<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 2000
REGISTRATION NO. 333-89491
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUMMIT DESIGN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
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<S> <C> <C>
DELAWARE 7372 93-1137888
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</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)
------------------------------
WILLIAM V. BOTTS
INTERIM 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:
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<S> <C>
ALAN K. AUSTIN, ESQ. JOHN A. BURGESS, ESQ.
STEVEN V. BERNARD, ESQ. HALE AND DORR LLP
DANIEL K. YUEN, ESQ. 60 STATE STREET
WILSON SONSINI GOODRICH & ROSATI BOSTON, MASSACHUSETTS 02109
650 PAGE MILL ROAD (617) 526-6000
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the business combination 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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------
------------------------------
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.
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- --------------------------------------------------------------------------------
<PAGE>
SUMMIT DESIGN, INC.
9305 S.W. GEMINI DRIVE
BEAVERTON, OREGON 97008
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
------------------------
To the stockholders of Summit Design, Inc:
We will hold a special meeting of stockholders on , 2000 at
p.m., local time, at the Embassy Suites, 9000 S.W. Washington Square Road,
Tigard, Oregon 97223.
At the special meeting you will be asked to consider and vote upon the
following proposals:
- the issuance of shares of our common stock to the stockholders of
Viewlogic pursuant to the agreement and plan of reorganization among
Summit, Viewlogic and Hood Acquisition Corp., a wholly owned subsidiary of
Summit, dated as of September 16, 1999;
- an amendment to our Amended and Restated Certificate of Incorporation
increasing the number of shares of our common stock authorized for
issuance by 20 million shares to 50 million shares, contingent upon
approval of the above stock issuance proposal;
- an amendment to our Amended and Restated Certificate of Incorporation
changing the company's name to " ," contingent and effective upon
completion of the business combination with Viewlogic; and
- to transact all other business that may properly come before the Summit
special meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies, if necessary, to establish a quorum or to
obtain additional votes in favor of the approval of the above proposals,
or to postpone or adjourn the meeting.
The above proposals are described more fully in the accompanying joint proxy
statement/prospectus. Please review carefully the entire joint proxy
statement/prospectus, including the matters discussed under "Risk Factors"
beginning on page 10.
Stockholders of record at the close of business on , 2000 are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements thereof, and are cordially invited to attend the special
meeting in person. A complete list of all stockholders entitled to vote at the
special meeting shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during the ten days prior to the special meeting
at our office at 9305 S.W. Gemini Drive, Beaverton, Oregon 97008.
For the Board of Directors
/s/ C. ALBERT KOOB
C. Albert Koob
VICE PRESIDENT OF FINANCE,
CHIEF FINANCIAL OFFICER AND SECRETARY
Beaverton, Oregon
, 2000
YOUR VOTE IS IMPORTANT. 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. IF THE PROXY CARD IS MAILED IN THE UNITED STATES YOU DO NOT NEED TO
AFFIX POSTAGE TO THE ENCLOSED ENVELOPE.
<PAGE>
VIEWLOGIC SYSTEMS, INC.
293 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
---------------------
To the stockholders of Viewlogic Systems, Inc.:
We will hold a special meeting of stockholders of Viewlogic Systems, Inc. on
, 2000 at a.m., local time, at the offices of Viewlogic, 293
Boston Post Road West, Marlboro, Massachusetts 01752. At the special meeting you
will be asked to consider and vote upon the following proposals:
- the approval and adoption of the agreement and plan of reorganization by
and among Summit Design, Inc., Hood Acquisition Corp., a wholly owned
subsidiary of Summit, and Viewlogic, pursuant to which Hood will merge
into Viewlogic and each outstanding share of capital stock of Viewlogic
will be converted into the right to receive 0.67928 of a share of Summit
common stock, and the transactions contemplated by the merger agreement,
including the merger; and
- to transact all other business that may properly come before the Viewlogic
special meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies, if necessary, to establish a quorum or to
obtain additional votes in favor of the approval and adoption of the
merger agreement and the transactions contemplated by the merger
agreement, or to postpone or adjourn the meeting.
The proposals above are described in greater detail in the accompanying
joint proxy statement/ prospectus. Please review carefully the entire joint
proxy statement/prospectus, including the matters discussed under "Risk Factors"
beginning on page 10.
A complete list of all stockholders entitled to vote at the special meeting
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during the ten days prior to the special meeting at our offices at
293 Boston Post Road West, Marlboro, Massachusetts 01752.
Holders of record at the close of business on , 2000 of shares
of our common stock or shares of our Series A Voting Preferred Stock are
entitled to notice of, and to vote at, the special meeting and any adjournments
or postponements thereof, and are cordially invited to attend the special
meeting in person.
After careful consideration, the board of directors has unanimously approved
and adopted the proposed merger agreement and the merger and determined that the
transaction is in the best interests of Viewlogic and its stockholders. The
board of directors therefore unanimously recommends that you vote to APPROVE and
ADOPT the merger agreement.
For the Board of Directors
/s/ PETER T. JOHNSON
Peter T. Johnson
VICE PRESIDENT, BUSINESS DEVELOPMENT,
CHIEF LEGAL OFFICER AND SECRETARY
Marlboro, Massachusetts
, 2000
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE VIEWLOGIC
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. IF THE PROXY CARD IS MAILED IN THE UNITED STATES, YOU DO NOT NEED TO
AFFIX POSTAGE TO THE ENCLOSED ENVELOPE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 21, 2000
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT
COMPLETE AND MAY BE CHANGED. WE HAVE FILED A REGISTRATION STATEMENT RELATING TO
THESE SECURITIES WITH THE SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL
THESE SECURITIES UNTIL THAT REGISTRATION STATEMENT IS EFFECTIVE. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE
NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
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<S> <C>
[SUMMIT LOGO] [VIEWLOGIC LOGO]
9305 S.W. GEMINI DRIVE 293 BOSTON POST ROAD WEST
BEAVERTON, OREGON 97008 MARLBORO, MASSACHUSETTS 01752
</TABLE>
JOINT PROXY STATEMENT/PROSPECTUS
Summit Design, Inc., has agreed to enter into a business combination with
Viewlogic Systems, Inc.
In the business combination, Viewlogic stockholders will receive 0.67928 of
a share of Summit common stock for each share of Viewlogic capital stock they
own and will receive cash in lieu of any fractional share of Summit common stock
which they would otherwise receive in the business combination.
Following completion of the proposed business combination with Viewlogic,
the stockholders of Viewlogic will hold approximately 51% of the shares of
common stock of the combined company. The combined company's board of directors
will initially consist of five members:
- two current members of Summit's board of directors; and
- three current members of Viewlogic's board of directors.
William J. Herman, Viewlogic's current President and Chief Executive Officer
and a member of Viewlogic's board of directors, will be the Chairman of the
Board and Chief Executive Officer of the combined company.
Summit is providing this joint proxy statement/prospectus to its
stockholders in connection with the solicitation of proxies by the Summit board
of directors for use at the special meeting of Summit stockholders to be held on
, 2000, at the Embassy Suites, 9000 S.W. Washington Square Road,
Tigard, Oregon 97223, commencing at .m., local time, and at any adjournment or
postponement of the meeting.
Viewlogic is providing this joint proxy statement/prospectus to its
stockholders in connection with the solicitation of proxies by the Viewlogic
board of directors for use at the special meeting of Viewlogic stockholders to
be held on , 2000, at the offices of Viewlogic at 293 Boston Post
Road West, Marlboro, Massachusetts, beginning at p.m., local time, and at
any adjournment or postponement of the meeting.
This joint proxy statement/prospectus is also the prospectus of Summit with
respect to the shares of common stock of Summit to be issued in the business
combination in exchange for outstanding shares of Viewlogic capital stock.
Summit common stock is quoted on the Nasdaq National Market under the symbol
"SMMT." On , 2000, its last reported price was $ per share.
------------------------
THE PROPOSED BUSINESS COMBINATION IS A COMPLEX TRANSACTION. PLEASE READ AND
CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY,
INCLUDING THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 10.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED PURSUANT TO
THIS JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This joint proxy statement/prospectus and the accompanying proxy cards are
first being mailed to stockholders of Summit and Viewlogic on or about
, 2000.
