<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- -------------------------------------------------------------------------------
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1997 or
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to ________
- -------------------------------------------------------------------------------
Commission file number: 0-20923
SUMMIT DESIGN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1137888
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
9305 S. W. GEMINI DRIVE,
BEAVERTON, OREGON 97008
(Address of principal executive office)
Registrant's Telephone number, including area code: (503) 643-9281
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
As of November 4, 1997, the Registrant had outstanding 14,655,899 shares of
Common Stock.
<PAGE>
SUMMIT DESIGN, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1997
(unaudited) and December 31, 1996. 3
Condensed Consolidated Statements of Operations for the
three month and nine month periods ended September 30, 1997
and 1996 (unaudited). 4
Condensed Consolidated Statements of Cash Flows for
the nine month periods ended September 30, 1997 and 1996 (unaudited). 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Not Applicable
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 27
Item 6 Exhibits and Reports on Form 8-K 27
Item 1 and Item 3 through Item 5 Not Applicable
Signature 28
Exhibit Index 29
-2-
<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............. $ 17,224 $ 19,772
Accounts receivable, net .............. 5,218 5,567
Prepaid expenses and other ............ 519 487
------------------ -----------------
Total current assets ................ 22,961 25,826
Furniture and equipment, net ............ 2,577 1,832
Notes receivable from related parties ... 490 -
Purchased technology, net ............... 1,018 -
Intangibles, net ........................ 727 -
Deferred taxes .......................... 1,037 500
Deposits and other assets ............... 496 468
------------------ -----------------
Total assets ........................ $ 29,306 $ 28,626
------------------ -----------------
------------------ -----------------
LIABILITIES
Current liabilities:
Long-term debt, current portion ....... $ 391 $ 462
Capital lease obligation, current
portion ............................... 41 65
Accounts payable ...................... 1,893 1,454
Accrued liabilities ................... 5,247 2,869
Deferred revenue ...................... 5,033 3,758
------------------ -----------------
Total current liabilities ........... 12,605 8,608
Long-term debt, less current portion .... 675 675
Capital lease obligations, less
current portion ......................... 59 95
Deferred revenue, less current portion .. 333 67
------------------ -----------------
Total liabilities ................... 13,672 9,445
------------------ -----------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value.
Authorized 30,000 shares; issued
and outstanding 14,656 shares at
September 30, 1997 and 13,873 shares
at December 31, 1996.................. 146 139
Additional paid-in capital .............. 50,585 33,235
Accumulated deficit ..................... (23,552) (14,193)
Treasury stock . 939 shares at
September 30, 1997 ................... (11,545) -
------------------ -----------------
Total stockholders' equity .......... 15,634 19,181
------------------ -----------------
Total liabilities and
stockholders' equity ................ $ 29,306 $ 28,626
------------------ -----------------
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
-3-
<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------------- ----------------------
1997 1996 1997 1996
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue:
Product licenses..................... $ 6,430 $ 3,801 $ 16,884 $10,992
Maintenance and services............. 1,345 1,167 4,244 3,062
Other................................ 91 141 358 425
---------- -------- ---------- ---------
Total revenue................... 7,866 5,109 21,486 14,479
Cost of revenue:
Product licenses..................... 184 156 533 434
Maintenance and services............. 171 122 421 333
---------- -------- ---------- ---------
Total cost of revenue........... 355 278 954 767
---------- -------- ---------- ---------
Gross profit............... 7,511 4,831 20,532 13,712
---------- -------- ---------- ---------
Operating expenses:
Research and development............. 1,611 1,453 4,698 4,310
Sales and marketing.................. 2,690 2,357 7,778 6,761
General and administrative........... 959 785 3,014 2,329
In-process technology................ 19,937 - 19,937 -
---------- -------- ---------- ---------
Total operating expenses........ 25,197 4,595 35,427 13,400
---------- -------- ---------- ---------
Income (loss) from operations............. (17,686) 236 (14,895) 312
Interest expense.......................... (1) (17) (10) (93)
Other income, net......................... 348 27 797 49
Gain on sale of TDS product line.......... 5,569 - 5,569 -
---------- -------- ---------- ---------
Income (loss) before income taxes......... (11,770) 246 (8,539) 268
Income tax provision...................... 640 34 820 243
---------- -------- ---------- ---------
Net income (loss)......................... $(12,410) $ 212 $(9,359) $ 25
---------- -------- ---------- ---------
---------- -------- ---------- ---------
Net income (loss) per share................ $ (0.87) $ 0.02 $ (0.67) $ (0.00)
---------- -------- ---------- ---------
---------- -------- ---------- ---------
Number of shares used in per share
calculation............................... 14,250 12,959 14,039 12,608
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
-4-
<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (9,359) $ 25
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 624 663
Gain on sale of TDS product line................. (5,569) -
Writeoff of acquired in-process technology....... 19,937 -
Loss on asset disposition........................ (1) 5
Changes in assets and liabilities:
Accounts receivable.......................... 855 1,403
Prepaid expenses and other................... 5 (99)
Accounts payable............................. 434 (65)
Accrued liabilities.......................... 1,742 557
Deferred revenue............................. 1,294 1,081
Deferred taxes............................... 537 -
Other, net................................... (76) 194
--------- ---------
Net cash provided by operating activities........... 9,349 3,764
--------- ---------
Cash flows from investing activities:
Additions to furniture and equipment................ (1,252) (553)
Acquisitons, net of cash received................... (3,819) -
Proceeds from sale of TDS product line, net......... 4,643 -
Proceeds from sale of assets........................ 8 6
Notes receivable from related parties............... (490) -
Invest in Joint Venture............................. - (100)
--------- ---------
Net cash used in investing activities............ (910) (647)
--------- ---------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs 700 119
Payments to acquire treasury stock.................. (11,555) -
Issuance of TriQuest Preferred Stock................ - 986
Stock issuance costs................................ - 674
Repurchase of common stock.......................... - (2)
Proceeds from long-term debt........................ - 73
Short term borrowings............................... - (164)
Principal payments of debt obligations.............. (71) (347)
Principal payments of capital lease obligations..... (61) (1,050)
--------- ---------
Net cash used in financing activities............ (10,987) (1,059)
--------- ---------
Increase (decrease) in cash and cash
equivalents.................................... (2,548) 2,058
Cash and cash equivalents, beginning of period.......... 19,772 704
--------- ---------
Cash and cash equivalents, end of period................ $ 17,224 $ 2,762
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................... $ 10 $ 64
Income taxes..................................... 104 188
Supplemental disclosure of non-cash investing
and financing activities:
Equipment acquired under capital lease........... - 23
Acquisition, net of cash acquired:
Net current assets, other than cash acquired........ $ (1,600)
Furniture and equipment............................. 377
In-process technology............................... 19,937
Purchased technology and intangibles................ 1,772
Stock issued........................................ (16,667)
Cash used, net of cash acquired..................... (3,819)
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
-5-
<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Summit
Design, Inc. ("the Company") in accordance with the rules and regulations of
the Securities and Exchange commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
in accordance with such rules and regulations. The December 31, 1996 balance
sheet was derived from the audited financial statements but does not include
all of the disclosures required by generally accepted accounting principles.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company, and its
results of operations and cash flows. These financial statements should be
read in conjunction with the audited financial statements and notes thereto
for the years ended December 31, 1996, 1995, and 1994 included in the
Company's Form 10-K filed for December 31, 1996.
The results of operations for the nine months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997 or any other future interim period, and the Company
makes no representations related thereto.
2. ACQUISITION OF TRIQUEST DESIGN AUTOMATION, INC.
On February 28, 1997, the Company acquired TriQuest Design Automation, Inc.,
a California corporation (TriQuest"). TriQuest develops hardware description
language ("HDL") analysis, optimization and verification tools for the design
of high performance, deep submicron integrated circuits. The aggregate
consideration for the acquisition (including shares of common stock reserved
for issuance upon exercise of TriQuest options assumed by the Company) was
775,000 shares of common stock. The transaction was accounted for as a
"pooling of interests" in accordance with generally accepted accounting
principles. In compliance with such principles, the Company's operating
results have been restated to include the results of TriQuest as if the
acquisition had occurred at the beginning of the first period presented.
The following presents the previously separate results of operations of
TriQuest for the year ended December 31, 1996 and for the two months ended
February 28, 1997:
December 31, 1997 February 28, 1997
----------------- -----------------
(In thousands, except per share data)
Revenues $ 151 $ 199
------- -------
------- -------
Net loss $ 1,425 $ 143
------- -------
------- -------
3. SALE OF TDS PRODUCT LINE
On July 11, 1997 the Company sold substantially all of the assets used in its
business of developing and marketing its Test Development Series "TDS"
Products (the "Asset Sale") to Credence Systems Corporation ("CSC") for $5
million. CSC assumed certain liabilities, including the Company's
obligations under TDS maintenance contracts entered into prior to the
closing. CSC also agreed to purchase $2 million of Visual interface licenses
in the second quarter of 1997. TDS product license, maintenance and services
and other revenue for the three months ended September 30, 1997 and 1996 were
$0 and $1,758,000, respectively, and for the nine months ended September 30,
1997 and 1996 were $3,530,000 and $5,400,000, respectively, and $7,331,000
for the year ended December 31, 1996.
The Company and CSC also entered into a Software OEM License agreement ("OEM
Agreement") in which CSC agreed to purchase $16 million of Visual Testbench
licenses over a thirty-month period beginning July 1997 subject to specified
quarterly maximums and certain additional conditions. Additionally CSC
entered into an 18 month maintenance agreement beginning July 1997 for $2
million associated with the Visual Testbench product.
-6-
<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. ACQUISITION OF SIMULATION TECHNOLOGIES CORP.
On September 9, 1997, the Company acquired Simulation Technologies Corp.
("SimTech"), a Minnesota Corporation. SimTech develops and distributes
hardware-software co-verification, code coverage and HDL debugging software.
The aggregate consideration for the acquisition (including shares of common
stock reserved for issuance upon exercise of SimTech options assumed by the
Company) was 1,980,000 shares of Summit common stock valued at $16,667,000
and $3,875,000 in cash. The transaction was accounted for using the purchase
method of accounting. Accordingly, the results of operations for the period
from September 9, 1997 are included in the consolidated financial statements.
The purchase price was allocated to the net assets acquired based on their
estimated fair market values at the date of acquisition. The fair value of
tangible assets acquired and liabilities assumed were $1.3 million and $2.1
million, respectively. In addition, $19.9 million was allocated to
in-process technology which had not reached technological feasibility and had
no probable alternative uses, which the Company expensed as of the
acquisition date. The remainder of the purchase price was allocated to
Purchased technology ($1,037,000) and identifiable intangibles ($735,000),
which are being amortized on a straight-line basis over three and five years
respectively.
The following table reflects unaudited pro forma combined results of
operations of the Company and SimTech on a basis that the acquisition had
taken place at the beginning of the fiscal year for each of the periods
presented, excluding the effect of the one time charge of in-process
technology:
December 31, 1996 September 30, 1997
----------------- -----------------
(In thousands, except per share data)
Revenues $ 24,038 $ 25,325
-------- --------
-------- --------
Net Income $ 2,872 $ 8,409
-------- --------
-------- --------
Net income per common share $ 0.21 $ 0.53
-------- --------
-------- --------
Number of shares used in
per share calculation 13,629 15,827
-------- --------
-------- --------
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred
had the acquisition been consummated at the beginning of 1996 or at the
beginning of 1997 or under the ownership and management of the Company.
In connection with this transaction the Company also repurchased 939,000
shares of Summit common stock in private transactions at an average price of
$12.30 per share for an aggregate of $11,555,000 in cash.
5. NOTE RECEIVABLE
In July 1997, the Company entered into an agreement to lend up to $2.5
million to an independent software development company pursuant to a secured
loan agreement. Borrowings under this agreement bear interest at prime rate
plus 2%.
6. BALANCE SHEET COMPONENTS, (IN THOUSANDS)
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
Accounts Receivable:
Trade receivables....................... $ 5,667 $ 6,000
Less allowance for doubtful accounts.... (449) (433)
------------------ -----------------
$ 5,218 $ 5,567
------------------ -----------------
------------------ -----------------
Furniture and equipment:
Office furniture equipment............. $ 530 $ 513
Computer equipment..................... 4,401 3,124
Leasehold improvements................. 66 41
In-process assets...................... 102 -
------------------ -----------------
5,099 3,678
Less: accumulated depreciation........... (2,522) (1,846)
------------------ -----------------
$ 2,577 $ 1,832
------------------ -----------------
------------------ -----------------
-7-
<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Accrued expenses:
Commissions payable.................... $ 46 $ 173
Payroll and related benefits........... 2,314 1,610
Accrued management relocation costs.... 160 24
Accounting and legal................... 418 301
Federal and state income taxes payable. 1,256 18
Sales taxes payable.................... 117 96
Other.................................. 936 647
------------------ -----------------
Total accrued expenses.............. $ 5,247 $ 2,869
------------------ -----------------
------------------ -----------------
Long-term debt:
Marketing grant payable to the Israeli $ 364 $ 364
government Chief Scientist grant
payable to the Israeli government.... 702 773
------------------ -----------------
Total long-term debt..................... 1,066 1,137
Less current portion..................... (391) (462)
------------------ -----------------
Non current portion...................... $ 675 $ 675
------------------ -----------------
------------------ -----------------
7. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128") and Statement of Financial Accounting Standards No. 129
"Disclosure of Information about Capital Structure" ("SFAS 129"), which are
effective for the Company's 1997 fiscal year. The Company's management has
studied the implications of SFAS 128 and SFAS 129, and based on the initial
evaluation, does not expect the adoption to have a material impact on the
Company's financial condition or results of operations.
In June 1997, FASB issued SFAS No. 130, "Comprehensive Income" SFAS No. 130
becomes effective in 1998 and requires reclassification of earlier financial
statements for comparative purposes. SFAS No. 130 requires that changes in
the amounts of certain items, including foreign currency translation
adjustments and gains and losses on certain securities be shown in the
financial statements. SFAS No. 130 does not require a specific format for the
financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported in
that statement. Management has not yet determined the effect, if any, of SFAS
No. 130 on the consolidated financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This Statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected
segment information in their quarterly reports issued to shareholders. It
also requires entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Statement is effective for fiscal
years beginning after December 15, 1997. Management has no yet determined
the effect, if any, of SFAS No.131 on the consolidated financial statements.
In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition",
which supersedes SOP 91-1 and is effective for transactions entered into in
years beginning after December 15, 1997. Management is currently studying the
implications of this Statement and does not expect adoption to have a material
impact on the Company's financial condition or results of operations.
-8-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
The following discussion contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Predictions of future events are inherently
uncertain. Actual events could differ materially from those predicted in the
forward looking statements as a result of the risks set forth in the
following discussion, and, in the particular, the risks discussed below under
the subheading "Additional Risk Factors that Could Affect Operating Results
and Market Price of Stock."
OVERVIEW
Summit was founded in December 1993 to act as the holding company for Test
Systems Strategies, Inc. ("TSSI") and SEE Technologies Software Environment
for Engineers Ltd. ("SEE Technologies"), (now Summit Design (EDA) Ltd.)
(collectively , the "Reorganization"). TSSI was founded in 1979 to develop
and market integrated circuit ("IC" or "chip") manufacturing test products.
In January 1993, TSSI retained a new Chief Executive Officer and began to
restructure its senior management team. Thereafter, the Company broadened its
strategy from focusing primarily on manufacturing test products to include
providing graphical Systems Level Design Automation ("SLDA") design creation
and verification tools and integrating these with its core technology. As
part of its strategy, in early 1994, TSSI acquired SEE Technologies, an
Israeli company that, through its predecessor, began operations in 1983 and
had operated primarily as a research and development and consulting company
focused on the electronic design automation ("EDA") and SLDA market. As a
result of the Reorganization, TSSI and SEE Technologies became wholly-owned
subsidiaries of Summit in the first quarter of 1994.
The Company's ongoing implementation of its strategy has involved significant
expenditures. Following the Reorganization, the Company significantly
increased its research and development expenditures to support the continued
development of SLDA and Design to Test products. To promote its products, the
Company has added sales and marketing staff, increasing its sales and
marketing expenditures by 147% from 1993 to 1996, and has restructured its
key distributor relationships. This concurrent effort to develop products and
promote market awareness and acceptance of its products in a new and evolving
market contributed to the Company's annual losses. The Company introduced
its first SLDA product, Visual HDL for VHDL 1.0, in the first quarter of
1994. This product lacked compiled simulation and operated only on a PC
platform. In the third quarter of 1994, with the release of version 2.5,
Summit expanded the simulation capability of Visual HDL for VHDL and
introduced its UNIX-based version of this product.
Prior to the Reorganization, the Company's TDS product and related
maintenance revenue accounted for all of the Company's revenue. After the
Reorganization, the Company's revenue has been predominantly derived from two
product lines, Visual HDL, which includes Visual HDL for VHDL and Visual HDL
for Verilog, and TDS. As of July 1, 1997 with the sale of the TDS product
line, Design to Test products are no longer a source of revenue. With the
acquisition of TriQuest Design Automation ("TriQuest") in February 1997 and
Simulation Technologies Corp ("SimTech"), in September 1997,the Company has
also derived revenue from verification products which include
hardware-software co-verification, code coverage,and HDL debugging products
as well as analysis, verification and RTL optimization tools.
Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer training. Revenue from the sale of
software licenses is recognized at the later of the time of shipment or
satisfaction of all acceptance terms. Maintenance revenue is deferred and
recognized ratably over the term of the maintenance agreement, which is
typically 12 months. Revenue from customer training is recognized when the
service is performed. The Company sells its products through a direct sales
force in North America and selected European countries and through
distributors in the Company's other international markets. Revenue from
product sales through distributors is recognized net of the associated
distributor
-9-
<PAGE>
discounts. Fees received for granting distribution rights are deferred and
recognized ratably over the term of the distribution agreement. Although the
Company has not adopted a formal return policy, the Company generally
reimburses customers in full for returned products. Estimated sales returns
are recorded upon delivery of the product.
The Company's products have a range of prices which depend on platform, HDL
language, functionality and duration of license. In addition, the Company's
products perform a variety of functions, certain of which are, and in the
future may be, offered as separate products or discrete point solutions by
the Company's existing and future competitors. For example, certain companies
currently offer design entry products without simulators. There can be no
assurance that such competition will not cause the Company to offer point
solutions instead of, or in addition to, the Company's current software
products. Such point solutions would be priced lower than the Company's
current product offerings and could cause the Company's average selling
prices to decrease. Accordingly, based on these and other factors, the
Company expects that average selling prices for its products may continue to
fluctuate in the future.
The Company has entered into a joint venture with Anam, effective April 1,
1996, pursuant to which the joint venture corporation (Summit Asia) shall
acquire exclusive rights to sell, distribute and support all of Summit's
products in the Asia-Pacific region, excluding Japan. Summit Asia has acted
in such capacity since April 1, 1996. Prior to that date, Anam was an
independent distributor of the Company's products in Korea. The amount of
revenue from sales through Summit Asia which is remitted to the Company is
fixed by the joint venture agreement at a percentage which approximates the
percentage applicable to sales through Anam prior to the formation of the
joint venture. Excluding one-time sales of technology, sales through Anam
accounted for 2.4% and 3.6% of the Company's total revenue and for 21.7% and
33.8% of the Company's revenue attributable to the Asia-Pacific region
excluding Japan for the years ended December 31, 1995 and 1994, respectively.
For the year ended December 31, 1996, Anam and Summit Asia together
accounted for 3.8% of the Company's revenue for the nine months ended
September 30, 1997. Summit Asia accounted for 3.0% of the Company's revenue.
The Company accounts for its ownership interest in Summit Asia on the equity
method of accounting and, as a result, the Company's pro rata share of the
earnings and losses of Summit Asia is recognized as income or losses in
the Company's income statement in "Other income, net." The Company does not
expect Summit Asia to recognize a profit for the foreseeable future and thus
does not expect to recognize income from its investment in Summit Asia for
the foreseeable future, if at all.
Approximately 24%, 51%, 37% and 51% of the Company's total revenue for the
three months ended September 30, 1997 and 1996, and for the nine months ended
September 30, 1997 and 1996, respectively, were attributable to sales made
outside the United States. The decline in the percentage of revenue from
sales made outside the United States for the three and nine months ended
September 30, 1997 as compared to the same periods in 1996 is primarily the
result of domestic sales to one customer. The Company expects that
international revenue will continue to represent a significant portion of its
total revenue. The Company's international revenue is currently denominated
in U.S. dollars. As a result, increases in the value of the U.S. dollar
relative to foreign currencies could make the Company's products more
expensive and, therefore, potentially less competitive in those markets. The
Company pays the expenses of its international operations in local currencies
and does not engage in hedging transactions with respect to such obligations.
International sales and operations are subject to numerous risks, including
tariff regulations and other trade barriers, requirements for licenses,
particularly with respect to the export of certain technologies,
collectability of accounts receivable, changes in regulatory requirements,
difficulties in staffing and managing foreign operations and extended payment
terms. (1)
On February 28, 1997, Summit completed its acquisition of TriQuest. TriQuest
develops HDL analysis, optimization and verification tools for the design of
high performance, deep submicron integrated circuits. The transaction is
being accounted for as a "pooling of interest" in accordance with generally
accepted accounting principals.
- -------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 19 for a discussion of factors that could affect future performance.
-10-
<PAGE>
Effective July 1, 1997 the Company sold substantially all of the assets used
in its business of developing and marketing its Test Development Series "TDS"
Products (the "Asset Sale") to Credence Systems Corporation ("CSC"). The
increase in the Company's product licenses revenue during the last nine
quarters has been primarily due to increased revenue associated with the
Company's SLDA products. The Asset Sale will allow the Company to focus on
the development and marketing of these products.
Substantially all of the Company's Design to Test product license revenue and
related maintenance and services revenue for the year ended December 31, 1996
and the nine months ended September 30, 1997 were attributable to the TDS
products. As of July 1, 1997, TDS products ceased to be a source of such
revenues. CSC assumed the Company's obligations under TDS maintenance
contracts entered into prior to the closing and the Company will not
recognize deferred revenue associated with such contracts after June 30, 1997.
The Company maintained exclusive rights to its Visual Testbench technology
and CSC agreed to purchase a minimum of $16,000,000 of Visual Testbench
licenses over a thirty-month period beginning July 1997 subject to specified
quarterly maximums and certain additional conditions, and $2,000,000 of
maintenance over an eighteen month period beginning July 1997. At the
completion of the thirty month period, under certain conditions, CSC may
obtain shared ownership to the Visual Testbench for sales into the ATE
marketplace.
On September 9, 1997, the Company acquired SimTech, a company that develops
and distributes hardware-software co-verification, code coverage and HDL
debugging software. The aggregate consideration for the acquisition
(including shares of common stock reserved for issuance upon exercise of
SimTech options assumed by the Company) was 1,980,000 shares of Summit common
stock and $3,875,000 in cash. The transaction was accounted for using the
purchase method of accounting. Accordingly, the results of operations for the
period from September 9, 1997 are included in the consolidated financial
statements. The purchase price was allocated to the net assets acquired based
on their estimated fair market values at the date of acquisition. The fair
value of tangible assets acquired and liabilities assumed were $1.3 million
and $2.1 million, respectively. In addition, $19.9 million was allocated to
in-process technology which had not reached technological feasibility and had
no probable alternative uses, which the Company expensed as of the
acquisition date. The remainder of the purchase price was allocated to
Purchased technology ($1,097,000) and identifiable intangibles ($735,000),
which are being amortized on a straight-line basis over three and five years
respectively.
The Company's net loss per share for the three and nine months ended
September 30, 1997 was $(0.87) and (0.67), respectively. Common stock
equivalents are excluded from the calculation of earnings per share when the
effect on earnings per share is antidilutive. Had the common stock
equivalents been included in the earnings per share calculation, net loss per
share for the three months and nine months ended September 30, 1997 would
have been $(0.82) and $(0.63), respectively.
-11-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial
data as a percentage of revenue.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Product licenses. . . . . . . . . 81.7 % 74.4 % 78.6 % 75.9 %
Maintenance and services. . . . . 17.1 22.8 19.8 21.2
Other . . . . . . . . . . . . . . 1.2 2.8 1.6 2.9
-------- -------- -------- --------
Total revenue . . . . . . . . 100.0 100.0 100.0 100.0
Cost of revenue:
Product licenses. . . . . . . . . 2.3 3.1 2.5 3.0
Maintenance and services. . . . . 2.2 2.4 2.0 2.3
-------- -------- -------- --------
Total Cost of revenue . . . . 4.5 5.5 4.5 5.3
-------- -------- -------- --------
Gross profit. . . . . . . . . 95.5 94.5 95.5 94.7
Operating expenses:
Research and development. . . . . 20.5 28.5 21.9 29.8
Sales and marketing . . . . . . . 34.2 46.1 36.2 46.7
General and administrative (a). . 12.2 15.3 14.0 16.1
In-process technology . . . . . . 253.4 - 92.8 -
-------- -------- -------- --------
Total operating expenses. . . 320.3 89.9 164.9 92.6
-------- -------- -------- --------
Income-from operations . . . . . . . . (224.8) 4.6 (69.4) 2.1
Other income (expense), net. . . . . . 75.2 0.2 29.6 (0.2)
-------- -------- -------- --------
Income (loss) before income taxes. . . (149.6) 4.8 (39.8) 1.9
Income tax provision . . . . . . . . . 8.2 0.7 3.8 1.7
-------- -------- -------- --------
Net income (loss) . . . . . .. . . . . (157.8) % 4.1 % (43.6) % 0.2 %
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
(a) General and administrative expenses for the nine months ended September
30, 1997 include a one-time charge of $379,000 (1.8% of revenue) for
costs relating to the acquisition of TriQuest.
