<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
SUMMIT DESIGN, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 93-1137888
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification
Number)
</TABLE>
9305 S.W. GEMINI DRIVE
BEAVERTON, OREGON 97008
(503) 643-9281
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
LARRY J. GERHARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SUMMIT DESIGN, INC.
9305 S.W. GEMINI DRIVE
BEAVERTON, OREGON 97008
(503) 643-9281
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO: COPIES TO:
Alan K. Austin, Esq. William C. Campbell, Esq.
Steven V. Bernard, Esq. Brenda L. Meltebeke, Esq.
Susan L. Stapleton, Esq. Ater Wynne LLP
Daniel K. Yuen, Esq. 222 S.W. Columbia, Suite 1800
Wilson Sonsini Goodrich & Rosati Portland, Oregon 97201
650 Page Mill Road (503) 226-1191
Palo Alto, California 94304
(650) 493-9300
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Merger described herein.
------------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share............................... 9,810,226 shares $7.25 $71,124,143 $20,982
</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant which
may be issued to former stockholders of OrCAD, Inc. ("OrCAD") pursuant to
the Merger described herein.
(2) Each share of OrCAD Common Stock will be converted into the right to receive
1.05 shares of Common Stock of the Registrant pursuant to the Merger
described herein. Pursuant to Rule 457(f) under the Securities Act of 1933,
as amended, the registration fee has been calculated based on the average of
the high and low sale price per share of OrCAD Common Stock as reported on
the Nasdaq National Market on September 28, 1998.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[SUMMIT LOGO]
9305 S.W. GEMINI DRIVE
BEAVERTON, OREGON 97008
- , 1998
Dear Stockholder:
As most of you are aware, Summit Design, Inc. ("Summit") has entered into an
agreement to combine with OrCAD, Inc. ("OrCAD") in a strategic business
combination (the "Merger"). At our Special Meeting on - , 1998, you will be
asked to consider and vote upon (i) the issuance of shares of the common stock,
par value $0.01 per share, of Summit (the "Summit Common Stock") to the
stockholders of OrCAD pursuant to an Agreement and Plan of Reorganization, dated
as of September 20, 1998, (the "Reorganization Agreement"), among Summit, OrCAD
and Hood Acquisition Corp., a wholly-owned subsidiary of Summit ("Merger Sub")
and (ii) an amendment to the Amended and Restated Certificate of Incorporation
of Summit (the "Certificate") to increase the number of authorized shares of
Summit Common Stock by 15 million shares to 45 million shares, contingent upon
consummation of the Merger. Each of the foregoing proposals is described more
fully in the accompanying Joint Proxy Statement/ Prospectus.
Pursuant to the Reorganization Agreement, the Board of Directors of the
company following the Merger (the "Combined Company") will consist of ten
members, including: Larry J. Gerhard, currently Chairman of the Board, President
and Chief Executive Officer of Summit; Michael F. Bosworth, currently Chairman
of the Board, President, and Chief Executive Officer of OrCAD; and eight other
persons, four of whom will be designated by Summit, and four of whom will be
designated by OrCAD.
In addition, following the Merger, the principal executive officers of the
Combined Company will be as follows: Larry J. Gerhard will be Chairman of the
Board and Chief Executive Officer; Michael F. Bosworth will be President and
Chief Operating Officer; and C. Albert Koob, currently Vice President of Finance
and Chief Financial Officer of Summit, will hold the same positions.
The Summit Board of Directors has unanimously approved the Reorganization
Agreement and the transactions contemplated thereby and has determined that the
Merger is fair to Summit and its stockholders. In addition, the Summit Board of
Directors has unanimously approved the proposed amendment to the Certificate,
contingent upon consummation of the Merger. Your Board of Directors unanimously
recommends a vote in favor of the issuance of the Summit Common Stock and the
proposed amendment to the Certificate.
The Merger will become effective as soon as practicable after all necessary
regulatory and stockholder approvals are obtained and certain other conditions
are satisfied (the time at which the Merger becomes effective being referred to
herein as the "Effective Time"). At the Effective Time, each outstanding share
of common stock of OrCAD, par value $0.01 per share ("OrCAD Common Stock"), will
be converted into the right to receive 1.05 shares (the "Exchange Ratio") of
Summit Common Stock. In addition, each option to purchase shares of OrCAD Common
Stock (each, an "OrCAD Common Stock Option") that is outstanding at the
Effective Time will be assumed by Summit (each, an "Assumed Option"). Each
Assumed Option will be converted into an option to purchase the number of shares
of Summit Common Stock as is equal (subject to rounding) to the number of shares
of OrCAD Common Stock that was subject to such OrCAD Common Stock Option
immediately prior to the Merger, multiplied by the Exchange Ratio. The exercise
price of each Assumed Option will be equal to the quotient determined by
dividing the exercise price per share of OrCAD Common Stock at which such OrCAD
Common Stock Option was exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded to the nearest whole cent. The Merger is intended to
be a tax-free reorganization.
<PAGE>
Following the Merger, based on the number of shares of OrCAD Common Stock
and Summit Common Stock outstanding as of - , 1998, and the Exchange Ratio,
the former stockholders of OrCAD will hold - % of the Common Stock of the
Combined Company, and the stockholders of Summit prior to the Merger will hold
approximately - % of the Common Stock of the Combined Company.
All stockholders are invited to attend the Special Meeting in person. The
issuance of the shares of Summit Common Stock pursuant to the Reorganization
Agreement requires the affirmative vote of a majority of the total votes cast
regarding such proposal and the amendment to the Certificate requires the
affirmative vote of the holders of a majority of the outstanding shares of
Summit Common Stock.
Stockholders are urged to review carefully the information contained in the
accompanying Joint Proxy Statement/Prospectus, including in particular the
information under the captions "Risk Factors," "Summit Special
Meeting--Recommendations of Summit Board of Directors," "Approval of the Merger
and Related Transactions--Joint Reasons For the Merger," "--Summit's Reasons For
the Merger" and "--Material Contacts and Board Deliberations" prior to making
any voting decision in connection with their Summit Common Stock.
Whether or not you expect to attend the Special Meeting in person, please
complete, sign and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope to assure representation of your shares. You may revoke
your proxy at any time before it has been voted, and if you attend the Special
Meeting you may vote in person even if you have previously returned your proxy
card. Your prompt cooperation will be greatly appreciated.
Sincerely,
Larry J. Gerhard
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUR PROXY IS IMPORTANT--PLEASE VOTE PROMPTLY
<PAGE>
ORCAD LOGO
- , 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
OrCAD, Inc. ("OrCAD"), (the "OrCAD Special Meeting") which will be held on
- , , 1998, at - .m., local time, at the Crowne Plaza, 14811 Kruse Oaks
Blvd., Lake Oswego, Oregon 97035.
At the OrCAD Special Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Reorganization by and among Summit
Design, Inc. ("Summit"), Hood Acquisition Corp., a wholly-owned subsidiary of
Summit ("Merger Sub") and OrCAD (the "Reorganization Agreement"), which provides
for the merger of Merger Sub with and into OrCAD (the "Merger").
Pursuant to the Reorganization Agreement, the Board of Directors of the
company following the Merger (the "Combined Company") will consist of ten
members, including: Larry J. Gerhard, currently Chairman of the Board, President
and Chief Executive Officer of Summit; Michael F. Bosworth, currently Chairman
of the Board, President and Chief Executive Officer of OrCAD; and eight other
persons, four of whom will be designated by Summit, and four of whom will be
designated by OrCAD.
In addition, following the Merger, the principal executive officers of the
Combined Company will be as follows: Larry J. Gerhard will be Chairman of the
Board and Chief Executive Officer of the Combined Company; Michael F. Bosworth
will be President and Chief Operating Officer of the Combined Company; and C.
Albert Koob, currently Vice President of Finance and Chief Financial Officer of
Summit, will hold the same positions in the Combined Company.
The Merger will become effective as soon as practicable after all necessary
regulatory and stockholder approvals are obtained and certain other conditions
are satisfied (the time at which the Merger becomes effective being referred to
herein as the "Effective Time"). At the Effective Time, each outstanding share
of common stock of OrCAD, par value $0.01 per share ("OrCAD Common Stock"), will
be converted into the right to receive 1.05 shares (the "Exchange Ratio") of
common stock of Summit, par value $0.01 per share ("Summit Common Stock"). In
addition, each option to purchase shares of OrCAD Common Stock (each, an "OrCAD
Common Stock Option") that is outstanding at the Effective Time will be assumed
by Summit (each, an "Assumed Option"). Each Assumed Option will be converted
into an option to purchase the number of shares of Summit Common Stock as is
equal (subject to rounding) to the number of shares of OrCAD Common Stock that
was subject to such OrCAD Common Stock Option immediately prior to the Merger,
multiplied by the Exchange Ratio. The exercise price of each Assumed Option will
be equal to the quotient determined by dividing the exercise price per share of
OrCAD Common Stock at which such OrCAD Common Stock Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded to the
nearest whole cent. The Merger is intended to be a tax-free reorganization.
Following the Merger, based on the number of shares of OrCAD Common Stock
and Summit Common Stock outstanding as of - , 1998, and the Exchange Ratio,
the former stockholders of OrCAD will hold approximately - % of the Common
Stock of the Combined Company, and the stockholders of Summit prior to the
Merger will hold approximately - % of the Common Stock of the Combined
Company.
ORCAD'S BOARD OF DIRECTORS BELIEVES THE AGREEMENT AND THE MERGER TO BE IN
THE BEST INTERESTS OF ORCAD AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE
AGREEMENT AND THE MERGER AND RECOMMENDS A VOTE FOR APPROVAL OF THE AGREEMENT AND
THE MERGER.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Joint Proxy Statement/Prospectus for details of the Merger,
including information about the Exchange Ratio
<PAGE>
and the number of shares of Summit Common Stock to be issued in connection with
the Merger and additional related information, including information about OrCAD
and Summit.
Whether or not you plan to attend the OrCAD Special Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may be revoked at any time before
it is voted by signing and returning a later-dated proxy with respect to the
same shares, by filing with the Secretary of OrCAD a written revocation bearing
a later date or by attending and voting at the OrCAD Special Meeting. If you
attend the OrCAD Special Meeting, you may vote in person if you wish, even
though you previously have returned your proxy card. Your prompt cooperation
will be greatly appreciated.
Sincerely,
Michael F. Bosworth
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
9300 S.W. Nimbus Avenue - Beaverton, Oregon 97008 - USA
Phone: 503-671-9500 - Fax: 503-671-9501
<PAGE>
ORCAD LOGO
9300 S.W. NIMBUS AVENUE
BEAVERTON, OREGON 97008
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
------------------------
TO THE STOCKHOLDERS OF
ORCAD, INC.:
The Special Meeting of Stockholders of OrCAD, Inc., a Delaware corporation
("OrCAD") (the "OrCAD Special Meeting"), will be held on , 1998, at
.m., local time, at the Crowne Plaza, 14811 Kruse Oaks Blvd., Lake Oswego,
Oregon 97035, for the following purposes:
(1) To consider and vote upon a proposal to approve the Agreement and Plan
of Reorganization, dated as of September 20, 1998 (the "Reorganization
Agreement"), by and among Summit Design, Inc. ("Summit"), Hood
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Summit ("Merger Sub") and OrCAD, which provides for the merger of
Merger Sub with and into OrCAD (the "Merger"). Pursuant to the
Reorganization Agreement, OrCAD will become a wholly-owned subsidiary of
Summit, and each share of capital stock of OrCAD issued and outstanding
immediately prior to the Merger will be converted into the right to
receive 1.05 shares of common stock, $0.01 par value per share, of Summit
("Summit Common Stock"). The Merger, including the exchange ratio and the
number of shares of Summit Common Stock to be issued in connection with
the Merger, is more completely described in the accompanying Joint Proxy
Statement/Prospectus, and a copy of the Reorganization Agreement is
attached as Annex A thereto.
(2) To transact such other business as may properly come before the OrCAD
Special Meeting or any adjournments or postponements thereof.
Only holders of record of OrCAD Common Stock at the close of business on
, 1998, the record date of the OrCAD Special Meeting, are entitled to
notice of and to vote at the OrCAD Special Meeting and any adjournments or
postponements thereof. Approval of the Reorganization Agreement and the Merger
will require the affirmative vote of the holders of 67% of the shares of OrCAD
Common Stock issued and outstanding on the record date.
Whether or not you plan to attend the OrCAD Special Meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage-prepaid envelope. Your proxy may be revoked at any time before
it is voted by signing and returning a later-dated proxy with respect to the
same shares, by filing with the Secretary of OrCAD a written revocation bearing
a later date or by attending and voting at the OrCAD Special Meeting.
ORCAD, INC.
Michael F. Bosworth
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Beaverton, Oregon
, 1998
- --------------------------------------------------------------------------------
IMPORTANT: EVEN IF YOU PLAN TO BE PRESENT AT THE ORCAD SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY OR PROXIES AND RETURN PROMPTLY IN THE
POSTAGE PREPAID ENVELOPE PROVIDED TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT
THE MEETING. IF YOU ATTEND THE ORCAD SPECIAL MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH TO DO SO EVEN THOUGH YOU HAVE PREVIOUSLY SENT IN YOUR PROXY OR PROXIES.
- --------------------------------------------------------------------------------
9300 S.W. Nimbus Avenue - Beaverton, Oregon 97008 - USA
Phone: 503-671-9500 - Fax: 503-671-9501
<PAGE>
SUMMIT DESIGN, INC.
9305 S.W. GEMINI DRIVE
BEAVERTON, OREGON 97008
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON - , 1998
------------------------
TO THE STOCKHOLDERS OF SUMMIT DESIGN, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Summit
Special Meeting") of Summit Design, Inc., a Delaware corporation ("Summit"),
will be held on - , 1998 at - p.m., local time, at the Embassy Suites,
9000 S.W. Washington Square Road, Tigard, Oregon 97223.
At the Summit Special Meeting you will be asked to consider and vote upon
the following matters:
(1) the issuance of shares of the common stock, par value $0.01 per share,
of Summit ("Summit Common Stock") to the stockholders of OrCAD, Inc., a
Delaware corporation ("OrCAD"), pursuant to the Agreement and Plan of
Reorganization, dated as of September 20, 1998, (the "Reorganization
Agreement"), among Summit, OrCAD and Hood Acquisition Corp., a wholly-
owned subsidiary of Summit ("Merger Sub"), providing for the merger of
Merger Sub with and into OrCAD (the "Merger"); and
(2) an amendment to the Amended and Restated Certificate of Incorporation of
Summit (the "Certificate") to increase the number of authorized shares of
Summit Common Stock by 15 million shares to 45 million shares, contingent
upon consummation of the Merger.
Each of the foregoing proposals is described more fully in the accompanying
Joint Proxy Statement/ Prospectus.
Stockholders of record at the close of business on - , 1998 are entitled
to notice of, and to vote at, the Summit Special Meeting and any adjournments or
postponements thereof, and are cordially invited to attend the Summit Special
Meeting in person.
For the Board of Directors
C. Albert Koob
VICE PRESIDENT OF FINANCE,
CHIEF FINANCIAL OFFICER AND SECRETARY
Beaverton, Oregon
- , 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE SUMMIT SPECIAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE
AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
SUMMIT DESIGN, INC. AND ORCAD INC.
JOINT PROXY STATEMENT
------------------
SUMMIT DESIGN, INC. PROSPECTUS
------------------
Summit Design, Inc., a Delaware corporation ("Summit"), and OrCAD Inc., a
Delaware corporation ("OrCAD"), have entered into an Agreement and Plan of
Reorganization, dated as of September 20, 1998 (the "Reorganization Agreement"),
among Summit, Hood Acquisition Corp., a wholly-owned subsidiary of Summit
("Merger Sub"), and OrCAD. Pursuant to the Reorganization Agreement, Merger Sub
will merge with and into OrCAD, OrCAD will continue as the surviving corporation
and will become a wholly-owned subsidiary of Summit (Summit and its post-Merger
wholly-owned subsidiary OrCAD, Inc. are together referred to as the "Combined
Company"), and each outstanding share of common stock of OrCAD, $0.01 par value
per share ("OrCAD Common Stock"), will be converted into the right to receive
1.05 shares (the "Exchange Ratio") of the common stock of Summit (all such
actions collectively, the "Merger").
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Summit in connection with the solicitation of proxies by the Summit Board of
Directors (the "Summit Board") for use at the Special Meeting of Summit
stockholders to be held on - , 1998, at the Embassy Suites, 9000 S.W.
Washington Square Road, Tigard, Oregon 97223, commencing at - p.m., local
time, and at any adjournment or postponement thereof (the "Summit Special
Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of OrCAD in connection with the solicitation of proxies by the
OrCAD Board of Directors (the "OrCAD Board") for use at the Special Meeting of
OrCAD stockholders to be held on - , 1998, at the Crowne Plaza, 14811 Kruse
Oaks Blvd., Lake Oswego, Oregon 97035, commencing at - a.m., local time, and
at any adjournment or postponement thereof (the "OrCAD Special Meeting").
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Summit with respect to the common stock of Summit, par value $0.01 per share
("Summit Common Stock"), to be issued in the Merger in exchange for outstanding
shares of OrCAD Common Stock.
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS (INCLUDING THE ANNEXES HERETO) HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT/
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. THE STOCKHOLDERS OF
SUMMIT AND ORCAD ARE URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS (INCLUDING THE ANNEXES HERETO) IN ITS ENTIRETY, INCLUDING
THE MATTERS REFERRED TO BEGINNING ON PAGE - UNDER "RISK FACTORS."
------------------------
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed to stockholders of Summit and OrCAD on or about - , 1998.
The date of this Joint Proxy Statement/Prospectus is - , 1998.
<PAGE>
Upon consummation of the Merger, each issued and outstanding share of OrCAD
Common Stock (other than shares owned by Summit, Merger Sub, OrCAD or any
wholly-subsidiary of Summit or OrCAD) will be converted into the right to
receive 1.05 shares of Summit Common Stock and each outstanding option to
purchase OrCAD Common Stock under the stock option plans of OrCAD will be
assumed by Summit and will become an option to purchase that number of shares of
Summit Common Stock as is equal (subject to rounding) to the number of shares of
OrCAD Common Stock that was subject to such option immediately prior to the
Merger, multiplied by the Exchange Ratio. Upon consummation of the Merger, all
shares of OrCAD Common Stock will cease to be outstanding and will be canceled
and retired and will cease to exist, and each holder of a certificate formerly
representing shares of OrCAD Common Stock will thereafter cease to have any
rights with respect thereto, except the right to receive shares of Summit Common
Stock.
Summit Common Stock is listed on the Nasdaq National Market ("Nasdaq") under
the symbol SMMT. It is a condition of the obligations of Summit and OrCAD to the
consummation of the Merger that the shares to be issued in the Merger be
approved for quotation on Nasdaq, upon notice of issuance. Following
consummation of the Merger, OrCAD Common Stock will be removed from registration
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
will no longer be listed for quotation on Nasdaq.
On September 18, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement, the
closing sale prices of Summit Common Stock and OrCAD Common Stock on Nasdaq were
$7.00 per share and $7.50 per share, respectively. On - , 1998, the closing
sale prices of Summit Common Stock and OrCAD Common Stock were $ - per share
and $ - per share, respectively.
Because the Exchange Ratio is fixed, changes in the market price of Summit
Common Stock will affect the dollar value of the Summit Common Stock to be
received by stockholders of OrCAD in the Merger. Stockholders of Summit and
OrCAD are encouraged to obtain current market quotations for Summit Common Stock
and OrCAD Common Stock prior to the Summit Special Meeting and OrCAD Special
Meeting, respectively.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY, AND, IF GIVEN, ANY SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SUMMIT, ORCAD, OR ANY OTHER
PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION OF
A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON WHOM IT IS NOT LAWFUL TO MAKE
ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF SUMMIT OR ORCAD SINCE THE DATE HEREOF, OR THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................................................................ 5
TRADEMARKS........................................................................... 5
FORWARD-LOOKING STATEMENTS........................................................... 5
SUMMARY.............................................................................. 6
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA........ 14
RISK FACTORS......................................................................... 16
COMPARATIVE PER SHARE DATA........................................................... 31
COMPARATIVE MARKET PRICE DATA........................................................ 32
SUMMIT SPECIAL MEETING............................................................... 33
Date, Time and Place of Summit Special Meeting..................................... 33
Purpose............................................................................ 33
Record Date and Outstanding Shares................................................. 33
Vote Required...................................................................... 33
Proxies............................................................................ 33
Solicitation of Proxies; Expenses.................................................. 34
Recommendations of Summit Board of Directors....................................... 34
ORCAD SPECIAL MEETING................................................................ 35
Date, Time and Place of OrCAD Special Meeting...................................... 35
Purpose............................................................................ 35
Record Date and Outstanding Shares................................................. 35
Vote Required...................................................................... 35
Proxies............................................................................ 35
Solicitation of Proxies; Expenses.................................................. 36
No Appraisal Rights................................................................ 36
Recommendations of OrCAD Board of Directors........................................ 36
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS...................................... 37
Joint Reasons for the Merger....................................................... 37
Summit's Reasons for the Merger.................................................... 37
OrCAD's Reasons for the Merger..................................................... 38
Material Contacts and Board Deliberations.......................................... 39
Opinion of Summit's Financial Advisor.............................................. 41
Opinion of OrCAD's Financial Advisor............................................... 44
Certain Federal Income Tax Considerations.......................................... 47
Governmental and Regulatory Approvals.............................................. 49
Accounting Treatment............................................................... 49
No Appraisal Rights................................................................ 49
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
TERMS OF THE MERGER.................................................................. 50
Effective Time..................................................................... 50
Manner and Basis for Converting Shares............................................. 50
Treatment of Employee Equity Benefits Plans........................................ 51
Stock Ownership Following the Merger............................................... 51
Effect of the Merger............................................................... 51
Representations and Warranties..................................................... 52
Conduct of OrCAD's and Summit's Business Prior to the Merger....................... 52
No Solicitation by OrCAD........................................................... 54
No Solicitation by Summit.......................................................... 55
Conditions to the Merger........................................................... 57
Termination of the Reorganization Agreement........................................ 58
Effect of Termination.............................................................. 58
Break-Up Fees...................................................................... 59
Interests of Certain Persons....................................................... 60
Affiliate Agreements............................................................... 60
Voting Agreements.................................................................. 61
COMPARISON OF CAPITAL STOCK.......................................................... 62
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.......................... 65
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY SUMMIT STOCKHOLDERS............. 70
Proposal Two-- Amendment to Amended and Restated Certificate of
Incorporation--Increase to Authorized Common Stock................... 70
SUMMIT............................................................................... 72
Summit Business.................................................................... 72
Summit Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 87
Summit Directors and Executive Officers............................................ 103
Summit Executive Officer Compensation.............................................. 106
Summit Certain Transactions........................................................ 110
Security Ownership of Certain Beneficial Owners and Management..................... 112
ORCAD................................................................................ 114
OrCAD Business..................................................................... 114
OrCAD Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 122
OrCAD Directors and Executive Officers............................................. 133
OrCAD Executive Compensation....................................................... 135
OrCAD Certain Relationships and Related Transactions............................... 138
Stock Owned by OrCAD Management and Principal Stockholders......................... 139
LEGAL MATTERS........................................................................ 140
EXPERTS.............................................................................. 140
STOCKHOLDER PROPOSALS................................................................ 140
FINANCIAL STATEMENTS................................................................. F-1
Index to Financial Statements...................................................... F-1
Report of PricewaterhouseCoopers LLP............................................... F-2
Report of KPMG Peat Marwick LLP.................................................... F-26
Report of Ernst & Young LLP........................................................ F-27
ANNEX A-- Agreement and Plan of Reorganization, dated as of September 20, 1998, among
Summit, Hood Acquisition Corp. and OrCAD.................................... A-1
ANNEX B-- Opinion of Black & Company................................................. B-1
ANNEX C-- Opinion of Alliant Partners................................................ C-1
</TABLE>
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AVAILABLE INFORMATION
Summit and OrCAD are subject to the information reporting requirements of
the Exchange Act, and in accordance therewith file reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048, and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611-2511. Copies of such material may be obtained by mail
from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC at
http://www.sec.gov. Summit Common Stock and OrCAD Common Stock are quoted on
Nasdaq, and such reports, proxy statements and other information can also be
inspected at the offices of the National Association of Securities Dealers, Inc.
located at 9513 Key West Avenue, Rockville, Maryland 20850. After the
consummation of the Merger, OrCAD will no longer file reports, proxy statements
or other information with the SEC or Nasdaq. Instead such information will be
provided, to the extent required, in filings made by the Combined Company.
Under the rules and regulations of the SEC, the solicitation of proxies from
stockholders of OrCAD to approve and adopt the Reorganization Agreement and the
Merger constitutes an offering of Summit Common Stock to be issued in connection
with the Merger. Accordingly, Summit has filed with the SEC a registration
statement on Form S-4 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"). This Joint Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. For further information, reference is hereby made to the
Registration Statement. Copies of the Registration Statement and the exhibits
and schedules thereto may be inspected, without charge, at the offices of the
SEC or through the Commission's Electronic Data Gathering and Retrieval System
("EDGAR") at
http://www.sec.gov, or obtained at prescribed rates from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549.
All information contained in this Joint Proxy Statement/Prospectus relating
to Summit has been supplied by Summit and all such information relating to OrCAD
has been supplied by OrCAD.
TRADEMARKS
This Joint Proxy Statement/Prospectus contains trademarks of Summit and
OrCAD and may contain trademarks of others.
FORWARD-LOOKING STATEMENTS
Other than statements of historical fact, statements made in this Joint
Proxy Statement/Prospectus, including statements as to the benefits expected to
result from the Merger and as to future financial performance and the analyses
performed by the financial advisors to Summit and OrCAD, are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors,
including those set forth in "Risk Factors" below, which stockholders should
carefully review. Such forward-looking statements can be identified by the use
of forward-looking terminology, such as "may," "expect," "anticipate,"
"estimate," "project," "continue," "potential" or "opportunity" or the negative
thereof or other variations thereon or comparable terminology. Neither Summit
nor OrCAD undertake any obligation to update any forward-looking statements.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN A COMPLETE
STATEMENT OF ALL MATERIAL ELEMENTS OF THE PROPOSALS TO BE VOTED ON AND IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND IN THE INFORMATION AND DOCUMENTS
ANNEXED HERETO.
THE COMPANIES
SUMMIT DESIGN, INC.
Summit is a leading supplier of software tools designed to solve the
integrated circuit ("IC" or "chip") engineering problems caused by increasing
chip complexity and the corporate problem of reusing highly valuable
intellectual property ("IP") created by IC engineers. With Summit's Visual HDL
product, the IC engineer can draw functional level designs on a workstation or
PC using familiar graphical paradigms such as block diagrams, state machines and
flow diagrams. Visual HDL compiles these graphical representations into correct
by construction, synthesis ready, behavioral or RTL designs. Summit's suite of
RTL simulation, verification and optimization software tools then provide a
highly efficient environment for getting a design from concept to synthesis.
Summit's IP solutions allow the synthesizable design with graphical executable
documentation to be placed in libraries for reuse or to be distributed in a
software model format for early inclusion in future electronic system or product
designs.
Summit's principal executive offices are located at 9305 S.W. Gemini Drive,
Beaverton, Oregon 97008, and its telephone number is (503) 643-9281. See
"Summit--Summit Business."
ORCAD, INC.
OrCAD develops, markets and supports software products that assist
electronics designers in the management of component data and in the design of
field-programmable gate arrays ("FPGAs"), including complex programmable logic
devices ("CPLDs"), analog and mixed analog-digital circuits, and printed circuit
boards ("PCBs"). OrCAD operates in a single business segment, comprising the
electronic design automation ("EDA") industry and serves most segments of the
electronics industry, including aerospace, telecom, industrial control,
military, medical equipment and consumer products. OrCAD's products enable
electronics designers to reduce time to market, improve product capability and
reduce design costs. OrCAD's Windows-based EDA solutions support the design
process for mainstream components, from schematic capture to programmable logic
design and verification to circuit simulation and printed circuit board layout.
Over 240,000 products bearing the OrCAD name have been sold worldwide since
1984.
The mailing address of OrCAD's principal executive office is 9300 S.W.
Nimbus Avenue, Beaverton, Oregon 97008 and its telephone number is (503)
671-9500. See "OrCAD--OrCAD Business."
HOOD ACQUISITION CORP.
Merger Sub is a corporation recently organized by Summit for the purpose of
effecting the Merger. It has no material assets and has not engaged in any
activities except in connection with the Merger. Merger Sub's executive offices
are located at 9305 S.W. Gemini Drive, Beaverton, Oregon 97008, and its
telephone number is (503) 643-9281.
SPECIAL MEETING OF STOCKHOLDERS OF SUMMIT
TIME, DATE, PLACE AND PURPOSE
The Summit Special Meeting will be held at the Embassy Suites, 9000 S.W.
Washington Square Road, Tigard, Oregon 97223, on - , 1998 at - p.m., local
time. The purpose of the Summit Special
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Meeting is to consider and vote upon proposals to approve (i) the issuance of
shares of Summit Common Stock to the stockholders of OrCAD pursuant to the
Reorganization Agreement and (ii) an amendment to the Amended and Restated
Certificate of Incorporation of Summit (the "Certificate") to increase the
number of authorized shares of Summit Common Stock by 15 million shares to 45
million shares, contingent upon consummation of the Merger. See "Summit Special
Meeting--Date, Time and Place of Summit Special Meeting," and "--Purpose."
RECORD DATE AND VOTE REQUIRED
Only Summit stockholders of record at the close of business on - , 1998
(the "Summit Record Date") are entitled to notice of and to vote at the Summit
Special Meeting. Under Delaware law, the charter documents of Summit and the
rules of Nasdaq, the issuance of the shares of Summit Common Stock pursuant to
the Reorganization Agreement requires the affirmative vote of a majority of the
total votes cast regarding such proposal and the amendment to the Certificate
requires the affirmative vote of the holders of a majority of the outstanding
shares of Summit Common Stock. See "Summit Special Meeting--Record Date and
Outstanding Shares" and "--Vote Required."
As of the Summit Record Date, there were approximately - stockholders of
record of Summit Common Stock and - shares of Summit Common Stock
outstanding, with each share entitled to one vote on each matter to be acted
upon at the Summit Special Meeting. See "Summit Special Meeting--Vote Required."
As of the Summit Record Date, the executive officers, directors and another
affiliate of Summit (the "Summit Affiliates") owned approximately - % of the
outstanding shares of Summit Common Stock. Each of the Summit Affiliates has
entered into a Voting Agreement with OrCAD obligating them to vote their shares
of Summit Common Stock in favor of the issuance of Summit Common Stock pursuant
to the Reorganization Agreement. See "Terms of the Merger--Conditions to the
Merger" and "--Voting Agreements."
RECOMMENDATIONS OF SUMMIT BOARD OF DIRECTORS
The Summit Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby, and determined that the Merger is in the
best interests of Summit and its stockholders. After careful consideration, the
Summit Board recommends a vote in favor of (i) the issuance of shares of Summit
Common Stock pursuant to the Reorganization Agreement and (ii) the amendment of
the Certificate to increase the number of authorized shares of Common Stock by
15 million shares to 45 million shares, contingent upon consummation of the
Merger. Stockholders should read this Joint Proxy Statement/Prospectus carefully
before voting. See "Summit Special Meeting--Recommendations of Summit Board of
Directors," "Approval of the Merger and Related Transactions--Joint Reasons For
the Merger," "--Summit's Reasons For the Merger," and "--Material Contacts and
Board Deliberations."
SPECIAL MEETING OF STOCKHOLDERS OF ORCAD
TIME, DATE, PLACE AND PURPOSE
The OrCAD Special Meeting will be held at the Crowne Plaza, 14811 Kruse Oaks
Blvd., Lake Oswego, Oregon 97035 on - , 1998 at - a.m., local time. The
purpose of the OrCAD Special Meeting is to consider and vote upon a proposal to
approve and adopt the Reorganization Agreement and to approve the Merger. See
"OrCAD Special Meeting--Date, Time and Place of OrCAD Special Meeting" and
"--Purpose."
7
<PAGE>
RECORD DATE AND VOTE REQUIRED
Only OrCAD stockholders of record at the close of business on - , 1998
(the "OrCAD Record Date") are entitled to notice of and to vote at the OrCAD
Special Meeting. Under Delaware law and the Restated Certificate of
Incorporation of OrCAD, as amended, the affirmative vote of the holders of
shares representing not less than 67% of the OrCAD Common Stock issued and
outstanding as of the OrCAD Record Date is required to approve and adopt the
Reorganization Agreement and approve the Merger. See "OrCAD Special
Meeting--Record Date and Outstanding Shares," and "--Vote Required."
As of the OrCAD Record Date, there were approximately - stockholders of
record of OrCAD Common Stock and - shares of OrCAD Common Stock outstanding,
with each share entitled to one vote on the matter to be acted upon at the OrCAD
Special Meeting. See "OrCAD Special Meeting--Vote Required."
As of the OrCAD Record Date, the executive officers and directors of OrCAD
(the "OrCAD Affiliates") owned approximately - % of the outstanding shares of
OrCAD Common Stock. Each of the OrCAD Affiliates has entered into a Voting
Agreement with Summit obligating them to vote their shares of OrCAD Common Stock
in favor of the Merger. See "Terms of the Merger--Conditions to the Merger" and
"--Voting Agreements."
RECOMMENDATIONS OF ORCAD BOARD OF DIRECTORS
The OrCAD Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and determined that the Merger is in the
best interests of OrCAD and its stockholders. After careful consideration, the
OrCAD Board unanimously recommends a vote in favor of approval and adoption of
the Reorganization Agreement and approval of the Merger. Stockholders should
read this Joint Proxy Statement/Prospectus carefully prior to voting. See "OrCAD
Special Meeting-- Recommendations of OrCAD Board of Directors," "Approval of the
Merger and Related Transactions-- Joint Reasons For the Merger," "--OrCAD's
Reasons For the Merger," "--Material Contacts and Board Deliberations" and
"Terms of the Merger--Interests of Certain Persons."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors pertaining to the
Merger and the businesses of Summit and OrCAD.
REASONS FOR THE MERGER
The OrCAD Board and the Summit Board have authorized the execution and
delivery of the Reorganization Agreement with the expectation that the proposed
Merger would provide the Combined Company with the potential to realize improved
long-term operating and financial results and a stronger competitive position.
See "Risk Factors," "Approval of the Merger and Related Transactions--Joint
Reasons For the Merger," "--Summit's Reasons For the Merger," and "--OrCAD's
Reasons For the Merger."
FAIRNESS OPINIONS
Black & Company has delivered to the Summit Board its written opinion, dated
September 19, 1998, to the effect that, as of such date, the equity
consideration to be paid by Summit pursuant to the Reorganization Agreement was
fair from a financial point of view to the stockholders of Summit. The full text
of the opinion of Black & Company, which sets forth assumptions made and matters
considered, is attached as Annex B to this Joint Proxy Statement/Prospectus and
is incorporated herein by reference. Holders of Summit Common Stock are urged
to, and should, read such opinion in its entirety. See
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<PAGE>
"Approval of the Merger and Related Transactions--Opinion of Summit's Financial
Advisor" and Annex B hereto.
Alliant Partners ("Alliant") has delivered to the OrCAD Board its written
opinion, dated September 18, 1998, to the effect that, as of such date, the
equity consideration to be paid to the stockholders of OrCAD in connection with
the Merger was fair from a financial point of view to the holders of OrCAD
Common Stock. The full text of the opinion of Alliant, which sets forth
assumptions made and matters considered is attached as Annex C to this Joint
Proxy Statement/Prospectus, and is incorporated herein by reference. Holders of
OrCAD Common Stock are urged to, and should, read such opinion in its entirety.
See "Approval of the Merger and Related Transactions--Opinion of OrCAD's
Financial Advisor" and Annex C hereto.
INCOME TAX TREATMENT
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), in which case no
gain or loss generally should be recognized by the holders of shares of OrCAD
Common Stock on the exchange of their shares of OrCAD Common Stock solely for
shares of Summit Common Stock. As a condition to the consummation of the Merger,
each of Summit and OrCAD will have received an opinion from its respective tax
counsel to the effect that the Merger will constitute a reorganization under
Section 368(a) of the Code. However, all OrCAD stockholders are urged to consult
their own tax advisors. See "Approval of the Merger and Related
Transactions--Certain Federal Income Tax Considerations."
REGULATORY MATTERS
The Merger is subject to satisfaction of the requirements of federal
securities laws and applicable securities and "blue sky" laws of the various
states. See "Approval of the Merger and Related Transactions--Governmental and
Regulatory Approvals."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon receipt by Summit and OrCAD of
letters at the closing of the Merger from PricewaterhouseCoopers LLP, Summit's
independent accountants, and KPMG Peat Marwick LLP, OrCAD's independent public
accountants, respectively, regarding the firms' concurrence with Summit
management's and OrCAD management's conclusions, respectively, as to the
appropriateness of pooling-of-interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 ("APB No. 16"), if the Merger is
consummated in accordance with the Reorganization Agreement. See "Approval of
the Merger and Related Transactions--Accounting Treatment" and "Terms of the
Merger--Conditions to the Merger."
THE MERGER
TERMS OF THE MERGER; EXCHANGE RATIO
At the Effective Time (as defined below) of the Merger and subject to and
upon the terms and conditions of the Reorganization Agreement, Merger Sub will
merge with and into OrCAD and OrCAD will become a wholly-owned subsidiary of
Summit. Each share of OrCAD Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares of OrCAD Common Stock owned by
Merger Sub, OrCAD, Summit or any wholly-owned subsidiary of OrCAD or Summit),
will be cancelled and extinguished and automatically converted into the right to
receive 1.05 shares (the "Exchange Ratio") of Summit Common Stock. See "Terms of
the Merger--Manner and Basis for Converting Shares."
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<PAGE>
EFFECTIVE TIME OF THE MERGER
Subject to the provisions of the Reorganization Agreement, Summit, OrCAD and
Merger Sub shall cause the Merger to be consummated by filing a Certificate of
Merger with the Delaware Secretary of State in accordance with the relevant
provisions of Delaware law as soon as practicable on or after the closing date
(the time of such filing or such later time as may be agreed in writing by the
parties and specified in the Certificate of Merger being the "Effective Time" of
the Merger). The closing is currently anticipated to occur on or about - ,
1998. See "Terms of the Merger--Effective Time."
EXCHANGE OF ORCAD STOCK CERTIFICATES
Promptly after the Effective Time, Summit, acting through Boston EquiServe
as its exchange agent (the "Exchange Agent"), will deliver to each holder of
record of OrCAD Common Stock as of the Effective Time a letter of transmittal
with instructions to be used by such stockholder in surrendering certificates
which, prior to the Merger, represented shares of OrCAD Common Stock.
CERTIFICATES SHOULD NOT BE SURRENDERED BY ORCAD STOCKHOLDERS UNTIL SUCH HOLDERS
RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN
ACCORDANCE WITH THE TERMS OF THE LETTER OF TRANSMITTAL.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of OrCAD as of the close of business on the
OrCAD Record Date, an aggregate of approximately - shares of Summit Common
Stock will be issued to holders of OrCAD Common Stock in the Merger and Summit
will assume options to acquire up to approximately - additional shares of
Summit Common Stock. Based upon the number of shares of Summit Common Stock
issued and outstanding as of the OrCAD Record Date, and after giving effect to
the issuance of Summit Common Stock as described in the previous sentence and
the exercise of all options to purchase OrCAD Common Stock assumed by Summit,
the former holders of OrCAD Common Stock would hold, and have voting power with
respect to, approximately - % of the total issued and outstanding shares of
Summit Common Stock. The foregoing numbers of shares and percentages are subject
to change to reflect any changes in the capitalization of either Summit or OrCAD
subsequent to the dates indicated and prior to the Effective Time, and there can
be no assurance as to the actual capitalization of Summit or OrCAD at the
Effective Time or Summit at any time following the Effective Time.
EMPLOYEE EQUITY BENEFITS PLANS; FORM S-8 REGISTRATION STATEMENT
Summit has agreed to assume the options outstanding under OrCAD's stock
options plans. In this regard, Summit has agreed to file with the SEC, as soon
as reasonably practical and in any event within five days after the Effective
Time, a registration statement on Form S-8 to register the underlying shares of
Summit Common Stock issuable as the result of the assumption of such options.
Subject to the consummation of the Merger, on the last trading day prior to the
Effective Time (the "Final Purchase Date"), OrCAD will apply the funds then
credited to each 1996 Employee Stock Purchase Plan (the "Purchase Plan")
participant's payroll withholding account to the purchase of whole shares of
OrCAD Common Stock. The Purchase Plan shall terminate immediately following the
purchase of shares of OrCAD Common Stock on the Final Purchase Date. See "Terms
of the Merger--Treatment of Employee Equity Benefits Plans."
BOARD OF DIRECTORS; MANAGEMENT FOLLOWING THE MERGER
Pursuant to the Reorganization Agreement, the Board of Directors of the
Combined Company following the Merger will consist of ten members, including
Larry J. Gerhard and Michael F. Bosworth, and eight other persons, four of whom
will be designated by Summit, and four of whom will be designated by OrCAD. The
designees of Summit will be - and the designees of OrCAD will be - . The
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Combined Company will have a staggered board, with three classes of directors:
Classes I, II and III. The classes of directors will be elected in sequential
years for three year terms. At the Combined Company's next Annual Meeting,
currently expected to take place in May 1999, the Class II directors will be
elected.
Following the Merger, the principal executive officers of the Combined
Company will be as follows: Larry J. Gerhard, currently Chairman of the Board,
President and Chief Executive Officer of Summit, will be Chairman of the Board
and Chief Executive Officer; Michael F. Bosworth, currently Chairman of the
Board, President and Chief Executive Officer of OrCAD, will be President and
Chief Operating Officer; and C. Albert Koob, currently Vice President of Finance
and Chief Financial Officer of Summit will hold the same positions. See "Terms
of the Merger--Effect of the Merger."
CONDUCT OF BUSINESS PRIOR TO THE MERGER
OrCAD and Summit have agreed that, until the earlier of the termination of
the Reorganization Agreement pursuant to its terms or the Effective Time, except
to the extent either of the parties consents in writing, each party will carry
on its business in the usual, regular and ordinary course, in substantially the
same manner as heretofore conducted and in compliance with all applicable laws
and regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies (i) to preserve intact its present business organization, (ii) to keep
available the services of its present officers and employees, and (iii) to
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others with which it has business dealings.
In addition, except as permitted by the terms of the Reorganization
Agreement, and subject to certain exceptions, until the earlier of the
termination of the Reorganization Agreement pursuant to its terms or the
Effective Time, OrCAD and Summit have agreed not to conduct certain activities
without the prior written consent of the other party. See "Terms of the
Merger--Conduct of OrCAD's and Summit's Business Prior to the Merger."
NO SOLICITATION
OrCAD and Summit have both agreed, except for certain limited circumstances,
not to solicit, participate in, or provide non-public information for any
alternative acquisition proposal. See "Terms of the Merger--No Solicitation by
OrCAD" and "--No Solicitation by Summit."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to certain conditions, including but
not limited to: (i) the Reorganization Agreement shall have been approved and
adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law by OrCAD stockholders; and the issuance of shares of Summit
Common Stock by virtue of the Merger shall have been duly approved by the
requisite vote under applicable law and the rules of the National Association of
Securities Dealers, Inc. by Summit stockholders; (ii) the SEC shall have
declared the Registration Statement of which this Joint Proxy Statement/
Prospectus is a part effective and no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of this Joint
Proxy Statement/Prospectus, shall have been initiated or threatened in writing
by the SEC; (iii) no governmental entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger; (iv) Summit and OrCAD shall
each have received substantially identical written opinions from their
respective tax counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinions shall not have been withdrawn; (v) the Summit Common Stock issuable to
OrCAD stockholders in the Merger and such other
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shares required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on Nasdaq upon notice of issuance; (vi) Summit
and OrCAD shall each have received letters from their independent accountants
concurring with management that the Merger would be accounted as a
pooling-of-interests; (vii) subject to certain materiality thresholds, the
accuracy of the representations and warranties made by each party in the
Reorganization Agreement; (viii) subject to certain materiality thresholds,
performance of all covenants required by the Reorganization Agreement; and (ix)
the absence of a material adverse effect with regard to either Summit or OrCAD.
See "Terms of the Merger-- Conditions to the Merger."
TERMINATION
The Reorganization Agreement may be terminated under certain circumstances.
Depending on the cause of the termination, either Summit or OrCAD may have to
pay the other party a fee of $2.5 million if the Merger is not consummated. See
"Terms of the Merger--Termination of the Reorganization Agreement," "--Effect of
Termination" and "--Break-Up Fees."
AFFILIATE AGREEMENTS
Each of the Summit Affiliates has entered into an agreement restricting
sales, dispositions or other transactions reducing their risk of investment in
respect of the shares of Summit Common Stock held by them to help ensure that
the Merger will be treated as a pooling-of-interests for accounting and
financial reporting purposes. Each of the OrCAD Affiliates has entered into an
agreement restricting sales, dispositions or other transactions reducing their
risk of investment in respect of the shares of OrCAD Common Stock held by them
prior to the Merger and the shares of Summit Common Stock received by them in
the Merger so as to comply with the requirements of applicable federal
securities laws and to help ensure that the Merger will be treated as a
pooling-of-interests for accounting and financial reporting purposes. See "Terms
of the Merger--Affiliate Agreements."
VOTING AGREEMENTS
Each of the Summit Affiliates (who own an aggregate of - shares of Summit
Common Stock, representing approximately - % of the Summit Common Stock
issued and outstanding as of the Summit Record Date) has entered into a Summit
Voting Agreement with OrCAD. Pursuant to the Summit Voting Agreements, the
Summit Affiliates have agreed to vote all shares of Summit Common Stock they
have beneficial ownership of and any Summit Common Stock they acquire beneficial
ownership of prior to the termination of the Summit Voting Agreements in favor
of approval of the issuance of shares of Summit Common Stock pursuant to the
Reorganization Agreement. In addition, such persons have granted irrevocable
proxies to the OrCAD Board to vote such persons' Summit Common Stock in favor of
approval of the issuance of shares of Summit Common Stock pursuant to the
Reorganization Agreement and the Merger. See "Terms of the Merger--Voting
Agreements."
Each of the OrCAD Affiliates (who own an aggregate of - shares of OrCAD
Common Stock, representing approximately - % of the OrCAD Common Stock issued
and outstanding as of the OrCAD Record Date) has entered into an OrCAD Voting
Agreement with Summit. Pursuant to the OrCAD Voting Agreements, the OrCAD
Affiliates have agreed to vote all shares of OrCAD Common Stock they have
beneficial ownership of and any OrCAD Common Stock they acquire beneficial
ownership of prior to the termination of the OrCAD Voting Agreements in favor of
approval of the Reorganization Agreement and the Merger. In addition, such
persons have granted irrevocable proxies to the Summit Board to vote such
persons' OrCAD Common Stock in favor of approval of the Reorganization Agreement
and the Merger. See "Terms of the Merger--Voting Agreements."
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the OrCAD Board with respect to the
Reorganization Agreement, holders of OrCAD Common Stock should be aware that
members of the OrCAD Board and the executive officers of OrCAD have certain
interests in the Merger that are in addition to the interests of holders of
OrCAD Common Stock generally. In particular, John C. Savage, a member of the
OrCAD Board, is the Managing Director of Alliant which is acting as OrCAD's
financial advisor for the Merger. Alliant was entitled to receive a fee in the
amount of $100,000 upon delivery of its fairness opinion. In addition, if the
Merger closes, Alliant will be entitled to receive upon such closing an
additional fee of 0.65% of the total consideration received by OrCAD's
stockholders. Such fee would be approximately $477,278, calculated based on the
September 29, 1998 closing price of $7.375 per share of Summit Common Stock. In
addition, each of Messrs. Bosworth, Bundy, Cibulsky, Harrington, Kilcoin,
Plymale, Sheldon and Tannenbaum have employment agreements with OrCAD under
which they may receive certain benefits as a result of the Merger. See "Terms of
the Merger--Interests of Certain Persons."
NO APPRAISAL RIGHTS
OrCAD stockholders are not entitled to appraisal rights under the Delaware
General Corporation Law (the "DGCL") in connection with the Merger. See
"Approval of the Merger and Related Transactions--No Appraisal Rights."
Accordingly, stockholders who do not wish to receive Summit Common Stock in
exchange for their shares of OrCAD Common Stock must liquidate their investment
by selling their OrCAD Common Stock prior to the consummation of the Merger.
MARKET AND PRICE DATA
Summit Common Stock is traded on Nasdaq under the symbol SMMT. On September
18, 1998, the last trading day before public announcement of the execution of
the Reorganization Agreement, the closing price of Summit Common Stock as
reported on Nasdaq was $7.00 per share. On - , 1998, the closing price of
Summit Common Stock as reported on Nasdaq was $ - per share. There can be no
assurance as to the actual price of Summit Common Stock prior to, at or at any
time following the Effective Time of the Merger, or in the event the Merger is
not consummated.
OrCAD Common Stock is traded on Nasdaq under the symbol OCAD. On September
18, 1998, the last trading day before public announcement of the execution of
the Reorganization Agreement, the closing price of OrCAD Common Stock as
reported on Nasdaq was $7.50 per share. On - , 1998, the closing price of
OrCAD Common Stock as reported on Nasdaq was $ - per share. There can be no
assurance as to the actual price of OrCAD Common Stock prior to, or at the
Effective Time of the Merger, or in the event the Merger is not consummated.
Following the Merger, OrCAD Common Stock will no longer be traded on Nasdaq. See
"Risk Factors" and "Comparison of Capital Stock."
Because the Exchange Ratio is fixed, changes in the market price of Summit
Common Stock will affect the value of the Summit Common Stock to be received by
stockholders of OrCAD in the Merger. Summit stockholders and OrCAD stockholders
are encouraged to obtain current market quotations for Summit Common Stock and
OrCAD Common Stock prior to the Summit Special Meeting and OrCAD Special
Meeting, respectively.
13
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA
The following selected historical annual financial data of Summit and OrCAD
has been derived from their respective audited historical financial statements
and should be read in conjunction with such consolidated financial statements
and notes thereto. The consolidated financial statements for Summit for the
three fiscal years ended December 31, 1997 and for OrCAD for the three fiscal
years ended December 31, 1997 are included elsewhere in this Joint Proxy
Statement/Prospectus. The selected historical financial data for OrCAD includes
the financial results and accounts of MicroSim Corporation for all periods
presented. The selected historical financial information as of June 30, 1998,
and for the six month periods ended June 30, 1997 and 1998, for Summit and OrCAD
have been derived from the unaudited consolidated financial statements of Summit
and OrCAD as of and for such periods which are included elsewhere in this Joint
Proxy Statement/Prospectus, and which, in the opinion of Summit's and OrCAD's
respective management, reflect all adjustments necessary for the fair
presentation of such unaudited interim financial information. The results of
operations for those interim periods are not necessarily indicative of the
results to be expected for the entire year. The selected unaudited pro forma
combined condensed financial data, which gives effect to the Merger on a
pooling-of-interest basis as if it had been consummated at the beginning of the
periods presented, is derived from the unaudited pro forma combined condensed
financial statements included in this Joint Proxy Statement/Prospectus, and
should be read in conjunction with such unaudited pro forma financial statements
and the notes thereto. For purposes of the pro forma operating data, OrCAD's
consolidated financial statements for each of the three fiscal years ended
December 31, 1997, and for the six month periods ended June 30, 1997 and 1998,
have been combined with Summit's consolidated financial statements for each of
the three fiscal years ended December 31, 1997, and the six month periods ended
June 30, 1997 and 1998. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
at the beginning of the periods indicated, nor is it necessarily indicative of
future operating results or financial position.
SUMMIT HISTORICAL CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR
SIX MONTHS ENDED
JUNE 30,
AT OR FOR YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------------ --------------------
1997 1996 1995 1994 1993 1998 1997
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue................................. $ 31,439 $ 20,314 $ 14,292 $ 13,167 $ 7,367 $ 21,369 $ 13,700
Total costs and expenses excluding in-process
technology, write-off of purchased software
and merger costs............................ 23,255 19,413 17,331 14,095 8,909 14,543 10,904
In-process technology, write-off of purchased
software and merger costs................... 19,937 -- -- 647 -- -- --
Total costs and operating expenses............ 43,192 19,413 17,331 14,742 8,909 14,543 10,904
Income/(loss) from operations................. (11,753) 901 (3,039) (1,575) (1,542) 6,826 2,796
Net income/(loss)............................. (5,875) 1,263 (3,611) (2,082) (1,664) 5,299 3,056
Earnings/(loss) per share--diluted............ $ (0.41) $ 0.10 $ (0.33) $ (0.22) $ (0.59) $ 0.33 $ 0.20
Shares used in computing earnings/(loss) per
share--diluted.............................. 14,403 13,243 11,085 9,449 2,838 16,240 15,000
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 19,973 $ 19,801 $ 711 $ 1,203 $ 435 $ 24,768
Working capital/(deficit)..................... 14,604 17,236 (540) (439) (2,083) 18,683
Total assets.................................. 32,761 28,700 9,151 8,097 2,751 38,819
Long term obligations......................... 237 916 1,462 743 366 355
Total stockholders' equity.................... 20,275 19,151 548 1,224 (1,349) 25,116
</TABLE>
14
<PAGE>
ORCAD HISTORICAL CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR
SIX MONTHS ENDED
JUNE 30,
AT OR FOR YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------- --------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue.................................. $ 43,995 $ 37,034 $ 28,317 $ 21,921 $ 19,029 $ 23,542 $ 20,778
Total costs and expenses excluding in-process
technology, write-off of purchased software
and merger costs............................. 37,920 31,665 24,333 20,755 20,434 20,442 18,205
In-process technology, write-off of purchased
software and merger costs.................... 2,203 -- 2,008 -- -- 4,081 2,203
Total costs and operating expenses............. 40,123 31,665 26,341 20,755 20,434 24,523 20,408
Income/(loss) from operations.................. 3,872 5,369 1,976 1,166 (1,405) (981) 370
Net income/(loss).............................. 3,904 5,266 1,633 1,092 (1,324) (73) 820
Earnings/(loss) per share--diluted............. $ 0.41 $ 0.58 $ 0.24 $ 0.27 $ (0.33) $ (0.01) $ 0.09
Shares used in computing earnings/(loss) per
share--diluted............................... 9,446 9,046 6,853 3,982 4,038 9,279 9,388
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 31,618 $ 23,103 $ 8,942 $ 4,462 $ 2,703 $ 15,905
Working capital................................ 37,115 36,858 7,774 4,224 3,281 36,159
Total assets................................... 56,907 49,734 20,800 12,895 9,822 57,398
Long term obligations.......................... 19 205 145 1,038 894 19
Total stockholders' equity..................... 46,154 41,687 12,782 6,250 5,342 46,328
</TABLE>
UNAUDITED SUMMIT AND ORCAD PROFORMA COMBINED CONDENSED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AT OR FOR
AT OR FOR YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
------------------------------- --------------------
1997 1996 1995 1998 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue.............................................. $ 75,434 $ 57,348 $ 42,609 $ 44,911 $ 34,478
Total costs and expenses excluding in-process technology,
write-off of purchased software and merger costs......... 61,175 51,078 41,664 34,985 29,109
In-process technology, write-off of purchased software and
merger costs............................................. 22,140 -- 2,008 4,081 2,203
Total costs and operating expenses......................... 83,315 51,078 43,672 39,066 31,312
Income/(loss) from operations.............................. (7,881) 6,270 (1,063) 5,845 3,166
Net income/(loss).......................................... (2,232) 8,264 (1,978) 5,226 3,876
Earnings/(loss) per share--diluted......................... $ (0.09) $ 0.36 $ (0.13) $ 0.20 $ 0.16
Shares used in computing earnings/(loss) per share--
diluted.................................................. 24,026 22,741 15,298 26,244 24,857
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 51,591 $ 42,904 $ 9,653 $ 40,673
Working capital............................................ 51,719 54,094 7,234 51,642
Total assets............................................... 91,142 80,169 29,951 97,691
Long term obligations...................................... 256 1,121 1,607 374
Total stockholders' equity................................. 67,903 62,573 13,330 69,718
</TABLE>
15
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RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY HOLDERS OF ORCAD
COMMON STOCK IN EVALUATING WHETHER TO APPROVE AND ADOPT THE REORGANIZATION
AGREEMENT, AND BY HOLDERS OF SUMMIT COMMON STOCK IN EVALUATING WHETHER TO
APPROVE THE ISSUANCE OF SUMMIT COMMON STOCK PURSUANT TO THE REORGANIZATION
AGREEMENT. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER
INFORMATION INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THE FOLLOWING
DISCUSSION CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, WHICH CAN BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "EXPECT,"
"ANTICIPATE," "ESTIMATE," "PROJECT," "CONTINUE," "POTENTIAL" OR "OPPORTUNITY" OR
THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. SEE
"FORWARD LOOKING STATEMENTS." THE MATTERS SET FORTH BELOW CONSTITUTE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING
STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
RISKS RELATED TO MERGER
UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS AND PRODUCT
OFFERINGS. The successful combination of Summit and OrCAD will require
substantial attention from management. The anticipated benefits of the Merger
will not be achieved unless the operations of OrCAD are successfully combined
with those of Summit in a timely manner. The difficulties of assimilation may be
increased by the need to retain and integrate personnel and to combine different
corporate cultures. The successful combination of the two companies will also
require integration of the companies' information systems and other
infrastructure, integration of the companies' product offerings and the
coordination of their research and development and sales and marketing efforts.
In addition, the process of combining the two organizations could cause the
interruption of, or a loss of momentum in, the activities of either or both of
the companies' businesses and certain customers may defer purchasing decisions.
The diversion of the attention of management from the day-to-day operations of
the Combined Company, or difficulties encountered in the transition and
integration process, could have a material adverse effect on the business,
financial condition and results of operations of the Combined Company. See
"Approval of the Merger and Related Transactions--Joint Reasons For the Merger."
In addition, each of Summit and OrCAD has consummated several business
combinations in recent years, and the Merger, if approved, would be the largest
such combination for either company. The difficulties of integrating Summit's
and OrCAD's businesses may be exacerbated by the size and number of prior
business combinations. There can be no assurance that products, technologies,
distribution channels, key personnel and businesses of previously acquired
companies will be effectively integrated into the Combined Company's business or
product offerings, or that such integration will not adversely affect the
Combined Company's business, financial condition or results of operations. The
failure to integrate such acquisitions successfully could have a material
adverse effect on the business, financial condition and results of operations of
the Combined Company.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO. As a result of the Merger, each
outstanding share of OrCAD Common Stock will be converted into the right to
receive 1.05 shares of Summit Common Stock. Because the Exchange Ratio is fixed,
it will not increase or decrease due to fluctuations in the market price of
either Summit Common Stock or OrCAD Common Stock. The specific market value of
the consideration to be received by OrCAD stockholders in the Merger will,
therefore, depend on the market price of the Summit Common Stock on and after
the Effective Time. In the event that the market price of Summit Common Stock
decreases or increases prior to the Effective Time, the market value of the
Summit Common Stock to be received by OrCAD stockholders in the Merger would
correspondingly decrease or increase. The market prices of Summit Common Stock
and OrCAD Common Stock as of a recent date are set forth herein under
"Summary--Market and Price Data," and "Comparative Market Price Data." Summit
stockholders and OrCAD stockholders are advised to obtain recent market
quotations for Summit Common Stock and OrCAD Common Stock. Summit Common Stock
and OrCAD Common Stock
16
<PAGE>
historically have been subject to substantial price volatility. No assurance can
be given as to the market prices of Summit Common Stock or OrCAD Common Stock at
any time before the Effective Time or as to the market price of the common stock
of the Combined Company at any time thereafter. See "Summary-- Market and Price
Data," "Comparative Market Price Data," and "Comparison of Capital Stock."
SUBSTANTIAL EXPENSES RESULTING FROM THE MERGER. The negotiation and
implementation of the Merger will result in significant pre-tax expenses to
Summit and OrCAD. Excluding costs associated with combining the operations of
the two companies (which are currently unknown), pre-tax expenses are estimated
at approximately $3.9 million, primarily consisting of financial advisors' fees,
employee severance payments, attorneys' fees and accountants' fees. There can be
no assurance as to the aggregate amount of such expenses or that unanticipated
contingencies will not occur that will substantially increase the costs of
combining the operations of the two companies. In any event, costs associated
with the Merger are expected to negatively impact results of operations in the
quarter ending December 31, 1998. In addition, it is expected that after the
Merger, the Combined Company will incur an additional significant charge to
operations, which is not currently reasonably estimable, to reflect costs
associated with integrating the companies. Although Summit expects that the
elimination of duplicative expenses as well as other efficiencies related to the
integration of the businesses may offset the direct transaction costs and other
integration-related charges over time, there can be no assurance that such net
benefit will be achieved in the near term, if at all. See "Selected Historical
and Unaudited Pro Forma Combined Condensed Financial Data."
DEPENDENCE ON RETENTION AND INTEGRATION OF KEY EMPLOYEES. The success of
the Combined Company is dependent, in part, on the retention and integration of
key management, technical, marketing, sales and customer support personnel of
Summit and OrCAD. The success of the Combined Company will especially depend
upon the retention of members of senior management during the transitional
period following the Merger. There can be no assurance that such executives will
remain with the Combined Company prior to or for any specified period after the
Merger. The loss of such services would adversely affect the Combined Company's
business and financial results.
CUSTOMERS. There can be no assurance that present and prospective customers
of Summit and OrCAD will continue their current buying patterns without regard
to the announced Merger. Certain customers may defer purchasing decisions as
they evaluate Summit's plans for integrating or separately supporting the
companies' product offerings. Any such deferrals could have a material adverse
effect on the business, financial condition and results of operations of Summit,
OrCAD and/or the Combined Company both in the near-term and the long-term.
CHANGE TO NAME OF COMBINED COMPANY. Subsequent to the Merger, the Combined
Company intends to change its name, although a new name has not yet been chosen.
This name change may diminish the brand recognition associated with "Summit
Design, Inc." and "OrCAD, Inc." and adversely affect the marketing of the
Combined Company's products. Moreover, both Summit and OrCAD have spent
substantial sums to promote their respective names and to establish the brand
images associated with such names. Due to the intended name change, the Combined
Company may not fully realize the returns on such expenditures. While Summit and
OrCAD do not believe that the name change will materially adversely affect the
Combined Company's business, it may create temporary market confusion, and the
Combined Company will have to invest substantial resources in promoting its new
name and establishing a new brand image.
RISKS RELATED TO SUMMIT'S BUSINESS
HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS. While
Summit generated net income in the first two quarters of 1998, there can be no
assurance that it will be profitable in the future. In addition, Summit 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
17
<PAGE>
be, caused by a number of factors, including the rate of acceptance of new
products, corporate acquisitions and consolidations and the integration of
acquired entities, product quality, product, customer and channel mix, the size
and timing of orders, lengthy sales cycles, the timing of new product
announcements and introductions by Summit and its competitors, seasonal factors,
rescheduling or cancellation of customer orders, Summit'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
Summit and its competitors, product quality issues, currency fluctuations and
general economic conditions.
Summit has generally recognized a substantial portion of its revenue in the
last month of each quarter, with the revenue concentrated in the latter part of
the month. Any significant deferral of purchases of Summit's products could have
a material adverse effect on Summit's business, financial condition, results of
operations or cash flows in any particular quarter, and to the extent that
significant sales occur earlier than expected, operating results for subsequent
quarters may be adversely affected. Summit's revenue is difficult to forecast
for several reasons. The market for certain of Summit's software products is
evolving. Summit's sales cycle is typically six to nine months and varies
substantially from customer to customer. Summit operates with little product
backlog because its products are typically shipped shortly after orders are
received. In addition, a significant portion of Summit's sales are made through
indirect channels and can be harder to predict. Summit 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 Summit's
operating results for that quarter would be adversely affected. Based upon the
factors described above, Summit 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 Summit's future performance. Moreover, although Summit's revenue
has increased in recent periods, there can be no assurance that Summit's revenue
will grow in future periods or that Summit will remain profitable on a quarterly
or annual basis. Due to the foregoing or other factors, it is likely that
Summit'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 Summit's Common Stock. See "Summit--Summit Management's
Discussion and Analysis of Financial Condition and Results of Operations"
PRODUCT CONCENTRATION; UNCERTAINTY OF MARKET ACCEPTANCE OF HLDA. Prior to
July 1997, Summit'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 Design Automation,
Inc. ("TriQuest") in February 1997, Simulation Technologies Corp. ("SimTech") in
September 1997, and ProSoft Oy ("ProSoft") in June 1998, Summit 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.
Summit believes that HLDA Plus products will continue to account for
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
Summit's business, financial condition and results of operations.
Summit's future success depends primarily upon the market acceptance of its
existing and future HLDA Plus products. Summit commercially shipped its first
HLDA Plus product, Visual HDL for VHDL, in the first quarter of 1994. For the
six months ended June 30, 1998 and 1997 and the years ended December 31, 1997,
1996 and 1995, respectively, revenue from HLDA products and related maintenance
contracts represented 100% and 74.0%, 76.5%, 63.5%, and 43.6%, respectively, of
Summit's total revenue. Summit's HLDA Plus products incorporate certain unique
design methodologies and thus represent a
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<PAGE>
departure from industry standards for design creation and verification. Summit
believes that broad market acceptance of its HLDA 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 Summit's financial resources and its technical,
managerial, service and support expertise. Summit also depends on its
distributors to assist Summit in gaining market acceptance of its products.
There can be no assurance that sufficient priority will be given by Summit's
distributors to marketing Summit's products or whether such distributors will
continue to offer Summit's products. There can be no assurance that Summit's
HLDA products will achieve broad market acceptance. A decline in the demand for,
or the failure to achieve broad market acceptance of, Summit's HLDA products
will have a material adverse effect on Summit's business, financial condition,
results of operations or cash flows.
Although demand for HLDA products has increased in recent years, the market
for HLDA 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 Summit's HLDA products. If the market for HLDA products fails to
grow or grows more slowly than Summit currently anticipates, Summit's business,
financial condition, results of operations or cash flows 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 Summit and makes the introduction and
acceptance of new products unpredictable. Summit'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.
Summit anticipates a lengthy period of test marketing for the Visual Testbench
product. Accordingly, Summit cannot predict the extent, 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. As part of this
agreement, Credence Systems Corporation ("CSC") must purchase a minimum of $16.0
million of Visual Testbench licenses over a thirty month period beginning in
July 1997. As of June 30, 1998 Summit had sold $11.4 million of Visual Testbench
licenses pursuant to this agreement. Summit will need to replace this revenue
when the $16.0 million purchase obligation is satisfied and the failure of
Summit to replace this revenue would have a material adverse affect on Summit's
operating results. See "Summit--Summit Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "--Summit
Business--Products."
COMPETITION. The EDA industry is highly competitive and Summit expects
competition to increase as other EDA companies introduce HLDA products. In the
HLDA market, Summit principally competes with Mentor Graphics Corporation
("Mentor Graphics") and a number of smaller firms. Indirectly, Summit also
competes with other firms that offer alternatives to HLDA 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 Summit. Some of Summit's
current and future competitors offer a more complete range of EDA products and
may distribute products that directly compete with Summit's products by bundling
such products with their core product line. In addition, Summit'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 Summit'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 Summit to offer point solutions instead of, or in
addition to, Summit's current software products. Such point solutions would be
priced lower than Summit's current product offerings and could cause Summit's
average selling prices to decrease, which could have a material adverse effect
on Summit's business, financial condition, results of operations, or cash flows.
See "Summit--Summit Business--Competition."
Summit 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. Summit believes
that they compete favorably overall with respect to these factors. However, in
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particular cases, Summit's competitors may offer HLDA products with
functionality which is sought by Summit's prospective customers and which
differs from that offered by Summit. 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 Summit's
competitors by a larger, more established EDA vendor could create a more
significant competitor. There can be no assurance that Summit will be able to
compete successfully against current and future competitors or that competitive
pressures faced by Summit will not have a material adverse effect on its
business, financial condition, results of operations, or cash flows. There can
be no assurance that Summit's current and future competitors will not be able to
develop products comparable or superior to those developed by Summit or to adapt
more quickly than Summit 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 Summit's business, financial condition, results of operations
or cash flows.
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 Summit'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
Summit's business, financial condition, results of operations, or cash flows. A
number of electronics companies, including customers of Summit, have recently
experienced a slowdown in their businesses. Summit'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. See "Summit--Summit
Business--Background."
DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY. Because Summit's
products must interoperate with EDA products of other companies, particularly
simulation and synthesis products, Summit must have timely access to third party
software to perform development and testing of its products. Although Summit 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 Summit, including Synopsys, Inc.
("Synopsys"), Mentor Graphics, and Cadence Design Systems ("Cadence"). If any of
these relationships were terminated and Summit was 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, Summit could experience a significant increase in development costs,
the development process would take longer, product introductions would be
delayed and Summit's business, financial condition, results of operations or
cash flows could be materially adversely affected. See "Summit--Summit
Business--Product Development."
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. Summit'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 Summit will be successful in developing and marketing product enhancements
or new products that respond to technological change or emerging industry
standards, that Summit will not experience difficulties that could delay or
prevent the successful
20
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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 Summit 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, Summit's business, financial
condition, results of operations or cash flows will be materially adversely
affected.
Software products as complex as those offered by Summit may contain errors
that may be detected at any point in the products' life cycles. Summit 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 Summit 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 Summit's reputation or increased service and warranty
costs, any of which could have a material adverse effect on Summit's business,
financial condition, results of operations or cash flows. See "Summit--Summit
Business--Product Development."
DEPENDENCE ON DISTRIBUTORS. Summit relies on distributors for licensing and
support of its products outside of North America. Approximately 25%, 42%, 29%,
46% and 42% of Summit's revenue for the six months ended June 30, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995, respectively, were
attributable to sales made through distributors. Effective April 1, 1996, Summit
entered into a joint venture with Anam pursuant to which the joint venture
corporation Summit Asia acquired exclusive rights to sell, distribute and
support all of Summit' products in the Asia-Pacific region, excluding Japan.
Prior to that date, Anam was an independent distributor of Summit's products. In
April 1998, the joint venture corporation, Summit Asia, which is headquartered
in Korea, was renamed Asia Design Corporation "ADC." In May 1998, the Summit
exchanged a portion of its ownership in ADC for ownership in another company
located in Hong Kong which was renamed Summit Asia, Ltd. "SDA." SDA also has an
equity investment in ADC. In June 1998, Summit and Anam each loaned SDA
$750,000, which is guaranteed by ADC. SDA acquired from ADC the exclusive rights
to sell, distribute and support Summits products in the Asia-Pacific region,
excluding Japan. SDA granted distribution rights to Summit's products to ADC for
the Asia Pacific region, excluding Japan. There can be no assurance that this
restructuring will result in Summit Asia or ADC becoming profitable or that
revenue attributable to sales in the Asia Pacific region, excluding Japan, would
increase. During the first quarter of 1997, Summit 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
March 1999, subject to Summit'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, Summit
entered into a three-year, exclusive distribution agreement for its HLDA
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
Summit and Seiko and is terminable by either party for breach. In March 1997,
Summit entered into a three-year distribution agreement with Kanematsu USA Inc.
pursuant to which Kanematsu was granted exclusive distribution rights to sell,
distribute and support certain verification products in Japan. For the six
months ended June 30, 1998 and the year ended December 31, 1997, all sales of
Summit's products in the Asia-Pacific region were through Seiko, SDA, ADC, ATE
and Kanematsu.
There can be no assurance that Summit's relationships with Seiko, SDA, ADC,
ATE and Kanematsu will be effective in maintaining or increasing sales relative
to the levels experienced prior to such relationships. Summit also has
independent distributors in Europe and is dependent on the continued viability
and financial stability of its distributors. Since Summit'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
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number of distributors possess these resources. In addition, Seiko, SDA, ADC,
ATE and Kanematsu, as well as Summit's other distributors, may offer products of
several different companies, including competitors of Summit. There can be no
assurance that Summit's current distributors will continue to market or service
and support Summit's products effectively, that any distributor will continue to
sell Summit'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 Summit's distributors could have a material adverse
effect on Summit's business, financial condition, results of operations or cash
flows. See "Summit--Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "--Summit Business-- Marketing and Sales."
INTERNATIONAL SALES AND OPERATIONS. Approximately 35%, 45%, 34%, 51% and
53% of Summit's revenue for the six months ended June 30, 1998 and 1997 and the
years ended December 31, 1997, 1996 and 1995, respectively, were attributable to
sales made outside the United States. Summit expects that international revenue
will continue to represent a significant portion of its total revenue. Summit'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 Summit's products more expensive and, therefore, potentially less
competitive in those markets. Summit 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 Summit's future international sales and
operations and, consequently, on Summit's business, financial condition, results
of operations or cash flows. In addition, financial markets and economies in the
Asia Pacific Region have been experiencing adverse conditions which could
adversely affect demand for Summit's products in such region.
In order to successfully expand international sales, Summit 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 Summit's operating
margins. In addition, to the extent that Summit is unable to effect these
additions in a timely manner, Summit's growth, if any, in international sales
will be limited. There can be no assurance that Summit will be able to maintain
or increase international sales of Summit's products, and failure to do so could
have a material adverse effect on Summit's business, financial condition,
results of operations or cash flows. See "Summit--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "--Summit
Business--Marketing and Sales."
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, results of operations or cash flows.
Summit has consummated a series of acquisitions since 1997, including the
acquisition of TriQuest in February 1997, SimTech in September 1997, and ProSoft
in June 1998. As a result of these acquisitions, Summit's operating expenses
have increased and are expected to continue to increase. There can be no
assurance that the integration of TriQuest's, SimTech's or ProSoft's business
can be successfully completed in a timely fashion, or at all, or that the
revenues from TriQuest, SimTech and ProSoft 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, financial
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condition, results of operations or cash flows. 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, 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
concerns, 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. See "Summit--Summit Business--Product Development."
OPERATIONS IN ISRAEL. Summit's research and development operations related
to its HLDA products are located in Israel and may be affected by economic,
political and military conditions in that country. Accordingly, Summit'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 Summit'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 "Summit--Summit
Business--Israeli Research, Development and Marketing Grants." In addition,
while all of Summit's sales are denominated in U.S. dollars, a portion of
Summit's annual costs and expenses in Israel are paid in Israeli currency. These
costs and expenses were approximately $4.7, $4.3 and $4.3 million in 1997, 1996
and 1995, respectively. Payment in Israeli currency subjects Summit to foreign
currency fluctuations and to economic pressures resulting from Israel's
generally high rate of inflation, which has been approximately 7%, 11% and 8%
during 1997, 1996, and 1995, respectively. Summit'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 Summit's business, financial condition, results of operations, or cash
flows. In addition, coordination with and management of the Israeli operations
requires Summit to address differences in culture, regulations and time zones.
Failure to successfully address these differences could be disruptive to
Summit's operations. Summit'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
Summit to comply with these conditions, the tax benefits could be canceled, in
whole or in part, and Summit would be required to refund the amount of the
canceled benefits, adjusted for inflation and interest. There can be no
assurance that Summit'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 Summit's business, financial condition, results of operations
or cash flows. See "Summit--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Effective Tax Rates" and "--Summit
Business--Operations in Israel."
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DEPENDENCE ON KEY PERSONNEL. Summit's success will depend 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. Summit 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 non-competition
provisions. Competition for personnel in the software industry in general, and
the EDA industry in particular, is intense, and Summit has at times in the past
experienced difficulty in recruiting qualified personnel. There can be no
assurance that Summit 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 Summit's business, financial condition, results of
operations or cash flows. Summit has obtained a $1 million "key person" life
insurance policy on its President/Chief Executive Officer. 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 Summit's business, financial condition,
results of operations or cash flows. See "Summit--Summit Business-- Employees."
ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS. Summit's Israeli
subsidiary 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
December 31, 1997, all amounts had been repaid. 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. Summit's Visual HDL
for VHDL products have been developed under grants from the Chief Scientist and
thus are subject to these restrictions. If Summit is unable to obtain the
consent of the government of Israel, Summit 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, Summit would be unable to minimize
risks particular to operations in Israel, such as hostilities involving Israel.
Although Summit is eligible to apply for additional grants from the Chief
Scientist, it has no present plans to do so. Summit 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 June 30,
1998, approximately $261,000 was outstanding under the grant. See
"Summit--Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "--Summit Business--Product Development" and "--Operations in
Israel."
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS. Summit's success depends in part upon its proprietary technology.
Summit 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, Summit 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, Summit'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 Summit's products or technology without authorization, or to
develop similar technology independently.
Summit provides its products to end-users primarily under "shrink-wrap"
license agreements included within the packaged software. In addition, Summit
delivers certain of its verification products electronically under an electronic
version of a "shrink wrap" license agreement. These agreements are not
negotiated with or signed by the licensee, and thus may not be enforceable in
certain jurisdictions. In addition, the
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laws of some foreign countries do not protect the proprietary rights as fully as
do the laws of the United States. There can be no assurance that Summit'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.
Summit could be increasingly subject to infringement claims as the number of
products and competitors in Summit's industry segments grows, the functionality
of products in its industry segments overlap 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
Summit with respect to current or future products. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product delays or require Summit to enter into royalty or licensing agreements.
Such royalty or license agreements, if required, may not be available on terms
acceptable to Summit or at all. Failure to protect its proprietary rights or
claims of infringement could have a material adverse effect on Summit's
business, financial condition, results of operations or cash flows. See
"Summit--Summit Business--Proprietary Rights."
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 Summit or its competitors, market
conditions in the computer software or hardware industries and quarterly
fluctuations in Summit's operating results may have a significant adverse effect
on the market price of Summit's Common Stock. See "Comparative Market Price
Data."
YEAR 2000. Summit is currently reviewing its products, internal systems and
infrastructure in order to identify and modify those products and systems that
are not Year 2000 compliant. Summit expects any required modification to be made
on a timely basis and does not believe that the cost of any such modification
will have a material adverse affect on Summit's operating results. There can be
no assurance, however, that there will not be a delay in, or increased costs
associated with, implementation of any such modifications and inability to
implement such modifications could have an adverse effect on Summit's future
operating results. See "Summit--Summit Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS RELATED TO ORCAD'S BUSINESS
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. OrCAD's quarterly operating
results have in the past varied and may in the future vary significantly
depending on factors such as increased competition, timing of new product
announcements, releases and pricing changes by OrCAD or its competitors, length
of sales cycles, market acceptance or delays in the introduction of new or
enhanced versions of OrCAD's products, timing of significant orders, seasonal
factors, mix of direct and indirect sales, changes in tax rates, product mix,
and economic conditions generally and in the EDA industry specifically. In
particular, OrCAD's quarterly operating results have in the past fluctuated as a
result of the timing of the introduction of new or enhanced products to the
market, with customers waiting to place orders until new products became
available. OrCAD's quarterly operating results have also fluctuated as a result
of seasonality of customer buying patterns. A substantial portion of OrCAD's
revenue in each quarter results from orders booked in that quarter. Revenue from
quarter to quarter is difficult to forecast, as minimal order backlog exists at
the end of any quarter because OrCAD's products typically are shipped and
revenue recognized promptly after receipt of customers' orders. OrCAD's expense
levels are based, in part, on its expectations as to future revenue. If revenue
levels are below expectations, operating results are likely to be adversely
affected. In particular, net income may be disproportionately affected by a
reduction in revenue because only a small portion of OrCAD's expenses varies
with its revenue. OrCAD has recently experienced growth and expansion. There can
be no assurance that OrCAD will be able to grow in future periods, that it will
be able to sustain its historical rate of revenue growth, or that its operations
will remain profitable. Due to the
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foregoing factors, OrCAD believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. See "OrCAD Management's Discussion
and Analysis of Financial Condition and Results of Operations."