The date of this joint proxy statement/prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY..................................................... 3
The Business Combination.................................. 3
Voting on the Business Combination........................ 4
The Companies............................................. 6
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL DATA.................................. 7
RISK FACTORS................................................ 10
Risks Relating to the Business Combination................ 10
Risk Relating to Summit and the Combined Company.......... 12
Risk Relating to Viewlogic................................ 22
FORWARD-LOOKING STATEMENTS.................................. 26
TRADEMARKS.................................................. 26
COMPARATIVE PER SHARE DATA.................................. 27
STOCK PRICE DATA............................................ 28
SUMMIT SPECIAL MEETING...................................... 29
Date, Time and Place of Summit Special Meeting............ 29
Purpose................................................... 29
Record Date and Outstanding Shares........................ 29
Vote Required............................................. 29
Proxies................................................... 30
Solicitation of Proxies; Expenses......................... 30
Recommendations of Summit Board of Directors.............. 30
VIEWLOGIC SPECIAL MEETING................................... 31
Date, Time and Place of Viewlogic Special Meeting......... 31
Purpose................................................... 31
Record Date and Outstanding Shares........................ 31
Vote Required............................................. 31
Proxies................................................... 32
Solicitation of Proxies; Expenses......................... 32
Recommendations of Viewlogic Board of Directors........... 32
APPROVAL OF THE BUSINESS COMBINATION AND RELATED
TRANSACTIONS.............................................. 33
Background of the Business Combination.................... 33
Joint Reasons for the Business Combination................ 35
Summit's Reasons for the Business Combination............. 36
Viewlogic's Reasons for the Business Combination.......... 38
Opinion of Summit's Financial Advisor..................... 38
Material Federal Income Tax Considerations................ 44
Accounting Treatment...................................... 45
Governmental and Regulatory Approvals..................... 45
Appraisal Rights.......................................... 46
</TABLE>
i
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PAGE
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<S> <C>
THE MERGER AGREEMENT........................................ 50
Representations and Warranties............................ 50
Conduct of Business Before Completion of the Business
Combination............................................. 51
No Solicitation of Other Acquisition Proposal............. 52
Treatment of Viewlogic Stock Options...................... 52
Board of Directors and Officers of the Combined Company... 53
Conditions to Completion of the Business Combination...... 53
Termination of the Merger Agreement....................... 54
Payment of Termination Fee................................ 55
Extension, Waiver and Amendment of the Merger Agreement... 55
Interests of Summit Management in the Business
Combination............................................. 56
Interests of Viewlogic Directors and Management in the
Business Combination.................................... 56
Voting Agreements......................................... 57
COMPARISON OF CAPITAL STOCK................................. 58
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 63
INDUSTRY.................................................... 71
SUMMIT BUSINESS............................................. 73
SUMMIT SELECTED HISTORICAL AND UNAUDITED FINANCIAL DATA..... 84
SUMMIT MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 85
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 107
SUMMIT DIRECTORS AND EXECUTIVE OFFICERS..................... 108
SUMMIT EXECUTIVE OFFICER COMPENSATION....................... 109
SUMMIT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................ 112
PRO FORMA COMBINED SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................... 114
VIEWLOGIC BUSINESS.......................................... 115
VIEWLOGIC SELECTED HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL DATA............................................ 123
VIEWLOGIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 124
VIEWLOGIC DIRECTORS AND EXECUTIVE OFFICERS.................. 134
VIEWLOGIC EXECUTIVE OFFICER COMPENSATION.................... 136
VIEWLOGIC CERTAIN TRANSACTIONS.............................. 140
VIEWLOGIC SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................ 141
LEGAL MATTERS............................................... 142
EXPERTS..................................................... 142
STOCKHOLDER PROPOSALS....................................... 142
WHERE YOU CAN FIND MORE INFORMATION......................... 142
</TABLE>
ii
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PAGE
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<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
SUMMIT FINANCIAL INFORMATION
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997 and September 30, 1999 (unaudited)................. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 and for the Nine Months
Ended September 30, 1999 (unaudited) and 1998
(unaudited)............................................. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996 and for the
Nine Months Ended September 30, 1999 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 and for the Nine Months
Ended September 30, 1999 (unaudited).................... F-6
Notes to Consolidated Financial Statements................ F-7
VIEWLOGIC FINANCIAL INFORMATION
Report of Independent Accountants......................... F-26
Consolidated Balance Sheets as of January 2, 1999 and
October 2, 1999......................................... F-27
Statements of Revenues and Direct Expenses for the Year
Ended December 31, 1997 and Consolidated Statements of
Operations for the year ended January 2, 1999 and for
the Nine Months Ended October 3, 1998 (unaudited) and
October 2,1999.......................................... F-28
Consolidated Statements of Comprehensive Income for the
year ended January 2, 1999 and for the Nine Months Ended
October 3, 1998 (unaudited) and October 2,1999.......... F-29
Consolidated Statements of Stockholders' Equity
(Deficiency) for the Year Ended January 2, 1999 and for
the Nine Months Ended October 2, 1999................... F-30
Consolidated Statements of Cash Flows for the Year Ended
January 2, 1999 and for the Nine Months Ended
October 3, 1998 (unaudited) and October 2, 1999......... F-31
Notes to Consolidated Financial Statements................ F-32
Annex A Agreement and Plan of Reorganization
Annex B Form of Viewlogic Voting Agreement
Annex C Fairness Opinion of Dain Rauscher & Wessels
Annex D Section 262 of Delaware General Corporation Law
</TABLE>
iii
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF SOME OF THE INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/ PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN A COMPLETE
STATEMENT OF ALL THE IMPORTANT ELEMENTS OF THE PROPOSALS TO BE VOTED ON OR WHICH
YOU MAY BELIEVE TO BE IMPORTANT AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ACCOMPANYING INFORMATION AND DOCUMENTS.
THE BUSINESS COMBINATION
Summit Design and Viewlogic have entered into an agreement for a business
combination. Upon consummation of the business combination, current stockholders
of Viewlogic will receive 0.67928 of a share of Summit common stock for each
share of Viewlogic capital stock. Following the business combination, the
stockholders of Viewlogic will own approximately 51% of the combined company.
The combined company's board of directors will initially consist of the
following five members:
- William Botts and Steven Erwin, each a current member of Summit's board of
directors; and
- William J. Herman, Lorne Cooper and Keith Geeslin, each a current member
of Viewlogic's board of directors.
William J. Herman, Viewlogic's current President and Chief Executive Officer and
a member of Viewlogic's board of directors, will become the Chairman of the
Board of Directors and Chief Executive Officer of the combined company.
RISK FACTORS (PAGE 10)
The proposed business combination of Summit and Viewlogic involves numerous
risks and uncertainties, including, among others:
- a fixed exchange ratio;
- potential delays in customers' purchases pending the business combination;
- possible dilution to earnings per share;
- difficulties in integrating Summit, Viewlogic and their respective prior
acquisitions;
- diversion of management's attention; and
- expenses relating to the business combination.
Moreover, each of Summit's and Viewlogic's business involves operating risks
which the combined company will continue to face.
INTERESTS OF SUMMIT MANAGEMENT IN THE BUSINESS COMBINATION (PAGE 54)
In considering the recommendation of the Summit board of directors in favor
of the business combination and the related amendments to Summit's certificate
of incorporation, stockholders of Summit should be aware that one executive of
Summit has interests different from, or in addition to, those of a Summit
stockholder. If the business combination is completed it is likely that one
executive's stock option will vest in full and that he will receive severance
benefits if his employment is terminated.
INTERESTS OF VIEWLOGIC DIRECTORS AND MANAGEMENT IN THE BUSINESS COMBINATION
(PAGE 54)
Viewlogic stockholders should note that many of Viewlogic's directors and
executive officers have interests in the business combination as directors or
executive officers that are different from, or in addition to, those of a
Viewlogic stockholder. If the business combination is completed, indemnification
arrangements for all current directors and officers of Viewlogic will be
continued. In addition, six current executive officers of Viewlogic will be
retained as executive officers of the combined company and three current
directors of Viewlogic will be directors of the combined company. The employment
agreements of two of Viewlogic's executive officers will be assumed by the
combined company. Under the terms of those agreements, each of the two executive
officers will be entitled
3
<PAGE>
to severance benefits if he is terminated by the combined company without cause.