TOTAL REVENUE
The Company's revenue is comprised of product licenses revenue, maintenance
and services revenue and other revenue. Total revenue increased by 54% from
$5.1 million for the three months ended September 30, 1996 to $7.9 million
for the three months ended September 30, 1997 and total revenue increased by
48.4% from $14.5 million for the nine months ended September 30, 1996 to
$21.5 million for the nine months ended September 30, 1997.
Sales through one distributor accounted for 12.3% and 13.5% of the Company's
total revenue for the three months ended September 30, 1997 and 1996,
respectively. Sales through one distributor accounted for 12.9% and 15.5% of
the Company's total revenue for the nine months ended September 30, 1997 and
1996, respectively. Sales to one customer accounted for 41.4 % of total
revenue for the three months ended September 30, 1997 and 25% of total
revenue for the nine months ended September 30, 1997. No single customer
accounted for more than 10% of the Company's total revenue for the three
months and nine months ended September 30, 1996.
-12-
<PAGE>
PRODUCT LICENSES REVENUE
The Company's product licenses revenue is derived from license fees from the
Company's SLDA Design and Verification products and additionally, from Design
to Test products through June 30, 1997. Product licenses revenue increased
by 69.2% from $3.8 million for the three months ended September 30, 1996 to
$6.4 million for the three months ended September 30, 1997, and increased by
53.6% from $11.0 million for the nine months ended September 30, 1996 to
$16.9 million for the nine months ended September 30, 1997.
Because of the addition of SLDA functionality to Visual Testbench beginning
with the release of Version 2.0 in December 1996, the Company recognizes
revenue from Visual Testbench products as SLDA revenue instead of Design to
Test revenue.
SLDA revenue increased 135% from $3.4 million for the three months ended
September 30, 1996 to $7.9 million for the three months ended September 30,
1997. SLDA revenue increased 98% from $9.1 million for the nine months ended
September 30, 1996 to $18.0 million for the nine months ended September 30,
1997. The increase in SLDA revenue for the three months and nine months
ended September 30, 1997 over the same period in 1996 was primarily
attributable to sales to a single customer and to revenue from the
Verification product portfolio that was not shipping in the comparable period
in 1996. Significant sales to the single customer are expected to continue
over the next nine quarters pursuant to contractual arrangements with that
customer.
As a result of the sale of all of the assets used in the business of
developing and marketing the TDS Products effective July 1, 1997, there were
no Design to Test revenues for the three months ended September 30, 1997 as
compared to $1 million for the three months ended September 30, 1996.
MAINTENANCE AND SERVICES REVENUE
The Company's maintenance and services revenue is derived from maintenance
contracts and training classes offered to purchasers of the Company's
software products. Maintenance and services revenue increased 15.3% from
$1.17 million for the three months ended September 30, 1996 to $1.35 million
for the three months ended September 30, 1997. Maintenance and services
revenue increased 38.6% from $3.1 million for the nine months ended September
30, 1996 to $4.2 million for the nine months ended September 30, 1997.
The increase in maintenance and services revenue for the three months ended
September 30, 1997 over the same period in 1996, was comprised of $940,000
attributable to additional maintenance revenue related to growth in the
installed base of SLDA customers over the previous year, less $761,000 of
Design to Test maintenance revenue for the three months ended September 30,
1996 for which there was no revenue in the comparable period in 1997 as a
result of the sale of the TDS product line.
OTHER REVENUE
Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. For the three months ended
September 30, 1997 and 1996, respectively, other revenue was comprised of
$91,000 and $141,000 of distribution rights fees. For the nine months ended
September 30, 1997 and 1996, respectively, other revenue was comprised of
$358,000 and $425,000 of distribution rights fees. In May 1997 a
distribution agreement expired; and, as a result, the distribution rights
fees paid at the inception of the agreement and amortized to revenue at
$50,000 each quarter over the agreement period will no longer be a source of
other revenue. Total other revenue relating to the TDS product line amounted
to $42,000 and $75,000 for the nine months ended September 30, 1997 and
September 30, 1996, respectively. No material costs were associated with
other revenue for the three months and nine months ended September 30, 1997
and 1996.
-13-
<PAGE>
COST OF REVENUE
COST OF PRODUCT LICENSES REVENUE
Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs plus the amortization of
purchased technology acquired in the SimTech purchase. The cost of product
license revenue increased from $156,000 for the three months ended September
30, 1996 to $184,000 for the three months ended September 30, 1997 and
increased from $434,000 for the nine months ended September 30, 1996 to
$533,000 for the nine months ended September 30, 1997. As a percentage of
product licenses revenue, the cost of product licenses revenue decreased from
4.1% of product license revenue to 2.8% of product license revenue for the
three months ended September 30, 1996 and 1997, respectively, and also
decreased from 3.9% to 3.2% of product license revenue for the nine months
ended September 30, 1996 and 1997, respectively. The decrease in the cost of
product license revenue as a percent of product license revenue for the three
months and nine months ended September 30, 1997 over the same periods in 1996
was due primarily to spreading fixed costs over increased revenues and cost
savings from delivering verification products electronically.
COST OF MAINTENANCE AND SERVICES REVENUE
Cost of maintenance and services revenue, which consists primarily of
personnel costs for customer support and training classes offered to
purchasers of the Company's products, increased 40.2% from $122,000 for the
three months ended September 30, 1996 to $171,000 for the three months ended
September 30, 1997 and increased 26.4% from $333,000 for the nine months
ended September 30, 1996 to $421,000 for the nine months ended September 30,
1997. As a percentage of maintenance and services revenue, the cost of
maintenance and services revenue increased from 10.5% for the three months
ended September 30, 1996 to 12.7% for the three months ended September 30,
1997 and decreased from 10.9% for the nine months ended September 30, 1996 to
9.9% for the nine months ended September 30, 1997. The decrease in the cost
of maintenance and services revenue as a percent of revenue for the nine
months ended September 30, 1997 over the same period in 1996 was primarily
the result of the Company operating below forecasted staffing levels during
the first half of 1997. The Company has increased headcount during the third
quarter of 1997.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
Research and development expenses consist of the engineering and operations
support costs of developing new products and enhancements to existing
products and performing quality assurance activities. Research and
development expenses increased 10.9% from $1.5 million for the three months
ended September 30, 1996 to $1.6 million for the three months ended September
30, 1997. Research and development expenses increased 9% from $4.3 million
for the nine months ended September 30, 1996 to $4.7 million for the nine
months ended September 30, 1997. As a percentage of total revenue, research
and development expenses decreased from 28.4% for the three months ended
September 30, 1996 to 20.5% for the three months ended September 30, 1997 and
also decreased as a percentage of revenue from 29.8% for the nine months
ended September 30, 1996 to 21.9% for the nine months ended September 30,
1997. During the three months ended September 30, 1997, in connection with
the sale of the TDS product line on July 1, 1997, the Company's research and
development staff decreased by 15 engineers. With the acquisition of SimTech
on September 9, 1997 the Company added 28 engineers. Additionally, the
Company hired 18 new engineers during the third quarter of 1997. The Company
continues to believe that significant investment in research and development
is required to remain competitive in its markets.
-14-
<PAGE>
Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which the Company is
required to capitalize software development costs after technological
feasibility has been established. To date, development costs have been
expensed as incurred since technological feasibility generally has not been
established until shortly before the release of a new product, and no
material development costs have been incurred after establishment of
technological feasibility.
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 14.1% from $2.4 million for the three months
ended September 30, 1996 to $2.7 million for the three months ended September
30, 1997 and increased 15% from $6.8 million for the nine months ended
September 30, 1996 to $7.8 million for the nine months ended September 30,
1997. The increase for the nine months ended September 30, 1997 over the
same period in 1996 was attributable to the addition of ten sales and
marketing personnel and the related increased commissions and travel
expenses. As a percentage of total revenue, sales and marketing expenses
decreased from 46.1% for the three months ended September 30, 1996 to 34.2%
for the three months ended September 30, 1997 and decreased from 46.7% for
the nine months ended September 30, 1996 to 36.2% for the nine months ended
September 30, 1997. The decrease as a percentage of revenue was primarily
attributable to the increase in total revenue for 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, and legal and
accounting expenses of the Company. General and administrative expenses
increased 22.2% from $785,000 for the three months ended September 30, 1996
to $959,000 for the three months ended September 30, 1997 and increased 29.4%
from $2.3 million for the nine months ended September 30, 1996 to $3.0
million for the nine months ended September 30, 1997, which includes a
$379,000 one-time charge for costs associated with the acquisition of
TriQuest. Excluding this one-time charge, general and administrative
expenses increased by $306,000 (13.1%) for the nine months ended September
30, 1997 as compared to the same period in the prior year. As a percentage
of total revenue, excluding the one time charge for costs associated with the
acquisition of TriQuest, general and administrative expenses decreased from
15.4% for the three months ended September 30, 1996 to 12.2% for the three
months ended September 30, 1997 and decreased from 16.1% for the nine months
ended September 30, 1996 to 12.3% for the nine months ended September 30,
1997. The decrease as a percentage of total revenue was attributable to the
increase in total revenue in 1997. The Company expects general and
administrative expenses to increase in absolute dollars to support future
sales and operations, including acquired operations, and the additional costs
associated with being a public company.(2)
ACQUIRED IN-PROCESS TECHNOLOGY
For the three months ended September 30, 1997, $19.9 million of the purchase
price for the acquisition of Simulation Technologies, Corp. ($22.1 million)
was allocated to in-process technology and accordingly, was expensed as of
the acquisition date (September 9, 1997). The amount allocated to the
in-process technology represented the estimated fair value determined based
upon known valuation techniques in the high technology industry. The
technological feasibility of in-process technology had not been established
and had no alternative future use at the time of the acquisition.
- -------------------
(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 19 for a discussion of factors that could affect future performance.
-15-
<PAGE>
INTEREST EXPENSE
Interest expense decreased from $17,000 for the three months ended September
30, 1996 to $1,000 for the three months ended September 30, 1997 and
decreased from $93,000 for the nine months ended September 30, 1996 to
$10,000 for the nine months ended September 30, 1997 due to decreased
borrowings under the Company's bank line of credit, long term debt and
capital leases obligations.
OTHER INCOME, NET
Other income consists of interest income associated with available cash
balances, gains or losses from the sale of property and equipment, the
Company's pro rata share of the earnings and losses of Summit Design Asia and
foreign exchange rate differences resulting from paying operating expenses of
foreign operations in the local currency. Other income was $27,000 for the
three months ended September 30, 1996 and $348,000 for the three months ended
September 30, 1997 and $49,000 for the nine months ended September 30, 1996
and $797,000 for the nine months ended September 30, 1997. The increase in
other income was primarily due to increased interest earned on the Company's
cash holdings.
GAIN ON SALE OF TDS PRODUCT LINE
On July 11, 1997 the Company sold substantially all of the assets used in its
business of developing and marketing its Test Development Series "TDS"
Products to CSC for $5 million. CSC assumed certain liabilities, including
the Company's obligations under TDS maintenance contracts entered into prior
to the closing. The Company has recorded a gain on the sale of $5,569,000.
INCOME TAX PROVISION
The income tax provision increased from $34,000 for the three months ended
September 30, 1996 to $640,000 for the three months ended September 30, 1997
and increased from $243,000 for the nine months ended September 30, 1996 to
$820,000 for the nine months ended September 30, 1997. The Company utilized
substantially all of its U.S. Federal and State net operating loss
carryforwards to offset a considerable portion of U.S. taxable income for the
nine months ending September 30, 1997. The provision of $820,000 for the
nine months ended September 30, 1997 is comprised of $1,357,000 of Federal,
State and foreign taxes payable, less $537,000 of deferred tax benefit
recognized for research and development credits and alternative minimum tax
credits. The provision for the nine months ended September 30, 1996 is
comprised primarily of Japanese withholding tax on sales in Japan through
June 1996 and alternative minimum tax.
VARIABILITY OF OPERATING RESULTS
The Company has experienced significant quarterly fluctuations in operating
results and cash flows and it is likely that these fluctuations will continue
in future periods. These fluctuations have been, and may in the future be,
caused by a number of factors, including the rate of acceptance of new
products, corporate acquisitions and consolidations, product, customer and
channel mix, the size and timing of orders, lengthy sales cycles, the timing
of new product announcements and introductions by the Company and its
competitors, seasonal factors, rescheduling or cancellation of customer
orders, the Company's ability to continue to develop and introduce new
products and product enhancements on a timely basis, the level of
competition, purchasing and payment patterns and product enhancements on a
timely basis, the level of competition, purchasing and payment patterns,
pricing policies of the Company and its competitors, product quality issues,
currency fluctuations and general economic conditions.
The Company has generally recognized a substantial portion of its revenue in
the last month of each quarter, with this revenue concentrated in the latter
part of the month. Any significant deferral of purchases of the
-16-
<PAGE>
Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations in any particular
quarter, and to the extent that significant sales occur earlier than
expected, operating results for subsequent quarters may be adversely
affected. The Company's revenue is difficult to forecast for several reasons.
The market for certain of the Company's software products is evolving. The
Company's sales cycle is typically six to nine months and varies
substantially from customer to customer. In addition, a significant portion
of the Company's sales are made through indirect channels and can be harder
to predict. The Company establishes its expenditure levels for product
development, sales and marketing and other operating activities based
primarily on its expectations as to future revenue. As a result, if revenue
in any quarter falls below expectations, expenditure levels could be
disproportionately high as a percentage of revenue, and the Company's
operating results for that quarter would be adversely affected. Based upon
the factors described above, the Company believes that its quarterly revenue,
expenses and operating results are likely to vary significantly in the
future, that period-to-period comparisons of its results of operations are
not necessarily meaningful and that, as a result, such comparisons should not
be relied upon as indications of the Company's future performance. Moreover,
although the Company's revenue has increased in recent periods, there can be
no assurance that the Company's revenue will grow in future periods or that
the Company will remain profitable on a quarterly or annual basis. Due to the
foregoing or other factors, it is likely that the Company's results of
operations may be below investors' and market analysts' expectations in some
future quarters, which could have a severe adverse effect on the market price
of the Company's Common Stock.
EFFECTIVE CORPORATE TAX RATES
The Company is taxed in its jurisdictions of operations based on the extent
of taxable income generated in each jurisdiction. For income tax purposes,
revenue is attributed to the taxable jurisdiction where the sales
transactions generating the revenue were initiated. All sales transactions by
Summit Design (EDA) Ltd., the Company's Israeli subsidiary, to the Company
were recorded as arm's length transactions based on an intercompany pricing
agreement. All sales transactions by the Company are to unrelated parties and
are based upon prevailing market prices. There is no offset of taxes between
the United States and Israel. The Israeli operations are performed entirely
by Summit Design (EDA) Ltd., which is a separate taxable Israeli entity.
The Company's future effective tax rate depends in part on the availability
of United States and Israeli net operating loss ("NOLs") and credit
carryforwards. As of December 31, 1996, the Company had recorded U.S. federal
and state NOLs of approximately $9.0 million and $5.6 million, respectively
and Israeli NOLs of approximately $4.7 million. In addition the Company has
$1 million in credit carry forwards for U.S. tax purposes as of December 31,
1996. Neither the United States nor the Israeli taxing authorities have
verified the accuracy or availability of the Company's NOLs and credit
carryforward amounts. However, as a result of the Asset Sale and the Company's
current taxable income in the United States for the nine months ended
September 30, 1997, the Company expects to utilize substantially all of the
U.S. NOLs to offset current taxable income during 1997.(1)
In addition to its NOLs and credit carryforwards, the Company is currently
scheduled to receive tax benefits over the next several years under a tax
holiday in Israel. The Company's existing Israeli production facility has
been granted "Approved Enterprise" status under the Israeli Investment Law,
which entitles the Company to reductions in the tax rate normally applicable
to Israeli companies with respect to the income generated by its "Approved
Enterprise" programs. In particular, the tax holiday covers the seven-year
period beginning the first year in which Summit Design (EDA) Ltd. generates
taxable income from its "Approved Enterprise"
- ------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 19 for a discussion of factors that could affect future performance.
-17-
<PAGE>
(after using any available NOLs), provided that such benefits will terminate
in 2006 regardless of whether the seven-year period has expired. The tax
holiday provides that, during such seven-year period, a portion of the
Company's taxable income from its Israeli operations will be taxed at
favorable tax rates. The termination or reduction of the Company's Israeli
tax benefits would have a material adverse effect on the Company's overall
actual effective tax rate. The Company has recently applied for "Approved
Enterprise" status with respect to a new project and intends to apply in the
future with respect to additional projects. There can be no assurance that
the Company will be granted any approvals and therefore there can be no
assurance the Company will continue to receive favorable tax status in
Israel.
The Company is also subject to the risk that United States and foreign tax
laws and rates may change in a future period or periods, and that any such
changes may materially adversely affect the Company's tax rate. As a result
of the factors described above and other related factors, there can be no
assurance that the Company will maintain a favorable tax rate in future
periods. Any increase in the Company's effective tax rate, or variations in
the effective tax rate from period to period, could have a material adverse
effect on the Company's business, financial condition and results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed its initial public offering in October 1996, raising
$16.2 million, net of offering expenses. Prior to the IPO, the Company had
financed its operations primarily through the private placement of
approximately $15.4 million of capital stock, as well as capital equipment
leases, borrowings under its bank line of credit, Israeli research and
development grants and cash generated from operations. As of September 30,
1997, the Company had approximately $17.2 million in cash and cash
equivalents and a $1.0 million bank line of credit with United States
National Bank of Oregon ("the Bank"). The line of credit expires on April 30,
1998. Borrowings thereunder accrue interest at specified percentages above
the prime lending rate based on the Company's ratio of debt to tangible net
worth. Advances under the line of credit are limited to a specified
percentage of eligible accounts receivable (as defined in the line of
credit). Borrowings under the line of credit are collateralized by the
Company's accounts receivable, inventory and general intangible assets,
including its intellectual property rights. As of September 30, 1997, the
Company had no borrowings outstanding under this line of credit.
The Company is obligated to lend up to $2,500,000 to an independent software
development company pursuant to a secured loan agreement entered into during
July 1997. Borrowings under the agreement bear interest at prime rate plus 2%.
As of September 30, 1997, the Company had working capital of approximately
$10.3 million.
Net cash generated by operating activities was approximately $9.3 million and
$3.8 million for the nine months ended September 30, 1997 and 1996,
respectively. Cash generated by operating activities resulted primarily from
profitable operations plus the increase in accounts payable, accrued
liabilities and deferred revenue and a decrease in accounts receivable for
the nine months ended September 30, 1997. Cash generated from operating
activities for the nine months ended September 30, 1996 resulted primarily
from the significant collection of accounts receivable and an increase in
deferred revenue.
Net cash used in investing activities was approximately $910,000 and $647,000
for the nine months ended September 30, 1997 and 1996, respectively. Net cash
used in investing activities for the nine months ended September 30, 1997 was
related primarily to the acquisition of Simulation Technologies, Corp. in
September 1997, the purchase of furniture and equipment and loans to related
parties less the cash provided from the sale of the TDS product line. Net
cash used in investing activaities for the nine months ended September 30,
1996 related to the acquisition of furniture and equipment and a $100,000
investment in a Joint Venture.
Net cash used in financing activities for the nine months ended September 30,
1997,was approximately $11.0 million. Approximately $ 11.6 million was used
to purchase treasury stock and $100,000 was used for repayment of long-term
debt and capital lease obligations; $700,000 was provided by the issuance of
common
-18-
<PAGE>
stock. Net cash used in financing activities for the nine months ended
September 30, 1996, was approximately $1.1 million. For the nine months ended
September 30, 1996 approximately $1.6 million of cash was used for repayment
of short term borrowings, long-term debt and capital lease obligations which
was off set by $73,000 of cash provided by proceeds from long-term debt and
approximately $1.1 million of cash provided from the issuance of Summit
common and TriQuest preferred stock less IPO issuance costs of $674,000.
The Company presently believes that its current cash and cash equivalent,
together with funds expected to be generated from operations, will satisfy
the Company's anticipated working capital and other cash requirements for at
least the next 12 months.(2)
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE
OF STOCK
HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS
While the Company has generated net income in prior quarters, there can be no
assurance that the Company will be profitable in the future. In addition, the
Company has experienced significant quarterly fluctuations in operating
results and cash flows and it is likely that these fluctuations will continue
in future periods. These fluctuations have been, and may in the future be,
caused by a number of factors, including the rate of acceptance of new
products, corporate acquisitions and consolidations, product, customer and
channel mix, the size and timing of orders, lengthy sales cycles, the timing
of new product announcements and introductions by the Company and its
competitors, seasonal factors, rescheduling or cancellation of customer
orders, the Company's ability to continue to develop and introduce new
products and product enhancements on a timely basis, the level of
competition, purchasing and payment patterns, pricing policies of the Company
and its competitors, product quality issues, currency fluctuations and
general economic conditions.
The Company has generally recognized a substantial portion of its revenue in
the last month of each quarter, with this revenue concentrated in the latter
part of the month. Any significant deferral of purchases of the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations in any particular quarter, and
to the extent that significant sales occur earlier than expected, operating
results for subsequent quarters may be adversely affected. The Company's
revenue is difficult to forecast for several reasons. The market for certain
of the Company's software products is evolving. The Company's sales cycle is
typically six to nine months and varies substantially from customer to
customer. The Company operates with little product backlog because its
products are typically shipped shortly after orders are received. In
addition, a significant portion of the Company's sales are made through
indirect channels and can be harder to predict. The Company establishes its
expenditure levels for product development, sales and marketing and other
operating activities based primarily on its expectations as to future
revenue. As a result, if revenue in any quarter falls below expectations,
expenditure levels could be disproportionately high as a percentage of
revenue, and the Company's operating results for that quarter would be
adversely affected. Based upon the factors described above, the Company
believes that its quarterly revenue, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons
of its results of operations are not necessarily meaningful and that, as a
result, such comparisons should not be relied upon as indications of the
Company's future performance. Moreover, although the Company's revenue has
increased in recent periods, there can be no assurance that the Company's
revenue will grow in future periods or that the Company will remain
profitable on a quarterly or annual basis. Due to the foregoing or other
factors, it is likely that the Company's results of operations may be below
investors' and market analysts' expectations in some future quarters, which
could have a severe adverse effect on the market price of the Company's
Common Stock.
- ------------------------
(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
this page for a discussion of factors that could affect future performance.
-19-
<PAGE>
PRODUCT CONCENTRATION; UNCERTAINTY OF MARKET ACCEPTANCE OF SLDA
Prior to July 1997, the Company's revenue was predominantly derived from two
product lines, Visual HDL, which includes Visual HDL for VHDL and Visual HDL
for Verilog, and TDS. Effective July 1, 1997, as a result of the Asset Sale,
TDS products ceased to be a source of revenue. With the acquisition of
TriQuest in February 1997 and SimTech in September 1997, the Company also
derives revenue from verification products which include hardware-software
co-verification, code coverage,and HDL debugging products as well as
analysis, verification and RTL optimization tools.
The Company believes that SLDA products will continue to account for a
substantially all of its revenue in the future. As a result, factors
adversely affecting sales of these products, including increased competition,
inability to successfully introduce enhanced or improved versions of these
products, product quality issues and technological change, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's future success depends primarily upon the market acceptance of
its existing and future SLDA products. The Company commercially shipped its
first SLDA product, Visual HDL for VHDL, in the first quarter of 1994. For
the three months and the nine months ended September 30, 1997 and for the
years ended December 31, 1996, 1995 and 1994, respectively, revenue from SLDA
products and related maintenance contracts represented 100%, 83.6%, 60.9%,
43.6% and 34.8%, respectively, of the Company's total revenue. The Company's
SLDA products incorporate certain unique design methodologies and thus
represent a departure from industry standards for design creation and
verification. The Company believes that broad market acceptance of its SLDA
products will depend on several factors, including the ability to
significantly enhance design productivity, ease of use, interoperability with
existing EDA tools, price and the customer's assessment of the Company's
financial resources and its technical, managerial, service and support
expertise. The Company also depends on its distributors to assist the Company
in gaining market acceptance of its products. There can be no assurance that
sufficient priority will be given by the Company's distributors to marketing
the Company's products or whether such distributors will continue to offer
the Company's products. There can be no assurance that the Company's SLDA
products will achieve broad market acceptance. A decline in the demand for,
or the failure to achieve broad market acceptance of, the Company's SLDA
products will have a material adverse effect on the Company's business,
financial condition and results of operations.
Although demand for SLDA products has increased in recent years, the market
for SLDA products is still emerging and there can be no assurance that it
will continue to grow or that, even if the market does grow, businesses will
continue to purchase the Company's SLDA products. If the market for SLDA
products fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, financial condition and results of
operations would be materially adversely affected.
