroSim Stock underlying fully vested stock options
will be valued by subtracting the exercise price of each option from the
"MicroSim Fair Market Value." That value will be determined as .825 times the
"OrCAD Fair Market Value." The "OrCAD Fair Market Value" is agreed to be the
ten-day closing average of OrCAD's prices on the Nasdaq National Market for the
ten consecutive trading days next preceding the third trading day before the
Closing Date. The resulting dollar value shall be divided by the OrCAD Fair
Market Value, and the underlying fully vested stock option shall then be
exchanged for that number of shares of OrCAD Common Stock (subject to
adjustment for fractional shares). The options to acquire 228,760 shares of
MicroSim Stock underlying unvested stock options will be valued as the fully
vested options are valued, except the total value shall be multiplied by .90,
to reflect the discounted value of unvested options (subject to adjustment for
fractional shares). The foregoing numbers for shares and options may fluctuate
based upon option exercises and other events prior to the Effective Time.
Fractional Shares. No fractional shares of OrCAD Common Stock will be issued
in the Merger. OrCAD will pay to each holder of MicroSim Stock or options to
acquire shares of MicroSim Stock an amount in cash (rounded to the nearest
whole cent) determined by multiplying (i) the fair market value of a share of
OrCAD Common Stock by (ii) the fraction of a share of OrCAD Common Stock which
such holder would otherwise be entitled to receive in connection with the
Merger.
Recommendation of OrCAD Board of Directors. The OrCAD Board has determined
the Issuance and the Merger to be fair to and in the best interests of OrCAD
and its stockholders and has unanimously approved the Issuance and the Merger
Agreement. The OrCAD Board recommends that OrCAD stockholders vote "FOR" the
Issuance. The OrCAD Board's recommendations are based upon a number of factors
discussed in this Joint Proxy Statement/Prospectus. See "BACKGROUND OF AND
REASONS FOR THE MERGER."
Opinion of OrCAD Financial Advisor. Redwood Partners LLC ("Redwood Partners")
has been retained by OrCAD to act as its financial advisor in connection with
the Merger. John C. Savage is a Principal of Redwood Partners and a member of
the OrCAD Board. See "CONFLICTS OF INTEREST." Redwood Partners delivered its
oral opinion to the OrCAD Board on September 24, 1997 (as confirmed in writing
on October 13, 1997, the "Redwood Partners Opinion"), to the effect that, as of
such dates and based upon the procedures followed, matters considered and
assumptions made by Redwood Partners as set forth therein, the consideration to
be paid for MicroSim pursuant to the Merger Agreement is fair to the holders of
OrCAD Common Stock from a financial point of view. The full text of the Redwood
Partners Opinion, which sets forth assumptions made, procedures followed,
matters considered, limitations on and scope of the review undertaken, is
attached hereto as Appendix B. OrCAD stockholders are urged to read the opinion
carefully and in its entirety. The Redwood Partners Opinion is directed only to
the fairness to the holders of OrCAD Common Stock of the consideration to be
paid for MicroSim pursuant to the Merger Agreement from a financial point of
view and should not be deemed to constitute a recommendation by Redwood
Partners to OrCAD stockholders to vote in favor of any matter presented in this
Joint Proxy Statement/Prospectus. The summary of the Redwood Partners Opinion
set forth herein is qualified in its entirety by reference to the full text of
such opinion. See "BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of OrCAD
Financial Advisor."
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Recommendation of MicroSim Board of Directors. The MicroSim Board has
determined the Merger to be fair to and in the best interests of MicroSim and
its shareholders and has unanimously approved the Merger Agreement and the
Merger. The MicroSim Board recommends that MicroSim shareholders vote "FOR" the
Merger Agreement and the Merger. The MicroSim Board's recommendations are based
upon a number of factors discussed in this Joint Proxy Statement/Prospectus.
See "BACKGROUND OF AND REASONS FOR THE MERGER" and "CONFLICTS OF INTEREST."
Irrevocable Proxy. The principal shareholder of MicroSim, owning an aggregate
of 2,165,725 shares of MicroSim Stock and representing approximately 77% of the
outstanding shares of MicroSim Stock as of October 16, 1997, has given an
irrevocable proxy to OrCAD to vote all of his shares of MicroSim Stock "FOR"
approval of the Merger Agreement and the Merger.
Exchange of MicroSim Stock and Options to Acquire Shares of MicroSim Stock in
the Merger. As soon as practicable after the Effective Time, the Exchange Agent
for the Merger (the "Exchange Agent") will deliver to each holder of
certificates representing shares of MicroSim Stock (other than dissenting
shares) and each holder of options to acquire shares of MicroSim Stock, a form
of letter of transmittal and instructions for use in effecting the surrender of
such certificates and options for conversion into shares of OrCAD Common Stock.
Upon surrender of such certificates and options to the Exchange Agent, together
with the letter of transmittal and other required documents, each such holder
will receive for each share of MicroSim Stock represented by such certificate
or option the number of shares of OrCAD Common Stock into which such shares of
MicroSim Stock or options to acquire shares of MicroSim Stock were converted in
the Merger, less the number of shares delivered pursuant to the Escrow
Agreement. See "THE MERGER--Terms of the Merger" and "Exchange of MicroSim
Stock and Options to Acquire Shares of MicroSim Stock."
Escrow of OrCAD Common Stock. The Merger Agreement provides that OrCAD will
withhold, on a pro-rata basis, ten percent (10%) of the shares of OrCAD Common
Stock to be received by holders of MicroSim Stock and options to acquire shares
of MicroSim Stock upon consummation of the Merger (the "Escrow Shares"). The
Escrow Shares will be delivered to First Trust National Association as escrow
agent (the "Escrow Agent"). The Escrow Shares will be held by the Escrow Agent
for a period, that, absent unresolved claims, will end on the first anniversary
of the Closing Date. Subject to certain limitations set forth in the Merger
Agreement, the Escrow Shares will be subject to claims by OrCAD to satisfy
MicroSim's obligations under the Merger Agreement to reimburse OrCAD for any
and all claims, damages, losses, liabilities, judgments, settlements, costs and
expenses incurred by OrCAD by reason of, arising out of, or in connection with
any breach or inaccuracy of any representation or warranty of MicroSim
contained in the Merger Agreement or the failure of MicroSim to perform any
agreement or covenant required to be performed by MicroSim under the Merger
Agreement. See "THE MERGER--Escrow of OrCAD Common Stock," and "RISK FACTORS--
Escrowed Shares."
Quotation of the OrCAD Common Stock on the Nasdaq National Market. OrCAD has
agreed to use all reasonable efforts to cause the OrCAD Common Stock to be
issued pursuant to the Merger Agreement to be quoted for trading on the Nasdaq
National Market. See "THE MERGER--Quotation of OrCAD Common Stock on Nasdaq
National Market."
Business of OrCAD Pending the Merger. OrCAD has agreed that, prior to the
later of the Closing Date and the Effective Time, except as contemplated by the
Merger Agreement, it will operate its business in the usual, regular and
ordinary manner. In addition, unless MicroSim agrees in writing or except as
otherwise permitted pursuant to the Merger Agreement, prior to the later of the
Closing Date and the Effective Time OrCAD will not engage in certain actions
specified in the Merger Agreement. See "THE MERGER--Business of OrCAD Pending
the Merger."
Business of MicroSim Pending the Merger. MicroSim has agreed that, prior to
the later of the Closing Date and the Effective Time, except as contemplated by
the Merger Agreement, it will operate its business only
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in the usual, regular and ordinary manner. In addition, unless OrCAD agrees in
writing or except as otherwise permitted pursuant to the Merger Agreement,
prior to the later of the Closing Date and the Effective Time MicroSim will not
engage in certain actions specified in the Merger Agreement. See "THE MERGER--
Business of MicroSim Pending the Merger."
No Solicitation. MicroSim has agreed that, prior to the later of the Closing
Date and the Effective Time, neither it nor any of its affiliates will,
directly or indirectly, initiate, contract with, solicit or encourage any
inquiries or proposals by, or enter into any discussions or negotiations with,
or disclose any information concerning its business and properties, or afford
any access to its properties, books and records to, any third party concerning
any merger, consolidation, share exchange or similar transaction involving
MicroSim or any purchase of all or a significant portion of the assets of or
equity interest in MicroSim, or any other transaction that would involve the
transfer or potential transfer of control of MicroSim. If, however, the
MicroSim Board receives a written proposal regarding any of the foregoing
transactions, and in the opinion of the MicroSim Board (after consultation with
legal counsel), the failure to consider such proposal would cause the MicroSim
Board to violate its fiduciary duties under the Corporations Code, then the
MicroSim Board may consider such proposal. See "THE MERGER--No Solicitation."
Management and Operations of MicroSim After the Merger. After the Merger,
MicroSim will be a wholly owned subsidiary of OrCAD. MicroSim will operate as
one of OrCAD's business units and OrCAD currently intends to maintain
MicroSim's corporate headquarters in Irvine, California. After the Merger,
MicroSim will have access to resources generally available to OrCAD's other
business units, will participate in appropriate activities with other OrCAD
business units and will operate under the direction and guidance of OrCAD's
senior management and the OrCAD and MicroSim Boards. See "THE MERGER--
Management and Operations of MicroSim After the Merger."
Conditions of the Merger; Termination. The consummation of the Merger is
conditioned upon the fulfillment or waiver of certain conditions set forth in
the Merger Agreement. See "THE MERGER--Conditions; Waivers." The Merger
Agreement may be terminated (i) by mutual consent of OrCAD and MicroSim, (ii)
by either OrCAD or MicroSim if the Merger has not been consummated by January
31, 1998, and (iii) under certain other circumstances. See "THE MERGER--
Termination; Amendment."
Certain Federal Income Tax Consequences. It is expected that the Merger will
constitute a reorganization for federal income tax purposes and, accordingly,
that no gain or loss will be recognized by holders of MicroSim Stock upon the
conversion of MicroSim Stock into OrCAD Common Stock in the Merger. It is
further expected that no gain or loss will be recognized by MicroSim or OrCAD
as a result of the Merger. The Merger will, however, result in a taxable event
as to holders of options to acquire MicroSim Stock. See "THE MERGER--Certain
Federal Income Tax Consequences." MicroSim shareholders and holders of options
to acquire shares of MicroSim Stock are urged to consult their own tax advisor
as to the specific tax consequences to them of the Merger.
Regulatory Approvals. The parties to the Merger are not required to file
notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and are not aware of any other regulatory approvals required to
consummate the Merger other than compliance with the federal securities laws
and applicable securities and "blue sky" laws of the various states.
Accounting Treatment. It is expected that the Merger will be accounted for as
a pooling of interests. See "THE MERGER--Accounting Treatment."
Conflicts of Interest. As of the MicroSim Record Date, non-employee directors
of the MicroSim Board beneficially owned an aggregate of 125,000 shares of
MicroSim Stock and held options to acquire an aggregate of 60,000 shares of
MicroSim Stock, exercisable at prices ranging from $3.40 to $3.60 per share.
See "STOCK OWNED BY MICROSIM MANAGEMENT AND PRINCIPAL SHAREHOLDERS." Assuming
an OrCAD market value of $8.38, the aggregate dollar value of OrCAD Common
Stock to be received by these non-
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employee directors in respect of outstanding shares of MicroSim Stock would be
approximately $863,672, representing approximately 4.5% of the aggregate
consideration to be received by all holders of MicroSim Stock. Assuming an
OrCAD market value of $8.38, the aggregate dollar value of OrCAD Common Stock
to be received by these non-employee directors in respect of outstanding
options to acquire shares of MicroSim Stock would be approximately $183,949,
representing approximately 18.0% of the aggregate consideration to be received
by all holders of options to acquire shares of MicroSim Stock.
As of the MicroSim Record Date, the executive officers of MicroSim
beneficially owned an aggregate of 2,227,725 shares of MicroSim Stock and held
options to acquire an aggregate of 105,000 shares of MicroSim Stock,
exercisable at prices ranging from $3.40 to $3.60 per share. See "STOCK OWNED
BY MICROSIM MANAGEMENT AND PRINCIPAL SHAREHOLDERS." Assuming an OrCAD market
value of $8.38, the aggregate dollar value of OrCAD Common Stock to be received
by these executive officers in respect of outstanding shares of MicroSim Stock
would be approximately $15,387,524, representing approximately 79.7% of the
aggregate consideration to be received by all holders of MicroSim Stock.
Pursuant to the Merger Agreement, all outstanding options to acquire shares of
MicroSim Stock, including those held by the executive officers of MicroSim,
will be converted into shares of OrCAD Common Stock. Assuming an OrCAD market
value of $8.38, the aggregate dollar value of OrCAD Common Stock to be received
by these executive officers in respect of outstanding options to acquire shares
of MicroSim Stock would be approximately $346,591, representing approximately
33.9% of the aggregate consideration to be received by all holders of options
to acquire shares of MicroSim Stock.
At the first OrCAD Board Meeting following consummation of the Merger,
Wolfram H. Blume, Chairman of the MicroSim Board, President and Chief Executive
Officer of MicroSim, and the largest holder of MicroSim Stock, will become a
member of the OrCAD Board. After the Effective Time, he will serve in an
advisory capacity as Chief Technical Advisor to OrCAD. Mr. Blume will also
enter into a two (2) year advisory agreement with OrCAD. Michael U. Wimbrow, a
member of the MicroSim Board, Vice President of Planning and Product Support of
MicroSim and the beneficial owner of shares of MicroSim Stock and options to
acquire shares of MicroSim Stock, will become Vice President of Product
Development of OrCAD at the Effective Time. Mr. Wimbrow will enter into a one
(1) year employment agreement with OrCAD. Additionally, L.A. Delmonico
Consulting, Inc. ("Consultant"), an affiliate of Louis A. Delmonico who is a
member of the MicroSim Board, is a party to a Consulting Agreement dated August
5, 1996 (the "Consulting Agreement") with MicroSim. Pursuant to the terms of
the Consulting Agreement, upon consummation of the Merger Consultant will be
entitled to (i) terminate the Consulting Agreement upon no more than 90 days
written notice, and (ii) be paid all amounts due under the Consulting Agreement
through the termination date plus an additional sum of $144,000 payable in
twelve equal monthly installments.
On the Closing Date, OrCAD intends to loan approximately $100,000 to Mr.
Wimbrow, approximately $100,000 to Bruce A. Warren, Vice President Finance and
Administration, Chief Financial Officer and Secretary of MicroSim, and
approximately $120,000 to Mr. Delmonico. The purpose of these loans is to
assist the foregoing individuals with the payment of their respective income
tax liability incurred as a result of the exchange of nonqualified options to
acquire shares of MicroSim Stock for shares of OrCAD Common Stock. Each of
these loans will (i) be full recourse, (ii) bear interest at the rate of six
percent (6%) per annum, (iii) be secured by a pledge of all of the shares of
OrCAD Common Stock acquired by each debtor as a result of his exchange of
nonqualified options, and (iv) be due upon the earlier to occur of (a) December
31, 1998, or (b) any private sale by each debtor of any shares of OrCAD Common
Stock which secure his loan.
Redwood Partners has been retained by OrCAD to act as its financial advisor
and to deliver a fairness opinion in connection with the Merger. Pursuant to an
engagement letter with OrCAD, Redwood Partners will receive a fee of $200,000
for its opinion and certain services rendered in conjunction with the Merger,
of which $50,000 is not contingent upon consummation of the Merger. OrCAD will
also reimburse Redwood Partners for
6
<PAGE>
its out-of-pocket expenses, including reasonable fees and disbursements of
counsel. OrCAD has also agreed to indemnify Redwood Partners and its
affiliates, directors, officers, partners, agents and employees, and each
person, if any, controlling Redwood Partners or any of its affiliates against
certain liabilities, including certain liabilities under the federal securities
laws, relating to or arising out of its engagement. John C. Savage, a Principal
of Redwood Partners, serves as a member of the OrCAD Board and will continue to
so serve after consummation of the Merger. As of November 3, 1997, Mr. Savage
owned options to acquire 10,000 shares of OrCAD Common Stock and Principals of
Redwood Partners, including Mr. Savage, owned an aggregate of 31,724 shares of
OrCAD Common Stock. A predecessor of Redwood Partners was the largest
stockholder of OrCAD until September 1996.
Dissenters' Rights. Holders of MicroSim Stock have the right to dissent from
the proposed Merger and, subject to certain conditions, to receive payment of
the "fair value" of their shares of MicroSim Stock, as provided in Sections
1300 through 1312 of the Corporations Code. See "THE MERGER--Rights of
Dissenting MicroSim Shareholders." Under the Delaware General Corporation Law
(the "General Corporation Law"), OrCAD's stockholders are not entitled to
dissenters' rights or appraisal rights with respect to the Merger.
RISK FACTORS
The stockholders of OrCAD and the shareholders of MicroSim should consider
carefully the information set forth herein under the heading "Risk Factors"
which discusses, among other things, the risks associated with: the integration
of the businesses of OrCAD and MicroSim following the Merger; expenses related
to the Merger; the effect of future sales of the shares issued in the Merger on
the market for OrCAD Common Stock; termination of relationships with OrCAD by
OrCAD's customers or distributors as a result of the Merger; changes in the
marketing of MicroSim's products; fluctuation of operating results of OrCAD;
competition and changes in technology; dependence on key personnel; certain
failures to comply with securities laws in conjunction with previous issuances
of MicroSim Stock; protection of intellectual property; and certain anti-
takeover protective measures adopted by OrCAD.
7
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA
The following selected historical financial data of OrCAD and MicroSim has
been derived from their respective historical consolidated financial
statements, and should be read in conjunction with such financial statements
and the notes thereto, which are included elsewhere in this Joint Proxy
Statement/Prospectus. The selected historical financial data of OrCAD includes
the financial results and accounts of Massteck, Ltd., Intelligent Systems
Japan, K.K., Team Corporation and Q Point Technology from June 1, 1995,
December 2, 1995, April 1, 1997 and June 10, 1997, respectively (the dates of
each respective acquisition or purchase). The selected unaudited pro forma
combined condensed financial data, which gives effect to the Merger on a
pooling of interests basis as if it had been consummated at the beginning of
the periods presented, is derived from the unaudited pro forma combined
condensed financial statements included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with such statements and
the notes thereto, and in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations of each of OrCAD and MicroSim.
The unaudited pro forma combined financial data is not necessarily indicative
of the actual results or financial position that would have been achieved had
the Merger been consummated at the beginning of the years presented, and should
not be construed as representative of future operations. See "UNAUDITED PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
ORCAD HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS ENDED
AT OR FOR YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ------------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenue.......... $20,907 $13,659 $9,812 $ 8,536 $ 8,902 $ 18,745 $ 15,557
Income (loss) from
operations............ 3,981 214 (127) (2,063) (2,336) (14) 2,920
Net income (loss)...... $ 4,202 $ 315 $ 29 $(1,941) $(2,091) $ 713 $ 3,008
Net income (loss) per
share................. $ 0.63 $ 0.07 $ 0.01 $ (0.99) $ (1.05) $ 0.10 $ 0.47
Shares used in
computing net income
(loss) per share...... 6,618 4,775 4,211 1,960 1,986 6,995 6,407
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents,
and short-term
investments........... $29,272 $ 2,080 $ 582 $ 298 $ 242 $ 26,467
Working capital
(deficit)............. 29,645 1,611 152 (8) 676 27,439
Total assets........... 38,250 10,665 4,412 3,199 4,313 39,556
Other long-term
obligations........... -- -- 479 137 -- --
Total stockholders'
equity................ 33,934 6,114 784 728 2,690 34,742
</TABLE>
MICROSIM HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS ENDED
AT OR FOR YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -----------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Total revenue.......... $16,127 $14,658 $12,109 $10,493 $10,869 $ 12,286 $ 11,799
Income from
operations............ 1,388 1,762 1,293 658 2,023 1,067 1,187
Net income............. $ 1,071 $ 1,323 $ 1,063 $ 617 $ 1,371 $ 826 $ 919
Net income per share... $ 0.38 $ 0.46 $ 0.37 $ 0.21 $ 0.46 $ 0.29 $ 0.32
Shares used in
computing net income
per share............. 2,840 2,877 2,879 2,957 2,965 2,831 2,836
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and short-term
investments........... $ 7,769 $ 6,862 $ 3,880 $ 2,405 $ 2,259 $ 6,950
Working capital........ 7,209 6,162 4,055 3,271 2,987 7,118
Total assets........... 11,642 10,578 8,466 6,606 5,227 12,502
Other long-term
obligations........... 205 325 559 757 143 205
Total shareholders'
equity................ 7,749 6,656 5,449 4,597 4,140 8,452
</TABLE>
8
<PAGE>
UNAUDITED ORCAD AND MICROSIM PRO FORMA COMBINED CONDENSED FINANCIAL DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR
AT OR FOR YEAR NINE MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ------------------
1996 1995 1994 1997 1996
------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenue...................... $37,034 $28,317 $21,921 $ 31,031 $ 27,356
Income from operations............. 5,369 1,976 1,166 1,053 4,107
Net income ........................ $ 5,266 $ 1,633 $ 1,092 $ 1,537 $ 3,922
Net income per share............... $ 0.58 $ 0.23 $ 0.16 $ 0.16 $ 0.44
Shares used in computing net income
per share......................... 9,046 7,203 6,639 9,423 8,835
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments.................. $37,041 $ 8,942 $ 4,462 $ 33,417
Working capital.................... 36,836 7,770 4,207 32,203
Total assets....................... 49,712 20,796 12,878 52,058
Other long-term obligations........ 205 145 1,038 205
Total stockholders' equity......... 41,665 12,778 6,233 40,840
</TABLE>
- --------
9
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents comparative per share data for OrCAD and
MicroSim on an historical basis and combined per share data on an unaudited pro
forma basis. The combined data gives effect to the Merger on a pooling of
interests basis assuming 2,428,057 shares of OrCAD Common Stock (subject to
adjustment for fractional shares and for variations in the OrCAD Fair Market
Value) are issued in exchange for all outstanding shares of MicroSim Stock and
all outstanding options to acquire shares of MicroSim Stock in the Merger. See
"THE MERGER--Terms of the Merger--Conversion of MicroSim Stock and Options to
Acquire Shares of MicroSim Stock in the Merger." This data should be read in
conjunction with the selected historical financial information, the pro forma
combined condensed financial statements and the separate historical financial
statements of OrCAD and MicroSim and the notes thereto included elsewhere in
this Joint Proxy Statement/Prospectus. The unaudited pro forma combined
financial data is not necessarily indicative of the actual results or financial
position that would have been achieved had the Merger been consummated at the
beginning of the years presented, and should not be construed as representative
of future operations.
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS
AT OR FOR ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1996 1995 1994 1997 1996
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL--ORCAD:
Net income per share.................. $ 0.63 $ 0.07 $ 0.01 $ 0.10 $ 0.47
Book value per share(1)............... 4.77 1.23 0.24 4.94
HISTORICAL--MICROSIM:
Net income per share.................. $ 0.38 $ 0.46 $ 0.37 $ 0.29 $ 0.32
Book value per share(1)............... 2.72 2.36 1.88 3.01
PRO FORMA--COMBINED NET INCOME
(UNAUDITED)
Net income per OrCAD share............ $ 0.58 $ 0.23 $ 0.16 $ 0.16 $ 0.44
Net income per MicroSim share(4)...... 0.48 0.19 0.13 0.13 0.36
PRO FORMA--COMBINED BOOK VALUE
(UNAUDITED)
Book value per OrCAD share(2)(3)...... $ 4.36 $ 1.72 $ 1.09 $ 4.32
Book value per MicroSim share(4)...... 3.60 1.42 0.90 3.56
</TABLE>
- --------
(1) The historical book value per share is computed by dividing total
stockholders' equity by the total number of common shares and share
equivalents outstanding at the end of the period.
(2) OrCAD and MicroSim estimate that they will incur direct and indirect costs
of approximately $3.7 million in connection with the Merger. This estimate
includes fees and charges of financial advisors, attorneys and accountants
for both parties, personnel severance costs, the cancellation and
continuation of contractual obligations and other integration costs. These
nonrecurring costs will be charged to operations in the fiscal quarter in
which the Merger is consummated. The pro forma combined book value per
share data reflect these estimated transaction costs and their tax effects
as if such costs were incurred as of September 30, 1997, but the effects of
these costs are not reflected in the pro forma combined net income per
share data.
(3) The pro forma combined book value per share of OrCAD Common Stock is
computed by dividing pro forma stockholders' equity by the pro forma number
of common shares and share equivalents outstanding at the end of the
period.
(4) The MicroSim equivalent pro forma amounts of net income and book value are
computed by multiplying the pro forma combined amount per OrCAD share by
the exchange ratio of .825 shares of OrCAD Common Stock for each share of
MicroSim Stock.
10
<PAGE>
COMPARATIVE PER SHARE MARKET INFORMATION
ORCAD
The OrCAD Common Stock is quoted on the Nasdaq National Market. The table
below sets forth for the fiscal periods indicated the high and low sales prices
per share of OrCAD Common Stock on the Nasdaq National Market as reported in
published financial sources.
<TABLE>
<CAPTION>
PRICE PER SHARE
OF ORCAD
COMMON STOCK
-----------------
HIGH LOW
-------- --------
<S> <C> <C>
Calendar 1996
First Quarter.............................................. $ 13.00 $ 10.75
Second Quarter............................................. 16.25 11.00
Third Quarter.............................................. 15.00 8.38
Fourth Quarter............................................. 11.50 8.38
Calendar 1997
First Quarter.............................................. $ 11.00 $ 6.38
Second Quarter............................................. 11.38 6.13
Third Quarter.............................................. 14.56 10.25
Fourth Quarter (through December 3)........................ 14.75 8.00
</TABLE>
On October 13, 1997 the last full trading day prior to announcement of the
execution of the Merger Agreement, the reported Nasdaq National Market closing
price per share of OrCAD Common Stock was $8.81. On December 3, 1997 the most
recent available date prior to printing this Joint Proxy Statement/Prospectus,
the reported Nasdaq National Market closing price per share of OrCAD Common
Stock was $8.00. On that date, there were approximately 2,300 beneficial
holders of OrCAD Common Stock. OrCAD stockholders and MicroSim shareholders are
urged to obtain current market quotations.
OrCAD has never declared or paid cash dividends on shares of OrCAD Common
Stock. It is not anticipated that any cash dividends will be paid on OrCAD
Common Stock in the foreseeable future.
MICROSIM
There is no public market for shares of MicroSim Stock. There were 88 holders
of record of MicroSim Stock as of November 3, 1997.
MicroSim has never declared or paid cash dividends on shares of MicroSim
Stock. It is not anticipated that any cash dividends will be paid on MicroSim
Stock in the foreseeable future.
11
<PAGE>
RISK FACTORS
The following factors should be considered carefully by the stockholders of
OrCAD, Inc. and the shareholders of MicroSim Corporation in connection with
voting on the Issuance and the Merger, respectively. These factors should be
considered in conjunction with the other information included elsewhere in
this Joint Proxy Statement/Prospectus.
RISKS RELATING TO THE MERGER
Integration of the Businesses. The management of OrCAD and MicroSim have
entered into the Merger Agreement with the expectation that the Merger will
result in beneficial synergistic effects for the combined company. See
"BACKGROUND OF AND REASONS FOR THE MERGER." Achieving the anticipated benefits
of the Merger will depend in part upon whether the integration of the two
companies' businesses is achieved in a timely, efficient and effective manner,
and there can be no assurance that this will occur. The combination of the two
companies will require, among other matters, integration of the companies'
respective product offerings and coordination of their research and
development efforts. There can be no assurance that such integration and
coordination will be accomplished smoothly or successfully. The integration of
the two organizations will require the dedication of management resources
which will divert those resources from attention to the day-to-day business of
the combined company. The difficulties of integration may be increased by the
necessity of coordinating geographically separated organizations and
integrating personnel with disparate business backgrounds. The process of
combining the companies may cause an interruption of, or a loss of momentum
in, the activities of either or both of the companies' businesses and may
adversely affect the revenue and results of operations of the combined
company, at least in the near term. Furthermore, the process of combining the
companies could have a material adverse effect on employee morale and on the
ability of the combined company to retain the key technical and managerial
personnel who are critical to the combined company's future operations.
Approximately 35 positions, consisting primarily of MicroSim employees in
administration, finance, management information systems, operations and sales,
will be terminated as a result of the Merger. Severance costs expected to be
incurred in connection with such terminations are anticipated to comprise
approximately $1.5 million of the estimated $3.7 million of expenses related
to the Merger. In addition, the announcement and consummation of the Merger
could cause customers or potential customers to delay or cancel orders for
products as a result of uncertainty over the integration and support of
MicroSim's products and product lines by the combined company.
Expenses related to the Merger. The negotiation and implementation of the
Merger will result in aggregate pre-tax expense to OrCAD estimated at
approximately $3.7 million. This estimate includes estimated costs of
consummating the Merger, including fees and charges of financial advisors,
attorneys and accountants for both parties, personnel severance costs, the
cancellation and continuation of contractual obligations and other integration
costs. These amounts are preliminary estimates only and are therefore subject
to change. These costs will negatively affect OrCAD's results of operations in
the quarter in which the Merger is consummated. In addition, there can be no
assurance that the combined entity will not incur additional charges in
subsequent quarters to reflect costs associated with the Merger.
Shares Eligible for Future Sale. If the Issuance and the Merger are approved
by the stockholders of OrCAD and the shareholders of MicroSim, respectively,
OrCAD will issue to the shareholders and option holders of MicroSim
approximately 2,428,057 shares of OrCAD Common Stock (assuming $8.38 as the
OrCAD market value). Subject to the next sentence, in general, these shares
will be freely tradeable immediately following the Merger. Following
publication of financial results covering 30 days of post-Merger combined
operations, shares issued in the Merger to persons who may be deemed
affiliates of MicroSim could also be publicly sold pursuant to Rule 145 under
the Securities Act, subject to certain volume and other resale limitations.
Future sales of a substantial number of the foregoing shares could adversely
affect or cause substantial fluctuations in the market price of OrCAD Common
Stock. See "THE MERGER--Resale of OrCAD Common Stock Issued in the Merger;
Affiliates."
12
<PAGE>
Customer Termination. The announcement and consummation of the Merger could
cause customers and potential customers of OrCAD and MicroSim to seek an
alternative vendor for electronic design automation software due to concern
about the integration and continued support of overlapping product offerings
of the two companies. Customer terminations or the failure to attract new
customers could have a material adverse effect on the business, financial
condition and results of operations of the combined company.
Distributor Termination. OrCAD intends to transfer most of the
responsibility for selling MicroSim's products to OrCAD's telesales and direct
sales organizations in North America. As a result of this transition,
MicroSim's North American distributors could return unsold software products,
which could have a material adverse effect on the business, financial
condition and results of operations of the combined company. With regard to
international distribution, the two companies use the same independent
distributors in certain countries and competing distributors in other
countries. OrCAD may make changes to its international distribution following
the consummation of the Merger. As a result of this transition, sales of
MicroSim's and OrCAD's products could decrease and distributors could return
unsold software products, both of which events could have a material adverse
effect on the business, financial condition and results of operations of the
combined company.
Marketing Risks. OrCAD intends to transfer all responsibility for marketing
MicroSim's products to OrCAD's marketing department. This will result in
different product positioning and different marketing campaigns which may
cause some current and potential customers to choose another provider of
products which are similar to MicroSim's. In addition, OrCAD may change the
publications in which MicroSim products are advertised, as well as the manner
in which MicroSim's products are advertised and promoted. These changes could
have a material adverse effect on the business, financial condition and
results of operations of the combined company.
Changes in Customer Support Model. OrCAD may choose to change the model by
which MicroSim products have been supported under previous product support
agreements. These product support agreements provided lifetime telephone
technical support at no additional cost to the customer. If OrCAD makes any
changes to this model, customers and potential customers may delay or make
different purchasing decisions which could have a material adverse effect on
the business, financial condition and results of operations of the combined
company.
Product Overlap or Discontinuance Revenue Risks. MicroSim offers certain
products that overlap with OrCAD's current product offerings. The overlap may
cause sales of some existing products of OrCAD or MicroSim to be discontinued,
and will cause violation of exclusivity commitments made to two software
vendors for whom OrCAD acts as a reseller. No assurance can be given that
OrCAD will successfully negotiate a resolution of these violations, or that,
if OrCAD is unsuccessful in such negotiations, resulting damages will not have
a material adverse effect upon the combined company's financial condition and
results of operations. MicroSim also offers products that, due to OrCAD's
business model, may be discontinued. Changes to product offerings, or
perceived changes, and their effects on customers could have a material
adverse effect on the business, financial condition and results of operations
of the combined company.
Fluctuation of Operating Results. A variety of factors may cause period-to-
period fluctuations in the operating results of the combined company following
the Merger. Such factors include, but are not limited to, the integration of
the businesses as noted above, competitive pricing pressures, revenue and
expenses related to new products or revisions to existing products, changes in
distribution channels or product mix, and timing of closing of significant
sales. Singularly or in combination, these factors could adversely affect the
combined company's operating results and financial condition.
Dependence Upon Key Personnel. The success of the combined company will
depend in significant part upon the continued service of its key technical,
professional and senior management personnel. Currently, none of OrCAD's key
technical, professional or senior management personnel are bound by employment
agreements, but OrCAD will enter into an employment agreement with Michael U.
Wimbrow in connection with the Merger. After the Effective Time, Wolfram H.
Blume, MicroSim's President and Chief Executive Officer, will serve OrCAD only
in an advisory capacity, and will not become an OrCAD employee. The future
success of the combined company will also depend upon its continuing ability
to attract and retain highly qualified technical,
13
<PAGE>
professional and managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the combined company can retain
its key technical, professional and managerial employees or that it can
attract, assimilate or retain other highly qualified personnel in the future.
Failure to attract and retain key technical, professional and managerial
personnel could have a material adverse effect on the combined company's
operating results. See "BUSINESS OF OrCAD--Employees."
Conflicts of Interest. Certain directors and executive officers of OrCAD and
MicroSim have interests in connection with the Merger that are in addition to
those of the stockholders of OrCAD and the shareholders of MicroSim generally.
At the Effective Time, Wolfram H. Blume, Chairman of the MicroSim Board,
President and Chief Executive Officer of MicroSim, and the largest holder of
MicroSim Stock, will enter into a two (2) year advisory agreement with OrCAD
to serve as OrCAD's Chief Technical Advisor. Also at the Effective Time,
Michael U. Wimbrow, a member of the MicroSim Board and Vice President of
Planning and Product Support of MicroSim, will become an executive officer of
OrCAD and will enter into a one (1) year employment agreement with OrCAD. At
the first OrCAD Board meeting following consummation of the Merger, Mr. Blume
will become a member of the OrCAD Board. In addition, an affiliate of Louis A.
Delmonico, a member of the MicroSim Board, is a party to a consulting
agreement with MicroSim, the terms of which permit such affiliate to terminate
such agreement upon consummation of the Merger and to be paid all amounts due
thereunder through such termination, plus an additional sum of $144,000
payable in twelve equal monthly installments. John C. Savage, a member of the
OrCAD Board, is a Principal of OrCAD's financial advisor, Redwood Partners.
Pursuant to its engagement letter with OrCAD, Redwood Partners will receive a
fee of $200,000 for its delivery of a fairness opinion and certain other
services rendered in conjunction with the Merger, of which $50,000 is not
contingent upon consummation of the Merger. See "CONFLICTS OF INTEREST" and
"BACKGROUND OF AND REASONS FOR THE MERGER--Opinion of OrCAD Financial
Advisor."
Certain Failures to Comply with Securities Laws in Conjunction with Previous
Issuances by MicroSim. MicroSim has offered and sold shares of its common
stock, options or other securities to its employees pursuant to its Employee
Stock Purchase Program, Employee Profit Sharing Program and Stock Option Plan
and has issued a total of 813,000 shares of its common stock to employees,
other than directors or officers of MicroSim, pursuant to such programs and
plan. The offers and sales pursuant to such programs and plan were not
registered or qualified under federal or state securities laws and an
exemption from registration or qualification may not have been available with
respect to some issuances of such stock. If an exemption was not available and
the offers and sales were made in violation of federal securities laws, the
Commission may enter an order requiring MicroSim to cease and desist from
committing a future violation of the Securities Act or any rules and
regulations promulgated thereunder and requiring MicroSim to comply, or take
steps to effect compliance, with the Securities Act and any rules and
regulations promulgated thereunder upon such terms and conditions and within
such time as the Commission may specify. Such order of the Commission may also
require future compliance or steps to effect future compliance, either
permanently or for such period of time as the Commission may specify, with
respect to the Securities Act or any rule or regulation promulgated thereunder
with respect to any security, any issuer or any other person. In addition, if
an exemption from registration or qualification was not available and offers
and sales were made in violation of federal securities laws, the persons
purchasing the securities from MicroSim may sue to recover the consideration
paid for such securities and the interest thereon, less the amount of any
income received thereon, upon any tender of such securities, or for damages if
such persons no longer own the securities. Similar remedies exist under state
law as well.
Dilution of OrCAD Stockholders. Upon consummation of the Merger,
approximately 9,180,800 shares of OrCAD Common Stock will be outstanding. The
holders of OrCAD Common Stock prior to the Merger will collectively own
approximately 6,752,743 shares of OrCAD Common Stock after consummation of the
Merger, which will constitute 73.6% of the OrCAD Common Stock then
outstanding. Prior to the Merger, shares of OrCAD Common Stock had a book
value per share (including common stock equivalents) of $4.77 and $4.94 at
December 31, 1996 and September 30, 1997, respectively; after giving effect to
the Merger on a pro forma basis, shares of OrCAD Common Stock will have a book
value per share (including common stock equivalents) of $4.36 and $4.32 at
December 31, 1996 and September 30, 1997, respectively. As a result of the
Merger, holders
14
<PAGE>
of OrCAD Common Stock will experience an immediate, substantial dilution in
their aggregate percentage ownership of OrCAD, as well as in the book value of
their investment. See "COMPARATIVE PER SHARE DATA."
Changes in Shareholder Rights of MicroSim Shareholders. Upon consummation of
the Merger, the shareholders of MicroSim, a California corporation, will
become stockholders of OrCAD, a Delaware corporation. There are material
differences between the rights of shareholders of California corporations and
the rights of stockholders of Delaware corporations. These differences
include, without limitation, the inability of Delaware corporation
stockholders to cumulate votes for directors; differing dissenters' rights;
the availability under Delaware law of greater anti-takeover protections for
the corporation; differing actions required to change the size of the
corporation's board of directors; the ability under Delaware law for a
corporation to establish a classified board of directors with staggered terms;
the inability of Delaware corporation stockholders to call a special meeting;
differing indemnification protections and limitations on liability of the
corporation's officers, directors, employees and other agents; limitations on
the rights of Delaware corporation stockholders to inspect stockholders'
lists; differing standards governing the declaration and payment of dividends
and the repurchase of shares; and differing shareholder voting rights. See
"COMPARATIVE RIGHTS OF MICROSIM SHAREHOLDERS AND OrCAD STOCKHOLDERS."
Escrowed Shares. The Merger Agreement provides for an escrow of ten percent
(10%) of the shares of OrCAD Common Stock that would otherwise be issued to
holders of MicroSim Stock and options to acquire shares of MicroSim Stock.
These shares will be held by the Escrow Agent for a period that, absent
unresolved claims, will end on the first anniversary of the Closing Date. The
Escrow Shares will be subject to claims by OrCAD to satisfy MicroSim's
obligation under the Merger Agreement to reimburse OrCAD for any and all
claims, damages, losses, liabilities, judgments, settlements, costs and
expenses incurred by OrCAD by reason of, arising out of, or in connection with
any breach or inaccuracy of any representation or warranty of MicroSim
contained in the Merger Agreement or the failure of MicroSim to perform any
agreement or covenant required to be performed by MicroSim under the Merger
Agreement. For this purpose, the Escrow Shares will be valued at the OrCAD
Fair Market Value as defined in the Merger Agreement. There can be no
assurance to MicroSim shareholders that there will be no such claims, or that
if there are such claims the MicroSim shareholders will receive all or any
portion of the Escrow Shares; consequently, the consideration to be received
by the MicroSim shareholders may be less than the full exchange ratio would
suggest. In addition, there can be no assurances that there will not be a
decline in the trading price of OrCAD Common Stock between the Closing Date
and the date on which the Escrow Shares are released from escrow and the
MicroSim shareholders are able to sell the same. See "RISK FACTORS--Volatility
of Stock Price." There can be no assurance to OrCAD stockholders that the
value represented by the Escrow Shares will be sufficient to cover any
shortfall in value represented by breaches of representations or warranties
that may occur, and there is little likelihood of other recourse for recovery
of such value after consummation of the Merger. Consequently, to the extent
such claims exist and exceed the value of the Escrow Shares, the value
anticipated to be received by OrCAD in the Merger may not be realized.
Potential Changes in the Merger Consideration to be Paid to MicroSim
Shareholders. OrCAD's Common Stock has experienced significant fluctuations in
value over its trading history, including significant fluctuations in value
over the last six months. The Merger consideration to be received in this
transaction as stated in this Joint Proxy Statement/Prospectus is based on
trading prices as of the time of the printing of this document, and is subject
to fluctuation with the market value of OrCAD Common Stock. There can be no
assurances as to the market value of OrCAD Common Stock to be received by the
MicroSim shareholders at Closing, and there can be no assurances that the
OrCAD Common Stock to be received at Closing will not thereafter decline in
price. The volatility of the trading price for OrCAD Common Stock means
MicroSim shareholders cannot be assured that at Closing or thereafter, the
OrCAD Common Stock given in exchange for the MicroSim Stock and the options to
acquire shares of MicroSim Stock will have a market value that fairly reflects
the value of MicroSim. It also means OrCAD stockholders cannot be assured that
at Closing or thereafter, OrCAD will not have paid a premium for MicroSim. See
"RISK FACTORS--Volatility of Stock Price."
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Adverse Effects Since the Announcement of the Merger. Since the announcement
of the Merger, OrCAD has experienced a decline in orders for, and consequently
revenue from, the analog and mixed-signal simulation products of Deutsch
Technology Research and Intusoft that OrCAD has marketed since March 1997 and
December 1995, respectively. These products, combined, represented
approximately $200,000 in revenue in each of the three-month periods ended
June 30, 1997 and September 30, 1997. OrCAD intends to replace these products
with MicroSim's analog and mixed-signal simulation products after consummation
of the Merger. There can be no assurance, however, that sales of and revenue
from MicroSim's products will compensate for the loss of sales of and revenue
from the Deutsch Technology Research and Intusoft products.
Conditions Required to Consummate the Merger. The Merger Agreement contains
a number of conditions which, if not satisfied, would result in the Merger not
being consummated, including without limitation, that holders of not more than
six percent (6%) of the total number of shares of MicroSim Stock shall have
exercised dissenters' rights, and that OrCAD shall have received an opinion of
KPMG Peat Marwick LLP and MicroSim shall have received an opinion of Ernst &
Young LLP that the Merger will qualify to be accounted for as a "pooling of
interests". See "THE MERGER--Conditions; Waivers" for a detailed recitation of
these conditions. Consequently, there is a risk that the Merger will not occur
even if approved by OrCAD's stockholders and MicroSim's shareholders. There
can be no guarantee that all of the closing conditions will be satisfied, that
any unsatisfied conditions will be waived, or that the Merger will in fact
close. If the Merger is not consummated, substantial expenses associated with
the Merger will nonetheless have been incurred, and will have a material
adverse affect on each of OrCAD's and MicroSim's independent financial status
and results of operations, with no corresponding benefit from the Merger.
RISKS RELATING TO BOTH ORCAD AND MICROSIM
Competition and Changes in Technology. The EDA industry is characterized by
rapidly evolving technology and strong competition. OrCAD currently competes
in the desktop EDA market most directly with Viewlogic Systems, Inc., which
offers Windows and UNIX-based products. MicroSim competes with small,
privately held companies, including Intusoft and Deutsch Technology Research.
Each of OrCAD and MicroSim also faces competition from larger vendors of
traditional UNIX-based EDA products. Some of these companies, such as Cadence
Design Systems, Inc., Synopsis, Inc., Viewlogic Systems, Inc., Mentor Graphics
Corp. and others, have either announced or shipped Windows-based products.
OrCAD also competes with smaller, privately held companies. A number of
OrCAD's and MicroSim's competitors have significantly greater financial,
technical and marketing resources than OrCAD or MicroSim, and strong name
recognition. There can be no assurance that these competitors will not use
their superior resources and visibility, and installed customer bases, to
successfully develop better products and/or market their products more
effectively than those of OrCAD or MicroSim. In particular, as a result of the
wide acceptance of UNIX-based EDA tools, vendors of such tools have
established long-term relationships with many of OrCAD's and MicroSim's
current and potential customers, and may have the ability to offer these
customers a broad suite of Windows- and UNIX-based products to satisfy the
entire range of their design needs. Finally, in addition to competition from
EDA software vendors, OrCAD and MicroSim face competition from the internal
design groups of many of their customers, who design and develop customized
electronic design automation tools for their own particular needs and
therefore may be reluctant to purchase products offered by OrCAD, MicroSim or
other independent EDA vendors. There can be no assurance that OrCAD or
MicroSim will be able to convert such internal design groups into users of
their products. More generally, there can be no assurance that OrCAD or
MicroSim will be able to compete successfully against current and future
competitors, both direct and indirect, or that competitive pressures faced by
OrCAD or MicroSim will not materially adversely affect their business,
financial condition and results of operations. See "BUSINESS OF OrCAD--
Competition," and "BUSINESS OF MICROSIM--Competition."
Protection of Intellectual Property. Each of OrCAD's and MicroSim's success
is heavily dependent upon its proprietary software technology. OrCAD and
MicroSim currently rely upon a combination of trade secret, copyright and
trademark laws, and contractual provisions to protect their proprietary rights
in their software products. OrCAD ships its software with a security device to
all customers outside the U.S. and Canada.
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MicroSim ships its software with a security device to all customers. Both
OrCAD and MicroSim generally enter into proprietary information and
confidentiality agreements with their employees and distributors, and limit
access to and distribution of their software, documentation and other
proprietary information. OrCAD does not license or release the source code for
its proprietary software to its customers, except in connection with OEM
development agreements. MicroSim does not license or release the source code
for its proprietary software to its customers. Despite these precautions,
there can be no assurance that a third party will not copy or otherwise obtain
and use OrCAD's or MicroSim's products or technology without authorization, or
develop similar or superior technology independently. In particular, both
OrCAD and MicroSim distribute their products pursuant to "shrink-wrap"
licenses. There can be no assurance that such licenses are enforceable.
In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. Although each of OrCAD
and MicroSim believes that its products do not infringe on the proprietary
rights of third parties, and although neither OrCAD nor MicroSim has received
any communications from third parties alleging the infringement of the
proprietary rights of such parties, there can be no assurance that
infringement claims will not be asserted against OrCAD or MicroSim in the
future and that any such claims will not require OrCAD or MicroSim to enter
into costly litigation. Irrespective of the validity or the successful
assertion of such claims, any such litigation could result in significant
diversions of effort by OrCAD's or MicroSim's respective technical and
management personnel, as well as OrCAD's or MicroSim's incurrence of
significant costs with respect to the defense thereof, and could have a
material adverse effect on their business, financial condition and results of
operations. In addition, if any claims or actions are asserted against OrCAD
or MicroSim, it may choose to or be required to obtain a license under a third
party's intellectual property rights. There can be no assurance that under
such circumstances a license would be available upon reasonable terms or at
all. See "BUSINESS OF OrCAD--Proprietary Rights," "BUSINESS OF MICROSIM--
Proprietary Rights."
Anti-Takeover Provisions. OrCAD's Restated Certificate of Incorporation and
Restated Bylaws contain provisions which (i) if the number of members of the
OrCAD Board is fixed at six or more, classify the OrCAD Board into three
classes, each of which, after a transitional period, will serve for three
years with one class being elected each year, (ii) provide that members of the
OrCAD Board may be removed by stockholders only for cause and only upon the
vote of 67% of the votes entitled to be cast for election of directors, (iii)
permit the OrCAD Board to issue up to 2,000,000 shares of preferred stock in
one or more series and to fix the number of shares, and the voting powers and
all other rights and preferences of any such series, without any further vote
or action by OrCAD's stockholders, and (iv) provide that special meetings of
OrCAD's stockholders may only be called by the OrCAD Board. The General
Corporation Law contains provisions which generally prohibit a Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date such person became
an "interested stockholder." The foregoing provisions of OrCAD's Restated
Certificate of Incorporation, Restated Bylaws, and the General Corporation Law
may have the effect of making it more difficult for a third party to acquire
control of OrCAD through either a tender offer or a proxy contest for the
election of directors. This could limit the price that certain investors might
be willing to pay in the future for shares of OrCAD Common Stock and could
make the removal of incumbent directors more difficult. See "DESCRIPTION OF
OrCAD CAPITAL STOCK."
Volatility of Stock Price. The prices for OrCAD Common Stock have fluctuated
widely in the past. The management of OrCAD believes that such fluctuations
may have been caused by quarterly variations in operating results,
announcements of technological innovations, the introduction of new products
or pricing changes by OrCAD or its competitors, changes in earnings estimates
by analysts and other events or factors, including changes in the EDA industry
in general. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations that have particularly affected the
market prices of securities of high technology companies, which fluctuations
have often been unrelated to the operating performance of particular
companies. OrCAD anticipates that prices for OrCAD Common Stock may continue
to be volatile following the Merger. The trading price of OrCAD Common Stock
at the Effective Time may vary from the prices as of the date hereof, or the
date on which the stockholders of OrCAD vote on the Issuance and the
shareholders of MicroSim vote on the Merger, as a result of changes in the
business, operating results, financial condition and prospects of OrCAD,
market assessments of the likelihood that the Merger will be consummated and
the timing thereof, general market and economic conditions and other factors.
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SPECIAL MEETING OF ORCAD STOCKHOLDERS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of OrCAD, as part of the solicitation of proxies by the OrCAD Board from
holders of the outstanding shares of OrCAD Common Stock, for use at the OrCAD
Special Meeting to be held on Tuesday, December 30, 1997, at the Crowne Plaza,
14811 Kruse Oaks Blvd., Lake Oswego, Oregon 97035, commencing at 10:00 a.m.,
local time, and at any adjournments or postponements thereof. This Joint Proxy
Statement/Prospectus, together with the enclosed proxy card, is first being
mailed to stockholders of OrCAD and shareholders of MicroSim on or about
December , 1997.
MATTERS TO BE CONSIDERED AT THE MEETING
At the OrCAD Special Meeting, stockholders of record of OrCAD as of the
close of business on November 3, 1997, will consider and vote upon (i) the
issuance of up to 2,428,057 shares of OrCAD Common Stock, with an aggregate
value of approximately $20,347,118 (assuming a fair market value of $8.38 per
share of OrCAD Common Stock), and (ii) such other business as may properly be
brought before the OrCAD Special Meeting.
Holders of OrCAD Common Stock will not be entitled to dissenters' rights as
a result of the Issuance. See "THE MERGER--Terms of the Merger."
THE ORCAD BOARD HAS UNANIMOUSLY APPROVED THE ISSUANCE AND THE MERGER
AGREEMENT AND RECOMMENDS THAT ORCAD STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
ISSUANCE. SEE "BACKGROUND OF AND REASONS FOR THE MERGER."
As of the date of this Joint Proxy Statement/Prospectus, the OrCAD Board
does not know of any other matters to be presented for action by the
stockholders at the OrCAD Special Meeting. OrCAD's Restated Bylaws require
that notice of stockholder proposals and nominations for director be delivered
to the Secretary of OrCAD not less than 60 days nor more than 90 days prior to
the date of an annual meeting, unless notice or public disclosure of the date
of the meeting occurs less than 60 days prior to the date of such meeting, in
which event, stockholders may deliver such notice not later than the 10th day
following the day on which notice of the date of the meeting was mailed or
public disclosure thereof was made. If any other matters are properly brought
before the OrCAD Special Meeting, the persons named in the proxy will vote the
shares represented by such proxy upon such matters as determined by a majority
of the OrCAD Board.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The OrCAD Board of Directors has fixed the close of business on November 3,
1997 (the "OrCAD Record Date") as the record date for the determination of the
holders of OrCAD Common Stock entitled to notice of and to vote at the OrCAD
Special Meeting. Accordingly, only holders of record of OrCAD Common Stock at
the close of business on the OrCAD Record Date will be entitled to vote at the
OrCAD Special Meeting, with each such share entitling its owner to one vote on
all matters properly presented at the OrCAD Special Meeting. On the OrCAD
Record Date, there were approximately 2,340 beneficial holders of the
6,771,147 shares of OrCAD Common Stock then outstanding. The presence, in
person or by proxy, of a majority of the total number of outstanding shares of
OrCAD Common Stock entitled to vote at the OrCAD Special Meeting is necessary
to constitute a quorum for the transaction of business at the OrCAD Special
Meeting. Under Section 6(i) of Part III of Schedule D to the Bylaws of the
National Association of Securities Dealers, Inc. (the "NASD"), the affirmative
vote of a majority of the total votes cast on the proposal is required for
approval of the Issuance.
Abstention from voting and broker nonvotes will have the practical effect of
voting against the Issuance since they represent one less vote for such
approval.
PROXIES; PROXY SOLICITATION
Shares of OrCAD Common Stock represented by properly executed proxies
received at or prior to the OrCAD Special Meeting that have not been revoked
will be voted at the OrCAD Special Meeting in accordance
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with the instructions contained therein. Shares of OrCAD Common Stock
represented by properly executed proxies for which no instruction is given
will be voted "FOR" approval of the Issuance. OrCAD stockholders are requested
to complete, sign, date and return promptly the enclosed proxy card in the
postage-prepaid envelope provided for this purpose to ensure that their shares
are voted. A stockholder may revoke a proxy at any time prior to its exercise
by filing written notice of revocation with, or by delivering a duly executed
proxy bearing a later date to, Corporate Secretary, OrCAD, Inc., 9300 S.W.
Nimbus Avenue, Beaverton, Oregon 97008 or by attending the OrCAD Special
Meeting and voting in person. Mere attendance at the OrCAD Special Meeting
will not in and of itself revoke a proxy.
If the OrCAD Special Meeting is postponed or adjourned for any reason, at
any subsequent reconvening of the OrCAD Special Meeting all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the OrCAD Special Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted on the same or any other matter at a previous
meeting.
Proxy Solicitation. OrCAD will bear the cost of soliciting proxies from its
stockholders. In addition to use of the mails, proxies may be solicited
personally or by telephone by directors, officers and employees of OrCAD, who
will not be specially compensated for such activities. Such solicitations may
be made personally, or by mail, facsimile, telephone, telegraph or messenger.
OrCAD will also request persons, firms and companies holding shares in their
names or in the name of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners. OrCAD will reimburse such persons for their reasonable expenses
incurred in that connection.
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SPECIAL MEETING OF MICROSIM SHAREHOLDERS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
MicroSim Common Stock, in connection with the solicitation of proxies by the
MicroSim Board of Directors for use at the Special Meeting of MicroSim
shareholders to be held on Tuesday, December 30, 1997, at MicroSim's offices
at 16275 Laguna Canyon Road, Irvine, California, 92618, commencing at 9:00
a.m., local time, and at any adjournments or postponements thereof. This Joint
Proxy Statement/Prospectus and the accompanying form of proxy is first being
mailed to shareholders of MicroSim on or about December , 1997.
MATTERS TO BE CONSIDERED AT THE MEETING
At the MicroSim Special Meeting, shareholders of record of MicroSim as of
the close of business on November 3, 1997 will consider and vote upon a
proposal to approve and adopt the Merger Agreement and the Merger. The Merger
Agreement provides that, upon the terms and subject to the conditions thereof,
Merger Sub will merge with and into MicroSim, MicroSim will become a wholly
owned subsidiary of OrCAD, and all shares of MicroSim Stock issued and
outstanding immediately prior to the Effective Time (other than shares as to
which dissenters' rights of appraisal have been duly sought, perfected and are
not subsequently withdrawn), and all options to acquire shares of MicroSim
Stock outstanding immediately prior to the Effective Time, will be exchanged
for OrCAD Common Stock. The 2,697,795 issued and outstanding fully vested
shares of MicroSim Stock (including vested shares held under stock purchase
agreements) will each be exchanged for .825 shares of OrCAD Common Stock, for
an aggregate total of 2,225,680 shares of OrCAD Common stock (subject to
adjustment for fractional shares). The 106,820 shares of unvested MicroSim
Stock held under stock purchase agreements will each be valued at .91 shares
of fully vested MicroSim Stock, and then the discounted shares exchanged for
.825 shares of OrCAD Common Stock, for an aggregate total of 80,195 shares of
OrCAD Common Stock (subject to adjustment for fractional shares). The options
to acquire 95,640 shares of MicroSim Stock underlying fully vested stock
options will be valued by subtracting the exercise price of each option from
the "MicroSim Fair Market Value." That value will be determined as .825 times
the "OrCAD Fair Market Value." The resulting dollar value shall be divided by
the OrCAD Fair Market Value, and the underlying fully vested stock option
shall then be exchanged for that number of shares of OrCAD Common Stock
(subject to adjustment for fractional shares). The options to acquire 228,760
shares of MicroSim Stock underlying unvested stock options will be valued as
the fully vested options are valued, except the total value shall be
multiplied by .90, to reflect the discounted value of unvested options
(subject to adjustment for fractional shares). The foregoing numbers for
shares and options may fluctuate based upon option exercises and other events
prior to the Effective Time. See "THE MERGER--Terms of the Merger." No
fractional shares of OrCAD Common Stock will be issued in the Merger. The fair
market value of any fractional share resulting from the Merger will be paid in
cash. See "THE MERGER--Terms of the Merger--Fractional Shares."
Holders of MicroSim Stock will be entitled to dissenters' rights as a result
of the Merger. See "THE MERGER--Rights of Dissenting MicroSim Shareholders."
THE MICROSIM BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER AND RECOMMENDS THAT MICROSIM SHAREHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. SEE "BACKGROUND OF AND
REASONS FOR THE MERGER" AND "CONFLICTS OF INTEREST."
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on November 3, 1997 (the "MicroSim Record Date") has
been fixed as the record date for determining the holders of MicroSim Stock,
who are entitled to notice of and to vote at the MicroSim Special Meeting. As
of the MicroSim Record Date, there were 2,804,615 shares of MicroSim Stock
outstanding and entitled to vote. The presence, in person or by proxy, of the
holders of shares representing a majority of the
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voting power of the MicroSim Stock entitled to vote, is necessary to
constitute a quorum for the transaction of business at the MicroSim Special
Meeting. The affirmative vote of holders of shares representing a majority of
the number of shares of MicroSim Stock outstanding is necessary to approve and
adopt the Merger Agreement and the Merger.
Abstentions from voting will have the practical effect of voting against the
approval and adoption of the Merger Agreement and the Merger since they
represent one less vote for adoption of such proposals. It is a condition of
the Merger that holders of not more than six percent (6%) of the total number
of shares of MicroSim Stock outstanding exercise dissenter's rights. See "THE
MERGER--Conditions; Waivers."
The principal shareholder of MicroSim, owning an aggregate of 2,165,725
shares of MicroSim Stock and representing approximately 77% of the outstanding
shares of MicroSim Stock as of October 16, 1997, has given an irrevocable
proxy to OrCAD to vote all of his shares of MicroSim Stock for approval of the
Merger Agreement and the Merger. Accordingly, approval of the Merger Agreement
and the Merger at the MicroSim Special Meeting is assured.
PROXIES; PROXY SOLICITATION
Shares of MicroSim Stock represented by properly executed proxies received
at or prior to the MicroSim Special Meeting that have not been revoked will be
voted at the Special Meeting in accordance with the instructions contained
therein. Shares of MicroSim Stock represented by properly executed proxies for
which no instruction is given will be voted "FOR" approval and adoption of the
Merger Agreement and the Merger. MicroSim shareholders are requested to
complete, sign, date and return promptly the enclosed proxy card in the
postage-prepaid envelope provided for this purpose to ensure that their shares
are voted. A shareholder may revoke a proxy by submitting at any time prior to
the vote on the Merger Agreement and the Merger a written notice of revocation
to the Secretary of MicroSim or by attending the MicroSim Special Meeting and
voting in person. Mere attendance at the MicroSim Special Meeting will not in
and of itself revoke a proxy.
If the MicroSim Special Meeting is postponed or adjourned for any reason, at
any subsequent reconvening of the MicroSim Special Meeting all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the MicroSim Special Meeting (except for any proxies that have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted on the same or any other matter at a previous
meeting.
MicroSim will bear the cost of soliciting proxies from its shareholders. In
addition to solicitation by mail, directors, officers and employees of
MicroSim may solicit proxies by telephone, telegram or otherwise. Such
directors, officers and employees of MicroSim will not be additionally
compensated for such solicitation, but may be reimbursed for out-of-pocket
expenses incurred in connection therewith.
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BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND
The acquisition of complementary businesses has been an important component
of OrCAD's business strategy. OrCAD continually evaluates potential
acquisition or merger opportunities and possible alliances, technology
purchases and strategic transactions with other companies in the EDA industry.
Combinations offering access to new markets or complementary product lines are
of strategic importance to OrCAD.
In June 1995, OrCAD issued 510,031 shares of OrCAD Common Stock and reserved
50,717 shares of OrCAD Common Stock for issuance upon exercise of assumed
vested stock options in exchange for all of the issued and outstanding capital
stock and vested stock options of Massteck, Ltd., a developer of Windows-based
PCB layout technology. This acquisition was accounted for as a purchase and
the total purchase price was $2.0 million. This acquisition enabled OrCAD to
introduce the OrCAD Layout for Windows product family in June 1995,
simultaneously with the release of OrCAD Capture for Windows. In December
1995, OrCAD issued 426,468 shares of OrCAD Common Stock in exchange for all of
the issued and outstanding capital stock of Intelligent Systems Japan, OrCAD's
distributor in Japan since 1991, and as a result operates OrCAD Japan, K.K. as
a wholly owned subsidiary. This acquisition was accounted for as a purchase
and the total purchase price was $3.0 million.
In April 1997, OrCAD purchased certain technology and hired certain sales
and development personnel from TEAM Corporation for approximately $1.9
million. In addition, there are certain contingent amounts payable over the
next three years based on the achievement of specific revenue milestones. In
June 1997, OrCAD purchased certain technology and hired certain development
personnel from Q Point Technology for approximately $720,000.
OrCAD has had business relationships with MicroSim since 1986. From 1992
through early 1994, pursuant to the terms of a reseller agreement OrCAD
marketed and sold PC-based analog and mixed-signal simulation products
developed by MicroSim. These products were complementary to OrCAD's digital
design products.
In 1994, members of the OrCAD Board and the MicroSim Board held preliminary
discussions concerning a possible merger of the companies. These discussions
were terminated before a definitive agreement was reached. Shortly thereafter,
the reseller arrangement was discontinued by mutual agreement.
Since March 1997, OrCAD has offered alternative analog and mixed-signal
simulation software products under the terms of a reseller agreement with
Deutsch Technology Research ("DTR"). OrCAD has marketed and sold various
versions of DTR's "DR. SPICE" and "Dr. SPICE 2000 A/D" software products since
that time. However, market acceptance of these product offerings has been
modest. Since December 1995, OrCAD Japan has offered alternative analog and
mixed-signal simulation software products under the terms of a reseller
agreement with Intusoft.
In June 1997, while attending The Design Automation Conference in Anaheim,
California, Mr. Michael F. Bosworth, Chairman of the Board, President and
Chief Executive Officer of OrCAD, met with Mr. Wolfram H. Blume, Chairman of
the Board, President and Chief Executive Officer of MicroSim. Preliminary
discussions were held regarding the possibility of a merger of the two
companies.
On June 10, 1997, OrCAD and MicroSim executed and delivered a Mutual
Confidentiality Agreement and OrCAD retained Redwood Partners to act as its
financial advisor for the transaction. Shortly thereafter, Mr. Bosworth
engaged in discussions with certain key MicroSim management personnel to learn
more about MicroSim's business and the changes that had occurred in various
aspects of its business during the three years since OrCAD's initial
discussions with MicroSim. Mr. Blume and his staff provided Mr. Bosworth with
certain operational and financial information to further explore a potential
combination.
On July 28, 1997, in a meeting held in Mr. John C. Savage's offices, the
principals of both companies reached a conceptual working framework outlining
the basic terms and conditions under which a prospective merger of the
companies could be pursued. On July 30, 1997, as a part of a regularly
scheduled meeting of the MicroSim Board, Mr. Blume presented alternative
strategies, the risks and benefits of continued operations as an independent
company, and the strategic alternatives of a business combination, including a
combination with
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OrCAD. The MicroSim Board authorized Mr. Blume to continue due diligence and
negotiations regarding a merger with OrCAD. On August 5, 1997, as a part of a
regularly scheduled meeting of the OrCAD Board, Mr. Bosworth made a
presentation to the OrCAD Board concerning the strategic and market potential
of a combination with MicroSim. Based on the information provided by MicroSim,
a review by OrCAD senior management of the strategic considerations of a
combination, and other information, the OrCAD Board authorized Mr. Bosworth to
continue due diligence and negotiations regarding a merger with MicroSim.
On August 11, 1997 and August 12, 1997, certain representatives of OrCAD's
finance department traveled to Irvine, California and met off-site with Mr.
Bruce A. Warren, MicroSim's Chief Financial Officer; meetings were also held
with representatives of Ernst & Young LLP, MicroSim's independent auditors.
MicroSim provided OrCAD with financial, employment and general operational
information. Subsequently, other members of OrCAD's management team met with
their MicroSim counter-parts to perform due diligence work in their respective
areas of responsibility.
On August 14, 1997 and August 15, 1997, Mr. Blume and Mr. Michael U.
Wimbrow, Vice President of Planning and Product Support of MicroSim, visited
OrCAD's offices in Beaverton, Oregon for a presentation by Mr. Bosworth of an
overview of OrCAD, its products and strategic direction. The parties discussed
and identified the potential for operational synergies in the combined company
and identified items requiring clarification and further due diligence.
On August 21, 1997 and August 22, 1997, Mr. Warren visited OrCAD and its
independent auditors KPMG Peat Marwick LLP to conduct an operational and
financial review of OrCAD. Subsequently, other members of MicroSim's
management team met with their OrCAD counter-parts to perform due diligence
work in their respective areas of responsibility.
Between July 28, 1997 and October 10, 1997, several meetings and telephone
calls between Mr. Bosworth and Mr. Blume and their respective advisors
resulted in agreement on the terms of a tax-free reorganization as described
elsewhere in this Joint Proxy Statement/Prospectus. A definitive Agreement and
Plan of Merger to merge the two companies was drafted by OrCAD and presented
to MicroSim on August 18, 1997 for review.
On September 24, 1997 the OrCAD Board met with senior executives of OrCAD
and OrCAD's outside legal advisors to consider approval of the Merger
Agreement. OrCAD's financial advisor, Redwood Partners, presented its
financial analysis of the terms and conditions of the Merger, and at the
conclusion of its presentation, Redwood Partners delivered to the OrCAD Board
its opinion as to the fairness, from a financial point of view, to OrCAD's
stockholders of the consideration to be paid pursuant to the Merger. See
"Opinion of OrCAD Financial Advisor". Final board of directors approval was
obtained from the OrCAD Board on October 10, 1997 and from the MicroSim Board
on October 13, 1997. On October 13, 1997, OrCAD and MicroSim signed the Merger
Agreement, and issued press releases providing the essential details of the
Merger Agreement.
JOINT REASONS FOR THE MERGER
OrCAD and MicroSim have identified several mutual benefits of the Merger
that they believe will contribute to the success of both companies, including:
Complementary Products and Distribution. The primary revenue producing
products of the two companies complement each other with little duplication or
overlap. The Merger, if properly implemented, has the potential to position
the combined company as a leader in the emerging mainstream Windows NT
enterprise EDA market for system-level design.
In North America, OrCAD has built a strong presence in the marketplace with
a telesales organization; similarly, MicroSim has built a strong presence in
the marketplace with a telesales organization and several value added
resellers. The OrCAD sales organization was recently complemented by a direct
sales force as a result of OrCAD's acquisition of Team Corporation in April
1997. With the additional product breadth from MicroSim, OrCAD believes that
the telesales and field sales organizations of the combined company have the
potential to be more efficient and effective than the current separate
organizations.
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Internationally, OrCAD and MicroSim share distributors in several countries
and believe the Merger has the potential to provide the critical mass and
increased market presence necessary to accelerate the combined company's
market development in those countries. The Merger is expected to leverage
OrCAD's value added reseller partner network by the addition of some MicroSim
distributors. OrCAD's Japan distribution will be augmented through the Merger
with the addition of MicroSim personnel who are currently working in Japan.
After the Merger, MicroSim's wholly owned Japanese subsidiary will merge into
OrCAD Japan, K.K. Existing distributor relationships will be evaluated on a
"case by case" basis.
Initially, OrCAD does not expect to significantly change product offerings
and support in North America. Later, as the combined company prioritizes its
development plans, certain products may be withdrawn from sale and further
development. The installed customer base will be protected by continued
support for a reasonable period of time, and as appropriate, attractive
upgrade terms and paths to alternative OrCAD products will be offered where
pre-Merger products of either company are discontinued.