TECHNOLOGICAL CHANGE; DEPENDENCE UPON NEW PRODUCTS; DEPENDENCE UPON CERTAIN
PRODUCTS. The EDA industry is characterized by rapid technological change,
frequent new product introductions, evolving industry standards and changing
customer requirements. The introduction of products embodying new technologies
and the emergence of new industry standards can render existing products
obsolete and unmarketable. OrCAD's future success will depend upon its continued
ability to enhance its current products and to develop or acquire new products
that keep pace with technological developments, emerging industry standards and
changing customer requirements. There can be no assurance that OrCAD will be
successful in developing and marketing any such new products or product
enhancements or that such new products and enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance. In the past,
OrCAD has experienced delays in its introduction of product enhancements and new
products. If OrCAD is unable, for technological or other reasons, to develop and
introduce products in a timely manner in response to changing market conditions
or customer requirements, OrCAD's business, financial condition and results of
operations will be materially and adversely affected. OrCAD's future operating
results are substantially dependent upon OrCAD's recently introduced EXPRESS and
CIS products, and PSPICE products added as a result of the January 1998 merger
with MicroSim Corporation ("MicroSim"). The extent to which they may achieve
broad market acceptance is uncertain. The failure to achieve such acceptance by
one or more of these products could have a material adverse effect on OrCAD's
business, financial condition and results of operations. There can be no
assurance that OrCAD will continue to be successful in marketing these products,
or any new or enhanced products which supplement or replace these products. Any
factor which adversely affects sales of the products, such as price reductions
or declines in demand, or the development by a competitor of similar but more
effective or widely accepted products, would have a material adverse effect on
OrCAD's business, financial condition and results of operations. See
"OrCAD--OrCAD Business--Product Development."
RECENT ACQUISITIONS. In April 1998, OrCAD acquired ARS Microsystems,
formerly OrCAD's VAR in the United Kingdom. In connection with such acquisition,
the activities and employees of ARS Microsystems must be integrated into OrCAD's
operations. There can be no assurance that such integration, and change in
status from that of a VAR to that of a wholly-owned foreign subsidiary will be
smooth or ultimately successful. In addition, there can be no assurance that
such integration or change in status can be accomplished without incurring
substantial additional costs or diverting management's attention and resources.
If the integration of ARS Microsystems into OrCAD's operations is unsuccessful,
it could have a material adverse effect on OrCAD's business, financial condition
and results of operations. Furthermore, due to the acquisition of ARS
Microsystems, OrCAD may be more directly affected by fluctuations in the United
Kingdom economy. There can be no assurance that such fluctuations will not have
a material adverse effect on OrCAD's business, financial condition and results
of operations.
In January 1998, OrCAD acquired MicroSim, a company that develops, markets
and supports Windows-based and UNIX-based EDA software products that assist
electronics designers in designing ICs and PCBs, including circuits that contain
both analog and digital components ("mixed-signal" circuits). While OrCAD is
still in the process of integrating MicroSim into OrCAD's operations, the
general and administrative and marketing and sales functions are largely
integrated. OrCAD plans to release a new version of the combined technologies of
OrCAD and MicroSim in the near future. There can be no assurance that this
planned integrated product release can be accomplished without the incurrence of
substantial additional costs, foregone revenue or the diversion of managements'
attention and resources. If the integrated product release is unsuccessful, it
could have a material adverse effect on OrCAD's business, financial condition
and results of operations.
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COMPETITION. The EDA industry is highly competitive. A majority of OrCAD's
revenue results from sales of its Windows-based products, a market segment in
which OrCAD expects competition to increase as other EDA vendors introduce
Windows-based products and, product enhancements. OrCAD currently competes in
the desktop EDA market directly with Viewlogic Systems Inc. ("Viewlogic"), a
subsidiary of Synopsys. Viewlogic offers Window-based EDA products as well as
UNIX-based products. OrCAD also faces competition from other larger vendors of
traditional UNIX-based EDA products, such as Cadence and Mentor Graphics. These
and other UNIX-based companies have announced or released Windows-based EDA
products that compete with OrCAD's products. OrCAD also competes with a variety
of smaller, privately held companies. A number of OrCAD's competitors have
significantly greater financial, technical and marketing resources than OrCAD
and strong name recognition. There can be no assurance that these competitors
will not use their superior resources and visibility, and installed customer
bases to successfully develop better products and/or market their products more
effectively than those of OrCAD. In particular, as a result of the wide
acceptance of UNIX-based EDA tools, vendors of such tools have established
long-term relationships with many of OrCAD's current and potential customers,
and may have the ability to offer these customers a broad suite of Windows and
UNIX-based products to satisfy the entire range of their design needs. Finally,
in addition to competition from EDA software vendors, OrCAD faces competition
from the internal design groups of many of its customers, who design and develop
their own customized schematic capture, simulation or synthesis tools for their
own particular needs and therefore may be reluctant to purchase products offered
by OrCAD or other EDA vendors. There can be no assurance that OrCAD will be able
to convert such internal design groups into users of OrCAD's products. More
generally, there can be no assurance that OrCAD will be able to compete
successfully against current and future competitors, both direct and indirect,
or that competitive pressures or generally adverse economic conditions faced by
OrCAD will not materially adversely affect its business, financial condition and
results of operations. See "OrCAD--OrCAD Business--Competition."
DEPENDENCE UPON INTERNATIONAL VALUE ADDED RESELLERS. OrCAD is dependent
upon VARs for substantially all of its international sales outside of Japan and
the United Kingdom. Accordingly, OrCAD is dependent upon the continued viability
and financial stability of these VARs. Because OrCAD's products are used by
highly skilled professional engineers, effective VARs must possess sufficient
technical, marketing and sales resources and must devote these resources to
sales efforts, customer education, training and support. Only a limited number
of potential VARs possess these criteria. There can be no assurance that OrCAD
will be able to attract and retain a sufficient number of qualified VARs to
successfully market OrCAD's products, and the failure to do so would have a
material adverse effect on OrCAD's business, financial condition and results of
operations. OrCAD's relationship with its VARs is usually established through a
formal reseller agreement, which generally may be terminated by either party at
any time without cause. There can be no assurance that any VAR will continue to
represent OrCAD's products, and the inability to retain VARs could have a
material adverse effect on OrCAD's business, financial condition and results of
operations. In addition, OrCAD may be dependent upon the VARs to provide local
language translations of OrCAD's products and documentation. If a VAR is unable
to provide such local translations in accordance with OrCAD's standards, OrCAD
may lose customers in that VAR's territory and may have to incur significant
additional costs to engage a new VAR for that territory. Further, OrCAD's VARs
generally offer the products of several different companies, including in some
cases products that are competitive with those of OrCAD. There can be no
assurance that OrCAD's current VARs will be able to continue to market and sell
OrCAD's products successfully, that economic conditions or industry demand will
not adversely affect such VARs, or that such VARs will not devote greater
resources to marketing and selling the products of other companies. The loss of,
or a significant reduction in revenue from, OrCAD's VARs would have a material
adverse effect on OrCAD's business, financial condition and results of
operations. In addition, selling through VARs may limit OrCAD's contacts with
its international customers. As a result, OrCAD's ability to accurately forecast
sales, evaluate customer satisfaction and recognize emerging international
customer requirements may be hindered, and
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OrCAD's international operations may thereby be adversely affected. See
"OrCAD--OrCAD Business-- Marketing and Sales."
INTERNATIONAL SALES. International sales, outside of North America,
represented approximately 30%, 37%, 38%, 45% and 39% of OrCAD's total revenue
for the six months ended June 30, 1998 and 1997, and the years ended December
31, 1997, 1996 and 1995, respectively, and OrCAD expects that international
sales will continue to account for a significant portion of its net revenue in
future periods. OrCAD intends to continue to expand its operations outside of
the United States, which will require significant management attention and
financial resources. International sales are subject to inherent risks,
including unexpected changes in regulatory requirements, tariffs and taxes,
difficulties in staffing and managing foreign operations, longer payment cycles,
greater difficulty in accounts receivable collection, compliance with any
applicable export licensing requirements and other trade barriers, and political
and economic instability. Moreover, gains and losses on the conversion to U.S.
dollars of receivables and payables arising from international operations may
contribute to fluctuations in OrCAD's results of operations. Financial markets
and economies in the Asia Pacific Region have been experiencing adverse
conditions which could adversely affect demand for OrCAD's products in such
region. In addition, if for any reason exchange or price controls or other
restrictions on foreign currencies were imposed, OrCAD's business, financial
condition and results of operations could be adversely affected. OrCAD pays the
expenses of its international operations in local currencies and does not
currently engage in hedging transactions with respect to such obligations.
Moreover, currency exchange fluctuations in countries in which OrCAD licenses
its products could have a material adverse effect on OrCAD's business, financial
condition and results of operations by resulting in pricing that is not
competitive with products priced in local currencies. There can be no assurance
that in the future OrCAD will be able to continue to price its products
internationally in U.S. dollars. In addition, the laws of certain countries do
not protect OrCAD's products and intellectual property rights to the same extent
as do the laws of the United States. There can be no assurance that any of these
factors will not have a material adverse effect on OrCAD's future international
sales and, consequently, on OrCAD's business, financial condition and results of
operations. See "OrCAD--OrCAD Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "OrCAD Business--Marketing and Sales."
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH. OrCAD's future success
depends in significant part upon the continued service of its key technical and
senior management personnel, particularly Michael F. Bosworth, OrCAD's President
and Chief Executive Officer. OrCAD's future success also depends on its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that OrCAD can retain its key managerial and technical employees
or that it can attract, assimilate or retain other highly qualified personnel in
the future. If OrCAD is unable to hire the necessary technical personnel, the
development of new products could be impaired. Failure to attract and retain key
technical, professional and managerial personnel could have a material adverse
effect on OrCAD's operating results. OrCAD's ability to manage growth
successfully will require OrCAD to continue to improve its operational,
management and financial systems and controls, and to continue to train and
manage its employees. There can be no assurance that OrCAD will be able to do so
successfully. Failure to do so could have a material adverse effect upon OrCAD's
business, financial condition and results of operations. See "OrCAD--OrCAD
Business-- Employees."
DEPENDENCE UPON SEMICONDUCTOR, COMPUTER AND ELECTRONICS INDUSTRIES; ECONOMIC
AND MARKET CONDITIONS. The industry in which OrCAD competes and the market that
it serves are highly cyclical. OrCAD is dependent upon the semiconductor and,
more generally, the computer and electronics industries. Each of these
industries is characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Segments of these industries, in each of the United States, Europe
and Japan, have from time to time experienced significant economic downturns
characterized by decreased product demand, reductions in capital expenditures,
production over-capacity,
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price erosion, work slowdowns and layoffs. In addition, portions of these
industries have experienced downturns at different times. Over the past few
years, these industries, with the exception of the semiconductor industry, have
experienced an extended period of significant economic growth in North America,
although in Europe and Japan the growth of such industries has been slower and
negative, respectively. There can be no assurance that such economic growth in
North America will continue, and if it does not, any downturn could be
especially severe. OrCAD's operations have in the past and may in the future
reflect substantial fluctuations from period to period as a consequence of such
industry patterns, general economic conditions affecting the timing of orders
from major customers, and other factors affecting capital spending. There can be
no assurance that such factors will not have a material adverse effect upon
OrCAD's business, financial condition and results of operations.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS. OrCAD's success is heavily dependent upon its proprietary software
technology. OrCAD currently relies on trade secret, copyright and trademark
laws, and contractual provisions to protect its proprietary rights in its
software products. OrCAD also ships its software with a security device to all
customers outside the U.S. and Canada. OrCAD generally enters into proprietary
information and confidentiality agreements with its employees and distributors,
and limits access to and distribution of its software, documentation and other
proprietary information. OrCAD does not license or release the source code for
its proprietary software to its customers, except in connection with OEM
development agreements. Despite these precautions, there can be no assurance
that a third party will not copy or otherwise obtain and use OrCAD's products or
technology without authorization, or develop similar or superior technology
independently. In particular, OrCAD distributes its products pursuant to
"shrink-wrap" licenses. There can be no assurance that such licenses are
enforceable. In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. Although OrCAD believes
that its products do not infringe on the proprietary rights of third parties,
and although OrCAD has received no communications from third parties alleging
the infringement of the proprietary rights of such parties, there can be no
assurance that infringement claims will not be asserted against OrCAD in the
future or that any such claims will not require OrCAD to enter into costly
litigation. Irrespective of the validity or the successful assertion of such
claims, any such litigation could result in significant diversions of effort by
OrCAD's technical and management personnel, as well as OrCAD's incurring
significant costs with respect to the defense thereof, and could have a material
adverse effect on OrCAD's business, financial condition and results of
operations. In addition, if any claims or actions are asserted against OrCAD,
OrCAD may choose to or be required to obtain a license under a third party's
intellectual property rights. There can be no assurance that under such
circumstances a license would be available upon reasonable terms or at all. See
"OrCAD--OrCAD Business--Proprietary Rights."
RISK OF PRODUCT DEFECTS. Software products as complex as those offered by
OrCAD may contain defects or failures when introduced or when new versions are
released. OrCAD has in the past discovered software defects in certain of its
products and may experience delays or lost revenue to correct such defects in
the future. There can be no assurance that, despite testing by OrCAD, errors
will not be found in new products or versions after commencement of commercial
shipments, resulting in loss of market share or failure to achieve market
acceptance. Any such occurrence could have a material adverse effect upon
OrCAD's business, financial condition or results of operations. See
"OrCAD--OrCAD Business-- Products."
DEPENDENCE UPON BROAD ACCEPTANCE OF THE MICROSOFT WINDOWS OPERATING SYSTEMS
IN DESKTOP EDA MARKET. OrCAD believes that the desktop EDA market is trending
toward greater use of the Microsoft Windows operating systems, and anticipates
that the use of Windows-based products in the EDA market will continue to grow
and expand. Accordingly, all of the new products introduced by OrCAD, and all of
the products OrCAD is currently developing, are designed for use on Microsoft's
Windows NT, Windows 95 and Windows 98 operating systems. Any factor adversely
affecting the demand for, or use of, the Microsoft Windows operating systems,
for EDA applications or in general, could result in a material
29
<PAGE>
adverse effect on OrCAD's business, financial condition and results of
operations. Further, any changes to the underlying components of the Microsoft
Windows operating systems that would require changes to OrCAD's products would
have a material adverse effect on OrCAD's business, financial condition and
results of operations if OrCAD were unable successfully to develop and implement
such changes in a timely fashion, or if OrCAD's products, as changed, failed to
gain market acceptance. See "OrCAD-- OrCAD Business--Products."
POSSIBILITY VOLATILITY OF STOCK PRICE. The trading price of OrCAD's Common
Stock could be subject to wide fluctuations in response to quarterly variations
on operating results, announcements of technological innovations, the
introduction of new products or pricing changes by OrCAD or its competitors,
proprietary rights or other litigation, changes in earnings estimates by
analysts, and other events or factors. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations that have
particularly affected the market prices for the common stock of high technology
companies, which fluctuations have often been unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of OrCAD's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has occurred against the issuing company.
There can be no assurance that such litigation will not occur in the future with
respect to OrCAD. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on OrCAD's business, financial condition and results of
operations. Any adverse determination in such litigation would also subject
OrCAD significant liabilities.
YEAR 2000. OrCAD is currently reviewing its products, internal systems and
infrastructure in order to identify and modify those products and systems that
are not Year 2000 compliant. OrCAD expects any required modification to be made
on a timely basis and does not believe that the cost of any such modification
will have a material adverse affect on OrCAD's operating results. There can be
no assurance, however, that there will not be a delay in, or increased costs
associated with, implementation of any such modifications and OrCAD's inability
to implement such modifications could have an adverse effect on OrCAD's future
operating results. See "OrCAD--OrCAD Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Summit
and OrCAD and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis of accounting,
assuming that 1.05 shares of Summit Common Stock are issued in exchange for one
share of OrCAD Common Stock in the Merger. This data should be read in
conjunction with selected historical financial data, the unaudited pro forma
combined condensed financial data, and the separate historical financial
statements of Summit and OrCAD and notes thereto (which are included elsewhere
in this Joint Proxy Statement/Prospectus). The pro forma combined condensed
financial data are not necessarily indicative of the operating results that
would have been achieved had the Merger been consummated as of the beginning of
the periods presented and should not be construed as representative of future
operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------
1997 1996 1995 1998
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
HISTORICAL-SUMMIT
Earnings/(loss) per share--diluted.......................... $ (0.41) $ 0.10 $ (0.33) $ 0.33
Book Value per common share(1).............................. $ 1.28 $ 1.36 $ 0.25 $ 1.65
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------
1997 1996 1995 1998
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
HISTORICAL-ORCAD
Earnings/(loss) per share--diluted.......................... $ 0.41 $ 0.58 $ 0.24 $ (0.01)
Book Value per common share(1).............................. $ 5.00 $ 4.56 $ 3.02 $ 4.96
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------
1997 1996 1995 1998
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED EARNINGS (LOSS) PER
COMMON SHARE--DILUTED
Per Summit share(2)......................................... $ (0.09) $ 0.36 $ (0.13) $ 0.20
Equivalent OrCAD share(3)................................... $ (0.09) $ 0.38 $ (0.14) $ 0.21
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -----------------
1997 1996 1995 1998
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED BOOK VALUE PER COMMON SHARE
Per Summit share(2)......................................... $ 2.59 $ 2.64 $ 1.99 $ 2.79
Equivalent OrCAD share(3)................................... $ 2.72 $ 2.77 $ 2.09 $ 2.93
</TABLE>
- ------------------------
(1) The historical book value per common share is computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of each period.
(2) For purposes of pro forma combined data, Summit's financial data for the
fiscal years ended December 31, 1997, 1996 and 1995 and for the six month
periods ended June 30, 1998 and 1997 have been combined with OrCAD's
financial data for the same periods, including the effects of pro forma
adjustments described elsewhere in this Joint Proxy Statement/Prospectus.
(3) The equivalent pro forma combined earnings (loss) per OrCAD common share and
equivalent pro forma combined book value per OrCAD common share are
calculated by multiplying the respective pro forma combined per Summit
amounts by the Exchange Ratio of 1.05 shares of Summit Common Stock for each
share of OrCAD Common Stock.
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COMPARATIVE MARKET PRICE DATA
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing prices of Summit Common Stock and OrCAD Common
Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
SUMMIT ORCAD
COMMON STOCK(1) COMMON STOCK(2)
-------------------- ----------------------
HIGH LOW HIGH LOW
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1996 CALENDAR YEAR
First Quarter.................................................... $ -- $ -- $ 13.00 $ 10.75
Second Quarter................................................... -- -- 16.25 11.00
Third Quarter.................................................... -- -- 15.00 8.375
Fourth Quarter................................................... 12.75 8.25 11.50 8.375
1997 CALENDAR YEAR
First Quarter.................................................... 11.875 7.375 11.00 6.375
Second Quarter................................................... 9.375 5.25 11.375 6.125
Third Quarter.................................................... 18.125 7.625 14.75 10.25
Fourth Quarter................................................... 18.75 8.75 14.875 7.125
1998 CALENDAR YEAR
First Quarter.................................................... 16.625 9.438 9.938 8.00
Second Quarter................................................... 17.125 13.50 12.25 8.938
Third Quarter.................................................... 15.375 5.875 10.25 6.625
Fourth Quarter (through -)....................................... [ -] [ -] [ -] [ -]
</TABLE>
- ------------------------
(1) Summit Common Stock began trading on the Nasdaq National Market on October
18, 1996, the date of Summit's initial public offering.
(2) OrCAD's Common Stock began trading on the Nasdaq National Market on March 1,
1996, the date of OrCAD's initial public offering.
On September 18, 1998, the last full trading day prior to the public
announcement of the execution and delivery of the Reorganization Agreement, the
closing prices on Nasdaq were $7.00 per share of Summit Common Stock and $7.50
per share of OrCAD Common Stock. On - , 1998, the closing prices on Nasdaq
were $ - per share of Summit Common Stock and $ - per share of OrCAD Common
Stock.
Because the Exchange Ratio is fixed, changes in the market price of Summit
Common Stock will affect the dollar value of the Summit Common Stock to be
received by stockholders of OrCAD in the Merger. Summit stockholders and OrCAD
stockholders are urged to obtain current market quotations for Summit Common
Stock and OrCAD Common Stock prior to the Summit Special Meeting and OrCAD
Special Meeting, respectively.
DIVIDEND POLICY
Neither Summit nor OrCAD has paid cash dividends. The Combined Company
currently intends to retain earnings for development of its business and not to
distribute earnings to stockholders as dividends. The declaration and payment by
the Combined Company of any future dividends and the amount thereof will depend
upon the Combined Company's results of operations, financial condition, cash
requirements, future prospects, limitations imposed by credit agreements or
senior securities and other factors deemed relevant by the Combined Company's
Board of Directors.
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<PAGE>
SUMMIT SPECIAL MEETING
DATE, TIME AND PLACE OF SUMMIT SPECIAL MEETING
The Summit Special Meeting will be held at the Embassy Suites, 9000 S.W.
Washington Square Road, Tigard, Oregon 97223, on - , 1998 at - p.m. local
time.
PURPOSE
The purpose of the Summit Special Meeting is to consider and vote upon
proposals to approve (i) the issuance of shares of Summit Common Stock to the
stockholders of OrCAD pursuant to the Reorganization Agreement ("Proposal One")
and (ii) an amendment to the Certificate to increase the authorized shares of
Summit Common Stock by 15 million shares to 45 million shares, contingent upon
consummation of the Merger ("Proposal Two"). See "Additional Matters Being
Submitted to a Vote of Only Summit Stockholders--Proposal Two--Amendment to
Amended and Restated Certificate of Incorporation-- Increase to Authorized
Common Stock."
RECORD DATE AND OUTSTANDING SHARES
Only Summit stockholders of record on the Summit Record Date are entitled to
notice of and to vote at the Summit Special Meeting. As of the Summit Record
Date, there were approximately - holders of record of Summit Common Stock
holding an aggregate of approximately - shares of Summit Common Stock.
On or about - , 1998, a notice of the Summit Special Meeting which
complied with the requirements of Delaware law was mailed to all stockholders of
record as of the Summit Record Date.
VOTE REQUIRED
Under Delaware law, the charter documents of Summit and Nasdaq rules,
approval of the issuance of shares of Summit Common Stock pursuant to the
Reorganization Agreement requires the affirmative vote of a majority of the
total votes cast regarding such proposal and the amendment to the Certificate
requires the affirmative vote of the holders of a majority of the outstanding
shares of Summit Common Stock. Each stockholder of record of Summit Common Stock
on the Summit Record Date is entitled to cast one vote per share, exercisable in
person or by properly executed proxy, on each matter properly submitted for the
vote of the stockholders of Summit at the Summit Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Summit Common Stock entitled to vote at
the Summit Special Meeting shall constitute a quorum. Broker non-votes and
shares held by persons abstaining will be counted in determining whether a
quorum is present at the Summit Special Meeting. For Proposal One, abstentions
are counted as votes cast against the proposal whereas broker non-votes are not
counted as votes cast for purposes of determining whether the proposal has been
approved. For Proposal Two, the effect of an abstention or broker non-vote is
the same as a vote against such proposal.
As of the Summit Record Date, the Summit Affiliates owned approximately
- % of the outstanding shares of Summit Common Stock issued and outstanding
as of the Summit Record Date. Each of the Summit Affiliates has entered into a
Voting Agreement with OrCAD obligating them, to vote their shares of Summit
Common Stock in favor of the issuance of Summit Common Stock pursuant to the
Reorganization Agreement. See "Terms of the Merger--Conditions to the Merger"
and "--Voting Agreements."
PROXIES
Each of the persons named in the proxy is an officer of Summit. All shares
of Summit Common Stock that are entitled to vote and are represented at the
Summit Special Meeting either in person or by properly
33
<PAGE>
executed proxies received prior to or at the Summit Special Meeting and not duly
and timely revoked will be voted at the Summit Special Meeting in accordance
with the instructions indicated on such proxies. If no such instructions are
indicated, such proxies will be voted for the approval of the issuance of shares
of Summit Common Stock pursuant to the Reorganization Agreement and the
amendment to the Certificate.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Summit at or before the taking of the vote at the Summit
Special Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Summit before the taking of the vote at the
Summit Special Meeting; or (iii) attending the Summit Special Meeting and voting
in person (although attendance at the Summit Special Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Summit at 9305 S.W.
Gemini Drive, Beaverton, Oregon 97008, Attention: Secretary, or hand delivered
to the Secretary of Summit, in each case at or before the taking of the vote at
the Summit Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of proxies from Summit stockholders will be
borne by Summit. In addition, Summit may reimburse brokerage firms and other
persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain Summit directors, officers and regular employees personally
or by telephone, telegram, letter or facsimile. Such persons will not receive
additional compensation, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. In addition, Summit has
retained Skinner & Co. to assist in the solicitation of proxies from brokers,
nominees, institutions and individuals at an estimated fee of $4,000 plus
reimbursement of reasonable expenses. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Summit will reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith.
RECOMMENDATIONS OF SUMMIT BOARD OF DIRECTORS
The Summit Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and has determined that the Merger is in
the best interests of Summit and its stockholders. After careful consideration,
the Summit Board unanimously recommends a vote in favor of (i) the issuance of
shares of Summit Common Stock pursuant to the Reorganization Agreement and (ii)
an amendment to the Certificate to increase the number of authorized shares of
Summit Common Stock by 15 million shares to 45 million shares, contingent upon
consummation of the Merger.
34
<PAGE>
ORCAD SPECIAL MEETING
DATE, TIME AND PLACE OF ORCAD SPECIAL MEETING
The OrCAD Special Meeting will be held at The Crowne Plaza, 14811 Kruse Oaks
Blvd., Lake Oswego, Oregon 97035 on - , 1998 at - a.m. local time.
PURPOSE
The purpose of the OrCAD Special Meeting is to consider and vote upon a
proposal to approve and adopt the Reorganization Agreement and to approve the
Merger.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record of OrCAD Common Stock on the OrCAD Record Date
are entitled to notice of, and to vote at, the OrCAD Special Meeting. As of the
OrCAD Record Date, there were approximately - stockholders of record holding
an aggregate of approximately - shares of OrCAD Common Stock.
On or about - , 1998, a notice of the OrCAD Special Meeting which
complied with the requirements of Delaware law was mailed to all stockholders of
record as of the OrCAD Record Date.
VOTE REQUIRED
Under Delaware law and the Restated Certificate of Incorporation of OrCAD,
the affirmative vote of holders of shares representing not less than 67% of the
OrCAD Common Stock outstanding as of the OrCAD Record Date is required to
approve and adopt the Reorganization Agreement and to approve the Merger. Each
stockholder of record of OrCAD Common Stock on the OrCAD Record Date will be
entitled to cast one vote per share on each matter to be acted upon at the OrCAD
Special Meeting.
The presence, in person or by proxy, of at least a majority of the
outstanding shares of OrCAD Common Stock entitled to vote at the OrCAD Special
Meeting is necessary to constitute a quorum for the transaction of business at
the OrCAD Special Meeting. For purposes of obtaining the required vote of 67% of
the outstanding shares of OrCAD Common Stock for approval and adoption of the
Reorganization Agreement and approval of the Merger, the effect of an abstention
or a broker non-vote is the same as that of a vote against the proposal.
As of the OrCAD Record Date, the OrCAD Affiliates owned approximately - %
of the outstanding shares of OrCAD Common Stock. Each of the OrCAD Affiliates
has entered into a Voting Agreement with Summit obligating them to vote their
shares of OrCAD Common Stock in favor of approving and adopting the
Reorganization Agreement and of the Merger. See "Terms of the Merger--Conditions
to the Merger" and "--Voting Agreements."
PROXIES
Each of the persons named in the proxy is an officer of OrCAD. All shares of
OrCAD Common Stock that are entitled to vote and are represented at the OrCAD
Special Meeting either in person or by properly executed proxies received prior
to or at the OrCAD Special Meeting and not duly and timely revoked will be voted
at the OrCAD Special Meeting in accordance with the instructions indicated on
such proxies. If no such instructions are indicated, such proxies will be voted
to approve and adopt the Reorganization Agreement and to approve the Merger.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of OrCAD at or before the taking of the vote at the OrCAD
Special Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of
35
<PAGE>
OrCAD before the taking of the vote at the OrCAD Special Meeting; or (iii)
attending the OrCAD Special Meeting and voting in person (although attendance at
the OrCAD Special Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to OrCAD at 9300 S.W. Nimbus Avenue, Beaverton, Oregon 97008,
Attention: Secretary, or hand-delivered to the Secretary of OrCAD, in each case
at or before the taking of the vote at the OrCAD Special Meeting.
SOLICITATION OF PROXIES; EXPENSES
All costs of solicitation of proxies will be borne by OrCAD. Brokers,
custodians and fiduciaries will be requested to forward proxy soliciting
material to the owners of stock held in their names, and OrCAD will reimburse
them for their reasonable out-of-pocket costs. In addition, proxies may also be
solicited by certain directors, officers and employees of OrCAD personally or by
mail, telephone or telegraph following the original solicitation. Such persons
will not receive additional compensation for such solicitation. OrCAD has
retained Allen Nelson & Co., an independent proxy solicitation firm, to assist
in soliciting proxies at an estimated fee of $7,000 plus reimbursement of
reasonable expenses.
NO APPRAISAL RIGHTS
In connection with the Merger, OrCAD stockholders are not entitled to
appraisal rights under the DGCL. See "Approval of the Merger and Related
Transactions--No Appraisal Rights." Accordingly, stockholders who do not wish to
receive shares of Summit Common Stock in exchange for their shares of OrCAD
Common Stock must liquidate their investment by selling their OrCAD Common Stock
prior to the consummation of the Merger.
RECOMMENDATIONS OF ORCAD BOARD OF DIRECTORS
The OrCAD Board has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and has determined that the Merger is in
the best interests of OrCAD and its stockholders. After careful consideration,
the OrCAD Board unanimously recommends a vote in favor of approval and adoption
of the Reorganization Agreement and in favor of the approval of the Merger.
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<PAGE>
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
THE FOLLOWING DISCUSSION SUMMARIZES THE PROPOSED MERGER AND RELATED
TRANSACTIONS. THE FOLLOWING IS NOT, HOWEVER, A COMPLETE STATEMENT OF ALL
PROVISIONS OF THE REORGANIZATION AGREEMENT AND RELATED AGREEMENTS. DETAILED
TERMS OF AND CONDITIONS TO THE MERGER AND CERTAIN RELATED TRANSACTIONS ARE
CONTAINED IN THE REORGANIZATION AGREEMENT, A CONFORMED COPY OF WHICH IS ATTACHED
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX A. REFERENCE IS ALSO MADE TO
THE OTHER ANNEXES HERETO. STATEMENTS MADE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO THE TERMS OF THE MERGER AND SUCH RELATED
TRANSACTIONS ARE QUALIFIED IN THEIR RESPECTIVE ENTIRETIES BY REFERENCE TO THE
MORE DETAILED INFORMATION SET FORTH IN THE REORGANIZATION AGREEMENT AND THE
OTHER ANNEXES HERETO. OTHER THAN STATEMENTS OF HISTORICAL FACTS, STATEMENTS MADE
IN THIS SECTION INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO RESULT FROM
THE MERGER AND AS TO THE FUTURE FINANCIAL PERFORMANCE AND THE ANALYSES PERFORMED
BY THE FINANCIAL ADVISORS OF SUMMIT AND ORCAD ARE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH IN RISK FACTORS AND ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
JOINT REASONS FOR THE MERGER
The Boards of Directors of Summit and OrCAD believe that by combining the
highly complementary product offerings of the two companies, the Combined
Company would have the potential to realize long-term improved operating and
financial results and a stronger position in the industry. By offering customers
a full range of Windows and Windows NT (collectively, "Windows") -based EDA
products for comprehensive, cost effective development solutions, the Combined
Company may better serve customer requirements. Additionally, Summit and OrCAD
believe that the Merger will enhance the ability of the Combined Company to
compete effectively against their competitors. By creating efficiencies that
increase technological development, Summit and OrCAD believe that the Merger
will greatly enhance the ability of the Combined Company to be a financially
viable competitor in the highly dynamic market for EDA products.
Each of the Board of Directors of Summit and OrCAD has identified additional
potential mutual benefits of the Merger that they believe will contribute to the
success of the Combined Company. These potential benefits include principally
the following:
- Increased penetration of the served markets with a broader range of
solutions and more cost-effective distribution;
- Greater customer satisfaction as a result of offering a broader range of
solutions with a single source of support and maintenance;
- Greater ability to compete with the major EDA players whose development
and acquisition strategies are moving them from point tool suppliers to
complete solutions providers for the EDA markets; and
- Greater investor satisfaction with an equity investment that provides for
greater liquidity.
Summit and OrCAD have each identified reasons for the Merger, which are
discussed below. Each Board of Directors has also recognized, however, that the
potential benefits of the Merger may not be realized. See "Risk Factors."
SUMMIT'S REASONS FOR THE MERGER
At its September 19, 1998 meeting, the Summit Board unanimously approved the
Reorganization Agreement and the transactions contemplated thereby. Summit's
Board unanimously recommends that the Summit stockholders vote for the issuance
of shares of Summit Common Stock pursuant to the Reorganization Agreement and
the amendment to the Certificate. In addition to the anticipated joint benefits
37
<PAGE>
described above, the Summit Board believes that the following are additional
reasons the Merger will be beneficial to Summit:
- Increased Windows-based EDA product offerings to satisfy a broader range
of developmental needs for electronic designers;
- Increased sales efficiency for maximum penetration of the focused markets
and increased customer satisfaction from greater accessibility to sales
personnel;
- Increased company visibility; and
- The opportunity for Summit stockholders to participate in the potential
for growth of the Combined Company after the Merger.
The Summit Board considered a number of factors relating to the Merger,
including, but not limited to the following: (i) the strategic benefits of the
Merger; (ii) historical information concerning Summit's and OrCAD's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and fiscal
quarter for each company filed with the SEC; (iii) Summit management's view of
the financial condition, results of operations and businesses of Summit and
OrCAD before and after giving effect to the Merger; (iv) current financial
market conditions and historical market prices, volatility and trading
information with respect to Summit Common Stock and OrCAD Common Stock; (v) the
consideration to be received by OrCAD stockholders in the Merger and the
relationship between the market value of the Summit Common Stock to be issued in
exchange for each share of OrCAD Common Stock and a comparison of comparable
merger transactions; (vi) the belief that the terms of the Reorganization
Agreement, including the parties' representations, warranties and covenants, and
the conditions to their respective obligations, are reasonable; (vii) Summit
management's view of Summit's prospects as an independent company; (viii) the
potential for other third parties to enter into strategic relationships with or
to acquire Summit or OrCAD; (ix) the financial analysis and pro forma and other
information with respect to the Merger presented by Black & Company to the
Summit Board and Black & Company's opinion dated September 19, 1998, that, as of
such date, the equity consideration to be paid by Summit pursuant to the
Reorganization Agreement was fair to the holders of Summit Common Stock from a
financial point of view; (x) the expected impact of the Merger on Summit's
customers and employees; (xi) reports from Summit management, legal and
financial advisors as to the results of the due diligence investigation of
OrCAD; and (xii) the expectation that the Merger will be accounted for as a
pooling-of-interests.
The Summit Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to: (i) the risk that the potential benefits sought in the Merger might
not be fully realized; (ii) the possibility that the Merger might not be
consummated and the effect of public announcement of the Merger on (a) Summit's
sales and operating results, (b) Summit's and the Combined Company's ability to
attract and retain key management, marketing and technical personnel and (c)
progress of certain development projects; (iii) the potential dilutive effect of
the issuance of Summit Common Stock in the Merger; and (iv) the substantial
charges to be incurred, primarily in the quarter ending December 31, 1998, in
connection with the Merger, including costs of integrating businesses and
transaction expenses arising from the Merger. The Summit Board believed that
these risks were outweighed by the potential benefits of the Merger.
ORCAD'S REASONS FOR THE MERGER
At its September 20, 1998 meeting, the OrCAD Board unanimously approved the
Reorganization Agreement and the transactions contemplated thereby. The OrCAD
Board unanimously recommends that the OrCAD stockholders vote to approve and
adopt the Reorganization Agreement and the Merger.
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In addition to the joint benefits described above, the OrCAD Board believes
that the following are additional reasons the Merger will be beneficial to
OrCAD:
- The Merger will enable OrCAD to offer its customers a broader range of
solutions;
- The Merger will enable OrCAD to use Summit's existing field sales force to
achieve greater and more effective penetration of the Windows-based EDA
market at the enterprise level, thereby accelerating OrCAD's ability to
reach major accounts with its products, such as its Component Information
Systems ("CIS") products, that bring enterprise-level value; and
- The Merger will create a larger company, with greater financial resources
and the opportunity to create stronger brand recognition.
The OrCAD Board considered a number of factors relating to the Merger,
including, but not limited to the following: (i) the strategic benefits of the
Merger; (ii) historical information concerning Summit's and OrCAD's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and fiscal
quarter for each company filed with the SEC; (iii) OrCAD management's view of
the financial condition, results of operations and businesses of Summit and
OrCAD before and after giving effect to the Merger; (iv) current financial
market conditions and historical market prices, volatility and trading
information with respect to Summit Common Stock and OrCAD Common Stock; (v) the
consideration to be received by OrCAD stockholders in the Merger and the
relationship between the market value of the Summit Common Stock to be issued in
exchange for each share of OrCAD Common Stock and a comparison of comparable
merger transactions; (vi) the belief that the terms of the Reorganization
Agreement, including the parties' representations, warranties and covenants, and
the conditions to their respective obligations, are reasonable; (vii) OrCAD
management's view of OrCAD's prospects as an independent company; (viii) the
potential for other third parties to enter into strategic relationships with or
to acquire Summit or OrCAD; (ix) the financial analysis and performance and
other information with respect to the Merger presented by Alliant to the OrCAD
Board and the Alliant opinion dated September 18, 1998, that, as of such date,
the Exchange Ratio was fair from a financial point of view to OrCAD's
stockholders; (x) the expected impact of the Merger on OrCAD's customers and
employees; (xi) reports from OrCAD management, legal and financial advisors as
to the results of the due diligence investigation of Summit; and (xii) the
expectation that the Merger will be accounted for as a pooling-of-interests.
The OrCAD Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to: (i) the risk that the potential benefits sought in the Merger might
not be fully realized; (ii) the possibility that the Merger might not be
consummated and the effect of public announcement of the Merger on (a) OrCAD's
sales and operating results, (b) OrCAD's and the Combined Company's ability to
attract and retain key management, marketing and technical personnel and (c)
progress of certain development projects and the substantial charges to be
incurred, primarily in the quarter ending December 31, 1998, in connection with
the Merger, including costs of integrating businesses and transaction expenses
arising from the Merger. The OrCAD Board believed that these risks were
outweighed by the potential benefits of the Merger.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
On February 4, 1998, Larry J. Gerhard, Summit's Chairman of the Board,
President and Chief Exeuctive Officer, and C. Albert Koob, Summit's Vice
President of Finance and Chief Financial Officer, met with Black & Company to
discuss potential acquisition candidates.
On February 17, 1998, Mr. Gerhard presented to the Summit Board at a
regularly scheduled meeting a list of several acquisition candidates, including
OrCAD.
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On June 1, 1998, Summit engaged Black & Company to provide financial
advisory services in connection with potential mergers and acquisitions.
On June 15, 1998, Mr. Gerhard and Michael F. Bosworth, Chairman of the
Board, President and Chief Executive Officer of OrCAD, were introduced at the
Design Automation Conference and briefly discussed the strategic direction of
their companies and the possibility of future joint marketing efforts or other
joint business strategies.
On July 17, 1998, Mr. Koob and Mr. Gerhard further discussed potential
merger candidates with Black & Company and requested that Black & Company
arrange a meeting between Summit and OrCAD.
On July 25, 1998, Black & Company met with Mr. Bosworth, to discuss the
possibility of a merger between OrCAD and Summit and scheduled a meeting between
the officers of Summit and OrCAD on August 10, 1998.
On August 10, 1998, Mr. Gerhard, Mr. Koob, Mr. Bosworth and Black & Company
met to discuss the possibility of a merger between the two companies. At the
conclusion of the meeting, the parties agreed to pursue further discussions.
On August 13, 1998, OrCAD engaged Alliant to provide financial advisory and
investment banking services in connection with a possible strategic transaction.
On August 14, 1998, the Summit Board held a special telephonic meeting
during which Mr. Gerhard advised the board regarding the status of the
discussions with OrCAD and a proposed meeting with OrCAD on August 15, 1998.
On August 15, 1998, Mr. Gerhard, Mr. Koob, Mr. Bosworth, John Savage, a
director of OrCAD and Managing Director of Alliant, OrCAD's financial advisor,
and Black & Company met and discussed the possibility of a merger and agreed to
proceed with discussions and conduct valuations.
On August 18, 1998, during the regularly scheduled OrCAD Board meeting, the
board discussed the possibility of a merger with Summit and considered the
strategic advantages of and the necessary due diligence preceding such a merger.
On August 22, 1998, Mr. Gerhard, Mr. Bosworth, Mr. Savage and Black &
Company met and discussed valuation and agreed to pursue further discussions and
to begin drafting a definitive agreement.
On August 28, 1998, Summit and OrCAD entered into a non-disclosure
agreement.
On August 31, 1998 and September 1, 1998, the officers of Summit, the
officers of OrCAD and the two companies' respective legal counsels, Wilson
Sonsini Goodrich & Rosati, P.C. and Ater Wynne LLP, met to review and negotiate
the Reorganization Agreement. The two companies also exchanged due diligence
materials.
On September 2, 1998, PricewaterhouseCoopers LLP, independent accountants of
Summit, and KPMG Peat Marwick LLP, independent public accountants of OrCAD,
commenced a review of audit workpapers and tax returns.
On September 3, 1998, the OrCAD Board held a special meeting during which
the OrCAD Board discussed the potential terms and possible valuation of a merger
with Summit. In addition, the OrCAD Board reviewed the due diligence conducted
to date.
On September 5, 1998, the Summit Board held a special telephonic meeting to
discuss the Merger and agreed to meet on September 8, 1998 and September 9, 1998
to review the proposed business combination in detail.
On September 8, 1998 and September 9, 1998, the Summit Board held a special
meeting to discuss the proposed business combination, review the Reorganization
Agreement and review a draft of Black &
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Company's fairness opinion. The Summit Board instructed the officers of Summit
to proceed with finalizing the Reorganization Agreement and valuation of OrCAD
and the Combined Company.
On September 18, 1998, the OrCAD Board held a special meeting to review the
results of legal and financial due diligence and to discuss the financial terms
of the merger with Summit.
On September 19, 1998, the Summit Board held a special meeting. Black &
Company reviewed in detail its financial analysis of the proposed Merger and the
Summit Board received a written opinion from Black & Company that the equity
consideration to be paid by Summit pursuant to the Reorganization Agreement was
fair to the holders of Summit Common Stock from a financial point of view.
Management reported on the terms of the proposed Merger and Summit's legal
advisors reviewed terms of the Reorganization Agreement. The Board fully
discussed the terms of the Reorganization Agreement and then unanimously
approved the Reorganization Agreement and the Merger.
On September 20, 1998, the OrCAD Board held a special meeting during which
Alliant reviewed in detail its financial analysis of the proposed Merger and the
OrCAD Board received a written opinion from Alliant that the Exchange Ratio was
fair from a financial point of view to the holders of OrCAD Common Stock. The
OrCAD Board confirmed satisfactory completion of due diligence and approved the
Reorganization Agreement and the Merger.
On September 20, 1998, Summit and OrCAD executed the Reorganization
Agreement and issued a joint press release announcing the proposed Merger.
OPINION OF SUMMIT'S FINANCIAL ADVISOR
Summit retained Black & Company to act as financial advisor to Summit in
connection with the evaluation of certain elements of Summit's acquisition
strategy. Pursuant to this engagement, Black & Company was asked to render an
opinion to the Summit Board as to whether the equity consideration to be paid
for OrCAD pursuant to the Reorganization Agreement was fair to the stockholders
of Summit from a financial point of view. Black & Company was not requested to,
and did not, make any recommendation to the Summit Board as to the number of
shares of Summit to be issued to and received by OrCAD stockholders pursuant to
the Reorganization Agreement, which number was determined through arm's-length
negotiations between Summit and OrCAD.
As of September 19, 1998, Black & Company delivered its written opinion to
the Summit Board that, as of such date and based upon and subject to certain
assumptions and other matters described in its written opinion, the equity
consideration to be paid by Summit pursuant to the Reorganization Agreement is
fair to the stockholders of Summit from a financial point of view. Black &
Company's opinion is addressed to the Board of Directors of Summit, is directed
only to the financial terms of the Reorganization Agreement and does not address
the underlying business decision of Summit and OrCAD to engage in the Merger and
does not constitute a recommendation to any stockholder of Summit as to how such
stockholder should vote at the Summit Special Meeting.
The complete text of the September 19, 1998 opinion (the "Black & Company
Opinion"), which sets forth the assumptions made, matters considered, and
limitations on and scope of the review undertaken by Black & Company, is
attached to this Joint Proxy Statement/Prospectus as Annex B, and the summary of
the Black & Company Opinion set forth in this Joint Proxy Statement/Prospectus
is qualified in its entirety by reference to the Black & Company Opinion. Summit
stockholders are urged to read the Black & Company Opinion carefully and in its
entirety for a description of the procedures followed, the factors considered,
and the assumptions made by Black & Company
In arriving at its opinion, Black & Company, among other things, (i)
reviewed the Reorganization Agreement; (ii) reviewed certain other documents
relating to the Reorganization Agreement; (iii) reviewed certain publicly
available information concerning Summit and OrCAD; (iv) held discussions with
members of senior management of Summit and OrCAD concerning the business
prospects of
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Summit, including such managements' views as to the organization of and
strategies with respect to the Merger; (v) reviewed certain operating and
financial information prepared by the managements of Summit and OrCAD; (vi)
reviewed the recent reported prices and trading activity for the common stock of
certain other companies engaged in businesses Black & Company considered
comparable to those of Summit and compared certain publicly available financial
data for those comparable companies to similar data for Summit; (vii) reviewed
the financial terms of certain other merger and acquisition transactions that
Black & Company deemed generally relevant; and (viii) performed and considered
such other studies, analyses, inquiries and investigations as Black & Company
deemed appropriate. Black & Company was not, to the best of its knowledge,
denied access by Summit or OrCAD to any requested information and no
restrictions were placed on Black & Company with respect to the procedures
followed by Black & Company in rendering its opinion.
Black & Company assumed and relied upon, without independent verification,
the accuracy and completeness of the information it reviewed for the purposes of
its opinion. With respect to the financial information of Summit and OrCAD,
Black & Company assumed that such information was complete and accurate in all
material respects and had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of management of such companies, at
the time of preparation, of the operating and financial performance of Summit
and OrCAD. Black & Company also assumed that there were no material changes in
Summit's or OrCAD's assets, financial condition, results of operations, business
or prospects since the date of their last financial statements made available to
Black & Company and that all material liabilities (contingent or other, known or
unknown) of Summit and OrCAD are as set forth in the financial statements. Black
& Company did not prepare or obtain any independent evaluation or appraisal of
the assets or liabilities of Summit or OrCAD, nor did Black & Company conduct a
physical inspection of the properties and facilities of Summit or OrCAD in
connection with its opinion. The Black & Company Opinion states that it was
based on economic, financial and other conditions existing as of the date of
such opinion. Black & Company does not have any obligation to update, revise or
reaffirm its opinion. Furthermore, Black & Company expressed no opinion as to
what the value of Summit Common Stock will be when issued pursuant to the
Reorganization Agreement or the prices at which Summit Common Stock will trade
at any time.
Based upon this information, Black & Company performed a variety of
financial analyses of the Merger. The following paragraphs briefly summarize the
principal financial analyses performed by Black & Company in arriving at its
opinion delivered to the Summit Board. Such analyses are based on a number of
assumptions, including among other things, the projected performance of Summit
and OrCAD and the comparable public companies.
CONTRIBUTION ANALYSIS. Black & Company reviewed the pro forma contribution
of Summit and OrCAD to estimated combined financial results for the twelve (12)
months ending December 31, 1998 and December 31, 1999. Black & Company reviewed,
among other things, pro forma contributions to total revenues, gross profit,
earnings before interest expense and taxes ("EBIT") and net income. Based on
this analysis, for the twelve (12) months ending December 31, 1998, Summit will
contribute 47.3% of pro forma combined total revenues, 49.2% of pro forma
combined gross profit, 63.6% of pro forma combined EBIT, and 63.1% of pro forma
combined net income. For the twelve (12) months ended December 31, 1999, Summit
will contribute 49.2% of pro forma combined total revenues, 51.4% of pro forma
combined gross profit, 61.2% of combined EBIT and 60.9% of pro forma combined
net income.
COMPARABLE COMPANY ANALYSIS. Black & Company compared selected historical
and projected operating and stock market data and operating and financial ratios
for Summit to the corresponding data and ratios of certain publicly traded EDA
companies which it deemed generally comparable to Summit. Such data and ratios
included market value to historical and projected revenue, market value to
historical and projected EBIT, market value to historical and projected net
income and market value to historical book value. Companies deemed to be
generally comparable to Summit included Analogy, Inc.; Avant! Corporation;
Cadence Design Systems, Inc.; IKOS Systems, Inc.; OrCAD, Inc.; and Synopsys,
Inc.
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For the comparable companies, the multiples of market value to last twelve
months ("LTM") sales ranged from 0.27 to 5.15 with a mean of 3.21; market value
to last fiscal year ("LFY") sales ranged from 0.24 to 6.08 with a mean of 4.01;
market value to LFY EBIT ranged from 1.17 to 24.06 with a mean of 17.52; market
value to LFY net income ranged from 1.89 to 27.24 with a mean of 21.28; and
market value to book value ranged from 0.33 to 7.05 with a mean of 3.83. These
ratios compared with the following ratios for Summit, calculated on the $7.25
per share closing price of Summit Common Stock on September 17, 1998: market
value to LTM sales of 3.04, market value to LFY sales of 3.78, market value to
LFY EBIT of 14.53, market value to LFY net income of 18.08, and market value to
book value of 4.70. For the comparable companies, the multiples for market value
to 1998 sales ranged from 0.26 to 4.56 with a mean of 2.77; market value to 1998
EBIT ranged from 3.90 to 14.66 with a mean of 10.38; and market value to 1998
net income ranged from 8.09 to 19.76 with a mean of 13.77. These ratios compared
with the following ratios for Summit: market value to 1998 sales of 2.62, market
value to 1998 EBIT of 8.32, and market value to 1998 net income of 10.85. For
the comparable companies, the multiples for market value to 1999 sales ranged
from 0.21 to 3.69 with a mean of 2.26; market value to 1999 EBIT ranged from
1.50 to 11.83 with a mean of 7.89; and market value to 1999 net income ranged
from 2.74 to 15.72 with a mean of 10.52. These ratios compared with the
following ratios for Summit: market value to 1999 sales of 2.04, market value to
1999 EBIT of 6.47, and market value to 1999 net income of 8.45.
COMPARABLE TRANSACTION ANALYSIS. Black & Company also analyzed publicly
available financial information for twenty-nine (29) selected mergers and
acquisitions with aggregate transaction values up to $587 million (the
"Comparable Size Transactions") of companies in the technical software and EDA
industries from January 1995 through August 1998. For transactions in the
technical software industry, the mean values of market capitalization to sales
and earnings were 3.77 and 60.0, respectively. For the five transactions
evaluated in the EDA industry, mean values of market capitalization to LFY
sales, LFY earnings and book value were 6.1, 51.6 and 6.3, respectively.
No company or transaction used in any comparable transaction analysis as a
comparison is identical to Summit or OrCAD. Accordingly, these analyses are not
simply mathematical; rather, they involve complex considerations and judgments
concerning differences in the financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies and the transactions to which they are being
compared.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Black & Company believes that its analyses
must be considered as a whole and that considering any portions of such analyses
and of the factors considered, without considering all analyses and factors,
could create a misleading or incomplete view of the evaluation process
underlying its opinion. In performing its analyses, Black & Company made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Summit or OrCAD. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. Additionally
analyses relating to the values of business or assets do not purport to be
appraisals or necessarily reflect the prices at which businesses or assets may
actually be sold.
Black & Company is a regional investment banking firm based in Portland,
Oregon. As part of its investment banking services, Black & Company is regularly
engaged in the business of advising the management and boards of directors of
corporations regarding the issuance of securities, providing advisory services
for mergers and acquisitions, issuing fairness opinions and providing market
valuations. In addition, as part of its securities business, Black & Company
makes a market in the common stock of both Summit and OrCAD. Summit has agreed
to pay Black & Company for its services in connection with the transaction,
including the delivery of its fairness opinion, a fee of $600,000, contingent
upon closing of the transaction. Summit has also agreed to reimburse Black &
Company for reasonable out-of-pocket
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expenses and to indemnify Black & Company against certain liabilities relating
to or arising out of services performed by Black & Company as financial advisor
to Summit.
OPINION OF ORCAD'S FINANCIAL ADVISOR
On August 13, 1998, OrCAD retained Alliant to provide financial advisory and
investment banking services in connection with a possible strategic transaction,
and to render an opinion as to the fairness of any such transaction, from a
financial point of view, to the holders of OrCAD Common Stock.
On September 20, 1998, the OrCAD Board met and approved the Merger. At this
meeting, Alliant delivered to the OrCAD Board its opinion by teleconference,
(the "Alliant Opinion"), that as of September 18, 1998 and based on the matters
described therein, the consideration to be paid to the holders of shares of
OrCAD Common Stock was fair, from a financial point of view, to OrCAD and the
holders of shares of OrCAD Common Stock. Alliant noted that its presentation on
the financial terms of the Merger was based on the closing stock price of Summit
Common Stock on September 18, 1998. No limitations were imposed by OrCAD on the
scope of Alliant's investigations or the procedures to be followed by Alliant in
rendering the Alliant Opinion. The Exchange Ratio was determined through
negotiations between the management of OrCAD and Summit. In furnishing the
Alliant Opinion, Alliant was not engaged as an agent or fiduciary of OrCAD'S
stockholders or any other third party.
The full text of the Alliant Opinion, which sets forth, among other things,
assumptions made, matters considered and limitations on the review undertaken,
is attached hereto as Appendix C and is incorporated herein by reference.
Stockholders of OrCAD are urged to read the Alliant Opinion in its entirety. The
Alliant Opinion was prepared for the benefit and use of the OrCAD Board in its
consideration of the Merger and does not constitute a recommendation to
stockholders of OrCAD as to how they should vote at the OrCAD Special Meeting in
connection with the Merger. The Alliant Opinion does not address the relative
merits of the Merger and any other transactions or business strategies discussed
by the OrCAD Board as alternatives to the Merger or, except with respect to the
fairness of the consideration to be paid to the holders of OrCAD Common Stock,
from a financial point of view, to OrCAD and the holders of OrCAD Common Stock,
the underlying business decision of the OrCAD Board to proceed with or effect
the Merger. The summary of the Alliant Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the Alliant Opinion.
In connection with the preparation of the Alliant Opinion, Alliant, among
other things: reviewed the terms of the Reorganization Agreement and the
associated exhibits thereto in the form of the draft dated September 18, 1998,
which contained no material differences from the Reorganization Agreement;
reviewed the Report on Form 10-KSB for OrCAD for the years ended December 31,
1997, and December 31, 1996; reviewed the Report on Form 10-Q for OrCAD for the
periods ended March 31, 1998, and June 30, 1998; reviewed the earnings release
issued by OrCAD for the year ended December 31, 1997; reviewed the historical
prices and trading activity for OrCAD Common Stock; reviewed recent analysts
earnings estimates for OrCAD; visited the headquarters of OrCAD and conducted
discussions with members of senior management of OrCAD, including the Chief
Executive Officer and Chief Financial Officer; reviewed the financial terms, to
the extent publicly available, of certain comparable merger and acquisition
transactions which Alliant deemed relevant; compared certain financial data of
OrCAD with certain financial and securities data of companies deemed similar to
OrCAD or representative of the business sector in which it operates; reviewed
the Reports on Form 10-K for Summit for the years ended December 31, 1996 and
December 31, 1997; reviewed the Reports on Form 10-Q for Summit for the periods
ended June 30, 1998, and March 31, 1998; reviewed the earnings release issued by
Summit for the year ended December 31, 1997; reviewed the historical prices and
trading activity for Summit Common Stock; reviewed recent equity analysts'
reports covering Summit; conducted discussions with members of senior management
of Summit, including the Chief Executive Officer and Chief Financial Officer;
analyzed the anticipated effect of the Merger on the future financial
performance of the consolidated entity; conducted other financial studies,
analyses and investigation as Alliant deemed appropriate for purposes of its
opinion.
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In conducting its review and arriving at the Alliant Opinion, Alliant relied
upon and assumed the accuracy and completeness of the financial statements and
other information provided by OrCAD and Summit or otherwise made available to
Alliant and did not assume responsibility independently to verify such
information. Alliant further relied upon the assurances of OrCAD's and Summit's
management that the information provided was prepared on a reasonable basis in
accordance with industry practice and with respect to financial planning data,
reflected the best currently available estimates and good faith judgments of
OrCAD's and Summit's management as to the expected future financial performance
of OrCAD and Summit and that such parties were not aware of any information or
facts that would make the information provided to Alliant incomplete or
misleading. Without limiting the generality of the foregoing, for the purpose of
the Alliant Opinion, Alliant assumed that neither OrCAD nor Summit was a party
to any pending transaction, including external financing, recapitalizations,
acquisitions or merger discussions, other than the Merger or in the ordinary
course of business. Alliant also assumed that the Merger would be free of
Federal tax to OrCAD, Summit, and the holders of OrCAD Common Stock and that the
Merger would be accounted for as a pooling of interests under generally accepted
accounting principles.
In arriving at the Alliant Opinion, Alliant did not perform any appraisals
or valuations of specific assets or liabilities of OrCAD or Summit and was not
furnished with any such appraisals or valuations.
Without limiting the generality of the foregoing, Alliant did not undertake
any independent analysis of any pending or threatened litigation, possible
unasserted claims or other contingent liabilities, to which OrCAD, Summit or any
of their respective affiliates was a party or may be subject and, at OrCAD'S
direction and with its consent, the Alliant Opinion made no assumption
concerning and therefore did not consider, the possible assertion of claims,
outcomes or damages arising out of any such matters. Although developments
following the date of the Alliant Opinion may affect the Alliant Opinion,
Alliant assumed no obligation to update, revise or reaffirm the Alliant Opinion.
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Alliant in conjunction with rendering
its opinion to the OrCAD Board:
COMPARABLE COMPANY ANALYSIS. Alliant compared certain financial information
and valuation ratios relating to OrCAD to corresponding publicly-available data
and ratios from a group of selected publicly traded companies including each
company's: Market Capitalization adjusted for certain balance sheet items
(Adjusted Market Capitalization); Trailing Twelve Month (TTM) Revenue; TTM
Revenue Growth; TTM Operating Margin; TTM Net Margin; TTM Return on Assets; TTM
Return on Equity; Fiscal Year 1998 EPS Growth Rate, and the Projected 1999 EPS
Growth Rate. The comparable companies selected included thirteen publicly traded
companies in the business of electronic design automation or computer aided
design including: Avant! Corporation; Cadence Design Systems; IKOS Systems,
Inc.; Mentor Graphics; OrCAD; Summit; Synopsys; Ansys Incorporated; Autodesk
Inc.; Integraph Corporation; MacNeal-Schwendler Corp.; Mechanical Dynamics,
Inc.; and Structural Dynamics Research Corp.
The comparable companies have an Adjusted Market Capitalization/TTM Revenue
ratio range of .50x to 4.42x with a narrow average (narrow average excludes the
highest and lowest estimates) of 1.32x; Adjusted Market Capitalization/TTM
Earnings ratio range of 6.31x to 27.54x with a narrow average of 10.36x. After
making certain adjustments for differences in performance and size, this
analysis yielded an implied OrCAD equity value of $75.28 million.
Except for OrCAD and Summit, no company utilized as a comparison in the
Comparable Company Analysis is identical to OrCAD or Summit. In evaluating the
comparable companies, Alliant made judgements and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of OrCAD or
Summit.
COMPARABLE TRANSACTION ANALYSIS. Valuation statistics from comparable
transactions indicate the Price/Revenue multiples and equity Price/Earnings
multiples acquirors have paid for comparable companies in a particular market
segment. Alliant reviewed eight comparable merger and acquisition transactions
from May 1997 through the present, which involve sellers sharing many
characteristics with OrCAD,
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including revenue size, products offered and business model. The comparable
transactions used were the acquisition of: Lightspeed by IKOS Systems, Eagle
Design Automation by Viewlogic, Adra Systems by SofTech, MicroSim by OrCAD,
SimTech by Summit, Compass Design Automation by Avant!, Symbionics by Cadence,
and Deneb by Dassault Systemes. The Price/Revenue multiples of the eight
transactions range from .69x to 4.52x with a narrow average of 2.26x. The
Price/Earnings multiples range from 6.55x to 40.33x, with a narrow average of
8.6x. After making certain adjustments for the recent market decline, this
analysis yielded an implied OrCAD equity value of $54.05 million.
Estimated multiples paid in the comparable transactions were based on
information obtained from public filings, public company disclosures, press
releases, industry and popular press reports, databases and other sources.
Except for OrCAD, no company, transaction or business used in the Comparable
Company Analysis or Comparable Transaction Analysis as a comparison is identical
to OrCAD or the Merger. Accordingly, an analysis of the results of the foregoing
is not entirely mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the acquisition, public trading and other values
of the comparable companies, comparable transactions or the business segment,
company or transactions to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Alliant estimated the present value of the
projected future cash flows of OrCAD on a stand-alone basis using analyst
estimates and certain assumptions made by Alliant for the years ending December
31, 1998, 1999 and 2000. Alliant applied terminals value multiples of forecasted
2000 revenue and earnings of 1.32x and 10.36x respectively. In all cases,
Alliant used a discount rate of 25%. This analysis yielded an estimated present
value of OrCAD's equity value of $68.97 million.
STOCK PERFORMANCE ANALYSIS. For comparative purposes, Alliant examined the
weekly historical volume and trading prices for both OrCAD and Summit from
September 18, 1996 to September 17, 1998.
PRO FORMA POOLING MODEL ANALYSIS. A pro forma merger analysis calculates
the EPS accretion/ (dilution) of the pro forma combined entity taking into
consideration various financial effects which will result from consummation of
the Merger. This analysis relies upon certain financial and operating
assumptions provided by equity research analysis and publicly available data
about OrCAD and Summit. Based on analyst's forecasts for OrCAD and Summit, the
pro forma pooling analysis indicates EPS accretion for the combined company.
While the foregoing summary describes certain analyses and factors that
Alliant deemed material in its presentation to the OrCAD Board, it is not a
comprehensive description of all analyses and factors considered by Alliant. The
preparation of a fairness opinion is a complex process that involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Alliant believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, would create an incomplete view of
the evaluation process underlying the Alliant Opinion. Several analytical
methodologies were employed and no one method of analysis should be regarded as
critical to the overall conclusion reached by Alliant. Each analytical technique
has inherent strengths and weaknesses, and the nature of the available
information may further affect the value of particular techniques. The
conclusions reached by Alliant are based on all analyses and factors taken as a
whole and also on application of Alliant's own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. Alliant therefore gives no opinion as to the value or
merit standing alone of any one or more parts of the analysis it performed. In
performing its analyses, Alliant considered general economic, market and
financial conditions and other matters, many of which are beyond the control of
OrCAD and Summit. The analyses performed by Alliant are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, analyses
relating to the value of a business do not purport to be
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appraisals or to reflect the prices at which the business actually may be
purchased. Furthermore, no opinion is being expressed as to the prices at which
shares of Summit Common Stock may trade at any future time.
Pursuant to an engagement letter dated August 13, 1998, Alliant was entitled
to receive a fee of $100,000 upon delivery of its fairness opinion to the OrCAD
Board. In addition, if the Merger closes, Alliant will be entitled to receive
upon such closing an additional fee of 0.65% of the total consideration received
by OrCAD's stockholders. Such fee would be approximately $477,278, calculated
based on the September 29, 1998 closing price of $7.375 per share of Summit
Common Stock. OrCAD has also agreed to reimburse Alliant for its out-of-pocket
expenses (including reasonable legal and other expenses) and to indemnify
Alliant and any shareholders, directors, employees or contractors of Alliant
against any claim, liabilities or expenses relating to or arising out of
services provided by Alliant as financial advisor to OrCAD. The terms of the fee
arrangement with Alliant, which OrCAD and Alliant believe are customary in
transactions of this nature, were negotiated at arm's length between OrCAD and
Alliant, and the OrCAD Board was aware of such fee arrangements.
Alliant was retained based on Alliant's experience as a financial advisor in
connection with mergers and acquisitions and in securities valuations generally,
as well as Alliant's investment banking relationship and familiarity with OrCAD.
Alliant has previously provided financial advisory and investment banking
services to OrCAD.
As part of its investment banking business, Alliant is frequently engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, sales and divestitures, joint ventures and strategic partnerships,
private financings and other purposes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of OrCAD
Common Stock. This discussion does not deal with all income tax considerations
that may be relevant to particular OrCAD stockholders in light of their
particular circumstances, such as stockholders who are dealers in securities,
banks, insurance companies, tax-exempt organizations, foreign persons, certain
stockholders subject to the alternative minimum tax provisions of the Code,
stockholders who acquired their shares in connection with previous mergers
involving OrCAD or an affiliate, stockholders who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions or stockholders who hold their shares as a hedge or as part of
hedging, straddle, conversion or other risk reduction transactions. In addition,
the following discussion does not address the tax consequences of transactions
effectuated prior to or after the Merger (whether or not such transactions are
in connection with the Merger), including without limitation transactions in
which shares of OrCAD Common Stock were or are acquired or shares of Summit
Common Stock were or are disposed of. Furthermore, no foreign, state or local
tax considerations are addressed herein. ACCORDINGLY, ORCAD STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
The following discussion is based upon the interpretation of the Code,
applicable Treasury Regulations, judicial authority and administrative rulings
and practice, all as the date hereof. The Internal Revenue Service (the "IRS")
is not precluded from adopting a contrary position. In addition, there can be no
assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
Summit, Merger Sub, OrCAD and/or OrCAD stockholders.
The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, with each of Summit, Merger Sub and OrCAD
intended to qualify as a "party to the reorganization"
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under Section 368(b) of the Code, in which case the following tax consequences
will result (subject to the limitations and qualifications referred to herein):
(a) No gain or loss will be recognized by holders of OrCAD Common Stock
solely upon their receipt of Summit Common Stock in the Merger in exchange
therefor;
(b) The aggregate tax basis of the Summit Common Stock received in the
Merger by an OrCAD stockholder will be the same as the aggregate tax basis
of OrCAD Common Stock surrendered in exchange therefor;
(c) The holding period of the Summit Common Stock received in the Merger
by a OrCAD stockholder will include the period during which the stockholder
held the OrCAD Common Stock surrendered in exchange therefor, provided that
the OrCAD Common Stock is held as a capital asset at the time of the Merger;
(d) Cash payments received by holders of OrCAD Common Stock in lieu of a
fractional share will be treated as if a fractional share of Summit Common
Stock has been issued in the Merger and then redeemed by Summit. An OrCAD
stockholder receiving such cash will generally recognize gain or loss upon
such payment, equal to the difference (if any) between such stockholder's
basis in the fractional share and the amount of cash received; and
(e) None of Summit, Merger Sub or OrCAD will recognize gain or loss
solely as a result of the Merger.
The parties are not requesting a ruling from the IRS in connection with the
Merger. As a condition to the consummation of the Merger, Summit and OrCAD will
each have received an opinion from their respective legal counsel, Wilson
Sonsini Goodrich & Rosati, Professional Corporation, and Ater Wynne LLP,
respectively, to the effect that, for federal income tax purposes, the Merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the
Code. These opinions, which are collectively referred to herein as the "Tax
Opinions," neither bind the IRS nor preclude the IRS from adopting a contrary
position. In addition, the Tax Opinions are subject to certain assumptions and
qualifications and are based on the truth and accuracy of certain
representations made by Summit, Merger Sub and OrCAD, including representations
in certificates delivered to counsel by the respective managements of Summit,
Merger Sub and OrCAD.
A successful IRS challenge to the "reorganization" status of the Merger
would result in a OrCAD stockholder recognizing gain or loss with respect to
each share of OrCAD Common Stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the Effective
Time of the Merger, of the Summit Common Stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the Summit Common Stock so
received would equal such fair market value and his holding period for such
stock would begin the day after the Merger.
Even if the Merger qualifies as a reorganization, an OrCAD stockholder would
recognize gain to the extent the stockholder received (directly or indirectly)
consideration other than Summit Common Stock in exchange for the stockholder's
OrCAD Common Stock or to the extent that the Summit Common Stock was considered
to be received in exchange for services or property other than solely for OrCAD
Common Stock. All or a portion of such gain may be taxable as ordinary income.
OrCAD stockholders will be required to attach a statement to their tax
returns for the year of the Merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). Such statement must include the
stockholder's tax basis in the stockholder's OrCAD Common Stock and a
description of the Summit Common Stock and the amount of any money received in
the Merger.
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GOVERNMENTAL AND REGULATORY APPROVALS
Summit and OrCAD are not aware of any governmental or regulatory approvals
required for consummation of the Merger, other than compliance with the federal
securities laws and applicable securities and "blue sky" laws of the various
states.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon receipt at the closing of the
Merger by Summit and OrCAD of letters from PricewaterhouseCoopers LLP, Summit's
independent accountants, and KPMG Peat Marwick LLP, OrCAD's independent public
accountants, respectively, regarding the firms' concurrence with Summit
management's and OrCAD management's conclusions, respectively, as to the
appropriateness of pooling-of-interests accounting for the Merger under APB No.
16, if consummated in accordance with the Reorganization Agreement.
NO APPRAISAL RIGHTS
Section 262 of the DGCL provides appraisal rights (sometimes referred to as
"dissenters' rights") to stockholders of Delaware corporations in certain
situations. However, Section 262 appraisal rights are not available to
stockholders of a corporation, such as OrCAD, (a) whose securities are listed on
a national securities exchange or are designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. ("NASD") and (b) whose stockholders are not required to
accept in exchange for their stock anything other than stock of another
corporation listed on a national securities exchange or on an interdealer
quotation system by the NASD and cash in lieu of fractional shares. Because
OrCAD's Common Stock is traded on such a system, the Nasdaq National Market, and
because the OrCAD stockholders are being offered stock of Summit, which is also
traded on the Nasdaq National Market, and cash in lieu of fractional shares,
stockholders of OrCAD will not have appraisal rights with respect to the Merger.
The DGCL does not provide appraisal rights to stockholders of a corporation,
such as Summit, which issues shares in connection with a merger but is not
itself a constituent corporation in the Merger.
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TERMS OF THE MERGER
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE
REORGANIZATION AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL AND COMPLETE TEXT OF THE
REORGANIZATION AGREEMENT.
EFFECTIVE TIME
Subject to the provisions of the Reorganization Agreement, Summit, OrCAD and
Merger Sub shall cause the Merger to be consummated by filing a Certificate of
Merger with the Delaware Secretary of State in accordance with the relevant
provisions of the DGCL as soon as practicable on or after the date of the
closing of the Merger (the "Closing Date") (the time of such filing or such
later time as may be agreed in writing by the parties and specified in the
Certificate of Merger being the "Effective Time" of the Merger). The closing of
the Merger (the "Closing") will take place at the offices of Ater Wynne LLP at a
time and date to be specified by the parties within two business days after
satisfaction or waiver of the conditions set forth in the Reorganization
Agreement, or at such other date, time and location as Summit, OrCAD and Merger
Sub may agree. The Closing is currently anticipated to occur on or about - ,
1998.
MANNER AND BASIS FOR CONVERTING SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of Merger Sub, OrCAD or the holders of any of the securities referenced
below, each share of OrCAD Common Stock issued and outstanding immediately prior
to the Effective Time (other than any shares of OrCAD Common Stock owned by
Summit, OrCAD, Merger Sub or any direct or indirect wholly-owned subsidiary of
Summit or OrCAD) will be canceled and extinguished and automatically converted
into the right to receive 1.05 shares of Summit Common Stock.
Each share of OrCAD Common Stock owned by Summit, OrCAD, Merger Sub or any
direct or indirect wholly-owned subsidiary of Summit or OrCAD immediately prior
to the Effective Time shall be canceled and extinguished without any conversion
thereof.
At the Effective Time, all options to purchase OrCAD Common Stock then
outstanding under the OrCAD stock option plans will be assumed by Summit. See
"Terms of the Merger--Treatment of Employee Equity Benefits Plans."
Each share of common stock, $0.01 par value per share, of Merger Sub issued
and outstanding immediately prior to the Effective Time will be converted into
one validly issued, fully paid and nonassessable share of common stock, $0.01
par value per share, of post-Merger OrCAD (the "Surviving Corporation"). Each
certificate evidencing ownership of shares of Merger Sub common stock will
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.
The Exchange Ratio will be adjusted to reflect appropriately the effect of
any stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Summit Common Stock or OrCAD Common
Stock), reorganization, recapitalization, reclassification or other similar
changes with respect to Summit Common Stock or OrCAD Common Stock occurring or
having a record date on or after the date of the Reorganization Agreement and
prior to the Effective Time.
No fractional shares of Summit Common Stock will be issued by virtue of the
Merger, but in lieu thereof, each holder of shares of OrCAD Common Stock who
would otherwise be entitled to a fraction of a share of Summit Common Stock
shall receive from Summit an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) such fraction, multiplied by (ii) the average
closing price of one share of Summit Common Stock for the ten most recent days
that Summit Common Stock has traded ending on and including the trading day
immediately prior to the Effective Time, as reported on Nasdaq.
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Promptly after the Effective Time, Summit, acting through the Exchange
Agent, will deliver to each holder of record as of the Effective Time of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of OrCAD Common Stock a letter of transmittal
with instructions to be used by such holder in surrendering such certificates in
exchange for certificates representing Summit Common Stock. CERTIFICATES SHOULD
NOT BE SURRENDERED BY ORCAD STOCKHOLDERS UNTIL SUCH HOLDERS RECEIVE THE LETTER
OF TRANSMITTAL FROM THE EXCHANGE AGENT, AND THEN ONLY IN ACCORDANCE WITH THE
TERMS OF THE LETTER OF TRANSMITTAL.
TREATMENT OF EMPLOYEE EQUITY BENEFIT PLANS
STOCK OPTIONS. At the Effective Time, each option outstanding pursuant to
the OrCAD stock option plans, whether or not exercisable, will be assumed by
Summit and will continue to have, and be subject to, the same terms and
conditions set forth in the stock option plan under which it was issued and the
stock option agreement by which it is evidenced (including, to the extent
permissible, with respect to the status as an "incentive stock option" under
Section 422 of the Code), except that each option will be or become exercisable
for shares of Summit Common Stock rather than shares of OrCAD Common Stock, as
adjusted to reflect the Exchange Ratio, and at an exercise price adjusted to
reflect the Exchange Ratio.
EMPLOYEE STOCK PURCHASE PLAN. Subject to the consummation of the Merger, on
the last trading day prior to the Effective Time, OrCAD will apply the funds
then credited to each Purchase Plan participant's payroll withholding account to
the purchase of whole shares of OrCAD Common Stock. The Purchase Plan shall
terminate immediately following the purchase of shares of OrCAD Common Stock on
the Final Purchase Date.
FORM S-8 FILING. Summit has agreed to file with the SEC, as soon as
reasonably practical after the Effective Time and in any event within five
business days after the Effective Time, a registration statement on Form S-8 to
register the underlying shares of Summit Common Stock issuable as a result of
the assumption of the options outstanding pursuant to the OrCAD stock option
plans.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of OrCAD as of the close of business on the
OrCAD Record Date, an aggregate of approximately - shares of Summit Common
Stock will be issued to OrCAD stockholders in the Merger and Summit will assume
options to acquire up to approximately - shares of additional Summit Common
Stock. Based upon the number of shares of Summit Common Stock issued and
outstanding as of the Summit Record Date, and after giving effect to the
issuance of Summit Common Stock as described in the previous sentence and the
exercise of all options to purchase OrCAD Common Stock assumed by Summit, the
former OrCAD security holders would hold, and have voting power with respect to,
approximately - % of the total issued and outstanding shares of Summit Common
Stock. The foregoing numbers of shares and percentages are subject to change to
reflect any changes in the capitalization of either Summit or OrCAD subsequent
to the dates indicated and prior to the Effective Time, and there can be no
assurance as to the actual capitalization of Summit or OrCAD at the Effective
Time or Summit at any time following the Effective Time.
EFFECT OF THE MERGER
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and OrCAD will remain as the Surviving Corporation.
Pursuant to the Reorganization Agreement, the Certificate of Incorporation
of Merger Sub in effect immediately prior to the Effective Time will become the
Certificate of Incorporation of the Surviving Corporation; provided, however,
that such Certificate of Incorporation shall be amended to change the name of
the Surviving Corporation to OrCAD, Inc. The Bylaws of Merger Sub will become
the Bylaws of
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the Surviving Corporation. The Board of Directors of the Surviving Corporation
will consist of the directors who are serving as directors of Merger Sub
immediately prior to the Effective Time, until their successors are duly
elected. The officers of Merger Sub immediately prior to the Effective Time will
be the officers of the Surviving Corporation, until their successors are duly
appointed.
REPRESENTATIONS AND WARRANTIES
Pursuant to the Reorganization Agreement, each of OrCAD, Summit and Merger
Sub made certain representations and warranties relating to its respective
business and various other matters. None of such representations and warranties
will survive the Merger.
CONDUCT OF ORCAD'S AND SUMMIT'S BUSINESS PRIOR TO THE MERGER
Pursuant to the Reorganization Agreement, OrCAD and Summit have agreed that,
until the earlier of the termination of the Reorganization Agreement pursuant to
its terms or the Effective Time, except to the extent either of the parties
consents in writing, each party will carry on its business in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted
and in compliance with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially reasonable
efforts consistent with past practices and policies (i) to preserve intact its
present business organization, (ii) to keep available the services of its
present officers and employees, and (iii) to preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others with which
it has business dealings.