VOTING ON THE BUSINESS COMBINATION (PAGE 28, 30, 55 AND ANNEX B)
Consummation of the business combination requires approval of the Summit and
Viewlogic stockholders. To induce Summit to enter into the merger agreement,
some stockholders of Viewlogic, who own an aggregate of shares of
Viewlogic capital stock, representing approximately % of Viewlogic's voting
securities as of the record date, have entered into voting agreements with
Summit. These stockholders have agreed to vote all shares of their Viewlogic
capital stock in favor of approval of the business combination. The vote of
these stockholders in accordance with the voting agreements, alone and without
the vote of any other of Viewlogic's stockholders is sufficient to approve the
business combination on behalf of Viewlogic.
Summit and Viewlogic are holding special meetings of stockholders as follows:
SUMMIT. A special meeting of the stockholders of Summit will be held at the
Embassy Suites, 9000 S.W. Washington Square Road, Tigard, Oregon 97223, on
, 2000 at p.m. The principal purpose of the special meeting is
to consider and vote upon the business combination, the issuance of Summit
common stock in connection with the business combination and amendments to
Summit's charter to permit this issuance and to change Summit's corporate name
to " ".
VIEWLOGIC. A special meeting of the stockholders of Viewlogic will be held
at the offices of Viewlogic, 293 Boston Post Road West, Marlboro, Massachusetts
01752 on 2000 at a.m., local time. The principal purpose of the
special meeting is to consider and vote upon the merger agreement and the
business combination.
BOARD RECOMMENDATIONS (PAGES 29 AND 31)
SUMMIT. Summit's board of directors has unanimously approved the merger
agreement, the issuance of shares of Summit common stock and the related
amendments to Summit's corporate charter. The Summit board of directors
unanimously recommends that Summit stockholders approve the Summit proposals
described in this joint proxy statement/ prospectus.
VIEWLOGIC. Viewlogic's board of directors has also unanimously approved the
merger agreement and the business combination. The Viewlogic board of directors
unanimously recommends that Viewlogic stockholders approve and adopt the
Viewlogic proposals described in this joint proxy statement/prospectus.
REASONS FOR THE BUSINESS COMBINATION (PAGE 34)
Summit and Viewlogic believe that the business combination will benefit the
companies for various reasons, including, among others, the following:
- products that complement one another;
- a more comprehensive product line; and
- a larger installed customer base.
OPINION OF SUMMIT'S FINANCIAL ADVISOR (PAGE 37 AND ANNEX C)
In deciding to approve the business combination, Summit's board of directors
considered many factors, including an opinion from its financial advisor, Dain
Rauscher Wessels, as to the fairness of the exchange ratio from a financial
point of view to Summit and its stockholders. The exchange ratio is the number
of shares of Summit common stock to be issued in exchange for one Viewlogic
share.
APPRAISAL RIGHTS (PAGE 44 AND ANNEX D)
SUMMIT. Stockholders of Summit are not entitled to dissenters' rights under
Delaware law. Stockholders of Summit can sell their shares of common stock on
the Nasdaq National Market at prevailing prices, unless otherwise restricted by
securities laws or contractual obligations.
VIEWLOGIC. Under Delaware law, stockholders of Viewlogic who oppose the
business combination are entitled to appraisal
4
<PAGE>
rights, including, among others, the right to demand appraisal of their shares.
STRUCTURE OF THE BUSINESS COMBINATION
The business combination is intended to be a tax-free, stock-for-stock
transaction in which a total of approximately 16.3 million shares of Summit
common stock will be issued in exchange for all outstanding shares of Viewlogic
capital stock. Summit will also assume Viewlogic's outstanding stock options.
After completion of the business combination, these options will be exercisable
for up to approximately 2.5 million shares of Summit common stock.
CONDITIONS TO COMPLETION OF THE BUSINESS COMBINATION (PAGE 51)
The merger agreement specifies several conditions that have to be met before
Summit and Viewlogic can complete the business combination. These conditions
include, among other things:
- approval by Summit's stockholders of the issuance of approximately 16.3
million shares of Summit common stock and a related corporate charter
amendment to increase the number of authorized shares of common stock
issuable by Summit accordingly; and
- approval and adoption by Viewlogic's stockholders of the merger agreement
and the business combination.
TERMINATION OF THE MERGER AGREEMENT (PAGE 52)
Summit or Viewlogic may terminate the merger agreement under specified
circumstances, including, among others, the following:
- if the business combination is not completed by February 29, 2000; or
- if either Summit's or Viewlogic's stockholders fail to approve the
transactions contemplated by the business combination.
In addition, under some circumstances, termination of the merger agreement may
lead to payment of a $2.5 million termination fee by either Summit or Viewlogic.
NON-SOLICITATION (PAGE 50)
Until the business combination is completed or the merger agreement is
terminated, Summit and Viewlogic have agreed not to directly or indirectly
solicit other acquisition proposals, subject to some legal requirements,
including, among others, fiduciary obligations of either of the companies' board
of directors.
TAX TREATMENT (PAGE 42)
The transaction is intended to qualify as a tax-free reorganization for
Summit, Viewlogic and their respective stockholders.
ACCOUNTING TREATMENT (PAGE 44)
Summit and Viewlogic expect that the transaction will be accounted for as a
purchase of Summit by Viewlogic for financial reporting and accounting purposes.
REGULATORY REQUIREMENTS (PAGE 44)
The business combination is subject to the satisfaction of requirements
under federal and state securities laws.
RECORD DATE AND VOTE REQUIRED (PAGES 28 AND 30)
SUMMIT. Only holders of Summit common stock of record at the close of
business on , 2000 are entitled to notice of and to vote at the
special meeting. The issuance of the shares of Summit common stock to Viewlogic
stockholders will require the affirmative vote of a majority of the total votes
cast regarding the proposal. The related amendments to Summit's charter will
require the affirmative vote of a majority of the total shares outstanding.
VIEWLOGIC. Only holders of Viewlogic common stock and series A voting
preferred stock of record at the close of business on , 2000 are
entitled to notice of and to vote at the special meeting. The approval and
adoption of the merger agreement and the business combination will require the
affirmative
5
<PAGE>
vote of a majority of the outstanding shares of Viewlogic common stock and
series A voting preferred stock as of the record date, voting together as a
single class.
THE COMPANIES
Summit Design, Inc. (Page 72)
9305 S.W. Gemini Drive
Beaverton, Oregon 97008
(503) 643-9281
Summit is an international supplier of software products which helps engineers
design computer chips. Some of the world's top electronics companies use
Summit's products to increase engineering productivity, decrease time to market
and improve the quality of their products.
Viewlogic Systems, Inc. (Page 115)
293 Boston Post Road
West Marlboro, Massachusetts 01752
(508) 480-0881
Viewlogic develops, markets and supports a comprehensive family of integrated
software and services for the design of advanced electronic systems and
products. Viewlogic is a privately held company with offices in North America,
Europe, Japan and the Far East.
6
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA
The following selected historical annual financial data of Summit and
Viewlogic has been derived from their respective audited historical financial
statements and should be read in conjunction with those consolidated financial
statements and the notes related to those financial statements. The consolidated
financial statements for Summit for the three fiscal years ended December 31,
1998 and for Viewlogic for the years ended December 31, 1997 and January 2, 1999
and the nine-month period ended October 2, 1999 are included elsewhere in this
joint proxy statement/prospectus.
The fiscal years presented prior to December 31, 1997 represent revenue and
expenses derived from the historical financial statements of an entity of which
the Viewlogic business was previously a part. Viewlogic does not have balance
sheet data for its business prior to December 31, 1997. For further discussion
on this point, please refer to Viewlogic's Management, Discussion and Analysis
of Financial Condition and Results of Operations on page 124.
The unaudited selected historical financial information as of September 30,
1999, and for the nine month periods ended September 30, 1998 and 1999, of
Summit and the unaudited selected historical financial information of Viewlogic
as of October 2, 1999 and for the nine months ended October 3, 1998 and
October 2, 1999 are included elsewhere in this joint proxy statement/prospectus,
and in the opinion of Summit's and Viewlogic's respective management, reflect
all adjustments necessary for the fair presentation of the 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 business combination will be accounted for under the purchase method of
accounting. Although Summit will be acquiring Viewlogic, Viewlogic will hold a
controlling interest in Summit as a result of the business combination.