Traditionally, EDA customers have been risk averse in accepting new design
methodologies. Because many of Summit's tools embody new design
methodologies, this risk aversion on the part of potential customers presents
an ongoing marketing and sales challenge to the Company and makes the
introduction and acceptance of new products unpredictable. The Company's
Visual Testbench product, introduced in the fourth quarter of 1995, provides
a new methodology and requires a change in the traditional design flow for
creating IC test programs. The Company anticipates a lengthy period of test
marketing for the Visual Testbench product. Accordingly, the Company cannot
predict the extent, if any, to which it will realize revenue from Visual
Testbench in excess of the revenue expected to be received pursuant to an OEM
agreement entered into in July 1997.
COMPETITION
The EDA industry is highly competitive and the Company expects competition to
increase as other EDA companies introduce SLDA products. In the SLDA market,
the Company principally competes with Mentor
-20-
<PAGE>
Graphics and a number of smaller firms. Indirectly, the Company also competes
with other firms that offer alternatives to SLDA and could potentially offer
more directly competitive products in the future. Certain of these companies
have significantly greater financial, technical and marketing resources and
larger installed customer bases than the Company. Some of the Company's
current and future competitors offer a more complete range of EDA products
and may distribute products that directly compete with the Company's SLDA
products by bundling such products with their core product line. In addition,
the Company's products perform a variety of functions, certain of which are,
and in the future may be, offered as separate products or discrete point
solutions by the Company's existing and future competitors. For example,
certain companies currently offer design entry products without simulators.
There can be no assurance that such competition will not cause the Company to
offer point solutions instead of, or in addition to, the Company's current
software products. Such point solutions would be priced lower than the
Company's current product offerings and could cause the Company's average
selling prices to decrease, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company competes on the basis of certain factors including product
capabilities, product performance, price, support of industry standards, ease
of use, first to market and customer technical support and service. The
Company believes that it competes favorably overall with respect to these
factors. However, in particular cases, the Company's competitors may offer
SLDA products with functionality which is sought by the Company's prospective
customers and which differs from that offered by the Company. In addition,
certain competitors may achieve a marketing advantage by establishing formal
alliances with other EDA vendors. Further, the EDA industry in general has
experienced significant consolidation in recent years, and the acquisition of
one of the Company's competitors by a larger, more established EDA vendor
could create a more significant competitor. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not have
a material adverse effect on its business, financial condition and results of
operations. There can be no assurance that the Company's current and future
competitors will not be able to develop products comparable or superior to
those developed by the Company or to adapt more quickly than the Company to
new technologies, evolving industry trends or customer requirements.
Increased competition could result in price reductions, reduced margins and
loss of market share, all of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
DEPENDENCE ON ELECTRONICS INDUSTRY MARKET
Because the electronics industry is characterized by rapid technological
change, short product life cycles, fluctuations in manufacturing capacity and
pricing and margin pressures, certain segments, including the computer,
semiconductor, semiconductor test equipment and telecommunications
industries, have experienced sudden and unexpected economic downturns. During
these periods, capital spending is commonly curtailed and the number of
design projects often decreases. Because the Company's sales are dependent
upon capital spending trends and new design projects, negative factors
affecting the electronics industry could have a material adverse effect on
the Company's business, financial condition and results of operations. A
number of electronics companies, including customers of the Company, have
recently experienced a slowdown in their businesses. The Company's future
operating results may reflect substantial fluctuations from period to period
as a consequence of such industry patterns, general economic conditions
affecting the timing of orders from customers and other factors.
DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY
Because the Company's products must interoperate with EDA products of other
companies, particularly simulation and synthesis products, the Company must
have timely access to third party software to perform development and testing
of its products. Although the Company has established relationships with a
variety of EDA vendors to gain early access to new product information, these
relationships may be terminated by either party with limited notice. In
addition, such relationships are with companies that are current or potential
future competitors of the Company, including Synopsys, Mentor Graphics and
Cadence. If any of these relationships were terminated and the Company was
-21-
<PAGE>
unable to obtain, in a timely manner, information regarding modifications of
third party products necessary for modifying its software products to
interoperate with these third party products, the Company could experience a
significant increase in development costs, the development process would take
longer, product introductions would be delayed and the Company's business,
financial condition and results of operations could be materially adversely
affected.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS
The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. In
addition, customers in the EDA industry require software products that allow
them to reduce time to market, differentiate their products, improve their
engineering productivity and reduce their design errors. The Company's future
success will depend upon its ability to enhance its current products, develop
and introduce new products that keep pace with technological developments and
emerging industry standards and address the increasingly sophisticated needs
of its customers. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products
that respond to technological change or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
its new products will adequately meet the requirements of the marketplace and
achieve market acceptance. If the Company is unable, for technological or
other reasons, to develop and introduce products in a timely manner in
response to changing market conditions, industry standards or other customer
requirements, particularly if such product releases have been pre-announced,
the Company's business, financial condition and results of operations will be
materially adversely affected.
Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. The
Company has in the past discovered software errors in certain of its products
and has experienced delays in shipment of products during the period required
to correct these errors. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found,
resulting in loss of, or delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation or increased
service and warranty costs, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.
DEPENDENCE ON DISTRIBUTORS
The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 34%, 48%, 46%, 42% and 38% of the
Company's revenue for the nine months ended September 30, 1997 and 1996 and
for the years ended December 31, 1996, 1995 and 1994, respectively, were
attributable to sales made through distributors. The Company has also entered
into a joint venture with Anam pursuant to which the joint venture
corporation (Summit Design Korea, Inc. ("Summit Asia")) shall acquire
exclusive rights to sell, distribute and support all of the Company's
products in the Asia-Pacific region, excluding Japan. Summit Asia has acted
in such capacity since April 1, 1996. Prior to that date, Anam was an
independent distributor of the Company's products. During the first quarter
of 1997, the Company entered into a distribution agreement with ATE pursuant
to which ATE was granted exclusive rights to sell, distribute and support
Summit's Visual Testbench products within Japan until October 1998, subject
to the Company's ability to terminate the relationship if ATE fails to meet
quarterly sales objectives. The agreement may also be terminated by either
party for breach. In addition, in the first quarter of 1996, the Company
entered into a three-year, exclusive distribution agreement for its SLDA
products in Japan with Seiko. In the event Seiko fails to meet specified
quotas for two or more quarterly periods, exclusivity can be terminated by
Summit, subject to Seiko's right to pay a specified fee to maintain
exclusivity. The agreement is renewable for successive five-year terms by
mutual agreement of the Company and Seiko and is terminable by either party
for breach. In March 1997, the Company entered into a three-year distribution
agreement with Kanematsu USA Inc. to which Kanematsu was granted exclusive
distribution rights to see, distribute and support certain verification
products in Japan. For the year ended December 31, 1996 and nine months
ended September 30, 1997, all sales of the Company's products in the
Asia-Pacific region were through Seiko, Summit Asia, ATE and Kanematsu. There
can be no assurance the relationships with Seiko, Summit Asia, ATE
-22-
<PAGE>
and Kanematsu will be effective in maintaining or increasing sales relative
to the levels experienced prior to such relationships. The Company also has
independent distributors in Europe and is dependent on the continued
viability and financial stability of its distributors. Since the Company's
products are used by skilled design engineers, distributors must possess
sufficient technical, marketing and sales resources and must devote these
resources to a lengthy sales cycle, customer training and product service and
support. Only a limited number of distributors possess these resources. In
addition, Seiko, Summit Asia, ATE and Kanematsu, as well as the Company's
other distributors, may offer products of several different companies,
including competitors of the Company. There can be no assurance that the
Company's current distributors will continue to market or service and support
the Company's products effectively, that any distributor will continue to
sell the Company's products or that the distributors will not devote greater
resources to products of other companies. The loss of, or a significant
reduction in, revenue from the Company's distributors could have a material
adverse effect on the Company's business, financial condition and results of
operations.
INTERNATIONAL SALES AND OPERATIONS
Approximately 24%, 37%, 50%, 52% and 39% of the Company's revenue for the
three months and nine months ended September 30, 1997 and the years ended
December 31, 1996, 1995 and 1994, respectively, were attributable to sales
made outside the United States. The decline in the percent of revenue from
sales made outside the United States for the three and nine months ended
September 30, 1997 is related primarily to domestic sales to one customer. The
Company expects that international revenue will continue to represent a
significant portion of its total revenue. The Company's international revenue
is currently denominated in U.S. dollars. As a result, increases in the value
of the U.S. dollar relative to foreign currencies could make the Company's
products more expensive and, therefore, potentially less competitive in those
markets. The Company pays the expenses of its international operations in
local currencies and does not engage in hedging transactions with respect to
such obligations. International sales and operations are subject to numerous
risks, including tariff regulations and other trade barriers, requirements
for licenses, particularly with respect to the export of certain
technologies, collectability of accounts receivable, changes in regulatory
requirements, difficulties in staffing and managing foreign operations and
extended payment terms. There can be no assurance that such factors will not
have a material adverse effect on the Company's future international sales
and operations and, consequently, on the Company's business, financial
condition and results of operations.
In order to successfully expand international sales, the Company may need to
establish additional foreign operations, hire additional personnel and
recruit additional international distributors. This will require significant
management attention and financial resources and could adversely affect the
Company's operating margins. In addition, to the extent that the Company is
unable to effect these additions in a timely manner, the Company's growth, if
any, in international sales will be limited. There can be no assurance that
the Company will be able to maintain or increase international sales of the
Company's products, and failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations.
MANAGEMENT OF GROWTH AND ACQUISITIONS
Summit's ability to achieve significant growth will require it to implement
and continually expand its operational and financial systems, recruit
additional employees and train and manage current and future employees.
Summit expects any such growth will place a significant strain on its
operational resources and systems. Failure to effectively manage any such
growth would have a material adverse effect on Summit's business, financial
condition and results of operations.
On February 28, 1997, Summit completed its acquisition of TriQuest and on
September 9, 1997, Summit completed its acquisition of SimTech. As a result
of these acquisitions, Summit's operating expenses are expected to increase.
There can be no assurance that the integration of TriQuest's and SimTech's
business can be successfully completed in a timely fashion, or at all, or
that the revenues from TriQuest and SimTech will be sufficient to support the
costs associated with the acquired businesses, without adversely affecting
Summit's operating margins. Any failure to successfully complete the
integration in a timely fashion or to generate sufficient revenues from the
acquired business could have a material adverse effect on Summit's business
and results of operations. In addition, Summit regularly evaluates
acquisition opportunities. Future acquisitions by Summit could result in
potentially dilutive issuances of equity securities, the incurrence of debt
and contingent liabilities and amortization expenses related to goodwill and
other intangible assets,
-23-
<PAGE>
which could materially adversely affect Summit's results of operations.
Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concern,
risks of entering markets in which Summit has no or limited prior experience
and potential loss of key employees of acquired companies. Summit's
management has had limited experience in assimilating acquired organizations
and products into Summit's operations. No assurance can be given as to the
ability of Summit to integrate successfully any operations, personnel or
products that have been acquired or that might be acquired in the future, and
the failure of Summit to do so could have a material adverse effect on
Summit's results of operations.
OPERATIONS IN ISRAEL
The Company's research and development operations related to its SLDA
products are located in Israel and may be affected by economic, political and
military conditions in that country. Accordingly, the Company's business,
financial condition and results of operations could be materially adversely
affected if hostilities involving Israel should occur. This risk is
heightened due to the restrictions on the Company's ability to manufacture or
transfer outside of Israel any technology developed under research and
development grants from the government of Israel as described in "--Israeli
Research, Development and Marketing Grants." In addition, while all of the
Company's sales are denominated in U.S. dollars, a portion of the Company's
annual costs and expenses in Israel are paid in Israeli currency. These costs
and expenses were approximately $4.3, $4.3 and $2.9 million in 1996, 1995 and
1994, respectively. Payment in Israeli currency subjects the Company to
foreign currency fluctuations and to economic pressures resulting from
Israel's generally high rate of inflation, which has been approximately 11%,
8% and 15% during 1996, 1995, and 1994, respectively. The Company's primary
expense which is paid in Israeli currency is employee salaries for research
and development activities. As a result, an increase in the value of Israeli
currency in comparison to the U.S. dollar could increase the cost of research
and development expenses and general and administrative expenses. There can
be no assurance that currency fluctuations, changes in the rate of inflation
in Israel or any of the other aforementioned factors will not have a material
adverse effect on the Company's business, financial condition or results of
operations. In addition, coordination with and management of the Israeli
operations requires the Company to address differences in culture,
regulations and time zones. Failure to successfully address these differences
could be disruptive to the Company's operations.
The Company's Israeli production facility has been granted the status of an
"Approved Enterprise" under the Israeli Investment Law for the Encouragement
of Capital Investments, 1959 (the "Investment Law"). Taxable income of a
company derived from an "Approved Enterprise" is eligible for certain tax
benefits, including significant income tax rate reductions for up to seven
years following the first year in which the "Approved Enterprise" has Israeli
taxable income (after using any available net operating losses). The period
of benefits cannot extend beyond 12 years from the year of commencement of
operations or 14 years from the year in which approval was granted, whichever
is earlier. The tax benefits derived from a certificate of approval for an
"Approved Enterprise" relate only to taxable income attributable to such
"Approved Enterprise" and are conditioned upon fulfillment of the conditions
stipulated by the Investment Law, the regulations promulgated thereunder and
the criteria set forth in the certificate of approval. In the event of a
failure by the Company to comply with these conditions, the tax benefits
could be canceled, in whole or in part, and the Company would be required to
refund the amount of the canceled benefits, adjusted for inflation and
interest. There can be no assurance that the Company's Israeli production
facility will continue to operate or qualify as an "Approved Enterprise" or
that the benefits under the "Approved Enterprise" regulations will continue,
or be applicable, in the future. The loss of, or any material decrease in,
these income tax benefits could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued service
of its key technical and management personnel and its ability to continue to
attract and retain highly-skilled technical, sales and marketing and
management personnel. The Company has entered into employment agreements with
certain of its executive officers, however, such agreements do not guarantee
the services of these employees and do not contain noncompetition provisions.
Competition for personnel in the software industry in general, and the
-24-
<PAGE>
EDA industry in particular, is intense, and the Company has at times in the
past experienced difficulty in recruiting qualified personnel. There can be
no assurance that the Company will retain its key personnel or that it will
be successful in attracting and retaining other qualified technical, sales
and marketing and management personnel in the future. The loss of any key
employees or the inability to attract and retain additional qualified
personnel may have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not carry
"key person" life insurance on any of its key personnel. Additions of new
personnel and departures of existing personnel, particularly in key
positions, can be disruptive and can result in departures of additional
personnel, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS
Summit's Israeli subsidiary has obtained research and development grants from
the Office of the Chief Scientist (the "Chief Scientist") in the Israeli
Ministry of Industry and Trade of approximately $232,000 and $608,000 in 1993
and 1995, respectively. As of September 30, 1997, the Company was obligated
to pay back approximately $232,000 and $470,000 for the 1993 and 1995 grants,
respectively. Such obligations are collateralized by all tangible and
intangible assets of the Israeli subsidiary. The terms of the grants prohibit
the manufacture of products developed under these grants outside of Israel
and the transfer of the technology developed pursuant to these grants to any
person, without the prior written consent of the Chief Scientist. The
Company's Visual HDL for VHDL products have been developed under grants from
the Chief Scientist and thus are subject to these restrictions. If the
Company is unable to obtain the consent of the government of Israel, the
Company would be unable to take advantage of potential economic benefits such
as lower taxes, lower labor and other manufacturing costs and advanced
research and development facilities that may be available if such technology
and manufacturing operations could be transferred to locations outside of
Israel. In addition, the Company would be unable to minimize risks particular
to operations in Israel, such as hostilities involving Israel. Although the
Company is eligible to apply for additional grants from the Chief Scientist,
it has no present plans to do so. The Company also received a Marketing Fund
Grant from the Israeli Ministry of Industry and Trade for an aggregate of
$423,000. The grant must be repaid at the rate of 3% of the increase in
exports over the 1993 export level of all Israeli products, until repaid. As
of September 30, 1997, approximately $364,000 was outstanding under the grant.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success depends in part upon its proprietary technology. The
Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures, licensing arrangements and technical means
to establish and protect its proprietary rights. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and corporate partners, and
limits access to, and distribution of, its software, documentation and other
proprietary information. In addition, the Company's products are protected by
hardware locks and software encryption techniques designed to deter
unauthorized use and copying. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the Company's products
or technology without authorization, or to develop similar technology
independently.
The Company provides its SLDA products to end-users primarily under
"shrink-wrap" license agreements included within the packaged software. In
addition, the Company delivers certain of its verification products
electronically under an electronic version of a "shrink-wrap" license
agreement. These "shrink-wrap" license agreements are not negotiated with or
signed by the licensee, and thus may not be enforceable in certain
jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the
United States. There can be no assurance that the Company's means of
protecting its proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar
technology.
The Company could be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows,
the functionality of products in its industry segment overlaps and an
increasing number of software patents are granted by the United States Patent
and Trademark Office. There can be no assurance that a third party will not
claim such infringement by the Company with respect to current or future
products. Any such claims, with or without merit, could be time-consuming,
result
-25-
<PAGE>
in costly litigation, cause product delays or require the Company to enter
into royalty or licensing agreements. Such royalty or license agreements, if
required, may not be available on terms acceptable to the Company or at all.
Failure to protect its proprietary rights or claims of infringement could
have a material adverse effect on the Company's business, financial condition
and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the
market prices of the stocks of many companies which may not have been
directly related to the operating performance of those companies. Such broad
market fluctuations may adversely affect the market price of the Common
Stock. In addition, factors such as announcements of technological
innovations or new products by the Company or its competitors, market
conditions in the computer software or hardware industries and quarterly
fluctuations in the Company's operating results may have a significant
adverse effect on the market price of the Company's Common Stock.
-26-
<PAGE>
PART II
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
(c) In July and September 1997, the Company issued and sold 4,780 and
25,671 shares of the Company's Common Stock that were not
registered under the Securities Act of 1933, as amended (the
"Securities Act"), at prices of $0.33 and $1.95, respectively
upon exercise of stock options. In September 1997, in connection
with the Company's acquisition of SimTech, the Company issued
1,256,777 shares of the Company's Common Stock to the existing
shareholders of SimTech in exchange for outstanding shares of
capital stock of SimTech. The shares were not registered under the
Securities Act, and such issuances were deemed to be exempt from
registration in reliance on Section 4(2) of the Securities Act as
a transaction not involving a public offering. The recipients of
the securities represented their intentions to acquire the
securities for investment only and had access to all relevant
information regarding the Company necessary to evaluate the
investment.
(d) The effective date of the Company's first registration
statement, filed on Form S-1 under the Securities Act of 1933
(No. 333-6445), was October 17, 1996 (the "Registration
Statement"). The class of securities registered was Common
Stock. The offering commenced on October 18, 1996 and all
securities were sold in the offering. The managing underwriters
for the offering were Robertson, Stephens & Company LLC and
Needham & Company.
A total of 4,600,000 shares were registered pursuant to
the Registration Statement. The Company sold 2,000,000 shares
of its Common Stock for its own account, for an aggregate
offering price of $19,000,000, and 2,600,000 shares of its
Common Stock for the account of certain selling stockholders,
for an aggregate offering price of $24,700,000.
The Company incurred expenses of approximately $2,776,000,
of which $1,330,000 represented underwriting discounts and
commissions and $1,446,000 represented estimated other
expenses. A portion of the underwriting discounts and
commissions represented direct or indirect payments to
directors, officers, general partners of the Reigstrant or
their associates; to persons owing ten (10) percent or more of
any class of equity securities of the Company; or to affiliates
of the Company. The net offering proceeds to the Company after
total expenses was $16,224,000.
As of September 30, 1997, the Company had used all of the
net proceeds from the offering as follows: $897,000 for the
purchase and installation of machinery and quipment, $473,000
for the repayment of indebtedness and $14,854,000 for working
capital. The use of the proceeds from the offering does not
represent a material change in the use of proceeds described in
the prospectus.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.15 Bank Line of Credit Agreement between Registrant and U.S.
National Bank of Oregon dated June 24, 1997.
10.22 Loan Agreement between Registrant and Dasys, Inc. dated
July 16, 1997.
11.1 Statement of Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 24, 1997, the Company filed a report on Form 8-K
dated September 9, 1997 in conjunction with the acquisition of
Simulation Technologies, Corp. ("SimTech"). On November 12,
1997, the Company amended this filing on Form 8-K /A to include
the financial statements of SimTech and the pro forma combined
financial statements for the Company and SimTech.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT DESIGN, INC.
By: /s/ C. Albert Koob
-------------------------
C. Albert Koob
Vice President - Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
Date: November 13, 1997
-28-
<PAGE>
EXHIBIT INDEX
EXHIBIT 10.15 Bank Line of Credit Agreement between Registrant and U.S.
National Bank of Oregon dated June 24, 1997.
EXHIBIT 10.22 Loan Agreement between Registrant and Dasys, Inc. dated
July 16, 1997.
EXHIBIT 11.1 Statement of Computation of Net Income Per Share
EXHIBIT 27 Financial Data Schedule
-29-
<PAGE>
Exhibit 10.15 Bank Line of Credit Agreement between Registrant
and U.S. National Bank of Oregon dated June 24, 1997.
April 9, 1997
C. Albert Koob
Chief Financial Officer
Art Fletcher
Treasurer and Director of Financial Planning
Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97005-7158
Gentlemen:
I am pleased to advise you that United States National Bank of Oregon
("Bank") has approved the request of Summit Design, Inc. ("Summit"), for the
following credit facilities, subject to the following terms and conditions:
OPERATING LINE OF CREDIT
------------------------
BORROWER: Summit Design, Inc.
PURPOSE: General Corporate Purposes.
BORROWING LIMIT: $1,000,000.00
GUARANTORS: None
EXPIRY: April 30, 1998.
RATE: Pricing will be based on United States National Bank of
Oregon's Prime (1), or Inter Bank Offering Rate ("IBOR"),
at the Borrower's option. Rate will be fully floating and
computed on a 360-day year. The spread over the base rates
will be determined quarterly by the Borrower's Total
Liabilities/Tangible Net Worth ("D/TNW"), as expressed in
the chart below.
- ----------------------------
(1) The interest rate charged to Borrower is tied to the Prime Rate of United
States National Bank of Oregon, Borrower is advised that United States
National Bank's Prime Rate is the rate of interest which the Bank from
time to time identifies and publicly announces as its Prime Rate, and is
not necessarily, for example the lowest rate of interest which the Bank
collects from any borrower or group of borrowers.
<PAGE>
Summit Design, Inc.
4/9/97
Page 2
DEBT TO TANGIBLE NET WORTH IS DEFINED AS (TOTAL LIABILITIES
MINUS UNEARNED REVENUE) / (SHAREHOLDERS' EQUITY MINUS
INTANGIBLES).
- -------------------------------------------------------------------------
DEBT/WORTH PRIME PRICING IBOR PRICING
Greater than 0.50 Prime + 0.75% IBOR + 300 bps
.26 to .050 Prime + 0.50%* IBOR + 275 bps
Less than 0.26 Prime + 0% IBOR + 225 bps
- -------------------------------------------------------------------------
* At 12/31/96 the D/TNW was 0.27:1.00.
IBOR Terms:
A) Minimum Amount of $500,000, increments of $100,000
thereafter.
B) Maturity and availability: Up to three months; may not
exceed Expiry.
C) Prepayment of IBOR Borrowings not permitted.
D) Notification: Two day notification prior to 12:00 noon on
the day of notification.
E) Irrevocability: Acceptance of a pricing commitment from
the Bank will constitute an irrevocable agreement to
borrow under the revolving line of credit.
F) Interest computed on the basis of a 360 day year and the
number of days elapsed.
REPAYMENT TERMS: Interest shall be payable monthly on the 1st day of each month.
Principal shall be payable on the earlier of April 30, 1998, or
demand by the Bank. Repayment of each advance received by
Borrower under the line of credit is subject to the terms of
the promissory note evidencing that advance, as well as all
terms and conditions of this letter. In the event of any
conflict between the two, the terms and conditions of the
promissory note shall control.
FEES: UP-FRONT FEE: Initial up-front fee of 1/8 of 1% of the amount
of the line of credit, due upon acceptance ($1,250).
COMMITMENT FEE: A 1/8 of 1% fee, annualized, on the unused
portion of the line of credit, payable quarterly in arrears.
<PAGE>
Summit Design, Inc.
4/9/97
Page 3
COLLATERAL: The revolving line of credit provides for a flexible collateral
position according to the following matrix. The assets of the
Borrower which are referenced below include a first lien
position in all accounts, contract rights, chattel paper,
general intangibles and inventory.
QUICK RATIO* COLLATERAL
GREATER THAN
1.75:1.00 Unsecured with negative pledge agreement.
LESS THAN OR
EQUAL TO
1.75:1.00 UNSECURED WITH NEGATIVE PLEDGE, IF NOT BORROWING. If borrowing
and the ratio falls in this category, the line of credit will
be secured.
LESS THAN OR
EQUAL TO
1.25 : 1.00 UNSECURED WITH NEGATIVE PLEDGE, IF NOT BORROWING. If
borrowing, line is secured and advances are margined at 75% of
eligible A/R up to 120 days after date of invoice.
* QUICK RATIO IS DEFINED AS ((CASH + NET TRADE ACCOUNTS) /
(CURRENT LIABILITIES - CURRENT PORTION OF UNEARNED
REVENUE)).