In addition, except as permitted by the terms of the Reorganization
Agreement, and subject to certain exceptions, until the earlier of the
termination of the Reorganization Agreement pursuant to its terms or the
Effective Time, OrCAD and Summit have agreed not to do any of the following or
permit its subsidiaries to do any of the following without the prior written
consent of the other party:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date of the Reorganization Agreement and as previously disclosed in writing
or made available to the other party, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights (including without
limitation distribution rights) to its intellectual property or products, or
enter into grants of future patent rights, other than non-exclusive licenses
and distribution rights in the ordinary course of business and consistent
with past practice;
(d) Declare or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship with any
employee pursuant to agreements in effect as of the date of the
Reorganization Agreement;
(f) Issue, grant, deliver, sell, authorize or propose the issuance,
delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants
or options to acquire any shares of capital stock or any securities
convertible into shares of capital
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stock, or enter into other agreements or commitments of any character
obligating it to issue any such shares or convertible securities, other than
the issuance, delivery and/or sale of (i) shares of OrCAD Common Stock or
Summit Common Stock pursuant to the exercise of stock options outstanding as
of the date of the Reorganization Agreement, (ii) options to purchase shares
of OrCAD Common Stock and Summit Common Stock to be granted at fair market
value in the ordinary course of business consistent with past practice and
in accordance with stock option plans existing on the date of the
Reorganization Agreement, (iii) shares of OrCAD Common Stock and Summit
Common Stock issuable upon the exercise of the options referred to in clause
(ii), and (iv) shares of OrCAD Common Stock or Summit Common Stock issuable
to participants in the OrCAD 1996 Employee Stock Purchase Plan and Summit's
1996 Employee Stock Purchase Plan in accordance with their respective terms;
(g) Cause, permit or propose any amendments to any charter document or
bylaw (or similar governing instruments of any subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or
by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or
in the aggregate, to its business or enter into any material joint ventures,
strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to its business, except in the ordinary course of business consistent with
past practice or lend funds to any third party (other than intracompany
loans in the ordinary course of business);
(j) Incur any indebtedness for borrowed money other than (i) in
connection with the financing of ordinary course trade payables; (ii)
pursuant to existing credit facilities in the ordinary course of business;
or (iii) in connection with leasing activities in the ordinary course of
business or guarantee any indebtedness of any person for borrowed money
(except that each party may guarantee any indebtedness of any of its
subsidiaries, and any such subsidiary may guarantee any indebtedness of its
respective parent company or of any other subsidiary), or issue or sell any
debt securities or warrants or rights to acquire debt securities or
guarantee any debt securities of others;
(k) Adopt or amend any employee benefit plan or employee stock purchase
or employee stock option plan, enter into any employment contract (other
than offer letters and letter agreements with employees who are terminable
"at will" or as required by law), pay any special bonus or special
remuneration to any director or employee or increase the salaries or wage
rates of its officers or employees other than in the ordinary course of
business, consistent with past practice, or change in any material respect
any management policies or procedures (including those relating to hiring);
provided, however, that subject to certain conditions, OrCAD may elect to
terminate any 401(k) plan maintained by OrCAD or its subsidiaries;
(l) Make any payments outside of the ordinary course of business for
purposes of settling any dispute;
(m) Take any action that could interfere with Summit's ability to
account for the Merger as a pooling-of-interests whether or not otherwise
permitted by the Reorganization Agreement;
(n) Other than in the ordinary course of business, make or change any
material tax election, adopt or change any accounting method with respect to
taxes, file any material tax return or any amendment thereto, enter into any
closing agreement, settle any claim or assessment with respect to taxes or
consent to any extension or waiver of the limitation period applicable to
any tax claim or assessment;
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(o) Revalue any assets, including writing down the value of inventory or
writing off notes or accounts receivable, other than in the ordinary course
of business consistent with past practices or pursuant to arm's length
transactions on commercially reasonable terms;
(p) Amend or terminate certain contracts listed in schedules to the
Reorganization Agreement except in the ordinary course of business
consistent with past practices;
(q) Waive or release any material right or claim, except in the ordinary
course of business consistent with past practices; or
(r) Agree in writing or otherwise to take any of the actions described
above.
NO SOLICITATION BY ORCAD
Under the terms of the Reorganization Agreement, OrCAD has agreed that until
the earlier of the Effective Time or termination of the Reorganization Agreement
pursuant to its terms, it and its subsidiaries will not, and it will instruct
its directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly (i) solicit or knowingly encourage
submission of any OrCAD Acquisition Proposal (as defined below) by any person,
entity or group (other than Summit and its affiliates, agents and
representatives), or (ii) participate in any discussions or negotiations with,
or disclose any non-public information concerning OrCAD or any of its
subsidiaries to, or afford access to the properties, books or records of OrCAD
or any of its subsidiaries to, or otherwise assist or facilitate, or enter into
any agreement or understanding with, any person, entity or group (other than
Summit and its affiliates, agents and representatives), in connection with any
OrCAD Acquisition Proposal with respect to OrCAD. An "OrCAD Acquisition
Proposal" means any proposal or offer for (i) any merger, consolidation, sale of
substantial assets or similar transactions involving OrCAD or any of its
subsidiaries (other than sales of assets or inventory in the ordinary course of
business or as permitted under the terms of the Reorganization Agreement), (ii)
sale by OrCAD of any shares of capital stock of OrCAD except as may be permitted
by the Reorganization Agreement, (iii) the acquisition by any person (including
without limitation by way of a tender offer or an exchange offer) of beneficial
ownership or a right to acquire beneficial ownership of, or the formation of any
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) which beneficially owns, or has the right to acquire
beneficial ownership of, 15% or more of the then outstanding shares of capital
stock of OrCAD, or (iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the foregoing.
Pursuant to the Reorganization Agreement, OrCAD further agreed to cease any and
all activities, discussions or negotiations with any parties conducted prior to
the date of the Reorganization Agreement with respect to any OrCAD Acquisition
Proposal. In addition, OrCAD agreed that it will (i) notify Summit within 24
hours if it receives any OrCAD Acquisition Proposal or written inquiry or any
written request for information or access in connection with a potential OrCAD
Acquisition Proposal, and (ii) as promptly as practicable notify Summit of the
significant terms and conditions of any such OrCAD Acquisition Proposal. In
addition, subject to the other provisions of the section of the Reorganization
Agreement summarized here, OrCAD agreed that, from and after the date of the
Reorganization Agreement until the earlier of the Effective Time and termination
of the Reorganization Agreement pursuant to its terms, OrCAD and its
subsidiaries will not, and will instruct their respective directors, officers,
employees, representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any OrCAD Acquisition Proposal made by any person,
entity or group (other than Summit or any of its affiliates); provided, however,
that Summit and OrCAD have agreed that nothing contained in the Reorganization
Agreement will prohibit the OrCAD Board from taking and disclosing to OrCAD's
stockholders a position with respect to a tender offer pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act.
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Notwithstanding the foregoing, prior to the Effective Time, to the extent
the OrCAD Board determines, in good faith, after consultation with outside legal
counsel, that compliance with the OrCAD Board's fiduciary duties under
applicable law require it to do so, OrCAD may participate in discussions or
negotiations with, and furnish information and afford access to any person,
entity or group after such person, entity or group has delivered to OrCAD in
writing, an unsolicited bona fide OrCAD Acquisition Proposal that the OrCAD
Board determines, in its good faith reasonable judgment after consultation with
its independent financial advisors, (i) would (if consummated in accordance with
its terms) result in a transaction more favorable than the Merger to the
stockholders of OrCAD from a financial point of view, (ii) for which financing,
to the extent required, is committed, and (iii) is likely to be consummated (an
"OrCAD Superior Proposal"). In addition, in connection with a possible OrCAD
Acquisition Proposal, OrCAD may refer any third party to the provision of the
Reorganization Agreement described here or make a copy of the provision
available to a third party. In the event OrCAD receives an OrCAD Superior
Proposal, nothing contained in the Reorganization Agreement will prevent the
OrCAD Board from recommending such OrCAD Superior Proposal to its stockholders,
if the OrCAD Board determines, in good faith, after consultation with outside
legal counsel, that such action is required to comply with its fiduciary duties
under applicable law; in such case, the OrCAD Board may withdraw, modify or
refrain from making its recommendation concerning the Merger, and, to the extent
it does so, OrCAD may refrain from soliciting proxies to secure the vote of its
stockholders as may otherwise be required by the Reorganization Agreement;
provided, however, that OrCAD (i) shall provide Summit at least 24 hours prior
notice of any OrCAD Board meeting at which the OrCAD Board is reasonably
expected to contemplate an OrCAD Superior Proposal, and (ii) shall not recommend
to its stockholders an OrCAD Superior Proposal for a period of not less than 48
hours after Summit receives a copy of such OrCAD Superior Proposal; and,
provided further, that, unless the Reorganization Agreement is terminated,
nothing in the provision summarized in this paragraph limits OrCAD's obligation
to hold and convene the OrCAD Special Meeting (regardless of whether the
recommendation of the OrCAD Board shall have been withdrawn, modified or not yet
made) or to provide the OrCAD stockholders with material information relating to
such meeting.
OrCAD has agreed not to provide any non-public information to a third party
unless (i) OrCAD provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in an existing non-disclosure
agreement entered into by Summit and OrCAD in connection with the Merger; and
(ii) such non-public information has been previously delivered to Summit.
NO SOLICITATION BY SUMMIT
Under the terms of the Reorganization Agreement, Summit has agreed that
until the earlier of the Effective Time or termination of the Reorganization
Agreement pursuant to its terms, it and its subsidiaries will not, and it will
instruct its directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly (i) solicit or
knowingly encourage submission of any Summit Acquisition Proposal (as defined
below) by any person, entity or group, or (ii) participate in any discussions or
negotiations with, or disclose to any non-public information concerning Summit
or any of its subsidiaries to, or afford any access to the properties, books or
records of Summit or any of its subsidiaries to, or otherwise assist or
facilitate, or enter into any agreement or understanding with, any person,
entity or group, in connection with any Summit Acquisition Proposal with respect
to Summit. A "Summit Acquisition Proposal" means any proposal or offer for (i)
any merger, consolidation, sale of substantial assets or similar transactions
involving Summit or any of its subsidiaries (other than sales of assets or
inventory in the ordinary course of business or as permitted under the terms of
the Reorganization Agreement), (ii) sale by Summit of any shares of capital
stock of Summit except as may be permitted by the Reorganization Agreement,
(iii) the acquisition by any person (including without limitation by way of a
tender offer or an exchange offer) of beneficial ownership or a right to acquire
beneficial ownership of, or the formation of any "group" (as defined under
Section 13(d) of the Exchange Act and the rules and
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regulations thereunder) which beneficially owns, or has the right to acquire
beneficial ownership of, 15% or more of the then outstanding shares of capital
stock of Summit, or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. Pursuant to the Reorganization Agreement, Summit further agreed to
cease any and all activities, discussions or negotiations with any parties
conducted prior to the date of the Reorganization Agreement with respect to any
Summit Acquisition Proposal. In addition, Summit agreed that it will (i) notify
OrCAD within 24 hours if it receives any Summit Acquisition Proposal or written
inquiry or any written request for information or access in connection with a
potential Summit Acquisition Proposal, and (ii) as promptly as practicable
notify OrCAD of the significant terms and conditions of any such Summit
Acquisition Proposal. In addition, subject to the other provisions of the
section of the Reorganization Agreement summarized here, Summit agreed that,
from and after the date of the Reorganization Agreement until the earlier of the
Effective Time and termination of the Reorganization Agreement pursuant to its
terms, Summit and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Summit Acquisition
Proposal made by any person, entity or group; provided, however, that Summit and
OrCAD have agreed that nothing contained in the Reorganization Agreement will
prohibit the Summit Board from taking and disclosing to Summit's stockholders a
position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act.
Notwithstanding the foregoing, prior to the Effective Time, to the extent
the Summit Board determines, in good faith, after consultation with outside
legal counsel, that compliance with the Summit Board's fiduciary duties under
applicable law require it to do so, Summit may participate in discussions or
negotiations with, and furnish information and afford access to any person,
entity or group after such person, entity or group has delivered to Summit in
writing, an unsolicited bona fide Summit Acquisition Proposal that the Summit
Board determines, in its good faith reasonable judgment after consultation with
its independent financial advisors, (i) would (if consummated in accordance with
its terms) result in a transaction more favorable than the Merger to the
stockholders of Summit from a financial point of view, (ii) for which financing,
to the extent required, is committed, and (iii) is likely to be consummated (a
"Summit Superior Proposal"). In addition, in connection with a possible Summit
Acquisition Proposal, Summit may refer any third party to the provision of the
Reorganization Agreement described here or make a copy of the provision
available to a third party. In the event Summit receives a Summit Superior
Proposal, nothing contained in the Reorganization Agreement will prevent the
Summit Board from recommending such Summit Superior Proposal to its
stockholders, if the Summit Board determines, in good faith, after consultation
with outside legal counsel, that such action is required to comply with its
fiduciary duties under applicable law; in such case, the Summit Board may
withdraw, modify or refrain from making its recommendation concerning the
Merger, and, to the extent it does so, Summit may refrain from soliciting
proxies to secure the vote of its stockholders as may otherwise be required by
the Reorganization Agreement; provided, however, that Summit (i) shall provide
OrCAD at least 24 hours prior notice of any Summit Board meeting at which the
Summit Board is reasonably expected to contemplate a Summit Superior Proposal,
and (ii) shall not recommend to its stockholders a Summit Superior Proposal for
a period of not less than 48 hours after OrCAD receives a copy of such Summit
Superior Proposal; and, provided further, that, unless the Reorganization
Agreement is terminated, nothing in the provision summarized in this paragraph
limits Summit's obligation to hold and convene the Summit Special Meeting
(regardless of whether the recommendation of the Summit Board shall have been
withdrawn, modified or not yet made) or to provide the Summit stockholders with
material information relating to such meeting.
Summit has agreed not to provide any non-public information to a third party
unless (i) Summit provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in an existing non-disclosure
agreement entered into by Summit and OrCAD in connection with the Merger; and
(ii) such non-public information has been previously delivered to OrCAD.
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CONDITIONS TO THE MERGER
The respective obligations of each party to the Reorganization Agreement to
effect the Merger are subject to the satisfaction at or prior to the Closing
Date of the following conditions: (i) the Reorganization Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law by OrCAD stockholders; and the issuance of
shares of Summit Common Stock by virtue of the Merger shall have been duly
approved by the requisite vote under applicable law and the rules of the
National Association of Securities Dealers, Inc. by Summit stockholders; (ii)
the SEC shall have declared the Registration Statement of which this Joint Proxy
Statement/ Prospectus is a part effective and no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of this Joint Proxy Statement/Prospectus, shall have been initiated or
threatened in writing by the SEC; (iii) no governmental entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger; (iv)
Summit and OrCAD shall each have received substantially identical written
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
P.C. and Ater Wynne LLP, respectively), in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization, and such opinions shall not have been withdrawn; provided,
however, that, if the counsel to either Summit or OrCAD does not render such
opinion, this condition shall nonetheless be deemed to be satisfied with respect
to such party if counsel to the other party renders such opinion to such party,
and (v) the Summit Common Stock issuable to OrCAD stockholders in the Merger and
such other shares required to be reserved for issuance in connection with the
Merger have been authorized for listing on the Nasdaq National Market upon
official notice of issuance.
In addition, the obligation of OrCAD to consummate and effect the Merger is
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
OrCAD: (i) subject to certain materiality thresholds and other exceptions, the
representations and warranties of Summit and Merger Sub contained in the
Reorganization Agreement shall have been true and correct on and as of the date
of the Reorganization Agreement and the Closing Date; (ii) Summit and Merger Sub
shall have performed or complied in all material respects with all agreements
and covenants required by the Reorganization Agreement to be performed or
complied with by them on or prior to the Closing Date; (iii) no event having a
material adverse effect with respect to Summit shall have occurred since the
date of the Reorganization Agreement; (iv) OrCAD shall have received a letter
from KPMG Peat Marwick LLP dated within two business days prior to the Effective
Time regarding its concurrence with the conclusion of OrCAD management as to the
appropriateness of pooling-of-interest accounting for the Merger; (v) Summit
shall have obtained all consents, waivers and approvals required in connection
with the Merger; (vi) Summit shall have amended its bylaws and reconstituted its
Board as agreed upon by Summit and OrCAD; (vii) the appointment of certain
officers as agreed upon by Summit and OrCAD; (viii) the Summit Board shall have
reserved and authorized the delivery of all shares necessary to consummate the
Merger; and (ix) Summit shall have recognized aggregate revenue of not less than
$10,080,000 for the quarter ending September 30, 1998.
Further, the obligations of Summit and Merger Sub to consummate and effect
the Merger are subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Summit: (i) subject to certain materiality thresholds and other
exceptions, the representations and warranties of OrCAD contained in the
Reorganization Agreement shall have been true and correct on and as of the date
of the Reorganization Agreement and the Closing Date; (ii) OrCAD shall have
performed or complied in all material respects with all agreements and covenants
required by the Reorganization Agreement to be performed or complied with by it
on or prior to the Closing Date; (iii) no event having a material adverse effect
with respect to OrCAD shall have occurred since the date of
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the Reorganization Agreement; (iv) Summit shall have received a letter from
PricewaterhouseCoopers LLP dated within two business days prior to the Effective
Time regarding its concurrence with the conclusion of Summit Management as to
the appropriateness of pooling-of-interest accounting for the Merger, and OrCAD
shall have received a letter from KPMG Peat Marwick LLP dated within two
business days prior to the Effective Time regarding its concurrence with the
conclusion of OrCAD management as to the appropriateness of pooling of interest
accounting for the Merger; (vi) OrCAD shall have obtained all consents, waivers
and approvals required in connection with the Merger; and (viii) OrCAD shall
have recognized aggregate revenue of not less than $10,980,000 for the quarter
ending September 30, 1998.
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides that it may be terminated at any time
prior to the Effective Time (i) by mutual written consent of Summit and OrCAD
duly authorized by the Boards of Directors of Summit and OrCAD; (ii) by either
OrCAD or Summit if the Merger is not consummated by January 31, 1999 for any
reason, provided that the right to terminate the Reorganization Agreement as
provided in this clause (ii) is not available to any party whose action or
failure to act has been a principal cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a breach of the Reorganization Agreement; (iii) by either OrCAD or
Summit if a governmental entity issues an order, decree or ruling or takes any
other action, in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, which order, decree, ruling or
other action is final and nonappealable; (iv) by either OrCAD or Summit if the
required approvals of the stockholders of OrCAD or the stockholders of Summit
contemplated by the Reorganization Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a meeting of stockholders
duly convened therefor or at any adjournment thereof (provided that a party may
not terminate the Reorganization Agreement pursuant to this provision if the
failure to obtain stockholder approval was caused by the action or failure to
act of such party and such action or failure to act constitutes a breach by such
party of the Reorganization Agreement); (v) by Summit at any time prior to the
approval of the Merger by OrCAD's stockholders, if the OrCAD Board recommends an
OrCAD Superior Proposal to the stockholders of OrCAD or withholds, withdraws or
modifies in a manner adverse to Summit its recommendation in favor of adoption
and approval of the Reorganization Agreement and approval of the Merger; (vi) by
OrCAD at any time prior to the approval of the Merger by Summit's stockholders,
if the Summit Board recommends a Summit Superior Proposal to the stockholders of
Summit or withholds, withdraws or modifies in a manner adverse to OrCAD its
recommendation in favor of the issuance of shares of Summit Common Stock by
virtue of the Merger; (vii) by OrCAD, upon a breach of any representation,
warranty, covenant or agreement on the part of Summit set forth in the
Reorganization Agreement, or if any such representation or warranty of Summit
shall have become untrue, subject to certain cure provisions; or (viii) by
Summit, upon a breach of any representation, warranty, covenant or agreement on
the part of OrCAD set forth in the Reorganization Agreement, or if any such
representation or warranty of OrCAD shall have become untrue, subject to certain
cure provisions.
EFFECT OF TERMINATION
If the Reorganization Agreement is terminated by Summit or OrCAD as
described above, the Reorganization Agreement will be of no further force or
effect, except that certain provisions contained therein, including those
discussed below relating to the "break-up" fee payable under certain
circumstances, will survive such termination, and OrCAD, Summit and Merger Sub
will remain liable for certain breaches of the Reorganization Agreement
occurring prior to such termination.
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BREAK-UP FEES
OrCAD has agreed that if either (i) the OrCAD Board shall have withheld,
withdrawn or modified in a manner adverse to Summit its recommendation in favor
of adoption and approval of the Reorganization Agreement and approval of the
Merger and at that time there shall not have been since the date of the
Reorganization Agreement a material adverse effect on Summit and Summit shall
not have materially breached the Reorganization Agreement, or (ii) the OrCAD
Board recommends an OrCAD Superior Proposal to the OrCAD stockholders and at
that time Summit shall not have materially breached the Reorganization Agreement
and there shall not have been since the date of the Reorganization Agreement a
material adverse effect on Summit, then OrCAD shall pay to Summit an amount
equal to $2.5 million within one business day following the earlier to occur of
the termination of the Reorganization Agreement or an OrCAD Negative Vote (as
defined below).
OrCAD has also agreed that, if no payment is required pursuant to the
provision of the Reorganization Agreement summarized in the preceding paragraph,
and if (i) the vote of OrCAD stockholders approving and adopting the
Reorganization Agreement and approving the Merger is not obtained by reason of
the failure to obtain the required vote at a meeting of stockholders duly
convened therefor or at any adjournment thereof (an "OrCAD Negative Vote"), and
(ii) prior to such OrCAD Negative Vote there was an OrCAD Acquisition Proposal
with respect to OrCAD which was publicly disclosed and was not withdrawn prior
to such OrCAD Negative Vote, and (iii) within nine months following such OrCAD
Negative Vote, OrCAD enters into a definitive agreement with respect to an OrCAD
Acquisition (as defined below) or the OrCAD Board recommends to the OrCAD
stockholders that they accept a tender or exchange offer for 25% or more of the
OrCAD Common Stock, then, provided that there has not been a material adverse
effect on Summit prior to the OrCAD Negative Vote and provided that Summit shall
not have materially breached the Reorganization Agreement, OrCAD will pay to
Summit an amount equal to $2.5 million within one business day following, as the
case may be, consummation of an OrCAD Acquisition within 15 months of such OrCAD
Negative Vote or consummation of such tender or exchange offer. For purposes of
the foregoing, "OrCAD Acquisition" means any transaction or series of related
transactions involving (i) any merger, consolidation, sale of substantial assets
(including capital stock of subsidiaries) having a fair market value in excess
of 50% of the fair market value of all the assets of OrCAD and its subsidiaries
immediately prior to such sale; (ii) any sale by OrCAD of shares of capital
stock of OrCAD which upon issuance would represent more than 50% of the
outstanding shares of capital stock of OrCAD (provided that a public offering or
private placement in which no entity or group obtained a majority of the stock
thus sold will not be deemed to be an OrCAD Acquisition); or (iii) the
acquisition (including without limitation by way of a tender offer or an
exchange offer) by any person or "group" of beneficial ownership, or a right to
acquire beneficial ownership of, 50% or more of the then outstanding shares of
capital stock of OrCAD, or the formation of any "group" that, as of the time of
formation, owns such stock or such rights.
Summit has agreed that if either (i) the Summit Board shall have withheld,
withdrawn or modified in a manner adverse to OrCAD its recommendation in favor
of the issuance of shares of Summit Common Stock by virtue of the Merger and at
that time there shall not have been since the date of the Reorganization
Agreement a material adverse effect on OrCAD and OrCAD shall not have materially
breached the Reorganization Agreement, or (ii) the Summit Board recommends a
Summit Superior Proposal to the Summit stockholders and at that time OrCAD shall
not have materially breached the Reorganization Agreement and there shall not
have been since the date of the Reorganization Agreement a material adverse
effect on OrCAD, then Summit shall pay to OrCAD an amount equal to $2.5 million
within one business day following the earlier to occur of the termination of the
Reorganization Agreement or a Summit Negative Vote (as defined below).
Summit has also agreed that, if no payment is required pursuant to the
provision of the Reorganization Agreement summarized in the preceding paragraph,
and if (i) the vote of Summit stockholders approving the issuance of shares of
Summit Common Stock by virtue of the Merger is not obtained by
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reason of the failure to obtain the required vote at a meeting of stockholders
duly convened therefor or at any adjournment thereof (a "Summit Negative Vote"),
and (ii) prior to such Summit Negative Vote there was a Summit Acquisition
Proposal with respect to Summit which was publicly disclosed and was not
withdrawn prior to such Summit Negative Vote, and (iii) within nine months
following such Summit Negative Vote, Summit enters into a definitive agreement
with respect to a Summit Acquisition (as defined below) or the Summit Board
recommends to the Summit stockholders that they accept a tender or exchange
offer for 25% or more of the Summit Common Stock, then, provided that there has
not been a material adverse effect on OrCAD prior to the Summit Negative Vote
and provided that OrCAD shall not have materially breached the Reorganization
Agreement, Summit will pay to OrCAD an amount equal to $2.5 million within one
business day following, as the case may be, consummation of a Summit Acquisition
within 15 months of such OrCAD Negative Vote or consummation of such tender or
exchange offer. For purposes of the foregoing, "Summit Acquisition" means any
transaction or series of related transactions involving (i) any merger,
consolidation, sale of substantial assets (including capital stock of
subsidiaries) having a fair market value in excess of 50% of the fair market
value of all the assets of Summit and its subsidiaries immediately prior to such
sale; (ii) any sale by Summit of shares of capital stock of Summit which upon
issuance would represent more than 50% of the outstanding shares of capital
stock of Summit (provided that a public offering or private placement in which
no entity or group obtained a majority of the stock thus sold will not be deemed
to be a Summit Acquisition); or (iii) the acquisition (including without
limitation by way of a tender offer or an exchange offer) by any person or
"group" of beneficial ownership, or a right to acquire beneficial ownership of,
50% or more of the then outstanding shares of capital stock of Summit, or the
formation of any "group" that, as of the time of formation, owns such stock or
such rights.
Summit and OrCAD have agreed that payment of the fees described in the
preceding four paragraphs will not be in lieu of damages incurred in the event
of breach of the Reorganization Agreement.
Except as set forth above, Summit and OrCAD have agreed that all fees and
expenses incurred in connection with the Reorganization Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses whether or not the Merger is consummated, except that Summit and OrCAD
will share equally all fees and expenses, other than attorneys' and accountants'
fees and expenses, incurred in connection with the printing and filing of this
Joint Proxy Statement/Prospectus.
INTERESTS OF CERTAIN PERSONS
CHANGE OF CONTROL AGREEMENTS
OrCAD has employment agreements with the following executive officers:
Michael F. Bosworth, P. David Bundy, William Cibulsky, Philip Kilcoin, James
Plymale, Stuart A. Harrington, Graham Sheldon and Donald G. Tannenbaum. The
employment agreements provide that if the employee is terminated under certain
circumstances within a period beginning one month before the signing of a letter
of intent or other definitive agreement which will result in a change of control
of OrCAD and ending twelve months after the effective date of the change of
control or if the employee resigns following a constructive termination, such
employee will be entitled to (i) receive all benefits earned; (ii) continuation,
for a period of three months for each year during which the employee has been
employed by OrCAD (including employment with companies acquired by OrCAD), of
employee's then current salary plus incentive compensation, up to a maximum of
twelve months; and (iii) acceleration of the vesting of 25% of all stock options
granted by OrCAD to such employee which are not exercisable as of the date of
such termination for each year during which the employee has been employed by
OrCAD (including employment with companies acquired by OrCAD), so that such
options are then immediately exercisable. In addition, OrCAD will provide
benefits for the salary continuation period.
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OTHER
John C. Savage, a member of the OrCAD Board, is the Managing Director of
Alliant which is acting as OrCAD's financial advisor for the Merger. Alliant was
entitled to receive a fee in the amount of $100,000 upon delivery of its
fairness opinion. In addition, if the Merger closes, Alliant will be entitled to
receive upon such closing an additional fee of 0.65% of the total consideration
received by OrCAD's stockholders. Such fee would be approximately $477,278,
calculated based on the September 29, 1998 closing price of $7.375 per share of
Summit Common Stock.
AFFILIATE AGREEMENTS
Each of the Summit Affiliates has entered into an agreement restricting
sales, dispositions or other transactions reducing their risk of investment in
respect of the shares of Summit Common Stock held by them to help ensure that
the Merger will be treated as a pooling-of-interests for accounting and
financial reporting purposes. Each of the OrCAD Affiliates has entered into an
agreement restricting sales, dispositions or other transactions reducing their
risk of investment in respect of the shares of OrCAD Common Stock held by them
prior to the Merger and the shares of Summit Common Stock received by them in
the Merger so as to comply with the requirements of applicable federal
securities laws and to help ensure that the Merger will be treated as a
pooling-of-interests for accounting and financial reporting purposes.
VOTING AGREEMENTS
Each of the Summit Affiliates (who own an aggregate of - shares of Summit
Common Stock as of the Summit Record Date or - %) has entered into a Summit
Voting Agreement with OrCAD. Pursuant to the Summit Voting Agreements, which are
irrevocable, the foregoing persons have agreed to vote all shares of Summit
Common Stock they have beneficial ownership of and any Summit Common Stock they
acquire beneficial ownership of prior to the termination of the Summit Voting
Agreements in favor of approval of the issuance of shares of Summit Common Stock
by virtue of the Merger. In addition, such persons have granted irrevocable
proxies to the OrCAD Board to vote such persons' Summit Common Stock in favor of
approval of the issuance of shares of Summit Common Stock pursuant to the
Reorganization Agreement.
Each of the OrCAD Affiliates (who own an aggregate of - shares of OrCAD
Common Stock as of the OrCAD Record Date or - %) has entered into a OrCAD
Voting Agreement with Summit. Pursuant to the OrCAD Voting Agreements, which are
irrevocable, the foregoing persons have agreed to vote all shares of OrCAD
Common Stock they have beneficial ownership of and any OrCAD Common Stock they
acquire beneficial ownership of prior to the termination of the OrCAD Voting
Agreements in favor of approval of the Reorganization Agreement and the Merger.
In addition, such persons have granted irrevocable proxies to the Summit Board
to vote such persons' OrCAD Common Stock in favor of approval of the
Reorganization Agreement and the Merger.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF SUMMIT CAPITAL STOCK
The authorized capital stock of Summit consists of 30,000,000 shares of
Common Stock, $0.01 par value per share, and 5,000,000 shares of Preferred
Stock, $0.01 par value per share. At the Summit Special Meeting, stockholders
will be asked to consider and vote upon a proposal to approve an amendment to
Summit's Amended and Restated Certificate of Incorporation to increase the
authorized capital stock of Summit by 15,000,000 shares to 45,000,000 shares,
contingent upon consummation of the Merger. See "Proposal Two--Amendment to
Restated Certificate of Incorporation--Increase Number of Authorized Shares."
SUMMIT COMMON STOCK
As of the Summit Record Date, there were - shares of Summit Common Stock
outstanding. Summit Common Stock is listed on The Nasdaq National Market under
the symbol SMMT. As of the Summit Record Date, the outstanding Summit Common
Stock was held of record by approximately - stockholders. Stockholders of
Summit Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. The stockholders do not have a right to take
action by written consent nor may they cumulate votes in connection with the
election of directors. The holders of Summit Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Summit Board out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Summit, the holders of Summit Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. The Summit Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Summit Common Stock. All outstanding shares of Summit Common
Stock are fully paid and non-assessable, and the shares of Summit Common Stock
to be outstanding upon completion of the Merger will be fully paid and non-
assessable.
SUMMIT PREFERRED STOCK
Summit has 5,000,000 shares of Preferred Stock authorized, of which, as of
the Summit Record Date, no shares were outstanding. The Summit Board has the
authority to issue these shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon any unissued and undesignated shares of Preferred Stock and to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the stockholders. Although it presently
has no intention to do so, the Summit Board, without stockholder approval, can
issue Preferred Stock with voting and conversion rights which could adversely
affect the voting power or other rights of the holders of Summit Common Stock
and the issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of Summit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Summit Common Stock is Boston
EquiServe and its telephone number is (617) 434-2200.
DESCRIPTION OF ORCAD CAPITAL STOCK
The authorized capital stock of OrCAD consists of 16,000,000 shares of
Common Stock, $0.01 par value per share, and 2,000,000 shares of Preferred
Stock, $0.01 par value per share.
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ORCAD COMMON STOCK
As of the OrCAD Record Date, there were - shares of OrCAD Common Stock
outstanding, held of record by approximately - stockholders. OrCAD Common
Stock is listed on The Nasdaq National Market under the symbol OCAD. Holders of
OrCAD Common Stock are entitled to one vote per share on all matters to be voted
upon by the stockholders. The stockholders do not have a right to take action by
written consent, unless such consent is unanimous, nor may they cumulate votes
in connection with the election of Directors. The holders of OrCAD Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of OrCAD, the holders
of OrCAD Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities. The OrCAD Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the OrCAD Common Stock. All outstanding
shares of OrCAD Common Stock are fully paid and non-assessable, and the shares
of Summit Common Stock to be issued in exchange for OrCAD Common Stock upon
completion of the Merger will be fully paid and non-assessable.
ORCAD PREFERRED STOCK
OrCAD has 2,000,000 shares of Preferred Stock authorized, of which, as of
the OrCAD Record Date, no shares of Preferred Stock were outstanding. The Board
of Directors has the authority to issue the undesignated shares of Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued and undesginated shares of
Preferred Stock and to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders. Although it presently has no intention to do so, the OrCAD Board
of Directors, without stockholder approval, can issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power or
other rights of the holders of OrCAD Common Stock and the issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of OrCAD.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the OrCAD Common Stock is ChaseMellon
Shareholder Services, LLC and its telephone number is (206) 674-3030.
COMPARISON OF CAPITAL STOCK
After consummation of the Merger, the holders of OrCAD Common Stock who
receive Summit Common Stock under the terms of the Reorganization Agreement will
become stockholders of the Combined Company. As stockholders of OrCAD, their
rights are presently governed by Delaware law, the OrCAD Restated Certificate of
Incorporation, as amended (the "OrCAD Certificate") and the OrCAD Amended and
Restated By-laws (the "OrCAD By-laws"). As stockholders of the Combined Company,
their rights will be governed by Delaware law, Summit's Amended and Restated
Certificate of Incorporation (the "Summit Certificate") and Summit's By-laws, as
amended (the "Summit By-laws"). The following discussion compares the rights of
holders of OrCAD Common Stock and holders of Summit Common Stock and certain
provisions of the charters and by-laws of OrCAD and Summit. This summary does
not purport to be complete and is qualified in its entirety by reference to the
OrCAD Certificate and OrCAD By-laws, the Summit Certificate and the Summit
By-laws and the relevant provisions of Delaware law.
SPECIAL MEETING OF THE STOCKHOLDERS
The OrCAD Certificate and the OrCAD By-laws provide that special meetings of
the stockholders may only be called by the Board of Directors. The Summit
Certificate provides that special meetings of the
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stockholders generally may only be called by the Board of Directors. Under
Delaware law, a special meeting of stockholders may be called by the board of
directors or by any other person authorized to do so in the certificate of
incorporation or the bylaws.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action to be taken by stockholders may be taken without a
meeting, without prior notice, and without a vote, if the stockholders having
the number of votes that would be necessary to take such action at a meeting at
which all stockholders were present and voted consent to the action in writing.
The Summit Certificate does not allow for actions by written consent of the
stockholders. The OrCAD Certificate permits actions by unanimous written consent
of the stockholders.
CUMULATIVE VOTING
Neither the Summit Certificate nor the OrCAD Certificate provides for
cumulative voting by stockholders in elections of directors.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The OrCAD Certificate and the OrCAD By-laws provide that the number of
directors shall be no less than three and no more than nine, with the exact
number to be fixed from time to time by resolution of the OrCAD Board. If the
number is fixed at six or more, then the Board of Directors shall be divided
into three classes, as nearly equal in size as possible, with staggered terms.
The Summit Certificate and Summit By-laws, as amended, provide that the number
of directors shall be five and shall be fixed from time to time by amendments to
the Summit Certificate or Summit By-laws adopted by the Summit Board or
stockholders. The Summit Certificate provides for three classes of directors, as
nearly equal in size as possible, with staggered terms.
REMOVAL OF DIRECTORS
The Summit By-laws, the OrCAD Certificate and the OrCAD By-laws each provide
that any director or the entire Board of Directors may be removed only for cause
by the holders of the then-outstanding shares of capital stock entitled to vote
in the election of directors. The Summit By-laws require a majority of such
holders' votes, while the OrCAD Certificate and the OrCAD By-laws require 67% of
such holders' votes. Under Delaware law, the stockholders of a corporation that
has a classified board of directors, such as Summit and OrCAD, may only remove
directors for cause.
EXCULPATION OF DIRECTORS
Each of Summit and OrCAD has included in its certificate of incorporation a
provision which eliminates the personal liability of its directors from monetary
damages resulting from a breach of fiduciary duty as a director to the fullest
extent permitted by the Delaware law.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
The Summit By-laws and the OrCAD Certificate and the OrCAD By-laws require
indemnification of their directors and officers to the maximum extent and in the
manner permitted by Delaware law. The Summit By-laws also permit Summit to
idemnify its employees and agents.
64
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Condensed Statements of
Operations and Balance Sheet give effect to the Merger on a pooling-of-interests
basis of accounting. These Unaudited Pro Forma Combined Condensed Financial
Statements have been prepared from the historical consolidated financial
statements of Summit and OrCAD and should be read in conjunction therewith, and
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations of Summit and OrCAD. The selected historical financial
data for OrCAD includes the financial results and accounts of MicroSim
Corporation for all periods presented. The historical financial statements of
Summit and of OrCAD are contained elsewhere in this Joint Proxy
Statement/Prospectus. See "Financial Statements."
This unaudited pro forma combined condensed information is not necessarily
indicative of actual or future operating results or financial position that
would have occurred or will occur upon consumatiuon of the Merger.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Merger as if it had occurred on June 30, 1998, combining the balance sheets of
Summit and OrCAD as of that date. The Unaudited Pro Forma Combined Condensed
Statements of Operations give effect to the Merger as if it had occurred on
January 1, 1995, combining results of Summit and OrCAD for each of the three
years in the period ended December 31, 1997, and for each of the six month
periods ended June 30, 1998 and 1997.
65
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ------------------------
SUMMIT ORCAD ADJUSTMENTS COMBINED
--------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 24,768 $ 15,905 $ 40,673
Short term investments............................. 20,303 20,303
Accounts receivable, net........................... 5,672 7,734 13,406
Prepaid expenses and other......................... 323 2,423 2,746
Deferred income taxes.............................. 1,268 845 2,113
--------- --------- -----------
Total current assets............................. 32,031 47,210 79,241
Long term investments................................ 2,376 2,376
Furniture and equipment, net......................... 3,208 3,715 6,923
Intangibles, net..................................... 1,376 3,400 4,776
Deferred income taxes................................ 555 $ 1,474 2,029
Deposits and other assets............................ 1,649 697 2,346
--------- --------- ----------- -----------
Total assets..................................... $ 38,819 $ 57,398 $ 1,474 $ 97,691
--------- --------- ----------- -----------
--------- --------- ----------- -----------
LIABILITIES
Current liabilities:
Long-term debt, current portion.................... $ 151 $ 151
Capital lease obligation, current portion.......... 42 42
Accounts payable................................... 1,307 $ 580 1,887
Accrued liabilities................................ 6,386 5,025 $ 3,200 14,611
Deferred revenue................................... 5,462 5,446 10,908
--------- --------- ----------- -----------
Total current liabilities........................ 13,348 11,051 3,200 27,599
Long-term debt, less current portion................. 156 156
Capital lease obligations, less current portion...... 24 24
Other non-current liabilities........................ 19 19
Deferred revenue, less current portion............... 175 175
--------- --------- ----------- -----------
Total liabilities................................ 13,703 11,070 3,200 27,973
--------- --------- ----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value...................... -- -- -- --
Common stock, $.01 par value......................... 152 93 245
Additional paid-in capital........................... 39,791 37,922 77,713
Notes receivable from employees...................... (101) (101)
Other comprehensive loss............................. (117) (117)
Retained earnings/(accumulated deficit).............. (14,827) 8,531 $ (1,726) (8,022)
--------- --------- ----------- -----------
Total stockholders' equity....................... 25,116 46,328 (1,726) 69,718
--------- --------- ----------- -----------
Total liabilities and stockholders' equity..... $ 38,819 $ 57,398 $ 1,474 $ 97,691
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
66
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL--SUMMIT HISTORICAL--ORCAD PRO FORMA COMBINED
------------------------- ------------------------- ----------------------- -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product
licenses...... $24,828 $15,446 $10,604 $35,385 $31,169 $23,142 $-- $ -- $ -- $60,213 $46,615 $33,746
Maintenance and
services...... 6,161 4,301 2,637 8,610 5,865 5,175 14,771 10,166 7,812
Other........... 450 567 1,051 -- -- -- 450 567 1,051
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Total
revenue..... 31,439 20,314 14,292 43,995 37,034 28,317 -- -- -- 75,434 57,348 42,609
Cost of revenue:
Product
licenses...... 807 573 651 4,764 4,142 3,675 5,571 4,715 4,326
Maintenance and
services...... 632 466 400 1,692 1,503 1,109 2,324 1,969 1,509
Write-off of
purchased
software...... -- -- -- -- -- 1,037 -- -- 1,037
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Total cost of
revenue..... 1,439 1,039 1,051 6,456 5,645 5,821 -- -- -- 7,895 6,684 6,872
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Gross profit...... 30,000 19,275 13,241 37,539 31,389 22,496 67,539 50,664 35,737
Operating
expenses:
Research and
development... 7,016 5,867 5,447 11,238 9,350 7,249 18,254 15,217 12,696
Sales and
marketing..... 10,591 9,319 7,547 15,416 11,877 8,793 26,007 21,196 16,340
General and
administrative... 4,209 3,188 3,286 4,810 4,793 3,507 9,019 7,981 6,793
In-process
technology.... 19,937 -- -- 2,203 -- 971 22,140 -- 971
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Total
operating
expenses.... 41,753 18,374 16,280 33,667 26,020 20,520 -- -- -- 75,420 44,394 36,800
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Income (loss) from
operations...... (11,753) 901 (3,039) 3,872 5,369 1,976 (7,881) 6,270 (1,063)
Interest
expense......... (12) (101) (206) -- -- -- (12) (101) (206)
Gain on sale of
product line.... 5,574 -- -- -- -- -- -- -- -- 5,574 -- --
Other income,
net............. 1,058 218 34 1,841 1,596 347 2,899 1,814 381
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Income (loss)
before income
taxes........... (5,133) 1,018 (3,211) 5,713 6,965 2,323 -- -- -- 580 7,983 (888)
Income tax
provision
(benefit)....... 742 (245) 400 1,809 1,699 690 261 (1,735) -- 2,812 (281) 1,090
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Net income
(loss).......... $(5,875) $ 1,263 $(3,611) $ 3,904 $ 5,266 $ 1,633 $(261) $ 1,735 $ -- $(2,232) $ 8,264 $(1,978)
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ----- ------- ------- ------- ------- -------
Earnings (loss)
per
share--Basic:
Earnings (loss)
per share..... $ (0.41) $ 0.10 $ (0.33) $ 0.43 $ 0.61 $ 0.41 $ (0.09) $ 0.39 $ (0.13)
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
Number of shares
used in
computing
basic earnings
(loss) per
share......... 14,403 12,240 11,085 9,165 8,618 4,012 458 431 201 24,026 21,289 15,298
Earnings (loss)
per
share--Diluted:
Earnings (loss)
per share..... $ (0.41) $ 0.10 $ (0.33) $ 0.41 $ 0.58 $ 0.24 $ (0.09) $ 0.36 $ (0.13)
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
Number of shares
used in
computing
diluted
earnings
(loss) per
share......... 14,403 13,243 11,085 9,446 9,046 6,853 177 452 (2,640) 24,026 22,741 15,298
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
67
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA COMBINED
HISTORICAL--SUMMIT HISTORICAL--ORCAD ADJUSTMENTS
-------------------- -------------------- -------------------- --------------------
1998 1997 1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Product licenses................... $ 16,775 $ 10,507 $ 17,503 $ 16,928 $ -- $ -- $ 34,278 $ 27,435
Maintenance and services........... 4,411 2,926 6,039 3,850 10,450 6,776
Other.............................. 183 267 -- -- 183 267
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue.................... 21,369 13,700 23,542 20,778 -- -- 44,911 34,478
Cost of revenue:
Product licenses................... 484 349 1,562 2,393 2,046 2,742
Maintenance and services........... 505 252 1,175 793 1,680 1,045
--------- --------- --------- --------- --------- --------- --------- ---------
Total cost of revenue............ 989 601 2,737 3,186 -- -- 3,726 3,787
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 20,380 13,099 20,805 17,592 41,185 30,691
Operating expenses:
Research and development........... 4,807 3,127 5,786 5,488 10,593 8,615
Sales and marketing................ 6,305 5,115 9,285 7,241 15,590 12,356
General and administrative......... 2,442 2,061 6,715 2,290 9,157 4,351
In-Process Technology.............. -- -- -- 2,203 -- 2,203
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses......... 13,554 10,303 21,786 17,222 -- -- 35,340 27,525
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ 6,826 2,796 (981) 370 5,845 3,166
Interest expense..................... (2) (9) -- -- (2) (9)
Other income, net.................... 494 449 868 921 1,362 1,370
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.... 7,318 3,236 (113) 1,291 -- -- 7,205 4,527
Income tax provision (benefit)....... 2,019 180 (40) 471 -- -- 1,979 651
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ 5,299 $ 3,056 $ (73) $ 820 $ -- $ -- $ 5,226 $ 3,876
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per share--Basic:
Earnings (loss) per share.......... $ 0.35 $ 0.22 $ (0.01) $ 0.09 $ 0.21 $ 0.16
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Number of shares used in computing
basic earnings (loss) per
share............................ 14,984 14,137 9,279 9,134 464 457 24,727 23,728
Earnings (loss) per share-- Diluted:
Earnings (loss) per share.......... $ 0.33 $ 0.20 $ (0.01) $ 0.09 $ 0.20 $ 0.16
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Number of shares used in computing
diluted earnings (loss) per
share............................ 16,240 15,000 9,279 9,388 725 469 26,244 24,857
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
68
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Condensed Financial Statements reflect the
Exchange Ratio of 1.05 shares of Summit Common Stock for one share of OrCAD
Common Stock. The actual number of shares of Summit Common Stock to be issued
will be determined at the Effective Time based on the number of shares of OrCAD
Common Stock outstanding at that date.
NOTE 2--PRO FORMA EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share amounts are based on
the weighted average number of common shares outstanding and dilutive common
equivalent shares assumed to be outstanding during the period using the treasury
stock method, giving effect to the Merger as if it had been consummated at the
beginning of the years presented given the assumptions described in Note 1.
NOTE 3--TRANSACTION COSTS
Summit and OrCAD estimate that they will incur direct and indirect costs of
approximately $3.9 million in connection with the Merger, relating mainly to
financial advisory fees, legal and accounting services for both parties,
personnel severance costs, the cancellation and continuation of contractual
obligations and other integration costs. These nonrecurring costs will be
charged to operations in the fiscal quarter in which the Merger is consummated.
The Unaudited Pro Forma Combined Condensed Balance Sheet reflects these
estimated transaction costs net of related taxes of $700,000 as if such costs
were incurred as of June 30, 1998, but the effect of these costs are not
reflected in the Unaudited Pro Forma Combined Condensed Statements of
Operations.
NOTE 4--CONFORMING ADJUSTMENTS
Summit has reviewed the status of the Combined Company's deferred taxes as
if the acquisition had occurred at the beginning of the first period presented
and has made necessary adjustments to the Combined Company's deferred taxes
based upon the Combined Company's profitability. Additionally, certain
reclassifications have been made to historical Summit and OrCAD amounts to
conform with the Combined Company's presentation. Such reclassifications had no
effect on previously reported Summit or OrCAD financial positions or results of
operations.
69
<PAGE>
ADDITIONAL MATTERS BEING SUBMITTED TO A
VOTE OF ONLY SUMMIT STOCKHOLDERS
PROPOSAL TWO-- AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION--INCREASE TO AUTHORIZED COMMON STOCK
On September 19, 1998, the Summit Board approved an amendment to the
Certificate to increase the number of authorized shares of Summit Common Stock
by 15,000,000 shares to 45,000,000 shares, contingent upon consummation of the
Merger. Under such amendment, subject to stockholder approval, the Fourth
Article of the Certificate would be amended and restated to read as follows:
"The corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that the corporation is authorized to issue is Fifty Million
(50,000,000) shares, consisting of Forty-Five Million (45,000,000) shares of
Common Stock, par value $0.01 per share, and Five Million (5,000,000) shares of
Preferred Stock, par value $0.01 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to fix or alter from time to time
the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof, including
without limitation the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series and the designation thereof, or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series."
As of - , 1998, there were 30,000,000 shares of Summit Common Stock
authorized, of which approximately - shares were issued and outstanding and
approximately - of which were reserved for issuance under Summit's stock benefit
plans leaving only approximately - authorized shares available for future
issuance. The issuance of Summit Common Stock to the stockholders and option
holders of OrCAD pursuant to Proposal One herein would require up to
approximately - shares of Summit Common Stock. Approval of the Merger is not
dependent on Summit stockholder approval of the increase in the authorized
number of shares of Summit Common Stock.
In addition, although Summit has no specific plans to use the additional
authorized shares of Summit Common Stock, the Summit Board believes that it is
prudent to increase the number of authorized shares of Summit Common Stock to
the proposed level in order to provide a reserve of shares available for
issuances in connection with possible future actions. Such actions may include,
but are not limited to, stock splits or stock dividends if the Summit Board were
to determine that such would be desirable to facilitate a broader base of
stockholders. The Summit Board also believes that the increased number of shares
will provide the flexibility to effect other possible actions such as
financings, corporate mergers, acquisitions of property, employee benefit plans
and other general corporate purposes. Having such additional authorized shares
available for issuance in the future would allow the Summit Board to issue
shares of Summit Common Stock without the delay and expense associated with
seeking stockholder approval. Elimination of such delays and expense occasioned
by the necessity of obtaining stockholder approval will better enable Summit
(or, after the Merger, the Combined Company), among other things, to engage in
financing transactions and acquisitions as well as to take advantage of changing
market and financial conditions on a more competitive basis as determined by the
Board.
70
<PAGE>
The increase in authorized Summit Common Stock will not have any immediate
effect on the rights of existing stockholders. To the extent that the additional
authorized shares are issued in the future, they will decrease the existing
stockholders' percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the existing stockholders.
The increase in the authorized number of shares of Summit Common Stock could
have an anti-takeover effect. Shares of authorized and unissued Summit Common
Stock could (within the limits imposed by applicable law) be issued in one or
more transactions that would make a takeover of Summit more difficult, and
therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of Summit Common Stock, and such additional shares could be
used to dilute the stock ownership or voting rights of persons seeking to obtain
control of Summit.
The Summit stockholders are being asked to approve such amendment. The
affirmative vote of the holders of a majority of the outstanding shares of
Summit Common Stock will be required to approve this amendment to the
Certificate. The effect of a broker non-vote or an abstention is the same as
that of a vote against the proposal.
THE SUMMIT BOARD UNANIMOUSLY RECOMMENDS THAT SUMMIT STOCKHOLDERS VOTE "FOR"
THE AMENDMENT OF THE CERTIFICATE TO INCREASE THE AUTHORIZED SUMMIT COMMON STOCK
TO 45,000,000 SHARES. APPROVAL OF THE MERGER IS NOT DEPENDENT ON SUMMIT
STOCKHOLDER APPROVAL OF THE INCREASE IN THE AUTHORIZED NUMBER OF SHARES OF
SUMMIT COMMON STOCK.
71
<PAGE>
SUMMIT BUSINESS
GENERAL
Summit is a leading supplier of software tools designed to solve the IC
engineering problems caused by increasing chip complexity and the corporate
problem of reusing highly valuable IP created by IC engineers. The worldwide
community of IC engineers is rapidly moving up in the design hierarchy from
physical design entry to functional level design. This migration is intended to
achieve greater engineering efficiency and shorter time to market and to provide
an excellent basis for IC intellectual property management. At the functional
level of design, engineers conceptualize designs in graphical paradigms such as
block diagrams, state machines and flow diagrams and then write programs
describing those concepts in a textual language called a Hardware Descriptive
Language ("HDL"). There are two standard HDLs, Verilog and VHDL. There are two
levels of functional design, Register Transfer Level ("RTL") and Behavioral
level. The mathematical process to translate from an RTL design to the physical
level of design is called synthesis. With Summit's Visual HDL product, the IC
engineer can draw functional level designs on a workstation or PC using familiar
graphical paradigms such as block diagrams, state machines and flow diagrams.
Visual HDL compiles these graphical representations into correct by
construction, synthesis ready, behavioral or RTL designs. Summit's suite of RTL
simulation, verification and optimization software tools then provide a highly
efficient environment for getting a design from concept to synthesis. Summit's
IP solutions allow the synthesizable design with graphical executable
documentation to be placed in libraries for reuse or to be distributed in a
software model format for early inclusion in future electronic system or product
designs.
RECENT DEVELOPMENTS
Summit entered into a joint venture with Anam, effective April 1, 1996,
pursuant to which the joint venture corporation (Summit Asia, Ltd. ("Summit
Asia")) acquired exclusive rights to sell, distribute and support all of
Summit's products in the Asia-Pacific region, excluding Japan. Prior to that
date, Anam was an independent distributor of Summit's products in Korea. In
April 1998, Summit Asia, which is headquartered in Korea, was renamed Asia
Design Corporation ("ADC"). In May 1998, Summit exchanged a portion of its
ownership in ADC for ownership in another company located in Hong Kong, Summit
Design Asia, Ltd. ("SDA"). SDA also acquired an equity investment in ADC. In
June 1998, Summit and Anam each loaned SDA $750,000, which is guaranteed by ADC.
SDA acquired from ADC the exclusive rights to sell, distribute and support
Summit's products in the Asia-Pacific region, excluding Japan. SDA granted
distribution rights to Summit's products to ADC for the Asia Pacific region,
excluding Japan.
On June 30, 1998, Summit acquired ProSoft in a transaction accounted for as
a pooling-of-interests. ProSoft develops software tools used to verify embedded
systems software prior to the availability of a hardware prototype. The effect
of the combination did not have a material impact on the net sales and net
income of the combined entity.
BACKGROUND
EDA software has played a critical role in accelerating the dramatic
advances in the electronics industry over the past two decades. The need for
advances in EDA tools has resulted from the increasing complexity of ICs, as
well as the increasing number of new IC design starts and the scarcity of
skilled IC design and verification engineers. The increase in the complexity of
ICs lengthens the development cycle while, at the same time, competitive
pressures shorten product life cycles. The objectives of EDA are to reduce time
to market and the costs associated with product design, entry, analysis,
verification and optimization while permitting the development of a greater
number of designs of higher speed and density chips that can be reliably
manufactured.
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<PAGE>
IC development productivity has increased through the evolution of EDA, but
has significantly lagged fabrication technology in recent years. Fabrication
technology has advanced from the ability to produce chips with over 1 thousand
gates at 5 micron line-widths in the 1970s, to more than 10,000 gates in the
1980s, to greater than 1 million gates at sub 0.5 micron line-widths today. For
example, the processor used in the original IBM PC in 1981 had approximately
10,000 gates and was manufactured using 3 micron process technology, whereas the
Pentium Pro introduced in 1995 contains approximately 2 million gates and is
manufactured using 0.35 micron process technology.
In contrast to the progress in fabrication technology, the productivity of
the average design engineer has not kept pace. As a result, a greater number of
engineering hours are required to produce many of today's more complex designs,
leading to either longer development schedules or the need for larger design
teams. To address this challenge, organizations with IC design capabilities
continue to search for EDA tools that enable them to increase their productivity
and meet the aggressive development schedules dictated by competitive forces.
ADVANCES IN EDA
EDA tools emerged in the early 1970s with the introduction of computer aided
design ("CAD") software that permitted engineers to textually enter designs of
several thousand gates, and in the early 1980s evolved to computer aided
engineering ("CAE") software that enabled engineers to graphically enter designs
of tens of thousands of gates. Despite the advantages of graphical CAE tools,
design at the gate level became impractical and more error prone as design
complexities and gate counts increased. To address these problems, textual HDLs,
logic synthesis and functional level simulation tools were introduced in the
late 1980s, allowing engineers to engage in high level design automation
("HLDA"). To use the HLDA methodology, engineers are required to describe their
IC design in a textual HDL, such as VHDL or Verilog. After the design is coded
in HDL, the HDL description can be executed using simulation software to emulate
the operation of the desired IC, allowing the engineer to debug the design
without building a hardware prototype. The HDL description can be automatically
translated to a gate level description using a synthesis software tool.
LIMITATIONS OF HLDA
HLDA tools have enabled engineers to accelerate IC development schedules and
create more complex chips. However, these tools have significant limitations.
First, the conventional design flow for IC engineers using HLDA tools is to
represent a design in hand-drawn graphical paradigms such as block diagrams,
state machines, flow charts or truth tables, and then laboriously translate
their hand-drawn graphical designs into a textual HDL which resembles software
program code. This process is time consuming and error prone, and requires the
engineer to master a complex programming language. Second, the numerous lines of
HDL code that comprise a design are very difficult for engineering teams to
understand and communicate during design reviews and equally difficult for
engineering management to understand and evaluate. Third, while it would be
possible to accelerate time to market by reusing portions of HDL code where
similar functions are needed, reuse of HDL code is difficult and often avoided
because the complex HDL code complicates understanding the design's functional
intent. Fourth, the HLDA methodology is further limiting because textual HDL
code typically must be written in either Verilog or VHDL and according to strict
rules unique to a specific synthesis tool. This limits the ability of engineers
to increase synthesis efficiency by using various HDL languages and multiple
synthesis tools. Finally, the lack of stylistic restrictions in HDLs often
allows designers to express an IC functional design several different ways. As a
result, an HDL design could comply with HDL programming constraints and yet not
be able to be synthesized. As importantly, the lack of restrictions allows a
designer to produce an HDL description that can be synthesized but that is not
as efficient in terms of the resulting gate count or circuit timing. Further,
the lack of programming consistency between engineers arising from the lack of
stylistic restrictions complicates design team management and design
integration. Primarily as a result of
73
<PAGE>
the above shortcomings, adoption of HLDA tools as of 1995 had been limited to
approximately 18% of the estimated 285,000 IC design engineers worldwide.
In order to meet the market's demands for more powerful, higher density ICs
and to reduce both time to market and cost, IC designers and manufacturers seek
design, analysis, verification and optimization tools that overcome the
limitations of the current HLDA methodologies.
THE SUMMIT SOLUTIONS
Summit offers software products to assist design engineers to meet the
market demands for rapid time to market, increased product functionality and
lower product cost while providing the corporations that employ these engineers
an efficient way to document, revise and distribute the highly valuable IC
intellectual property they create. In 1994, Summit introduced Visual HDL for
VHDL, its first graphical product, which accelerates the development, analysis
and documentation of single function ICs as well as complete systems on a chip.
Visual HDL products automate manual design entry and verification by enabling IC
systems and design engineers to create and verify IC designs using familiar
graphical paradigms such as block diagrams, state machines, flow charts and
truth tables, rather than less intuitive textual HDL code. In 1997, Summit's
software tool suite, named "HLDA Plus", became a market leader in RTL solutions.
Summit's HLDA Plus tools assist an IC engineer from concept to synthesis in the
shortest period of time and with a design that has been analyzed and verified
for correctness and optimized for IC speed and or size. Visual HDL for VHDL and
Verilog has become an industry leader for graphical design creation, analysis
and IP management for both Workstation and PC-based IC engineering. Summit's
seven other HLDA Plus tools include a mathematical RTL design verification
product, HDL Alert, three simulation analysis tools that help the engineer
prepare simulation input data, run simulations, analyze simulation results, and
HDL Score which allows the engineer to determine when the simulation process has
tested the entire design. State Optimize allows the engineer to optimize designs
for IC speed and or size, Virtual CPU ("V-CPU") provides a capability that
allows a software and hardware engineer to work together at design time in a
highly efficient co-verification environment and E-Sim allows the engineer to
verify embedded systems software prior to the availability of a hardware
prototype.
Summit believes that its products provide the following benefits:
INCREASED DESIGN PRODUCTIVITY
Summit's HLDA Plus products enhance the designers' ability to create, verify
and document HDL designs while managing the HDL development environment. These
products provide the ability to capture, analyze and verify a variety of high
level graphical descriptions and automatically produce a synthesis-ready RTL
design, thus eliminating the need to perform time-consuming and error-prone
manual coding in an HDL. These familiar graphical descriptions are more easily
debugged and more easily communicated among IC engineering team members. The
descriptions also facilitate review and approval by engineering management.
DESIGN REUSE, RE-TARGETING AND CONSISTENCY
Summit's HLDA Plus products enable engineers to use libraries of existing
VHDL or Verilog code. This code can be used as HDL inputs or automatically
converted into a graphical format. Due to the widespread ability of engineers to
understand this graphical format, designs can be more easily modified and reused
in future developments. In addition, Summit's products can optimize the design
output for nearly all of the EDA industry's standard synthesis and simulation
tools. In the event the designer requires a different synthesis or simulation
tool, the design can be automatically re-targeted to optimize the HDL output for
the desired tool set. Finally, because each engineer's work is implemented using
Summit's software, which automatically generates the actual HDL code, design
efficiency and consistency is maintained even when several engineers work on a
project.
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STRATEGY
Summit's mission is to become the leading supplier of HLDA software and to
achieve wide-spread acceptance of these technologies by expanding the size of
Summit's served market. The key objectives of Summit's strategy to achieve this
mission are as follows:
ACCELERATE MARKET ADOPTION OF HLDA PLUS
Summit intends to expand market acceptance by focusing on key customer
accounts to ensure their successful adoption of the HLDA Plus methodology.
Summit believes that successful adoption by certain key customers in various
industries will promote adoption by other customers within those industries.
Summit also believes that its joint development and marketing programs with
industry leaders promote awareness and adoption of HLDA. In addition, Summit
supports all of the industry's major synthesis, simulation, layout and test
products and continues to support and complement new standards as they emerge.
Summit also targets student engineers by introducing them to its HLDA Plus tools
through programs with various universities.
Summit will continue its aggressive third party position to form and
maintain relationships with EDA industry leaders. This strategy will promote an
open environment for our customers that provides for future flexibility and
maximum use of their capital investments. Seamless interoperability is the
mission of this strategic objective.
LEVERAGE SUMMIT'S HLDA PLUS TECHNOLOGY
Summit intends to integrate all of its technology into a design environment
that focuses on getting an IC engineer from product conceptualization through
design creation, analysis, verification and optimization. This environment will
provide the most efficient methodology to get a design correct and ready for
synthesis. In addition Summit's HLDA Plus software environment includes a
complete hardware /software coverification capability and the ability for the
engineer to create an encrypted software model of the synthesized design that
can be used by systems and electronic product designers long before a hardware
prototype is available. The products comprising this design environment can be
used as a bundled set or individually with other analysis, verification and
simulation products available from other EDA vendors.
BROADEN THE SCOPE OF HLDA PLUS
Summit will continue to identify challenges facing both IC systems engineers
and IC design engineers in the areas of HLDA and to focus its development
efforts on products to further increase productivity in the creation, analysis,
verification, documentation and optimization of single function ICs and complete
systems on a chip. Summit believes that power, timing, thermal and cost
constraints management and analog circuit design will become increasingly
significant bottlenecks, especially in the area of complete systems on a chip.
Summit believes that in the future its HLDA Plus products will provide a
graphical means for both systems and design engineers to specify the functional
intent and simulate the interoperability of hardware and software, as well as
providing the capability to perform what-if analysis on constraints such as
power, speed, temperature and cost at the front end of the development process.
PRODUCTS
Visual HDL for VHDL and Verilog provide system design management, graphical
design creation, graphical level simulation, HDL code generation and high speed
compiled simulation. These products are the result of a focused five-year
development effort of approximately 40 EDA software development experts. Visual
Testbench allows a design engineer to graphically create timing and pattern data
to drive the RTL simulation process. This product allows the IC designer to
"what-if" on timing variables with the goal of quickly bringing a design to a
substantially bug-free state. As a result of the acquisitions of TriQuest,
SimTech and ProSoft, Summit offers analysis, verification, and optimization
products which
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include VirSim, HDL Score, HDL Alert, State Optimize, V-CPU and E-Sim which
provide a design verification environment for all RTL designs. Visual IP allows
the design engineer to create a software model of an RTL design that has high
quality graphical documentation and can be distributed to other electronic
designers to be used in IC systems and electronic products long before chips are
available. Summit's products are constructed using modern software design
methods and programming languages such as C and C++. Summit's products operate
on the industry's most popular UNIX workstations and, on PCs running Windows
3.1, Windows 95 and Windows NT.
DESIGN SOLUTION PRODUCTS
Visual HDL for VHDL and Visual HDL for Verilog (together, "Visual HDL") are
graphical creation and analysis solutions designed to simplify and accelerate
top-down design. Visual HDL can raise productivity by allowing system level,
behavioral level and functional level design entry using graphical design
methods such as block diagrams, state machines, flow charts and truth tables. As
a result, engineers no longer need to textually program their designs in lines
of VHDL or Verilog code. Once the design is graphically captured, Visual HDL can
then automatically generate synthesizable HDL code that is optimized for
specific synthesis tools.
Visual HDL for VHDL uses VHDL as its internal data format and Visual HDL for
Verilog uses Verilog as its internal data format, allowing both products to
support all the hardware modeling features of both of these standard HDL
languages. Competing products typically use proprietary internal languages
making them more difficult to use because the design engineer must learn an
additional textual language. Such products do not take full advantage of the
functionality of VHDL or Verilog, thus limiting the level of integration that
can be achieved with industry standard simulation and synthesis tools.
The Visual HDL design environment offers several benefits to top-down
designers, including easier design creation and faster, more complete design
debugging. Because Visual HDL represents HDL code graphically, designers can
better communicate their ideas in a much more intuitive manner. This allows
experienced and novice HDL designers to work together efficiently. Visual HDL
automatically generates HDL code that is optimized for efficient synthesis. It
can also import VHDL or Verilog code and automatically generate graphics from
this source text. Utilizing the graphical representations generated by Visual
HDL, designers are able to quickly determine the original design intent,
allowing them to save time by reusing design components in future designs. An
important aspect of Visual HDL is its graphical simulation and debug
environment. This environment allows designers to view the path of simulation
execution and the simulation results. This gives them the opportunity to shorten
development time by focusing on debugging their circuits instead of debugging
their HDL code. Visual HDL also provides point-and-click functionality which
allows engineers to quickly determine the cause of a bug by highlighting the
specific line of text and the related graphical representation where the error
exists, thereby significantly shortening the time to debug a program.
Text-To-Graphics is now offered as an add-on to Visual HDL. With
Text-To-Graphics, the user can convert any VHDL or Verilog textual description
into graphics and control the process by choosing the resultant graphical
format. Text-To-Block-Diagram now contains the graphic bundling feature (as
described below). Text-To-State Machine converts VHDL/Verilog descriptions into
graphical State Diagrams, and the Text-To-Flow Chart feature converts textual
descriptions of VHDL and Verilog into graphical flowcharts.
Visual HDL operates in both VHDL and Verilog on UNIX workstations and on
PCs. It supports a broad range of HLDA synthesis and simulation products,
including products from Synopsys, Mentor Graphics, Cadence, IBM, Altera,
Simplicity and Exemplar. Visual HDL for VHDL was first shipped in the first
quarter of 1994, and Visual HDL for Verilog was first shipped in the fourth
quarter of 1995. The fifth major release of Visual HDL was released in December
1997.
As of August 31, 1998, Visual HDL's single seat list price ranged from
$18,000 to $30,000. The list price of the UNIX workstation version of Visual HDL
for VHDL is higher than that for PCs. The actual
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price for a system also varies depending on the duration of the license and the
simulation features included. For example, because Visual HDL for VHDL generally
includes a Summit simulator, its price is higher than Visual HDL for Verilog,
which uses the Verilog XL simulator sold by Cadence. Finally, the Visual HDL
price for a floating license commands a premium over the node locked version
since it offers multi-user flexibility.
Summit recently introduced Visual IP, which allows the design engineer to
create a software model of an RTL design that has high quality graphical
documentation and can be distributed to other electronic designers to be used in
IC systems and electronic products long before chips are available. The
synthesizable design with graphical executable documentation can be placed in
libraries for reuse or distribution in an encrypted, executable software model
format for early inclusion in future electronic systems or product design.
Visual Testbench provides a methodology for creating simulation stimulus,
validating device timing specifications and tying simulation results directly to
test. Visual Testbench is designed to raise productivity by providing graphical
timing diagrams, specification spreadsheets and flowcharts for simulation
stimulus creation. In addition, this product allows the designer to check that
timing requirements have been met by the simulation. Summit anticipates a
lengthy period of test marketing for Visual Testbench. Accordingly, Summit
cannot predict the extent, if any, to which it will realize revenue from this
product.
VERIFICATION SOLUTION PRODUCTS
Summit's verification products include VirSim, HDL Score, HDL Alert, State
Optimize, V-CPU and E-Sim.
VirSim provides an integrated set of advanced debug and analysis tools for
use with the leading Verilog simulators. VirSim is a multi-windowed product that
makes extensive use of graphics. It provides an advanced graphical debug
environment that includes multiple debug windows for presenting Verilog design
and simulation results in different graphical views. Outputs from both digital
and analog simulation runs are supported and signal values can be displayed as
digital or analog graphical waveforms. Multiple simulation runs can be debugged
at the same time, allowing signals from different simulations to be compared
easily in graphical and analytical formats.
HDL Score provides a quantitative measure of the quality of simulation tests
that have been applied to an entire design or to user-selected portions of a
design. Simply stated, HDL Score tells the design engineer when they have
performed an adequate amount of simulation. HDL Score works with all RTL designs
and simulation environments and fits seamlessly into the design verification
process. While using HDL Score prior to synthesis is the most productive way of
using the tool, HDL Score supports coverage for all levels of design and all HDL
language implementations.
HDL Alert is a static analysis product that mathematically verifies RTL
designs. It incorporates proprietary verification in algorithms that
statistically analyze a design and provides graphical information about design
flows. HDL Alert quickly finds design errors that simulation cannot detect or
that require excessive simulation hours to detect.
State Optimize is an optimization and exploration tool that works at the RTL
level of design. It accepts RTL descriptions of control logic and generates
multiple RTL implementation alternatives with various speed and IC area
characteristics. The engineer simply chooses the desired result from a graphical
display or plot and State Optimize produces the RTL design.
V-CPU allows embedded-system designers to analyze and validate the
interaction between hardware and software early in the development process,
while design options are still open. Co-verification of software can begin as
soon as there is an executable description of the software and hardware. This
early integration of efforts allows problems to be detected while they are still
easy to fix. With V-CPU, software
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developers can test software against simulated hardware at high execution rates,
and hardware developers can validate the system architecture with stimulus
provided by the software.
E-Sim is a product which is used by engineers to verify embedded systems
software prior to the availability of a hardware prototype.
Summit's future success depends primarily upon the market acceptance of its
existing and future HLDA Plus products. Summit's HLDA Plus products incorporate
certain unique design methodologies and thus represent a departure from industry
standards for design entry and verification. Summit believes that broad market
acceptance of its HLDA Plus 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
Summit's financial resources and its technical, managerial, service and support
expertise. Although demand for HLDA Plus products has increased in recent years,
the market for HLDA Plus 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 Summit's HLDA Plus products. A decline in
the demand for, or the failure to achieve broad market acceptance of, Summit's
HLDA Plus products will have a material adverse effect on Summit's business,
financial condition, results of operations or cash flows.
CUSTOMERS
Summit's end-user customers include companies in a wide range of industries,
including semiconductor devices, telecommunications, computer/peripherals,
consumer electronics, aerospace/defense and other electronics entities. In 1997,
sales to CSC accounted for 29% of Summit's total revenue, no other customer
accounted for more than 10% of total revenue. As of February 28, 1998, Summit
had installed more than 3,100 seats of its design solution tools in more than
350 companies, of which more than 280 companies had entered into support
contracts. In addition, as of such date, Summit has installed more than 4,000
seats of verification solution tools. The following table lists a representative
sample of Summit's worldwide end-user customers that generated at least $25,000
in revenue for Summit in 1996 or 1997:
<TABLE>
<CAPTION>
SEMI-CONDUCTOR TELECOMMUNI- COMPUTER/ CONSUMER AEROSPACE/
DEVICES CATIONS PERIPHERALS ELECTRONICS DEFENSE OTHER
<S> <C> <C> <C> <C> <C>
AMD Alcatel Adaptec Canon Allied Signal Credence
Chips and Tech- Bay Networks Compaq Delco Electronics Hughes Aircraft Fuji/Xerox
nologies Bell Northern Digital Equipment Honeywell Lockheed-Martin Lucky Goldstar
Cisco Systems Bosch Fujitsu Matsushita Raytheon Teradyne
I-Cube Cabletron Hewlett-Packard Mitsubishi Rockwell Xerox
Level One Ericsson Hitachi NEC TRW Zenith
LSI Logic Hitachi IBM Phillips
Motorola Lucent OKI Sharp
National Semi Newbridge Quantum Sony
PMC Sierra Networks Seagate
SGS-Thomson Nokia Siemans
Texas Instruments Northern Telecom Storagetek
Stratus
Sun Microsystems
</TABLE>
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The following examples illustrate the selection and use of Summit's products
by certain of Summit's customers. There can be no assurance that new or existing
customers will achieve any of the benefits described below.
A major communications company used Visual HDL to provide solutions for
their electronic systems designers. The team designed an FPGA, which provided
clock signal controls for a backplane interface. There was an extremely tight
deadline on this project and the design team had no previous HDL experience. The
team found Visual HDL very intuitive and easy to adapt to fit their design
requirements which helped them complete their design in the short time frame
allotted.
A workstation division of a major computer company used Visual HDL to
develop ASIC's for their hardware. Their objectives were governed by
functionality, cost, quality and time-to-market constraints. This industry is
highly competitive and required them to use leading edge technology to meet
their goals. Their design teams were a mix of expert and novice designers, which
necessitated finding a tool to accommodate everyone in the team. Using Visual
HDL's graphical capability improved the team's communication and coordination.
Visual HDL was a natural fit as they design in a top-down fashion.
A networking and communications division of a major electronics company
believed that the V-CPU hardware/software co-simulation environment allowed
their operation to develop software prior to having actual silicon. This
capability reduced software and hardware revisions as hardware/software
integration was verified prior to tape out, thereby reducing time to market. The
flexibility of the V-CPU product and the support from Summit enabled them to use
the tool with their hardware models and their software development environment
within one week.
A major semiconductor company selected VirSim for their entire Design Center
after having had excellent experiences with it on past projects. VirSim was
found to be a robust tool and became the mainstay of their development
environment. They believed the ease of building complex expressions for
identifying problems was exceptional. Projects which had previously taken hours
of scanning the screen can now be performed in seconds.
MARKETING AND SALES
Summit markets its products to customers worldwide who design or manufacture
ICs for their own use or sale in a wide variety of industries. The primary
objectives of Summit's marketing effort are to increase market awareness of
Summit's products, to promote the adoption of HLDA Plus methodologies, and to
evaluate customer satisfaction and determine additional customer demands. To
increase market awareness, Summit displays its HLDA Plus products at all major
industry trade shows, including the annual Design Automation Conference. Summit
also promotes its products through advertisements in trade journals and by
sponsoring various seminar series. To promote the adoption of its methodologies,
Summit offers its products at a reduced cost to design engineering programs at
several universities so that engineering students may become familiar with
Summit's products and design techniques.
Summit's sales strategy is to employ its direct sales as well as its
independent and affiliated distributors to efficiently and effectively target
individual customer and product market segments. As of August 31, 1998, Summit
had 50 employees in its sales organization and 10 employees in its marketing
group.
DIRECT SALES
Summit employs direct sales teams which combine technically proficient sales
persons with skilled field applications engineers capable of serving the
sophisticated needs of the management and engineering staff of its customers.
Summit assigns selected direct sales personnel to target major accounts, such as
vertically integrated systems design houses like Lucent, IBM, Motorola and
Siemens that produce their own IC designs for their electronic products. Major
accounts receive particular focus because of their size and influence as
industry leaders.
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Summit's direct sales force operates in the United States and portions of
Europe, with offices in Arizona, California, Colorado, Florida, Massachusetts,
Minnesota, Oregon and Texas, as well as France, Germany and the United Kingdom.
Approximately 71%, 54% and 58% of Summit's revenue for the years ended December
31, 1997, 1996 and 1995, respectively, were generated through Summit's direct
sales force.
DISTRIBUTORS
Distributors promote and distribute Summit's products in the Asia-Pacific
region, the United Kingdom, France, Germany, Sweden, Italy and Israel.
Approximately 29%, 46% and 42% of Summit's revenue in the years ended December
31, 1997, 1996 and 1995, respectively, were attributable to sales made through
distributors. Summit had entered into a joint venture with Anam, effective April
1, 1996, pursuant to which the joint venture corporation (Summit Asia, Ltd.
("Summit Asia")) acquired exclusive rights to sell, distribute and support all
of Summit's products in the Asia-Pacific region, excluding Japan. Prior to that
date, Anam was an independent distributor of Summit's products in Korea. In
April 1998, Summit Asia, which is headquartered in Korea, was renamed Asia
Design Corporation ("ADC"). In May 1998, Summit exchanged a portion of its
ownership in ADC for ownership in another company located in Hong Kong, Summit
Asia, Ltd. ("SDA"). SDA also acquired an equity investment in ADC. In June 1998,
Summit and Anam each loaned SDA $750,000, which is guaranteed by ADC. SDA
acquired from ADC the exclusive rights to sell, distribute and support Summit's
products in the Asia-Pacific region, excluding Japan. SDA granted distribution
rights to Summit's products to ADC for the Asia Pacific region, excluding Japan.
During the first quarter of 1997, Summit 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 March 1999,
subject to Summit'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, Summit entered into a
three year, exclusive distribution agreement for its HLDA 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 Summit and Seiko and
terminable by either party for breach. In March 1997, Summit entered into a
three year distribution agreement with Kanematsu USA, Inc. to which Kanematsu
was granted exclusive distribution rights to sell, distribute and support
certain verification products in Japan. For the year ended December 31, 1997,
all sales of Summit's products in the Asia-Pacific region were made through
Summit Asia, ATE, Kanematsu and Seiko. There can be no assurance the
relationships with Summit Asia, ATE, Kanematsu and Seiko will be effective in
maintaining or increasing sales relative to the levels experienced prior to such
relationships. Summit also has independent distributors in Europe and is
dependent on the continued viability and financial stability of these
distributors.
Approximately 34%, 50% and 53% of Summit's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively, were attributable to sales made
outside of the United States. In order to successfully expand international
sales, Summit 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 Summit's operating margins. In addition, to the extent that
Summit is unable to effect these additions in a timely manner, Summit's growth,
if any, in international sales will be limited. There can be no assurance that
Summit will be able to maintain or increase international sales of Summit's
products, and failure to do so could have a material adverse effect on Summit's
business, financial condition, results of operations or cash flows. Summit's
reliance on distributors involves certain risks. For example, Summit is
dependent on the continued viability and financial stability of its
distributors. Since Summit'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, Summit Asia, ATE, Kanematsu and Seiko, as
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well as Summit's other distributors, may offer products of several different
companies, including competitors of Summit. There can be no assurance that
Summit's current distributors will continue to market or service and support
Summit's products effectively, that any distributor will continue to sell
Summit'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 Summit's distributors could have a material adverse effect on Summit's
business, financial condition, results of operations or cash flows.
CUSTOMER SERVICES
Technical support is available to customers on both a pre-sale and post-sale
basis. Pre-sale support involves Summit's application engineers working with
Summit's direct sales force and distributors to provide on-site support during
the end user's evaluation and implementation process. Post-sale support is
provided through annual maintenance contracts which provide customers access to
Summit's technical support team via telephone, minor enhancements and any major
upgrades. This program is sold for 15% to 20% of the list price of the product,
depending on the product. Summit provides its customers with a 90-day warranty
that its product media is free from defects.
In addition to its maintenance, technical support and upgrade fees, Summit
also conducts a variety of training programs ranging from introductory level
courses to advanced training on full use of all of its products. Training is
offered at Summit's facilities, at distributors' facilities and at customer
locations worldwide. Summit intends to further expand its focus on customer
training. For the years ended December 31, 1997, 1996 and 1995, maintenance and
services provided approximately 20%, 21% and 18% of Summit's total revenue,
respectively.
COMPETITION
The EDA industry is highly competitive and Summit expects competition to
increase as other EDA companies introduce HLDA products. Summit principally
competes with Mentor Graphics and a number of smaller firms. Indirectly, Summit
also competes with other firms that offer alternatives to HLDA 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 Summit. Some of Summit's
current and future competitors offer a more complete range of EDA products and
may distribute products that directly compete with Summit's HLDA Plus products
by bundling such products with their core product line. In addition, Summit'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 Summit'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 Summit to offer point solutions instead of, or in
addition to, Summit's current software products. Such point solutions would be
priced lower than Summit's current product offerings and could cause Summit's
average selling prices to decrease, which could have a material adverse effect
on Summit's business, financial condition, results of operations or cash flows.