Complementary Technologies. MicroSim's core technology and expertise is in
analog and mixed-signal simulation technology. OrCAD's core technology lies in
integrated digital design automation. While each company's core expertise is
complementary to the other, there is some technology overlap and duplication
of expertise between the two companies. This is expected to facilitate joint
development project staffing and allow better coverage in key design and
functional specialties.
ORCAD'S REASONS FOR THE MERGER
In addition to the mutual reasons for the Merger stated above, the OrCAD
Board believes the following strategic factors will also contribute to the
success of the combined company:
Core Technology. OrCAD's strategic intent is to own the core technologies
embodied in its products. OrCAD believes technology ownership is essential in
order to provide customers innovative and cost-effective products in today's
highly competitive EDA industry.
Full Line EDA Supplier. Both OrCAD and MicroSim have developed world
leadership positions in their respective sectors of the desktop EDA market.
However, both companies envision their strategic opportunity to be leadership
of the emerging market for enterprise standardization on Windows NT-based EDA
solutions for system-level design. The resulting solution breadth of this
combination strengthens the combined company's ability to serve the needs of
the enterprise customer. As this part of the EDA market matures, vendors with
the most complete solutions and broadest product offerings are expected to be
better positioned to succeed.
Functional Area Leadership. The functional areas for system-level EDA tools
include the following:
1. Schematic Capture and Hardware Description Language (HDL) design
entry;
2. PCB Layout;
3. Digital Simulation;
4. Analog/Mixed-Signal Simulation; and
5. Component Information Systems.
OrCAD's strategy is to be the industry leader and de facto EDA standard for
Windows NT-based EDA tools in each of these mainstream design areas. The
combined company's strategy will be to improve its market position by
utilizing its combined engineering capabilities to focus more intently on
specific design and development objectives.
Growth and Vertical Integration. MicroSim has established itself as a
leading supplier of analog and mixed-signal simulation technology for the
desktop EDA market. OrCAD's strategy is to expand the analog and mixed-signal
simulation business and to develop or acquire other EDA technologies for those
markets. By acquiring the leading supplier of Windows NT-based analog tools,
OrCAD will obtain resources that can assist it to reach new markets and
maintain a leadership position in an increasingly competitive desktop EDA
market.
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In the course of its deliberations in arriving at its unanimous decision to
approve the Merger, the OrCAD Board reviewed and considered with OrCAD's
management a number of other factors relevant to the Merger. The factors the
OrCAD Board considered included, but were not limited to, (a) information
concerning OrCAD's and MicroSim's respective businesses, historical financial
performance, operations, products and technologies; (b) OrCAD's and MicroSim's
strategic direction and future product offerings and opportunities; (c) an
analysis of OrCAD's and MicroSim's respective future contributions to revenue,
operating profits and net profits of the combined company; (d) compatibility
of the management and corporate cultures of OrCAD and MicroSim; (e) premiums
to market and multiples paid in other comparable merger and acquisition
transactions; (f) the structure and content of the proposed Merger Agreement,
including the ability to account for the transaction as a pooling of
interests; (g) a financial presentation by Redwood Partners, including the
opinion of Redwood Partners that the consideration to be paid for MicroSim
pursuant to the Merger Agreement was fair from a financial point of view to
OrCAD's stockholders; and (h) reports from management, and financial and legal
advisors as to the results of their due diligence investigation of MicroSim.
For a discussion of many of the foregoing matters, see "Opinion of OrCAD
Financial Advisor" below.
MICROSIM'S REASONS FOR THE MERGER
In addition to the mutual reasons for the Merger stated above, the MicroSim
Board believes the following strategic factors support the merger:
Consolidation in the EDA industry. The EDA industry has been undergoing a
period of consolidation. MicroSim believes that larger companies with
significant brand-name recognition will be better able to compete in this
market. As a result of the Merger, MicroSim expects to strengthen its ability
to bring a competitive level of resources to bear, compared to other
companies.
Expanded Market Reach. OrCAD has the largest customer base in the EDA
industry, with over 200,000 products sold under the OrCAD name since 1986.
MicroSim believes that access to OrCAD's large customer base significantly
increases the revenue opportunity compared to MicroSim's current customer
base.
Ownership in the Combined Company. The Merger will enable MicroSim
shareholders and option holders to convert all of their shares, and options to
acquire shares, of MicroSim Stock into publicly tradable shares of OrCAD
Common Stock.
In reaching its unanimous decision to enter into and approve the Merger
Agreement, the MicroSim Board reviewed and considered a number of relevant
factors. The factors the MicroSim Board considered included, but were not
limited to, (a) information concerning OrCAD's and MicroSim's respective
businesses, historical financial performance, operations, products and
technologies; (b) current financial market conditions and historical market
prices, volatility and trading information with respect to OrCAD Common Stock;
(c) the consideration to be received by MicroSim shareholders and option
holders in the Merger and its relation to MicroSim's expected contribution to
the earnings of the combined company; (d) the terms and conditions of the
Merger, including the parties' representations, warranties and obligations
thereunder and the fact that the Merger will enable its shareholders to
exchange their shares on a tax-free basis; (e) the effects of the Merger on
MicroSim's customers and business; (f) the prospects of MicroSim as an
independent company; and (g) the reports of management, legal and other
financial advisors regarding their due diligence investigations of OrCAD.
RECOMMENDATION OF ORCAD BOARD
The OrCAD Board has determined the Issuance and the Merger to be fair to and
in the best interests of OrCAD and its stockholders and has unanimously
approved the Issuance and the Merger Agreement. The OrCAD Board recommends
that OrCAD stockholders vote "FOR" the Issuance. The OrCAD Board's
recommendation is based upon a number of factors discussed in this Joint Proxy
Statement/Prospectus. See "CONFLICTS OF INTEREST."
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OPINION OF ORCAD FINANCIAL ADVISOR
Redwood Partners was retained by OrCAD to evaluate the fairness, from a
financial point of view, of the consideration to be offered and paid for
MicroSim pursuant to the Merger. On October 13, 1997, in connection with the
evaluation of the proposed Merger Agreement, Redwood Partners delivered a
written opinion to the OrCAD Board to the effect that, as of the date and
based upon and subject to certain matters stated in the Redwood Partners
Opinion, the consideration to be paid by OrCAD in the Merger is fair to OrCAD
and its stockholders from a financial point of view. No limitations were
imposed by the OrCAD Board with respect to the investigations made or the
procedures followed by Redwood Partners in rendering the Redwood Partners
Opinion. The Redwood Partners Opinion was delivered for the information of the
OrCAD Board and is not a recommendation to any OrCAD stockholder as to how
such stockholder should vote at any meeting of OrCAD stockholders called to
consider matters relating to the Merger and does not address OrCAD's business
decision to effect the Merger.
In arriving at its opinion, Redwood Partners reviewed certain publicly
available business and financial information relating to OrCAD, certain non-
public business and financial information relating to OrCAD and MicroSim, and
the Merger Agreement. Redwood Partners also reviewed certain other
information, including financial forecasts provided to it by OrCAD and
MicroSim, and met with management of both OrCAD and MicroSim to discuss the
business and prospects of the respective companies.
In addition, Redwood Partners considered the value of certain other publicly
traded companies, the financial terms of certain other business combinations
and other transactions which have recently been effected and also considered
the financial effects of the Merger on OrCAD. Furthermore, Redwood Partners
considered such other information, financial studies, analyses and
investigations, and financial, economic and market data which it deemed
relevant.
In arriving at its opinion, Redwood Partners assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information. Redwood Partners further relied upon the assurances of the
managers of both OrCAD and MicroSim that they were not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial forecasts (including, without limitation, projected
operational benefits and cost savings arising from the Merger), Redwood
Partners assumed that they had been reasonably prepared on bases reflecting
the best currently available estimates and judgments of management of OrCAD
and MicroSim as to the financial performance of OrCAD and MicroSim. Redwood
Partners expressed no view as to such forecasts or the assumptions on which
they were based and there cannot be any assurance that actual results of OrCAD
or MicroSim will not differ materially from those reflected in the forecasts.
In arriving at its opinion, Redwood Partners did not conduct a physical
inspection of the properties and facilities of OrCAD or MicroSim, and Redwood
Partners did not make nor obtain any evaluations or appraisals of the assets
or liabilities of OrCAD or MicroSim. In arriving at its own opinion, upon
advice of OrCAD and its legal and accounting advisors, Redwood Partners
assumed that the Merger would qualify: (i) for pooling of interests accounting
treatment and (ii) as a reorganization within the meaning of the Code, and
therefore as a tax-free transaction to the stockholders of OrCAD. Redwood
Partners' opinion necessarily was based upon market, economic, and other
conditions as they existed on, and could be evaluated as of, the date of the
Redwood Partners Opinion.
In connection with preparing its presentations to the OrCAD Board on
September 24, 1997, and its written opinion dated October 13, 1997, Redwood
Partners performed a variety of financial and comparative analyses as
summarized below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
and comparative analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Redwood Partners did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each
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analysis and factor so that the range of valuation resulting from any
particular analysis described above should not be taken to be Redwood
Partners' view of the actual value of MicroSim.
Accordingly, Redwood Partners believes that its analyses must be considered
as a whole and that considering any portions of such analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the Redwood Partners Opinion. In its
analyses, Redwood Partners made numerous assumptions with respect to industry
performance, general business and economic conditions, and other matters, many
of which are beyond the control of OrCAD and MicroSim. Any estimates contained
in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be more or less favorable
than as set forth therein. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold.
The generally accepted financial analyses Redwood Partners used in reaching
its opinion which it discussed with the OrCAD Board included (i) a relative
contribution analysis, which included a comparison of respective financial
positions and certain operating results of OrCAD and MicroSim, (ii) a stock
trading history, which consisted of reviewing the trading prices for OrCAD
Common Stock and a group of comparable companies, (iii) a comparable company
analysis, which consisted of reviewing the financial performance of OrCAD,
MicroSim and a group of comparable publicly traded companies, (iv) a
comparable acquisition analysis, which consisted of reviewing the financial
terms of certain other similar transactions recently effected which were
considered to be comparable to the Merger, and (v) a discounted cash flow
analysis, which consisted of discounting to present value the incremental
project cash flows and terminal values anticipated following the Merger. The
material portions of these analyses are summarized below.
Relative Contribution Analysis. Redwood Partners analyzed the relative
contribution of OrCAD and MicroSim across a broad range of financial and
operating measures. Utilizing publicly available information for OrCAD and
non-public information for MicroSim, Redwood Partners determined the
percentage contribution provided by OrCAD and MicroSim of several key
financial measures including total revenue, revenue in certain product
categories, gross profit, operating profit, net profit, total assets,
stockholders' equity, cash, market capitalization and firm value, among
others. In addition, Redwood Partners applied a similar analysis to certain
key operating measures including installed base of seats and size and age of
software library, among others. The analysis indicated a reference range of
post-Merger ownership percentage for the MicroSim shareholders of
approximately 15% to 35% on a primary basis.
Stock Trading History. Redwood Partners considered various historical data
concerning the history of trading prices and volumes for OrCAD Common Stock
for the period from February 29, 1996 (the date of the initial public offering
of OrCAD) to October 10, 1997 (the last trading day prior to delivery of the
Redwood Partners Opinion) and the relative stock prices during this same
period of OrCAD and of selected companies in the EDA industry considered by
Redwood Partners to be comparable to OrCAD and MicroSim. Specifically, Redwood
Partners included in its review Analogy, Inc. , Avant!, Cadence Design
Systems, Inc., Mentor Graphics Corp., Synopsys, Inc., Technology Modeling
Associates, and Viewlogic Systems, Inc. (the "EDA Group"). During this period,
the closing stock price of OrCAD ranged from $6.13 to $16.25 per share.
Comparable Company Analysis. Using publicly available information, Redwood
Partners compared selected financial data of OrCAD and MicroSim with similar
data in the EDA Group. For each of OrCAD, MicroSim and the EDA Group, Redwood
Partners calculated the multiple of valuation to (i) the 1996 revenue (the
"1996 Revenue Multiple") and (ii) the 1996 earnings per share (the "1996 P/E
Multiple"), based on data from Zaks Investment Research, a service company
widely used by the investment community to gather earnings estimates from
various research analysts. Redwood Partners noted that, as of October 9, 1997,
(i) the 1996 Revenue Multiple for MicroSim (based on the exchange ratio) was
1.4x versus 2.9x for OrCAD and 4.8x for the mean of the EDA Group, excluding
the high and low multiples, and (ii) the 1996 P/E Multiple for MicroSim was
20.6x (based on the exchange ratio) versus 18.2x for OrCAD and 42.7x for the
mean of the EDA Group, excluding the high and low multiples.
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Comparable Acquisition Analysis. Redwood Partners reviewed selected
acquisitions completed during the last two years with total consideration
between $10 million and $450 million across the EDA industry. Only a few
transactions completed during this time period were directly comparable to the
Merger. As such, a broader sample of precedent transactions was selected for
comparative purposes. Redwood Partners analyzed the ratios of consideration
paid to revenue. Reference range and average for the ratio were 5x to 20x
(average of 10.6x).
Discounted Cash Flow Analysis. Redwood Partners analyzed the incremental
cash flows projected for the combined operations of OrCAD post-Merger relative
to cash flows projected for the operations of OrCAD on a stand-alone basis.
These analyses were based on the financial projections for stand-alone
operations provided by management of OrCAD and MicroSim and a combined company
cash forecast jointly prepared by management of OrCAD and MicroSim for each of
the four (4) years ended December 31, 1997 to 2000. Redwood Partners derived
the incremental free cash flow and discounted this cash flow to present
values, applying discount rates ranging from 15% to 30%. To approximate the
perpetual value of the incremental cash flow stream in 2000, Redwood Partners
applied terminal multiples of 15x to 30x free cash flow in 2000. Based on the
foregoing analysis, Redwood Partners derived a reference range of value for
the incremental cash flows projected for the combined company relative to the
cash flows projected for OrCAD on a stand-alone basis, from $28 million to $48
million.
The summary set forth in this section does not purport to be a complete
description of Redwood Partners' analyses. The full text of the Redwood
Partners Opinion, dated October 13, 1997, which sets forth the assumptions
made, procedures followed, matters considered, limitations on and the scope of
the review of Redwood Partners in rendering its opinion, is attached as
Appendix B to this Joint Proxy Statement/Prospectus. OrCAD stockholders are
urged to read the Redwood Partners Opinion in its entirety. This summary of
the Redwood Partners Opinion is qualified in its entirety by reference to the
full text of such opinion.
Pursuant to an engagement letter with OrCAD, Redwood Partners will receive a
fee of $200,000 for the Redwood Partners Opinion and certain services rendered
in conjunction with the Merger, of which $50,000 is not contingent upon
consummation of the Merger. OrCAD will also reimburse Redwood Partners for its
out-of-pocket expenses, including reasonable fees and disbursements of
counsel. OrCAD has also agreed to indemnify Redwood Partners and its
affiliates, directors, officers, partners, agents, and employees, and each
person, if any, controlling Redwood Partners or any of its affiliates against
certain liabilities, including certain liabilities under the federal
securities laws, relating to or arising out of its engagement. John C. Savage,
a Principal of Redwood Partners, is a member of the OrCAD Board and will
continue to so serve after consummation of the Merger. As of October 16, 1997,
Mr. Savage owned options to acquire 10,000 shares of OrCAD Common Stock and
Principals of Redwood Partners, including Mr. Savage, owned an aggregate of
31,724 shares of OrCAD Common Stock. A predecessor of Redwood Partners was the
largest stockholder of OrCAD until September 1996.
Redwood Partners is a venture capital and investment banking firm,
specializing in the information technology industry. As such, it provides
advice on transactions, such as the Merger, and engages in valuations of
businesses and their securities in connection with investments for its own
account and with mergers and acquisitions. The OrCAD Board selected Redwood
Partners to act as its financial advisor on the basis of Redwood Partners'
reputation, its prior merger and acquisition experience, and its prior
involvement with and familiarity with OrCAD and the EDA industry.
RECOMMENDATION OF MICROSIM BOARD
The MicroSim Board has determined the Merger to be fair to and in the best
interests of MicroSim and its shareholders and has approved the Merger
Agreement and the Merger. The MicroSim Board recommends that MicroSim
shareholders vote "FOR" the Merger Agreement and the Merger. The MicroSim
Board's recommendation is based upon a number of factors discussed in this
Joint Proxy Statement/Prospectus. See "CONFLICTS OF INTEREST."
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THE MERGER
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and incorporated by reference herein.
TERMS OF THE MERGER
The Merger. Subject to the terms and conditions of the Merger Agreement,
Merger Sub will merge with and into MicroSim at the Effective Time. The
separate corporate existence of Merger Sub will then cease, and MicroSim will
be the surviving corporation in the Merger (the "Surviving Corporation") and
will become a wholly owned subsidiary of OrCAD.
Articles of Incorporation and Bylaws. The Merger Agreement provides that the
Articles of Incorporation of MicroSim as in effect immediately prior to the
Effective Time will become the Articles of Incorporation of the Surviving
Corporation. The Bylaws of MicroSim as in effect immediately prior to the
Effective Time will become the Bylaws of the Surviving Corporation.
Directors and Officers. The directors of Merger Sub immediately prior to the
Effective Time will become the directors of the Surviving Corporation, until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal. OrCAD has agreed to expand its
Board by two members. The first such expansion will be effective as of the
first Board meeting following the Effective Time, and OrCAD has agreed to
cause its Board to elect Wolfram H. Blume, currently Chairman of the Board,
President and Chief Executive Officer of MicroSim, to fill that position,
effective with that meeting. Each new director of OrCAD will serve until his
or her successor has been duly elected or appointed and qualified or until his
or her earlier death, resignation or removal. The officers of Merger Sub
immediately prior to the Effective Time will become the officers of the
Surviving Corporation, until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal.
The OrCAD Board will elect Michael U. Wimbrow, effective as of the Effective
Time, as Vice President of Product Development of OrCAD. See "THE MERGER--
Management and Operations of MicroSim After the Merger."
Conversion of MicroSim Stock and Options to Acquire Shares of MicroSim Stock
in the Merger. At the Effective Time, all shares of MicroSim Stock issued and
outstanding immediately prior to the Effective Time (other than shares as to
which dissenters' rights of appraisal have been duly sought, perfected and are
not subsequently withdrawn), and all options to acquire shares of MicroSim
Stock outstanding immediately prior to the Effective Time, will be exchanged
for OrCAD Common Stock. The 2,697,795 issued and outstanding fully vested
shares of MicroSim Stock (including vested shares held under stock purchase
agreements) will each be exchanged for .825 shares of OrCAD Common Stock, for
an aggregate total of 2,225,680 shares of OrCAD Common Stock (subject to
adjustment for fractional shares). The 106,820 shares of unvested MicroSim
Stock held under stock purchase agreements will each be valued at .91 shares
of fully vested MicroSim Stock, and then the discounted shares exchanged for
.825 shares of OrCAD Common Stock, for an aggregate total of 80,195 shares of
OrCAD Common Stock (subject to adjustment for fractional shares). The options
to acquire 95,640 shares of MicroSim Stock underlying fully vested stock
options will be valued by subtracting the exercise price of each option from
the "MicroSim Fair Market Value." That value will be determined as .825 times
the "OrCAD Fair Market Value." The resulting dollar value shall be divided by
the OrCAD Fair Market Value, and the underlying fully vested stock option
shall then be exchanged for that number of shares of OrCAD Common Stock
(subject to adjustments for fractional shares). The options to acquire 228,760
shares of MicroSim Stock underlying unvested stock options will be valued as
the fully vested options are valued, except the total value shall be
multiplied by .90, to reflect the discounted value of unvested options
(subject to adjustment for fractional shares). The foregoing numbers for
shares and options may fluctuate based upon option exercises and other events
prior to the Effective Time.
Adjustments. If, prior to the Effective Time, OrCAD should split or combine
the OrCAD Common Stock, or pay a stock dividend or other stock distribution in
OrCAD Common Stock, or otherwise change the OrCAD Common Stock into any other
securities, or make any other dividend on or distribution of the OrCAD Common
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Stock, then the exchange ratio will be appropriately adjusted to reflect such
split, combination, dividend or other distribution or change.
Fractional Shares. No fractional shares of OrCAD Common Stock will be issued
in the Merger. OrCAD will pay to each holder of MicroSim Stock or options to
acquire shares of MicroSim Stock an amount in cash (rounded to the nearest
whole cent) determined by multiplying (i) the fair market value of a share of
OrCAD Common Stock by (ii) the fraction of a share of OrCAD Common Stock which
such holder would otherwise be entitled to receive in connection with the
Merger.
EFFECTIVE TIME OF THE MERGER
Promptly following receipt of all required governmental approvals and
satisfaction or waiver of the other conditions to the Merger, the Merger will
be consummated and become effective at the time at which the articles of
merger to be filed pursuant to the Corporations Code and the articles of
merger to be filed pursuant to the Business Corporation Act are accepted for
filing by the Secretary of State of California and the Secretary of State of
Oregon or such later date and time as may be specified in such articles of
merger. See "THE MERGER--Conditions; Waivers."
EXCHANGE OF MICROSIM STOCK AND OPTIONS TO ACQUIRE SHARES OF MICROSIM STOCK
Prior to the Effective Time, OrCAD will select ChaseMellon Shareholder
Services, LLC or such other person or persons reasonably satisfactory to
MicroSim to act as exchange agent for the Merger (the "Exchange Agent"). As
soon as practicable after the Effective Time, (i) the Exchange Agent will
deliver to each holder of certificates representing shares of MicroSim Stock
(other than dissenting shares) and each holder of options to acquire shares of
MicroSim Stock, a form letter of transmittal and instruction for use in
effecting the surrender of such certificates and options for conversion into
shares of OrCAD Common Stock and (ii) OrCAD will make available, and the
holders of MicroSim Stock (other than dissenting shares) and the holders of
options to acquire shares of MicroSim Stock will be entitled to receive, upon
surrender to the Exchange Agent of one or more certificates representing
shares of MicroSim Stock or options to acquire shares of MicroSim Stock for
cancellation and such other documents reasonably requested by the Exchange
Agent, certificates representing the number of shares of OrCAD Common Stock
into which such holder's MicroSim Stock or options to acquire shares of
MicroSim Stock is converted in the Merger, less shares to be delivered to the
Escrow Agent pursuant to the Escrow Agreement. After the Effective Time,
certificates representing MicroSim Stock (other than dissenting shares) and
options to acquire shares of MicroSim Stock will represent solely the right to
receive OrCAD Common Stock.
ESCROW OF ORCAD COMMON STOCK
The Merger Agreement provides that OrCAD will withhold on a pro rata basis
ten percent (10%) of the shares of OrCAD Common Stock to be received by each
holder of MicroSim Stock or options to acquire shares of MicroSim Stock upon
consummation of the Merger (the "Escrow Shares"). The Escrow Shares will be
delivered to First Trust National Association as escrow agent (the "Escrow
Agent"). The Escrow Shares will be held by the Escrow Agent for a period,
that, absent unresolved claims, will end on the first anniversary of the
Closing Date. The Escrow Shares will be subject to claims by OrCAD to satisfy
MicroSim's obligations under the Merger Agreement to reimburse OrCAD for any
and all losses, damages, liabilities, costs and expenses incurred by OrCAD by
reason of, arising out of or in connection with any breach or inaccuracy of
any representation or warranty of MicroSim contained in the Merger Agreement
or the failure by MicroSim to perform any agreement or covenant required of
MicroSim under the Merger Agreement. For this purpose, the Escrow Shares will
be valued at the OrCAD Fair Market Value. Wolfram H. Blume, Bruce A. Warren
and Louis A. Delmonico (the "Shareholders' Representatives") will act as the
representatives of the MicroSim shareholders and option holders in connection
with the Escrow Shares.
QUOTATION OF ORCAD COMMON STOCK ON NASDAQ NATIONAL MARKET
In the Merger Agreement, OrCAD has agreed to use all reasonable efforts to
(i) register under the Securities Act the shares of OrCAD Common Stock that
are to be issued pursuant to the Merger Agreement and (ii) cause such shares
of OrCAD Common Stock to be quoted for trading on the Nasdaq National Market.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties
by MicroSim as to (a) the corporate organization and qualification of MicroSim
and its subsidiaries, (b) the capitalization of MicroSim and its subsidiaries,
(c) subsidiaries of MicroSim, (d) options, warrants and other rights to
acquire or vote the capital stock of MicroSim, (e) the Merger Agreement's
noncontravention of any agreement, law or charter or bylaw provision, (f) the
authority of MicroSim to enter into the Merger Agreement and the absence of
the need for governmental or third-party consents to the Merger, (g) the
compliance by MicroSim with federal and state securities laws with respect to
the proxy statement and other written materials sent to its shareholders in
connection with the Merger, (h) the accuracy of MicroSim's financial
statements, (i) the absence of changes in MicroSim's relationship with certain
customers, (j) the absence of changes in MicroSim's relationship with certain
distributors and resellers, (k) the absence of certain changes and events, (l)
payment of taxes, (m) pending and threatened litigation, (n) certain labor
matters, (o) ownership and rights to use intellectual property and
noninfringement on the intellectual property rights of others, (p) the
accuracy of MicroSim's books and records, (q) licenses, permits and
authorizations used by MicroSim in the conduct of its business, (r) compliance
with applicable laws, (s) the terms, existence, operations, liabilities and
compliance with applicable laws of MicroSim's employee benefit plans and
certain other matters relating to the Employee Retirement Income Security Act
of 1974, as amended, (t) MicroSim's compliance with environmental laws and the
absence of any notices with respect to environmental matters, (u) MicroSim's
insurance policies, (v) title to MicroSim's real and personal property and the
absence of liens and encumbrances on such property, (w) the enforceability and
absence of default on agreements, (x) MicroSim's loans, notes, accounts
receivable and accounts payable, (y) transactions between MicroSim and certain
related parties, (z) product liability, (aa) the accuracy of information
furnished by MicroSim to OrCAD, (ab) MicroSim's bank accounts, (ac) the
absence of certain commercial practices, (ad) the absence of brokers, finders
and investment bankers retained by MicroSim in connection with the Merger,
(ae) the absence of any reason the Merger will not qualify as a "pooling of
interests and a tax-free reorganization," (af) the inapplicability of the
Investment Company Act of 1940, as amended, to MicroSim and its subsidiaries,
and (ag) the absence of a present intention by MicroSim shareholders to
dispose of the shares of OrCAD Common Stock to be issued pursuant to the
Merger Agreement.
The Merger Agreement also includes representations and warranties by OrCAD
as to (a) the corporate organization and qualification of OrCAD and its
subsidiaries, (b) the capitalization of OrCAD and its subsidiaries, (c)
subsidiaries of OrCAD, (d) options, warrants and other rights to acquire or
vote the capital stock of OrCAD, (e) the Merger Agreement's noncontravention
of any agreement, law or charter or bylaw provision, (f) the authority of
OrCAD to enter into the Merger Agreement and the absence of the need for
governmental or third-party consents to the Merger, (g) the compliance by
OrCAD with federal and state securities laws with respect to the proxy
statement and other written materials sent to its shareholders in connection
with the Merger, (h) the accuracy of OrCAD's financial statements, (i) the
absence of changes in OrCAD's relationship with certain customers, (j) the
absence of changes in OrCAD's relationship with certain distributors and
resellers, (k) the absence of certain changes and events, (l) payment of
taxes, (m) pending and threatened litigation, (n) certain labor matters, (o)
ownership and rights to use intellectual property and noninfringement on the
intellectual property rights of others, (p) the accuracy of OrCAD's books and
records, (q) licenses, permits and authorizations used by OrCAD in the conduct
of its business, (r) compliance with applicable laws, (s) the terms,
existence, operations, liabilities and compliance with applicable laws of
OrCAD's employee benefit plans and certain other matters relating to the
Employee Retirement Income Security Act of 1974, as amended, (t) OrCAD's
compliance with environmental laws and the absence of any notices with respect
to environmental matters, (u) OrCAD's insurance policies, (v) title to OrCAD's
real and personal property and the absence of liens and encumbrances on such
property, (w) the enforceability and absence of default on agreements, (x)
OrCAD's loans, notes, accounts receivable and accounts payable, (y)
transactions between OrCAD and certain related parties, (z) product liability,
(aa) the accuracy of information furnished by OrCAD to MicroSim, (ab) the
absence of certain commercial practices, (ac) the brokers, finders and
investment bankers retained by OrCAD in connection with the Merger, (ad) the
absence of any reason the Merger will not qualify as a "pooling of interests
and a tax-free reorganization," (ae) the inapplicability of the Investment
Company Act of 1940, as amended, to OrCAD and its
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subsidiaries, (af) the due authorization and valid issuance of the OrCAD
Common Stock to be issued in connection with the Merger, (ag) the receipt by
OrCAD of a fairness opinion from Redwood Partners, (ah) the accuracy of
certain information contained in OrCAD's filings with the Commission, (ai) the
absence of material change in OrCAD's financial condition, results of
operations, business or prospects since a specified date, (aj) the filing with
the Commission of all reports required to be filed under the Exchange Act, and
(ak) the absence of a present intention to dispose of any material assets
acquired in the Merger or to take any action that would cause OrCAD to no
longer control MicroSim.
BUSINESS OF MICROSIM PENDING THE MERGER
MicroSim has agreed that, prior to the later of the Effective Time and the
Closing Date, except as contemplated by the Merger Agreement, each of MicroSim
and its subsidiaries shall conduct its business and affairs as follows:
(a) operate its business only in the usual, regular and ordinary manner
so as to maintain the goodwill it currently enjoys, will make no material
changes in its operations, and, to the extent consistent with such
operation, will use all reasonable commercial efforts to (i) preserve
intact its present business organization, (ii) preserve its present
relationships with its customers, suppliers, distributors, value added
resellers, consultants, joint venturers, strategic partners and others with
which it has business dealings, and (iii) keep in its employ substantially
all of its key personnel;
(b) maintain all of its properties in good repair, order and condition,
reasonable wear and use excepted, and will maintain insurance upon all of
its properties and with respect to the conduct of its business in such
amounts and of such kinds as are in effect on the date of the Merger
Agreement or as the same may be added to by mutual agreement of MicroSim
and OrCAD;
(c) other than the grant of compensation increases and bonuses in the
ordinary course and in amounts and quantities consistent with past practice
and not exceeding four percent (4%) in any single instance, not pay any
bonuses or increase the salary, wages, fringe benefits or perquisites of
any employee, officer, director or agent, or hire any managerial or
executive personnel;
(d) maintain its books, accounts and records in the usual, regular and
ordinary manner, on a basis consistent with prior years;
(e) not encumber or mortgage any of its property or assets, or dispose
of, sell, or convey or acquire any assets or property, except in the usual
and ordinary course of business or enter into any contract or commitment
which by reason of its size or otherwise is not in the usual and ordinary
course of business;
(f) not enter into any transaction which if effected before the date of
the Merger Agreement would constitute a breach of the representations,
warranties or agreements contained therein;
(g) comply with the provisions of all laws, regulations, ordinances, and
judicial decrees applicable to it or the conduct of its business the
failure to comply with which might materially adversely affect its
operations, earnings, assets, properties or business;
(h) afford OrCAD and its officers, employees, counsel, accountants and
other authorized representatives access to all of the properties, books,
contracts, commitments and records of MicroSim, MicroSim Japan and MicroSim
Overseas, respectively, and will furnish promptly to OrCAD all other
information concerning its business, properties and personnel as OrCAD may
reasonably request; and
(i) give prompt notice to OrCAD of: (i) the occurrence of, or any
communication relating to, a default or event which, with notice or lapse
of time or both would become a default under any agreement, indenture or
instrument material to the financial condition, properties, business or
results of operations of MicroSim, MicroSim Japan or MicroSim Overseas, or
to which MicroSim, MicroSim Japan or MicroSim Overseas is a party or is
subject; (ii) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by the Merger Agreement;
(iii) any material adverse change in the financial condition, properties,
business or results of operations of MicroSim, MicroSim Japan or MicroSim
Overseas or the occurrence of any event which, so
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far as reasonably can be foreseen at the time of its occurrence, would
result in any such change; and (iv) the occurrence of, or any communication
relating to, the institution or commencement of any suit, action,
proceeding or investigation by or against MicroSim, MicroSim Japan or
MicroSim Overseas.
MicroSim has also agreed that prior to the later of the Effective Time and
the Closing Date, it will not without the prior written approval of OrCAD: (i)
amend or otherwise change its Articles of Incorporation, Bylaws, or other
charter documents, as each such document was in effect on the date of the
Merger Agreement; (ii) issue or sell, or authorize for issuance or sale,
additional shares of any class of its capital stock or options, warrants or
other securities exercisable for or convertible into such capital stock
(except for issuance of MicroSim Stock issuable upon exercise of options
outstanding on the date of the Merger Agreement); (iii) declare, set aside,
make or pay any dividend or other distribution with respect to its capital
stock or options, warrants or other securities exercisable for or convertible
into such capital stock; (iv) redeem, purchase or otherwise acquire, directly
or indirectly, any of its capital stock; (v) take any action to change the
number of directors of its Board of Directors or to change the members of its
Board of Directors; or (vi) take any action to accelerate the vesting of any
option to purchase its capital stock.
BUSINESS OF ORCAD PENDING THE MERGER
OrCAD has agreed that prior to the later of the Effective Time and the
Closing Date, each of OrCAD, OrCAD Japan and OrCAD Overseas shall conduct its
business and affairs as follows:
(a) operate its business only in the usual, regular and ordinary manner
so as to maintain the goodwill it currently enjoys, will make no material
changes in its operations, and, to the extent consistent with such
operation and with reasonable and prudent plans for post-Closing-Date
operation, will use all reasonable commercial efforts to (i) preserve
intact its present business organization, (ii) preserve its present
relationships with its customers, suppliers, distributors, value added
resellers, consultants, joint venturers, strategic partners and others with
which it has business dealings, and (iii) keep in its employ substantially
all of its key personnel;
(b) not encumber or mortgage any of its property or assets, or dispose
of, sell, or convey or acquire any assets or property, except in the usual
and ordinary course of business or enter into any contract or commitment
which by reason of its size or otherwise is not in the usual and ordinary
course of business;
(c) not enter into any transaction which if effected before the date of
the Merger Agreement would constitute a breach of the representations,
warranties or agreements contained therein;
(d) comply with the provisions of all laws, regulations, ordinances, and
judicial decrees applicable to it or the conduct of its business the
failure to comply with which might materially adversely affect its
operations, prospects, earnings, assets, properties or business;
(e) afford MicroSim and its officers, employees, counsel, accountants and
other authorized representatives access to all of the properties, books,
contracts, commitments and records of OrCAD, OrCAD Japan and OrCAD
Overseas, respectively, and will furnish promptly to MicroSim all other
information concerning its business, properties and personnel as MicroSim
may reasonably request; and
(f) give prompt notice to MicroSim of: (i) the occurrence of, or any
communication relating to, a default or event which, with notice or lapse
of time or both would become a default under any agreement, indenture or
instrument material to the financial condition, properties, business or
results of operations of OrCAD, OrCAD Japan or OrCAD Overseas, or to which
OrCAD, OrCAD Japan or OrCAD Overseas is a party or is subject; (ii) any
notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by the Merger Agreement; (iii) any material
adverse change in the financial condition, properties, business, results of
operations or prospects of OrCAD, OrCAD Japan or OrCAD Overseas or the
occurrence of any event which, so far as reasonably can be foreseen at the
time of its occurrence, would result in any such change; (iv) the
occurrence of, or any communication relating to, the institution or
commencement of any suit, action, proceeding or investigation by or against
OrCAD, OrCAD Japan or OrCAD Overseas; or (v) any discussions, negotiations
or proposals relating to any potential sale of OrCAD's capital stock, or
any merger,
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consolidation, or sale of all or a substantial portion of OrCAD's assets,
or the entrance by OrCAD into any encumbrance or mortgage of any of its
property or assets outside the ordinary course of business or any other
agreement outside of the usual and ordinary course of business.
OrCAD has also agreed that prior to the later of the Effective Time and the
Closing Date, it will not without the prior written approval of MicroSim: (i)
amend or otherwise change its Restated Certificate of Incorporation, Restated
Bylaws, or other charter documents, as each such document was in effect on the
date of the Merger Agreement; (ii) issue or sell, or authorize for issuance or
sale, additional shares of any class of its capital stock or options, warrants
or other securities exercisable for or convertible into such capital stock
(excepting only options for common stock granted to employees in the ordinary
course and not in excess of numbers of shares of stock authorized by OrCAD's
stockholders for such options as of the date of the Merger Agreement);
(iii) declare, set aside, make or pay any dividend or other distribution with
respect to its capital stock or options, warrants or other securities
exercisable for or convertible into such capital stock; (iv) redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock; (v)
except as contemplated by the Merger Agreement, take any action to change the
number of directors of its Board of Directors or to change the members of its
Board of Directors; (vi) take any action to accelerate the vesting of any
option to purchase its capital stock; or (vii) split, combine or reclassify
any of its capital stock or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock.
IRREVOCABLE PROXY
The principal shareholder of MicroSim, owning an aggregate of 2,165,725
shares of MicroSim Stock and representing approximately 77% of all outstanding
shares of MicroSim Stock as of October 16, 1997, has given an irrevocable
proxy to OrCAD to vote all of his shares of MicroSim Stock for approval of the
Merger Agreement and the Merger.
NO SOLICITATION
Under the Merger Agreement, MicroSim has agreed that it will not, nor will
it permit any of its officers, directors, employees, agents, or
representatives (including, without limitation, investment bankers, attorneys
and accountants), directly or indirectly to, (i) initiate, contract with,
solicit or encourage any inquiries or proposals by, or (ii) enter into any
discussions or negotiations with, or disclose directly or indirectly any
information concerning its business and properties to, or afford any access to
its properties, books, and records to, any corporation, partnership, person,
or other entity or group in connection with any possible proposal (an
"Acquisition Proposal") regarding a sale of MicroSim's capital stock or a
merger, consolidation, or sale of all or a substantial portion of its assets,
or any similar transaction; provided, however, that notwithstanding the
foregoing, if the MicroSim Board receives a written Acquisition Proposal, and
in the MicroSim Board's opinion (after consultation with MicroSim's legal
counsel), the failure to consider such Acquisition Proposal would cause the
MicroSim Board to violate its fiduciary duties under the Corporations Code,
then the MicroSim Board may consider and act with respect to such Acquisition
Proposal to the extent required to fulfill its fiduciary duties. MicroSim will
provide written notice to OrCAD immediately if any discussions or negotiations
are sought to be initiated, any inquiry or proposal is made, or any such
information is requested with respect to an Acquisition Proposal or potential
Acquisition Proposal or if any Acquisition Proposal is received or indicated
to be forthcoming.
CONDITIONS; WAIVERS
Conditions to Each Party's Obligations to Effect the Merger. The respective
obligations of MicroSim, OrCAD and Merger Sub to effect the Merger are subject
to the satisfaction or waiver of certain conditions, including the following:
(i) the Merger Agreement and the transactions contemplated thereby shall have
been approved and adopted by the requisite vote of the holders of MicroSim
Stock, (ii) the Issuance shall have been approved by the requisite vote of the
holders of OrCAD Common Stock, (iii) no preliminary or permanent injunction or
other order or decree by any federal or state court in the United States which
prevents the consummation of the Merger shall have been issued and remain in
effect, (iv) holders of not more than six
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percent (6%) of the total number of shares of MicroSim Stock shall have
exercised dissenters' rights under applicable law, (v) this Registration
Statement shall have been declared effective and shall be effective at the
Effective Time, no stop order suspending effectiveness of the Registration
Statement shall have been issued, and no proceeding by the Commission to
suspend the effectiveness of the Registration Statement shall have been
initiated and continuing and all necessary authorizations from Nasdaq/NMS or
under state securities laws, the Securities Act and the Exchange Act shall
have been received, (vi) OrCAD shall have received an opinion of KPMG Peat
Marwick LLP, and MicroSim shall have received an opinion from Ernst & Young
LLP, to the effect that, subject to customary qualifications, the Merger will
qualify to be accounted for as a "pooling of interests," (vii) those persons
identified by MicroSim as "affiliates" shall have executed and delivered to
OrCAD an affiliates agreement, and (viii) OrCAD, the Shareholder
Representatives, and the Escrow Agent shall have entered into an escrow
agreement reasonably satisfactory to OrCAD and MicroSim with respect to
ten percent (10%) of the shares of OrCAD Common Stock to be received by the
MicroSim shareholders and option holders in the Merger.
Conditions to the Obligations of OrCAD and Merger Sub. The respective
obligations of OrCAD and Merger Sub to effect the Merger are subject to the
satisfaction or waiver of the following additional conditions: (i) MicroSim
shall have performed all obligations required to be performed by it under the
Merger Agreement on or prior to the Effective Time and the representations and
warranties of MicroSim contained in the Merger Agreement shall be true and
correct when made and on and as of the Closing Date as if made on and as of
such date (except to the extent such representations and warranties speak as
of an earlier date), and OrCAD shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of MicroSim to that effect,
(ii) all licenses, certifications, consents, approvals and authorizations
required to be obtained shall have been obtained and, to the extent required
to be submitted prior to the Effective Time, all filings and notices required
to be submitted shall have been submitted by MicroSim, (iii) OrCAD shall have
received an opinion of Gibson, Dunn & Crutcher LLP, dated the Closing Date, in
a form reasonably satisfactory to OrCAD, (iv) OrCAD shall have received a
letter from Redwood Partners confirming its opinion that the Merger is fair to
the stockholders of OrCAD, (v) OrCAD shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of MicroSim to the effect
that there has been no materially adverse change in the operations, earnings,
assets, properties, business or condition (financial or otherwise) of MicroSim
since December 31, 1996, (vi) no action or proceeding shall be threatened,
instituted or pending which seeks to restrain, prohibit or recover damages in
respect of the consummation of the Merger, or seeks to compel OrCAD to
separate a portion of MicroSim's business or assets as a result of the Merger,
or in OrCADs' reasonable judgment would have a material adverse effect on the
business or financial condition of MicroSim or OrCAD, (vii) Wolfram H. Blume
and Michael U. Wimbrow shall have executed and delivered to OrCAD an advisory
agreement and an employment agreement, respectively, (viii) each member of the
MicroSim Board shall have executed a written resignation from such board
position, and (ix) each officer of MicroSim shall have executed a written
resignation from such position.
Conditions to the Obligations of MicroSim. The obligations of MicroSim to
effect the Merger are subject to the satisfaction or waiver of the following
additional conditions: (i) OrCAD shall have performed in all material respects
all obligations required to be performed by it under the Merger Agreement at
or prior to the Closing Date and the representations and warranties of OrCAD
contained in the Merger Agreement shall be true and correct in all material
respects on and as of the Closing Date as if made on and as of such date
(except to the extent such representations and warranties speak as of an
earlier date) and MicroSim shall have received a certificate of the Chief
Executive Officer and Chief Financial Officer of OrCAD to that effect, (ii)
all licenses, certifications, consents, approvals and authorizations required
to be obtained shall have been obtained and, to the extent required to be
submitted prior to the Effective Time, all filings and notices required to be
submitted shall have been submitted by OrCAD, (iii) MicroSim shall have
received an opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP, dated the
Closing Date, in a form reasonably satisfactory to MicroSim, (iv) MicroSim
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of OrCAD to the effect that there has been no materially
adverse change in the operations, earnings, assets, properties, business or
condition (financial or otherwise) of OrCAD since June 30, 1997, (v) no action
or proceeding shall be threatened, instituted or pending which seeks to
restrain, prohibit or recover damages in respect of the consummation of the
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Merger, or seeks to revoke or suspend any license, permit, order or approval
by reason of the consummation of the Merger, or in MicroSim's reasonable
judgment would have a material adverse effect on the business or financial
condition of OrCAD, (vi) Wolfram H. Blume and Michael U. Wimbrow shall have
executed and delivered to OrCAD an advisory agreement and an employment
agreement, respectively, and (vii) MicroSim shall have received a tax opinion
of Ater Wynne Hewitt Dodson & Skerritt, LLP, dated the Closing Date, in a form
reasonably satisfactory to MicroSim.
TERMINATION; AMENDMENT.
The Merger Agreement may be terminated at any time prior to the Effective
Time, before or after approval of the MicroSim shareholders and OrCAD
stockholders by mutual consent of the Board of Directors of OrCAD and the
Board of Directors of MicroSim. The Merger Agreement also may be terminated:
(i) by either OrCAD or MicroSim upon written notice to the other party if (a)
the Merger has not been consummated on or before January 31, 1998, (b) any
governmental authority of competent jurisdiction has issued a final and
nonappealable order enjoining or otherwise prohibiting the consummation of the
Merger or the transactions contemplated by the Merger Agreement, or (c) any
statute, rule or regulation shall have been enacted or promulgated by any
governmental authority which makes consummation of the Merger illegal; (ii) by
MicroSim upon written notice to OrCAD if (a) any of the representations and
warranties made by OrCAD in the Merger Agreement are not correct or accurate
in all material respects at and as of the Closing Date, (b) OrCAD has failed
to perform in any material respect any of the covenants, conditions or
agreements required to be performed by it under the Merger Agreement, (c) the
transactions contemplated by the Merger Agreement, including without
limitation the Merger, do not qualify to be accounted for as a "pooling of
interests," or (d) MicroSim's Board accepts a third party's written offer to
acquire the capital stock or assets of MicroSim and pays a specified fee to
OrCAD; and (iii) by OrCAD upon written notice to MicroSim if (a) any of the
representations or warranties made by MicroSim in the Merger Agreement are not
correct or accurate in all material respects at and as of the Closing Date,
(b) MicroSim has failed to perform in any material respect any of the
covenants, conditions or agreements required to be performed by it under the
Merger Agreement, or (c) the transactions contemplated by the Merger
Agreement, including without limitation the Merger, do not qualify to be
accounted for as a "pooling of interests." In the event of termination of the
Merger Agreement by either OrCAD or MicroSim as provided in the preceding
sentence, the Merger Agreement shall become void and there shall be no
liability on the part of either MicroSim or OrCAD, except with respect to
certain specified matters or any knowing or willful breach of the Merger
Agreement.
The Merger Agreement may be amended at any time, but only by written
instrument signed on behalf of each of the parties to the Merger Agreement.
At any time prior to the Effective Time, the parties to the Merger
Agreement, by or pursuant to action taken by their respective Boards of
Directors may: (i) extend the time for performance of any of the obligations
of the parties; (ii) waive any inaccuracies in the representations and
warranties of any other party contained in the Merger Agreement or in any
document delivered pursuant thereto by any other party; and (iii) waive
performance of any obligations or compliance with any of the covenants,
agreements or conditions contained in the Merger Agreement. Any agreement on
the part of any party to the Merger Agreement of any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party.
INDEMNIFICATION
MicroSim has agreed to indemnify and hold harmless OrCAD and Merger Sub from
and against and will reimburse OrCAD and Merger Sub with respect to all
claims, losses, damages, liabilities, judgments, settlements, costs and
expenses (including reasonable attorneys' fees) ("Indemnifiable Damages")
incurred by OrCAD and/or Merger Sub by reason of or arising out of or in
connection with the breach or inaccuracy of any representation or warranty of
MicroSim contained in the Merger Agreement or the failure of MicroSim to
perform any agreement or covenant required by the Merger Agreement to be
performed by it. The Merger Agreement provides that MicroSim will not be
liable for or with respect to the first $300,000 of the aggregate of
Indemnifiable Damages, nor any individual claim that is for less than $5,000,
and the total liability shall not exceed the total value of the Escrow Shares.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of
MicroSim Stock and options to acquire shares of MicroSim Stock (which are
referred to solely for purposes of this section, "Certain Federal Income Tax
Consequences" as the "MicroSim Options") and does not purport to be a complete
analysis or listing of all potential tax effects relevant to a decision
whether to vote in favor of approval and adoption of the Merger. This section
reflects the tax opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP, which
will be delivered to MicroSim in connection with the Merger and will be filed
as an exhibit to a supplement to the Registration Statement of which this
Joint Proxy Statement/Prospectus is a part (the "Tax Opinion").
The Tax Opinion includes an opinion to the effect that the Merger will be
treated as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), that each of OrCAD,
Merger Sub and MicroSim will be a party to the reorganization within the
meaning of Section 368(a) of the Code, and that no gain or loss will be
recognized by the MicroSim shareholders as a result of the Merger with respect
to the outstanding MicroSim Stock converted into shares of OrCAD Common Stock
or as a result of the return of the Escrow Shares to OrCAD. The Tax Opinion is
based on certain assumptions, including the assumption that the Merger will
take place as described in the Merger Agreement, and is subject to certain
limitations and qualifications. The Tax Opinion is also based on the
assumption that certain factual matters represented by OrCAD, Merger Sub,
MicroSim and others will be true and correct at the Effective Time, which
representations tax counsel will neither investigate nor verify.
Of particular importance will be factual representations made by certain
holders of MicroSim Stock relevant to satisfaction of the "continuity of
interest" requirement. To satisfy the continuity of interest requirement,
MicroSim shareholders must not, pursuant to a plan or intent existing at or
prior to the Effective Time of the Merger, dispose of or transfer so much of
either (i) their capital stock of MicroSim in anticipation of the Merger, or
(ii) the OrCAD Common Stock to be received in the Merger (collectively,
"Planned Dispositions"), such that the MicroSim shareholders, as a group,
would no longer have a significant equity interest in the MicroSim business
being conducted by OrCAD after the Merger. Planned Dispositions include, among
other things, shares disposed of pursuant to dissenters' rights. While case
law may support a lesser percentage, the continuity of interest requirement
will be met as long as MicroSim shareholders do not have a plan or intention
to sell, exchange or otherwise dispose of a number of shares of OrCAD Common
Stock received in the Merger (taking all Planned Dispositions into account)
that would reduce the number of shares of OrCAD Common Stock owned by such
shareholders after the Merger to a number of shares having a value as of the
Effective Time less than 50% of the value of all the formerly outstanding
shares of MicroSim Stock held by such shareholders as of that date. If the
continuity of interest requirement is not satisfied, the Merger would not be
treated as a "reorganization."
MICROSIM SHAREHOLDERS AND OPTION HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
MERGER.
Subject to the limitations and qualifications described herein and in the
Tax Opinion, the Merger qualifies as a reorganization within the meaning of
Section 368 of the Code, and the following tax consequences will result:
(a) No gain or loss will be recognized by holders of the MicroSim Stock
upon their receipt in the Merger of OrCAD Common Stock in exchange therefor
(except to the extent of cash received in lieu of fractional shares or as a
result of exercising dissenters' rights) or as a result of the return of
the Escrow Shares to OrCAD;
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(b) The aggregate tax basis of the OrCAD Common Stock received by
MicroSim shareholders in the Merger will be the same as the aggregate tax
basis of MicroSim Stock surrendered in exchange therefor; and
(c) The holding period of the OrCAD Common Stock received by each
MicroSim shareholder in the Merger will include the period for which the
MicroSim Stock surrendered in exchange therefor was considered to be held,
provided that the MicroSim Stock so surrendered is held as a capital asset
at the time of the Merger.
Neither OrCAD nor MicroSim has requested or will request a ruling from the
Internal Revenue Service ("IRS") with regard to any of the U.S. federal income
tax consequences of the Merger. A successful IRS challenge to the
"reorganization" status of the Merger would result in a MicroSim shareholder
recognizing gain or loss with respect to each share of MicroSim Stock
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, at the Effective Time, of the OrCAD Common
Stock received in exchange therefor. In such event, a shareholder's aggregate
basis in the OrCAD Common Stock so received would equal its fair market value,
and the holding period for such stock would begin the day after the Merger.
Treatment of MicroSim Options
GENERAL. The following discussion summarizes the tax treatment of holders of
MicroSim Options in the Merger. The tax treatment of the holders of MicroSim
Options is highly complex and depends, in part, on an individual holder's
personal situation. The discussion set forth below is quite general and does
not address all of the federal income tax issues that might apply to every
holder of a MicroSim Option. Holders of MicroSim Options are strongly urged to
consult their own tax advisors regarding the federal income tax consequences
of the Merger on the MicroSim Options.
TREATMENT OF HOLDERS OF MICROSIM OPTIONS WHO RECEIVE ORCAD COMMON STOCK IN
EXCHANGE FOR THEIR OPTIONS. Holders of incentive stock options ("ISOs") and
non-qualified stock options ("NQOs") who receive OrCAD Common Stock in the
Merger in exchange for their ISOs or NQOs will recognize ordinary income in
the exchange in an amount equal to the fair market value of the OrCAD Common
Stock received, unless the OrCAD Common Stock is subject to a substantial risk
of forfeiture and the shareholder makes no election under Section 83(b) of the
Code, in which case income recognition will be deferred until the substantial
risk of forfeiture expires.
TREATMENT OF HOLDERS OF MICROSIM ISOS WHO EXERCISE SUCH OPTIONS PRIOR TO THE
MERGER. In general, the exercise of an ISO is not a taxable event for federal
income tax purposes, and a holder of MicroSim Stock received upon the exercise
of an ISO will be able to defer taxation until disposition of such stock. If
the ISO holding period requirements are satisfied, i.e., if the MicroSim Stock
received upon exercise is not disposed of until the later of one year after
exercise or two years after grant of the ISO (the "Holding Period
Requirements"), any gain realized on such disposition is treated as mid-term
or long-term capital gain. If the requisite ISO holding period is not
satisfied, a disposition may be treated as a "disqualifying disposition,"
which is a taxable event that may give rise to ordinary income.
However, because the Merger will qualify as a tax-free reorganization under
the Code, the receipt of the OrCAD Common Stock in the Merger in exchange for
MicroSim Stock by those MicroSim shareholders who obtain such MicroSim Stock
through the exercise of their MicroSim ISOs prior to the Effective Time will
not be a disqualifying disposition of the MicroSim Stock, and thus, will not
be a taxable event. Rather, such OrCAD Common Stock will be treated as if it
were issued to the shareholder as a result of the exercise of the ISO, and the
holding period of the MicroSim Stock will be added to the holding period of
the OrCAD Common Stock for purposes of satisfying the Holding Period
Requirements.
As indicated above, the exercise of an ISO is not generally a taxable event.
However, on the exercise of an ISO, the difference between the fair market
value of the MicroSim Stock and the option price is generally considered a
preference for federal alternative minimum tax ("AMT") purposes and may result
in an exercising
38
<PAGE>
MicroSim shareholder having an AMT liability. For AMT purposes, AMT income
that was included by the option holder upon the exercise of an ISO is added to
the basis of the stock received. This has the effect of reducing alternative
minimum taxable income in the year in which the stock is sold. In addition,
upon the sale of the MicroSim Stock acquired as a result of the exercise of
the ISO, or the OrCAD Common Stock received in exchange for such MicroSim
Stock in the Merger, any AMT that was paid with respect to the year in which
the ISO was exercised is, subject to certain limitations, generally available
to offset any regular federal income tax due on that sale.
If for any reason, including the failure to satisfy the $100,000 limit, an
option is not an ISO, i.e., is an NQO, then the holder will have the tax
consequences discussed below regarding the NQOs.
TREATMENT OF HOLDERS OF MICROSIM NQOS WHO EXERCISE SUCH OPTIONS PRIOR TO THE
MERGER. The exercise of a NQO prior to the Effective Time will give rise to
ordinary income in the year of exercise equal to the excess of the fair market
value of the stock over the exercise price, unless the MicroSim Stock received
is subject to a substantial risk of forfeiture and the shareholder does not
make a Section 83(b) election, in which case income recognition will be
deferred until the substantial risk of forfeiture expires.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
WHETHER TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR MICROSIM SHAREHOLDER SUBJECT TO SPECIAL TREATMENT
UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS, AND
CERTAIN SHAREHOLDERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX PROVISIONS OF THE
CODE, NOR DOES IT ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION OR THE TAX CONSEQUENCES OF
TRANSACTIONS EFFECTUATED PRIOR TO OR AFTER THE MERGER (WHETHER OR NOT SUCH
TRANSACTIONS ARE IN CONNECTION WITH THE MERGER), INCLUDING WITHOUT LIMITATION
TRANSACTIONS IN WHICH SHARES OF MICROSIM STOCK ARE ACQUIRED OR IN WHICH SHARES
OF ORCAD COMMON STOCK ARE DISPOSED. MOREOVER, THE DISCUSSION IS BASED UPON THE
CODE, TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT
DECISIONS AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE
(WHICH CHANGE COULD BE RETROACTIVE), AND ANY SUCH CHANGE COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION. MICROSIM SHAREHOLDERS SHOULD BE AWARE
THAT OPINIONS OF COUNSEL ARE NOT BINDING ON THE IRS OR ANY COURT; IF THE
MERGER FAILS TO QUALIFY AS A TAX-FREE REORGANIZATION, IT WOULD BE TREATED FOR
FEDERAL INCOME TAX PURPOSES AS A TAXABLE SALE BY THE MICROSIM SHAREHOLDERS OF
THEIR MICROSIM STOCK. MICROSIM SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE MERGER TO THEM.
RESALE OF ORCAD COMMON SHARES ISSUED IN THE MERGER; AFFILIATES
The OrCAD Common Stock to be issued to MicroSim shareholders and option
holders in connection with the Merger will be freely transferable under the
Securities Act, except for OrCAD Common Stock issued to any person deemed to
be an affiliate of MicroSim for purposes of Rule 145 under the Securities Act
at the Effective Time ("Affiliates"). Affiliates may not sell their OrCAD
Common Stock acquired in connection with the Merger except in compliance with
Rule 145 promulgated under the Securities Act. MicroSim has delivered a
disclosure statement to OrCAD identifying all persons who may be deemed to be
Affiliates. Each Affiliate listed in that
39
<PAGE>
disclosure statement has agreed not to sell, transfer or otherwise dispose of
any OrCAD Common Stock received in the Merger in violation of the Securities
Act, and that such Affiliate will not, after the earlier of (i) the mailing of
this Joint Proxy Statement/Prospectus and (ii) the thirtieth day prior to the
Effective Time, sell any OrCAD Common Stock or any shares of MicroSim Stock or
otherwise reduce such Affiliate's risk relative to any OrCAD Common Stock
until after such time as consolidated financial statements which reflect at
least 30 days of post-Merger operations have been published by OrCAD, except
as permitted by Staff Accounting Bulletin No. 76 issued by the Commission. See
"THE MERGER--Accounting Treatment."
ACCOUNTING TREATMENT
It is expected that the Merger will be treated as a pooling of interests for
accounting and financial reporting purposes. See "THE MERGER--Conditions;
Waivers."
MANAGEMENT AND OPERATIONS OF MICROSIM AFTER THE MERGER
After the Merger, the articles of incorporation and bylaws of MicroSim will
be the Articles of Incorporation and Bylaws of MicroSim as the Surviving
Corporation and MicroSim will be a wholly owned subsidiary of OrCAD. MicroSim
will operate as one of OrCAD's business units, and OrCAD currently intends to
maintain MicroSim's corporate headquarters in Irvine, California. After the
Merger, MicroSim will have access to resources generally available to OrCAD's
other business units, will participate in appropriate activities with other
OrCAD business units and will operate under the direction and guidance of
OrCAD's senior management and the OrCAD and MicroSim Boards.
EXPENSES AND FEES
OrCAD and MicroSim will each pay their own expenses in connection with the
Merger.
RIGHTS OF DISSENTING MICROSIM SHAREHOLDERS
The rights of MicroSim shareholders who dissent in connection with the
Merger are governed by specific legal provisions contained in Chapter 13
((S)1300--1312) of the Corporations Code. The following is a brief summary of
the rights of shareholders of MicroSim who dissent from the Merger. It is
qualified in its entirety by reference to the applicable statutory provisions
of the Corporations Code attached hereto as Appendix C.
If the Merger is consummated, holders of record of MicroSim Stock who (a)
deliver to MicroSim written demand for the purchase of their shares within 30
days after the date on which MicroSim mailed to the shareholder the notice of
approval of the Merger by MicroSim's outstanding shares, (b) refrain from
voting in favor of the Merger, and (c) comply with the provisions of Sections
1300 through 1312 of the Corporations Code, will then be entitled to have the
"fair market value" of their shares, determined as of the day before the first
announcement of the terms of the proposed Merger, paid to them in cash. The
written demand must contain a statement of the number and class of the shares
held of record by the shareholder which the shareholder demands that MicroSim
purchase, and a statement of what the shareholder claims is the fair market
value of those shares as of the day before the announcement of the Merger,
excluding any appreciation or depreciation due to the proposed Merger.
MicroSim deems the announcement of the Merger for these purposes to have
occurred on October 13, 1997.
The following is a brief summary of Sections 1300 through 1312 of the
Corporations Code, which sets forth the procedures for demanding statutory
dissenters' rights. This summary is qualified in its entirety by reference to
Sections 1300 through 1312 of the Corporations Code, the text of which is
attached hereto in Appendix C.
If the Merger is approved and consummated, those shareholders of MicroSim
who elect to exercise their dissenters' rights and who properly and timely
perfect such rights will be entitled to receive the "fair market value" in
cash for their shares of MicroSim Stock. Pursuant to Section 1300 of the
Corporations Code, such "fair market value" means the value of the MicroSim
shares as of the day before the first announcement of the
40
<PAGE>
terms of the proposed Merger, excluding any appreciation or depreciation in
consequence of the proposed Merger, and adjusted for any stock split, reverse
stock split or share dividend which becomes effective after the Merger.
If any shareholder has the right to exercise dissenters' rights, MicroSim
must, within ten (10) days after approval of the Merger by the outstanding
shares, deliver to all such shareholders: notice of the approval of the Merger
accompanied by a copy of Sections 1300, 1301, 1302, 1303 and 1304 of the
Corporations Code; a statement of the price determined by MicroSim to
represent the "fair market value" of the dissenting shares; and, a brief
description of the procedure to be followed if the shareholder desires to
exercise the shareholder's dissenters' right under the Corporations Code (the
"Dissenters' Notice").
A shareholder who elects to exercise his or her dissenters' rights must (i)
be the record holder of the dissenting shares as of the MicroSim Record Date,
(ii) deliver to MicroSim within 30 days after the date on which the
Dissenters' Notice was mailed to the shareholder written demand for the
purchase of the shares and payment in cash of their fair market value, which
written demand must contain a statement of the number and class of shares held
of record by the shareholder which the shareholder demands that MicroSim
purchase, and a statement of what the shareholder claims is the fair market
value of those shares as of the day before the announcement of the Merger,
excluding any appreciation or depreciation because of the proposed Merger,
(iii) deliver to MicroSim the share certificate or certificates, and (iv) must
not have voted his or her shares in favor of the Merger.
If a shareholder fails to deliver the written demand for payment to MicroSim
within 30 days after the date on which the Dissenters' Notice was mailed to
the shareholder, or if the shareholder votes his or her shares in favor of the
Merger, such shareholder will lose his or her dissenters' rights with respect
to his or her shares.
Within 30 days after the later of consummation of the Merger or an agreement
between MicroSim and the dissenting shareholder as to the "fair market value"
of the shares to be purchased, MicroSim shall pay each shareholder cash in the
amount of the "fair market value" of the shares to be repurchased plus
statutory interest accrued from the date of the agreement as to the "fair
market value" of the shares.
If the shareholder and MicroSim cannot agree on the "fair market value" of
the shares to be repurchased, then within six (6) months after the date on
which the Dissenters' Notice was mailed to the shareholder (but not
thereafter), the shareholder may file a complaint in the superior court of the
proper county asking the court to determine the "fair market value" of the
dissenting shares. The dissenter will be entitled to judgment for the amount
that the court or an appraiser appointed by the court finds to be the "fair
market value" of his or her shares.
The Merger Agreement provides that it may be terminated by OrCAD or MicroSim
in the event that more than six percent (6%) of the outstanding shares of
MicroSim Stock are dissenting shares.
CONFLICTS OF INTEREST
MicroSim Board of Directors and Management. As of the MicroSim Record Date,
non-employee directors of the MicroSim Board beneficially owned an aggregate
of 125,000 shares of MicroSim Stock and held options to acquire an aggregate
of 60,000 shares of MicroSim Stock, exercisable at prices ranging from $3.40
to $3.60 per share. See "STOCK OWNED BY MICROSIM MANAGEMENT AND PRINCIPAL
SHAREHOLDERS." Assuming an OrCAD market value of $8.38, the aggregate dollar
value of OrCAD Common Stock to be received by these non-employee directors in
respect of outstanding shares of MicroSim Stock would be approximately
$863,672, representing approximately 4.5% of the aggregate consideration to be
received by all holders of MicroSim Stock. Assuming an OrCAD market value of
$8.38, the aggregate dollar value of OrCAD Common Stock to be received by
these non-employee directors in respect of outstanding options to acquire
MicroSim Stock would be approximately $183,949, representing approximately
18.0% of the aggregate consideration to be received by all holders of options
to acquire shares of MicroSim Stock.
41
<PAGE>
As of the MicroSim Record Date, the executive officers of MicroSim
beneficially owned an aggregate of 2,227,725 shares of MicroSim Stock and held
options to acquire an aggregate of 105,000 shares of MicroSim Stock,
exercisable at prices ranging from $3.40 to $3.60 per share. See "STOCK OWNED
BY MICROSIM MANAGEMENT AND PRINCIPAL SHAREHOLDERS." Assuming an OrCAD market
value of $8.38, the aggregate dollar value of OrCAD Common Stock to be
received by these executive officers in respect of outstanding shares of
MicroSim Stock would be approximately $15,387,524, representing approximately
79.7% of the aggregate consideration to be received by all holders of MicroSim
Stock. Pursuant to the Merger Agreement, all outstanding options to acquire
shares of MicroSim Stock, including those held by the executive officers of
MicroSim, will be converted into shares of OrCAD Common Stock. Assuming an
OrCAD market value of $8.38, the aggregate dollar value of OrCAD Common Stock
to be received by these executive officers in respect of outstanding options
to acquire shares of MicroSim Stock would be approximately $346,591,
representing approximately 33.9% of the aggregate consideration to be received
by all holders of options to acquire shares of MicroSim Stock.
At the first OrCAD Board meeting following consummation of the Merger,
Wolfram H. Blume, Chairman of the MicroSim Board, President and Chief
Executive Officer of MicroSim, and the largest holder of MicroSim Stock, will
become a member of the OrCAD Board. After the Effective Time, he will serve in
an advisory capacity as Chief Technical Advisor to OrCAD. Mr. Blume will also
enter into a two (2) year advisory agreement with OrCAD. Michael U. Wimbrow, a
member of the MicroSim Board, Vice President of Planning and Product Support
of MicroSim, and the beneficial owner of shares of MicroSim Stock and options
to acquire shares of MicroSim Stock, will become Vice President of Product
Development of OrCAD at the Effective Time. Mr. Wimbrow will enter into a one
(1) year employment agreement with OrCAD. Additionally, L.A. Delmonico
Consulting, Inc. ("Consultant"), an affiliate of Louis A. Delmonico who is a
member of the MicroSim Board, is a party to a Consulting Agreement dated
August 5, 1996 (the "Consulting Agreement") with MicroSim. Pursuant to the
terms of the Consulting Agreement, upon consummation of the Merger Consultant
will be entitled to (i) terminate the Consulting Agreement upon no more than
90 days written notice, and (ii) be paid all amounts due under the Consulting
Agreement through the termination date plus an additional sum of $144,000
payable in twelve equal monthly installments.
On the Closing Date, OrCAD intends to loan approximately $100,000 to Mr.
Wimbrow, approximately $100,000 to Bruce A. Warren, Vice President Finance and
Administration, Chief Financial Officer and Secretary of MicroSim, and
approximately $120,000 to Mr Delmonico. The purpose of these loans is to
assist the foregoing individuals with the payment of their respective income
tax liability incurred as a result of the exchange of nonqualified options to
acquire shares of MicroSim Stock for shares of OrCAD Common Stock. Each of
these loans will (i) be full recourse, (ii) bear interest at the rate of six
percent (6%) per annum, (iii) be secured by a pledge of all of the shares of
OrCAD Common Stock acquired by each debtor as a result of his exchange of
nonqualified options, and (iv) be due upon the earlier to occur of (a)
December 31, 1998, or (b) any private sale by each debtor of any shares of
OrCAD Common Stock which secure his loan.
OrCAD Board of Directors and Management. Redwood Partners has been retained
by OrCAD to act as its financial advisor and to deliver a fairness opinion in
connection with the Merger. Pursuant to an engagement letter with OrCAD,
Redwood Partners will receive a fee of $200,000 for its opinion and certain
services rendered in conjunction with the Merger, of which $50,000 is not
contingent upon consummation of the Merger. OrCAD will also reimburse Redwood
Partners for its out-of-pocket expenses, including reasonable fees and
disbursements of counsel. OrCAD has also agreed to indemnify Redwood Partners
and its affiliates, directors, officers, partners, agents and employees, and
each person, if any, controlling Redwood Partners or any of its affiliates
against certain liabilities, including certain liabilities under the federal
securities laws, relating to or arising out of its engagement. John C. Savage,
a Principal of Redwood Partners, serves as a member of the OrCAD Board and
will continue to so serve after consummation of the Merger. As of November 3,
1997 Mr. Savage owned options to acquire 10,000 shares of OrCAD Common Stock
and Principals of Redwood Partners, including Mr. Savage, owned an aggregate
of 31,724 shares of OrCAD Common Stock. A predecessor to Redwood Partners was
the largest stockholder of OrCAD until September 1996.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Statements of
Operations and Balance Sheet give effect to the Merger on a pooling of
interests basis of accounting. These Unaudited Pro Forma Combined Condensed
Financial Statements have been prepared from the historical consolidated
financial statements of OrCAD and MicroSim and should be read in conjunction
therewith, and in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations of OrCAD and MicroSim. The
historical financial statements of OrCAD and of MicroSim are contained
elsewhere in this Joint Proxy Statement/Prospectus. See "FINANCIAL
STATEMENTS."