DOCUMENTATION: Execution of Notes, Loan Agreements, Security Agreements, UCC
Financing Statements and all other documentation required by
the Bank in a form satisfactory to the Bank.
BORROWER WILL COMPLY WITH THE FOLLOWING QUARTERLY FINANCIAL COVENANTS:
1. TANGIBLE NET WORTH shall not be less then $10,000,000.
TANGIBLE NET WORTH IS DEFINED AS (SHAREHOLDER'S EQUITY
-INTANGIBLES). NOTE: INTANGIBLES INCLUDE ALL CAPITALIZED
SOFTWARE.
2. TOTAL LIABILITIES TO TANGIBLE NET WORTH shall not exceed
.75 to 1.00. TOTAL LIABILITIES TO TANGIBLE NET WORTH IS
DEFINED AS (TOTAL LIABILITIES MINUS DEFERRED REVENUE)/
(TANGIBLE NET WORTH).
Failure to maintain these covenants will be considered an event
of default under the loan documents.
OTHER TERMS AND CONDITIONS:
1. Distribution in the form of dividends shall not exceed 25%
of net income, measured annually as of December 31.
<PAGE>
Summit Design, Inc.
4/9/97
Page 4
REPORTING REQUIREMENTS:
- Quarterly financial statements to be submitted within 45
days of quarter end.
- Annual CPA audited financial statements to be submitted
within 90 days of fiscal year end.
- If the Quick Ratio falls to 1.25:1.00 or below: A
Borrower's Certificate will be submitted with each advance,
and a Borrower's Certificate will accompany the monthly AR
and AP agings.
ADVANCE STRUCTURE: Advances will be limited to the Borrowing Limit when the
Quick Ratio is greater than 1.25:1.00. When the quick ratio
is less than or equal to 1.25: 1.00, advances will be
limited to 75% of eligible accounts receivable to 120 days
after the date of invoice.
Disbursements under the line of credit shall terminate on the
earlier occurrence of the date indicated above as the Expiry
Date or the date on which this Bank, in its sole discretion,
determines that there has been a material adverse change in
the financial condition or management of the Borrower, or
determines that there has been any non-compliance with any
term or condition stated herein. Non-compliance with the
conditions and terms of this letter and all other loan
documents will be considered as an event of default,
entitling the Bank to all the default provisions as provided
for in documents evidencing this line of credit.
OTHER: Under Oregon law, most agreements, promises and commitments
made by lenders after October 3, 1989, concerning loans and
other credit extensions which are not for personal, family
or household purposes or secured solely by the borrower's
residence must be in writing, express consideration and be
signed by the lender to be enforceable.
If the above terms and conditions to extend this credit facility to Summit
Design, Inc. are acceptable to you, please sign and return the Acknowledgment
Copy of this letter on or before June 30, 1997.
<PAGE>
Summit Design, Inc.
4/9/97
Page 5
We are pleased to provide you this borrowing accommodation and look forward
to serving your banking needs in the future.
Sincerely,
Daniel J. Hempy
Senior Vice President
BY OREGON STATUTE (ORS 41.580), THE FOLLOWING DISCLOSURE IS REQUIRED: UNDER
OREGON LAW MOST AGREEMENTS PROMISES AND COMMITMENTS MADE BY LENDERS AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSE OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED
BY THE LENDER TO BE ENFORCEABLE.
THE UNDERSIGNED HEREBY ACKNOWLEDGES AND ACCEPTS THIS OFFER TO EXTEND CREDIT
SUBJECT TO THE TERMS AND CONDITIONS STATED ABOVE.
SUMMIT DESIGN, INC.
BY: /s/ C. Albert Koob Chief Financial Officer 6/18/97
------------------------------------------- -------
Title Date
<PAGE>
Summit Design, Inc.
4/9/97
Page 6
June 24, 1997
C. Albert Koob
Chief Financial Officer
Art Fletcher
Treasurer and Director of Financial Planning
Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97005-7158
Gentlemen:
Please find enclosed the " Alternative Rate Options Promissory Note" to
complete the documentation necessary for Summit Design's Operating Line of
Credit. Please sign where indicated and return to me.
If you have any questions or comments please call me or Dan Hempy, at 275-5172
or 275-5879, respectively.
We are pleased to provide you this borrowing accommodation and look forward to
serving your banking needs in the future.
Sincerely,
Richard Glassman
Assistant Relationship Manager
<PAGE>
Summit Design, Inc.
4/9/97
Page 7
THIS EXHIBIT IS ATTACHED TO AND MADE A PART OF THAT CERTAIN PROMISSORY NOTE FOR
$1,000,000.00 DATED JUNE 23, 1997 FROM SUMMIT DESIGN, INC. TO US BANK.
EXHIBIT "A"
PERFORMANCE PRICING:
Pricing to be based upon Borrower's ratio of debt to worth, at the
Borrower's Option, as expressed in the following matrix. The spread
over the base rates will be determined quarterly beginning
September 30, 1997.
DEBT/WORTH PRIME PRICING IBOR PRICING
- ---------- ------------- ------------
- -Greater than or equal to-0.51 Prime + 75% 3.00%
0.26 to .050 Prime + .50% 2.75%
- -Less than or equal to-0.25 Prime + 0.00%
2.25%
The initial Prime option is Prime + 0.50%. ; Current IBOR Pricing is +2.75%
Debt to Tangible Net Worth is defined as ( Total Liabilities - Unearned
Revenue) / (Shareholder's Equity - Intangibles).
Summit Design, Inc.
BY: /s/ C. Albert Koob
------------------
Authorized Officer
<PAGE>
Summit Design, Inc.
4/9/97
Page 8
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)
$1,000,000.00 Dated as of: 06-23-97
- ----------------------------------------------------- --------
Summit Design, Inc. ("Borrower")
- -----------------------------------------------------
U.S. BANK ("Lender")
1. TYPE OF CREDIT. This note is given to evidence Borrower's obligation to
repay all sums which lender may from time to time advance to Borrower
("Advances") under a:
/ / single disbursement loan. Amounts loaned to Borrower hereunder will
be disbursed in a single Advance in the amount shown in
Section 2.
/x/ revolving line of credit. No Advances shall be made Which create a
maximum amount outstanding at any one time which exceeds the
maximum amount shown in Section 2. However, Advances hereunder
may be borrowed , repaid and reborrowed, and the aggregate
Advances loaned hereunder from time to time may exceed such
maximum amount.
/ / non-revolving line of credit. Each Advance made from time to time
hereunder shall reduce the maximum amount available shown in
Section 2. Advances loaned hereunder which are repaid may not
be reborrowed.
2. PRINCIPAL BALANCE. The unpaid Principal balance of all Advances
outstanding under this note ("Principal Balance") at one time shall not
exceed $ 1,000,000.00.
---------------
3. PROMISE TO PAY. For value received Borrower promises to pay Lender or
order at OR COMMERCIAL LOAN SERVICING, 555 SW OAK, PL-7 PORTLAND, OR
97204, the Principal Balance of this note, with interest thereon at the
rate(s) specified in Sections 4 and 11 below.
4. INTEREST RATE. The interest rate on the Principal Balance outstanding
may vary from time to time pursuant to the provisions of this note.
Subject to the provisions of this note, Borrower shall have the option
from time to time of choosing to pay interest at the rate or rates and
for the applicable periods of time based on the rate options provided
herein; PROVIDED, however, that once Borrower notifies Lender of the rate
option chosen in accordance with the provisions of this note, such notice
shall be irrevocable. The rate options are the Prime Borrowing Rate and
the LIBOR Borrowing Rate, each as defined herein.
(a) DEFINITIONS. The following terms shall have the following meanings:
"Business Day" means any other day than a Saturday, Sunday,
or other day that commercial banks in Portland, Oregon or New York City are
authorized or required by law to close; provided, however that when used in
connection with a LIBOR Rate, LIBOR Amount,
<PAGE>
Summit Design, Inc.
4/9/97
Page 9
or LIBOR Interest Period such term shall also exclude any day on which dealings
in U.S. dollar deposits are not carried on in the London interbank market.
"LIBOR Amount" means each principal amount for which
Borrower chooses to have the LIBOR Borrowing Rate apply for any specified
LIBOR Interest Period.
"LIBOR Interest Period" means as to any LIBOR amount, a
period of 1,2 OR 3 months commencing on the date the LIBOR Borrowing Rate
becomes applicable thereto; PROVIDED, however, that: (I) the first day of
each LIBOR Interest Period must be a Business Day; (ii) no LIBOR Interest
Period shall be selected which would extend beyond EXPIRY; (iii) no LIBOR
Interest Period shall extend beyond the date of any principal payment
required under section 6 of this note, unless the sum of the Prime Rate
Amount, plus LIBOR Amounts with LIBOR Interest Periods ending on or before
the scheduled date of such principal payment, plus principal amounts
remaining unborrowed under a line of credit, equals or exceeds the amount of
such principal payment; (iv) any LIBOR Interest Payment which would otherwise
expire on a day which is not a Business Day, shall be extended to the next
succeeding Business Day, unless the result of such extension would be to
extend such LIBOR Interest Period into another calendar month, in which event
the LIBOR Interest Period shall end on the immediately preceding Business
Day; and (v) any LIBOR Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such LIBOR Interest
Period) shall end on the last Business Day of a calendar month.
"LIBOR Rate" means, for any LIBOR Interest Period, the rate
per annum (computed on the basis of a 360-day year and the actual
number of days elapsed and rounded upward to the nearest 1/16 of
1%) established by Lender as its LIBOR Rate, based on Lender's
determination, on the basis of such factors as Lender deems
relevant, of the rate of interest at which U.S. dollar deposits
would be offered to U.S. Bank in the London interbank market at
approximately 11 a.m. London time on the date which is two Business
Days prior to the first day of such LIBOR Interest Period for
delivery on the first day of such LIBOR Interest Period for the
number of months therein; provided, however, that the LIBOR Rate
shall be adjusted to take into account the maximum reserves
required to be maintained for Eurocurrency liabilities by banks
during each such LIBOR Interest Period as specified in Regulation D
of the Board of Governors of the Federal Reserve System or any
successor regulation.
"Prime Rate" means the rate of interest which Lender from time to time
establishes as its prime rate and is not, for example, the lowest
rate of interest which Lender collects from any borrower or class
of borrowers. When the Prime Rate is applicable under section 4 (b)
or 11 (b), the interest rate hereunder shall be adjusted without
notice effective on the day the Prime Rate changes, but in no event
shall the rate of interest be higher than allowed by law.
"Prime Rate Amount" means any portion of the Principal Balance bearing
interest at the Prime Borrowing Rate.
<PAGE>
Summit Design, Inc.
4/9/97
Page 10
(b) THE PRIME BORROWING RATE.
(i) The Prime Borrowing Rate is a per annum rate equal to the
Prime Rate plus SEE ATTACHED EXHIBIT "A" % per annum.
(ii) Whenever Borrower desires to use the Prime Borrowing Rate
option, Borrower shall give Lender notice orally or in
writing in accordance with Section 15 of this note, which
notice shall specify the requested effective date (which
must be a Business Day) and principal amount of the
Advance or increase in the Prime Rate Amount, and whether
Borrower is requesting a new Advance under a line of
credit or conversion of a LIBOR Amount to the Prime
Borrowing Rate.
(iii) Subject to Section 11 of this note, interest shall accrue
on the unpaid Principal Balance at the Prime Borrowing
Rate unless and except to the extent that the LIBOR
Borrowing Rate is in effect.
(c) THE LIBOR BORROWING RATE.
(i) The LIBOR Borrowing Rate is the LIBOR Rate plus SEE
ATTACHED EXHIBIT "A" % per annum.
(ii) Borrower may obtain LIBOR Borrowing Rate quotes from
Lender between 8:00 a.m. and 10:00 a.m. ( Portland,
Oregon time) on any Business Day. Borrower may request an
Advance, conversion of any portion of the Prime Rate
Amount to a LIBOR amount or a new LIBOR Interest Period
for an existing LIBOR Amount, at such rate only by giving
Lender notice in accordance with Section 4 ( c ) (iii)
before 10:00 a.m. ( Portland, Oregon time) on such day.
(iii) Whenever Borrower desires to use the LIBOR Borrowing Rate
option, Borrower shall give Lender irrevocable notice (
either in writing or orally and promptly confirmed in
writing) between 8:00a.m. and 10:00 a.m. (Portland,
Oregon time) two (2) business days prior to the desired
effective date of such rate. Any oral notice shall be
given by, and any written notice or confirmation of an
oral notice shall be signed by, the person (s) authorized
in Section 15 of this note, and shall specify the
requested effective date of the rate, LIBOR Interest
Period and LIBOR Amount, and whether Borrower is
requesting a new Advance at the LIBOR Borrowing Rate
under a line of credit, conversion of all or any portion
of the Prime Rate Amount to a LIBOR Amount, or a new
LIBOR Interest Period for an outstanding LIBOR Amount.
Notwithstanding any other term of this note, Borrower may
elect the LIBOR Borrowing Rate in the minimum principal
amount of $500,000.00 and in multiples of $100,000.00
above such amount; PROVIDED, however, that no more than
N/A separate LIBOR Interest Periods may be in effect at
any one time.
If at any time the LIBOR Rate is unascertainable or unavailable to Lender or if
LIBOR Rate loans become unlawful, the option to select the LIBOR Borrowing Rate
shall terminate immediately. If the LIBOR Borrowing Rate is in effect, (A) it
shall terminate automatically with respect to all LIBOR Amounts (i) on the last
day of each then applicable LIBOR Interest Period,
<PAGE>
Summit Design, Inc.
4/9/97
Page 11
if Lender may lawfully continue to maintain such loans, or (ii) immediately if
Lender may not lawfully continue to maintain such loans throuh such day, and
(B) subject to Section 11, the Prime Borrowing Rate automatically shall become
effective as to such amounts upon such termination.
(iv) If at any time after the date hereof (A) any revision in or
adoption of any applicable law, rule, or regulation or in the
interpretation or administration thereof (i) shall subject
Lender or its Eurodollar lending office to any tax, duty, or
other charge, or change the basis of taxation of payments to
Lender with respect to any loans bearing interest based on the
LIBOR Rate, or (ii) shall impose or modify any reserve,
insurance, special deposit, or similar requirements against
assets of, deposits with or for the account of, or credit
extended by Lender or its Eurodollar lending office, or impose
on Lender or its Eurodollar lending office any other
condition affecting any such loans, and (B) the result of any
of the forgoing is (i) to increase the cost to Lender of
making or maintaining any such loans or (ii) to reduce the
amount of any sum receivable under this note by Lender or its
Eurodollar lending office, Borrower shall pay Lender within 15
days after demand by Lender such additional amount as will
compensate Lender for such increased cost or reduction. The
determination hereunder by Lender of such additional amount
shall be conclusive in the absence of manifest error. If
Lender demands compensation under this Section 4 (c) (v),
Borrower may upon three (3) Business Days' notice to Lender
pay the accrued interest on all LIBOR Amounts, together with
any additional amounts payable under Section 4 (c)(vi).
Subject to Section 11, upon Borrower's paying such accrued
interest and additional costs, the Prime Borrowing Rate
immediately shall be effective with respect to the unpaid
principal balance of such LIBOR amounts.
(v) Borrower shall pay to Lender, on demand, such amount as Lender
reasonably determines (determined as though 100 % of the
applicable LIBOR Amount had been funded in the London
interbank market) is necessary to compensate Lender for any
direct or indirect losses, expenses, liabilities, costs,
expenses or reductions in yield to Lender, whether incurred in
connection with liquidation or re-employment of funds or
otherwise, incurred or sustained by Lender as a result of: (A)
Any payment or prepayment of a LIBOR Amount, termination of
the LIBOR Borrowing Rate or conversion of a LIBOR Amount to
the Prime Borrowing Rate on a day other than the last day of
the applicable LIBOR Interest Period (including as a result
of acceleration or a notice persuant to Section 4 (c)(v)); or
(B) Any failure of Borrower to borrow, continue or prepay any
LIBOR Amount or to convert any portion of the Prime Rate
Amount to a LIBOR Amount after Borrower has given notice
thereof to Lender.
(vi) If Borrower chooses the LIBOR Borrowing Rate, Borrower shall pay
interest based on such rate, plus any other applicable taxes
or charges hereunder, even though Lender may have obtained the
funds loaned to Borrower from sources other than the London
interbank market. Lender's determination of the
<PAGE>
Summit Design, Inc.
4/9/97
Page 12
LIBOR Borrowing Rate and any such taxes or charges shall be
conclusive in the absence of manifest error.
(vii) Notwithstanding any other term of this note, Borrower may not
select the LIBOR Borrowing Rate if an event of default
hereunder has occurred and is continuing.
(viii) Nothing contained in this note, including without limitation the
determination of any LIBOR Interest Period or Lender's
quotation of any LIBOR Borrowing Rate, shall be construed to
prejudice Lender's right, if any, to decline to make any
requested Advance or to require payment on demand.
5. COMPUTATION OF INTEREST . All interest under Section 4 and Section 11
will e computed at the applicable rate based on a 360-day year and
applied to he actual number of days elapsed.
6. PAYMENT SCHEDULE.
(a) PRINCIPAL. Principal shall be paid:
/X/ on demand
/ / on demand. or if no demand, on______.
/ / on__________.
/ / subject to Section 8, in installments of
/ /____each, plus accrued interest, beginning on ____and on the same day of
each ____ thereafter until ____ when the entire Principal
Balance plus interest thereon shall be due and payable.
/ /____each, including accrued interest, beginning
on____and on the same day of each____ thereafter until
____ when the entire Principal Balance plus interest
thereon shall be due and payable.
/ /_________.
(b) INTEREST.
(i) Interest on the Prime Rate Amount shall be paid:
/X/ on the first day of FEBRUARY, 1997 and on the same day of each
MONTH. thereafter prior to maturity and at maturity.
/ / at maturity.
/ / at the time each principal installment is due
and at maturity.
/ /______.
(ii) Interest on all LIBOR Amount shall be paid:
/X/ on the last day of the applicable LIBOR Interest Period, and if such LIBOR
Interest period is longer than three months, on the last day
of each three month period occuring during such LIBOR
Interest Period, and at maturity.
/X/ on the ____ day of _____ and on the same day of each ______ thereafter
prior to maturity and at maturity.
/ / at maturity.
/ / at the time each principal installment is due and at maturity.
/ / ______.
7. PREPAYMENT.
(a) Prepayments of all or any part of the Prime Rate Amount may be
made at any time without penalty.
<PAGE>
Summit Design, Inc.
4/9/97
Page 13
(b) Except as otherwise specifically set forth herein, Borrower may not
prepay all or any part of any LIBOR Amount , or terminate any LIBOR
Borrowing Rate except on the last day of the applicable LIBOR Interest
Period.
(c) Principal prepayments will not postpone the date of or change the
amount of any regularly scheduled payment. At the time of any
principal prepayment, all accrued interest, fees, costs, and expenses
shall also be paid.
8. CHANGE IN PAYMENT AMOUNT. Each time the interest rate on this note changes
the holder of this note may, from time to time, in holder's sole
discretion, increase or decrease the amount of each of the installments
remaining unpaid at the time of such change in rate to an amount holder in
its sole discretion deems necessary to continue amortizing the Principal
Balance at the same rate established by the installment amounts specified
in Section 6(a), whether or not a "balloon" payment may also be due upon
maturity of this note. Holder shall notify the undersigned of each such
change in writing. Whether or not the installment amount is increased
under this Section 8, Borrower understands that, as a result of increases
in the rate of interest the final payment due, whether or not a "balloon"
payment, shall include the entire Principal Balance and interest thereon
then outstanding, and may be substantially more than the installment
specified in Section 6.
9. ALTERNATE PAYMENT DATE. Notwithstanding any other term of this note, if in
any month there is no day on which a scheduled payment would otherwise be
due (e.g. February 31), such payment shall be paid on the last banking day
of that month.
10. PAYMENT BY AUTOMATIC DEBIT.
/ / Borrower hereby authorizes Lender to automatically deduct the amount of all
principal and interest payments from account number _____
at _____. If there are insufficient funds in the account
to pay the automatic deduction in full, Lender may allow
the account to become overdrawn, or Lender may reverse the
automatic deduction. Borrower will pay all the fees on
the account which result from the automatic deductions,
including any overdraft and non-sufficient funds charges.
If for any reason Lender does not charge the account for
a payment, or if an automatic payment is reversed, the
payment is still due according to this note. If the
account is a Money Market Account, the number of
withdrawals from that account is limited as set out in
the account agreement. Lender may cancel the automatic
deduction at any time in its discretion.
Provided, however, if no account number is entered above, Borrower does not want
to make payments by automatic debit.
11. DEFAULT.
(a) Without prejudice to any right of Lender to require payment on demand or to
decline to make any requested Advance, each of the following shall be an
event of default: ( i )Borrower fails to make any payment when due. (ii)
Borrower fails to perform or comply with any term, covenant or obligation
in this note or any agreement related to this note, or in any other
agreement or loan Borrower has with Lender. (iii) Borrower defaults under
any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement,
<PAGE>
Summit Design, Inc.
4/9/97
Page 14
in favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this note or perform
Borrower's obligations under this note or any related documents. (iv) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either
now or at the time made or furnished. (v) Borrower dies, becomes
insolvent, liquidates or dissolves, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (vi) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (vii) Any of the events described in this default
section occurs with respect to any general partner in Borrower or any
guarantor of this note, or any guaranty of Borrower's indebtedness to
Lender ceases to be, or is asserted not to be, in full force and effect.
(viii) There is any material adverse change in the financial condition or
management of Borrower or Lender in good faith deems itself insecure with
respect to the payment or performance of Borrower's obligations to
Lender. If this note is payable on demand, the inclusion of specific
events of default shall not prejudice Lender's right to require payment
on demand or to decline to make any requested Advance.
(b) Without prejudice to any right of Lender to require payment on demand, upon
the occurance of an event of default, Lender may declare the entire unpaid
Principal Balance on this note and all accrued unpaid interest immediately
due and payable, without notice. Upon default, including failure to pay
upon final maturity, Lender at its option, may also, if permitted under
applicable law, increase the interest rate on this note to a rate equal to
the Prime Borrowing Rate plus 5%. The interest rate will not exceed the
maximum rate permitted by applicable law. In addition, if any payment of
principal or interest is 19 or more days past due, Borrower will be charged
a late charge of 5% of the delinquent payment.
12. EVIDENCE OF PRICIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall,
at any time, be conclusive evidence of the unpaid Principal Balance and
interest owing on this note. Notwithstanding any other provisions of this
note, in the event holder makes Advances hereunder which result in an
unpaid Principal Balance on this note which at any time exceeds the maximum
amount specified in Section 2, Borrower agrees that all such Advances, with
interest, shall be payable on demand.
13. LINE OF CREDIT PROVISIONS. If the type of credit indicated in Section 1 is
a revolving line of credit or a non-revolving line of credit, Borrower
agrees that Lender is under no obligation and has not committed to make any
Advances hereunder. Each Advance hereunder shall be made at the sole
option of Lender.
14. DEMAND NOTE. If this note is payable on demand, Borrower acknowledges and
agrees that (a) Lender is entitled to demand Borrower's immediate payment
in full of all amounts owing hereunder and (b) neither anything to the
contrary contained herein or in any other loan documents (including but not
limited to, provisions relating to defaults, rights of cure, default rate
of interest, installment payments, late charges, periodic review of
Borrower's financial condition, and covenants) nor any act of Lender
pursuant to any such provisions shall limit or
<PAGE>
Summit Design, Inc.
4/9/97
Page 15
impair Lender's right or ability to require Borrower's payment in full of
all amounts owing hereunder immediately upon Lender's demand.
15. REQUESTS FOR ADVANCES
(a) Any Advance may be made or interest rate option selected upon the
request of Borrower (if an individual), any of the undersigned (if
Borrower consists of more than one individual), any person or persons
authorized in subsection (b) of this Section 15, and any person or
persons otherwise authorized to execute and deliver promissory notes
to Lender on behalf of Borrower.
(b) Borrower hereby authorizes any ____ of the following individuals to
request Advances and to select interest rate options:______unless
Lender is otherwise instructed in writing.
(c) All Advances shall be disbursed by deposit directly to Borrower's
account number ____at ____ brance of Lender, or by cashier's check
issued to Borrower.
(d) Borrower agrees that Lender shall have no obligation to verify the
identity of any person making any request pursuant to this Section 15,
and Borrower assumes all risks of the validiy and authorization of
such requests. In consideration of Lender agreeing, at its sole
discretion, to make Advances upon such requests, Borrower promises to
pay holder, in accordance with the provisions of this note, the
Principal Balanc together with interest thereon and other sums due
hereunder, although any Advances may have been requested by a person
or persons not authorized to do so.
16. PERIODIC REVIEW. Lender will review Borrower's credit accomodations
periodically. At the time of the review, Borrower will furnish Lender with
any additional information regarding Borrower's financial condition and
business operations that Lender requests. This information may include but
is not limited to, financial statements, tax returns, lists of assets and
liabilities, agings of receivables and payables, inventory schedules,
budgets and forecasts. If upon review, Lender, in its sole discretion,
determines that there has been a material adverse change in Borrower's
financial condition, Borrower will be in default. Upon default, lender
shall have all rights specified herein.