Summit 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. Summit believes that it
competes favorably overall with respect to these factors. However, in particular
cases, Summit's competitors may offer HLDA products with functionality which is
sought by Summit's prospective customers and which differs from that offered by
Summit. 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 Summit's competitors by a larger, more established EDA
vendor could create a more significant competitor. There can be no assurance
that Summit will be able to compete successfully against current and future
competitors or that competitive pressures faced by Summit will not have a
material adverse effect on its business, financial condition, results of
operations or cash flows. There can be no assurance that Summit's current and
future competitors will not be able to develop products
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comparable or superior to those developed by Summit or to adapt more quickly
than Summit 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 Summit's business, financial condition, results of operations or cash
flows.
PRODUCT DEVELOPMENT
Development of HLDA products has been performed at Summit's offices in
Israel and at Summit's principal office in Beaverton, Oregon. As the result of
the acquisitions of TriQuest and SimTech during 1997, and ProSoft in 1998,
Summit has added additional research and development facilities in Campbell,
California, New Brighton, Minnesota and Finland. As of August 31, 1998, Summit's
research and development team consisted of 93 software developers, dedicated to
Summit's products.
For the years ended December 31, 1997, 1996, and 1995, Summit's research and
development expenditures were approximately $7.0 million, $5.9 million, and $5.4
million, respectively, which represented approximately 22%, 29%, and 38% of
revenue in each such period. Summit has to date expensed all research and
development costs as incurred.
Summit's research and development strategy is to be proactive in determining
customer needs and to develop new HLDA products to meet these needs. Summit
believes that system-level definition and design analysis will become
increasingly significant bottlenecks in the IC development process and thus
present product development opportunities. Summit's research and development
efforts are focused on creating products to further increase productivity in the
creation, verification, documentation and the preservation of both IC and system
level designs.
Summit has actively sought to establish cooperative relationships with
certain EDA industry leaders in order to gain early access to new product
information and to better integrate Summit's products with those supplied by
other vendors in the EDA market. For example, Summit has a relationship with
Cadence pursuant to which Cadence helps specify the integration between Summit's
Visual HDL for Verilog and Cadence Verilog XL simulator. Summit believes that
these relationship mutually benefit Summit and the EDA vendors by fostering
development and facilitating interoperability of Summit's and vendors'
complementary products. These relationships are informal and may be terminated
by either party with limited notice. In addition, such relationships are with
companies that are current or potential future competitors of Summit. If any of
these relationships were terminated and Summit was 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,
Summit could experience a significant increase in development costs, the
development process would take longer, product introductions would be delayed
and Summit's business, financial condition, results of operations or cash flows
could be materially adversely affected. 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. Summit'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 Summit will be successful in developing and marketing product enhancements
or new products that respond to technological change or emerging industry
standards, that Summit 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 Summit 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
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other customer requirements, particularly if such product releases have been
pre-announced, Summit's business, financial condition, results of operations or
cash flows would be materially adversely affected.
Software products as complex as those offered by Summit may contain errors
that may be detected at any point in the products' life cycles. Summit 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 Summit 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 Summit's reputation or increased service and warranty costs, any of
which could have a material adverse effect on Summit's business, financial
condition, results of operations or cash flows.
PROPRIETARY RIGHTS
Summit's success depends upon its proprietary technology. Summit 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, Summit
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, Summit'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 Summit's products
or technology without authorization, or to develop similar technology
independently. In addition, effective protection of intellectual property rights
may be unavailable or limited in certain foreign countries.
Summit provides its products to end-users primarily under "shrink-wrap"
license agreements included within the packaged software. In addition, Summit
delivers certain of its verification products electronically under an electronic
version of a "shrink wrap" license agreement. These 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 Summit's proprietary rights as fully as do the laws of the United
States. There can be no assurance that Summit'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. Summit could be
increasingly subject to infringement claims as the number of products and
competitors in Summit'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. Although Summit is not
aware of any threatened litigation or infringement claims, there can be no
assurance that a third party will not claim such infringement by Summit with
respect to current or future products. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product delays or
require Summit to enter into royalty or licensing agreements. Such royalty or
license agreements, if required, may not be available on terms acceptable to
Summit or at all. Failure to protect its proprietary rights or claims of
infringement could have a material adverse effect on Summit's business,
financial condition, results of operations or cash flows.
OPERATIONS IN ISRAEL
Summit's research and development operations related to its Visual HDL
products are located in Israel and may be affected by economic, political and
military conditions in that country. Accordingly, Summit's business, financial
condition, results of operations or cash flows could be materially adversely
affected if hostilities involving Israel should occur. This risk is heightened
due to the restrictions on Summit'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 "Summit--Summit Business--Israeli
Research, Development and Marketing Grants." In addition, while all of Summit's
sales are denominated in U.S. dollars, a portion of Summit's annual costs and
expenses in Israel are paid in Israeli currency.
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<PAGE>
These costs and expenses were approximately $4.7, $4.3 and $4.3 million in 1997,
1996 and 1995, respectively. Payment in Israeli currency subjects Summit to
foreign currency fluctuations and to economic pressures resulting from Israel's
generally high rate of inflation, which has been approximately 7%, 11% and 8%
during 1997, 1996, and 1995, respectively. Summit'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 Summit's business, financial condition, results of operations or cash
flows. In addition, coordination with and management of the Israeli operations
requires Summit to address differences in culture, regulations and time zones.
Failure to successfully address these differences could be disruptive to
Summit's operations.
Summit's Israeli production facility has been granted the status of an
"Approved Enterprise" under the Israeli 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 Summit to comply with
these conditions, the tax benefits could be canceled, in whole or in part, and
Summit would be required to refund the amount of the canceled benefits, adjusted
for inflation and interest. There can be no assurance that Summit'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
Summit's business, financial condition, results of operations or cash flows.
ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS
Summit's Israeli subsidiary obtained research and development grants from
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
December 31, 1997, all amounts have been repaid. 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. Summit's
Visual HDL for VHDL products have been developed under grants from the Chief
Scientist and thus are subject to these restrictions. If Summit is unable to
obtain the consent of the government of Israel, Summit 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, Summit would be unable
to minimize risks particular to operations in Israel, such as hostilities
involving Israel. Although Summit is eligible to apply for additional grants
from the Chief Scientist, it has no present plans to do so. Summit has 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 June 30, 1997, approximately $261,000 was outstanding under the
grant.
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EMPLOYEES
As of August 31, 1998, Summit had 196 employees, 108 of whom were engaged
primarily in research and development and related operations, 60 of whom were
engaged primarily in sales and marketing and 28 of whom were engaged primarily
in corporate management and administration. A total of 123 of these employees
were located in the United States, 57 in Israel and 16 in Europe. Summit's
employees are not represented by any collective bargaining organization and
Summit has never experienced a work stoppage. Summit's future success will
depend, in part, on its ability to continue to attract, retain and motivate
highly qualified technical, marketing and management personnel, who are in great
demand.
LEGAL PROCEEDINGS
Summit is not a party to any material litigation and is not aware of any
pending or threatened litigation that could have a material adverse effect upon
Summit's business, operating results or financial condition.
PROPERTIES
Summit's principal facility, located in Beaverton, Oregon, consists of
approximately 31,000 square feet of office space leased pursuant to an agreement
which terminates on December 31, 1999. The rent and common area fees payable on
this facility are currently approximately $28,000 per month. This space is used
for Summit's U.S. research and development, production, sales and marketing and
administration.
Summit also leases approximately 9,800 square feet of office space in
Herzlia, Israel for research and development under a lease with DCL Technologies
Ltd. that expires on December 31, 1998. The rent payable on this office space is
currently $12,100 per month, and increases over the term of the lease based on
the Israeli consumer price index.
Additionally, Summit leases approximately 4,300 square feet of office space
in Campbell, California and 4,600 square feet in New Brighton, Minnesota for
research and development and sales activities. The aggregate rent payable for
both facilities is currently approximately $12,800 per month, and the leases
expire in April 1999 and June 1999, respectively. The leases for these
facilities were added through Summit's acquisitions of TriQuest and SimTech.
Summit also leases office space for sales activities throughout the United
States and Europe at an aggregate annual rental of approximately $100,000.
Summit has also entered into a new agreement to lease approximately 12,000
square feet of office space in Herzlia Israel. The lease is for a five-year term
which begins on January 1, 1999 and the rent will be approximately $30,000 per
month.
Summit expects that its current facilities will be adequate to serve its
needs for the foreseeable future.
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SELECTED SUMMIT FINANCIAL DATA
The following selected historical financial data of Summit have been derived
from Summit's historical financial statements. Summit's audited Balance Sheets
as of December 31, 1997 and 1996, its audited Statements of Operations for the
years ended 1997, 1996 and 1995, its unaudited Balance Sheet as of June 30, 1998
and its unaudited Statements of Operations for the six-month periods ended June
30, 1998 and 1997 are included elsewhere in this Joint Proxy
Statement/Prospectus and should be read in conjunction with such financial
statements and notes thereto. Summit's other audited financial statements for
1995, 1994 and 1993 are not included herein:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product licenses.............................. $ 24,828 $ 15,446 $ 10,604 $ 9,327 $ 4,821 $ 16,775 $ 10,507
Maintenance and services...................... 6,161 4,301 2,637 2,323 2,546 4,411 2,926
Other......................................... 450 567 1,051 1,517 -- 183 267
--------- --------- --------- --------- --------- --------- ---------
Total revenue............................... 31,439 20,314 14,292 13,167 7,367 21,369 13,700
Cost of revenue:
Product licenses.............................. 807 573 651 681 441 484 349
Maintenance and services...................... 632 466 400 390 330 505 252
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue....................... 1,439 1,039 1,051 1,071 771 989 601
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................................... 30,000 19,275 13,241 12,096 6,596 20,380 13,099
Operating expenses:
Research and development...................... 7,016 5,867 5,447 4,751 2,472 4,807 3,127
Sales and marketing........................... 10,591 9,319 7,547 5,947 3,734 6,305 5,115
General and administrative.................... 4,209 3,188 3,286 2,326 1,932 2,442 2,061
In-process technology......................... 19,937 -- -- 647 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................... 41,753 18,374 16,280 13,671 8,138 13,554 10,303
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations................... (11,753) 901 (3,039) (1,575) (1,542) 6,826 2,796
Interest expense................................ (12) (101) (206) (160) (108) (2) (9)
Other income (expense), net..................... 1,058 218 34 57 (12) 494 449
Gain on sale of TDS product line................ 5,574 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes............... (5,133) 1,018 (3,211) (1,678) (1,662) 7,318 3,236
Income tax provision (benefit).................. 742 (245) 400 404 2 2,019 180
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................... $ (5,875) $ 1,263 $ (3,611) $ (2,082) $ (1,664) $ 5,299 $ 3,056
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per share--Basic:
Earnings (loss) per share..................... $ (0.41) $ 0.10 $ (0.33) $ (0.22) $ (0.59) $ 0.35 $ 0.22
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Number of shares used in computing basic
earnings (loss) per share................... 14,403 12,240 11,085 9,449 2,838 14,984 14,137
Earnings (loss) per share--Diluted:
Earnings (loss) per share..................... $ (0.41) $ 0.10 $ (0.33) $ (0.22) $ (0.59) $ 0.33 $ 0.20
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Number of shares used in computing diluted
earnings (loss) per share................... 14,403 13,243 11,085 9,449 2,838 16,240 15,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 19,973 $ 19,801 $ 711 $ 1,203 $ 435 $ 24,768 $ 22,005
Working Capital................................. $ 14,604 $ 17,236 $ (540) $ (439) $ (2,083) $ 18,683 $ 19,922
Total Assets.................................... $ 32,761 $ 28,700 $ 9,151 $ 8,097 $ 2,751 $ 38,819 $ 31,879
Long term obligations........................... $ 237 $ 916 $ 1,462 $ 743 $ 366 $ 355 $ 908
Total Stockholders Equity....................... $ 20,275 $ 19,151 $ 548 $ 1,224 $ (1,349) $ 25,116 $ 22,513
</TABLE>
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SUMMIT 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 and Section 21E of the Exchange Act
which reflect Summit's current judgment on those issues. Because such statements
apply to future events, they are subject to risks and uncertainties and,
therefore, actual results may differ materially. Important factors which could
cause actual results to differ materially are described in the following
paragraphs and are particularly noted under the caption "Risk Factors."
OVERVIEW
Summit was founded in December 1993 to act as the holding company for Test
Systems Strategies, Inc. ("TSSI") and SEE Technologies, (now Summit Design (EDA)
Ltd.) (collectively , the "Reorganization"). TSSI was founded in 1979 to develop
and market IC manufacturing test products. In January 1993, TSSI retained a new
Chief Executive Officer and began to restructure its senior management team.
Thereafter, Summit broadened its strategy from focusing primarily on
manufacturing test products to include providing high level design automation
("HLDA") 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 EDA and HLDA market. As a result of the Reorganization,
TSSI and SEE Technologies became wholly-owned subsidiaries of Summit in the
first quarter of 1994.
Summit's ongoing implementation of its strategy has involved significant
expenditures. Following the Reorganization, Summit significantly increased its
research and development expenditures to support the continued development of
HLDA and Design to Test products. To promote its products, Summit added sales
and marketing staff, increasing its sales and marketing expenditures by 184%
from 1993 to 1997, 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 Summit's
annual losses through 1995. Summit introduced its first HLDA Plus 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, Summit's TDS product and related maintenance
revenue accounted for all of Summit's revenue. After the Reorganization and
through June 30, 1997, Summit's revenue was predominantly derived from two
product lines, Visual HDL, which includes Visual HDL for VHDL and Visual HDL for
Verilog, and TDS. As the result of the July 1997 sale of the TDS product line,
Design to Test products are no longer a source of revenue for Summit. With the
acquisition of TriQuest in February 1997, SimTech in September 1997, and ProSoft
in June 1998, Summit 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 Summit'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.
Revenue earned on software arrangements involving multiple elements is allocated
to each element based on vendor-specific objective evidence (VSOE) of the fair
value of the various elements within the arrangement. Summit sells its products
through a direct sales force in North America and selected European countries
and through distributors in Summit's other
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international markets. Revenue from product sales through distributors is
recognized net of the associated distributor discounts. Fees received for
granting distribution rights are deferred and recognized ratably over the term
of the distribution agreement. Although Summit has not adopted a formal return
policy, Summit generally reimburses customers in full for returned products.
Estimated sales returns are recorded upon delivery of the product.
Summit's products have a range of prices which depend on platform, HDL
language, functionality and duration of license. In addition, Summit'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 Summit'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 Summit to offer point solutions instead of, or in
addition to, Summit's current software products. Such point solutions would be
priced lower than Summit's current product offerings and could cause Summit's
average selling prices to decrease. Accordingly, based on these and other
factors, Summit expects that average selling prices for its products may
continue to fluctuate in the future.
Summit entered into a joint venture with Anam, effective April 1, 1996,
pursuant to which the joint venture corporation (Summit Asia, Ltd. ("Summit
Asia")) acquired exclusive rights to sell, distribute and support all of
Summit's products in the Asia-Pacific region, excluding Japan. Prior to that
date, Anam was an independent distributor of Summit's products in Korea. In
April 1998, the joint venture corporation, Summit Asia, which is headquartered
in Korea, was renamed Asia Design Corporation ("ADC"). In May 1998, Summit
exchanged a portion of its ownership in ADC for ownership in another company
located in Hong Kong, Summit Design Asia, Ltd. ("SDA"). SDA also acquired an
equity investment in ADC. In June 1998, Summit and Anam each loaned SDA
$750,000, which is guaranteed by ADC. SDA acquired from ADC the exclusive rights
to sell, distribute and support Summit's products in Asia-Pacific region,
excluding Japan. SDA granted distribution rights to Summit's products to ADC for
the Asia Pacific region, excluding Japan For the six months ended June 30, 1998
and 1997, sales through SDA and ADC combined accounted for 4.5% and 10.1% of
Summit's revenue, respectively.
Summit accounts for its ownership interest in SDA and ADC on the equity
method of accounting and, as a result, Summit's pro rata share of the earnings
and losses of SDA and ADC are recognized as income or losses in Summit's income
statement in "Other income (expense), net." Summit does not expect SDA or ADC to
recognize a profit for the foreseeable future and thus does not expect to
recognize income from its investment in SDA or ADC for the foreseeable future,
if at all. There can be no assurance that the restructuring will result in SDA
or ADC becoming profitable or that revenue attributable to sales in the Asia
Pacific region, excluding Japan, will increase.
Approximately 35% and 45% of Summit's total revenue for the six months ended
June 30, 1998 and 1997, respectively, were attributable to sales made outside
the United States. The decline in the percentage of revenue from sales made
outside the United States in 1998 is primarily the result of (1) domestic sales
to one customer, (2) the loss of Design to Test product sales in the last half
of 1997 as a result of the sale of the product line, which had a strong
international market, and (3) the addition of revenue from products acquired in
the SimTech acquisition which had a principally domestic market. Summit expects
that international revenue will continue to represent a significant portion of
its total revenue. Summit'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 Summit's products more expensive and, therefore,
potentially less competitive in those markets. Summit 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.
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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 has been
accounted for as a pooling-of-interests in accordance with generally accepted
accounting principles.
Effective July 1, 1997, Summit sold substantially all of the assets used in
its business of developing and marketing its Test Development Series "TDS"
Products (the "Asset Sale") to CSC. The increase in Summit's product licenses
revenue during the last twelve months has been primarily due to increased
revenue associated with Summit's HLDA Plus products. Substantially all of
Summit's Design to Test product license revenue and related maintenance and
services revenue for the three and six months ended June 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 Summit's obligations under TDS
maintenance contracts entered into prior to the closing and Summit has not
recognized deferred revenue associated with such contracts since June 30, 1997.
Summit maintained exclusive rights to its Visual Testbench technology and
CSC agreed to purchase a minimum of $16.0 million of Visual Testbench licenses
over a thirty-month period beginning July 1997, subject to specified quarterly
maximums and certain additional conditions, and $2.0 million of maintenance over
an eighteen month period beginning July 1997. As of June 30, 1998, Summit has
sold $11.4 million of Visual Testbench licenses pursuant to this agreement. At
the completion of the thirty month period, under certain conditions, CSC may
obtain shared ownership to Visual Testbench for sales into the ATE marketplace.
On September 9, 1997, Summit 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
Summit) was 1,980,000 shares of Summit common stock and $3.9 million in cash.
The transaction was accounted for using the purchase method of accounting.
Accordingly, SimTech's results of operations for the period from September 9,
1997 are included in the consolidated statements of operations. 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 $2.2 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 Summit expensed as of the acquisition date. The remainder of the
purchase price was allocated to purchased technology ($1.1 million) and
identifiable intangibles ($735,000), which are being amortized on a straight
line basis over three and five years respectively.
In connection with the acquisition of SimTech, Summit repurchased 939,000
shares of common stock in private transactions at an average price of $12.30 per
share for $11.6 million in September 1997.
On December 23, 1997, Summit announced that the Board of Directors had
authorized the repurchase of up to 750,000 shares of Summit's Common Stock. From
January 1, 1998 to May 12, 1998, Summit repurchased 162,500 shares of its common
stock at a cost of $2.3 million. Summit subsequently reissued these shares
through the exercise of stock options during the three months ended June 30,
1998. On June 29, 1998, Summit cancelled this stock repurchase plan.
On June 30, 1998 Summit completed its acquisition of ProSoft. ProSoft
develops software tools used to verify embedded systems software prior to the
availability of a hardware prototype. The aggregate consideration for the
acquisition (including shares of common stock reserved for issuance upon
exercise of ProSoft options which were exchanged for options of Summit) was
248,334 shares of common stock. The transaction has been accounted for as a
pooling-of-interests in accordance with generally accepted accounting
principles. In compliance with such principles, Summit's financial statements
have been restated to include the accounts of ProSoft as if the acquisition had
occurred at the beginning of the first period presented.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of
Summit's statements of income as a percentage of its total revenue:
<TABLE>
<CAPTION>
SIX MONTHS,
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1997 1996 1995 1998 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Product licenses.............................................. 79.0% 76.0% 74.2% 78.5% 76.7%
Maintenance and services...................................... 19.6 21.2 18.5 20.6 21.4
Other......................................................... 1.4 2.8 7.3 0.9 1.9
--------- --------- --------- --------- ---------
Total revenue............................................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product licenses.............................................. 2.6 2.8 4.6 2.3 2.6
Maintenance and services...................................... 2.0 2.3 2.8 2.3 1.8
--------- --------- --------- --------- ---------
Total cost of revenue....................................... 4.6 5.1 7.4 4.6 4.4
--------- --------- --------- --------- ---------
Gross profit.................................................... 95.4 94.9 92.6 95.4 95.6
Operating expenses:
Research and development 22.3 28.9 38.1 22.5 22.8
Sales and marketing........................................... 33.7 45.9 52.8 29.5 37.3
General and administrative.................................... 13.4 15.7 23.0 11.4 15.1
In-process technology......................................... 63.4 -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses.................................... 132.8 90.5 113.9 63.4 75.2
Income (loss) from operations................................... (37.4) 4.4 (21.3) 32.0 20.4
Interest expense................................................ -- (0.5) (1.4) -- --
Other income, net............................................... 3.4 1.1 0.2 2.3 3.2
Gain on sale of TDS product line................................ 17.7 -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before income taxes............................... (16.3) 5.0 (22.5) 34.3 23.6
Income tax provision (benefit).................................. 2.4 (1.2) 2.8 9.4 1.3
--------- --------- --------- --------- ---------
Net income (loss)............................................... (18.7)% 6.2% (25.3)% 24.9% 22.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
TOTAL REVENUE
Summit's revenue is comprised of product licenses revenue, maintenance and
services revenue and other revenue. Total revenue increased by 54.8% from $20.3
million for the year ended December 31, 1996 to $31.4 million for the year ended
December 31, 1997. Sales through one distributor, accounted for 12.0% and 14.6%
of Summit's total revenue for the years ended December 31, 1997 and 1996,
respectively. Sales to one customer accounted for 28.6% of Summit's total
revenue for the year ended December 31, 1997. In years after 1998, Summit
expects the revenue from this customer to decline. No customer accounted for
more than 10% of Summit's total revenue for the year ended December 31, 1996.
PRODUCT LICENSES REVENUE
Summit's product licenses revenue is derived from license fees from Summit's
HLDA Plus products and, additionally, from Design to Test products through June
30, 1997. Product licenses revenue increased by 60.7% from $15.4 million for the
year ended December 31, 1996 to $24.8 million for the year ended December 31,
1997. Revenue from HLDA and Design to Test products accounted for 72.6% and
27.4%,
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respectively, of product licenses revenue for the year ended December 31, 1996
and 91.8% and 8.2%, respectively, of product licenses revenue for the year ended
December 31, 1997.
Because of the addition of HLDA functionality to Visual Testbench version
2.0, beginning with the release of version 2.0 in December 1996, Summit
recognizes revenue from Visual Testbench products as HLDA revenue instead of
Design to Test revenue.
HLDA revenue increased 103.2% from $11.2 million for the year ended December
31, 1996 to $22.8 million for the year ended December 31, 1997. The increase in
HLDA revenue over the same periods 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 eight quarters pursuant
to contractual arrangements with that customer.
Design to Test revenue decreased from $4.2 million for the year ended
December 31, 1996 to $2.1 million for the year ended December 31, 1997 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.
MAINTENANCE AND SERVICES REVENUE
Summit's maintenance and services revenue is derived from maintenance
contracts related to Summit's HLDA and Design to Test products and training
classes offered to purchasers of Summit's software products. Maintenance and
services revenue increased 43.2% from $4.3 million for the year ended December
31, 1996 to $6.2 million for the year ended December 31, 1997. The increase in
maintenance and services revenue was attributable to maintenance contracts for
verification products acquired in the SimTech acquisition, a maintenance
contract with one customer, and additional maintenance revenue related to growth
in the installed base of HLDA customers over the previous year, less a decrease
in Design to Test maintenance revenue of $1.6 million, due to 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. Other revenue decreased 20.6% from
$567,000, for the year ended December 31, 1996 to $450,000 for the year ended
December 31, 1997. There was no revenue from one time technology sales during
the years ended December 31, 1996 or 1997. In May 1997, a distribution agreement
expired; and as a result, the distribution rights fees paid at the inception of
the agreement and amortized into revenue at $50,000 each quarter over the
agreement period will no longer be a source of other revenue.
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. Cost of product licenses
revenue increased 40.8% from $573,000 for the year ended December 31, 1996 to
$807,000 for the year ended December 31, 1997. As a percentage of product
licenses revenue, the cost of product licenses revenue decreased from 3.7% for
the year ended December 31, 1996 to 3.3% for the year ended December 31, 1997.
This decrease was primarily due to leveraging fixed costs across increased
product licenses revenue.
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 Summit's products, increased 35.6% from $466,000
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for the year ended December 31, 1996 to $632,000 for the year ended December 31,
1997. As a percentage of maintenance and services revenue, the cost of
maintenance and services revenue decreased from 10.8% for the year ended
December 31, 1996 to 10.3% for the year ended December 31, 1997. The decrease in
the cost of maintenance and services revenue as a percentage of maintenance and
services revenue was primarily a result of Summit operating below forecasted
staffing levels during the first half of 1997. Summit increased headcount during
the second half 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 19.6% from $5.9 million for the year ended December 31, 1996 to $7.0
million for the year ended December 31, 1997. In connection with the sale of the
TDS product line on July 1, 1997, Summit's research and development staff
decreased by 15 engineers. With the acquisition of SimTech on September 9, 1997
Summit added 28 engineers. Additionally, Summit added 25 engineers, net during
1997. As a percentage of total revenue, research and development expenses
decreased from 28.9% for the year ended December 31, 1996 to 22.3% for the year
ended December 31, 1997 primarily due to the increase in total revenue for 1997.
Summit believes that significant investment in research and development is
required to remain competitive in its markets, and Summit, therefore,
anticipates that research and development expenses will increase in absolute
dollars in future periods, but may vary as a percentage of total revenue.
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 13.6% from $9.3 million for the year ended
December 31, 1996 to $10.6 million for the year ended December 31, 1997. The
increase was primarily attributable to the addition of 8 sales and marketing
personnel and the related increased commissions and travel expenses. As a
percentage of total revenue, sales and marketing expenses decreased from 45.9%
for the year ended December 31, 1996 to 33.7% for the year ended December 31,
1997. The decrease was primarily attributable to the increase in total revenue
for 1997. In the future, Summit expects sales and marketing expenses to continue
to increase in absolute dollars, in part due to the hiring of additional sales
personnel.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, legal and
accounting expenses of Summit. General and administrative expenses increased
32.0% from $3.2 million for the year ended December 31, 1996 to $4.2 million for
the year ended December 31, 1997 which includes a $379,000 one-time charge for
costs associated with the acquisition of TriQuest. Excluding this one-time
charge for costs associated with the TriQuest acquisition, general and
administrative expenses increased $642,000 (20.1%) as compared to the same
period in 1996. As a percentage of total revenue, excluding the one-time charge
associated with the acquisition of TriQuest, general and administrative expenses
decreased from 15.7% for 1996 to 12.2% for 1997. The decrease as a percentage of
total revenue was primarily attributable to the increase in total revenue in
1997. Summit expects general and administrative expenses to increase in absolute
dollars to support future sales and operations.
ACQUIRED IN-PROCESS TECHNOLOGY
For the year ended December 31, 1997, $19.9 million of the purchase price
for the acquisition of SimTech ($22.1 million) was allocated to in-process
technology and accordingly, was expensed as of the
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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 acquired in-process
technology is related primarily to two product concepts, V-CPU, which allows
designers to analyze and validate the interaction between hardware and software
while design options are still open, and VeriCov, a code coverage product that
uses simulation to measure the quality of tests applied to the HDL description
of a design. Summit, in the third quarter of 1998, released a core version of
V-CPU which is appropriate for a narrow segment of the market. Development will
continue on processor and bus-functional models that work with the core V-CPU
product which will enable additional engineers to use this hardware-software
co-verification product. VeriCov has been combined with StateScore, a tool which
uses simulation to ensure the tests applied to a design cause the design to
execute all proper states and sequences of states intended by the design.
StateScore was acquired in the merger with TriQuest. This new product, HDL
Score, which combines the code coverage of both VeriCov and StateScore to
produce a single, comprehensive report on the quality of the test of the design,
was released in the third quarter of 1998. Summit intends to invest the
necessary resources to further develop this in-process technology in order to
achieve commercial acceptance of these products. The investment necessary to
develop these products to initial commercial viability was approximately $2.4
million. While versions of these products have been released, the products have
not yet achieved market acceptance, and Summit cannot predict the extent, if
any, to which it will realize revenue from these products.
INTEREST EXPENSE
Interest expense decreased from $101,000 for the year ended December 31,
1996 to $12,000 for the year ended December 31, 1997 due to decreased borrowings
under Summit's bank line of credit and long term debt and the expiration of
certain 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, Summit'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 $218,000 for the year ended December 31,
1996 and $1.1 million for the year ended December 31, 1997. The increase in
other income was primarily due to increased interest earned on Summit's cash
holdings resulting from the initial public offering in October of 1996.
GAIN ON SALE OF TDS PRODUCT LINE
On July 11, 1997 Summit sold substantially all of the assets used in its
business of developing and marketing its TDS Products to CSC for $5 million. CSC
assumed certain liabilities, including Summit's obligations under TDS
maintenance contracts entered into prior to the closing. Summit has recorded a
gain on the sale of $5,574,000.
INCOME TAX PROVISION
The provision of $742,000 for 1997 varies from the benefit that would have
been expected under the federal statutory rate primarily due to the tax effect
of permanent difference attributed to the in-process research and development
charge from the SimTech acquisition offset by the tax effect of the decrease in
the valuation allowance. The benefit for 1996 of $245,000 varies from the
provision that would have been expected applying the federal statutory rate
primarily due to the tax effects of the decrease in the valuation allowance and
utilization of net operating losses.
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YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
TOTAL REVENUE
Summit's revenue is comprised of product licenses revenue, maintenance and
services revenue and other revenue. Total revenue increased by 42.1% from $14.3
million for the year ended December 31, 1995 to $20.3 million for the year ended
December 31, 1996. Sales through one distributor accounted for 14.5% and 12.5%
of Summit's total revenue for the years ended December 31, 1996 and 1995,
respectively. No customer accounted for more than 10% of Summit's total revenue
for the years ended December 31, 1996 and 1995.
PRODUCT LICENSES REVENUE
Summit's product licenses revenue is derived from license fees from Summit's
HLDA and Design to Test products. Product licenses revenue increased by 45.7%
from $10.6 million for the year ended December 31, 1995 to $15.4 million for the
year ended December 31, 1996. Revenue from HLDA and Design to Test products
accounted for 59.4% and 40.6%, respectively, of product licenses revenue for the
year ended December 31, 1995 and 72.6% and 27.4%, respectively, of product
licenses revenue for the year ended December 31, 1996.
HLDA revenue increased 78.0% from $6.3 million for the year ended December
31, 1995 to $11.2 million for the year ended December 31, 1996. The increase was
primarily attributable to the hiring of the HLDA sales force beginning in late
1994 and early 1995, improved international distribution and thereafter
increased market acceptance of Summit's HLDA products and increased account
penetration at major targeted accounts.
Design to Test revenue decreased slightly from $4.3 million for the year
ended December 31, 1995 to $4.2 million for the year ended December 31, 1996.
Revenue from Design to Test products typically results from fewer, larger orders
and, as a result, the timing of orders can result in significant variations in
quarterly revenue.
MAINTENANCE AND SERVICES REVENUE
Summit's maintenance and services revenue is derived from maintenance
contracts related to Summit's HLDA and Design to Test products and training
classes offered to purchasers of Summit's software products. Maintenance and
services revenue increased 63.1% from $2.6 million for the year ended December
31, 1995 to $4.3 million for the year ended December 31, 1996. The increase was
attributable to an increase in maintenance revenue related to growth in the
installed base of HLDA customers and an increase in domestic Design to Test
maintenance revenue due to Summit hiring a telemarketing salesperson dedicated
to sales of renewal maintenance.
OTHER REVENUE
Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue for the year ended
December 31, 1995 was approximately $1.1 million, which consisted of $850,000
related to a one-time sale of non-core technology and $200,000 of distribution
rights fees. For the year ended December 31, 1996 other revenue consisted of
$567,000 of distribution rights fees. No material costs were associated with
other revenue for the years ended December 31, 1995 and 1996.
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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. Cost of product licenses
revenue decreased 12% from $651,000 for the year ended December 31, 1995 to
$573,000 for the year ended December 31, 1996. The decrease was primarily
attributable to one-time costs incurred in the year ended December 31, 1995
associated with the write-off of prepaid royalties and obsolete inventory and
the production of demonstration and evaluation materials related to the release
of new versions of Summit's HLDA products. As a percentage of product licenses
revenue, the cost of product licenses revenue decreased from 6.1% for the year
ended December 31, 1995 to 3.7% for the year ended December 31, 1996. This
decrease was primarily due to leveraging fixed costs across increased product
licenses revenue.
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 Summit's products, increased 16.5% from $400,000 for the year ended December
31, 1995 to $466,000 for the year ended December 31, 1996. As a percentage of
maintenance and services revenue, the cost of maintenance and services revenue
decreased from 15.2% for the year ended December 31, 1995 to 10.8% for the year
ended December 31, 1996.
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 7.7% from $5.4 million for the year ended December 31, 1995 to $5.9
million for the year ended December 31, 1996. This increase is primarily related
to the costs associated with the five engineers included in the TriQuest
acquisition in 1997, which was accounted for as a pooling-of-interest. As a
percentage of total revenue, research and development expenses decreased from
38.1% for the year ended December 31, 1995 to 28.9% for the year ended December
31, 1996 due to the increase in total revenue for 1996.
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 23.5% from $7.5 million for the year ended
December 31, 1995 to $9.3 million for the year ended December 31, 1996. The
increase was primarily attributable to increased commissions and travel
expenses. As a percentage of total revenue, sales and marketing expenses
decreased from 52.8% for the year ended December 31, 1995 to 45.9% for the year
ended December 31, 1996. The decrease was primarily attributable to the increase
in total revenue for 1996.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, legal and
accounting expenses of Summit. General and administrative expenses decreased
3.0% from $3.3 million for the year ended December 31, 1995 to $3.2 million for
the year ended December 31, 1996. During 1995, Summit wrote-off expenses of
approximately $270,000 primarily related to prepaid expenses deemed to have no
future value and costs associated with the severance of a senior manager. As a
percentage of total revenue, general and administrative expenses
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decreased from 23.0% for 1995 to 15.7% for 1996. The decrease as a percentage of
total revenue was primarily attributable to the increase in total revenue in
1996 and the absence of any one-time charges.
INTEREST EXPENSE
Interest expense decreased from $206,000 for the year ended December 31,
1995 to 101,000 for the year ended December 31, 1996 due to decreased borrowings
under Summit'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 and gains or losses from the sale of property and equipment. Other
income was $34,000 for the year ended December 31, 1995 and $218,000 for the
year ended December 31, 1996. The increase in other income was primarily due to
increased interest earned on Summit's cash holdings.
INCOME TAX PROVISION
The benefit of $245,000 in 1996 varies from the provision that would have
been expected applying the federal statutory rate primarily due to the tax
effects of the decrease in the valuation allowance and utilization of net
operating losses. The provision of $400,000 in 1995 varies from the benefit that
would have been expected apply the federal statutory rate primarily due to
foreign taxes and an increase in the valuation allowance.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
TOTAL REVENUE
Total revenue increased by 56.0% from $13.7 million for the six months ended
June 30, 1997 to $21.4 million for the six months ended June 30, 1998. Although
total revenue increase for the six months ended June 30, 1998 from the
comparable periods in 1997, Summit experienced a softening in sales order rates
during the three months ended June 30, 1998. Sales through one distributor
accounted for 13.7% and 13.4% of Summit's total revenue for the six months ended
June 30, 1998 and 1997, respectively. Sales to CSC accounted for 27.0% of
Summit's total revenue for the six month period ended June 30, 1998. Such
revenue included $5.2 million of Visual Testbench license sales made pursuant to
Summit's contract with CSC for the six months ended June 30, 1998, respectively.
See "Overview." Sales to one customer accounted for 15.5% of the total revenue
for the six months ended June 30, 1997.
REVENUE
PRODUCT LICENSES
Summit's product licenses revenue is derived from license fees from Summit's
HLDA Plus products and additionally from Design to Test products through June
30, 1997. Product licenses revenue increased 59.7% from $10.5 million for the
six months ended June 30, 1997 to $16.8 million for the six months ended June
30, 1998. Due to the sale of the TDS product line in July of 1997, revenue from
HLDA Plus products accounted for 100% of product licenses revenue for the six
months ended June 30, 1998. During the six months ended June 30, 1997, HLDA Plus
and Design to Test revenues accounted for 80.4% and 19.6% of product license
revenue, respectively.
HLDA Plus license revenue increased 97.6% from $8.5 million for the six
months ended June 30, 1997 to $16.8 million for the six months ended June 30,
1998. The increase in HLDA Plus license revenue over the same period in 1997 was
primarily attributable to sales to CSC, revenue from the Verification products
portfolio that was not shipping in the comparable period in 1997, and growth in
the installed base of
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HLDA Plus customers. Sales to the single customer are expected to continue over
the next six quarters pursuant to contractual arrangements with the customer.
MAINTENANCE AND SERVICES
Summit's maintenance and services revenue is derived from maintenance
contracts related to Summit's HLDA products, consulting services, and training
classes offered to purchasers of Summit's software products. Maintenance and
services revenue increased 50.8% from $2.9 million for the six months ended June
30, 1997 to $4.4 million for the six months ended June 30, 1998. The increase is
primarily attributable to maintenance contracts for Verification products
acquired in the SimTech acquisition, a maintenance contract with one customer,
an increase in the installed base of HLDA Plus customers over the previous
comparable period, partially offset by a decrease of Design to Test maintenance
revenue of $1.4 million for the six months ended June 30, 1998, respectively,
due to the sale of the TDS product line.
OTHER
Other revenue consists of fees received for granting distribution rights.
Other revenue decreased 31.5% from $267,000 for the six months ended June 30,
1997 to $183,000 for the six months ended June 30, 1998. In May 1997 a
distribution agreement expired; and as a result the distribution rights fees
paid at the inception of the agreement and amortized into revenue at $50,000
each quarter over the agreement period are no longer a source of other revenue.
No material costs were associated with other revenue for the six months ended
June 30, 1998 and 1997.
COST OF REVENUE
PRODUCT LICENSES
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
licenses revenue increased 38.7% from $349,000 for the six months ended June 30,
1997 to $484,000 for the six months ended June 30, 1998. This increase is
primarily attributable to amortization of purchased technology included in the
six months ended June 30, 1998 relating to the purchase of SimTech in September
of 1997. As a percentage of product licenses revenue, the cost of product
licenses revenue decreased from 3.3% of product licenses revenue for the six
months ended June 30, 1997 to 2.9% of product licenses revenue for the six
months ended June 30, 1998. This decrease was primarily due to leveraging fixed
costs across increased product licenses revenue.
MAINTENANCE AND SERVICES
Cost of maintenance and services revenue, which consists primarily of
personnel costs for customer support consulting and training classes offered to
purchasers of Summit's products, increased 100.4% from $252,000 for the six
months ended June 30, 1997 to $505,000 for the six months ended June 30, 1998.
As a percentage of maintenance and services revenue, the cost of maintenance and
services revenue increased from 8.6% for the six months ended June 30, 1997 to
11.4% for the six months ended June 30, 1998. This increase as a percentage of
maintenance and services revenue for the six months ended June 30, 1998 is due
to Summit operating at below forecasted staffing levels during the first half 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
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activities. Research and development expenses increased 53.7% from $3.1 million
for the six months ended June 30, 1997 to $4.8 million for the six months ended
June 30, 1998. As a percentage of total revenue, research and development
expenses decreased from 22.8% for the six months ended June 30, 1997 to 22.5%
for the six months ended June 30, 1998. Summit's research and development staff
increased from 64 at June 30, 1997 to 95 at June 30, 1998. This increase is
primarily attributable to the addition of 28 engineers through the acquisition
of SimTech in September of 1997 and the hiring of 18 additional engineers, less
a decrease of 15 engineers due to the sale of the TDS product line in July of
1997. Summit continues to believe that significant investment in research and
development is required to remain competitive in its markets, and Summit
therefore anticipates that research and development expense will increase in
absolute dollars in future periods, but may vary as a percent of revenue.
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 23.3% from $5.1 million for the six months
ended June 30, 1997 to $6.3 million for the six months ended June 30, 1998. The
increase over 1997 was attributable to expenses related to the marketing of new
products acquired with the purchase of SimTech and additional commissions
directly related to the increase in gross sales over the comparable period in
1997. As a percentage of total revenue, sales and marketing expenses decreased
from 37.3% for the six months ended June 30, 1997 to 29.5% for the six months
ended June 30, 1998. The decrease as a percentage of revenue was primarily
attributable to the increase in total revenue for 1998. In the future, Summit
expects sales and marketing expenses to continue to increase in absolute
dollars.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, and legal and
accounting expenses of Summit. General and administrative expenses increased
18.5% from $2.1 million for the six months ended June 30, 1997, which includes
$379,000 one-time charge for costs associated with the acquisition of TriQuest,
to $2.4 million for the six months ended June 30, 1998, which includes a
$227,000 one-time charge for costs associated with the acquisition of ProSoft.
Excluding one-time charges, general and administrative expenses increased
$533,000 (31.7%) for the six months ended June 30, 1998, as compared to the same
period in the prior year. As a percentage of total revenue, excluding the one
time charges, general and administrative expenses decreased from 12.3% for the
six months ended June 30, 1997 to 10.4% for the six months ended June 30, 1998.
The decrease as a percentage of total revenue was attributable to the increase
in total revenue in 1998. Summit expects general and administrative expenses to
increase in absolute dollars to support future sales and operations.
OTHER INCOME (EXPENSE), NET
Other income consists of interest income associated with available cash
balances, gains or losses from the sale of property and equipment, Summit's pro
rata share of the earnings and losses of SDA and ADC and foreign exchange rate
differences resulting from paying operating expenses of foreign operations in
the local currency. Other income was $449,000 for the six months ended June 30,
1997 and $494,000 for the six months ended June 30, 1998. The increase in other
income was primarily due to increased interest earned on Summit's cash holdings
which was partially offset by a charge related to the reorganization of Summit
Design Asia.
INCOME TAX PROVISION
The income tax provision increased from $180,000 for the six months ended
June 30, 1997 to $2.0 million for the six months ended June 30, 1998. The
provision for the six months ended June 30, 1997 reflects an effective rate of
5.6% of taxable income and is comprised of federal alternative minimum tax
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and Israeli income taxes. In 1997, Summit utilized net operating loss
carryforwards to offset a considerable portion of U.S. federal and state taxable
income which benefit is reflected in the interim rate for six months ended June
30, 1998. The 1998 income tax provision reflects Summit's expected annualized
consolidated tax rate for federal, state and foreign taxes of approximately 28%
of taxable income. The difference between Summit's expected effective rate and
the statutory rate for the year ending December 31, 1998 is primarily due to
reduced tax rates on Summit's income generated from operations in Israel.
LIQUIDITY AND CAPITAL RESOURCES
DECEMBER 31, 1997
Summit completed its initial public offering ("IPO") in October 1996,
raising $16.2 million, net of offering expenses. Prior to the IPO, Summit had
financed its operations primarily through the private placement 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 December 31, 1997, Summit had approximately $20.0 million in
cash and cash equivalents. Additionally, Summit has a $1.0 million bank line of
credit with a bank. The line of credit expires on April 30, 1999 and borrowings
thereunder accrue interest at specified percentages above the prime lending rate
based on Summit'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 Summit's accounts receivable, inventory and general intangible
assets, including its intellectual property rights. As of December 31, 1997,
Summit had no borrowings outstanding under this line of credit.
Summit is obligated to lend up to $2.5 million to an independent software
company pursuant to a secured loan agreement entered into during July 1997.
Borrowings under the agreement bear interest at prime plus 2%.
As of December 31, 1997, Summit had working capital of approximately $14.6
million.
Net cash generated by operating activities was approximately $12.1 million
and $4.7 million for the years ended December 31, 1997 and 1996, respectively.
Net cash used in operating activities was approximately $3.3 million for the
year ended December 31, 1995. For the year ended December 31, 1997, cash
generated by operating activities resulted primarily from improved collection of
accounts receivable, an increase in deferred revenues and accrued liabilities
and profitability during the period. For 1996, cash generated from operating
activities resulted from improved collections, increases in deferred revenue and
profitability during the period, while in 1995, the use of cash from operations
resulted primarily from Summit's net loss and the increase in accounts
receivable.
Net cash used in investing activities was approximately $1.3 million
$855,000, and $793,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. For the year ended December 31, 1997, net cash used was primarily
related to the acquisition of furniture and equipment, the acquisition of
SimTech, and a loan to an independent software development company, which was
partially offset by proceeds from the sale of the TDS product line. For 1996 and
1995, net cash used in investing activities was related primarily to the
acquisition of furniture and equipment.
Net cash used in financing activities was approximately $10.6 million for
the year ended December 31, 1997. Net cash provided by financing activities was
approximately $15.3 million, and $3.6 million for the years ended December 31,
1996, and 1995, respectively. For the year ended December 31, 1997 net cash used
in financing activities resulted primarily from Summit purchasing approximately
939,000 shares of treasury stock and repayment of debt, less proceeds from the
issuance of common stock. The cash provided in 1996 was primarily a result of
Summit's IPO, partially offset by the repayment of $2.1 million of outstanding
debt and capital lease obligations. The cash provided in 1995 was related
primarily to the
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issuance of preferred stock and short-term borrowings, partially offset by debt
payments and principal payments on capital lease obligations.
JUNE 30, 1998
As of June 30, 1998, Summit had approximately $24.8 million in cash and cash
equivalents and a $1.0 million bank line of credit with a major financial
institution (the "Bank"). The line of credit expires on April 30, 1999. As of
June 30, 1998 Summit had no borrowings outstanding under this line of credit.
As of June 30, 1998, Summit had working capital of approximately $18.7
million.
Net cash generated by operating activities was approximately $7.4 million
and $3.2 million for the six months ended June 30, 1998 and 1997, respectively.
Cash generated by operating activities resulted primarily from profitable
operations, and an increase in accrued liabilities partially offset by an
increase in accounts receivable for the six months ended June 30, 1998 and
primarily from profitable operations for the six months ended June 30, 1997.
Net cash used in investing activities was approximately $2.1 million and
$1.2 million for the six months ended June 30, 1998 and 1997, respectively. Net
cash used in investing activities was related to the acquisition of furniture
and equipment and an unconsolidated joint venture for the six months ended June
30, 1998 and the acquisition of furniture and equipment and a loan to an
employee for the six months ended June 30, 1997.
Net cash used by financing activities was approximately $505,000 for the six
months ended June 30, 1998 and net cash provided by financing activities was
approximately $173,000 for the six months ended June 30 1997. For the six months
ended June 30, 1998 the use of cash was primarily from the repurchase of common
stock, less the issuance of common stock and a tax benefit from option
exercises. For the six months ended June 30, 1997, the cash provided by
financing activities was primarily from the issuance of common stock less
principal payments on debt and capital lease obligations.
Summit presently believes that its current cash and cash equivalents,
together with funds expected to be generated from operations, will satisfy
Summit's anticipated working capital and other cash requirements for at least
the next 12 months.
YEAR 2000
The Year 2000 issue results from computer programs written using two, rather
than four, digits to define the applicable year. These computer programs may
recognize a date using "00" as the year 1900 instead of 2000 resulting in system
failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business operations. If Summit, its significant
customers, suppliers, service providers and other related third parties fail to
take the necessary steps to correct or replace these problematic computer
programs, the Year 2000 issue could have a material adverse effect on Summit.
Summit cannot, however, quantify the impact at this time.
Summit is in the process of reviewing its production, communication, desktop
and other systems, as appropriate, to address the Year 2000 issue and has begun
replacing its financial systems. Summit has set a target date of July 31, 1999
to have all internal information technology systems Year 2000 compliant. Summit
is also in the process of analyzing all of its products and has begun to modify
products that have been identified as not being Year 2000 compliant. In
addition, Summit is presently contacting all major external third parties that
provide products and services to Summit to obtain assurances and verifications
from those parties regarding their readiness for the Year 2000.
Summit's expenditures to address the Year 2000 issue have not been material
to date and Summit does not expect that any expenditures to make necessary
modifications to its systems and products will
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<PAGE>
have a material adverse effect on Summit's operating results. There can be no
assurance, however, that there will not be a delay in, or increased costs
associated with, implementation of any such modifications and Summit's inability
to implement such modifications on a timely basis could have an adverse effect
on Summit's future operating results. In addition, the failure of third parties
on whom Summit relies to be Year 2000 compliant could have a material adverse
effect on Summit's operating results.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly financial
information for each of the eight quarters in the period ended December 31,
1997. This information has been derived from unaudited consolidated statements
of operations data that, in the opinion of management, are stated on a basis
consistent with the audited financial statements and include all adjustments
(consisting of normal recurring adjustments) necessary for a fair representation
of such information in accordance with generally accepted accounting principles.
Summit's quarterly results have been in the past, and may be in the future,
subject to significant fluctuations. Summit believes that results of operations
for the interim periods are not necessarily indicative of the results to be
expected in the future.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
---------------------------------------------------------------------------------------
1996 1997
-------------------------------------------------- -----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenue:
Product licenses................... $ 3,597 $ 3,695 $ 3,851 $ 4,303 $ 4,896 $ 5,611 $ 6,444
Maintenance and services........... 918 977 1,168 1,238 1,482 1,444 1,374
Other.............................. 141 142 142 142 142 125 91
----------- ----------- ----------- ----------- ----------- ----------- ---------
Total revenue.................... 4,656 4,814 5,161 5,683 6,520 7,180 7,909
Cost of revenue:
Product licenses................... 132 146 156 139 185 164 184
Maintenance and services........... 103 110 124 129 110 142 171
----------- ----------- ----------- ----------- ----------- ----------- ---------
Total cost of revenue............ 235 256 280 268 295 306 355
----------- ----------- ----------- ----------- ----------- ----------- ---------
Gross profit......................... 4,421 4,558 4,881 5,415 6,225 6,874 7,554
Operating expenses:
Research and development........... 1,438 1,470 1,478 1,481 1,452 1,675 1,634
Sales and marketing................ 2,242 2,195 2,374 2,508 2,531 2,584 2,705
General and administrative......... 716 835 789 848 1,180 881 962
In-process technology.............. -- -- -- -- -- -- 19,937
----------- ----------- ----------- ----------- ----------- ----------- ---------
Total operating expenses......... 4,396 4,500 4,641 4,837 5,163 5,140 25,238
Income (loss) from operations........ 25 58 240 578 1,062 1,734 (17,684)
Interest expense..................... (68) (10) (17) (6) (7) (2) (1)
Other income, net.................... 15 7 27 169 218 231 347
Gain on sale of TDS product line..... -- -- -- -- -- -- 5,569
----------- ----------- ----------- ----------- ----------- ----------- ---------
Income (loss) before income taxes.... (28) 55 250 741 1,273 1,963 (11,769)
Income tax provision (benefit)....... 176 33 34 (488) 80 100 640
----------- ----------- ----------- ----------- ----------- ----------- ---------
Net income (loss).................... $ (204) $ 22 $ 216 $ 1,229 $ 1,193 $ 1,863 $ (12,409)
----------- ----------- ----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ----------- ----------- ---------
<CAPTION>
DEC. 31
-----------
<S> <C>
Revenue:
Product licenses................... $ 7,877
Maintenance and services........... 1,861
Other.............................. 92
-----------
Total revenue.................... 9,830
Cost of revenue:
Product licenses................... 274
Maintenance and services........... 209
-----------
Total cost of revenue............ 483
-----------
Gross profit......................... 9,347
Operating expenses:
Research and development........... 2,255
Sales and marketing................ 2,771
General and administrative......... 1,186
In-process technology.............. --
-----------
Total operating expenses......... 6,212
Income (loss) from operations........ 3,135
Interest expense..................... (2)
Other income, net.................... 262
Gain on sale of TDS product line..... 5
-----------
Income (loss) before income taxes.... 3,400
Income tax provision (benefit)....... (78)
-----------
Net income (loss).................... $ 3,478
-----------
-----------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
---------------------------------------------------------------------------------------
1996 1997
-------------------------------------------------- -----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
----------- ----------- ----------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product licenses................... 77.3% 76.8% 74.6% 75.7% 75.1% 78.2% 81.5%
Maintenance and services........... 19.7 20.3 22.6 21.8 22.7 20.1 17.4
Other.............................. 3.0 2.9 2.8 2.5 2.2 1.7 1.1
----------- ----------- ----------- ----------- ----------- ----------- ---------
Total revenue.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product licenses................... 2.8 3.0 3.0 2.4 2.8 2.3 2.3
Maintenance and services........... 2.2 2.3 2.4 2.3 1.7 2.0 2.2
----------- ----------- ----------- ----------- ----------- ----------- ---------
Total cost of revenue............ 5.0 5.3 5.4 4.7 4.5 4.3 4.5
----------- ----------- ----------- ----------- ----------- ----------- ---------
Gross profit......................... 95.0 94.7 94.6 95.3 95.5 95.7 95.5
Operating expenses:
Research and development........... 30.9 30.5 28.6 26.1 22.3 23.3 20.6
Sales and marketing................ 48.2 45.6 46.0 44.1 38.8 36.0 34.2
General and administrative......... 15.4 17.3 15.3 14.9 18.1 12.3 12.2
In-process technology.............. -- -- -- -- -- -- 252.1
----------- ----------- ----------- ----------- ----------- ----------- ---------
Total operating expenses......... 94.5 93.4 89.9 85.1 79.2 71.6 319.1
Income (loss) from operations........ 0.5 1.3 4.7 10.2 16.3 24.1 (223.6)
Interest expense..................... (1.5) (0.2) (0.3) (0.1) (0.1) -- --
Other income, net.................... 0.4 0.1 0.5 2.9 3.3 3.2 4.4
Gain on sale of TDS product line..... -- -- -- -- -- -- 70.4
----------- ----------- ----------- ----------- ----------- ----------- ---------
Income (loss) before income taxes.... (0.6) 1.2 4.9 13.0 19.5 27.3 (148.8)
Income tax provision (benefit)....... 3.8 0.7 0.7 (8.6) 1.2 1.4 8.1
----------- ----------- ----------- ----------- ----------- ----------- ---------
Net income (loss).................... (4.4)% 0.5% 4.2% 21.6% 18.3% 25.9% (156.9)%
----------- ----------- ----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ----------- ----------- ---------
<CAPTION>
DEC. 31
-----------
<S> <C>
Revenue:
Product licenses................... 80.1%
Maintenance and services........... 19.0
Other.............................. 0.9
-----------
Total revenue.................... 100.0
Cost of revenue:
Product licenses................... 2.8
Maintenance and services........... 2.1
-----------
Total cost of revenue............ 4.9
-----------
Gross profit......................... 95.1
Operating expenses:
Research and development........... 23.0
Sales and marketing................ 28.2
General and administrative......... 12.1
In-process technology.............. --
-----------
Total operating expenses......... 63.3
Income (loss) from operations........ 31.8
Interest expense..................... --
Other income, net.................... 2.7
Gain on sale of TDS product line..... 0.1
-----------
Income (loss) before income taxes.... 34.6
Income tax provision (benefit)....... (0.8)
-----------
Net income (loss).................... 35.4%
-----------
-----------
</TABLE>
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<PAGE>
SUMMIT DIRECTORS AND EXECUTIVE OFFICERS
Certain information about the directors and executive officers of Summit and
their respective ages and positions as of - , 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Larry J. Gerhard............ 57 Chairman of the Board of Directors, President and Chief
Executive Officer
C. Albert Koob.............. 43 Vice President of Finance, Chief Financial Officer and
Secretary
Joseph G. Masarich.......... 38 Senior Vice President--Worldwide Marketing and Sales
Moshe Guy................... 40 Vice President, General Manager and Chief Operating
Officer--Design Solutions Division
Richard Davenport........... 53 Vice President and Chief Operating Officer--Verification
Products Division
Eric Benhayoun.............. 44 Vice President, General Manager--European Operations
Sharon L. Beelart........... 50 Corporate Controller
Arthur Fletcher............. 33 Treasurer and Director of Investor Relations
Amihai Ben-David............ 48 Director
William V. Botts............ 62 Director
Steven P. Erwin............. 54 Director
Barbara M. Karmel, Ph.D..... 65 Director
</TABLE>
Mr. Gerhard has served as President, Chief Executive Officer and Director of
Summit since January 1993 and was elected Chairman of the Board in May 1996.
From November 1991 to November 1992, Mr. Gerhard was the President and Chief
Executive Officer of Enterprise Communications and Computing Inc., a
communications products provider for the Unix-based virtual mainframe market.
Mr. Gerhard was the President and Chief Executive Officer of Ventura Software,
Inc., a desktop publishing company and a wholly-owned subsidiary of Xerox
Corporation from November 1989 to November 1991. Prior to that time, Mr. Gerhard
was employed for nine years with Decision Data, Inc., a supplier of peripherals
and applications software for IBM System 3X and AS400, including the last three
years as President and Chief Executive Officer.
Mr. Koob has served as Vice President of Finance and Chief Financial Officer
since October 1995 and Secretary since May 1996. From October 1989 to April
1994, Mr. Koob was the Vice President and Chief Financial Officer of Ventura
Software, Inc. Mr. Koob was the Vice President and General Manager of Decision
Business Solutions, an IBM midrange system reseller, from 1987 to 1989. Prior to
1987, Mr. Koob held various senior level financial management positions with
technology companies.
Mr. Masarich has served as Senior Vice President of Worldwide Marketing and
Sales since December 1997. From July 1997 to October 1997 Mr. Masarich was the
acting President and Chief Executive Officer of Junk Yard Dogs, Inc. a
manufacturer of electro-luminescent products. Mr. Masarich was the Vice
President of Worldwide Sales for Technology Modeling Associates, Inc., a
provider of physical simulation software to support integrated circuit design
and manufacturing, from January 1996 through May 1997. Additionally, Mr.
Masarich served for ten years in sales management positions with Cadence Design
Systems and Hewlett Packard.
Mr. Guy has served as Vice President, General Manager and Chief Operating
Officer of the Design Solutions Division of Summit since September of 1997. From
May 1996 to September 1997 Mr. Guy served as General Manager of Summit (EDA)
Ltd. and as the Vice President of Product Marketing from February 1994 to May
1996. Mr. Guy was the Director of Marketing and Sales for SEE Technologies from
January 1991 to January 1994. SEE Technologies was the continuation of the
Israeli Design Center of
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<PAGE>
Daisy and the main supplier of EDA Tools for Intergraph. From 1987 to 1991, Mr.
Guy was a Technical Manager for Daisy Systems. Prior to that time, Mr. Guy held
various engineering positions with companies in the computer design industry in
Israel.
Mr. Davenport has served as Vice President and Chief Operating Officer of
the Verification Products Division since September 1997. Mr. Davenport was the
founder and CEO of SimTech from 1991 through September 1997. From 1987 through
1991, Mr. Davenport was a Regional Sales Manager for Gateway Design Automation
and Cadence Systems.
Mr. Benhayoun has served as Vice President, General Manager--European
Operations since June 1996 and as Vice President--European Sales Operations from
November 1994 to June 1996. From June 1994 to November 1994, Mr. Benhayoun was
the European Marketing Manager for the Modeling Product Division of Synopsys.
From March 1990 to June 1994, Mr. Benhayoun was the General Manager and Director
of Logic Modeling Corporation France, an SDA provider which was acquired by
Synopsys in January 1994. Prior to that time, he held various European sales and
marketing management positions with Cadnetix Corporation and Daisy Systems, each
an EDA supplier.
Ms. Beelart has served as Corporate Controller since December 1996. From
April 1992 to December 1996, Ms. Beelart worked independently as a CPA and
financial consultant, serving from April 1996 to December 1996 with Summit. From
June 1986 to April 1992, Ms. Beelart served as the Chief Financial Officer of
Sierra Detroit Diesel Allison, Inc., a $40 million distribution company in the
San Francisco Bay Area. From January 1978 to June 1986, Ms. Beelart held various
positions including audit manager with PricewaterhouseCoopers LLP.
Mr. Fletcher has served as Treasurer and Director of Investor Relations
since April 1996. From October 1995 to March 1996, Mr. Fletcher was Director of
Business and Financial Planning. From April 1994 to September 1995, Mr. Fletcher
was Manager of Financial Planning and Systems. Prior to April 1994, Mr. Fletcher
held a variety of finance and accounting positions with high technology
companies.
Mr. Ben-David has served as a director of Summit since January 1994. He has
been the founder, Chief Executive Officer and Chairman of DCL Technologies Ltd.,
a public company located in Israel and traded on the Tel-Aviv Stock Exchange,
since May 1982. DCL Technologies Ltd. specializes in the development of high
technology companies in the areas of communications, computer telephony, expert
systems and electronic design automation. From January 1991 until the
acquisition of SEE Technologies Software Environment for Engineers Ltd. ("SEE
Technologies") by Summit in February 1994, Mr. Ben-David was Chairman of the
Board of SEE Technologies.
Mr. Botts has served as a director of Summit since May 1997. Mr. Botts has
been the Interim Chief Executive Officer of California Lifestyles, Inc., a
footwear company, since August 1997. Mr. Botts served as Chief Executive Officer
of Hard Candy, Inc., a cosmetics company, from March 1996 to March 1997. From
June 1993 to March 1996, Mr. Botts was the owner and President of WV Associates,
a consulting firm for mergers, acquisitions, business turnarounds and strategic
planning. From October 1992 to June 1993, Mr. Botts served as President and
Chief Executive Officer of Aurora Electronics, Inc., a semiconductor company.
From March 1992 to September 1992, Mr. Botts served as President and Chief
Executive Officer of Micro-C Corporation, a semiconductor company that was
acquired by Aurora Electronics, Inc. Mr. Botts served as President and Chief
Executive Officer of Vertex Design Systems, Inc., a computer software company,
from September 1988 to March 1992 and as Chairman of the Board, Chief Executive
Officer and President of EI International, Inc., a computer systems, software
and consulting company, from April 1978 to January 1988. Prior to that time, Mr.
Botts was a divisional Vice President of Rockwell International Corporation. Mr.
Botts is currently a director of XLNT Corporation.
Mr. Erwin has served as a director of Summit since May 1997. Mr. Erwin has
served as Executive Vice President and Chief Financial Officer of Foundation
Health Systems, Inc., a managed health care company, since March 1998. Mr. Erwin
was Executive Vice President and Chief Financial Officer of U.S.
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<PAGE>
Bancorp, Portland, Oregon from July 1994 to July 1997. Prior to that time, Mr.
Erwin served as Treasurer of BayBanks, Inc., Boston, Massachusetts from November
1987 until July 1994.
Dr. Karmel has served as a director of Summit since May 1997. Dr. Karmel has
been President of The Reed Company, a management consulting firm, since 1982.
Prior to that time, she served as a professor of management in the business
schools at Oregon State University, University of Wisconsin-Madison, and the
Atkinson Graduate School of Management at Willamette University. She currently
is a member of the board of Oregon Enterprise Forum and Oregon Independent
Colleges Foundation. Dr. Karmel has previously served as a member of the Board
of Directors of U.S. Bancorp and United States National Bank of Oregon, and as
Commissioner of Portland Development Commission, Director and Vice President-
Small Business for the Portland Metropolitan Chamber of Commerce and a member of
the board of the Academy of Management.
Executive officers of Summit are elected by the Summit Board and serve until
their successors have been duly elected. There are no family relationships among
the directors and executive officers of Summit.
DIRECTOR COMPENSATION
All non-employee directors receive $20,000 per year and $1,000 per meeting
(excluding committee meetings) as compensation for their services as members of
the Summit Board. Members are also reimbursed for all travel and related
expenses incurred in connection with attending Summit Board and committee
meetings.
In addition, non-employee directors are eligible to receive option grants
under Summit's 1996 Director Option Plan (the "Director Plan"), under which
150,000 shares of Common Stock have been reserved for issuance. The Director
Plan provides for an automatic grant of an option to purchase 10,000 shares of
Common Stock on the date on which a person first becomes a non-employee
director. Thereafter, he or she will automatically be granted an additional
option to purchase 10,000 shares on the date of the annual meeting of each
subsequent year, provided he or she is then a non-employee director and provided
further, that on such date he or she has served on the Board for at least six
months. The first option granted to a director pursuant to the Director Plan
vests twelve months after the date of grant. All subsequent options vest and
become exercisable on the earlier of (i) 12 months after the date of the grant
or (ii) one business day prior to the date of Summit's first annual meeting
after the grant date. Vesting of the options is subject to the optionee
continuing to serve as a director on the vesting date. Mr. Ben-David, Mr. Botts,
Mr. Erwin and Dr. Karmel were each granted 10,000 options in May 1997 and in May
1998 at exercise prices of $9.125 and $14.50 per share, respectively. Mr.
Ben-David, Mr. Botts, Mr. Erwin and Dr. Karmel are eligible to receive future
option grants pursuant to the Director Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Summit's executive officers and
directors, and persons who own more than 10% of a registered class of Summit's
equity securities to file reports of ownership and changes in ownership with the
SEC. Executive officers, directors and greater than 10% stockholders are
required by SEC rules to furnish Summit with copies of all forms they file.
Based solely on its review of the copies of such forms received by Summit and
written representations from certain reporting persons, Summit believes that,
during 1997, all Section 16(a) filing requirements applicable to its executive
officers, directors and 10% stockholders were satisfied, except that the Form 3
for Richard Davenport and the Form 4's for DCL Technologies Ltd. for September
1997 and November 1997 were filed late.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Summit's Compensation Committee was formed in August 1994 and is currently
composed of Messrs. Ben-David and Botts. No interlocking relationship exists
between any member of Summit's Compensation Committee and any member of any
other company's board of directors or compensation committee.
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<PAGE>
SUMMIT EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to Summit's Chief
Executive Officer and each of the four other most highly compensated executive
officers of Summit determined as of the end of the last fiscal year (hereafter
referred to as the "Named Executive Officers") for services rendered to Summit
in all capacities during the last three fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------- NO. OF
OTHER ANNUAL SECURITIES ALL OTHER
SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($) OPTIONS ($)
- -------------------------------------------------------- ---- ------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Gerhard ....................................... 1997 341,667 160,000 5,000(3) 75,000 3,575(4)
President and Chief Executive Officer 1996 260,000 60,000 -- 75,000 105,088(5)
1995 240,000 -- -- -- 6,589(6)
C. Albert Koob ......................................... 1997 143,333 64,000 3,750(7) 28,000 2,350(8)
Vice President--Finance, Chief Financial Officer and 1996 127,500 20,000 -- 15,000 7,067(9)
Secretary 1995 24,198 20,000 -- 75,000 45,740(10)
Moshe Guy(11) .......................................... 1997 113,392 69,810(12) 10,515(13) 34,152 --
Vice President, General Manager and Chief Operating 1996 N/A N/A N/A N/A N/A
Officer of the Design Solutions Division 1995 N/A N/A N/A N/A N/A
John DiFerdinando(14) .................................. 1997 108,958 30,290(15) 6,150(16) 25,000 117,114(17)
Senior Vice President-- Worldwide Marketing 1996 N/A N/A N/A N/A N/A
1995 N/A N/A N/A N/A N/A
Eric Benhayoun ......................................... 1997 120,252 26,945(18) -- 32,500 --
Vice President, General Manager--European Operations 1996 125,000 27,549(19) -- -- --
1995 117,570 53,732(20) -- -- (21) --
</TABLE>
- ------------------------
(1) Amounts shown include cash and noncash compensation earned and received by
executive officers as well as amounts earned but deferred at the election
of those officers.
(2) Consists of year-end bonuses paid in January of the following year.
(3) Consists of car allowance.
(4) Consists of Summit's matching contribution to Mr. Gerhard's 401(k) plan in
the amount of $2,375 and medical insurance premiums in the amount of
$1,200.
(5) Consists of $103,888 paid to Mr. Gerhard for accrued vacation and $1,200
paid by Summit for medical insurance premiums for Mr. Gerhard. In 1996,
Summit changed its vacation policy which triggered a one-time pay out of
balances previously accrued.
(6) Consists of $5,389 paid to Mr. Gerhard for moving expenses incurred in
connection with completing his relocation from Southern California and
$1,200 paid by Summit for medical insurance premiums for Mr. Gerhard.
(7) Consists of car allowance.
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<PAGE>
(8) Consists of Summit's matching contribution to Mr. Koob's 401(k) plan.
(9) Consists of payment for accrued vacation. In 1996, Summit changed its
vacation policy which triggered a one-time payout of balances previously
accrued.
(10) Consists of relocation expenses.
(11) Mr. Guy became an executive officer of Summit in May 1997.
(12) Consists of $64,000 of bonus and $5,810 of commissions.
(13) Consists of car allowance.
(14) Mr. DiFerdinando became an executive officer of Summit in May 1997. Mr.
DiFerdinando terminated his employment with Summit in January 1998.
(15) Consists of commissions.
(16) Consists of car allowance.
(17) Consists of relocation expenses, including losses incurred by Mr.
DiFerdinando as a result of an expedited sale of his home, and Summit's
matching contribution to Mr. DiFerdinando's 401(k) plan in the amount of
$2,375.
(18) Consists of commissions, $12,000 of which was paid in 1998.
(19) Consists of commissions, $11,572 of which was paid in 1997.
(20) Consists of commissions, $9,625 of which was paid in 1996.
(21) On September 13, 1995, in connection with a repricing of all outstanding
options having an exercise price in excess of $1.75 per share, Summit
canceled and replaced the option to purchase 58,500 shares of Common Stock
at a purchase price of $2.50 per share with a new option to purchase the
same number of shares of Common at an exercise price of $1.75 per shares.
Such new option is not reflected in above table.
107
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during the fiscal year ended December 31, 1997 to each of the Named Executive
Officers.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------------- ANNUAL RATES OF
NO. OF % OF TOTAL FAIR STOCK PRICE
SECURITIES OPTIONS MARKET APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE VALUE ON OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE DATE OF EXPIRATION --------------------
GRANTED(1) 1997(2) ($)/SHARE GRANT($) DATE 5%($) 10%($)
----------- ----------------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry J. Gerhard............... 75,000 8.9% 8.13 8.13 7/28/07 383,233 971,187
C. Albert Koob................. 28,000 3.3% 8.13 8.13 7/28/07 143,074 362,576
Moshe Guy...................... 761 0.1% 6.52 6.52 4/15/07 3,118 7,902
8,000 0.9% 8.13 8.13 7/28/07 40,878 103,593
391 0.1% 17.00 17.00 10/17/07 4,180 10,594
25,000(4) 3.0% 9.63 9.63 12/22/07 151,328 383,494
John DiFerdinando.............. 25,000 3.0% 5.38 5.38 4/16/07 84,508 214,159
Eric Benhayoun................. 20,000 2.4% 8.13 8.13 7/28/07 102,195 258,983
12,500 1.5% 9.63 9.63 12/22/07 75,664 191,747
</TABLE>
- ------------------------
(1) Options granted in 1997 are either incentive stock options or nonstatutory
stock options and generally vest over four years, with 25% of the option
shares becoming fully vested one year from the grant date and 1/48th vesting
in each successive month, with full vesting occurring on the fourth
anniversary date. Under the terms of the 1994 Stock Plan and the 1997
Nonstatutory Stock Option Plan, the administrator retains discretion,
subject to plan limits, to modify the terms of outstanding options and to
reprice outstanding options. The options have a term of 10 years, subject to
earlier termination in certain situations related to termination of
employment.
(2) Based on a total of 846,777 options granted to all employees and consultants
during 1997.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent Summit's
estimate or projection of the future Common Stock price.
(4) Granted under the 1997 Nonstatutory Stock Option Plan.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Named Executive Officers, certain
information concerning stock options exercised during 1997 and the number of
shares subject to exercisable and unexercisable stock options as of December 31,
1997. The table also sets forth certain information with respect to the value of
stock options held by such individuals as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1997
AND OPTION VALUES ON DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT 12/31/97 12/31/97($)(1)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Gerhard................ 0 0 85,416 64,584 110,415 161,460
C. Albert Koob.................. 20,000 216,260 58,750 39,250 493,281 85,469
Moshe Guy....................... 0 0 4,902 44,250 8,284 60,469
John DiFerdinando............... 0 0 21,500 25,000 195,813 131,250
Eric Benhayoun.................. 0 0 58,500 32,500 519,188 62,500
</TABLE>
- ------------------------
(1) These values have been calculated based on the closing price of Summit's
Common Stock on the Nasdaq National Market on December 31, 1997 of $10.38
per share minus the exercise price.
EMPLOYMENT AGREEMENTS
Summit entered into a three-year employment agreement with Mr. Gerhard
effective August 1, 1997, pursuant to which he receives an annual base salary,
an annual bonus of up to 25% of his base salary payable if certain revenue
targets are achieved and all standard benefits accorded other executives of
Summit as well as certain additional medical benefits. Mr. Gerhard was also
granted options to purchase up to 75,000 shares of Common Stock, subject to
vesting over a three-year period. In addition, Mr. Gerhard is entitled to an
allowance for car expenses of $1,000 per month. In the event Mr. Gerhard is
terminated other than for cause, he is entitled to severance of $33,333.33 per
month plus all insurance benefits until he accepts other full time employment,
but in no event for longer than twenty-four months. This agreement will be
automatically extended for additional one-year terms unless terminated by either
party with 90 days written notice prior to the end of the then current term.
On October 21, 1995, Summit entered into a four-year employment agreement
with Mr. Koob pursuant to which he receives an annual base salary, an annual
bonus of up to 25% of his base salary, all standard benefits accorded other
executives of Summit, and relocation costs. Under the agreement, Mr. Koob was
granted options to purchase up to 75,000 shares of Common Stock, subject to
vesting over a four-year period. Such options automatically vest upon
termination of Mr. Koob other than for cause and upon the sale of more than 75%
of the assets or 50% of the outstanding capital stock of Summit. In addition,
the agreement provided that upon consummation of Summit's initial public
offering, the four-year vesting schedule with respect to such options
accelerated by one year. In the event Mr. Koob is terminated other than for
cause, he is entitled to severance of $10,416.67 per month plus all insurance
benefits until he accepts other full time employment, but in no event for longer
than nine months. In the event Mr. Koob resigns or is terminated for cause
within 36 months after the date of the employment agreement, any unvested
options and any options which vested, and shares issued upon exercise of such
options, within one year prior to such resignation or termination may be
repurchased by Summit at the option exercise price. This agreement will be
automatically extended for additional one-year terms unless terminated by either
party with 90 days written notice prior to the end of the then current term.
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On July 1, 1997, Summit entered into a four-year employment agreement with
Mr. Guy, pursuant to which he receives an annual base salary, an annual bonus of
up to 25% of his base salary, and all standard benefits accorded other
executives of Summit. In the event Mr. Guy is terminated other than for cause,
he is entitled to severance equal to his then monthly base salary plus all
current insurance benefits until he accepts other full time employment, but in
no event for longer than twelve months. This agreement will be automatically
extended for additional one-year terms unless terminated by either party with 90
days written notice prior to the end of the then current term.
On April 15, 1997, Summit entered into a four-year employment agreement with
Mr. DiFerdinando, pursuant to which he received an annual base salary, an annual
bonus of up to 25% of his base salary, and all standard benefits accorded other
executives of Summit. Under the agreement, Mr. DiFerdinando was granted options
to purchase up to 25,000 shares of Common Stock, subject to vesting over a
four-year period, unless Summit sold substantially all of its assets or was
acquired, in which case all shares would have vested immediately. In the event
Mr. DiFerdinando was terminated other than for cause, he would have been
entitled to severance equal to his then monthly base salary plus all current
insurance benefits until he accepted other full time employment, but in no event
for longer than six months. Mr. DiFerdinando also received relocation expense
reimbursement as well as an equity protection over the sale price of his home.
Mr. DiFerdinando terminated his employment with Summit in January 1998.
Effective October 31, 1994, Summit entered into a four-year employment
agreement with Mr. Benhayoun pursuant to which he receives an annual base
salary, commissions based on sales revenue generated, and all standard benefits
accorded other executives of Summit. Under the employment agreement, Mr.
Benhayoun was granted options to purchase up to 58,500 shares of Common Stock,
of which 15,000 vested immediately, 15,000 vested on October 31, 1995, and the
remainder vested ratably over the 24 months following October 31, 1995. In
addition, the agreement provided that upon consummation of Summit's initial
public offering, the two-year vesting schedule with respect to such options
accelerated by one year. In addition, in the event Mr. Benhayoun is terminated
other than for cause, he is entitled to severance of 52,083 French francs
(approximately $8,502.65 as of March 27, 1998) per month plus all insurance
benefits until he accepts other full-time employment, but in no event longer
than nine months.
SUMMIT CERTAIN TRANSACTIONS
In December 1993, Summit's Israeli subsidiary, Summit (EDA) Ltd. (formerly
named SEE Technologies), entered into a four-year sublease which was
subsequently extended until December 31, 1998, pursuant to which Summit (EDA)
Ltd. subleases space for its corporate offices from DCL Holding & Investment in
Technology (1993), Ltd. ("DCL") on terms and conditions similar to those under
which DCL leases such office space from the third-party owner of the office
space. DCL is a 5% stockholder of Summit and wholly-owned subsidiary of DCL
Technologies Ltd. Amihai Ben-David, a director of Summit, is the Chief Executive
Officer and Chairman of DCL Technologies Ltd. Summit believes that the terms of
the foregoing lease are no less favorable to Summit than those that could have
been obtained from unaffiliated third parties.
In May 1997, Summit loaned $350,000 to Moshe Guy, an executive officer of
Summit, for the purchase of a primary residence pursuant to a promissory note
that bore interest at the rate of 5% per year. The principal and accrued
interest were repaid in September 1997.
In July 1997, Summit loaned an aggregate of $165,000 to John DiFerdinando
for the purchase of a primary residence pursuant to two promissory notes that
bore interest at the rate of 5.98% per year. The principal and accrued interest
were repaid in October 1997. Mr. DiFerdinando, formerly an executive officer of
Summit, terminated his employment with Summit in January 1998.
In September 1997, Summit repurchased 24,000 and 150,000 shares of Summit's
Common Stock at a price of $12.56 per share from C. Albert Koob and L&K
Properties Limited Partnership, respectively. Mr.
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Koob is an executive officer of Summit, and Larry Gerhard, the sole general
partner and a limited partner of L&K Properties Limited Partnership, is an
executive officer and director of Summit. Summit also repurchased 200,000 shares
from DCL.
In September 1997, Summit acquired SimTech. In connection with the
acquisition, Richard Davenport, an executive officer of Summit, received
$2,202,731 and 692,089 shares of Summit's Common Stock in exchange for his
shares of SimTech stock. Part of those shares are subject to a lock-up
arrangement and held in escrow. The shares will be released from the lock-up
over a 24-month period subject to Mr. Davenport's continued employment with
Summit. The Richard Davenport 1997 Irrevocable Annuity Trust also received
$362,153 and 113,786 shares of Summit's Common Stock in exchange for its shares
of SimTech stock.