Accordingly, the business combination is considered, for accounting purposes, to
be a "reverse acquisition," in which Viewlogic is the "accounting acquirer."
Accordingly, the unaudited pro forma combined condensed balance sheet data at
September 30, 1999 includes the accounts of Viewlogic on a historical cost basis
and the assets and liabilities of Summit at acquisition cost, allocated by
relative estimated fair value as of the date of the acquisition. The estimated
purchase price allocations have been made on a preliminary basis and may change
as additional information becomes known. The unaudited pro forma combined
statements of operations data have been presented as if the business combination
took place at the beginning of the earliest period presented. All of the
unaudited pro forma combined condensed historical financial data has been
derived from the unaudited pro forma combined condensed financial statements and
the related notes thereto included elsewhere in this joint proxy
statement/prospectus and should be read in conjunction with those financial
statements and related notes. 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 business
combination had been consummated at the beginning of the periods presented, nor
is it necessarily indicative of future operating results or financial position.
7
<PAGE>
SUMMIT HISTORICAL CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR
NINE MONTHS ENDED
AT OR FOR YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenue......................... $13,167 $14,292 $20,314 $31,469 $43,598 $32,683 $21,853
Total costs and operating expenses,
excluding in-process technology,
amortization of purchased
technology, intangibles and
goodwill, merger costs, severance
and write-off of note receivable.... 14,095 17,331 19,413 23,458 30,852 22,996 21,773
In-process technology, amortization of
purchased technology, intangibles
and goodwill, merger costs,
severance and write-off of note
receivable.......................... 647 -- -- 13,229 4,701 2,816 6,401
Total costs and operating expenses.... 14,742 17,331 19,413 36,687 35,553 25,812 28,174
Income (loss) from operations......... (1,575) (3,039) 901 (5,248) 8,045 6,871 (6,321)
Net income (loss)..................... (2,082) (3,611) 1,263 431 5,101 4,618 (5,538)
Net income (loss) per diluted share... $ (0.22) $ (0.33) $ 0.10 $ 0.03 $ 0.32 $ 0.28 $ (0.35)
Number of shares used in computing
diluted earnings (loss) per share... 9,449 11,085 13,243 15,402 16,115 16,208 15,646
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 1,203 $ 711 $19,801 $19,973 $27,693 $24,662 $27,008
Working capital (deficit)............. (439) (540) 17,236 14,603 24,255 21,142 23,754
Total assets.......................... 8,097 9,151 28,700 39,670 50,210 46,649 42,117
Long-term debt, less current
portion............................. 253 1,216 770 237 156 164 --
Stockholders' equity.................. 1,224 548 19,151 26,196 35,475 32,128 30,260
</TABLE>
VIEWLOGIC HISTORICAL CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED AT OR FOR
------------------------------------------------- NINE MONTHS ENDED
DECEMBER 31, -------------------------
-------------------------------- JANUARY 2, OCTOBER 3, OCTOBER 2,
1995 1996 1997(1) 1999 1998 1999
--------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenue.................. $74,981 $69,626 $ 63,987 $ 55,237 $41,165 $ 40,817
Total costs and operating
expenses..................... 61,462 60,770 65,983 43,385 31,346 37,870
Income (loss) from
operations................... 13,519 8,856 (1,996) 11,852 9,819 2,947
Net income (loss).............. (1,199) 5,867 4,796 1,067
Net income per diluted share... $ .73 $ 1.21 $ .05
Number of shares used in
computing diluted earnings
(loss) per share............. 7,999 3,966 21,631
CONSOLIDATED BALANCE SHEET
DATA:
Working capital (deficit)...... (14,719) (6,509) (8,224)
Total assets................... 25,377 24,892 29,103
Long-term debt, less current
portion...................... 130 15,873 14,080
Redeemable convertible
preferred stock.............. -- 32,000 32,000
Stockholders' equity
(deficit).................... (5,629) (47,845) (44,822)
</TABLE>
- ------------------------
(1) Statement of Revenue and Expense Data
8
<PAGE>
UNAUDITED SUMMIT AND VIEWLOGIC PRO FORMA COMBINED CONDENSED HISTORICAL FINANCIAL
DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
PRO FORMA COMBINED CONDENSED STATEMENT OF
INCOME DATA:
Total revenue............................... $98,835 $ 62,670
Total costs and operating expenses.......... 84,486 69,911
Income (loss) from operations............... 14,349 (7,241)
Net income (loss)........................... 5,841 (7,630)
Net income (loss) per diluted share......... $ 0.18 $ (0.24)
Shares used in computing diluted earnings
(loss) per share.......................... 32,350 31,880
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1999
------------------
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 28,304
Working capital............................................. 13,136
Total assets................................................ 104,163
Long term debt, less current portion........................ 14,080
Stockholders' equity........................................ 37,807
</TABLE>
9
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING
WHETHER TO APPROVE THE BUSINESS COMBINATION AND RELATED PROPOSALS. YOU SHOULD
CONSIDER THESE FACTORS ALONG WITH THE OTHER INFORMATION INCLUDED IN OR
ACCOMPANYING THIS JOINT PROXY STATEMENT/PROSPECTUS.
RISKS RELATING TO THE BUSINESS COMBINATION
BECAUSE THE EXCHANGE RATIO FOR SUMMIT COMMON STOCK TO BE RECEIVED BY VIEWLOGIC
STOCKHOLDERS IN THE BUSINESS COMBINATION IS FIXED, THE VALUE OF THE SHARES TO
BE RECEIVED BY VIEWLOGIC STOCKHOLDERS MAY DECREASE IF THE PRICE OF SUMMIT
COMMON STOCK DECREASES.
Under the merger agreement, each outstanding share of Viewlogic capital
stock will be converted into the right to receive 0.67928 of a share of Summit
common stock. The exchange ratio is fixed and will not be adjusted in the event
of any increase or decrease in the market price of Summit common stock.
Accordingly, the market value of the consideration to be received by the
stockholders of Viewlogic in the business combination will depend entirely on
the market price of Summit common stock upon the completion of the business
combination.
CURRENT CUSTOMERS OF SUMMIT AND VIEWLOGIC MAY DECIDE NOT TO TRANSACT BUSINESS
WITH SUMMIT OR VIEWLOGIC PENDING THE OUTCOME OF THE BUSINESS COMBINATION AND
THIS MAY NEGATIVELY AFFECT REVENUES.
The business combination of two companies can be unsettling to customers.
Summit and Viewlogic believe that a number of their respective customers may
delay their purchase decisions until they have the opportunity to learn more
about the business plans of the combined company. As a result, the quarterly
results of one or both of the companies could fail to meet the expectations of
investors and analysts.
THE SHARES OF SUMMIT COMMON STOCK WHICH ARE ISSUABLE UNDER THE MERGER AGREEMENT
MAY DILUTE SUMMIT'S EARNINGS PER SHARE AND NEGATIVELY IMPACT THE STOCK PRICE.
A number of shares equal to approximately 51% of Summit's outstanding common
stock after the business combination will be issued to the stockholders of
Viewlogic upon completion of the business combination. Additionally, shares
equal to approximately 8% of the outstanding Summit common stock after the
business combination will be reserved for issuance upon the exercise of options
to purchase Viewlogic common stock assumed by Summit under the merger agreement.
The issuance of Summit common stock in connection with the business combination
and upon the exercise of Viewlogic options assumed by Summit may cause a
dilution of earnings per share which may negatively impact the price of Summit
common stock.
IF SUMMIT AND VIEWLOGIC CANNOT BE SUCCESSFULLY INTEGRATED, THE ANTICIPATED
ADVANTAGES OF THE BUSINESS COMBINATION MAY NOT BE REALIZED, IN FULL, IF AT
ALL.
The Summit board of directors and the Viewlogic board of directors have each
unanimously approved the merger agreement with the expectation that the business
combination will result in cost savings and beneficial product and operating
synergies. Following the business combination, in order to maintain and increase
profitability the combined company will need to successfully integrate and
streamline overlapping functions. For example, Summit's operations in Beaverton,
Oregon, will be relocated. The desired cost savings may not be achieved and the
integration of Summit's and Viewlogic's operations may not be accomplished
smoothly, expeditiously or successfully. Each of Summit and Viewlogic has
recently completed other business acquisitions. Integration of Summit and
Viewlogic may be complicated by the need to integrate these acquisitions and
combine multiple corporate cultures, as well.