This unaudited pro forma combined condensed information is not necessarily
indicative of actual or future operating results or financial position that
would have occurred or will occur upon consummation of the Merger.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Merger as if it had occurred on September 30, 1997, combining the balance
sheets of OrCAD and MicroSim as of that date. The Unaudited Pro Forma Combined
Condensed Statements of Operations give effect to the Merger as if it had
occurred on January 1, 1994, combining the results of OrCAD and MicroSim for
each of the three years in the period ended December 31, 1996, and for each of
the nine month periods ended September 30, 1997 and 1996.
43
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------- --------------------
ORCAD MICROSIM ADJUSTMENTS COMBINED
------- -------- ----------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $24,463 $ 3,951 $ -- $28,414
Short-term investments................ 2,004 2,999 -- 5,003
Trade accounts receivable, net........ 4,278 2,421 -- 6,699
Inventory, net........................ 411 355 -- 766
Other assets.......................... 1,097 1,237 -- 2,334
------- ------- ------- -------
Total current assets................ 32,253 10,963 -- 43,216
Investments, long term.................. 2,373 -- -- 2,373
Fixed assets, net....................... 1,772 1,526 -- 3,298
Purchased software technology, net...... 528 3 -- 531
Goodwill and intangible assets, net..... 2,505 10 -- 2,515
Other assets............................ 125 -- -- 125
------- ------- ------- -------
Total assets........................ $39,556 $12,502 $ -- $52,058
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 311 $ 503 $ -- $ 814
Accrued payroll and related
liabilities.......................... 1,198 549 -- 1,747
Accrued liabilities................... 1,077 403 -- 1,480
Accrued income taxes.................. 235 -- (1,346) (1,111)
Deferred revenue...................... 1,993 2,027 -- 4,020
Other current liabilities............. -- 363 3,700 4,063
------- ------- ------- -------
Total current liabilities........... 4,814 3,845 2,354 11,013
Long-term obligations................. -- 205 -- 205
------- ------- ------- -------
Total liabilities................... 4,814 4,050 2,354 11,218
Stockholders' equity:
Common stock (Shares outstanding--
OrCAD-6,752,743: MicroSim--2,804,615:
Adjustments--(376,558): Pro forma
combined--9,180,800.................. 67 894 (869) 92
Additional paid-in capital............ 36,107 -- 869 36,976
Retained earnings (accumulated
deficit)............................. (1,378) 7,613 (2,354) 3,881
Unrealized gain on investments, net... 3 -- -- 3
Notes receivable--employee stock
purchases............................ -- (55) -- (55)
Foreign currency translation
adjustment........................... (57) -- -- (57)
------- ------- ------- -------
Total stockholders' equity.......... 34,742 8,452 (2,354) 40,840
------- ------- ------- -------
Total liabilities and stockholders'
equity................................. $39,556 $12,502 $ -- $52,058
======= ======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
44
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
HISTORICAL--ORCAD HISTORICAL--MICROSIM PRO FORMA ADJUSTMENTS PRO FORMA COMBINED
---------------------- ----------------------- ------------------------- -----------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products.......... $17,822 $10,627 $8,020 $13,347 $12,515 $10,325 $ -- $ -- $ -- $31,169 $23,142 $18,345
Service........... 3,085 3,032 1,792 2,780 2,143 1,784 -- -- -- 5,865 5,175 3,576
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue... 20,907 13,659 9,812 16,127 14,658 12,109 -- -- -- 37,034 28,317 21,921
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Cost and expenses:
Cost of revenue--
products......... 1,771 1,587 1,713 2,371 2,088 1,900 -- -- -- 4,142 3,675 3,613
Cost of revenue--
service.......... 727 488 387 776 621 586 -- -- -- 1,503 1,109 973
Research and
development...... 4,286 3,561 2,907 5,064 3,688 3,692 -- -- -- 9,350 7,249 6,599
Marketing and
sales............ 7,079 4,934 3,569 4,798 3,859 3,266 -- -- -- 11,877 8,793 6,835
General and
administrative... 3,063 1,904 1,363 1,730 1,603 1,372 -- -- -- 4,793 3,507 2,735
Write-off of
purchased
software......... -- -- -- -- 1,037 -- -- -- -- -- 1,037 --
In-process
research and
development...... -- 971 -- -- -- -- -- -- -- -- 971 --
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost and
expenses....... 16,926 13,445 9,939 14,739 12,896 10,816 -- -- -- 31,665 26,341 20,755
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations......... 3,981 214 (127) 1,388 1,762 1,293 -- -- -- 5,369 1,976 1,166
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Other income:
Interest income
(expense), net... 1,207 53 (62) 335 252 33 (11) (10) -- 1,531 295 (29)
Other, net........ 65 52 218 -- -- -- -- -- -- 65 52 218
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
1,272 105 156 335 252 33 (11) (10) -- 1,596 347 189
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.............. 5,253 319 29 1,723 2,014 1,326 (11) (10) -- 6,965 2,323 1,355
Income taxes........ 1,051 4 -- 652 691 263 (4) (5) -- 1,699 690 263
------- ------- ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income.......... $ 4,202 $ 315 $ 29 $ 1,071 $ 1,323 $ 1,063 $ (7) $ (5) $ -- $ 5,266 $ 1,633 $ 1,092
======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per
common and common
equivalent share... $ 0.63 $ 0.07 $ 0.01 $ 0.38 $ 0.46 $ 0.37 $ 0.58 $ 0.23 $ 0.16
======= ======= ====== ======= ======= ======= ======= ======= =======
Weighted average
common and common
equivalent shares
outstanding........ 6,618 4,775 4,211 2,840 2,877 2,879 (412) (449) (451) 9,046 7,203 6,639
======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
45
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
HISTORICAL- HISTORICAL- PRO FORMA PRO FORMA
ORCAD MICROSIM ADJUSTMENTS COMBINED
---------------- -------------- ------------ ----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------ ------ ----- ----- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products.............. $15,290 $13,364 $9,599 $9,804 $ -- $ -- $24,889 $23,168
Service............... 3,455 2,193 2,687 1,995 -- -- 6,142 4,188
------- ------- ------ ------ ----- ----- ------- -------
Total revenue....... 18,745 15,557 12,286 11,799 -- -- 31,031 27,356
------- ------- ------ ------ ----- ----- ------- -------
Cost and expenses:
Cost of revenue--
products............. 1,986 1,310 1,614 1,675 -- -- 3,600 2,985
Cost of revenue--
service.............. 551 528 668 535 -- -- 1,219 1,063
Research and
development.......... 4,174 3,222 4,193 3,703 -- -- 8,367 6,925
Marketing and sales... 7,611 5,337 3,479 3,321 -- -- 11,090 8,658
General and
administrative....... 2,234 2,240 1,265 1,378 -- -- 3,499 3,618
In-process research
and development...... 2,203 -- -- -- -- -- 2,203 --
------- ------- ------ ------ ----- ----- ------- -------
Total cost and
expenses........... 18,759 12,637 11,219 10,612 -- -- 29,978 23,249
------- ------- ------ ------ ----- ----- ------- -------
Income (loss) from
operations............. (14) 2,920 1,067 1,187 -- -- 1,053 4,107
------- ------- ------ ------ ----- ----- ------- -------
Other income:
Interest income
(expense), net....... 1,118 820 262 267 (2) (8) 1,378 1,079
Other, net............ (8) 68 (7) (18) -- -- (15) 50
------- ------- ------ ------ ----- ----- ------- -------
1,110 888 255 249 (2) (8) 1,363 1,129
------- ------- ------ ------ ----- ----- ------- -------
Income before income
taxes.................. 1,096 3,808 1,322 1,436 (2) (8) 2,416 5,236
Income taxes............ 383 800 496 517 -- (3) 879 1,314
------- ------- ------ ------ ----- ----- ------- -------
Net income (loss)....... $ 713 $ 3,008 $ 826 $ 919 $ (2) $ (5) $ 1,537 $ 3,922
======= ======= ====== ====== ===== ===== ======= =======
Net income per common
and common equivalent
share.................. $ 0.10 $ 0.47 $ 0.29 $ 0.32 $ 0.16 $ 0.44
======= ======= ====== ====== ======= =======
Weighted average common
and common equivalent
shares outstanding..... 6,995 6,407 2,831 2,836 (403) (408) 9,423 8,835
======= ======= ====== ====== ===== ===== ======= =======
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
46
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
NOTE 1.--BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Condensed Financial Statements reflects the
exchange ratio of .825 shares of OrCAD Common Stock for one share of MicroSim
Stock and an assumed OrCAD market value of $8.38 (the closing price on
November 21, 1997). At that value, 2,428,057 shares of OrCAD Common Stock
would be exchanged for 2,697,795 shares of MicroSim Stock; 106,820 shares of
unvested MicroSim Stock held under stock purchase agreements; 95,640 shares of
MicroSim Stock underlying fully vested stock options; and 228,760 shares of
MicroSim Stock underlying unvested stock options. The actual number of shares
of OrCAD Common Stock to be issued will be determined at the Closing Date of
the Merger based on the average closing price of OrCAD Common Stock for the
ten (10) consecutive trading days ending with the close of trading on the
third business day preceding the Closing Date.
NOTE 2.--PRO FORMA EARNINGS PER SHARE
Net income per common and common equivalent share amounts are based on the
weighted average number of common shares outstanding and dilutive common
equivalent shares assumed to be outstanding during the period using the
treasury stock method, giving effect to the Merger as if it had been
consummated at the beginning of the years presented given the assumptions
described in Note 1.
NOTE 3.--TRANSACTION COSTS
OrCAD and MicroSim estimate that they will incur direct and indirect costs
of $3.7 million in connection with the Merger, relating mainly to financial
advisory fees, legal and accounting services for both parties, personnel
severance costs, the cancellation and continuation of contractual obligations
and other integration costs. These nonrecurring costs will be charged to
operations in the fiscal quarter in which the Merger is consummated. The
Unaudited Pro Forma Combined Condensed Balance Sheet reflects these estimated
transaction costs and their tax effects as if such costs were incurred as of
September 30, 1997, but the effect of these costs are not reflected in the
Unaudited Pro Forma Combined Condensed Statement of Operations.
NOTE 4.--CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There have been no adjustments required to conform the accounting policies
of the combined company. Intercompany transactions, reflecting a licensing
agreement between MicroSim and Massteck, a wholly-owned subsidiary of OrCAD,
during the years presented and the resulting royalty receivable and other
current liabilities, are eliminated under the column heading "Pro Forma--
Adjustments".
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BUSINESS OF ORCAD
OVERVIEW
OrCAD develops, markets and supports Microsoft Windows-based electronic
design automation ("EDA") software products that assist electronics designers
in designing printed circuit boards ("PCBs"), field-programmable gate arrays
("FPGAs") and complex programmable logic devices ("CPLDs"). PCBs, FPGAs and
CPLDs are found in a majority of today's electronic products, and are often
referred to as "mainstream" components. OrCAD's products enable electronics
designers working on personal computers ("PCs") to reduce time to market,
improve product capability, and reduce design costs. OrCAD's Windows-based EDA
solutions support the design process for mainstream components, from schematic
capture to programmable logic design and verification to printed circuit board
layout. Over 200,000 products bearing the OrCAD name have been sold worldwide
since 1986.
INDUSTRY BACKGROUND
During the last two decades, there has been considerable growth in a wide
variety of electronics markets, including those for telecommunications
equipment, computers, and consumer electronics products. According to a 1995
report from market research firm Dataquest, the broad electronic equipment
market is expected to reach $1 trillion by 1998. Advances in electronics
technology have enabled the development of products with significantly greater
functionality, lower cost, and smaller size. The electronic functionality of
these products today is contained in multiple, diverse integrated circuits
("ICs") combined into electronic subsystems on one or more PCBs. While
extremely complex components such as microprocessors, memory, and custom
digital signal processors are central to a number of these subsystems, most
subsystems are primarily composed of mainstream components. Competitive
pressures and the proliferation of programmable logic devices and PCBs in
product design have led to increasing demand for lower cost, easier-to-use
solutions for design engineers creating mainstream components. The complexity
of FPGAs and PCBs is continuously increasing as electronics manufacturers seek
to increase functionality and reduce product cost and size. This increasing
complexity is demonstrated by comparing today's mainstream designs to those of
twenty years ago. Early programmable devices typically contained fewer than
100 gates, had speeds of less than 20 MHz, and required power at 5 volts.
Today's mainstream FPGAs are full-scale systems on chips, typically ranging in
size from a few thousand to 20,000 gates and operating at 50 to 100 MHz and
3.3 volts. Similarly, twenty years ago, PCBs were typically double-sided
boards with a few hundred components, and ran at relatively low speeds.
Today's mainstream PCBs may be multi-layer boards containing up to a thousand
components and driven by high speed (> 50 MHz) microprocessors. OrCAD believes
that the majority of manufacturers' electronic design-starts today involve
these mainstream types of FPGAs, CPLDs, and PCBs. Today's Intel PCs running
Windows are increasingly powerful and easy to use, and are ideal for most of
today's electronics design activities.
PRODUCTS
OrCAD's Design Desktop for Windows is a family of products designed as 32-
bit applications, each of which operates in an integrated fashion with other
applications for Microsoft Windows.
OrCAD Capture for Windows is a 32-bit schematic capture tool that enables
the acceleration of the engineer's overall design process for both FPGA and
PCB design. Its integrated design management tools allow design engineers to
browse their schematic database to find and edit objects, and to reuse
portions of their designs. OrCAD Capture for Windows includes: (i) a schematic
editor designed to speed the drawing of complex schematics; (ii) a part editor
that allows designers to modify any of the more than 20,000 included parts, or
to create new ones easily; (iii) an electrical rules checking program that
detects and flags common design errors on the schematic page; and (iv)
features to produce output such as netlists, bills of materials and design
documentation.
Capture Enterprise Edition adds to Capture a design data and library
management tool. This tool links parts placed in an OrCAD Capture for Windows
design with the information in the manufacturers' internal part
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databases, which increases the ease and efficiency of part selection for the
designer and transfers all information necessary to create correct bills of
material and netlists to capture schematics.
OrCAD Simulate for Windows is a gate-level simulator developed specifically
for FPGA design. It supports the architecture of leading FPGA and CPLD
vendors, including among others Actel Corporation, Altera Corporation, Lattice
Semiconductor Corporation, Lucent Technologies Inc., Vantis Corporation and
Xilinx, Inc. OrCAD Simulate for Windows supports industry standards for data
exchange including VHDL (VITAL/SDF), Open PLA and EDIF 2 0 0, and direct
import of Xilinx XNF, which in turn provides for complete logic and timing
simulation for popular FPGAs and ensures reusability of design data.
The OrCAD Layout for Windows family of products allows rapid completion of
most mainstream PCBs. OrCAD Layout for Windows' 16-layer autorouter applies
proprietary "push and shove" technology to enable high density routing.
OrCAD's interactive routing gives design engineers the power of "user-
assisted" autorouting to precisely control critical routes. OrCAD Layout Plus
for Windows adds shape-based autorouting, automatic cluster placement,
component push-and-shove, auto-interactive placement, auto-path completion and
single-layer autorouting. OrCAD Layout Engineers' Edition for Windows is
suitable for use by engineers, PCB designers and technicians who do not
require an autorouter.
OrCAD Express for Windows is an integrated design environment for the design
of FPGAs and CPLDs. It integrates VHDL, schematic, and mixed-mode design
entry, simulation and synthesis into a single application. With OrCAD Express
for Windows, engineers can design board-level systems with FPGAs and CPLDs
from OrCAD Solution Partners Actel Corporation, Altera Corporation, Lattice
Semiconductor Corporation, Lucent Technologies Inc., Vantis Corporation and
Xilinx, Inc.
OrCAD's integrated solutions address the entire process for designing PCBs
and programmable logic devices. OrCAD's products are intended to be intuitive
and relatively easy to use by a broad range of electronics designers. OrCAD's
products include on-line help and tutorials to help design engineers become
productive quickly, often within just a few days. In addition, OrCAD's
products feature a familiar Windows user interface and can be used with other
Windows applications, such as Microsoft Word and Microsoft Excel. This
eliminates the need for separate platforms for design and office automation
applications. In addition, OrCAD software can be linked to place-and-route
software from the leading vendors of programmable logic.
OrCAD believes that the EDA market is at the beginning of a trend toward
greater use of the Microsoft Windows operating systems, and anticipates that
the use of Windows-based products in such market will grow and expand.
Accordingly, all of the new products introduced by OrCAD during its preceding
and current fiscal year, and all of the products OrCAD is currently
developing, are designed for use on Microsoft's Windows NT and Windows 95
operating systems. Any factor adversely affecting the demand for, or use of,
the Microsoft Windows operating systems, for EDA applications or in general,
could result in a material adverse effect on OrCAD's business, financial
condition and results of operations.
Software products as complex as those offered by OrCAD may contain defects
or failures when introduced or when new versions are released. OrCAD has in
the past discovered software defects in certain of its products and may
experience delays or lost revenue to correct such defects in the future. There
can be no assurance that, despite testing by OrCAD, errors will not be found
in new products or versions after commencement of commercial shipments,
resulting in loss of market share or failure to achieve market acceptance. Any
such occurrence could have a material adverse effect upon OrCAD's business,
financial condition or results of operations.
MARKETING AND SALES
OrCAD markets and sells its products in North America directly through its
marketing and telesales organizations, which are supplemented by a field sales
force. OrCAD designs its marketing programs to reinforce
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the recognition of its brand through integrated advertising, direct mail,
electronic marketing, and other promotional activities. OrCAD's sales effort
is designed to capture, qualify and respond effectively to the leads generated
by the marketing programs. OrCAD also generates leads through customer and
consultant references. To effectively target and measure all of these efforts,
OrCAD has invested in an information system that tracks contacts with
customers and prospects. OrCAD's distribution strategy is intended to address
the mainstream electronic design market in a productive, cost-effective
manner. OrCAD believes that its direct field sales force will allow it to
better meet the unique buying requirements of management in large
organizations. OrCAD intends to use its penetration at the individual and
group level in large organizations to help achieve enterprise-wide
standardization on its products.
OrCAD maintains an ongoing program of market research based on industry
reports, customer input, surveys, and frequent communication with value-added
resellers (VARs). This research helps OrCAD to set priorities for product
development, technical support, and other functional areas. Trade shows and
OrCAD's training classes provide additional means of soliciting customer
feedback.
Direct Sales. OrCAD's direct sales effort consists primarily of a telesales
force supplemented with a targeted field sales presence. Telesales are
typically generated by inbound inquiries stimulated by OrCAD's marketing
programs, additional sales to existing customers, and references from
customers. OrCAD believes telesales has been a cost-effective means of
distributing its products and gaining customer acceptance. OrCAD believes that
its direct field sales force will allow it to better meet the unique
requirements of selling directly to management at large organizations.
Indirect Sales. OrCAD's VARs are a key component of OrCAD's sales and
marketing strategy in international markets, outside of Japan. VARs provide
local technical support, and in some instances local language documentation,
and run a variety of direct marketing programs that build on materials
developed for the North American direct marketing efforts. OrCAD derived
approximately $8.2 million, $4.1 million and $3.9 million, or approximately
39%, 30% and 39% of its total revenue, from international sales in 1996, 1995
and 1994, respectively. Substantially all of OrCAD's international revenue to
date has been derived from indirect sales made by its VARS and Japanese
distributor. For distribution in Japan, OrCAD purchased its Japanese
distributor in 1995 to increase its direct presence in that country. Beyond
North America and Japan, OrCAD distributes its products through leading EDA
VARs.
Because OrCAD's products are used by professional engineers and other
technical personnel, effective VARs must possess sufficient technical,
marketing and sales resources and must devote these resources to sales
efforts, customer education, training, consulting and support. Only a limited
number of potential VARs possess these criteria. There can be no assurance
that OrCAD will be able to attract and retain a sufficient number of qualified
VARs to successfully market OrCAD's products, and the failure to do so would
have a material adverse effect on OrCAD's business, financial condition and
results of operations. OrCAD's relationship with its VARs is usually
established through a formal reseller agreement, which generally may be
terminated by either party at any time without cause. There can be no
assurance that any VAR will continue to represent OrCAD's products, and the
inability to retain VARs could have a material adverse effect on OrCAD's
business, financial condition and results of operations.
Strategic Relationships. OrCAD has strategic relationships with and works
closely with other companies to develop and market their products and to
provide customers with application-specific solutions. In addition, OrCAD has
developed relationships with a number of FPGA and CPLD vendors such as Actel
Corporation, Altera Corporation, Lattice Semiconductor Corporation, Lucent
Technologies Inc., Vantis Corporation, and Xilinx, Inc. for the purpose of
marketing integrated solutions to joint prospects and customers.
SERVICE AND SUPPORT
OrCAD believes that to compete in the desktop EDA marketplace, it must
provide a unique variety of support services, including customer service,
software implementation, technical support, training and consulting service
referrals.
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OrCAD offers product support agreements that include product updates, access
to electronic bulletin board services, newsletters and technical support
available by telephone, fax, electronic mail and through its World Wide Web
page. OrCAD has created programs for both in-house and on-site training for
all products. In North America, OrCAD has developed a strong technical support
capability comprised primarily of electrical engineers who understand the
customers' design processes and OrCAD's products. Internationally, OrCAD Japan
and VARs provide support to OrCAD customers. In addition, OrCAD's technical
support resources are available to support OrCAD Japan and VARs.
PRODUCT DEVELOPMENT
OrCAD's product development process is customer-centric, led by a product
marketing group which researches customer requirements, and supported by
research and development, test, and documentation teams which develop OrCAD's
products. OrCAD's plans for future developments include productivity
improvements for target applications; language-based design and synthesis;
component-information systems development and support for advanced PCB routing
technology. OrCAD has a MicroSoft Windows C++ development environment, in
which it develops its products using Microsoft Foundation Class UI objects. As
of December 31, 1996, there were 47 people in the above mentioned groups. In
1996, 1995 and 1994, OrCAD invested 21%, 26% and 30% of revenue, respectively,
in research and development. All software development costs are expensed as
incurred.
The EDA industry is characterized by rapid technological change, frequent
new product introductions, evolving industry standards, and changing customer
requirements. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
un-marketable. OrCAD believes that it must continue to commit substantial
resources to product development and that its future success will depend on
its continued ability to enhance its current products and to develop or
acquire new products that keep pace with technological developments, emerging
industry standards and changing customer requirements. There can be no
assurance that OrCAD will be successful in developing and marketing any such
new products or product enhancements, or that such new products and
enhancements will adequately meet the requirements of the marketplace and
achieve market acceptance. In the past, OrCAD has experienced delays in its
introduction of product enhancements and new products. If OrCAD is unable, for
technological or other reasons, to develop and introduce products in a timely
manner in response to changing market conditions or customer requirements,
OrCAD's business, financial condition and results of operations will be
materially and adversely affected.
COMPETITION
The EDA industry is highly competitive. OrCAD currently competes in the
desktop EDA market directly with Viewlogic, which offers Windows- and UNIX-
based products. OrCAD also faces competition from large vendors of traditional
UNIX-based EDA products. Some of these companies, such as Cadence Design
Systems, Inc., Synopsis, Inc., Mentor Graphics Corp. and others, have
announced or shipped Windows-based products. OrCAD also competes with smaller,
privately held companies. A number of OrCAD's competitors have significantly
greater financial, technical and marketing resources than OrCAD, and strong
name recognition. There can be no assurance that these competitors will not
use their superior resources and visibility, and installed customer bases, to
successfully develop better products and/or market their products more
effectively than those of OrCAD. In particular, as a result of the wide
acceptance of UNIX-based EDA tools, vendors of such tools have established
long-term relationships with many of OrCAD's current and potential customers,
and may have the ability to offer these customers a broad suite of Windows-
and UNIX-based products to satisfy the entire range of their design needs.
Finally, in addition to competition from EDA software vendors, OrCAD faces
competition from the internal design groups of many of its customers, who
design and develop customized electronic design automation tools for their own
particular needs and therefore may be reluctant to purchase products offered
by OrCAD or other independent EDA vendors. There can be no assurance that
OrCAD will be able to convert such internal design groups into users of
OrCAD's products. More generally, there can be no assurance that OrCAD will be
able to compete successfully against current and future competitors, both
direct and indirect, or that competitive pressures faced by OrCAD will not
materially adversely affect its business, financial condition and results of
operations.
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PROPRIETARY RIGHTS
OrCAD's success is heavily dependent upon its proprietary software
technology. OrCAD currently relies on a combination of trade secret, copyright
and trademark laws, and contractual provisions to protect its proprietary
rights in its software products. OrCAD also ships its software with a security
device to all customers outside the U.S. and Canada. OrCAD generally enters
into proprietary information and confidentiality agreements with its employees
and distributors, and limits access to and distribution of its software,
documentation and other proprietary information. OrCAD does not license or
release the source code for its proprietary software to its customers, except
in connection with OEM development agreements. Despite these precautions,
there can be no assurance that a third party will not copy or otherwise obtain
and use OrCAD's products or technology without authorization, or develop
similar or superior technology independently. In particular, OrCAD distributes
its products pursuant to "shrink-wrap" licenses. There can be no assurance
that such licenses are enforceable.
In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. Although OrCAD believes
that its products do not infringe on the proprietary rights of third parties,
and although OrCAD has received no communications from third parties alleging
the infringement of the proprietary rights of such parties, there can be no
assurance that infringement claims will not be asserted against OrCAD in the
future and that any such claims will not require OrCAD to enter into costly
litigation. Irrespective of the validity or the successful assertion of such
claims, any such litigation could result in significant diversions of effort
by OrCAD's technical and management personnel, as well as OrCAD's incurring
significant costs with respect to the defense thereof, and could have a
material adverse effect on OrCAD's business, financial condition and results
of operations. In addition, if any claims or actions are asserted against
OrCAD, OrCAD may choose to or be required to obtain a license under a third
party's intellectual property rights. There can be no assurance that under
such circumstances a license would be available upon reasonable terms or at
all.
EMPLOYEES
As of September 30, 1997, OrCAD had 147 employees, including 68 in marketing
and sales, 52 in research and development and 27 in general and administrative
capacities. Of these, 134 were located at OrCAD's headquarters in Beaverton,
Oregon, and 13 were located at OrCAD's subsidiary in Yokohama, Japan. None of
OrCAD's employees is represented by a labor union or is subject to a
collective bargaining agreement. OrCAD believes that its employee relations
are good.
OrCAD's future success depends in significant part upon the continued
service of its key senior management, professional and technical personnel.
OrCAD's future success also depends on its continuing ability to attract and
retain highly qualified technical, professional and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
OrCAD can retain its key employees or that it can attract, assimilate or
retain other highly qualified personnel in the future.
PROPERTIES
OrCAD occupies approximately 39,000 square feet of space at its headquarters
in Beaverton, Oregon under a lease expiring in 2001, subject to OrCAD's right
to extend. OrCAD's subsidiary in Japan leases approximately 3,000 square feet
of space at its Yokohama, Japan office. OrCAD believes that its existing
facilities, including expansion options, are adequate for its current needs
and that suitable additional space will be available as needed.
LEGAL PROCEEDINGS
From time to time, OrCAD becomes involved in ordinary, routine or regulatory
legal proceedings incidental to the business of OrCAD. OrCAD is not presently
a party to any litigation, the outcome of which would have a material adverse
effect on OrCAD's business, financial condition or results of operations.
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SELECTED ORCAD CONSOLIDATED FINANCIAL DATA
The following selected historical financial data of OrCAD have been derived
from OrCAD's historical financial statements. The selected historical
financial data of OrCAD includes the financial results and accounts of
Massteck, Ltd., Intelligent Systems Japan, K.K., Team Corporation and Q Point
Technology from June 1, 1995, December 2, 1995, April 1, 1997 and June 10,
1997, respectively (the dates of each respective acquisition or purchase).
OrCAD's audited Consolidated Balance Sheets as of December 31, 1996 and 1995,
its audited Consolidated Statements of Operations for the years ended December
31, 1996, 1995, and 1994, its unaudited Consolidated Balance Sheet as of
September 30, 1997 and its unaudited Consolidated Statements of Operations for
the nine month periods ended September 30, 1997 and 1996 are included
elsewhere in this Joint Proxy Statement/Prospectus and should be read in
conjunction with such financial statements and the notes thereto. OrCAD's
other audited historical financial statements for 1994, 1993 and 1992 are not
included herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ----------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------ ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
Products............... $17,822 $10,627 $8,020 $ 7,874 $ 7,960 $15,290 $13,364
Service................ 3,085 3,032 1,792 662 942 3,455 2,193
------- ------- ------ ------- ------- ------- -------
Total revenue.......... 20,907 13,659 9,812 8,536 8,902 18,745 15,557
------- ------- ------ ------- ------- ------- -------
Cost and expenses:
Cost of revenue--
products.............. 1,771 1,587 1,713 1,708 1,936 1,986 1,310
Cost of revenue--
service............... 727 488 387 347 375 551 528
Research and
development........... 4,286 3,561 2,907 4,140 4,468 4,174 3,222
Marketing and sales.... 7,079 4,934 3,569 3,442 2,514 7,611 5,337
General and
administrative........ 3,063 1,904 1,363 962 1,945 2,234 2,240
In-process research and
development........... -- 971 -- -- -- 2,203 --
------- ------- ------ ------- ------- ------- -------
Total cost and
expenses.............. 16,926 13,445 9,939 10,599 11,238 18,759 12,637
------- ------- ------ ------- ------- ------- -------
Income (loss) from
operations............. 3,981 214 (127) (2,063) (2,336) (14) 2,920
------- ------- ------ ------- ------- ------- -------
Other income:
Interest income
(expense), net........ 1,207 53 (62) (24) -- 1,118 820
Other, net............. 65 52 218 146 245 (8) 68
------- ------- ------ ------- ------- ------- -------
1,272 105 156 122 245 1,110 888
------- ------- ------ ------- ------- ------- -------
Income (loss) before
income taxes........... 5,253 319 29 (1,941) (2,091) 1,096 3,808
Income taxes............ 1,051 4 -- -- -- 383 800
------- ------- ------ ------- ------- ------- -------
Net income (loss)....... $ 4,202 $ 315 $ 29 $(1,941) $(2,091) $ 713 $ 3,008
======= ======= ====== ======= ======= ======= =======
Net income (loss) per
common and common
equivalent share....... $ .63 $ .07 $ .01 $ (.99) $ (1.05) $ 0.10 $ 0.47
======= ======= ====== ======= ======= ======= =======
Weighted average number
of common and common
equivalent shares
outstanding............ 6,618 4,775 4,211 1,960 1,986 6,995 6,407
======= ======= ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1996 1995 1997
------- ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................... $29,272 $ 2,080 $26,467
Working capital................................. 29,645 1,611 27,439
Total assets.................................... 38,250 10,665 39,556
Total stockholders' equity...................... 33,934 6,114 34,742
</TABLE>
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ORCAD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Joint Proxy Statement/Prospectus
contain forward-looking statements within the meaning of the Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended
to identify such forward-looking statements. OrCAD's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in "Quarterly Results of Operations" as well as those discussed in
this section and elsewhere in this Joint Proxy Statement/Prospectus, and other
risks detailed from time to time in OrCAD's Securities and Exchange Commission
reports. The industry in which OrCAD competes and the markets that it serves
are highly cyclical. OrCAD is dependent upon the semiconductor and, more
generally, the computer and electronics industries. Each of these industries
is characterized by rapid technological change, short product life cycles,
fluctuations in manufacturing capacity and pricing and gross margin pressures.
Segments of these industries, in each of the United States, Europe and Japan,
have from time to time experienced significant economic downturns
characterized by decreased product demand, reductions in capital expenditures,
production over-capacity, price erosion, work slowdowns and layoffs. In
addition, portions of these industries have experienced downturns at different
times. Over the past few years, these industries have experienced an extended
period of significant economic growth in North America, although in Europe and
Japan the growth of such industries has been slower. There can be no assurance
that such economic growth in North America will continue, and if it does not,
any downturn could be severe. OrCAD's operations may in the future reflect
substantial fluctuations from period to period as a consequence of such
industry patterns, general economic conditions affecting the timing of orders
from major customers, and other factors affecting capital spending. There can
be no assurance that such factors will not have a material adverse effect upon
OrCAD's business, financial condition and results of operations.
OVERVIEW
OrCAD was formed in September 1991 as the successor to prior entities
engaged in developing electronic design automation tools. From its inception,
OrCAD has been engaged in the development and marketing of a broad family of
EDA products including schematic capture, digital simulation, programmable
logic design and printed circuit board layout. From 1993 to 1994, OrCAD
upgraded its entire DOS product family to the 386+ series, intended for
optimal performance with PCs based on Intel 386 and 486 microprocessors. In
1995, OrCAD introduced OrCAD Design Desktop for Windows, a new product family
designed for the 32-bit Windows operating system that included OrCAD Capture
for Windows, OrCAD Simulate for Windows, OrCAD Layout for Windows, OrCAD
Layout Ltd. for Windows and OrCAD Layout Plus for Windows. In 1997 OrCAD
introduced OrCAD Express for Windows, OrCAD Express Enterprise Edition, OrCAD
Capture Enterprise Edition, OrCAD Layout Engineers' Edition, and OrCAD
Enterprise Bridge. From OrCAD's inception through the first six months of
1995, OrCAD earned substantially all of its revenue from its DOS-based EDA
products. For the year ended December 31, 1996, and for the nine months ended
September 30, 1997, Windows-based products accounted for more than 90% of
OrCAD's total revenue.
In June 1995, OrCAD acquired Massteck Ltd., a developer of Windows-based PCB
layout technology. This acquisition enabled OrCAD to introduce the OrCAD
Layout for Windows product family in June 1995, simultaneously with the
release of OrCAD Capture for Windows. In December 1995, OrCAD acquired
Intelligent Systems Japan (ISJ), OrCAD's distributor in Japan since 1991. The
entity is now known as OrCAD Japan, K.K., and operates as a wholly owned
subsidiary of OrCAD.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of
OrCAD's statements of operations as a percentage of its total revenue:
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AS A PERCENTAGE OF TOTAL REVENUE
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ---------------
1996 1995 1994 1997 1996
---- ---- ---- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Products.................................. 85% 78% 82% 82% 86%
Service................................... 15 22 18 18 14
--- --- --- ------ ------
Total revenue........................... 100 100 100 100 100
--- --- --- ------ ------
Cost and expenses:
Cost of revenue--products................. 8 11 17 11 8
Cost of revenue--service.................. 3 4 4 3 3
Research and development.................. 21 26 30 22 21
Marketing and sales....................... 34 36 36 41 34
General and administrative................ 15 14 14 12 14
In-process research and development....... -- 7 -- 12 --
--- --- --- ------ ------
Total cost and expenses................. 81 98 101 101 80
--- --- --- ------ ------
Income (loss) from operations............... 19 2 (1) (1) 20
--- --- --- ------ ------
Other income:
Interest income (expense), net............ 6 -- (1) 6 5
Other, net................................ -- -- 2 -- --
--- --- --- ------ ------
6 -- 1 6 5
--- --- --- ------ ------
Income before income taxes.................. 25 2 -- 5 25
Income taxes................................ 5 -- -- 2 5
--- --- --- ------ ------
Net income.................................. 20% 2% -- % 3% 20%
=== === === ====== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue
OrCAD derives revenue from the licensing of its software products and from
the provision of maintenance and training services to customers. OrCAD
recognizes revenue from software licenses after shipment of product and when
no significant contractual obligations remain outstanding. Service revenue is
derived primarily from product support agreements that provide customers
access to product enhancements, technical support, bulletin board services and
a subscription to the OrCAD Design Desktop Quarterly, a newsletter produced by
OrCAD. Revenue from each product support agreement is deferred and recognized
ratably over the term of the product support agreement. Revenue from customer
training is recognized as services are performed.
Total revenue increased 53% to $20.9 million in 1996 from $13.7 million in
1995. Total revenue increased 39% in 1995 from $9.8 million in 1994. These
increases were due to growth in both product revenue and service revenue. As a
percentage of total revenue, product revenue increased to 85% in 1996 from 78%
in 1995 and 82% in 1994. Conversely, service revenue decreased as a percentage
of total revenue to 15% in 1996 from 22% in 1995 and 18% in 1994.
Product revenue increased 68% to $17.8 million in 1996 from $10.6 million in
1995. Product revenue increased 33% in 1995 from $8.0 million in 1994. The
acquisition of OrCAD Japan accounted for approximately
55
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$3.2 million of the $7.2 million increase in product revenue in 1996. The
remaining increase in product revenue in 1996 was primarily attributable to
growth in sales of OrCAD Design Desktop for Windows, particularly in the
Layout and Simulate product lines. The increase in 1995 was primarily due to
increased revenue from sales of the recently introduced OrCAD Design Desktop
for Windows product family at generally higher average selling prices than for
previous products, and the recognition of revenue previously deferred until
the release of OrCAD Capture for Windows, partially offset by decreased
revenue from sales of DOS-based products. In 1994, OrCAD began selling its
"Capture upgrade," consisting of a product support agreement for SDT 386+ and
the right to upgrade to OrCAD Capture for Windows at no further charge. No
product revenue from the Capture upgrade was recognized in 1994, although a
portion of the revenue was deferred until the release of OrCAD Capture for
Windows. In addition, to the extent OrCAD sold upgrades to its Windows-based
products rather than the new products themselves, product revenue in 1995 was
less than it otherwise might have been because upgrades have significantly
lower average selling prices than new products and a higher proportionate
service revenue content.
Service revenue increased 2% to $3.1 million in 1996 from $3.0 million in
1995. Service revenue increased 69% in 1995 from $1.8 million in 1994. The
higher increase in product revenue in 1996 as compared to service revenue was
primarily attributable to an increase in sales of Windows-based products, a
higher proportion of which is recognized as product revenue. The increase in
service revenue in 1995 as a percentage of total revenue was primarily
attributable to a shift in product mix from new product sales to upgrade
sales. This shift resulted in increased service revenue because a higher
proportion of revenue from sales of upgrade products is generally allocated to
and deferred as service revenue than for new product sales.
Total North American revenue increased 34% to $12.7 million in 1996 from
$9.5 million in 1995. Total revenue generated outside North America increased
98% to $8.2 million in 1996 from $4.1 million in 1995. Total North American
revenue increased 60% to $9.5 million in 1995 from $6.0 million in 1994. Total
revenue generated outside North America remained relatively constant from 1994
to 1995, at $3.9 million and $4.1 million, respectively. As a percentage of
OrCAD's total revenue, revenue generated outside North America increased to
39% in 1996 from 30% in 1995 and decreased to 30% in 1995 from 39% in 1994.
The increase in the proportion of revenue generated outside of North America
was principally attributable to the acquisition of OrCAD Japan. In 1995
OrCAD's sales to OrCAD Japan, which was OrCAD's distributor until December 2,
1995, amounted to approximately 8% of total revenue. In 1996, sales by OrCAD
Japan amounted to approximately 21% of total revenue. This increase in revenue
attributable to OrCAD Japan as a percentage of total revenue was primarily the
result of OrCAD recognizing the full selling price of products sold by OrCAD
Japan, whereas in 1995, prior to the acquisition, OrCAD's products were sold
to OrCAD Japan at prices reflecting a substantial discount from OrCAD Japan's
selling prices. The greater proportion of North American revenue to total
revenue in 1995 was attributable to the earlier releases of OrCAD's new
Windows-based products in the North American market. In addition, OrCAD's
North American customer base traditionally has adopted new products earlier
than its international customer base.
Cost of Revenue
The cost of product revenue represents the costs associated with the
licensing of OrCAD's products, such as expenses of reproducing product
documentation, disks and packaging, hardware locks, shipping costs and
royalties paid to external developers. The cost of product revenue increased
12% to $1.8 million in 1996 from $1.6 million in 1995. The cost of product
revenue decreased 7% to $1.6 million in 1995 from $1.7 million in 1994. The
increase in cost of product revenue in 1996 is primarily due to an increased
level of product sales partially offset by lower royalty costs resulting from
OrCAD's purchase of source code previously licensed from outside developers,
and OrCAD's decision to develop Windows-based products internally rather than
through outside developers, as well as to reduced expenditures for software
documentation and packaging. As a percentage of product revenue, cost of
product revenue decreased to 10% in 1996 from 15% in 1995 and from 21% in
1994. This decrease was primarily the result of higher average selling prices
resulting from the sale of OrCAD Design Desktop for Windows, primarily in the
PCB Layout and Simulate product lines.
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<PAGE>
The cost of service revenue includes the costs of providing software
maintenance, such as technical support, software revision releases and updated
user documentation, and the costs of providing training. The cost of service
revenue increased 49% to $727,000 in 1996 from $488,000 in 1995. The cost of
service revenue increased 26% to $488,000 in 1995 from $387,000 in 1994. Both
increases reflected increased service obligations as a result of increased
training, product, upgrade and product support agreement sales. As a
percentage of service revenue, cost of service revenue increased to 24% in
1996 from 16% in 1995 and from 22% in 1994. This increase reflected the
absorption of relatively fixed costs and costs of increased technical support
personnel in 1995 and 1996 over a relatively constant service revenue base.
Research and Development
Research and development expenses include the costs of developing new
products and enhancements to existing products. Software development costs are
expensed as incurred, in that technological feasibility is generally not
established until shortly before the release of a new product and no material
development costs are incurred after establishment of technological
feasibility. Research and development expenses increased 20% to $4.3 million
in 1996 from $3.6 million in 1995. Research and development expenses increased
22% to $3.6 million in 1995 from $2.9 million in 1994. The increase in
research and development expenses in 1996 was primarily attributable to
increased headcount largely resulting from the acquisitions of OrCAD Japan and
Massteck, partially offset by a reduction in costs for engineering
consultants. The increase in research and development expenses in 1995 over
the same period a year earlier was attributable to increased personnel costs,
including costs associated with increased headcount and the engagement of
engineering consultants. As a percentage of total revenue, research and
development expenses decreased to 21% in 1996 from 26% in 1995 and from 30% in
1994. OrCAD expects research and development expenses to continue to increase
in absolute terms.
Marketing and Sales
Marketing and sales expenses include salaries, commissions and related
personnel costs, and other sales and promotional expenses. Marketing and sales
expenses increased 43% to $7.1 million in 1996 from $4.9 million in 1995.
Marketing and sales expenses increased 38% to $4.9 million in 1995 from $3.6
million in 1994. The growth in marketing and sales expenses in 1996 was
primarily attributable to increased compensation expense related to the growth
in the direct telesales organization and increased headcount for marketing
personnel, the acquisitions of OrCAD Japan and Massteck, and greater marketing
related activities. OrCAD incurred approximately $338,000 in additional
expenses in 1996 related to the amortization of intangible assets acquired in
connection with the acquisition of OrCAD Japan. In addition, OrCAD increased
its sales and marketing headcount by four employees as a result of the
acquisition of Massteck. The increase in sales and marketing expenses in 1995
was principally attributable to increased personnel costs, including costs
associated with increased headcount and compensation expenses related to
growth in the direct telesales organization and the establishment of a direct
field sales force. As a percentage of total revenue, marketing and sales
expenses decreased to 34% in 1996 from 36% in 1995 and 1994. OrCAD expects
marketing and sales expenses to continue to increase in absolute terms.
General and Administrative
General and administrative expenses include the costs associated with
OrCAD's executive office, human resources, finance, information systems and
operations functions. General and administrative expenses increased 61% to
$3.1 million in 1996 from $1.9 million in 1995. General and administrative
expenses increased 40% to $1.9 million in 1995 from $1.4 million in 1994. The
increase in general and administrative expenses in 1996 was attributable to
the acquisition of OrCAD Japan, increased personnel costs, including costs
associated with increased headcount to support the growth in operations and
the additional costs associated with being a public company. The acquisition
of OrCAD Japan resulted in approximately $493,000 of general and
administrative expenses in 1996. The increase in general and administrative
expenses in 1995 was attributable to expenses incurred as OrCAD built a more
sophisticated information systems infrastructure. As a percentage of total
57
<PAGE>
revenues, general and administrative expenses increased to 15% in 1996 from
14% in 1995 and 1994. OrCAD expects general and administrative expenses to
continue to increase in absolute terms to support the growth in operations and
the additional costs associated with being a public company.
In-Process Research and Development
In connection with OrCAD's acquisition of Massteck in 1995, OrCAD expensed
approximately $971,000 of in-process research and development costs associated
with certain Windows-based PCB layout technology which had not yet reached
technological feasibility.
Other Income, Net
Other income, net consists of interest income, gains and losses on the
disposal of property and equipment, sublease income, royalty income and
foreign currency gains and losses. Interest income consists primarily of the
earnings on available cash balances and marketable securities, which have
generally been invested in short-term money market investments, treasury bills
and corporate debt securities. Other income, net increased to $1.3 million in
1996 from $105,000 in 1995 and from $156,000 in 1994. The increase in other
income, net in 1996 was almost entirely from higher interest income earned on
increased cash and marketable securities balances generated from the initial
public offering completed in March 1996. The decrease in other income, net
from 1994 to 1995 was due primarily to the completion in 1994 of the payments
associated with the VHDL modeling division divestiture.
Income Taxes
OrCAD's effective tax rate for 1996 was 20.0%, which differs from the
combined federal and state statutory rate of approximately 38.5% primarily due
to the use of net operating loss carryforwards, and the foreign tax rate
differential applicable to earnings of OrCAD Japan. OrCAD incurred net losses
through 1994 for tax purposes and consequently paid no income taxes through
that year. Due to these losses, OrCAD had federal and state net operating loss
carryforwards for tax purposes of approximately $1.5 million and $1.2 million
as of December 31, 1996, respectively. These carryforwards expire from 2006
through 2009. Net operating loss carryforwards were used to offset taxes
payable on 1995 net income.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenue
Total revenue increased 20% from $15.6 million in the first nine months of
1996 to $18.7 million in the first nine months of 1997. The increased revenue
was due to the introduction of successful new products and a new distribution
channel. In the first nine months of 1997, the Company introduced OrCAD
Capture Enterprise Edition, OrCAD Express, OrCAD Express Enterprise Edition,
OrCAD Layout Engineer's Edition and OrCAD Enterprise Bridge and acquired
certain assets of TEAM Corporation and hired TEAM's field sales staff and
support organization. The remaining increase in total revenue was due to
overall growth in product and service revenue. As a percentage of total
revenue, product revenue decreased from 86% in the first nine months of 1996
to 82% in the first nine months of 1997. Conversely, service revenue increased
as a percentage of total revenue from 14% in the first nine months of 1996 to
18% in the first nine months of 1997.
Product revenue increased 14% from $13.4 million in the first nine months of
1996 to $15.3 million in the first nine months of 1997. The increase in
product revenue was primarily attributable to the introduction of OrCAD
Capture Enterprise Edition, OrCAD Express, OrCAD Express Enterprise Edition,
OrCAD Layout Engineer's Edition and OrCAD Enterprise Bridge.
Service revenue increased 58% from $2.2 million in the first nine months of
1996 to $3.5 million in the first nine months of 1997. The increase in service
revenue from the first nine months of 1996 to the first nine months of 1997
was primarily attributable to increased sales of extended support agreements
and training revenue.
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<PAGE>
Total North American revenue increased 39% from $9.2 million in the first
nine months of 1996 to $12.9 million in the first nine months of 1997. Total
revenue generated outside of North America decreased 7% from $6.3 million in
the first nine months of 1996 to $5.9 million in the first nine months of
1997. As a percentage of the Company's total revenue, North American revenue
increased from 59% in the first nine months of 1996 to 69% in the first nine
months of 1997. The increase in the proportion of revenue generated in North
America was principally attributable to the formation and integration of a
field sales group into the North American sales territory and the introduction
of five new products: OrCAD Capture Enterprise Edition, OrCAD Express, OrCAD
Express Enterprise Edition, OrCAD Layout Engineer's Edition and OrCAD
Enterprise Bridge. The decrease in the proportion of revenue generated outside
of North America was due in part to the typically lower initial adoption rate
for new products in Europe and Asia.
Cost of Revenue
The cost of product revenue increased 52% from $1.3 million in the first
nine months of 1996 to $2.0 million in the first nine months of 1997. The
increase was primarily attributable to an increased level of product sales,
higher royalty costs associated with OrCAD Capture Enterprise Edition and
OrCAD Express Enterprise Edition relative to other product lines and certain
commissions paid to North American value-added resellers. As a percentage of
product revenue, cost of product revenue increased from 10% in the first nine
months of 1996 to 13% in the first nine months of 1997. This increase was
primarily the result of the royalty costs associated with OrCAD Capture
Enterprise Edition and OrCAD Express Enterprise Edition and commissions paid
to North American resellers.
The cost of service revenue increased 4% from $528,000 in the first nine
months of 1996 to $551,000 in the first nine months of 1997. As a percentage
of service revenue, the cost of service revenue decreased from 24% in the
first nine months of 1996 to 16% in the first nine months of 1997. This
decrease reflected the absorption of relatively fixed costs over the increased
service revenue base.
Research and Development
Research and development expenses increased 30% from $3.2 million in the
first nine months of 1996 to $4.2 million in the first nine months of 1997.
The increase in research and development expenses was attributable to
increased personnel costs, including costs associated with increased
headcount, recruiting, third party engineering and the engagement of contract
testers. As a percentage of total revenue, research and development expenses
increased from 21% in the first nine months of 1996 to 22% in the first nine
months of 1997. OrCAD expects research and development expenses to continue to
increase in absolute terms.
Marketing and Sales
Marketing and sales expenses increased 43% from $5.3 million in the first
nine months of 1996 to $7.6 million in the first nine months of 1997. The
increase in marketing and sales expenses was due to increased head count, the
formation of a field sales group and promotional expenses associated with the
introduction of OrCAD Capture Enterprise Edition, OrCAD Express, OrCAD Express
Enterprise Edition, OrCAD Layout Engineer's Edition and OrCAD Enterprise
Bridge products in the first nine months of 1997. As a percentage of total
revenue, marketing and sales expenses increased from 34% in the first nine
months of 1996 to 41% in the first nine months of 1997.
General and Administrative
General and administrative expenses remained level at $2.2 million for the
first nine months of 1996 and the first nine months of 1997. As a percentage
of total revenue, general and administrative expenses decreased from 14% in
the first nine months of 1996 to 12% in the first nine months of 1997. This
decrease reflects the absorption of essentially unchanged general and
administrative costs in the first nine months of 1997 as compared to the first
nine months of 1996 over a higher revenue base.
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In-Process Research and Development
In connection with OrCAD's acquisition of certain software technology of
TEAM Corporation and Q Point Technology in the second quarter of 1997, OrCAD
expensed approximately $2.2 million of in-process research and development
costs associated with certain technology which had not yet reached
technological feasibility. There were no in-process research and development
costs incurred in the first nine months of 1996.
Other Income, Net
Other income, net increased from $888,000 in the first nine months of 1996
to $1.1 million in the first nine months of 1997. This improvement resulted
primarily from higher interest income earned on increased cash and cash
equivalents and investment balances resulting from the proceeds of OrCAD's
initial public offering completed in March 1996.
Income Tax Expense
The effective tax rate for the first nine months of 1997 was 35.0%, which
differs from the combined federal and state statutory rate of approximately
38.5% because of the utilization of net operating loss carryforwards, the
utilization of research and experimentation tax credits, and the benefit of
OrCAD's foreign sales corporation. Income tax expense for the first half of
1997 was $383,000 as compared to $800,000 for the first nine months of 1996.
The decrease in income tax expense is primarily attributable to in-process
research and development charges related to the acquisition of certain assets
of TEAM Corporation and Q Point Technology. The increase in the estimated
effective tax rate in the first nine months of 1997 as compared to the first
nine months of 1996 is primarily due to the utilization of net operating loss
carryforwards in 1996.
QUARTERLY RESULTS OF OPERATIONS
OrCAD's quarterly operating results have in the past varied and may in the
future vary significantly depending on factors such as increased competition,
timing of new product announcements, releases and pricing changes by OrCAD or
its competitors, length of sales cycles, market acceptance or delays in the
introduction of new or enhanced versions of OrCAD's products, timing of
significant orders, seasonal factors, mix of direct and indirect sales,
product mix, and economic conditions generally and in the EDA industry
specifically. In particular, OrCAD's quarterly operating results have in the
past fluctuated as a result of the timing of the introduction of new products
to the market, with customers waiting to place orders until new products
became available. OrCAD's quarterly operating results have also fluctuated as
a result of seasonality of customer buying patterns. A substantial portion of
OrCAD's revenue in each quarter results from orders booked in that quarter.
Revenue from quarter to quarter is difficult to forecast, as minimal backlog
exists at the end of any quarter because OrCAD's products typically are
shipped and revenue recognized promptly after receipt of customers' orders.
OrCAD's expense levels are based, in part, on its expectations as to future
revenue. If revenue levels are below expectations, operating results are
likely to be adversely affected. In particular, net income may be
disproportionately affected by a reduction in revenue because only a small
portion of OrCAD's expenses varies with its revenue. OrCAD has recently
experienced rapid growth and expansion. There can be no assurance that OrCAD
will be able to grow in future periods, that it will be able to sustain its
historical rate of revenue growth, or that its operations will remain
profitable. Due to the foregoing factors, OrCAD believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.
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SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
-----------------------------------------------------------------------
1996 1995
---------------------------------- -----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products............... $4,248 $4,579 $4,537 $4,458 $2,076 $2,671 $2,714 $3,166
Service................ 677 730 786 892 641 728 780 883
------ ------ ------ ------ ------ ------ ------ ------
Total revenue.......... 4,925 5,309 5,323 5,350 2,717 3,399 3,494 4,049
------ ------ ------ ------ ------ ------ ------ ------
Cost and expenses:
Cost of revenue--
products.............. 447 395 468 461 449 330 397 411
Cost of revenue--
service............... 165 192 171 199 89 111 135 153
Research and
development........... 1,005 1,150 1,067 1,064 773 934 915 939
Marketing and sales.... 1,695 1,813 1,829 1,742 937 1,232 1,171 1,594
General and
administrative........ 756 741 743 823 395 430 447 632
In-process research and
development........... -- -- -- -- -- 971 -- --
------ ------ ------ ------ ------ ------ ------ ------
Total cost and
expenses.............. 4,068 4,291 4,278 4,289 2,643 4,008 3,065 3,729
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. 857 1,018 1,045 1,061 74 (609) 429 320
Other income (expense),
net.................... 110 367 411 384 (2) 10 44 53
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
taxes.................. 967 1,385 1,456 1,445 72 (599) 473 373
Income tax expense...... 184 310 306 251 -- -- 1 3
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 783 $1,075 $1,150 $1,194 $ 72 $ (599) $ 472 $ 370
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
THREE-MONTH PERIOD ENDED
-----------------------------------------------------------------------
1996 1995
---------------------------------- -----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenue:
Revenue:
Products............... 86% 86% 85% 83% 76% 79% 78% 78%
Service................ 14 14 15 17 24 21 22 22
------ ------ ------ ------ ------ ------ ------ ------
Total revenue.......... 100 100 100 100 100 100 100 100
------ ------ ------ ------ ------ ------ ------ ------
Cost and expenses:
Cost of revenue--
products.............. 9 7 9 9 17 10 11 10
Cost of revenue--
service............... 3 4 3 4 3 3 4 4
Research and
development........... 20 22 20 20 28 27 26 23
Marketing and sales.... 34 34 34 33 34 36 34 39
General and
administrative........ 15 14 14 15 15 13 13 16
In-process research and
development........... -- -- -- -- -- 29 -- --
------ ------ ------ ------ ------ ------ ------ ------
Total cost and
expenses.............. 81 81 80 81 97 118 88 92
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. 19 19 20 19 3 (18) 12 8
Other income (expense),
net.................... 2 7 8 7 -- -- 1 1
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
taxes.................. 21 26 28 26 3 (18) 13 9
Income tax expense...... 4 6 6 5 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... 17% 20% 22% 21% 3% (18%) 13% 9%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
OrCAD's total revenue increased each quarter in 1996. The decline in product
revenue in the third and fourth quarters of 1996 was primarily due to a higher
proportion of product support agreement sales, reflecting renewals of product
support agreements and a general increase in OrCAD's installed base. Total
revenue and product revenue increased each quarter in 1995. Total revenue and
product revenue increased substantially in the second quarter of 1995,
reflecting the release in June 1995 of the first two OrCAD Design Desktop for
Windows products--OrCAD Capture for Windows and the OrCAD Layout for Windows
product family. Revenue from these products resulted both from new sales
during the quarter and from revenue previously deferred on sales of
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the Capture Upgrade. Revenue also increased significantly in the first quarter
of 1996 primarily due to the acquisition of OrCAD Japan in December 1995.
Service revenue increased in each quarter in 1996 and 1995, with the exception
of the decline in the first quarter of 1996. The decline in service revenue in
the first quarter of 1996 was primarily due to an increase in sales of
Windows-based products, a higher proportion of which are recognized as product
revenue.
The cost of revenue has varied on a quarterly basis as a result of a number
of factors, including differing margins and royalties payable to third
parties, costs associated with providing product updates under both product
support agreements and initial product warranties, discounts allowed on sales
to OrCAD's distributor in Japan in 1995 and commissions paid to VARs. The cost
of revenue as a percentage of total revenue reflects a general downward trend
in the cost of revenue through the second quarter of 1996. The cost of revenue
as a percentage of total revenue in the first quarter of 1995 reflects the
relatively higher sales of lower margin products and royalty payments to third
parties. The subsequent decrease in the second quarter of 1995 reflects the
elimination of royalties formerly paid to Massteck as a result of the Massteck
acquisition and the discontinuation of a low margin OEM product family.
Operating expenses have generally increased in absolute terms as OrCAD has
increased expenditures and staffing in its research and development, sales and
marketing, and general and administrative functions. In particular, personnel
were added to research and development to accelerate the completion of the
OrCAD Design Desktop for Windows product family, supplemented by consultants
in various quarters. OrCAD also added personnel to marketing and sales to
create and expand its direct telesales organization and more recently its
direct field sales force for strategic accounts. In addition, the occurrence
of major tradeshows and associated product release publicity expenditures
caused marketing and sales expenses to increase substantially in the second
quarter of 1996 and 1995. OrCAD incurred an increase in sales and marketing
expenses due to certain promotional costs associated with the release of
certain of OrCAD's Windows-based products in the fourth quarter of 1995.
OrCAD's general and administrative expenses increased substantially in the
fourth quarter of 1996 due to the incurrence of a bad debt charge related to a
distributor in Japan. General and administrative expenses increased
substantially in the fourth quarter of 1995 as a result of the consolidation
of OrCAD Japan's operations with those of OrCAD.
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents were $24.5 million at September 30, 1997, as
compared to $20.3 million at December 31, 1996. Cash provided by operations
was $3.4 million for the first nine months of 1997 as compared to $3.5 million
for the first nine months of 1996. The decrease in cash provided by operations
for the first nine months of 1997 as compared to the first nine months of 1996
was primarily due to increases in trade accounts receivable and a reduction in
accrued taxes. Cash provided by investing activities was $684,000 for the
first nine months of 1997 as compared to $9.5 million used in the first nine
months of 1996. Purchases of investment securities with the proceeds of the
initial public offering in March 1996 accounted for a substantial portion of
cash used in investing activities in the first nine months of 1996. Cash
provided by investing activities during the first nine months of 1997 was
generated primarily from the sale of short-term securities.
The completion of the initial public offering of common stock in March 1996
and the exercise of OrCAD's underwriters over-allotment option in April 1996
resulted in net proceeds of $23.3 million which improved OrCAD's current ratio
to 7.9:1 at December 31, 1996 from 1.4:1 at December 31, 1995. Working capital
improved to $29.6 million at December 31, 1996 from $1.6 million at December
31, 1995.
OrCAD has available borrowing capacity consisting of a $3.0 million line of
credit from a commercial bank. As of December 31, 1996, there was no
indebtedness outstanding under this facility. OrCAD believes that current cash
and investment balances, cash flows from operations and the unused line of
credit are sufficient to meet current and anticipated future capital
requirements for at least the next twelve months. OrCAD currently has no
significant capital commitments other than commitments under facility
operating leases. OrCAD has from time to time evaluated and continues to
evaluate opportunities for acquisitions and expansion and, consistent with
this
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practice, is currently engaged in preliminary discussions with other parties
regarding possible acquisitions. Any such transactions, if consummated, may
use a portion of OrCAD's working capital or necessitate additional bank
borrowings. No assurance can be given that additional borrowing capacity will
be available or that, if available, such financing will be obtainable on terms
favorable to OrCAD or its stockholders.
Cash and cash equivalents increased $18.2 million from December 31, 1995 to
December 31, 1996 and $1.5 million from December 31, 1994 to December 31,
1995. Net cash of $4.9 million, $1.6 million, and $1.3 million was provided by
operations in 1996, 1995 and 1994, respectively. Net income accounted for a
substantial portion of the change in cash from operations from 1995 to 1996,
and net income, after consideration of the non-cash in-process research and
development charge, accounted for a substantial portion of cash from
operations in 1995. Purchases of investment securities with the proceeds of
the initial public offering and acquisitions of fixed assets accounted for a
substantial portion of the cash used in investing activities of $9.9 million
in 1996. In 1995, cash provided by investing activities of $21,000 reflected
cash acquired in the acquisitions of OrCAD Japan and Massteck, partially
offset by the acquisition of fixed assets and intangibles. Acquisitions of
fixed assets accounted for a substantial amount of the cash used in investing
activities of $180,000 in 1994. Proceeds from the initial public offering
accounted for nearly all of the $23.3 million of cash generated from financing
activities in 1996. Cash used in financing activities in 1995 of $87,000
reflected payments on capital lease obligations, partially offset by the
proceeds from the issuance of common stock. Borrowings and repayments under
OrCAD's line of credit accounted for a substantial portion of the $825,000
used in financing activities in 1994.
The functional currency of OrCAD's Japanese subsidiary, OrCAD Japan, is the
Japanese yen which must be translated to U.S. dollars for consolidation.
Generally, Japanese sales are denominated in the Japanese yen. From December
31, 1995 to December 31, 1996, the U.S. dollar strengthened by approximately
12% against the Japanese yen. This strengthening of the U.S. dollar resulted
in lower reported revenues and operating expenses due to translation of the
Japanese yen to U.S. dollars for consolidated financial reporting. As such,
OrCAD's business and operating results will be impacted by the effects of
future U.S. dollar and Japanese yen currency fluctuations.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share." This Statement establishes a different method of computing net income
per share than is currently required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS No. 128, OrCad will be required to
present both basic net income per share and diluted net income per share.
Basic net income per share is expected to be comparable or slightly higher
than the currently presented net income per share as the effect of dilutive
stock options will not be considered in computing basic net income per share.
Diluted net income per share is expected to be comparable or slightly lower
than the currently presented net income per share.
OrCAD plans to adopt SFAS No. 128 in the fourth quarter of 1997 and at that
time all historical net income per share data presented will be restated to
conform to the provisions of this Statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for the reporting and display of
comprehensive income and its components. OrCAD plans to adopt SFAS No. 130 on
January 1, 1998. The impact on OrCAD's Financial Statements is not expected to
be material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes standards
for reporting operating segments in annual Financial Statements and requires
selected information about operating segments in interim Financial Statements.
OrCAD plans to adopt SFAS No. 131 on January 1, 1998. The impact on OrCAD's
Financial Statements is not expected to be material.
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BUSINESS OF MICROSIM
OVERVIEW
MicroSim develops, markets and supports Microsoft Windows-based and Unix-
based electronic design automation ("EDA") software products that assist
electronics designers in designing integrated circuits ("ICs") and printed
circuit boards ("PCBs"), including circuits that include both analog and
digital components ("mixed-signal" circuits). MicroSim is one of the desktop
EDA industry's leading brand names and suppliers for analog and mixed-signal
simulation products. These products have accounted for over 90% of MicroSim's
revenue since its inception. MicroSim products enable electronic circuit
designers to reduce time to market, improve product capability and reduce
design costs. MicroSim's EDA solutions support the design process for
mainstream components, from schematic capture to verification to programmable
logic design to printed circuit board layout. Over 30,000 products bearing the
MicroSim name have been sold worldwide since 1984.
PRODUCTS
MicroSim's products address the process of designing analog and mixed-signal
circuits from schematic capture to PCB layout. With MicroSim products,
engineers can move back and forth, from the schematic to simulation to
programmable logic synthesis to PCB layout, continuously improving circuit
performance. Engineers can also browse the circuit and identify opportunities
to optimize various facets of the design. MicroSim's principal products are
designed for Windows.
MicroSim Schematics is a graphical EDA front-end that speeds the process of
designing an electronic system. Engineers using MicroSim Schematics can create
a schematic, simulate it, and prepare it for printed circuit board layout, all
with the same 32-bit Windows-standard user interface. Its "Design Journal"
capability allows engineers to explore alternative solutions simultaneously,
enabling them to create better designs faster. MicroSim Schematics includes
(i) a schematic editor that is integrated with MicroSim's other products; (ii)
a design manager that allows design engineers to browse their design
workspace; (iii) a parts library, containing more than 40,000 parts, together
with a part editor and wizard that allows designers to quickly modify existing
parts or create new ones; and (iv) features to create reports and send design
data to other tools, such as AutoCAD.
MicroSim PSpice A/D is an analog/digital simulator that offers the design
engineer close integration between analog and digital designs, and integrates
both simulation and waveform analysis for mixed analog and digital systems.
Many of today's electronic circuits combine both analog and digital
components. MicroSim PSpice A/D accelerates the design of these circuits by
providing simulation and analysis of the system before it is built. MicroSim
PSpice A/D includes (i) MicroSim Schematics; (ii) a graphical waveform display
and analysis program that allows engineers to view and calculate circuit
performance; (iii) a library of over 10,000 models for analog and digital
parts; and (iv) a graphical simulation model editor that allows engineers to
modify models and create new ones.
MicroSim PSpice is an analog only simulator that MicroSim first introduced
in 1984, and has enhanced in numerous releases since. MicroSim PSpice's
integration with MicroSim Schematics allows engineers to analyze and refine
their designs in a single Windows-based graphical environment. The analysis
capabilities (such as parametric analysis and Monte Carlo analysis) of
MicroSim PSpice give engineers an understanding of circuit performance that
enables them to create better designs. MicroSim PSpice includes (i) MicroSim
Schematics; (ii) a graphical waveform display and analysis program that allows
engineers to view and calculate circuit performance; (iii) a library
containing more than 8,500 analog part models; and (iv) a graphical simulation
model editor that allows engineers to modify models and create new ones.
MicroSim PSpice A/D Basics+ and MicroSim PSpice Basics are entry-level
versions of MicroSim PSpice A/D and MicroSim PSpice.
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MicroSim PCBoards assists in the layout of printed circuit boards. It is
integrated with MicroSim Schematics and MicroSim PSpice A/D, allowing
engineers to do both circuit design and layout to improve overall circuit
performance and time-to-market. MicroSim PCBoards includes the industry
leading Cadence (formerly Cooper & Chyan Technology) SPECCTRA ShapeBased
autorouter to provide fast routes and high completion rates. MicroSim PCBoards
also includes a library of more than 1,400 footprints and an interactive
footprint editor that enables designers to modify existing footprints or
create new ones.
MicroSim DesignLab enables engineers to design in an integrated manner.
Within this integrated design environment engineers can move back and forth
between creating the schematic diagram, simulating both analog and digital
circuits, synthesizing both PLDs and CPLDs, designing and simulating systems
containing Xilinx FPGAs, and laying out printed circuit boards. MicroSim
DesignLab includes MicroSim Schematics, MicroSim PSpice A/D, and MicroSim
PCBoards. It also includes additional features for PLD, CPLD and FPGA design.
MARKETING AND SALES
MicroSim markets and sells its products worldwide through marketing
communications activities and a sales organization that is composed of a
telesales force in the United States, and independent distributors in various
countries. MicroSim's distribution strategy is intended to reach and support
EDA engineers and designers using MicroSim's desktop software in a productive,
efficient and cost-effective manner.
Marketing. MicroSim develops and implements a number of marketing and
marketing communications programs to create awareness and reinforce
recognition of its brand and company name. MicroSim uses a mix of advertising,
direct mail, electronic marketing, trade show participation and other
activities to reach its customers. The various marketing programs and customer
references generate leads that are gathered, documented and organized. In the
United States, the telesales organization qualifies and responds to those
leads. Leads relating to offshore customers are communicated to distributors
in the respective geographic locations. In addition, MicroSim maintains
regular contact with the industry's editorial community, and has provided
contributing editorial articles in electronics industry publications. MicroSim
maintains a program of market research based on surveys, industry reports and
distributor communications, and actively seeks customer feedback. This
information contributes to MicroSim's product development and customer support
requirements.
Domestic Sales. MicroSim products are sold domestically primarily through
its telesales organization. Telesales are typically generated by inbound
inquiries resulting from MicroSim's marketing programs, customer referrals and
repeat inquiries from existing customers. Two independent distributors in the
United States complement MicroSim's domestic telesales efforts.