Summit has a line of credit for $1,000,000 with the United States National
Bank of Oregon, a subsidiary of U.S. Bancorp. Steven P. Erwin, director of
Summit, was Executive Vice President and Chief Financial Officer of U.S. Bancorp
until July 1997.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Summit Common Stock, as of August 31, 1998, by (a) each person
known by Summit to be the beneficial owner of more than 5% of the outstanding
shares of Summit Common Stock, (b) each director and nominee for director, (c)
each of the executive officers named in the Summary Compensation Table, and (d)
all directors and executive officers of Summit as a group. Unless otherwise
noted in the footnotes to the table, Summit believes that the persons named in
the table have sole voting and investing power with respect to all shares of
Summit Common Stock indicated as being beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF TOTAL(1)
- -------------------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
DCL Technologies Ltd.(2)........................................................ 977,730 6.4%
P.O. Box 544
46105 Herzlia Israel
GeoCapital, LLC(3).............................................................. 1,523,100 10.0%
767 Fifth Avenue, 45th Floor
New York, NY 10153
Pilgrim Baxter & Associates, Ltd.(4)............................................ 1,209,900 7.9%
825 Duportail Road
Wayne, PA 19087
T. Rowe Price Associates, Inc.(5)............................................... 801,300 5.3%
100 East Pratt Street
Baltimore, MD 21202
Massachusetts Financial Services Company(6)..................................... 843,250 5.5%
500 Boylston Street, 15th Floor
Boston, MA 02116
Larry J. Gerhard(7)............................................................. 116,919 *
C. Albert Koob(8)............................................................... 50,624 *
Moshe Guy(9).................................................................... 10,301 *
John DiFerdinando............................................................... 1,000 *
Eric Benhayoun(10).............................................................. 18,692 *
Amihai Ben-David(11)............................................................ 977,730 6.4%
William Botts(12)............................................................... 12,500 *
Steven P. Erwin(13)............................................................. 15,000 *
Barbara M. Karmel, Ph.D.(14).................................................... 11,000 *
All directors and executive officers as a group (13 persons)(15)................ 1,818,693 11.7%
</TABLE>
- ------------------------
* Represents less than 1% of the total.
(1) Based on 15,240,701 shares of Common Stock outstanding as of August 31,
1998. A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days upon the exercise of options.
Calculations of percentage of beneficial ownership assume the exercise by
only the respective named stockholder of all options for the purchase of
Common Stock held by such stockholder which are exercisable within 60 days.
(2) Includes 947,730 shares held by DCL Holding & Investments in Technology
(1993) Ltd., a wholly-owned subsidiary of DCL Technologies Ltd. DCL
Technologies Ltd. is an Israeli public company, the shares of which are
traded on the Tel-Aviv stock exchange. The Company believes that the
following stockholders own at least 5% of the outstanding shares of DCL
Technologies Ltd.: Comverse
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Technologies Inc., ISCAL Holdings Ltd., Uri Melamed, Bank Hapoalim, Danbar
Ltd. and Amihai Ben-David.
(3) As indicated in the Schedule 13G filed by GeoCapital, LLC pursuant to the
Exchange Act on February 23, 1998.
(4) As indicated in the Schedule 13G, as amended, filed by Pilgrim Baxter &
Associates, Ltd. pursuant to the Exchange Act on February 13, 1998.
(5) As indicated in the Schedule 13G filed by T. Rowe Price Associates, Inc.
pursuant to the Exchange Act on February 12, 1998.
(6) As indicated in the Schedule 13G filed by Massachusetts Financial Services
Company pursuant to the Exchange Act on February 12, 1998.
(7) Includes 113,138 shares issuable upon exercise of options. Also includes
3,781 shares held by L&K Properties Limited Partnership, of which Mr.
Gerhard is the sole general partner and a limited partner.
(8) Includes 50,624 shares issuable upon exercise of options.
(9) Includes 10,301 shares issuable upon exercise of options.
(10) Includes 17,500 shares issuable upon exercise of options.
(11) Includes 947,730 shares held by DCL Holding & Investments in Technology
(1993) Ltd. and 30,000 shares held by DCL Technologies Ltd. Mr. Ben-David is
the Chief Executive Officer and Chairman of DCL Technologies Ltd. and
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
(12) Includes 10,000 shares issuable upon exercise of options.
(13) Includes 10,000 shares issuable upon exercise of options.
(14) Includes 10,000 shares issuable upon exercise of options.
(15) Includes 244,395 shares issuable upon exercise of options.
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ORCAD BUSINESS
OVERVIEW
OrCAD develops, markets and supports software products that assist
electronics designers in the management of component data and in the design of
FPGAs, including complex programmable logic devices, analog and mixed
analog-digital circuits, and PCBs. OrCAD operates in a single business segment,
comprising the electronic design automation industry and serves most segments of
the electronics industry, including aerospace, telecom, industrial control,
military, medical equipment, and consumer products. OrCAD's products enable
electronics designers to reduce time to market, improve product capability, and
reduce design costs. OrCAD's Windows-based EDA solutions support the design
process for mainstream components, from schematic capture to programmable logic
design and verification to circuit simulation and printed circuit board layout.
Over 240,000 products bearing the OrCAD name have been sold worldwide since
1984.
RECENT DEVELOPMENTS
In October 1997, OrCAD entered into an Agreement and Plan of Merger with
MicroSim Corporation ("MicroSim"), a privately held California corporation,
providing for the merger of OCA Merger Corporation, a wholly-owned subsidiary of
OrCAD, with and into MicroSim (the "MicroSim Merger"). The MicroSim Merger was
consummated on January 20, 1998, at which time all of the issued and outstanding
shares of MicroSim Common Stock and all of the outstanding options and other
rights to acquire MicroSim Common Stock were converted into and exchanged for
2,427,632 shares of OrCAD Common Stock. The MicroSim Merger was accounted for as
a pooling-of-interests.
As a result of the MicroSim Merger, OrCAD incurred a one-time charge
totaling approximately $4.1 million in the first quarter of 1998, relating
primarily to financial advisory fees, legal and accounting services for both
parties, personnel severance costs, the cancellation and continuation of
contractual obligations and other integration costs.
On April 15, 1998, OrCAD U.K. Ltd., a wholly-owned subsidiary of OrCAD
formed in March 1998, purchased certain assets and assumed certain liabilities
of ARS Microsystems ("ARS") for approximately $1 million. ARS was previously
OrCAD's value added reseller in the United Kingdom. The cost of the acquisition
was allocated on the basis of the estimated fair value of the assets acquired
and the liabilities assumed.
INDUSTRY BACKGROUND
Advances in electronics technology have enabled the development of products
with significantly greater functionality, lower cost, and smaller size. The
electronic functionality of these products today is contained in multiple,
diverse ICs combined into electronic subsystems on one or more PCBs. While
extremely complex components such as microprocessors, memory, and custom digital
signal processors are central to a number of these subsystems, most subsystems
are primarily composed of mainstream components.
Competitive pressures and the proliferation of programmable logic devices
and PCBs in product design have led to increasing demand for lower cost,
easier-to-use solutions for design engineers creating mainstream components. The
complexity of FPGAs and PCBs is continuously increasing as electronics
manufacturers seek to increase functionality and reduce product cost and size.
FPGAs are now full-scale systems on chips, with more than 100,000 gates and
operating at 75 to 125 MHz and 3.3 volts.
Today's mainstream PCBs may be multi-layer boards containing up to a
thousand components and driven by high speed (>100MHz) microprocessors. OrCAD
believes that the majority of manufacturers' electronic design-starts today
involve these mainstream types of FPGAs, CPLDs, and PCBs. As an engineering
design platform, the latest Intel PCs running Windows NT continue to offer
increased
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processing power and ease of use. More than ever, these machines are ideal for
most of today's electronics design activities.
PRODUCTS
OrCAD's software products are designed as 32-bit applications, each of which
operates in an integrated fashion with other applications for Microsoft Windows.
ORCAD CAPTURE is a 32-bit schematic capture tool that enables the
acceleration of the engineer's overall design process for both FPGA and PCB
design. Its integrated design management tools allow design engineers to browse
their schematic database to find and edit objects, and to reuse portions of
their designs. ORCAD CAPTURE includes: (i) a schematic editor designed to speed
the drawing of complex schematics; (ii) a part editor that allows designers to
modify any of the more than 20,000 included library parts or to create new ones
easily; (iii) an electrical rules checking program that detects and flags common
design errors on the schematic page; and (iv) features to produce output such as
net-lists, bills of material and design documentation.
ORCAD CAPTURE COMPONENT INFORMATION SYSTEM adds to OrCAD Capture a design
data and library management tool. This tool links parts placed in an ORCAD
CAPTURE design with the information in the manufacturers' in-house part
databases and a selection of those found on the Internet. This increases the
ease and efficiency of part selection for the designer and transfers information
to create correct bills of material and net-lists to the schematics.
ORCAD LAYOUT family of products allows rapid completion of most mainstream
PCBs. ORCAD LAYOUT'S 16-layer autorouter applies proprietary "push-and-shove"
technology to enable high density routing. OrCAD's interactive routing gives
design engineers the power of "user-assisted" autorouting to precisely control
critical routes. ORCAD LAYOUT PLUS adds shape-based autorouting, automatic
cluster placement, component push-and-shove, auto-interactive placement,
auto-path completion and single-layer autorouting. ORCAD LAYOUT ENGINEERS
EDITION is suitable for use by engineers, PCB designers and technicians who do
not require an autorouter.
ORCAD EXPRESS is an integrated design environment for the design of FPGAs
and CPLDs. It integrates VHDL, schematic, and mixed-mode design entry,
simulation, and synthesis, targeted to vendor place and route tools, into a
single application. With ORCAD EXPRESS, engineers can design board-level systems
with FPGAs and CPLDs from OrCAD Solution Partners Actel Corporation, Altera
Corporation, Lattice Semiconductor Corporation, Lucent Technologies, Inc.,
Vantis Corporation, and Xilinx, Inc.
ORCAD EXPRESS COMPONENT INFORMATION SYSTEM adds to Express a design data and
library management tool. This tool links parts placed in an OrCAD schematic
design with the information in the manufacturers' in-house part databases and a
selection of those found on the Internet. This increases the ease and efficiency
of part selection for the designer and transfers information to create correct
bills of material and net-lists to the schematics.
ORCAD SCHEMATICS is a graphical EDA front-end that speeds the process of
designing an electronic system. Engineers using ORCAD SCHEMATICS can create a
schematic, simulate it, and prepare it for printed circuit board layout, all
with the same 32-bit Window's-standard user interface. Its "Design Journal"
capability allows engineers to explore alternative solutions simultaneously,
enabling then to create better designs faster. ORCAD SCHEMATICS includes (i) a
schematic editor that is integrated with OrCAD's other products; (ii) a design
manager that allows design engineers to browse their design workspace; (iii) a
parts library, containing more than 40,000 parts, together with a part editor
and wizard that allows designers to quickly modify existing parts or create new
ones; and (iv) features to create reports and send design data to other tools,
such as AutoCAD.
ORCAD PSPICE A/D is an analog/digital simulator that offers the design
engineer close integration between analog and digital designs, and integrates
both simulation and waveform analysis for mixed analog
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and digital systems. Many of today's electronic circuits combine both analog and
digital components. ORCAD PSPICE A/D accelerates the design of these circuits by
providing simulation and analysis of the system before it is built. ORCAD PSPICE
A/D includes (i) ORCAD SCHEMATICS; (ii) a graphical waveform display and
analysis program that allows engineers to view and calculate circuit
performance; (iii) a library of over 10,000 models for analog and digital parts;
and (iv) a graphical simulation model that allows engineers to modify models and
create new ones.
ORCAD PSPICE is an analog only simulator that was first introduced in 1984,
and has been enhanced in numerous releases since. ORCAD PSPICE'S integration
with ORCAD SCHEMATICS allows engineers to analyze and refine their designs in a
single Windows-based graphical environment. The analysis capabilities (such as
parametric analysis and Monte Carlo analysis) of ORCAD'S PSPICE give engineers
an understanding of circuit performance that enables them to create better
designs. ORCAD PSPICE includes (i) ORCAD SCHEMATICS; (ii) a graphical waveform
display and analysis program that allows engineers to view and calculate circuit
performance; (iii) a library containing more then 8,500 analog part models; and
(iv) a graphical simulation model editor that allows engineers to modify models
and create new ones.
ORCAD PSPICE A/D BASICS+ and ORCAD PSPICE BASICS are entry-level versions of
ORCAD PSPICE A/D and ORCAD PSPICE.
ORCAD PCBOARDS assists in the layout of printed circuit boards. It is
integrated with ORCAD SCHEMATICS and ORCAD PSPICE A/D, allowing engineers to do
both circuit design and layout to improve overall circuit performance and
time-to-market. ORCAD PCBOARDS includes the industry leading Cadence (formerly
Cooper & Chyan Technology) SPECCTRA Shaped Based autorouter to provide fast
routes and high completion rates. ORCAD PCBOARDS also includes a library of more
than 1,400 footprints and an interactive footprint editor that enables designers
to modify existing footprints or create new ones.
ORCAD DESIGNLAB enables engineers to design in an integrated manner. Within
this integrated design environment engineers can move back and forth between
creating the schematic diagram, simulating both analog and digital circuits,
synthesizing both PLDs and CPLDs, designing and simulating systems containing
Xilinx FPGAs, and laying out printed circuit boards. ORCAD DESIGNLAB includes
ORCAD SCHEMATICS, ORCAD PSPICE A/D, and ORCAD PCBOARDS. It also includes
additional features for PLD, CPLD, and FPGA design.
OrCAD's integrated solutions address the entire process for designing PCBs
and programmable logic devices. OrCAD's products are intended to be intuitive
and relatively easy to use by a broad range of electronics designers. OrCAD's
products include on-line help and tutorials to help design engineers become
productive quickly, often within just a few days. In addition, OrCAD's products
feature a familiar Windows user interface and can be used with other Windows
applications, such as Microsoft Word and Microsoft Excel. This eliminates the
need for separate platforms for design and office automation applications. In
addition, OrCAD software can be linked to place-and-route software from the
leading vendors of programmable logic devices.
OrCAD believes that the EDA market is trending toward greater use of the
Microsoft Windows NT operating system, and anticipates that the use of Windows
NT-based products in the EDA market will grow and expand. Accordingly, all of
the new products introduced by OrCAD (and its acquired companies) during its
preceding and current fiscal year, and all of the products OrCAD is currently
developing, are designed for use on Microsoft's Windows NT operating systems and
the PC platform. Any factor adversely affecting the demand for or use of the
Microsoft Windows operating systems or PCs, for EDA applications, could result
in a material adverse effect on OrCAD's business, financial condition and
results of operations.
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Software products as complex as those offered by OrCAD may contain defects
or failures when introduced or when the new versions are released. OrCAD has in
the past discovered software defects in certain of its products and may
experience delays or lost revenue to correct such defects in the future. There
can be no assurance that, despite testing by OrCAD, errors will not be found in
new products or versions after commencement of commercial shipments, resulting
in loss of market share or failure to achieve market acceptance. Any such
occurrence could have a material adverse effect upon OrCAD's business, financial
condition or results of operations.
MARKETING AND SALES
OrCAD markets and sells its products in North America directly through its
marketing and inside sales organizations which are supplemented by a field sales
force and application engineers. OrCAD designs its marketing programs to
reinforce the recognition of its brand through integrated advertising, direct
mail, electronic marketing, and other promotional activities. OrCAD's sales
effort is designed to stimulate, qualify and respond effectively to the leads
generated by the marketing programs. OrCAD also generates leads through customer
and consultant referrals. To effectively target and measure all of these
efforts, OrCAD has invested in an information system that tracks contacts with
customers and prospects. OrCAD's distribution strategy is intended to address
the mainstream electronic design market in a productive, cost-effective manner.
OrCAD believes that its direct field sales force will allow it to better meet
the unique buying requirements of management in large organizations. OrCAD
intends to use its penetration at the individual and group level in large
organizations to help achieve enterprise-wide standardization on its products.
OrCAD maintains an ongoing program of market research based on industry
reports, customer input, surveys, and frequent communication with VARs. This
research helps OrCAD to set priorities for product development, technical
support, and other functional areas. Trade shows and OrCAD's training,
consulting, and implementation services provide additional means of soliciting
customer feedback.
DIRECT SALES. OrCAD's direct sales effort consists primarily of an inside
sales force supplemented with a field sales presence. Inside sales are typically
generated by inbound inquiries stimulated by OrCAD's marketing programs,
additional sales to existing customers, and references from customers. OrCAD
believes inside sales has been a cost-effective means of distributing its
products and gaining customer acceptance. OrCAD believes that its direct field
sales force will allow it to better meet the unique requirements of selling
directly to management at large organizations.
INDIRECT SALES. OrCAD's VARs are key components of OrCAD's sales and
marketing strategy in international markets, outside of Japan and the United
Kingdom. VARs provide local technical support and sometimes local language
documentation, and run a variety of direct marketing programs that build on
materials developed for the North American direct marketing efforts. OrCAD
derived approximately $7.0 million, $7.7 million, $16.7 million, $16.6 million,
and $11.1 million, or approximately 30%, 37%, 38%, 45%, and 39% of its total
revenue from international sales in the six months ended June 30, 1998 and 1997,
and for the years ended December 31, 1997, 1996 and 1995, respectively.
Substantially all of OrCAD's international revenue to date has been derived from
indirect sales made by its VARS and Japanese subsidiary. OrCAD purchased its
Japanese distributor in 1995 and acquired certain assets of its U.K. distributer
in 1998 to increase its direct presence in those countries. Beyond North America
and Japan, OrCAD distributes its products through leading EDA VARs.
Because OrCAD's products are used by professional engineers and other
technical personnel, effective VARs must possess sufficient technical, marketing
and sales resources and must devote these resources to sales efforts, customer
education, training, consulting and support. Only a limited number of potential
VARs possess these criteria. There can be no assurance that OrCAD will be able
to attract and retain a sufficient number of qualified VARs to successfully
market OrCAD's products, and the failure to do so would have a material adverse
effect on OrCAD's business, financial condition and results of
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operations. OrCAD's relationship with its VARs is usually established through a
formal reseller agreement, which generally may be terminated by either party
without cause. There can be no assurance that any VAR will continue to represent
OrCAD's products, and the inability to retain VARs could have a material adverse
effect on OrCAD's business, financial condition and results of operations.
STRATEGIC RELATIONSHIPS. OrCAD has strategic relationships with and works
closely with other companies to develop and market their products and to provide
customers with application-specific solutions. In addition, OrCAD has developed
relationships with a number of FPGA and CPLD vendors such as Actel Corporation,
Altera Corporation, Lattice Semiconductor Corporation, Lucent Technologies Inc.,
Vantis Corporation, and Xilinx, Inc. for the purpose of marketing integrated
solutions to joint prospects and customers.
SERVICE AND SUPPORT
OrCAD believes that to compete in the desktop EDA marketplace, it must
provide a unique variety of support services, including customer service,
software implementation, technical support, training and consulting services.
OrCAD offers product support agreements that provide customers with access
to product enhancements, technical support, and the OrCAD Design Network ("ODN")
which includes the OrCAD Knowledge Base, the OrCAD Knowledge Exchange, OrCAD
Tech Tips and an electronic Technical Support Connection. OrCAD has created
programs for both in-house and on-site training for all products. In North
America, OrCAD has developed a strong technical support capability comprised
primarily of electrical engineers who understand the customers' design processes
and OrCAD's products. Internationally, OrCAD Japan, OrCAD U.K., independent VARs
and distributors provide support to OrCAD customers. In addition, OrCAD's
domestic technical support resources are available to support OrCAD's
international markets.
PRODUCT DEVELOPMENT
OrCAD's product development process is customer-centric, led by a product
marketing group which researches customer requirements, and is supported by
research and development, quality assurance, and technical communications teams
which jointly develop OrCAD's products. General technology directions for
OrCAD's future developments include productivity improvements for target
applications; language-based design and synthesis; design management;
component-information systems development; support for advanced PCB routing
technology and integration of the overall design process. OrCAD has a highly
productive Windows C++ development environment, in which it develops its
products using Microsoft Foundation Class UI objects. As of August 31, 1998,
there were 102 people in the above mentioned groups. In 1997, 1996, and 1995,
OrCAD invested 25%, 25% and 26% of revenue, respectively, in product
development. All software development costs are expensed as incurred.
The EDA industry is characterized by rapid technological change, frequent
new product introductions, evolving industry standards, and changing customer
requirements. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
un-marketable. OrCAD believes that it must continue to commit substantial
resources to product development and, that its future success will depend on its
continued ability to enhance its current products and to develop or acquire new
products that keep pace with technological developments, emerging industry
standards and changing customer requirements. There can be no assurance that
OrCAD will be successful in developing and marketing any such new products or
product enhancements, or that such new products and enhancements will adequately
meet the requirements of the marketplace and achieve market acceptance. In the
past, OrCAD has experienced delays in its introduction of product enhancements
and new products. If OrCAD is unable, for technological or other reasons, to
develop and
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introduce products in a timely manner in response to changing market conditions
or customer requirements, OrCAD's business, financial condition and results of
operations will be materially and adversely affected.
COMPETITION
The EDA industry is highly competitive. OrCAD currently competes in the
desktop EDA market directly with Viewlogic, a wholly-owned subsidiary of
Synopsys. Viewlogic offers Windows and UNIX-based products. OrCAD also faces
competition from larger vendors of traditional UNIX-based EDA products. Some of
these companies, such as Cadence, Synopsys, Mentor Graphics and others, have
announced or released Windows-based products. OrCAD also competes with smaller,
privately held companies. A number of OrCAD's competitors have significantly
greater financial, technical and marketing resources than OrCAD, and strong name
recognition. There can be no assurance that these competitors will not use their
superior resources and visibility, and installed customer bases, to successfully
develop better products and/or market their products more effectively than those
of OrCAD. In particular, as a result of the wide acceptance of UNIX-based EDA
tools, vendors of such tools have established long-term relationships with many
of OrCAD's current and potential customers, and may have the ability to offer
these customers a broad suite of Windows and UNIX-based products to satisfy the
entire range of their design needs. Finally, in addition to competition from EDA
software vendors, OrCAD faces competition from the internal design groups of
many of its customers, who design and develop their own customized schematic
capture, simulation or synthesis tools for their own particular needs and
therefore may be reluctant to purchase products offered by OrCAD or other EDA
vendors. There can be no assurance that OrCAD will be able to convert such
internal design groups into users of OrCAD's products. More generally, there can
be no assurance that OrCAD will be able to compete successfully against current
and future competitors, both direct and indirect, or that competitive pressures
or generally adverse economic conditions faced by OrCAD will not materially
adversely affect its business, financial condition and results of operations.
PROPRIETARY RIGHTS
OrCAD's success is heavily dependent upon its proprietary software
technology. OrCAD currently relies on a combination of trade secret, copyright
and trademark laws, and contractual provisions to protect its proprietary rights
in its software products. OrCAD also ships its software with security devices to
all customers outside the U.S. and Canada. OrCAD generally enters into
proprietary information and confidentiality agreements with its employees and
distributors, and limits access to and distribution of its software,
documentation and other proprietary information. OrCAD does not license or
release the source code for its proprietary software to its customers, except in
connection with OEM development agreements and a fraction of the PSPICE
software, which is sold as a model development product. Despite these
precautions, there can be no assurance that a third party will not copy or
otherwise obtain and use OrCAD's products or technology without authorization,
or develop similar or superior technology independently. In particular, OrCAD
distributes its products pursuant to "shrink-wrap" licenses. There can be no
assurance that such licenses are enforceable.
In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. Although OrCAD believes
that its products do not infringe on the proprietary rights of third parties,
and although OrCAD has received no communications from third parties alleging
the infringement of the proprietary rights of such parties, there can be no
assurance that infringement claims will not be asserted against OrCAD in the
future and that any such claims will not require OrCAD to enter into costly
litigation. Irrespective of the validity or the successful assertion of such
claims, any such litigation could result in significant diversions of effort by
OrCAD's technical and management personnel, as well as OrCAD's incurring
significant costs with respect to the defense thereof, and could have a material
adverse effect on OrCAD's business, financial condition and results of
operations. In addition, if
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any claims or actions are asserted against OrCAD, OrCAD may choose to or be
required to obtain a license under a third party's intellectual property rights.
There can be no assurance that under such circumstances a license would be
available upon reasonable terms or at all.
EMPLOYEES
As of August 31, 1998, OrCAD had 253 employees, including 112 in marketing
and sales, 102 in research and development and 39 in general and administrative
capacities. Of these, 164 are located at OrCAD headquarters in Beaverton,
Oregon, 46 are located in the Irvine, California headquarters, 18 are located at
OrCAD Japan in Yokohama, Japan, 14 are located at OrCAD U.K. in Basingstoke,
England, and 11 are located throughout the United States and Canada at field
sales offices. None of OrCAD's employees is represented by a labor union or is
subject to a collective bargaining agreement. OrCAD believes that its employee
relations are good.
OrCAD's future success depends in significant part upon the continued
service of its key senior management, professional and technical personnel.
OrCAD's future success also depends on its continuing ability to attract and
retain highly qualified technical, professional and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
OrCAD can retain its key employees or that it can attract, assimilate or retain
other highly qualified personnel in the future.
PROPERTIES
OrCAD occupies approximately 39,000 square feet of space at its headquarters
in Beaverton, Oregon under a lease expiring in 2001, subject to OrCAD's right to
extend. In addition, OrCAD occupies approximately 43,000 square feet of space at
a product development facility in Irvine, California under a lease expiring in
2004, subject to OrCAD's right to extend. OrCAD's subsidiary in Japan leases
approximately 4,141 square feet for its office in Yokohama. OrCAD's subsidiary
in the U.K. leases approximately 3,700 square feet for its office in
Basingstoke, England.
On February 20, 1998, OrCAD entered into an agreement expiring in 2009 to
lease approximately 72,000 square feet of space for a new headquarters in
Tigard, Oregon, which agreement was amended on April 2, 1998 to increase the
amount of leased space to a total of approximately 106,000 square feet. At the
time of entering into such lease agreement, OrCAD paid a non-refundable deposit
of $147,000, and at the time of entering into the amendment, paid an additional
$162,000 as a non-refundable deposit. OrCAD believes that its existing
facilities, including the proposed new headquarters and expansion options, are
adequate for its current needs and that suitable additional space will be
available as needed.
LEGAL PROCEEDINGS
From time to time, OrCAD becomes involved in ordinary, routine or regulatory
legal proceedings incidental to the business of OrCAD. OrCAD is not presently a
party to any litigation, the outcome of which would have a material adverse
effect on OrCAD's business, financial condition or results of operations.
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SELECTED ORCAD CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of OrCAD have
been derived from OrCAD's historical consolidated financial statements. The
selected historical consolidated financial data of OrCAD includes the financial
results and accounts of Massteck, Ltd., Intelligent Systems Japan, K.K., Team
Corporation and Q Point Technology from June 1, 1995, December 2, 1995, April 1,
1997 and June 10, 1997, respectively (the dates of each respective acquisition
or purchase). In addition, the selected historical financial data of OrCAD
includes the financial results and accounts of MicroSim for all periods
presented. OrCAD's audited Consolidated Balance Sheets as of December 31, 1997
and 1996, its audited Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995, its unaudited Consolidated Balance Sheet as of
June 30, 1998 and its unaudited Consolidated Statements of Operations for the
six month periods ended June 30, 1998 and 1997 are included elsewhere in this
Joint Proxy Statement/Prospectus and should be read in conjunction with such
financial statements and the notes thereto. OrCAD's other audited historical
financial statements for 1995, 1994 and 1993 are not included herein.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ----------------
1997 1996 1995 1994 1993 1998 1997
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS:
Revenue:
Products......................................................... $35,385 $31,169 $23,142 $18,345 $17,297 $17,503 $16,928
Service.......................................................... 8,610 5,865 5,175 3,576 1,732 6,039 3,850
------- ------- ------- ------- ------- ------- -------
Total revenue.................................................... 43,995 37,034 28,317 21,921 19,029 23,542 20,778
Cost and expenses:
Cost of revenue-products......................................... 4,764 4,142 3,675 3,613 3,220 1,562 2,393
Cost of revenue-service.......................................... 1,692 1,503 1,109 973 672 1,175 793
Research and development......................................... 11,238 9,350 7,249 6,599 7,823 5,786 5,488
Marketing and sales.............................................. 15,416 11,877 8,793 6,835 6,533 9,285 7,241
General and administrative....................................... 4,810 4,793 3,507 2,735 2,186 2,634 2,290
Write-off of purchased software.................................. -- -- 1,037 -- -- -- --
Merger and acquisition related charges........................... 2,203 -- 971 -- -- 4,081 2,203
------- ------- ------- ------- ------- ------- -------
Total cost and expenses.......................................... 40,123 31,665 26,341 20,755 20,434 24,523 20,408
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.................................... 3,872 5,369 1,976 1,166 (1,405) (981) 370
------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest income (expense), net................................... 1,858 1,531 314 (29) 26 911 903
Other, net....................................................... (17) 65 33 218 138 (43) 18
------- ------- ------- ------- ------- ------- -------
1,841 1,596 347 189 164 868 921
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes................................ 5,713 6,965 2,323 1,355 (1,241) (113) 1,291
Income tax expense (benefit)..................................... 1,809 1,699 690 263 83 (40) 471
------- ------- ------- ------- ------- ------- -------
Net income (loss)................................................ $ 3,904 $ 5,266 $ 1,633 $ 1,092 $(1,324) $ (73) $ 820
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Basic net income (loss) per share................................ $ 0.43 $ 0.61 $ 0.41 $ 0.27 $ (0.33) $ (0.01) $ 0.09
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Diluted net income (loss) per share.............................. $ 0.41 $ 0.58 $ 0.24 $ 0.27 $ (0.33) $ (0.01) $ 0.09
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Shares used in basic net income (loss) per share calculation..... 9,165 8,618 4,012 3,982 4,038 9,279 9,134
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Shares used in diluted net income (loss) per share calculation... 9,446 9,046 6,853 3,982 4,038 9,279 9,388
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1996 1998
--------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 31,618 $ 23,103 $ 15,905
Working capital.................................................................... 37,115 36,858 36,159
Total assets....................................................................... 56,907 49,734 57,398
Long term obligations.............................................................. 19 205 19
Total stockholders' equity......................................................... 46,154 41,687 46,328
</TABLE>
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ORCAD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This OrCAD Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this report contain forward-looking
statements within the meaning of the Securities Litigation Reform Act of 1995
that involve risks and uncertainties. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and variations of such
words and similar expressions are intended to identify such forward-looking
statements. OrCAD's actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed in "Quarterly Results of Operations," in
this section and under the caption "Risk Factors," as well as other risks
detailed from time to time in OrCAD's SEC reports.
The industry in which OrCAD competes and the markets that it serves are
highly cyclical. OrCAD is dependent upon the semiconductor and, more generally,
the computer and electronics industries. Each of these industries is
characterized by rapid technological change, short product life cycles,
fluctuations in manufacturing capacity and pricing and gross margin pressures.
Segments of these industries, in each of the United States, Europe and Asia,
have from time to time experienced significant economic downturns characterized
by decreased product demand, reductions in capital expenditures, production
over-capacity, price erosion, work slowdowns and layoffs. In addition, portions
of these industries have experienced downturns at different times. Over the past
few years, most of these electronic industries, excluding the semiconductor
industry more recently, have experienced an extended period of economic growth
in North America and some growth in Europe. A recession in Japan and recent
large fluctuations in the value of Asian currencies in relation to the U.S.
dollar have contributed to economic slow downs in other Asian economies.
There can be no assurance that such economic growth in North America will
continue, and if it does not, any downturn could be especially severe. OrCAD's
operations may in the future reflect substantial fluctuations from period to
period as a consequence of such industry patterns, general economic conditions
affecting the timing of orders, and other factors affecting capital spending.
There can be no assurance that such factors will not have a material adverse
effect upon OrCAD's business, financial condition and results of operations.
OVERVIEW
OrCAD was formed in September 1991 as the successor to prior entities
engaged in developing EDA tools. From its inception, OrCAD has been engaged in
the development and marketing of a broad family of EDA products including
schematic capture, digital simulation, mixed analog/digital simulation,
programmable logic design and printed circuit board layout. In 1995, OrCAD
introduced ORCAD DESIGN DESKTOP FOR WINDOWS, a new product family designed for
the 32-bit Windows operating system that includes ORCAD CAPTURE FOR WINDOWS,
ORCAD SIMULATE FOR WINDOWS, ORCAD LAYOUT FOR WINDOWS, ORCAD LAYOUT LTD. FOR
WINDOWS and ORCAD LAYOUT PLUS FOR WINDOWS. In 1997, OrCAD introduced ORCAD
EXPRESS FOR WINDOWS, ORCAD EXPRESS COMPONENT INFORMATION SYSTEM, ORCAD CAPTURE
COMPONENT INFORMATION SYSTEM, ORCAD LAYOUT ENGINEERS' EDITION, and ORCAD
ENTERPRISE BRIDGE. Through the acquisition of MicroSim, OrCAD introduced the
PSPICE product family that includes ORCAD PSPICE A/D, ORCAD PSPICE, ORCAD PSPICE
A/D BASICS + and ORCAD PSPICE BASICS. From OrCAD's inception through the first
six months of 1995, OrCAD earned substantially all of its revenue from its
DOS-based EDA products. For the year ended December 31, 1996, and thereafter,
Windows-based products have accounted for more than 90% of OrCAD's product
revenue.
In June 1995, OrCAD acquired Massteck Ltd., a developer of Windows-based PCB
layout technology. This acquisition enabled OrCAD to introduce the ORCAD LAYOUT
FOR WINDOWS product family in June 1995, simultaneously with the release of
ORCAD CAPTURE FOR WINDOWS. In December 1995, OrCAD
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acquired Intelligent Systems Japan (ISJ), OrCAD's distributor in Japan since
1991. The entity is now known as OrCAD Japan, K.K., and operates as a
wholly-owned subsidiary of OrCAD.
In April 1997, OrCAD acquired certain technology and sales personnel from
TEAM Corporation for approximately $1.9 million. The cost of the acquisition was
allocated on the basis of the fair value of the assets acquired. This allocation
resulted in a charge for in-process research and development of $1.8 million and
goodwill of $126,000 at the purchase date. The charge for in-process research
and development resulted from allocating a portion of the acquisition cost to
TEAM's in-process product development that had not reached technological
feasibility. In addition, there are certain contingent amounts payable over the
next three years based on the achievement of specific revenue milestones. The
Company is amortizing the goodwill over a period of three years.
In June 1997, OrCAD acquired certain technology and development personnel
from Q Point Technology for approximately $720,000. The cost of the acquisition
was allocated on the basis of the fair value of the assets acquired. This
allocation resulted in a charge for in-process research and development of
$433,000, purchased technology capitalization of $248,000 and goodwill of
$39,000 at the purchase date. The charge for in-process research and development
resulted from allocating a portion of the purchase price to Q Point's in-process
product development that had not reached technological feasibility. OrCAD is
amortizing the goodwill and purchased technology over periods of three years and
five years, respectively.
In October 1997, OrCAD entered into an Agreement and Plan of Merger with
MicroSim, a privately held California Corporation, providing for the merger of
OCA Merger Corporation, a wholly-owned subsidiary of OrCAD, with and into
MicroSim. The MicroSim Merger was consummated on January 20, 1998, at which time
all of the issued and outstanding shares of MicroSim common stock and all of the
outstanding options and other rights to acquire MicroSim common stock were
converted into and exchanged for 2,427,632 shares of OrCAD Common Stock. The
MicroSim Merger was accounted for as a pooling-of-interests and accordingly, the
results of MicroSim have been included in the accompanying consolidated
financial statements for all periods presented.
As a result of the MicroSim Merger, OrCAD incurred a one-time charge
totaling approximately $4.1 million in the first quarter of 1998, relating
primarily to financial advisory fees, legal and accounting services for both
parties, personnel severance costs, the cancellation and continuation of
contractual obligations and other integration costs.
On April 15, 1998, OrCAD U.K. Ltd., a wholly-owned subsidiary of OrCAD
formed in March 1998, purchased certain assets and assumed certain liabilities
of ARS Microsystems ("ARS") for approximately $1 million. ARS was previously
OrCAD's value added reseller in the United Kingdom. The cost of the acquisition
was allocated on the basis of the estimated fair value of the assets acquired
and the liabilities assumed.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of
OrCAD's statements of operations as a percentage of its total revenue:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------- ------------------------
1997 1996 1995 1998 1997
----- ----- ----- ----- -----
(UNAUDITED)
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C>
Revenue:
Products...................................... 80% 84% 82% 74% 81%
Service....................................... 20 16 18 26 19
--- --- --- --- ---
Total revenue................................. 100% 100% 100% 100% 100%
--- --- --- --- ---
--- --- --- --- ---
Cost and expenses:
Cost of Revenue-products...................... 11 11 13 7 11
Cost of Revenue-service....................... 4 4 4 5 4
Research and development...................... 25 25 26 25 26
Marketing and sales........................... 35 32 31 39 35
General and administrative.................... 11 13 12 11 11
Write-off of purchased software............... -- -- 4 -- --
Merger and acquisition charges................ 5 -- 3 17 11
--- --- --- --- ---
Total cost and expenses....................... 91 85 93 104 98
--- --- --- --- ---
Income (loss) from operations................. 9 15 7 (4) 2
Other income, net............................. 4 4 1 4 4
--- --- --- --- ---
Income before income taxes.................... 13 19 8 -- 6
Income taxes.................................. 4 5 2 -- 2
--- --- --- --- ---
Net income.................................... 9% 14% 6% -- % 4%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
REVENUE
OrCAD derives revenue from the licensing of its software products and from
the provision of maintenance, training, and consulting services to customers.
OrCAD recognizes revenue from software licenses after shipment of product and
when no significant contractual obligations remain outstanding. Service revenue
is derived primarily from extended support agreements that provide customers
access to product enhancements, technical support, and the ODN which includes
the OrCAD Knowledge Base, the OrCAD Knowledge Exchange, OrCAD Tech Tips and an
electronic Technical Support Connection. Revenue from each product support
agreement is deferred and recognized ratably over the term of the extended
support agreement. Revenue from customer training and consulting is recognized
as services are performed.
Total revenue increased 19% in 1997 to $44.0 million from $37.0 million in
1996. Total revenue increased in 1996 by 31% from $28.3 million in 1995. Total
revenue increased during both years due to growth in both product revenue and
service revenue. As a percentage of total revenue, product revenue decreased to
80% in 1997 from 84% in 1996 and increased in 1996 from 82% in 1995. Conversely,
service revenue increased as a percentage of total revenue to 20% in 1997 from
16% in 1996 and decreased in 1996 from 18% in 1995.
Product revenue increased 14% in 1997 to $35.4 million from $31.2 million in
1996. Product revenue increased 35% in 1996 from $23.1 million in 1995. The
increased product revenue for 1997 is attributable
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to the successful introduction of ORCAD CAPTURE COMPONENT INFORMATION SYSTEM,
ORCAD EXPRESS, ORCAD EXPRESS COMPONENT INFORMATION SYSTEM, ORCAD LAYOUT
ENGINEER'S EDITION, ORCAD ENTERPRISE BRIDGE and Release 8.0 ORCAD PSPICE product
family and the introduction of DESIGNLAB. The addition of a field sales and
support organization acquired from TEAM Corporation and the expansion of the
inside sales department also contributed to growth. The acquisition of OrCAD
Japan and increased sales of the ORCAD DESIGN DESKTOP FOR WINDOWS product
family, particularly in the Layout and Simulate product lines, accounted for the
increase in product revenue for 1996.
Service revenue increased 47% in 1997 to $8.6 million from $5.9 million in
1996. Service revenue increased 13% in 1996 from $5.2 million in 1995. The
increase in service revenue in 1997 as compared to 1996 was primarily
attributable to the increased emphasis on maintenance sales, increased training
and consulting revenue, and renewals of extended support agreements from a
larger installed base. Sales of higher priced Windows-based applications in 1996
accounted for a larger increase in product revenue as compared to the increase
in service revenue for that year. The higher percentage of service revenue as a
percentage of total revenue in 1995 was attributed to a shift from new product
sales to upgrade sales of which a higher proportion of revenue is generally
allocated and deferred as service revenue.
Total North American revenue increased 33% in 1997 to $27.3 million from
$20.4 million in 1996. Total revenue generated outside of North America remained
relatively constant at $16.7 million and $16.6 million in 1997 and 1996,
respectively. Total North American revenue increased 19% in 1996 from $17.2
million in 1995. Total revenue generated outside North America increased 49% in
1996 from $11.1 million in 1995. As a percentage of OrCAD's total revenue, North
American revenue increased to 62% in 1997 from 55% in 1996 and decreased to 55%
in 1996 from 61% in 1995. The increase in the proportion of revenue generated in
North America in 1997 was primarily attributable to the formation and
integration of a field sales force into the North American sales territory and
the introduction of five new products: ORCAD CAPTURE COMPONENT INFORMATION
SYSTEM, ORCAD EXPRESS, ORCAD EXPRESS COMPONENT INFORMATION SYSTEM, ORCAD LAYOUT
ENGINEER'S EDITION, ORCAD ENTERPRISE BRIDGE and Release 8.0 ORCAD PSPICE product
family and the introduction of DESIGNLAB. The decrease in the proportion of
revenue generated outside of North America during 1997 was due in part to
exchange rate fluctuations in Japan, slower rates of economic growth in
international economics relative to North America, and the typically slower
initial adoption rate for new products in Europe and Asia. The decrease in the
proportion of North American revenue to total revenue in 1996 was primarily
attributable to the acquisition of OrCAD Japan. In 1995, OrCAD's sales to OrCAD
Japan, which was OrCAD's distributor until December 2, 1995, amounted to
approximately 4% of total revenue. In 1996, sales by OrCAD Japan amounted to
approximately 12% of total revenue. This increase in revenue attributable to
OrCAD Japan as a percentage of total revenue was primarily the result of OrCAD
recognizing the full selling price of products sold by OrCAD Japan, whereas in
1995, prior to the acquisition, OrCAD's products were sold to OrCAD Japan at
prices reflecting a substantial discount from OrCAD Japan's selling prices. The
greater proportion of North American revenue to total revenue in 1995 was
attributable to the earlier releases of OrCAD's new Windows-based products in
the North American market. In addition, OrCAD's North American customer base
traditionally has adopted new products earlier than its international customer
base.
COST OF REVENUE
The cost of product revenue represents the costs associated with the
licensing of OrCAD's products, such as expenses of reproducing product
documentation, media, packaging, hardware locks, shipping costs and royalties
paid to external developers. The cost of product revenue increased 15% in 1997
to $4.8 million from $4.1 million in 1996. The cost of product revenue increased
13% in 1996 from $3.7 million in 1995. The increase in cost of product revenue
in 1997 was primarily attributable to an increased level of product sales,
higher royalty costs prior to the acquisition of assets from Q Point Technology,
associated with ORCAD CAPTURE COMPONENT INFORMATION SYSTEM and ORCAD EXPRESS
COMPONENT INFORMATION SYSTEM relative to other product lines and certain
commissions paid to North American value-added resellers. This
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increase was slightly offset by reduced shipping costs. The increase in cost of
product revenue in 1996 was the result of an increase in product revenue
partially offset by lower royalty, software documentation, media and packaging
costs. As a percentage of product revenue, cost of product revenue remained
relatively constant at 13% in both 1997 and 1996, and decreased in 1996 from 16%
in 1995. The decrease in cost of product revenue in 1996 reflects lower royalty
payments resulting from the purchase of software source code previously
licensed, a focus on the use of internal development resources as opposed to
outside developers, and decreased software documentation and packaging costs.
The cost of service revenue includes the costs of providing software
maintenance, such as technical support, software revision releases, and the
costs of providing consulting and training. Cost of service revenue increased
13% in 1997 to $1.7 million from $1.5 million in 1996. Cost of service revenue
increased 36% in 1996 from $1.1 million in 1995. The increases in cost of
service revenue in 1997 and 1996 reflect increased service obligations resulting
from increased training, product, upgrade, extended support agreement, and
consulting service sales. As a percentage of service revenue, the cost of
service revenue decreased to 20% in 1997 from 26% in 1996, and increased in 1996
from 21% in 1995. The decrease in cost of service revenue during 1997 reflected
the absorption of relatively fixed technical support costs over the increased
service revenue base. The increase in 1996 resulted from the absorption of costs
associated with an increase in the number of technical support personnel over a
higher revenue base.
RESEARCH AND DEVELOPMENT
Research and development expenses include the costs of developing new
products and enhancements to existing products. Software development costs are
generally expensed as incurred, as technological feasibility is generally not
established until shortly before the release of a new product and no material
development costs are incurred after establishment of technological feasibility.
Research and development expenses increased 20% to $11.2 million in 1997 from
$9.4 million in 1996 and increased 29% in 1996 from $7.2 million in 1995. The
increase in research and development expenses for 1997 was attributable to
increased personnel costs, including costs associated with increased headcount,
recruiting, third party engineering and the engagement of contract test
engineers. The implementation of a new product development process that placed a
greater emphasis on testing throughout the development cycle also contributed to
the increased research and development expense incurred in 1997. The increase in
research and development expenses in 1996 was primarily attributable to
increased headcount resulting from the acquisitions of OrCAD Japan and Massteck
partially offset by a decrease in costs for engineering consultants. As a
percentage of total revenue, research and development expenses remained
relatively constant in 1997 and 1996 at 25%, a decrease from 26% in 1995. OrCAD
expects research and development expenses to continue to increase in absolute
terms.
MARKETING AND SALES
Marketing and sales expenses include salaries, commissions and related
personnel costs, and other sales and promotional expenses. Marketing and sales
expenses increased 30% in 1997 to $15.4 million from $11.9 million in 1996 and
increased 35% in 1996 from $8.8 million in 1995. Marketing and sales expenses
increased in 1997 as a result of the addition of a field sales staff, increased
personnel costs, including costs associated with increased headcount,
recruiting, and promotional expenses associated with the introduction of ORCAD
CAPTURE COMPONENT INFORMATION SYSTEM, ORCAD EXPRESS, ORCAD EXPRESS COMPONENT
INFORMATION SYSTEM, ORCAD LAYOUT ENGINEER'S EDITION, ORCAD ENTERPRISE BRIDGE
products, and Release 8.0 of the ORCAD PSPICE family of products and the
introduction of DESIGNLAB. The growth in marketing and sales expenses in 1996
was primarily attributable to increased personnel costs, including costs
associated with increased marketing headcount, resulting from the acquisitions
of OrCAD Japan and Massteck, and a general increase in marketing activities. As
a percentage of total revenue, marketing and sales expenses increased in 1997 to
35% from 32% in 1996 and increased in 1996 from 31% in 1995. OrCAD expects
marketing and sales expenses to continue to increase in absolute terms.
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GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs associated with
OrCAD's executive office, human resources, finance, and administration
functions. General and administrative expenses were constant at $4.8 million in
both 1997 and 1996. General and administrative expenses increased 37% to $4.8
million in 1996 from $3.5 million in 1995. General and administrative expenses
increased in 1996 as a result of the acquisition of OrCAD Japan, increased
personnel costs, including costs associated with increased headcount to support
growth in operations and the additional costs associated with being a public
company. As a percentage of total revenue, general and administrative expenses
decreased in 1997 to 11% from 13% in 1996 and 12% in 1995. This decrease
reflects the absorption of essentially unchanged general and administrative
costs in 1997 over a higher revenue base.
MERGER AND ACQUISITION CHARGES
In connection with OrCAD's acquisition of certain software technology of
TEAM Corporation and Q Point Technology in the second quarter of 1997, OrCAD
expensed approximately $2.2 million of in-process research and development costs
associated with certain technology which had not yet reached technological
feasibility. There were no merger or acquisition related charges incurred in
1996.
In connection with OrCAD's acquisition of Massteck in 1995, OrCAD expensed
approximately $1.0 million of in-process research and development charges
associated with certain Windows-based PCB layout technology which had not yet
reached technological feasibility.
WRITE-OFF OF PURCHASED SOFTWARE
In 1995, OrCAD wrote off its investment in purchased printed circuit board
autorouting software when it ceased using it, following licensing and adoption
of an alternate supplier's product.
OTHER INCOME, NET
Other income, net primarily consists of interest income, gains and losses on
the disposal of fixed assets, sublease income, royalty income and foreign
currency gains and losses. Interest income consists primarily of the earnings on
available cash balances and marketable securities, which have generally been
invested in short-term money market investments, treasury bills and corporate
debt securities. Other income increased in 1997 to $1.8 million from $1.6
million in 1996, and increased in 1996 from $0.3 million in 1995. Other income,
net increased in 1997 and 1996 due primarily to higher interest income earned on
increased cash, cash equivalents and investment balances resulting from cash
generated from operations and the proceeds of OrCAD's initial public offering
completed in March 1996.
INCOME TAXES
OrCAD's effective tax rate for 1997 was 32%, which differs from the combined
federal and state statutory rate of approximately 38% primarily due to the
decrease in the valuation allowance for deferred tax assets and the benefit of
research and experimentation tax credits. OrCAD's effective tax rate for 1996
was 24%. The increase in OrCAD's effective tax rate during 1997 primarily
resulted from the use of net operating loss carryforwards in 1996. Income tax
expense was $1.8 million in 1997 as compared to $1.7 million in 1996. Federal
and state net operating loss carryforwards were also used to offset taxes
payable on 1995 net income.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
TOTAL REVENUES
Total revenue increased 13% to $23.5 million in the first half of 1998 from
$20.8 million in the first half of 1997. The increase in total revenue was due
to growth in both product and service revenue. As a percentage of total revenue,
product revenue decreased to 74% in the first half of 1998 from 81% in the
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<PAGE>
first half of 1997. Conversely, service revenue increased as a percentage of
total revenue to 26% in the first half of 1998 from 19% in the first half of
1997.
Product revenue increased 3% to $17.5 million in the first half of 1998 from
$17 million in the first half of 1997. Increased North American and European
revenue was largely offset by unfavorable economic conditions in Asia and a
weaker Japanese yen, in addition to integration activities related to the
MicroSim Merger.
Service revenue increased 57% to $6 million in the first half of 1998 from
$3.9 million in the first half of 1997. The increase in service revenue from the
first half of 1997 to the first half of 1998 was primarily attributable to the
increased sales of extended support agreements, training and consulting
services.
Total North American revenue increased 27% to $16.5 million in the first
half of 1998 from $13 million in the first half of 1997. Total revenue generated
outside of North America decreased 10% to $7 million in the first half of 1998
from $7.7 million in the first half of 1997. As a percentage of OrCAD's total
revenue, North American revenue increased to 70% in the first half of 1998 from
63% in the first half of 1997. The increase in the proportion of revenue
generated within North America was attributable to decreased sales to Asian
markets reflecting the unfavorable economic conditions in that region evidenced
by a weaker Japanese yen, as well as integration activities related to MicroSim
Japan.
COST OF REVENUE
The cost of product revenue decreased 35% to $1.6 million in the first half
of 1998 from $2.4 million in the first half of 1997. The decreased cost of
product revenue was the result of reduced royalty payments, the elimination of
North American reseller commissions and the consolidation of OrCAD's shipping
operations to its Beaverton headquarters. As a percentage of product revenue,
cost of product revenue decreased to 9% in the first half of 1998 from 14% in
the first half of 1997.
The cost of service revenue increased 48% to $1.2 million in the first half
of 1998 from $793,000 in the first half of 1997. This increase was primarily
attributable to the expansion of OrCAD's Enterprise Services. As a percentage of
service revenue, the cost of service revenue decreased 2% to 19% in the first
half of 1998 from 21% in the first half of 1997.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 5% to $5.8 million in the first
half of 1998 from $5.5 million in the first half of 1997. The increase in
research and development expenses was primarily attributable to increased
third-party consulting costs. As a percentage of total revenue, research and
development expenses remained relatively flat at 25% in the first half of 1998
as compared to 26% in the first half of 1997. OrCAD expects research and
development expenses to continue to increase in absolute terms.
MARKETING AND SALES
Marketing and sales expenses increased 28% to $9.3 million in the first half
of 1998 from $7.2 million in the first half of 1997. Total marketing and sales
expenses increased as a result of continued expansion of OrCAD's sales and
marketing organizations, including the establishment of OrCAD U.K. in April
1998, and increased promotional activity. As a percentage of total revenue,
marketing and sales expenses increased to 39% in the first half of 1998 from 35%
in the first half of 1997. OrCAD expects marketing and sales expenses to
continue to increase in absolute terms.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 15% to $2.6 million in the
first half of 1998 from $2.3 million in the first half of 1997. The increase was
due to an overall increase in administrative and overhead
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<PAGE>
costs associated with the continued growth of OrCAD. As a percentage of total
revenue, general and administrative expenses remained constant at 11% in the
first half of 1998 and the first half of 1997.
MERGER AND ACQUISITION RELATED CHARGES
In the first half of 1998, OrCAD incurred merger-related charges of $4.1
million in connection with the MicroSim Merger relating primarily to financial
advisory fees, legal and accounting services, personnel severance costs and the
cancellation and continuation of contractual obligations. In the first half of
1997 OrCAD incurred $2.2 million of in-process research and development costs
associated with certain technology which had not yet reached technological
feasibility related to the acquisitions of certain assets from TEAM Corporation
and Q Point Technology.
OTHER INCOME, NET
Other income decreased to $868,000 in the first half of 1998 from $921,000
in the first half of 1997. OrCAD shifted certain of its investment securities
into securities that are generally exempt from federal tax and yield interest at
a lower rate than taxable investment securities in which OrCAD previously
invested. As a result of this change, other income for the first half of 1998
decreased from the same period in the prior year.
INCOME TAX EXPENSE (BENEFIT)
The effective tax rate for the first half of 1998 was 35.0%. This rate
differs from the combined federal and state statutory rate of approximately
38.5% primarily due to the benefit of OrCAD's foreign sales corporation and the
utilization of research and experimentation tax credits. Income tax expense
(benefit) for the first half of 1998 was ($40,000) as compared to $471,000 for
the first half of 1997. The income tax benefit in the first half of 1998 is due
primarily to the pre-tax loss incurred largely as a result of merger-related
expenses.
QUARTERLY RESULTS OF OPERATIONS
OrCAD's quarterly operating results have in the past varied and may in the
future vary significantly depending on factors such as increased competition,
timing of new product announcements, releases and pricing changes by OrCAD or
its competitors, length of sales cycles, market acceptance or delays in the
introduction of new or enhanced versions of OrCAD's products, timing of
significant orders, seasonal factors, mix of direct and indirect sales, product
mix, changes in tax rates, domestic and international economic conditions, and
changes in the financial condition of or the relationship with distributors,
merger and acquisition activities, and the integration of acquired entities in
the EDA industry specifically. In particular, OrCAD's quarterly operating
results have in the past fluctuated as a result of the timing of the
introduction of new products and new versions of existing products to the
market, with customers waiting to place orders until new or enhanced products
became available. Quarterly operating results have also fluctuated as a result
of seasonality of customer buying patterns. A substantial portion of OrCAD's
revenue in each quarter results from orders booked in that quarter, a
significant portion of a quarter's revenue is often booked in the final month of
a quarter. Revenue from quarter to quarter is difficult to forecast, as minimal
backlog exists at the end of any quarter because OrCAD's products typically are
shipped and revenue recognized promptly after receipt of customers' orders.
OrCAD's expense levels are based, in part, on its expectations as to future
revenue. If revenue levels are below expectations, operating results are likely
to be adversely affected. In particular, net income may be disproportionately
affected by a reduction in revenue because only a small portion of expenses vary
with its revenue. OrCAD has recently experienced rapid growth and expansion.
There can be no assurance that OrCAD will be able to grow in future periods,
that it will be able to sustain its historical rate of revenue growth, or that
its operations will remain profitable. Due to the foregoing factors, OrCAD
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
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SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENDED
-----------------------------------------------------------------------------
1997 1996
------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products.......................................... $8,086 $ 8,842 $ 7,961 $10,496 $7,566 $7,729 $7,873 $ 8,001
Service........................................... 1,781 2,069 2,292 2,468 1,284 1,391 1,513 1,677
------- ------- -------- ------- ------- ------- -------- -------
Total revenue..................................... 9,867 10,911 10,253 12,964 8,850 9,120 9,386 9,678
Cost and expenses:
Cost of revenue-products.......................... 1,187 1,206 1,207 1,164 972 960 1,053 1,157
Cost of revenue-service........................... 411 382 426 473 326 379 358 440
Research and development.......................... 2,713 2,775 2,879 2,871 2,177 2,399 2,349 2,425
Marketing and sales............................... 3,282 3,959 3,849 4,326 2,674 2,920 3,064 3,219
General and administrative........................ 1,133 1,157 1,209 1,311 1,227 1,188 1,203 1,175
Merger and acquisition charges.................... -- 2,203 -- -- -- -- -- --
------- ------- -------- ------- ------- ------- -------- -------
Total cost and expenses........................... 8,726 11,682 9,570 10,145 7,376 7,846 8,027 8,416
------- ------- -------- ------- ------- ------- -------- -------
Income (loss) from operations..................... 1,141 (771) 683 2,819 1,474 1,274 1,359 1,262
Other income, net................................. 448 473 436 484 196 444 489 467
------- ------- -------- ------- ------- ------- -------- -------
Income (loss) before income taxes................. 1,589 (298) 1,119 3,303 1,670 1,718 1,848 1,729
Income taxes (benefits)........................... 609 (138) 405 933 437 430 447 385
------- ------- -------- ------- ------- ------- -------- -------
Net income (loss)................................. $ 980 $ (160) $ 714 $ 2,370 $1,233 $1,288 $1,401 $ 1,344
------- ------- -------- ------- ------- ------- -------- -------
------- ------- -------- ------- ------- ------- -------- -------
Basic net income (loss) per share................. $ 0.11 $ (0.02) $ 0.08 $ 0.26 $ 0.17 $ 0.14 $ 0.16 $ 0.15
------- ------- -------- ------- ------- ------- -------- -------
------- ------- -------- ------- ------- ------- -------- -------
Diluted net income (loss) per share............... $ 0.10 $ (0.02) $ 0.08 $ 0.25 $ 0.16 $ 0.14 $ 0.15 $ 0.14
------- ------- -------- ------- ------- ------- -------- -------
------- ------- -------- ------- ------- ------- -------- -------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
DECEMBER 31, 1997 AND 1996
Working capital remained relatively constant at $37.1 million and $36.9
million for the years ending December 31, 1997 and 1996, respectively. OrCAD's
current ratio at December 31, 1997 was 4.5:1. The completion of OrCAD's initial
public offering of common stock in March 1996 and the exercise of OrCAD's
underwriters' over-allotment option in April 1996 resulted in net proceeds to
OrCAD of $23.3 million.
OrCAD has available borrowing capacity consisting of a $3.0 million line of
credit from a commercial bank. As of December 31, 1997, there was no
indebtedness outstanding under this facility. OrCAD believes that current cash
and investment balances, cash flows from operations and the unused line of
credit are sufficient to meet current and anticipated future capital
requirements for at least the next twelve months. OrCAD currently has no
significant capital commitments other than commitments under facility operating
leases. OrCAD has from time to time evaluated and continues to evaluate
opportunities for acquisitions and expansion and, consistent with this practice,
is currently engaged in preliminary discussions with other parties regarding
possible acquisitions. Any such transactions, if consummated, may use a portion
of OrCAD's working capital or necessitate additional bank borrowings. No
assurance can be given that additional borrowing capacity will be available or
that, if available, such financing will be obtainable on terms favorable to
OrCAD or its stockholders.
Increases and decreases in cash and cash equivalents are the result of the
generation or use of cash in operating, investing and financing activities. Cash
and cash equivalents increased $8.5 million in 1997 to $31.6 million from $23.1
million at December 31, 1996. Cash and cash equivalents increased $15.9 million
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in 1996 from $7.2 million in 1995. Cash provided by operating activities
decreased $232,000 to $5.9 million in 1997 from $6.2 million in 1996. Cash
provided by operating activities increased $994,000 in 1996 from $5.2 million in
1995. Cash provided by operating activities decreased in 1997 primarily due to
an increase in accounts receivable. Net income accounted for a substantial
portion of the increased cash provided by operating activities for 1996.
Cash provided by investing activities in 1997 of $2.5 million was primarily
comprised of the proceeds from the maturity of investment securities partially
offset by purchase of software technology and the acquisition of fixed assets.
Cash used in investing activities in 1996 of $13.5 million was primarily due to
the purchase of investment securities with the proceeds of OrCAD's initial
public offering in March of that year.
Cash provided by financing activities in 1997 was $171,000 resulting from
issuance of common stock through the employee stock purchase plan and the
exercise of stock options partially offset by repurchases of common stock. The
initial public offering of OrCAD's common stock in 1996 accounted for the $23.3
million of cash provided by financing activities in that year.
The functional currency of OrCAD Japan is the Japanese yen which must be
translated to U.S. dollars for consolidated financial reporting. Generally,
Japanese sales are denominated in the Japanese yen. During the years ended
December 31, 1997 and 1996 the U.S. dollar strengthened by approximately 13% and
12%, respectively, against the Japanese yen. This strengthening of the U.S.
dollar resulted in lower reported revenues and operating expenses due to
translation of the Japanese yen to U.S. dollars for consolidated financial
reporting. As such, OrCAD's business and operating results will be impacted by
the effects of future U.S. dollar and Japanese yen currency fluctuations.
JUNE 30, 1998
Total cash and cash equivalents were $15.9 million at June 30, 1998 as
compared to $31.6 million at December 31, 1997. Cash provided by operations was
$2.6 million for the first half of 1998 as compared to $1.8 million for the
first half of 1997. The increase in cash provided by operations from the first
half of 1998 to the first half of 1997 was primarily due to a decrease in
accounts receivable and an increase in accrued liabilities partially offset by a
decrease in trade payables and accrued payroll. Cash used in investing
activities was $18.5 million for the first half of 1998 as compared to $2.8
million provided by investing activities in the first half of 1997. The increase
in cash used in investing activities from the first half of 1997 as compared to
the first half of 1998 was due primarily to purchases of investment securities.
Cash provided by financing activities was $287,000 for the first half of 1998 as
compared to $75,000 in the first half of 1997. The increase in cash provided by
financing activities from the first half of 1997 as compared to the first half
of 1998 was primarily due to proceeds from the issuance of common stock upon the
exercise of stock options partially offset by the issuance of notes receivable
related to employee stock purchases.
OrCAD has available borrowing capacity consisting of a commitment for a $3.0
million line of credit from a commercial bank. OrCAD believes that current cash
and investment balances, cash flows from operations and the unused line of
credit are sufficient to meet current and anticipated future capital
requirements for at least the next twelve months.
YEAR 2000
OrCAD is aware of the potential inability of computer programs to adequately
process date information after December 31, 1999 (the year 2000 issue). OrCAD
has anticipated problems surrounding the year 2000 issue and modified its
product offerings as necessary to make them year 2000 compliant. The year 2000
issue with regard to OrCAD's product offering is not expected to have any
material adverse effect.
In addition, OrCAD will be implementing a program to review the year 2000
compliance status of computer software programs licensed from third parties and
used in its internal business processes to
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obtain appropriate assurances of year 2000 compliance from manufacturers of
these products. OrCAD believes that it will be able to complete its year 2000
compliance review and make any necessary modifications prior to the end of 1999.
OrCAD further believes that such a review and modification, if necessary, will
not require OrCAD to incur any additional material expense. However, the
compliance of systems acquired from third parties is dependent on factors
outside OrCAD's control. If key systems, or a significant number of systems fail
as a result of year 2000 problems, OrCAD could incur substantial expense and
experience a disruption of business operations, which would potentially have a
material adverse effect on OrCAD's business.
Furthermore, the purchasing patterns of customers and potential customers
may be affected by year 2000 issues as companies may be required to devote
significant resources to correct or patch their current software systems for
year 2000 compliance. These expenditures may result in reduced funds available
to purchase OrCAD's software products which could have a materially adverse
effect on OrCAD's financial condition and results of operation. There can be no
assurance that there will not be any year 2000 related operating problems or
material expenses that will occur with OrCAD's computer systems or in connection
with the interface with OrCAD's major vendors or suppliers.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for the reporting
and display of comprehensive income and its components. OrCAD adopted SFAS No.
130 on January 1, 1998. The impact on OrCAD's Financial Statements was not
material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes standards for
reporting operating segments in annual Financial Statements and requires
selected information about operating segments in interim Financial Statements.
OrCAD adopted SFAS No. 131 on January 1, 1998. The impact on OrCAD's Financial
Statements was not material.
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2 "Software Revenue Recognition"
which provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. OrCAD adopted SOP 97-2 on January
1, 1998. The impact on OrCAD's Financial Statements was not material.
Related to the SOP 97-2, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) 98-4 "Deferral of the
Effective Date of a Provision of SOP 97-2, "Software Revenue Recognition"." SOP
98-4 defers for one year, the application of several paragraphs and examples in
SOP 97-2 that limit the definition of vendor specific objective evidence (VSOE)
of the fair value of various elements in a multiple element arrangement. The
impact on OrCAD's Financial Statements is not expected to be material.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The standard also requires that changes in the derivatives' fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal years beginning after June
15, 1999. OrCAD does not expect SAFS 133 to have a material impact on its
consolidated financial statements.
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ORCAD DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of OrCAD as of - , 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Wolfram H. Blume........ 45 Director
Michael F. Bosworth..... 51 Chairman of the Board, President and Chief Executive Officer
P. David Bundy.......... 43 Vice President of Finance, Secretary and Chief Financial
Officer
William E. Cibulsky..... 52 Senior Vice President of Worldwide Sales
Stephen W. Director..... 54 Director
Stuart A. Harrington.... 37 Vice President
Philip J. Kilcoin....... 42 Vice President of Product Operations
Richard P. Magnuson..... 42 Director
James B. Moon........... 52 Director
James M. Plymale........ 32 Vice President of Marketing
John C. Savage.......... 50 Director
Graham K. Sheldon....... 34 Vice President of Operations
Donald G. Tannenbaum.... 50 Vice President of Integration and Development
Michael U. Wimbrow...... 45 Vice President of Product Development
</TABLE>
WOLFRAM H. BLUME. Mr. Blume was elected to the Board of Directors of OrCAD
in February 1998. Since January 1998, he has served as Chief Technical Advisor
to OrCAD. Mr. Blume served as Chairman of the Board, President, and Chief
Executive Officer of MicroSim from July 1984 until January 1998. Prior to
founding MicroSim in 1984, Mr. Blume spent six years as a member of the
technical staff in the Advanced Development Group of Silicon Systems, Inc.
MICHAEL F. BOSWORTH. Mr. Bosworth was named Chairman of the Board of
Directors in February 1997 and has served as President, Chief Executive Officer
and a member of the Board of Directors of OrCAD since October 1991. From April
1986 through September 1991, he served as President and Chief Executive Officer
of Context Corporation, initially a subsidiary of Mentor Graphics and later a
division of Mentor Graphics.
P. DAVID BUNDY. Mr. Bundy has served as OrCAD's Vice President of Finance,
Secretary and Chief Financial Officer since November 1991. Mr. Bundy served as
Controller upon joining OrCAD in October 1989. Mr. Bundy earlier served as
Controller of Cadic, Inc., and in various financial capacities with Burroughs
Corporation.
WILLIAM E. CIBULSKY. Mr. Cibulsky has served as Senior Vice President of
Worldwide Sales since March 1998. Prior to joining OrCAD, Mr. Cibulsky served as
the Executive Vice President of Worldwide Sales for Falcon Systems from December
1996 to 1998. From 1994 to 1996, Mr. Cibulsky was the Vice President of North
American Sales and Vice President of International Sales for Quickturn Systems.
From 1990 to 1994, Mr. Cibulsky was Vice President and General Manager of
European Operations of Zycad Corporation.
STEPHEN W. DIRECTOR. Dr. Director has served as a member of the Board of
Directors of OrCAD since January 1991. Dr. Director has served as the Dean of
Engineering at the University of Michigan since July 1996. Dr. Director served
as the Dean of the College of Engineering and U.A., and Helen Whitaker
University Professor of Electrical and Computer Engineering at Carnegie Mellon
University from July 1991 through June 1996. In 1982 he founded the SRC-CMU
Research Center for Computer-Aided
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Design and served as its Director from 1982 to 1989. Dr. Director also serves on
the Technical Advisory Boards of a number of EDA companies.
STUART A. HARRINGTON. Mr. Harrington has served as Vice President of OrCAD
since December 1995, and has served as President of OrCAD Japan K.K. since
December 1995. Mr. Harrington was a founder of Intelligent Systems, Japan and
served as its President from 1990 through November 1995.
PHILIP J. KILCOIN. Mr. Kilcoin has served as OrCAD's Vice President of
Product Operations since February 1998. From June 1997 through February 1998, he
served as OrCAD's Director of Product Marketing. Prior to joining OrCAD, Mr.
Kilcoin served as a Group Manager at Mentor Graphics from 1994 through June
1997, and as a Product Marketing Manager at Mentor Graphics from 1991 through
1994.
RICHARD P. MAGNUSON. Mr. Magnuson has served as a member of the Board of
Directors of OrCAD since September 1991. Since 1997, Mr. Magnuson has been a
private venture capitalist. He served as General Partner of Menlo Ventures, a
private venture capital firm, from 1982 to 1996. Mr. Magnuson serves as a
director of two other public companies: Rogue Wave Software, Inc. and California
Water Service Company. He also serves as a director of several privately-held
companies.
JAMES B. MOON. Mr. Moon has served as a member of the Board of Directors of
OrCAD since December 1995. Mr. Moon served as the President and the Chief
Executive Officer of Protocol Systems, Inc. from 1987 through February 1998.
Since February 1998, Mr. Moon has served as the President and Chief Technology
Officer of Protocol Systems, Inc. Mr. Moon also serves as a director of Protocol
Systems, Inc.
JAMES M. PLYMALE. Mr. Plymale has served as OrCAD's Vice President of
Marketing since October 1995. From June 1993 through October 1995, he served as
OrCAD's Director of Product Marketing, and from March 1992 through June 1993, he
served as OrCAD's Product Marketing Manager. From 1990 to March 1992, Mr.
Plymale served in various capacities at Phase III Logic.
JOHN C. SAVAGE. Mr. Savage has served as a member of the Board of Directors
of OrCAD since September 1991. Since June 1990, Mr. Savage has been Managing
General Partner of Glenwood Capital Partners, L.P., and since June 1995, he has
been a Principal of Redwood Partners, LLC; both are affiliated venture capital
and investment banking firms. In addition, since July 1, 1998, Mr. Savage has
been Managing Director of Alliant, a strategic advisory and investment banking
firm. Mr. Savage also serves as a director of File Net Corporation and Mattson
Technology, Inc.
GRAHAM K. SHELDON. Mr. Sheldon has served as OrCAD's Vice President of
Operations since February 1998. Prior to that, he was OrCAD's Director of
Operations from October 1991 through February 1998, and from October 1989
through October 1991, he served as OrCAD's Manager of MIS and Operations.
DONALD G. TANNENBAUM. Mr. Tannenbaum has served as OrCAD's Vice President
of Integration and Development since September 1997. Prior to joining OrCAD, he
served as senior consultant and one of three Principals of LionHeart Consulting,
Inc. from 1987 to 1997. In this capacity, Mr. Tannenbaum specialized in
partnering and assisting emerging businesses to develop through transitions and
growth.
MICHAEL U. WIMBROW. Mr. Wimbrow has served as Vice President of Product
Development of OrCAD since January 1998. Prior to joining OrCAD, Mr. Wimbrow
served on MicroSim's Board of Directors from April 1993 through January 1998,
and served as MicroSim's Vice President of Planning and Product Support from
June 1994 through January 1998. From 1987 to 1994, Mr. Wimbrow served as a
software developer with MicroSim.
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ORCAD EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation of OrCAD's Chief Executive Officer and each of the four other most
highly compensated executive officers of OrCAD determined as of the end of the
last fiscal year (the "named executive officers") for the fiscal years ending
December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------------------- STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTED COMPENSATION(1)
- ------------------------------------------------ --------- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Michael F. Bosworth ............................ 1997 $ 154,848 $ 63,173 25,000 $ 4,750
President, Chief Executive Officer and 1996 149,972 46,667 -- 5,806
Chairman of the Board 1995 139,130 22,639 62,854 1,408
Gregory D. Applegate(2) ........................ 1997 73,821 64,535(3) 15,000 4,212
Vice President of World Wide Sales 1996 67,054 82,974(3) -- 3,126
1995 59,583 36,323(3) 11,428 1,025
Gerald A. Fahrenkopf(4) ........................ 1997 117,149 17,847 15,000 4,328
Vice President of Research and Development 1996 114,972 21,593 -- 4,086
1995 114,540 13,584 8,571 1,119
Stuart A. Harrington(5) ........................ 1997 177,968 -- -- 27,695(6)
Vice President 1996 195,430 -- -- 21,721(6)
1995 16,286 -- -- --
James M. Plymale ............................... 1997 112,108 24,084 15,000 4,068
Vice President of Marketing 1996 104,972 17,065 -- 3,356
1995 94,580 9,056 14,285 801
</TABLE>
- ------------------------
(1) Represents matching contribution to 401(k) Plan on behalf of named executive
officer.
(2) Mr. Applegate became Vice President of World Wide Sales in November 1996 and
resigned from the Company on May 5, 1998.
(3) Bonus amount for Mr. Applegate includes sales-based commissions of $42,815,
$39,644 and $35,621 in 1997, 1996 and 1995, respectively.
(4) Mr. Fahrenkopf's employment with the Company terminated at the close of
business on December 31, 1997.
(5) Mr. Harrington became a Vice President of the Company in December 1995.
(6) Represents rent allowance paid on behalf of named executive officer.
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STOCK OPTIONS
The following table sets forth information concerning options granted to the
named executive officers during the year ended December 31, 1997 under OrCAD's
1995 Stock Incentive Plan.
OPTIONS GRANTED IN LAST FISCAL YEAR:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED(1) 1997 SHARE DATE 5% 10%
- --------------------------------------- ----------- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Bosworth.................... 25,000 4.8% $ 7.38 2/03/07 $ 116,031 $ 294,045
Gregory D. Applegate................... 15,000 2.9 7.38 2/03/07 69,619 176,427
Gerald A. Fahrenkopf................... 15,000 2.9 7.38 2/03/07 69,619 176,427
Stuart A. Harrington................... -- -- -- -- -- --
James M. Plymale....................... 15,000 2.9 7.38 2/03/07 69,619 176,427
</TABLE>
- ------------------------
(1) Options granted in 1997 vest ratably over four years.
(2) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the OrCAD Common Stock compounded annually for a
ten-year period. Actual gains, if any, on stock option exercises are
dependent on the future performance of the OrCAD Common Stock and overall
stock market conditions. There can be no assurance that the OrCAD Common
Stock will appreciate at any particular rate or at all in future years.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named
executive officers, concerning the exercise of stock options during the year
ended December 31, 1997, and unexercised options held as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Bosworth............... -- -- 98,229 65,333 $ 633,439 $ 281,802
Gregory D. Applegate.............. -- -- 11,690 19,109 50,674 50,647
Gerald A. Fahrenkopf.............. 34,511 $ 250,331 1,018 -- 4,731 --
Stuart A. Harrington.............. -- -- -- -- -- --
James M. Plymale.................. 2,500 22,875 15,340 23,016 74,544 77,326
</TABLE>
- ------------------------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1997 were exercised, determined by multiplying
the number of shares underlying the options by the difference between the
per share option exercise price and the fair market value of $8.23 per share
at December 31, 1997. An option is in-the-money if the fair market value of
the underlying shares exceeds the exercise price of the option.
136
<PAGE>
BOARD OF DIRECTORS COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The OrCAD Board has appointed a standing Audit Committee which, during the
fiscal year ended December 31, 1997, conducted one meeting. The members of the
Audit Committee currently are Messrs. Savage and Magnuson. The Audit Committee
reviews the scope of the independent annual audit, the independent public
accountants' letter to the OrCAD Board concerning the effectiveness of OrCAD's
internal financial and accounting controls and the OrCAD Board's response to
that letter, if deemed necessary. The OrCAD Board also has appointed a standing
Compensation Committee which reviews executive compensation and makes
recommendations to the full OrCAD Board regarding changes in compensation, and
also administers OrCAD's stock option plans. During the fiscal year ended
December 31, 1997, the Compensation Committee held six meetings. The members of
the Compensation Committee currently are Messrs. Savage and Magnuson. No
interlocking relationship exists between any member of OrCAD's Compensation
Committee and any member of any other company's board of directors or
compensation committee. See "OrCAD--OrCAD Certain Relationships and Related
Transactions."
During the fiscal year ended December 31, 1997, the OrCAD Board held six
meetings. Each incumbent director attended more than 75% of the aggregate of the
total number of meetings held by the OrCAD Board and the total number of
meetings held by all committees of the OrCAD Board on which he served during the
period that he served.
DIRECTOR COMPENSATION
The nonemployee members of the OrCAD Board were compensated for their
service on the OrCAD Board in 1997 with a cash stipend of $5,000, and were
reimbursed for out-of-pocket and travel expenses incurred in attending meetings.
Beginning in 1998, each nonemployee director also receives an additional $1,000
for each Board meeting and $500 for each Board Committee Meeting attended. In
addition, under OrCAD's 1995 Stock Option Plan for Nonemployee Directors, each
person who becomes a nonemployee director automatically receives an initial
option to purchase 20,000 shares of OrCAD's Common Stock at the time such person
is first elected to the OrCAD Board. Each nonemployee director automatically
receives additional grants of options to purchase 5,000 shares after each annual
meeting of stockholders, provided the nonemployee director continues to serve in
that capacity. Options vest and become exercisable on the date of grant.
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires OrCAD's directors and officers,
and persons who own more than ten percent (10%) of a registered class of OrCAD's
equity securities, to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission. Such persons also are
required to furnish OrCAD with copies of all Section16(a) reports they file.
Based solely on its review of the copies of such reports received by it with
respect to fiscal 1997, or written representations from certain reporting
persons, OrCAD believes that all filing requirements applicable to its
directors, officers and persons who own more than 10% of a registered class of
OrCAD's equity securities have been complied with for fiscal year ended December
31, 1997.
137
<PAGE>
ORCAD CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of certain transactions and relationships
entered into or existing since January 1, 1997 between OrCAD and certain
affiliated parties. OrCAD believes that the terms of such transactions were no
less favorable to OrCAD than could have been obtained from an unaffiliated
party.
Alliant acted as OrCAD's financial advisor with respect to the Merger and
the Reorganization Agreement, and provided OrCAD with a written opinion to the
effect that the equity consideration to be paid to OrCAD's stockholders is fair
to such stockholders from a financial point of view. Pursuant to an engagement
letter dated August 13, 1998 with OrCAD, Alliant was entitled to a fee of
$100,000 upon delivery of the Alliant Opinion. In addition, if the Merger
closes, Alliant will be entitled to receive upon such closing an additional fee
of 0.65% of the total consideration received by OrCAD's stockholders. Such fee
would be approximately $477,278, calculated based on the September 29, 1998
closing price of $7.375 per share of Summit Common Stock. OrCAD has also agreed
to reimburse Alliant for its out-of-pocket expenses, (including reasonable legal
and other expenses). In addition, OrCAD has agreed to indemnify Alliant and any
shareholders, directors, employees or contractors of Alliant, against any claim,
liabilities or expenses relating to or arising out of services provided by
Alliant as financial advisor to OrCAD.
Redwood Partners, LLC acted as OrCAD's financial advisor with respect to the
merger and the Agreement and Plan of Merger dated as of October 13, 1997, by and
among OrCAD, Inc., OCA Merger Corporation and MicroSim, and provided OrCAD with
a written opinion to the effect that the terms of the acquisition were fair to
the stockholders of OrCAD from a financial point of view. Pursuant to an
engagement letter with OrCAD, Redwood Partners, LLC received a fee of $200,000
for its opinion and certain services rendered in conjunction with the
acquisition. OrCAD also reimbursed Redwood Partners, LLC for its out-of-pocket
expenses, including reasonable fees and disbursements of counsel. OrCAD also
agreed to indemnify Redwood Partners, LLC and its affiliates, directors,
officers, partners, agents, and employees, and each person, if any, controlling
Redwood Partners, LLC or any of its affiliates against certain liabilities,
including certain liabilities under the federal securities laws, relating to or
arising out of its engagement.