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<PAGE>
THE INTEGRATION OF SUMMIT'S AND VIEWLOGIC'S BUSINESSES MAY DISTRACT MANAGEMENT
FROM ACHIEVING ITS OPERATIONAL OBJECTIVES WHICH COULD LIMIT THE COMBINED
COMPANY'S ABILITY TO RETAIN ITS EMPLOYEES.
The integration of the companies' businesses following the business
combination will require the dedication of management resources. This may
distract management's attention from the day-to-day business of the combined
company. Employee uncertainty and lack of focus during integration may also
disrupt the business of the combined company. The retention by Viewlogic and
Summit of key employees is critical to ensure continued advancement, development
and support of the companies' technologies as well as on-going sales and
marketing efforts. During the pre-merger and integration phases, competitors may
intensify their efforts to recruit key employees. The combined company may not
be able to retain key technical, sales or marketing personnel after the business
combination which would adversely affect the combined company's business.
THE COMBINED COMPANY MAY NOT SUCCESSFULLY INTEGRATE RECENT BUSINESS ACQUISITIONS
OF SUMMIT AND VIEWLOGIC.
Each of Summit and Viewlogic has recently completed other business
acquisitions. This business combination, if approved, would be the largest for
either company. The size and number of recent acquisitions may add to the
difficulties of integrating Summit's and Viewlogic's businesses. Products,
technologies, distribution channels, key personnel and businesses of previously
acquired companies may not effectively integrate into the combined company's
business or product offerings. Moreover, this integration may adversely affect
the combined company's business.
BECAUSE THE COMBINED COMPANY WILL BE MANAGED BY A NEW MANAGEMENT TEAM, CURRENT
SUMMIT STOCKHOLDERS FACE THE RISK THAT NEW MANAGEMENT MAY MOVE THE COMBINED
COMPANY'S BUSINESS IN A NEW DIRECTION.
After the business combination, the current management of Viewlogic will be
able to exert significant control over the combined company, its business and
direction, subject to the oversight of the combined company's board of
directors. The manner in which the new management team conducts the business of
the combined company, and the direction in which the new management team moves
the business, may differ from the manner and direction in which the current
management of Summit would direct the combined company or Summit on a
stand-alone basis. This control by the new management team, together with the
effects of future market factors and business conditions, could ultimately
evolve into an integration and business strategy that, when implemented, differs
from the strategy and business direction currently recommended by Summit's
current management and board of directors. The new management team, and any
change in business or direction, may not improve, and could adversely impact,
the combined company's financial condition and results of operations.
A SMALL NUMBER OF STOCKHOLDERS OF VIEWLOGIC WILL HAVE SIGNIFICANT VOTING CONTROL
OVER THE COMBINED COMPANY, AND CORRESPONDINGLY, CURRENT STOCKHOLDERS OF SUMMIT
WILL NOT BE ABLE TO CONTROL MATTERS SUBMITTED FOR APPROVAL OF THE COMBINED
COMPANY'S STOCKHOLDERS.
Upon the consummation of the business combination, the stockholders of
Viewlogic will hold approximately 50.7% of the common stock of the combined
company. Moreover, the five largest stockholders of Viewlogic will beneficially
own approximately 45.5% of the common stock of the combined company. Acting
together, Viewlogic's stockholders will be able to control and the five largest
stockholders will be able to substantially influence all matters submitted to
the stockholders of the combined company for approval, including the election of
directors and any merger, consolidation or sale of all or substantially all of
the combined company's assets. This control could have the effect of delaying a
change of control of the combined company that other stockholders may believe
would result in a premium or better management. In addition, this control could
decrease the combined company's stock price because it will be more difficult to
acquire a controlling interest in the combined company.
11
<PAGE>
BOTH COMPANIES WILL INCUR SUBSTANTIAL EXPENSES RELATING TO THE BUSINESS
COMBINATION WHICH WILL NEGATIVELY AFFECT THE FINANCIAL RESULTS OF THE COMBINED
COMPANY IN THE QUARTER IN WHICH THE BUSINESS COMBINATION IS COMPLETED.
Summit and Viewlogic estimate that the negotiation and implementation of the
business combination will result in aggregate costs of approximately
$3.9 million, primarily relating to costs associated with combining the
companies and the fees of attorneys, accountants and Summit's financial advisor.
This estimate may be incorrect, or unanticipated events may substantially
increase the costs of combining the operations of the companies. In addition,
the combined company expects to record a non-cash expense of approximately
$2.1 million with respect to the write-off of acquired in-process research and
development. In any event, the companies anticipate that costs associated with
the business combination and the write-off of acquired in-process research and
development and goodwill amortization will negatively impact results of
operations in the quarter in which the business combination is completed. In
addition, Summit and Viewlogic expect to amortize approximately $22.2 million of
acquired intangible assets over a period of three to five years, and this will
negatively impact results of operations for the duration of the period.
RISK RELATING TO SUMMIT AND THE COMBINED COMPANY
SUMMIT'S QUARTERLY RESULTS WILL LIKELY FLUCTUATE AND AFFECT THE MARKET PRICE OF
SUMMIT'S COMMON STOCK.
VARIOUS FACTORS WILL CAUSE SUMMIT'S QUARTERLY RESULTS TO
FLUCTUATE. Summit's quarterly operating results and cash flows have fluctuated
in the past and have fluctuated significantly in certain quarters. These
fluctuations resulted from several factors, including, among others:
- the size and timing of orders;
- large one-time charges incurred as a result of an acquisition or
consolidation;
- seasonal factors;
- the rate of acceptance of new products;
- product, customer and channel mix; and
- lengthy sales cycles.
- level of sales and marketing staff
These fluctuations will likely continue in future periods because of the
above factors. Additional factors potentially causing fluctuations include,
among others:
- corporate acquisitions and consolidations and the integration of acquired
entities and any resulting large one-time charges;
- the timing of new product announcements and introductions by Summit and
Summit's competitors;
- the rescheduling or cancellation of customer orders;
- the 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 competitors;
- product quality issues;
- currency fluctuations; and
12
<PAGE>
- general economic conditions.
If the business combination is completed, the combined company's quarterly
results will likely continue to fluctuate and effect the market price of its
stock.
SUMMIT'S REVENUE IS DIFFICULT TO FORECAST BECAUSE OF THE TIMING OF REVENUE
RECOGNITION AND UNPREDICTABLE NATURE OF CUSTOMER BEHAVIOR.
Summit's revenue is difficult to forecast for several reasons. Summit
operates with little product backlog because Summit typically ships its products
shortly after it receives orders. Consequently, license backlog at the beginning
of any quarter has in the past represented only a small portion of that
quarter's expected revenue. Correspondingly, license fee revenue in any quarter
is difficult to forecast because it is substantially dependent on orders booked
and shipped in that quarter. Moreover, Summit generally recognizes a substantial
portion of its revenue in the last month of a quarter, frequently in the latter
part of the month. Any significant deferral of purchases of Summit's products
could have a material adverse affect on its business, financial condition and
results of operations in any particular quarter. If significant sales occur
earlier than expected, operating results for subsequent quarters may also be
adversely affected. Quarterly license fee revenue is difficult to forecast also
because Summit's typical sales cycle ranges from six to nine months and varies
substantially from customer to customer. In addition, Summit makes a portion of
its sales through indirect channels, and these sales can be difficult to
predict.
If the business combination is completed, the combined company's revenue
will also be difficult to forecast.
SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING
RESULTS. Summit establishes its expenditure levels for product development,
sales and marketing and other operating activities based primarily on Summit's
expectations as to future revenue. Because a high percentage of Summit's
expenses are relatively fixed in the near term, if revenue in any quarter falls
below expectations, expenditure levels could be disproportionately high as a
percentage of revenue and materially adversely affect Summit's operating
results.
Shortfalls in revenue would adversely impact the quarterly operating results
of the combined company.
SUMMIT'S OPERATING RESULTS WILL LIKELY FLUCTUATE, AND FLUCTUATION MAY ADVERSELY
AFFECT THE STOCK PRICE OF SUMMIT COMMON STOCK.