Foreign Sales. Outside the United States, MicroSim has over thirty
independent distributors that sell MicroSim products within specified
geographical areas. These distributors provide local technical support and
often local language documentation. The distributors also develop and conduct
marketing programs specific to their local markets. These local marketing
programs are supported by MicroSim, built on the marketing communications
materials developed by MicroSim for the domestic market, and tailored to local
international use. In Japan, MicroSim is represented by both its wholly owned
subsidiary, MicroSim Japan, K.K., and independent distributors.
RESEARCH AND DEVELOPMENT
MicroSim's product development process is customer-centric, led by a product
management group that researches customer requirements, and supported by
software development, quality assurance and documentation groups that develop
MicroSim's products. MicroSim's plans for future development include
productivity improvements for large designs, language-based design, design
management, and integration of the overall design process. MicroSim has a
Microsoft Windows C++ development environment, in which it develops its
products using Microsoft Foundation Class UI objects. In fiscal 1996, 1995 and
1994, MicroSim invested 31%,
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25%, and 30% of revenue, respectively, in research and development. All
software development costs are expensed as incurred.
COMPETITION
The EDA industry is highly competitive. MicroSim competes primarily with
small, privately held companies, including Intusoft and Deutsch Technology
Research. MicroSim also faces competition from larger vendors of traditional
UNIX-based EDA products. Some of these companies, such as Cadence Design
Systems, Inc., Synopsis, Inc., Viewlogic Systems, Inc., Mentor Graphics Corp.
and others, have either announced or shipped Windows-based products. A number
of MicroSim's competitors have significantly greater financial, technical and
marketing resources than MicroSim, and strong name recognition. There can be
no assurance that these competitors will not use their superior resources and
visibility, and installed customer bases, to successfully develop better
products and/or market their products more effectively than those of MicroSim.
In particular, as a result of the wide acceptance of UNIX-based EDA tools,
vendors of such tools have established long-term relationships with many of
MicroSim's current and potential customers, and may have the ability to offer
these customers a broad suite of Windows- and UNIX-based products to satisfy
the entire range of their design needs. Finally, in addition to competition
from EDA software vendors, MicroSim faces competition from the internal design
groups of many of its customers, who design and develop customized electronic
design automation tools for their own particular needs and therefore may be
reluctant to purchase products offered by MicroSim or other independent EDA
vendors. There can be no assurance that MicroSim will be able to convert such
internal design groups into users of their products. More generally, there can
be no assurance that MicroSim will be able to compete successfully against
current and future competitors, both direct and indirect, or that competitive
pressures faced by MicroSim will not materially adversely affect its business,
financial condition and results of operations.
PROPRIETARY RIGHTS
MicroSim's success is heavily dependent upon its proprietary software
technology. MicroSim currently relies on a combination of trade secret,
copyright and trademark laws, and contractual provisions to protect its
proprietary rights in its software products. MicroSim also ships its software
with a security device. MicroSim generally enters into proprietary information
and confidentiality agreements with its employees and distributors, and limits
access to and distribution of its software, documentation and other
proprietary information. MicroSim does not license or release the source code
for its proprietary software to its customers, except for a fraction of the
PSpice simulator software, which is sold as a model development product.
REVENUE MIX
MicroSim derived approximately $8.1 million, $7.0 million, and $5.3 million,
or approximately 50%, 48%, and 44%, of its total revenue from international
sales in 1996, 1995 and 1994, respectively. Substantially all of MicroSim's
international revenue to date has been derived from independent distributor
sales and from its Japanese subsidiary.
EMPLOYEES
As of September 30, 1997, MicroSim had 95 employees, including 15 in
marketing and sales, 54 in research and development, and 26 in general and
administrative capacities. Of these, 91 were located at MicroSim's
headquarters in Irvine, California, and 4 were located at MicroSim's
subsidiary in Tokyo, Japan. None of MicroSim's employees is represented by a
labor union or is subject to a collective bargaining agreement. MicroSim
believes that its employee relations are good, and has not experienced any
work stoppage from any labor dispute.
PROPERTIES
MicroSim occupies approximately 42,756 square feet of space at its
headquarters in Irvine, California under a lease expiring in 2004, subject to
MicroSim's right to extend. MicroSim's subsidiary in Japan leases
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approximately 1,000 square feet at its Tokyo, Japan office. MicroSim believes
that its existing facilities, including expansion options, are adequate for
its current needs and that suitable additional space will be available as
needed.
LEGAL PROCEEDINGS
In the ordinary course of business, MicroSim and/or one or more of its
subsidiaries may become involved in legal proceedings from time to time. As of
the date of mailing of this Joint Proxy Statement/Prospectus, neither MicroSim
nor either of its subsidiaries is a party, and none of their property is
subject, to any pending legal proceedings.
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SELECTED MICROSIM FINANCIAL DATA
The following selected historical financial data of MicroSim have been
derived from MicroSim's historical financial statements. MicroSim's audited
Balance Sheets as of December 31, 1996 and 1995, its audited Statements of
Income for the years 1996, 1995 and 1994, its unaudited Balance Sheet as of
September 30, 1997 and its unaudited Statements of Income for the nine-month
periods ended September 30, 1997 and 1996 are included elsewhere in this Joint
Proxy Statement/Prospectus and should be read in conjunction with such
financial statements and the notes thereto. MicroSim's other audited
historical financial statements for 1994, 1993 and 1992 are not included
herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------- ------ ------ ------ ------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenue:
Products............... $13,347 $12,515 $10,325 $9,423 $9,940 $9,599 $9,804
Service................ 2,780 2,143 1,784 1,070 929 2,687 1,995
------- ------- ------- ------ ------ ------ ------
Total revenue.......... 16,127 14,658 12,109 10,493 10,869 12,286 11,799
------- ------- ------- ------ ------ ------ ------
Costs and expenses:
Cost of revenue--
products.............. 2,371 2,088 1,900 1,512 1,683 1,614 1,675
Cost of revenue--
service............... 776 621 586 325 289 668 535
Research and
development........... 5,064 3,688 3,692 3,683 3,110 4,193 3,703
Marketing and sales.... 4,798 3,859 3,266 3,091 2,390 3,479 3,321
General and
administrative........ 1,730 1,603 1,372 1,224 1,374 1,265 1,378
Write-off of purchased
software.............. -- 1,037 -- -- -- -- --
------- ------- ------- ------ ------ ------ ------
Total costs and
expenses.............. 14,739 12,896 10,816 9,835 8,846 11,219 10,612
------- ------- ------- ------ ------ ------ ------
Income from operations.. 1,388 1,762 1,293 658 2,023 1,067 1,187
------- ------- ------- ------ ------ ------ ------
Other income:
Interest income........ 356 291 87 50 57 262 267
Interest expense....... (21) (39) (54) (8) -- (7) (18)
------- ------- ------- ------ ------ ------ ------
335 252 33 42 57 255 249
------- ------- ------- ------ ------ ------ ------
Income before income
taxes.................. 1,723 2,014 1,326 700 2,080 1,322 1,436
Income taxes............ 652 691 263 83 709 496 517
------- ------- ------- ------ ------ ------ ------
Net income.............. $ 1,071 $ 1,323 $ 1,063 $ 617 $1,371 $ 826 $ 919
======= ======= ======= ====== ====== ====== ======
Net income per common
and common equivalent
share.................. $ 0.38 $ 0.46 $ 0.37 $ 0.21 $ 0.46 $ 0.29 $ 0.32
======= ======= ======= ====== ====== ====== ======
Weighted average common
and common equivalent
shares outstanding..... 2,840 2,877 2,879 2,957 2,965 2,831 2,836
======= ======= ======= ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1996 1995 1997
------ ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments..................................... $7,769 $ 6,862 $6,950
Working capital.................................. 7,209 6,162 7,118
Total assets..................................... 11,642 10,578 12,502
Total shareholders' equity....................... 7,749 6,656 8,452
</TABLE>
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MICROSIM MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Joint Proxy Statement/Prospectus
contain forward-looking statements within the meaning of the Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended
to identify such forward-looking statements. MicroSim's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in this section and elsewhere in this Joint Proxy
Statement/Prospectus. The industry in which MicroSim competes and the markets
that it serves are highly cyclical. MicroSim is dependent upon the
semiconductor and, more generally, the computer and electronics industries.
Each of these industries is characterized by rapid technological change, short
product life cycles, fluctuations in manufacturing capacity and pricing and
gross margin pressures. Segments of these industries, in each of the United
States, Europe and the Pacific Rim, have from time to time experienced
significant economic downturns characterized by decreased product demand,
reductions in capital expenditures, production over-capacity, price erosion,
work slowdowns and layoffs. In addition, portions of these industries have
experienced downturns at different times. There can be no assurance that
economic growth in applicable markets worldwide will continue, and if it does
not, any downturn could be severe. MicroSim's operations may in the future
reflect substantial fluctuations from period to period as a consequence of
such industry patterns, general economic conditions affecting the timing of
orders from major customers, and other factors affecting capital spending.
There can be no assurance that such factors will not have a material adverse
effect upon MicroSim's business, financial condition and results of
operations.
OVERVIEW
MicroSim was founded in 1984 with the introduction of MicroSim PSpice, an
analog circuit simulator developed for use on the PC. In 1987, MicroSim
introduced mixed analog/digital simulation with MicroSim PSpice A/D. In 1991,
MicroSim introduced versions of its products running under the MicroSoft
Windows standard user interface. Currently, over 90% of MicroSim's revenues
are derived from sales and support of its Windows-based products. MicroSim
PCBoards was introduced in 1995 followed by MicroSim DesignLab in 1996. SEE
"BUSINESS OF MICROSIM--Products".
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of
MicroSim's statements of income as a percentage of its total revenue:
AS A PERCENTAGE OF TOTAL REVENUE
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- ---------------------
1996 1995 1994 1997 1996
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Products.................... 83% 85% 85% 78% 83%
Service..................... 17 15 15 22 17
------- ------- ------- --------- ---------
Total revenue............. 100 100 100 100 100
------- ------- ------- --------- ---------
Costs and expenses:
Cost of revenue--products... 15 14 16 13 14
Cost of revenue--service.... 5 4 5 5 5
Research and development.... 31 25 30 34 31
Marketing and sales......... 29 27 27 29 28
General and administrative.. 11 11 11 10 12
Write-off of purchased
software................... -- 7 -- -- --
------- ------- ------- --------- ---------
Total costs and expenses.. 91 88 89 91 90
------- ------- ------- --------- ---------
Income from operations........ 9 12 11 9 10
------- ------- ------- --------- ---------
Other income:
Interest income............. 2 2 1 2 2
Interest expense............ -- -- (1) -- --
------- ------- ------- --------- ---------
2 2 -- 2 2
------- ------- ------- --------- ---------
Income before income taxes.... 11 14 11 11 12
Income taxes.................. 4 5 2 4 4
------- ------- ------- --------- ---------
Net income.................... 7% 9% 9% 7% 8%
======= ======= ======= ========= =========
</TABLE>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue
MicroSim derives revenue from the licensing of its software products and
from the provision of maintenance. MicroSim recognizes revenue from sales of
software licenses upon shipment of software to the customer. Service revenue
is derived primarily from product support agreements that provide customers
access to product enhancements, and secondarily from an allocation of a
portion of each product's sale price to service revenue to cover technical
support MicroSim provides to its customers. Revenue from each product support
agreement is deferred and recognized ratably over the term of the product
support agreement, typically twelve months.
Total revenue increased 10% to $16.1 million in 1996 from $14.7 million in
1995. Total revenue increased 21% in 1995 from $12.1 million in 1994. These
increases were due to growth in both product and service revenue. As a
percentage of total revenue, service revenue increased to 17% in 1996 from 15%
in 1995 and 1994, reflecting renewals of product support agreements from a
larger installed base and sales of new product support agreements.
Product revenue increased 7% to $13.3 million in 1996 from $12.5 million in
1995. Product revenue increased 21% in 1995 from $10.3 million in 1994. The
increase in product revenue in 1996 and 1995 was primarily attributable to
increased sales of MicroSim's analog and mixed analog/digital simulation
products (the
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PSpice Products). Product mix was reasonably consistent across all three
years, with revenues from the PSpice Products accounting for 93% to 95% of
total product revenue during that time. Slower growth in 1996 than 1995
reflects slower markets both domestically and internationally in 1996.
Service revenue increased 30% to $2.8 million in 1996 from $2.1 million in
1995. Service revenue increased 20% in 1995 from $1.8 million in 1994. The
increases in service revenue are attributable to the continued renewals of
product support agreements from a growing installed user base and the sale of
product support agreements with new product licenses.
MicroSim serves three principal markets geographically: the United States;
Pacific Rim; and Europe. Sales to these three markets accounted for 50%, 25%
and 21%, respectively, in 1996; 52%, 20% and 24%, respectively, in 1995 and
56%, 17%, and 23%, respectively, in 1994 of MicroSim's total revenue. The most
significant revenue growth over the period came from the Pacific Rim, where
MicroSim established a branch sales office in Japan in 1994. This branch
office was incorporated as MicroSim Japan, K.K. in 1996. Revenues from the
Pacific Rim increased 43% to $4.1 million in 1996 from $2.9 million in 1995.
Revenues from the Pacific Rim increased 36% in 1995 from $2.1 million in 1994.
Cost of Revenue
Cost of revenue--products represents the costs associated with the sale of
licenses to MicroSim's products, including the costs of developing and
reproducing product documentation, production of CDs and packaging, security
devices, shipping costs and royalties paid to others for third party
technology incorporated in MicroSim's products. Cost of revenue--products
increased 14% to $2.4 million in 1996 from $2.1 million in 1995, and increased
10% in 1995 from $1.9 million in 1994. The increases in cost of revenue--
products in 1996 and 1995 primarily resulted from increased expenses in the
development and production of product documentation. In the third quarter of
1995 MicroSim added to its Technical Publications staff to improve the quality
and usability of its product documentation. The cost of revenue--products also
increased as a function of increased revenues. Cost of revenue--products
remained consistent as a percentage of product revenue at 18%, 17% and 18% for
1996, 1995 and 1994, respectively.
Cost of revenue--service represents the costs of providing software
maintenance, including technical support and software updates. MicroSim
typically updates its products twice each year. Cost of revenue--service
increased 25% to $776,000 in 1996 from $621,000 in 1995, and 6% in 1995 from
$586,000 in 1994. The increases reflect the increased costs associated with
greater service obligations, and additions to the number of service personnel
at the end of 1995 and early in 1996. MicroSim increased its technical support
staff in the fourth quarter of 1995 due to the introduction of MicroSim
PCBoards during that quarter. As a percentage of service revenue, cost of
revenue--service decreased to 28% in 1996 from 29% in 1995 and 33% in 1994.
These improvements result from the relatively fixed nature of costs associated
with product service agreement revenue.
Research and Development
Research and development expenses include the costs of developing new
products and enhancing existing products. Software development costs are
expensed as incurred, in that technological feasibility is generally not
established until shortly before the release of a new product and no material
development costs are incurred after the establishment of technological
feasibility. Research and development expenses increased 37% to $5.1 million
in 1996 from $3.7 million in each of 1995 and 1994. The increase in 1996 was
primarily due to a 50% growth in the number of research and development
personnel from 1995 to the end of 1996. MicroSim added staff to support an
expanding product offering as well as to institute a new product development
process that placed a greater emphasis on testing throughout the development
cycle. The number of employees in research and development remained relatively
constant from 1994 to 1995.
Marketing and Sales
Marketing and sales expenses increased 24% to $4.8 million in 1996 from $3.9
million in 1995 and 18% in 1995 from $3.3 million in 1994. As a percentage of
total revenue, marketing and sales expenses were 29%, 27% and 27% in 1996,
1995 and 1994, respectively. The increase in 1996 in both absolute and
percentage terms was
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primarily attributable to increased marketing expenses associated with two new
product introductions. These expenses included the cost of developing and
placing advertisements and the cost of developing and printing collateral
material related to MicroSim DesignLab, introduced in October 1996, and
MicroSim PCBoards, introduced in December 1995.
General and Administrative
General and administrative expenses increased 8% to $1.7 million in 1996
from $1.6 million in 1995. General and administrative expenses increased 17%
in 1995 from $1.4 million in 1994. The increases in 1996 and 1995 were due to
increased personnel costs and higher general and administrative expenses
associated with MicroSim Japan's growth.
Write-off of Purchased Software
In 1995, MicroSim wrote off its investment in purchased printed circuit
board autorouting software when it ceased using it, following licensing and
adoption of an alternate supplier's product.
Interest Income
Interest income increased in 1996 and 1995 primarily due to increased cash,
cash equivalents and short-term investments. The increased interest earning
balances resulted from cash generated from operations.
Income Taxes
MicroSim's effective tax rates for 1996, 1995 and 1994 were 38%, 34% and
20%, respectively. The increase in the effective tax rate in 1996 was due to
losses from MicroSim Japan that did not yield any corresponding tax benefit.
The 20% effective tax rate in 1994 resulted from the research and
experimentation tax credit being effective for the entire year (as opposed to
half years in 1995 and 1996) and lower pretax earnings compared to 1996 and
1995.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenue
Total revenue increased 4% to $12.3 million in the first nine months of 1997
from $11.8 million in the first nine months of 1996. Product revenue decreased
2% to $9.6 million in the first nine months of 1997 from $9.8 million in the
corresponding period in 1996. Product revenue from MicroSim's Windows-based
products, which comprised over 94% of total product revenues in the first nine
months of 1997, remained relatively constant during the two periods. The
decrease in MicroSim's product revenue was due primarily to decreased revenue
from its UNIX- and DOS-based products. MicroSim discontinued selling its DOS-
based products in 1996. Service revenue increased 35% to $2.7 million in the
first nine months of 1997 from $2.0 million in the first nine months of 1996.
The increase in service revenue is attributable to renewals of product support
agreements from a larger installed base, as well as the sale of product
support agreements with new product licenses.
As a percentage of total revenue, revenue from the United States, Pacific
Rim and Europe accounted for 52%, 24% and 20%, respectively, in the first nine
months of 1997 compared to 50%, 27% and 19%, respectively, in the first nine
months of 1996. The changes in the geographic mix resulted primarily from a
decline in revenue of approximately 10% from the Pacific Rim in the first nine
months of 1997 compared to the first nine months of 1996.
Cost of Revenue
Cost of revenue--products decreased 4% to $1.6 million in the first nine
months of 1997 from $1.7 million in the first nine months of 1996. The
decrease was primarily attributable to the decrease in product revenue between
the periods, and reduced shipping costs. Cost of revenue--service increased
25% to $668,000 in the first nine months of 1997 from the corresponding period
in 1996. The increase reflects the increased costs
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associated with greater service commitments. As a percentage of service
revenue, cost of revenue--service decreased to 25% in the first nine months of
1997 from 27% in the corresponding period of 1996.
Research and Development
Research and development expenses increased 13% to $4.2 million in the first
nine months of 1997 from $3.7 million in the first nine months of 1996. The
increased expenses were primarily due to staffing growth to support an
expanding product offering as well as to institute a new product development
process that placed a greater emphasis on testing throughout the development
cycle. Much of the increase in staffing occurred in the second half of 1996
and the first quarter of 1997.
Marketing and Sales
Marketing and sales expenses increased 5% to $3.5 million in the first nine
months of 1997 from $3.3 million in the first nine months of 1996. The
increase was consistent with the growth in total revenues and reflects the
variable nature of these expenses.
General and Administrative
General and administrative expenses decreased 8% to $1.3 million in the
first nine months of 1997 from $1.4 million in the corresponding period of
1996. As a percentage of total revenue, general and administrative expenses
decreased to 10% in the first nine months of 1997 from 12% in the
corresponding period in 1996. The decrease in general and administrative
expenses was primarily due to reduced personnel costs resulting from a
reduction in staffing levels.
Interest Income
Interest income decreased slightly in the first nine months of 1997 compared
to the first nine months of 1996 due to slightly lower interest rates during
1997.
Income Taxes
MicroSim's effective tax rates for the first nine months of 1997 and 1996
were 38% and 36%, respectively. The increase in the effective tax rate in 1997
was due to losses from MicroSim Japan without any corresponding tax benefit.
QUARTERLY RESULTS OF OPERATIONS
MicroSim's quarterly operating results have in the past varied and may in
the future vary significantly depending on factors such as increased
competition, timing of new product announcements, releases and pricing changes
by MicroSim or its competitors, length of sales cycles, market acceptance or
delays in the introduction of new or enhanced versions of MicroSim's products,
timing of significant orders, seasonal factors, mix of direct and indirect
sales, product mix, and economic conditions generally and in the EDA industry
specifically. In particular, MicroSim's quarterly operating results have in
the past fluctuated as a result of the timing of the introduction of new
products to the market, with customers waiting to place orders until new
products became available. MicroSim's quarterly operating results have also
fluctuated as a result of seasonality of customer buying patterns. Revenue
from quarter to quarter is difficult to forecast, as minimal backlog exists at
the end of any quarter because MicroSim's products typically are shipped, and
revenue therefore recognized, promptly after receipt of customers' orders.
MicroSim's expense levels are based, in part, on its expectations as to future
revenue. If revenue levels are below expectations, operating results are
likely to be adversely affected. In particular, net income may be
disproportionately affected by a reduction in revenue because only a small
portion of MicroSim's expenses varies with its revenue. MicroSim has
experienced both flat periods and periods of rapid growth and expansion. There
can be no assurance that MicroSim will be able to grow in future periods, that
it will be able to sustain its historical rate of revenue growth, or that its
operations will remain profitable. Due to the foregoing factors, MicroSim
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance.
73
<PAGE>
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
-----------------------------------------------------------------------
1996 1995
---------------------------------- -----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products............... $3,318 $3,150 $3,336 $3,543 $3,182 $2,826 $3,015 $3,492
Service................ 607 661 727 785 492 530 539 582
------ ------ ------ ------ ------ ------ ------ ------
Total revenue........... 3,925 3,811 4,063 4,328 3,674 3,356 3,554 4,074
------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of revenue--
products.............. 525 565 585 696 489 410 584 605
Cost of revenue--
service............... 161 186 188 241 142 141 162 176
Research and
development........... 1,172 1,249 1,282 1,361 896 797 920 1,075
Marketing and sales.... 979 1,107 1,235 1,477 977 1,028 889 965
General and
administrative........ 471 448 459 352 378 350 428 447
Write-off of purchased
software.............. -- -- -- -- -- 1,037 -- --
------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses.............. 3,308 3,555 3,749 4,127 2,882 3,763 2,983 3,268
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. 617 256 314 201 792 (407) 571 806
Interest income......... 96 86 85 89 63 69 73 86
Interest expense........ (7) (6) (5) (3) (11) (10) (9) (9)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... 706 336 394 287 844 (348) 635 883
Income taxes............ 254 121 142 135 287 (118) 216 306
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 452 $ 215 $ 252 $ 152 $ 557 $ (230) $ 419 $ 577
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
THREE-MONTH PERIOD ENDED
-----------------------------------------------------------------------
1996 1995
---------------------------------- -----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
Products............... 85% 83% 82% 82% 87% 84% 85% 86%
Service................ 15 17 18 18 13 16 15 14
------ ------ ------ ------ ------ ------ ------ ------
Total revenue........... 100 100 100 100 100 100 100 100
------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of revenue--
products.............. 13 15 14 16 13 12 16 15
Cost of revenue--
service............... 4 5 5 6 4 4 5 4
Research and
development........... 30 32 32 31 24 24 26 26
Marketing and sales.... 25 29 30 34 27 31 25 24
General and
administrative........ 12 12 11 8 10 10 12 11
Write-off of purchased
software.............. -- -- -- -- -- 31 -- --
------ ------ ------ ------ ------ ------ ------ ------
Total costs and
expenses.............. 84 93 92 95 78 112 84 80
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. 16 7 8 5 22 (12) 16 20
Interest income......... 2 2 2 2 1 2 2 2
Interest expense........ -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes........... 18 9 10 7 23 (10) 18 22
Income taxes............ 6 3 4 3 8 (3) 6 8
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... 12% 6% 6% 4% 15% (6%) 12% 14%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $4.0 million at September 30, 1997 compared to
$7.8 million at December 31, 1996, and $5.2 million at December 31, 1995. The
fluctuations in cash and cash equivalents primarily resulted from net changes
in short-term investments. Net cash of $1.5 million, $3.7 million and $2.1
million was
74
<PAGE>
provided by operations in 1996, 1995, and 1994, respectively. Investing
activities have primarily consisted of net changes in short-term investments.
Financing activities have not been material. As of September 30, 1997,
MicroSim had no commitments or plans for capital expenditures in excess of
historical levels.
MicroSim has been able to fund its working capital requirements principally
with internally generated funds. MicroSim believes this source of funds and
its cash and cash equivalents balance at September 30, 1997 will be sufficient
to fund its requirements for working capital for the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share." This Statement establishes a different method of computing net income
per share than is currently required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS No. 128, MicroSim will be required
to present both basic net income per share and diluted net income per share.
Basic net income per share is expected to be comparable or slightly higher
than the currently presented net income per share as the effect of dilutive
stock options will not be considered in computing basic net income per share.
Diluted net income per share is expected to be comparable or slightly lower
than the currently presented net income per share.
MicroSim plans to adopt SFAS No. 128 in the fourth quarter of 1997 and at
that time all historical net income per share data presented will be restated
to conform to the provisions of this Statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for the reporting and display of
comprehensive income and its components. MicroSim plans to adopt SFAS No. 130
on January 1, 1998. The impact on MicroSim's Financial Statements is not
expected to be material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes standards
for reporting operating segments in annual Financial Statements and requires
selected information about operating segments in interim Financial Statements.
MicroSim plans to adopt SFAS No. 131 on January 1, 1998. The impact on
MicroSim's Financial Statements is not expected to be material.
75
<PAGE>
ORCAD DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of OrCAD.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Greg Applegate.......... 36 Vice President of World Wide Sales
Michael F. Bosworth..... 50 Chairman of the Board, President and Chief Executive Officer
Wolfram H. Blume........ 44 *
P. David Bundy.......... 42 Vice President of Finance, Secretary and Chief Financial Officer
Stephen W. Director..... 54 Director
Gerald Fahrenkopf....... 45 Vice President of Research and Development
Stuart A. Harrington.... 36 Vice President
Richard P. Magnuson..... 41 Director
James B. Moon........... 50 Director
James Plymale........... 31 Vice President of Marketing
John C. Savage.......... 49 Director
Donald G. Tannenbaum.... 49 Vice President of Integration and Development
Michael U. Wimbrow...... 44 **
</TABLE>
- --------
* It is expected that, in conjunction with the Merger, Mr. Blume will become
a director of OrCAD. Mr. Blume has served as MicroSim's Chairman of the
Board, President, and Chief Executive Officer since July 1984. Prior to
founding MicroSim in 1984, he spent six years as a member of the technical
staff in the Advanced Development Group of Silicon Systems, Inc.
** It is expected that, in conjunction with the Merger, Mr. Wimbrow will
become Vice President of Product Development of OrCAD. Mr. Wimbrow has
served on MicroSim's Board of Directors since April 1993, and has served as
MicroSim's Vice President of Planning and Product Support since June 1994.
From 1987 to 1994, Mr. Wimbrow served as a software developer with
MicroSim.
Greg Applegate. Mr. Applegate has served as OrCAD's Vice President of World
Wide Sales since November 1996. Prior to that, he was OrCAD's Director of
Sales. Mr. Applegate joined OrCAD in October 1993. Prior to joining OrCAD he
spent four years with INTERSOLV, Inc.
Michael F. Bosworth. Mr. Bosworth was named Chairman of the Board of
Directors in February 1997 and has served as President, Chief Executive
Officer and a member of the Board of Directors since October 1991. From April
1986 through September 1991, he served as President and Chief Executive
Officer of Context Corporation, initially a subsidiary of Mentor Graphics
Corporation and later a division of Mentor Graphics Corporation.
P. David Bundy. Mr. Bundy has served as OrCAD's Vice President of Finance,
Secretary and Chief Financial Officer since November 1991. Mr. Bundy served as
Controller upon joining OrCAD in October 1989. Mr. Bundy also earlier served
as Controller of Cadic, Inc., and in various financial capacities with
Burroughs Corporation.
Stephen W. Director. Dr. Director has served as a member of the Board of
Directors of OrCAD since January 1991. Dr. Director has served as the Dean of
Engineering at the University of Michigan since July 1996. Dr. Director served
as the Dean of the College of Engineering and U.A., and Helen Whitaker
University Professor of Electrical and Computer Engineering at Carnegie Mellon
University from July 1991 through June 1996. In 1982 he founded the SRC-CMU
Research Center for Computer-Aided Design and served as its Director from 1982
to 1989. Dr. Director also serves on the Technical Advisory Boards of a number
of EDA companies.
76
<PAGE>
Gerald Fahrenkopf. Mr. Fahrenkopf has served as OrCAD's Vice President of
Research and Development since June 1994. During 1994, he served as OrCAD's
Vice President of Marketing, and as Vice President of Engineering Services
from 1993 to 1994. Mr. Fahrenkopf joined OrCAD in 1988.
Stuart A. Harrington. Mr. Harrington has served as Vice President of OrCAD
since December 1995, and has served as President of OrCAD Japan, K.K. since
December 1995. Mr. Harrington was a founder of Intelligent Systems, Japan and
served as its President from 1990 through November 1995.
Richard P. Magnuson. Mr. Magnuson has served as a member of the Board of
Directors of OrCAD since September 1991. He is a private venture capitalist.
He served as General Partner of Menlo Ventures, a private venture capital
firm, from 1984 to 1996. Mr. Magnuson serves as a director of two public
companies: Rogue Wave Software and California Water Service Company. He also
serves as a director of several privately-held companies.
James B. Moon. Mr. Moon has served as a member of the Board of Directors of
OrCAD since December 1995. Mr. Moon has served as the President and Chief
Executive Officer of Protocol Systems, Inc. since 1987. Mr. Moon also serves
as the Chairman of the Board of Directors of Protocol Systems, Inc.
James Plymale. Mr. Plymale has served as OrCAD's Vice President of Marketing
since October 1995. From 1993 through 1995, he served as OrCAD's Director of
Product Marketing, and from 1992 through 1993, he served as OrCAD's Product
Marketing Manager. From 1990 to 1992, Mr. Plymale served in various capacities
at Phase III Logic.
John C. Savage. Mr. Savage has served as served as a member of the Board of
Directors of OrCAD since September 1991. Since June 1990, Mr. Savage has been
Managing General Partner of Glenwood Capital Partners, L.P., and since 1995
has been a Principal of Redwood Partners, LLC; both are affiliated venture
capital and investment banking firms. Mr. Savage also serves as a director of
FileNet Corporation and Mattson Technology, Inc.
Donald G. Tannenbaum. Mr. Tannenbaum has served as OrCAD's Vice President of
Integration and Development since September 1997. Prior to joining OrCAD, he
served as senior consultant and one of three Principals of LionHeart
Consulting, Inc. from 1987 to 1997. In this capacity, Mr. Tannenbaum
specialized in partnering and assisting emerging businesses to develop through
transitions and growth.
77
<PAGE>
ORCAD EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation of OrCAD's Chief Executive Officer and each of the four other
most highly compensated executive officers of OrCAD (the "named executive
officers") for the fiscal years ending December 31, 1995 and 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------------ STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTED COMPENSATION(1)
- --------------------------- ---- -------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Michael F. Bosworth...... 1996 $149,972 $46,667 -- $5,806(1)
Chairman of the Board, 1995 139,130 22,639 62,854 1,488(1)
President
and Chief Executive
Officer
P. David Bundy........... 1996 94,972 12,537 -- 3,167(1)
Vice President of 1995 88,402 4,528 11,428 850(1)
Finance,
Secretary and Chief
Financial Officer
Gerald Fahrenkopf........ 1996 114,972 21,593 -- 4,086(1)
Vice President of 1995 114,540 13,584 8,571 1,119(1)
Research and Development
Stuart A. Harrington..... 1996 195,430 -- -- 21,721(2)
Vice President 1995 16,286(3) -- -- --
James Plymale............ 1996 104,972 17,065 -- 3,356(1)
Vice President of 1995 94,580 9,056 14,285 801(1)
Marketing
</TABLE>
- --------
(1) Represents matching contribution to 401(k) Plan on behalf of named
executive officer.
(2) Represents rent allowance paid on behalf of named executive officer.
(3) Mr. Harrington became a Vice President of OrCAD in December 1995.
STOCK OPTIONS
No options were granted to the named executive officers during the year
ended December 31, 1996.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the year ended
December 31, 1996, and unexercised options held as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Bosworth..... 50,000 $532,000 62,084 76,478 $574,082 $634,319
P. David Bundy.......... 5,000 52,000 26,550 11,306 258,989 89,239
Gerald Fahrenkopf....... 5,000 50,750 27,810 10,046 274,550 82,678
Stuart A. Harrington.... -- -- -- -- -- --
James Plymale........... 17,000 192,550 5,701 20,155 44,738 172,700
</TABLE>
- --------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1996 were exercised, determined by
multiplying the number of shares underlying the options by the difference
between the per share option exercise price and the fair market value of
$10.50 per share at December 31, 1996. An option is in-the-money if the
fair market value of the underlying shares exceeds the exercise price of
the option.
78
<PAGE>
DIRECTOR COMPENSATION
The members of OrCAD's Board of Directors were not compensated for their
service on the Board in 1996, but were reimbursed for out-of-pocket and travel
expenses incurred in attending Board meetings. Beginning in 1997, the
nonemployee members of the Board of Directors will receive an annual stipend
of $5,000, and, commencing in 1998, an additional $1,000 for each Board
meeting and $500 for each Board Committee meeting attended. In addition, under
OrCAD's 1995 Stock Option Plan for Nonemployee Directors, each person who
becomes a nonemployee director automatically receives an initial option to
purchase 20,000 shares of OrCAD Common Stock at the time such person is first
elected to the Board of Directors. Each nonemployee director automatically
receives additional annual grants of options to purchase 5,000 shares after
each annual meeting of shareholders, provided the nonemployee director
continues to serve in that capacity. Options vest and become exercisable on
the date of grant.
SECTION 16 REPORTS
Section 16(a) of the Exchange Act requires OrCAD's directors and officers,
and persons who own more than ten percent (10%) of a registered class of
OrCAD's equity securities, to file initial reports of ownership and reports of
changes in ownership with the Commission. Such persons also are required to
furnish OrCAD with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such reports received by it with
respect to fiscal 1996, or written representations from certain reporting
persons, OrCAD believes that all filing requirements applicable to its
directors, officers and persons who own more than ten percent (10%) of a
registered class of OrCAD's equity securities have been complied with for
fiscal 1996.
79
<PAGE>
STOCK OWNED BY ORCAD MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of OrCAD Common Stock as of November 3, 1997, with respect to: (i) each person
known by OrCAD to beneficially own more than five percent (5%) of the
outstanding shares of OrCAD Common Stock, (ii) each of OrCAD's directors,
(iii) each of OrCAD's named executive officers and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
COMMON STOCK COMMON
SHARES OF COMMON PERCENT OF COMMON BENEFICIALLY STOCK
STOCK BENEFICIALLY STOCK OUTSTANDING OWNED AFTER OUTSTANDING
OWNED PRIOR TO THE PRIOR TO THE THE AFTER THE
NAME AND BUSINESS ADDRESS MERGER (1) MERGER MERGER(1) MERGER
------------------------- ------------------ ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Wall Street Associates
(2)................... 686,000 10.1% 686,000 7.5%
1200 Prospect Street
Suite 100
P.O. Box 8589
La Jolla, CA 92038
FMR Corp. (3).......... 532,200 7.9 532,200 5.8
82 Devonshire Street
Boston, MA 02109
Granahan Investment
Management, Inc. (4).. 393,000 5.8 393,000 4.3
275 Wyman Street,
Suite 270
Waltham, MA 02154
Scudder, Stevens &
Clark, Inc. (5)....... 393,000 5.8 393,000 4.3
45 Park Avenue
New York, NY 10154
President and Fellows 359,200 5.3 359,200 3.9
of Harvard College
(6)...................
c/o Harvard Management
Company, Inc.
600 Atlantic Avenue
Boston, MA 02210
Michael F. Bosworth.... 163,389 2.4 163,389 1.8
Wolfram H. Blume (7)... -0- -0- 1,786,723 19.4
c/o MicroSim
Corporation
16275 Laguna Canyon
Road
Irvine, CA 92618
P. David Bundy......... 34,648 * 34,648 *
Stephen W. Director.... 25,631 * 25,631 *
Gerald Fahrenkopf...... 35,592 * 35,592 *
Stuart A. Harrington... 106,617 1.6 106,617 1.2
Richard P. Magnuson.... 29,460 * 29,460 *
James B. Moon.......... 20,008 * 20,008 *
James Plymale.......... 15,798 * 15,798 *
John C. Savage (8)..... 41,724 * 41,724 *
Executive Officers and
Directors
as a group (13
persons) (9).......... 485,411 6.9 2,336,351(10) 24.7
</TABLE>
- --------
* Less than one percent
(1) Beneficial ownership is determined in accordance with rules and
regulations promulgated under the Securities Act, and includes voting
power and investment power with respect to shares. Shares issuable upon
the exercise of outstanding stock options that are currently exercisable
or become exercisable within 60 days from November 3, 1997 are considered
outstanding for the purpose of calculating the percentage of OrCAD
80
<PAGE>
Common Stock owned by such person, but not for the purpose of calculating
the percentage of OrCAD Common Stock owned by any other person. The number
of shares that are issuable upon the exercise of options that are currently
exercisable or exercisable within 60 days of November 3, 1997, is as
follows: Dr. Director--25,631, Mr. Savage--10,000; Mr. Magnuson--18,900;
Mr. Moon--20,008; Mr. Bosworth--98,229; Mr. Bundy--34,314; Mr. Plymale--
15,370; Mr. Fahrenkopf--35,592; Mr. Harrington--0, and all directors and
officers as a group--270,421.
(2) This information as to beneficial ownership is based on a Schedule 13G
filed by Wall Street Associates with the Commission on or about February
3, 1997. The Schedule 13G states that, as of December 31, 1996, Wall
Street Associates had sole voting power with respect to 605,100 shares of
OrCAD Common Stock and sole dispositive power with respect to 686,000
shares of OrCAD Common Stock.
(3) This information as to beneficial ownership is based on a Schedule 13G
filed by FMR Corp., Edward C. Johnson 3d, Chairman of FMR Corp. and
Abigail P. Johnson, a director of FMR Corp., with the Commission on
February 12, 1997. The Schedule 13G states that, as of December 31, 1996,
Fidelity Management & Research Company, Boston, Massachusetts, a wholly
owned subsidiary of FMR Corp., was the beneficial owner of 532,200 shares
of OrCAD Common Stock owned by the Fidelity Low-Priced Stock Fund (the
"Fund") an investment company, as to which it serves as investment
adviser. According to the Schedule 13G, Mr. Johnson, Ms. Johnson and FMR
Corp. have sole dispositive power and no voting power with respect to the
532,200 shares of OrCAD Common Stock owned by the Fund.
(4) This information as to beneficial ownership is based on a Schedule 13G
filed by Granahan Investment Management, Inc. with the Commission on
February 13, 1997. The Schedule 13G states that, as of December 31, 1996,
Granahan Investment Management, Inc. had sole voting power with respect to
14,000 shares of OrCAD Common Stock and sole dispositive power with
respect to 393,000 shares of OrCAD Common Stock.
(5) This information as to beneficial ownership is based on a Schedule 13G
filed by Scudder, Stevens & Clark, Inc. with the Commission on February
10, 1997. The Schedule 13G states that, as of December 31, 1996, Scudder,
Stevens & Clark, Inc. had sole voting power with respect to 154,700 shares
of OrCAD Common Stock, shared voting power with respect to 100,000 shares
of OrCAD Common Stock and sole dispositive power with respect to 393,000
shares of OrCAD Common Stock.
(6) This information as to beneficial ownership is based on a Schedule 13G
filed by the President and Fellows of Harvard College with the Commission
on February 14, 1997. The Schedule 13G states that, as of December 31,
1996, the President and Fellows of Harvard College had sole voting and
dispositive power with respect to 359,200 shares of OrCAD Common Stock.
(7) Upon consummation of the Merger, in exchange for 2,165,725 shares of
MicroSim Stock, Mr. Blume will receive 1,786,723 shares of OrCAD Common
Stock. At the first OrCAD Board Meeting following consummation of the
Merger, Mr. Blume will become a member of the OrCAD Board.
(8) Includes 31,724 shares beneficially owned by Principals of Redwood
Partners, including Mr. Savage. Mr. Savage may be deemed to share voting
and investment powers with respect to affiliates of Redwood Partners but
disclaims beneficial ownership of such shares held by affiliates of
Redwood Partners except to the extent Mr. Savage has a pecuniary interest.
(9) Upon consummation of the Merger, Michael U. Wimbrow will become an
executive officer of OrCAD.
(10) Upon consummation of the Merger, in exchange for (i) 53,000 shares of
MicroSim Stock, and (ii) options to acquire 52,500 shares of MicroSim
Stock, Mr. Wimbrow will receive 64,217 shares of OrCAD Common Stock,
assuming a fair market value of $8.38 per share of OrCAD Common Stock.
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH ORCAD
Redwood Partners has acted as OrCAD's financial advisor with respect to the
Merger and the Merger Agreement and provided OrCAD with a written opinion to
the effect that the terms of the Merger are fair to the stockholders of OrCAD
from a financial point of view. Pursuant to an engagement letter with OrCAD,
Redwood Partners will receive a fee of $200,000 for its opinion and certain
services rendered in conjunction with the Merger, of which $50,000 is not
contingent upon consummation of the Merger. OrCAD also will provide Redwood
Partners with reimbursement for Redwood Partners's out-of-pocket expenses,
including reasonable fees and disbursements of counsel. OrCAD has also agreed
to indemnify Redwood Partners and its affiliates, directors, officers,
partners, agents, and employees, and each person, if any, controlling Redwood
Partners or any of its affiliates against certain liabilities, including
certain liabilities under the federal securities laws, relating to or arising
out of its engagement. John C. Savage, a Principal of Redwood Partners, serves
as a member of the OrCAD Board and will continue to so serve after
consummation of the Merger. As of November 3, 1997, Mr.
81
<PAGE>
Savage owned options to acquire 10,000 shares of OrCAD Common Stock, and
Principals of Redwood Partners, including Mr. Savage, owned an aggregate of
31,724 shares of OrCAD Common Stock. A predecessor of Redwood Partners was the
largest stockholder of OrCAD until September 1996.
MICROSIM DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of MicroSim.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Wolfram H. Blume........ 44 Chairman of the Board, President and Chief Executive Officer
Louis A. Delmonico...... 56 Director
William E. Drobish...... 59 Director
Bruce A. Warren......... 39 Vice President Finance and Administration, Chief
Financial Officer and Secretary
Michael U. Wimbrow...... 44 Vice President Planning and Product Support,
and Director
</TABLE>
Information concerning Mr. Blume and Mr. Wimbrow is set forth above under
the heading "ORCAD DIRECTORS AND EXECUTIVE OFFICERS."
Louis A. Delmonico, Ph.D. Dr. Delmonico has served as a director of MicroSim
since April 1995 and, through an affiliated entity, has been a consultant to
MicroSim since January 1996. Since 1994, he has been President of his own
management consulting firm, L.A. Delmonico Consulting, Inc. From 1994 to 1995,
Dr. Delmonico served as Vice Chairman of the MacNeal-Schwendler Corporation,
and from 1987 to 1994 was Chairman and Chief Executive Officer of PDA
Engineering. Dr. Delmonico is also a director of Technology Modeling
Associates, Inc. and a director and advisor to several private companies.
William E. Drobish, Ph.D. Dr. Drobish has served as a director of MicroSim
since June 1984. He was a founder of Silicon Systems, Inc. and served as
Corporate Secretary and Vice President of the Advanced Development Group. Dr.
Drobish is also a director of Technology Modeling Associates, Inc. and a
director and advisor to several private companies. Since 1984, Dr. Drobish has
been a part-time instructor at the University of California, Irvine.
Bruce A. Warren. Mr. Warren has served as MicroSim's Vice President of
Finance and Administration, Chief Financial Officer and Corporate Secretary
since joining MicroSim in August 1994. Prior to joining MicroSim, Mr. Warren
served as Vice President, Chief Financial Officer, Secretary and Treasurer of
Acme Holdings, Inc. from 1991 through April 1994.
82
<PAGE>
MICROSIM EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation of MicroSim's Chief Executive Officer and each of the other
executive officers of MicroSim (the "named executive officers") for the fiscal
year ended December 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------- STOCK OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTED
- --------------------------- ---- -------- ------ -------------
<S> <C> <C> <C> <C>
Wolfram H. Blume............................. 1996 $144,498 $5,442 --
Chairman of the Board, President
and Chief Executive Officer
Bruce A. Warren.............................. 1996 132,650 7,696 5,000
Vice President Finance and
Administration, Chief Financial
Officer and Secretary
Michael U. Wimbrow........................... 1996 144,929 5,458 5,000
Vice President Planning
and Product Support
</TABLE>
STOCK OPTIONS
The following table sets forth information concerning options granted to the
MicroSim named executive officers during the year ended December 31, 1996
under the MicroSim Corporation 1995 Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM (2)
OPTIONS EMPLOYEES PER EXPIRATION ----------------------
NAME GRANTED (1) IN 1996 SHARE DATE 5% 10%
---- ----------- ---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Wolfram H. Blume........ -- -- % $ -- -- $ -- $ --
Bruce A. Warren......... 5,000 14.7 3.60 02/02/02 11,350 28,620
Michael U. Wimbrow...... 5,000 14.7 3.60 02/02/02 11,350 28,620
</TABLE>
- --------
(1) Options granted in 1996 vest ratably over five years.
(2) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the MicroSim Stock compounded annually for a ten-
year period. Actual gains, if any, on stock option exercises are dependent
on the future performance of the MicroSim Stock. There can be no assurance
that the MicroSim Stock will appreciate at any particular rate or at all
in future years.
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OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the MicroSim named
executive officers, concerning the exercise of options during the year ended
December 31, 1996, and unexercised options held as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Wolfram H. Blume........ -- -- -- -- $ -- $ --
Bruce A. Warren......... -- -- 17,000 30,500 3,400 6,100
Michael U. Wimbrow...... -- -- 17,000 30,500 3,400 6,100
</TABLE>
- --------
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1996 were exercised, determined by
multiplying the number of shares underlying the options by the difference
between the per share option exercise price and the fair market value of
$3.60 per share at December 31, 1996. An option is in-the-money if the
fair market value of the underlying shares exceeds the exercise price of
the option.
DIRECTOR COMPENSATION
Nonemployee members of the MicroSim Board receive $1,500 for each regular
meeting of the MicroSim Board in which they participate. In addition, each
nonemployee director receives $500 per committee meeting for serving on the
Audit and Compensation Committees.
STOCK OWNED BY MICROSIM MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of MicroSim Stock as of November 3, 1997 with respect to: (i) each person
known by MicroSim to beneficially own more than five percent (5%) of the
outstanding shares of MicroSim Stock, (ii) each of MicroSim's directors, (iii)
each of MicroSim's named executive officers, and (iv) all MicroSim directors
and officers as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF COMMON
NAME AND BUSINESS ADDRESS OWNED(1) STOCK OUTSTANDING
- ------------------------- ------------------ -----------------
<S> <C> <C>
Wolfram H. Blume.......................... 2,165,725 77.2%
Louis A. Delmonico........................ 13,000 *
William E. Drobish........................ 125,000 4.5
Michael U. Wimbrow........................ 79,500 2.8
Bruce A. Warren........................... 35,500 1.3
Executive Officers and Directors as a
group (5 persons)........................ 2,418,725 84.3
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with rules and
regulations promulgated under the Securities Act, and includes voting
power and investment power with respect to shares. Shares issuable upon
the exercise of outstanding stock options that are currently exercisable
or become exercisable within 60 days from November 3, 1997 are considered
outstanding for the purpose of calculating the percentage of MicroSim
Stock owned by such person, but not for the purpose of calculating the
percentage of MicroSim Stock owned by any other person. The number of
shares that are issuable upon the exercise of options that are currently
exercisable or exercisable within 60 days of November 3 , 1997, is as
follows: Mr. Blume--0; Dr. Delmonico--13,000; Mr. Drobish--0; Mr.
Wimbrow--26,500; Mr. Warren--26,500; and all directors and officers as a
group--66,000.
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DESCRIPTION OF ORCAD CAPITAL STOCK
The authorized capital stock of OrCAD consists of 16,000,000 shares of
Common Stock, par value $0.01 per share, and 2,000,000 shares of Preferred
Stock, par value $0.01 per share. The following summary description of OrCAD's
capital stock does not purport to be complete and is qualified in its entirety
by the provisions of OrCAD's Restated Certificate of Incorporation and
Restated Bylaws, which have been filed as exhibits to the Registration
Statement, of which this Joint Proxy Statement/Prospectus is a part.
COMMON STOCK
As of November 3, 1997, 6,771,147 shares of OrCAD Common Stock were
outstanding and held of record by approximately 2,300 stockholders. Holders of
OrCAD Common Stock are entitled to receive such dividends as may from time to
time be declared by OrCAD's Board of Directors out of funds legally available
therefor. Holders of OrCAD's Common Stock are entitled to one vote per share
on all matters on which stockholders are entitled to vote and do not have any
cumulative voting rights. Holders of OrCAD Common Stock have no preemptive,
conversion, redemption or sinking fund rights. In the event of a liquidation,
dissolution or winding up of OrCAD, holders of OrCAD Common Stock are entitled
to share equally and ratably in the assets of OrCAD, if any, remaining after
the payment of all of OrCAD's debts and liabilities and the liquidation
preference of any outstanding class or series of Preferred Stock. The
outstanding shares of OrCAD Common Stock are fully paid and nonassessable. The
rights, preferences and privileges of holders of OrCAD Common Stock are
subject to any series of Preferred Stock which OrCAD may issue in the future
as described below.
PREFERRED STOCK
OrCAD's Board of Directors has the authority to issue Preferred Stock in one
or more series and to fix the number of shares constituting any such series,
the voting powers, designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof, including the dividend rights, dividend rate, terms of
redemption, redemption price or prices, conversion and voting rights and
liquidation preferences of the shares constituting any series, without any
further vote or action by the stockholders of OrCAD. The issuance of Preferred
Stock by the OrCAD Board could adversely affect the rights of holders of OrCAD
Common Stock. For example, issuance of Preferred Stock could result in a
series of securities outstanding that would have preference over the OrCAD
Common Stock with respect to dividends and in liquidation and that could (upon
conversion or otherwise) enjoy all of the rights appurtenant to the OrCAD
Common Stock.
The authority possessed by OrCAD's Board of Directors to issue Preferred
Stock could potentially be used to discourage attempts by others to obtain
control of OrCAD through merger, tender offer, proxy or consent solicitation
or otherwise by making such attempts more difficult to achieve or more costly.
The OrCAD Board may issue Preferred Stock without stockholder approval and
with voting rights that could adversely affect the voting power of holders of
OrCAD Common Stock. There are no agreements or understandings for the issuance
of Preferred Stock, and the OrCAD Board has no present intention of issuing
any shares of Preferred Stock.
DELAWARE BUSINESS COMBINATION STATUTE; CERTAIN PROVISIONS OF RESTATED
CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS.
OrCAD is subject to Delaware's Business Combination Act (Delaware GCL
Section 203) (the "Business Combination Act"). The Business Combination Act
generally prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder," for a period of three years
following the date such person became an "interested stockholder." With
certain exceptions, an "interested stockholder" is a person or entity who or
which owns 15% or more of the corporation's outstanding voting stock,
including any rights to acquire such stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, or is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the previous three years.
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<PAGE>
Business combination transactions for this purpose include (a) a merger or
plan of share exchange with or caused by the "interested stockholder," (b) any
sale, lease, mortgage or other disposition of the assets of the corporation or
any subsidiary to or with the "interested stockholder" (except proportionately
with the corporation's other stockholders) where the assets have an aggregate
market value equal to 10% or more of the aggregate market value of the
corporation's assets or outstanding capital stock, (c) certain transactions
which result in the issuance of capital stock of the corporation or any
subsidiary to the "interested stockholder," (d) certain transactions which
result in an increase in the "interested stockholder's" proportionate
ownership of any class or series of the corporation's or any subsidiary's
stock, and (e) any receipt by the "interested stockholder" of any loan,
advance, or other financial benefit provided by or through the corporation or
any subsidiary. The three year moratorium on business combinations does not
apply if (i) the "interested stockholder," as a result of the transaction in
which such person became an "interested stockholder," owns at least 85% of the
outstanding voting stock of the corporation (disregarding shares owned by
directors who are also officers, and certain employee benefit plans), (ii)
prior to the date on which a stockholder became an "interested stockholder,"
the OrCAD Board approved either the business combination or the transaction
which resulted in the stockholder becoming an "interested stockholder," or
(iii) the OrCAD Board and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
"interested stockholder") approve the transaction, at an annual or special
meeting of stockholders, after the "interested stockholder" acquires 15% or
more of the corporation's voting stock.
The Business Combination Act will have the effect of encouraging any
potential acquiror to negotiate with OrCAD's Board of Directors and will also
discourage certain potential acquirors unwilling to comply with its
provisions.
OrCAD's Restated Certificate of Incorporation and Restated Bylaws contain
provisions which (i) if the number of directors is fixed at six or more,
classify the OrCAD Board into three classes as nearly equal in numbers as
possible, each of which, after a transitional period, will serve for three
years with one class being elected each year, (ii) provide that directors may
be removed by stockholders only for cause and only upon the vote of 67% of the
votes then entitled to be cast for the election of directors, (iii) permit the
OrCAD Board to issue up to 2,000,000 shares of Preferred Stock in one or more
series and to fix the number of shares, and the voting powers and all other
rights and preferences of any such series, without any further vote or action
by OrCAD's stockholders, and (iv) provide that special meetings of OrCAD's
stockholders may only be called by the OrCAD Board. The Preferred Stock could
be issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. All of the above described provisions may have the
effect of lengthening the time required for a person to acquire control of
OrCAD through a proxy contest or the election of a majority of the OrCAD Board
and may deter any potential unfriendly offers or other efforts to obtain
control of OrCAD. This could deprive OrCAD's stockholders of opportunities to
realize a premium for their OrCAD Common Stock and could make removal of
incumbent directors more difficult. At the same time, these provisions may
have the effect of inducing any persons seeking control of OrCAD to negotiate
terms acceptable to the OrCAD Board. Since these provisions make the removal
of directors more difficult, they increase the likelihood that incumbent
directors will retain their positions and, since the OrCAD Board has the power
to retain and discharge management, could perpetuate incumbent management.
TRANSFER AGENT
The transfer agent and registrar for OrCAD Common Stock is ChaseMellon
Shareholder Services, LLC.
COMPARATIVE RIGHTS OF MICROSIM SHAREHOLDERS
AND ORCAD STOCKHOLDERS
If the Merger is consummated, holders of MicroSim Stock and holders of
options to acquire shares of MicroSim Stock will become holders of OrCAD
Common Stock and the rights of the former MicroSim shareholders and option
holders will be governed by the General Corporation Law and by the Restated
Certificate
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<PAGE>
of Incorporation of OrCAD (the "OrCAD Certificate") and the Restated Bylaws of
OrCAD (the "OrCAD Bylaws"). The rights of OrCAD stockholders under the General
Corporation Law and the OrCAD Certificate and the OrCAD Bylaws differ in
certain respects from the rights of MicroSim shareholders under the
Corporations Code and the Articles of Incorporation of MicroSim and the Bylaws
of MicroSim. Certain differences between the rights of OrCAD stockholders and
MicroSim shareholders are summarized below. This summary is qualified in its
entirety by reference to the full text of such documents. For information as
to how such documents may be obtained, see "AVAILABLE INFORMATION."
CLASSES OF STOCK
The General Corporation Law authorizes a corporation to have one or more
classes of stock. The OrCAD Certificate authorizes common stock and preferred
stock. See "DESCRIPTION OF OrCAD CAPITAL STOCK."
The Corporations Code also authorizes a corporation to have one or more
classes of stock. All rights of shares of a class must have voting, conversion
and redemption rights, and other rights, preferences, privileges and
restrictions identical to those of other shares of the same class, unless the
class is divided into series. MicroSim's Articles of Incorporation provide for
one class: MicroSim Common Stock.
The following is a description of the preferences, limitations and relative
rights of the OrCAD Common Stock and the MicroSim Common Stock.
Dividends. Dividends on MicroSim Common Stock may be declared as, if and
when declared by the Board. Dividends on OrCAD Common Stock may be declared
as, if and when declared by the Board.
Voting Rights. Each share of MicroSim Common Stock is entitled to one vote
per share, except that votes may be cumulated in the election of the MicroSim
Board. Each share of OrCAD Common Stock is entitled to one vote per share, and
no cumulative voting rights exist.
Redemption Provisions. MicroSim Common Stock is not subject to any
redemption provisions. OrCAD Common Stock is not subject to any redemption
provisions.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
The Corporations Code authorizes a corporation's Board of Directors to adopt
certain amendments to the corporation's Articles of Incorporation without
shareholder action, including, without limitation, deleting the names and
addresses of the initial directors or the initial agent, and effecting a stock
split (unless the corporation has more than one class of shares outstanding).
The Board of Directors may propose other amendments to the shareholders.
Unless the Corporations Code or the corporation's Articles of Incorporation
require a greater proportion, the amendment must generally be approved by the
holders of a majority of the outstanding shares. Amendments that would make
shares assessable, however, or authorize a remedy by judicial action for
collecting an assessment on fully paid shares, must be approved by all
outstanding shares. Furthermore, certain amendments to the Articles of
Incorporation that particularly affect one class of shares, such as amendments
that change the rights, preferences, privileges or restrictions of that class,
must be approved by the holders of a majority of the outstanding shares of
that class. Notwithstanding the foregoing, provisions in the Articles of
Incorporation that require approval of a larger proportion or all of the
shares may be amended or repealed only by such greater vote, unless the
Articles of Incorporation provide otherwise.
The Corporations Code generally authorizes either a corporation's Board of
Directors or its shareholders (by majority vote) to amend, repeal or adopt new
Bylaws. The Bylaws, Articles of Incorporation or the
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Corporations Code may require shareholder approval, however, and all
amendments that: (i) change a fixed number of directors; (ii) change the
maximum or minimum number of directors; or (iii) change a fixed number of
directors to a variable number of directors, or vice versa, must be approved
by a majority of the outstanding shares. Furthermore, an amendment reducing
the fixed number of the minimum number of directors to a number less than five
cannot be adopted if more than 16 2/3% of the outstanding voting shares are
voted against such amendment.
The General Corporation Law authorizes a corporation's Board of Directors to
adopt amendments to the corporation's Certificate of Incorporation and
requires that all such amendments be submitted for stockholder action. Unless
the General Corporation Law or the corporation's Certificate of Incorporation
requires a greater proportion, the amendment must be approved by holders of a
majority of the shares entitled to vote thereon, as well as by holders of a
majority of the shares of any class entitled to vote thereon as a class. The
OrCAD Certificate requires a vote of the holders of not less than 67% of the
votes entitled to be cast for the election of directors in order to amend any
provision of Article VIII of the OrCAD Certificate. Article VIII sets the
number of directors, provides for the classification of directors, and
prescribes a means for the removal of directors.
The General Corporation Law authorizes a corporation's Certificate of
Incorporation to confer on the corporation's Board of Directors the power to
amend, repeal or adopt new Bylaws, and, unless such power is conferred on the
Board of Directors in the Certificate of Incorporation, it also remains in the
corporation's stockholders. The OrCAD Bylaws grant the Board of Directors the
power to adopt, amend or repeal Bylaws, but do not limit OrCAD's stockholders'
right to adopt, amend or repeal Bylaws.
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
The Corporations Code provides that a special meeting of shareholders may be
called by a corporation's Board of Directors, the Chairman of the Board, the
President, the holders of at least ten percent (10%) of all the votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting, or such other persons as are authorized under the corporation's
Articles of Incorporation or Bylaws. The Bylaws of MicroSim authorize the
President, the Board of Directors or the Chairman of the Board of Directors
(if the Board designates one) to call a special meeting of shareholders.
The General Corporation Law provides that a special meeting of stockholders
may be called by a corporation's Board of Directors, or such other persons as
are authorized under the corporation's Certificate of Incorporation or Bylaws.
The OrCAD Bylaws authorize the Board of Directors to call a special meeting of
stockholders.
APPROVAL OF CERTAIN CORPORATE TRANSACTIONS
Under the Corporations Code, a merger agreement must generally be approved
by the corporation's Board of Directors and the principal terms must be
approved by the holders of both a majority of outstanding shares entitled to
vote thereon and by the holders of a majority of the shares of each class of
the corporation, unless the Corporations Code otherwise requires a greater
proportion or the corporation's Articles of Incorporation require a greater
proportion. MicroSim has only one class of stock outstanding.
The Corporations Code provides that, in general, a corporation may sell,
lease, exchange or otherwise dispose of all, or substantially all, of its
property or assets outside of its ordinary course of business, if the Board of
Directors and holders of a majority of the outstanding voting shares approve
the principal terms of the transaction, unless a greater proportion is
otherwise specified in the Corporations Code or the corporation's Articles of
Incorporation.
Under the General Corporation Law, an agreement of merger must be approved
by the Board of Directors and by a majority of the outstanding shares entitled
to vote thereon, unless the General Corporation Law, the corporation's
Certificate of Incorporation or the Board of Directors requires a greater
proportion. The OrCAD Certificate specifies that if OrCAD's stockholders are
required by law to approve a merger, then at least 67% of
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OrCAD's outstanding shares must approve the merger for it to be approved by
the stockholders. The General Corporation Law also provides that a merger need
not be authorized by the stockholders of the surviving corporation if (i) the
agreement of merger does not amend the Certificate of Incorporation, (ii) each
share of stock of the surviving corporation before the merger is to be an
identical outstanding share of stock of the surviving corporation after the
merger, and (iii) generally, the number of voting shares outstanding
immediately after the merger, plus the voting shares issuable as a result of
the merger, will not exceed by more than 20% the total number of voting shares
of the surviving corporation outstanding immediately prior to the merger.
The General Corporation Law provides that, in general, a corporation may at
any meeting of its Board of Directors sell, lease or exchange all, or
substantially all, of its property and assets, when and as authorized by a
resolution adopted by the holders of a majority of the outstanding shares
entitled to vote thereon. The OrCAD Certificate states that OrCAD may not
sell, lease or exchange all, or substantially all of its property or assets
unless the holders of at least 67% of OrCAD's outstanding shares entitled to
vote thereon, vote for such a transaction.
DISSENTERS' RIGHTS
Under the Corporations Code, a shareholder is entitled to dissent from
certain corporate actions and obtain payment of the fair market value of his
or her shares, provided the shareholder complies with certain procedures. The
actions which trigger a shareholder's dissenter rights include reorganizations
where shareholder approval is required, such as certain mergers, share
exchanges, sales of all or substantially all of the corporation's assets in
exchange for the acquiror's securities, and share exchange tender offers.
Under the General Corporation Law, a stockholder is entitled to an appraisal
of his or her shares by the court of chancery and to obtain payment of the
fair market value of his shares in the event of certain corporate actions. The
actions which trigger a stockholder's appraisal rights include certain mergers
and consolidations and, if required by a corporation's Certificate of
Incorporation, exchanges, sales of all or substantially all of the
corporation's assets, and amendments to the corporation's Certificate of
Incorporation.
Under the General Corporation Law, appraisal rights are not available to
stockholders of a corporation if the shares of such corporation are listed on
a national securities exchange or are designated as a national market system
security. Because OrCAD's shares are quoted on the Nasdaq National Market,
OrCAD stockholders are not entitled to appraisal rights.
ANTI-TAKEOVER PROVISIONS
The Corporations Code does not contain any "anti-takeover" provisions. The
Corporations Code does, however, permit corporations to adopt certain
provisions in their Articles of Incorporation that might discourage unfriendly
takeover bids--for example, requiring the approval of a supermajority of the
Board of Directors and/or the shareholders for certain transactions.
The General Corporation Law contains a statute commonly known as the
"Business Combination Act," which provides that in the event a person or
entity acquires 15% or more of the voting shares of a Delaware corporation (an
"Interested Stockholder"), the corporation and the Interested Stockholder, or
any affiliated entity, may not engage in certain business combination
transactions for a period of three (3) years following the date the person
became an Interested Stockholder. Business combination transactions include,
among other things, (i) merger or consolidation with, disposition of assets to
or with, or issuance or redemption of stock to or from, the acquiring person,
or (ii) the acquiring person's receipt of any disproportionate benefit as a
stockholder. These restrictions do not apply if (i) the Interested
Stockholder, as a result of the transaction in which such person became an
Interested Stockholder, owns at least 85% of the outstanding voting shares of
the corporation (disregarding shares owned by directors who are also officers,
and certain employee benefit plans), (ii) the Board of Directors approves the
share acquisition or business combination before the Interested Stockholder
acquired 15% or more of the corporation's voting shares, or (iii) the Board of
Directors and the holders of a least two-thirds of the outstanding voting
shares of the corporation (disregarding shares owned by the Interested
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<PAGE>
Stockholder) approve the transaction after the Interested Stockholder acquires
15% or more of the corporation's voting shares.
Both OrCAD and MicroSim believe that the Business Combination Act will have
the effect of encouraging any potential acquiror to negotiate with OrCAD's
Board of Directors and will also discourage certain potential acquirors
unwilling to comply with its requirements.
"BLANK CHECK" PREFERRED STOCK
MicroSim's Articles of Incorporation do not contain "Blank Check" Preferred
Stock authority. The OrCAD Certificate permits the Board of Directors to fix
and determine the rights and preferences of Preferred Stock or special stock,
commonly referred to as "Blank Check" Preferred Stock. The issuance of
preferred stock with extraordinary rights may be used to deter hostile
takeover attempts.
REMOVAL OF DIRECTORS
Under the Corporations Code, shareholders may remove one or more directors
of a corporation without cause subject to certain restrictions and
requirements in the Corporations Code. In addition, the superior court of the
proper county may, at the suit of shareholders holding at least ten percent
(10%) of the number of outstanding shares of any class, remove from office any
director for fraud, dishonesty or gross abuse of authority or discretion with
respect to the corporation and may bar such removed director from re-election
for a prescribed period.
Generally, under the General Corporation Law, stockholders may remove one or
more directors of a corporation with or without cause. Unless the
corporation's Certificate of Incorporation provides otherwise, a board member
on a "classified board" may be removed only for cause. In cases where a
corporation has cumulative voting or classes of directors, if less than the
entire Board of Directors is removed, no director may be removed without cause
unless the votes for removal would be insufficient to elect the director to
the Board of Directors. The OrCAD Certificate provides that directors may be
removed only for cause by the holders of at least 67% of the votes then
entitled to be cast for the election of directors and only at a meeting of the
stockholders called expressly for that purpose.
CLASSIFIED BOARD OF DIRECTORS
The Corporations Code permits a listed corporation (that is, a corporation
whose shares are listed on the New York Stock Exchange or American Stock
Exchange, or on NASDAQ if the corporation has at least 800 shareholders) to
establish in the corporation's Articles of Incorporation or Bylaws, a Board of
Directors under which directors can be divided into as many as three (3)
classes to serve for terms of as many as three (3) years. A listed corporation
may also amend its Articles of Incorporation or Bylaws to eliminate cumulative
voting. An unlisted corporation may amend its Articles of Incorporation or
Bylaws to provide for a classified Board of Directors and/or to eliminate
cumulative voting when it becomes a listed corporation. The MicroSim Articles
of Incorporation do not provide for classes of directors.
The General Corporation Law permits a corporation to establish in the
corporation's Certificate of Incorporation or Bylaws a classified board under
which directors can be divided into as many as three (3) classes having
staggered terms of office, with one (1) class of directors elected each year.
The OrCAD Certificate and the OrCAD Bylaws provide that if the Board of
Directors is composed of six (6) or more directors, it is to be a classified
Board of Directors with three (3) classes of directors and staggered terms.
SIZE OF BOARD OF DIRECTORS
Both the Corporations Code and the General Corporation Law provide that the
size of a corporation's Board of Directors may be specified in, or fixed in
accordance with, the corporation's Bylaws. The General Corporation Law also
states that the number of directors may also be specified in the corporation's
Certificate of Incorporation, and if so specified, the number may only be
changed by an amendment to the Certificate of
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Incorporation. The Bylaws of MicroSim provide that the number of directors
shall be five (5). The OrCAD Certificate and the OrCAD Bylaws provide that the
number of directors shall be between three (3) and nine (9) and may be set by
the vote of the Board of Directors. The size of the OrCAD Board is currently
set at five (5).
DIVIDENDS AND REPURCHASE OF SHARES
The Corporations Code prohibits a corporation from making a distribution to
its shareholders, unless the amount of the proposed distribution is less than
or equal to the corporation's retained earnings immediately prior thereto or
unless, after giving effect to such distribution, (i) the current assets of
the corporation would be at least equal to its current liabilities, and (ii)
the sum of the corporation's assets would be equal to at least one and one-
quarter times its liabilities. In addition, a corporation may not make any
distribution (including a repurchase of its own shares) if the corporation is,
or after the distribution would be, likely to be unable to pay its debts as
they mature.