John C. Savage, a Principal of Redwood Partners, LLC at the time of OrCAD's
acquisition of MicroSim, is currently a Managing Director of Alliant. He served
as a member of the OrCAD Board at the time of OrCAD's acquisition of MicroSim
and continues to so serve. As of August 31, 1998, Mr. Savage owned options to
acquire 15,000 shares of OrCAD's Common Stock and 23,524 shares of OrCAD's
Common Stock.
138
<PAGE>
STOCK OWNED BY ORCAD MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of OrCAD Common Stock, as of August 31, 1998, by (a) each person known
by OrCAD to be the beneficial owner of more than 5% of the outstanding shares of
OrCAD Common Stock, (b) each director and nominee for director, (c) each of the
named executive officers, and (d) all directors and executive officers of OrCAD
as a group. Unless otherwise noted in the footnotes to the table, OrCAD believes
that the persons named in the table have sole voting and investing power with
respect to all shares of OrCAD Common Stock indicated as being beneficially
owned by them.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF COMMON
NAME AND BUSINESS ADDRESS OWNED(1) STOCK OUTSTANDING
- ---------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Wolfram H. Blume............................................................ 1,382,476 14.8%
c/o OrCAD, Inc.
16275 Laguna Canyon Drive
Irvine, CA 92618
Scudder Kemper Investments, Inc.(2)......................................... 505,100 5.4
345 Park Avenue
New York, NY 10154
Michael F. Bosworth......................................................... 198,606 2.1
P. David Bundy.............................................................. 34,953 *
William E. Cibulsky......................................................... 8,750 *
Stephen W. Director......................................................... 33,188 *
Stuart A. Harrington........................................................ 106,617 1.1
Philip J. Kilcoin........................................................... 4,222 *
Richard P. Magnuson......................................................... 38,096 *
James B. Moon............................................................... 37,000 *
James M. Plymale............................................................ 26,762 *
John C. Savage.............................................................. 38,524 *
Graham K. Sheldon........................................................... 13,867 *
Donald G. Tannenbaum........................................................ 4,605 *
Michael U. Wimbrow.......................................................... 61,792 *
Executive Officers and Directors as a group (14 persons).................... 1,989,458 21.2
</TABLE>
- ------------------------
* less than one percent
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes voting power and investment
power with respect to shares. Shares issuable upon the exercise of
outstanding stock options that are currently exercisable or become
exercisable within 60 days from August 31, 1998 are considered outstanding
for the purpose of calculating the percentage of OrCAD Common Stock owned by
any other person. The number of shares that are issuable upon the exercise
of options that are currently exercisable or exercisable within 60 days of
August 31, 1998, is as follows: Mr. Blume--25,000; Mr. Bosworth--131,858;
Mr. Bundy--34,619; Mr. Cibulsky--8,750; Dr. Director--28,375; Mr.
Harrington--0; Mr. Kilcoin--4,083; Mr. Magnuson--27,536; Mr. Moon-- 35,000;
Mr. Plymale--26,762; Mr. Savage--15,000; Mr. Sheldon--13,867; Mr.
Tannenbaum--4,188; Mr. Wimbrow--7,500; and all directors and officers as a
group--362,538.
(2) This information as to beneficial ownership is based on a Schedule 13G filed
by Scudder Kemper Investments, Inc. with the Securities and Exchange
Commission on February 12, 1998. The Schedule 13G states that, as of
February 12, 1998, Scudder Kemper Investments, Inc. had sole voting power
with respect to 296,200 shares of OrCAD Common Stock, and sole dispositive
power with respect to 505,100 shares of OrCAD Common Stock.
139
<PAGE>
LEGAL MATTERS
The validity of the shares of Summit Common Stock to be issued pursuant to
the Reorganization Agreement and the federal income tax consequences of the
Merger will be passed upon for Summit by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters in
connection with the Reorganization Agreement and the federal income tax
consequences of the Merger will be passed upon for OrCAD by Ater Wynne LLP,
Portland, Oregon.
EXPERTS
The consolidated financial statements of Summit Design, Inc. and
subsidiaries at December 31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1997, included in this Joint Proxy
Statement/Prospectus, have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Summit Special
Meeting and will have the opportunity to make a statement and are expected to be
available to respond to appropriate questions.
The consolidated financial statements of OrCAD, Inc. and subsidiaries as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 have been audited by KPMG Peat Marwick LLP, independent public
accountants. In its report, KPMG Peat Marwick LLP states that with respect to a
merger accounted for as a pooling-of-interests, its opinion is based on the
report of other independent accountants, namely Ernst & Young LLP. The financial
statements referred to above have been included herein in reliance upon reports
of these firms given upon their authority as experts in accounting and auditing.
Representatives of KPMG Peat Marwick LLP are expected to be present at the OrCAD
Special Meeting and will have the opportunity to make a statement and are
expected to be available to respond to appropriate questions.
STOCKHOLDERS PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, Summit stockholders may
present proper proposals for inclusion in Summit's proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to Summit in a timely manner. As noted in Summit's proxy statement
relating to its 1996 Annual Meeting of Stockholders, in order to be so included
for the 1997 annual meeting, stockholder proposals must be received by Summit no
later than December 19, 1997, and must otherwise comply with the requirements of
Rule 14a-8.
Pursuant to Rule 14a-8 under the Exchange Act, OrCAD stockholders may
present proper proposals for inclusion in OrCAD's proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to OrCAD in a timely manner. As noted in OrCAD's proxy statement
relating to its 1998 Annual Meeting of Stockholders, in order to be so included
for the 1998 annual meeting, in the event that the Merger has not been
consummated prior thereto, stockholder proposals must have been received by
OrCAD no later than - , 1998, and must otherwise have complied with the
requirements of Rule 14a-8.
140
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SUMMIT PAGE
- ---------------------------------------------------------------------------------------------------- ----
<S> <C>
Report of Independent Accountants................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 and June 30, 1998 (unaudited).......... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 and for
the Six Months Ended June 30, 1998 (unaudited) and 1997 (unaudited)............................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995
and for the Six Months Ended June 30, 1998 (unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 and for
the Six Months Ended June 30, 1998 (unaudited) and 1997 (unaudited)............................... F-6
Notes to Consolidated Financial Statements.......................................................... F-7
<CAPTION>
ORCAD
- ----------------------------------------------------------------------------------------------------
<S> <C>
Reports of Independent Public Accountants........................................................... F-26
Consolidated Balance Sheets as of December 31, 1997 and 1996 and June 30, 1998 (unaudited).......... F-28
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 and for
the Six Months Ended June 30, 1998 (unaudited) and 1997 (unaudited)............................... F-29
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1997, 1996 and 1995
and for the Six Months Ended June 30, 1998 (unaudited)............................................ F-30
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 and for
the Six Months Ended June 30, 1998 (unaudited) and 1997 (unaudited)............................... F-31
Notes to Consolidated Financial Statements.......................................................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Summit Design, Inc.
We have audited the accompanying consolidated balance sheets of Summit
Design, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Summit Design,
Inc. and its subsidiaries as of December 31, 1997 and 1996, and the results of
their consolidated operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
January 30, 1998, except for
Note 20 as to which the date is
September 20, 1998.
F-2
<PAGE>
SUMMIT DESIGN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
JUNE 30, ---------- ----------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 24,768 $ 19,973 $ 19,801
Accounts receivable, less allowance for doubtful accounts of $389, $592 and
$433..................................................................... 5,672 5,131 5,578
Prepaid expenses and other................................................. 323 540 490
Deferred income taxes...................................................... 1,268 1,209 --
----------- ---------- ----------
Total current assets..................................................... 32,031 26,853 25,869
Furniture and equipment, net................................................. 3,208 2,698 1,862
Intangibles, net............................................................. 1,376 1,622 --
Deferred income taxes........................................................ 555 533 500
Deposits and other assets.................................................... 1,649 1,055 469
----------- ---------- ----------
Total assets............................................................. $ 38,819 $ 32,761 $ 28,700
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES
Current liabilities:
Long-term debt, current portion............................................ $ 151 $ 134 $ 473
Capital lease obligation, current portion.................................. 42 49 66
Accounts payable........................................................... 1,307 1,210 1,456
Accrued liabilities........................................................ 6,386 5,182 2,880
Deferred revenue........................................................... 5,462 5,674 3,758
----------- ---------- ----------
Total current liabilities................................................ 13,348 12,249 8,633
Long-term debt, less current portion......................................... 156 194 754
Capital lease obligation, less current portion............................... 24 43 95
Deferred revenue, less current portion....................................... 175 -- 67
----------- ---------- ----------
Total liabilities........................................................ 13,703 12,486 9,549
----------- ---------- ----------
Commitments and contingencies (Notes 10 and 17)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized 5,000; no shares issued and
outstanding................................................................ -- -- --
Common stock, $.01 par value. Authorized 30,000; issued and outstanding
15,213 shares at June 30, 1998, 15,841 shares in 1997 and 14,079 shares in
1996....................................................................... 152 159 141
Additional paid-in capital................................................... 39,791 51,797 33,261
Treasury stock, at cost, 939 shares in 1997.................................. -- (11,555) --
Accumulated deficit.......................................................... (14,827) (20,126) (14,251)
----------- ---------- ----------
Total stockholders' equity............................................... 25,116 20,275 19,151
----------- ---------- ----------
Total liabilities and stockholders' equity............................... $ 38,819 $ 32,761 $ 28,700
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SUMMIT DESIGN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1997 1996 1995 1998 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product licenses............................. $ 24,828 $ 15,446 $ 10,604 $ 16,775 $ 10,507
Maintenance and services..................... 6,161 4,301 2,637 4,411 2,926
Other........................................ 450 567 1,051 183 267
--------- --------- --------- --------- ---------
Total revenue.............................. 31,439 20,314 14,292 21,369 13,700
Cost of revenue:
Product licenses............................. 807 573 651 484 349
Maintenance and services..................... 632 466 400 505 252
--------- --------- --------- --------- ---------
Total cost of revenue...................... 1,439 1,039 1,051 989 601
--------- --------- --------- --------- ---------
Gross profit................................... 30,000 19,275 13,241 20,380 13,099
Operating expenses:
Research and development..................... 7,016 5,867 5,447 4,807 3,127
Sales and marketing.......................... 10,591 9,319 7,547 6,305 5,115
General and administrative................... 4,209 3,188 3,286 2,442 2,061
In-process technology........................ 19,937 -- -- -- --
--------- --------- --------- --------- ---------
Total operating expenses................... 41,753 18,374 16,280 13,554 10,303
--------- --------- --------- --------- ---------
Income (loss) from operations.................. (11,753) 901 (3,039) 6,826 2,796
Interest expense............................... (12) (101) (206) (2) (9)
Other income, net.............................. 1,058 218 34 494 449
Gain on sale of TDS product line............... 5,574 -- -- -- --
--------- --------- --------- --------- ---------
Income (loss) before income taxes.............. (5,133) 1,018 (3,211) 7,318 3,236
Income tax provision (benefit)................. 742 (245) 400 2,019 180
--------- --------- --------- --------- ---------
Net income (loss).............................. $ (5,875) $ 1,263 $ (3,611) $ 5,299 $ 3,056
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per share--Basic:
Earnings (loss) per share.................... $ (0.41) $ 0.10 $ (0.33) $ 0.35 $ 0.22
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of shares used in computing basic
earnings (loss) per share.................. 14,403 12,240 11,085 14,984 14,137
Earnings (loss) per share--Diluted:
Earnings (loss) per share.................... $ (0.41) $ 0.10 $ (0.33) $ 0.33 $ 0.20
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of shares used in computing diluted
earnings (loss) per share.................. 14,403 13,243 11,085 16,240 15,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SUMMIT DESIGN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------- ------------------ PAID-IN ------------------ ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT EQUITY
---------- ------- ---------- ------ ---------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 8,599,012 $ 86 2,173,486 $ 22 $ 13,019 $(11,903) $ 1,224
Issuance of Series E
preferred stock........ 600,000 6 2,575 2,581
Issuance of Series A
preferred stock........ 80,383 444 444
Repurchase of Series C
preferred stock........ (65,000) (1 ) (64) (65)
Repurchase of Series D
preferred stock........ (30,666) (115) (115)
Issuance of common
stock.................. 141,722 43 43
Issuance of common stock
under stock option
plan................... 71,757 1 49 50
Repurchase of common
stock.................. (153,705) (2) (1) (3)
Net loss................. (3,611) (3,611)
---------- ------- ---------- ------ ---------- ----------- -------------
Balance, December 31,
1995................... 9,183,729 535 2,233,260 64 15,463 (15,514) 548
Issuance of convertible
Preferred stock........ 290,938 986 986
Issuance of common stock
in initial public
offering, net of
Issuance costs......... 2,000,000 20 16,204 16,224
Issuance of common stock
under stock option plan
and other.............. 383,952 6 134 140
Conversion of preferred
stock to common
stock.................. (9,474,667) (1,521 ) 9,474,667 95 1,418 (8)
Repurchase of common
stock.................. (12,737) (2) (2)
Conversion of TriQuest
common stock........... (44) 44 --
Net income............... 1,263 1,263
---------- ------- ---------- ------ ---------- ----------- -------------
Balance, December 31,
1996................... -- -- 14,079,142 141 33,261 (14,251) 19,151
Issuance of common
stock.................. 29,733 8 8
Issuance of common stock
under stock option
plan................... 440,711 5 560 565
Issuance of common stock
under employee stock
purchase plan.......... 58,701 1 349 350
Repurchase of common
stock.................. (23,760) (4) (4)
Issuance of common stock
in conjunction with a
business combination... 1,256,777 12 16,654 16,666
Purchase of treasury
stock.................. (939,381) $(11,555) (11,555)
Tax benefit of option
exercises.............. 969 969
Net loss................. (5,875) (5,875)
---------- ------- ---------- ------ ---------- -------- -------- ----------- -------------
Balance, December 31,
1997................... -- -- 15,841,304 159 51,797 (939,381) (11,555) (20,126) 20,275
Issuance of common stock
(unaudited)............ 14,616 11 11
Issuance of common stock
under stock option plan
(unaudited)............ 262,455 3 752 755
Issuance of common stock
under employee stock
purchase plan
(unaudited)............ 33,880 281 281
Purchase of treasury
stock (unaudited)...... (162,500) (2,330) (2,330)
Issuance of treasury
stock (unaudited)...... (2,330) 162,500 2,330 --
Cancellation of treasury
stock (unaudited)...... (939,381) (10) (11,545) 939,381 11,555 --
Tax benefit of option
exercises
(unaudited)............ 825 825
Net income (unaudited)... 5,299 5,299
---------- ------- ---------- ------ ---------- -------- -------- ----------- -------------
Balance, June 30, 1998
(unaudited)............ -- $ -- 15,212,874 $152 $ 39,791 -- $ -- $(14,827) $25,116
---------- ------- ---------- ------ ---------- -------- -------- ----------- -------------
---------- ------- ---------- ------ ---------- -------- -------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SUMMIT DESIGN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1997 1996 1995 1998 1997
---------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ (5,875) $ 1,263 $ (3,611) $ 5,299 $ 3,056
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 984 870 606 781 403
(Gain) loss on asset disposition...................... 2 18 (1) -- 1
Gain on sale of TDS product line...................... (5,574) -- -- -- --
Write-off of acquired in-process technology........... 19,937 -- -- -- --
Deferred taxes........................................ (1,242) (500) -- (81) --
Equity in losses and elimination of intercompany
profits of unconsolidated joint venture............. -- -- -- 350 --
Changes in assets and liabilities:
Accounts receivable................................. 951 (21) (1,401) (541) (354)
Prepaid expenses.................................... (13) (157) (1) 217 47
Accounts payable.................................... (254) 406 (300) 97 155
Accrued liabilities................................. 1,667 561 803 1,204 165
Deferred revenue.................................... 1,602 2,067 380 (37) (370)
Other, net.......................................... (68) 160 191 131 104
---------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities...................................... 12,117 4,667 (3,334) 7,420 3,207
---------- --------- --------- --------- ---------
Cash flows from investing activities:
Additions to furniture and equipment.................... (1,624) (763) (810) (1,045) (751)
Acquisitions, net of cash received...................... (3,816) -- -- -- --
Proceeds from sale of product line...................... 4,666 -- -- (750) --
Proceeds from sale of assets............................ 30 8 17 -- --
Loan to joint venture................................... -- -- -- -- --
Notes receivable........................................ (565) -- -- -- (425)
Investment in joint venture............................. -- (100) -- (325) --
---------- --------- --------- --------- ---------
Net cash used in investing activities............. (1,309) (855) (793) (2,120) (1,176)
---------- --------- --------- --------- ---------
Cash flows from financing activities:
Issuance of preferred stock............................. -- 977 3,025 -- --
Issuance of common stock, net........................... 922 16,364 77 1,046 303
Tax benefit of option exercises......................... 969 -- -- 825 --
Payments to acquire treasury stock...................... (11,555) -- -- (2,329) --
Proceeds from notes payable and long-term debt.......... -- 96 3,315 -- --
Repurchase of preferred stock........................... -- -- (180) -- --
Repurchase of common stock.............................. (4) (2) (13) -- --
Principal payments of debt obligations.................. (899) (1,952) (2,329) (21) (81)
Principal payments of capital lease obligations......... (69) (205) (260) (26) (49)
---------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities...................................... (10,636) 15,278 3,635 (505) 173
---------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents..................................... 172 19,090 (492) 4,795 2,204
Cash and cash equivalents, beginning of period............ 19,801 711 1,203 19,973 19,801
---------- --------- --------- --------- ---------
Cash and cash equivalents, end of period.................. $ 19,973 $ 19,801 $ 711 $ 24,768 $ 22,005
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Supplemental disclosures (see Note 16)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Summit Design, Inc. (Summit or the Company) develops, manufactures and
markets software which enhances and accelerates the creation of electronic
systems and integrated circuits using top-down design methodologies. The Company
provides software products for design specification entry, design analysis and
verification. Subsidiaries of the Company are located in the United States and
Israel. The Company markets and sells its products in the United States, Europe
and Asia through its direct sales force and distributor relationships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the Company's significant accounting policies:
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Summit Verification, Inc., Summit Design
(EDA) Ltd. and ProSoft Oy. Upon consolidation, all intercompany accounts,
transactions and profits have been eliminated.
REVENUE RECOGNITION
Product licenses revenue is derived from the sale of software licenses to
distributors and end-users. Revenue from the sale of product licenses is
recognized upon delivery of the product if remaining vendor obligations are
insignificant and collection of the resulting receivable is probable, otherwise
revenue from such vendor obligations is deferred until such time as vendor
obligations are met. The Company provides a ninety-day warranty that its
products are free from defects. Estimated sales returns and provisions for
insignificant vendor obligations and estimated warranty costs are recorded upon
delivery of the product.
Maintenance and services revenue includes software maintenance and other
service revenue, primarily from training. Software maintenance revenue is
deferred and recognized ratably over the life of the maintenance contract. Other
service revenue is recognized as the related service is performed.
Fees received for granting distribution rights are deferred and recognized
ratably over the term of the distribution agreement.
The Company records revenue from sales through distributors upon sales from
distributors to a third party or end user.
RESEARCH AND DEVELOPMENT COSTS
Costs related to research, design and development of products are charged to
research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established by completion of a working model of the product and ending when a
product is available for general resale to customers. To date, completion of a
working model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less when purchased to be cash equivalents. At
December 31, 1997, substantially all of the Company's
F-7
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
cash and cash equivalents are invested in interest-bearing deposits and other
short-term investments with several major banks.
FURNITURE AND EQUIPMENT
Furniture and equipment, consisting primarily of computer equipment and
office furniture, are stated at cost, net of related depreciation. Maintenance
and repairs are charged to expense as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets
ranging from three to seven years. Amortization of equipment under capital
leases is provided using the straight-line method over the shorter of the
related lease terms or economic life of the leased assets. Upon disposal of an
asset subject to depreciation, the cost and related accumulated depreciation are
removed from the accounts and resulting gains and losses are reflected in
operations.
INTANGIBLES
Intangible assets include goodwill and purchased technology which are being
amortized on a straight line basis over five and three years, respectively.
Purchased technology represents acquired software which has been fully
developed, achieved technological feasibility, reached commercial viability, and
is generating revenue. The carrying value of intangible assets are reviewed
whenever circumstances occur which indicate that the carrying value may not be
recoverable. Total accumulated amortization related to these intangible assets
is $150,000 at December 31, 1997.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting and tax
bases of assets and liabilities and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period of change. Valuation allowances are established when necessary, to reduce
deferred tax assets to the amounts expected to be realized.
CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to commercial end-users across many
industries directly and through independent and affiliated distributors in North
America, Europe and Asia. The Company's end-user customers include companies in
a wide range of industries, including semiconductor devices, semiconductor test
equipment, telecommunications, computer/peripherals, consumer electronics,
aerospace/ defense and other electronics entities. The Company performs ongoing
credit evaluations of its customers' financial condition and generally does not
require collateral. The Company maintains allowances for potential losses, and
such losses have been within management's expectations.
FOREIGN CURRENCY TRANSLATION
The Company's subsidiary in Israel uses the U.S. dollar as its functional
currency for financial reporting purposes. The Company's sales to foreign
distributors and customers are denominated in U.S. dollars. Operating expenses
of the Company's subsidiary in Israel and other international operations are
F-8
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
paid in the local currency. Transaction gains and losses, as well as gains and
losses experienced with respect to remeasurement to the functional currency are
recorded in the consolidated statement of operations.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable, other current assets, accounts payable and
accrued liabilities approximated fair value as of December 31, 1997 and 1996
because of the relatively short maturity of these instruments. The carrying
value of capital lease obligations and long-term debt approximated fair value as
of December 31, 1997 and 1996, based upon the interest rates available to the
Company for similar instruments.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard (SFAS) No. 128 "Earnings per Share"
effective for fiscal periods ending after December 15, 1997. This Statement
simplifies the standards for computing earnings per share ("EPS") previously
found in APB Opinion No. 15, "Earnings per Share," and makes them comparable
with international EPS standards. This statement requires restatement of all
prior period data presented and, therefore, the Company has restated EPS for the
years ended December 31, 1996 and 1995. The principal differences between the
provisions of SFAS No. 128 and previous authoritative pronouncements are
exclusion of common stock equivalents in the determination of basic EPS and the
market price at which common stock equivalents are calculated in the
determination of diluted EPS. Basic EPS is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted EPS is
computed using the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the period.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited financial statements have been prepared by Summit
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. 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. The results of operations for the
six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998 or any other future
interim period, and the Company makes no representations related thereto.
F-9
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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 a statement of comprehensive
income. The Company implemented SFAS No. 130 on January 1, 1998, the affects of
which have not been significant.
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 Company implemented SFAS No. 131 beginning in fiscal 1998.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The statement suggests
combined formats for presentation of pension and other postretirement benefit
disclosures. The statement also permits reduced disclosures for nonpublic
entities. The Company implemented SFAS No. 132 beginning in fiscal 1998. The
adoption of this statement has not had an effect on the consolidated financial
statements.
(UNAUDITED)
During the first quarter of 1998, the Company adopted Statements of Position
(SOP) 97-2, "Software Revenue Recognition" and 98-4, "Deferral of the Effective
Date of a Provision of SOP 97-2, "Software Revenue Recognition." The provisions
of SOP's 97-2 and 98-4 have been applied to transactions entered into beginning
January 1, 1998. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on vendor-specific objective evidence (VSOE) of the fair value of the various
elements in a multiple element arrangement. Revenue from the sale of software
licenses is recognized at the later of the time of shipment or satisfaction of
all acceptance terms. The revenue allocated to maintenance is recognized ratably
over the term of the maintenance agreement and revenue allocated to services is
recognized as the services are performed.
SOP 98-4 defers for one year, the application of several paragraphs and
examples in SOP 97-2 that limit the definition of vendor specific objective
evidence (VSOE) of the fair value of various elements in a multiple element
arrangement.
The Company analyzed the elements included in its multiple element
arrangements and determined that the Company has sufficient evidence to allocate
revenue to the license and maintenance components of its product licenses. The
adoption of SOP's 97-2 and 98-4 did not have a significant effect on revenue
recognized for the three and six month periods ending June 30, 1998.
F-10
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. 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 TriQuest and
Summit for the two months ended February 28, 1997 (in thousands):
<TABLE>
<CAPTION>
SUMMIT TRIQUEST
--------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues................................................. $ 1,473 $ 199
--------- -----
--------- -----
Net loss................................................. $ (921) $ 143
--------- -----
--------- -----
</TABLE>
4. 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. TDS product license, maintenance and services and other revenue for the
years ended December 31, 1995, 1996 and 1997 were $6,978,000, $7,331,000 and
$3,500,000, respectively.
The Company and CSC also entered into a software license agreement ("OEM
Agreement") in which CSC agreed to purchase $16 million of Visual Testbench
licenses over a thirty-month period subject to specified quarterly maximums and
certain additional conditions. Additionally, CSC entered into an 18 month
maintenance agreement for $2 million associated with the Visual Testbench
product.
5. 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 and $3,875,000 in cash. The
transaction was accounted for using the purchase method of accounting,
accordingly, the results of operations from September 9, 1997 are included in
the consolidated statements of operations. The total purchase price of $22.1
million was determined based upon the cash paid and the market value of the
stock and options issued and 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 $2.2
million, respectively. In addition, $19.9 million was allocated to in-process
technology which had not reached technological
F-11
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION OF SIMULATION TECHNOLOGIES CORP.: (CONTINUED)
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 acquisitions 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 (in
thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Revenue.......................................................... $ 24,188 $ 35,033
------------ ------------
------------ ------------
Net income....................................................... $ 1,447 $ 11,809
------------ ------------
------------ ------------
Basic earnings per share......................................... $ 0.11 $ 0.78
------------ ------------
------------ ------------
Diluted earnings per share....................................... $ 0.10 $ 0.74
------------ ------------
------------ ------------
Number of shares used in computing basic earnings per share...... 13,292 15,062
------------ ------------
------------ ------------
Number of shares used in computing diluted earnings per share.... 14,295 16,059
------------ ------------
------------ ------------
</TABLE>
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 $11,555,000 in cash.
6. FURNITURE AND EQUIPMENT:
Furniture and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Office furniture and equipment........................................... $ 596 $ 513
Computer equipment....................................................... 3,679 3,251
Leasehold improvements................................................... 66 41
--------- ---------
4,341 3,805
Less accumulated depreciation and amortization........................... (1,643) (1,943)
--------- ---------
$ 2,698 $ 1,862
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 loan
agreement which is collateralized by the intellectual property and stock of the
software development company. Borrowings under this agreement bear interest at
prime rate plus 2%. Total amounts due to the Company under this agreement at
December 31, 1997 are $490,000 and are included in other non-current assets.
8. NOTE PAYABLE TO BANK:
The Company has available a $1 million line of credit with U.S. National
Bank of Oregon, which matures April 30, 1999 and is collateralized by accounts
receivable, inventory, chattel paper, general intangibles, patents, trademarks,
copyrights and products and proceeds of the foregoing. Maximum borrowings under
the line shall not exceed 75% of eligible accounts receivable. Interest on the
unpaid balance accrues at a rate that ranges from prime to prime plus 0.75%,
depending on the debt to tangible net worth ratio maintained by the Company, and
is payable monthly. The prime rate at December 31, 1997 was 8.5%. There was no
amount outstanding at December 31, 1997.
The line of credit agreement contains financial covenants, including
covenants relating to maintenance of a minimum level of working capital, net
worth, the ratio of debt to net worth and dividend restrictions. The Company was
in compliance with these covenants at December 31, 1997.
9. ACCRUED LIABILITIES:
Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Payroll and related benefits................................ $ 2,887 $ 1,621
Sales and marketing......................................... 435 225
Accounting and legal........................................ 260 301
Federal and state income taxes payable...................... 819 --
Sales taxes payable......................................... 114 115
Other....................................................... 667 618
--------- ---------
$ 5,182 $ 2,880
--------- ---------
--------- ---------
</TABLE>
10. LEASES:
The Company is obligated under capital leases for equipment that expire at
various dates during the next two years. The leased assets are included in
equipment at a capitalized amount of $197,000 and $662,000 at December 31, 1997
and 1996, respectively. Related accumulated amortization of $108,000 and
$508,000 at December 31, 1997 and 1996 is included in accumulated depreciation.
The Company has entered into a noncancelable operating lease for the use of
a building. Rental expense was approximately $285,000, $303,000, and $261,000
for the years ended December 31, 1997, 1996 and 1995, respectively. In addition,
Summit Design (EDA) Ltd. has entered into a sublease with a related party for
its premises. The lease expires in 1998. Annual rent is contingent on the
Israeli consumer price index and is approximately $145,000 annually.
F-13
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASES: (CONTINUED)
Future minimum lease payments under these operating and capital leases for
the years ending December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998............................................................................ $ 52 $ 860
1999............................................................................ 44 549
2000............................................................................ -- 106
------- ---------
Total minimum lease payments................................................ 96 $1,515
---------
---------
Less amount representing interest (at 4%)................................... (4)
-------
Present value of minimum capital lease payments............................. 92
Current portion of capital lease obligation................................. (49)
-------
Capital leases obligation, less current portion............................. $ 43
-------
-------
</TABLE>
F-14
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Marketing Fund grant payable to the Israeli government....... $ 261 $ 364
Chief Scientist grant payable to the Israeli government...... -- 773
Other........................................................ 67 90
--------- ---------
328 1,227
Current portion.............................................. (134) (473)
--------- ---------
Non-current portion.......................................... $ 194 $ 754
--------- ---------
--------- ---------
</TABLE>
The Chief Scientist grant represents research and development funding of
approximately $232,000 in 1993 and $608,000 in 1995 received from the Israeli
government. The Company repaid both the 1993 and 1995 grants in full during
1997.
The Company received a Marketing Fund grant of $423,000 from the Israeli
Ministry of Industry and Trade through December 31, 1997. This grant is to be
repaid at the rate of 3% of the increase in export sales of all Israeli products
over the base year until repaid.
Future principal payments of debt outstanding for the years ending December
31 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................. 134
1999................................................................. 116
2000................................................................. 78
---------
$ 328
---------
---------
</TABLE>
12. STOCKHOLDERS' EQUITY:
PREFERRED STOCK
Summit has 5,000,000 shares of Preferred Stock authorized, of which there
are no shares outstanding. The Summit Board has the authority to issue these
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any unissued
and undesignated shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series, without any future
vote or action by the stockholders.
1994 INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan ("1994 Plan") pursuant to
which the Company may grant options to employees and consultants. Under the
terms of the 1994 Plan, the option price is determined as the fair value of the
Company's common stock at the time the option is granted. Under the plan
2,322,000 shares of common stock are authorized for issuance. Options granted
prior to the Company's initial public offering generally became immediately
exercisable. Shares issued are subject to
F-15
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
repurchase until vested. Options granted subsequent to the Company's initial
public offering are exercisable upon vesting. Options generally vest 25% twelve
months after the date of grant and the remainder at 1/48th of the grant amount
in each successive month thereafter. Options expire no later than 10 years after
the date of grant.
There were 2,659, 366,094, and 622,915 shares of common stock reserved for
the grant of stock options under the 1994 Plan at December 31, 1997, 1996 and
1995, respectively.
1996 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan (the "Director Plan"). The Director Plan provides for an
automatic grant of an option to purchase 7,500 shares of common stock to each
non-employee director on the date on which the Director Plan becomes effective
or, if later, an option to purchase 10,000 shares of common stock on the date on
which the person first becomes a non-employee director and 10,000 shares on the
date of the annual meeting of each subsequent year, provided that he or she is
then a non-employee director and, provided further, that on such date he or she
has served on the Board for at least six months. Options granted under the
Director Plan generally become vested and all exercisable 12 months after the
grant date and are granted at an exercise price equal to 100% of the fair market
value per share on the date of the grant. The Company has reserved 150,000
shares of common stock for issuance under the 1996 Director Plan. The Company
granted 40,000 options under this plan in 1997.
1997 NONSTATUTORY STOCK OPTION PLAN
The Company established the 1997 Nonstatutory Stock Option Plan
("Nonstatutory Plan") in order to provide additional incentive to employees,
directors and consultants. Options granted under the plan will be nonstatutory
stock options and are not intended to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code. Options generally vest
25% twelve months after the date of grant and the remainder at 1/48th of the
grant amount in each successive month thereafter. Options expire no later than
10 years after the grant date. In addition, no more than 25,000 options may be
granted to directors and persons considered "officers" by the NASDAQ Stock
Market. The maximum aggregate number of shares of common stock authorized for
issuance is 250,000 shares. The Company granted 143,000 options under the
Nonstatutory Plan in 1997.
F-16
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996 and 1995 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVG. PRICE
---------- -----------
<S> <C> <C>
Balance, December 31, 1994............................................ 873,457 $ 0.68
Options granted..................................................... 558,627 $ 1.74
Options exercised................................................... (71,757) $ 0.62
Options canceled.................................................... (196,845) $ 1.08
----------
Balance, December 31, 1995............................................ 1,163,482 $ 1.13
Options granted..................................................... 722,575 $ 5.16
Options exercised................................................... (345,278) $ 0.41
Options canceled.................................................... (146,905) $ 3.60
----------
Balance, December 31, 1996............................................ 1,393,874 $ 3.13
Options granted..................................................... 1,643,121 $ 5.33
Options exercised................................................... (470,715) $ 1.22
Options canceled.................................................... (442,906) $ 6.35
----------
Balance, December 31, 1997............................................ 2,123,374 $ 4.59
----------
----------
</TABLE>
The following are the shares exercisable at the corresponding weighted
average exercise price at December 31, 1997, 1996 and 1995, respectively:
949,261 at $2.3119, 1,186,986 at $2.0662 and 1,171,185 at $1.1217. The weighted
average exercise price per share of options outstanding at December 31, 1997 is
$4.61. The following are the weighted average grant date fair value of options
granted for the years ended December 31, 1997, 1996 and 1995, respectively:
$8.96, $5.95 and $1.52. At December 31, 1997, 219,761 shares are subject to
repurchase.
Effective September 13, 1995, the Board of Directors of the Company approved
an adjustment to the exercise price of the Company's outstanding stock options
with an exercise price in excess of $1.75. All outstanding options subject to
the adjustment were repriced to $1.75, the fair market value at that date as
determined by the Board. Participation by each option holder was voluntary.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE AVERAGE SHARES AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/97 REMAINING LIFE PRICE AT 12/31/97 PRICE
- ------------------------------------- ----------- --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.08 to $0.63...................... 578,048 7.28 $ 0.4310 389,197 $ 0.3738
$ 1.17 to $1.95...................... 580,670 7.94 1.6409 402,761 1.6591
$ 4.67 to $7.00...................... 99,005 9.18 5.4049 39,403 5.8608
$ 8.13 to $9.50...................... 654,500 9.47 8.8667 110,666 9.3135
$ 9.63 to $10.50..................... 165,000 9.96 9.6356 583 10.5000
$12.75 to $17.00..................... 46,151 9.82 13.3625 6,651 17.0000
</TABLE>
F-17
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company has established the 1996 Employee Stock Purchase Plan ("1996
Purchase Plan"). The 1996 Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue code, permits eligible employees of the
Company to purchase common stock through payroll deductions of up to 10% of
their base salary up to a maximum of $25,000 of common stock for all purchase
periods ending within any calendar year. The price of common stock purchased
under the 1996 Purchase Plan will be 85% of the lower of the fair market value
of the common stock on the first day of each 24 month offering period or the
last day of the applicable six-month purchase period. The Company has reserved
150,000 shares of common stock for issuance under the 1996 Purchase Plan. The
Company issued approximately 59,000 shares of common stock under the 1996
Purchase Plan during 1997.
SFAS NO. 123 DISCLOSURE
The Company applies APB No. 25 and related interpretations in accounting for
its plans. However, in accordance with SFAS No. 123, pro forma disclosures as if
the Company adopted the cost recognition requirements under No. SFAS 123 in
1997, 1996 and 1995 are presented below.
The fair value of each option granted during the years ended December 31,
1997, 1996, and 1995 are estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Average dividend yield........................................ 0% 0% 0%
Expected volitility........................................... 44% 46% 46%
Expected life in years........................................ 4 5 5
Risk free interest rate:
Low......................................................... 5.787% 5.546% 5.487%
High........................................................ 6.421% 6.543% 7.022%
</TABLE>
Had the Company used the fair value methodology for determining compensation
expense, the Company's net income (loss) and net income (loss) per share would
approximate the pro forma amounts below (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)--as reported................................. $ (5,875) $ 1,263 $ (3,611)
Net income (loss)--pro forma................................... $ (7,802) $ 714 $ (3,853)
Earnings (loss) per share--as reported--basic.................. $ (0.41) $ 0.10 $ (0.33)
Earnings (loss) per share--as reported--diluted................ $ (0.41) $ 0.10 $ (0.33)
Earnings (loss) per share--pro forma--basic.................... $ (0.54) $ 0.06 $ (0.33)
Earnings (loss) per share--pro forma--diluted.................. $ (0.54) $ 0.05 $ (0.35)
</TABLE>
The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts
F-18
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................. $ 770 $ 26 $ --
State............................................... 426 4 1
Foreign............................................. 468 225 399
--------- --------- ---------
1,664 255 400
--------- --------- ---------
Deferred:
Federal............................................. (665) (373) --
State............................................... (10) (27) --
Foreign............................................. (247) (100) --
--------- --------- ---------
(922) (500) --
--------- --------- ---------
$ 742 $ (245) $ 400
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the effective income tax rate and the statutory U.S.
federal income tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate........... $ (2,455) $ 826 $ (907)
In-process research and development................. 6,779 -- --
Alternative minimum tax............................. -- 26 --
Foreign withholding taxes........................... 221 225 398
Deferred taxes:
Increase (decrease) in valuation allowance........ (3,774) (964) 1,503
Utilization of net operating losses............... (104) (545) --
Other............................................. (341) 183 (595)
State............................................... 416 4 1
--------- --------- ---------
$ 742 $ (245) $ 400
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
federal and state income tax purposes which can be used to offset future income
subject to taxes. In addition, there are unused research and experimentation and
foreign tax credits which may be available for offset against
F-19
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES: (CONTINUED)
future federal income taxes after use of the loss carryforwards. Such loss
carryforwards and tax credits are summarized below (in thousands):
<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
--------- -------------
<S> <C> <C>
Loss carryforwards:
Federal............................................................ $ 1,341 2009 - 2010
State.............................................................. 1,341 2009 - 2010
Research and experimentation credits (federal only).................. 313 2003 - 2011
Foreign tax credits (federal only)................................... 727 1998 - 2002
</TABLE>
Due to the acquisition of TriQuest, the federal and state net operating loss
carryforwards are limited in use to approximately $300,000 annually. The tax
credit carryforwards are also subject to limitation due to the acquisition of
TriQuest.
In addition, the Company has foreign income tax net operating losses of
approximately $5.6 million. These foreign losses were generated in Israel over
several years and have not yet received final assessment from the Israeli
government. Consequently, management is uncertain as to the availability of a
substantial portion of such foreign loss carryforwards and as such has recorded
a valuation allowance against the resulting deferred tax asset. Provision has
not been made for U.S. or additional foreign taxes on undistributed earnings of
the Company's foreign subsidiary, as those earnings are considered to be
permanently reinvested. If such earnings were remitted to the U.S., additional
federal and foreign taxes may be due. It is not practical to determine the
amount of such taxes that might be payable on these foreign earnings.
F-20
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES: (CONTINUED)
The approximate effects of temporary differences which give rise to deferred
tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards...... $ 548 $ 3,037
Foreign operating loss carryforwards.................... 563 701
Research and experimentation credit carryforwards....... 313 263
Foreign tax credit carryforwards........................ 727 711
Other deferred tax items................................ 1,259 1,133
--------- ---------
Total deferred tax assets............................. 3,410 5,845
Less valuation allowances............................... (563) (5,018)
--------- ---------
Net deferred tax assets............................... 2,847 827
--------- ---------
Deferred tax liabilities:
Other deferred tax items................................ (1,105) (327)
--------- ---------
Total deferred tax liabilities........................ (1,105) (327)
--------- ---------
Net deferred taxes.................................... $ 1,742 $ 500
--------- ---------
--------- ---------
Net deferred income taxes:
Current................................................. $ 1,209 $ --
Long term............................................... 533 500
--------- ---------
$ 1,742 $ 500
--------- ---------
--------- ---------
</TABLE>
The Company has established a valuation allowance against a portion of
deferred tax assets due to the uncertainty surrounding the realization of such
assets. Management evaluates on a quarterly basis the recoverability of the
deferred tax assets and the level of the valuation allowance. The net change in
the valuation allowance for the years ended December 31, 1997 and 1996 was a
decrease of approximately $4,455,000 and $964,000, respectively. The decrease in
the valuation allowance for the year ended December 31, 1997 resulted primarily
from the utilization of net operating loss carryforwards and management's
evaluation of the future recoverability of net deferred tax assets due to the
likelihood of future taxable income. Approximately $3.1 million of the decrease
in the valuation allowance for the year ended December 31, 1997 resulted from
the operating loss carryforwards utilized in such year.
F-21
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RECONCILIATION OF EARNINGS PER SHARE:
The following provides a reconciliation of the numerators and denominators
of the basic and diluted per share computations (in thousands, except per share
data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1997 1996 1995 1998 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income(loss)............................. $ (5,875) $ 1,263 $ (3,611) $ 5,299 $ 3,056
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Denominator:
Denominator for basic earnings per share
weighted average shares.................... 14,403 12,240 11,085 14,984 14,137
Effect of dilutive securities:
Employee stock options..................... -- 1,003 -- 1,256 863
--------- --------- --------- --------- ---------
Denominator for diluted earnings per share... 14,403 13,243 11,085 16,240 15,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income(loss) per share--basic.............. $ (0.41) $ 0.10 $ (0.33) $ 0.35 $ 0.22
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income(loss) per share--diluted............ $ (0.41) $ 0.10 $ (0.33) $ 0.33 $ 0.20
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Options to purchase 999,000 and 663,000 shares of common stock at various
prices were outstanding during 1997 and 1995, respectively, but were not
included in the computation of diluted EPS because their effect on EPS for the
year ended December 31, 1997 would have been anti-dilutive.
15. 401(K) PLAN:
The Company maintains a tax qualified defined contribution plan that meets
the requirements of Section 401(k) of the Internal Revenue Code (the Plan) and
covers substantially all U.S. employees meeting minimum service requirements.
The Plan was amended in 1997 to include a mandatory Company matching
contribution up to a maximum of 1.5% of employee compensation. At its
discretion, the Company may make additional contributions to the Plan. In
connection with the required match, the Company's contribution to the Plan was
approximately $50,000 in 1997. The Company made a discretionary contribution to
the Plan of $10,000 in 1995. There were no contributions in 1996.
F-22
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Supplemental cash flow information is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid for interest............................... $ 11 $ 111 $ 195
Cash paid for income taxes........................... 175 254 1
Noncash investing and financing activities:
Equipment acquired under capital leases............ -- 23 170
Conversion of preferred stock to common stock...... -- 91 --
Acquisition of Simulation Technologies:
In-process technology.............................. 19,937 -- --
Purchased technology and intangibles............... 1,772 -- --
Property and other assets acquired................. 941 -- --
Deferred revenue assumed........................... (1,460) -- --
Other liabilities assumed.......................... (707) -- --
Common stock issued................................ (16,667) -- --
Sale of TDS product line:
Property and other assets sold..................... (369) -- --
Deferred revenue sold.............................. 1,213 -- --
Other liabilities sold............................. 64 -- --
</TABLE>
17. COMMITMENTS AND CONTINGENCIES:
Summit Design (EDA) Ltd. has registered floating charges on all its assets
as security for compliance with the terms attached to Israeli investment grants
received.
The Company has entered into employment agreements with certain of its
executive officers. These agreements provide for base annual compensation and
certain incentive bonuses and stock options on various vesting schedules as well
as severance compensation in the event of termination without cause.
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse affect on the Company's consolidated financial
statements.
The Company has guaranteed the rent payments for a software development
company of $4,200 per month for the first 18 months of the lease term beginning
November 1997.
18. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:
The Company operates in a single industry segment comprising the electronic
design automation industry. Net revenue by geographic region (in thousands) and
as a percentage of total revenue for each
F-23
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS: (CONTINUED)
region outside the United States that constitutes more than 10% of the Company's
total revenue is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Europe.............................................. $ 3,582 $ 3,294 $ 2,115
Asia Pacific........................................ 7,020 6,855 5,447
As a Percentage of Total Revenue:
Europe............................................ 11.4% 16.2% 14.8%
Asia Pacific...................................... 22.3% 33.8% 38.1%
</TABLE>
During 1997 one customer accounted for 28.6% of total revenue. In 1996, no
single customer accounted for more than 10% of total revenue. Sales through a
single distributor accounted for 12.0%, 14.6% and 12.5% of the Company's total
revenue in 1997, 1996 and 1995, respectively. Foreign operations of Summit
Design (EDA) Ltd. accounted for less than 10% of total revenue of the Company in
each of the three years in the period ended December 31, 1997. Identifiable
assets of the Company's Israeli subsidiary were less than 10% of total assets at
December 31, 1997.
The Company entered into an agreement with Seiko Instruments, Inc. (Seiko)
during the first quarter of 1996, which granted to Seiko an exclusive right to
distribute and support certain Summit products in Japan. Under the terms of the
agreement, Seiko will pay the Company a distribution rights fee of $1.1 million
during the period of the agreement which is three years ending February 1999.
The Company will receive payments from Seiko of $800,000, $200,000 and $100,000
in 1996, 1997 and 1998, respectively. In each of the years ended December 31,
1997 and 1996, the Company recognized revenue of $367,000 associated with this
agreement.
19. RELATED PARTIES:
Summit Design (EDA) Ltd. leases its corporate offices from a stockholder
under a four-year sublease agreement on the same terms and conditions that the
stockholder leases such space. Lease expense due to the stockholder for the
years ended December 31, 1997, 1996 and 1995 were $145,000, $141,000 and
$138,000, respectively.
Effective April 1, 1996, the Company invested $100,000 for a minority
interest in a joint venture corporation which acquired the exclusive rights to
sell, distribute and support all of the Company's products in the Asia-Pacific
region, excluding Japan. The Company has recorded a net loss in equity of the
joint venture of $67,000 and $33,000 for the years ended December 31, 1997 and
1996, respectively. Total product licenses and maintenance revenue for sales to
the joint venture totaled approximately $590,000 and $586,000 for the years
ended December 31, 1997 and 1996, respectively, total accounts receivable, with
payment terms similar to other customers in the Asia-Pacific region, was
$357,000 at December 31, 1997.
The Company holds a note from an employee in the amount of $75,000, bearing
interest at 6%, due in March of 2000, and collateralized by stock.
F-24
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SUBSEQUENT EVENTS--(UNAUDITED):
On June 30, 1998, the Company acquired ProSoft Oy ("ProSoft"), a Company
located in Finland. ProSoft develops software tools used to verify embedded
systems software prior to the availability of a hardware prototype. The
aggregate consideration for the acquisition (including shares of common stock
reserved for issuance upon exercise of ProSoft options which were exchanged for
options of the Company) was 248,334 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
financial statements have been restated to include the accounts of ProSoft as if
the acquisition had occurred at the beginning of the first period presented
herein. The effect of the combination did not have a material impact on the net
sales and net income of the combined entity.
On September 20, 1998, the Company entered into a definitive agreement to
merge with OrCAD, Inc., (OrCAD) a publicly traded software company headquartered
in Beaverton, Oregon under which the Company will acquire OrCAD. Each share of
OrCAD Common Stock, including shares reserved for issuance upon exercise of
OrCAD options which will be assumed by the Company will be exchanged for 1.05
shares of Summit Common Stock upon closing of the transaction. The Company
intends to account for this acquisition as a pooling-of-interests.
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
OrCAD, Inc.:
We have audited the accompanying consolidated balance sheets of OrCAD, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of MicroSim Corporation, a
company that OrCAD, Inc. merged with during 1998, in a transaction accounted for
as poolings of interests, as discussed in Note 2. Such statements are included
in the related consolidated financial statements of OrCAD, Inc. and reflect
total revenues of 41% in 1997, 44% in 1996, and 52% in 1995, respectively, and
25% and 23% of total assets in 1997 and 1996, respectively, of the consolidated
totals. These statements were audited by another auditor whose report has been
furnished to us and our opinion, insofar as it relates to amounts included for
MicroSim Corporation, is based solely upon the report of the other auditor.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the account principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditor, the
financial statements referred to above present fairly, in all material respects,
the financial position of OrCAD, Inc. and subsidiaries as of December 31, 1997
and 1996, and the results of their operations, and their cash flows for each of
the years in the three year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
Portland, Oregon
September 22, 1998
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
MicroSim Corporation
We have audited the accompanying consolidated balance sheets of MicroSim
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997 (not presented separately herein).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MicroSim
Corporation at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Orange County, California
January 26, 1998
F-27
<PAGE>
ORCAD, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
JUNE 30,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................................... $ 15,905 $ 31,618 $ 23,103
Short-term investments......................................... 20,303 3,408 13,938
Trade accounts receivable, net of valuation allowances of $913,
$793, and $757, respectively................................. 7,734 8,800 4,867
Inventory, net................................................. 371 675 997
Other current assets........................................... 2,897 3,348 1,795
----------- --------- ---------
Total current assets........................................... 47,210 47,849 44,700
----------- --------- ---------
Investments, long-term......................................... 2,376 2,722 --
Fixed assets, net.............................................. 3,715 3,360 1,746
Purchased software technology, net............................. 365 474 429
Goodwill and intangible assets, net............................ 3,035 2,378 2,704
Other assets................................................... 697 124 155
----------- --------- ---------
Total assets................................................... $ 57,398 $ 56,907 $ 49,734
----------- --------- ---------
----------- --------- ---------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................... $ 580 $ 661 $ 963
Accrued payroll and related liabilities........................ 1,576 2,241 1,560
Accrued liabilities............................................ 2,922 1,870 1,444
Accrued income taxes........................................... 527 1,081 652
Deferred revenue............................................... 5,446 4,881 3,223
----------- --------- ---------
Total current liabilities...................................... 11,051 10,734 7,842
Deferred taxes................................................. 19 19 205
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01; 2,000,000 shares authorized
and none issued and outstanding.............................. -- -- --
Common stock, par value $.01; 16,000,000 shares authorized;
9,337,169, 9,239,039 and 9,145,568 shares issued and
outstanding.................................................. 93 92 91
Additional paid-in capital..................................... 37,922 37,583 36,925
Retained earnings.............................................. 8,531 8,604 4,777
Other comprehensive loss....................................... (117) (78) (34)
Notes receivable--employee stock purchases..................... (101) (47) (72)
----------- --------- ---------
Total stockholders' equity..................................... 46,328 46,154 41,687
----------- --------- ---------
Total liabilities and stockholders' equity..................... $ 57,398 $ 56,907 $ 49,734
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
ORCAD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1997 1996 1995 1998 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Products....................................... $ 35,385 $ 31,169 $ 23,142 $ 17,503 $ 16,928
Service........................................ 8,610 5,865 5,175 6,039 3,850
--------- --------- --------- --------- ---------
Total revenue.................................. 43,995 37,034 28,317 23,542 20,778
Cost and expenses:
Cost of revenue--products...................... 4,764 4,142 3,675 1,562 2,393
Cost of revenue--service....................... 1,692 1,503 1,109 1,175 793
Research and development....................... 11,238 9,350 7,249 5,786 5,488
Marketing and sales............................ 15,416 11,877 8,793 9,285 7,241
General and administrative..................... 4,810 4,793 3,507 2,634 2,290
Write-off of purchased software................ -- -- 1,037 -- --
Merger and acquisition related charges......... 2,203 -- 971 4,081 2,203
--------- --------- --------- --------- ---------
Total cost and expenses........................ 40,123 31,665 26,341 24,523 20,408
--------- --------- --------- --------- ---------
Income (loss) from operations.................. 3,872 5,369 1,976 (981) 370
--------- --------- --------- --------- ---------
Other income (expense):
Interest income, net........................... 1,858 1,531 314 911 903
Other, net..................................... (17) 65 33 (43) 18
--------- --------- --------- --------- ---------
1,841 1,596 347 868 921
--------- --------- --------- --------- ---------
Income (loss) before income taxes.............. 5,713 6,965 2,323 (113) 1,291
Income tax expense (benefit)................... 1,809 1,699 690 (40) 471
--------- --------- --------- --------- ---------
Net income (loss).............................. $ 3,904 $ 5,266 $ 1,633 $ (73) $ 820
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic net income (loss) per share.............. $ 0.43 $ 0.61 $ 0.41 $ (0.01) $ 0.09
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted net income (loss) per share............ $ 0.41 $ 0.58 $ 0.24 $ (0.01) $ 0.09
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in basic net income (loss) per
share calculation............................ 9,165 8,618 4,012 9,279 9,134
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in diluted net income (loss) per
share calculation............................ 9,446 9,046 6,853 9,279 9,388
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
ORCAD, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED COMMON STOCK
STOCK ADDITIONAL RETAINED OTHER
-------------- --------------- PAID-IN EARNINGS COMPREHENSIVE NOTES
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) LOSS RECEIVABLE TOTAL
------ ------ ------ ------ ---------- -------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994........ 8,076 $ 81 3,163 $32 $ 8,077 $(1,798) -$- $(142) $ 6,250
Stock repurchase.................. -- -- (94) (1) (175) (197) -- -- (373)
Issuance of common stock upon
option exercises................ -- -- 199 2 68 -- -- (15) 55
Issuance of common stock from
employee stock purchase
agreements...................... -- -- 33 -- 132 -- -- -- 132
Issuance of common stock in
Massteck merger................. -- -- 510 5 1,958 -- -- -- 1,963
Issuance of common stock in ISJ
merger.......................... -- -- 427 5 2,981 -- -- -- 2,986
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (4) -- (4)
Payment of notes receivable....... -- -- -- -- -- -- -- 140 140
Net income........................ -- -- -- -- -- 1,633 -- -- 1,633
------ ------ ------ ------ ---------- -------- ------ ---------- -------
Balance, December 31, 1995........ 8,076 81 4,238 43 13,041 (362) (4) (17) 12,782
Stock repurchase.................. -- -- (60) (1) (126) (127) -- -- (254)
Issuance of common stock upon
option exercises................ -- -- 195 2 81 -- -- (114) (31)
Issuance of common stock under
employee stock purchase plan.... -- -- 11 -- 88 -- -- -- 88
Issuance of common stock from
employee stock purchase
agreements...................... -- -- 69 -- 330 -- -- -- 330
Issuance of common stock net of
offering costs of $2,951........ -- -- 2,382 24 23,230 -- -- -- 23,254
Issuance of common stock upon
exercise of stock warrants...... -- -- 4 -- -- -- -- -- --
Issuance of common stock upon
conversion of preferred
shares.......................... (8,076) (81) 2,307 23 58 -- -- -- --
Unrealized gain on investments.... -- -- -- -- -- -- 9 -- 9
Tax benefit from stock option
exercises....................... -- -- -- -- 223 -- -- -- 223
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (39) -- (39)
Payment of notes receivable....... -- -- -- -- -- -- -- 59 59
Net income........................ -- -- -- -- -- 5,266 -- -- 5,266
------ ------ ------ ------ ---------- -------- ------ ---------- -------
Balance, December 31, 1996........ -- -- 9,146 91 36,925 4,777 (34) (72) 41,687
Stock repurchase.................. -- -- (58) (1) (173) (77) -- -- (251)
Issuance of common stock upon
option exercises................ -- -- 100 1 82 -- -- (29) 54
Issuance of common stock under
employee stock purchase plan.... -- -- 29 -- 207 -- -- -- 207
Issuance of common stock from
employee stock purchase
agreements...................... -- -- 22 1 107 -- -- -- 108
Unrealized loss on investments.... -- -- -- -- -- -- (4) -- (4)
Tax benefit from stock option
exercises....................... -- -- -- -- 435 -- -- -- 435
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (40) -- (40)
Payment of notes receivable....... -- -- -- -- -- -- -- 54 54
Net income........................ -- -- -- -- -- 3,904 -- -- 3,904
------ ------ ------ ------ ---------- -------- ------ ---------- -------
Balance, December 31, 1997........ -- -- 9,239 92 37,583 8,604 (78) (47) 46,154
Issuance of common stock upon
option exercises (unaudited).... -- -- 75 1 162 -- -- -- 163
Issuance of common stock under
employee stock purchase plan
(unaudited)..................... -- -- 23 -- 177 -- -- -- 177
Unrealized loss on investments
(unaudited)..................... -- -- -- -- -- -- (12) -- (12)
Foreign currency translation
adjustment (unaudited).......... -- -- -- -- -- -- (27) -- (27)
Issuance of notes receivable
(unaudited)..................... -- -- -- -- -- -- -- (54) (54)
Net loss (unaudited).............. -- -- -- -- -- (73) -- -- (73)
------ ------ ------ ------ ---------- -------- ------ ---------- -------
Balance, June 30, 1998
(unaudited)..................... -- $-- 9,337 $93 $37,922 $ 8,531 $(117) $(101) $46,328
------ ------ ------ ------ ---------- -------- ------ ---------- -------
------ ------ ------ ------ ---------- -------- ------ ---------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
ORCAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1997 1996 1995 1998 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ 3,904 $ 5,266 $ 1,633 $ (73) $ 820
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................... 1,797 1,506 1,063 998 834
Provision for losses on receivables and sales returns....... 36 285 (28) 104 96
Provision for inventory reserves............................ 21 9 (20) 1 45
Deferred income taxes....................................... (434) (32) (34) (5) 2
Write-off of purchased software and research and development
costs acquired............................................ 2,203 -- 2,008 -- 2,203
Loss on disposal of fixed assets............................ 19 45 3 12 --
Changes in assets and liabilities:
Trade accounts receivable................................... (3,920) (487) (655) 1,900 (1,830)
Inventory................................................... 291 (338) (61) 299 255
Other current assets........................................ (1,329) (496) 11 (124) (831)
Accounts payable............................................ (390) (380) 329 (907) 34
Accrued payroll and related liabilities..................... 684 42 535 (625) 236
Accrued liabilities......................................... 503 (489) 391 964 106
Deferred revenue............................................ 1,666 759 (122) 594 262
Accrued income taxes........................................ 867 460 103 (570) (425)
--------- --------- --------- --------- ---------
Total adjustments......................................... 2,014 884 3,523 2,641 987
--------- --------- --------- --------- ---------
Net cash provided by operating activities................... 5,918 6,150 5,156 2,568 1,807
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Cash acquired in mergers...................................... -- -- 503 -- --
Acquisition of fixed assets................................... (2,724) (1,008) (752) (979) (1,435)
Acquisition of software technology............................ (2,450) (300) (73) -- (2,450)
Proceeds from sale of fixed assets............................ -- 24 -- -- --
Intangible assets acquired.................................... (165) -- -- (949) (165)
Proceeds from matured investment securities................... 199,799 236,174 -- 77,638 86,285
Purchases of investment securities............................ (191,996) (248,413) (1,699) (94,199) (79,458)
--------- --------- --------- --------- ---------
Net cash provided (used) by investing activities............ 2,464 (13,523) (2,021) (18,489) 2,777
Cash flows from financing activities:
Payments on contract payable.................................. -- -- (142) -- --
Payments on capital leases.................................... -- (174) (157) -- --
Repayment (issuance) of notes receivable, employee stock
purchases, net.............................................. 54 59 140 (54) 8
Repurchase of common stock.................................... (251) (254) (373) -- --
Proceeds from issuance of common stock, net................... 369 23,641 187 340 67
--------- --------- --------- --------- ---------
Net cash provided (used) by financing activities............ 172 23,272 (345) 286 75
Effects of exchange rate on cash.............................. (39) (39) (9) (78) 4
Net increase in cash and cash equivalents................... 8,515 15,860 2,781 (15,713) 4,663
Cash and cash equivalents at beginning of period................ 23,103 7,243 4,462 31,618 23,103
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period...................... $ 31,618 $ 23,103 $ 7,243 $ 15,905 $ 27,766
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Income taxes paid............................................. $ 1,509 $ 1,405 $ 504 $ 729 $ 1,103
Non-cash investing and financing activities:
Net assets acquired in mergers................................ $ -- $ -- $ 4,949 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements
F-31
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
OrCAD, Inc. ("OrCAD," or the "Company") develops, markets and supports
software products that assist electronics designers in the management of
component data and in the design of field-programmable gate arrays ("FPGAs"),
including complex programmable logic devices ("CPLDs"), analog and mixed
analog-digital circuits, and printed circuit boards ("PCBs"). OrCAD operates in
a single business segment, comprising the electronic design automation industry
and serves most segments of the electronics industry, including aerospace,
telecom, industrial control, military, medical equipment, and consumer products.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
CASH AND CASH EQUIVALENTS
For purposes of the accompanying consolidated statements of cash flows,
OrCAD considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are stated at cost and
consist primarily of money market funds, commercial paper, municipal bonds and
municipal auction preferred stock. The carrying amount of cash and cash
equivalents approximates fair value.
INVESTMENTS
Investments, which consist of debt securities, commercial paper and U.S.
Treasury Notes, are reported at fair value, and are classified as
available-for-sale securities. The cost of securities sold is determined using
the specific identification method when computing realized gains and losses.
Fair value is determined using available market information.
At December 31, 1997, the contractual maturities of available-for-sale
investments ranged from thirty-six days to less than one and one-half years.
F-32
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVENTORY
Inventory consists primarily of sales and packaging materials, diskettes,
compact disks, hardware locks, and printed documentation. Inventory is carried
at the lower of cost or market determined on a first-in, first-out basis.
FIXED ASSETS
Fixed asset acquisitions are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
generally three to seven years. Amortization of leasehold improvements and
assets under capital leases is calculated using the straight-line method over
the shorter of the related lease term or economic life of the leased asset.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject OrCAD to concentrations of
credit risk consist principally of cash, cash equivalents, investments and
accounts receivable. Management believes the credit risk associated with cash,
cash equivalents and investments is minimal. OrCAD sells its products to
customers who are primarily designers and manufacturers of electronic
components. OrCAD's accounts receivable are derived primarily from customers
located in North America, Europe and Japan. Management believes that the risk of
credit loss is substantially reduced due to the diversity of its customers and
their dispersion across many geographic areas and segments of the electronics
industry.
REVENUE RECOGNITION
Revenue primarily includes revenue from software product shipments and
revenue from extended support agreements. OrCAD recognizes revenue from software
licenses after shipment of product and when no significant contractual
obligations remain outstanding. When OrCAD receives payment prior to shipment or
fulfillment of a significant obligation to the customer, such payments are
recorded as deferred revenue and recognized as revenue upon shipment or
fulfillment of such obligation. A portion of revenue from product sales is
deferred and recognized ratably over the maintenance period, generally three
months. Deferred revenue on extended support agreements that are sold separately
from product sales is recognized ratably over the contract period, generally one
year. Revenue from customer training, support and other services is recognized
as the services are performed.
On January 1, 1998, the Company adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition." The provisions of SOP 97-2 have been applied to
transactions entered into beginning January 1, 1998. SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. The
revenue allocated to software products is generally recognized upon the delivery
of the products. The revenue allocated to extended support agreements is
recognized ratably over the term of the maintenance agreement and revenue
allocated to service elements is recognized as the services are performed.
SOFTWARE DEVELOPMENT COSTS
Under Statement of Financial Accounting Standards No. 86 (SFAS 86), software
development costs are to be capitalized beginning when a product's technological
feasibility has been established and ending
F-33
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
when a product is made available for general release to customers. To date, the
establishment of technological feasibility of the Company's products has
occurred shortly before general release, and accordingly no costs have been
capitalized.
NEED FOR NEW PRODUCT DEVELOPMENT
A substantial portion of the Company's revenues each year are generated from
the development and rapid release to market of computer software products newly
introduced during the year. In the extremely competitive industry environment in
which the Company operates, such product generation, development and marketing
processes are uncertain and complex, requiring accurate prediction of market
trends and demand as well as successful management of various development risks
inherent in such products. Additionally, the Company's development strategy
relies on certain key suppliers' ability to deliver completed products and
component computer software products in time to meet critical development and
distribution schedules. In light of these dependencies, it is reasonably
possible that failure to successfully manage a significant product introduction
or failure of certain key suppliers to deliver as needed could have a severe
near-term impact on the Company's growth and results of operations.
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred. Advertising costs
aggregated $2,971, $2,696, and $2,075 for the years ended December 31, 1997,
1996, and 1995, respectively.
PURCHASED SOFTWARE TECHNOLOGY
OrCAD has acquired technologies in connection with certain business
combinations, asset purchases, and licensing agreements.
The cost of such purchased technology is amortized using the straight-line
method over its estimated useful life, generally three to five years.
Amortization expense for the years ended December 31, 1997, 1996 and 1995 was
$203, $92 and $77 respectively.
In 1995, the Company wrote-off purchased software with a cost of $1,037 when
it determined that it would use an alternative software design in its products.
FOREIGN CURRENCY
The local currency of the Company's Japanese subsidiaries is the functional
currency. Assets and liabilities of the Company's Japanese subsidiaries are
translated into U.S. dollars using exchange rates in effect at the translation
date, and revenue and expenses are translated into U.S. dollars using average
exchange rates. The effects of foreign currency translation adjustments are
included as a component of stockholders' equity. Gains or losses occurring on
transactions, which have been insignificant, are included in the consolidated
statements of operations as other income (expense).
GOODWILL AND INTANGIBLE ASSETS
The Company has recorded goodwill and intangible assets in connection with
its business combinations and certain asset acquisitions. Goodwill and
intangible assets are being amortized over their
F-34
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
estimated useful lives, ranging from three to ten years. Goodwill and intangible
asset amortization was $491, $452, and $79 for the years ended December 31,
1997, 1996 and 1995, respectively.
INCOME TAXES
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
NET INCOME PER SHARE
On January 1, 1997 the Company adopted SFAS No. 128 "Earnings Per Share".
Accordingly, "basic net income per share" and "diluted net income per share" for
the year ended December 31, 1997 and for all prior periods presented were
computed using the weighted average number of common shares outstanding during
each year, with diluted net income per share including the effect of potentially
dilutive common shares. The weighted average number of common shares outstanding
for basic net income per share computations for the years ended December 31,
1997, 1996 and 1995 were 9,164,272 8,617,871 and 4,011,612, respectively. For
diluted net income per share 280,997, 427,566 and 533,951 shares were added to
the weighted average number of common shares outstanding for 1997, 1996, and
1995, respectively, representing potential dilution for stock options
outstanding, calculated using the treasury stock method. Additionally, in 1995,
diluted net income per share included 2,307,397 shares of Series A preferred
stock which were automatically converted into the same number of shares of
common stock at the completion of the Company's initial public offering in March
1996. Basic and diluted net income per share for the year ended December 31,
1995, and prior years have been restated to reflect the adoption of the
Securities and Exchange Commission's Staff Accounting Bulletin No. 98.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term nature of these
instruments. The fair value of investments is based on current market values.
Fair value estimates are made at a specific point in time, based on relevant
market information about the financial instrument when available. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
USE OF ESTIMATES
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets, liabilities
and contingencies at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
F-35
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made in the accompanying consolidated
financial statements for 1996 and 1995 to conform with the 1997 presentation.
NOTE 2. ACQUISITIONS
In September 1998, OrCAD entered into an Agreement and Plan of
Reorganization (" the Reorganization") with Summit Design, Inc. ("Summit"), a
publicly held Delaware Corporation. Under the terms of the Reorganization, each
share of issued and outstanding common stock of OrCAD will be converted into the
right to receive 1.05 shares of common stock of Summit. In addition, each
outstanding option to purchase shares of OrCAD Common Stock will be assumed by
Summit. The Reorganization is expected to be accounted for as a pooling of
interests (unaudited).
In April 1998, OrCAD U.K. Ltd., a wholly-owned subsidiary of the Company
formed in March 1998, purchased certain assets and assumed certain liabilities
of ARS Microsystems ("ARS") for approximately $1 million. ARS was previously the
Company's value added reseller in the United Kingdom. The cost of the
acquisition is being allocated on the basis of the estimated fair value of the
assets acquired and the liabilities assumed (unaudited).
In October 1997, OrCAD entered into an Agreement and Plan of Merger (the
"Merger Agreement") with MicroSim Corporation ("MicroSim"), a privately held
California Corporation. On January 20, 1998 OCA Merger Corporation, a
wholly-owned subsidiary of OrCAD, was merged with and into MicroSim and all of
the issued and outstanding shares of MicroSim Common Stock and all of the
outstanding options and other rights to acquire MicroSim Common Stock were
converted into and exchanged for 2,427,632 shares of OrCAD Common Stock (the
"Merger"). The Merger was accounted for as a pooling of interests and
accordingly, the results of MicroSim have been included in the accompanying
consolidated financial statements for all periods presented.
F-36
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 2. ACQUISITIONS (CONTINUED)
The results of operations previously reported separately by OrCAD and
MicroSim and the combined amounts presented in the accompanying financial
statements are summarized below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUE:
OrCAD........................................................ $ 25,881 $ 20,907 $ 13,659
MicroSim..................................................... 18,114 16,127 14,658
--------- --------- ---------
Combined..................................................... $ 43,995 $ 37,034 $ 28,317
--------- --------- ---------
--------- --------- ---------
NET INCOME:
OrCAD........................................................ $ 1,597 $ 4,202 $ 315
MicroSim..................................................... 2,312 1,071 1,323
Adjustments for intercompany eliminations(2)................. (5) (7) (5)
--------- --------- ---------
Combined..................................................... $ 3,904 $ 5,266 $ 1,633
--------- --------- ---------
--------- --------- ---------
OTHER CHANGES IN STOCKHOLDERS' EQUITY:
MicroSim repurchases of common stock under stock purchase
agreements................................................. $ (251) $ (254) $ (373)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) The accounting policies of OrCAD and MicroSim were substantially the same
and both entities reported results of operations on a calendar year basis.
Therefore, there have been no adjustments required to conform the accounting
policies of the combined company.
(2) Intercompany transactions, reflecting a license agreement between MicroSim
and Massteck Ltd., a former wholly-owned subsidiary of OrCAD, during the
years presented and the resulting interest income and interest expense, are
eliminated under the line "Adjustments for intercompany eliminations".
In June 1997, the Company acquired certain technology and development
personnel from Q Point Technology for approximately $720. The cost of the
acquisition was allocated on the basis of the fair value of the assets acquired.
This allocation resulted in a charge for in-process research and development of
$433, purchased technology capitalization of $248, and goodwill of $39 at the
purchase date. The charge for in-process research and development resulted from
allocating a portion of the purchase price to Q Point's in-process product
development that had not reached technological feasibility. The Company is
amortizing the goodwill and purchased technology over a period of three years
and five years, respectively.
In April 1997, the Company acquired certain technology and sales personnel
from TEAM Corporation for approximately $1,900. The cost of the acquisition was
allocated on the basis of the fair value of the assets acquired. This allocation
resulted in a charge for in-process research and development of $1,800, and
goodwill of $126 at the purchase date. The charge for in-process research and
development resulted from allocating a portion of the acquisition cost to TEAM's
in-process product development that had not reached technological feasibility.
In addition, there are certain contingent amounts payable over the next three
years based on the achievement of specific revenue milestones.
F-37
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 2. ACQUISITIONS (CONTINUED)
In December 1995, the Company issued 426,468 shares of common stock in
exchange for all of the outstanding common stock of Intelligent Systems Japan
("ISJ"). The acquisition was accounted for as a purchase, and the financial
results of ISJ have been included in the accompanying consolidated financial
statements since the date of acquisition. The cost of the acquisition was
allocated on the basis of the estimated fair value of the assets acquired and
the liabilities assumed. Intangible assets of $2,685 and $300 represent the
estimated fair value of the customer list and goodwill acquired from ISJ.
In June 1995, the Company issued 510,031 shares of common stock and reserved
50,717 common shares for issuance upon exercise of vested common stock options
in exchange for all of the outstanding common and preferred stock and vested
stock options of Massteck. The acquisition was accounted for as a purchase, and
the financial results of Massteck have been included in the accompanying
consolidated financial statements since the date of acquisition. The cost of the
acquisition was allocated on the basis of the estimated fair value of the assets
acquired and liabilities assumed. This allocation resulted in an in-process
research and development charge of $971, because certain acquired technology had
not reached technological feasibility. The excess of the aggregate purchase
price over the fair value of net assets acquired of approximately $250 was
recognized as goodwill and is being amortized on a straight-line basis over
three years.
NOTE. 3 BALANCE SHEET COMPONENTS
OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets, net.................................... $ 845 $ 595
Prepaid expenses and other.................................. 2,503 1,200
--------- ---------
$ 3,348 $ 1,795
--------- ---------
--------- ---------
</TABLE>
FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Vehicles.................................................. $ 43 $ 48
Furniture and fixtures.................................... 1,678 936
Computer equipment........................................ 4,433 3,586
Leasehold improvements.................................... 469 95
Software.................................................. 802 688
--------- ---------
7,425 5,353
--------- ---------
--------- ---------
Less accumulated depreciation and amortization............ (4,065) (3,607)
--------- ---------
$ 3,360 $ 1,746
--------- ---------
--------- ---------
</TABLE>
F-38
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE. 3 BALANCE SHEET COMPONENTS (CONTINUED)
Depreciation and amortization expense was approximately $1,084, $945, and
$900 for the years ended December 31, 1997, 1996, and 1995, respectively.
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Accrued director and officer insurance...................... $ -- $ 227
Accrued sales expenses...................................... 593 264
Other....................................................... 1,277 953
--------- ---------
$ 1,870 $ 1,444
--------- ---------
--------- ---------
</TABLE>
NOTE 4. NOTE PAYABLE AND LINE OF CREDIT
On September 5, 1996, OrCAD entered into a Business Loan Agreement with a
commercial bank for a $3,000 line of credit to be used for operating needs. The
line of credit bears interest at the bank's prime rate plus .50%. The Agreement
is secured by all assets of OrCAD. There were no outstanding borrowings under
the agreement at December 31, 1997 or December 31, 1996.
NOTE 5. TAXES
In addition to OrCAD Japan, the Company incorporated its other Japanese
subsidiary (MicroSim Japan) in 1996 which was acquired from MicroSim. MicroSim
Japan was previously operated as a branch of the Company. Domestic and foreign
pre-tax income (loss) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic operations................................. $ 6,062 $ 5,955 $ 2,209
Foreign subsidiaries................................ (349) 9 (24)
Foreign branch...................................... -- 1,001 138
--------- --------- ---------
Total............................................... $ 5,713 $ 6,965 $ 2,323
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-39
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 5. TAXES (CONTINUED)
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 2,035 $ 590 $ 604
State................................................ 177 149 115
Foreign.............................................. 31 992 5
--------- --------- ---------
2,243 1,731 724
--------- --------- ---------
Deferred:
Federal.............................................. (378) (87) (31)
State................................................ (63) (9) (2)
Foreign.............................................. 7 64 (1)
--------- --------- ---------
(434) (32) (34)
--------- --------- ---------
Total................................................ $ 1,809 $ 1,699 $ 690
--------- --------- ---------
--------- --------- ---------
</TABLE>
The actual income tax expense for the years ended December 31, 1997, 1996
and 1995 differs from the expected tax expense computed by applying the U.S.
federal corporate income tax rate of 34% to net income before income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Expected income tax expense.......................................... $ 1,942 $ 2,368 $ 790
State income tax expense............................................. 241 316 136
Decrease in the valuation allowance for deferred tax assets.......... (239) (675) (321)
Benefit of research and experimentation tax credit................... (470) (199) (108)
Goodwill amortization and in-process costs attributable to the
Massteck acquisition............................................... 154 154 347
Differences between financial and tax reporting for common stock
option
exercises............................................................ 89 (646) (71)
Foreign tax rate differential........................................ 7 606 --
Foreign sales corporation benefit.................................... (163) (128) (32)
Other................................................................ 248 (97) (51)
--------- --------- ---------
Actual expense....................................................... $ 1,809 $ 1,699 $ 690
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-40
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 5. TAXES (CONTINUED)
The income tax effects of temporary differences and carryforwards which give
rise to significant portions of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and inventory, due to allowance for doubtful accounts
and reserve for obsolescence............................................ 282 317
Accrued expenses.......................................................... 344 506
Purchased technology, due to differences in amortization.................. -- 24
In-process research and development, due to amortization differences...... 804 --
Research and experimentation credit carryforwards......................... 583 648
Sales return allowances................................................... 91 40
Net operating loss carryforwards.......................................... 96 623
Other..................................................................... 367 261
--------- ---------
Total gross deferred tax assets........................................... 2,567 2,419
Less valuation allowance.................................................. (1,570) (1,809)
--------- ---------
Net deferred tax assets................................................... 997 610
Deferred tax liabilities:
Other..................................................................... 171 220
--------- ---------
Total gross deferred tax liabilities...................................... 171 220
--------- ---------
Net deferred tax assets................................................... $ 826 $ 390
--------- ---------
--------- ---------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 was
$2,805. The net change in the valuation allowance for the years ended December
31, 1997, 1996 and 1995 was a decrease of $239, $675, and $321, respectively. In
addition, the portion of the valuation allowance for deferred tax assets for
which subsequently recognized tax benefits were applied directly to contributed
capital was $435 and $223 at December 31, 1997 and 1996, respectively. These
amounts were attributable to differences between financial and tax reporting for
employee stock option exercises.
At December 31, 1997, the Company had unused research and experimentation
credits of $583, which expire in 2011 through 2012, and a foreign net operating
loss carryforward of $239 which expires in 2001.
NOTE 6. COMMITMENTS
OrCAD leases office space under various noncancelable operating lease
agreements. Lease expense was $969, $885 and $845 for the years ended December
31, 1997, 1996 and 1995, respectively.
F-41
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 6. COMMITMENTS (CONTINUED)
Future minimum lease payments under noncancelable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, OPERATING
- ----------------------------------------------------------------------------------- -----------
<S> <C>
1998............................................................................... $ 1,001
1999............................................................................... 1,004
2000............................................................................... 935
2001............................................................................... 682
2002............................................................................... 564
Thereafter......................................................................... 1,045
-----------
Total.............................................................................. $ 5,231
-----------
-----------
</TABLE>
The Company has entered into several license agreements that provide for
minimum and per copy royalty payments. Royalty expense for the years ended
December 31, 1997, 1996, and 1995 was $1,660, $840, and $904, respectively.
NOTE 7. FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
OrCAD's subsidiaries in Japan accounted for $5,609, $4,610 and $361 of total
revenue and had net losses of ($384), ($235) and ($27) for the years ended
December 31, 1997, 1996 and 1995, respectively. Identifiable assets of this
subsidiary were $1,572 and $1,550 at December 31, 1997 and 1996, respectively.
Revenue by geographical area is provided below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
United States.................................... $ 26,028 $ 19,188 $ 16,585
Canada........................................... 1,242 1,249 601
--------- --------- ---------
North America.................................... 27,270 20,437 17,186
Europe........................................... 6,915 6,617 5,790
Japan............................................ 7,473 7,928 3,534
Other international.............................. 2,337 2,052 1,807
--------- --------- ---------
$ 43,995 $ 37,034 $ 28,317
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 8. STOCKHOLDERS' EQUITY
COMMON STOCK
On March 1, 1996, OrCAD completed a public offering of 3,200,000 shares of
common stock which generated net proceeds of approximately $19,400 after
deducting applicable issuance costs and expenses. On April 4, 1996, OrCAD's
underwriters' exercised their over-allotment option resulting in the issuance of
an additional 382,299 shares of common stock which generated net proceeds of
approximately $3,900 after deducting applicable issuance costs and expenses.