Summit believes that its quarterly revenue, expenses and operating results
will likely vary significantly from quarter to quarter. Summit also believes
that period-to-period comparisons of Summit's operating results are not
necessarily meaningful. As a result, you should not rely on these comparisons as
indications of Summit's future performance. In addition, Summit operates with
high gross margins, and a downturn in revenue has had a significant impact on
income from operations and net income. Summit's results of operations fell below
investors' and market makers' expectations for the quarter ended September 30,
1999 and could be below investors' and market makers' expectation in other
quarters, which could have a material adverse effect on the market price of
Summit's common stock.
If the business combination is completed, the combined company's operating
results and the market price of Summit's common stock will likely continue to
fluctuate.
FAILURE TO REPLACE REVENUE ASSOCIATED WITH CREDENCE SYSTEMS WILL HURT SUMMIT'S
OPERATING RESULTS.
As of December 31, 1998, Credence Systems Corporation, or CSC, one of
Summit's larger customers, had satisfied its obligation to purchase a minimum
number of Visual Testbench licenses
13
<PAGE>
pursuant to an OEM agreement entered into in July 1997, and Summit does not
expect to receive any additional revenue from sales of Visual Testbench to CSC.
Summit will need to replace this revenue, and the failure to replace this
revenue would have a material adverse affect on Summit's operating results.
If the business combination is completed, the combined company will likewise
need to replace the revenue previously associated with CSC.
BECAUSE HIGH LEVEL DESIGN AUTOMATION, OR HLDA, PRODUCTS MAKE UP MOST OF SUMMIT'S
REVENUE, SUMMIT FACES THE RISK OF LACK OF DIVERSIFICATION.
Summit's future success depends primarily upon the broad market acceptance
of Summit's existing and future HLDA products. For the years ended December 31,
1998, 1997 and 1996, revenue from HLDA products and related maintenance
contracts represented 100%, 88.8%, and 63.9%, respectively, of Summit's total
revenue. As a result, factors adversely affecting sales of these products could
have a material adverse effect on Summit's business, financial condition and
results of operations. These factors include:
- increased competition,
- inability to successfully introduce enhanced or improved versions of these
products,
- product quality issues, and
- technological change.
If the business combination is completed, the combined company will continue
to depend on HLDA products, although these products will likely make up a lesser
percentage of the overall revenue.
SUMMIT MAY NOT GAIN BROAD MARKET ACCEPTANCE OF HLDA PRODUCTS, AND FAILURE TO DO
SO WILL MATERIALLY ADVERSELY AFFECT SUMMIT'S BUSINESS.
Although demand for HLDA products has increased in recent years, the market
for HLDA products is still emerging. The market may not continue to grow. Even
if it does grow, businesses may not continue to purchase Summit's HLDA products.
If the market for HLDA products fails to grow or grows more slowly than Summit
currently anticipates, it will materially adversely affect Summit's business,
financial condition, results of operations or cash flows.
Summit believes that broad market acceptance of its HLDA products will
depend on several factors, including, among others:
- the ability to significantly enhance design productivity;
- ease of use;
- interoperability with existing electronic design automation tools;
- price; and
- the customer's assessment of Summit's financial results and Summit's
technical, managerial, service and support expertise.
Summit also depends on its distributors to assist it in gaining market
acceptance of its products. These distributors may not give sufficient priority
to marketing Summit's products. They may even discontinue offering Summit's
products. 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.
14
<PAGE>
If the business combination is completed, the combined company may not gain
broad market acceptance of its HLDA products.
SUMMIT FACES INTENSE COMPETITION IN THE INDUSTRY AND MUST COMPETE SUCCESSFULLY
IN VARIOUS ASPECTS OR ITS BUSINESS MAY SUFFER.
The electronic design automation industry is highly competitive, and Summit
expects competition to increase as other electronic design automation companies
introduce HLDA products. In the HLDA market, Summit principally competes with
Mentor Graphics and a number of smaller firms. Indirectly, Summit also competes
with other firms that offer alternatives to HLDA. These other firms could also
offer more directly competitive products in the future. Some 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 electronic design automation
products. They may also distribute products that directly compete with Summit's
HLDA products by selling such products together with their core product line. In
addition, Summit's products perform a variety of functions, and its existing and
future competitors are offering, or may offer in the future, some of the same
functions as separate products or discrete point solutions. For example, some
companies currently offer design entry products without simulators. Competition
may cause Summit to offer point solutions instead of, or in addition to,
Summit's current software products. Summit would have to price such point
solutions lower than Summit's current product offerings, causing Summit's
average selling prices to decrease. This, in turn, could have a material adverse
effect on Summit's business, financial condition, results of operations, or cash
flows.
Summit competes on the basis of various factors including, among others:
- product capabilities;
- product performance;
- price;
- support of industry standards;
- ease of use;
- first to market; and
- customer technical support and service.
Summit believes that its products are competitive overall with respect to
these factors. However, in particular cases, Summit's competitors may offer HLDA
products with functionality sought by Summit's prospective customers and which
differs from those Summit offers. In addition, some competitors may achieve a
marketing advantage by establishing formal alliances with other electronic
design automation vendors. Further, the electronic design automation industry in
general has experienced significant consolidation in recent years, and the
acquisition of one of Summit's competitors by a larger, more established
electronic design automation vendor could create a more significant competitor.
Summit may not compete successfully against current and future competitors, and
competitive pressures may have a material adverse effect on Summit's business,
financial condition, results of operations, or cash flows. Summit's current and
future competitors may develop products comparable or superior to Summit's or
more quickly adapt 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.
If the business combination is completed, the combined company will continue
to face intense competition.
15
<PAGE>
SUMMIT'S DEPENDENCE ON THE ELECTRONIC INDUSTRY MAKES IT VULNERABLE TO GENERAL,
INDUSTRY-WIDE DOWNTURNS.
Summit's future operating results may reflect substantial fluctuations from
period to period as a consequence of these industry patterns, general economic
conditions affecting the timing of orders from customers and other factors. The
electronics industry involves
- rapid technological change,
- short product life cycles,
- fluctuations in manufacturing capacity; and
- pricing and margin pressures.
Correspondingly, certain segments, including the computer, semiconductor,
semiconductor test equipment and telecommunications industries, have experienced
sudden and unexpected economic downturns. During these periods, capital spending
often falls, and the number of design projects often decreases. Because Summit's
sales depend 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 Summit's customers, have
experienced a slowdown in their businesses.
If the business combination is completed, the combined company will continue
to depend on the electronics industry market.
SUMMIT DEPENDS ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY, AND THAT MAKES
SUMMIT VULNERABLE FROM THESE THIRD PARTIES' REFUSAL TO COOPERATE WITH SUMMIT
ON ECONOMICALLY FEASIBLE TERMS.
Because Summit's products must interoperate, or be compatible, with
electronic design automation products of other companies, particularly
simulation and synthesis products, Summit must have timely access to third party
software to perform development and testing of products. Although Summit has
established relationships with a variety of electronic design automation vendors
to gain early access to new product information, any of these parties may
terminate these relationships with limited notice. In addition, these
relationships are with companies that are Summit's current or potential future
competitors, including Synopsys, Mentor Graphics and Cadence. If any of these
relationships terminate and Summit were unable to obtain, in a timely manner,
information regarding modifications of third party products, Summit would not
have the ability to modify its software products to interoperate with these
third party products. As a result, 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.
If the business combination is completed, the combined company will continue
to depend on third parties for product interoperability.
IF SUMMIT CANNOT DEVELOP NEW PRODUCTS TO KEEP PACE WITH TECHNOLOGICAL CHANGE AND
EVOLVING INDUSTRY STANDARDS, SUMMIT'S BUSINESS WILL SUFFER.
If Summit cannot, for technological or other reasons, develop and introduce
products in a timely manner in response to changing market conditions, industry
standards or other customer requirements, particularly if Summit has
pre-announced the product releases, its business, financial condition, results
of operations or cash flows will be materially adversely affected. The
electronic design automation industry is characterized by extremely rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products with new technologies and the emergence
of new industry standards can render existing products obsolete and
unmarketable. In addition, customers in the electronic design automation
industry require software products that allow them to
16
<PAGE>
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 Summit's
customers. Summit may not succeed in developing and marketing product
enhancements or new products that respond to technological change or emerging
industry standards. It may experience difficulties that could delay or prevent
the successful development, introduction and marketing of these products.