17. NOTICES. Any notice hereunder may be given by ordinary mail, postage paid
and addressed to Borrower at the last known address of Borrower as shown on
holder's records. If Borrower consists of more than one person,
notification of any said persons shall be complete notification of all.
18. ATTORNEY FEES. Whether or not litigation or arbitration is commenced,
Borrower promises to pay all costs of collecting overdue amounts. Without
limiting the foregoing , in the event that holder consults an attorney
regarding the enforcement of any of its rights under this note or any
ocument securing the same, or if this note is placed in the hands of an
attorney for collection or if suit or litigation is brought to enforse this
note or any document securing the same, Borrower promises to pay all costs
thereof including such additional sums as the court or arbitrator(s) may
adjudge reasonable as attorney fees, including without limitation, costs
and attorney fees incurred in any appellate court, in any proceeding under
the
<PAGE>
Summit Design, Inc.
4/9/97
Page 16
bankruptcy code, or in any receivership and post-judgement attorney
fees incurred in enforcing any judgement.
19. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker, guarantor or
otherwise, waives diligence, demand, presentment for payment, notice of
non-payment, protest and notice of protest and waives all defenses based on
suretyship or impairment of collateral. Without notice to Borrower and
without diminishing or affecting Lender's rights or Borrower's obligations
hereunder, Lender may deal in any manner with any person who at any time is
liable for, or provides any real or personal property collateral for, any
indebtedness of Borrower to Lender, including the indebtedness evidenced by
this note. Without limiting the foregoing, Lender may, in its sole
discretion: (a) make secured or unsecured loans to Borrower and agree to
any number of waivers, modifications, extensions and renewals of any length
of such loans, including the loan evidenced by this note; (b) impair,
release (with or without substitution of new collateral), fail to perfect a
security interest in, fail to preserve the value of, fail to dispose of in
accordance with applicable law, any collateral provided by any person; (c)
sue, fail to sue, agree not to sue, release, and settle or compromise with,
any person.
20. JOINT AND SEVERAL LIABILITY. All undertakings of the undersigned Borrowers
are joint and several and are binding upon any marital community of which
any of the undersigned are members. Holder's rights and remedies under
this note shall be cumulative.
21. SEVERABILITY. If any term or provision of this note is declared by a court
of competent jurisdiction to be illegal, invalid or unenforceable for any
reason whatsoever, such illegality, invalidity or unenforceability shall
not affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable, and this note shall be
construed as if such illegal, invalid or unenforcable provision had not
been contained herein.
22. ARBITRATION.
(a) Either Lender or Borrower may require that all disputes, claims,
counterclaims and defenses, including those based on or arising from
any alleged tort ("Claims") relating in any way to this note or any
transaction of which this note is a part ( the "Loan"), be settled by
binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association and Title 9 of the U.S.
Code. All claims will be subject to the statutes of limitation
applicable if they were litigated. This provision is void if the
Loan, at the time of the proposed submission to arbitration, is
secured by real property located outside of Oregon or Washington, or
if the effect of the arbitration procedure ( as opposed to any Claims
of Borrower) would be to materially impair Lender's ability to realize
on any collateral securing the Loan.
(b) If arbitration occurs and each party's claim is less than $100,000,
one neutral arbitrator will decide all issues; if any party's claim is
$100,000 or more,three neutral arbitrators will decide all issues.
All arbitrators will be active Oregon State Bar members in good
standing. All arbitration hearings will be held in Portland, Oregon.
In addition to all other powers, the arbitrator(s) shall have the
exclusive right to
<PAGE>
Summit Design, Inc.
4/9/97
Page 17
determine all issues of arbitrability. Judgment on
any arbitration award may be entered in any court with jurisdiction.
(c) If either party institutes any judicial proceeding relating to the
Loan, such action shall not be a waiver of the right to submit any
Claim to arbitration. In addition, each has the right before, during
and after any arbitration to exercise any number of the following
remedies, in any order or concurrently: (i) Setoff; (ii) self-help
repossession; (iii) judicial or non-judicial foreclosure against real
or personal property collateral;and (iv) provisional remedies,
including injunction, appointment of receiver, attachement, claim and
delivery and replevin.
23. GOVERNING LAW. This note shall be governed by and construed and enforced
in accordance with the laws of the State of Oregon without regard to
conflicts of law principles; PROVIDED, however, that to the extent that
Lender has greater rights or remedies under Federal law, this provision
shall not be deemed to deprive Lender of such rights and remedies as may be
available under Federal law.
24. DISCLOSURE.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD
PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUCT
BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE
LENDER TO BE ENFORCEABLE.
<PAGE>
Summit Design, Inc.
4/9/97
Page 18
EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.
SUMMIT DESIGN, INC.
- -------------------------------- --------------------------------
Borrower Name Signature of Individual Borrower
/s/ C. Albert Koob, Chief Financial Officer --------------------------------
By Title Signature of Individual
Borrower
- -------------------------------- --------------------------------
By Title Signature of Individual
Borrower
For valuable consideration, Lender agrees to the terms of the arbitration
provision set forth in this note.
Lender
Name:__________________________
By:_________________________________
Title:______________________________
Date
<PAGE>
LOAN AGREEMENT
BETWEEN
SUMMIT DESIGN, INC.
AND
DASYS, INC.
JULY 16, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Plural Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Calculation of Interest and Fees. . . . . . . . . . . . . . . . . . 2
1.10 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2. LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Terms; Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Maturity; Payment of Outstanding Loans; Termination of Obligations. 3
2.4 Proceeds of the Loans . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Other Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Loan Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Security; Further Assurances. . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. . . . . . . . . . . . 6
3.1 Due Incorporation, Qualification, etc.. . . . . . . . . . . . . . . 6
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 No Violation or Default . . . . . . . . . . . . . . . . . . . . . . 6
3.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.11 No Agreements to Sell Assets. . . . . . . . . . . . . . . . . . . . 8
3.12 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . 8
3.13 Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.14 Governmental Charges and Other Indebtedness . . . . . . . . . . . . 8
3.15 Subsidiaries, etc.. . . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 Catastrophic Events; Labor Disputes . . . . . . . . . . . . . . . . 9
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
3.17 No Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . 9
3.18 Accuracy of Information Furnished . . . . . . . . . . . . . . . . . 9
3.19 Certain Agreements of Officers, Employees and Consultants . . . . . 9
3.20 Contracts or Commitments; Indebtedness. . . . . . . . . . . . . . . 9
3.21 GM Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3.22 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . .10
3.23 Deposit Accounts and Investment Accounts. . . . . . . . . . . . . .10
ARTICLE 4. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . .10
4.1 Principal Loan Documents. . . . . . . . . . . . . . . . . . . . . .10
4.2 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . .11
4.3 Amendment of Borrower Stock Option Plan . . . . . . . . . . . . . .11
4.4 Amendment of GM Agreement.. . . . . . . . . . . . . . . . . . . . .11
4.5 Representations and Warranties Correct. . . . . . . . . . . . . . .11
4.6 Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . .11
4.7 Amendment to Articles of Incorporation. . . . . . . . . . . . . . .11
4.8 Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . .11
4.9 Consents; Permits; Waivers. . . . . . . . . . . . . . . . . . . . .12
4.10 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4.11 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . .12
4.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .12
4.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4.14 Conditions to Lender's Obligation to Make Each Loan . . . . . . . .12
4.15 Agreement to Deliver. . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE 5. COVENANTS OF BORROWER.. . . . . . . . . . . . . . . . . . . . . .13
5.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . .13
5.2 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE 6. ADDITIONAL LENDER RIGHTS. . . . . . . . . . . . . . . . . . . . .17
6.1 Notice of Events Not in Ordinary Course . . . . . . . . . . . . . .17
6.2 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . .17
6.3 Appraisal of Material Software. . . . . . . . . . . . . . . . . . .18
6.4 Additional Actions in Connection with Borrower's Stock Option Plan.18
ARTICLE 7. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . .18
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . .18
7.2 Rights of Lender upon Default . . . . . . . . . . . . . . . . . . .20
ARTICLE 8. CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . . . . .20
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . .21
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
9.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
9.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . .22
9.5 Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . .23
9.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . .23
9.7 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
9.8 No Third Party Rights . . . . . . . . . . . . . . . . . . . . . . .24
9.9 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . .24
9.10 Arbitration.. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
9.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SCHEDULE I - DEFINITIONS
SCHEDULE II - NOTICE OF BORROWING
SCHEDULE III - DISCLOSURE SCHEDULE
SCHEDULE IV - BUDGET
EXHIBIT A - NOTE
EXHIBIT B - SECURITY AGREEMENT
EXHIBIT C - STOCK PLEDGE AGREEMENT
EXHIBIT D - INTELLECTUAL PROPERTY SECURITY AGREEMENT
EXHIBIT E - PURCHASE OPTIONS
EXHIBIT F - DISTRIBUTION AGREEMENT
EXHIBIT G - EMPLOYMENT AGREEMENT
EXHIBIT H - ESCROW AGREEMENT
-iii-
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT (this "LOAN AGREEMENT"), dated as of July 16, 1997 is
entered into by and between:
(1) Summit Design, Inc., a Delaware corporation ("LENDER"); and
(2) Dasys, Inc., a Pennsylvania corporation ("BORROWER").
RECITALS
A. Borrower desires to obtain financing for working capital purposes.
B. Lender desires to assist Borrower by providing such financing
subject to the terms and conditions of this Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the covenants,
conditions and agreements set forth herein, the parties agree as follows:
ARTICLE 1. INTERPRETATION.
1.1 DEFINITIONS. Unless otherwise indicated in this Loan Agreement,
each term set forth in Schedule I, when used in this Loan Agreement, shall have
the respective meaning given to that term in Schedule I or in the provision of
this Loan Agreement referenced in Schedule I.
1.2 GAAP. Unless otherwise indicated in this Loan Agreement, all
accounting terms used in this Loan Agreement shall be construed, and all
accounting and financial computations hereunder or thereunder shall be computed,
in accordance with GAAP. If GAAP changes during the term of this Loan Agreement
such that any covenants contained herein would then be calculated in a different
manner or with different components, Borrower and Lender agree to negotiate in
good faith to amend this Loan Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating Borrower's financial
condition to substantially the same criteria as were effective prior to such
change in GAAP; PROVIDED, HOWEVER, that, until Borrower and Lender so amend this
Loan Agreement, all such covenants shall be calculated in accordance with GAAP
as in effect immediately prior to such change.
1.3 HEADINGS. Headings in this Loan Agreement and each of the other
Loan Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
1.4 PLURAL TERMS. All terms defined in this Loan Agreement or any
other Loan Document in the singular form shall have comparable meanings when
used in the plural form and VICE VERSA.
<PAGE>
1.5 TIME. All references in this Loan Agreement and each of the other
Loan Documents to a time of day shall mean Oregon time, unless otherwise
indicated.
1.6 GOVERNING LAW. This Loan Agreement and each of the other Loan
Documents shall be governed by and construed in accordance with the laws of the
State of Delaware without reference to conflicts of law rules.
1.7 CONSTRUCTION. Each of this Loan Agreement and the other Loan
Documents is the result of negotiations among, and has been reviewed by,
Borrower, Lender and their respective counsel. Accordingly, this Loan Agreement
and the other Loan Documents shall be deemed to be the product of all parties
hereto, and no ambiguity shall be construed in favor of or against Borrower or
Lender.
1.8 ENTIRE AGREEMENT. This Loan Agreement and each of the other Loan
Documents, taken together, constitute and contain the entire agreement of
Borrower and Lender and supersede any and all prior agreements, negotiations,
correspondence, understandings and communications among the parties, whether
written or oral, respecting the subject matter hereof.
1.9 CALCULATION OF INTEREST AND FEES. All calculations of interest
and fees under this Loan Agreement and the other Loan Documents for any period
shall include the first day of such period and exclude the last day of such
period.
1.10 OTHER INTERPRETIVE PROVISIONS. References in this Loan Agreement
to "Recitals," "Sections," "Paragraphs," "Subparagraphs," "Exhibits" and
"Schedules" are to recitals, sections, paragraphs, subparagraphs, exhibits and
schedules herein and hereto unless otherwise indicated. References in this Loan
Agreement and each of the other Loan Documents to any document, instrument or
agreement (a) shall include all exhibits, schedules and other attachments
thereto, (b) shall include all documents, instruments or agreements issued or
executed in replacement thereof, and (c) shall mean such document, instrument or
agreement, or replacement or predecessor thereto, as amended, modified and
supplemented from time to time and in effect at any given time. The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Loan Agreement or any other Loan Document shall refer to this Loan Agreement or
such other Loan Document, as the case may be, as a whole and not to any
particular provision of this Loan Agreement or such other Loan Document, as the
case may be. The words "include" and "including" and words of similar import
when used in this Loan Agreement or any other Loan Document shall not be
construed to be limiting or exclusive.
ARTICLE 2. LOANS.
2.1 TERMS; TIMING.
(a) Subject to the terms and conditions of this Loan Agreement,
Lender agrees to advance to Borrower one or more term loans (each, a "LOAN" and
collectively, the "LOANS") in an aggregate principal amount not to exceed
$2,500,000. Each Loan shall be in an amount of at least $50,000 or any integral
multiple of $10,000 in excess thereof and shall be made on a date at least five
(5) Business Days after the delivery to Lender in the manner specified in
Section 9.1 of a notice of borrowing in the form of Schedule II hereto (the
"NOTICE OF BORROWING"), which Notice of Borrowing shall have been approved in
accordance with Section 2.1(b) below prior to any obligation on the part of
Lender to provide such funds.
-2-
<PAGE>
(b) Except as provided in Section 2.1(b)(i) below, Borrower
shall be entitled to submit not more than one Notice of Borrowing with
respect to any calendar quarter. In the event Borrower desires to draw down
a Loan with respect to any calendar quarter, at least five (5) Business Days
prior to the beginning of such calendar quarter, Borrower shall submit to the
Budget Committee a Notice of Borrowing specifying in reasonable detail
Borrower's estimated expenses and working capital requirements for such
upcoming calendar quarter on a monthly basis, which expenses and working
capital requirements shall be in accordance with the then-existing Budget.
Disbursements of Loans may only be requested by Borrower in accordance with
the then-existing Budget, and Lender shall have no obligation to make any
Loan which is not in accordance therewith. In addition, each Notice of
Borrowing shall be subject to the review of the Budget Committee; provided,
however that the Budget Committee shall not have the discretion to disapprove
a Loan that is otherwise within the then-existing Budget. The Budget
Committee shall approve any qualified Notice of Borrowing within ten (10)
days after the receipt thereof. After review and approval by the Budget
Committee, the Notice of Borrowing, including any adjustments mandated by the
Budget Committee, shall be submitted to Lender for draw down of a Loan in
accordance with Section 2.1(a) above.
(i) Notwithstanding the provisions of Section 2.1(b),
Borrower may submit to the Budget Committee up to two (2) additional Notices of
Borrowing during any calendar quarter (a "Monthly Notice"). A Monthly Notice
must be submitted at least five (5) Business Days prior to the beginning of such
month and shall specify in reasonable detail Borrower's estimated expenses and
working capital requirements for such upcoming month, which expenses and working
capital requirements shall be in accordance with the then-existing Budget.
Lender shall have no obligation to make any Loan which is not in accordance with
the then-existing Budget. Each Monthly Notice shall be subject to the review of
the Budget Committee. The Budget Committee shall approve any qualified Monthly
Notice within five (5) days after the receipt thereof. After review and
approval by the Budget Committee, the Monthly Notice, including any adjustments
mandated by the Budget Committee, shall be submitted to Lender for draw down of
a Loan in accordance with Section 2.1(a) above.
2.2 INTEREST PAYMENTS. Borrower shall pay interest on the unpaid
principal amount of the Loans from the date of each such Loan until the Maturity
thereof, quarterly within thirty (30) days of the last Business Day of each
calendar quarter, beginning on September 30, 1997, and at Maturity, at a rate
per annum equal at all times to the Prime Rate (as in effect on the first day of
each new quarterly period) plus two percent (2 %). All computations of such
interest shall be based on a year of 360 days for actual days elapsed.
2.3 MATURITY; PAYMENT OF OUTSTANDING LOANS; TERMINATION OF
OBLIGATIONS.
(a) MATURITY DATE. Unless earlier prepaid, all outstanding
Loans shall be due and payable on April 1, 2000 (the "MATURITY DATE"); provided,
however that no Loans shall be made after December 31, 1999.
(b) PAYMENT OF OUTSTANDING LOANS. Unless earlier prepaid, on
the Maturity Date, Borrower shall repay all outstanding Loans, including all
unpaid fees, costs, expenses, accrued interest and principal (the "Aggregate
Loan Amount"), in lawful money of the United States and in same day or
immediately available funds; provided, however, that prior to the Maturity Date,
Borrower may, by vote of its shareholders including the affirmative votes of the
holders of a majority of the outstanding shares of preferred stock, elect to
repay the Aggregate Loan Amount by tendering to Lender one hundred percent
(100%) of Borrower's outstanding Equity Securities, duly endorsed in blank
pursuant to the Pledge Agreement. In the event that the Fair Market Value of
Borrower is greater than the Aggregate Loan Amount, Lender shall pay to the
holders of Borrower's Equity Securities the difference between the Fair Market
Value of Borrower and the Aggregate Loan Amount. Any such
-3-
<PAGE>
payment by Lender to holders of Borrower's Equity Securities shall
be made, at the option of Lender, in cash or Lender Common Stock (valued at
the Fair Market Value of Lender Common Stock). In the event that the Fair
Market Value of Borrower is less than the Aggregate Loan Amount, all
Obligations of Borrower owing pursuant to this Loan Agreement and the Loan
Documents shall be deemed to be satisfied completely upon tender of
Borrower's Equity Securities to Lender, duly endorsed in blank. Any payment
by Lender pursuant to this Section 2.3(b), whether in cash or Lender Common
Stock, shall be made in accordance with written instructions received from
Borrower's Representatives, and upon such payment, Lender shall have no
liability to any holder of Borrower's Equity Securities for any amounts
otherwise payable hereunder.
(i) REGISTRATION OF LENDER COMMON STOCK. In the event
that Lender elects to deliver Lender Common Stock to holders of Borrower's
Equity Securities, pursuant to either Section 2.3(b) above or upon exercise of
the Purchase Options, Lender shall file within thirty (30) days of delivery of
such Lender Common Stock a registration statement on Form S-3 with the
Securities and Exchange Commission covering the shares of Lender Common Stock
received by the holders of Borrower's Equity Securities so as to permit the
public resale thereof. Lender shall use its reasonable best efforts to have
such registration statement declared effective within sixty (60) days of the
filing of such registration statement. Such registration shall be on
commercially reasonable terms applicable to "demand" registration rights as
shall be mutually agreed upon by Lender and holders of Borrower's Equity
Securities. Notwithstanding the foregoing, Lender shall have no obligation to
file such registration statement (A) prior to the later of (i) the Maturity Date
and (ii) thirty (30) days after the date of delivery of Lender Common Stock or
(B) if all shares of Lender Common Stock so issued may be sold by the holders
thereof within a three-month period pursuant to Rule 144 of the Securities Act
following the date as of which the registration statement would otherwise be
required to be filed hereunder.
(c) TERMINATION OF OBLIGATIONS. Nothing contained in Section
2.3(b) above shall be construed to obligate Lender to accept Borrower's Equity
Securities as payment for the Aggregate Loan Amount. In the event Borrower
tenders the Equity Securities in accordance with Section 2.3 and Lender notifies
Borrower of its intention not to accept such Equity Securities as payment, the
Aggregate Loan Amount shall nonetheless be deemed to be satisfied in full and
Borrower shall have no further obligations under this Loan Agreement or any
other Loan Document, except that the Distribution Agreement will be modified in
accordance with the provisions contained therein.
2.4 PROCEEDS OF THE LOANS. Borrower shall use the proceeds of the
Loans solely to satisfy current expense requirements and for general working
capital purposes.
2.5 PREPAYMENTS.
(a) TERMS OF ALL PREPAYMENTS. Upon the prepayment of any Loan
(whether such prepayment is an optional prepayment under Section 2.5(b) or a
mandatory prepayment required by any other provision of this Loan Agreement or
the other Loan Documents, including, without limitation, a prepayment upon
acceleration), Borrower shall pay to Lender all accrued interest to the date of
such prepayment on the amount prepaid.
(b) OPTIONAL PREPAYMENTS. At its option, Borrower may, upon
three (3) Business Days' notice to Lender, prepay the Loans in whole, or in part
in the amount of Ten Thousand Dollars ($10,000) or any integral multiple
thereof.
-4-
<PAGE>
(c) APPLICATION OF PREPAYMENTS. All prepayments hereunder
shall be applied first to unpaid fees, costs and expenses then due and payable
under this Loan Agreement or the other Loan Documents, second to accrued
interest then due and payable under this Loan Agreement or the other Loan
Documents and finally to reduce the principal amount of outstanding Loans.
2.6 OTHER PAYMENT TERMS.
(a) PLACE AND MANNER. Other than pursuant to Section
2.3(b)(i), Borrower shall make all payments due to Lender hereunder to a bank
account designated by Lender or, at Lender's option, at the address specified in
Section 9.1, in each case in lawful money of the United States and in same day
or immediately available funds.
(b) DATE. Whenever any payment due hereunder shall fall due on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included in the
computation of interest or fees, as the case may be.
(c) DEFAULT RATE. From and after the occurrence of an Event of
Default and during the continuance thereof, Borrower shall pay interest on the
aggregate, outstanding balance of the Loans, and on interest (compounded
monthly) and other amounts not paid when due hereunder or under the other Loan
Documents, from the date due thereof until those amounts are paid in full at a
per annum rate equal to the Prime Rate PLUS three percent (3%), such rate to
change from time to time as the Prime Rate shall change. All computations of
such interest shall be based on a year of 360 days for actual days elapsed.
2.7 NOTE. The obligation of Borrower to repay the Loans and to pay
interest thereon at the rates provided herein shall be evidenced by a promissory
note in the form of Exhibit A (the "NOTE").
2.8 LOAN FUNDING. Lender shall disburse the proceeds of the Loans
into a bank account of Borrower in which Lender has a first priority perfected
security interest.
2.9 SECURITY; FURTHER ASSURANCES.
(a) SECURITY. The Obligations shall be secured by the
following:
(i) A Security Agreement in the form of Exhibit B
hereto (the "SECURITY AGREEMENT");
(ii) A Stock Pledge Agreement in the form of
Exhibit C hereto (the "PLEDGE AGREEMENT"), executed by each holder
of Equity Securities of Borrower; and
(iii) An Intellectual Property Security Agreement
in the form of Exhibit D hereto (the "INTELLECTUAL PROPERTY
SECURITY AGREEMENT").
(b) FURTHER ASSURANCES. Borrower shall deliver, or shall cause
to be delivered, to Lender the Security Agreement, the Pledge Agreement and the
Intellectual Property Security Agreement and such other instruments, agreements,
certificates, opinions and documents as Lender may reasonably request to create,
perfect, evidence and maintain (i) a first priority security interest of Lender
in all of the assets of Borrower and the Equity Securities of Borrower as
further set forth in the Security Agreement, the Pledge Agreement and the
-5-
<PAGE>
Intellectual Property Security Agreement and (ii) the rights of Lender under
this Loan Agreement and the other Loan Documents. Borrower shall fully
cooperate with Lender and perform all additional acts reasonably requested by
Lender to effect the purposes of the foregoing and the rights granted to Lender
hereunder.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BORROWER.
To induce Lender to enter into this Loan Agreement and to make Loans
hereunder, Borrower represents and warrants to Lender that, except as set
forth in the Disclosure Schedule (which Disclosure Schedule shall set forth
exceptions to each Section of this Article 3 in a separate item and no
exception to one Section shall be deemed to relate to another Section unless
a specific cross-reference is made in the Disclosure Schedule item
corresponding to such other Section):
3.1 DUE INCORPORATION, QUALIFICATION, ETC. Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation; (ii) has the power and authority to own, lease
and operate its properties and carry on its business as now conducted; and (iii)
is duly qualified, licensed to do business and in good standing as a foreign
corporation in each jurisdiction where the failure to be so qualified or
licensed could reasonably be expected to have a Material Adverse Effect.
3.2 AUTHORITY. The execution, delivery and performance by Borrower of
each Loan Document to be executed by Borrower and the consummation of the
transactions contemplated thereby (i) are within the power of Borrower and (ii)
have been duly authorized by all necessary actions on the part of Borrower.
3.3 ENFORCEABILITY. Each Loan Document executed, or to be executed,
by Borrower has been, or will be, duly executed and delivered by Borrower and
constitutes, or will constitute, a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity.
3.4 NON-CONTRAVENTION. The execution and delivery by Borrower of the
Loan Documents executed by Borrower and the performance and consummation of the
transactions contemplated thereby do not and will not (i) violate any
Requirement of Law applicable to Borrower; (ii) violate any provision of, or
result in the breach or the acceleration of, or entitle any other Person to
accelerate (whether after the giving of notice or lapse of time or both), any
Contractual Obligation of Borrower; or (iii) result in the creation or
imposition of any Lien upon any property, asset or revenue of Borrower (except
such Liens as may be created in favor of Lender pursuant to this Loan Agreement
or the other Loan Documents).
3.5 APPROVALS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority or other
Person (including, without limitation, the shareholders of any Person) is
required in connection with the execution and delivery of the Loan Documents
executed by Borrower and the performance and consummation of the transactions
contemplated thereby.