F-42
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK
In connection with the completion of OrCAD's initial public offering in
March 1996, all of the outstanding Series A preferred stock was automatically
converted into 2,307,397 shares of OrCAD's common stock.
The Company is authorized to issue up to 2,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue Preferred Stock in one
or more series and to fix the number of shares constituting any such series, the
voting powers, designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption, redemption
price or prices, conversion and voting rights and liquidation preferences of the
shares constituting any series, without and further vote or action by the
stockholders of the Company.
RESERVED COMMON STOCK
At December 31, 1997, OrCAD had 2,896,364 shares of common stock reserved
for future issuance under all stock option plans.
NOTE 9. STOCK OPTION PLANS
1995 STOCK INCENTIVE PLAN
Under the 1995 Stock Incentive Plan, OrCAD may sell shares of common stock
and grant either incentive stock options or non-qualified stock options to
certain employees and consultants at the discretion of the Board of Directors.
OrCAD has reserved 2,000,000 shares of common stock which may be optioned and/or
sold under the 1995 Incentive Plan. The 1995 Incentive Plan provides that (i)
the exercise price of an incentive stock option must be no less than the fair
market value of OrCAD's common stock at the date of grant, (ii) the exercise
price of a non-qualified stock option must be no less than 85% of the fair
market value, and (iii) the exercise price to an optionee who possesses more
than 10% of the total combined voting power of all classes of stock must be no
less than 110% of the fair market value, all as determined by the Board of
Directors. The Board of Directors has the authority to set expiration dates no
longer than ten years from the date of grant (or five years for an optionee who
meets the 10% criteria), payment terms and other provisions for each grant.
Shares associated with unexercised options are generally canceled no more than
90 days after termination of employment and become available for grant under the
1995 Incentive Plan.
1995 STOCK OPTION PLAN
Under the 1995 Stock Option Plan, OrCAD may grant incentive stock options or
nonqualified stock options up to a maximum of 51,699 shares of common stock to
directors, officers, employees and consultants. Nonqualified stock options must
be granted at not less than 85% of the fair market value, and incentive stock
options must be granted at not less than the fair market value, at the date of
grant. The exercise price to an optionee who possesses more than 10% of the
total combined voting power of all classes of stock must be no less than 110% of
the fair market value at the date of grant. The Board of Directors has authority
to set expiration dates no longer than ten years from the date of grant (or five
years for an optionee who meets the 10% criteria), payment terms and other
provisions for each grant.
F-43
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 9. STOCK OPTION PLANS (CONTINUED)
1995 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
Under the 1995 Stock Option Plan for Nonemployee Directors, OrCAD may grant
non-qualified stock options up to a maximum of 500,000 shares of common stock.
The exercise price of options granted under the Plan may not be less than the
fair market value of common stock on the date of grant. All options granted
under the Plan will be non-qualified and expire ten years from the date of
grant. Shares that are associated with options that are forfeited or terminated
will again be available for grant.
1991 NON-QUALIFIED STOCK OPTION PLAN
Under the 1991 Non-Qualified Stock Option Plan, OrCAD may grant
non-qualified stock options up to a maximum of 962,238 shares of common stock.
Options may be granted at the Board of Directors' discretion at not less than
85% of the fair market value of the common stock at the date of such grant.
Options shall expire on the date specified by the Board of Directors but this
date shall in no event exceed ten years from the date of grant.
Stock option activity under the foregoing plans is summarized as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE
UNDER EXERCISE
OPTION PRICE
---------- -----------------
<S> <C> <C>
Outstanding at December 31, 1994................................ 619,188 $ .35
Granted......................................................... 276,217 2.87
Exercised....................................................... (199,202) .35
Canceled........................................................ (14,646) .35
----------
Outstanding at December 31, 1995................................ 681,557 1.36
----------
Granted......................................................... 128,427 11.70
Exercised....................................................... (194,828) .42
Canceled........................................................ (9,927) 1.94
----------
Outstanding at December 31, 1996................................ 605,229 3.86
----------
Granted......................................................... 525,756 8.74
Exercised....................................................... (99,657) .84
Canceled........................................................ (97,231) 9.66
----------
Outstanding at December 31, 1997................................ 934,097 $ 6.33
----------
----------
</TABLE>
The weighted-average fair value of options granted during 1997, 1996 and
1995 was $5.34, $6.78 and $1.08, respectively.
At December 31, 1997 OrCAD had four stock-based compensation plans, which
are described above and an employee stock purchase plan which is discussed in
note 10. OrCAD applies APB No. 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its fixed
stock option plans and its stock purchase plan. For SFAS No. 123 purposes, the
fair value of
F-44
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 9. STOCK OPTION PLANS (CONTINUED)
each option grant has been estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants and purchase rights in 1997, 1996 and 1995, respectively:
dividend yield of 0% for all years; expected volatility of 76%, 49% and 0%;
risk-free interest rate ranging from 5.3% to 5.8% in 1997; 5.3% to 6.4% in 1996
and from 5.3% to 6.7% in 1995 for all plans; and expected lives of five years
for all Plans except the 1995 Stock Option Plan and the 1996 Employee Stock
Purchase Plan, which are estimated at 2 years and .5 years, respectively. Had
compensation expense been determined consistent with SFAS No. 123, utilizing the
assumptions detailed above, OrCAD's net income and net income per share for the
years ended December 31, 1997, 1996 and 1995, would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income:
As reported...................................................... $ 3,904 $ 5,266 $ 1,633
Pro forma........................................................ $ 3,411 $ 4,836 $ 1,606
Basic net income per share:
As reported...................................................... $ 0.43 $ 0.61 $ 0.41
Pro Forma........................................................ $ 0.37 $ 0.56 $ 0.40
Diluted net income per share
As reported...................................................... $ 0.41 $ 0.58 $ 0.24
Pro forma........................................................ $ 0.36 $ 0.53 $ 0.23
</TABLE>
The resulting pro forma compensation costs may not be representative of that
expected in future years.
The following table summarizes information about fixed stock options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------- ----------------------------
NUMBER NUMBER
OUTSTANDING EXERCISABLE
AT WEIGHTED-AVERAGE AT
RANGE OF DECEMBER REMAINING WEIGHTED-AVERAGE DECEMBER WEIGHTED-AVERAGE
EXERCISE 31, CONTRACTUAL EXERCISE 31, EXERCISE
PRICE 1997 LIFE PRICE 1997 PRICE
- ----------- ----------- ------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ .35 204,692 5.7 years $ .35 169,010 $ .35
.88 1,077 7.7 years .88 496 .88
3.50 129,244 7.8 years 3.50 66,977 3.50
7.25- 9.00 469,474 8.4 years 8.36 94,162 8.29
9.13-12.00 99,910 8.8 years 10.21 6,013 9.95
12.13-15.50 29,700 8.9 years 8.90 20,370 15.46
- ----------- ----------- ------------- ------ ----------- ------
$ .35-15.50 934,097 7.8 years $ 6.33 357,028 $ 4.06
</TABLE>
F-45
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 10. EMPLOYEE BENEFIT PLANS
401(K) PLAN
OrCAD has a 401(k) retirement savings plan covering substantially all
employees, excluding employees of OrCAD Japan. Contributions to the plan were
matched at the discretion of the Board of Directors. The matching contributions
amounted to $199, $151 and $41 for 1997, 1996 and 1995, respectively.
1996 EMPLOYEE STOCK PURCHASE PLAN
Under the 1996 Employee Stock Purchase Plan, which became effective May 1,
1996, eligible employees of OrCAD are permitted to purchase common stock through
payroll deductions at a price equal to 85% of the fair market value of the
common stock at the beginning of each offering period or the end of each
offering period, whichever is lower. No employee is entitled to purchase shares
of common stock having a value (determined on the first day of the offering
period) of more than $25,000 in any calendar year. At December 31, 1997, 159,466
of the 200,000 shares of OrCAD common stock originally reserved for issuance
under the plan remained available. There were 29,848 and 10,686 shares issued
under the plan in 1997 and 1996, respectively.
NOTE 11. CONTINGENCIES
From time to time, OrCAD becomes involved in ordinary, routine or regulatory
legal proceedings incidental to the business of OrCAD. OrCAD is not presently a
party to any litigation, the outcome of which would have a material adverse
effect on OrCAD's business, financial condition, liquidity or results of
operations.
YEAR 2000
The Company is aware of the potential inability of computer programs to
adequately process date information after December 31, 1999 (the year 2000
issue). The Company has anticipated problems surrounding the year 2000 issue and
modified its product offerings as necessary to make them year 2000 compliant.
The year 2000 issue with regard to the Company's product offering is not
expected to have any material adverse effect.
In addition, the Company will be implementing a program to review the year
2000 compliance status of computer software programs licensed from third parties
and used in its internal business processes to obtain appropriate assurances of
year 2000 compliance from manufacturers of these products. The Company believes
that it will be able to complete its year 2000 compliance review and make any
necessary modifications prior to the end of 1999. The Company further believes
that such a review and modification, if necessary, will not require the Company
to incur any additional material expense. However, the compliance of systems
acquired from third parties is dependent on factors outside the Company's
control. If key systems, or a significant number of systems fail as a result of
year 2000 problems, the Company could incur substantial expense and experience a
disruption of business operations, which would potentially have a material
adverse effect on the Company business.
Furthermore, the purchasing patterns of customers and potential customers
may be affected by year 2000 issues as companies may be required to devote
significant resources to correct or patch their current software systems for
year 2000 compliance. These expenditures may result in reduced funds available
to purchase the Company's software products which could have a materially
adverse effect on the Company's
F-46
<PAGE>
ORCAD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
NOTE 11. CONTINGENCIES (CONTINUED)
financial condition, liquidity and results of operations. There can be no
assurance that there will not be any year 2000 related operating problems or
material expenses that will occur with the Company's computer systems or in
connection with the interface with the Company's major vendors or supplies.
NOTE 12. SUBSEQUENT EVENTS
On September 20, 1998, the Company entered into a definitive agreement
(Agreement) to merge with Summit Design, Inc. (Summit), a publicly-traded
software company headquartered in Beaverton, Oregon, under which the Company
will be acquired by Summit. Each share of OrCAD Common Stock, including shares
reserved for issuance upon exercise of options to acquire shares of OrCAD Common
Stock which will be assumed by Summit, will be exchanged for 1.05 shares of
Summit Common Stock upon closing of the transaction. Summit will account for
this acquisition as a pooling-of-interests.
In February 1998, the Company entered into a noncancelable operating lease
for a new facility. The Company intends to move into the new facility in the
summer of 1999. Future minimum lease payments under such lease are as follows
(in thousands):
<TABLE>
<S> <C>
Year Ending December 31,
1998............................................................. $ --
1999............................................................. 768
2000............................................................. 1,317
2001............................................................. 1,317
2002............................................................. 1,317
Thereafter....................................................... 9,837
---------
Total............................................................ $ 14,556
---------
---------
</TABLE>
F-47
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SUMMIT DESIGN, INC.
HOOD ACQUISITION CORP.
AND
ORCAD, INC.
DATED AS OF SEPTEMBER 20, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
<CAPTION>
ARTICLE I
<S> <C> <C>
THE MERGER............................................................................. 1
1.1 The Merger............................................................................. 1
1.2 Effective Time; Closing................................................................ 1
1.3 Effect of the Merger................................................................... 2
1.4 Certificate of Incorporation; Bylaws................................................... 2
1.5 Directors and Officers................................................................. 2
1.6 Effect on Capital Stock................................................................ 2
1.7 Surrender of Certificates.............................................................. 3
1.8 No Further Ownership Rights in OrCAD Common Stock...................................... 4
1.9 Lost, Stolen or Destroyed Certificates................................................. 4
1.10 Tax and Accounting Consequences........................................................ 5
1.11 Taking of Necessary Action; Further Action............................................. 5
<CAPTION>
ARTICLE II
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES OF OrCAD................................................ 5
2.1 Organization of OrCAD.................................................................. 5
2.2 OrCAD Capital Structure................................................................ 6
2.3 Obligations With Respect to Capital Stock.............................................. 6
2.4 Authority.............................................................................. 6
2.5 SEC Filings; OrCAD Financial Statements................................................ 7
2.6 Absence of Certain Changes or Events................................................... 8
2.7 Tax and Other Returns and Reports...................................................... 8
2.8 Title to Properties; Absence of Liens and Encumbrances................................. 10
2.9 Intellectual Property.................................................................. 10
2.10 Compliance; Permits; Restrictions...................................................... 12
2.11 Litigation............................................................................. 12
2.12 Brokers' and Finders' Fees............................................................. 13
2.13 Employee Matters and Benefit Plans..................................................... 13
2.14 OrCAD Employees; Labor Matters......................................................... 15
2.15 Environmental Matters.................................................................. 16
2.16 Agreements, Contracts and Commitments.................................................. 16
2.17 Pooling of Interests................................................................... 17
2.18 Change of Control Payments............................................................. 17
2.19 Statements; Proxy Statement/Prospectus................................................. 18
2.20 Board Approval......................................................................... 18
2.21 Fairness Opinion....................................................................... 18
2.22 Section 203 of the Delaware Law Not Applicable......................................... 18
<CAPTION>
ARTICLE III
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES OF SUMMIT AND MERGER SUB................................ 18
3.1 Organization of Summit................................................................. 18
3.2 Summit Capital Structure............................................................... 19
3.3 Obligations With Respect to Capital Stock.............................................. 20
3.4 Authority.............................................................................. 20
3.5 SEC Filings; Summit Financial Statements............................................... 21
3.6 Absence of Certain Changes or Events................................................... 22
3.7 Tax and Other Returns and Reports...................................................... 22
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
3.8 Title to Properties; Absence of Liens and Encumbrances................................. 23
3.9 Intellectual Property.................................................................. 23
3.10 Compliance; Permits; Restrictions...................................................... 25
3.11 Litigation............................................................................. 25
3.12 Brokers' and Finders' Fees............................................................. 25
3.13 Employee Matters and Benefit Plans..................................................... 26
3.14 Summit Employees; Labor Matters........................................................ 28
3.15 Environmental Matters.................................................................. 28
3.16 Agreements, Contracts and Commitments.................................................. 29
3.17 Pooling of Interests................................................................... 30
3.18 Change of Control Payments............................................................. 30
3.19 Statements; Proxy Statement/Prospectus................................................. 30
3.20 Board Approval......................................................................... 30
3.21 Fairness Opinion....................................................................... 31
3.22 Section 203 of the Delaware Law Not Applicable......................................... 31
<CAPTION>
ARTICLE IV
<S> <C> <C>
CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................... 31
4.1 Conduct of Business.................................................................... 31
<CAPTION>
ARTICLE V
<S> <C> <C>
ADDITIONAL AGREEMENTS.................................................................. 33
5.1 Registration........................................................................... 33
5.2 Meeting of Stockholders................................................................ 34
5.3 Confidentiality; Access to Information................................................. 34
5.4 No Solicitation By OrCAD............................................................... 35
5.5 No Solicitation By Summit.............................................................. 36
5.6 Public Disclosure...................................................................... 38
5.7 Legal Requirements..................................................................... 38
5.8 Third Party Consents................................................................... 38
5.9 Notification of Certain Matters........................................................ 38
5.10 Best Efforts and Further Assurances.................................................... 38
5.11 Stock Options.......................................................................... 39
5.12 Form S-8............................................................................... 39
5.13 Nasdaq Listing......................................................................... 39
5.14 OrCAD Affiliate Agreement.............................................................. 40
5.15 Summit Affiliate Agreement............................................................. 40
5.16 Comfort Letter......................................................................... 40
5.17 Pooling................................................................................ 40
5.18 Continue Nasdaq Quotation.............................................................. 40
5.19 OrCAD 401(k) Plan...................................................................... 40
<CAPTION>
ARTICLE VI
<S> <C> <C>
CONDITIONS TO THE MERGER............................................................... 40
6.1 Conditions to Obligations of Each Party to Effect the Merger........................... 40
6.2 Additional Conditions to Obligations of OrCAD.......................................... 41
6.3 Additional Conditions to the Obligations of Summit and Merger Sub...................... 42
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
-----
ARTICLE VII
<S> <C> <C>
TERMINATION, AMENDMENT AND WAIVER...................................................... 43
7.1 Termination............................................................................ 43
7.2 Notice of Termination; Effect of Termination........................................... 44
7.3 Fees and Expenses...................................................................... 45
7.4 Amendment.............................................................................. 46
7.5 Extension; Waiver...................................................................... 46
<CAPTION>
ARTICLE VIII
<S> <C> <C>
GENERAL PROVISIONS..................................................................... 47
8.1 Non-Survival of Representations and Warranties......................................... 47
8.2 Notices................................................................................ 47
8.3 Interpretation; Knowledge.............................................................. 48
8.4 Counterparts........................................................................... 48
8.5 Entire Agreement; Third Party Beneficiaries............................................ 48
8.6 Severability........................................................................... 48
8.7 Other Remedies; Specific Performance................................................... 48
8.8 Governing Law.......................................................................... 48
8.9 Rules of Construction.................................................................. 49
8.10 Assignment............................................................................. 49
8.11 Waiver of Jury Trial................................................................... 49
</TABLE>
iii
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit A Form of OrCAD Voting Agreement
<S> <C>
Exhibit B Form of Summit Voting Agreement
Exhibit C Form of OrCAD Affiliate Agreement
Exhibit D Form of Summit Affiliate Agreement
Exhibit E Board Composition
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
September 20, 1998, by and among Summit Design, Inc., a Delaware corporation
("SUMMIT"), Hood Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Summit ("MERGER SUB"), and OrCAD, Inc. a Delaware corporation
("ORCAD").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("DELAWARE LAW"), Summit
and OrCAD intend to enter into a business combination transaction.
B. The Board of Directors of OrCAD (the "ORCAD BOARD") (i) has determined
that the Merger (as defined in Section 1.1) is consistent with and in
furtherance of the long-term business strategy of OrCAD and in the best
interests of OrCAD and its stockholders, (ii) has approved this Agreement, the
Merger and the other transactions contemplated by this Agreement and (iii) has
determined to recommend that the stockholders of OrCAD adopt and approve this
Agreement and approve the Merger.
C. The Board of Directors of Summit (the "SUMMIT BOARD") (i) has determined
that the Merger is consistent with and in furtherance of the long-term business
strategy of Summit and in the best interests of Summit and its stockholders,
(ii) has approved this Agreement, the Merger and the other transactions
contemplated by this Agreement and (iii) has determined to recommend that the
stockholders of Summit approve the issuance of shares of Summit Common Stock (as
defined in Section 1.6(a)) to the stockholders of OrCAD pursuant to the terms of
the Merger.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to OrCAD's and Summit's willingness to enter into this Agreement,
certain affiliates of OrCAD and Summit are entering into Voting Agreements in
substantially the form attached hereto as EXHIBIT A and EXHIBIT B, respectively.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
F. The parties intend for the Merger to qualify for accounting treatment as
a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
OrCAD (the "MERGER"), the separate corporate existence of Merger Sub shall cease
and OrCAD shall continue as the surviving corporation. OrCAD as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING CORPORATION."
1.2 EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing (or such later time as may be agreed in
writing by the parties and specified in the Certificate of Merger) being the
"EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as herein
defined). Unless the context otherwise requires, the term "AGREEMENT" as used
herein refers collectively to this Agreement and Plan of Reorganization and the
Certificate of Merger. The
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<PAGE>
closing of the Merger (the "CLOSING") shall take place at the offices of Ater
Wynne LLP, at a time and date to be specified by the parties, which shall be no
later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "CLOSING DATE").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of OrCAD and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of OrCAD and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
PROVIDED, HOWEVER, that at the Effective Time the Certificate of
Incorporation of the Surviving Corporation shall be amended so that the name
of the Surviving Corporation shall be OrCAD, Inc.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended as provided by Delaware Law and such
Bylaws.
1.5 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, OrCAD or the holders of
any of the following securities:
(a) CONVERSION OF ORCAD COMMON STOCK. Each share of Common Stock,
$0.01 par value per share, of OrCAD (the "ORCAD COMMON STOCK") issued and
outstanding immediately prior to the Effective Time, (other than any shares
of OrCAD Common Stock to be canceled pursuant to Section 1.6(b)) will be
canceled and extinguished and automatically converted (subject to Sections
1.6(e) and (f)) into the right to receive 1.05 (the "EXCHANGE RATIO") share
of Common Stock, par value $0.01 per share, of Summit (the "SUMMIT COMMON
STOCK") upon surrender of the certificate representing such share of OrCAD
Common Stock in the manner provided in Section 1.7 (or in the case of a
lost, stolen or destroyed certificate, upon delivery of an affidavit (and
bond, if required) in the manner provided in Section 1.9).
(b) CANCELLATION OF ORCAD-OWNED STOCK. Each share of OrCAD Common
Stock held by OrCAD or owned by Merger Sub, Summit or any direct or indirect
wholly-owned subsidiary of OrCAD or of Summit immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) STOCK OPTIONS; EMPLOYEE STOCK PURCHASE PLAN. At the Effective
Time: (x) all options to purchase OrCAD Common Stock then outstanding under
OrCAD's 1991 Non-Qualified Stock Option Plan (the "1991 PLAN"), OrCAD's 1995
Stock Incentive Plan (the "1995 INCENTIVE PLAN"), OrCAD's 1995 Stock Option
Plan (the "1995 PLAN") and OrCAD's 1995 Stock Option Plan for Non-Employee
Directors (the "DIRECTORS' PLAN" and collectively, the "ORCAD STOCK OPTION
PLANS") shall be assumed by Summit in accordance with Section 5.11 hereof;
and (y) rights outstanding under OrCAD's 1996 Employee Stock Purchase Plan
(the "ORCAD ESPP") shall be treated as set forth in Section 5.11.
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(d) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, $0.01 par
value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock,
$0.01 par value per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Summit Common Stock or OrCAD Common Stock),
reorganization, recapitalization, reclassification or other like change with
respect to Summit Common Stock or OrCAD Common Stock occurring on or after
the date hereof and prior to the Effective Time.
(f) FRACTIONAL SHARES. No fractional shares of Summit Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of OrCAD Common Stock who would otherwise be entitled to a fraction
of a share of Summit Common Stock (after aggregating all fractional shares
of Summit Common Stock that otherwise would be received by such holder)
shall receive from Summit an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, MULTIPLIED BY (ii) the
average closing price of one share of Summit Common Stock for the ten (10)
most recent days that Summit Common Stock has traded ending on and including
the trading day immediately prior to the Effective Time, as reported on the
Nasdaq National Market.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Summit shall select an institution reasonably
acceptable to OrCAD to act as the exchange agent (the "EXCHANGE AGENT") in
the Merger.
(b) SUMMIT TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Summit shall make available to the Exchange Agent for exchange in accordance
with this Article I, the shares of Summit Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of OrCAD Common Stock, and
cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(f) and any dividends or distributions to which
holders of shares of OrCAD Common Stock may be entitled pursuant to Section
1.7(d).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, Summit
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
OrCAD Common Stock whose shares were converted into the right to receive
shares of Summit Common Stock pursuant to Section 1.6, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.7(d), (i) a letter of transmittal in
customary form (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall contain such other
provisions as Summit may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Summit Common Stock, cash in lieu of any fractional
shares pursuant to Section 1.6(f) and any dividends or other distributions
pursuant to Section 1.7(d). Upon surrender of Certificates for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed
by Summit, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor
certificates representing the number of whole shares of Summit Common Stock
into which their shares of OrCAD Common Stock were converted at the
Effective Time, payment in lieu of fractional shares which such holders have
the right to receive pursuant to Section 1.6(f) and any dividends or
distributions payable pursuant to Section 1.7(d), and the Certificates so
surrendered shall forthwith be canceled. Until so
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surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.7(d) as to
the payment of dividends, to evidence the ownership of the number of full
shares of Summit Common Stock into which such shares of OrCAD Common Stock
may be so converted and the right to receive an amount in cash in lieu of
the issuance of any fractional shares in accordance with Section 1.6(f) and
any dividends or distributions payable pursuant to Section 1.7(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Summit Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Summit Common Stock represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Subject to
applicable law, following surrender of any such Certificates, the Exchange
Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Summit Common Stock issued in
exchange therefor along with payment in lieu of fractional shares pursuant
to Section 1.6(f) hereof and the amount of any such dividends or other
distributions with a record date after the Effective Time payable with
respect to such whole shares of Summit Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates for shares of Summit
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Summit or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates for shares of Summit Common Stock in any name other
than that of the registered holder of the Certificates surrendered, or
established to the satisfaction of Summit or any agent designated by it that
such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Summit, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Summit Common
Stock or OrCAD Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.8 NO FURTHER OWNERSHIP RIGHTS IN ORCAD COMMON STOCK. All shares of
Summit Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of OrCAD Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of OrCAD Common
Stock that were outstanding immediately prior to the Effective Time. If after
the Effective Time Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Summit Common Stock
into which the shares of OrCAD Common Stock represented by such Certificates
were converted pursuant to Section 1.6, cash for fractional shares, if any, as
may be required pursuant to Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d); PROVIDED, HOWEVER, that Summit may, in its
discretion and as a condition precedent to the issuance of such certificates
representing Summit Common Stock, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Summit, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
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1.10 TAX AND ACCOUNTING CONSEQUENCES.
(a) The parties hereto intend that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code. The parties
hereto adopt this Agreement as a "plan of reorganization" within the meaning
of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations.
(b) The parties hereto intend that the Merger shall qualify for
accounting treatment as a pooling of interests.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of OrCAD and Merger Sub, the officers and directors of OrCAD and
Merger Sub will take all such lawful and necessary action. Summit shall cause
Merger Sub to perform all of its obligations relating to this Agreement and the
transactions contemplated thereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ORCAD
OrCAD represents and warrants to Summit and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure schedule and
referencing a specific representation supplied by OrCAD to Summit dated as of
the date hereof and certified by a duly authorized officer of OrCAD (the "ORCAD
SCHEDULES"), as follows:
2.1 ORGANIZATION OF ORCAD.
(a) OrCAD and each of its subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to
own, lease and operate its assets and property and to carry on its business
as now being conducted; and is duly qualified or licensed to do business and
is in good standing (with respect to jurisdictions which recognize such
concept) in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to be so
qualified would not have a Material Adverse Effect (as defined in Section
2.1(d)) on OrCAD.
(b) OrCAD has delivered to Summit a true and complete list of all of
OrCAD's subsidiaries as of the date of this Agreement, indicating the
jurisdiction of incorporation of each subsidiary and OrCAD's equity interest
therein.
(c) OrCAD has delivered or made available to Summit a true and correct
copy of the Certificate of Incorporation and Bylaws of OrCAD and similar
governing instruments of each of its subsidiaries, each as amended to date,
and each such instrument is in full force and effect. Neither OrCAD nor any
of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or similar governing instruments.
(d) When used in connection with OrCAD, the term "MATERIAL ADVERSE
EFFECT" means, for purposes of this Agreement, any change, event or effect
that is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of OrCAD and its
subsidiaries taken as a whole (except for those changes, events and effects
that are directly caused by (i) conditions affecting the United States
economy as a whole which do not affect OrCAD in a disproportionate manner,
(ii) conditions affecting the industry in which OrCAD competes as a whole
which do not affect OrCAD in a disproportionate manner, or (iii) delays in
customer orders resulting from announcement and pendency of the Merger).
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2.2 ORCAD CAPITAL STRUCTURE. The authorized capital stock of OrCAD
consists of 16,000,000 shares of Common Stock, $0.01 par value per share, of
which there were 9,343,073 shares issued and outstanding as of the date hereof
and 2,000,000 of Preferred Stock, $0.01 par value per share, of which no shares
are issued or outstanding. All outstanding shares of OrCAD Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of OrCAD or any agreement or document to which OrCAD is a party or by which it
is bound. As of the date hereof, OrCAD had reserved an aggregate of 1,556,014
shares of OrCAD Common Stock, net of exercises, for issuance to employees,
consultants and non-employee directors pursuant to the OrCAD Stock Option Plans.
As of the date hereof, there were options outstanding to purchase an aggregate
of 1,259,852 shares of OrCAD Common Stock, issued to employees, consultants and
non-employee directors pursuant to the OrCAD Stock Option Plans. All shares of
OrCAD Common Stock subject to issuance as aforesaid, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
would be duly authorized, validly issued, fully paid and nonassessable. The
OrCAD Schedules list for each person who held options to acquire shares of OrCAD
Common Stock as of the date hereof, the name of the holder of such option, the
exercise price of such option, the number of shares as to which such option had
vested at such date, the vesting schedule for such option and whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement, and indicates the extent of acceleration, if
any.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 2.2 or the OrCAD Schedules, there are no equity securities, partnership
interests or similar ownership interests of any class of OrCAD, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for securities OrCAD owns, directly
or indirectly through one or more subsidiaries, as of the date of this
Agreement, there are no equity securities, partnership interests or similar
ownership interests of any class of any subsidiary of OrCAD, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except as set forth in Section 2.2 or the OrCAD
Schedules, there are no options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which OrCAD or any of its
subsidiaries is a party or by which it is bound obligating OrCAD or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of OrCAD or any of its subsidiaries or obligating
OrCAD or any of its subsidiaries to grant, extend, accelerate the vesting of or
enter into any such option, warrant, equity security, call, right, commitment or
agreement. As of the date of this Agreement, except as contemplated by this
Agreement, there are no registration rights and there are no voting trusts,
proxies or other agreements or understandings to which OrCAD is a party or by
which it is bound with respect to any equity security of any class of OrCAD or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries. With respect to the
transactions contemplated by this Agreement, stockholders of OrCAD are not
entitled to appraisal rights under applicable state law.
2.4 AUTHORITY.
(a) OrCAD has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of OrCAD, subject only to the approval and
adoption of this Agreement and the approval of the Merger by OrCAD's
stockholders and the filing of the Certificate of Merger pursuant to
Delaware Law. A vote of the holders of at least sixty-seven percent (67%) of
the outstanding shares of the OrCAD Common Stock is required for OrCAD's
stockholders to approve and adopt this Agreement and approve the Merger.
This Agreement has been duly executed and
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delivered by OrCAD and, assuming the due authorization, execution and
delivery by Summit and, if applicable, Merger Sub, constitutes the valid and
binding obligation of OrCAD, enforceable against OrCAD in accordance with
its terms, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity. The execution and delivery of
this Agreement does not, and the performance of this Agreement will not, (i)
conflict with or violate the Certificate of Incorporation or Bylaws of OrCAD
or the equivalent organizational documents of any of its subsidiaries, (ii)
subject to obtaining the approval and adoption of this Agreement and the
approval of the Merger by OrCAD's stockholders as contemplated in Section
5.2 and compliance with the requirements set forth in Section 2.4(b),
conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to OrCAD or any of its subsidiaries or by which OrCAD or
any of its subsidiaries or any of their respective properties is bound or
affected, or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become
a material default) under, or impair OrCAD's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material lien or encumbrance on any of the material properties
or assets of OrCAD or any of its subsidiaries pursuant to, any material
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which OrCAD or any of
its subsidiaries is a party or by which OrCAD or any of its subsidiaries or
its or any of their respective properties are bound or affected. The OrCAD
Schedules list all consents, waivers and approvals under any of OrCAD's or
any of its subsidiaries' agreements, contracts, licenses or leases required
to be obtained in connection with the consummation of the transactions
contemplated hereby, which, if individually or in the aggregate not
obtained, would result in a material loss of benefits or any material
liability to OrCAD, OrCAD' subsidiaries, Summit or the Surviving Corporation
as a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required to be obtained or made by OrCAD in
connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) the filing
of the Proxy Statement (as defined in Section 2.19) with the Securities and
Exchange Commission ("SEC") in accordance with the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal, foreign and state securities (or related)
laws and the securities or antitrust laws of any foreign country, and (iv)
such other consents, authorizations, filings, approvals and registrations
which if not obtained or made would not be material to OrCAD or Summit or
have a material adverse effect on the ability of the parties to consummate
the Merger.
2.5 SEC FILINGS; ORCAD FINANCIAL STATEMENTS.
(a) OrCAD has filed all forms, reports and documents required to be
filed by OrCAD with the SEC since March 1, 1996 and has made available to
Summit such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that OrCAD may
file subsequent to the date hereof) are referred to herein as the "ORCAD SEC
REPORTS." As of their respective dates, the OrCAD SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act of 1933,
as amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such OrCAD
SEC Reports and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not
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misleading. None of OrCAD's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the OrCAD SEC Reports (the
"ORCAD FINANCIALS"), including any OrCAD SEC Reports filed after the date
hereof until the Closing, (x) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(y) was prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on
Form 10-QSB or Form 10-Q, as applicable, under the Exchange Act) and (z)
fairly presented the consolidated financial position of OrCAD and its
subsidiaries as at the respective dates thereof and the consolidated results
of OrCAD's operations and cash flows for the periods indicated, except that
the unaudited interim financial statements may not contain footnotes and
were or are subject to normal and recurring year-end adjustments. The
balance sheet of OrCAD contained in OrCAD SEC Reports as of December 31,
1997 is hereinafter referred to as the "ORCAD BALANCE SHEET." Except as
disclosed in the OrCAD Financials or in the consolidated unaudited balance
sheet of OrCAD as of June 30, 1998 previously delivered to Summit, since the
date of the OrCAD Balance Sheet neither OrCAD nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of OrCAD and its subsidiaries taken as a
whole, except for (i) liabilities identified in the OrCAD Balance Sheet, or
(ii) liabilities incurred since the date of the OrCAD Balance Sheet in the
ordinary course of business consistent with past practices.
(c) OrCAD has heretofore furnished to Summit a complete and correct copy
of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by OrCAD with the SEC pursuant
to the Securities Act or the Exchange Act.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the OrCAD
Balance Sheet and through the date of this Agreement there has not been: (i) any
Material Adverse Effect on OrCAD, (ii) any material change by OrCAD in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (iii) any material revaluation by OrCAD of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.
2.7 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX" or,
collectively, "TAXES", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed
with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Section 2.7 of the
OrCAD Schedules:
(i) OrCAD and each of its subsidiaries have prepared and filed all
required federal, state, local and foreign returns, estimates,
information statements and reports ("RETURNS") relating to any and all
Taxes concerning or attributable to OrCAD and each of its subsidiaries or
their operations and such Returns are true and correct in all material
respects and have been completed in accordance with applicable law.
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(ii) OrCAD and each of its subsidiaries (A) have paid or accrued all
Taxes it is required to pay or accrue and (B) have withheld with respect
to its employees all federal and state income taxes, FICA, FUTA and other
Taxes required to be withheld.
(iii) Neither OrCAD nor any of its subsidiaries has been delinquent
in the payment of any Tax nor is there any Tax deficiency outstanding,
proposed or assessed against OrCAD or any of its subsidiaries, nor has
OrCAD or any of its subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection
of any Tax.
(iv) No audit or other examination of any Return of OrCAD or any of
its subsidiaries is presently in progress, nor has OrCAD or any of its
subsidiaries been notified of any request for such an audit or other
examination.
(v) Neither OrCAD nor any of its subsidiaries has any material
liability for unpaid federal, state, local or foreign Taxes which has not
been accrued or reserved against in accordance with GAAP on the OrCAD
Balance Sheet or accrued in accordance with GAAP in the ordinary course
of business since the date of the OrCAD Balance Sheet, whether asserted
or unasserted, contingent or otherwise, and neither OrCAD nor any of its
subsidiaries has knowledge of any basis for the assertion of any such
liability attributable to the assets or operations of OrCAD or any of its
subsidiaries.
(vi) OrCAD has provided to Summit copies of all federal and state
income and all state sales and use Tax Returns for all periods since the
date of OrCAD's incorporation, except those as to which applicable
statues of limitations have expired and no tolling of the statute of
limitations has been executed.
(vii) There are no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS") on the assets of
OrCAD or any of its subsidiaries relating to or attributable to Taxes.
(viii) Neither OrCAD nor any of its subsidiaries has knowledge of any
basis for the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien on the assets of
OrCAD or any of its subsidiaries.
(ix) None of OrCAD's or any of its subsidiaries' assets are treated
as "tax-exempt use property" within the meaning of Section 168(h) of the
Code.
(x) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any
employee or former employee of OrCAD or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of
the Code.
(xi) Neither OrCAD nor any of its subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by OrCAD or any of
its subsidiaries.
(xii) Neither OrCAD nor any of its subsidiaries is a party to a tax
sharing or allocation agreement nor does OrCAD nor any of its
subsidiaries owe any amount under any such agreement.
(xiii) Neither OrCAD nor any of its subsidiaries has been at any time,
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
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2.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The OrCAD Schedules list the real property owned by OrCAD as of the
date of this Agreement. The OrCAD Schedules list all real property leases to
which OrCAD is a party as of the date of this Agreement and each amendment
thereto that is in effect as of the date of this Agreement. All such current
leases are in full force and effect, are valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default) that would give rise to a
material claim.
(b) OrCAD has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
OrCAD Financials and except for liens for taxes not yet due and payable and
such Liens or other imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
2.9 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights therein: (i) all United States, international and foreign patents
and applications (including provisional applications); (ii) all
inventions (whether patentable or not), invention disclosures, trade
secrets, proprietary information, know how, technology, technical data
and customer lists, and all documentation relating to any of the
foregoing and all improvements thereto; (iii) all copyrights, copyright
registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) all industrial designs
and any registrations and applications therefor throughout the world that
have not been withdrawn; (v) all trade names, logos, common law
trademarks and service marks, trademark and service mark registrations
and applications therefor throughout the world; (vi) all databases and
data collections and all rights therein throughout the world; and (vii)
any similar or equivalent rights to any of the foregoing anywhere in the
world.
"ORCAD INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, OrCAD or any of its
subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications) that have not been withdrawn; (ii) registered trademarks,
applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks that have not been
withdrawn; (iii) registered copyrights and applications for copyright
registration; and (iv) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other
document issued, filed with, or recorded by any state, government or
other public legal authority.
(a) Section 2.9 of the OrCAD Schedules lists all of the Registered
Intellectual Property owned by, or filed in the name of, OrCAD or any of its
subsidiaries (the "ORCAD REGISTERED INTELLECTUAL PROPERTY") and all patent,
copyright, trademark or industrial design registrations or applications that
have been withdrawn since January 1, 1997.
(b) Section 2.9 of the OrCAD Schedules lists all proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office ("PTO") or equivalent authority anywhere in the world) related to any
OrCAD Intellectual Property.
(c) OrCAD (or its subsidiaries, as applicable) has complied in all
material respects with all applicable disclosure requirements, and has not
committed any fraudulent act, in the application for and maintenance of any
patent, trademark or copyright of OrCAD.
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(d) Other than restrictions imposed by laws of general applicability or
limitations on use inherent in the content of the registrations themselves,
no OrCAD Intellectual Property or product or service of OrCAD or its
subsidiaries is subject to any proceeding or outstanding decree, order,
judgment, agreement or stipulation restricting in any manner the use,
transfer, or licensing thereof by OrCAD or its subsidiaries, or which may
affect the validity, use or enforceability of such OrCAD Intellectual
Property.
(e) Each item of OrCAD Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have
been paid and all necessary documents and certificates in connection with
such Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property.
(f) Except as set forth in Section 2.9 of the OrCAD Schedules, to
OrCAD's knowledge: (i) OrCAD or an OrCAD subsidiary owns and has good and
exclusive title to, or has license to, each item of OrCAD Intellectual
Property, including all OrCAD Registered Intellectual Property listed in
Section 2.9 of the OrCAD Schedules, free and clear of any Lien (excluding
licenses and related restrictions); and (ii) OrCAD or an OrCAD subsidiary is
the exclusive owner of all trademarks and trade names used in connection
with the operation or conduct of the business of OrCAD or its subsidiaries,
including the sale of any products or the provision of any services by OrCAD
or its subsidiaries, but excluding trademarks and trade names commonly
identified by OrCAD or its subsidiaries as the property of a third party
(e.g. "Microsoft NT").
(g) OrCAD owns exclusively, and has good title to, all copyrighted works
that are OrCAD products (other than third-party software code to which OrCAD
holds valid and enforceable distribution licenses) or which OrCAD otherwise
expressly purports to own.
(h) To OrCAD's knowledge, OrCAD or its subsidiaries owns or has the
right to all Intellectual Property necessary to the conduct of its business
as it currently is conducted, including, without limitation, the design,
development, manufacture and sale of all products currently manufactured or
sold by OrCAD or its subsidiaries or under development by OrCAD or its
subsidiaries and the performance of all services provided by OrCAD or its
subsidiaries.
(i) To the extent that any work, invention or material has been
developed or created by a third party for OrCAD, OrCAD has a written
agreement with such third party with respect thereto and OrCAD thereby
either (i) has obtained ownership of, and is the exclusive owner of, or (ii)
has obtained a license to all such third party's Intellectual Property in
such work, material or invention by operation of law or by valid assignment,
to the extent it is legally possible to do so.
(j) Except as set forth in Section 2.9 of the OrCAD Schedules or in the
ordinary course of business, (i) OrCAD has not transferred ownership of, or
granted any rights to use any of the OrCAD Intellectual Property; and (ii)
OrCAD has not granted to any person, nor authorized any person to retain,
any rights in the OrCAD Intellectual Property.
(k) Section 2.9 of the OrCAD Schedules lists all material contracts,
licenses and agreements to which OrCAD is a party (i) with respect to OrCAD
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to
OrCAD.
(l) Following the Closing Date, the Surviving Corporation will be
permitted to exercise all of OrCAD's rights under the contracts, licenses
and agreements required to be listed in Section 2.9 of the OrCAD Schedules
to the same extent OrCAD would have been able had the consummation of the
transactions contemplated by this Agreement not occurred and without the
payment of any additional
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amounts or consideration other than ongoing fees, royalties or payments
which OrCAD would otherwise be required to pay.
(m) Section 2.9 of the OrCAD Schedules lists or specifically refers to
all contracts, licenses and agreements between OrCAD and any third party
wherein or whereby OrCAD has agreed to, or assumed, any obligation or duty
to warrant, indemnify, hold harmless or otherwise assume or incur any
obligation or liability with respect to the infringement or misappropriation
by OrCAD or such third party of the Intellectual Property of any third
party, except such contracts entered into in the ordinary course of OrCAD's
business.
(n) OrCAD has not received written notice from any third party that the
operation of the business of OrCAD or any act, product or service of OrCAD,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(o) Except as set forth in Section 2.9 of the OrCAD Schedules, to the
knowledge of OrCAD, no person has or is infringing or misappropriating any
OrCAD Intellectual Property.
(p) Except as set forth in Section 2.9 of the OrCAD Schedules, there
have been, and are, no claims asserted against OrCAD or, to its knowledge,
against any customer of OrCAD, related to any product or service of OrCAD.
(q) OrCAD has and enforces a policy requiring each employee and
contractor to execute a proprietary information / confidentiality agreement
substantially in OrCAD's standard form and all current and former employees
and contractors of OrCAD have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to OrCAD.
2.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither OrCAD nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law,
rule, regulation, order, judgment or decree applicable to OrCAD or any of
its subsidiaries or by which OrCAD or any of its subsidiaries or any of
their respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which OrCAD or any of its subsidiaries
is a party or by which OrCAD or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for conflicts,
violations and defaults that (individually or in the aggregate) would not
cause OrCAD to lose benefits aggregating to $1 million or more, or cause
OrCAD to incur liabilities aggregating to $1 million or more. No
investigation or review by any Governmental Entity is pending or, to OrCAD's
knowledge, has since January 1, 1997 been threatened against OrCAD or any of
its subsidiaries, nor, to OrCAD's knowledge, has any Governmental Entity
indicated an intention to conduct an investigation of OrCAD or any of its
subsidiaries. There is no material agreement, judgment, injunction, order or
decree binding upon OrCAD or any of its subsidiaries which has the effect of
prohibiting or materially impairing any business practice of OrCAD or any of
its subsidiaries, any acquisition of material property by OrCAD or any of
its subsidiaries or the conduct of business by OrCAD as currently conducted.
(b) OrCAD and its subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from
Governmental Entities that are material to and required for the operation of
the business of OrCAD as currently conducted (collectively, the "ORCAD
PERMITS"). OrCAD and its subsidiaries are in compliance in all material
respects with the terms of the OrCAD Permits.
2.11 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, and to OrCAD's knowledge, no person has threatened to
commence any action, suit, proceeding, claim, arbitration or investigation
against OrCAD or any of its subsidiaries which would reasonably be expected
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to have a Material Adverse Effect on OrCAD. No Governmental Entity has at any
time since January 1, 1997 challenged or questioned the legal right of OrCAD to
manufacture, offer or sell any of its products in the present manner or style
thereof.
2.12 BROKERS' AND FINDERS' FEES. Except for fees payable to Alliant
Partners pursuant to an engagement letter dated August 13, 1998, a copy of which
has been provided to Summit, OrCAD has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.13 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate"
set forth in Section 2.13(a)(i) below (such definition shall only apply to
this Section 2.13), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE," as used in this Section 2.13, shall mean any other
person or entity under common control with OrCAD within the meaning of
Section 414(b), (c), (m) or (o) of the Code and the regulations
thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(iii) "ORCAD EMPLOYEE PLAN" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by OrCAD or any
Affiliate for the benefit of any "OrCAD Employee" (as defined below), and
pursuant to which OrCAD or any Affiliate has or may have any material
liability contingent or otherwise;
(iv) "ORCAD EMPLOYEE" shall mean any current, former, or retired
employee, officer, or director of OrCAD or any Affiliate;
(v) "ORCAD EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or similar agreement or contract between
OrCAD or any Affiliate and any OrCAD Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "ORCAD PENSION PLAN" shall refer to each OrCAD Employee Plan
which is an "employee pension benefit plan", within the meaning of
Section 3(2) of ERISA.
(b) SCHEDULE. Section 2.13(b) of the OrCAD Schedules contains an
accurate and complete list of each OrCAD Employee Plan and each OrCAD
Employee Agreement, together with a schedule of all liabilities, whether or
not accrued, under each such OrCAD Employee Plan or OrCAD Employee
Agreement. OrCAD does not have any plan or commitment to establish any new
OrCAD Employee Plan or OrCAD Employee Agreement, to modify any OrCAD
Employee Plan or OrCAD Employee Agreement (except to the extent required by
law or to conform any such OrCAD Employee Plan or OrCAD Employee Agreement
to the requirements of any applicable law, in each case as previously
disclosed to Summit in writing, or as required by this Agreement), or to
enter into any OrCAD Employee Plan or OrCAD Employee Agreement, nor does it
have any intention or commitment to do any of the foregoing.
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(c) DOCUMENTS. OrCAD has provided to Summit (i) correct and complete
copies of all documents embodying or relating to each OrCAD Employee Plan
and each OrCAD Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each OrCAD Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each OrCAD Employee Plan
or related trust; (iv) if OrCAD Employee Plan is funded, the most recent
annual and periodic accounting of OrCAD Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
OrCAD Employee Plan; (vi) all IRS determination letters and rulings relating
to OrCAD Employee Plans and copies of all applications and correspondence to
or from the IRS or the Department of Labor ("DOL") with respect to any OrCAD
Employee Plan; (vii) all communications material to any OrCAD Employee or
OrCAD Employees relating to any OrCAD Employee Plan and any proposed OrCAD
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments
or vesting schedules or other events which would result in any material
liability to OrCAD; and (viii) all registration statements and prospectuses
prepared in connection with each OrCAD Employee Plan.
(d) ORCAD EMPLOYEE PLAN COMPLIANCE. Except as set forth in Section
2.13(d) of the OrCAD Schedules, (i) OrCAD has performed in all material
respects all obligations required to be performed by it under each OrCAD
Employee Plan and each OrCAD Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) to OrCAD's
knowledge no "prohibited transaction", within the meaning of Section 4975 of
the Code or Section 406 of ERISA, has occurred with respect to any OrCAD
Employee Plan; (iii) there are no actions, suits or claims pending, or, to
the knowledge of OrCAD, threatened or anticipated (other than routine claims
for benefits) against any OrCAD Employee Plan or against the assets of any
OrCAD Employee Plan; and (iv) each OrCAD Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to OrCAD, the Surviving Corporation,
Summit or any Affiliates (other than ordinary administration expenses
typically incurred in a termination event); (v) there are no inquiries or
proceedings pending or, to the knowledge of OrCAD or any Affiliates,
threatened by the IRS or DOL with respect to any OrCAD Employee Plan; and
(vi) to OrCAD's knowledge, neither OrCAD nor any Affiliate is subject to any
penalty or tax with respect to any OrCAD Employee Plan under Section 402(i)
of ERISA or Section 4975 through 4980 of the Code.
(e) ORCAD PENSION PLANS. OrCAD does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
OrCAD Pension Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has OrCAD contributed to or been
requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule
2.13(g), no OrCAD Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any OrCAD Employee
upon his or her retirement or termination of employment for any reason,
except as may be required by statute, and OrCAD has never represented,
promised or contracted (whether in oral or written form) to any OrCAD
Employee (either individually or to OrCAD Employees as a group) that such
OrCAD Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
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(h) EFFECT OF TRANSACTION.
(i) Except as provided in Section 1.6 of this Agreement or as set
forth on Schedule 2.13(h)(i), the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either
alone or upon the occurrence of any additional or subsequent events)
constitute an event under any OrCAD Employee Plan, OrCAD Employee
Agreement, trust or loan that will or may result in any payment (whether
of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation
to fund benefits with respect to any OrCAD Employee.
(ii) Except as set forth on Schedule 2.13(h)(ii), no payment or
benefit which will or may be made by OrCAD or Summit or any of their
respective affiliates with respect to any OrCAD Employee will be
characterized as an "excess parachute payment", within the meaning of
Section 280G(b)(1) of the Code.
(i) EMPLOYMENT MATTERS. OrCAD and each of its subsidiaries (i) is in
compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, in each location in which OrCAD or any of its
subsidiaries employs persons; (ii) has withheld all amounts required by law
or by agreement to be withheld from the wages, salaries and other payments
to OrCAD Employees; (iii) is not liable for any material arrears of wages or
any material taxes or any material penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any material payment to any trust
or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other
benefits or obligations for OrCAD Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against OrCAD is pending
or, to the knowledge of OrCAD, threatened. Except as set forth in Schedule
2.13(j), OrCAD is not involved in or, to the knowledge of OrCAD, threatened
with, any labor dispute, grievance, or litigation relating to labor, safety
or discrimination matters involving any OrCAD Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate,
result in a Material Adverse Effect on OrCAD. Neither OrCAD nor any of its
subsidiaries has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a Material Adverse Effect on
OrCAD. Except as set forth in Schedule 2.13(j), OrCAD is not presently, nor
has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to OrCAD Employees and no
collective bargaining agreement is being negotiated by OrCAD.
2.14 ORCAD EMPLOYEES; LABOR MATTERS.
To OrCAD's knowledge, no employee of OrCAD has violated any employment
contract, patent disclosure agreement or non competition agreement between such
employee and any former employer of such employee due to such employee being
employed by OrCAD and disclosing to OrCAD trade secrets or proprietary
information of such employer. To OrCAD's knowledge, there are no activities or
proceedings of any labor union to organize any employees of OrCAD or any of its
subsidiaries and there are no strikes, or material slowdowns, work stoppages or
lockouts, or threats thereof by or with respect to any employees of OrCAD or any
of its subsidiaries. OrCAD is not, and has never been, a party to any collective
bargaining agreement. OrCAD and its subsidiaries are in compliance in all
material respects with all applicable laws regarding employment practices, terms
and conditions of employment, and wages and hours (including, without
limitation, ERISA, WARN or any similar state or local law).
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2.15 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as reasonably would not be likely to
result in Material Adverse Effect on OrCAD, no underground storage tanks and
no amount of any substance that has been designated by any Governmental
Entity or by applicable federal, state or local law to be radioactive,
toxic, hazardous or otherwise a danger to health or the environment,
including, without limitation, PCBs, asbestos, petroleum, urea-formaldehyde
and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United
States Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies, (a "HAZARDOUS MATERIAL") are present, as a result of
the actions of OrCAD or any of its subsidiaries or any affiliate of OrCAD,
or, to OrCAD's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that OrCAD or any of
its subsidiaries has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as reasonably would not be
likely to result in Material Adverse Effect on OrCAD (i) neither OrCAD nor
any of its subsidiaries has transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous
Materials in violation of any law, and (ii) neither OrCAD nor any of its
subsidiaries has disposed of, transported, sold, used, released, exposed its
employees or others to or manufactured any product containing a Hazardous
Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity
in effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. OrCAD and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"ORCAD ENVIRONMENTAL PERMITS") necessary for the conduct of OrCAD's and its
subsidiaries' Hazardous Material Activities and other businesses of OrCAD
and its subsidiaries as such activities and businesses are currently being
conducted. OrCAD and its subsidiaries are in compliance in all material
respects with the terms of the OrCAD Environmental Permits.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, claim or injunction is pending, and
to OrCAD's knowledge, no action, proceeding, revocation proceeding,
amendment procedure, writ, claim or injunction has since January 1, 1997
been threatened by any Governmental Entity against OrCAD or any of its
subsidiaries concerning any OrCAD Environmental Permit, Hazardous Material
or any Hazardous Materials Activity of OrCAD or any of its subsidiaries.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither OrCAD nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or director level employee or member of OrCAD's Board of
Directors, other than those that are terminable by OrCAD or any of its
subsidiaries on no more than thirty days notice without liability or
financial obligation, except to the extent general principles of wrongful
termination law may limit OrCAD's or any of its subsidiaries' ability to
terminate employees at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
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(c) any agreement of indemnification or any guaranty other than: (i) any
agreement of indemnification or guaranty entered into in the ordinary course
of business, (ii) any agreement of indemnification entered into in
connection with the sale or license of software products in the ordinary
course of business, (iii) any agreement of indemnification entered into in
connection with services performed in the ordinary course of business, and
(iv) any indemnification agreement between OrCAD or any of its subsidiaries
and any of their respective officers, directors or employees;
(d) any agreement, contract or commitment containing any covenant
limiting in any material respect the right of OrCAD or any of its
subsidiaries to engage in any line of business which is material to OrCAD
and its subsidiaries taken as a whole or to compete with any person or
granting any exclusive distribution rights;
(e) any agreement, contract or commitment relating to the disposition or
acquisition by OrCAD or any of its subsidiaries or subsequent parent or
sister companies after the date of this Agreement of a material amount of
assets not in the ordinary course of business or pursuant to which OrCAD has
any material ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(f) any joint marketing or development agreement currently in force
under which OrCAD or any of its subsidiaries have continuing material
obligations to jointly market any product, technology or service and which
may not be canceled without penalty upon notice of 90 days or less, or any
agreement pursuant to which OrCAD or any of its subsidiaries have continuing
material obligations to jointly develop any intellectual property that will
not be owned, in whole or in part, by OrCAD or any of its subsidiaries and
which may not be canceled without penalty upon notice of 90 days or less;
(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is
material to OrCAD and its subsidiaries taken as a whole, except for (i) any
agreement, contract or commitment pursuant to which source code is provided
solely for maintenance purposes, and (ii) any source code escrow agreement
entered into in the ordinary course of business that solely contains
provisions relating to the release of source code if OrCAD and/or any of its
subsidiaries ceases to do business or fails to provide appropriate
maintenance; or
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any OrCAD product, service or
technology except as a distributor in the normal course of business.
Each OrCAD Contract (as defined below) is in full force and effect. Neither
OrCAD nor any of its subsidiaries, nor to OrCAD's knowledge any other party to
an OrCAD Contract, is in breach, violation or default under, and neither OrCAD
nor any of its subsidiaries has received notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which OrCAD or any of its subsidiaries
is a party or by which it is bound that are required to be disclosed in the
OrCAD Schedules pursuant to clauses (a) through (h) above or pursuant to Section
2.9 hereof (any such agreement, contract or commitment, a "ORCAD CONTRACT") in
such a manner as would permit any other party to cancel or terminate any such
OrCAD Contract, or would permit any other party to seek damages, which would be
reasonably likely to exceed $1 million (for any or all of such breaches,
violations or defaults, in the aggregate).
2.17 POOLING OF INTERESTS. To the knowledge of OrCAD, based on
consultation with its independent accountants, neither OrCAD nor any of its
directors, officers, affiliates or stockholders has taken any action which would
preclude Summit's ability to account for the Merger as a pooling of interests.
2.18 CHANGE OF CONTROL PAYMENTS. Section 2.18 of the OrCAD Schedules sets
forth each plan or agreement pursuant to which any amounts may become payable
(whether currently or in the future) to
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current or former employees, officers and directors of OrCAD as a result of or
in connection with the Merger.
2.19 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
OrCAD for inclusion in the Registration Statement (as defined in Section 3.4(b))
shall not at the time the Registration Statement is filed with the SEC and at
the time it becomes effective under the Securities Act contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by OrCAD for inclusion in the proxy
statement/prospectus to be sent to (a) the stockholders of OrCAD in connection
with the meeting of OrCAD's stockholders to consider the approval and adoption
of this Agreement and the approval of the Merger (the "ORCAD STOCKHOLDERS'
MEETING") and (b) the stockholders of Summit in connection with the meeting of
Summit's stockholders to consider the approval of the issuance of shares of
Summit Common Stock pursuant to the Merger (the "SUMMIT STOCKHOLDERS' MEETING")
(such proxy statement/prospectus as amended or supplemented is referred to
herein as the "PROXY STATEMENT") shall not, on the date the Proxy Statement is
first mailed to OrCAD's stockholders and Summit's stockholders or at the time of
the OrCAD Stockholders' Meeting or the Summit Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder. If at any time prior to the Effective Time any event
relating to OrCAD or any of its affiliates, officers or directors should be
discovered by OrCAD which may be required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, OrCAD shall
promptly inform Summit. Notwithstanding the foregoing, OrCAD makes no
representation or warranty with respect to any information supplied by Summit or
Merger Sub which is contained in any of the foregoing documents.
2.20 BOARD APPROVAL. The OrCAD Board has, as of the date of this
Agreement, (i) determined that the Merger is in the best interests of OrCAD and
its stockholders, (ii) approved and adopted this Agreement and the Merger, and
(iii) subject to the terms and conditions set forth in this Agreement,
determined to recommend that the stockholders of OrCAD approve and adopt this
Agreement and approve the Merger.
2.21 FAIRNESS OPINION. OrCAD's Board of Directors has received a written
opinion from Alliant Partners dated as of the date hereof, to the effect that as
of the date hereof, the Exchange Ratio is fair to OrCAD's stockholders from a
financial point of view and has delivered to Summit a copy of such opinion.
2.22 SECTION 203 OF THE DELAWARE LAW NOT APPLICABLE. The OrCAD Board has
taken all actions so that the restrictions contained in Section 203 of the
Delaware Law applicable to a "business combination" (as defined in such Section
203) will not apply to the execution, delivery or performance of this Agreement
or to the consummation of the Merger or the other transactions contemplated by
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUMMIT AND MERGER SUB
Summit and Merger Sub represent and warrant to OrCAD, subject to the
exceptions specifically disclosed in writing in the disclosure schedule and
referencing a specific representation supplied by Summit to OrCAD dated as of
the date hereof and certified by a duly authorized officer of Summit and, with
respect to exceptions as to Merger Sub, Merger Sub (the "SUMMIT SCHEDULES"), as
follows:
3.1 ORGANIZATION OF SUMMIT.
(a) Summit and each of its subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to
own, lease and operate its assets and property and to carry on its business
as now being
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conducted; and is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions which recognize such concept) in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except where the failure to be so qualified would not
have a Material Adverse Effect (as defined in Section 3.1(d)) on Summit.
(b) Summit has delivered to OrCAD a true and complete list of all of
Summit's subsidiaries as of the date of this Agreement, indicating the
jurisdiction of incorporation of each subsidiary and Summit's equity
interest therein.
(c) Summit has delivered or made available to OrCAD a true and correct
copy of the Certificate of Incorporation and Bylaws of Summit and similar
governing instruments of each of its subsidiaries, each as amended to date,
and each such instrument is in full force and effect. Neither Summit nor any
of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or similar governing instruments.
(d) When used in connection with Summit, the term "MATERIAL ADVERSE
EFFECT" means, for purposes of this Agreement, any change, event or effect
that is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of Summit and its
subsidiaries taken as a whole (except for those changes, events and effects
that are directly caused by (i) conditions affecting the United States
economy as a whole which do not affect Summit in a disproportionate manner,
(ii) conditions affecting the industry in which Summit competes as a whole
which do not affect Summit in a disproportionate manner, or (iii) delays in
customer orders resulting from announcement and pendency of the Merger).
3.2 SUMMIT CAPITAL STRUCTURE. The authorized capital stock of Summit
consists of 30,000,000 shares of Common Stock, $0.01 par value per share, of
which there were 15,300,572 shares issued and outstanding as of the date hereof
and 5,000,000 shares of Preferred Stock, $0.01 par value per share, of which no
shares are issued or outstanding, provided that, in connection with the
transactions contemplated by this Agreement, Summit intends to seek stockholder
approval of an amendment to its Certificate of Incorporation to increase the
number of authorized shares of Common Stock to 45,000,000. All outstanding
shares of Summit Common Stock are duly authorized, validly issued, fully paid
and nonassessable and are not subject to preemptive rights created by statute,
the Certificate of Incorporation or Bylaws of Summit or any agreement or
document to which Summit is a party or by which it is bound. As of the date
hereof, Summit had reserved an aggregate of 2,556,140 shares of Summit Common
Stock, net of exercises, for issuance to employees, consultants and non-employee
directors pursuant to the Summit Stock Option Plans. As of the date hereof,
there were options outstanding to purchase an aggregate of 1,887,936 shares of
Summit Common Stock, issued to employees, consultants and non-employee directors
pursuant to the Summit Stock Option Plans. All shares of Summit Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable. The Summit Schedules
list for each person who held options to acquire shares of Summit Common Stock
as of the date hereof, the name of the holder of such option, the exercise price
of such option, the number of shares as to which such option had vested at such
date, the vesting schedule for such option and whether the exercisability of
such option will be accelerated in any way by the transactions contemplated by
this Agreement, and indicates the extent of acceleration, if any. The authorized
capital stock of Merger Sub consists of 1,000 shares of Common Stock, $0.01 par
value per share, of which there are 1,000 shares issued and outstanding, all of
which are held by Summit. All outstanding shares of Merger Sub are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of Merger Sub or any agreement or document to which Merger Sub is a party or by
which it is bound.
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3.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 3.2 or the Summit Schedules, there are no equity securities, partnership
interests or similar ownership interests of any class of Summit, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except for securities Summit owns,
directly or indirectly through one or more subsidiaries, as of the date of this
Agreement, there are no equity securities, partnership interests or similar
ownership interests of any class of any subsidiary of Summit, or any security
exchangeable or convertible into or exercisable for such equity securities,
partnership interests or similar ownership interests, issued, reserved for
issuance or outstanding. Except as set forth in Section 3.2 or the Summit
Schedules, there are no options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which Summit or any of
its subsidiaries is a party or by which it is bound obligating Summit or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of Summit or any of its subsidiaries or
obligating Summit or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement. As of the date of this Agreement, except as
contemplated by this Agreement, there are no registration rights and there are
no voting trusts, proxies or other agreements or understandings to which Summit
is a party or by which it is bound with respect to any equity security of any
class of Summit or with respect to any equity security, partnership interest or
similar ownership interest of any class of any of its subsidiaries. With respect
to the transactions contemplated by this Agreement, stockholders of Summit are
not entitled to appraisal rights under applicable state law.
3.4 AUTHORITY.
(a) Summit and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Summit and
Merger Sub, subject only to the approval of the issuance of shares of Summit
Common Stock by virtue of the Merger by Summit's stockholders and the filing
of the Certificate of Merger pursuant to Delaware Law. A vote of the holders
of at least a majority of the outstanding shares of the Summit Common Stock
is required for Summit's stockholders to approve issuance of shares of
Summit Common Stock by virtue of the Merger. This Agreement has been duly
executed and delivered by Summit and Merger Sub and, assuming the due
authorization, execution and delivery by OrCAD, constitutes the valid and
binding obligation of Summit and Merger Sub, enforceable against Summit and
Merger Sub in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement does not, and the
performance of this Agreement will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of Summit or the equivalent
organizational documents of any of its subsidiaries, (ii) subject to
obtaining the approval of the issuance of shares of Summit Common Stock by
virtue of the Merger by Summit's stockholders as contemplated in Section 5.2
and compliance with the requirements set forth in Section 3.4(b), conflict
with or violate any law, rule, regulation, order, judgment or decree
applicable to Summit or any of its subsidiaries or by which Summit or any of
its subsidiaries or any of their respective properties is bound or affected,
or (iii) result in any material breach of or constitute a material default
(or an event that with notice or lapse of time or both would become a
material default) under, or impair Summit's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material lien or encumbrance on any of the material properties
or assets of Summit or any of its subsidiaries pursuant to, any material
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Summit or any
of its subsidiaries is a party or by which Summit or any of its subsidiaries
or its or any of their respective
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properties are bound or affected. The Summit Schedules list all consents,
waivers and approvals under any of Summit's or any of its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby,
which, if individually or in the aggregate not obtained, would result in a
material loss of benefits or any material liability to Summit, Summit'
subsidiaries, OrCAD or the Surviving Corporation as a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be
obtained or made by Summit or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Merger, except for
(i) the filing of a Form S-4 (or any similar successor form thereto)
Registration Statement (the "REGISTRATION STATEMENT") with the SEC in
accordance with the Securities Act, (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (iii) the
filing of the Proxy Statement with the SEC in accordance with the Exchange
Act, (iv) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal,
foreign and state securities (or related) laws and the securities or
antitrust laws of any foreign country, and (v) such other consents,
authorizations, filings, approvals and registrations which if not obtained
or made would not be material to Summit or OrCAD or have a material adverse
effect on the ability of the parties to consummate the Merger.
3.5 SEC FILINGS; SUMMIT FINANCIAL STATEMENTS.
(a) Summit has filed all forms, reports and documents required to be
filed by Summit with the SEC since October 18, 1996 and has made available
to OrCAD such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that Summit
may file subsequent to the date hereof) are referred to herein as the
"SUMMIT SEC REPORTS." As of their respective dates, the Summit SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Summit SEC Reports and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Summit's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Summit SEC Reports (the
"SUMMIT FINANCIALS"), including any Summit SEC Reports filed after the date
hereof until the Closing, (x) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(y) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (z) fairly
presented the consolidated financial position of Summit and its subsidiaries
as at the respective dates thereof and the consolidated results of Summit's
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments. The balance sheet
of Summit contained in Summit SEC Reports as of December 31, 1997 is
hereinafter referred to as the "SUMMIT BALANCE SHEET." Except as disclosed
in the Summit Financials or in the consolidated unaudited balance sheet of
Summit as of June 30, 1998 previously delivered to OrCAD, since the date of
the Summit Balance Sheet neither Summit nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of Summit and its subsidiaries taken as a
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whole, except for (i) liabilities identified in the Summit Balance Sheet, or
(ii) liabilities incurred since the date of the Summit Balance Sheet in the
ordinary course of business consistent with past practices.
(c) Summit has heretofore furnished to OrCAD a complete and correct copy
of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Summit with the SEC pursuant
to the Securities Act or the Exchange Act.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Summit
Balance Sheet and through the date of this Agreement there has not been: (i) any
Material Adverse Effect on Summit, (ii) any material change by Summit in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (iii) any material revaluation by Summit of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.
3.7 TAX AND OTHER RETURNS AND REPORTS.
(a) TAX RETURNS AND AUDITS. Except as set forth in Section 3.7 of the
Summit Schedules:
(i) Summit and each of its subsidiaries have prepared and filed all
Returns relating to any and all Taxes concerning or attributable to
Summit and each of its subsidiaries or their operations and such Returns
are true and correct in all material respects and have been completed in
accordance with applicable law.
(ii) Summit and each of its subsidiaries (A) have paid or accrued
all Taxes it is required to pay or accrue and (B) have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA
and other Taxes required to be withheld.
(iii) Neither Summit nor any of its subsidiaries has been delinquent
in the payment of any Tax nor is there any Tax deficiency outstanding,
proposed or assessed against Summit or any of its subsidiaries, nor has
Summit or any of its subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection
of any Tax.
(iv) No audit or other examination of any Return of Summit or any of
its subsidiaries is presently in progress, nor has Summit or any of its
subsidiaries been notified of any request for such an audit or other
examination.
(v) Neither Summit nor any of its subsidiaries has any material
liability for unpaid federal, state, local or foreign Taxes which has not
been accrued or reserved against in accordance with GAAP on the Summit
Balance Sheet or accrued in accordance with GAAP in the ordinary course
of business since the date of the Summit Balance Sheet, whether asserted
or unasserted, contingent or otherwise, and neither Summit nor any of its
subsidiaries has knowledge of any basis for the assertion of any such
liability attributable to the assets or operations of Summit or any of
its subsidiaries.
(vi) Summit has provided to OrCAD copies of all federal and state
income and all state sales and use Tax Returns for all periods since the
date of Summit's incorporation, except those as to which applicable
statues of limitations have expired and no tolling of the statute of
limitations has been executed.
(vii) There are no Liens on the assets of Summit or any of its
subsidiaries relating to or attributable to Taxes.
(viii) Neither Summit nor any of its subsidiaries has knowledge of any
basis for the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien on the assets of
Summit or any of its subsidiaries.
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(ix) None of Summit's or any of its subsidiaries' assets are treated
as "tax-exempt use property" within the meaning of Section 168(h) of the
Code.
(x) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any
employee or former employee of Summit or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of
the Code.
(xi) Neither Summit nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by Summit
or any of its subsidiaries.
(xii) Neither Summit nor any of its subsidiaries is a party to a tax
sharing or allocation agreement nor does Summit nor any of its
subsidiaries owe any amount under any such agreement.
(xiii) Neither Summit nor any of its subsidiaries has been at any
time, a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code.
3.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Summit Schedules list the real property owned by Summit as of
the date of this Agreement. The Summit Schedules list all real property
leases to which Summit is a party as of the date of this Agreement and each
amendment thereto that is in effect as of the date of this Agreement. All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice
or lapse of time, or both, would constitute a default) that would give rise
to a material claim.
(b) Summit has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
Summit Financials and except for liens for taxes not yet due and payable and
such Liens or other imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
3.9 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"SUMMIT INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Summit or any of its
subsidiaries.
(a) Section 3.9 of the Summit Schedules lists all of the Registered
Intellectual Property owned by, or filed in the name of, Summit or any of
its subsidiaries (the "SUMMIT REGISTERED INTELLECTUAL PROPERTY") and all
patent, copyright, trademark or industrial design registrations or
applications that have been withdrawn since January 1, 1997.
(b) Section 3.9 of the Summit Schedules lists all proceedings or actions
before any court, tribunal (including the PTO) or equivalent authority
anywhere in the world) related to any Summit Intellectual Property.
(c) Summit (or its subsidiaries, as applicable) has complied in all
material respects with all applicable disclosure requirements, and has not
committed any fraudulent act, in the application for and maintenance of any
patent, trademark or copyright of Summit.
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(d) Other than restrictions imposed by laws of general applicability or
limitations on use inherent in the content of the registrations themselves,
no Summit Intellectual Property or product or service of Summit or its
subsidiaries is subject to any proceeding or outstanding decree, order,
judgment, agreement or stipulation restricting in any manner the use,
transfer, or licensing thereof by Summit or its subsidiaries, or which may
affect the validity, use or enforceability of such Summit Intellectual
Property.
(e) Each item of Summit Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Registered Intellectual Property have
been paid and all necessary documents and certificates in connection with
such Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property.
(f) Except as set forth in Section 3.9 of the Summit Schedules, to
Summit's knowledge: (i) Summit or a Summit subsidiary owns and has good and
exclusive title to, or has license to, each item of Summit Intellectual
Property, including all Summit Registered Intellectual Property listed in
Section 3.9 of the Summit Schedules, free and clear of any Lien (excluding
licenses and related restrictions); and (ii) Summit or a Summit subsidiary
is the exclusive owner of all trademarks and trade names used in connection
with the operation or conduct of the business of Summit or its subsidiaries,
including the sale of any products or the provision of any services by
Summit or its subsidiaries, but excluding trademarks and trade names
commonly identified by Summit or its subsidiaries as the property of a third
party (e.g. "Microsoft NT").
(g) Summit owns exclusively, and has good title to, all copyrighted
works that are Summit products (other than third-party software code to
which Summit holds valid and enforceable distribution licenses) or which
Summit otherwise expressly purports to own.
(h) To Summit's knowledge, Summit or its subsidiaries owns or has the
right to all Intellectual Property necessary to the conduct of its business
as it currently is conducted, including, without limitation, the design,
development, manufacture and sale of all products currently manufactured or
sold by Summit or its subsidiaries or under development by Summit or its
subsidiaries and the performance of all services provided by Summit or its
subsidiaries.
(i) To the extent that any work, invention or material has been
developed or created by a third party for Summit, Summit has a written
agreement with such third party with respect thereto and Summit thereby
either (i) has obtained ownership of, and is the exclusive owner of, or (ii)
has obtained a license to all such third party's Intellectual Property in
such work, material or invention by operation of law or by valid assignment,
to the extent it is legally possible to do so.
(j) Except as set forth in Section 3.9 of the Summit Schedules or in the
ordinary course of business, (i) Summit has not transferred ownership of, or
granted any rights to use any of the Summit Intellectual Property; and (ii)
Summit has not granted to any person, nor authorized any person to retain,
any rights in the Summit Intellectual Property.
(k) Section 3.9 of the Summit Schedules lists all material contracts,
licenses and agreements to which Summit is a party (i) with respect to
Summit Intellectual Property licensed or transferred to any third party
(other than end-user licenses in the ordinary course); or (ii) pursuant to
which a third party has licensed or transferred any material Intellectual
Property to Summit.
(l) Section 3.9 of the Summit Schedules lists or specifically refers to
all contracts, licenses and agreements between Summit and any third party
wherein or whereby Summit has agreed to, or assumed, any obligation or duty
to warrant, indemnify, hold harmless or otherwise assume or incur any
obligation or liability with respect to the infringement or misappropriation
by Summit or such
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third party of the Intellectual Property of any third party, except such
contracts entered into in the ordinary course of Summit's business.
(m) Summit has not received written notice from any third party that the
operation of the business of Summit or any act, product or service of
Summit, infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of
any jurisdiction.
(n) Except as set forth in Section 3.9 of the Summit Schedules, to the
knowledge of Summit, no person has or is infringing or misappropriating any
Summit Intellectual Property.
(o) Except as set forth in Section 3.9 of the Summit Schedules, there
have been, and are, no claims asserted against Summit or, to its knowledge,
against any customer of Summit, related to any product or service of Summit.
(p) Summit has and enforces a policy requiring each employee and
contractor to execute a proprietary information / confidentiality agreement
substantially in Summit's standard form and all current and former employees
and contractors of Summit have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to Summit.
3.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Neither Summit nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law,
rule, regulation, order, judgment or decree applicable to Summit or any of
its subsidiaries or by which Summit or any of its subsidiaries or any of
their respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Summit or any of its subsidiaries
is a party or by which Summit or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for conflicts,
violations and defaults that (individually or in the aggregate) would not
cause Summit to lose benefits aggregating to $1 million or more, or cause
Summit to incur liabilities aggregating to $1 million or more. No
investigation or review by any Governmental Entity is pending or, to
Summit's knowledge, has since January 1, 1997 been threatened against Summit
or any of its subsidiaries, nor, to Summit's knowledge, has any Governmental
Entity indicated an intention to conduct an investigation of Summit or any
of its subsidiaries. There is no material agreement, judgment, injunction,
order or decree binding upon Summit or any of its subsidiaries which has the
effect of prohibiting or materially impairing any business practice of
Summit or any of its subsidiaries, any acquisition of material property by
Summit or any of its subsidiaries or the conduct of business by Summit as
currently conducted.
(b) Summit and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
Governmental Entities that are material to and required for the operation of
the business of Summit as currently conducted (collectively, the "SUMMIT
PERMITS"). Summit and its subsidiaries are in compliance in all material
respects with the terms of the Summit Permits.
3.11 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or investigation pending, and to Summit's knowledge, no person has threatened to
commence any action, suit, proceeding, claim, arbitration or investigation
against Summit or any of its subsidiaries which would reasonably be expected to
have a Material Adverse Effect on Summit. No Governmental Entity has at any time
since January 1, 1997 challenged or questioned the legal right of Summit to
manufacture, offer or sell any of its products in the present manner or style
thereof.
3.12 BROKERS' AND FINDERS' FEES. Except for fees payable to Black &
Company pursuant to an engagement letter dated June 1, 1998, a copy of which has
been provided to OrCAD, Summit has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents'
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commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.13 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of "Affiliate"
set forth in Section 3.13(a)(i) below (such definition shall only apply to
this Section 3.13), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE," as used in this Section 3.13, shall mean any other
person or entity under common control with Summit within the meaning of
Section 414(b), (c), (m) or (o) of the Code and the regulations
thereunder;
(ii) "SUMMIT EMPLOYEE PLAN" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by Summit or any
Affiliate for the benefit of any "Summit Employee" (as defined below),
and pursuant to which Summit or any Affiliate has or may have any
material liability contingent or otherwise;
(iii) "SUMMIT EMPLOYEE" shall mean any current, former, or retired
employee, officer, or director of Summit or any Affiliate;
(iv) "SUMMIT EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or similar agreement or contract between
Summit or any Affiliate and any Summit Employee or consultant; and
(v) "SUMMIT PENSION PLAN" shall refer to each Summit Employee Plan
which is an "employee pension benefit plan", within the meaning of
Section 3(2) of ERISA.
(b) SCHEDULE. Section 3.13(b) of the Summit Schedules contains an
accurate and complete list of each Summit Employee Plan and each Summit
Employee Agreement, together with a schedule of all liabilities, whether or
not accrued, under each such Summit Employee Plan or Summit Employee
Agreement. Summit does not have any plan or commitment to establish any new
Summit Employee Plan or Summit Employee Agreement, to modify any Summit
Employee Plan or Summit Employee Agreement (except to the extent required by
law or to conform any such Summit Employee Plan or Summit Employee Agreement
to the requirements of any applicable law, in each case as previously
disclosed to Summit in writing, or as required by this Agreement), or to
enter into any Summit Employee Plan or Summit Employee Agreement, nor does
it have any intention or commitment to do any of the foregoing.
(c) DOCUMENTS. Summit has provided to Summit (i) correct and complete
copies of all documents embodying or relating to each Summit Employee Plan
and each Summit Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Summit Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Summit Employee
Plan or related trust; (iv) if Summit Employee Plan is funded, the most
recent annual and periodic accounting of Summit Employee Plan assets; (v)
the most recent summary plan description together with the most recent
summary of material modifications, if any, required under ERISA with respect
to each Summit Employee Plan; (vi) all IRS determination letters and rulings
relating to Summit Employee Plans and copies of all applications and
correspondence to or from the IRS or the DOL with respect to any Summit
Employee Plan; (vii) all communications material to any Summit Employee or
Summit Employees relating to any
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Summit Employee Plan and any proposed Summit Employee Plans, in each case,
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability to Summit; and
(viii) all registration statements and prospectuses prepared in connection
with each Summit Employee Plan.
(d) SUMMIT EMPLOYEE PLAN COMPLIANCE. Except as set forth in Section
3.13(d) of the Summit Schedules, (i) Summit has performed in all material
respects all obligations required to be performed by it under each Summit
Employee Plan and each Summit Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) to
Summit's knowledge no "prohibited transaction", within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect
to any Summit Employee Plan; (iii) there are no actions, suits or claims
pending, or, to the knowledge of Summit, threatened or anticipated (other
than routine claims for benefits) against any Summit Employee Plan or
against the assets of any Summit Employee Plan; and (iv) each Summit
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Summit,
OrCAD, the Surviving Corporation or any Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v)
there are no inquiries or proceedings pending or, to the knowledge of Summit
or any affiliates, threatened by the IRS or DOL with respect to any Summit
Employee Plan; and (vi) to Summit's knowledge neither Summit nor any
Affiliate is subject to any penalty or tax with respect to any Summit
Employee Plan under Section 402(i) of ERISA or Section 4975 through 4980 of
the Code.