Summit's products may not adequately meet the requirements of the marketplace
and achieve market acceptance.
If the business combination is completed, the combined company must continue
to develop new products to keep pace with technological change and evolving
industry standards.
SUMMIT'S SOFTWARE MAY HAVE DEFECTS.
Summit's software products may contain errors that may not be detected until
late 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. Despite testing by
Summit and by current and prospective customers, errors may persist, 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 its business,
financial condition, results of operations or cash flows.
If the business combination is completed, the combined company's software
may likewise have defects.
SUMMIT DEPENDS ON ITS DISTRIBUTORS TO SELL ITS PRODUCTS, ESPECIALLY
INTERNATIONALLY, BUT THESE DISTRIBUTORS MAY NOT DEVOTE SUFFICIENT EFFORTS TO
SELLING SUMMIT'S PRODUCTS OR THEY MAY TERMINATE THEIR RELATIONSHIPS WITH
SUMMIT.
DISTRIBUTORS' CONTINUED VIABILITY. If any of Summit's distributors fails,
Summit's business may suffer. Summit relies on distributors for licensing and
support of Summit's products outside of North America. Summit depends on the
relationships with its distributors to maintain or increase sales. 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.
Accordingly, Summit depends on the continued viability and financial stability
of these distributors.
DISTRIBUTORS' EFFORTS IN SELLING SUMMIT'S PRODUCTS. Summit's distributors
may offer products of several different companies, including Summit's
competitors. Summit's current distributors may not continue to market or service
and support Summit's products effectively. Any distributor may discontinue to
sell Summit's products or devote its 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 its business, financial condition,
results of operations or cash flows.
SEIKO. Seiko, a distributor in Asia, accounted for about 23.3% of Summit's
revenue during the third quarter of 1999. In June 1999, Summit lowered Seiko's
first quarter 2000 product quota in recognition of the adverse economic
conditions in the Asia Pacific Region. In December 1999, Summit agreed to waive
Seiko's first quarter 2000 product quota requirements to maintain distribution
exclusivity. As a result, Summit expects sales through Seiko to decrease for at
least the current and following two quarters and revenue attributable to sales
in the Asia Pacific region to decrease.
If the business combination is completed, the combined company will continue
to depend on its distributors to sell its products.
17
<PAGE>
SUMMIT FACES THE RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS,
INCLUDING ITS BUSINESS ACTIVITIES IN EUROPE AND THE ASIA PACIFIC REGION.
International revenue represents a significant portion of Summit's total
revenue and Summit expects this trend to continue. 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 its 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 involve numerous risks, including, among
others:
- 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; and
- difficulties in staffing and managing foreign operations and extended
payment terms.
These factors may have a material adverse effect on Summit's future
international sales and operations and, consequently, on its 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. Demand for and sales of Summit's products in the Asia Pacific region
have decreased, and these adverse economic conditions may worsen. Demand for and
sales of Summit's products in this region may further decrease.
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 cannot effect these additions in
a timely manner, Summit can only generate limited growth in international sales,
if any. Summit may not maintain or increase international sales of its products,
and failure to do so could have a material adverse effect on its business,
financial condition, results of operations or cash flows.
If the business combination is completed, the combined company will continue
to face the same risks associated with international operations.
SUMMIT MUST MANAGE GROWTH AND ACQUISITIONS EFFECTIVELY, OR ITS FINANCIAL
CONDITION OR RESULTS OF OPERATIONS MAY SUFFER.
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
growth to place a significant strain on its operational resources and systems.
Failure to effectively manage any growth would have a material adverse effect on
Summit's business, financial condition, results of operations or cash flows.
Summit regularly evaluates acquisition opportunities. Summit's future
acquisitions 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, and large one-time
charges which could materially adversely affect Summit's results of operations.
Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concern, risks
of entering markets in which Summit has no or limited prior experience and
potential loss of key employees of acquired companies. Summit's management has
had limited experience in assimilating acquired organizations
18
<PAGE>
and products into its operations. Summit may not integrate successfully the
operations, personnel or products that have been acquired or that might be
acquired in the future, and the failure to do so could have a material adverse
affect on its results of operations.
If the business combination is completed, the combined company must continue
to manage growth and acquisitions effectively.
SUMMIT FACES THE RISKS ASSOCIATED WITH OPERATIONS IN ISRAEL, INCLUDING
POLITICAL, CURRENCY FLUCTUATION AND COORDINATION RISKS.
POLITICAL RISKS AND GOVERNMENTAL REGULATIONS. Summit's research and
development operations related to Visual HDL products are located in Israel.
Economic, political and military conditions may affect Summit's operations in
that country. Hostilities involving Israel, for example, could materially
adversely affect Summit's business, financial condition and results of
operations. 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 further heightens the impact. See "Summit relies on
Israeli research, development and marketing grants for certain benefits."
CURRENCY RISKS. In addition, while all of Summit's sales are denominated in
U.S. dollars, a portion of its annual costs and expenses in Israel are paid in
Israeli currency. Payment in Israeli currency subjects Summit to foreign
currency fluctuations and to economic pressures resulting from Israel's
generally high rate of inflation of, for example, approximately 9% in 1998. 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.
COORDINATION RISKS. 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 disrupt Summit's operations.
If the business combination is completed, the combined company will continue
to face the same risks associated with operations in Israel.
SUMMIT CURRENTLY ENJOYS CERTAIN TAX BENEFITS UNDER AN ISRAELI "APPROVED
ENTERPRISE" STATUS WHICH IT MAY NOT ENJOY IN THE FUTURE AND WHICH IN TURN MAY
ADVERSELY AFFECT SUMMIT'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Israeli government has granted Summit's Israeli production facility the
status of an "Approved Enterprise" under the Israeli Investment Law for the
Encouragement of Capital Investments, 1959. Taxable income of a company derived
from an "Approved Enterprise" is eligible for 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) subject to specified conditions. In the
event of Summit's failure to comply with these conditions, the tax benefits
could be canceled, in whole or in part, and Summit would have to refund the
amount of the canceled benefits, adjusted for inflation and interest. During
1998, Summit realized income of $4.3 million from its Israeli operations and
"Approved Enterprise" tax benefits of $1.9 million. Summit has recently applied
for "Approved Enterprise" status with respect to a new project and intends to
apply in the future with respect to additional projects. Summit's Israeli
production facility may not continue to operate or qualify as an "Approved
Enterprise". The benefits under the "Approved Enterprise" regulations may not
continue, or be applicable, in the future. Summit intends to permanently
reinvest earnings of the Israeli subsidiary outside the United States. If these
earnings are remitted to the United States, Summit may have to pay additional
U.S. federal and foreign taxes. 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.
19
<PAGE>
Losing the "Approved Enterprise" status may likewise adversely affect the
combined company's financial condition and results of operations.
SUMMIT DEPENDS ON ITS KEY PERSONNEL, AND FAILURE TO HIRE OR RETAIN QUALIFIED
PERSONNEL COULD CAUSE SUMMIT'S BUSINESS TO SUFFER.
Summit's future success will depend in large part on 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.
These agreements, however, do not guarantee the services of these employees and
do not contain noncompetition provisions. Summit recently amended the employment
agreement with Richard Davenport, Summit's President. As amended,
Mr. Davenport's employment agreement provides that he is entitled to certain
guaranteed severance payments. Mr. Davenport may or may not continue his
employment with Summit. In addition, C. Albert Koob, Summit's Vice President,
Finance and Chief Financial Officer, has tendered his resignation effective as
of the end of January, 2000.
Competition for personnel in the software industry in general, and the
electronic design automation industry in particular, is intense. Summit has in
the past experienced difficulty in recruiting qualified personnel. Summit may
fail to retain its key personnel or attract and retain 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. 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.
If the business combination is completed, the combined company will continue
to depend on its key personnel and its ability to hire additional qualified
personnel.
IF SUMMIT FAILS TO EXPAND ITS SALES AND MARKETING ORGANIZATIONS, ITS BUSINESS
MAY SUFFER.