3.6 NO VIOLATION OR DEFAULT. Borrower is not in violation of or in
default with respect to (i) any Requirement of Law; (ii) any Contractual
Obligation (nor is there any waiver in effect which, if not in effect, would
result in such a violation or default), where, in each case, such violation or
default, individually, or together with all such violations or defaults, could
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, Borrower (A) has not violated any Environmental
Laws,
-6-
<PAGE>
(B) does not have any liability under any Environmental Laws, or (C) has
not received notice or other communication of an investigation nor is under
investigation by any Governmental Authority having authority to enforce
Environmental Laws, where such violation, liability or investigation could
reasonably be expected to have a Material Adverse Effect. No Event of Default
or Default has occurred and is continuing.
3.7 LITIGATION. Except as set forth (with estimates of the dollar
amounts involved) in Item 3.7 of the Disclosure Schedule, no actions (including,
without limitation, derivative actions), suits, proceedings or investigations
are pending or, to the knowledge of Borrower, threatened against Borrower at law
or in equity in any court or before any other Governmental Authority which if
adversely determined (i) would (alone or in the aggregate) have a Material
Adverse Effect or (ii) seeks to enjoin, either directly or indirectly, the
execution, delivery or performance by Borrower of the Loan Documents or the
transactions contemplated thereby.
3.8 TITLE. Borrower owns and has good and marketable title in fee
simple absolute to, or a valid leasehold interest in, all its real properties
and good title to its other assets and properties as reflected in the most
recent Financial Statements delivered to Lender (except those assets and
properties disposed of in the ordinary course of business since the date of such
Financial Statements) and all assets and properties acquired by Borrower since
such date (except those disposed of in the ordinary course of business). Such
assets and properties are subject to no Lien, except for Permitted Liens.
3.9 FINANCIAL STATEMENTS. The Financial Statements of Borrower which
have been delivered to Lender, (i) are in accordance with the books and records
of Borrower, which have been maintained in accordance with good business
practice; (ii) have been prepared in conformity with GAAP; and (iii) fairly
present the consolidated financial position of Borrower as of the dates
presented therein and the results of operations, and changes in financial
positions or cash flows, as the case may be, for the periods presented therein.
Borrower does not have any contingent obligations, liability for taxes or other
outstanding obligations which are material in the aggregate, except as disclosed
in the Financial Statements dated December 31, 1996, furnished by Borrower to
Lender prior to the date hereof.
3.10 EQUITY SECURITIES. Borrower's total authorized and issued
capitalization (including the appropriate conversion ratios) is as set forth in
Item 3.10 of the Disclosure Schedule. The Equity Securities of Borrower have
the respective rights, preferences and privileges set forth in Borrower's
Charter Documents in effect on the date hereof. All of the outstanding Equity
Securities of the Borrower have been duly authorized and are validly issued,
fully paid and nonassessable. Except as expressly referenced herein or as set
forth in Item 3.10 of the Disclosure Schedule, there are as of the date of this
Loan Agreement no options, warrants or rights to purchase Equity Securities
authorized, issued or outstanding, nor is Borrower obligated in any other manner
to issue shares of its Equity Securities. There are no restrictions on the
transfer of shares of capital stock of Borrower, other than those imposed by
Borrower's Charter Documents as of the date hereof, or relevant state and
federal securities laws, and no holder of any Equity Security of Borrower is
entitled to preemptive or similar statutory or contractual rights, either
arising pursuant to any agreement or instrument to which Borrower is a party or
that are otherwise binding upon Borrower. The offer and sale of all shares of
Equity Securities of Borrower issued before the Closing Date complied with or
were exempt from registration or qualification under all applicable federal and
state securities laws. No Person has the right to demand or other rights to
cause Borrower to file any registration statement under the Securities Act,
relating to any Equity Securities of Borrower presently outstanding or that may
be subsequently issued, or any right to participate in any such registration
statement.
-7-
<PAGE>
3.11 NO AGREEMENTS TO SELL ASSETS. Borrower does not have any legal
obligation, absolute or contingent, to any Person to sell any of the assets of
Borrower (other than sales in the ordinary course of business), or to effect any
merger, consolidation or other reorganization of Borrower or to enter into any
agreement with respect thereto.
3.12 EMPLOYEE BENEFIT PLANS.
(a) Borrower and its ERISA Affiliates have no Employee Benefit
Plan that is an "employee pension benefit plan" (within the meaning of section
3(2) of ERISA). Neither Borrower nor any ERISA Affiliate has any liability with
respect to any post-retirement benefit under any Employee Benefit Plan which is
a welfare plan (as defined in section 3(1) of ERISA), other than liability for
health plan continuation coverage described in Part 6 of Title I(B) of ERISA,
which liability for health plan contribution coverage cannot reasonably be
expected to have a Material Adverse Effect.
(b) Each Employee Benefit Plan complies, in both form and
operation, in all material respects, with its terms, ERISA and the Code, and no
condition exists or event has occurred with respect to any such plan which would
result in the incurrence by either Borrower or any ERISA Affiliate of any
material liability, fine or penalty. Each Employee Benefit Plan, related trust
agreement, arrangement and commitment of Borrower or any ERISA Affiliate is
legally valid and binding and in full force and effect. No Employee Benefit
Plan is being audited or investigated by any government agency or is subject to
any pending or threatened claim or suit. Neither Borrower nor any ERISA
Affiliate nor any fiduciary of any Employee Benefit Plan has engaged in a
prohibited transaction under section 406 of ERISA or section 4975 of the Code.
(c) Neither Borrower nor any ERISA Affiliate contributes to any
Multiemployer Plan. Neither Borrower nor any ERISA Affiliate has incurred any
material liability (including secondary liability) to any Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan under
section 4201 of ERISA or as a result of a sale of assets described in section
4204 of ERISA. Neither Borrower nor any ERISA Affiliate has been notified that
any Multiemployer Plan is in reorganization or insolvent under and within the
meaning of section 4241 or section 4245 of ERISA or that any Multiemployer Plan
intends to terminate or has been terminated under section 4041A of ERISA.
3.13 OTHER REGULATIONS. Borrower is not subject to regulation under
the Investment Company Act of 1940, the Public Utility Holding Company Act of
1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code or to any federal or state statute or regulation limiting its
ability to incur Indebtedness.
3.14 GOVERNMENTAL CHARGES AND OTHER INDEBTEDNESS. Borrower has filed
or caused to be filed all tax returns which are required to be filed by it.
Borrower has paid, or made provision for the payment of, all taxes and other
Governmental Charges which have or may have become due pursuant to said returns
or otherwise and all other Indebtedness, except such Governmental Charges or
Indebtedness, if any, which are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided or
which could not reasonably be expected to have a Material Adverse Effect if
unpaid.
3.15 SUBSIDIARIES, ETC. Borrower has no Subsidiaries and is not a
partner in any partnership or a joint venturer in any joint venture.
-8-
<PAGE>
3.16 CATASTROPHIC EVENTS; LABOR DISPUTES. Neither Borrower nor any of
its properties is or has been affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty that could reasonably be expected to have a Material
Adverse Effect. There are no disputes presently subject to grievance procedure,
arbitration or litigation under any of the collective bargaining agreements,
employment contracts or employee welfare or incentive plans to which Borrower is
a party, and there are no strikes, lockouts, work stoppages or slowdowns, or, to
the best knowledge of Borrower, jurisdictional disputes or organizing activity
occurring or threatened which could reasonably be expected to have a Material
Adverse Effect.
3.17 NO MATERIAL ADVERSE EFFECT. No event has occurred and, to the
knowledge of Borrower, no condition exists which could reasonably be expected to
have a Material Adverse Effect.
3.18 ACCURACY OF INFORMATION FURNISHED. None of the Loan Documents and
none of the other certificates, statements or information furnished to Lender by
or on behalf of Borrower in connection with the Loan Documents or the
transactions contemplated thereby contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
3.19 CERTAIN AGREEMENTS OF OFFICERS, EMPLOYEES AND CONSULTANTS.
(a) No officer, employee or consultant of Borrower is, or is
now expected to be, in violation of any term of any employment contract,
proprietary information agreement, nondisclosure agreement, noncompetition
agreement, or any other contract or agreement or any restrictive covenant
relating to the right of any such officer, employee or consultant to be employed
by Borrower because of the nature of the business conducted or to be conducted
by Borrower or relating to the use of trade secrets or proprietary information
of others, and to the best of Borrower's knowledge, after due inquiry, the
continued employment of Borrower's officers, employees and consultants do not
subject Borrower to any liability for any claim or claims, which if adversely
decided could reasonably be expected to have a Material Adverse Effect, arising
out of or in connection with any such contract, agreement, or covenant.
(b) To the knowledge of Borrower, after due inquiry, no
officers of Borrower, and no employee or consultant of Borrower whose
termination or discontinuation of full-time employment, either individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect, has any present intention of terminating or otherwise materially
altering his or her employment or consulting relationship with Borrower.
(c) All officers, employees and consultants of Borrower have
executed an agreement relating to the use of trade secrets or proprietary
information of Borrower, and Borrower has provided to Lender a copy of such
agreements.
3.20 CONTRACTS OR COMMITMENTS; INDEBTEDNESS.
(a) Neither Borrower nor any of its properties is subject to
any Contractual Obligation or Requirement of Law which could reasonably be
expected to have a Material Adverse Effect. Except for this Loan Agreement, the
Note and the other Loan Documents, Borrower is not a party to any contracts or
commitments (or group of related contracts or commitments) involving more than
Fifty Thousand Dollars ($50,000) or having a term (including renewals or
extensions optional with another party) of more than one (1)
-9-
<PAGE>
year from the date thereof. Except as set forth in Item 3.20 of the
Disclosure Schedule, Borrower has no Indebtedness other than Permitted
Indebtedness.
3.21 GM AGREEMENT. The GM Agreement is valid, binding and in full
force and effect and is enforceable by Borrower in accordance with its terms and
will continue in full force and effect after the Closing. Borrower has
performed all its obligations required to be performed by it to date under the
GM Agreement, and Borrower is not in breach or default in any material respect
thereunder and, to the knowledge of Borrower, GM is not in breach or default in
any material respect thereunder. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship of Borrower with GM, and there exists no present or
future condition or state of facts or circumstances involving GM that Borrower
can now reasonably foresee which would have a Material Adverse Effect on
Borrower's business or prevent the conduct of Borrower's business after the
consummation of the transactions contemplated by this Loan Agreement and the
Loan Documents in essentially the same manner in which such business has
heretofore been conducted. Nothing contained in this Section 3.21 shall in any
way limit the representations and warranties of Borrower with respect to the GM
Agreement contained elsewhere in this Loan Agreement and the Loan Documents.
3.22 TRANSACTIONS WITH AFFILIATES. There are no loans, leases, royalty
agreements or other continuing transactions between Borrower and any Affiliate
of Borrower, except as set forth on the Disclosure Schedule, all of which are
transactions in the ordinary course of business and on terms at least as
favorable to Borrower as would be the case in an arms-length transaction with an
unaffiliated Person.
3.23 DEPOSIT ACCOUNTS AND INVESTMENT ACCOUNTS. Except as set forth in
Item 3.23 of the Disclosure Schedule, Borrower has no deposit accounts with
banks or investment or similar accounts with brokerage firms.
ARTICLE 4. CONDITIONS TO CLOSING.
Lender's obligation to make the initial Loan is subject to the prior
satisfaction or waiver of all the conditions set forth in Sections 4.1 through
4.13 of this Article 4. Lender's obligation to make each subsequent Loan is
subject to the prior satisfaction or waiver of all the conditions set forth in
Section 4.14 of this Article 4.
4.1 PRINCIPAL LOAN DOCUMENTS. Borrower shall have, or shall have
caused to have been, duly executed and delivered to Lender the following
documents, each in form and substance satisfactory to Lender:
(a) The Loan Agreement;
(b) The Note;
(c) The Security Agreement;
(d) The Intellectual Property Security Agreement;
(e) A Pledge Agreement, duly executed by each holder of
Borrower's Equity Securities, together with original stock certificates
representing 100% of Borrower's Equity Securities, and stock powers executed in
blank;
-10-
<PAGE>
(f) The Purchase Options, duly executed by each holder of
Equity Securities of Borrower, in the form of Exhibit E hereto;
(g) The Distribution Agreement between Lender and Borrower in
the form attached hereto as Exhibit F (the "DISTRIBUTION AGREEMENT");
(h) A Notice of Borrowing (at least five (5) Business Days
prior to the Closing Date); and
(i) Such Uniform Commercial Code financing statements and other
documents, instruments and agreements as Lender may reasonably request to
perfect the security interests granted to Lender in the Security Agreement, the
Pledge Agreement and the Intellectual Property Security Agreement.
4.2 EMPLOYMENT AGREEMENTS. Borrower shall have entered into
employment agreements with each of its executive officers and key employees in
the form attached hereto as Exhibit G (collectively, the "EMPLOYMENT
AGREEMENTS").
4.3 AMENDMENT OF BORROWER STOCK OPTION PLAN. Borrower shall have
amended the Dasys Inc. Stock Purchase and Stock Option Plan of 1992 (the
"Stock Option Plan"), in form and substance satisfactory to Lender, to
provide, among other things, (i) for an authorized option pool not to exceed
ten percent (10%) of the outstanding Equity Securities of Borrower at any
given time, on an as-converted/exercised basis, and (ii) that each such
option will obligate the optionholder to be bound by the terms of the Pledge
Agreement and the Purchase Options.
4.4 AMENDMENT OF GM AGREEMENT. Borrower shall have entered into an
amendment to the GM Agreement in form and substance reasonably satisfactory to
Lender.
4.5 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by Borrower in Article 3 hereof, and by each holder of
Borrower's Equity Securities in the Purchase Options and the Stock Pledge
Agreements, shall be true and correct as of the Closing Date and after giving
effect to the making of the initial Loan.
4.6 COMPLIANCE CERTIFICATE. Borrower shall have delivered to Lender
on the Closing Date a certificate of Borrower certifying the accuracy of all
representations and warranties set forth in Article 3 and certifying that all
conditions to closing have been completed, executed by the Chief Executive
Officer of Borrower and dated as of such Closing Date.
4.7 AMENDMENT TO ARTICLES OF INCORPORATION. Borrower shall have
amended its Articles of Incorporation to modify its total number of authorized
shares to 3,155,656 and to prohibit the issuance of any additional Equity
Securities without the prior written consent of Lender.
4.8 CORPORATE DOCUMENTS. Borrower shall have delivered to Lender each
of the following:
(a) The Articles of Incorporation of Borrower, as amended in
accordance with Section 4.7, certified as of a recent date prior to the Closing
Date by the Secretary of State of Pennsylvania;
(b) A Certificate of Good Standing or comparable certificate
for Borrower, certified as of a recent date prior to the Closing Date by the
Secretary of State of Pennsylvania.
-11-
<PAGE>
(c) A certificate of the Secretary of Borrower, dated the
Closing Date, certifying (a) that the Articles of Incorporation of Borrower,
delivered to Lender pursuant to Section 4.8(a) hereof, is in full force and
effect and has not been amended, supplemented, revoked or repealed since the
date of such certification; (b) that attached thereto is a true and correct copy
of the Bylaws of Borrower as in effect on the Closing Date; (c) that attached
thereto are true and correct copies of resolutions duly adopted by the Board of
Directors of Borrower and continuing in effect, which authorize the execution,
delivery and performance by Borrower of this Loan Agreement and the other Loan
Documents executed or to be executed by Borrower and the consummation of the
transactions contemplated hereby and thereby; and (d) that there are no
proceedings for the dissolution or liquidation of Borrower (commenced or
threatened); and
(d) A certificate of the Secretary of Borrower, dated the
Closing Date, certifying the incumbency, signatures and authority of the
officers of Borrower authorized to execute, deliver and perform this Loan
Agreement and the other applicable Loan Documents on behalf of Borrower.
4.9 CONSENTS; PERMITS; WAIVERS. Borrower shall have obtained all
consents, permits and waivers necessary or appropriate for consummation of the
transactions contemplated by this Loan Agreement which need to be obtained prior
to the Closing Date, including without limitation the consent of Design
Solutions, Inc. pursuant to the DSI Distribution Agreement and evidence of
qualification of this Loan Agreement and the Note under applicable blue sky laws
for the State of Pennsylvania and Oregon.
4.10 LEGAL MATTERS. All material matters of a legal nature which
pertain to this Loan Agreement and the other Loan Documents and the transactions
contemplated hereby and thereby shall be reasonably satisfactory to Lender and
its counsel.
4.11 OPINION OF COUNSEL. There shall have been delivered to Lender a
favorable written opinion of Buchanan & Ingersoll, counsel to Borrower, in form
and substance reasonably acceptable to Lender, dated as of the Closing Date.
4.12 FINANCIAL STATEMENTS. Borrower shall have delivered to Lender
copies of Borrower's most recent Financial Statements, which shall include
information no less recent than May 31, 1997.
4.13 INSURANCE. Borrower shall have delivered to Lender an insurance
certificate showing Borrower's insurance coverage complying with the provisions
of Section 5.1(d) and naming Lender as loss payee with respect to casualty
policies and as an additional insured with respect to liability policies.
4.14 CONDITIONS TO LENDER'S OBLIGATION TO MAKE EACH LOAN. The making
of each Loan is subject to the further condition that on the date such Loan is
made and after giving effect thereto, the following shall be true and correct:
(a) The representations and warranties set forth in Article 3
are true and correct in all material respects as if made on such date;
(b) No Default or Event of Default has occurred and is
continuing or will result from the making of the Loan;
(c) Each of the Loan Documents remains in full force and
effect; and
-12-
<PAGE>
(d) The Notice of Borrowing shall have been approved by the
Budget Committee in accordance with the provisions of Section 2.1(b).
The submission by Borrower to Lender of an approved Notice of Borrowing with
respect to the Loan shall be deemed to be a representation and warranty by
Borrower as of the date thereof as to the above.
4.15 AGREEMENT TO DELIVER. Borrower agrees (not as a condition but as
a covenant) to deliver to Lender each item required to be delivered to Lender as
a condition to closing under this Article 4. Borrower expressly agrees that the
occurrence of the Closing Date prior to the receipt by Lender of any such item
shall not constitute a waiver by Lender of Borrower's obligation to deliver such
item.
ARTICLE 5. COVENANTS OF BORROWER.
5.1 AFFIRMATIVE COVENANTS. Until the termination of the commitment to
make Loans under this Loan Agreement and the satisfaction in full by Borrower of
all Obligations, Borrower shall comply, and shall cause compliance, with the
following affirmative covenants unless Lender shall otherwise consent in
writing:
(a) FINANCIAL STATEMENTS, REPORTS, ETC. Borrower shall furnish
to Lender the following, each in such form and such detail as Lender shall
reasonably request:
(i) Within forty-five (45) days after the last
day of each fiscal quarter of Borrower, a copy of the Financial
Statements of Borrower for such quarter and for the fiscal year to
date, certified by the chief financial officer or controller of
Borrower to present fairly the financial condition, results of
operations and other information presented therein and to have
been prepared in accordance with GAAP consistently applied,
subject to normal year end adjustments and except that no
footnotes need be included with such Financial Statements;
(ii) Within ninety (90) days after the close of
each fiscal year of Borrower, (A) copies of the audited Financial
Statements of Borrower for such year, audited by independent
certified public accountants reasonably acceptable to Lender, (B)
copies of the unqualified opinions and management letters
delivered by such accountants in connection with such Financial
Statements and (C) certificates of such accountants to Lender
stating that in making the examination necessary for their opinion
they have obtained no knowledge of any Event of Default or
Default, or if, in the opinion of such accountants, an Event of
Default or Default has occurred, a statement as to the nature
thereof (or other certificates of such accountants reasonably
acceptable to Lender);
(iii) Contemporaneously with the quarterly and
year-end financial statements required by the foregoing CLAUSES
(ii) AND (iii), a certificate of the president or chief financial
officer of Borrower stating that no Event of Default and no
Default has occurred, or, if any such Event of Default or Default
has occurred, a statement as to the nature thereof and what action
Borrower proposes to take with respect thereto;
-13-
<PAGE>
(iv) As soon as possible and in no event later
than five (5) Business Days after the occurrence or existence of:
(A) any Reportable Event under any Employee Benefit Plan or
Multiemployer Plan; (B) any actual or threatened litigation,
suits, claims or disputes against Borrower involving potential
monetary damages payable by Borrower of One Hundred Thousand
Dollars ($100,000) or more (alone or in the aggregate); (C) any
other event or condition which could reasonably be expected to
have a Material Adverse Effect; or (D) any Event of Default or
Default; the statement of the president or chief financial officer
of Borrower setting forth details of such event, condition, Event
of Default or Default and the action which Borrower proposes to
take with respect thereto;
(v) As soon as possible and in no event later
than five (5) Business Days after they are filed, copies of all
IRS Form 5500 reports for all Employee Benefit Plans required to
file such form;
(vi) Promptly after the commencement thereof,
notice of any and all agreements with any entity, or events,
actions, suits and proceedings of the type described in Section
3.7 before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign;
(vii) Within sixty (60) days of the commencement of
each fiscal year of Borrower, a copy of the draft operating plan
and budget of Borrower for such fiscal year, which operating plan
and budget shall be finalized within thirty (30) days of the
commencement of such fiscal year, in form, substance and detail
satisfactory to Lender. Upon the Budget Committee's review and
approval, in its sole discretion, of such operating plan and
budget, the same shall become the Budget with respect to which
Loans may be requested by Borrower in accordance with Section
2.1(b);
(viii) Notice of the filing for or issuance of a
registered patent or copyright or of the filing for or issuance of
a registered trademark with respect to Borrower as soon as
Borrower makes such filing or receives such notice and, in any
event, within ten (10) business days of Borrower's receipt of such
notice; and
(ix) Such other instruments, agreements,
certificates, opinions, statements, documents and information
relating to the operations or condition (financial or otherwise)
of Borrower and compliance by Borrower with the terms of this Loan
Agreement and the other Loan Documents as Lender may from time to
time reasonably request.
(b) BOOKS AND RECORDS. Borrower shall at all times keep proper
books of record and account in which full, true and correct entries will be made
of their transactions in accordance with GAAP.
(c) INSPECTIONS. Borrower shall permit any Person designated
by Lender, upon reasonable notice and during normal business hours, to visit and
inspect any of the properties and offices of Borrower, to examine the books of
account of Borrower and to discuss the affairs, finances and accounts of
Borrower with, and to be advised as to the same by, their officers, auditors,
consultants, advisors and accountants, all at such times and intervals as Lender
may reasonably request. Notwithstanding the foregoing, Lender may conduct such
inspections no more frequently than once per fiscal quarter.
-14-
<PAGE>
(d) INSURANCE. Borrower shall (i) carry and maintain insurance
at its expense of the types and in the amounts customarily carried from time to
time during the term of this Loan Agreement by others engaged in substantially
the same business as such Person and operating in the same geographic area as
such Person, including, but not limited to, fire, public liability, property
damage and worker's compensation, such insurance to be in such form as is
carried with companies and in amounts satisfactory to Lender, and (ii) deliver
to Lender from time to time, as Lender may request, schedules or insurance
certificates setting forth all insurance then in effect. All such policies of
property insurance shall name Lender as loss payee thereunder and all liability
insurance policies shall show Lender as an additional insured, and shall specify
that the insurer must give at least twenty (20) days notice to Lender (or ten
(10) days in the case of cancellation for non-payment of premiums) before
canceling its policy for any reason. All proceeds under the property insurance
shall, at the option of Borrower, be payable to Lender to be applied to the
Obligations.
(e) GOVERNMENTAL CHARGES AND OTHER INDEBTEDNESS. Borrower
shall promptly pay and discharge when due (i) all taxes and other Governmental
Charges prior to the date upon which penalties accrue thereon, (ii) all
Indebtedness which, if unpaid, could become a Lien upon the property of Borrower
and (iii) all other Indebtedness which, if unpaid, could reasonably be expected
to have a Material Adverse Effect, except such Indebtedness as may in good faith
be contested or disputed, or for which arrangements for deferred payment have
been made, provided that in each such case appropriate reserves are maintained
in accordance with GAAP and otherwise to the reasonable satisfaction of Lender.
(f) USE OF PROCEEDS. Borrower shall use the proceeds of the
Loans only for the respective purposes set forth in Section 2.4.
(g) GENERAL BUSINESS OPERATIONS. Borrower shall (i) preserve
and maintain its corporate existence and all of its rights, privileges and
franchises reasonably necessary to the conduct of its business, (ii) conduct its
business activities in compliance with all Requirements of Law and Contractual
Obligations applicable to such Person, (iii) keep all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted, and (iv) maintain its chief executive office and principal place
of business in Pittsburgh, Pennsylvania unless it shall have given Lender thirty
(30) days' prior written notice of its intent to change the location thereof.
(h) REGISTRATION OF COPYRIGHTS; SOURCE CODE ESCROW. Borrower
shall cause to be registered with the United States Copyright Office within
ninety (90) days of the Closing Date the source code and user manuals for all
software which is significant to the business of Borrower or software the
licensing revenues from which constitute or can reasonably be expected to
constitute in excess of five percent (5%) of the consolidated revenue of
Borrower (collectively and including source code and user manuals, "MATERIAL
SOFTWARE"). On an ongoing basis Borrower will register Material Software and
major revisions of Material Software with the United States Copyright Office.