(e) SUMMIT PENSION PLANS. Summit does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Summit Pension Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has Summit contributed to or been
requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Schedule
3.13(g), no Summit Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Summit Employee
upon his or her retirement or termination of employment for any reason,
except as may be required by statute, and Summit has never represented,
promised or contracted (whether in oral or written form) to any Summit
Employee (either individually or to Summit Employees as a group) that such
Summit Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as provided in Section 1.6 of this Agreement or as set
forth on Schedule 3.13(h)(i), the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either
alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Summit Employee Plan, Summit Employee
Agreement, trust or loan that will or may result in any payment (whether
of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation
to fund benefits with respect to any Summit Employee.
(ii) Except as set forth on Schedule 3.13(h)(ii), no payment or
benefit which will or may be made by Summit, OrCAD or any of their
respective affiliates with respect to any Summit Employee will be
characterized as an "excess parachute payment", within the meaning of
Section 280G(b)(1) of the Code.
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(i) EMPLOYMENT MATTERS. Summit and each of its subsidiaries (i) is in
compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, in each location in which Summit or any of its
subsidiaries employs persons; (ii) has withheld all amounts required by law
or by agreement to be withheld from the wages, salaries and other payments
to Summit Employees; (iii) is not liable for any material arrears of wages
or any material taxes or any material penalty for failure to comply with any
of the foregoing; and (iv) is not liable for any material payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other
benefits or obligations for Summit Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against Summit is pending
or, to the knowledge of Summit, threatened. Except as set forth in Schedule
3.13(j), Summit is not involved in or, to the knowledge of Summit,
threatened with, any labor dispute, grievance, or litigation relating to
labor, safety or discrimination matters involving any Summit Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in a Material Adverse Effect on
Summit. Neither Summit nor any of its subsidiaries has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act which
would, individually or in the aggregate, directly or indirectly result in a
Material Adverse Effect on Summit. Except as set forth in Schedule 3.13(j),
Summit is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Summit Employees and no collective bargaining agreement is being negotiated
by Summit.
3.14 SUMMIT EMPLOYEES; LABOR MATTERS.
To Summit's knowledge, no employee of Summit has violated any employment
contract, patent disclosure agreement or non competition agreement between such
employee and any former employer of such employee due to such employee being
employed by Summit and disclosing to Summit trade secrets or proprietary
information of such employer. To Summit's knowledge, there are no activities or
proceedings of any labor union to organize any employees of Summit or any of its
subsidiaries and there are no strikes, or material slowdowns, work stoppages or
lockouts, or threats thereof by or with respect to any employees of Summit or
any of its subsidiaries. Summit is not, and has never been, a party to any
collective bargaining agreement. Summit and its subsidiaries are in compliance
in all material respects with all applicable laws regarding employment
practices, terms and conditions of employment, and wages and hours (including,
without limitation, ERISA, WARN or any similar state or local law).
3.15 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. Except as reasonably would not be likely to
result in Material Adverse Effect on Summit, no underground storage tanks
and no Hazardous Materials, but excluding office and janitorial supplies,
are present, as a result of the actions of Summit or any of its subsidiaries
or any affiliate of Summit, or, to Summit's knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that Summit or any of its subsidiaries has at any time owned,
operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Except as reasonably would not be
likely to result in Material Adverse Effect on Summit (i) neither Summit nor
any of its subsidiaries has transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous
Materials in violation of any law, and (ii) neither Summit nor any of its
subsidiaries has engaged in any Hazardous Materials Activities in violation
of any rule, regulation, treaty or statute promulgated by
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any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) PERMITS. Summit and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"SUMMIT ENVIRONMENTAL PERMITS") necessary for the conduct of Summit's and
its subsidiaries' Hazardous Material Activities and other businesses of
Summit and its subsidiaries as such activities and businesses are currently
being conducted. Summit and its subsidiaries are in compliance in all
material respects with the terms of the Summit Environmental Permits.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, claim or injunction is pending, and
to Summit's knowledge, no action, proceeding, revocation proceeding,
amendment procedure, writ, claim or injunction has since January 1, 1997
been threatened by any Governmental Entity against Summit or any of its
subsidiaries concerning any Summit Environmental Permit, Hazardous Material
or any Hazardous Materials Activity of Summit or any of its subsidiaries.
3.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Neither Summit nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or director level employee or member of Summit's Board of
Directors, other than those that are terminable by Summit or any of its
subsidiaries on no more than thirty days notice without liability or
financial obligation, except to the extent general principles of wrongful
termination law may limit Summit's or any of its subsidiaries' ability to
terminate employees at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty other than: (i) any
agreement of indemnification or guaranty entered into in the ordinary course
of business, (ii) any agreement of indemnification entered into in
connection with the sale or license of software products in the ordinary
course of business, (iii) any agreement of indemnification entered into in
connection with services performed in the ordinary course of business, and
(iv) any indemnification agreement between Summit or any of its subsidiaries
and any of their respective officers, directors or employees;
(d) any agreement, contract or commitment containing any covenant
limiting in any material respect the right of Summit or any of its
subsidiaries to engage in any line of business which is material to Summit
and its subsidiaries taken as a whole or to compete with any person or
granting any exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition by Summit or any of its subsidiaries or
subsequent parent or sister companies after the date of this Agreement of a
material amount of assets not in the ordinary course of business or pursuant
to which Summit has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise;
(f) any joint marketing or development agreement currently in force
under which Summit or any of its subsidiaries have continuing material
obligations to jointly market any product, technology or service and which
may not be canceled without penalty upon notice of 90 days or less, or any
agreement pursuant to which Summit or any of its subsidiaries have
continuing material obligations to jointly develop any intellectual property
that will not be owned, in whole or in part, by Summit or any of its
subsidiaries and which may not be canceled without penalty upon notice of 90
days or less;
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(g) any agreement, contract or commitment currently in force to provide
source code to any third party for any product or technology that is
material to Summit and its subsidiaries taken as a whole, except for (i) any
agreement, contract or commitment pursuant to which source code is provided
solely for maintenance purposes, and (ii) any source code escrow agreement
entered into in the ordinary course of business that solely contains
provisions relating to the release of source code if Summit and/or any of
its subsidiaries ceases to do business or fails to provide appropriate
maintenance; or
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Summit product, service or
technology except as a distributor in the normal course of business.
Each Summit Contract (as defined below) is in full force and effect. Neither
Summit nor any of its subsidiaries, nor to Summit's knowledge any other party to
a Summit Contract, is in breach, violation or default under, and neither Summit
nor any of its subsidiaries has received notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which Summit or any of its subsidiaries
is a party or by which it is bound that are required to be disclosed in the
Summit Schedules pursuant to clauses (a) through (h) above or pursuant to
Section 3.9 hereof (any such agreement, contract or commitment, a "SUMMIT
CONTRACT") in such a manner as would permit any other party to cancel or
terminate any such Summit Contract, or would permit any other party to seek
damages, which would be reasonably likely to exceed $1 million (for any or all
of such breaches, violations or defaults, in the aggregate).
3.17 POOLING OF INTERESTS. To the knowledge of Summit, based on
consultation with its independent accountants, neither Summit nor any of its
directors, officers, affiliates or stockholders has taken any action which would
preclude Summit's ability to account for the Merger as a pooling of interests.
3.18 CHANGE OF CONTROL PAYMENTS. Section 3.18 of the Summit Schedules sets
forth each plan or agreement pursuant to which any amounts may become payable
(whether currently or in the future) to current or former employees, officers
and directors of Summit as a result of or in connection with the Merger.
3.19 STATEMENTS; PROXY STATEMENT/PROSPECTUS. The information supplied by
Summit and Merger Sub for inclusion in the Registration Statement (as defined in
Section 3.4(b)) shall not at the time the Registration Statement is filed with
the SEC and at the time it becomes effective under the Securities Act contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. The information supplied by Summit and Merger Sub for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to OrCAD's stockholders and Summit's stockholders or at the time of
the OrCAD Stockholders' Meeting or the Summit Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder. If at any time prior to the Effective Time any event
relating to Summit or any of its affiliates, officers or directors should be
discovered by Summit which may be required to be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement, Summit shall
promptly inform OrCAD. Notwithstanding the foregoing, neither Summit nor Merger
Sub makes any representation or warranty with respect to any information
supplied by OrCAD which is contained in any of the foregoing documents.
3.20 BOARD APPROVAL. The Summit and Merger Sub Boards have, as of the date
of this Agreement, (i) determined that the Merger is in the best interests of
Summit and Merger Sub and their respective stockholders, (ii) approved and
adopted this Agreement and the Merger, and (iii) subject to the terms and
conditions set forth in this Agreement, determined to recommend that the
stockholders of Summit approve the issuance of shares of Summit Common Stock by
virtue of the Merger.
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3.21 FAIRNESS OPINION. Summit's Board of Directors has received a written
opinion from Black & Company dated as of the date hereof, to the effect that as
of the date hereof, the Exchange Ratio is fair to Summit's stockholders from a
financial point of view and has delivered to OrCAD a copy of such opinion.
3.22 SECTION 203 OF THE DELAWARE LAW NOT APPLICABLE. The Summit Board has
taken all actions so that the restrictions contained in Section 203 of the
Delaware Law applicable to a "business combination" (as defined in such Section
203) will not apply to the execution, delivery or performance of this Agreement
or to the consummation of the Merger or the other transactions contemplated by
this Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, OrCAD (which for the purposes of this
Article 4 shall include OrCAD and each of its subsidiaries) and Summit (which
for the purposes of this Article 4 shall include Summit and each of its
subsidiaries) shall, except to the extent that the other of them shall otherwise
consent in writing, carry on its business in the usual, regular and ordinary
course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings. In addition, each of OrCAD and Summit will promptly notify the other
of any material event involving its business or operations.
In addition and without limiting the generality of the foregoing, except as
expressly contemplated or permitted by the terms of this Agreement, and except
in the case of OrCAD as provided in Article 4 of the OrCAD Schedules, and except
in the case of Summit as provided in Article 4 of the Summit Schedules, without
the prior written consent of the other, neither OrCAD nor Summit shall during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement pursuant to its terms or the Effective Time,
do any of the following and neither OrCAD nor Summit shall permit its
subsidiaries to do any of the following (except as otherwise required by law):
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing to the other or made
available to the other, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights (including without
limitation distribution rights) to the OrCAD Intellectual Property or
products or the Summit Intellectual Property or products, as the case may
be, or enter into grants to future patent rights, other than non-exclusive
licenses and distribution rights in the ordinary course of business and
consistent with past practice;
(d) Declare or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
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(e) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock, except repurchases of unvested shares at cost in
connection with the termination of the employment relationship with any
employee pursuant to agreements in effect as of the date hereof;
(f) Issue, grant, deliver, sell, authorize or propose the issuance,
delivery or sale of, any shares of capital stock or any securities
convertible into shares of capital stock, or subscriptions, rights, warrants
or options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other agreements or
commitments of any character obligating it to issue any such shares or
convertible securities, other than the issuance, delivery and/or sale of (i)
shares of OrCAD Common Stock or Summit Common Stock, as the case may be,
pursuant to the exercise of stock options outstanding as of the date of this
Agreement, (ii) options to purchase shares of OrCAD Common Stock or Summit
Common Stock, as the case may be, to be granted at fair market value in the
ordinary course of business consistent with past practice and in accordance
with stock option plans existing on the date hereof to non-officer
employees, provided that the aggregate options to be granted by OrCAD or
Summit shall not exceed 50,000 or 50,000, respectively, (iii) shares of
OrCAD Common Stock or Summit Common Stock, as the case may be, issuable upon
the exercise of the options referred to in clause (ii), and (iv) shares of
OrCAD Common Stock or Summit Common Stock, as the case may be, issuable to
participants in the OrCAD ESPP or the Summit's 1996 Employee Stock Purchase
Plan in accordance with their respective terms.
(g) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or
by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or
in the aggregate, to the business of OrCAD or Summit, as the case may be, or
enter into any material joint ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of OrCAD or Summit, as the case may be, except in the
ordinary course of business consistent with past practice, or lend funds to
any third party (other than intercompany loans in the ordinary course of
business);
(j) Incur any indebtedness for borrowed money (other than (i) in
connection with the financing of ordinary course trade payables; (ii)
pursuant to existing credit facilities (or any ordinary course modification,
renewal or replacement thereof that does not increase the aggregate amount
that can be borrowed thereunder) in the ordinary course of business; or
(iii) in connection with leasing activities in the ordinary course of
business) or guarantee any indebtedness of any person for borrowed money
(except that OrCAD may guarantee any indebtedness of any subsidiary of
OrCAD, and any subsidiary of OrCAD may guarantee any indebtedness of OrCAD
or of any other subsidiary of OrCAD, and Summit may guarantee any
indebtedness of any subsidiary of Summit, and any subsidiary of Summit may
guarantee any indebtedness of Summit or of any other subsidiary of Summit),
or issue or sell any debt securities or warrants or rights to acquire debt
securities or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit plan or employee stock purchase
or employee stock option plan, or enter into any employment contract (other
than: (y) offer letters and letter agreements with employees who are
terminable "at will," or (z) as required by law), pay any special bonus or
special remuneration to any director or employee (except to the extent
contemplated by Section 2.12), or increase the salaries or wage rates of its
officers or employees other than in the ordinary course of business,
consistent with past practice, or change in any material respect any
management policies or procedures (including those relating to hiring);
provided, however, that, subject to the approval of the
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Internal Revenue Service, OrCAD may elect to terminate any 401(k) plan
maintained by OrCAD or any of its subsidiaries; provided, further, that, in
accordance with Section 5.19, OrCAD shall be permitted to terminate any
401(k) plan maintained by OrCAD or any of its subsidiaries.
(l) Make any payments outside of the ordinary course of business for
purposes of settling any dispute;
(m) Take any action that would interfere with Summit's ability to
account for the Merger as a pooling of interests whether or not otherwise
permitted by the provisions of this Article IV;
(n) Other than in the ordinary course of business, make or change any
material election in respect of Taxes, adopt or change any accounting method
in respect of Taxes, file any material Tax Return or any amendment to a
material Tax Return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(o) Revalue any assets, including writing down the value of inventory or
writing off notes or accounts receivable, other than in the ordinary course
of business consistent with past practices or pursuant to arm's length
transactions on commercially reasonable terms;
(p) Amend or terminate any OrCAD Contract or Summit Contract, as
applicable, except in the ordinary course of business consistent with past
practices;
(q) Waive or release any material right or claim, except in the ordinary
course of business consistent with past practices; or
(r) Agree in writing or otherwise to take any of the actions described
in Section 4.1(a) through 4.1(q) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT; OTHER FILINGS; BOARD RECOMMENDATIONS.
(a) As promptly as practicable after the execution of this Agreement,
OrCAD and Summit will prepare, and file with the SEC, the Proxy Statement
and Summit will prepare and file with the SEC the Registration Statement in
which the Proxy Statement will be included as a prospectus. Each of OrCAD
and Summit will respond to any comments of the SEC, will use its respective
reasonable best efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such
filing and will cause the Proxy Statement to be mailed to their respective
stockholders at the earliest practicable time after being declared effective
by the SEC. As promptly as practicable after the date of this Agreement,
each of OrCAD and Summit will prepare and file any other documents required
to be filed by it under the Exchange Act, the Securities Act or any other
Federal, foreign or Blue Sky or related laws relating to the Merger and the
transactions contemplated by this Agreement (the "OTHER FILINGS"). Each of
OrCAD and Summit will notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials and of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy Statement
or any Other Filing or for additional information and will supply the other
with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any Other Filing. Each of
OrCAD and Summit will cause all documents that it is responsible for filing
with the SEC or other regulatory authorities under this Section 5.1(a) to
comply in all material respects with all applicable requirements of law and
the rules and regulations promulgated thereunder. Whenever any event occurs
that is required to be set forth in an amendment or supplement to the Proxy
Statement,
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the Registration Statement or any Other Filing, OrCAD or Summit, as the case
may be, will promptly inform the other of such occurrence and cooperate in
filing with the SEC or its staff or any other government officials, and/or
mailing to stockholders of OrCAD or Summit, such amendment or supplement.
(b) The Proxy Statement will include the recommendation of the OrCAD
Board in favor of adoption and approval of this Agreement and approval of
the Merger (except that notwithstanding anything to the contrary contained
in this Agreement, the OrCAD Board may withdraw, modify or refrain from
making such recommendation to the extent that the OrCAD Board determines, in
good faith, after consultation with outside legal counsel, that compliance
with the OrCAD Board's fiduciary duties under applicable law would require
it to do so). In addition, the Proxy Statement will include the
recommendation of the Summit Board in favor of the issuance of shares of
Summit Common Stock by virtue of the Merger (except that notwithstanding
anything to the contrary contained in this Agreement, the Summit Board may
withdraw, modify or refrain from making such recommendation to the extent
that the Summit Board determines, in good faith, after consultation with
outside legal counsel, that compliance with the Summit Board's fiduciary
duties under applicable law would require it to do so).
5.2 MEETING OF STOCKHOLDERS. Promptly after the date hereof, OrCAD will
take all action necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene the OrCAD Stockholders' Meeting to be held
as promptly as practicable, and in any event (to the extent permissible under
applicable law) within 45 days after the declaration of effectiveness of the
Registration Statement, for the purpose of voting upon this Agreement and the
Merger. OrCAD will consult with Summit and use its reasonable best efforts to
hold the OrCAD Stockholders' Meeting on the same day as the Summit Stockholders'
Meeting. Promptly after the date hereof, Summit will take all action necessary
in accordance with Delaware Law and its Certificate of Incorporation and Bylaws
to convene the Summit Stockholders' Meeting to be held as promptly as
practicable, and in any event (to the extent permissible under applicable law)
within 45 days after the declaration of effectiveness of the Registration
Statement, for the purpose of voting upon the issuance of shares of Summit
Common Stock by virtue of the Merger. Unless the OrCAD Board withdraws, modifies
or refrains from making the recommendation set forth in Section 5.1(b) in
accordance with Section 5.1(b), OrCAD will use its best efforts to solicit from
its stockholders proxies in favor of the adoption and approval of this Agreement
and the approval of the Merger and will take all other action necessary or
advisable to secure the vote or consent of its stockholders required by the
rules of the National Association of Securities Dealers, Inc. or Delaware Law to
obtain such approvals. Unless the Summit Board withdraws, modifies or refrains
from making the recommendation set forth in Section 5.1(b) in accordance with
Section 5.1(b), Summit will use its best efforts to solicit from its
stockholders proxies in favor of the approval of the issuance of shares of
Summit Common Stock by virtue of the Merger, and will take all other action
necessary or advisable to secure the vote or consent of its stockholders
required by the rules of the National Association of Securities Dealers, Inc. or
Delaware Law to obtain such approvals.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that OrCAD and Summit have previously
executed a Non-Disclosure Agreement, dated as of August 31, 1998 (the
"NON-DISCLOSURE AGREEMENT"), which Non-Disclosure Agreement will continue in
full force and effect in accordance with its terms.
(a) OrCAD will afford Summit and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of OrCAD during the period prior to
the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations, financial condition and personnel of OrCAD, as Summit may
reasonably request. Summit will afford OrCAD and its accountants, counsel
and other representatives reasonable access during normal business hours
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to the properties, books, records and personnel of Summit during the period
prior to the Effective Time to obtain all information concerning the
business, including the status of product development efforts, properties,
results of operations, financial condition and personnel of Summit, as OrCAD
may reasonably request. No information or knowledge obtained by either
Summit or OrCAD in any investigation pursuant to this Section 5.3 will
affect or be deemed to modify any representation or warranty contained
herein.
5.4 NO SOLICITATION BY ORCAD.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms, OrCAD
and its subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly
encourage submission of any OrCAD Acquisition Proposal (as defined below) by
any person, entity or group (other than Summit and its affiliates, agents
and representatives), or (ii) participate in any discussions or negotiations
with, or disclose any non-public information concerning OrCAD or any of its
subsidiaries to, or afford any access to the properties, books or records of
OrCAD or any of its subsidiaries to, or otherwise assist or facilitate, or
enter into any agreement or understanding with, any person, entity or group
(other than Summit and its affiliates, agents and representatives), in
connection with any OrCAD Acquisition Proposal with respect to OrCAD. For
the purposes of this Agreement, an "ORCAD ACQUISITION PROPOSAL" means any
proposal or offer for: (i) any merger, consolidation, sale of substantial
assets or similar transactions involving OrCAD or any of its subsidiaries
(other than sales of assets or inventory in the ordinary course of business
or as permitted under the terms of this Agreement), (ii) sale by OrCAD of
any shares of capital stock of OrCAD except as may be permitted pursuant to
Article 4, (iii) without limiting clause (ii) above, the acquisition by any
person (including without limitation by way of a tender offer or an exchange
offer) of beneficial ownership or a right to acquire beneficial ownership
of, or the formation of any "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) which beneficially
owns, or has the right to acquire beneficial ownership of, 15% or more of
the then outstanding shares of capital stock of OrCAD; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing. OrCAD will immediately
cease any and all existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any OrCAD Acquisition Proposal.
OrCAD will (i) notify Summit within 24 hours if it receives any OrCAD
Acquisition Proposal or written inquiry or any written request for
information or access in connection with a potential OrCAD Acquisition
Proposal and (ii) as promptly as practicable notify Summit of the
significant terms and conditions of any such OrCAD Acquisition Proposal. In
addition, subject to the other provisions of this Section 5.4, from and
after the date of this Agreement until the earlier of the Effective Time and
termination of this Agreement pursuant to its terms, OrCAD and its
subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any OrCAD
Acquisition Proposal made by any person, entity or group (other than Summit
or any of its affiliates); PROVIDED, HOWEVER, that nothing contained in this
Agreement shall prohibit the OrCAD Board from taking and disclosing to
OrCAD's stockholders a position with respect to a tender offer pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act or otherwise
complying with the requirements and prohibitions of such rules.
(b) Notwithstanding anything to the contrary contained in Section 5.4(a)
or elsewhere in this Agreement, prior to the Effective Time, OrCAD may, to
the extent the OrCAD Board determines, in good faith, after consultation
with outside legal counsel, that compliance with the OrCAD Board's fiduciary
duties under applicable law require it to do so, participate in discussions
or negotiations with, and, subject to the requirements of Section 5.4(c),
furnish information to any person, entity or group after such person, entity
or group has delivered to OrCAD in writing, an unsolicited bona fide
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OrCAD Acquisition Proposal that the OrCAD Board determines, in its good
faith reasonable judgment after consultation with its independent financial
advisors: (x) would result in a transaction more favorable than the Merger
to the stockholders of OrCAD from a financial point of view, (y) for which
financing, to the extent required, is committed and (z) is likely to be
consummated (a "ORCAD SUPERIOR PROPOSAL"). In addition, notwithstanding the
provisions of Section 5.4(a) or any other provisions of this Agreement, in
connection with a possible OrCAD Acquisition Proposal, OrCAD may refer any
third party to this Section 5.4 or make a copy of this Section 5.4 available
to a third party. In the event OrCAD receives an OrCAD Superior Proposal,
nothing contained in this Agreement (but subject to the terms of this
Section 5.4(b)) will prevent the OrCAD Board from recommending such OrCAD
Superior Proposal to its stockholders, if the OrCAD Board determines, in
good faith, after consultation with outside legal counsel, that such action
is required to comply with its fiduciary duties under applicable law; in
such case, the OrCAD Board may (in accordance with Section 5.1(b)) withdraw,
modify or refrain from making its recommendation set forth in Section
5.1(b), and, to the extent it does so, OrCAD may refrain from soliciting
proxies to secure the vote of its stockholders as may otherwise be required
by Section 5.2; PROVIDED, HOWEVER, that OrCAD shall (i) provide Summit at
least 24 hours prior notice of any OrCAD Board meeting at which it is
reasonably expected to contemplate an OrCAD Superior Proposal and (ii) not
recommend to its stockholders an OrCAD Superior Proposal for a period of not
less than 48 hours after Summit receives a copy of such OrCAD Superior
Proposal; and PROVIDED FURTHER, that unless this Agreement is terminated
pursuant to Section 7.1, nothing contained in this Section shall limit
OrCAD's obligation to hold and convene the OrCAD Stockholders' Meeting
(regardless of whether the recommendation of the OrCAD Board shall have been
withdrawn, modified or not yet made) or to provide the OrCAD stockholders
with material information relating to such meeting.
(c) Notwithstanding anything to the contrary in this Section 5.4, OrCAD
will not provide any non-public information to a third party unless: (i)
OrCAD provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Non-Disclosure Agreement; and (ii)
such non-public information has been previously delivered to Summit.
5.5 NO SOLICITATION BY SUMMIT.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to its terms,
Summit and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, (i) solicit or knowingly
encourage submission of any Summit Acquisition Proposal (as defined below)
by any person, entity or group, or (ii) participate in any discussions or
negotiations with, or disclose any non-public information concerning Summit
or any of its subsidiaries to, or afford any access to the properties, books
or records of Summit or any of its subsidiaries to, or otherwise assist or
facilitate, or enter into any agreement or understanding with, any person,
entity or group, in connection with any Summit Acquisition Proposal with
respect to Summit. For the purposes of this Agreement, a "SUMMIT ACQUISITION
PROPOSAL" means any proposal or offer for: (i) any merger, consolidation,
sale of substantial assets or similar transactions involving Summit or any
of its subsidiaries (other than sales of assets or inventory in the ordinary
course of business or as permitted under the terms of this Agreement), (ii)
sale by Summit of any shares of capital stock of Summit except as may be
permitted pursuant to Article 4, (iii) without limiting clause (ii) above,
the acquisition by any person (including without limitation by way of a
tender offer or an exchange offer) of beneficial ownership or a right to
acquire beneficial ownership of, or the formation of any "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) which beneficially owns, or has the right to acquire beneficial
ownership of, 15% or more of the then outstanding shares of capital stock of
Summit; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
Summit will
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immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Summit Acquisition Proposal. Summit will (i) notify OrCAD within 24 hours if
it receives any Summit Acquisition Proposal or written inquiry or any
written request for information or access in connection with a potential
Summit Acquisition Proposal and (ii) as promptly as practicable notify OrCAD
of the significant terms and conditions of any such Summit Acquisition
Proposal. In addition, subject to the other provisions of this Section 5.5,
from and after the date of this Agreement until the earlier of the Effective
Time and termination of this Agreement pursuant to its terms, Summit and its
subsidiaries will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Summit
Acquisition Proposal made by any person, entity or group; PROVIDED, HOWEVER,
that nothing contained in this Agreement shall prohibit the Summit Board
from taking and disclosing to Summit's stockholders a position with respect
to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act or otherwise complying with the requirements and prohibitions
of such rules.
(b) Notwithstanding anything to the contrary contained in Section 5.5(a)
or elsewhere in this Agreement, prior to the Effective Time, Summit may, to
the extent the Summit Board determines, in good faith, after consultation
with outside legal counsel, that compliance with the Summit Board's
fiduciary duties under applicable law require it to do so, participate in
discussions or negotiations with, and, subject to the requirements of
Section 5.5(c), below, furnish information to any person, entity or group
after such person, entity or group has delivered to Summit in writing, an
unsolicited bona fide Summit Acquisition Proposal that the Summit Board
determines, in its good faith reasonable judgment after consultation with
its independent financial advisors: (x) would result in a transaction more
favorable than the Merger to the stockholders of Summit from a financial
point of view, (y) for which financing, to the extent required, is committed
and (z) is likely to be consummated (a "SUMMIT SUPERIOR PROPOSAL"). In
addition, notwithstanding the provisions of Section 5.5(a) above or any
other provisions of this Agreement, in connection with a possible Summit
Acquisition Proposal, Summit may refer any third party to this Section 5.5
or make a copy of this Section 5.5 available to a third party. In the event
Summit receives a Summit Superior Proposal, nothing contained in this
Agreement (but subject to the terms of this paragraph (b)) will prevent the
Summit Board from recommending such Summit Superior Proposal to its
stockholders, if the Summit Board determines, in good faith, after
consultation with outside legal counsel, that such action is required to
comply with its fiduciary duties under applicable law; in such case, the
Summit Board may (in accordance with Section 5.1(b)) withdraw, modify or
refrain from making its recommendation set forth in Section 5.1(b), and, to
the extent it does so, Summit may refrain from soliciting proxies to secure
the vote of its stockholders as may otherwise be required by Section 5.2;
PROVIDED, HOWEVER, that Summit shall (i) provide OrCAD at least 24 hours
prior notice of any Summit Board meeting at which it is reasonably expected
to contemplate a Summit Superior Proposal and (ii) not recommend to its
stockholders a Summit Superior Proposal for a period of not less than 48
hours after OrCAD receives a copy of such Summit Superior Proposal and
PROVIDED FURTHER, that unless this Agreement is terminated pursuant to
Section 7.1, nothing contained in this Section shall limit Summit's
obligation to hold and convene the Summit Stockholders' Meeting (regardless
of whether the recommendation of the Summit Board shall have been withdrawn,
modified or not yet made) or to provide the Summit stockholders with
material information relating to such meeting.
(c) Notwithstanding anything to the contrary in this Section 5.5, Summit
will not provide any non-public information to a third party unless: (i)
Summit provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Non-Disclosure Agreement; and (ii)
such non-public information has been previously delivered to OrCAD.
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5.6 PUBLIC DISCLOSURE. Summit and OrCAD will consult with each other, and
to the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Merger, this Agreement, an OrCAD
Acquisition Proposal or a Summit Acquisition Proposal, and will not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement with a national
securities exchange or the Nasdaq National Market System. The parties have
agreed to the text of the joint press release announcing the signing of this
Agreement.
5.7 LEGAL REQUIREMENTS. Each of Summit, Merger Sub and OrCAD will take all
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals by or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such filings with or investigations by any
Governmental Entity, and any other such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. Summit will use its commercially
reasonable efforts to take such steps as may be necessary to comply with the
securities and Blue Sky laws of all jurisdictions that are applicable to the
issuance of shares of Summit Common Stock pursuant hereto. OrCAD will use its
reasonable best efforts to assist Summit as may be necessary to comply with the
securities and Blue Sky laws of all jurisdictions which are applicable in
connection with the issuance of shares of Summit Common Stock pursuant hereto.
5.8 THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Summit and OrCAD will each use its commercially reasonable efforts to
obtain any material consents, waivers and approvals under any of its or its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
5.9 NOTIFICATION OF CERTAIN MATTERS. Summit and Merger Sub will give
prompt notice to OrCAD, and OrCAD will give prompt notice to Summit, after
obtaining knowledge of (a) the occurrence, or non-occurrence, of any event that
would be reasonably likely to cause (x) any representation or warranty contained
in this Agreement and made by it to be untrue or inaccurate in any material
respect at any time from the date of this Agreement to the Effective Time such
that the conditions set forth in Section 6.2(a) or 6.3(a), as the case may be,
would not be satisfied as a result thereof or (y) any material failure of Summit
and Merger Sub or OrCAD, as the case may be, to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement such that the conditions set forth in
Section 6.2(b) or 6.3(b), as the case may be, would not be satisfied as a result
thereof, or (b) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement. Notwithstanding the foregoing,
the delivery of any notice pursuant to this Section 5.9 will not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.10 BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of Summit and OrCAD under this Agreement, each of the parties to
this Agreement will use its reasonable best efforts to effectuate the Merger and
the other transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement; provided that neither
Summit nor OrCAD nor any subsidiary or affiliate thereof will be required to
agree to any divestiture by itself or any of its affiliates of shares of capital
stock or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock. Subject to the
foregoing, each party hereto, at the reasonable request of another party hereto,
will execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.
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5.11 STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares of
OrCAD Common Stock (each a "ORCAD STOCK OPTION") under the OrCAD Stock
Option Plans, whether or not exercisable, will be assumed by Summit. Each
OrCAD Stock Option so assumed by Summit under this Agreement will continue
to have, and be subject to, the same terms and conditions (including vesting
conditions) set forth in the applicable OrCAD Stock Option Plan immediately
prior to the Effective Time and the Stock Option by which it is evidenced,
except that (i) each OrCAD Stock Option will be exercisable (or will become
exercisable in accordance with its terms) for that number of whole shares of
Summit Common Stock equal to the product of the maximum number of shares of
OrCAD Common Stock that could be issuable upon exercise of such OrCAD Stock
Option if all vesting conditions are satisfied multiplied by the Exchange
Ratio, rounded to the nearest whole share of Summit Common Stock and (ii)
the per share exercise price for the Summit Common Stock issuable upon
exercise of such assumed OrCAD Stock Option will be equal to the quotient
determined by dividing the exercise price per share of OrCAD Common Stock at
which such OrCAD Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded to the nearest whole cent.
After the Effective Time, Summit will issue to each holder of an outstanding
OrCAD Stock Option a notice describing the foregoing assumption of such
OrCAD Stock Option by Summit. It is intended that OrCAD Stock Options
assumed by Summit shall qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent OrCAD
Stock Options qualified as incentive stock options immediately prior to the
Effective Time and the provisions of this Section 5.11 shall be applied
consistent with such intent.
(b) Summit will reserve sufficient shares of Summit Common Stock for
issuance under Section 5.11 and under Section 1.6(c) hereof.
(c) OrCAD shall take such actions as are necessary to shorten the
Offering Period (as such term is used in the OrCAD ESPP) then in progress by
setting up a new Purchase Date (as such term is used in OrCAD ESPP) to be
the last trading day on which the shares of OrCAD Common Stock are quoted on
the Nasdaq National Market immediately prior to the Effective Time (the
"Final OrCAD Purchase Date"); provided, that, such change in the Purchase
Date shall be conditioned upon the consummation of the Merger. On the Final
OrCAD Purchase Date, OrCAD shall apply the funds credited as of such date
under the OrCAD ESPP within each participant's payroll withholdings account
to the purchase of whole shares of OrCAD Common Stock in accordance with the
terms of the OrCAD ESPP. The cost to each participant in the OrCAD ESPP for
a share of OrCAD Common Stock shall be the lower of 85% of the closing sale
price of OrCAD Common Stock on the Nasdaq National Market on (i) the first
day of the then current Offering Period or (ii) the Final OrCAD Purchase
Date.
(d) Employees of OrCAD as of the Effective Time shall be permitted to
participate in Summit's Employee Stock Purchase Plan commencing on the first
enrollment date following the Effective Time, subject to compliance with the
eligibility provisions of such plan.
5.12 FORM S-8. Summit will file a Registration Statement on Form S-8 for
the shares of Summit Common Stock issuable with respect to assumed OrCAD Stock
Options as soon as reasonably practical after the Effective Time (not to exceed
five business days) and will use its reasonable best efforts to maintain the
effectiveness of such registration statement thereafter for so long as any of
such options remain outstanding.
5.13 NASDAQ LISTING. Summit agrees to authorize for listing on the Nasdaq
National Market System the shares of Summit Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
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5.14 ORCAD AFFILIATE AGREEMENT. Set forth on the OrCAD Schedules is a list
of those persons who may be deemed to be, in OrCAD's reasonable judgment,
affiliates of OrCAD within the meaning of Rule 145 promulgated under the
Securities Act (each a "ORCAD RULE 145 AFFILIATE"). OrCAD will provide Summit
with such information and documents as Summit reasonably requests for purposes
of reviewing such list. OrCAD will use its reasonable best efforts to deliver or
cause to be delivered to Summit, as promptly as practicable on or following the
date hereof, from each OrCAD Rule 145 Affiliate an executed affiliate agreement
in substantially the form attached hereto as EXHIBIT C (the "ORCAD AFFILIATE
AGREEMENT"), each of which will be in full force and effect as of the Effective
Time. Summit will be entitled to place appropriate legends on the shares of
Summit Common Stock to be received by an OrCAD Affiliate pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Summit Common Stock, consistent with the terms of the
OrCAD Affiliate Agreement.
5.15 SUMMIT AFFILIATE AGREEMENT. Set forth on the Summit Schedules is a
list of those persons who may be deemed to be, in Summit's reasonable judgment,
affiliates of Summit within the meaning of Rule 145 promulgated under the
Securities Act (each a "SUMMIT RULE 145 AFFILIATE"). Summit will provide OrCAD
with such information and documents as OrCAD reasonably requests for purposes of
reviewing such list. Summit will use its reasonable best efforts to deliver or
cause to be delivered to Summit, as promptly as practicable on or following the
date hereof, from each Summit Rule 145 Affiliate an executed affiliate agreement
in substantially the form attached hereto as EXHIBIT D (the "SUMMIT AFFILIATE
AGREEMENT"), each of which will be in full force and effect as of the Effective
Time.
5.16 COMFORT LETTER. At the request of Summit, OrCAD shall use reasonable
best efforts to cause KPMG Peat Marwick LLP, certified public accountants to
OrCAD, to provide a letter reasonably acceptable to Summit, relating to their
review of the financial statements relating to OrCAD contained in or
incorporated by reference in the Registration Statement. If Summit makes such a
request, then Summit shall use reasonable best efforts to cause
PriceWaterhouseCoopers, certified public accountants to Summit, to provide a
letter reasonably acceptable to OrCAD, relating to their review of the financial
statements relating to Summit contained in or incorporated by reference in the
Registration Statement.
5.17 POOLING. Prior to the earlier of termination of this Agreement and
the Effective Time, neither OrCAD nor Summit will take any action that could
interfere with Summit's ability to account for the Merger as a pooling of
interests.
5.18 CONTINUE NASDAQ QUOTATION. OrCAD shall continue the quotation of
OrCAD Common Stock and Summit shall continue the quotation of Summit Common
Stock on The Nasdaq National Market to the extent necessary so that appraisal
rights will not be available to stockholders of OrCAD under Delaware Law.
5.19 ORCAD 401(k) PLAN. At the request of Summit, OrCAD shall take all
necessary corporate action to terminate, or cause its subsidiaries to terminate,
as the case may be, all 401(k) plans maintained by OrCAD or any of its
subsidiaries.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted, and the Merger shall have been duly approved, by the requisite vote
under applicable law, by the stockholders of OrCAD; and the issuance of
shares of Summit Common Stock by virtue of the Merger shall have been duly
approved by the requisite vote under applicable law and the rules of the
National Association of Securities Dealers, Inc. by the stockholders of
Summit.
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(b) REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT. The SEC shall
have declared the Registration Statement effective. No stop order suspending
the effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement, shall have been initiated or
threatened in writing by the SEC.
(c) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger.
(d) TAX OPINIONS. Summit and OrCAD shall each have received
substantially identical written opinions from their respective tax counsel
(Wilson Sonsini Goodrich & Rosati, P.C. and Ater Wynne LLP, respectively),
in form and substance reasonably satisfactory to them, to the effect that
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and such opinions shall not have been withdrawn;
PROVIDED, HOWEVER, that if the counsel to either Summit or OrCAD does not
render such opinion, this condition shall nonetheless be deemed to be
satisfied with respect to such party if counsel to the other party renders
such opinion to such party. The parties to this Agreement agree to make such
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(e) NASDAQ LISTING. The shares of Summit Common Stock issuable to
stockholders of OrCAD pursuant to this Agreement and such other shares of
Summit Common Stock required to be reserved for issuance in connection with
the Merger shall have been authorized for quotation on the Nasdaq National
Market System upon official notice of issuance.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ORCAD. The obligation of OrCAD
to consummate and effect the Merger shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, exclusively by OrCAD:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Summit and Merger Sub contained in this Agreement shall have been true
and correct as of the date of this Agreement and as of the Closing Date
except (i) to the extent that the failure of such representations and
warranties (other than the representation in Sections 3.2, 3.3 and 3.22) to
be true and correct in each case or in the aggregate does not constitute a
Material Adverse Effect on Summit, (ii) for changes contemplated by this
Agreement and (iii) for those representations and warranties which address
matters only as of the date of this Agreement or any other particular date
(which shall have been true and correct as of such particular date except to
the extent that the failure of such representations and warranties to have
been true and correct as of such particular date does not constitute a
Material Adverse Effect on Summit) (it being understood that, for purposes
of determining the accuracy of such representations and warranties all
"Material Adverse Effect" qualifications and other qualifications based on
the word "material" or similar phrases contained in such representations and
warranties shall be disregarded). OrCAD shall have received a certificate
with respect to the foregoing signed on behalf of Summit and Merger Sub by
their respective Chief Executive Officers and the Chief Financial Officers.
(b) AGREEMENTS AND COVENANTS. Summit and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and OrCAD shall have received a
certificate to such effect signed on behalf of Summit and Merger Sub by
their respective Chief Executive Officers and the Chief Financial Officers.
(c) NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall have been no Material Adverse Effect on Summit, nor shall there
exist any condition that, to the knowledge of the
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Chief Executive Officer and the Chief Financial Officer of Summit, would
reasonably be expected to result in a Material Adverse Effect on Summit; and
OrCAD shall have received a certificate signed on behalf of Summit by the
Chief Executive Officer and the Chief Financial Officer of Summit to such
effect. For purposes of this Section 6.2(c), neither (i) a decrease in the
trading price of Summit Common Stock from the trading price on the date of
this Agreement, nor (ii) any adverse development in the results of
operations of Summit for the quarter ending September 30, 1998 shall
constitute a "Material Adverse Effect."
(d) OPINION OF ACCOUNTANTS. OrCAD shall have received a letter from
KPMG Peat Marwick LLP dated within two (2) business days prior to the
Effective Time regarding its concurrence with the conclusion of OrCAD
management as to the appropriateness of pooling of interest accounting for
the Merger under Accounting Principles Board Opinion No. 16, if the Merger
is consummated in accordance with this Agreement.
(e) CONSENTS. Summit shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby under the agreements, contracts, licenses or leases set
forth on Schedule 6.2(e) of the OrCAD Schedules.
(f) ELECTION OF BOARD. Summit shall have amended its bylaws,
reconstituted its Board and elected and delegated powers and duties to the
committees as required by Exhibit E, effective as of the Effective Time.
(g) ELECTION OF OFFICERS. Larry Gerhard shall have resigned as
President of Summit (retaining the office of Chief Executive Officer), and
the Board of Summit shall have appointed Michael Bosworth as President and
Chief Operating Officer of Summit effective as of the Effective Time. The
Board of Summit shall have appointed such additional executive officers of
Summit as are reasonably acceptable to each of Mr. Gerhard and Mr. Bosworth.
(h) RESERVATION OF SHARES. The Board of Summit shall have caused to be
reserved all shares necessary to consummate the Merger, and shall have
authorized their delivery in accordance with the terms of this Agreement,
and certified copies of the minutes establishing the foregoing shall have
been delivered to OrCAD.
(i) REVENUE. Summit shall have recognized aggregate revenue in
accordance with GAAP applied consistently with prior periods of not less
than $10,080,000 for the quarter ending September 30, 1998.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SUMMIT AND MERGER SUB. The
obligations of Summit and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Summit:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of OrCAD contained in this Agreement shall have been true and correct as of
the date of this Agreement and as of the Closing Date except (i) to the
extent that the failure of such representations and warranties (other than
the representations in Sections 2.2, 2.3, 2.19 and 2.22) to be true and
correct in each case or in the aggregate does not constitute a Material
Adverse Effect on OrCAD, (ii) for changes contemplated by this Agreement and
(iii) for those representations and warranties which address matters only as
of the date of this Agreement or any other particular date (which shall have
been true and correct as of such particular date except to the extent that
the failure of such representations and warranties to be true and correct as
of such particular date does not constitute a Material Adverse Effect on
OrCAD) (it being understood that, for purposes of determining the accuracy
of such representations and warranties all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded).
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Summit shall have received a certificate with respect to the foregoing
signed on behalf of OrCAD by the Chief Executive Officer and the Chief
Financial Officer of OrCAD.
(b) AGREEMENTS AND COVENANTS. OrCAD shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Summit shall have received a certificate to such effect signed on
behalf of OrCAD by the Chief Executive Officer and the Chief Financial
Officer of OrCAD.
(c) NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement,
there shall have been no Material Adverse Effect on OrCAD, nor shall there
exist any condition that, to the knowledge of the Chief Executive Officer
and the Chief Financial Officer of OrCAD, would reasonably be expected to
result in a Material Adverse Effect on OrCAD; and Summit shall have received
a certificate signed on behalf of OrCAD by the Chief Executive Officer and
the Chief Financial Officer of OrCAD to such effect. For purposes of this
Section 6.3(c), neither (i) a decrease in the trading price of OrCAD Common
Stock from the trading price on the date of this Agreement, nor (ii) any
adverse development in the results of operations of OrCAD for the quarter
ending September 30, 1998 shall constitute a "Material Adverse Effect."
(d) OPINION OF ACCOUNTANTS. Summit shall have received a letter from
PriceWaterhouseCoopers dated within two (2) business days prior to the
Effective Time regarding its concurrence with the conclusion of Summit
management as to the appropriateness of pooling of interest accounting for
the Merger under Accounting Principles Board Opinion No. 16, if the Merger
is consummated in accordance with this Agreement. PriceWaterhouse Coopers
shall have received a letter from KPMG Peat Marwick LLP dated within two (2)
business days prior to the Effective Time regarding its concurrence with the
conclusion of OrCAD management as to the appropriateness of pooling of
interest accounting for the Merger under Accounting Principles Board Opinion
No. 16, if the Merger is consummated in accordance with this Agreement.
(e) CONSENTS. OrCAD shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby under the agreements, contracts, licenses or leases set
forth on Schedule 6.3(e) of the Summit Schedules.
(f) REVENUE. OrCAD shall have recognized aggregate revenue in
accordance with GAAP applied consistently with prior periods of not less
than $10,980,000 for the quarter ending September 30, 1998.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of OrCAD or the approval of the issuance of Summit Common Stock in
connection with the Merger by the stockholders of Summit:
(a) by mutual written consent duly authorized by the Boards of Directors
of Summit and OrCAD;
(b) by either OrCAD or Summit if the Merger shall not have been
consummated by January 31, 1999 for any reason; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a breach of this
Agreement;
(c) by either OrCAD or Summit if a Governmental Entity shall have issued
an order, decree or ruling or taken any other action, in any case having the
effect of permanently restraining, enjoining or
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otherwise prohibiting the Merger, which order, decree, ruling or other
action is final and nonappealable;
(d) by either OrCAD or Summit if the required approvals of the
stockholders of OrCAD or the stockholders of Summit contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain
the required vote at a meeting of stockholders duly convened therefor or at
any adjournment thereof (PROVIDED that the right to terminate this Agreement
under this Section 7.1(d) shall not be available to any party where the
failure to obtain approval by such party's stockholders shall have been
caused by the action or failure to act of such party and such action or
failure to act constitutes a breach by such party of this Agreement);
(e) by Summit at any time prior to the approval of the Merger by OrCAD's
stockholders, if the OrCAD Board recommends an OrCAD Superior Proposal to
the stockholders of OrCAD or if the OrCAD Board shall have withheld,
withdrawn or modified in a manner adverse to Summit its recommendation in
favor of adoption and approval of this Agreement and approval of the Merger;
(f) by OrCAD at any time prior to the approval of the Merger by Summit's
stockholders, if the Summit Board recommends a Summit Superior Proposal to
the stockholders of Summit or if the Summit Board shall have withheld,
withdrawn or modified in a manner adverse to OrCAD its recommendation in
favor of the issuance of shares of Summit Common Stock by virtue of the
Merger;
(g) by OrCAD, upon a breach of any representation, warranty, covenant or
agreement on the part of Summit set forth in this Agreement, or if any
representation or warranty of Summit shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED that if such
inaccuracy in Summit's representations and warranties or breach by Summit is
curable by Summit through the exercise of its commercially reasonable
efforts by the date identified in Section 7.1(b), then OrCAD may not
terminate this Agreement under this Section 7.1(g) before that date,
provided Summit continues to exercise such commercially reasonable efforts
to cure such breach up until that date (it being understood that OrCAD may
not terminate this Agreement pursuant to this Section 7.1(g) if it shall
have materially breached this Agreement and its breach is the proximate
cause of Summit's breach or inaccuracy); or
(h) by Summit, upon a breach of any representation, warranty, covenant
or agreement on the part of OrCAD set forth in this Agreement, or if any
representation or warranty of OrCAD shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b) would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED, that if such
inaccuracy in OrCAD's representations and warranties or breach by OrCAD is
curable by OrCAD through the exercise of its commercially reasonable efforts
by the date identified in Section 7.1(b), then Summit may not terminate this
Agreement under this Section 7.1(h) before that date, provided OrCAD
continues to exercise such commercially reasonable efforts to cure such
breach up until that date (it being understood that Summit may not terminate
this Agreement pursuant to this Section 7.1(h) if it shall have materially
breached this Agreement and its breach is the proximate cause of OrCAD's
breach or inaccuracy).
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 will be effective immediately upon the delivery of
written notice of the terminating party to the other parties hereto. In the
event of the termination of this Agreement as provided in Section 7.1, this
Agreement shall be of no further force or effect, except (i) as set forth in
this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of which shall
survive the termination of this Agreement, and (ii) nothing herein shall relieve
any party from liability for any willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Non-Disclosure Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
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7.3 FEES AND EXPENSES.
(a) GENERAL. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; PROVIDED, HOWEVER, that Summit and
OrCAD shall share equally all fees and expenses, other than attorneys' and
accountants fees and expenses, incurred in relation to the printing and
filing (with the SEC) of the Proxy Statement (including any preliminary
materials related thereto) and the Registration Statement (including
financial statements and exhibits) and any amendments or supplements
thereto.
(b) ORCAD PAYMENTS.
(i) If either (x) the OrCAD Board shall have withheld, withdrawn or
modified in a manner adverse to Summit its recommendation in favor of
adoption and approval of this Agreement and approval of the Merger and at
that time Summit shall not have materially breached this Agreement and
there shall be no Material Adverse Effect on Summit, or (y) the OrCAD
Board recommends an OrCAD Superior Proposal to the stockholders of OrCAD
and at that time Summit shall not have materially breached this Agreement
and there shall be no Material Adverse Effect on Summit, OrCAD shall pay
to Summit an amount equal to $2,500,000 within one business day following
the earlier to occur of (A) termination of this Agreement pursuant to
Section 7.1(e) hereof or (B) an OrCAD Negative Vote (as defined below);
(ii) If no payment shall be required pursuant to clause 7.3(b)(i)
above, and if: (x) the vote of the stockholders of OrCAD approving and
adopting this Agreement and approving the Merger shall not have been
obtained by reason of the failure to obtain the required vote at a
meeting of stockholders duly convened therefor or at any adjournment
thereof (a "ORCAD NEGATIVE VOTE"), and (y) prior to such OrCAD Negative
Vote there shall have occurred an OrCAD Acquisition Proposal with respect
to OrCAD which shall have been publicly disclosed and not withdrawn prior
to such meeting (a "ORCAD COMPETING PROPOSAL"), and (z) within 9 months
following such OrCAD Negative Vote, OrCAD shall enter into a definitive
agreement with respect to an OrCAD Acquisition (as defined below) or the
OrCAD Board shall recommend to the OrCAD stockholders that they accept a
tender or exchange offer for 25% or more of the OrCAD Common Stock, THEN,
provided that there shall have not occurred a Material Adverse Effect on
Summit prior to the OrCAD Negative Vote and provided that Summit shall
not have materially breached this Agreement, OrCAD shall pay to Summit an
amount equal to $2,500,000 within one business day following, as the case
may be (1) consummation of an OrCAD Acquisition within 15 months
following the OrCAD Negative Vote or (2) consummation of such tender or
exchange offer. For the purposes of this Agreement, an "ORCAD
ACQUISITION" means any transaction or series of transactions involving
(i) any merger, consolidation or similar business combination in which
stockholders of OrCAD immediately prior to the transaction hold less than
50% of the outstanding capital stock of the surviving entity, or any sale
of substantial assets (including without limitation capital stock of
subsidiaries) having a fair market value in excess of 50% of the fair
market value of all the assets of OrCAD and its subsidiaries immediately
prior to such transaction (or series of transactions) or similar
transaction involving OrCAD or any of its material subsidiaries, (ii) any
sale by OrCAD of any shares of capital stock of OrCAD which would, upon
issuance, represent more than 50% of the outstanding shares of capital
stock of OrCAD, other than in an underwritten public offering or private
placement in which no entity or group obtained a majority of the stock
thus sold, or (iii) the acquisition (including without limitation by way
of a tender offer or an exchange offer) by any person or "group," as
"group" is defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder, of beneficial ownership or a right to acquire
beneficial ownership of, 50% or more of the then outstanding shares of
capital stock of OrCAD; or the formation of any "group" that, as of the
time of formation, owns such stock or such rights.
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(c) SUMMIT PAYMENTS.
(i) If either (x) the Summit Board shall have withheld, withdrawn or
modified in a manner adverse to OrCAD its recommendation in favor of the
issuance of shares of Summit Common Stock by virtue of the Merger and at
that time OrCAD shall not have materially breached this Agreement and
there shall be no Material Adverse Effect on OrCAD, or (y) the Summit
Board recommends a Summit Superior Proposal to the stockholders of Summit
and at that time OrCAD shall not have materially breached this Agreement
and there shall be no Material Adverse Effect on OrCAD, Summit shall pay
to OrCAD an amount equal to $2,500,000 within one business day following
the earlier to occur of (A) termination of this Agreement pursuant to
Section 7.1(f) hereof or (B) a Summit Negative Vote (as defined below);
(ii) If no payment shall be required pursuant to clause 7.3(c)(i)
above, and if: (x) the vote of the stockholders of Summit approving the
issuance of shares of Summit Common Stock by virtue of the Merger shall
not have been obtained by reason of the failure to obtain the required
vote at a meeting of stockholders duly convened therefor or at any
adjournment thereof (a "SUMMIT NEGATIVE VOTE"), and (y) prior to such
Summit Negative Vote there shall have occurred a Summit Acquisition
Proposal with respect to Summit which shall have been publicly disclosed
and not withdrawn prior to such meeting (a "SUMMIT COMPETING PROPOSAL"),
and (z) within 9 months following such Summit Negative Vote, Summit shall
enter into a definitive agreement with respect to a Summit Acquisition
(as defined below) or the Summit Board shall recommend to the Summit
stockholders that they accept a tender or exchange offer for 25% or more
of the Summit Common Stock, THEN, provided that there shall have not
occurred a Material Adverse Effect on OrCAD prior to the Summit Negative
Vote and provided that OrCAD shall not have materially breached this
Agreement, Summit shall pay to OrCAD an amount equal to $2,500,000 within
one business day following, as the case may be (1) consummation of a
Summit Acquisition within 15 months following the Summit Negative Vote or
(2) consummation of such tender or exchange offer. For the purposes of
this Agreement, a "SUMMIT ACQUISITION" means any transaction or series of
transactions involving (i) any merger, consolidation or similar business
combination in which stockholders of Summit immediately prior to the
transaction hold less than 50% of the outstanding capital stock of the
surviving entity, or any sale of substantial assets (including without
limitation capital stock of subsidiaries) having a fair market value in
excess of 50% of the fair market value of all the assets of Summit and
its subsidiaries immediately prior to such transaction (or series of
transactions) or similar transaction involving Summit or any of its
material subsidiaries, (ii) any sale by Summit of any shares of capital
stock of Summit which would, upon issuance, represent more than 50% of
the outstanding shares of capital stock of Summit, other than in an
underwritten public offering or private placement in which no entity or
group obtained a majority of the stock thus sold, or (iii) the
acquisition (including without limitation by way of a tender offer or an
exchange offer) by any person or "group," as "group" is defined under
Section 13(d) of the Exchange Act and the rules and regulations
thereunder, of beneficial ownership or a right to acquire beneficial
ownership of, 50% or more of the then outstanding shares of capital stock
of Summit; or the formation of any "group" that, as of the time of
formation, owns such stock or such rights.
(d) Payment of the fees described in Section 7.3(b) and Section 7.3(c)
above shall not be in lieu of damages incurred in the event of breach of
this Agreement.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party
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contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of OrCAD, Summit and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers (or at such other address or
facsimile numbers for a party as shall be specified by like notice):
(a) if to Summit or Merger Sub, to:
Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97008
Attention: Chief Executive Officer
Telephone No.: (503) 643-9281
Facsimile No.: (503) 646-9320
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Steven V. Bernard
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to OrCAD, to:
OrCAD, Inc.
9300 S.W. Nimbus
Beaverton, OR 97008
Attention: Chief Executive Officer
Telephone No.: (503) 672-4800
Facsimile No.: (503) 671-9502
with a copy to:
Ater Wynne LLP
222 SW Columbia, Suite 1800
Portland, Oregon 97201
Attention: William C. Campbell
Telephone No.: (503) 226-1191
Facsimile No.: (503) 226-0079
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8.3 INTERPRETATION; KNOWLEDGE.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement (i) as it relates to Summit, the term
"KNOWLEDGE" means, with respect to any matter in question, the actual
knowledge of any of the persons listed in Section 8.3(b) of the Summit
Schedules and (ii) as it relates to OrCAD, the term "KNOWLEDGE" means, with
respect to any matter in question, the actual knowledge of any of the
persons listed in Section 8.3(b) of the OrCAD Schedules.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the OrCAD Schedules and the
Summit Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Non-Disclosure Agreement
shall continue in full force and effect until the Effective Time and shall
survive any termination of this Agreement; and (b) are not intended to confer
upon any other person any rights or remedies hereunder.
8.6 SEVERABILITY. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 OTHER REMEDIES; SPECIFIC PERFORMANCE. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the City of Portland, Oregon, in connection
with any matter
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based upon or arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the laws
of the State of Delaware for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such jurisdiction and
such process.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 ASSIGNMENT. No party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF Summit, OrCAD AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF Summit, OrCAD OR MERGER SUB IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
<TABLE>
<S> <C>
SUMMIT DESIGN, INC. ORCAD, INC.
By: By:
------------------------------------------ ------------------------------------------
Print: Print:
- ------------------------------------------ ------------------------------------------
Title: Title:
- ------------------------------------------ ------------------------------------------
HOOD ACQUISITION CORP.
By:
------------------------------------------
Print:
- ------------------------------------------
Title:
- ------------------------------------------
</TABLE>
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ANNEX B
[LOGO]
September 19, 1998
[LOGO]
The Board of Directors
Summit Design, Inc.
9305 SW Gemini Drive
Beaverton, Oregon 97008
Ladies and Gentlemen:
Summit Design, Inc. ("Summit Design") proposes to enter into an Agreement
and Plan of Reorganization by and among Summit Design, Hood Acquisition Corp., a
wholly-owned subsidiary of Summit Design ("Merger Sub") and OrCAD, Inc.
("OrCAD") dated as of September 20, 1998 (the "Merger Agreement"). Under the
terms of the Merger Agreement, Merger Sub shall be merged with and into OrCAD,
and OrCAD shall continue as the surviving corporation and become a wholly-owned
subsidiary of Summit Design (the "Merger"). Holders of the outstanding common
shares of OrCAD will receive 1.050 newly-issued shares of Summit Design common
stock in exchange for each common share of OrCAD. In addition, each stock option
exercisable for OrCAD common stock will be converted into an option to receive
1.050 shares of Summit Design common stock. The terms and conditions of the
Merger are set forth more fully in the Merger Agreement.
Summit Design has retained Black & Company ("Black") to act as financial
advisor to Summit Design in connection with Summit Design's consideration of
various strategic alternatives. Pursuant to this engagement, Black was asked to
render an opinion to the Board of Directors of Summit Design as to whether the
equity consideration to be paid by Summit Design pursuant to the Merger
Agreement is fair to the shareholders of Summit Design from a financial point of
view.
As part of its investment banking services, Black is regularly engaged in
the business of advising the management and boards of directors of corporations
regarding the issuance of securities, providing advisory services for mergers
and acquisitions, issuing fairness opinions and providing market valuations. In
addition, as part of its securities business, Black makes a market in the common
stock of both Summit Design and OrCAD. Pursuant to the terms of the engagement
letter dated June 1, 1998 with Summit Design, Summit Design has agreed to pay
Black a fee of $600,000 for services rendered in connection with and subject to
the consummation of the Merger, including the rendering of this opinion. Summit
Design has also agreed to reimburse Black for reasonable out-of-pocket expenses
and to indemnify Black against certain liabilities relating to or arising out of
services performed by Black as financial advisor to Summit Design. In arriving
at the opinion set forth below, Black, among other things, (i) reviewed the
Merger Agreement; (ii) reviewed certain publicly available information
concerning Summit Design and OrCAD; (iii) held discussions with members of
senior management of Summit Design and OrCAD concerning the business prospects
of OrCAD, including such managements' views as to the organization of and
strategies with respect to the Merger; (iv) reviewed certain operating and
financial reports prepared by the managements of Summit Design and OrCAD; (v)
reviewed the recent reported prices and trading activity
B-1
<PAGE>
Summit Design, Inc.
September 19, 1998
for the common stock of certain other companies engaged in businesses Black
considered comparable to those of Summit Design and compared certain publicly
available financial data for those comparable companies to similar data for
Summit Design; (vi) reviewed the financial terms of certain other merger and
acquisition transactions that Black deemed generally relevant; and (vii)
performed and considered such other studies, analyses, inquiries and
investigations as Black deemed appropriate.
In connection with Black's review and for purposes of its opinion, Black did
not independently verify any of the foregoing information and assumed (i) all
such information is complete and accurate in all material respects, (ii) there
have been no material changes in the assets, financial condition, results of
operations, business or prospects of Summit Design and OrCAD since the
respective dates of the last financial statements made available to Black and
all material liabilities (contingent or otherwise, known or unknown) of Summit
Design and OrCAD are as set forth in the respective financial statements, and
(iii) no adjustments will be made to the material terms of the Merger Agreement
from those set forth in the copies of the Merger Agreement delivered to Black
prior to this date. With respect to the financial information of Summit Design
and OrCAD provided to Black by the management of Summit Design and OrCAD, Black
has assumed for purposes of the opinion that such information has been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of such management, at the time of preparation, of the operating
and financial performance of Summit Design and OrCAD. Black did not prepare or
obtain any independent evaluation or appraisal of any of the assets or
liabilities of Summit Design or OrCAD, nor did Black conduct a physical
inspection of the properties and facilities of Summit Design or OrCAD in
connection with its opinion. Black's opinion is necessarily based upon market,
economic, financial and other conditions as of the date of the opinion and any
subsequent change in such conditions would require a reevaluation of this
opinion. In rendering its opinion, Black does not express any opinion or make
any determination as to what specific consideration should be paid by Summit
Design in connection with the Merger. The opinion rendered by Black is limited
to the evaluation and determination of whether the equity consideration to be
paid by Summit Design according to the Merger Agreement is fair, from a
financial point of view, to the shareholders of Summit Design and does not
address the underlying business decision of Summit Design and OrCAD to engage in
the Merger. Black is not expressing any opinion as to what the value of Summit
Design common stock will be when issued pursuant to the Merger Agreement or the
price at which Summit Design common stock will trade at any time. Black's
opinion does not constitute a recommendation to any shareholder of Summit Design
as to how such shareholder should vote on the proposed Merger Agreement.
This letter and the opinion expressed herein are provided at the request and
for the information of the Board of Directors of Summit Design and may not be
quoted or referred to or used for any other purpose without our prior written
consent, except that this letter may be disclosed in connection with any
registration statement on Form S-4 or proxy statement used in connection with
the Merger Agreement so long as this letter is quoted in full in such
registration statement on Form S-4 or proxy statement.
Based upon and subject to the foregoing, it is Black's opinion that, as of
the date hereof, the equity consideration to be paid by Summit Design according
to the Merger Agreement is fair to the shareholders of Summit Design from a
financial point of view.
Best regards,
BLACK & COMPANY, INC
B-2
<PAGE>
ANNEX C
[LOGO]
September 18, 1998
Board of Directors
OrCAD Inc.
9300 S.W. Nimbus Avenue
Beaverton, OR 97008
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of OrCAD, Inc. ("OCAD" or the "Company") in connection
with the transaction (the "Transaction") contemplated by the draft of the
Agreement and Plan of Reorganization (the "Agreement") dated September 18, 1998
by and among OCAD, Summit Design, Inc. ("SMMT"), and Hood Acquisition Corp. and
the issuance of common stock, $0.01 par value per share, of SMMT (the "Shares")
pursuant thereto. The total consideration to be paid the stockholders of OCAD is
1.05 shares of SMMT in exchange for each share of OCAD.
Alliant Partners, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and corporate partnering transactions. Alliant Partners
will receive other compensation from OCAD in connection with this transaction.
In arriving at our opinion, we have reviewed the Agreement and all of the
Exhibits and schedules, and have reviewed financial, product and other
information that was furnished to us by OCAD and SMMT. We also have held
discussions with members of the senior management of OCAD and SMMT regarding the
historic and current business operations and future risks and prospects of both
companies including their expectation for certain strategic benefits of the
transaction. In addition, we have compared certain financial and securities
data, both historic and projected, of OCAD with those of various other companies
engaged in businesses we considered comparable with securities which are traded
in public markets, analyzed prices paid in certain other similar business
combinations, and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
We have assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial statements, product
information, marketing strategies and other information regarding OCAD and SMMT
which has been provided to us by the respective companies and their
representatives. We did not make any independent evaluation of OCAD's nor SMMT's
assets or intellectual property nor did we review any of SMMT's and OCAD's
corporate records.
C-1
<PAGE>
Based on the foregoing and such other factors as we deem relevant, we are of
the opinion, as of the date hereof, that the consideration to be paid to the
stockholders of OCAD in connection with the Transaction is fair, from a
financial point of view, to OCAD and OCAD's stockholders.
Sincerely Yours,
[LOGO]
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended. The Registrant's Certificate of Incorporation and Bylaws provide for
indemnification of its directors, officers, employees and other agents to the
maximum extent permitted by the Delaware law. In addition, the Registrant has
entered into Indemnification Agreements with its officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among the Registrant, Hood Acquisition Corp. and OrCAD, Inc.
dated September 20, 1998.(10)
2.2 Form of OrCAD, Inc. Voting Agreement.(10)
2.3 Form of Registrant Voting Agreement.(10)
2.4 Form of OrCAD, Inc. Affiliate Agreement.(10)
2.5 Form of Registrant Affiliate Agreement.(10)
2.6* Form of Certificate of Merger.
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(2)
4.1 Specimen Stock Certificate of the Registrant.(1)
4.2 Investors' Rights Agreement between the Registrant and the parties named therein dated February 10,
1994, as amended.(1)
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.1* Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.2* Tax Opinion of Ater Wynne LLP.
10.1 Form of Indemnification Agreement between the Registrant and its executive officers and directors.(1)
10.2 1994 Stock Plan, as amended.(1)
10.3 1996 Employee Stock Purchase Plan.(1)
10.4 1996 Director Option Plan.(1)
10.5 Employment Agreement between the Registrant and Larry J. Gerhard dated as of August 1, 1997.(4)
10.6 Employment Agreement between the Registrant and C. Albert Koob dated October 21, 1995.(1)
10.7 Employment Agreement between the Registrant and Richard Davenport dated September 9, 1997.(4)
10.8 Employment Agreement between the Registrant and Arthur Fletcher dated July 1, 1997.(4)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
10.9 Employment Agreement between the Registrant and Eric Benhayoun dated October 31, 1994.(1)
10.10 Employment Agreement between the Registrant and Moshe Guy dated July 1, 1997.(4)
10.11 Employment Agreement between the Registrant and Joseph Masarich dated December 22, 1997.(4)
10.12+ Software OEM License Agreement between the Registrant, Test System Strategies Inc. and Credence Systems
Corporation dated May 19, 1997.(2)
10.13 Lease Agreement between the Registrant and Petula Associates Ltd. and Koll Creekside Associates II dated
October 26, 1993, as amended.(1)
10.14 Sublease Agreement, dated as of January 1993 between CDL Technologies, Ltd. and SEE Technologies,
Ltd.(1)
10.15 Bank Line of Credit Agreement between the Registrant and U.S. National Bank of Oregon dated April 30,
1998.(8)
10.16+ Joint Venture Agreement between Summit Design Israel, Inc. and Anam S&T Co., Ltd. dated March 21,
1996.(1)
10.17+ Distributor Agreement between the Registrant and Seiko Instruments, Inc., dated February 1, 1996.(1)
10.18+ Distributor Agreement between the Registrant and ATE Service Co., Ltd., dated October 23, 1995, and
amended as of April 9, 1996.(1)
10.19+ Amendment to Distributor Agreement between the Registrant and Seiko Instruments, Inc.(4)
10.20 Loan Agreement between the Registrant and Moshe Guy dated May 20, 1997.(2)
10.21 Loan Agreement between the Registrant and Dasys, Inc. dated July 26, 1997.(3)
10.22 TriQuest Design Automation, Inc. 1995 Stock Option Plan and form of agreement thereto.(5)
10.23 Simulation Technologies 1994 Stock Option Plan and form of agreement thereto.(6)
10.24 1997 Non-Statutory Stock Option Plan and form of agreement thereto.(7)
10.25 Promissory Notes between the Registrant and John Diferdinando dated July 15, 1997.(4)
10.26 Employment agreement between the Registrant and John Diferdinando dated as of April 15, 1997.(4)
10.27 Shareholders Agreement between the Registrant and Summit Design Asia, Ltd. dated May 12, 1998.(9)
10.28 Shareholders Agreement between the Registrant and Asia Design Corporation, Ltd. dated May 12, 1998.(9)
10.29++ Distributor Agreement between the Registrant and Summit Design Asia, Ltd. dated May 12, 1998.(9)
10.30 Loan Agreement between the Registrant and Summit Design Asia, Ltd. dated June 2, 1998.(9)
10.31 Joint Escrow Agreement between the Registrant, Perkins Coie (Hong Kong) Limited, Summit Design Asia,
Ltd. and Asia Design Corporation, Ltd.(9)
10.32 Guarantee Agreement between the Registrant and Asia Design Corporation, Ltd. dated May 12, 1998.(9)
10.33 Security Agreement between the Registrant and Asia Design Corporation, Ltd. dated May 12, 1998.(9)
16.1 Letter re Change in Certifying Accountant.(1)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
21.1* List of Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in opinions filed as
Exhibits 5.1 and 8.1).
23.2* Consent of Ater Wynne LLP (included in opinion filed as Exhibit 8.2).
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Black & Company. (See Annex B).
23.7 Consent of Alliant Partners.
24.1 Power of Attorney (see page II-5).
99.1* Registrant Form of Proxy.
99.2* OrCAD, Inc. Form of Proxy.
99.3 Consent of Person About to Become a Director.
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-06445) as declared effective by the Securities
Exchange Commission on October 17, 1996.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-32551) as filed on July 31, 1997.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-47481) as filed on March 6, 1998.
(7) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-47545) as filed on March 9, 1998.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(10) Incorporated by reference to the Registrant's Current Report on Form 8-K
as filed on September 30, 1998.
* To be filed by amendment.
+ Confidential treatment granted.
++ Confidential treatment has been requested.
(B) FINANCIAL STATEMENT SCHEDULES
Registrant
Schedule II--Valuation and Qualifying Accounts
II-3
<PAGE>
Schedules not listed above have been omitted because the
information required to be set forth therein is not required, not
applicable or is shown in the financial statements or is included
elsewhere.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(7) To supply by means of a post-effective amendment all required
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Beaverton, state of
Oregon, on September 30, 1998.
SUMMIT DESIGN, INC.
By: /s/ LARRY J. GERHARD
--------------------------------------
Larry J. Gerhard
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Larry J. Gerhard and C. Albert Koob and each of
them jointly and severally, as his or her attorneys-in-fact each with full power
of substitution and resubstitution, for him or her, in any and all capacities to
sign the Registration Statement filed herewith and any or all amendments to said
Registration Statement (including post-effective amendments), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission granting unto said attorneys-in-fact
and agents and full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing, as full to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities stated on September 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ---------------------------------------------------------
<C> <S>
/s/ LARRY J. GERHARD
------------------------------------------- Chairman of the Board, President and Chief Executive
Larry J. Gerhard Officer (Principal Executive Officer)
/s/ C. ALBERT KOOB
------------------------------------------- Vice President of Finance, Chief Financial Officer and
C. Albert Koob Secretary (Principal Financial and Accounting Officer)
/s/ AMIHAI BEN-DAVID
------------------------------------------- Director
Amihai Ben-David
/s/ WILLIAM V. BOTTS
------------------------------------------- Director
William V. Botts
/s/ STEVEN P. ERWIN
------------------------------------------- Director
Steven P. Erwin
/s/ BARBARA M. KARMEL
------------------------------------------- Director
Barbara M. Karmel
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among the Registrant, Hood Acquisition Corp. and OrCAD, Inc.
dated September 20, 1998.(10)
2.2 Form of OrCAD, Inc. Voting Agreement.(10)
2.3 Form of Registrant Voting Agreement.(10)
2.4 Form of OrCAD, Inc. Affiliate Agreement.(10)
2.5 Form of Registrant Affiliate Agreement.(10)
2.6* Form of Certificate of Merger.
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(2)
4.1 Specimen Stock Certificate of the Registrant.(1)
4.2 Investors' Rights Agreement between the Registrant and the parties named therein dated February 10,
1994, as amended.(1)
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.1* Tax Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.2* Tax Opinion of Ater Wynne LLP.
10.1 Form of Indemnification Agreement between the Registrant and its executive officers and directors.(1)
10.2 1994 Stock Plan, as amended.(1)
10.3 1996 Employee Stock Purchase Plan.(1)
10.4 1996 Director Option Plan.(1)
10.5 Employment Agreement between the Registrant and Larry J. Gerhard dated as of August 1, 1997.(4)
10.6 Employment Agreement between the Registrant and C. Albert Koob dated October 21, 1995.(1)
10.7 Employment Agreement between the Registrant and Richard Davenport dated September 9, 1997.(4)
10.8 Employment Agreement between the Registrant and Arthur Fletcher dated July 1, 1997.(4)
10.9 Employment Agreement between the Registrant and Eric Benhayoun dated October 31, 1994.(1)
10.10 Employment Agreement between the Registrant and Moshe Guy dated July 1, 1997.(4)
10.11 Employment Agreement between the Registrant and Joseph Masarich dated December 22, 1997.(4)
10.12+ Software OEM License Agreement between the Registrant, Test System Strategies Inc. and Credence Systems
Corporation dated May 19, 1997.(2)
10.13 Lease Agreement between the Registrant and Petula Associates Ltd. and Koll Creekside Associates II dated
October 26, 1993, as amended.(1)
10.14 Sublease Agreement, dated as of January 1993 between CDL Technologies, Ltd. and SEE Technologies,
Ltd.(1)
10.15 Bank Line of Credit Agreement between the Registrant and U.S. National Bank of Oregon dated April 30,
1998.(8)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.16+ Joint Venture Agreement between Summit Design Israel, Inc. and Anam S&T Co., Ltd. dated March 21,
1996.(1)
10.17+ Distributor Agreement between the Registrant and Seiko Instruments, Inc., dated February 1, 1996.(1)
10.18+ Distributor Agreement between the Registrant and ATE Service Co., Ltd., dated October 23, 1995, and
amended as of April 9, 1996.(1)
10.19+ Amendment to Distributor Agreement between the Registrant and Seiko Instruments, Inc.(4)
10.20 Loan Agreement between the Registrant and Moshe Guy dated May 20, 1997.(2)
10.21 Loan Agreement between the Registrant and Dasys, Inc. dated July 26, 1997.(3)
10.22 TriQuest Design Automation, Inc. 1995 Stock Option Plan and form of agreement thereto.(5)
10.23 Simulation Technologies 1994 Stock Option Plan and form of agreement thereto.(6)
10.24 1997 Non-Statutory Stock Option Plan and form of agreement thereto.(7)
10.25 Promissory Notes between the Registrant and John Diferdinando dated July 15, 1997.(4)
10.26 Employment agreement between the Registrant and John Diferdinando dated as of April 15, 1997.(4)
10.27 Shareholders Agreement between the Registrant and Summit Design Asia, Ltd. dated May 12, 1998.(9)
10.28 Shareholders Agreement between the Registrant and Asia Design Corporation, Ltd. dated May 12, 1998.(9)
10.29++ Distributor Agreement between the Registrant and Summit Design Asia, Ltd. dated May 12, 1998.(9)
10.30 Loan Agreement between the Registrant and Summit Design Asia, Ltd. dated June 2, 1998.(9)
10.31 Joint Escrow Agreement between the Registrant, Perkins Coie (Hong Kong) Limited, Summit Design Asia,
Ltd. and Asia Design Corporation, Ltd.(9)
10.32 Guarantee Agreement between the Registrant and Asia Design Corporation, Ltd. dated May 12, 1998.(9)
10.33 Security Agreement between the Registrant and Asia Design Corporation, Ltd. dated May 12, 1998.(9)
16.1 Letter re Change in Certifying Accountant.(1)
21.1* List of Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in opinions filed as
Exhibits 5.1 and 8.1).
23.2* Consent of Ater Wynne LLP (included in opinion filed as Exhibit 8.2).
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Ernst & Young LLP
23.6 Consent of Black & Company. (See Annex B).
23.7 Consent of Alliant Partners.
24.1 Power of Attorney (see page II-5).
99.1* Registrant Form of Proxy.
99.2* OrCAD, Inc. Form of Proxy.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
99.3 Consent of Person About to Become a Director.
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-06445) as declared effective by the Securities and
Exchange Commission on October 17, 1996.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-32551) as filed on July 31, 1997.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-47481) as filed on March 6, 1998.
(7) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-47545) as filed on March 9, 1998.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(10) Incorporated by reference to the Registrant's Current Report on Form 8-K
as filed on September 30, 1998.
* To be filed by amendment.
+ Confidential treatment granted.
++ Confidential treatment has been requested.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Summit Design, Inc. and subsidiaries of
our report dated January 30, 1998, except for Note 20 as to which the date is
September 20, 1998, relating to the consolidated financial statements of Summit
Design, Inc., and subsidiaries, which appears in such Prospectus. We also
consent to the use of our report on the Financial Statement Schedule for the
three years ended December 31, 1997 appearing on page S-1 of this Registration
Statement. We also consent to the references to us under the heading "Experts"
in such Prospectus.
[LOGO]
Portland, Oregon
September 30, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
OrCAD, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Joint Proxy Statement/Prospectus.
[LOGO]
Portland, Oregon
September 30, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 26, 1998 in the Summit Design, Inc. and
OrCAD, Inc. Joint Proxy Statement to be filed with the Securities and Exchange
Commission on or about September 29, 1998.
[LOGO]
Orange County, California
September 28, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF ALLIANT PARTNERS
We hereby consent to the use of our opinion letter dated September 18, 1998
to the Board of Directors of OrCAD, Inc., included as Annex C to the Joint Proxy
Statement/Prospectus which forms a part of the Registration Statement dated as
of the date hereof on Form S-4 relating to the proposed merger of Hood
Acquisition Corp., a wholly-owned subsidiary of Summit Design, Inc., with and
into OrCAD, Inc. and to the references therein to such opinion under the
captions "Summary--Fairness Opinions" and "Approval of the Merger and Related
Transactions--Opinion of OrCAD's Financial Advisor."
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
ALLIANT PARTNERS
By: /s/ George Von Gehr
Name: George Von Gehr
September 30, 1998
<PAGE>
EXHIBIT 99.3
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Michael F. Bosworth, hereby consent to the use in the Registration
Statement on Form S-4 of Summit Design, Inc. (the "Company") to which this
consent is filed as an exhibit and the Joint Proxy Statement/Prospectus included
therein, of my name as a person about to become a director of the Company.
/s/ Michael F. Bosworth
Michael F. Bosworth
September 30, 1998