The General Corporation Law permits a corporation, unless otherwise
restricted by the corporation's Certificate of Incorporation, to make a
distribution to its stockholders either (i) out of its surplus (total assets
minus total liabilities minus capital) or (ii) in case there is no surplus,
out of its net profits for the fiscal year during which the distribution is
paid or the preceding fiscal year. In addition, the General Corporation Law
permits a corporation to acquire its own shares.
CLASS VOTING
The Corporations Code provides that the holders of outstanding shares of a
class are entitled to vote as a separate voting group with respect to
amendments to the corporation's Articles of Incorporation that would affect
such class in certain ways, including, without limitation: changing the
aggregate number of authorized shares of such class, except for certain
specified increases; effecting an exchange, reclassification or cancellation
of all or part of the shares of such class, other than a stock split;
effecting an exchange or creating a right of exchange of all or part of the
shares of another class into the shares of such class; changing the rights,
preferences, privileges or restrictions of the shares of such class; or
creating a new class of shares having rights, preferences or privileges prior
to the shares of such class.
The General Corporation Law provides that the holders of outstanding shares
of a class are entitled to vote as a separate voting group with respect to
amendments to the corporation's Certificate of Incorporation that would affect
such class in certain ways, including without limitation: changing the
aggregate number of authorized shares of such class; changing the par value of
the shares of such class; or, adversely altering the powers, preferences, or
special rights of the shares of such class.
LEGAL OPINION
The legality of the OrCAD Common Stock to be issued in connection with the
Merger and certain tax matters relating to the Merger are being passed upon
for OrCAD by Ater Wynne Hewitt Dodson & Skerritt, LLP, Portland, Oregon.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder proposal intended for inclusion in the proxy statement and
form of proxy relating to OrCAD's 1998 annual meeting of stockholders must be
received by OrCAD not later than December 30, 1997, pursuant to the proxy
soliciting regulations of the Commission. In addition, OrCAD's Bylaws require
that notice of stockholder proposals and nominations for director be delivered
to the Secretary of OrCAD not less than 60 days nor more than 90 days prior to
the date of an annual meeting, unless notice or public disclosure of the date
of the meeting occurs less than 60 days prior to the date of such meeting, in
which event, stockholders may deliver such notice not later than the 10th day
following the day on which notice of the date of the meeting was mailed or
public disclosure thereof was made. Nothing in this paragraph shall be deemed
to require OrCAD to include in its proxy statement and form of proxy for such
meeting any stockholder proposal which does not meet the requirements of the
Commission in effect at the time.
91
<PAGE>
EXPERTS
The consolidated financial statements and consolidated financial statement
schedule of OrCAD and its subsidiaries as of December 31, 1996 and 1995 and
for each of the years in the three-year period ended December 31, 1996,
included in this Joint Proxy Statement/Prospectus have been so included in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, and given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of MicroSim at December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
included in the Joint Proxy Statement of OrCAD and MicroSim, which is referred
to and made a part of this Prospectus and Registration Statement of OrCAD,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
92
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ORCAD, INC.:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP......................................... F-2
Consolidated Balance Sheets at December 31, 1996, 1995 and September 30,
1997 (unaudited)....................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994 and for the Nine Months Ended September 30, 1997
(unaudited) and 1996 (unaudited)....................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months Ended
September 30, 1997 (unaudited)......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 and for the Nine Months Ended September 30, 1997
(unaudited) and 1996 (unaudited)....................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
MICROSIM CORPORATION:
Report of Ernst & Young LLP............................................. F-19
Consolidated Balance Sheets as of December 31, 1996, 1995 and September
30, 1997 (unaudited)................................................... F-20
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994 and for the Nine Months Ended September 30, 1997
(unaudited) and 1996 (unaudited)....................................... F-21
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months Ended
September 30, 1997 (unaudited)......................................... F-22
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 and for the Nine Months Ended September 30, 1997
(unaudited) and 1996 (unaudited)....................................... F-23
Notes to Consolidated Financial Statements.............................. F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OrCAD, Inc.:
We have audited the accompanying consolidated balance sheets of OrCAD, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of OrCAD,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations, and their cash flows for each of the years in the three year
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Portland, Oregon
January 27, 1997
F-2
<PAGE>
ORCAD, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1997 1996 1995
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $24,463 $20,308 $ 2,080
Short-term investments....................... 2,004 8,964 --
Trade accounts receivable, net of valuation
allowances
of $732, $637 and $422, respectively........ 4,278 3,081 2,641
Inventory, net............................... 411 504 440
Royalty receivable........................... -- 193 406
Deferred taxes............................... 74 79 144
Other........................................ 1,023 832 451
------- ------- -------
Total current assets....................... 32,253 33,961 6,162
------- ------- -------
Investments, long-term......................... 2,373
Fixed assets, net.............................. 1,772 1,018 967
Purchased software technology, net............. 528 429 12
Royalty receivable............................. -- -- 242
Goodwill and intangible assets, net............ 2,505 2,704 3,156
Other assets................................... 125 138 126
------- ------- -------
Total assets............................... $39,556 $38,250 $10,665
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 311 $ 484 $ 942
Accrued payroll and related liabilities...... 1,198 936 816
Accrued liabilities.......................... 1,077 857 1,411
Accrued income taxes......................... 235 607 104
Deferred revenue............................. 1,993 1,432 1,159
Capital lease obligations, current........... -- -- 119
------- ------- -------
Total current liabilities.................. 4,814 4,316 4,551
------- ------- -------
Stockholders' equity:
Series A preferred stock, par value $.01;
9,000,000 shares authorized; -0-, -0- and
8,076,270 issued and outstanding............ -- -- 81
Common stock, par value $.01;
16,000,000 shares authorized;
6,752,743, 6,681,902 and 1,782,546 issued
and outstanding............................. 67 67 18
Additional paid-in capital................... 36,107 35,992 12,312
Accumulated deficit.......................... (1,378) (2,091) (6,293)
Unrealized gain on investments, net.......... 3 9 --
Foreign currency translation adjustment...... (57) (43) (4)
------- ------- -------
Total stockholders' equity................. 34,742 33,934 6,114
------- ------- -------
Total liabilities and stockholders' equity..... $39,556 $38,250 $10,665
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ORCAD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- ---------------------
1996 1995 1994 1997 1996
-------- -------- ------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Products.................... $ 17,822 $ 10,627 $ 8,020 $ 15,290 $ 13,364
Service..................... 3,085 3,032 1,792 3,455 2,193
-------- -------- ------- --------- ----------
Total revenue................. 20,907 13,659 9,812 18,745 15,557
-------- -------- ------- --------- ----------
Cost and expenses:
Cost of revenue--products... 1,771 1,587 1,713 1,986 1,310
Cost of revenue--service.... 727 488 387 551 528
Research and development.... 4,286 3,561 2,907 4,174 3,222
Marketing and sales......... 7,079 4,934 3,569 7,611 5,337
General and administrative.. 3,063 1,904 1,363 2,234 2,240
In-process research and
development................ -- 971 -- 2,203 --
-------- -------- ------- --------- ----------
Total cost and expenses....... 16,926 13,445 9,939 18,759 12,637
-------- -------- ------- --------- ----------
Income (loss) from
operations................... 3,981 214 (127) (14) 2,920
-------- -------- ------- --------- ----------
Other income (expense):
Interest income (expense),
net........................ 1,207 53 (62) 1,118 820
Other, net.................. 65 52 218 (8) 68
-------- -------- ------- --------- ----------
1,272 105 156 1,110 888
-------- -------- ------- --------- ----------
Income before income taxes.... 5,253 319 29 1,096 3,808
Income taxes.................. 1,051 4 -- 383 800
-------- -------- ------- --------- ----------
Net income.................... $ 4,202 $ 315 $ 29 $ 713 $ 3,008
======== ======== ======= ========= ==========
Net income per share.......... $ .63 $ .07 $ .01 $ 0.10 $ 0.47
======== ======== ======= ========= ==========
Weighted average number of
common and common equivalent
shares outstanding........... 6,618 4,775 4,211 6,995 6,407
======== ======== ======= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ORCAD, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A NET FOREIGN TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL ACCUMU- UNREALIZED CURRENCY STOCK-
----------------- ------------- PAID-IN LATED GAIN ON TRANSLATION HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INVESTMENTS ADJUSTMENT EQUITY
-------- ------- ------ ------ ---------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 8,076 $ 81 574 $ 5 $ 7,281 $ (6,637) $ -- $ (2) $ 728
Issuance of common stock
upon option exercises.. -- -- 73 1 24 -- -- -- 25
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- 2 2
Net income.............. -- -- -- -- -- 29 -- -- 29
-------- ------- ----- ---- ------- -------- ---- ----- -------
Balance, December 31,
1994................... 8,076 81 647 6 7,305 (6,608) -- -- 784
Issuance of common stock
upon option exercises.. -- -- 199 2 68 -- -- -- 70
Issuance of common stock
in Massteck merger..... -- -- 510 5 1,958 -- -- -- 1,963
Issuance of common stock
in ISJ merger.......... -- -- 427 5 2,981 -- -- -- 2,986
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- (4) (4)
Net income.............. -- -- -- -- -- 315 -- -- 315
-------- ------- ----- ---- ------- -------- ---- ----- -------
Balance, December 31,
1995................... 8,076 81 1,783 18 12,312 (6,293) -- (4) 6,114
Issuance of common stock
upon option exercises.. -- -- 195 2 81 -- -- -- 83
Issuance of common stock
under employee stock
purchase plan.......... -- -- 11 -- 88 -- -- -- 88
Issuance of common stock
net of offering costs
of $2,951.............. -- -- 2,382 24 23,230 -- -- -- 23,254
Issuance of common stock
upon the exercise of
stock warrants......... -- -- 4 -- -- -- -- -- --
Issuance of common stock
upon the conversion of
preferred stock to
common stock........... (8,076) (81) 2,307 23 58 -- -- -- --
Net unrealized gain on
investments............ -- -- -- -- -- -- 9 -- 9
Tax benefit of OrCAD
stock option
transactions by OrCAD
employees.............. -- -- -- -- 223 -- -- -- 223
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- (39) (39)
Net income.............. -- -- -- -- -- 4,202 -- -- 4,202
-------- ------- ----- ---- ------- -------- ---- ----- -------
Balance, December 31,
1996................... -- -- 6,682 67 35,992 (2,091) 9 (43) 33,934
Issuance of common stock
upon option exercises
(unaudited)............ -- -- 59 -- 35 -- -- -- 35
Issuance of common stock
related to the ESPP
(unaudited)............ -- -- 12 -- 80 -- -- -- 80
Unrealized loss on
investments
(unaudited)............ -- -- -- -- -- -- (6) -- (6)
Foreign currency
translation adjustment
(unaudited)............ -- -- -- -- -- -- -- (14) (14)
Net income (unaudited).. -- -- -- -- -- 713 -- -- 713
-------- ------- ----- ---- ------- -------- ---- ----- -------
Balance, September 30,
1997 (unaudited)....... -- $ -- 6,753 $ 67 $36,107 $ (1,378) $ 3 $ (57) $34,742
======== ======= ===== ==== ======= ======== ==== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ORCAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- --------------------
1996 1995 1994 1997 1996
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................... $ 4,202 $ 315 $ 29 $ 713 $ 3,008
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization................ 1,103 591 442 1,027 805
Provision for losses on
trade accounts receivable
and sales returns........... 220 (47) 183 173 129
Provision for inventory
reserves.................... 9 (20) -- (20) (5)
Deferred income taxes........ 64 -- -- 2 139
Write-off research and
development costs
acquired.................... -- 971 -- 2,203 --
Unrealized gain (loss) on
investments................. -- -- (70) -- --
(Gain) loss on disposal of
fixed assets................ 23 (2) 15 22 --
Changes in assets and
liabilities:
Trade accounts receivable,
net......................... (703) (338) (482) (1,294) (723)
Inventory, net............... (84) (25) 17 109 (79)
Royalty receivable........... 245 133 -- 193 176
Lease receivable............. -- -- -- 5 --
Other, net................... (421) (137) (110) (199) (375)
Accounts payable............. (437) 141 207 (286) (257)
Accrued payroll and related
liabilities................. 123 359 79 262 114
Accrued liabilities.......... (500) 70 221 261 (144)
Accrued income taxes......... 740 -- 756 (368) 504
Deferred revenue............. 276 (438) -- 563 232
------- ------- ------- --------- ---------
Total adjustments.......... 658 1,258 1,258 2,653 516
------- ------- ------- --------- ---------
Net cash provided by
operating activities........ 4,860 1,573 1,287 3,366 3,524
------- ------- ------- --------- ---------
Cash flows from investing
activities:
Acquisition of fixed
assets...................... (658) (409) (248) (1,281) (514)
Acquisition of software
technology.................. (300) (73) (2) (2,450) (18)
Proceeds from sale of fixed
assets...................... 24 -- -- (165) --
Cash acquired in merger...... -- 503 -- -- --
Purchase of short-term
investments and marketable
securities.................. (8,964) -- 70 4,580 (9,014)
------- ------- ------- --------- ---------
Net cash provided (used) by
investing activities...... (9,898) 21 (180) 684 (9,546)
Cash flows from financing
activities:
Payments on capital leases... (119) (157) (97) -- (99)
Borrowings on line of
credit...................... -- -- 6,047 -- --
Payments on lines of
credit...................... -- -- (6,800) -- --
Proceeds from issuance of
common stock, net........... 23,425 70 25 116 23,300
------- ------- ------- --------- ---------
Net cash provided (used) by
financing activities...... 23,306 (87) (825) 116 23,201
------- ------- ------- --------- ---------
Effects of exchange rate on
cash......................... (40) (9) 2 (11) (32)
------- ------- ------- --------- ---------
Net increase in cash and
cash equivalents............ 18,228 1,498 284 4,155 17,147
Cash and cash equivalents at
the beginning of period...... 2,080 582 298 20,308 2,080
------- ------- ------- --------- ---------
Cash and cash equivalents at
the end of period............ $20,308 $ 2,080 $ 582 $ 24,463 $ 19,227
======= ======= ======= ========= =========
Supplemental Disclosures of
Cash Flow Information:
Interest paid................ $ 10 $ 26 $ 68 $ 5 $ 10
Income taxes paid............ $ 377 $ -- $ -- $ 644 $ 241
Non-cash investing activities:
Net assets acquired in
merger...................... $ -- $ 4,949 $ -- $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
OrCAD, Inc. ("OrCAD," or the "Company") develops, markets and supports
software products that assist electronics designers in developing field-
programmable gate arrays, including complex programmable logic devices, and
printed circuit boards. The Company operates primarily in one business
segment, comprising the electronic design automation industry.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, OrCAD Europe S.A.R.L. (OrCAD Europe),
Massteck Ltd. (Massteck) and Intelligent Systems Japan, K.K. (ISJ) from the
date of inception or acquisition. All intercompany balances have been
eliminated in consolidation. In December 1995, the Company acquired ISJ in a
transaction accounted for as a purchase. In June 1995, the Company acquired
Massteck in a transaction accounted for as a purchase. In June 1994, the
Company discontinued all operations of its wholly-owned subsidiary, OrCAD
Europe.
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
Cash and Cash Equivalents
For purposes of the accompanying consolidated statements of cash flows, the
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents are stated at
cost and consist primarily of money market funds, commercial paper, municipal
bonds and municipal auction preferred stock. The carrying amount of cash and
cash equivalents approximates fair value.
Investments
Investments, which consist of debt securities and U.S. Treasury Notes, are
reported at fair value, and are classified as available-for-sale securities.
The cost of securities sold is determined using the specific identification
method when computing realized gains and losses. Fair value is determined
using available market information.
Inventory
Inventory consists primarily of packaging materials, diskettes, compact
disks, hardware locks, and printed documentation. Inventory is carried at the
lower of cost or market determined on a first-in, first-out basis.
Fixed Assets
Fixed asset acquisitions are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
generally three to seven years. Amortization of leasehold improvements and
assets under capital leases is calculated using the straight-line method over
the shorter of the related lease term or economic life of the leased asset.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and accounts receivable. Management believes the
F-7
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
credit risk associated with cash, cash equivalents and short-term investments
is minimal. The Company sells its products to customers who are primarily
designers and manufacturers of electronic components. The Company's
accounts receivable are derived primarily from customers located in North
America, Europe and Japan. Management believes that the risk of credit loss is
reduced due to the diversity of its customers and their dispersion across many
geographic areas and electronic industries.
Revenue Recognition
Revenue primarily includes revenue from software product shipments and
revenue from product support agreements. The Company recognizes revenue from
software licenses after shipment of product and when no significant
contractual obligations remain outstanding. When the Company receives payment
prior to shipment or fulfillment of a significant obligation to the customer,
such payments are recorded as deferred revenue and recognized as revenue upon
shipment or fulfillment of such obligation. A portion of revenue from product
sales is deferred and recognized ratably over the maintenance period,
generally three months. Deferred revenue on product support agreements that
are sold separately from product sales is recognized ratably over the contract
period, generally one year. Revenue from customer training, support and other
services is recognized as the services are performed.
Software Development Costs
Under Statement of Financial Accounting Standards No. 86, software
development costs are to be capitalized beginning when a product's
technological feasibility has been established and ending when a product is
made available for general release to customers. To date, the establishment of
technological feasibility of the Company's products has occurred shortly
before general release, and accordingly no costs have been capitalized.
Purchased Software Technology
The Company has acquired technologies in connection with certain business
combinations and licensing agreements. The cost of such purchased technology
is generally amortized using the straight-line method over its estimated
useful life. Amortization expense for the years ended December 31, 1996, 1995
and 1994 was $92, $77 and $98 respectively.
Foreign Currency
The local currencies of the Company's foreign subsidiaries are the
functional currencies. Assets and liabilities of the Company's foreign
operation are translated into U.S. dollars using exchange rates in effect at
the translation date, and revenue and expenses are translated into U.S.
dollars using average exchange rates. The effects of foreign currency
translation adjustments are included as a component of stockholders' equity.
Gains or losses occurring on transactions, which have been insignificant, are
included in the consolidated statements of operations as other income
(expense). Foreign currency gains (losses) for the years ended December 31,
1996, 1995 and 1994 were $(18), $11, and $(17), respectively.
Intangible Assets and Goodwill
Intangible assets and goodwill of $2,685 and $300, respectively, resulting
from the acquisition of ISJ, are being amortized on a straight line basis over
a ten year life and three year life, respectively, commencing in December
1995. Goodwill of $250, resulting from the acquisition of Massteck, is being
amortized on a straight-line basis over a three year life commencing in June
1995. Goodwill and intangible asset amortization was $452, $79, and $0 for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-8
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases and operating losses and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Net Income Per Share
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding. Common equivalent shares from stock
options, warrants, and preferred stock are excluded from the calculation where
their effect is antidilutive, except that, pursuant to Securities and Exchange
Commission Staff Accounting Bulletins, common and common equivalent shares
issued at prices below the public offering price during the twelve months
immediately preceding the initial filing date have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method).
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term nature of these
instruments. The fair value of short-term investments is based on current
market values. Fair value estimates are made at a specific point in time,
based on relevant market information about the financial instrument when
available. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
New Accounting Pronouncements
On January 1, 1996, the Company adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting
for Stock-Based Compensation". This statement permits a company to choose
either a new fair value based method of accounting for its stock-based
compensation arrangements or to comply with the current APB Opinion 25
intrinsic value based method adding pro forma disclosures of net income and
earnings per share computed as if the fair value based method had been applied
in the financial statements. The Company has adopted SFAS No. 123 by retaining
the APB Opinion 25 method of accounting for stock-based compensation with
annual pro forma disclosures of net income and earnings per share.
Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets,
liabilities and contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
(2) ACQUISITIONS
In December 1995, the Company issued 426,468 shares of common stock in
exchange for all of the outstanding common stock of ISJ. The acquisition has
been accounted for as a purchase, and the financial results of ISJ have been
included in the accompanying consolidated financial statements since the date
of acquisition.
F-9
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The cost of the acquisition has been allocated on the basis of the estimated
fair value of the assets acquired and the liabilities assumed. Intangible
assets of $2,685 and $300 represent the estimated fair value of the customer
list and goodwill acquired from ISJ.
The fair values of assets and liabilities acquired are presented below:
<TABLE>
<S> <C>
Cash.................................. $ 422
Accounts receivable, net.............. 474
Inventory, net........................ 174
Deferred tax asset.................... 146
Prepaid and other..................... 6
Fixed assets.......................... 166
Other assets.......................... 52
Intangible assets..................... 2,985
Accounts payable...................... (366)
Accrued payroll....................... (60)
Other accrued liabilities............. (868)
Accrued income taxes.................. (102)
Deferred revenue...................... (43)
------
Net assets acquired................. $2,986
======
</TABLE>
In June 1995, the Company issued 510,031 shares of common stock and reserved
50,717 common shares for issuance upon exercise of vested common stock options
in exchange for all of the outstanding common and preferred stock and vested
stock options of Massteck. The acquisition has been accounted for as a
purchase, and the financial results of Massteck have been included in the
accompanying consolidated financial statements since the date of acquisition.
The cost of the acquisition has been allocated on the basis of the estimated
fair value of the assets acquired and liabilities assumed. This allocation
resulted in an in-process research and development charge of $971, because
certain acquired technology had not reached technological feasibility. The
excess of the aggregate purchase price over the fair value of net assets
acquired of approximately $250 was recognized as goodwill and is being
amortized on a straight-line basis over three years.
The fair values of assets and liabilities acquired are presented below:
<TABLE>
<S> <C>
Cash.................................. $ 81
Accounts receivable, net.............. 170
Royalties receivable.................. 780
Inventory, net........................ 14
Prepaids and other.................... 12
Property and equipment................ 103
Goodwill.............................. 250
In-process research and development... 971
Accounts payable...................... (92)
Accrued payroll and related
liabilities.......................... (84)
Other accrued liabilities............. (65)
Deferred revenue...................... (127)
Capital lease obligations............. (50)
------
Net assets acquired................. $1,963
======
</TABLE>
F-10
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In April 1997, the Company acquired certain technology and sales personnel
from TEAM Corporation for approximately $1,900. The cost of the acquisition
was allocated on the basis of the fair value of the assets acquired. This
allocation resulted in a charge for in-process research and development of
$1,800, and goodwill of $126 at the purchase date. The charge for in-process
research and development resulted from allocating a portion of the acquisition
cost to TEAM's in-process product development that had not reached
technological feasibility. In addition, there are certain contingent amounts
payable over the next three years based on the achievement of specific revenue
milestones.
In June 1997, the Company acquired certain technology and development
personnel from Q Point Technology for approximately $720. The cost of the
acquisition was allocated on the basis of the fair value of the assets
acquired. This allocation resulted in a charge for in-process research and
development of $433, purchased technology capitalization of $248, and goodwill
of $39 at the purchase date. The charge for in-process research and
development resulted from allocating a portion of the purchase price to Q
Point's in-process product development that had not reached technological
feasibility. The Company is amortizing the goodwill and purchased technology
over a period of three years and five years, respectively.
(3) BALANCE SHEET COMPONENTS
Other Current Assets
The Company's other current assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
<S> <C> <C>
Deferred income taxes......................................... $ 80 $ 144
Income tax receivable......................................... 94 --
Deferred initial public offering costs........................ -- 309
Prepaid expenses and other.................................... 737 142
------ ------
$ 911 $ 595
====== ======
</TABLE>
Fixed Assets
The Company's fixed assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Vehicles................................................... $ 48 $ 53
Furniture and fixtures..................................... 386 347
Computer equipment......................................... 1,576 1,263
Leasehold improvements..................................... 49 23
Software................................................... 688 517
------- -------
2,747 2,203
Less accumulated depreciation and amortization............. (1,729) (1,236)
------- -------
$ 1,018 $ 967
======= =======
</TABLE>
F-11
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Depreciation and amortization expense was approximately $542, $428 and $344
for the years ended December 31, 1996, 1995 and 1994, respectively.
Accrued Liabilities
The Company's accrued liabilities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
-------------
<S> <C> <C>
Accrued initial public offering costs......................... $ -- $ 365
Deferred rent................................................. 198 212
Obligations related to acquisition of ISJ..................... 86 515
Accrued director and officer insurance........................ 227 --
Other......................................................... 346 319
----- -------
$ 857 $ 1,411
===== =======
</TABLE>
(4) SHORT-TERM INVESTMENTS
Certain additional information with respect to the Companys short-term
investments at December 31, 1996 is presented below. For the year ended
December 31, 1995, the Company did not hold any short-term investments.
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAIN (LOSS) VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Short-term investments
Corporate notes & bonds........... $7,963 $ 6 $(2) $7,967
US Government and related
agencies......................... 992 5 -- 997
------ --- --- ------
Total........................... $8,955 $11 $(2) $8,964
====== === === ======
</TABLE>
At December 31, 1996, the contractual maturities of available-for-sale
short-term investments range from ninety days to less than one year. The
Company received proceeds from the maturity or sale of short term investments
of $2,000, $0, and $90 for the years ended December 31, 1996, 1995 and 1994,
respectively.
(5) NOTE PAYABLE AND LINE OF CREDIT
From January 1, 1995, through August 1996, the Company had a Business Loan
Agreement with a commercial bank for a $1,500 line of credit to be used for
operating needs. On September 5, 1996, the Company entered into a Business
Loan Agreement with a commercial bank for a $3,000 line of credit to be used
for operating needs. The line of credit bears interest at the bank's prime
rate plus .50%. The Agreement is secured by all assets of the Company. There
were no outstanding borrowings under these agreements at either December 31,
1996 or December 31, 1995.
F-12
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(6) TAXES
Domestic and foreign pre-tax income (loss) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Domestic........................................... $ 5,007 $ 346 $ 57
Foreign............................................ 246 (27) (28)
-------- ------- ------
Total............................................ $ 5,253 $ 319 $ 29
======== ======= ======
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $ 306 $ -- $ --
State............................................. 4 -- --
Foreign........................................... 677 5 --
-------- ------ -------
987 5 --
-------- ------ -------
Deferred:
Federal........................................... -- -- --
State............................................. -- -- --
Foreign........................................... 64 (1) --
-------- ------ -------
64 (1) --
-------- ------ -------
Total........................................... $ 1,051 $ 4 $ --
======== ====== =======
</TABLE>
The actual income tax expense for the years ended December 31, 1996, 1995 and
1994 differs from the expected tax expense computed by applying the U.S.
federal corporate income tax rate of 34% to net income before income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Expected income tax expense.................... $ 1,786 $ 108 $ 10
State income tax expense....................... 234 61 5
Increase (decrease) in the valuation allowance
for deferred
tax assets.................................... (749) (321) 138
Unrealized benefit of research and
experimentation tax credit.................... (128) (59) (99)
Realized loss on foreign operations............ -- -- (62)
Goodwill amortization and in-process costs
attributable to the Massteck acquisition...... 154 347 --
Net operating losses acquired in the Massteck
acquisition................................... -- (68) --
Differences between financial and tax reporting
for common stock option exercises............. (646) (71) --
Foreign tax rate differential.................. 546 -- --
Foreign sales corporation benefit.............. (67) -- --
Other.......................................... (79) 7 8
-------- ------- -------
Actual expense................................. $ 1,051 $ 4 $ --
======== ======= =======
</TABLE>
F-13
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The income tax effects of temporary differences and carryforwards which give
rise to significant portions of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful
accounts.............................................. $ 174 $ 83
Inventory, due to reserve for obsolescence............. 93 51
Accrued vacation pay................................... 135 113
Purchased technology, due to differences in
amortization.......................................... 24 277
In-process research and development, due to
amortization differences.............................. -- 84
Research and experimentation credit carryforwards...... 601 336
Net operating loss carryforwards....................... 549 1,425
Other.................................................. 253 276
------- -------
Total gross deferred tax assets...................... 1,829 2,645
Less valuation allowance................................. (1,735) (2,484)
------- -------
Net deferred tax assets.............................. 94 161
Deferred tax liabilities:
Other.................................................. 14 17
------- -------
Total gross deferred tax liabilities................. 14 17
------- -------
Net deferred tax assets.............................. $ 80 $ 144
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 was
$2,667. The net change in the valuation allowance for the years ended December
31, 1996, 1995 and 1994 was an increase (decrease) of $(749), $(321), and
$138, respectively. At the time that tax benefits of the federal net operating
loss carryforwards acquired in the Massteck acquisition are recognized, up to
$68 of the valuation allowance for deferred tax assets will be applied to
reduce goodwill recognized as a result of the acquisition. In addition, the
portion of the valuation allowance for deferred tax assets for which
subsequently recognized tax benefits was applied directly to contributed
capital was $223 at December 31, 1996. This amount was attributable to
differences between financial and tax reporting for employee stock option
exercises.
As of December 31, 1996, the Company has federal and state net operating
loss carryforwards for tax purposes of approximately $1,461 and $1,187,
respectively, which expire in 2006 through 2009. In addition, the Company has
unused research and experimentation credits of $397, which expire in 2006
through 2011. Such credits can be offset against future federal income taxes
after use of the loss carryforwards.
F-14
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) LEASE COMMITMENTS
The Company leases office space under various noncancelable operating lease
agreements. Lease expense was $370, $382 and $352 for the years ended December
31, 1996, 1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1997.................................... $ 381
1998.................................... 390
1999.................................... 409
2000.................................... 368
2001.................................... 118
Thereafter.............................. --
------
Total................................. $1,666
======
</TABLE>
(8) FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
The Company's subsidiary in Japan accounted for $4,332 and $361 of total
revenue and had net losses of $51 and $27 for the years ended December 31,
1996 and 1995, respectively. Identifiable assets of this subsidiary were $922
and $1,277 at December 31, 1996 and 1995, respectively. The Company's European
subsidiary accounted for $141 of total revenue and had $28 of operating losses
for the year ended December 31, 1994. Identifiable assets of this subsidiary
were insignificant.
Revenue by geographical area is provided below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
United States...................................... $ 11,638 $ 9,045 $ 5,853
Canada............................................. 1,081 484 98
-------- -------- -------
Total North America.............................. 12,719 9,529 5,951
-------- -------- -------
Europe............................................. 3,048 2,121 2,574
Japan.............................................. 4,332 1,102 782
Other international................................ 808 907 505
-------- -------- -------
$ 20,907 $ 13,659 $ 9,812
======== ======== =======
</TABLE>
(9) STOCKHOLDERS' EQUITY
Common Stock
Effective December 15, 1995, the Company's stockholders authorized a .2857
for 1 reverse common stock split. All share and per share data have been
retroactively restated to give effect to this reverse stock split.
Also on December 15, 1995, the Company's stockholders approved an increase
in the number of common shares authorized for issuance from 15,000,000 to
16,000,000.
On March 1, 1996, the Company completed a public offering of 3,200,0000
shares of common stock which generated net proceeds of approximately $19,400
after deducting applicable issuance costs and expenses. On
F-15
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
April 4, 1996, the Company's underwriters' exercised their over-allotment
option resulting in the issuance of an additional 382,299 shares of common
stock which generated net proceeds of approximately $3,900 after deducting
applicable issuance costs and expenses.
Preferred Stock
In connection with the completion of the Company's initial public offering
in March 1996, all of the outstanding Series A preferred stock was
automatically converted into 2,307,397 shares of the Company's common stock.
Reserved Common Stock
At December 31, 1996, the Company had 2,997,009 shares of common stock
reserved for future issuance under all stock option plans.
(10) STOCK OPTION PLANS
1995 Stock Incentive Plan
Under the 1995 Stock Incentive Plan, the Company may sell shares of common
stock and grant either incentive stock options or nonqualified stock options
to certain employees and consultants at the discretion of the Board of
Directors. The Company has reserved 2,000,000 shares of common stock which may
be optioned and/or sold under the 1995 Incentive Plan. The 1995 Incentive Plan
provides that (i) the exercise price of an incentive stock option must be no
less than the fair market value of the Company's common stock at the date of
grant, (ii) the exercise price of a nonqualified stock option must be no less
than 85% of the fair market value, and (iii) the exercise price to an optionee
who possesses more than 10% of the total combined voting power of all classes
of stock must be no less than 110% of the fair market value, all as determined
by the Board of Directors. The Board of Directors has the authority to set
expiration dates no longer than ten years from the date of grant (or five
years for an optionee who meets the 10% criteria), payment terms and other
provisions for each grant. Shares associated with unexercised options are
generally canceled no more than 90 days after termination of employment and
become available for grant under the 1995 Incentive Plan. There were 88,427
options granted, 312 options exercised, and 422 options forfeited under the
1995 Incentive Plan during 1996.
1995 Stock Option Plan
Under the 1995 Stock Option Plan ("1995 Stock Option Plan"), the Company may
grant incentive stock options or nonqualified stock options up to a maximum of
51,699 shares of common stock to directors, officers, employees and
consultants. Nonqualified stock options must be granted at not less than 85%
of the fair market value, and incentive stock options must be granted at not
less than the fair market value, at the date of grant. The exercise price to
an optionee who possesses more than 10% of the total combined voting power of
all classes of stock must be no less than 110% of the fair market value at the
date of grant. The Board of Directors has authority to set expiration dates no
longer than ten years from the date of grant (or five years for an optionee
who meets the 10% criteria), payment terms and other provisions for each
grant. There were no options granted or forfeited and 17,049 options exercised
under the 1995 Incentive Plan during 1996.
1995 Stock Option Plan for Nonemployee Directors
Under the 1995 Stock Option Plan for Nonemployee Directors, the Company may
grant non-qualified stock options up to a maximum of 500,000 shares of common
stock. The exercise price of options granted under the
F-16
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Plan may not be less than the fair market value of common stock on the date of
grant. All options granted under the Plan will be non-qualified and expire ten
years from the date of grant. Shares that are associated with options that are
forfeited or terminated will again be available for grant. There were 20,000
options granted under the 1995 Stock Option Plan for Nonemployee Directors
during 1996.
1991 Non-Qualified Stock Option Plan
Under the 1991 Non-Qualified Stock Option Plan, the Company may grant non-
qualified stock options up to a maximum of 962,238 shares of common stock.
Options may be granted at the Board of Directors' discretion at not less than
85% of the fair market value of the common stock at the date of such grant.
Options shall expire on the date specified by the Board of Directors but this
date shall in no event exceed ten years from the date of grant. There were
20,000 options granted, 172,771 options exercised, and 9,505 options forfeited
under the 1991 Non-Qualified Stock Option Plan during 1996.
Stock option activity under the foregoing plans is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER OPTION EXERCISE PRICE
------------ --------------
<S> <C> <C>
Outstanding at December 31, 1993.............. 728,591 $ .35
Granted..................................... 156,310 .35
Exercised................................... (73,224) .35
Canceled.................................... (192,489) .35
--------
Outstanding at December 31, 1994.............. 619,188 .35
Granted..................................... 276,217 2.87
Exercised................................... (199,202) .35
Canceled.................................... (14,646) .35
--------
Outstanding at December 31, 1995.............. 681,557 1.36
Granted..................................... 128,427 11.70
Exercised................................... (194,828) .42
Canceled.................................... (9,927) 1.94
--------
Outstanding at December 31, 1996.............. 605,229 $ 3.86
========
</TABLE>
The weighted average fair value of options granted during 1996 and 1995 was
$6.78 and $1.08, respectively.
At December 31, 1996 the Company had four stock-based compensation plans,
which are described above and an employee stock purchase plan which is
discussed in note 11. The Company applies APB No. 25 and related
Interpretations in accounting for its plan. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its stock purchase
plan. For SFAS No. 123 purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for grants and purchase rights
in 1996 and 1995, respectively: dividend yield of 0% for both years; expected
volatility of 49% and 0%; risk-free interest rate ranged from of 5.3% to 6.4%
in 1996 and from 5.3% to 6.7% in 1995 for all plans; and expected lives of
five years and five years for all Plans except the 1995 Stock Option Plan and
the 1996 Employee Stock Purchase Plan options, 2 years and 2 years for the
1995 Stock Option Plan and .5 years and .5 years for the 1996 Employee Stock
Purchase Plan. Had compensation expense been determined consistent with SFAS
No. 123, utilizing the assumptions detailed above,
F-17
<PAGE>
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION RELATING TO THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND
1997 IS UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
the Company's net income and earnings per share for the years ended December
31, 1996 and 1995, would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Net income:
As reported................................................. $4,202 $315
Pro forma................................................... 3,772 288
Net Income per common share:
As reported................................................. $ .63 $.07
Pro forma................................................... .58 .06
</TABLE>
The resulting pro forma compensation costs may not be representative of that
expected in future years.
The following table summarizes information about fixed stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1996 LIFE PRICE 1996 PRICE
---------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ .35 304,816 6.8 years $ .35 214,479 $ .35
.88 1,193 8.7 years .88 299 .88
3.50 141,836 8.8 years 3.50 38,640 3.50
7.88-11.00 111,869 9.3 years 9.15 19,613 8.73
15.50 45,515 9.5 years 15.50 23,222 15.50
.35-15.50 605,229 7.9 years 3.86 296,253 2.50
</TABLE>
(11) EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has a 401(k) retirement savings plan covering substantially all
employees, excluding employees of OrCAD Japan. Contributions to the plan were
matched at the discretion of the Board of Directors. The matching
contributions amounted to $151, $41 and $2 for 1996, 1995 and 1994,
respectively.
1996 Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan, which became effective May 1,
1996, eligible employees of the company are permitted to purchase common stock
through payroll deductions at a price equal to 85% of the fair market value of
the common stock at the beginning of each offering period or the end of each
offering period, whichever is lower. No employee is entitled to purchase
shares of common stock having a value (determined on the first day of the
offering period) of more than $25,000 in any calendar year. The Company has
reserved 200,000 shares of common stock for issuance under the 1996 Employee
Stock Purchase Plan. During 1996, there were 10,686 shares issued under the
Plan.
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MicroSim Corporation:
We have audited the accompanying consolidated balance sheets of MicroSim
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MicroSim
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Orange County, California
February 28, 1997
F-19
<PAGE>
MICROSIM CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1997 1996 1995
------------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 3,951 $ 7,769 $ 5,163
Short-term investments....................... 2,999 -- 1,699
Accounts receivable, less allowance for
doubtful accounts of $112 in 1997, $120 in
1996 and $50 in 1995........................ 2,421 1,786 2,066
Inventories.................................. 355 493 239
Deferred tax assets.......................... 516 516 360
Other current assets......................... 721 333 232
------- ------- -------
Total current assets....................... 10,963 10,897 9,759
Property and equipment, net.................... 1,526 728 762
Other assets, net.............................. 13 17 57
------- ------- -------
Total assets................................... $12,502 $11,642 $10,578
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 503 $ 479 $ 422
Accrued compensation and related expenses.... 549 624 705
Income taxes payable......................... -- 49 328
Accrued sales allowances..................... 403 264 302
Other accrued liabilities.................... 363 310 262
Deferred revenue............................. 2,027 1,791 1,308
Current portion of contract payable.......... -- 171 270
------- ------- -------
Total current liabilities.................. 3,845 3,688 3,597
Contract payable, due after one year........... -- -- 180
Deferred income taxes.......................... 205 205 145
Commitments
Shareholders' equity:
Common stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--2,804,615 in
1997, 2,844,820 in 1996 and 2,825,550 in
1995........................................ 894 958 754
Retained earnings............................ 7,613 6,863 5,919
Notes receivable--employee stock purchases... (55) (72) (17)
------- ------- -------
Total shareholders' equity................. 8,452 7,749 6,656
------- ------- -------
Total liabilities and shareholders' equity..... $12,502 $11,642 $10,578
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
MICROSIM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- --------------
1996 1995 1994 1997 1996
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Products......................... $13,347 $12,515 $10,325 $9,599 $9,804
Service.......................... 2,780 2,143 1,784 2,687 1,995
------- ------- ------- ------ ------
Total revenue.................. 16,127 14,658 12,109 12,286 11,799
------- ------- ------- ------ ------
Costs and expenses:
Cost of revenue--products........ 2,371 2,088 1,900 1,614 1,675
Cost of revenue--service......... 776 621 586 668 535
Research and development......... 5,064 3,688 3,692 4,193 3,703
Marketing and sales.............. 4,798 3,859 3,266 3,479 3,321
General and administrative....... 1,730 1,603 1,372 1,265 1,378
Write-off of purchased software.. -- 1,037 -- -- --
------- ------- ------- ------ ------
Total costs and expenses....... 14,739 12,896 10,816 11,219 10,612
------- ------- ------- ------ ------
Income from operations............. 1,388 1,762 1,293 1,067 1,187
------- ------- ------- ------ ------
Other income (expense):
Interest income.................. 356 291 87 262 267
Interest expense................. (21) (39) (54) (7) (18)
------- ------- ------- ------ ------
335 252 33 255 249
------- ------- ------- ------ ------
Income before income taxes......... 1,723 2,014 1,326 1,322 1,436
Income taxes....................... 652 691 263 496 517
------- ------- ------- ------ ------
Net income......................... $ 1,071 $ 1,323 $ 1,063 $ 826 $ 919
======= ======= ======= ====== ======
Net income per share............... $ .38 $ .46 $ .37 $ .29 $ .32
======= ======= ======= ====== ======
Weighted average number of common
and common equivalent shares
outstanding....................... 2,840 2,877 2,879 2,831 2,836
======= ======= ======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
MICROSIM CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED NOTES
SHARES AMOUNT EARNINGS RECEIVABLE TOTAL
--------- ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993... 2,930,670 $ 679 $3,952 $ (34) $4,597
Stock repurchases............ (99,470) (64) (222) 2 (284)
Employee stock purchases..... 64,000 183 -- (140) 43
Payment of notes receivable.. -- -- -- 30 30
Net income................... -- -- 1,063 -- 1,063
--------- ----- ------ ----- ------
Balance at December 31, 1994... 2,895,200 798 4,793 (142) 5,449
Stock repurchases............ (113,650) (176) (197) -- (373)
Employee stock purchases..... 44,000 132 -- (15) 117
Payment of notes receivable.. -- -- -- 140 140
Net income................... -- -- 1,323 -- 1,323
--------- ----- ------ ----- ------
Balance at December 31, 1995... 2,825,550 754 5,919 (17) 6,656
Stock repurchases............ (72,730) (127) (127) -- (254)
Employee stock purchases..... 92,000 331 -- (114) 217
Payment of notes receivable.. -- -- -- 59 59
Net income................... -- -- 1,071 -- 1,071
--------- ----- ------ ----- ------
Balance at December 31, 1996... 2,844,820 958 6,863 (72) 7,749
Stock repurchases
(unaudited)................. (69,905) (171) (76) -- (247)
Employee stock purchases
(unaudited)................. 29,700 107 -- (34) 73
Payment of notes receivable
(unaudited)................. -- -- -- 51 51
Net income (unaudited)....... -- -- 826 -- 826
--------- ----- ------ ----- ------
Balance at September 30, 1997
(unaudited)................... 2,804,615 $ 894 $7,613 $ (55) $8,452
========= ===== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
MICROSIM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED SEPTEMBER
31, 30,
----------------------- ----------------
1996 1995 1994 1997 1996
------ ------- ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $1,071 $ 1,323 $1,063 $ 826 $ 919
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 403 472 535 259 276
Write-off of purchased software.. -- 1,037 -- -- --
Deferred income taxes............ (96) (33) (54) -- --
Loss on disposal of property and
equipment....................... 22 5 29 -- 2
Change in operating assets and
liabilities..................... 135 912 524 (553) 55
------ ------- ------ ------- -------
Net cash provided by operating
activities.................... 1,535 3,716 2,097 532 1,252
------ ------- ------ ------- -------
Cash flows from investing
activities:
Purchase of short-term
investments .................... (4,955) (1,699) -- (4,949) (4,955)
Maturities of short-term
investments..................... 6,654 -- -- 1,950 1,699
Additions to property and
equipment....................... (350) (343) (335) (1,053) (240)
Acquisition of software
technology...................... -- -- (50) -- --
------ ------- ------ ------- -------
Net cash provided (used) by
investing activities.......... 1,349 (2,042) (385) (4,052) (3,496)
------ ------- ------ ------- -------
Cash flows from financing
activities:
Payments on capital leases....... -- -- (26) -- --
Repayment of contract payable.... (300) (275) -- (175) (225)
Proceeds from issuance of common
stock........................... 276 257 73 124 233
Repurchases of common stock...... (254) (373) (284) (247) (208)
------ ------- ------ ------- -------
Net cash used by financing
activities.................... (278) (391) (237) (298) (200)
------ ------- ------ ------- -------
Net increase (decrease) in cash
and cash equivalents.......... 2,606 1,283 1,475 (3,818) (2,444)
Cash and cash equivalents at the
beginning of period............... 5,163 3,880 2,405 7,769 5,163
------ ------- ------ ------- -------
Cash and cash equivalents at the
end of period..................... $7,769 $ 5,163 $3,880 $ 3,951 $ 2,719
====== ======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
MICROSIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
MicroSim Corporation (the Company) was incorporated in California in June
1984 and engages principally in the development and marketing of software
applications which aid in the design and engineering of electrical circuits.
The accompanying financial statements consolidate the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Certain reclassifications have been made to prior year amounts to conform to
the 1996 presentation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
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 amounts reported in the financial statements.
Actual results could differ from those estimates.
SHORT-TERM INVESTMENTS
Investments purchased with maturities of more than three months and less
than twelve months are classified as short-term investments which are
available-for-sale. Short-term investments consist primarily of U.S.
government obligations and commercial paper. At December 31, 1995, there was
no material unrealized gain or loss on available-for-sale short-term
investments.
STOCK SPLIT
On April 30, 1996, the Company declared a stock dividend of four shares of
common stock for each share held, which has been reflected as a stock split.
All share and per share data has been restated to reflect the stock split.
INVENTORIES
Inventories are valued at the lower of cost, determined on the first-in,
first-out method, or market. The inventories consist primarily of sales
materials and supplies for packaging software systems.
PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------
1997 1996 1995
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................. $2,356 $2,010 $2,431
Furniture and fixtures......................... 608 420 393
Trade show equipment........................... 130 130 130
Leasehold improvements......................... 375 46 46
------ ------ ------
3,469 2,606 3,000
Less accumulated depreciation and
amortization.................................. 1,943 1,878 2,238
------ ------ ------
$1,526 $ 728 $ 762
====== ====== ======
</TABLE>
F-24
<PAGE>
MICROSIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation of furniture and equipment is provided using the straight-line
method over estimated useful lives of three to five years. Amortization of
leasehold improvements is provided using the straight-line method over the
shorter of the lease term or the estimated useful life.
LONG-LIVED ASSETS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, (SFAS 121) on January 1, 1996. The
adoption of SFAS 121 did not have a material impact on the Company's financial
position or results of operations.
REVENUE RECOGNITION AND SIGNIFICANT CUSTOMER
The Company recognizes revenue from sales of software licenses upon shipment
of the software to the customer. Technical support revenue, included with the
initial license fee, is deferred and recognized over the estimated service
period.
Sales to one customer represented 12% of total revenue for each of the years
ended December 31, 1996, 1995 and 1994.
MAINTENANCE CONTRACTS
The Company offers maintenance contracts to its customers to provide
enhanced versions (updates) of its software products. Revenues related to
these contracts are deferred and recognized on a straight-line basis over the
one year life of the contract.
RESEARCH AND DEVELOPMENT
Research and development expenses incurred in the design, development and
testing of new software until technological feasibility has been established
for the product and software maintenance and enhancement costs, are expensed
as incurred. Thereafter, certain costs such as coding and testing are
capitalized until the product is available for general release to customers.
The Company uses the working model approach to establish technological
feasibility and, to date, no internal costs have been capitalized as software
development.
In 1995, the Company wrote off purchased software with a cost of $1,037,000
when it determined that it would use an alternative software design in its
products.
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising costs
aggregated $1,221,000, $1,032,000 and $886,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of the Company's foreign subsidiary, MicroSim
Japan, K.K., are translated into U. S. dollars using the exchange rate at each
balance sheet date for assets and liabilities and a weighted average exchange
rate for each period for revenues, expenses, gains and losses.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding. Common equivalent shares from stock
options are excluded from the calculation where their effect is antidilutive.
F-25
<PAGE>
MICROSIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENTS OF CASH FLOWS
Changes in operating assets and liabilities, as shown in the consolidated
statements of cash flows, are comprised of the following for the three years
ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable.................................. $ 281 $(298) $(620)
Inventories.......................................... (254) (36) (25)
Refundable income taxes.............................. -- 116 78
Other assets......................................... (82) 26 95
Accounts payable..................................... 57 188 41
Accrued compensation and related expenses............ (81) 176 209
Income taxes payable................................. (280) 103 225
Other accrued liabilities............................ 11 321 203
Deferred revenue..................................... 483 316 318
------ ----- -----
Change in operating assets and liabilities......... $ 135 $ 912 $ 524
====== ===== =====
Supplementary disclosure of cash paid during the year
for:
Income taxes....................................... $1,028 $ 504 $ 106
====== ===== =====
Interest........................................... $ 21 $ 39 $ 5
====== ===== =====
</TABLE>
The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) in accounting for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized. Pro forma
information regarding net income and net income per share is required by
Statement of Financial Accounting Standard No. 123, Accounting for Stock Based
Compensation (SFAS 123), as if the Company had accounted for its employee
stock options under the fair value method of that statement. The fair value
for options granted was estimated at the date of grant using the Black-Scholes
option valuation model. Significant factors used in the valuation model
include an assumed weighted average expected life of the option of five years,
a risk-free interest rate of 6%, an expected volatility of 50%, and no
dividend payments. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the option's vesting period.
F-26
<PAGE>
MICROSIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. TAXES BASED ON INCOME
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under the liability method, deferred taxes are determined
based on the differences between the financial statement and tax bases of
assets and liabilities, using enacted tax rates.
The federal and state income tax provisions for the three years ended
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $ 288 $ 609 $ 285
State.......................................... 145 115 32
Foreign........................................ 315 -- --
------ ------ ------
748 724 317
Deferred:
Federal........................................ (87) (31) (40)
State.......................................... (9) (2) (14)
------ ------ ------
(96) (33) (54)
------ ------ ------
$ 652 $ 691 $ 263
====== ====== ======
In 1996, the Company incorporated its Japanese subsidiary which was
previously operated as a branch of the Company. Income (loss) before income
taxes for the three years ended December 31, 1996 was generated as follows:
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic operations.............................. $ 959 $1,876 $1,640
Foreign branch................................... 1,001 138 (314)
Foreign subsidiary............................... (237) -- --
------ ------ ------
$1,723 $2,014 $1,326
====== ====== ======
The provision for taxes based on income differs from the amount computed at
the federal statutory rate as follows:
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision at statutory rate........... $ 586 $ 685 $ 451
State income taxes, net of federal benefit....... 82 75 11
Foreign subsidiary losses not benefitted......... 81 -- --
Foreign branch taxes at rates in excess of
statutory rate.................................. 60 -- --
Research and experimentation benefit............. (71) (49) (174)
Foreign sales corporation benefit................ (61) (32) (20)
Other, net....................................... (25) 12 (5)
------ ------ ------
$ 652 $ 691 $ 263
====== ====== ======
</TABLE>
F-27
<PAGE>
MICROSIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the tax effects of temporary differences
between the value of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's net deferred tax assets and liabilities as of December 31, 1996 and
1995 are:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued expenses....................................... $ 371 $ 294
Foreign net operating loss carryforward................ 74 --
Accounts receivable and inventory reserves............. 50 30
Foreign tax credit..................................... 47 --
California franchise taxes............................. 27 19
Inventory capitalization............................... 21 17
------- -------
590 360
Valuation allowance.................................... (74) --
------- -------
516 360
------- -------
Deferred tax liabilities:
Tax over book depreciation............................. 205 145
------- -------
Net deferred tax assets.................................. $ 311 $ 215
======= =======
</TABLE>
The Company has a foreign net operating loss carryforward totaling
approximately $184,000 at December 31, 1996 which expires in 2001. A valuation
allowance has been recorded to offset the deferred tax asset related to the
foreign net operating loss carryforward.
Foreign tax credits of $47,000 are available to offset federal tax on
foreign source income through 2001.
3. LINE OF CREDIT
The Company has a $2,000,000 line of credit agreement with a bank that
expires in June 1997. Advances under the line are limited to 80% of eligible
accounts receivable, as defined, bear interest at the bank's prime rate and
are secured by substantially all the assets of the Company. No amounts were
outstanding under the line at December 31, 1996.
The loan agreement contains certain restrictive covenants and conditions,
including the requirement to maintain certain key financial ratios and minimum
levels of working capital and tangible net worth. The agreement further limits
the amount of expenditures for repurchase of the Company's common stock, and
the amount of indebtedness that may be incurred for future capital investment.
At December 31, 1996, the Company was in compliance with all covenants.
4. COMMITMENTS
The Company leases facilities and equipment under various lease
arrangements. The lease terms include a renewal option for an additional
period on the Company's main facility lease. Future minimum lease payments
under noncancelable operating lease arrangements are as follows:
<TABLE>
<S> <C>
1997................................ $222,000
1998................................ 1,000
--------
Total minimum lease payments...... $223,000
========
</TABLE>
F-28
<PAGE>
MICROSIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense under operating leases was approximately $515,000, $463,000
and $455,000 in 1996, 1995 and 1994, respectively.
The Company has entered into several license agreements that provide for
minimum royalty and maintenance payments through 1997. Royalty expense for the
years ended December 31, 1996, 1995 and 1994 was $474,000, $487,000 and
$373,000, respectively.
5. CONTRACT PAYABLE
The Company purchased software under a noninterest bearing long-term
contract payable, which requires payments of $25,000 per month through July
1997. Amounts payable under the contract at December 31, 1996 are net of
imputed interest of $3,700.
6. SHAREHOLDERS' EQUITY
Employee-shareholders of the Company have entered into stock purchase
agreements under which they purchased shares of common stock at fair market
value as determined by the Board of Directors. Consideration may include a
promissory note which is secured by the shares of stock. Payments on such
notes are made by payroll deductions over terms of up to three years.
Shares sold to employees are subject to repurchase by the Company, or the
remaining shareholders, upon death, disability, or termination of employment.
Repurchase prices vary under the terms of the agreements from original cost to
current fair market value.
During 1995 the Company adopted the 1995 Stock Option Plan under which
nonstatutory and incentive stock options may be granted to employees and
nonemployees, at a price not less than the fair market value at the date of
grant. The Plan allows for the issuance of an aggregate of 300,000 shares of
the Company's common stock. The options expire six years from the date of
grant and vest over a period of five years.
A summary of the Company's stock option activity, and related information
for the years ended December 31, follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding -- beginning of year.......... 137,500 $ 3.40 -- $ --
Granted................................... 89,100 3.60 137,500 3.40
Forfeited................................. (6,600) 3.45 -- --
------- -------
Outstanding -- end of year................ 220,000 3.48 137,500 3.40
======= =======
Exercisable at end of year................ 52,000 $ 3.40 25,500 $ 3.40
======= ====== ======= ======
Weighted average fair value of options
granted during the year.................. $ 1.53 $ 1.44
====== ======
</TABLE>
Exercise prices on options outstanding at December 31, 1996 ranged from
$3.40 to $3.60. The weighted average remaining contractual life of options is
4.25 years. Pro forma net income under the provisions of SFAS 123 is
$1,004,000 and $1,283,000 for the years ended December 31, 1996 and 1995,
respectively. Pro forma net income per share is $.35 and $.45 for the years
ended December 31, 1996 and 1995, respectively. Pro forma adjustments may not
be representative of amounts in future years because of the cumulative effect
of amortized compensation expense over consecutive grant years.
F-29
<PAGE>
MICROSIM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution benefit plan established under
Section 401(k) of the Internal Revenue Code. The plan covers substantially all
of the Company's full-time employees. Contributions to the plan are based on
salary deferral percentages elected by participants, with no Company matching
contribution.
8. EXPORT SALES
Outside the United States, the Company sells its products primarily through
independent foreign distributors. Export sales were $6,537,000, $6,470,000 and
$5,134,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
9. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITORS
As of October 13, 1997, the Company entered into an Agreement and Plan of
Merger by and among OrCAD, Inc., a Delaware corporation, OCA Merger
Corporation, a newly formed, wholly-owned subsidiary of OrCAD, Inc., and the
Company. Generally, all shareholders and option holders of the Company will
receive shares of OrCAD, Inc. at an exchange ratio of .825, subject to various
adjustments as described in the Agreement and Plan of Merger. The transaction
is expected to be accounted for as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16--Business Combinations.
In April 1997, the Company entered into a noncancelable operating lease for
a new facility. The Company moved into the new facility in August 1997. As of
September 30, 1997, future minimum lease payments under such lease are as
follows (in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 135
1998.............................................................. 539
1999.............................................................. 549
2000.............................................................. 564
2001.............................................................. 564
Thereafter........................................................ 1,609
------
Total............................................................. $3,960
======
</TABLE>
F-30
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
This Agreement And Plan Of Merger (hereinafter, this "Agreement"), made as
of the 13th day of October, 1997, by and among ORCAD, INC., a Delaware
corporation ("OrCAD"), OCA MERGER CORPORATION, an Oregon corporation and a
wholly-owned subsidiary of OrCAD ("Merger Sub") and MICROSIM CORPORATION, a
California corporation ("MicroSim"). OrCAD and MicroSim are sometimes
hereinafter collectively referred to as the "Constituent Corporations."
WITNESSETH:
WHEREAS, OrCAD and MicroSim desire to effect a business combination by means
of a merger of Merger Sub with and into MicroSim, with MicroSim being the
surviving corporation in the merger (the "Merger");
WHEREAS, the Boards of Directors of OrCAD, Merger Sub and MicroSim each have
determined that it is in the best interest of their respective companies and
shareholders to effect the Merger, upon the terms and subject to the
conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368 (a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests";
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1 The Merger. Subject to the terms and conditions of this Agreement and in
accordance with the laws of the State of Oregon and the laws of the State of
California, at the Effective Time (as defined in Section 1.3 hereof) Merger
Sub shall be merged with and into MicroSim and the separate corporate
existence of Merger Sub shall thereupon cease. MicroSim shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effects specified in Section 1107 of
the General Corporation Law of the State of California (the "California
Corporations Code") and Section 497 of the Oregon Business Corporation Act
(the "Business Corporation Act").
1.2 The Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Ater Wynne Hewitt Dodson & Skerritt, LLP at 10:00 am.,
Pacific Standard Time, on December 31, 1997 (or at such other place, time or
date as may be mutually agreed upon by OrCAD and MicroSim) (the "Closing
Date"). At the Closing, each of the parties shall take all actions and deliver
all such documents, instruments, certificates, agreements, securities and
other items as may be requisite and are within its power to perform in order
to fulfill and observe all covenants, conditions and agreements on its part to
be performed, fulfilled and observed at or prior to the Merger (and not
theretofore accomplished), and/or to cause all conditions precedent to the
other party's obligations hereunder to be satisfied in full.
1.3 Articles of Merger. On the Closing Date, if all of the conditions to the
Merger set forth in Article VII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been terminated in
accordance with Article VIII, the parties hereto shall cause Articles of
Merger meeting the requirements of Section 494 of the Business Corporation Act
and Section 1103 of the California Corporations Code to be properly executed
and filed in accordance with Section 494 of the Business Corporation Act and
Sections 1103
A-1
<PAGE>
and 1108 of the California Corporations Code. The Merger shall become
effective at the time (the "Effective Time") of the filing of the Articles of
Merger in accordance with the California Corporations Code and the Business
Corporation Act or at such later time which the parties hereto have agreed and
designated in such Articles of Merger as the effective time of the Merger.
1.4 Further Assurances. If, at any time after the Effective Time, the
Surviving Corporation shall determine or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any rights,
properties or assets as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver all such
deeds, bills of sale, assignments and assurances and to take and do all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out
the intent of this Agreement.
ARTICLE II
The Surviving Corporation
2.1 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of MicroSim in
effect immediately prior to the Effective Time.
2.2 Bylaws. The Bylaws of the Surviving Corporation shall be the Bylaws of
MicroSim in effect immediately prior to the Effective Time.
2.3 Capitalization. The capitalization of the Surviving Corporation shall be
as set forth in the Articles of Incorporation of Merger Sub in effect
immediately prior to the Effective Time.
2.4 Tax Consequences. It is intended that the Merger shall constitute a tax-
free reorganization within the meaning of Section 368 (a) of the Code, and
that this Agreement shall constitute and is adopted as a "plan of
reorganization" for the purposes of Section 368 of the Code.
2.5 Officers and Directors. The officers and directors of the Surviving
Corporation shall be the officers and directors of Merger Sub serving in such
positions immediately prior to the Effective Time, all of whom shall serve
until their resignation or removal or until their successors are elected and
qualified. OrCAD shall take such action as may be necessary to cause Wolfram
Blume ("Blume") to be elected to the board of directors of OrCAD as of the
beginning of the first board of directors meeting after the Effective Time, to
serve until his successor has been duly elected or appointed and qualified or
until his earlier death, resignation or removal in accordance with OrCAD's
Restated Certificate of Incorporation and Restated Bylaws. In addition,
promptly after the Effective Time, OrCAD shall conduct and complete a search
for a candidate to be nominated for election as an additional board member,
which candidate shall be mutually agreed upon (i) by the members constituting
OrCAD's board of directors prior to the Effective Time (voting together as a
single class) and (ii) Blume, and OrCAD's board of directors shall take such
actions as may be necessary to increase the number of directors to create a
vacancy for, and to elect, such candidate.
ARTICLE III
Consideration for the Merger
3.1 Conversion. At the Effective Time, each shareholder of MicroSim, and
each option holder of MicroSim, shall receive in exchange for his, her, or its
"MicroSim Merger Shares" (as defined below) two things: 1) a number of shares
of the common stock of OrCAD, $0.01 par value per share ("OrCAD Common Stock),
equal to 90% of the Exchange Ratio times that holder's number of MicroSim
Merger Shares; and 2) a contract right to receive a number of shares of OrCAD
Common Stock equal to that shareholder's and/or option
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holder's Pro Rata Share of the Escrowed Merger Consideration. The terms
"MicroSim Merger Shares", "Exchange Ratio", "Pro Rata Share" and "Escrowed
Merger Consideration" are explained in the following definitions.
(a) MicroSim Merger Shares. A "MicroSim Merger Share" is a quantity that
bears the relationships defined below to each of the following four (4)
classes of outstanding MicroSim common stock or rights to common stock:
(i) Fully Vested Common Stock. Each share of fully vested MicroSim
Common Stock is equal to one (1) fully vested MicroSim Merger Share.
(ii) Unvested Common Stock. Each share of unvested MicroSim Common
Stock is equal to .91 fully vested MicroSim Merger Share.
(iii) Vested Options. For MicroSim stock options that are "vested",
that is, by their terms immediately exercisable on the Closing Date,
the total number of shares of MicroSim Common Stock represented by such
vested stock options held by each holder of such options shall first be
multiplied by the MicroSim Fair Market Value (as defined below).
Second, the aggregate exercise price of all included vested options
shall be subtracted from the total value identified under the preceding
sentence. Third, the difference thus obtained shall be divided by the
MicroSim Fair Market Value. The resulting number of shares shall be
deemed to be that option holder's MicroSim Merger Shares, with respect
to all of that option holder's vested stock options.
(iv) Unvested Options. For stock options that are "unvested," that
is, by their terms not yet exercisable on the Closing Date, the total
number of shares of MicroSim Common Stock represented by such unvested
stock options held by each holder of such options shall first be
multiplied by the MicroSim Fair Market Value (as defined below).
Second, the aggregate exercise price of all included unvested options
shall be subtracted from the total value identified under the preceding
sentence. Third, the difference thus obtained shall be divided by the
MicroSim Fair Market Value. Fourth, the resulting number of shares
shall be multiplied by .9. The resulting number of shares shall be
deemed to be that option holder's MicroSim Merger Shares, with respect
to all of that option holder's unvested stock options.
(v) MicroSim Fair Market Value means the Exchange Ratio times the
value of one (1) share of OrCAD Common Stock on the Closing Date, which
is agreed to be equal to the average of the closing prices per share of
OrCAD Common Stock for the ten (10) consecutive trading days ending
with the close of trading on the third business day preceding the
Closing Date.
(b) Exchange Ratio means .825, and represents the agreed-upon ratio at
which shares of OrCAD Common Stock will be exchanged for each MicroSim
Merger Share.
(c) Fixed Merger Consideration means the total number of MicroSim Merger
Shares as of the Closing Date, times the Exchange Ratio, times ninety
percent (90%).
(d) Escrowed Merger Consideration means the total number of MicroSim
Merger Shares as of the Closing Date, times the Exchange Ratio, times ten
percent (10%).
(e) Pro Rata Share means the percentage which the MicroSim Merger Shares
held by any given MicroSim shareholder or MicroSim option holder represent
of all MicroSim Merger Shares, as of the Closing Date.
3.2 Treasury Shares. Each MicroSim Share issued and held in MicroSim's
treasury immediately prior to the Effective Time, if any, shall, by virtue of
the Merger and without any action on the part of the holder thereof, cease to
be outstanding, shall be cancelled and retired without payment of any
consideration therefor, and shall cease to exist.
3.3 Shareholder Rights. From and after the Effective Time, the holders of
certificates or options representing MicroSim Shares outstanding immediately
prior to the Effective Time (each, a "Shareholder," and collectively, the
"Shareholders") shall cease to have any rights with respect to such MicroSim
Shares (except
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such rights, if any, as they may have as dissenting shareholders under the
California Corporations Code) and their sole rights (except as aforesaid)
shall be those contract rights which they will have pursuant to this Agreement
to receive their Pro Rata Share of the Escrowed Merger Consideration and their
Pro Rata Share of the Fixed Merger Consideration.
After the Effective Time, each Shareholder (other than dissenting
shareholders) shall be entitled, upon surrender of a certificate(s)
representing MicroSim Shares outstanding immediately prior to the Effective
Time (duly endorsed if required), or options to acquire MicroSim Shares
outstanding immediately prior to the Effective Time, together with a properly
completed letter of transmittal covering all such shares (with customary
representations and warranties regarding the absence of liens, claims and
encumbrances on such shares), to receive in exchange therefor (i) a
certificate or certificates (as the holder requests) representing that
Shareholder's Pro Rata Share of the Fixed Merger Consideration, plus (ii) the
contract right as defined in this Agreement to receive that Shareholder's Pro
Rata Share of the Escrowed Merger Consideration, subject to the terms and
conditions set forth in Article IX hereof. Until so surrendered for exchange,
each such certificate representing MicroSim Shares outstanding as aforesaid
(other than those of dissenting shareholders) or options to acquire MicroSim
Shares outstanding as aforesaid, shall be deemed for all corporate purposes,
other than the payment of dividends, to evidence the ownership of the number
of shares of OrCAD Common Stock to be delivered and distributed in exchange
therefor pursuant to this Article 3. Unless and until any such certificate
representing MicroSim Shares outstanding as aforesaid or option to acquire
MicroSim Shares outstanding as aforesaid shall be so surrendered, no dividend
payable to holders of record of OrCAD Common Stock at or after the Effective
Time shall be paid to the holder of such certificate or option but upon
surrender thereof there shall be paid to the holder of record immediately
prior to the Effective Time of such surrendered certificate or option the
dividends (without interest) that have theretofore become payable with respect
to the OrCAD Common Stock after the Effective Time, deliverable and
distributable in exchange therefor pursuant to this Article III; provided,
however, that if by reason of the escheat or other laws of any state having
jurisdiction in the premises, OrCAD is required to pay such state all or any
part of such dividends which have become payable, the amount of dividends
which would otherwise be payable upon surrender of any such certificate
representing MicroSim Shares outstanding as aforesaid or option to acquire
MicroSim Shares outstanding as aforesaid shall be reduced by the amount so
paid pursuant to such escheat or other laws.
3.4 Dissenters' Rights. MicroSim Shares held by Shareholders who have
properly exercised dissenters' rights with respect thereto in accordance with
Sections 1300 through 1312 of the California Corporations Code (collectively,
the "Dissenting Shares") shall not be converted into the right to receive
OrCAD Common Stock, but such Shareholders shall be entitled to receive payment
of the fair market value of the Dissenting Shares in accordance with the
provisions of the California Corporations Code, except that any Dissenting
Shares held by a Shareholder who shall thereafter withdraw such demand for
appraisal of his or her MicroSim Shares or otherwise lose the right to such
payment as provided in the California Corporations Code, shall thereupon be
deemed to have been converted into, as of the Effective Time, the right to
receive OrCAD Common Stock as provided herein, without any interest thereon.
If any holder of MicroSim Shares shall demand to be paid the "fair market
value" of his or her shares, as provided in Section 1301(b) of the California
Corporations Code, MicroSim shall give OrCAD prompt written notice thereof and
OrCAD shall have the right to participate in all negotiations and proceedings
with respect to any such demands. MicroSim shall not, except with the prior
written consent of OrCAD, voluntarily make any payment with respect to, or
settle or offer to settle, any such demand for payment demands. MicroSim shall
not, except with the prior written consent of OrCAD, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
payment.