On or prior to the Closing Date, Borrower shall have delivered to Escrow Agent
pursuant to that certain Escrow Agreement in the form attached hereto as Exhibit
H (the "ESCROW AGREEMENT") a true and correct copy of the source code for the
Material Software. Not less often than quarterly after the Closing Date,
Borrower will deliver copies of the source code for the latest versions of the
Material Software and any new Material Software.
5.2 NEGATIVE COVENANTS. Until the termination of the commitment to
make Loans under this Loan Agreement and the satisfaction in full by Borrower of
all Obligations, and except as otherwise provided in Section 9.3 hereof,
Borrower shall comply, and shall cause compliance, with the following negative
covenants unless Lender shall otherwise consent in writing:
-15-
<PAGE>
(a) INDEBTEDNESS. Borrower shall not create, incur, assume or
permit to exist any Indebtedness except for Permitted Indebtedness.
(b) LIENS. Borrower shall not create, incur, assume or permit
to exist any Lien on or with respect to any of its assets or property of any
character, whether now owned or hereafter acquired, except for Permitted Liens.
(c) ASSET DISPOSITIONS. Borrower shall not sell, lease,
transfer, license or otherwise dispose of (collectively, a "TRANSFER") any of
its assets or property, whether now owned or hereafter acquired, except
Transfers in the ordinary course of its business consisting of (i) the sale of
software products pursuant to non-exclusive licenses, (ii) sales of fully
depreciated, worn-out or obsolete equipment, and (iii) other sales of tangible
assets not material to the business of Borrower in an amount not to exceed
Twenty Five Thousand Dollars ($25,000) in any fiscal year.
(d) MERGERS, ACQUISITIONS, ETC. Borrower shall not consolidate
with or merge into any other Person or permit any other Person to merge into it,
or acquire all or substantially all of the assets or capital stock of any other
Person.
(e) INVESTMENTS; SUBSIDIARIES. Borrower shall not make any
Investment except for Permitted Investments. Borrower shall not create, acquire
or permit to exist any Subsidiary.
(f) DIVIDENDS, REDEMPTIONS, ETC. Borrower shall not (i) pay
any dividends or make any distributions on its Equity Securities; (ii) purchase,
redeem, retire, defease or otherwise acquire for value any of its Equity
Securities (other than repurchases by cancellation of indebtedness pursuant to
the terms of employee stock purchase plans, employee restricted stock agreements
or similar arrangements); (iii) return any capital to any holder of its Equity
Securities as such; (iv) make any distribution of assets, Equity Securities,
obligations or securities to any holder of its Equity Securities as such; (v)
set apart any sum for any such purpose; or (vi) unless unanimously approved by
the Board of Directors of Borrower, pay any bonus or bonuses to officers,
directors, employees or consultants of Borrower in an aggregate amount greater
than One Hundred Thousand Dollars ($100,000) in any twelve (12) month period.
(g) ARTICLES OF INCORPORATION. Borrower shall not amend or
otherwise modify its Articles of Incorporation, as amended, except in accordance
with Section 4.7 hereof.
(h) CAPITAL EXPENDITURES. Borrower shall not pay or incur
Capital Expenditures which exceed in aggregate in any fiscal year One Hundred
Thousand Dollars ($100,000) unless the Board of Directors of Borrower shall have
unanimously approved a higher amount.
(i) CHANGE IN BUSINESS. Borrower shall not engage, either
directly or indirectly through Affiliates, in any business substantially
different from its present business.
(j) INDEBTEDNESS PAYMENTS. Borrower shall not (i) prepay,
redeem, purchase, defease or otherwise satisfy in any manner prior to the
scheduled repayment thereof any Indebtedness for borrowed money (other than the
Obligations) or lease obligations, (ii) amend, modify or otherwise change the
terms of any Indebtedness for borrowed money (other than the Obligations) or
lease obligations so as to accelerate the scheduled repayment thereof or (iii)
repay any notes to officers, directors or shareholders (other than the
Obligations).
-16-
<PAGE>
(k) SECURITY ISSUANCES. Borrower shall not issue, offer or
sell any Equity Securities of Borrower; provided, however that Borrower may
issue options to employees of Borrower hired after the date of this Loan
Agreement. Such options shall not in the aggregate exceed ten percent (10%)
of the outstanding Equity Securities of Borrower at any given time, on an
as-converted/exercised basis, and each such option will obligate the
optionholder to be bound by the terms of the Pledge Agreement and the
Purchase Options.
(l) ERISA. Neither Borrower nor any ERISA Affiliate shall (i)
adopt or institute any Employee Benefit Plan that is an employee pension benefit
plan within the meaning of section 3(2) of ERISA, (ii) take any action which
will result in the partial or complete withdrawal, within the meanings of
sections 4203 and 4205 of ERISA, from a Multiemployer Plan, (iii) engage or
permit any Person to engage in any transaction prohibited by section 406 of
ERISA or section 4975 of the Code involving any Employee Benefit Plan or
Multiemployer Plan which would subject either Borrower or any ERISA Affiliate to
any tax, penalty or other liability including a liability to indemnify, (iv)
incur or allow to exist any accumulated funding deficiency (within the meaning
of section 412 of the Code or section 302 of ERISA), (v) fail to make full
payment when due of all amounts due as contributions to any Employee Benefit
Plan or Multiemployer Plan, (vi) fail to comply with the requirements of section
4980B of the Code or Part 6 of Title I(B) of ERISA, or (vii) adopt any amendment
to any Employee Benefit Plan which would require the posting of security
pursuant to section 401(a)(29) of the Code, where singly or cumulatively, the
above would have a Material Adverse Effect.
(m) TRANSACTIONS WITH AFFILIATES. Borrower shall not enter
into any Contractual Obligation with any Affiliate or engage in any other
transaction with any Affiliate except upon terms at least as favorable to
Borrower as an arms-length transaction with unaffiliated Persons and unless the
Board of Directors of Borrower shall have unanimously approved such transaction.
(n) TERMINATION OF EMPLOYEES. Borrower shall not terminate the
employment of any of the individuals covered by the Employment Agreements or any
other key employee hired by Borrower after the date hereof.
(o) ACCOUNTING CHANGES. Borrower shall not change (i) its
fiscal year (currently December 31) or (ii) its accounting practices except as
required by GAAP, in which case Borrower shall promptly advise Lender of such
change.
ARTICLE 6. ADDITIONAL LENDER RIGHTS.
6.1 NOTICE OF EVENTS NOT IN ORDINARY COURSE. Borrower shall provide
Lender with written notice at least thirty (30) days prior to the proposed date
of closing of any transaction not in the ordinary course of business involving
an aggregate amount in excess of Fifty Thousand Dollars ($50,000).
6.2 BOARD OF DIRECTORS. Borrower shall have its authorized number of
directors set at five (5) and shall have the Independent Representative serve as
a director at all times. Borrower will use its best efforts to have its Board
of Directors meet once each calendar quarter. In the event that the number of
directors increases to a number greater than five (5), another Independent
Representative shall be appointed such that the number of Independent
Representatives is never less than twenty percent (20%) of the total number of
directors. In addition to the above Independent Representative, Lender's Chief
Financial Officer shall have visitation rights with respect to each meeting of
Borrower's Board of Directors.
-17-
<PAGE>
6.3 APPRAISAL OF MATERIAL SOFTWARE. From time to time during the term
of this Agreement, Lender may request an independent appraisal of the value of
the Material Software. Borrower shall use its best efforts to cooperate with
Lender in conducting appraisals of the Material Software. Such appraisals shall
be conducted by an independent appraisal firm selected by Lender. Lender shall
pay any and all expenses of such appraisal firm.
6.4 ADDITIONAL ACTIONS IN CONNECTION WITH BORROWER'S STOCK OPTION
PLAN. During the term of this Agreement and for so long thereafter as the
Purchase Options remain exercisable, Borrower shall take such actions as
Lender or its counsel may request from time to time to provide that (i) the
authorized option pool under the Stock Option Plan does not exceed ten
percent (10%) of the outstanding Equity Securities of Borrower at any given
time, on an as-converted/exercised basis, and (ii) that each share issued
upon exercise of an option granted thereunder, as a condition precedent to
issuance of such share, is subject to a pledge agreement and an option
agreement on terms and conditions substantially identical to the Pledge
Agreement and the Purchase Options.
ARTICLE 7. EVENTS OF DEFAULT.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Loan Agreement and the Note;
provided, however that if an Event of Default as specified in this Section 7.1
results from the unintentional acts or omissions of Borrower, and Borrower
immediately notifies Lender as soon as it becomes aware of any such
unintentional act or omission and otherwise undertakes to use its best efforts
to cure such Event of Default, it shall not be deemed an Event of Default for
purposes of Section 7.2, unless such Event of Default is not and cannot be cured
within thirty (30) days and has a Material Adverse Effect:
(a) FAILURE TO PAY. Borrower shall fail to pay (i) when due
any principal payment on the due date hereunder or (ii) any interest or other
payment required under the terms of this Loan Agreement or any other Loan
Document on the date due and such payment shall not have been made within five
(5) days; or
(b) BREACHES OF CERTAIN COVENANTS. Borrower shall fail to
observe or perform any covenant, obligation, condition or agreement set forth in
Section 5.1(f) or Section 5.2; or
(c) BREACHES OF OTHER COVENANTS. Borrower shall fail to
observe or perform any other covenant, obligation, condition or agreement
contained in this Loan Agreement or the other Loan Documents (other than those
specified in Sections 7.1(a) and 7.1(b)) and (i) such failure shall continue for
fifteen (15) days, or (ii) if such failure is not curable within such fifteen
(15) day period, but is reasonably capable of cure within forty-five (45) days,
either (A) such failure shall continue for forty-five (45) days or (B) Borrower
shall not have commenced a cure in a manner reasonably satisfactory to Lender
within the initial fifteen (15) day period; or
(d) REPRESENTATIONS AND WARRANTIES. Any representation,
warranty, certificate, or other statement (financial or otherwise) made or
furnished by or on behalf of Borrower to Lender in writing in connection with
this Loan Agreement or any of the other Loan Documents, or as an inducement to
Lender to enter into this Loan Agreement, shall be false, incorrect, incomplete
or misleading in any material respect when made or furnished; or
-18-
<PAGE>
(e) OTHER PAYMENT OBLIGATIONS. Borrower shall (A)(i) fail to
make any payment when due under the terms of any bond, debenture, note or other
evidence of Indebtedness to be paid by such Person (excluding this Loan
Agreement and the other Loan Documents but including any other evidence of
Indebtedness of Borrower to Lender) and such failure shall continue beyond any
period of grace provided with respect thereto, or (ii) default in the observance
or performance of any other agreement, term or condition contained in any such
bond, debenture, note or other evidence of Indebtedness, and (B) the effect of
such failure or default is to cause, or permit the holder or holders thereof to
cause Indebtedness in an aggregate amount of Fifty Thousand Dollars ($50,000) or
more to become due prior to its stated date of maturity; or
(f) VOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. Borrower
shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated in full or in part, (v)
become insolvent (as such term may be defined or interpreted under any
applicable statute), (vi) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding
commenced against it, or (vii) take any action for the purpose of effecting any
of the foregoing; or
(g) INVOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS.
Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of Borrower or of all or a substantial part of the property thereof, or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to Borrower or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be dismissed or
discharged within sixty (60) days of commencement; or
(h) JUDGMENTS. A final judgment or order for the payment of
money in excess of Fifty Thousand Dollars ($50,000) (exclusive of amounts
covered by insurance issued by an insurer not an Affiliate of Borrower) shall be
rendered against Borrower and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not be effectively stayed, or any
judgment, writ, assessment, warrant of attachment, or execution or similar
process shall be issued or levied against a substantial part of the property of
Borrower and such judgment, writ, or similar process shall not be released,
stayed, vacated or otherwise dismissed within thirty (30) days after issue or
levy; or
(i) LOAN DOCUMENTS. Any Loan Document or any material term
thereof shall cease to be, or be asserted by Borrower not to be, a legal, valid
and binding obligation of Borrower enforceable in accordance with its terms or
if the Liens of Lender in any of the assets of Borrower shall cease to be or
shall not be valid, first priority perfected Liens or Borrower shall assert that
such Liens are not valid, first priority and perfected Liens; or
(j) ERISA. Any Reportable Event occurs which constitutes
grounds for the termination of any Employee Benefit Plan by the PBGC or for the
appointment of a trustee to administer any Employee Benefit Plan, or any
Employee Benefit Plan shall be terminated within the meaning of Title IV of
ERISA or a trustee shall be appointed to administer any Employee Benefit Plan;
or
(k) SALES OF COMPANY SECURITIES. A Sale or offer of any Equity
Securities of Borrower; or
-19-
<PAGE>
(l) LOSS OF EMPLOYMENT OF KEY INDIVIDUALS. The termination of
employment of any of the employees executing the Employment Agreements, either
at the election of the employee or Borrower, except by reason of the death or
continued disability of such employee, or a Material Reduction in Employment
with respect to any of the employees executing the Employment Agreements; or
(m) MATERIAL ADVERSE EFFECT. One or more conditions exist or
events have occurred which could reasonably indicate, or reasonably result in, a
Material Adverse Effect.
7.2 RIGHTS OF LENDER UPON DEFAULT.
(a) Except for an Event of Default covered by Section 7.2(b),
upon the occurrence or existence of any Event of Default (other than an Event of
Default referred to in Sections 7.1(f) and 7.1(g)) and at any time thereafter
during the continuance of such Event of Default, Lender may, by written notice
to Borrower, declare all outstanding Obligations payable by Borrower hereunder
to be immediately due and payable without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Note to the contrary notwithstanding. Upon the
occurrence or existence of any Event of Default described in Sections 7.1(f) and
7.1(g), immediately and without notice, all outstanding Obligations payable by
Borrower hereunder shall automatically become immediately due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the Note to
the contrary notwithstanding.
(b) FORECLOSURE ON COLLATERAL FOR INTENTIONAL BREACH. If an
Event of Default is caused by the intentional breach by Borrower of any of the
covenants contained in Section 5.2, Borrower acknowledges and agrees that Lender
may foreclose on the Collateral and Lender shall have no duty to, and Borrower
hereby waives any right that it may have to require Lender to, account to
Borrower for any surplus proceeds resulting from any such foreclosure.
(c) ADDITIONAL REMEDIES. In addition to the foregoing
remedies, upon the occurrence or existence of any Event of Default, Lender may
exercise any other right, power or remedy granted to it by the Loan Documents,
including without limitation exercise of the Purchase Options, or otherwise
permitted to it by law, either by suit in equity or by action at law, or both.
ARTICLE 8. CONFIDENTIAL INFORMATION.
Each of Lender and Borrower agree not to use any Confidential Information
of the other party disclosed to it, for its own use or use by any other Person
or for any purpose except to carry out and perform its obligations under
agreements between Borrower and Lender, and not to disclose any such
Confidential Information except to employees (or consultants subject to
confidentiality provisions similar to this Article 8) who are required to have
such information in order to carry out and perform such obligations. Borrower
and Lender will take all reasonable measures to protect the secrecy and avoid
disclosure or use of Confidential Information in order to prevent it from
entering the public domain or possession of Persons other than those Persons
authorized hereunder to have any such information, which measures shall include,
without limitation, the highest degree of care that each utilizes to protect its
own confidential information of a similar nature. Either party shall notify the
affected party promptly in writing of any misuse or misappropriation of
Confidential Information which may come to such party's attention.
-20-
<PAGE>
For purposes of this section, "Confidential Information" means (a) the
terms of this Loan Agreement and the other Loan Documents and accompanying
transactions, as well as (b) any proprietary information, technical data, trade
secrets or know-how, including, without limitation, research, product plans,
products, services, customers, markets, software, developments, inventions,
processes, formulae, technology, designs, drawings, engineering, hardware
configuration information, marketing, finances or other business or
technological information disclosed by either party to the other either directly
or indirectly. "Confidential Information" of a disclosing party does not
include any information which: (i) is known to the receiving party at the time
of disclosure; (ii) has become publicly known through no wrongful act of the
receiving party; (iii) has been rightfully received by the receiving party from
a third party without restriction on disclosure and without breach of any
agreement with the disclosing party; (iv) has been independently developed by
the receiving party as evidenced by appropriate documentation; (v) has been
approved for release by written authorization executed by an authorized officer
of the non-disclosing party; (vi) is required to be disclosed by the receiving
party pursuant to a Requirement of Law (including without limitation filing the
Loan Documents as exhibits to Lender's periodic reports required under the U.S.
securities laws); or (vii) (A) is not provided in writing or on magnetic media,
or (B) if provided orally, is not confirmed in writing to be confidential within
fifteen (15) days after disclosure. Notwithstanding the foregoing, Borrower may
disclose generally to potential customers of Borrower the existence of a
collaborative relationship between Borrower and Lender, where such disclosure
does not include disclosure of any of the terms of this Loan Agreement or the
other Loan Documents. Should Borrower wish to disclose the specific terms of
this Loan Agreement or the other Loan Documents to a potential investor or
investors, it shall first obtain written consent to such disclosure from Lender,
which consent shall not be unreasonably withheld with respect to bona fide
potential investors. Notwithstanding the foregoing, Lender may issue a press
release with respect to the transactions contemplated hereby to the extent it
deems such disclosure necessary or advisable.
Each party acknowledges that the other's Confidential Information is
unique property of extreme value to the other party, and that unauthorized use
or disclosure thereof would cause the other party irreparable harm that could
not be compensated by monetary damages. Accordingly, each party agrees that the
other will be entitled to injunctive and preliminary relief to remedy any actual
or threatened unauthorized use or disclosure of the other party's Confidential
Information.
Nothing in this Article 8 is intended to supersede any existing agreement
between the parties under which confidential technical or market information has
or may be given by one party to the other. As to matters not covered by such
existing agreements, this Article 8 shall control in the absence of any specific
agreement to the contrary.
ARTICLE 9. MISCELLANEOUS.
9.1 NOTICES. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Lender or Borrower under this Agreement or the other Loan Documents shall be in
writing and telecopied, mailed or delivered to each party at its telecopier
number or address set forth below (or to such other telecopier number or address
for any party as indicated in any notice given by that party to the other
party). All such notices and communications shall be effective (a) when sent by
Federal Express or other overnight service of recognized standing, on the
Business Day following the deposit with such service; (b) when mailed by
registered or certified mail, first class postage prepaid and addressed as
aforesaid through the United States Postal Service, upon receipt; (c) when
delivered by hand, upon delivery; and
-21-
<PAGE>
(d) when telecopied, upon confirmation of receipt; PROVIDED, HOWEVER, that
any notice delivered to Lender under Article 2 shall not be effective until
received by Lender.
Lender: Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97008-7158
Attn: Chief Financial Officer
Telephone: (503) 643-9281
Telecopier: (503) 646- 9320
Borrower: Dasys, Inc.
3547 Shadeland Avenue
Pittsburgh, PA 15212
Attn: Chief Executive Officer
Telephone:(412)
Telecopier: (412)
9.2 EXPENSES. Each party shall bear its own expenses with respect to
the preparation, execution and delivery of this Agreement and the Loan
Documents; provided, however, that Borrower agrees that any fees and expenses
incurred by Borrower in excess of $40,000 shall not be eligible to be paid with
the proceeds of any Loan made hereunder. Borrower shall pay on demand all
reasonable fees and expenses, including reasonable attorneys' fees and expenses,
incurred by Lender with respect to the exercise of its duties under this
Agreement and the other Loan Documents or with respect to any amendments or
waivers hereof requested by Borrower or in the enforcement or attempted
enforcement of any of the Obligations or in preserving any of Lender's rights
and remedies (including, without limitation, all such fees and expenses incurred
in connection with any "workout" or restructuring affecting the Loan Documents
or the Obligations or any bankruptcy or similar proceeding involving Borrower).
9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. All
representations and warranties made by Borrower hereunder shall remain in effect
for so long as any Loans are outstanding. All covenants made by Borrower
hereunder shall remain in effect for so long as any Loans are outstanding;
provided, however that the rights of Lender contained in Section 6 and the
covenants made by Borrower in Section 5.2, except for those in Section 5.2(a),
(l) and (j), shall survive the termination of this Agreement and remain in
effect for the term of the Purchase Options granted to Lender in connection with
this Agreement.
9.4 INDEMNIFICATION.
(a) Borrower shall indemnify, defend, and hold harmless Lender
and each of Lender's Subsidiaries, Affiliates, directors, officers, employees
and agents (collectively, the "INDEMNIFIED PERSONS"), and reimburse the
Indemnified Persons for, from, and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties and reasonable attorneys'
fees, disbursements and expenses, arising out of or in connection with (i) any
breach by Borrower of any of the representations and warranties contained in
this Loan Agreement or the other Loan Documents, (ii) any failure by Borrower to
perform any covenant, undertaking or obligation hereunder, or (iii) any matter,
action or failure to act by the Indemnified Persons arising out of or relating
to thee Loan Documents, including without limitation any use by Borrower of any
proceeds of the Loans, except to the extent
-22-
<PAGE>
such liability arises from the gross negligence or willful misconduct of the
Indemnified Person seeking indemnity hereunder.
(b) If any action or claim shall be brought or asserted
against an Indemnified Person under this Section 9.4 in respect of which
indemnity may be sought from Borrower under this Section 9.4, the Indemnified
Person shall promptly notify Borrower who shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all reasonable expenses; except that any
delay or failure to so notify Borrower shall only relieve the Borrower of its
obligation hereunder to the extent, if at all, that it is prejudiced by
reason of such delay or failure. The Indemnified Person shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Party unless (i) the employment thereof shall have been
specifically directed and required by the Borrower, (ii) the Borrower shall
have elected not to assume the defense and employ counsel, or (iii) there
exists an actual or potential conflict of interest between Lender and
Borrower which, in the reasonable judgment of counsel to Lender, makes
employing separate counsel advisable. Without the prior written consent of
the Indemnified Party, the Borrower shall have no right to settle or
compromise on any nonmonetary matter. This Section 9.4, in its entirety,
shall survive termination of this Loan Agreement
9.5 WAIVERS; AMENDMENTS. Any term, covenant, agreement or condition
of this Agreement or any other Loan Document may be amended or waived if such
amendment or waiver is in writing and is signed by Borrower and Lender. No
failure or delay by Lender in exercising any right hereunder shall operate as a
waiver thereof or of any other right nor shall any single or partial exercise of
any such right preclude any other further exercise thereof or of any other
right. A waiver or consent given hereunder shall be effective only if in
writing and in the specific instance and for the specific purpose for which
given.
9.6 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan
Documents shall be binding upon and inure to the benefit of Borrower, Lender,
all future holders of the Note and their respective successors and permitted
assigns, except that neither Lender nor Borrower may assign or transfer any of
its rights or obligations under any Loan Document without the prior written
consent of the other party; provided, however that a change in control of equity
ownership of Lender or other corporate proceeding whereby substantially all of
the assets or shares of Lender are sold or transferred to a third party shall
not be deemed to be an assignment for purposes of this Loan Agreement or any of
the Loan Documents. All references in this Agreement to any Person shall be
deemed to include all successors and assigns of such Person. Borrower shall
keep at its principal office a register in which Borrower shall provide for the
registration and transfer of the Note. Upon surrender for registration of
transfer of a Note at the principal office of Borrower, Borrower shall execute
and deliver a new Note of like tenor and principal amount registered in the name
of such assign. Prior to due presentment for registration of transfer to an
assign, Borrower may treat the Person in whose name such Note is registered as
the owner thereof for purposes of receiving payments and for all other purposes.
9.7 SET-OFF. In addition to any rights and remedies of Lender
provided by law, Lender shall have the right, without prior notice to Borrower,
any such notice being expressly waived by Borrower to the extent permitted by
applicable law, upon the occurrence and during the continuance of a Default or
an Event of Default, to set-off and apply against any indebtedness, whether
matured or unmatured, of Borrower to Lender (including, without limitation, the
Obligations), any amount owing from Lender to Borrower. The aforesaid right of
set-off may be exercised by Lender against Borrower or against any trustee in
bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
receiver or execution, judgment or attachment creditor of Borrower or against
anyone else claiming through or against Borrower or such trustee in bankruptcy,
debtor-in-possession,
-23-
<PAGE>
assignee for the benefit of creditors, receiver, or execution, judgment or
attachment creditor, notwithstanding the fact that such right of set-off
shall not have been exercised by Lender prior to the occurrence of a Default
or an Event of Default. Lender agrees promptly to notify Borrower after any
such set-off and application made by Lender, PROVIDED that the failure to
give such notice shall not affect the validity of such set-off and
application.
9.8 NO THIRD PARTY RIGHTS. Nothing expressed in or to be implied from
this Agreement or any other Loan Document is intended to give, or shall be
construed to give, any Person, other than the parties hereto and thereto and
their permitted successors and assigns, any benefit or legal or equitable right,
remedy or claim under or by virtue of this Agreement or any other Loan Document.
9.9 PARTIAL INVALIDITY. If at any time any provision of this
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
9.10 ARBITRATION. If any dispute arises with respect to this Agreement
or the Loan Documents or the transactions contemplated hereby or thereby, then
any party (the "DEMANDING PARTY") may demand, by written notice to each other
party to the dispute (collectively, the "RESPONDING PARTY"), that such issue
shall be settled by binding arbitration to be held in the city where the
Responding Party has its principal corporate office (an "ARBITRATION DEMAND").