3.5 Fractional Shares. No fractional shares of OrCAD Common Stock shall be
issued in the Merger. In lieu of the issuance of any such fractional shares,
OrCAD shall pay to each Shareholder of MicroSim who otherwise would be
entitled to receive a fractional share of OrCAD's Common Stock (after taking
into account all OrCAD Common Stock into which such Shareholder's MicroSim
Shares were converted pursuant to this Article III) an amount in cash (rounded
to the nearest whole cent) determined by multiplying (i) the fair market value
(as hereinafter defined) of a share of OrCAD's Common Stock by (ii) the
fraction of a share of OrCAD's
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Common Stock which such holder would otherwise be entitled to receive pursuant
to this Article 3. The fair market value of a share of OrCAD's Common Stock
shall be the average of the closing prices for one (1) share of OrCAD Common
Stock for the last ten (10) consecutive trading days ending with the close of
trading on the third business day preceding the Closing Date.
3.6 Lost Certificates. In the event any certificate representing MicroSim
Shares or option to acquire MicroSim Shares (each, a "Certificate") shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed and
indemnity against any claim that may be made against OrCAD with respect to
such Certificate, and, if required by OrCAD, the posting by such person of a
bond in such amount as OrCAD may determine is reasonably necessary in
connection with such indemnity, OrCAD will issue in exchange for such lost,
stolen or destroyed Certificate the OrCAD Common Stock, and cash in lieu of
any fractional shares, deliverable in respect thereof pursuant to this
Agreement.
3.7 Escrow Deposit. Promptly following the Closing, OrCAD shall deposit in
escrow pursuant to Article IX hereof, the number of shares of OrCAD Common
Stock constituting the Escrowed Merger Consideration. Such shares shall be
issued in the name of the Escrow Agent, "as Escrow Agent under that Escrow
Agreement dated" the Closing Date or otherwise with equivalent effect. Such
shares shall be held for the purposes described in Article IX and the Escrow
Agreement (as hereinafter defined), and released to OrCAD and/or the
Shareholders in accordance with the provisions of Article IX and the Escrow
Agreement.
ARTICLE IV
Representations and Warranties
4.1 Representations and Warranties of MicroSim. In order to induce OrCAD and
Merger Sub to enter into this Agreement, MicroSim represents and warrants to
OrCAD and Merger Sub, subject to and except for the matters set forth in the
MicroSim Disclosure Schedule (the "MicroSim Disclosure Schedule") delivered
herewith, as follows:
(a) Organization, Good Standing, Power, Etc. MicroSim is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. MicroSim Japan Kabushiki Kaisha, a wholly-owned
subsidiary of MicroSim ("MicroSim Japan"), is a corporation duly organized,
validly existing and in good standing under the laws of Japan. MicroSim
Overseas Corporation, a wholly-owned subsidiary of MicroSim ("MicroSim
Overseas"), is a corporation duly organized, validly existing and in good
standing under the laws of the United States Virgin Islands. Each of
MicroSim, MicroSim Japan and MicroSim Overseas has all requisite corporate
power and authority to own, operate and lease its properties and to carry
on its business as now being conducted. Each of MicroSim, MicroSim Japan
and MicroSim Overseas is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the property owned, leased or
occupied by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified would
not have a material adverse effect on the assets, business, results of
operations or condition (financial or otherwise) of MicroSim and its
subsidiaries taken as a whole (a "MicroSim Material Adverse Effect"), or
permanently preclude MicroSim, MicroSim Japan or MicroSim Overseas, as
applicable, from enforcing any material contract right, and all such
jurisdictions are set forth in Section 4.1(a) of the MicroSim Disclosure
Schedule. Each of MicroSim, MicroSim Japan and MicroSim Overseas has
delivered, or will prior to or on the Closing Date deliver, to OrCAD
complete and correct copies of its Articles of Incorporation or comparable
charter documents (certified by the Secretary of the State of California
with respect to MicroSim and by the applicable governmental authority with
respect to each of MicroSim Japan and MicroSim Overseas) and Bylaws
(certified by the Secretary of MicroSim, MicroSim Japan and MicroSim
Overseas as appropriate), as amended to the Closing Date.
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(b) Authorized Capitalization. The authorized capital stock of MicroSim
consists of 10,000,000 shares of common stock, no par value per share. The
authorized capital stock of MicroSim Japan consists of 800 shares of common
stock, (Yen)50,000 par value per share. The authorized capital stock of
MicroSim Overseas consists of 10,000 shares, $1.00 par value per share. At
the date of this Agreement, there are (i) 2,804,615 shares of MicroSim
Common Stock issued and outstanding and no shares are held in MicroSim's
treasury, (ii) 200 shares of MicroSim Japan common stock issued and
outstanding and no shares are held in MicroSim Japan's treasury, and (iii)
1,000 shares of MicroSim Overseas stock issued and outstanding and no
shares are held in MicroSim Overseas' treasury. All such outstanding shares
have been duly authorized and are validly issued, fully paid and non-
assessable, and neither MicroSim, MicroSim Japan nor MicroSim Overseas has
any liability under the provisions of applicable federal and state
securities laws by reason of the issuance or sale thereof. To MicroSim's
actual knowledge, all shares of MicroSim common stock held by the
Shareholders as of the date of this Agreement are free and clear of all
liens, claims and encumbrances and all right, title or interest of third
parties.
(c) Subsidiaries. Other than MicroSim Japan and MicroSim Overseas,
MicroSim does not own, and has not during the last five years owned, any
shares of capital stock or other securities of, or any other interest in,
nor does it control or has it controlled during the last five years,
directly or indirectly, any other corporation, association, joint venture,
partnership or other business organization.
(d) Options, Warrants, Rights, Etc. Except as set forth in Section 4.1(d)
of the MicroSim Disclosure Schedule, there are no outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments or any other
agreements of any character that obligate or may obligate MicroSim,
MicroSim Japan or MicroSim Overseas to issue any additional shares of its
capital stock or any securities convertible into or evidencing the right to
subscribe for any shares of such capital stock. There are no preemptive
rights with respect to the capital stock of MicroSim, MicroSim Japan or
MicroSim Overseas, and no restrictions on the transfer of the capital stock
of MicroSim, MicroSim Japan or MicroSim Overseas except those arising under
securities laws or as set forth in Section 4.1(d) of the MicroSim
Disclosure Schedule. Section 4.1(d) of the MicroSim Disclosure Schedule
also contains a true and complete list of all Shareholders and holders of
other securities (including without limitation, options to purchase capital
stock) of MicroSim, showing the number of shares of capital stock and other
securities held by each holder as of the date of this Agreement. Except as
set forth in Section 4.1(d) of the MicroSim Disclosure Schedule, there are
no voting trusts or any other agreements or understandings with respect to
the voting of the capital stock of MicroSim that are known to MicroSim or
of which MicroSim has reason to know. Except as set forth in Section 4.1(d)
of the MicroSim Disclosure Schedule, neither MicroSim, MicroSim Japan nor
MicroSim Overseas is obligated, directly, indirectly, or contingently to
purchase or redeem any of its shares of capital stock and has not so
redeemed any shares of its capital stock during the past two (2) years.
(e) Effect of Agreement. The execution, delivery and performance of this
Agreement by MicroSim and consummation by MicroSim of the transactions
contemplated hereby will not require the consent, approval or authorization
of any person or persons or public authority, other than the approval of
the Shareholders. Neither MicroSim, MicroSim Japan nor MicroSim Overseas is
in default under or in violation of any provision of its Articles of
Incorporation or Bylaws (or comparable charter documents), or in default or
violation of any restriction, lien, encumbrance, indenture, contract,
agreement, lease, sublease, loan agreement, note or other obligation or
liability to which it is a party or by which it is bound or to which its
assets are subject, which default or violation would have a MicroSim
Material Adverse Effect. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) result in the acceleration of, or the creation in any party of the
right to accelerate, terminate, modify or cancel, any indenture, contract,
agreement, lease, sublease, loan agreement, note or other obligation or
liability to which MicroSim, MicroSim Japan or MicroSim Overseas is a party
or by which any of them is bound or to which any of their assets are
subject, or (ii) conflict with or result in a breach of or constitute a
default under any provision of the Articles of Incorporation or Bylaws (or
comparable charter documents), of MicroSim, MicroSim Japan or MicroSim
Overseas, respectively, or a default or violation of any restriction, lien,
encumbrance, indenture, contract, agreement, lease, sublease, loan
agreement, note or other
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obligation or liability to which any of them is a party or by which any of
them is bound or to which any of their assets are subject, or result in the
creation of any lien or encumbrance upon said assets.
(f) Power, Due Authorization. Subject only to the approval of this
Agreement and the transactions contemplated hereby by the Shareholders, (i)
MicroSim has the power and authority to execute and deliver this Agreement
and to perform all of its obligations hereunder in accordance with the
terms hereof, and (ii) all necessary corporate action to authorize the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated by this Agreement on the part of MicroSim
has been duly and effectively taken, including, without limiting the
generality of the foregoing, the approval thereof by the Board of Directors
of MicroSim. This Agreement is a valid and binding obligation of MicroSim,
enforceable against MicroSim in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws applicable to creditors' rights and remedies and general principles of
equity (the "Bankruptcy Exception"). Except in connection, or in
compliance, with the provisions of the 1933 Act, the 1934 Act, the
regulations of the Nasdaq/NMS, and the corporation, securities or blue sky
laws or regulations of the various states, no third party consent, permit
or approval is necessary for the consummation by MicroSim of the Merger or
the other transactions contemplated hereby, other than third party
consents, permits or approvals the failure of which to obtain would not
have a MicroSim Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby. At or prior to the Closing, MicroSim will
deliver to OrCAD a certified copy of the resolutions adopted by MicroSim's
Board of Directors to authorize the execution, delivery and performance of
this Agreement and the transactions contemplated hereby.
(g) Securities Matters. Neither MicroSim, MicroSim Japan nor MicroSim
Overseas currently has nor has had any outstanding securities registered
(or required to be registered) under the Securities Act of 1933, as amended
(the "1933 Act"), or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), nor any reporting obligation thereunder. MicroSim has
delivered (or will deliver) to OrCAD copies of the proxy statement and all
other written materials sent or made available or to be sent or made
available to the holders of its capital stock in connection with this
Agreement and the Merger. The proxy statement notice and such other
material complied with or will comply in all material respects with the
applicable requirements of the California Corporations Code and applicable
federal and state securities laws and did not (or will not) contain any
untrue statement of a material fact or omit to state any material fact
necessary, in light of the circumstances, in order to make the statements
therein not misleading, provided that in the proxy material delivered or to
be delivered to the Shareholders, MicroSim has relied or will rely upon
OrCAD with respect to factual matters concerning OrCAD and Merger Sub
contained in such material, and with respect to matters as to which such
reliance is made, MicroSim represents and warrants only that MicroSim has
accurately and completely presented such factual matters concerning OrCAD
provided to it.
(h) Financial Statements. MicroSim has delivered or will deliver to OrCAD
on or prior to the Closing Date the audited consolidated balance sheets of
MicroSim as at December 31, 1996, 1995, 1994 and 1993, together with the
audited consolidated statements of profit and loss, shareholders' equity
and cash flows for the four fiscal years then ended, and the unaudited
consolidated balance sheets of MicroSim as of March 31, 1997 and June 30,
1997, and the unaudited consolidated statements of profit and loss for the
two quarters then ended, and any subsequent quarter as to which such
unaudited consolidated balance sheets become available prior to the Closing
Date, all certified by the Chief Financial Officer of MicroSim as being
true, accurate and complete to his knowledge in all material respects. Such
consolidated financial statements are hereinafter collectively referred to
as the "Financial Statements." Such Financial Statements are correct and
complete, have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP"), and present fairly and
accurately the financial condition of MicroSim at the dates of said
statements and the results of its operations for the periods covered
thereby (except that the unaudited Financial Statements are subject to
normal year-end adjustments and lack footnotes and other presentation
items). MicroSim's said balance sheets (audited and unaudited), make full
and adequate provision for all debts, liabilities and obligations (fixed
and contingent, including unpaid federal, state or local, and foreign
taxes) of MicroSim as of the date thereof, which are normally shown on a
balance sheet in accordance with
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GAAP. Except to the extent reflected or reserved against in such Financial
Statements, there are no material liabilities or obligations of MicroSim,
MicroSim Japan or MicroSim Overseas or related to any of their business or
operations, of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, other than liabilities which
have been incurred in the ordinary course of business and which are not
material in relation to the business of MicroSim and its subsidiaries taken
as a whole. The reserves reflected in the Financial Statements were, as of
the dates of such statements, adequate, appropriate and reasonable.
(i) Customers. MicroSim has no knowledge of any termination,
cancellation, limitation, modification or change in the business
relationship of MicroSim, MicroSim Japan or MicroSim Overseas with any
customer or group of customers which individually or in the aggregate
constituted more than five percent (5%) of MicroSim's sales, on a
consolidated basis, for MicroSim's fiscal year ended December 31, 1996.
(j) Distributors; Resellers. MicroSim has no knowledge of any
termination, cancellation, limitation, modification or change in the
business relationship of MicroSim, MicroSim Japan or MicroSim Overseas with
any distributor or reseller of MicroSim's products, or group of
distributors or resellers of MicroSim's products, which individually or in
the aggregate constituted more than five percent (5%) of MicroSim's sales,
on a consolidated basis, for MicroSim's fiscal year ended December 31,
1996.
(k) Absence of Certain Changes or Events. Since December 31, 1996,
neither MicroSim, MicroSim Japan nor MicroSim Overseas has, except with
respect to agreements and transactions with OrCAD and Merger Sub in
contemplation of this Agreement:
(i) incurred any obligation or liability (contingent or otherwise)
except normal trade or business obligations incurred in the ordinary
course of business;
(ii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (contingent or otherwise), except current
liabilities of MicroSim, MicroSim Japan or MicroSim Overseas,
respectively, outstanding on December 31, 1996, and current liabilities
incurred since December 31, 1996, in the ordinary course of business;
(iii) mortgaged, pledged or subjected to lien, charge, security
interest or to any other encumbrance any of its assets or properties;
(iv) sold, transferred, leased or otherwise disposed of any of its
assets or properties, except for a fair consideration in the ordinary
course of business;
(v) cancelled or compromised any debt or claim, except for
adjustments made in the ordinary course of business which, in the
aggregate, are not material;
(vi) waived or released any rights of any material value;
(vii) sold, assigned, transferred or granted any concessions, leases,
licenses, agreements, patents, inventions, trademarks, service marks,
trade names, copyrights or other intangible assets other than in the
ordinary course of business under or pursuant to contracts with
customers, joint venturers, prime contractors or subcontractors;
(viii) (a) disposed of or permitted to lapse rights for the use of
any patent, trademark, service mark, trade name or copyright, (b)
disposed of or permitted to lapse any of the foregoing items which
MicroSim, MicroSim Japan or MicroSim Overseas had a right to use
pursuant to the terms of a negotiated agreement, or (c) disclosed to
any person not an employee, consultant, representative or agent any
trade secret, process or know-how not theretofore a matter of public
knowledge, except pursuant to binding nondisclosure agreements that by
their terms barred use of the information conveyed other than for
stated purposes;
(ix) entered into any arrangement, agreement or undertaking not
terminable on thirty (30) days' or less notice without cost or
liability (including, without limitation, any payment of or promise to
pay any bonus or special compensation) with employees except in
accordance with established policies and practices;
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(x) suffered the occurrence of any event or events which,
individually or in the aggregate, has or have resulted in a material
adverse change in the operations, earnings, assets, properties or
business, or in the condition, financial or otherwise of MicroSim and
its subsidiaries taken as a whole (a "MicroSim Material Adverse
Change");
(xi) declared any dividend or made any payment or distribution to its
shareholders;
(xii) made any loan to or entered into any other transaction with any
officer, director or shareholder of MicroSim (other than the grant of
stock options, bonuses, salaries or compensation in the ordinary course
and in amounts and quantities consistent with past practice);
(xiii) granted any increase in the compensation of or bonuses payable
or paid to any employees or directors (other than the grant of
compensation increases and bonuses in the ordinary course and in
amounts and quantities consistent with past practice);
(xiv) redeemed, issued or sold or agreed to redeem, issue or sell any
shares of its capital stock or options, warrants, pre-emptive or other
rights to purchase or acquire its securities or capital stock, except
for stock options or stock purchase agreements with employees,
directors or consultants entered into in the ordinary course of
MicroSim's business and detailed in the numbers represented in Section
4.1(d) of the Disclosure Schedule;
(xv) entered into any other material transaction, contract or
commitment other than in the ordinary course of business; or
(xvi) entered into any binding agreement, arrangement or commitment
to do or take any of the foregoing actions.
(l) Taxes.
(i) Each of MicroSim, MicroSim Japan and MicroSim Overseas has timely
filed all returns, declarations, reports, estimates, information
returns and statements (each, a "Return," and, collectively the
"Returns") required to be filed with respect to any Taxes (as
hereinafter defined) and has timely and properly paid all Taxes that
are due and payable, has established on its books and records aggregate
income tax reserves that are adequate for the payment of all Taxes
accrued but not yet due and payable, and has complied in all material
respects with all applicable laws, rules and regulations relating to
the accrual, payment and withholding of Taxes and timely and properly
withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under
all applicable laws.
(ii) There are no liens for Taxes on the assets of MicroSim, MicroSim
Japan or MicroSim Overseas except liens for Taxes not yet due. Neither
MicroSim, MicroSim Japan nor MicroSim Overseas has requested any
extension of time within which to file any Return, which Return has not
since been filed. No deficiency for any Taxes has been proposed,
asserted or assessed against MicroSim, MicroSim Japan or MicroSim
Overseas that has not been resolved and/or paid in full. There are no
outstanding waivers or consents given by MicroSim, MicroSim Japan or
MicroSim Overseas regarding the application of the statute of
limitations with respect to any Taxes or Returns, and no federal,
state, local or foreign audits or other administrative proceedings or
court proceedings are currently pending with regard to any Taxes or
Returns.
(iii) Neither MicroSim, MicroSim Japan nor MicroSim Overseas has
filed a consent pursuant to Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code applied to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by MicroSim, MicroSim Japan or MicroSim Overseas,
respectively. Neither MicroSim, MicroSim Japan nor MicroSim Overseas is
required to include in income any adjustment pursuant to Section 481(a)
of the Code by reason of a voluntary change in accounting method
initiated by MicroSim, MicroSim Japan or MicroSim Overseas, nor does
MicroSim, MicroSim Japan or MicroSim Overseas have any knowledge that
the United States Internal Revenue Service (the "IRS") has proposed any
such adjustment or change in accounting method.
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(iv) Each of MicroSim, MicroSim Japan and MicroSim Overseas has
established and will maintain on its books and records aggregate income
tax reserves adequate to pay all Taxes accrued but not yet due and
payable in accordance with generally accepted accounting principles,
and such reserves are reflected on the Financial Statements to the
extent required. Neither MicroSim, MicroSim Japan nor MicroSim Overseas
is a party to any agreement, contract or arrangement that would result,
separately or in the aggregate, in the payment of "excess parachute
payments" within the meaning of Section 280G of the Code.
(v) For purposes of this Agreement, "Taxes" means all taxes, charges,
fees, levies or other assessments, including without limitation all net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, property or other taxes, customs, duties,
fees, assessments or charges of any kind whatsoever, together with any
interest and penalties, additions to tax or additional amounts imposed
by any taxing authority (domestic or foreign).
(m) Litigation. There are no actions, claims, suits, proceedings or
investigations pending or threatened against MicroSim, MicroSim Japan or
MicroSim Overseas, at law or in equity, or before or by any federal, state,
municipal or other governmental or nongovernmental department, commission,
board, bureau, agency or instrumentality, or any other person, and there
are no outstanding or unsatisfied judgments, orders, decrees or
stipulations against MicroSim, MicroSim Japan or MicroSim Overseas, or
against any director, officer or employee of MicroSim, MicroSim Japan or
MicroSim Overseas in his or her capacity or arising out of his or her
duties as a director, officer or employee of MicroSim, MicroSim Japan or
MicroSim Overseas, respectively. MicroSim has no knowledge that any such
action, claim, suit, proceeding or investigation may be brought or
threatened against MicroSim, MicroSim Japan or MicroSim Overseas, or any of
their directors, officers or employees.
(n) Labor Matters. There are no controversies pending or threatened
between MicroSim, MicroSim Japan or MicroSim Overseas and any employees of
MicroSim, MicroSim Japan or MicroSim Overseas, respectively. Each of
MicroSim, MicroSim Japan and MicroSim Overseas has complied in all material
respects with all laws relating to the employment of labor, including any
provisions thereof relating to wages, hours, collective bargaining and the
payment of withholding and social security and similar taxes, and neither
MicroSim, MicroSim Japan nor MicroSim Overseas is liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the
foregoing. Neither MicroSim, MicroSim Japan nor MicroSim Overseas is, nor
have any of them been, engaged in any unfair labor practice. There is no
unfair labor practice complaint against MicroSim, MicroSim Japan or
MicroSim Overseas pending before the National Labor Relations Board or
other applicable governmental entity, and there is no labor strike,
dispute, slowdown or stoppage pending or affecting, or to MicroSim's
knowledge threatened against, MicroSim, MicroSim Japan or MicroSim
Overseas. None of MicroSim's, MicroSim Japan's or MicroSim Overseas'
employees is represented by any labor union, and MicroSim has no knowledge
of any organizational efforts currently being made or threatened by or on
behalf of any labor unions with respect to employees of MicroSim, MicroSim
Japan or MicroSim Overseas. A true and complete list of all of MicroSim's,
MicroSim Japan's and MicroSim Overseas' current officers and employees and
their respective current salaries, wages, other compensation and positions
is set forth in Section 4.1(n) of the MicroSim Disclosure Schedule. All of
MicroSim's, MicroSim Japan's and MicroSim Overseas' current employees have
executed a nondisclosure agreement in substantially the form attached to
Section 4.1(n) of the MicroSim Disclosure Schedule. Except as set forth in
Section 4.1(n) of the MicroSim Disclosure Schedule, no current employee has
an oral or written employment agreement with MicroSim, MicroSim Japan or
MicroSim Overseas, and all such employees are "at-will" employees. All
personnel policies and manuals of MicroSim, MicroSim Japan and MicroSim
Overseas that are currently in effect are listed in Section 4.1(n) of the
MicroSim Disclosure Schedule and true and complete copies of such documents
have been delivered to OrCAD. Except as set forth in Section 4.1(n) of the
MicroSim Disclosure Schedule, no employee or consultant of MicroSim,
MicroSim Japan or MicroSim Overseas shall have the right to receive from
OrCAD a severance payment or other payment in the nature thereof in the
event his or her employment is terminated
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by OrCAD following the Merger (other than any such right granted by OrCAD
or pursuant to any agreement or policy instituted or adopted by OrCAD,
including the agreements referred to in Section 7.1(m) hereof and any
agreements related thereto).
(o) Intangible Property. Each of MicroSim's, MicroSim Japan's and
MicroSim Overseas' intangible property consists of all of the proprietary
or licensed software, trade secrets, know-how, any other confidential or
proprietary information of MicroSim, MicroSim Japan and MicroSim Overseas,
respectively, United States and foreign patents, trade names, trademarks
and service marks and registrations thereof, copyrights and copyright
registrations, and applications for any of the foregoing, currently or
formerly used in the conduct of the business of MicroSim, MicroSim Japan or
MicroSim Overseas, or created as the property of MicroSim, MicroSim Japan
or MicroSim Overseas to be licensed to others, including without limitation
the items set forth in Section 4.1(o) of the MicroSim Disclosure Schedule
(collectively, the "MicroSim Intangible Property"). To the extent aspects
of MicroSim Intangible Property are amenable to description and
itemization, Section 4.1(o) of the MicroSim Disclosure Schedule sets forth
a true, correct and complete list of all such items of MicroSim Intangible
Property. Section 4.1(o) of the MicroSim Disclosure Schedule also sets
forth all licenses or similar agreements or arrangements to which MicroSim,
MicroSim Japan or MicroSim Overseas is a party, either as licensee or
licensor, with respect to the MicroSim Intangible Property; provided,
however, that such Section 4.1(o) does not list end user customer licenses
of MicroSim software. Except as otherwise disclosed in Section 4.1(o) of
the MicroSim Disclosure Schedule or as limited by the rights of end user
customers of MicroSim under applicable license agreements:
(i) MicroSim, MicroSim Japan or MicroSim Overseas, as applicable, is
the sole and exclusive owner of all right, title and interest in and to
the MicroSim Intangible Property, free and clear of all liens, security
interests, charges, encumbrances, or other adverse claims;
(ii) MicroSim, MicroSim Japan or MicroSim Overseas, as applicable,
has the right and authority to use the MicroSim Intangible Property in
connection with the conduct of its business in the manner currently
conducted, and such use does not conflict with, infringe upon or
violate any rights of any third party;
(iii) Neither MicroSim, MicroSim Japan nor MicroSim Overseas has
received notice of, and MicroSim knows of no legitimate basis for, a
pending or threatened claim, interference action or other judicial or
adversarial proceeding against MicroSim, MicroSim Japan or MicroSim
Overseas, that any of the operations, activities, products, services or
publications of MicroSim, MicroSim Japan or MicroSim Overseas,
respectively, infringes or will infringe any patent, trademark, service
mark, trade name, copyright, trade secret or other property right of a
third party, or that it is illegally or otherwise misusing the trade
secrets, formulae or property rights of others;
(iv) there are no outstanding, nor to the best knowledge of MicroSim,
are there any threatened disputes or other disagreements with respect
to any licenses or similar agreements or arrangements described in
Section 4.1(o) of the MicroSim Disclosure Schedule or with respect to
infringement by a third party of any of the MicroSim Intangible
Property;
(v) the MicroSim Intangible Property owned or licensed by each of
MicroSim, MicroSim Japan and MicroSim Overseas is sufficient to conduct
and continue conducting each of MicroSim's, MicroSim Japan's and
MicroSim Overseas' business as currently conducted;
(vi) Each of MicroSim, MicroSim Japan and MicroSim Overseas has taken
all steps reasonably necessary to protect its continuing right, title
and interest in and to the MicroSim Intangible Property and its
continued use of the MicroSim Intangible Property; and
(vii) MicroSim knows of no third party infringing upon or otherwise
violating, or threatening to infringe upon or otherwise violate, any of
the MicroSim Intangible Property in which MicroSim, MicroSim Japan or
MicroSim Overseas has ownership rights.
(p) Books and Records. The books and records of each of MicroSim,
MicroSim Japan and MicroSim Overseas, including without limitation, the
minute books, stock record books and books of account, have
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been and are complete and correct, have been maintained in accordance with
sound business practices and accurately reflect, the basis for the
financial condition and results of operations of MicroSim, on a
consolidated basis, as set forth in the Financial Statements.
(q) Licenses, Permits, Authorizations, Etc. Each of MicroSim, MicroSim
Japan and MicroSim Overseas has all approvals, authorizations, consents,
licenses, orders, governmental security clearances and registrations,
permits and certifications of all governmental agencies, commissions or
divisions, whether federal, state or local, United States or foreign,
required to permit the operation of its business as currently conducted.
All such approvals, authorizations, consents, licenses, orders, clearances
and registrations, permits and certifications are in full force and effect,
no suspension, cancellation or forfeiture thereof has been threatened, and
neither the execution, delivery and performance of this Agreement nor the
transactions contemplated hereby will cause or otherwise result in any such
suspension, cancellation or forfeiture, or in the assessment or imposition
of any penalties or fines, nor is MicroSim, MicroSim Japan or MicroSim
Overseas in violation of any of the foregoing. Section 4.1(q) of the
MicroSim Disclosure Schedule contains a true, correct and complete list of
MicroSim's, MicroSim Japan's and MicroSim Overseas' governmental approvals,
authorizations, consents, licenses, orders, clearances, registrations,
permits and certifications.
(r) Applicable Laws. Each of MicroSim, MicroSim Japan and MicroSim
Overseas has complied and is in compliance with all federal, state, local
and foreign laws, rules, regulations, ordinances, decrees and orders
applicable to the operation of its business as currently conducted and/or
its owned or leased properties the failure to comply with which might have
a MicroSim Material Adverse Effect.
(s) Employee Benefit Plans.
(i) Employee Plans. Section 4.1(s) of the MicroSim Disclosure
Schedule contains a true, correct and complete list of all pension,
profit sharing, benefit, retirement, deferred compensation, welfare,
insurance, disability, bonus, vacation pay, severance pay and other
similar plans, programs and agreements, whether reduced to writing or
not, other than any "Multi-employer Plan" as such term is defined in
Section 4001(a)(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), relating to MicroSim's, MicroSim Japan's or MicroSim
Overseas' employees, or maintained at any time since its inception by
MicroSim, MicroSim Japan, MicroSim Overseas or by any other member
(hereinafter, an "Affiliate") of any controlled group of corporations,
group of trades or businesses under common control, or affiliated
service groups (as defined for purposes of Section 414(b), (c) and (m),
respectively, of the Code) (the "Employee Plans") and, except as set
forth in such Employee Plans or in Section 4.1(s) of the MicroSim
Disclosure Schedule, neither MicroSim, MicroSim Japan nor MicroSim
Overseas has any obligations, contingent or otherwise, past or present,
under the terms of any Employee Plan or law applicable thereto.
(ii) Prohibited Transactions. Neither MicroSim nor any of its
Affiliates, directors, officers, employees or agents, or any "party in
interest" or "disqualified person," as such terms are defined in
Section 3 of ERISA and Section 4975 of the Code, respectively, has,
with respect to any Employee Plan, engaged in or been a party to any
nonexempt "prohibited transaction," within the meaning of Section 4975
of the Code or Section 406 of ERISA, in connection with which, directly
or indirectly, MicroSim or any of its Affiliates, directors or
employees or any Employee Plan or any related funding medium could be
subject to either a penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Code.
(iii) Compliance. With respect to each Employee Plan, MicroSim and
its Affiliates are in compliance with the requirements prescribed by
any and all statutes, orders or governmental rules or regulations
currently in effect, including, but not limited to, ERISA and the Code,
applicable to such Employee Plans. MicroSim and its Affiliates have
performed in all material respects all obligations required to be
performed by them under, and are not in violation of, and there has
been no default or violation by any other party with respect to, any of
the Employee Plans. Except as set forth in Section 4.1(s) of the
MicroSim Disclosure Schedule: (A) none of the Employee Plans which is
subject to Title IV of ERISA has been or will be terminated in whole or
in part within the meaning of ERISA or the
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Code; (B) no liability has been or will be incurred through, no event
or circumstance has occurred and no event or circumstance will occur
prior to, the Closing Date, which could result in such a liability
being asserted by the Pension Benefit Guaranty Corporation ("PBGC")
with respect to any Employee Plan (other than the payment of annual
premiums under Section 4007 of ERISA or benefits payable in accordance
with the terms of such Employee Plan); (C) no Employee Plan that is
subject to Part 3 of Subtitle B of Title I of ERISA or Section 412 of
the Code, or both, has incurred any "accumulated funding deficiency"
(as defined in ERISA), whether or not waived; (D) neither MicroSim nor
any Affiliate has failed to pay any amounts due and owing as required
by the terms of any Employee Plan; (E) there has been no "reportable
event" within the meaning of Section 4043 of ERISA, or any event
described in Section 4063(a) of ERISA, with respect to any Employee
Plan, other than as disclosed in Section 4.1(s) of the MicroSim
Disclosure Schedule; (F) neither MicroSim nor any Affiliate has failed
to make any payment to an Employee Plan required under Section 302 of
ERISA nor has any lien ever been imposed under Section 302(f) of ERISA;
(G) neither MicroSim nor any Affiliate has adopted an amendment to any
Employee Plan which requires the provision of security under Section
307 of ERISA; and (H) the PBGC has not instituted any proceedings to
terminate an Employee Plan pursuant to Section 4042 of ERISA.
(iv) Multi-employer Plans. Section 4.1(s) of the MicroSim Disclosure
Schedule lists each and every multi-employer plan as that term is
defined in Section 4001(a)(3) of ERISA ("Multi-employer Plan") to which
MicroSim or its Affiliates contribute or are required to contribute or
have ever been required to contribute. No Multi-employer Plan listed in
Section 4.1(s) of the MicroSim Disclosure Schedule is in
"reorganization" (as defined in Section 4241 of ERISA) or is
"insolvent" (as defined in Section 4245 of ERISA). Neither MicroSim nor
any Affiliate has withdrawn or is reasonably expected to withdraw from
a Multi-employer Plan in a complete or partial withdrawal which has
resulted or will result in "withdrawal liability," as defined for
purposes of Part I of Subtitle I of Part IV of ERISA, with respect to
any such plan which has not been satisfied in full. MicroSim and its
Affiliates have made all contributions to any such plan as are required
through the Closing Date under the terms of any such applicable law;
and no event has occurred, or will occur prior to the Closing Date,
which could give rise to any other liability (other than a continuing
obligation to contribute to such plan(s) under the terms of any
applicable collective bargaining agreements) on the part of MicroSim or
(to MicroSim's knowledge) OrCAD, or their Affiliates, officers,
employees or directors with respect to such plan(s).
(v) Retiree Benefits. Except as set forth in Section 4.1(s) of the
MicroSim Disclosure Schedule, no Employee Plan provides health or life
insurance benefits for retirees. No such plan contains any provisions,
and no commitments or agreements exist, which in any way would limit or
prohibit OrCAD from amending any such plan to reduce or eliminate such
retiree benefits.
(vi) Copies of Employee Plans and Related Documents. MicroSim has
previously delivered to OrCAD true and complete copies of all Employee
Plans that have been reduced to writing and written descriptions of all
Employee Plans that have not been reduced to writing, all agreements,
including trust agreements and insurance contracts, related to such
Employee Plans, and the Summary Plan Description and all modifications
thereto for each Employee Plan communicated to employees. With respect
to each Employee Plan that is a "Defined Benefit Plan," as such term is
defined in Section 3(35) of ERISA ("Defined Benefit Plan"), true and
complete copies of (A) the annual actuarial valuation reports for the
last five years, (B) the Form 5500 and Schedule A and B thereto, filed
for the last five years and (C) any filing made with the PBGC, the IRS
or the Department of Labor, or any correspondence with or from such
agencies, regarding the termination of any such defined Benefit Plan,
have been delivered to OrCAD.
(vii) Qualifications. Each Employee Plan intended to qualify under
Section 401(a) of the Code has been determined by the IRS to so qualify
and continues to so qualify, and the trusts created thereunder have
been determined to be exempt from tax under the provisions of Section
501(a), and continue to be so exempt. Each Employee Plan that is a
funded welfare benefit plan intended to be
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exempt from tax under the provisions of Section 501(c)(9) of the Code
has been determined by the IRS to be so exempt and continues to be so
exempt. Copies of all determination letters with respect to each such
Employee Plan have been previously delivered by MicroSim to OrCAD, and
nothing has occurred, or will occur prior to the Closing Date (other
than a possible change or amendment of law), that will cause the loss
of such qualification or exemption, no such Employee Plan has been
operated in a manner that would cause it to be disqualified in
operation, and all such Employee Plans have been administered in
compliance with and consistent with all applicable requirements of the
Code, ERISA and other applicable laws and regulations, including,
without limitation, all reporting, notice, and disclosure requirements.
(viii) Funding Status, Etc.
(A) Except as set forth in Section 4.1(s) of the MicroSim
Disclosure Schedule, neither MicroSim, MicroSim Japan, MicroSim
Overseas, nor any corporation or trade or business (whether or not
incorporated) that would be treated as a member of the controlled
group of MicroSim under Section 4001(a)(14) of ERISA would be liable
for (1) any amount pursuant to Section 4062, 4063, 4064, 4068 or
4069 of ERISA if any of the Employee Plans that are subject to Title
IV of ERISA were to terminate or (2) any amount pursuant to Section
4201 of ERISA if a complete or partial withdrawal from any Multi-
employer Plan listed in Section 4.1(s) of the MicroSim Disclosure
Schedule occurred before the Closing Date. Except as set forth in
Section 4.1(s) of the MicroSim Disclosure Schedule, all Employee
Plans that are subject to Title IV of ERISA have no amount of
unfunded benefit liabilities, as defined in Section 4001(a)(18) of
ERISA. There is no unpaid contribution due with respect to the plan
year of any Defined Benefit Plan ended prior to the Closing Date, as
required under the minimum funding requirements of Section 412 of
ERISA.
(B) With respect to each Employee Plan that is a qualified defined
contribution pension, profit-sharing or stock bonus plan, as defined
in ERISA, all employer contributions accrued for plan years ending
prior to the Closing Date under the plan terms and applicable law
have been made by MicroSim.
(C) All premiums or other payments required by the terms of any
group or individual insurance policies and programs maintained by
MicroSim, MicroSim Japan or MicroSim Overseas and covering any
present or former employees of MicroSim, MicroSim Japan or MicroSim
Overseas, respectively, with respect to all periods up to and
including the Closing Date have been fully paid for the length of
the obligation.
(ix) Claims and Litigation. Except as set forth in Section 4.1(s) of
the MicroSim Disclosure Schedule, there are no pending, and to the best
knowledge of MicroSim, threatened claims, suits or other proceedings by
present or former employees of MicroSim or its Affiliates, plan
participants, beneficiaries or spouses of any of the above, the IRS,
the PBGC, the Department of Labor, or any other person or entity
(including claims against the assets of any trust) involving any
Employee Plan, or any rights or benefits thereunder, other than
ordinary and usual claims for benefits by participants or
beneficiaries, including claims pursuant to domestic relations orders.
(x) No Implied Rights. Nothing expressed or implied herein shall
confer upon any past or present employee of MicroSim or its Affiliates,
his or her representatives, beneficiaries, successors and assigns, or
upon any collective bargaining agent, any rights or remedies of any
nature, including, without limitation, any rights to employment or
continued employment with MicroSim, MicroSim Japan, MicroSim Overseas,
OrCAD, or any successor or affiliate.
(t) Environmental Laws and Regulations.
(i) Certain Definitions. For purposes of this Agreement:
(A) "Hazardous Substance" means any chemical, pollutant,
contaminant, waste (including, without limitation, toxic, hazardous,
infectious, sanitary, solid, radioactive and petroleum waste,
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collectively, "Waste"), toxic substance, hazardous substance,
extremely hazardous substance, hazardous material, oil and petroleum
product, as such terms, or any similar terms, are or shall be used
under any applicable federal, state, local and foreign laws,
regulations, rules, ordinances, permits (including, without
limitation, authorizations, approvals, registrations and licenses,
collectively, "Permits"), administrative orders, judicial decisions
or the like (collectively, "Laws") relating to pollution or
protection of the environment, natural resources or human health.
(B) "Environmental Laws" means any and all Laws relating to (1)
pollution or protection of the environment, natural resources or
human safety and health from any Hazardous Substance or (2)
nuisance, trespass or "toxic tort," so called, including, without
limitation, laws relating to emissions, discharges, releases or
threatened releases of any Hazardous Substance or otherwise relating
to the manufacture, processing, importation, distribution, use,
generation, treatment, storage, disposal, transportation or handling
of any Hazardous Substance. Environmental Laws include, but are not
limited to, the Clean Air Act, the Federal Water Pollution Control
Act as amended by the Clean Water Act of 1977, the Safe Drinking
Water Act, the Occupational Safety and Health Act of 1970 ("OSHA
Act"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Solid Waste Disposal Act
as amended by the Resource Conservation and Recovery Act of 1976
("RCRA"), the Hazardous and Solid Waste Amendments of 1984, the
Medical Waste Tracking Act, the Hazardous Materials Transportation
Act, and the Toxic Substances Control Act of 1976 ("TSCA"), and any
rules and regulations promulgated thereunder.
(C) "Environmental Claim" means any civil, criminal or
investigative action, suit, litigation, hearing, communication
(written or oral), demand, claim, citation, notice or notice of
violation, warning, consent decree, judgment or order by any person
or entity alleging, claiming, concerning or finding liability or
potential liability (including, without limitation, liability or
potential liability for investigatory costs, cleanup costs,
governmental response or oversight costs, natural resources damages,
property damages, penalties, personal injuries, death or any other
damages or costs, including, without limitation, litigation and
settlement costs and reasonable consultants' and attorneys' fees)
arising out of, based on or resulting from, in whole or in part, the
actual or alleged presence, threatened release, release, emission,
disposal, storage, treatment, transportation, generation,
manufacture or use of any Hazardous Substance at or from any
location.
(ii) Permits. Each of MicroSim, MicroSim Japan and MicroSim Overseas
possesses and is in compliance with all Permits required under
applicable Environmental Laws in connection with each of MicroSim's,
MicroSim Japan's and MicroSim Overseas' business and operations or its
assets and properties, and each of such Permits is listed in Section
4.1(t) of the MicroSim Disclosure Schedule.
(iii) Compliance with Environmental Laws. (A) Each of MicroSim,
MicroSim Japan and MicroSim Overseas is, and its business, operations,
assets and properties are, in material compliance with all
Environmental Laws; (B) no real property owned, leased or operated by
MicroSim, MicroSim Japan or MicroSim Overseas is or has been designated
by any state, local or federal agency or body as a hazardous waste
disposal site or a site or location requiring investigation concerning,
or management, cleanup or removal of, any Hazardous Substance; and (C)
to the best knowledge of MicroSim, there has never been any release or
threatened release, emission, disposal, storage, transportation,
generation, manufacture or use of any Hazardous Substance from or on
any real property owned, leased or operated by MicroSim, MicroSim Japan
or MicroSim Overseas in violation of any Environmental Laws.
(iv) Environmental Claims. There are no Environmental Claims pending
or, to the best knowledge of MicroSim, threatened against MicroSim,
MicroSim Japan, MicroSim Overseas or against any person or entity whose
liability for any Environmental Claim MicroSim, MicroSim Japan or
MicroSim Overseas has retained or assumed either contractually or by
operation of law.
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(v) Waste. All Waste or Waste generated in connection with each of
MicroSim's, MicroSim Japan's and MicroSim Overseas' business,
operations, assets and properties related thereto has been (A) treated,
stored or disposed of by or at facilities duly licensed pursuant to
applicable Environmental Laws and (B) transported to such facilities by
transporters duly licensed pursuant to applicable Environmental Laws.
Each of MicroSim, MicroSim Japan and MicroSim Overseas has maintained
true and complete records in accordance with applicable Environmental
Laws relating to the generation, transportation, treatment, storage and
disposal of Waste generated in connection with their respective
businesses, operations, assets and properties.
(vi) Asbestos, PCBs and Storage Tanks. Except as listed in Section
4.1(t) of the MicroSim Disclosure Schedule, without in any way limiting
the generality of the foregoing, to the best knowledge of MicroSim
there is no asbestos contained in or forming part of any building,
building component, structure, improvement or office space owned,
operated or leased by MicroSim, MicroSim Japan or MicroSim Overseas; no
polychlorinated biphenyls (PCBs) are used or stored at any property
owned, operated or leased by MicroSim, MicroSim Japan or MicroSim
Overseas; and no storage tanks (above or below ground) exist at any
property owned, operated or leased by MicroSim, MicroSim Japan or
MicroSim Overseas.
(vii) Environmental Reports. MicroSim has delivered to OrCAD all
environmental inspection reports in its control, custody or possession
("Environmental Reports") prepared by any person or entity concerning
compliance with applicable Environmental Laws of MicroSim's, MicroSim
Japan's or MicroSim Overseas' respective businesses, operations, assets
or properties and the use, manufacture, importation, processing,
storage, treatment, transportation, release or disposal therefrom,
therein or thereon of any Hazardous Substance. All such Environmental
Reports are listed in Section 4.1(t) of the MicroSim Disclosure
Schedule.
(u) Insurance. Section 4.1(u) of the MicroSim Disclosure Schedule
contains a list of all policies of fire, casualty, liability, worker's
compensation and other forms of insurance owned or held by or covering
MicroSim or all or any portion of its properties and assets. All such
policies are in full force and effect and no written notice of cancellation
or termination has been received by MicroSim with respect to any such
policy. Such policies are sufficient for compliance in all material
respects with all requirements of applicable law and of all agreements to
which MicroSim is a party, and are valid, outstanding and (subject to the
Bankruptcy Exception) enforceable policies, and provide adequate insurance
coverage for the properties, assets and operations of MicroSim. MicroSim is
the sole owner of each of such policies, and all premiums due thereon have
been paid. Copies of such insurance policies will be delivered by MicroSim
to OrCAD upon request, and (to the knowledge of MicroSim) nothing has
occurred, or will (to the knowledge of MicroSim) occur prior to the Closing
Date, which might cause any insurer to cancel or otherwise terminate any
such policy. No insurance has been refused with respect to any operations
or properties or assets of MicroSim, nor has the coverage of any insurance
been limited, by any insurance carrier which has carried, or received any
application for, any such insurance during the last three (3) years.
(v) Title to Real and Personal Properties, Absence of Liens and
Encumbrances; Condition of Properties.
(i) Each of MicroSim, MicroSim Japan and MicroSim Overseas has good
and marketable title to, and owns outright, all of its real and
personal properties and assets (including, but not limited to, the
assets reflected in MicroSim's consolidated balance sheet as of
December 31, 1996), except for those disposed of in the ordinary course
of business, and none of such assets is encumbered by any mortgage,
lien, claim or encumbrance except liens, claims or encumbrances
reflected in said balance sheet or (where required) in the notes
thereto, and liens for taxes which are not yet due and payable. All
leases pursuant to which MicroSim, MicroSim Japan or MicroSim Overseas
leases any real or personal property are valid and binding in
accordance with their respective terms, and there is not under any such
lease any existing default by MicroSim, MicroSim Japan or MicroSim
Overseas, event of default or event which, with notice and/or lapse of
time, would constitute a default. The properties and assets of
MicroSim, MicroSim Japan and MicroSim Overseas include all rights,
properties and other assets
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necessary to permit each of MicroSim, MicroSim Japan and MicroSim
Overseas to conduct its business in the same manner as it is conducted
on, and has been conducted prior to, the date of this Agreement.
(ii) All buildings and material fixtures and equipment owned or used
by each of MicroSim, MicroSim Japan and MicroSim Overseas have been
properly maintained and are in good operating order and repair,
ordinary wear and tear excepted, and are in compliance to MicroSim's
knowledge with all zoning, building and fire codes and all other laws,
rules, regulations and requirements of governmental authorities and the
fire insurance rating association having jurisdiction. All leases of
real or personal property to which MicroSim, MicroSim Japan or MicroSim
Overseas is a party are fully effective and afford MicroSim, MicroSim
Japan or MicroSim Overseas, respectively, peaceful and undisturbed
possession of the subject matter of the lease. To the best knowledge of
MicroSim, the buildings, plant, structures and equipment of each of
MicroSim, MicroSim Japan and MicroSim Overseas are structurally sound
with no known defects and are in good operating condition and repair
and are adequate for the uses to which they are being put, and none of
such buildings, plant, structures or equipment is in need of
maintenance or repairs for which MicroSim, MicroSim Japan or MicroSim
Overseas has financial responsibility except for ordinary, routine
maintenance and repairs that are not material in nature or cost.
(iii) To the best knowledge of MicroSim, neither the whole nor any
portion of the real or personal property used or owned by MicroSim,
MicroSim Japan or MicroSim Overseas is subject to any decree or order
of a governmental body to be sold or is being condemned, expropriated
or otherwise taken by any governmental body or other person with or
without payment of compensation thereof, nor has any such condemnation,
expropriation or taking been proposed.
(w) Material Contracts. Section 4.1(w) of the MicroSim Disclosure
Schedule lists all material contracts, instruments, agreements or
commitments currently in effect (whether oral or written) relating to the
conduct of the business of each of MicroSim, MicroSim Japan and MicroSim
Overseas. MicroSim has made available to OrCAD true and correct copies of
each document and a written description, accurate in all material respects,
of each oral arrangement so listed. Without limiting the generality of the
foregoing, the aforesaid list includes all contracts, agreements, and
instruments currently in effect of the following types to which MicroSim,
MicroSim Japan or MicroSim Overseas is a party:
(i) any contract that involves or may involve future expenditures or
obligations on the part of MicroSim, MicroSim Japan or MicroSim
Overseas of more than $10,000 or any such contract continuing over a
period of more than six (6) months from its date, or any contract for
the sale of products or rendering of services not in the ordinary
course of business;
(ii) any contract for the employment of any individual and any
consulting agreement with an individual or an entity;
(iii) any bonus, incentive, deferred compensation, severance pay,
pension, profit sharing, retirement, death benefit, employee stock
purchase, stock option, employee benefit, employee incentive, fringe
benefit, medical or dental insurance or plan, life insurance, vacation
pay, or similar or like plan, agreement or arrangement, together with a
list of all employees or former employees currently receiving benefits
thereunder;
(iv) any collective bargaining agreement or other agreement with any
labor union or other organization (MicroSim hereby represents that no
other such agreement has been requested by, or is under discussion by
management of MicroSim or its subsidiaries with, any group of employees
or others);
(v) any lease of any material real or personal property or deeds or
other instruments representing ownership of any real property;
(vi) any mortgage, security agreement, chattel mortgage or
conditional sales agreement or any similar instrument or agreement;
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(vii) any agreement, indenture or other instrument relating to the
borrowing of money, or the guaranty of any obligation including,
without limitation, for the borrowing of money and a list of all bank
accounts identifying authorized signatories;
(viii) any joint venture, partnering, strategic alliance or other
similar agreement;
(ix) any sales representative or distributorship agreement;
(x) any dealer, reseller, OEM, value added reseller, agency or
franchise agreement;
(xi) any agreement not made in the ordinary and normal course of
business;
(xii) any agreement of any nature with officers, directors,
shareholders or other affiliates of MicroSim, MicroSim Japan or
MicroSim Overseas, whether any such person's interest is direct or
indirect;
(xiii) any agreement that requires prior approval in connection with
a change in control of MicroSim or that will be in default or that
gives rise to termination rights following a change in control of
MicroSim;
(xiv) any agreement that provides, initially or contingently, for the
escrow or release to a third party of any source code of MicroSim,
MicroSim Japan or MicroSim Overseas;
(xv) any agreement that commissions the creation of intangible
property or that otherwise relates to the purchase of intangible
property;
(xvi) any agreement (other than end-user license agreements) that
involves the licensing by or to MicroSim, MicroSim Japan or MicroSim
Overseas, of any software or other technology, know-how, trade secret,
confidential or proprietary information, which is necessary to the
conduct of, or material to, the business of MicroSim, MicroSim Japan or
MicroSim Overseas;
(xvii) any non-competition agreement, confidentiality/non-disclosure
or assignment of inventions agreement (both for the benefit of and/or
restricting MicroSim, MicroSim Japan or MicroSim Overseas);
(xviii) any property, casualty, director and officer liability and
other forms of insurance; and
(xix) any agreements that in any material way limit the freedom of
MicroSim, MicroSim Japan or MicroSim Overseas from competing in any
geographic area, business or product line or with any person or entity.
All documents, rights, obligations, contracts, agreements and commitments
referred to in Section 4.1(w) of the MicroSim Disclosure Schedule are valid
and (subject to the Bankruptcy Exception) enforceable in accordance with their
respective terms for the periods stated therein, and except as disclosed in
Section 4.1(w) of the MicroSim Disclosure Schedule, there are not under any of
them existing defaults, events of default or events which with notice and/or
lapse of time would constitute defaults.
(x) Loans, Notes, Accounts Receivable and Accounts Payable. The loans,
notes and accounts receivable of each of MicroSim, MicroSim Japan and
MicroSim Overseas reflected in the consolidated balance sheet of MicroSim
as at December 31, 1996, and all such loans, notes and accounts receivable
arising after December 31, 1996, and prior to the Closing Date arose, and
will arise, from bona fide transactions in the ordinary course of business
of MicroSim, MicroSim Japan or MicroSim Overseas, and have been collected
or (net of the aggregate corresponding bad debt reserves) are collectible
at the aggregate recorded amount thereof. The accounts payable of each of
MicroSim, MicroSim Japan and MicroSim Overseas reflected on such
consolidated balance sheet and all such accounts payable arising after
December 31, 1996, and prior to the Closing Date arose, and will arise,
from bona fide transactions in the ordinary course of business of MicroSim,
MicroSim Japan or MicroSim Overseas. The method of computing all reserves
as at the Closing Date will not change from the method of computing said
reserves on December 31, 1996. On the Closing Date, neither MicroSim,
MicroSim Japan nor MicroSim Overseas shall have any accounts or loans
receivable from any person, firm or corporation with which it is
affiliated, or from any of
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its directors, officers or employees except for customary advances to
personnel incurred in the ordinary course of business and except as
disclosed in Section 4.1(x) of the MicroSim Disclosure Schedule.
(y) Transactions with Related Parties. Except as set forth in Section
4.1(y) of the MicroSim Disclosure Schedule, no officer, director, or person
known to MicroSim to own more than one percent (1%) of MicroSim's Common
Stock (each, a "Related Party," and, collectively, the "Related Parties")
was, during the year ended December 31, 1996, or thereafter, or is
currently, a party, directly or indirectly to any transaction or is a
proposed party to any currently, proposed transaction with MicroSim. Except
as set forth in Section 4.1(y) of the MicroSim Disclosure Schedule; (i)
since December 31, 1996 there have been no transactions between MicroSim
and any Related Party or any payment (however characterized) by MicroSim to
any Related Party or by any Related Party to MicroSim (other than payments
in the ordinary course and consistent with past practice in respect of
salary, wages or reimbursable expenses); (ii) there is no lease, agreement
or commitment between MicroSim and any Related Party; (iii) no Related
Party has any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of MicroSim; (iv) no
Related Party is indebted to MicroSim; (v) MicroSim is not indebted to any
Related Party; and (vi) no Related Party competes with or is a director,
officer, employee or five percent (5%) or greater shareholder of any person
or entity that competes with MicroSim.
(z) Product Liability. There is no action, suit, proceeding or
investigation by or before any court or governmental authority or agency
pending, or to the best knowledge of MicroSim, threatened against or
involving MicroSim, MicroSim Japan or MicroSim Overseas relating to any
product alleged to have been manufactured, sold or distributed by MicroSim,
MicroSim Japan or MicroSim Overseas, respectively, and alleged to have been
defective, or improperly designed or manufactured, nor, to the best
knowledge of MicroSim is there any valid basis for any such action, suit,
proceeding or investigation.
(aa) Full Disclosure. All representations and warranties made by MicroSim
in this Agreement, all information furnished by MicroSim to OrCAD pursuant
to or in connection with this Agreement and all instruments and agreements
executed in connection herewith, taken together as a whole, are, and will
be on the Closing Date, accurate and complete and do and will on the
Closing Date include all material facts required to be stated therein or
necessary to make the statements therein not misleading. All documents
furnished by MicroSim to OrCAD pursuant to or in connection with this
Agreement are true and correct copies, and there are no amendments or
modifications thereto except as otherwise set forth in such documents. As
of the date of this Agreement, MicroSim has disclosed to OrCAD all events,
conditions and facts known to it materially affecting the business and
prospects of MicroSim. MicroSim has not withheld disclosure of any such
events, conditions or facts which it knows, or which it has reasonable
grounds to know, may reasonably affect the business of MicroSim in a
materially adverse manner.
(ab) Banking Relationships. Section 4.1(ab) of the MicroSim Disclosure
Schedule sets forth the names and locations of all banks, trust companies,
savings and loan associations and other financial institutions at which
each of MicroSim, MicroSim Japan and MicroSim Overseas currently maintains
safe deposit boxes or accounts of any nature and the names of all persons
currently authorized to have access thereto, draw thereon or make
withdrawals therefrom.
(ac) Absence of Certain Commercial Practices. Neither MicroSim, MicroSim
Japan, MicroSim Overseas, nor any of their respective directors and
officers, and, to the best knowledge of MicroSim, other employees, agents
or other persons acting on behalf of MicroSim, MicroSim Japan or MicroSim
Overseas, have (i) given or agreed to give any gift or similar benefit of
more than nominal value to any customer, supplier, or governmental employee
or official or any other person which is or may be in a position to help or
hinder MicroSim, MicroSim Japan or MicroSim Overseas or assist MicroSim,
MicroSim Japan or MicroSim Overseas in connection with any proposed
transaction, which gift or similar benefit, if not given in the past, could
have a MicroSim Material Adverse Effect, or which, if not continued in the
future, could result in a MicroSim Material Adverse Effect, or (ii) used
any corporate or other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political
activity to government officials or otherwise or established or maintained
any unlawful or unrecorded funds
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which would be in violation of Section 30A of the 1934 Act, were that
provision applicable. Neither MicroSim, MicroSim Japan, MicroSim Overseas,
their respective directors and officers nor, to the best knowledge of
MicroSim, their respective employees, other agents or other persons acting
on behalf of MicroSim, MicroSim Japan or MicroSim Overseas, have accepted
or received any unlawful contributions, payments, gifts or expenditures.
(ad) Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of MicroSim.
(ae) Pooling of Interests; Tax-Free Reorganization. MicroSim has no
reason to believe that the Merger will not qualify as a pooling of
interests for accounting purposes or as a tax-free reorganization within
the meaning of Section 368(a) of the Code.
(af) Investment Company Act. Neither MicroSim, MicroSim Japan nor
MicroSim Overseas is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act").
(ag) Disposition of OrCAD Common Stock. To the best knowledge of
MicroSim, there is no present plan or intention by the shareholders of
MicroSim who own one percent (1%) or more of the MicroSim Shares, and to
the best knowledge of MicroSim, there is no present plan or intention on
the part of the remaining MicroSim shareholders to sell, exchange, or
otherwise dispose of a number of shares of OrCAD Common Stock received in
the Merger that would reduce the MicroSim Shareholders' ownership of OrCAD
Common Stock to a number having a value, as of the Effective Time, of less
than 50% of the value of all of the formerly outstanding MicroSim Shares as
of the same date. For purposes of this representation, MicroSim Shares
exchanged for cash or other property, surrendered by dissenters or
exchanged for cash in lieu of fractional OrCAD Common Stock will be treated
as outstanding MicroSim Shares as of the Effective Time.
4.2 Representations and Warranties of OrCAD. In order to induce MicroSim to
enter into this Agreement, OrCAD represents and warrants to MicroSim that,
subject to and except for matters that would not be material under the
standards appropriate for use in public reporting documents, or that, if
material, are disclosed in its public reporting documents or in the OrCAD
Disclosure Schedule attached hereto (the "OrCAD Disclosure Schedule"), the
following matters are true and correct:
(a) Organization, Good Standing, Power, Etc. OrCAD is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. Merger Sub is a corporation duly organized and validly
existing under the laws of the State of Oregon. OrCAD Japan KK, a wholly-
owned subsidiary of OrCAD ("OrCAD Japan"), is a corporation duly organized,
validly existing and in good standing under the laws of Japan. OrCAD
Foreign Sales Corporation, a wholly-owned subsidiary of OrCAD ("OrCAD
Overseas"), is a corporation duly organized, validly existing and in good
standing under the laws of Guam. Each of OrCAD and its subsidiaries, has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. Each of
OrCAD and its subsidiaries, is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the property owned,
leased or occupied by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the assets, business,
results of operations or condition (financial or otherwise) of OrCAD and
its subsidiaries taken as a whole, or permanently preclude OrCAD or any of
its subsidiaries, as applicable, from enforcing any material contract
right. Each of OrCAD and its subsidiaries has delivered, or will prior to
or on the Closing Date deliver, to MicroSim complete and correct copies of
its Restated Certificate of Incorporation (certified by the Secretary of
the State of Delaware with respect to OrCAD and by the applicable
governmental authority with respect to each of OrCAD's subsidiaries) and
Restated Bylaws (certified by the Secretary of OrCAD or its subsidiary as
appropriate), as amended to the Closing Date.
(b) Authorized Capitalization. The authorized capital stock of OrCAD
consists of 16,000,000 shares of common stock, $0.01 par value per share,
and 2,000,000 shares of preferred stock, $0.01 par value per
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share. The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, $0.01 par value per share. The authorized capital stock of
OrCAD Japan consists of 1,200 shares of common stock, $421 par value per
share. The authorized capital stock of OrCAD Overseas consists of 1,000
shares, $1.00 par value per share. At the date of this Agreement, there are
(i) 6,752,002 shares of OrCAD Common Stock issued and outstanding and no
shares are held in OrCAD's treasury, (ii) 100 shares of Merger Sub common
stock issued and outstanding and no shares are held in Merger Sub's
treasury, (iii) 300 shares of OrCAD Japan common stock issued and
outstanding and no shares are held in OrCAD Japan's treasury, and (iv)
1,000 shares of OrCAD Overseas stock issued and outstanding and no shares
are held in OrCAD Overseas' treasury. All such outstanding shares have been
duly authorized and are validly issued, fully paid and non-assessable, and
neither OrCAD, Merger Sub nor OrCAD Japan or OrCAD Overseas has any
liability under the provisions of applicable federal and state securities
laws by reason of the issuance thereof.
(c) Subsidiaries. Other than Merger Sub, OrCAD Japan and OrCAD Overseas,
OrCAD does not own, and has not during the last five (5) years owned, any
shares of capital stock or other securities of, or any other interest in,
nor does it control or has it controlled during the last five years,
directly or indirectly, any other corporation, association, joint venture,
partnership or other business organization, except Massteck, Ltd., a
Massachusetts corporation acquired by merger which retains no material
assets or liabilities, OrCAD Europe S.A.R.L., which likewise retains no
material assets or liabilities, and short-term investments and cash
equivalents held in money market or brokerage accounts.
(d) Options, Warrants, Rights, Etc. Except as set forth in OrCAD's public
securities filings or as issued in the ordinary course and within limits
established in prior public filings since the last such filing under
OrCAD's existing stock incentive plans, there are no outstanding or
authorized subscriptions, options, warrants, calls, rights, commitments or
any other agreements of any character which obligate or may obligate OrCAD,
OrCAD Japan or OrCAD Overseas, or any other OrCAD subsidiary, to issue any
additional shares of its capital stock or any securities convertible into
or evidencing the right to subscribe for any shares of such capital stock.
OrCAD's public securities filings also contain descriptions of the
security, option, warrant or other instrument, and aggregate information
concerning the exercise price, number of shares into which it or they are
convertible or for which it is exercisable, standard vesting schedules,
current conversion or exchange ratio, if applicable, and other applicable
details of such agreements. There are no preemptive rights with respect to
the capital stock of OrCAD or any of its subsidiaries, and no restrictions
on the transfer of the capital stock of OrCAD, Merger Sub, OrCAD Japan or
OrCAD Overseas except those arising under securities laws. Except as may be
reflected in public securities filings of OrCAD or other parties as of any
given time, there are no voting trusts or any other agreements or
understandings with respect to the voting of the capital stock of OrCAD
known to OrCAD. Neither OrCAD, nor any of its subsidiaries is obligated,
directly, indirectly, or contingently to purchase or redeem any of its
shares of capital stock and has not so redeemed any shares of its capital
stock during the past two (2) years.
(e) Effect of Agreement. Neither OrCAD, nor any of its subsidiaries is in
default under or in violation of any provision of its Restated Certificate
of Incorporation or Restated Bylaws or other charter documents, or in
default or violation of any restriction, lien, encumbrance, indenture,
contract, agreement, lease, sublease, loan agreement, note or other
obligation or liability to which it is a party or by which it is bound or
to which its assets are subject, which default or violation would have a
material adverse effect on the business, operations or financial condition
of OrCAD and its subsidiaries taken as a whole. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) result in the acceleration of, or the
creation in any party of the right to accelerate, terminate, modify or
cancel, any indenture, contract, agreement, lease, sublease, loan
agreement, note or other obligation or liability to which OrCAD or any of
its subsidiaries is a party or by which any of them is bound or to which
any of their assets are subject, except for results which will in the
aggregate not have a material adverse effect on the business, operations or
financial condition of OrCAD and its subsidiaries taken as a whole, or (ii)
conflict with or result in a breach of or constitute a default under any
provision of the Restated Certificate of Incorporation or Restated Bylaws
or other charter documents of OrCAD or any of its
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subsidiaries, or a default or violation of any restriction, lien,
encumbrance, indenture, contract, agreement, lease, sublease, loan
agreement, note or other obligation or liability to which any of them is a
party or by which any of them is bound or to which any of their assets are
subject, or result in the creation of any lien or encumbrance upon said
assets.
(f) Power, Due Authorization. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby in
accordance with the terms hereof have been duly authorized by OrCAD's and
Merger Sub's respective Board of Directors. Except for the approval of
OrCAD's stockholders and Merger Sub's sole shareholder, all necessary
corporate action to authorize the execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement on
the part of each of OrCAD and Merger Sub, respectively, has been duly and
effectively taken. This Agreement is a valid and binding obligation of each
of OrCAD and Merger Sub, enforceable against each of OrCAD and Merger Sub
in accordance with its terms, subject to the Bankruptcy Exception. Except
in connection, or in compliance, with the provisions of the 1933 Act, the
1934 Act, the regulations of the Nasdaq/NMS, and the corporation,
securities or blue sky laws or regulations of the various states, no third
party consent, permit or approval is necessary for the consummation by
OrCAD of the Merger or the other transactions contemplated hereby, other
than third party consents, permits or approvals the failure of which to
obtain would not have a material adverse effect on OrCAD or prevent the
consummation of the transactions contemplated hereby. At the Closing, OrCAD
will deliver to MicroSim a certified copy of the resolutions adopted by
OrCAD's Board of Directors to authorize the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
(g) Securities Matters. Neither Merger Sub, nor OrCAD Japan or OrCAD
Overseas currently has, and neither has had, any outstanding securities
registered (or required to be registered) under the 1933 Act or the 1934
Act, or any reporting obligation thereunder. OrCAD has delivered (or will
deliver) to MicroSim copies of the proxy statement and all other written
materials sent or made available or to be sent or made available to the
holders of its capital stock in connection with this Agreement and the
Merger. The proxy statement notice and such other material complied with or
will comply with the applicable requirements of the Delaware Corporation
Law and applicable federal and state securities laws and did not (or will
not) contain any untrue statement of a material fact or omit to state any
material fact necessary, in light of the circumstances, in order to make
the statements therein not misleading, provided that in proxy materials
delivered to OrCAD stockholders, OrCAD and its counsel have relied or will
rely upon MicroSim with respect to factual matters concerning MicroSim
contained in such material, and with respect to matters as to which such
reliance is given, OrCAD represents and warrants only that OrCAD has
accurately and completely presented such factual matters concerning
MicroSim provided to it.
(h) Financial Statements. OrCAD has delivered or will deliver to MicroSim
on or prior to the Closing Date the audited consolidated balance sheets of
OrCAD as at December 31, 1996, 1995, 1994 and 1993 (the last three such
years being contained in OrCAD's Prospectus dated February 29, 1996)
together with the audited consolidated statements of profit and loss,
shareholders' equity and cash flows for the four fiscal years then ended,
and the unaudited consolidated balance sheets of OrCAD as of March 31,
1997, June 30, 1997, and any subsequent quarter as to which such unaudited
consolidated balance sheets become available prior to the Closing Date, and
the unaudited consolidated statements of profit and loss for the two
quarters then ended, all certified by the Chief Financial Officer of OrCAD
as being true, accurate and complete to his knowledge in all material
respects. Such consolidated financial statements are hereinafter
collectively referred to as the "OrCAD Financial Statements." Such OrCAD
Financial Statements are correct and complete, have been prepared in
accordance with GAAP and present fairly and accurately the financial
condition of OrCAD at the dates of said statements and the results of its
operations for the periods covered thereby (except that the unaudited
Financial Statements are subject to normal year-end adjustments and lack
footnotes and other presentation items). OrCAD's said balance sheets
(audited and unaudited), make full and adequate provision for all debts,
liabilities and obligations (fixed and contingent, including unpaid
federal, state or local, and foreign taxes) of OrCAD as of the date
thereof, which are normally shown on a balance sheet in accordance with
GAAP. Except to the extent reflected or reserved against in such
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OrCAD Financial Statements, there are no material liabilities or
obligations of OrCAD or its subsidiaries or related to any of their
business or operations, of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, other than
liabilities which have been incurred in the ordinary course of business and
which are not material in relation to the business of OrCAD and its
subsidiaries taken as a whole. The reserves reflected in the OrCAD
Financial Statements were, as of the dates of such statements, adequate,
appropriate and reasonable.
(i) Customers. OrCAD has no knowledge of any termination, cancellation,
limitation, modification or change in the business relationship of OrCAD,
OrCAD Japan or OrCAD Overseas with any customer or group of customers which
individually or in the aggregate constituted more than five percent (5%) of
OrCAD's sales, on a consolidated basis, for OrCAD's fiscal year ended
December 31, 1996.
(j) Distributors; Resellers. OrCAD has no knowledge of any termination,
cancellation, limitation, modification or change in the business
relationship of OrCAD, OrCAD Japan or OrCAD Overseas with any distributor
or reseller of OrCAD's products, or group of distributors or resellers of
OrCAD's products, which individually or in the aggregate constituted more
than five percent (5%) of OrCAD's sales, on a consolidated basis, for
OrCAD's fiscal year ended December 31, 1996.
(k) Absence of Certain Changes or Events. Except as publicly disclosed
and/or reported to the Securities and Exchange Commission, in accordance
with applicable laws or rules, since December 31, 1996, neither OrCAD, nor
OrCAD Japan or OrCAD Overseas has, except with respect to agreements and
transactions with MicroSim in contemplation of this Agreement:
(i) incurred any obligation or liability (contingent or otherwise)
except normal trade or business obligations incurred in the ordinary
course of business;
(ii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (contingent or otherwise), except current
liabilities of OrCAD, OrCAD Japan or OrCAD Overseas, respectively,
outstanding on December 31, 1996, and current liabilities incurred
since December 31, 1996, in the ordinary course of business;
(iii) mortgaged, pledged or subjected to lien, charge, security
interest or to any other encumbrance any of its assets or properties;
(iv) sold, transferred, leased or otherwise disposed of any of its
assets or properties, except for a fair consideration in the ordinary
course of business;
(v) cancelled or compromised any debt or claim, except for
adjustments made in the ordinary course of business which, in the
aggregate, are not material;
(vi) waived or released any rights of any material value;
(vii) sold, assigned, transferred or granted any concessions, leases,
licenses, agreements, patents, inventions, trademarks, service marks,
trade names, copyrights or other intangible assets other than in the
ordinary course of business under or pursuant to contracts with
customers, joint venturers, prime contractors or subcontractors;
(viii) (a) disposed of or permitted to lapse rights for the use of
any patent, trademark, service mark, trade name or copyright, (b)
disposed of or permitted to lapse any of the foregoing items which
OrCAD, OrCAD Japan or OrCAD Overseas had a right to use pursuant to the
terms of a negotiated agreement, or (c) disclosed to any person not an
employee, consultant, representative or agent any trade secret, process
or know-how not theretofore a matter of public knowledge, except
pursuant to binding nondisclosure agreements that by their terms barred
use of the information conveyed other than for stated purposes;
(ix) entered into any arrangement, agreement or undertaking not
terminable on thirty (30) days' or less notice without cost or
liability (including, without limitation, any payment of or promise to
pay any bonus or special compensation) with executive employees except
in accordance with established policies and practices;
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(x) suffered the occurrence of any event or events which,
individually or in the aggregate, has or have resulted in a material
adverse change in the operations, prospects, earnings, assets,
properties or business, or in the condition, financial or otherwise of
OrCAD and its subsidiaries taken as a whole;
(xi) declared any dividend or made any payment or distribution to its
shareholders;
(xii) made any loan to or entered into any other transaction with any
officer, director or shareholder of OrCAD (other than the grant of
stock options, bonuses, or salaries or compensation in the ordinary
course and in amounts and quantities consistent with past practice;
(xiii) granted any increase in the compensation of or bonuses payable
or paid to any employees or directors other than in the ordinary course
in amounts consistent with past practice;
(xiv) redeemed, issued or sold or agreed to redeem, issue or sell any
shares of its capital stock or options, warrants, pre-emptive or other
rights to purchase or acquire its securities or capital stock except
for stock options granted or exercised in the ordinary course;
(xv) entered into any other material transaction, contract or
commitment other than in the ordinary course of business; or
(xvi) entered into any binding agreement, arrangement or commitment
to do or take any of the foregoing actions.
(l) Taxes.
(i) Each of OrCAD, Merger Sub, OrCAD Japan and OrCAD Overseas has
timely filed all returns, declarations, reports, estimates, information
returns and statements (each, a "Return," and, collectively the
"Returns") required to be filed with respect to any Taxes (as
hereinafter defined) and has timely and properly paid all Taxes that
are due and payable, has established on its books and records aggregate
income tax reserves that are adequate for the payment of all Taxes
accrued but not yet due and payable, and has complied in all material
respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes and timely and properly withheld
from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over under
all applicable laws.
(ii) There are no liens for Taxes on the assets of OrCAD, OrCAD Japan
or OrCAD Overseas except liens for Taxes not yet due. Neither OrCAD,
nor OrCAD Japan or OrCAD Overseas has requested any extension of time
within which to file any Return, which Return has not since been filed.
No deficiency for any Taxes has been proposed, asserted or assessed
against OrCAD, OrCAD Japan or OrCAD Overseas that has not been resolved
and/or paid in full. There are no outstanding waivers or consents given
by OrCAD, OrCAD Japan or OrCAD Overseas regarding the application of
the statute of limitations with respect to any Taxes or Returns, and no
federal, state, local or foreign audits or other administrative
proceedings or court proceedings are currently pending with regard to
any Taxes or Returns.
(iii) Neither OrCAD, nor OrCAD Japan or OrCAD Overseas has filed a
consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code applied to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of
the Code) owned by OrCAD, OrCAD Japan or OrCAD Overseas, respectively.
Neither OrCAD, nor OrCAD Japan or OrCAD Overseas is required to include
in income any adjustment pursuant to Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by OrCAD,
OrCAD Japan or OrCAD Overseas, nor does OrCAD, OrCAD Japan or OrCAD
Overseas have any knowledge that the IRS has proposed any such
adjustment or change in accounting method.
(iv) Each of OrCAD, OrCAD Japan and OrCAD Overseas has established
and will maintain on its books and records aggregate income tax
reserves adequate to pay all Taxes accrued but not yet due and payable
in accordance with generally accepted accounting principles, and such
reserves are reflected on the Financial Statements to the extent
required. Neither OrCAD, nor OrCAD Japan or OrCAD Overseas is a party
to any agreement, contract or arrangement that would result, separately
or
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in the aggregate, in the payment of "excess parachute payments" within
the meaning of Section 280G of the Code.
(v) For purposes of this Agreement, "Taxes" means all taxes, charges,
fees, levies or other assessments, including without limitation all net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, property or other taxes, customs, duties,
fees, assessments or charges of any kind whatsoever, together with any
interest and penalties, additions to tax or additional amounts imposed
by any taxing authority (domestic or foreign).
(m) Litigation. There are no actions, claims, suits, proceedings or
investigations pending or threatened against OrCAD, OrCAD Japan or OrCAD
Overseas, at law or in equity, or before or by any federal, state,
municipal or other governmental or nongovernmental department, commission,
board, bureau, agency or instrumentality, or any other person, and there
are no outstanding or unsatisfied judgments, orders, decrees or
stipulations against OrCAD, OrCAD Japan or OrCAD Overseas, or against any
director, officer or employee of OrCAD, OrCAD Japan or OrCAD Overseas in
his or her capacity or arising out of his or her duties as a director,
officer or employee of OrCAD, OrCAD Japan or OrCAD Overseas, respectively.
OrCAD has no reason to believe that any such action, claim, suit,
proceeding or investigation may be brought or threatened against OrCAD,
OrCAD Japan or OrCAD Overseas, or any of their directors, officers or
employees.
(n) Labor Matters. There are no controversies pending or threatened
between OrCAD, OrCAD Japan or OrCAD Overseas and any employees of OrCAD,
OrCAD Japan or OrCAD Overseas, respectively. Each of OrCAD, OrCAD Japan and
OrCAD Overseas has complied in all material respects with all laws relating
to the employment of labor, including any provisions thereof relating to
wages, hours, collective bargaining and the payment of withholding and
social security and similar taxes, and neither OrCAD, nor OrCAD Japan or
OrCAD Overseas is liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing. Neither OrCAD, nor OrCAD
Japan or OrCAD Overseas is, nor have any of them been, engaged in any
unfair labor practice. There is no unfair labor practice complaint against
OrCAD, OrCAD Japan or OrCAD Overseas pending before the National Labor
Relations Board or other applicable governmental entity, and there is no
labor strike, dispute, slowdown or stoppage pending or affecting, or to
OrCAD's knowledge threatened against, OrCAD, OrCAD Japan or OrCAD Overseas.
None of OrCAD's, OrCAD Japan's or OrCAD Overseas' employees is represented
by any labor union, and OrCAD has no knowledge of any organizational
efforts currently being made or threatened by or on behalf of any labor
unions with respect to employees of OrCAD, OrCAD Japan or OrCAD Overseas.
Neither OrCAD, nor OrCAD Japan or OrCAD Overseas has been advised by any
officer or employee that he is contemplating leaving OrCAD, OrCAD Japan or
OrCAD Overseas, respectively, as a result of the Merger or otherwise.
(o) Intangible Property. Each of OrCAD's, OrCAD Japan's and OrCAD
Overseas' intangible property consists of all of the proprietary or
licensed software, trade secrets, know-how, any other confidential or
proprietary information of OrCAD, OrCAD Japan and OrCAD Overseas,
respectively, United States and foreign patents, trade names, trademarks
and service marks and registrations thereof, copyrights and copyright
registrations, and applications for any of the foregoing, currently or
formerly used in the conduct of the business of OrCAD, OrCAD Japan or OrCAD
Overseas, or created as the property of OrCAD, OrCAD Japan or OrCAD
Overseas to be licensed to others, including without limitation the items
set forth in OrCAD's public disclosure documents on file with the
Securities and Exchange Commission (collectively, the "OrCAD Intangible
Property"). OrCAD's public filings also set forth all material licenses or
similar agreements or arrangements to which OrCAD, OrCAD Japan or OrCAD
Overseas is a party, either as licensee or licensor, with respect to the
OrCAD Intangible Property; other than those entered into in the ordinary
course of business and not otherwise material. Except as otherwise
disclosed in OrCAD's public filings, or as limited by the rights of end
user or distribution customers of OrCAD under applicable license
agreements:
(i) OrCAD, OrCAD Japan or OrCAD Overseas, as applicable, is the sole
and exclusive owner of all right, title and interest in and to the
OrCAD Intangible Property, free and clear of all liens, security
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interests, charges, encumbrances, or other adverse claims; excepting
only portions of OrCAD's routing software which are held under license;
(ii) OrCAD, OrCAD Japan or OrCAD Overseas, as applicable, has the
right and authority to use the OrCAD Intangible Property in connection
with the conduct of its business in the manner currently conducted, and
such use does not conflict with, infringe upon or violate any rights of
any third party;
(iii) Neither OrCAD, nor OrCAD Japan or OrCAD Overseas has received
notice of, and OrCAD knows of no legitimate basis for, a pending or
threatened claim, interference action or other judicial or adversarial
proceeding against OrCAD, OrCAD Japan or OrCAD Overseas, that any of
the operations, activities, products, services or publications of
OrCAD, OrCAD Japan or OrCAD Overseas, respectively, infringes or will
infringe any patent, trademark, service mark, trade name, copyright,
trade secret or other property right of a third party, or that it is
illegally or otherwise misusing the trade secrets, formulae or property
rights of others;
(iv) there are no outstanding, nor to the best knowledge of OrCAD,
are there any threatened disputes or other disagreements with respect
to any licenses or similar agreements or arrangements of OrCAD or with
respect to infringement by a third party of any of the OrCAD Intangible
Property, except such as have been fully and sufficiently reserved
against;
(v) the OrCAD Intangible Property owned or licensed by each of OrCAD,
OrCAD Japan and OrCAD Overseas is sufficient to conduct and continue
conducting each of OrCAD's, OrCAD Japan's and OrCAD Overseas' business
as currently conducted;
(vi) Each of OrCAD, OrCAD Japan and OrCAD Overseas has taken all
steps reasonably necessary to protect its continuing right, title and
interest in and to the OrCAD Intangible Property and its continued use
of the OrCAD Intangible Property; and
(vii) OrCAD knows of no third party infringing upon or otherwise
violating, or threatening to infringe upon or otherwise violate, any of
the OrCAD Intangible Property in which OrCAD, OrCAD Japan or OrCAD
Overseas has ownership rights.
(p) Books and Records. The books and records of each of OrCAD, OrCAD
Japan and OrCAD Overseas, including without limitation, the minute books,
stock record books and books of account, have been and are complete and
correct, have been maintained in accordance with sound business practices
and accurately reflect the basis for the financial condition and results of
operations of OrCAD, on a consolidated basis, as set forth in the OrCAD
Financial Statements.
(q) Licenses, Permits, Authorizations, Etc. Each of OrCAD, OrCAD Japan
and OrCAD Overseas has all approvals, authorizations, consents, licenses,
orders, governmental security clearances and registrations, permits and
certifications of all governmental agencies, commissions or divisions,
whether federal, state or local, United States or foreign, required to
permit the operation of its business as currently conducted. All such
approvals, authorizations, consents, licenses, orders, clearances and
registrations, permits and certifications are in full force and effect, no
suspension, cancellation or forfeiture thereof has been threatened, and
neither the execution, delivery and performance of this Agreement nor the
transactions contemplated hereby will cause or otherwise result in any such
suspension, cancellation or forfeiture, or in the assessment or imposition
of any penalties or fines, nor is OrCAD, OrCAD Japan or OrCAD Overseas in
violation of any of the foregoing.
(r) Applicable Laws. Each of OrCAD, OrCAD Japan and OrCAD Overseas has
complied and is in compliance with all federal, state, local and foreign
laws, rules, regulations, ordinances, decrees and orders applicable to the
operation of its business as currently conducted and/or its owned or leased
properties the failure to comply with which might materially adversely
affect the operations, prospects, earnings, assets, properties or business
of OrCAD and its subsidiaries taken as a whole.
(s) Employee Benefit Plans.
(i) Employee Plans. OrCAD's public filings contain a true, correct
and complete list of all pension, profit sharing, benefit, retirement,
deferred compensation, welfare, insurance, disability,
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bonus, vacation pay, severance pay and other similar plans, programs
and agreements, whether reduced to writing or not, other than any
"Multi-employer Plan" as such term is defined in Section 4001(a)(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), relating
to OrCAD's, OrCAD Japan's or OrCAD Overseas' employees, or maintained
by OrCAD, OrCAD Japan, OrCAD Overseas or by any other member
(hereinafter, an "Affiliate") of any controlled group of corporations,
group of trades or businesses under common control, or affiliated
service groups (as defined for purposes of Section 414(b), (c) and (m),
respectively, of the Code) (the "OrCAD Employee Plans") and, except as
contemplated by such OrCAD Employee Plans or as consistent with past
practice and reflected consistently in the results of OrCAD's
operations as reported in its public documents, neither OrCAD, nor
OrCAD Japan or OrCAD Overseas has any obligations, contingent or
otherwise, past or present, under the terms of any OrCAD Employee Plan
or law applicable thereto.
(ii) Prohibited Transactions. Neither OrCAD nor any of its
Affiliates, directors, officers, employees or agents, or any "party in
interest" or "disqualified person," as such terms are defined in
Section 3 of ERISA and Section 4975 of the Code, respectively, has,
with respect to any OrCAD Employee Plan, engaged in or been a party to
any nonexempt "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA, in connection with which,
directly or indirectly, OrCAD or any of its Affiliates, directors or
employees or any OrCAD Employee Plan or any related funding medium
could be subject to either a penalty assessed pursuant to Section
502(i) of ERISA or a tax imposed by Section 4975 of the Code.
(iii) Compliance. With respect to each OrCAD Employee Plan, OrCAD and
its Affiliates are in compliance with the requirements prescribed by
any and all statutes, orders or governmental rules or regulations
currently in effect, including, but not limited to, ERISA and the Code,
applicable to such OrCAD Employee Plans. OrCAD and its Affiliates have
performed in all material respects all obligations required to be
performed by them under, and are not in violation of, and there has
been no default or violation by any other party with respect to, any of
the OrCAD Employee Plans. Except as are individually or in the
aggregate not material: (A) none of the OrCAD Employee Plans which is
subject to Title IV of ERISA has been or will be terminated in whole or
in part within the meaning of ERISA or the Code; (B) no liability has
been or will be incurred through, no event or circumstance has occurred
and no event or circumstance will occur prior to, the Closing Date,
which could result in such a liability being asserted by the PBGC with
respect to any OrCAD Employee Plan (other than the payment of annual
premiums under Section 4007 of ERISA or benefits payable in accordance
with the terms of such OrCAD Employee Plan); (C) no OrCAD Employee Plan
that is subject to Part 3 of Subtitle B of Title I of ERISA or Section
412 of the Code, or both, has incurred any "accumulated funding
deficiency" (as defined in ERISA), whether or not waived; (D) neither
OrCAD nor any Affiliate has failed to pay any amounts due and owing as
required by the terms of any OrCAD Employee Plan; (E) there has been no
"reportable event" within the meaning of Section 4043 of ERISA, or any
event described in Section 4063(a) of ERISA, with respect to any OrCAD
Employee Plan; (F) neither OrCAD nor any Affiliate has failed to make
any payment to an OrCAD Employee Plan required under Section 302 of
ERISA nor has any lien ever been imposed under Section 302(f) of ERISA;
(G) neither OrCAD nor any Affiliate has adopted an amendment to any
OrCAD Employee Plan which requires the provision of security under
Section 307 of ERISA; and (H) the PBGC has not instituted any
proceedings to terminate an OrCAD Employee Plan pursuant to Section
4042 of ERISA.
(iv) Multi-employer Plans. Neither OrCAD nor its affiliates
contribute or are required to contribute or have ever been required to
contribute to any multi-employer plan as that term is defined in
Section 4001(a)(3) of ERISA ("Multi-employer Plan"). Neither OrCAD nor
any Affiliate has withdrawn or is reasonably expected to withdraw from
a Multi-employer Plan in a complete or partial withdrawal which has
resulted or will result in "withdrawal liability," as defined for
purposes of Part I of Subtitle I of Part IV of ERISA, with respect to
any such plan which has not been satisfied in full. No event has
occurred, or will occur prior to the Closing Date, which could give
rise to any other liability on the part of OrCAD or (to OrCAD's
knowledge) MicroSim, or their Affiliates, officers, employees or
directors with respect to such plan(s).
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<PAGE>
(v) Retiree Benefits. No OrCAD Employee Plan provides health or life
insurance benefits for retirees.
(vi) Copies of Employee Plans and Related Documents. OrCAD has
previously delivered to MicroSim or has on file with the Securities and
Exchange Commission (the "SEC") true and complete copies of all OrCAD
Employee Plans that have been reduced to writing and written
descriptions of all OrCAD Employee Plans that have not been reduced to
writing, all agreements, including trust agreements and insurance
contracts, related to such OrCAD Employee Plans, and the Summary Plan
Description and all modifications thereto for each OrCAD Employee Plan
communicated to employees. With respect to each OrCAD Employee Plan
that is a "Defined Benefit Plan," as such term is defined in Section
3(35) of ERISA ("Defined Benefit Plan"), true and complete copies of
(A) the annual actuarial valuation reports for the last five years, (B)
the Form 5500 and Schedule A and B thereto, filed for the last five
years and (C) any filing made with the PBGC, IRS or Department of
Labor, or any correspondence with or from such agencies, regarding the
termination of any such defined Benefit Plan, have been delivered to
MicroSim.
(vii) Qualifications. Each OrCAD Employee Plan intended to qualify
under Section 401(a) of the Code has been determined by the IRS to so
qualify and continues to so qualify, and the trusts created thereunder
have been determined to be exempt from tax under the provisions of
Section 501(a), and continue to be so exempt. Each OrCAD Employee Plan
that is a funded welfare benefit plan intended to be exempt from tax
under the provisions of Section 501(c)(9) of the Code has been
determined by the IRS to be so exempt and continues to be so exempt.
Copies of all determination letters with respect to each such OrCAD
Employee Plan have been previously delivered by OrCAD to MicroSim, and
nothing has occurred, or will occur prior to the Closing Date (other
than a possible change or amendment of law), that will cause the loss
of such qualification or exemption, no such OrCAD Employee Plan has
been operated in a manner that would cause it to be disqualified in
operation, and all such OrCAD Employee Plans have been administered in
compliance with and consistent with all applicable requirements of the
Code, ERISA and other applicable laws and regulations, including,
without limitation, all reporting, notice, and disclosure requirements.
(viii) Funding Status, Etc.
(A) Neither OrCAD, OrCAD Japan, OrCAD Overseas, nor any
corporation or trade or business (whether or not incorporated) that
would be treated as a member of the controlled group of OrCAD under
Section 4001(a)(14) of ERISA would be liable for (1) any amount
pursuant to Section 4062, 4063, 4064, 4068 or 4069 of ERISA if any
of the OrCAD Employee Plans that are subject to Title IV of ERISA
were to terminate or (2) any amount pursuant to Section 4201 of
ERISA if a complete or partial withdrawal from any Multi-employer
Plan occurred before the Closing Date. All OrCAD Employee Plans
which are subject to Title IV of ERISA have no amount of unfunded
benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
There is no unpaid contribution due with respect to the plan year of
any Defined Benefit Plan ended prior to the Closing Date, as
required under the minimum funding requirements of Section 412 of
ERISA.
(B) With respect to each OrCAD Employee Plan that is a qualified
defined contribution pension, profit-sharing or stock bonus plan, as
defined in ERISA, all employer contributions accrued for plan years
ending prior to the Closing Date under the plan terms and applicable
law have been made by OrCAD.
(C) All premiums or other payments required by the terms of any
group or individual insurance policies and programs maintained by
OrCAD, OrCAD Japan or OrCAD Overseas and covering any present or
former employees of OrCAD, OrCAD Japan or OrCAD Overseas,
respectively, with respect to all periods up to and including the
Closing Date have been fully paid for the length of the obligation.
(ix) Claims and Litigation. Except as set forth in Section 4.2(s) of
the OrCAD Disclosure Schedule, there are no pending, and to the best
knowledge of OrCAD, threatened claims, suits or other
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proceedings by present or former employees of OrCAD or its Affiliates,
plan participants, beneficiaries or spouses of any of the above, the
IRS, the PBGC, the Department of Labor, or any other person or entity
(including claims against the assets of any trust) involving any OrCAD
Employee Plan, or any rights or benefits thereunder, other than
ordinary and usual claims for benefits by participants or
beneficiaries, including claims pursuant to domestic relations orders.
(x) No Implied Rights. Nothing expressed or implied herein shall
confer upon any past or present employee of OrCAD or its Affiliates,
his or her representatives, beneficiaries, successors and assigns, or
upon any collective bargaining agent, any rights or remedies of any
nature, including, without limitation, any rights to employment or
continued employment with OrCAD, OrCAD Japan, OrCAD Overseas, MicroSim,
or any successor or affiliate.
(t) Environmental Laws and Regulations.
(i) Certain Definitions. For purposes of this Agreement:
(A) "Hazardous Substance" means any chemical, pollutant,
contaminant, waste (including, without limitation, toxic, hazardous,
infectious, sanitary, solid, radioactive and petroleum waste,
collectively, "Waste"), toxic substance, hazardous substance,
extremely hazardous substance, hazardous material, oil and petroleum
product, as such terms, or any similar terms, are or shall be used
under any applicable federal, state, local and foreign laws,
regulations, rules, ordinances, permits (including, without
limitation, authorizations, approvals, registrations and licenses,
collectively, "Permits"), administrative orders, judicial decisions
or the like (collectively, "Laws") relating to pollution or
protection of the environment, natural resources or human health.
(B) "Environmental Laws" means any and all Laws relating to (1)
pollution or protection of the environment, natural resources or
human safety and health from any Hazardous Substance or (2)
nuisance, trespass or "toxic tort," so called, including, without
limitation, laws relating to emissions, discharges, releases or
threatened releases of any Hazardous Substance or otherwise relating
to the manufacture, processing, importation, distribution, use,
generation, treatment, storage, disposal, transportation or handling
of any Hazardous Substance. Environmental Laws include, but are not
limited to, the Clean Air Act, the Federal Water Pollution Control
Act as amended by the Clean Water Act of 1977, the Safe Drinking
Water Act, the Occupational Safety and Health Act of 1970 ("OSHA
Act"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Solid Waste Disposal Act
as amended by the Resource Conservation and Recovery Act of 1976
("RCRA"), the Hazardous and Solid Waste Amendments of 1984, the
Medical Waste Tracking Act, the Hazardous Materials Transportation
Act, and the Toxic Substances Control Act of 1976 ("TSCA"), and any
rules and regulations promulgated thereunder.
(C) "Environmental Claim" means any civil, criminal or
investigative action, suit, litigation, hearing, communication
(written or oral), demand, claim, citation, notice or notice of
violation, warning, consent decree, judgment or order by any person
or entity alleging, claiming, concerning or finding liability or
potential liability (including, without limitation, liability or
potential liability for investigatory costs, cleanup costs,
governmental response or oversight costs, natural resources damages,
property damages, penalties, personal injuries, death or any other
damages or costs, including, without limitation, litigation and
settlement costs and consultants' and attorneys' fees) arising out
of, based on or resulting from, in whole or in part, the actual or
alleged presence, threatened release, release, emission, disposal,
storage, treatment, transportation, generation, manufacture or use
of any Hazardous Substance at or from any location.
(ii) Permits. Each of OrCAD, OrCAD Japan and OrCAD Overseas possesses
and is in compliance with all Permits required under applicable
Environmental Laws in connection with each of OrCAD's, OrCAD Japan's
and OrCAD Overseas' business and operations or its assets and
properties.
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(iii) Compliance with Environmental Laws. (A) Each of OrCAD, OrCAD
Japan and OrCAD Overseas is, and its business, operations, assets and
properties are, in material compliance with all Environmental Laws; (B)
no real property owned, leased or operated by OrCAD, OrCAD Japan or
OrCAD Overseas, is or has been designated by any state, local or
federal agency or body as a hazardous waste disposal site or a site or
location requiring investigation concerning, or management, cleanup or
removal of, any Hazardous Substance; and (C) to the best knowledge of
OrCAD, there has never been any release or threatened release,
emission, disposal, storage, transportation, generation, manufacture or
use of any Hazardous Substance from or on any real property owned,
leased or operated by OrCAD, OrCAD Japan or OrCAD Overseas, in
violation of any Environmental Laws.
(iv) Environmental Claims. There are no Environmental Claims pending
or, to the best knowledge of OrCAD, threatened against OrCAD, OrCAD
Japan, OrCAD Overseas or against any person or entity whose liability
for any Environmental Claim OrCAD, OrCAD Japan or OrCAD Overseas has
retained or assumed either contractually or by operation of law.
(v) Waste. All Waste or Waste generated in connection with each of
OrCAD's, OrCAD Japan's and OrCAD Overseas' business, operations, assets
and properties related thereto has been (A) treated, stored or disposed
of by or at facilities duly licensed pursuant to applicable
Environmental Laws and (B) transported to such facilities by
transporters duly licensed pursuant to applicable Environmental Laws.
Each of OrCAD, OrCAD Japan and OrCAD Overseas has maintained true and
complete records in accordance with applicable Environmental Laws
relating to the generation, transportation, treatment, storage and
disposal of Waste generated in connection with their respective
businesses, operations, assets and properties.
(vi) Asbestos, PCBs and Storage Tanks. Except as listed in Section
4.2(t) of the OrCAD Disclosure Schedule, without in any way limiting
the generality of the foregoing, to the best knowledge of OrCAD there
is no asbestos contained in or forming part of any building, building
component, structure, improvement or office space owned, operated or
leased by OrCAD, OrCAD Japan or OrCAD Overseas; no polychlorinated
biphenyls (PCBs) are used or stored at any property owned, operated or
leased by OrCAD, OrCAD Japan or OrCAD Overseas; and no storage tanks
(above or below ground) exist at any property owned, operated or leased
by OrCAD, OrCAD Japan or OrCAD Overseas.
(vii) Environmental Reports. OrCAD has delivered or on request will
deliver to MicroSim all Environmental Reports in its control, custody
or possession prepared by any person or entity concerning compliance
with applicable Environmental Laws of OrCAD's, OrCAD Japan's or OrCAD
Overseas' respective businesses, operations, assets or properties and
the use, manufacture, importation, processing, storage, treatment,
transportation, release or disposal therefrom, therein or thereon of
any Hazardous Substance.
(u) Insurance. OrCAD has in place insurance policies covering fire,
casualty, liability, worker's compensation and other forms of insurance
commonly held by businesses of OrCAD's size and type. All such policies are
in full force and effect and no written notice of cancellation or
termination has been received by OrCAD with respect to any such policy.
Such policies are sufficient for compliance in all material respects with
all requirements of applicable law and of all agreements to which OrCAD is
a party, and are valid, outstanding and (subject to the Bankruptcy
Exception) enforceable policies, and provide adequate insurance coverage
for the properties, assets and operations of OrCAD. OrCAD is the sole owner
of each of such policies, and all premiums due thereon have been paid.
Copies of such insurance policies have previously been delivered by OrCAD
to MicroSim or are available upon request, and (to the best knowledge of
OrCAD) nothing has occurred, or will (to the best knowledge of OrCAD) occur
prior to the Closing Date, which might cause any insurer to cancel or
otherwise terminate any such policy. No insurance has been refused with
respect to any operations or properties or assets of OrCAD, nor has the
coverage of any insurance been limited, by any insurance carrier which has
carried, or received any application for, any such insurance during the
last three (3) years.
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(v) Title to Real and Personal Properties, Absence of Liens and
Encumbrances; Condition of Properties.
(i) Each of OrCAD, OrCAD Japan and OrCAD Overseas has good and
marketable title to, and owns outright, all of its real and personal
properties and assets (including, but not limited to, the assets
reflected in OrCAD's consolidated balance sheet as of December 31,
1996), except for those disposed of in the ordinary course of business,
and none of such assets is encumbered by any mortgage, lien, claim or
encumbrance except liens, claims or encumbrances reflected in said
balance sheet or (where required) in the notes thereto, and liens for
taxes which are not yet due and payable. All leases pursuant to which
OrCAD, OrCAD Japan or OrCAD Overseas leases any real or personal
property are valid and binding in accordance with their respective
terms, and there is not under any such lease any existing default by
OrCAD, OrCAD Japan or OrCAD Overseas, event of default or event which,
with notice and/or lapse of time, would constitute a default. The
properties and assets of OrCAD, OrCAD Japan and OrCAD Overseas include
all rights, properties and other assets necessary to permit each of
OrCAD, OrCAD Japan and OrCAD Overseas to conduct its business in the
same manner as it is conducted on, and has been conducted prior to, the
date of this Agreement.
(ii) All buildings and material fixtures and equipment owned or used
by each of OrCAD, OrCAD Japan and OrCAD Overseas have been properly
maintained and are in good operating order and repair, ordinary wear
and tear excepted, and are in compliance to the best knowledge of OrCAD
with all zoning, building and fire codes and all other laws, rules,
regulations and requirements of governmental authorities and the fire
insurance rating association having jurisdiction. All leases of real or
personal property to which OrCAD, OrCAD Japan or OrCAD Overseas is a
party are fully effective and afford OrCAD, OrCAD Japan or OrCAD
Overseas, respectively, peaceful and undisturbed possession of the
subject matter of the lease. To the best knowledge of OrCAD, the
buildings, plant, structures and equipment of each of OrCAD, OrCAD
Japan and OrCAD Overseas are structurally sound with no known defects
and are in good operating condition and repair and are adequate for the
uses to which they are being put, and none of such buildings, plant,
structures or equipment is in need of maintenance or repairs for which
OrCAD, OrCAD Japan or OrCAD Overseas has financial responsibility
except for ordinary, routine maintenance and repairs that are not
material in nature or cost.
(iii) To the best knowledge of OrCAD, neither the whole nor any
portion of the real or personal property used or owned by OrCAD, OrCAD
Japan or OrCAD Overseas is subject to any decree or order of a
governmental body to be sold or is being condemned, expropriated or
otherwise taken by any governmental body or other person with or
without payment of compensation thereof, nor has any such condemnation,
expropriation or taking been proposed.
(w) Material Contracts. Public filings made by OrCAD identify all
material contracts, instruments, agreements or commitments currently in
effect (whether oral or written) relating to the conduct of the business of
each of OrCAD, OrCAD Japan and OrCAD Overseas, within disclosure standards
required by applicable rules and regulations of the SEC. OrCAD has made
available or will on request make available to MicroSim true and correct
copies of each document and a written description, accurate in all material
respects, of each oral arrangement so listed. All documents, rights,
obligations, contracts, agreements and commitments referred to in this
Section 4.2(w) are valid and (subject to the Bankruptcy Exception)
enforceable in accordance with their respective terms for the periods
stated therein, and there are not under any of them existing defaults,
events of default or events which with notice and/or lapse of time would
constitute defaults.
(x) Loans, Notes, Accounts Receivable and Accounts Payable. The loans,
notes and accounts receivable of each of OrCAD, OrCAD Japan and OrCAD
Overseas reflected in the consolidated balance sheet of OrCAD as at
December 31, 1996, and all such loans, notes and accounts receivable
arising after December 31, 1996, and prior to the Closing Date arose, and
will arise, from bona fide transactions in the ordinary course of business
of OrCAD, OrCAD Japan or OrCAD Overseas, and have been collected or (net of
the aggregate corresponding bad debt reserves) are collectible at the
aggregate recorded amount thereof. The accounts payable of each of OrCAD,
OrCAD Japan and OrCAD Overseas reflected on such
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consolidated balance sheet and all such accounts payable arising after
December 31, 1996, and prior to the Closing Date arose, and will arise,
from bona fide transactions in the ordinary course of business of OrCAD,
OrCAD Japan or OrCAD Overseas. The method of computing all reserves as at
the Closing Date will not change from the method of computing said reserves
on December 31, 1996. On the Closing Date, neither OrCAD, OrCAD Japan nor
OrCAD Overseas shall have any accounts or loans receivable from any person,
firm or corporation with which it is affiliated, or from any of its
directors, officers or employees except for customary advances to personnel
incurred in the ordinary course of business.
(y) Transactions with Related Parties. Except for employment-related
transactions such as salary or bonus payments and stock option or other
benefit transactions, no officer, director, or person known to OrCAD to own
more than one percent (1%) of OrCAD's common stock (each, a "Related
Party," and, collectively, the "Related Parties") was, during the year
ended December 31, 1996, or thereafter, or is currently, a party, directly
or indirectly to any transaction or currently proposed transaction with
OrCAD. Since December 31, 1996 there have been no transactions between
OrCAD and any Related Party or any payment (however characterized) by OrCAD
to any Related Party or by any Related Party to OrCAD (other than payments
in the ordinary course and consistent with past practice in respect of
salary, wages or reimbursable expenses); (ii) there is no lease, agreement
or commitment between OrCAD and any Related Party; (iii) no Related Party
has any interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of OrCAD; (iv) no Related Party is
indebted to OrCAD; (v) OrCAD is not indebted to any Related Party; and (vi)
no Related Party competes with or is a director, officer, employee or five
percent (5%) or greater shareholder of any person or entity that competes
with OrCAD.
(z) Product Liability. There is no action, suit, proceeding or
investigation by or before any court or governmental authority or agency
pending, or to the best knowledge of OrCAD, threatened against or involving
OrCAD, OrCAD Japan or OrCAD Overseas relating to any product alleged to
have been manufactured, sold or distributed by OrCAD, OrCAD Japan or OrCAD
Overseas, respectively, and alleged to have been defective, or improperly
designed or manufactured, nor, to the best knowledge of OrCAD is there any
valid basis for any such action, suit, proceeding or investigation.
(aa) Full Disclosure. All representations and warranties made by OrCAD in
this Agreement, all information furnished by OrCAD to MicroSim pursuant to
or in connection with this Agreement and all instruments and agreements
executed in connection herewith, taken together as a whole, are, and will
be on the Closing Date, accurate and complete and do and will on the
Closing Date include all material facts required to be stated therein or
necessary to make the statements therein not misleading. All documents
furnished by OrCAD to MicroSim pursuant to or in connection with this
Agreement are true and correct copies, and there are no amendments or
modifications thereto except as otherwise set forth in such documents. As
of the date of this Agreement, OrCAD has disclosed to MicroSim all events,
conditions and facts known to it materially affecting the business and
prospects of OrCAD. OrCAD has not withheld disclosure of any such events,
conditions or facts which it knows, or which it has reasonable grounds to
know, may reasonably affect the business of OrCAD in a materially adverse
manner.
(ab) Absence of Certain Commercial Practices. Neither OrCAD, OrCAD Japan,
OrCAD Overseas, nor any of their respective directors and officers, and, to
the best knowledge of OrCAD, other employees, agents or other persons
acting on behalf of OrCAD, OrCAD Japan or OrCAD Overseas, have (i) given or
agreed to give any gift or similar benefit of more than nominal value to
any customer, supplier, or governmental employee or official or any other
person which is or may be in a position to help or hinder OrCAD, OrCAD
Japan or OrCAD Overseas or assist OrCAD, OrCAD Japan or OrCAD Overseas in
connection with any proposed transaction, which gift or similar benefit, if
not given in the past, could have materially adversely affected the assets,
business, prospects, condition (financial or otherwise) or results of
operations of OrCAD, OrCAD Japan, OrCAD Overseas, or which, if not
continued in the future, could materially adversely affect the assets,
business, prospects, condition (financial or otherwise) or results of
operations of OrCAD, OrCAD Japan or OrCAD Overseas, or (ii) used any
corporate or other funds for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures relating to political
activity to government officials or otherwise or established or maintained
any unlawful or
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unrecorded funds which would be in violation of Section 30A of the 1934
Act, were that provision applicable. Neither OrCAD, OrCAD Japan, OrCAD
Overseas, their respective directors and officers nor, to the best
knowledge of OrCAD, their respective employees, other agents or other
persons acting on behalf of OrCAD, OrCAD Japan or OrCAD Overseas, have
accepted or received any unlawful contributions, payments, gifts or
expenditures.
(ac) Brokers. Except for Redwood Partners LLC, pursuant to an arrangement
the financial terms of which have been fully disclosed to MicroSim, no
broker, finder or investment banker is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of OrCAD.
(ad) Pooling of Interests; Tax-Free Reorganization. OrCAD has no reason
to believe that the Merger will not qualify as a pooling of interests for
accounting purposes or as a tax-free reorganization within the meaning of
Section 368(a) of the Code.
(ae) Investment Company Act. Neither OrCAD, OrCAD Japan nor OrCAD
Overseas is an "investment company" within the meaning of the 1940 Act.
(af) Merger Stock. The shares of OrCAD Common Stock to be issued to the
Shareholders and/or holders of options to acquire shares of MicroSim Common
Stock in connection with the Merger have been duly authorized by all
necessary corporate action by OrCAD and, when issued and delivered by OrCAD
pursuant to this Agreement, will be validly issued, fully paid and non-
assessable.
(ag) Fairness Opinion. OrCAD has received the written opinion of Redwood
Partners LLC, financial advisors to OrCAD, dated the date of this
Agreement, to the effect that the terms of the Merger are fair to the
stockholders of OrCAD from a financial point of view.
(ah) Additional Information. OrCAD represents and warrants that the
information with respect to OrCAD contained in the following documents,
which OrCAD has furnished to MicroSim or will furnish if requested by
MicroSim prior to the Closing, is or will be true and correct in all
material respects as of the respective filing dates:
(i) OrCAD's Annual Report on Form 10-KSB for the year ended December
31, 1996;
(ii) OrCAD's Quarterly Report on Form 10-QSB for the quarters ended
March 31, 1997; June 30, 1997; and September 30, 1997;
(iii) OrCAD's Current Reports on Form 8-K filed with the Securities
and Exchange Commission (the "SEC") since September 30, 1997, if any;
and
(iv) The Joint Proxy Statement of OrCAD and MicroSim/Prospectus of
OrCAD.
(ai) No Material Change. As of the date hereof, there has been no
material adverse change in OrCAD's financial condition, results of
operations, business or prospects since December 31, 1996.
(aj) SEC Reports.
(i) OrCAD has timely filed with the SEC all reports (the "SEC
Reports") required to be filed by it under the 1934 Act. In this
regard, all such SEC Reports have been filed in a manner that satisfies
in all material respects the requirements of Rule 144(c)(1) promulgated
under the 1933 Act. All of the SEC Reports filed by OrCAD complied in
all material respects with the requirements of the 1934 Act. None of
the SEC Reports contained, as of the respective dates thereof, any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they
were made. All financial statements contained in the SEC Reports have
been prepared in accordance with GAAP consistently applied throughout
the applicable periods. Each consolidated balance sheet included in the
SEC Reports presents fairly in accordance with GAAP the consolidated
financial position of OrCAD as of the date of such balance sheet, and
each consolidated statement of operations, shareholders' equity and
cash flows presents fairly in accordance with GAAP the consolidated
results of operations, shareholders' equity and cash flow of OrCAD for
the periods then ended.
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(ii) Except for the execution and delivery of this Agreement, no
event has occurred since June 30, 1997 which requires the filing of an
SEC Report that has not heretofore been filed and furnished to
MicroSim.
(ak) Post Merger Dispositions. OrCAD has no intention to sell or
otherwise dispose of any material assets of MicroSim acquired in the
Merger, except for dispositions made in the ordinary course of business, or
to eliminate duplicate facilities or duplicate assets, or transfers
described in Section 368(a)(2)(C) of the Code. Except for the possible
statutory merger of MicroSim with and into OrCAD following the Merger,
OrCAD has no plan or intention to transfer, dispose or cause MicroSim to
issue additional stock that would cause OrCAD to no longer control MicroSim
(within the meaning of Section 368(c) of the Code), except for transfers of
such MicroSim stock to a corporation controlled by OrCAD.
ARTICLE V
Certain Covenants
5.1 Conduct of MicroSim, MicroSim Japan and MicroSim Overseas Prior to the
Closing Date. During the period from the date hereof through the later of (i)
the Closing Date and (ii) the Effective Time, each of MicroSim, MicroSim Japan
and MicroSim Overseas shall conduct its business and affairs as follows
(unless the prior written consent of OrCAD is obtained, which consent will not
be unreasonably withheld, delayed or conditioned):
(a) Operation of Business. Each of MicroSim, MicroSim Japan and MicroSim
Overseas will operate its business only in the usual, regular and ordinary
manner so as to maintain the goodwill it currently enjoys, will make no
material changes in its operations, and, to the extent consistent with such
operation, will use all reasonable commercial efforts to (i) preserve
intact its present business organization, (ii) preserve its present
relationships with its customers, suppliers, distributors, value added
resellers, consultants, joint venturers, strategic partners and others with
which it has business dealings, and (iii) keep in its employ substantially
all of its key personnel. Each of MicroSim, MicroSim Japan and MicroSim
Overseas will promptly notify OrCAD in the event MicroSim, MicroSim Japan
or MicroSim Overseas is advised by any officer or employee that he or she
is contemplating leaving MicroSim, MicroSim Japan or MicroSim Overseas,
respectively, as a result of the Merger or otherwise.
(b) Maintain Properties. Each of MicroSim, MicroSim Japan and MicroSim
Overseas will use all reasonable commercial efforts to maintain all of its
properties in good repair, order and condition, reasonable wear and use
excepted, and will use all reasonable commercial efforts to maintain
insurance upon all of its properties and with respect to the conduct of its
business in such amounts and of such kinds as are in effect on the date of
this Agreement or as the same may be added to by mutual agreement of
MicroSim and OrCAD.
(c) Salaries; Hiring. Other than the grant of compensation increases and
bonuses in the ordinary course and in amounts and quantities consistent
with past practice not exceeding four percent (4%) in any single instance,
neither MicroSim, MicroSim Japan nor MicroSim Overseas will pay any
bonuses, increase the salary, wages, fringe benefits or perquisites of any
employee, officer, director or agent, or hire any managerial or executive
personnel.
(d) Books and Records. Each of MicroSim, MicroSim Japan and MicroSim
Overseas will maintain its books, accounts and records in the usual,
regular and ordinary manner, on a basis consistent with prior years.
(e) Encumbrances. Neither MicroSim, MicroSim Japan nor MicroSim Overseas
will encumber or mortgage any of its property or assets except in the usual
and ordinary course of business or enter into any contract or commitment
which by reason of its size or otherwise is not in the usual and ordinary
course of business, and neither MicroSim, MicroSim Japan nor MicroSim
Overseas will, other than in the usual and ordinary course of its business,
dispose of, sell, or convey or acquire any assets or property. Neither
MicroSim, MicroSim Japan nor MicroSim Overseas shall enter into any
transaction which if effected before the date of this Agreement would
constitute a breach of the representations, warranties or agreements
contained herein.
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(f) Compliance. Each of MicroSim, MicroSim Japan and MicroSim Overseas
will comply with the provisions of all laws, regulations, ordinances, and
judicial decrees applicable to it or the conduct of its business the
failure to comply with which might have a MicroSim Material Adverse Effect.
(g) No Solicitation. MicroSim will not, nor will it permit any of its
officers, directors, employees, agents, or representatives (including,
without limitation, investment bankers, attorneys and accountants),
directly or indirectly to, (i) initiate, contract with, solicit or
encourage any inquiries or proposals by, or (ii) enter into any discussions
or negotiations with, or disclose directly or indirectly any information
concerning its business and properties to, or afford any access to its
properties, books, and records to, any corporation, partnership, person, or
other entity or group in connection with any possible proposal (an
"Acquisition Proposal") regarding a sale of MicroSim's capital stock or a
merger, consolidation, or sale of all or a substantial portion of its
assets, or any similar transaction; provided, however, that notwithstanding
the foregoing, if MicroSim's Board of Directors receives a written
Acquisition Proposal, and in such Board of Director's opinion (after
consultation with MicroSim's legal counsel), the failure to consider such
Acquisition Proposal would cause such Board of Directors to violate its
fiduciary duties under the California Corporations Code, then MicroSim's
Board of Directors may consider and act with respect to such Acquisition
Proposal to the extent required to fulfill its fiduciary duties. MicroSim
will provide written notice to OrCAD immediately if any discussions or
negotiations are sought to be initiated, any inquiry or proposal is made,
or any such information is requested with respect to an Acquisition
Proposal or potential Acquisition Proposal or if any Acquisition Proposal
is received or indicated to be forthcoming.
(h) Actions with Respect to Charter Documents, Capital Stock. Neither
MicroSim, MicroSim Japan nor MicroSim Overseas will (i) amend or otherwise
change its Articles of Incorporation, Bylaws, or other charter documents,
as each such document is in effect as of the date of this Agreement; (ii)
issue or sell, or authorize for issuance or sale, additional shares of any
class of its capital stock or options, warrants or other securities
exercisable for or convertible into such capital stock (except for
issuances of common stock in connection with the exercise of any options
outstanding as of the date of this Agreement); (iii) declare, set aside,
make or pay any dividend or other distribution with respect to its capital
stock or options, warrants or other securities exercisable for or
convertible into such capital stock; (iv) redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock; (v) take any
action to change the number of directors of its Board of Directors or to
change the members of its Board of Directors; or (vi) take any action to
accelerate the vesting of any option to purchase its capital stock.
(i) Access. Each of MicroSim, MicroSim Japan and MicroSim Overseas will
afford OrCAD and its officers, employees, counsel, accountants and other
authorized representatives access to all of the properties, books,
contracts, commitments and records of MicroSim, MicroSim Japan and MicroSim
Overseas, respectively, and will furnish promptly to OrCAD all other
information concerning its business, properties and personnel as OrCAD may
reasonably request, provided that no investigation pursuant to this Section
5.1(i) shall affect or be deemed to modify any representation or warranty
made by MicroSim, or the conditions to the obligations of OrCAD to
consummate the Merger.
(j) Notification of Certain Matters. MicroSim shall give prompt notice to
OrCAD of: (i) the occurrence of, or any communication relating to, a
default or event which, with notice or lapse of time or both would become a
default under any agreement, indenture or instrument material to the
financial condition, properties, business or results of operations of
MicroSim, MicroSim Japan or MicroSim Overseas taken as a whole; (ii) any
notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement; (iii) any material adverse
change in the financial condition, properties, business or results of
operations of MicroSim, MicroSim Japan or MicroSim Overseas taken as a
whole; or the occurrence of any event which, so far as reasonably can be
foreseen at the time of its occurrence, would result in any such change;
and (iv) the occurrence of, or any communication relating to, the
institution or commencement of any suit, action, proceeding or
investigation by or against MicroSim, MicroSim Japan or MicroSim Overseas.
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5.2 Conduct of OrCAD, OrCAD Japan and OrCAD Overseas Prior to the Closing
Date. During the period from the date hereof through the later of (i) the
Closing Date and (ii) the Effective Time, each of OrCAD, OrCAD Japan and OrCAD
Overseas shall conduct its business and affairs as follows:
(a) Operation of Business. Each of OrCAD, OrCAD Japan and OrCAD Overseas
will operate its business only in the usual, regular and ordinary manner so
as to maintain the goodwill it currently enjoys, will make no material
changes in its operations, and, to the extent consistent with such
operation and with reasonable and prudent plans for post-closing-date
operation, will use its all reasonable commercial efforts to (i) preserve
intact its present business organization, (ii) preserve its present
relationships with its customers, suppliers, distributors, value added
resellers, consultants, joint venturers, strategic partners and others with
which it has business dealings, and (iii) keep in its employ substantially
all of its key personnel. Each of OrCAD, OrCAD Japan and OrCAD Overseas
will promptly notify MicroSim in the event OrCAD, OrCAD Japan or OrCAD
Overseas is advised by any officer or employee that he or she is
contemplating leaving OrCAD, OrCAD Japan or OrCAD Overseas, respectively,
as a result of the Merger or otherwise.
(b) Encumbrances. Neither OrCAD, OrCAD Japan nor OrCAD Overseas will
encumber or mortgage any of its property or assets except in the usual and
ordinary course of business or enter into any contract or commitment which
by reason of its size or otherwise is not in the usual and ordinary course
of business, and neither OrCAD, OrCAD Japan nor OrCAD Overseas will, other
than in the usual and ordinary course of its business, dispose of, sell, or
convey or acquire any assets or property. Neither OrCAD, OrCAD Japan nor
OrCAD Overseas shall enter into any transaction which if effected before
the date of this Agreement would constitute a breach of the
representations, warranties or agreements contained herein.
(c) Compliance. Each of OrCAD, OrCAD Japan and OrCAD Overseas will comply
with the provisions of all laws, regulations, ordinances, and judicial
decrees applicable to it or the conduct of its business the failure to
comply with which might materially adversely affect its operations,
prospects, earnings, assets, properties or business.
(d) Information concerning Acquisition Proposals, Material
Transactions. For purposes of this paragraph, an "Acquisition Proposal" is
any possible proposal regarding a sale of OrCAD's capital stock or a
merger, consolidation, or sale of all or a substantial portion of its
assets, or any similar transaction. For purposes of this paragraph, a
"Material Transaction" is one in which OrCAD encumbers or mortgages any of
its property or assets except in the usual and ordinary course of business,
or enters into any contract or commitment which by reason of its size or
otherwise is not in the usual and ordinary course of business, or disposes
of, sells, conveys, or acquires assets or property other than in the usual
and ordinary course of its business. OrCAD will provide written notice
(with relevant particulars being described therein) to MicroSim immediately
if any discussions or negotiations are sought to be initiated, any inquiry
or proposal is made, or any such information is requested with respect to
an Acquisition Proposal or potential Acquisition Proposal or if any
Acquisition Proposal is received or indicated to be forthcoming, or if it
enters into any Material Transaction, or enters into negotiations
concerning a possible Material Transaction which would, if completed before
the Closing, violate the covenants of Section 5.2(a), even if the Material
Transaction is not anticipated to close before the Closing.
(e) Actions with Respect to Charter Documents, Capital Stock. Neither
OrCAD, OrCAD Japan nor OrCAD Overseas will, without the prior written
approval of MicroSim: (i) amend or otherwise change its Restated
Certificate of Incorporation, Restated Bylaws, or other charter documents,
as each such document is in effect on the date hereof; (ii) issue or sell,
or authorize for issuance or sale, additional shares of any class of its
capital stock or options, warrants or other securities exercisable for or
convertible into such capital stock (excepting only options for common
stock granted to employees in the ordinary course and not in excess of
numbers of shares of stock authorized by OrCAD's stockholders for such
options and under existing plans as of the date of this Agreement); (iii)
declare, set aside, make or pay any dividend or other distribution with
respect to its capital stock or options, warrants or other securities
exercisable for or convertible into such capital stock; (iv) redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital
stock; (v) take any action to change the number of directors of its Board
of Directors or to change the members of its Board of Directors (except as
contemplated by this Agreement); (vi) take any action to
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accelerate the vesting of any option to purchase its capital stock; or
(vii) split, combine or reclassify any of its capital stock or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock.
(f) Access. Each of OrCAD, OrCAD Japan and OrCAD Overseas will afford
MicroSim and its officers, employees, counsel, accountants and other
authorized representatives access, to all of the properties, books,
contracts, commitments and records of OrCAD, OrCAD Japan and OrCAD
Overseas, respectively, and will furnish promptly to MicroSim all other
information concerning its business, properties and personnel as MicroSim
may reasonably request, provided that no investigation pursuant to this
Section 5.2(f) shall affect or be deemed to modify any representation or
warranty made by OrCAD, or the conditions to the obligations of MicroSim to
consummate the Merger.
(g) Notification of Certain Matters. OrCAD shall give prompt notice to
MicroSim of: (i) the occurrence of, or any communication relating to, a
default or event which, with notice or lapse of time or both would become a
default under any agreement, indenture or instrument material to the
financial condition, properties, business or results of operations of
OrCAD, OrCAD Japan or OrCAD Overseas, or to which OrCAD, OrCAD Japan or
OrCAD Overseas is a party or is subject; (ii) any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions
contemplated by this Agreement; (iii) any material adverse change in the
financial condition, properties, business, results of operations or
prospects of OrCAD, OrCAD Japan or OrCAD Overseas or the occurrence of any
event which, so far as reasonably can be foreseen at the time of its
occurrence, would result in any such change; and (iv) the occurrence of, or
any communication relating to, the institution or commencement of any suit,
action, proceeding or investigation by or against OrCAD, OrCAD Japan or
OrCAD Overseas.
5.3 Conduct of Merger Sub Prior to the Closing Date. Merger Sub has been
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement, and will engage in no other business activities or operations
during the period from the date hereof through the later of (i) the Closing
Date and (ii) the Effective Time.
ARTICLE VI
Additional Covenants
6.1 MicroSim Shareholder's Meeting. MicroSim shall, as promptly as
practicable, but in no event later than December 30, 1997, take any and all
action necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws (i) to convene a meeting of its shareholders to
consider and vote upon the approval of this Agreement and the Merger, or (ii)
to obtain the written consent of its shareholders thereto. Promptly after
setting a record date, if applicable, for the shareholders entitled to vote at
such meeting and immediately upon any subsequent change thereof, MicroSim
shall send written notice thereof to OrCAD. The Board of Directors of MicroSim
shall, subject to its fiduciary duty to the Shareholders, recommend such
approval and shall take all lawful action and use all reasonable efforts to
solicit such approval. As of the date of this Agreement, the Shareholders
owning the requisite number of Shares necessary to approve the Merger each
have given an irrevocable proxy to OrCAD to vote their MicroSim Shares in
favor of the Merger. A correct, complete and fully-executed copy of such
irrevocable proxy has been delivered to OrCAD concurrent with the execution
and delivery of this Agreement.
6.2 OrCAD and Merger Sub Stockholder's Meeting/Approval. OrCAD shall, as
promptly as practicable, but in no event later than December 30, 1997, take
any and all action necessary in accordance with applicable law, Section 1(c)
of Schedule D to the Bylaws of the NASD, and OrCAD's Restated Certificate of
Incorporation and Restated Bylaws to convene a meeting of its stockholders to
consider and vote upon the approval of the issuance of shares of OrCAD's
Common Stock in connection with the Merger (the "Issuance"). Promptly after
setting a record date, if applicable, for the stockholders entitled to vote at
such meeting and immediately upon
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any subsequent change thereof, OrCAD shall send written notice thereof to
MicroSim. The Board of Directors of OrCAD shall, subject to its fiduciary duty
to OrCAD's stockholders, recommend such approval and shall take all lawful
action and use all reasonable efforts to solicit such approval. OrCAD, as the
sole shareholder of Merger Sub, shall, as promptly as practicable, but in no
event later than December 30, 1997, act by written consent to approve the
Merger and to ratify the execution, delivery and performance of this Agreement
by Merger Sub.
6.3 Registration Statement/Proxy Materials.
(a) MicroSim shall cooperate with OrCAD and OrCAD shall use all
reasonable efforts to promptly prepare and file with the SEC and cause to
be made effective a Registration Statement (on such appropriate form
therefor as OrCAD shall select, including a prospectus which shall be in
such form as permitted in the form of such Registration Statement so
selected and a proxy statement complying with the 1934 Act) under the 1933
Act covering the shares of OrCAD Common Stock to be issued in the Merger.
As used in this Agreement, the term Registration Statement refers to and
means said Registration Statement when it becomes effective under the 1933
Act, and the term "Proxy Statement/Prospectus" refers to and means the
proxy statement included in the Registration Statement when it becomes
effective. The Registration Statement will be effective on the date on
which MicroSim mails to the Shareholders the Proxy Statement/Prospectus
with respect to MicroSim's Shareholders' meeting, on the date such meeting
is held, on the Closing Date and at the Effective Time. OrCAD shall also
take any action required to be taken under any and all state blue sky or
securities laws, statutes, codes, ordinances, rules and regulations in
connection with the issuance of shares of OrCAD Common Stock contemplated
hereunder.
(b) OrCAD and MicroSim will use all reasonable efforts to have the
Registration Statement, or cause it to be, declared effective as promptly
as practicable, and also will take any other action required to be taken
under federal or state securities laws, and will use all reasonable efforts
to cause the Proxy Statement/Prospectus to be mailed to stockholders of
OrCAD and the Shareholders at the earliest practicable date or dates. If at
any time prior to the Effective Time any event relating to or affecting
MicroSim or OrCAD shall occur as a result of which it is necessary, in the
opinion of counsel for OrCAD, to supplement or amend the Registration
Statement in order to make such document not misleading in light of the
circumstances existing at the time approvals of the shareholders of
MicroSim and OrCAD, respectively, are sought, MicroSim and OrCAD will
forthwith prepare and file with the SEC an amendment or supplement to the
Registration Statement so that each document, as so supplemented or
amended, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances existing at such time, not
misleading. With respect to matters requiring supplement or amendment to
the Registration Statement, each party undertakes to inform the other party
and its counsel immediately of any such event that becomes known to it.
6.4 Affiliates of OrCAD and MicroSim.
(a) Section 4.1(d) of the MicroSim Disclosure Statement sets forth the
names of all persons or entities who or which may be deemed to be
"affiliates" of MicroSim for purposes of Rule 145 under the 1933 Act (the
"Rule 145 Affiliates") or who or which may otherwise be deemed to be
Affiliates of MicroSim. Each such Rule 145 Affiliate has delivered to OrCAD
a written agreement (the "Affiliates Agreement") that such Rule 145
Affiliate will not sell, pledge, transfer or otherwise dispose of any share
of OrCAD Common Stock issued to such Rule 145 Affiliate pursuant to the
Merger, except pursuant to an effective registration statement or in
compliance with Rule 145 or an exemption from the registration requirements
of the 1933 Act. OrCAD agrees that, at all times during which any Rule 145
Affiliate is subject to the resale restrictions of Rule 144 and/or Rule
145, OrCAD shall timely file all SEC Reports required to be filed with the
SEC under the 1933 Act and the 1934 Act including without limitation in a
manner that satisfies the requirements of Rule 144(c)(1).
(b) Each of OrCAD and MicroSim shall use all reasonable efforts to cause
their respective Affiliates not to take any action that would impair
OrCAD's ability to account for the Merger as a pooling of interests.
(c) In accordance with the foregoing, each Rule 145 Affiliate has also
agreed in his or her Affiliates Agreement that such Rule 145 Affiliate will
not, after the earlier of (i) the mailing of the Proxy
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Statement/Prospectus or (ii) the thirtieth (30th) day prior to the
Effective Time, sell or in any other way reduce such Rule 145 Affiliate's
risk relative to any shares of OrCAD common stock received in the Merger
(within the meaning of the SEC's Codification of Financial Reporting
Policies (S) 201.01, reprinted in 7 Fed. Sec. L. Re. (CCH) (S) 72,951),
until such time as financial results (including combined sales and net
income) covering at least 30 days of post-Merger operations have been
published (which financial results OrCAD agrees to publish in accordance
with past practice as part of its applicable Form 10-QSB or 10-KSB filing
covering such period), except as permitted by Staff Accounting Bulletin No.
76 issued by the SEC.
6.5 Registration and Quotation of OrCAD Common Stock.
(a) OrCAD will use all reasonable efforts to register the shares of OrCAD
Common Stock to be issued pursuant to this Agreement under the applicable
provisions of the 1933 Act.
(b) OrCAD will use all reasonable efforts to cause the shares of OrCAD
Common Stock to be issued pursuant to this Agreement to be quoted for
trading on the Nasdaq/NMS.
6.6 Tax Treatment of Merger. Each party agrees to report the Merger on all
tax returns and other filings as a tax-free reorganization under Section
368(a) of the Code except where, in the opinion of tax counsel to such party,
there is not "substantial authority," as defined in Section 6662 of the Code,
to support such a position.
6.7 Reasonable Efforts. Subject to the terms and conditions hereof, each
party to this Agreement agrees to fully cooperate with the other party and its
counsel, accountants and representatives in connection with any steps required
to be taken as part of such party's obligations under this Agreement. Each
party to this Agreement agrees that it will use all reasonable commercial
efforts to cause all conditions to its obligations under this Agreement to be
satisfied as promptly as possible, and will not knowingly undertake a course
of action inconsistent with this Agreement or which would make any of its
representations, warranties, agreements or covenants in this Agreement untrue
in any material respect or any conditions precedent to its obligations under
this Agreement unable to be satisfied at or prior to the Closing.
6.8 Filings; Other Action. Subject to the terms and conditions hereof, OrCAD
and MicroSim shall (a) cooperate with one another in (i) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Time from, governmental or regulatory authorities of
the United States, the several states, foreign jurisdictions and third parties
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) timely make all
such filings and timely seek all such consents, approvals, permits or
authorizations; and (b) use all reasonable efforts to take, or cause to be
taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and/or directors of MicroSim
and OrCAD shall take all such necessary action.
6.9 Tax-Free Reorganization. From and after the Effective Time, neither
OrCAD nor MicroSim shall take or permit to be taken any action which will
cause the Merger not to constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code. Without limiting the generality of the
foregoing, from and after the Effective Time OrCAD shall continue the historic
business of MicroSim or use a significant portion of MicroSim's historic
business assets in a business.
6.10 Further Action. Subject to the fulfillment or waiver, at or before the
Effective Time, of each of the conditions of performance set forth herein,
each party hereto shall perform such further acts and execute such documents
as may be reasonably required to effectuate the Merger.
6.11 Accounting Basis. Neither OrCAD nor MicroSim, nor any of their
respective officers or directors shall take or permit to be taken any action
from and after the date of this Agreement which would prevent the transactions
contemplated by this Agreement from being treated by OrCAD as a "pooling of
interests" in accordance with GAAP and the applicable rules and regulations
promulgated by the SEC.
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6.12 Existing MicroSim Indemnification Obligations. OrCAD hereby agrees that
all rights to indemnification by MicroSim now existing in favor of each
present and former director, officer, employee, consultant or agent of
MicroSim (collectively, the "MicroSim Indemnified Parties") as provided in
MicroSim's Articles of Incorporation, Bylaws and indemnity agreements as of
the date of this Agreement or as otherwise provided by law shall survive the
Merger and shall continue in full force and effect.
ARTICLE VII
Conditions
7.1 Conditions to Obligations of OrCAD and Merger Sub. The obligations of
OrCAD and Merger Sub to effect the Merger are also subject to the satisfaction
or waiver by OrCAD at or prior to the Effective Time of the following
conditions:
(a) MicroSim Shareholder Approval. This Agreement, the Merger and the
other transactions contemplated hereby shall have been approved and adopted
by the requisite vote of the Shareholders in accordance with the California
Corporations Code and MicroSim's Articles of Incorporation and Bylaws.
OrCAD shall have received a certificate signed on behalf of MicroSim by the
Secretary of MicroSim to such effect.
(b) Representations and Warranties. The representations and warranties of
MicroSim set forth in this Agreement shall be true and correct as of the
Closing Date as though made on and as of the Closing Date (except to the
extent such representations and warranties speak as of an earlier date).
OrCAD shall have received a certificate signed on behalf of MicroSim by the
President and the Chief Financial Officer of MicroSim to such effect.
(c) Performance of Obligations by MicroSim. MicroSim shall have performed
all obligations required to be performed by it under this Agreement at or
prior to the Closing Date, and OrCAD shall have received a certificate
signed on behalf of MicroSim by the President and the Chief Financial
Officer of MicroSim to such effect.
(d) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger or
any of the other transactions contemplated by this Agreement (an "Order")
shall be in effect. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by any
governmental entity that prohibits, restricts or makes illegal consummation
of the Merger.
(e) Proceedings and Litigation. On the Closing Date, no action or
proceeding shall be threatened, instituted or pending by or before any
court or any governmental or other regulatory or administrative body
requesting or looking toward an order, judgment or decree that (i)
questions the validity of or seeks to restrain or prohibit or recover
damages in respect of the consummation of the transactions contemplated
hereby; (ii) seeks to compel OrCAD to hold separate all or a material
portion of MicroSim's business or assets as a result of the transactions
contemplated hereby; (iii) seeks to revoke or suspend any license, permit,
order or approval by reason of the consummation of the transactions
contemplated hereby; or (iv) in the reasonable judgment of OrCAD, would
have a material adverse effect on the business or financial condition of
MicroSim or OrCAD, taken as a whole.
(f) Opinion Letter of Counsel for MicroSim. OrCAD shall have received an
opinion letter of Gibson, Dunn and Crutcher LLP, counsel for MicroSim,
dated the Closing Date, in form and substance reasonably satisfactory to
OrCAD and its counsel.
(g) Dissenting Shareholders. No more than six percent (6%) of the issued
and outstanding shares of MicroSim capital stock are "dissenting shares"
within the definition of Section 1300 of the California Corporations Code.
(h) No Material Adverse Change. Since December 31, 1996, there shall have
been no MicroSim Material Adverse Change nor shall there exist any
condition that, to the best knowledge of MicroSim, could
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reasonably be expected to result in such a MicroSim Material Adverse
Change, and OrCAD shall have received a certificate signed on behalf of
MicroSim by the President and the Chief Financial Officer of MicroSim to
such effect.
(i) Filings and Consents. On the Closing Date, other than the filing of
Articles of Merger in California in accordance with Section 1108(d) of the
California Corporations Code, all filings required to be made prior to the
Effective Time by MicroSim with, and all licenses, certifications,
consents, approvals and authorizations required to be obtained prior to the
Effective Time by MicroSim from, governmental authorities and other third
parties in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby shall have been
made or obtained, as the case may be, either without modification of the
underlying obligations or upon conditions satisfactory to OrCAD, and shall
be in full force and effect.
(j) Proceedings Satisfactory to Counsel. All proceedings taken by
MicroSim and all instruments executed and delivered by MicroSim in
connection with the Merger at or prior to the Closing Date shall be
reasonably satisfactory in form and substance to counsel for OrCAD.
(k)
THIS SECTION INTENTIONALLY LEFT BLANK.
(l) Employment Agreements. There shall have been delivered to OrCAD
Employment Agreements, substantially in the forms attached hereto as
Exhibit 7.1(1)a and 7.1(l)b, executed by each of Blume and Michael Wimbrow
("Wimbrow"), respectively.
(m) OrCAD Stockholder Approval. This Agreement, the Merger, the Issuance
and the other transactions contemplated hereby shall have been approved and
adopted by the requisite vote of OrCAD's stockholders in accordance with
the Delaware Corporation Law and OrCAD's Restated Certificate of
Incorporation and Restated Bylaws.
(n) Pooling Opinion. On the date of this Agreement, OrCAD shall have
received an opinion letter of KPMG Peat Marwick LLP, independent certified
public accountants, in form and substance satisfactory to OrCAD and its
counsel, that the Merger will qualify to be accounted for as a "pooling of
interests", which opinion shall have been restated and delivered as of the
Closing Date.
(o) Fairness Opinion. On the date of this Agreement, OrCAD shall have
received an opinion letter of Redwood Partners LLC, financial advisor to
OrCAD, that the terms of the Merger are fair to OrCAD's stockholders from a
financial point of view, which opinion shall have been restated and
delivered immediately prior to (i) the date on which the Proxy
Statement/Prospectus is mailed to OrCAD's stockholders and (ii) the Closing
Date.
(p) Registration Statement and Securities Laws Authorizations. The
Registration Statement shall have been declared effective and shall be
effective at the Effective Time, and no stop Order suspending effectiveness
shall have been issued, no proceeding by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary authorizations under state securities laws or the 1933 Act or
1934 Act relating to the issuance or trading of the shares of OrCAD Common
Stock to be issued in connection with the Merger shall have been received.
(q) No Encumbrances. OrCAD shall have received evidence satisfactory to
it that the MicroSim Shares to be surrendered at the Closing to OrCAD for
exchange in connection with the Merger are free and clear of all liens,
claims and encumbrances and all right, title and interest of others.
(r) Escrow Agreement. OrCAD, the Shareholder Representatives and the
escrow agent shall have entered into an Escrow Agreement (as hereinafter
defined) in form and substance reasonably satisfactory to OrCAD, which
Escrow Agreement shall become effective upon the Effective Time.
(s) Bank Documents. MicroSim shall have delivered to OrCAD copies of all
records, including all signatures or authorization cards, pertaining to
MicroSim's safe deposit boxes and bank accounts.
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(t) Affiliates Agreements. There shall have been delivered to OrCAD an
Affiliates Agreement executed by each of the persons listed as "affiliates"
in Section 4.1(d) of the MicroSim Disclosure Schedule.
(u) Resignation of MicroSim Directors. Each of the members of MicroSim's
Board of Directors shall have executed a written resignation, and OrCAD
shall receive a copy of such resignations.
(v) Resignation of MicroSim Officers. Each of the officers of MicroSim
shall have executed a written resignation, and OrCAD shall receive a copy
of such resignations.