All claims shall be settled by three arbitrators in accordance with the
Commercial Arbitration Rules then in effect of the American Arbitration
Association (the "ARBITRATION RULES"). The Demanding Party and the Responding
Party shall each designate one (1) arbitrator within fifteen (15) calendar days
after the delivery of the Arbitration Demand. Such designated arbitrators shall
mutually agree upon and shall designate a third arbitrator. The final decision
of a majority of the arbitrators shall be furnished to Demanding Party and the
Responding Party in writing and shall constitute a conclusive determination of
the issue in question, binding upon all parties and shall not be contested by
any of them. The non-prevailing party shall bear all costs and expenses
associated with such arbitration, including all arbitrators' fees and attorneys'
fees.
9.11 COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
[The remainder of this page is intentionally left blank.]
-24-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of
the date first set forth above.
SUMMIT DESIGN, INC. DASYS, INC.
a Delaware corporation a Pennsylvania corporation
By: /s/ Larry Gerhard By: /s/ David Springer
----------------------------- ----------------------------
Name: Larry Gerhard Name: David Springer
Title: President Title: President
<PAGE>
SCHEDULE I
DEFINITIONS
"AFFILIATE" shall mean, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a trustee,
guardian or other fiduciary, five percent (5%) or more of any class of Equity
Securities of such Person, (b) each Person that controls, is controlled by or is
under common control with such Person or any Affiliate of such Person or (c)
each of such Person's officers, directors, joint venturers and partners;
PROVIDED, HOWEVER, that in no case shall Lender be deemed to be an Affiliate of
Borrower for purposes of this Loan Agreement. For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"AGGREGATE LOAN AMOUNT" shall have the meaning in Section 2.3(b).
"ANNUALIZED REVENUE" shall mean the greater of (A) the product of (i) two
(2), multiplied by (ii) the sum of Net Revenue for each of the past two (2)
fiscal quarters of Borrower, or (B) the sum of Net Revenue for each of the last
four (4) fiscal quarters of Borrower.
"BORROWER" shall have the meaning given to that term in clause (2) of the
introductory paragraph hereof.
"BORROWER'S REPRESENTATIVES" shall mean David Springer and Eric Cooper,
or their respective successors of whom Lender has been notified in writing.
"BUDGET" shall mean, initially the operating plan and budget of Borrower
attached as Schedule IV to this Agreement, and any subsequent operating budget
that has been delivered to the Budget Committee in accordance with Section
5.1(a)(vii) and approved by the Budget Committee in its sole discretion.
"BUDGET COMMITTEE" shall mean a committee composed of three (3) members
of Borrower's Board of Directors, one of whom shall be the Independent
Representative, and Lender's Chief Financial Officer. The Budget Committee
shall have authority to review and approve the Budget.
"BUSINESS DAY" shall mean any day on which commercial banks are not
authorized or required to close in Beaverton, Oregon.
"CAPITAL ASSET" shall mean, with respect to any Person, tangible property
owned or leased (in the case of a Capital Lease) by such Person, or any expense
incurred by any Person that is required by GAAP to be reported as an asset on
such Person's balance sheet.
"CAPITAL EXPENDITURES" shall mean, with respect to any Person and any
period, all amounts expended and Indebtedness incurred or assumed by such Person
during such period for the acquisition of real property and other Capital Assets
(including amounts expended and Indebtedness incurred or assumed in connection
with Capital Leases).
"CAPITALIZED LEASE OBLIGATIONS" shall mean any and all lease obligations
that, in accordance with GAAP, are required to be capitalized on the books of a
lessee.
I-1
<PAGE>
"CHARTER DOCUMENTS" shall mean, with respect to any Person, the Articles
or Certificate of Incorporation and Bylaws or any other organizational or
governing documents of such Person, in each case as amended to date.
"CLOSING DATE" shall mean the date on which each of the conditions set
forth in Articles 4 shall have been satisfied or waived in writing and the Loans
are made.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" shall mean those assets, interests and Equity Securities
secured by the Security Agreement, the Intellectual Property Security Agreement
and the Pledge Agreement.
"COMMON STOCK" shall mean the common stock of the applicable Person.
"COMMON STOCK HOLDER" shall mean, collectively, any Person and all
Affiliates of such Person, in each case in whose name or for whose benefit
shares of Common Stock are registered or held.
"CONFIDENTIAL INFORMATION" shall have the meaning given to that term in
Article 8.
"CONTRACTUAL OBLIGATION" of any Person shall mean, any indenture, note,
security, deed of trust, mortgage, security agreement, lease, guaranty,
instrument, contract, agreement or other form of obligation or undertaking to
which such Person is a party or by which such Person or any of its property is
bound.
"DEFAULT" shall mean any event or circumstance not yet constituting an
Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.
"DISCLOSURE SCHEDULE" shall mean the Disclosure Schedule attached hereto
as Schedule III.
"DISTRIBUTION AGREEMENT" shall have the meaning given in Section 4.1(f).
"DOLLARS" and "$" shall mean the lawful currency of the United States of
America and, in relation to any payment under this Loan Agreement, same day or
immediately available funds.
"DSI DISTRIBUTION AGREEMENT" shall mean that certain Distribution
Agreement dated September 20, 1996, by and between Design Solutions, Inc. and
Borrower.
"EMPLOYEE BENEFIT PLAN" shall mean any employee benefit plan within the
meaning of section 3(3) of ERISA maintained or contributed to by Borrower or any
ERISA Affiliate, other than a Multiemployer Plan.
"ENVIRONMENTAL LAWS" means all Requirements of Law relating to the
protection of human health or the environment, including, without limitation,
(a) all Requirements of Law, pertaining to reporting, licensing, permitting,
investigation, and remediation of emissions, discharges, releases, or threatened
releases of hazardous materials, chemical substances, pollutants, contaminants,
or hazardous or toxic substances, materials or wastes whether solid, liquid, or
gaseous in nature, into the air, surface water, groundwater, or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials, or wastes, whether
solid, liquid, or gaseous in nature; and (b) all Requirements of Law pertaining
to the protection of the health and safety of employees or the public.
I-2
<PAGE>
"EQUITY SECURITIES" of any Person shall mean (a) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may from time to time be amended or supplemented, including any
rules or regulations issued in connection therewith.
"ERISA AFFILIATE" shall mean any Person which is treated as a single
employer with Borrower under section 414 of the Code.
"ESCROW AGENT" shall mean Data Securities International, Inc.
"ESCROW AGREEMENT" shall have the meaning given in Section 5.1(h).
"EVENT OF DEFAULT" shall have the meaning given to that term in Section
7.1.
"FAIR MARKET VALUE OF BORROWER" shall mean on the date of any
determination, one (1) times the Annualized Revenue of Borrower. For example,
if Fair Market Value of Borrower were to be calculated as of March 1, 2000, Fair
Market Value of Borrower would be equal to the greater of (A) the product of (i)
two (2), multiplied by (ii) the sum of Net Revenue in the fiscal quarter ended
September 30, 1999 plus Net Revenue in the fiscal quarter ended December 31,
1999, or (B) the sum of Net Revenue in each of the fiscal quarters ended March
31, 1999, June 30, 1999, September 30, 1999 and December 31, 1999.
"FAIR MARKET VALUE OF LENDER COMMON STOCK" shall mean the average of the
last sale prices of Lender's Common Stock on the Nasdaq National Market for ten
(10) trading days immediately preceding the relevant date of determination.
"FINANCIAL STATEMENTS" shall mean, with respect to any accounting period
for any Person, statements of income and of cash flow of such Person for such
period, and balance sheets of such Person as of the end of such period, setting
forth in each case in comparative form figures for the corresponding period in
the preceding fiscal year if such period is less than a full fiscal year or, if
such period is a full fiscal year, corresponding figures from the preceding
fiscal year, all prepared in reasonable detail and in accordance with GAAP.
Unless otherwise indicated, each reference to Financial Statements of any Person
shall be deemed to refer to Financial Statements prepared on a consolidated
basis.
"FULLY DILUTED BASIS" shall mean, as of any date, with respect to
calculations involving the capital stock of any Person, making the assumption
that all convertible securities of such Person then outstanding were converted
on such date and that all options, warrants and similar rights to acquire shares
of capital stock of such Person were exercised on such date.
"GAAP" shall mean generally accepted accounting principles and practices
as in effect in the United States of America from time to time, consistently
applied.
"GM AGREEMENT" shall mean that certain Software License Agreement dated
January 16, 1996, as amended by Amendment dated June 26, 1997, by and between
General Motors Corporation and Borrower.
I-3
<PAGE>
"GOVERNMENTAL AUTHORITY" shall mean any domestic or foreign national,
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GOVERNMENTAL CHARGES" shall mean all taxes, levies, assessments, fees,
claims or other charges imposed by any Governmental Authority upon or relating
to (i) Borrower, (ii) the Loans, (iii) employees, payroll, income or gross
receipts of Borrower, (iv) the ownership or use of any of its assets by
Borrower, or (v) any other aspect of the business of Borrower.
"GOVERNMENTAL RULE" shall mean any law, rule, regulation, ordinance,
order, code interpretation, judgment, decree, directive, guidelines, policy or
similar form of decision of any Governmental Authority.
"GUARANTY OBLIGATIONS" shall mean, with respect to any Person, any direct
or indirect liability of that Person with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary obligations") of
another Person (the "primary obligor"), including any obligation of that Person,
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, or (d) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof.
"INDEBTEDNESS" of any Person shall mean and include the aggregate amount
of, without duplication (a) all obligations of such Person for borrowed money,
(b) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services (other than accounts payable
incurred in the ordinary course of business determined in accordance with GAAP),
(d) all Capitalized Lease Obligations of such Person, (e) all obligations or
liabilities of others secured by a lien on any asset of such Person, whether or
not such obligation or liability is assumed, (f) all Guaranty Obligations of
such Person; (g) all obligations created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even if the rights and remedies of the seller or lender under such
agreement upon an event of default are limited to repossession or sale of such
property), (h) net exposure under interest rate interest rate swap, currency
swap, currency swap, forward, cap, floor or other similar contract that is not
entered to in connection with a bona fide hedging operation that provides
offsetting benefits to such Person, which agreements shall be marked to marked
on a current basis, (i) all reimbursement and other payment obligations,
contingent or otherwise, in respect of letters of credit.
"INDEMNIFIED PERSONS" has the meaning given in Section 9.4.
"INDEPENDENT REPRESENTATIVE" shall mean an individual not affiliated with
Borrower, either directly or indirectly, elected by Borrower to serve as a
director on Borrower's Board of Directors.
"INVESTMENT" of any Person shall mean any loan or advance of funds by
such Person to any other Person (other than advances to employees of such Person
for moving and travel expense, drawing accounts and similar expenditures in the
ordinary course of business), any purchase or other acquisition of any Equity
Securities or
I-4
<PAGE>
Indebtedness of any other Person, any capital contribution by such Person to
or any other investment by such Person in any other Person (including,
without limitation, any Indebtedness incurred by such Person of the type
described in CLAUSES (b) AND (c) of the definition of "Indebtedness" on
behalf of any other Person); PROVIDED, HOWEVER, that Investments shall not
include accounts receivable or other indebtedness owed by customers of such
Person which are current assets and arose from sales in the ordinary course
of such Person's business.
"LENDER" shall have the meaning given in clause 1 of the introductory
paragraph hereof.
"LENDER COMMON STOCK" shall mean the common stock of Lender, or such
other publicly traded equity securities of any successor of Lender.
"LIEN" shall mean, with respect to any property, any security interest,
mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such
property or the income therefrom, including, without limitation, the interest of
a vendor or lessor under a conditional sale agreement, Capital Lease or other
title retention agreement, or any agreement to provide any of the foregoing, and
the filing of any financing statement or similar instrument under the Uniform
Commercial Code or comparable law of any jurisdiction.
"LOAN" shall have the meaning given in Section 2.1.
"LOAN AGREEMENT" shall mean this Loan Agreement.
"LOAN DOCUMENTS" shall mean and include this Loan Agreement, the Note,
the Security Agreement, the Pledge Agreement, the Intellectual Property Security
Agreement, the Purchase Options, the Distribution Agreement and all other
documents, instruments and agreements delivered to Lender in connection with
this Loan Agreement.
"LOANS" shall have the meaning given in Section 2.1.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of
Borrower, taken as a whole; (b) the ability of Borrower to pay or perform the
Obligations in accordance with the terms of this Loan Agreement and the other
Loan Documents and to avoid an Event of Default under any Loan Document; or (c)
the rights and remedies of Lender under this Loan Agreement, the other Loan
Documents or any related document, instrument or agreement.
"MATERIAL REDUCTION IN EMPLOYMENT" shall be deemed to occur with respect
to an employee of Borrower if such employee ceases to work at least 40 hours per
week for a period of three (3) consecutive weeks, excepting accrued vacation
time and absence due to a bona fide illness. Furthermore, the absence of an
employee for up to one (1) month due to family emergencies or up to two (2)
months for pregnancy shall not be deemed a Material Reduction in Employment,
provided that such an absence does not occur more frequently than once in any
given year.
"MATERIAL SOFTWARE" shall have the meaning given in Section 5.1(h).
"MATURITY" shall mean, with respect to any Loan, interest, fees or other
amount payable by Borrower under this Loan Agreement or the other Loan
Documents, the date on which such Loan, interest, fee or other amount becomes
due, whether upon the stated maturity or due date, upon acceleration or
otherwise.
I-5
<PAGE>
"MATURITY DATE" shall have the meaning given in Section 2.3(a).
"MONTHLY NOTICE" shall have the meaning given in Section 2.1(b)(i).
"MULTIEMPLOYER PLAN" shall mean any multiemployer plan within the meaning
of section 3(37) of ERISA maintained or contributed to by Borrower or any ERISA
Affiliate.
"NET REVENUE" shall mean Lender's gross sales attributable to Borrower's
Products (as such term is defined in the Distribution Agreement) minus
distributor discounts and commissions.
"NOTE" shall mean the Note in the form attached hereto as Exhibit A.
"NOTICE OF BORROWING" shall have the meaning given in Section 2.1.
"OBLIGATIONS" shall mean and include all loans, advances, debts,
liabilities, and obligations, howsoever arising, owed by Borrower to Lender of
every kind and description (whether or not evidenced by any note or instrument
and whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising pursuant to
the terms of this Loan Agreement or any of the other Loan Documents, including,
without limitation, all interest, fees, charges, expenses, reasonable attorneys'
fees and accountants' fees and expenses chargeable to Borrower or payable by
Borrower hereunder or thereunder.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PERMITTED INDEBTEDNESS" shall mean and include:
(a) Indebtedness of Borrower to Lender;
(b) Indebtedness of Borrower under Capital Leases and operating
leases to the extent that rental payments under such leases do not
exceed, in the aggregate, One Hundred Thousand Dollars ($100,000) in any
fiscal year;
(c) Indebtedness arising from the endorsement of instruments in
the ordinary course of business; and
(d) Other Indebtedness of Borrower not exceeding Fifty Thousand
Dollars ($50,000) at any time.
"PERMITTED INVESTMENTS" shall mean and include:
(a) Deposits with commercial banks organized under the laws of
the United States or a state thereof to the extent such deposits are
fully insured by the Federal Deposit Insurance Corporation;
(b) Investments in marketable obligations issued or fully
guaranteed by the United States and maturing not more than one (1) year
from the date of issuance; and
(c) Investments in open market commercial paper rated at least
"A1" or "P1" or higher by a national credit rating agency and maturing
not more than one (1) year from the creation thereof.
I-6
<PAGE>
(d) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary
course of business;
(e) Investments consisting of deposit accounts of Borrower in
which Lender has a perfected security interest; and
(f) Other Investments aggregating not in excess of Fifty
Thousand Dollars ($50,000) at any time.
"PERMITTED LIENS" shall mean and include:
(a) Liens for taxes or other Governmental Charges not at the
time delinquent or thereafter payable without penalty or being contested
in good faith, provided provision is made to the reasonable satisfaction
of Lender for the eventual payment thereof if subsequently found payable;
(b) Liens of carriers, warehousemen, mechanics, materialmen,
vendors, and landlords incurred in the ordinary course of business for
sums not overdue or being contested in good faith, provided provision is
made to the reasonable satisfaction of Lender for the eventual payment
thereof if subsequently found payable;
(c) Deposits under workers' compensation, unemployment
insurance and social security laws or to secure the performance of bids,
tenders, contracts (other than for the repayment of borrowed money) or
leases, or to secure statutory obligations of surety or appeal bonds or
to secure indemnity, performance or other similar bonds in the ordinary
course of business;
(d) Liens arising out of a judgment or award in circumstances
not constituting an Event of Default under Section 10.1(h);
(e) Liens securing obligations under a Capital Lease if such
lease is Permitted Indebtedness pursuant to clause (c) of the definition
thereof and such Liens do not extend to property other than the property
leased under such Capital Lease; and
(f) Liens upon any equipment acquired or held by Borrower to
secure the purchase price of such equipment or indebtedness incurred
solely for the purpose of financing the acquisition of such equipment;
(g) Easements, reservations, rights of way, restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances affecting real property in a manner not materially or
adversely affecting the value or use of such property;
(h) Liens on insurance proceeds in favor of insurance companies
to secure the financing of insurance premiums;
(i) Liens which constitute rights of setoff of a customary
nature or bankers' Liens with respect to amounts on deposit, whether
arising by operation of law or by contract, in connection with
arrangements entered into with banks in the ordinary course of business
not relating to a financing transaction; and
I-7
<PAGE>
(j) Liens in favor of Lender.
"PERSON" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a Governmental Authority.
"PRIME RATE" shall mean the per annum rate publicly announced by
Citibank, N.A., from time to time in New York, New York.
"PURCHASE OPTION" shall mean options to be executed and delivered by
each holder of Equity Securities of Borrower on or prior to the initial
Closing Date. Each Purchase Option shall be made in favor of Lender and
shall, among other things, entitle Lender to purchase such Equity Securities
at the Fair Market Value of Borrower on the date of exercise (on a pro rata
percentage for the Equity Securities represented by each such Purchase
Option). The Purchase Options shall become exercisable on January 1, 2000
and shall have a term of two (2) years thereafter; provided that the
exercisability of the Purchase Options shall accelerate upon (i) an Event of
Default under the Loan Agreement, or (ii) the prepayment of the Aggregate
Loan Amount.
"REPORTABLE EVENT" shall have the meaning given to that term in ERISA and
applicable regulations thereunder.
"REQUIREMENT OF LAW" applicable to any Person shall mean (a) the Charter
Documents of such Person, (b) any Governmental Rule applicable to such Person,
(c) any license, permit, approval or other authorization granted by any
Governmental Authority to or for the benefit of such Person and (d) any
judgment, decision or determination of any Governmental Authority or arbitrator,
in each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SOFTWARE" shall mean all of Borrower's proprietary products.
"SUBSIDIARY" of any Person shall mean (a) any corporation of which more
than 50% of the issued and outstanding Equity Securities having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries, (b) any partnership, joint venture, or
other association of which more than 50% of the equity interest having the power
to vote, direct or control the management of such partnership, joint venture or
other association is at the time owned and controlled by such Person, by such
Person and one or more of the other Subsidiaries or by one or more of such
Person's other subsidiaries and (c) any other Person included in the Financial
Statements of such Person on a consolidated basis. Any reference to a
Subsidiary without designation of the ownership of such Subsidiary shall be
deemed to refer to a Subsidiary of Borrower.
I-8
<PAGE>
SCHEDULE II
NOTICE OF BORROWING
_____________________, 199__
Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97008-7158
Attn: Chief Financial Officer
1. Reference is made to that certain Loan Agreement, dated as
of July 16, 1997 (the "LOAN AGREEMENT"), between Dasys, Inc. ("BORROWER") and
Summit Design, Inc. ("LENDER"). Unless otherwise indicated, all terms defined
in the Loan Agreement have the same respective meanings when used herein.
2. Pursuant to SECTION 2.1 of the Loan Agreement, Borrower
hereby requests a Loan upon the following terms:
(a) The principal amount of the requested Loan is to be
$__________;
(b) The date of the requested Loan is to be __________,
199 .
3. Borrower hereby certifies to Lender that, on the date of
such borrowing and after giving effect to the requested borrowing:
(a) The expenses for the calendar quarter of Borrower
ending ___________, 199_ are estimated to be approximately
$___________.
(b) The representations and warranties set forth in
Article 3 of the Loan Agreement will be true and correct as if
made on such date;
(c) No Event of Default or Default has occurred and is
continuing; and
(d) Each of the Loan Documents remains in full force and
effect.
4. Please disburse the proceeds of the requested Loan to
________________________.
[The remainder of this page is intentionally left blank.]<PAGE>
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Notice of Borrowing
on the date set forth above.
DASYS, INC.
By:
---------------------------
Name:
-------------------------
Title:
------------------------
ACKNOWLEDGED AND APPROVED:
BUDGET COMMITTEE
By:
--------------------
Name: C. Albert Koob
Title: Chief Financial Officer, Lender
By:
---------------------------
Name:
Title: Chairman, Board of Directors, Borrower
<PAGE>
SCHEDULE III
DISCLOSURE SCHEDULE
<PAGE>
SCHEDULE IV
BUDGET
<PAGE>
EXHIBIT A
NOTE
$2,500,000
FOR VALUE RECEIVED, Dasys, Inc., a Pennsylvania corporation ("BORROWER"),
agrees to pay to the order of Summit Design, Inc., a Delaware corporation
("LENDER"), at Lender's principal office, the principal sum of Two Million Five
Hundred Thousand Dollars ($2,500,000) or such lower amount as shall equal the
aggregate outstanding balance of the Loans, at such times as are set forth in,
and together with interest from the date hereof on the unpaid principal balance
thereof at the rates and on the dates provided in, the Loan Agreement dated as
of July 16, 1997, between Lender and Borrower (the "LOAN AGREEMENT"). If
Borrower shall have paid any interest on this Note in excess of that permitted
by law, then it is the express intent of Borrower and Lender that all excess
amounts previously collected by Borrower be applied to reduce the principal
balance of this Note, and the provisions hereof immediately be deemed reformed
and the amounts thereafter collectable as interest hereunder be reduced, without
the necessity of the execution of any new document, so as to comply with the
then applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder.
Borrower shall make all payments hereunder to Lender as indicated in the
Loan Agreement, in lawful money of the United States and in same day or
immediately available funds.
This Note is the Note referred to in the Loan Agreement. This Note is
subject to the terms of the Loan Agreement, including the rights of prepayment
and the rights of acceleration of maturity. Terms used herein have the meanings
assigned to those terms in the Loan Agreement, unless otherwise defined herein.
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT,
A STOCK PLEDGE AGREEMENT AND AN INTELLECTUAL PROPERTY SECURITY AGREEMENT, IN
EACH CASE DATED AS OF THE DATE HEREOF AND EXECUTED BY BORROWER OR THE
SHAREHOLDERS OF BORROWER, AS THE CASE MAY BE, IN FAVOR OF LENDER. ADDITIONAL
RIGHTS OF THE HOLDER OF THIS NOTE ARE SET FORTH IN SUCH AGREEMENTS.
If any action should be undertaken to collect this Note or enforce the
Lender's security interest herein, Borrower agrees to pay all costs and
expenses, including reasonable attorney's fees, incurred in connection with such
action.
Borrower hereby waives notice of presentment, demand, protest or notice
of any other kind. This Note shall be governed by and construed in accordance
with the laws of the State of Delaware.
DASYS, INC.
By:
-----------------------
Name:
-----------------------
Title:
----------------------
<PAGE>
Exhibit 11.1
SUMMIT DESIGN, INC.
STATEMENT OF COMPUTATION OF
NET INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding ....................... 14,250 2,712 14,039 2,442
Common stock equivalents arising from
Stock options (1) ........................ - 1,144 - 1,063
Convertible preferred shares (2) ........... - 9,103 - -
--------- --------- --------- ---------
14,250 12,959 14,039 12,608
Net income (loss)........................... $(12,410) $ 212 $ (9,359) $ 25
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share ................ $ (0.87) $ 0.02 $ (0.67) $ 0.00
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(1) Assumes exercise of all outstanding options and options issued within one
year of the date of the initial public offering which options are
considered exercised in all periods presented prior to the initial public
offering. Common stock equivalents are excluded from the calculation
of earnings per share when the effect on earnings per share is
antidilutive. Had the common stock equivalents been included in the
earnings per share calculation, net loss per share for the three months
and nine months ended September 30, 1997 would have been $(0.82) and
$(0.63), respectively.
(2) Assumes conversion of all preferred shares outstanding as of the date of
the filing of the initial public offering which shares are considered
outstanding for all periods presented.
-30-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 17,224
<SECURITIES> 0
<RECEIVABLES> 5,667
<ALLOWANCES> 449
<INVENTORY> 0
<CURRENT-ASSETS> 22,961
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,306
<CURRENT-LIABILITIES> 12,605
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 15,488
<TOTAL-LIABILITY-AND-EQUITY> 29,306
<SALES> 21,486
<TOTAL-REVENUES> 21,486
<CGS> 954
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35,427
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (8,539)
<INCOME-TAX> 820
<INCOME-CONTINUING> (9,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,359)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> 0
</TABLE>