7.2 Conditions to Obligations of MicroSim. The obligations of MicroSim to
effect the Merger are also subject to the satisfaction or waiver by MicroSim
at or prior to the Effective Time of the following conditions:
(a) MicroSim Shareholder Approval. This Agreement, the Merger and the
other transactions contemplated hereby shall have been approved and adopted
by the requisite vote of the Shareholders in accordance with the California
Corporations Code and MicroSim's Articles of Incorporation and Bylaws.
(b) Representations and Warranties. The representations and warranties of
OrCAD set forth in this Agreement shall be true and correct in all material
respects as of the Closing Date as though made on and as of the Closing
Date (except to the extent such representations and warranties speak as of
an earlier date). MicroSim shall have received a certificate signed on
behalf of OrCAD by the Chief Executive Officer and the Chief Financial
Officer of OrCAD to such effect.
(c) Performance of Obligations by OrCAD. OrCAD shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and MicroSim shall have
received a certificate signed on behalf of OrCAD by the Chief Executive
Officer and the Chief Financial Officer of OrCAD to such effect.
(d) No Injunctions or Restraints; Illegality. No Order shall be in
effect. No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
entity that prohibits, restricts or makes illegal consummation of the
Merger.
(e) Proceedings and Litigation. On the Closing Date, no action or
proceeding shall be threatened, instituted or pending by or before any
court or any governmental or other regulatory or administrative body
requesting or looking toward an order, judgment or decree that (i)
questions the validity of or seeks to restrain or prohibit or recover
damages in respect of the consummation of the transactions contemplated
hereby; (ii) seeks to compel OrCAD to hold separate all or a material
portion of MicroSim's business or assets as a result of the transactions
contemplated hereby; (iii) seeks to revoke or suspend any license, permit,
order or approval by reason of the consummation of the transactions
contemplated hereby, or (iv) in the reasonable judgment of MicroSim, would
have a material adverse effect on the business or financial condition of
OrCAD.
(f) Opinion Letter of Counsel for OrCAD. MicroSim shall have received an
opinion letter of Ater Wynne Hewitt Dodson & Skerritt, LLP, counsel for
OrCAD, dated the Closing Date, in form and substance reasonably
satisfactory to MicroSim and its counsel.
(g) Dissenting Shareholders. No more than six percent (6%) of the issued
and outstanding shares of MicroSim capital stock are "dissenting shares"
within the definition of Section 1300 of the California Corporations Code.
(h) Escrow Agreement. OrCAD, the Shareholder Representatives and the
escrow agent shall have entered into an escrow Agreement in form and
substance reasonably satisfactory to MicroSim, which Escrow Agreement shall
become effective upon the Effective Time.
(i) No Material Adverse Change. Since June 30, 1997, there shall have
been no material adverse change in the operations, earnings, assets,
properties, business, or condition (financial or otherwise) of OrCAD and
its subsidiaries, taken as a whole; nor shall there exist any condition
that, to the best knowledge of OrCAD, could reasonably be expected to
result in such a material adverse change, and MicroSim shall
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have received a certificate signed on behalf of OrCAD by the Chief
Executive Officer and the Chief Financial Officer of OrCAD to such effect.
(j) Filings and Consents. On the Closing Date, other than the filing of a
Articles of Merger in California and Oregon, all filings required to be
made prior to the Effective Time by OrCAD with, and all licenses,
certifications, consents, approvals and authorizations required to be
obtained prior to the Effective Time by OrCAD from, governmental
authorities and other third parties in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby shall have been made or obtained, as the case may be,
either without modification of the underlying obligations or upon
conditions satisfactory to MicroSim, and shall be in full force and effect.
(k) Proceedings Satisfactory to Counsel. All proceedings taken by OrCAD
and all instruments executed and delivered by OrCAD in connection with the
Merger at or prior to the Closing Date shall be reasonably satisfactory in
form and substance to counsel for MicroSim.
(l) Employment Agreements. There shall have been delivered to OrCAD
Employment Agreements, substantially in the form attached hereto as Exhibit
7.1(l)a and 7.1(l)b, executed by OrCAD and each of Blume and Wimbrow,
respectively.
(m) OrCAD Stockholder Approval. This Agreement, the Merger, the Issuance
and the other transactions contemplated hereby shall have been approved and
adopted by the requisite vote of OrCAD's stockholders in accordance with
the Delaware Corporation Law and OrCAD's Restated Certificate of
Incorporation and Restated Bylaws. MicroSim shall have received a
certificate signed on behalf of OrCAD by the Secretary of OrCAD to such
effect.
(n) Pooling Opinion. On the date of this Agreement, MicroSim shall have
received an opinion letter of Ernst & Young, independent certified public
accountants, in form and substance satisfactory to MicroSim and its
counsel, that, from MicroSim's perspective, the Merger will qualify to be
accounted for as a "pooling of interests", based upon MicroSim's operations
and history, which opinion shall have been restated and delivered as of the
Closing Date.
(o) Registration Statement and Securities Laws Authorizations. The
Registration Statement shall have been declared effective and shall be
effective at the Effective Time, and no stop Order suspending effectiveness
shall have been issued, no proceeding by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary authorizations from Nasdaq/NMS or under state securities laws or
the 1933 Act or 1934 Act relating to the issuance or trading of the shares
of OrCAD common stock (including without limitation those to be issued in
connection with the Merger) shall have been received.
(p) Tax Opinion. MicroSim shall have received an opinion of Ater Wynne
Hewitt Dodson & Skerritt, LLP, dated the Closing Date, in form and
substance reasonably satisfactory to MicroSim to the effect that (i) the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (ii) each of OrCAD,
Merger Sub and MicroSim will be a party to the reorganization within the
meaning of Section 368(b) of the Code; and (iii) no gain or loss will be
recognized by the Shareholders as a result of the Merger with respect to
the MicroSim Shares converted into shares of OrCAD Common Stock or as a
result of the return of the Escrowed Merger Consideration to OrCAD. In
rendering such opinions, Ater Wynne Hewitt Dodson & Skerritt, LLP may
receive and rely upon representations contained in certificates of OrCAD,
MicroSim, the Shareholders and others.
(q) Affiliates Agreements. There shall have been delivered to OrCAD an
Affiliates Agreement executed by each of the persons listed as "affiliates"
in Section 4.1(d) of the MicroSim Disclosure Schedule.
ARTICLE VIII
Termination
8.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the shareholders of the Constituent
Corporations, by the mutual consent of MicroSim and OrCAD.
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8.2 Termination by Either MicroSim or OrCAD. This Agreement may be
terminated and the Merger abandoned by either MicroSim or OrCAD at any time
prior to the Effective Time, before or after the approval of this Agreement by
the shareholders of the Constituent Corporations if: (a) the Merger shall not
have become effective by January 31, 1998, or such later date as shall have
been approved by the Boards of Directors of MicroSim and OrCAD, provided that
the terminating party shall not have materially breached any of its
representations, warranties, agreements, obligations or covenants hereunder in
a manner that shall have materially contributed to the failure to consummate
the Merger by such date; (b) a final and nonappealable Order shall be in
effect; or (c) any statute, rule or regulation shall have been enacted or
promulgated by any government or governmental agency that makes consummation
of the Merger illegal.
8.3 Termination by OrCAD. This Agreement may be terminated by OrCAD, and the
Merger abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the shareholders and/or directors of the
Constituent Corporations, if: (a) any of the representations or warranties
made by MicroSim in this Agreement shall not be correct or accurate in all
material respects when made; (b) MicroSim shall have failed in any material
respect to comply with or perform any of the covenants, conditions or
agreements contained in this Agreement to be complied with or performed by
MicroSim at or prior to the Closing; or (c) the transactions contemplated by
this Agreement, including without limitation the Merger, do not qualify to be
accounted for as a "pooling of interests".
8.4 Termination by MicroSim. This Agreement may be terminated by MicroSim,
and the Merger abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the shareholders and/or directors of
the Constituent Corporations, if (a) any of the representations and warranties
made by OrCAD in this Agreement shall not be correct or accurate in all
material respects when made; (b) OrCAD shall have failed in any material
respect to comply with or perform any of the covenants, conditions or
agreements contained in this Agreement to be complied with or performed by
OrCAD at or prior to the Closing; (c) the transactions contemplated by this
Agreement, including without limitation the Merger, do not qualify to be
accounted for as a "pooling of interests"; or (d) if MicroSim's Board of
Directors receives a written Acquisition Proposal (as that term is defined in
Section 5.1(g)) and such Acquisition Proposal is accepted by MicroSim's Board
of Directors, and MicroSim pays OrCAD One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) in consideration of the breaking off of the
transactions contemplated hereby.
8.5 Notice of Termination. In the event of any termination pursuant to this
Article VIII (other than pursuant to Section 8.1 hereof), written notice
setting forth the reasons therefor shall forthwith be given by the terminating
party to the other party hereto.
8.6 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the Merger pursuant to this Article VIII,
except as provided herein, no party hereto (or any of its directors or
officers) shall have any liability or further obligation to any other party to
this Agreement (other than under Sections 9.5, 10.1, 10.2, 10.3 and 10.16
which shall survive termination), except that nothing herein will relieve any
party from liability for any breach of this Agreement resulting from a knowing
or willful breach of a representation, warranty or covenant contained herein.
ARTICLE IX
Rights to Escrow Fund
9.1 Agreement for Indemnification.
(a) As used in this Article IX:
(i) "Damages" means claims, damages, losses, liabilities, judgments,
settlements, costs and expenses, including, without limitation, all
reasonable fees and disbursements of counsel incident to the
investigation or defense of any claim or proceeding or threatened claim
or proceeding;
(ii) "Indemnified Party" means OrCAD and Merger Sub and their
respective directors, officers, employees, agents, financial advisors,
counsel and other representatives; and
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(iii) "Shareholder Representatives" means Blume, Bruce A. Warren, and
Louis A. Delmonico in their role as representatives of the Shareholders
in administering the Escrow Fund (as hereinafter defined) established
under this Agreement and to be administered under this Agreement and
under the Escrow Agreement to be executed at or before the Closing (the
"Escrow Agreement"), or in the event of resignation, death or
incapacity of a Shareholder Representative, such replacement for the
Shareholder Representative as may be designated by a majority in
interest of the Shareholders; provided, however, that such substitute
Shareholder Representative shall be bound to the same duties and
commitments as the original Shareholder Representatives.
(b) From, out of, and to the extent of the resources constituting the
Escrow Fund, the Indemnified Party shall be held harmless from, against and
in respect of, any and all Damages incurred by the Indemnified Party
arising from or in connection with (i) any inaccuracy or other breach of
any representation or warranty made by MicroSim in Article IV of this
Agreement and not disclosed on the MicroSim Disclosure Schedule, or (ii)
any failure of MicroSim to perform any agreement or covenant required by
this Agreement to be performed by it. Each such inaccuracy, breach, or
failure as referred to in this Section 9.1(b) shall be deemed collectively
"Claims".
(c) The representations and warranties set forth in Article IV shall, for
purposes of this Article IX, be deemed to have survived the Effective Time
notwithstanding any contrary terms of this Agreement, and whenever such
representations and warranties are referred to in this Article IX, the text
of the same as set forth in Article IV shall be deemed to be set forth in
its entirety herein, and the same are hereby incorporated herein by such
references. Each such representation and warranty shall be deemed to have
been relied upon by the party to which made, notwithstanding any
investigation or inspection conducted, notice given or knowledge acquired
by or on behalf of such party, and shall not be affected in any respect by
any such investigation, inspection, notice or knowledge.
(d) OrCAD shall deposit the Escrowed Merger Consideration in escrow under
the Escrow Agreement in one certificate for 100% of the Escrowed Merger
Consideration (the "Escrow Fund"). Until such Escrow Fund is released under
the terms of the Escrow Agreement, the Shareholders shall be entitled to
vote such shares and receive all dividends and distributions with respect
to such shares according to their Pro Rata Share. Upon the expiration of
the indemnity obligations in accordance with the provisions of Section 9.2,
and subject to the terms of the Escrow Agreement, all of the OrCAD common
stock in the Escrow Fund shall be transferred to the Shareholders according
to their Pro Rata Share of such OrCAD common stock, except for any OrCAD
common stock which may be necessary under the remainder of this Section
9.1(d). Subject to the remainder of this Section 9.1(d), OrCAD shall
execute and deliver any instructions to the Escrow Agent (as defined in the
Escrow Agreement) required by the Escrow Agent to effect such transfer. If,
on the Expiration Date (as hereinafter defined), there exists any Claim
which was timely asserted by the Indemnified Party but which is not then
finally resolved and discharged, there shall remain in the Escrow out of
the Escrow Fund an aggregate number of Shares of OrCAD common stock with an
aggregate fair market value (determined as of the Closing Date) equal to
the reasonable estimate (determined in accordance with Section 9.3) of the
amount of Damages asserted to be caused by such Claim. Upon the final
resolution and discharge of any such Claim, OrCAD shall execute and deliver
any instructions to the Escrow Agent required by the Escrow Agent to effect
the transfer of any shares of OrCAD common stock remaining in the Escrow
Fund to the Shareholders according to their Pro Rata Share thereof.
9.2 Limitations of Claims Against Escrow Fund. The indemnity obligations
under Section 9.1(b) of this Agreement shall expire on the first anniversary
of the Effective Time (the "Expiration Date"); provided, however, that the
indemnity obligations for Claims timely asserted by the Indemnified Party in
the manner provided in this Agreement shall continue until such Claims are
finally resolved and discharged. MicroSim shall have no indemnity obligation
under Section 9.1(b) of this Agreement for or with respect to any Damages
asserted to arise from or be caused by a Claim unless and until the aggregate
of such Damages exceeds Three Hundred Thousand and 00/100 Dollars
($300,000.00) (the "Deductible"), and then MicroSim's indemnity obligation
shall be operative only with respect to the amount of such Damages that is in
excess of the Deductible. Any Claim for Damages that is less than Five
Thousand and 00/100 Dollars ($5,000.00) will not be counted toward the
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Deductible. Except with respect to Section 8.4(d), MicroSim's liability under
this Agreement--whether pursuant to its indemnity obligations under Section
9.1(b) or otherwise--will not exceed (in the aggregate) the value of the
Escrowed Merger Consideration as valued herein.
9.3 Notice of Claim. The Indemnified Party shall promptly notify the
Shareholder Representatives in writing of any Claim asserted against or
imposed upon or incurred by it that might give rise to any indemnity
obligation hereunder (a "Notice of Claim"), specifying the basis and, if
possible, a reasonable estimate of the amount (as determined in good faith by
the Board of Directors of OrCAD) of Damages sought by such Indemnified Party
on account thereof and in reasonable detail such information as the
Indemnified Party may have with respect to the matter that is the subject of
the Notice of Claim (including copies of any summons, complaint or other
pleading that may have been served on it and any written claim, demand,
invoice, billing or other document evidencing or asserting the same). The
Indemnified Party shall not be entitled to give a Notice of Claim after the
Expiration Date. The date of a Notice of Claim shall mean (a) the date of the
postmark on the registered or certified mail containing the Notice of Claim,
or (b) if the Notice of Claim is transmitted by courier, the date of its
delivery to the courier by the Indemnified Party or (c) if the Notice of Claim
is personally delivered, the date of such personal delivery.
9.4 Defense and Settlement of Claims. The Shareholder Representatives shall
have the right (without prejudice to the right of the Indemnified Party to
participate at its own expense through counsel of its own choosing) to defend
against any Claim that is the subject of a Notice of Claim and to pay the
expenses thereof (including the expenses of counsel of their own choosing),
and to control such defense if they provide written notice of their intention
to do so within 15 business days of receipt of the Notice of Claim. The
Indemnified Party shall cooperate fully in the defense of such Claim and shall
make available to the Shareholder Representatives or their counsel all
pertinent information under its control relating thereto. The Indemnified
Party shall have the right to elect to settle any such Claim; provided,
however, there shall be no indemnification obligation with respect to any
monetary payment to any third party required by such settlement unless a
majority of the Shareholder Representatives shall have consented in writing
thereto, which consent shall not be unreasonably withheld.
9.5 Jurisdiction. OrCAD, MicroSim and the Shareholder Representatives hereby
irrevocably submit to the personal jurisdiction of the state courts of the
State of California and to the personal jurisdiction of the United States
District Court in San Francisco, California, and all courts from which an
appeal may be taken, solely for the purpose of any suit, action, or other
proceeding arising out of or based upon this Agreement, and hereby waive to
the extent not prohibited by law, and agree not to assert, by way of motion,
as a defense, or otherwise, in any such proceeding, any claim that it or they
are not subject personally to the jurisdiction of the above-named courts for
such proceedings. Process in any suit, action or other proceeding referred to
in this Section 9.5 may be served on any party through the procedures
established for notice under Section 10.12 of this Agreement.
ARTICLE X
Miscellaneous
10.1 Payment of Expenses. Whether or not the Merger shall be consummated,
except as otherwise provided under Section 8.6 hereof, each party hereto shall
pay its own expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the Merger. Each of the parties hereto
shall act in a prudently diligent manner to minimize the legal, accounting and
other fees and expenses incurred by such party incident to the preparation
for, entrance into and carrying out of its obligations under this Agreement
and in connection with the Merger.
10.2 Public Announcements. OrCAD and MicroSim will agree upon the timing and
content of the initial press release to be issued describing the transactions
contemplated by this Agreement, and neither party will make any public
announcement thereof prior to reaching such agreement unless such party
determines in its sole
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discretion that it is either required or appropriate to do so under applicable
laws or regulations (in which event, however, the party so required to make
such announcement will endeavor in advance to inform the other party regarding
the reason and content thereof). To the extent reasonably requested by either
party, each party will hereafter consult with and provide reasonable
cooperation to the other in connection with the issuance of further press
releases or other public announcements, statements or documents describing the
transactions or relationships contemplated by this Agreement.
10.3 Survival. The representations, warranties and agreements of the parties
contained in Article III, Article IV, Article VI, Article IX and Sections 1.4,
2.5, 10.1, 10.2 and 10.16 shall survive the consummation of the Merger. The
agreements of the parties contained in Sections 6.4, 6.9, 6.11, 6.12, 8.6,
9.5, 10.1, 10.2 and 10.16 shall survive the termination of this Agreement. All
other representations, warranties, agreements and covenants in this Agreement
shall be deemed to be conditions of the Merger, as provided herein, and shall
not survive the consummation of the Merger.
10.4 Modification or Amendment. At any time (before or after approval hereof
by the shareholders of the Constituent Corporations) prior to the Effective
Time, the parties hereto may, by written agreement, make any modification or
amendment of this Agreement approved by their respective Boards of Directors,
provided such modification or amendment does not reduce the total
consideration to be paid in the Merger. This Agreement shall not be modified
or amended except pursuant to an instrument in writing executed and delivered
on behalf of each of the parties hereto.
10.5 Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party
and may be waived by such party in whole or in part to the extent permitted by
applicable law. No waiver of one such condition shall constitute a waiver of
any other such condition.
10.6 Certification of Shareholder Vote and Dissenters. Promptly following
the shareholder meeting or obtainment of the written consent of the
Shareholders referred to in Section 6.1, but in any event prior to the Merger
Date, MicroSim shall deliver to OrCAD a certificate of its Secretary setting
forth (i) the number of shares of its capital stock outstanding and entitled
to vote, the number of shares of its stock voted in favor of or consenting to
and the number of shares voted against adoption and approval of this
Agreement, (ii) the names of all of its shareholders not voting in favor of
this Agreement who filed with MicroSim written objection to the Merger before
the taking of the vote on the Agreement and (iii) a definitive list of common
shareholders and the number of shares of such shareholders to be tendered to
OrCAD in the Merger.
10.7 Certification of Stockholder Vote. Promptly following the stockholder
meeting referred to in Section 6.2, but in any event prior to the Merger Date,
OrCAD shall deliver to MicroSim a certificate of its Secretary setting forth
(i) the number of shares of its capital stock outstanding and entitled to
vote, the number of shares of its stock voted in favor of or consenting to and
the number of shares voted against adoption and approval of this Agreement.
10.8 Counterparts. For the convenience of the parties hereto, this Agreement
may be executed in any number of counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts shall together
constitute the same agreement.
10.9 Attorneys' Fees. If any action, suit or proceeding is filed by any
party to enforce this Agreement or otherwise with respect to the subject
matter of this Agreement, the prevailing party or parties shall be entitled to
recover its reasonable attorneys' fees and disbursements incurred in
connection with such action, suit or proceeding as fixed by the trial court,
and if any appeal is taken from the decision of the trial court, its
reasonable attorneys' fees and disbursements as fixed by the appellate court.
10.10 Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any right, power or remedy by any party shall not preclude the
simultaneous or later exercise of any other such right, power or remedy by
such party.
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10.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
its conflicts of laws principles.
10.12 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and shall be
deemed to have been duly given to any party when delivered personally (by
courier service or otherwise), or five (5) days after being sent by registered
or certified mail, return receipt requested, postage prepaid as follows:
If to OrCAD:
OrCAD, Inc.
9300 S.W. Nimbus Avenue
Beaverton, Oregon 97008
Attention: Michael F. Bosworth, President
With a copy to:
Ater Wynne Hewitt Dodson & Skerritt, LLP
Suite 1800
222 S.W. Columbia
Portland, Oregon 97201-6618
Attention: William C. Campbell, Esquire
If to MicroSim:
MicroSim Corporation
16275 Laguna Canyon Road
Irvine, California 92618
Attention: Wolfram Blume, President
With a copy to:
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Attention: Mark W. Shurtleff, Esquire
If to the Shareholder Representatives:
Wolfram H. Blume
Bruce A. Warren
Louis A. Delmonico
c/o MicroSim Corporation
16275 Laguna Canyon Road
Irvine, California 92618
10.13 Entire Agreement. This Agreement, including any and all schedules and
exhibits hereto which are incorporated herein by this reference, (a)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (b) shall not be assignable by operation of law or
otherwise.
10.14 Captions. The Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
10.15 Severability. Should a court or other body of competent jurisdiction
determine that any provision of this Agreement is excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and all other provisions of this Agreement shall be deemed valid and
enforceable to the maximum extent possible.
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10.16 Confidentiality. On and at all times after the execution of this
Agreement and until the consummation of the transactions contemplated hereby,
the parties agree to continue to be bound by the provisions of the Letter
Agreement dated as of June 10, 1997 by and between MicroSim and OrCAD (the
"Letter Agreement") with respect to information obtained by or provided to
either party in connection with the transactions contemplated by this
Agreement. However, each party may disclose information to its employees and
financial, accounting and legal advisors on a strict need-to-know-basis and
under obligations of confidentiality similar to those contained in the Letter
Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement intending it to be effective as of the date first hereinabove
written.
OrCAD, Inc.
/s/ Michael F. Bosworth
By: _________________________________
Michael F. Bosworth, President
OCA Merger Corporation
/s/ Michael F. Bosworth
By: _________________________________
Michael F. Bosworth, President
MicroSim Corporation
/s/ Wolfram H. Blume
By: _________________________________
Wolfram H. Blume, President
For Purposes of Article IX Hereof
Only
/s/ Wolfram H. Blume
_____________________________________
Wolfram H. Blume, in his capacity as
Shareholder Representative
/s/ Bruce A. Warren
_____________________________________
Bruce A. Warren, in his capacity as
Shareholder Representative
/s/ Louis A. Delmonico
_____________________________________
Louis A. Delmonico, in his capacity
as Shareholder Representative
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APPENDIX B
October 13, 1997
3000 Sand Hill Road
Building 4, Suite 230
Menlo Park, CA 94025
Phone: 650.854.8077
Fax: 650.854.4961
Board of Directors LOGO
OrCAD, Inc.
9300 SW Nimbus Avenue
Beaverton, OR 97008
Members of the Board:
We understand that OrCAD, Inc. ("OrCAD"), OCA Merger Corporation, a wholly
owned subsidiary of OrCAD ("Merger Sub"), and MicroSim Corporation
("MicroSim") have entered into an Agreement and Plan of Merger, dated as of
the date hereof (the "Merger Agreement"), which provides, among other things,
for the merger (the "Merger") of Merger Sub with and into MicroSim. Pursuant
to the Merger, each issued and outstanding share of common stock of MicroSim
(the "MicroSim Common Stock"), other than shares held in treasury or held by
OrCAD or any subsidiary or affiliate of OrCAD or MicroSim or as to which
dissenters' rights have been perfected, shall be converted automatically into
the right to receive 0.825 of a share (the "Exchange Ratio") of common stock
of OrCAD, $0.01 par value per share (the "OrCAD Common Stock"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
You have requested our opinion as to whether, as of this date, the Exchange
Ratio pursuant to the Merger Agreement is fair from a financial point of view
to the holders of OrCAD Common Stock.
For purposes of the opinion set forth herein, we have:
1. analyzed certain internal financial statements and other financial and
operating data concerning MicroSim prepared by the management of MicroSim;
2. analyzed certain financial projections relating to MicroSim prepared
by the management of MicroSim;
3. discussed the past and current operations and financial condition and
the prospects of MicroSim, including information relating to certain
strategic, financial, and operational benefits anticipated from the Merger,
with senior managers of MicroSim;
4. analyzed certain publicly available financial statements and other
information of OrCAD;
5. analyzed certain internal financial statements and other financial and
operating data concerning OrCAD prepared by the management of OrCAD;
6. discussed the past and current operations and financial condition and
the prospects of OrCAD, including information relating to certain
strategic, financial, and operational benefits anticipated from the Merger,
with senior managers of OrCAD;
7. analyzed the pro forma impact of the Merger on the earnings per share
and consolidated capitalization of OrCAD;
8. reviewed the reported prices and trading activity for the OrCAD Common
Stock;
9. compared the financial performance of MicroSim with that of certain
other publicly traded companies (which we deemed to be relevant) and their
securities;
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10. compared the financial performance of OrCAD and the prices and
trading activity of the OrCAD Common Stock with that of certain other
publicly-traded companies (which we deemed to be relevant) and their
securities;
11. reviewed the financial terms, to the extent publicly available, of
certain merger and acquisition transactions (which we deemed to be
relevant);
12. reviewed and discussed with the senior managers of OrCAD (i) the
strategic rationale for the Merger and their assessment of the synergies
and other benefits expected to be derived from the Merger and (ii) certain
alternatives to the Merger;
13. participated in discussions and negotiations among representatives of
MicroSim and OrCAD and their financial and legal advisors;
14. reviewed the Merger Agreement; and
15. performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed
they have been reasonably prepared on bases reflecting the best currently
available estimated and judgments of the future financial performance of
MicroSim and OrCAD. With respect to the information furnished by OrCAD and
MicroSim, and with respect to the information discussed with the managers of
OrCAD and MicroSim regarding their views of future operations, we have assumed
that such information has been reasonably prepared and reflects the best
currently available estimates and judgments of OrCAD's and MicroSim's
management. For purposes of this opinion, we have also relied upon, without
independent verification, the assessment by OrCAD's and MicroSim's managers of
the cost savings and other synergies as well as the strategic and other
benefits expected to be derived from the Merger. We have also relied upon,
without independent verification, the assessment by OrCAD's management of
MicroSim's technology and competitive position.
We have not made any independent valuation or appraisal of the assets,
liabilities, or technology of OrCAD or MicroSim, respectively, nor have we
been furnished with any such appraisals. We have assumed that the Merger will
be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. Generally Accepted Accounting Principles and as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. We have assumed that the Merger will be consummated
on the terms set forth in the Merger Agreement without waiver or amendment of
any of the terms or conditions thereof. Our opinion is necessarily based on
economic, market, and other conditions in effect on, and the information made
available to us as of the date hereof. In rendering this opinion, we are not
expressing any opinion as to the price at which the OrCAD Common Stock will
actually trade at any time.
We have acted as financial advisor to the Board of Directors of OrCAD in
connection with this transaction and will receive fees from the Company for
our services, a significant portion of which is contingent upon the
consummation of the Merger. In addition, the Company has agreed to indemnify
us for certain liabilities that may arise out of the rendering of this
opinion. A principal of Redwood Partners LLC is also a member of the Board of
Directors of OrCAD, principals of Redwood Partners LLC hold positions in OrCAD
Common Stock, and a predecessor of Redwood Partners LLC was the largest
stockholder of OrCAD until September 1996.
It is understood that this letter is for the information of the Board of
Directors of OrCAD and may not be used for any other purposes without our
prior written consent, except that this opinion may be included in its
entirety in any filing made by OrCAD, with the Securities and Exchange
Commission with respect to the transactions contemplated by the Merger
Agreement. In addition, our opinion does not address the underlying decision
by the Company to engage in the Merger and we express no recommendation or
opinion as to how the stockholders of OrCAD should vote at the stockholders'
meeting held in connection with the Merger.
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Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of OrCAD Common Stock.
Yours sincerely,
Redwood Partners LLC
LOGO
By:__________________________________
Jim Timmins, Managing Director
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APPENDIX C
CALIFORNIA CORPORATIONS CODE
CHAPTER 13. DISSENTERS' RIGHTS
S 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair
market value the shares owned by the shareholder which are dissenting shares
as defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
S 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
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(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such
price.
S 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
S 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
S 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF
ISSUES; APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
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(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
S 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
S 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
S 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
S 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
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S 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
S 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
S 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.
S 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND MERGER
OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short-form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the
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transaction except upon 10 days' prior notice to the corporation and upon a
determination by the court that clearly no other remedy will adequately
protect the complaining shareholder or the class of shareholders of which such
shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As a Delaware corporation OrCAD is subject to the General Corporation Law of
the State of Delaware ("General Corporation Law") and the exculpation from
liability and indemnification provisions contained therein. In accordance with
Section 102 of the General Corporation Law, Article VII of OrCAD's Restated
Certificate of Incorporation (the "Certificate") eliminates the liability of
OrCAD's directors to OrCAD or its stockholders for breach of fiduciary duty as
a director, except for any liability related to breach of the duty of loyalty,
acts or omissions not in good faith which involve intentional misconduct or a
knowing violation of law, unlawful payment of dividends or unlawful stock
purchase or redemption, and certain other liabilities.
Section 145 of the General Corporation Law allows corporations to indemnify
their directors and officers against liability where the director or officer
has acted in good faith and with a reasonable belief that actions taken were
in the best interests of the corporation or at least not adverse to the
corporation's best interest and, if in a criminal proceeding, the individual
had no reasonable cause to believe the conduct in question was unlawful. Under
the General Corporation Law, corporations may not indemnify against liability
in connection with a claim by or in the right of the corporation but may
indemnify against the reasonable expenses associated with the defense of such
claims. Corporations also may not indemnify against breaches of the duty of
loyalty. The General Corporation Law provides for mandatory indemnification of
directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the
right of the corporation. Finally, a court may order indemnification if it
determines that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute.
The General Corporation Law also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's bylaws, any agreement, general
or specific action of the board of directors, vote of stockholders or
otherwise.
The Restated Bylaws require OrCAD to indemnify its directors and officers to
the fullest extent not prohibited by law. In addition, the Restated Bylaws
deem that all rights to indemnification under the Restated Bylaws are deemed
to be contractual rights and are to be effective to the same extent as if
provided for in a contract between OrCAD and the director or officer who
serves in such capacity.
OrCAD has entered into indemnity agreements with each executive officer of
OrCAD and each member of OrCAD's Board of Directors. These indemnity
agreements provide for indemnification of the indemnitee to the fullest extent
allowed by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
2.0 Agreement and Plan of Merger dated as of October 13, 1997, by and
among OrCAD, Inc., OCA Merger Corporation and MicroSim Corporation
(Incorporated by reference to Appendix A to Joint Proxy
Statement/Prospectus)
3.1 Restated Certificate of Incorporation of OrCAD, Inc.*
3.2 Restated Bylaws of OrCAD, Inc.*
4.1 Rights Agreement dated September 18, 1992*
4.2 Restricted Stock and Registration Rights Agreement dated May 30,
1995*
4.3 Piggyback Registration Rights Agreement dated December 1, 1995*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality
of the securities being registered+
8.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to tax matters+
10.1 Form of Indemnity Agreement between OrCAD, Inc. and each of its
executive officers and directors*
10.2 1991 Non-Qualified Stock Option Plan*
10.3 1995 Stock Option Plan*
10.4 1995 Stock Option Plan for Nonemployee Directors*
10.5 1995 Stock Incentive Plan*
10.6 1996 Employee Stock Purchase Plan**
10.7 Stock Exchange Agreement dated December 2, 1995 by and among OrCAD,
Inc., Intelligent Systems Corporation, Stuart A. Harrington, Michel A.
Burton, J. Leland Strange, Bonnie L. Herron, Francis A. Marks and
Takeo Maruichi*
10.8 Agreement and Plan of Reorganization dated as of May 10, 1995, by and
among OrCAD, Inc., OM Merger, Inc. and Massteck Ltd.*
10.9 Lease between Pen Nom I Corp. and OrCAD, Inc. dated May 31, 1993*
10.10 Lease Agreement dated as of January 31, 1995 by and between Kurian
Limited Partnership and Massteck Ltd.*
10.11 Form of Advisory Agreement between OrCAD, Inc. and Wolfram H. Blume
10.12 Form of Employment Agreement between OrCAD, Inc. and Michael Wimbrow
11.0 Statement regarding earnings per share calculation+
21.0 Subsidiaries of the Registrant*
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal
opinion filed as Exhibit 5.0)+
23.2 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in tax
opinion filed as Exhibit 8.0)+
23.3 Consent of KPMG Peat Marwick LLP--OrCAD, Inc.+
23.4 Consent of Ernst & Young LLP--MicroSim Corporation+
23.5 Consent of Redwood Partners LLC+
24.0 Powers of Attorney (included in signature page in Part II of
Registration Statement)+
27.1 Financial Data Schedule
99.1 Form of Proxy for OrCAD Special Meeting of Stockholders+
99.2 Form of Proxy for MicroSim Special Meeting of Shareholders+
99.3 Irrevocable Proxy dated October 13, 1997+
99.4 Consent of Person About to Become a Director+
</TABLE>
- --------
+ Previously filed.
* Incorporated herein by reference to Exhibits of the Company's Registration
Statement on Form SB-2 as amended, effective March 1, 1996 (Commission
Registration No. 333-00198-LA).
** Incorporated herein by reference to Exhibits of the Company's Form 10-K for
the fiscal year ended December 31, 1995.
(b) Financial Statements Schedules
OrCAD, Inc.
Schedule VIII--Valuation and Qualifying Accounts
(c) Report, Opinion or Appraisal
See Appendix B, to Joint Proxy Statement/Prospectus
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period, in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PORTLAND, STATE OF
OREGON, ON THE 11TH DAY OF DECEMBER, 1997.
OrCAD, INC.
By: /s/ Michael F. Bosworth
___________________________________
MICHAEL F. BOSWORTH
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN DULY SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON DECEMBER 11, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Michael F. Bosworth President and Chief Executive Officer
- ------------------------------------- (Principal Executive Officer)
MICHAEL F. BOSWORTH
/s/ P. David Bundy Chief Accounting Officer and Secretary
- ------------------------------------- (Principal Financial and Accounting
P. DAVID BUNDY Officer)
John C. Savage * Director
- -------------------------------------
JOHN C. SAVAGE
Richard P. Magnuson * Director
- -------------------------------------
RICHARD P. MAGNUSON
James B. Moon * Director
- -------------------------------------
JAMES B. MOON
Stephen W. Director * Director
- -------------------------------------
STEPHEN W. DIRECTOR
*By: /s/ Michael F. Bosworth
___________________________________
MICHAEL F. BOSWORTH
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
<C> <S> <C>
2.0 Agreement and Plan of Merger dated as of October 13, 1997,
by and among OrCAD, Inc., OCA Merger Corporation and
MicroSim Corporation (Incorporated by reference to Appendix
A to Joint Proxy Statement/Prospectus)
3.1 Restated Certificate of Incorporation of OrCAD, Inc.*
3.2 Restated Bylaws of OrCAD, Inc.*
4.1 Rights Agreement dated September 18, 1992*
4.2 Restricted Stock and Registration Rights Agreement dated May
30, 1995*
4.3 Piggyback Registration Rights Agreement dated December 1,
1995*
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to
the legality of the securities being registered+
8.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to
tax matters+
10.1 Form of Indemnity Agreement between OrCAD, Inc. and each of
its executive officers and directors*
10.2 1991 Non-Qualified Stock Option Plan*
10.3 1995 Stock Option Plan*
10.4 1995 Stock Option Plan for Nonemployee Directors*
10.5 1995 Stock Incentive Plan*
10.6 1996 Employee Stock Purchase Plan**
10.7 Stock Exchange Agreement dated December 2, 1995 by and among
OrCAD, Inc., Intelligent Systems Corporation, Stuart A.
Harrington, Michel A. Burton, J. Leland Strange, Bonnie L.
Herron, Francis A. Marks and Takeo Maruichi*
10.8 Agreement and Plan of Reorganization dated as of May 10,
1995, by and among OrCAD, Inc., OM Merger, Inc. and Massteck
Ltd.*
10.9 Lease between Pen Nom I Corp. and OrCAD, Inc. dated May 31,
1993*
10.10 Lease Agreement dated as of January 31, 1995 by and between
Kurian Limited Partnership and Massteck Ltd.*
10.11 Form of Advisory Agreement between OrCAD, Inc. and Wolfram
H. Blume
10.12 Form of Employment Agreement between OrCAD, Inc. and Michael
Wimbrow
11.0 Statement regarding earnings per share calculation+
21.0 Subsidiaries of the Registrant*
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP
(included in legal opinion filed as Exhibit 5.0)+
23.2 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP
(included in tax opinion filed as Exhibit 8.0)+
23.3 Consent of KPMG Peat Marwick LLP--OrCAD, Inc.+
23.4 Consent of Ernst & Young LLP--MicroSim Corporation+
23.5 Consent of Redwood Partners LLC+
24.0 Powers of Attorney (included in signature page in Part II of
Registration Statement)+
27.1 Financial Data Schedule
99.1 Form of Proxy for OrCAD Special Meeting of Stockholders+
99.2 Form of Proxy for MicroSim Special Meeting of Shareholders+
99.3 Irrevocable Proxy dated October 13, 1997+
99.4 Consent of Person About to Become a Director+
</TABLE>
- --------
+ Previously filed.
* Incorporated herein by reference to Exhibits of the Company's Registration
Statement of Form SB-2 as amended, effective March 1, 1996 (Commission
Registration No. 333-00198-LA).
** Incorporated herein by reference to Exhibits of the Company's Form 10-K for
the fiscal year ended December 31, 1995.
<PAGE>
EXHIBIT 10.11
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT (this "AGREEMENT"), made this ___ day of
__________, 1997, is by and between ORCAD, INC., a Delaware corporation
("ORCAD"), and WOLFRAM H. BLUME who resides at 15 Bawley St., Laguna Niguel,
California 92656 ("ADVISOR"), who are referred to herein separately as a "PARTY"
and collectively as the "PARTIES". This Agreement is entered into in accordance
with that certain Agreement and Plan of Merger (the "MERGER AGREEMENT") by and
among OrCAD, OCA MERGER CORPORATION, an Oregon corporation ("MERGER SUB"), and
MICROSIM CORPORATION, a California corporation ("MICROSIM"), pursuant to which
Merger Sub merges with and into MicroSim and all of Advisor's shares of
MicroSim's common stock are exchanged for shares of OrCAD's common stock.
The parties agree as follows:
1. CONSULTING.
----------
A. TERM. The term of this Agreement relating to Advisor's advisory
services for OrCAD shall begin as of the Effective Time (as defined in the
Merger Agreement) and shall continue until the second anniversary of the
Effective Time (the "EXPIRATION DATE") unless earlier terminated as provided
herein.
B. TIME. Advisor will consult up to twenty (20) hours per month for
OrCAD, at specific times mutually agreeable to the Parties. Advisor will devote
his best efforts in support of OrCAD's operations and goals during the entire
term of this Agreement.
2. DUTIES.
------
A. GENERALLY. Advisor will take responsibility for his advisory
duties as OrCAD's Board of Directors (the "BOARD") or Chief Executive Officer
(the "CEO") assigns them from time to time. Advisor will serve in the capacity
of Chief Technical Advisor, and all assigned duties will be commensurate with
that advisory role. Advisor's working environment shall in all respects be of
at least a like grade and quality as that of OrCAD's senior executive officers.
Advisor will perform his duties with full application of Advisor's professional
talents and skills, using the best judgment Advisor can bring to bear.
B. GOALS. Advisor will use his best efforts to achieve the goals
contained in the Compensation Plan and Goals attached hereto as Exhibit A.
C. DIRECTOR POSITION. During the term of this Agreement, Advisor
shall continually be a recommended candidate by OrCAD's management for election
to the Board.
<PAGE>
3. COMPENSATION.
------------
A. PAY. OrCAD will pay Advisor initially as described in Exhibit A.
Exhibit A may be amended from time to time, by notice to Advisor, but only if
and to the extent the change increases Advisor's compensation.
B. BENEFITS. OrCAD will not make available employee benefits to
Advisor.
4. TERMINATION.
-----------
A. VOLUNTARY. Advisor may voluntarily resign from his advisory role
upon giving OrCAD thirty (30) days' advance written notice of Advisor's intent
to resign. In the event that Advisor resigns at the request of the Board or the
CEO, such resignation shall not be treated as a voluntary resignation by Advisor
for purposes of this Agreement, but shall instead be treated as a termination by
OrCAD.
B. WITHOUT CAUSE. OrCAD may terminate this Agreement and Advisor's
consulting without Cause (as defined below) upon giving Advisor thirty (30)
days' advance written notice.
C. FOR CAUSE. OrCAD may terminate this Agreement and Advisor's
consulting immediately upon written notice at any time for Cause. For purposes
of this Agreement, "CAUSE" means any one of the following events:
(1) Advisor's repeated and willful failure or refusal to comply with
the reasonable policies, standards or regulations from time to time
established in writing by OrCAD and previously delivered to Advisor;
(2) Advisor's engaging in criminal conduct or other fundamentally
improper conduct with respect to OrCAD that is dishonest, fraudulent or
materially detrimental to the reputation, character or standing of OrCAD;
(3) Advisor's misappropriation of OrCAD monies or assets; or
(4) Advisor's repeated and willful failure to perform duties properly
assigned to him by the Board or the CEO or to abide by the terms of this
Agreement.
D. DEATH. This Agreement shall automatically terminate upon the
death of Advisor.
E. DISABILITY. This Agreement and Advisor's consulting shall
terminate upon the effective date of notice sent to Advisor stating the Board's
determination, made in good faith and after consultation with a physician
selected by the Board, that: (i) Advisor is incapable of performing his
essential consulting functions under this Agreement, with reasonable
accommodation, because of a physical or mental incapacity; (ii) the incapacity
has prevented Advisor from performing such functions for a period of one hundred
twenty (120) days in a rolling twelve (12) month period or ninety (90)
consecutive calendar days; and (iii) such incapacity is likely to continue for a
least another ninety (90) days in a twelve (12) month period. If and when
Advisor's incapacity substantially impacts his consulting performance or
attendance,
2
<PAGE>
OrCAD may require Advisor to undergo a physical examination reasonably designed
to determine his ability to work.
F. COMPENSATION ON TERMINATION. Upon termination of Advisor by
OrCAD without Cause prior to the Expiration Date, and in consideration of the
covenants that survive termination of this Agreement, OrCAD will: (i) pay
Advisor's consulting fee as earned through the termination date; and (ii) pay
Advisor a lump-sum severance at the time of termination in an amount equal to
one (1) year's consulting fees. Upon termination for Cause, termination due to
disability, or Advisor's voluntary resignation or death, OrCAD will pay
Advisor's consulting fees earned through the termination date. Upon Advisor's
voluntary resignation, death, disability, or termination for Cause by OrCAD,
Advisor is not entitled to severance pay.
5. CONFIDENTIALITY.
---------------
A. CONFIDENTIALITY OF ORCAD DATA. During Advisor's consulting for
OrCAD and for two (2) years after termination, Advisor will keep OrCAD Data, as
that term is defined below, confidential. Advisor will not disclose OrCAD Data
directly or indirectly to any person, other than to an employee of OrCAD or a
person or entity to which disclosure is reasonably necessary or appropriate to
further OrCAD's business. "ORCAD DATA" includes, without limitation, any trade
secret or proprietary or confidential information of OrCAD or of any OrCAD
affiliate, including all confidential records, files, memoranda, reports, price
lists, software, customer lists, drawings, sketches or documents.
B. CONFIDENTIALITY OF THIRD PARTY DATA. Advisor will also keep
Third Party Data, as that term is defined below, confidential during Advisor's
consulting for OrCAD and for two (2) years after termination or as long as is
required by any agreement OrCAD enters into with the third party and which is
provided to Advisor, whichever period is longer. Advisor will not disclose
Third Party Data in violation of any such agreement with the third party.
"THIRD PARTY DATA" means data obtained by Advisor in the course of his
consulting for OrCAD from a third party, including without limitation suppliers
and customers, which data is considered by the third party to be proprietary or
confidential.
C. RETURN ON TERMINATION. All OrCAD Data is the property of OrCAD.
Advisor will return to OrCAD all OrCAD Data and Third Party Data upon
termination of this Agreement.
6. OWNERSHIP OF INVENTIONS.
-----------------------
A. DEFINITIONS. "INVENTIONS" means ideas, improvements, designs,
discoveries or authored works (whether software or other form), whether or not
patentable or copyrightable, as well as other newly discovered or newly applied
information or concepts. An Invention is a "COVERED INVENTION" if it was
developed in any part using OrCAD resources (time, supplies, facilities or
data); or if it results from or is suggested by a task assigned to, or work
performed for OrCAD by, Advisor. As used in this Section 6, "ORCAD" includes
OrCAD and its affiliates, including OrCAD's clients or its respective
consultants and contractors.
3
<PAGE>
B. ASSIGNMENT. All Advisor's right, title and interest in and to
any Covered Inventions that Advisor makes or conceives while providing advisory
services to OrCAD, belong to OrCAD. This Agreement operates as a prospective
assignment of all those rights to OrCAD. Advisor agrees to execute such
documents as may be necessary to perfect this assignment upon request by OrCAD.
C. OWNERSHIP. All records, files, memoranda, reports, price lists,
software, customer lists, drawings, sketches, documents, equipment and the like,
relating to the business of OrCAD or its affiliates which Advisor shall have use
of, prepare, or come into contact with in the course of his consulting work for
OrCAD ("ORCAD PROPERTY") shall remain the sole and exclusive property of OrCAD.
Advisor will return to OrCAD all OrCAD Property upon termination of his
consulting for OrCAD.
7. NON-COMPETITION.
---------------
A. COMMITMENT. During Advisor's consulting for OrCAD, and for a
period of one (1) year after termination of such consulting, unless OrCAD
consents in writing, Advisor will not Compete, as that term is defined below,
with OrCAD or its affiliates.
(1) "COMPETE" means directly or indirectly:
(i) to have any financial interest in (except for stock ownership
as permitted in subparagraph (ii) below);
(ii) to join, operate, control or participate in, as an officer,
director, employee, agent, independent contractor, partner,
shareholder (except as holder of not more than five percent (5%) of
the outstanding stock of any class of a corporation, the stock of
which is actively publicly traded) or principal with;
(iii) to provide services in any capacity to those participating
in the ownership, management, operation or control of; or
(iv) to act as a consultant or subcontractor to:
any corporation, proprietorship, association or other entity or person engaged
in the sale or production of products or the rendering of services of a kind
similar to or competitive with any products produced or developed or under
active consideration by, or services provided by or under active consideration
by, OrCAD or its affiliates at the time of Advisor's termination of consulting
for OrCAD.
8. NON-SOLICITATION, NON-HIRE.
--------------------------
A. COMMITMENT. During Advisor's consulting for OrCAD, and for a
period of one (1) after termination of such consulting, unless OrCAD consents in
writing, Advisor will not Solicit Business, as that term is defined below.
4
<PAGE>
B. SOLICIT BUSINESS DEFINED. "SOLICIT BUSINESS" means contacting or
dealing with an OrCAD Customer, as that term is defined below, for purposes of
seeking employment, or providing goods or services of a kind similar to or
competitive with any products produced or developed or under active
consideration by, OrCAD or its affiliates at the time of Advisor's termination
of consulting for OrCAD, or providing knowledge or assistance to another for any
of those purposes. Upon Advisor's request on or after termination of his
consulting for OrCAD, OrCAD will promptly advise Advisor of the identities of
the OrCAD Customers in order to enable him to comply with this provision.
C. ORCAD CUSTOMERS DEFINED. "ORCAD CUSTOMERS" include Existing
Customers and Prospective Customers, as those terms are defined below:
(1) "EXISTING CUSTOMERS" means entities or individuals who have
purchased consulting or programming services, software, or products from
OrCAD or its affiliates at any time within one (1) year before the date
Advisor's consulting for OrCAD terminates.
(2) "PROSPECTIVE CUSTOMERS" means entities or individuals upon whom at
any time within one (1) year before the date Advisor's consulting for OrCAD
terminates either (i) more than three (3) calls have been made in any one-
month period by OrCAD or its affiliates or (ii) to whom a proposal has been
submitted or by whom a proposal has been requested by OrCAD or its
affiliates, and from whom, on the date Advisor's consulting terminates,
OrCAD or any of its affiliates reasonably believes it may secure work or
product or service orders.
D. NON-HIRING. During Advisor's consulting for OrCAD, and for a
period of one (1) year after termination of Advisor's consulting, unless OrCAD
consents in writing, Advisor will not directly or indirectly (i) hire or use the
services of any then-current employee of OrCAD or its affiliates or any person
who has left the employ of OrCAD or its affiliates within three (3) months prior
to the termination of Advisor's consulting for OrCAD, or (ii) solicit or in any
manner attempt to induce any such person to leave the employ of OrCAD or its
affiliates or (iii) aid others in performing the actions referred to in either
clause (i) or (ii) of this Section 8(D).
9. OTHER MATTERS.
-------------
A. NOTICE. Notice to Advisor shall be sent to Advisor's most recent
address shown in OrCAD's personnel records. Notice to OrCAD shall be sent to
OrCAD's headquarters address, marked "Attention: CEO." Either party may change
its address by written notice. Notice shall be effective when the person to
whom it is sent actually receives it, if sent by any method that leaves a paper
or electronic record in the hands of the recipient. If sent certified or
registered mail, postage prepaid, return receipt requested, to the proper
address this Section 9(A) defines, notice shall be considered effective, whether
or not actually received, on the date the return receipt shows the notice was
accepted, refused, or returned undeliverable.
B. SEVERABILITY. Each clause of this Agreement is severable. If
any clause is ruled void or unenforceable, the balance of the Agreement shall
nonetheless remain in effect.
5
<PAGE>
C. NON-WAIVER. A waiver of one or more breaches of any clause of
this Agreement shall not act to waive any other breach, whether of the same or
different clauses.
D. ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of OrCAD, and shall be binding upon Advisor, and Advisor's
administrators, executors, legatees and heirs. This Agreement shall not be
assigned by Advisor.
E. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Oregon.
F. JURISDICTION. Employee acknowledges that he has substantial
contacts with Oregon and the Parties agree that litigation, if any, may be
brought only in the state or federal courts located in Portland, Oregon and in
no other place unless the parties expressly agree in writing to waive this
requirement. Each Party consents to jurisdiction in Oregon.
G. INJUNCTIVE RELIEF. Because violation of the obligations of
Sections 5, 6, 7 and 8 of this Agreement would result in damage to OrCAD that
could not be cured by an award of money alone, OrCAD shall be entitled to
injunctive relief in cases where a violation of those obligations is shown.
This remedy shall be in addition to any other remedies available at law or in
equity.
H. ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration or appeal filed or held concerning this Agreement shall be entitled
to reasonable attorneys' fees and disbursements and the actual, reasonably
necessary costs of the proceeding.
I. INTEGRATION. This Agreement is the complete agreement between
the Parties regarding the subject matter hereof. The parties expressly agree
that it constitutes the agreement that was and is in force between them as of
the date of this Agreement. It supersedes all prior agreements, written or
oral. It may be modified only in writing signed by the original Parties hereto,
or by their successors or superiors in office.
J. SURVIVAL. The obligations of Sections 5, 6, 7 and 8 of this
Agreement shall survive termination of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, OrCAD has caused this Agreement to be signed by
its duly authorized representative, and Advisor has hereunder set his name as of
the date of this Agreement.
WOLFRAM H. BLUME ORCAD, INC.
By: By:
----------------------- -----------------------
Wolfram H. Blume Michael F. Bosworth
President and Chief Executive Officer
EXHIBIT:
A: Compensation Plan
7
<PAGE>
EXHIBIT A
COMPENSATION PLAN AND RESPONSIBILITIES
AS OF COMMENCEMENT OF CONSULTING
ADVISOR: WOLFRAM H. BLUME
1. INITIAL ASSIGNMENT: Mr. Blume will serve in the advisory role of Chief
Technical Advisor. Mr. Blume will report directly to the President and the
CEO.
2. RESPONSIBILITIES: Mr. Blume will be responsible for providing strategic
advice to OrCAD, but shall not have staff reporting to him. Mr. Blume's
office shall be in Orange County, California.
3. CONSULTING FEES: OrCAD will pay Mr. Blume initially total monthly
consulting fees of $4,000 per month. Mr. Blume shall be responsible for
payment of, and shall indemnify OrCAD with respect to, all federal, state
and local income taxes payable with respect to the consulting fees.
WOLFRAM H. BLUME ORCAD, INC.
By: By:
----------------------- -----------------------
Wolfram H. Blume Michael F. Bosworth
President and Chief Executive Officer
Date: Date:
----------------------- -----------------------
8
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT"), made this ___ day of
__________, 1997, is by and between ORCAD, INC., a Delaware corporation
("ORCAD"), and MICHAEL WIMBROW who resides at 24 Diamondgate, Aliso Viejo,
California 92656 ("EXECUTIVE"), who are referred to herein separately as a
"PARTY" and collectively as the "PARTIES". This Agreement is entered into in
accordance with that certain Agreement and Plan of Merger (the "MERGER
AGREEMENT") by and among OrCAD, OCA MERGER CORPORATION, an Oregon corporation
("MERGER SUB"), and MICROSIM CORPORATION, a California corporation ("MICROSIM"),
pursuant to which Merger Sub merges with and into MicroSim and all of
Executive's shares of MicroSim's common stock are exchanged for shares of
OrCAD's common stock.
The parties agree as follows:
1. EMPLOYMENT.
----------
A. TERM. The term of this Agreement relating to Executive's employment
with OrCAD shall begin as of the Effective Time (as defined in the Merger
Agreement) and shall continue until the first anniversary of the Effective Time
(the "EXPIRATION DATE") unless earlier terminated as provided herein.
B. FULL TIME. Executive will work full time for OrCAD. Executive will
devote his best efforts in support of OrCAD's operations and goals during the
entire term of this Agreement.
2. EXECUTIVE'S DUTIES.
------------------
A. GENERALLY. Executive will take responsibility for his duties as OrCAD's
Chief Executive Officer (the "CEO") assigns them from time to time. Executive
will serve in the capacity of Vice President of Product Development, and all
assigned duties will be commensurate with that position. Executive's working
environment shall in all respects be of at least a like grade and quality as
that of OrCAD's other senior executive officers. Executive will perform his
duties with full application of Executive's professional talents and skills,
using the best judgment Executive can bring to bear.
B. GOALS. Executive will use his best efforts to achieve the goals
contained in the Compensation Plan and Goals attached hereto as Exhibit A.
3. COMPENSATION.
------------
A. PAY. OrCAD will pay Executive initially as described in Exhibit A.
Exhibit A may be amended from time to time, by notice to Executive, but only if
and to the extent the change increases Executive's compensation.
B. STOCK OPTIONS. Upon Executive's commencement of employment pursuant
to this Agreement, OrCAD will grant Executive incentive stock options to
purchase 40,000 shares of
<PAGE>
OrCAD common stock at 100% of then-current fair market value, in accordance with
the terms and conditions contained in OrCAD's 1995 Stock Incentive Plan and
subject to OrCAD's standard vesting schedule.
C. BENEFITS. OrCAD will also make available the benefits described in
Exhibit A, which benefits may change from time to time if and to the extent such
changes comparably affect all OrCAD senior executive officers.
4. TERMINATION.
-----------
A. VOLUNTARY. Executive may voluntarily resign from OrCAD upon giving
OrCAD thirty (30) days' advance written notice of Executive's intent to resign.
In the event that Executive resigns at the request of OrCAD's Board of Directors
(the "BOARD") or the CEO, such resignation shall not be treated as a voluntary
resignation by Executive but shall instead be treated as a termination by OrCAD.
B. WITHOUT CAUSE. OrCAD may terminate this Agreement and Executive's
employment without Cause (as defined below) upon giving Executive thirty (30)
days' advance written notice.
C. FOR CAUSE. OrCAD may terminate this Agreement and Executive's
employment immediately upon written notice at any time for Cause. For purposes
of this Agreement, "CAUSE" means any one of the following events:
(1) Executive's repeated and willful failure or refusal to comply
with the reasonable policies, standards or regulations from time to time
established in writing by OrCAD and previously delivered to Executive;
(2) Executive's engaging in criminal conduct or other fundamentally
improper conduct with respect to OrCAD that is dishonest, fraudulent or
materially detrimental to the reputation, character or standing of OrCAD;
(3) Executive's misappropriation of OrCAD monies or assets; or
(4) Executive's repeated and willful failure to perform duties
properly assigned to him by the Board or the CEO, or to abide by the terms
of this Agreement.
D. DEATH. This Agreement shall automatically terminate upon the death of
Executive.
E. DISABILITY. This Agreement and Executive's employment shall terminate
upon the effective date of notice sent to Executive stating the Board's
determination, made in good faith and after consultation with a physician
selected by the Board, that: (i) Executive is incapable of performing the
essential functions of his position under this Agreement, with reasonable
accommodation, because of a physical or mental incapacity; (ii) the incapacity
has prevented Executive from performing such functions for a period of one
hundred twenty (120) days in a rolling twelve (12) month period or ninety (90)
consecutive calendar days; and (iii) such incapacity is likely to continue for a
least another ninety (90) days in a twelve (12) month period.
2
<PAGE>
If and when Executive's incapacity substantially impacts his job performance or
attendance, OrCAD may require Executive to undergo a physical examination
reasonably designed to determine his ability to work.
F. COMPENSATION ON TERMINATION. Upon termination of Executive by OrCAD
without Cause prior to the Expiration Date, and in consideration of the
covenants that survive termination of this Agreement, OrCAD will: (i) pay
Executive's base salary as earned through the termination date, subject to
applicability tax withholding; and (ii) continue at OrCAD's expense Executive's
health, life, and disability insurance for one (1) year after the termination
date; and (iii) pay Executive a lump-sum severance at the time of termination in
an amount equal to one (1) year's base salary, subject to applicable tax
withholding. Upon termination for Cause, termination due to disability, or
Executive's death, OrCAD will pay Executive's base salary earned through the
termination date, subject to applicable tax withholding. Upon Executive's
voluntary resignation, death, disability, or termination for Cause by OrCAD,
Executive is not entitled to severance pay.
5. CONFIDENTIALITY.
---------------
A. CONFIDENTIALITY OF ORCAD DATA. During Executive's employment with
OrCAD and for two (2) years after termination, Executive will keep OrCAD Data,
as that term is defined below, confidential. Executive will not disclose OrCAD
Data directly or indirectly to any person, other than to an employee of OrCAD or
a person or entity to which disclosure is reasonably necessary or appropriate to
further OrCAD's business. "ORCAD DATA" includes, without limitation, any trade
secret or proprietary or confidential information of OrCAD or of any OrCAD
affiliate, including all confidential records, files, memoranda, reports, price
lists, software, customer lists, drawings, sketches or documents.
B. CONFIDENTIALITY OF THIRD PARTY DATA. Executive will also keep Third
Party Data, as that term is defined below, confidential during Executive's
employment with OrCAD and for two (2) years after termination or as long as is
required by any agreement OrCAD enters into with the third party and which is
provided to Executive, whichever period is longer. Executive will not disclose
Third Party Data in violation of any such agreement with the third party. "THIRD
PARTY DATA" means data obtained by Executive in the course of his employment
with OrCAD from a third party, including without limitation suppliers and
customers, which data is considered by the third party to be proprietary or
confidential.
C. RETURN ON TERMINATION. All OrCAD Data is the property of OrCAD.
Executive will return to OrCAD all OrCAD Data and Third Party Data upon
termination of this Agreement.
6. OWNERSHIP OF INVENTIONS.
-----------------------
A. DEFINITIONS. "INVENTIONS" means ideas, improvements, designs,
discoveries or authored works (whether software or other form), whether or not
patentable or copyrightable, as well as other newly discovered or newly applied
information or concepts. An Invention is a "COVERED INVENTION" if it relates to
OrCAD's actual or anticipated business; or was developed in any part using OrCAD
resources (time, supplies, facilities or data); or if it results from or is
suggested by a task assigned to, or work performed for OrCAD by, Executive. As
used in this
3
<PAGE>
Section 6, "ORCAD" includes OrCAD and its affiliates, including OrCAD's clients
or its respective consultants and contractors.
B. ASSIGNMENT. All Executive's right, title and interest in and to any
Covered Inventions that Executive makes or conceives while employed by OrCAD,
belong to OrCAD. This Agreement operates as a prospective assignment of all
those rights to OrCAD. Executive agrees to execute such documents as may be
necessary to perfect this assignment upon request by OrCAD.
C. OWNERSHIP. All records, files, memoranda, reports, price lists,
software, customer lists, drawings, sketches, documents, equipment and the like,
relating to the business of OrCAD or its affiliates which Executive shall have
use of, prepare, or come into contact with in the course of his work for OrCAD
("ORCAD PROPERTY") shall remain the sole and exclusive property of OrCAD.
Executive will return to OrCAD all OrCAD Property upon termination of his
employment with OrCAD.
7. NON-COMPETITION.
---------------
A. COMMITMENT. During Executive's employment with OrCAD, Executive
will not Compete, as that term is defined below, with OrCAD or its affiliates.
(1) "COMPETE" means directly or indirectly:
(i) to have any financial interest in (except for stock
ownership as permitted in subparagraph (ii) below);
(ii) to join, operate, control or participate in, as an officer,
director, employee, agent, independent contractor, partner,
shareholder (except as holder of not more than five percent (5%) of
the outstanding stock of any class of a corporation, the stock of
which is actively publicly traded") or principal with;
(iii) to provide services in any capacity to those participating
in the ownership, management, operation or control of; or
(iv) to act as a consultant or subcontractor to:
any corporation, proprietorship, association or other entity or person engaged
in the sale or production of products or the rendering of services of a kind
similar to or competitive with any products produced or developed or under
active consideration by, or services provided by or under active consideration
by, OrCAD or its affiliates.
8. NON-SOLICITATION.
----------------
A. COMMITMENT. During Executive's employment with OrCAD, and for one (1)
year after termination of such employment, Executive will not "SOLICIT BUSINESS"
as that term is defined below.
4
<PAGE>
B. SOLICIT BUSINESS DEFINED. "SOLICIT BUSINESS" means contacting or
dealing with an OrCAD Customer, as that term is defined below, for purposes of
seeking employment, or providing goods or services of a kind similar to or
competitive with any products produced or developed or under consideration by,
OrCAD or its affiliates, or providing knowledge or assistance to another for any
of those purposes.
C. ORCAD CUSTOMERS DEFINED. "ORCAD CUSTOMERS" include Existing Customers
and Prospective Customers, as those terms are defined below:
(1) "EXISTING CUSTOMERS" means entities or individuals who have
purchased consulting or programming services, software, or products from
OrCAD or its affiliates at any time within three (3) years before the date
Executive's employment with OrCAD terminates.
(2) "PROSPECTIVE CUSTOMERS" means entities or individuals upon whom
more than three (3) calls have been made in any one-month period by OrCAD
or its affiliates or to whom a proposal has been submitted or by whom a
proposal has been requested by OrCAD or its affiliates, and from whom OrCAD
or any of its affiliates reasonably believes it may secure work or product
or service orders.
D. NON-SOLICITATION OF ORCAD EMPLOYEES. During Executive's employment
with OrCAD, and for one (1) year after termination of such employment, unless
OrCAD consents in writing, Executive will not directly or indirectly (i) solicit
for hire the services of any then current employee of OrCAD or its affiliates or
any person who has voluntarily or for Cause left the employ of OrCAD or its
affiliates within three (3) months prior to the termination of Executive's
employment with OrCAD, or (ii) solicit or in any manner attempt to induce any
such person to leave the employ of OrCAD or its affiliates, or (iii) aid others
in performing the actions referred to in either clause (i) or (ii) of this
Section 8(D).
9. OTHER MATTERS.
-------------
A. NOTICE. Notice to Executive shall be sent to Executive's most recent
address shown in OrCAD's personnel records. Notice to OrCAD shall be sent to
OrCAD's headquarters address, marked "Attention: CEO." Either party may change
its address by written notice. Notice shall be effective when the person to whom
it is sent actually receives it, if sent by any method that leaves a paper or
electronic record in the hands of the recipient. If sent certified or registered
mail, postage prepaid, return receipt requested, to the proper address this
Section 9(A) defines, notice shall be considered effective, whether or not
actually received, on the date the return receipt shows the notice was accepted,
refused, or returned undeliverable.
B. SEVERABILITY. Each clause of this Agreement is severable. If
any clause is ruled void or unenforceable, the balance of the Agreement shall
nonetheless remain in effect.
C. NON-WAIVER. A waiver of one or more breaches of any clause of this
Agreement shall not act to waive any other breach, whether of the same or
different clauses.
5
<PAGE>
D. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of OrCAD, and shall be binding upon Executive, and Executive's
administrators, executors, legatees and heirs. This Agreement shall not be
assigned by Executive.
E. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
F. JURISDICTION. Employee acknowledges that he has substantial contacts
with California and the Parties agree that litigation, if any, may be brought
only in the state or federal courts located in Orange County or Los Angeles
County in California and in no other place unless the parties expressly agree in
writing to waive this requirement. Each Party consents to jurisdiction in
California.
G. INJUNCTIVE RELIEF. As violation of the obligations of Sections 5, 6,
7 and 8 of this Agreement would result in damage to OrCAD that could not be
cured by an award of money alone, OrCAD shall be entitled to injunctive relief
in cases where a violation of those obligations is shown. This remedy shall be
in addition to any other remedies available at law or in equity.
H. ATTORNEYS' FEES. The prevailing party in any suit, action,
arbitration or appeal filed or held concerning this Agreement shall be entitled
to reasonable attorneys' fees and disbursements and the actual, reasonably
necessary costs of the proceeding.
I. INTEGRATION. This Agreement is the complete agreement between the
Parties regarding the subject matter hereof. The parties expressly agree that it
constitutes the agreement that was and is in force between them as of the date
of this Agreement. It supersedes all prior agreements, written or oral. It may
be modified only in writing signed by the original Parties hereto, or by their
successors or superiors in office.
J. SURVIVAL. The obligations of Sections 5, 6, 7 and 8 of this Agreement
shall survive termination of this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, OrCAD has caused this Agreement to be signed by its
duly authorized representative, and Executive has hereunder set his name as of
the date of this Agreement.
MICHAEL WIMBROW ORCAD, INC.
By: By:
---------------------------- ----------------------------
Michael Wimbrow Michael F. Bosworth
President and Chief
Executive Officer
EXHIBIT:
A: Compensation Plan
7
<PAGE>
EXHIBIT A
COMPENSATION PLAN AND RESPONSIBILITIES
AS OF COMMENCEMENT OF EMPLOYMENT
EXECUTIVE: MICHAEL WIMBROW
1. INITIAL ASSIGNMENT: Mr. Wimbrow will serve in the capacity of Vice
President of Product Development. Mr. Wimbrow will report directly to the
CEO.
2. RESPONSIBILITIES: Mr. Wimbrow will be responsible for OrCAD's software
development and work closely with the Chief Technical Advisor and Vice
President of Marketing. Mr. Wimbrow's office shall be in Orange County,
California.
3. PAY: OrCAD will pay Mr. Wimbrow initially total annual compensation
of $165,000, payable as follows:
BASE SALARY: OrCAD will pay Mr. Wimbrow an annual base salary of
$150,000, payable at the rate of $12,500 per month, less applicable
tax withholding.
INCENTIVE COMPENSATION: Mr. Wimbrow will be eligible to receive
additional annual compensation of up to $15,000, under the terms and
conditions of OrCAD's Incentive Compensation Plan applicable to other
senior executive officers.
4. BENEFITS: Mr. Wimbrow will be eligible for the same benefits available to
other OrCAD senior executive officers, which include: group medical,
dental, vision, prescription drug, short term and long term disability,
401(k) plan, a smoke free work environment, $50,000 life insurance policy,
flex hours, educational assistance, family leave, nine holiday days per
year, four weeks paid sabbatical leave, three additional sick days per year
and three weeks vacation initially with four weeks after three years
service.
5. STOCK OPTIONS: OrCAD will grant to Mr. Wimbrow an incentive stock option
to purchase 40,000 shares of OrCAD's common stock, under the terms and
conditions of OrCAD's 1995 Stock Incentive Plan and subject to OrCAD's
standard vesting schedule.
MICHAEL WIMBROW ORCAD, INC.
By: By:
----------------------------- -----------------------------
Michael Wimbrow Michael F. Bosworth
President and Chief
Executive Officer
Date: Date:
--------------------------- ---------------------------