Summit's success will depend on its ability to build and expand its sales
and marketing organizations. Summit hired fewer sales and marketing personnel
than planned in the fourth quarter of 1998 and the first two quarters of 1999
and experienced attrition in the existing sales force during the first quarter
of 1999. In part, as a result of the lack of sales people, Summit's revenues for
the fourth quarter of 1998 were lower than expected. In February 1998, Summit's
Senior Vice President of Worldwide Marketing and Sales resigned. Summit's future
success will depend in part on its ability to hire and retain qualified sales
and marketing personnel and the ability of these new persons to rapidly and
effectively transition into their new positions. Competition for qualified sales
and marketing personnel is intense, and Summit may not be able to hire and
retain the number of sales and marketing personnel needed, which would have a
material adverse effect on its business, financial condition, results of
operations or cash flows.
If the business combination is completed, the combined company will need to
expand its sales and marketing organizations.
SUMMIT RELIES ON ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS FOR CERTAIN
BENEFITS. FAILURE TO OBTAIN SIMILAR GRANTS AND BENEFITS IN THE FUTURE MAY
ADVERSELY AFFECT SUMMIT'S BUSINESS.
Summit has developed its Visual HDL for VHDL products under grants from the
Office of the Chief Scientist in the Israeli Ministry of Industry and Trade. The
terms of the grants prohibit the manufacture of products developed under these
grants outside of Israel and the transfer of the technology developed under
these grants to any person, without the prior written consent of the Chief
Scientist. If Summit were unable to obtain the consent of the government of
Israel, it would be unable
20
<PAGE>
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 these 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.
If the business combination is completed, the combined company will continue
to rely on the same grants and benefits from the Israeli government.
SUMMIT DEPENDS ON ITS INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS BUT
PROTECTION OF THESE RIGHTS IS LIMITED.
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 Summit's
confidentiality procedures, Summit generally enters into non-disclosure
agreements with employees, distributors and corporate partners, and limit access
to, and distribution of, its software, documentation and other proprietary
information. In addition, Summit protects its products with hardware locks and
software encryption techniques designed to deter unauthorized use and copying.
Despite these precautions, a third party may still copy or otherwise obtain and
use Summit's products or technology without authorization, or 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 laws of some foreign countries do not
protect Summit's proprietary rights as fully as do the laws of the United
States. Summit's means of protecting its proprietary rights in the United States
or abroad may not be adequate, and competitors may also independently develop
similar technology.
If the business combination is completed, the combined company will continue
to depend on its intellectual property and proprietary rights.
SUMMIT MAY FACE INFRINGEMENT CLAIMS, AND INTELLECTUAL PROPERTY LITIGATION WILL
BE COSTLY FROM BOTH THE ECONOMIC AND BUSINESS PERSPECTIVES.
Summit could face an increasing number of infringement claims as the number
of products and competitors in Summit's industry segment grows, the
functionality of products in Summit's industry segment overlaps and an
increasing number of software patents are granted by the United States Patent
and Trademark Office. A third party may 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. These royalty or
license agreements, if required, may not be available on acceptable terms or at
all. Failure to protect Summit's proprietary rights or claims of infringement
could have a material adverse effect on Summit's business, financial condition,
results of operations or cash flows.
If the business combination is completed, the combined company may likewise
face infringement claims.
SUMMIT'S STOCK PRICE MAY FLUCTUATE DRAMATICALLY.
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. These broad market fluctuations
may adversely affect the market price of Summit's common stock. In addition,
21
<PAGE>
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.
If the business combination is completed, the combined company's stock price
may likewise fluctuate dramatically.
RISKS RELATING TO VIEWLOGIC
If the proposed business combination between Summit and Viewlogic is
completed, Viewlogic would experience all of the same risks as Summit,
including, among others:
- the electronic design automation industry is intensively competitive and
Viewlogic's failure to compete successfully would limit its ability to
increase and retain its market share;
- dependence on the semiconductor and electronic businesses and as a result
layoffs, restructurings, mergers and suspensions of business plans in
these businesses could reduce the aggregate level of purchases of
Viewlogic's products and services;
- if Viewlogic fails to respond to rapid technological changes in the
electronic design automation industry, its products could become obsolete;
- if Viewlogic fails to participate in the development of and acquire rights
to electronic design automation industry standard technologies, Viewlogic
would not be able to modify its products to function with third-party
products, which could increase the cost and length of Viewlogic's product
development process and delay product releases;
- Viewlogic's software may have defects, which could damage Viewlogic's
reputation as well as increase service, maintenance and warranty costs;
- if Viewlogic's distributors, especially its international distributors,
fail to effectively maintain or increase sales levels, Viewlogic may not
be able to develop an alternative distribution system for its products and
its revenue may decline;
- Viewlogic's efforts to protect its intellectual property may not be
adequate to prevent third parties from using its intellectual property in
competition against Viewlogic;
- Viewlogic could incur substantial costs defending its intellectual
property from infringement or a claim of infringement;
- Viewlogic's business could be seriously harmed if it lost the services of
its President and Chief Executive Officer, William J. Herman, or if it
fails to attract and retain other key personnel;
- Viewlogic's failure to manage its growth could strain its resources and
could impede further growth;
- Any acquisitions Viewlogic may make could limit Viewlogic's ability to
manage and maintain its business, may result in adverse accounting
treatment and may be difficult to integrate into its business;
- Viewlogic's growth may be impeded, if it is not able to expand its sales
and marketing organizations; and
- Viewlogic would lose revenues and incur significant costs if the systems
and software it uses are not year 2000 compliant or if its customers or
potential customers alter their purchasing patterns as a result of the
year 2000.
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For a more detailed explanation of any of the aforementioned risk factors,
please see "Risk Factors--Risks Relating to Summit and the Combined Company".
If the proposed business combination between Summit and Viewlogic is not
completed, Viewlogic could experience all the aforementioned risks and
additional risks.
VIEWLOGIC'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE ITS
BUSINESS AND ITS ABILITY TO ADDRESS THE RISK AND UNCERTAINTIES THAT IT FACES.
Although Viewlogic was originally a part of a much larger business which
dates back to 1984. Viewlogic began its current independent operations in
October 1998. As a result, Viewlogic has only a limited operating history on
which you can base an evaluation of its business and prospects. You must
consider the information in this joint proxy statement/prospectus about
Viewlogic in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in rapidly evolving markets like the electronic design
automation industry. Viewlogic may not be successful in addressing these risks
and uncertainties. Some of these risks and uncertainties relate to Viewlogic's
ability to:
- attract and maintain customers;
- develop new technology and upgrade current technology;
- establish and maintain strategic relationships;
- respond effectively to competitive and technological developments;
- build an infrastructure, including additional hardware and software,
personnel and facilities, to support its business; and
- maintain the quality of its products and service.
Viewlogic may not successfully address these risks.
VIEWLOGIC MAY NOT HAVE SUFFICIENT FUNDS TO SUCCESSFULLY DEVELOP ITS PRODUCTS AND
ITS PRODUCTS OR TECHNOLOGIES COULD BECOME OBSOLETE.
The industry in which Viewlogic competes experiences rapid technological
developments, changes in industry standards, changes in customer requirements
and frequent new product introductions and improvements. If Viewlogic is unable
to respond quickly and successfully to these developments and changes, Viewlogic
may lose its competitive position and its products or technologies may become
uncompetitive or obsolete. In addition, delays in access to technology developed
by competitors and suppliers could slow Viewlogic's design and manufacture of
components and subsystems that distinguish its products. In order to compete
successfully, Viewlogic must develop or acquire new products and improve its
existing products and processes on a schedule that keeps pace with technological
developments in its industries. Viewlogic must also be able to support a range
of changing computer software, hardware platforms and customer preferences.
IF THE SYSTEM DESIGN PORTION OF THE ELECTRONIC DESIGN AUTOMATION INDUSTRY ON
WHICH VIEWLOGIC PRIMARILY FOCUSES DOES NOT GROW, VIEWLOGIC'S BUSINESS MAY
FAIL.
Since October 1998, Viewlogic has focused on the field programmable gate
array, printed circuit board and system-level design automation markets while
most major competitors have focused their resources on the application-specific
integrated circuits and integrated circuit design automation markets. Viewlogic
has adopted this focus because it believes that the increased complexity of
application-specific integrated circuits and integrated circuit designs, and the
resulting increase in design time, will cause electronic product manufacturers
to differentiate their products at the system
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level. If the system design portion of the electronic design automation industry
does not grow, Viewlogic's business may fail.
VIEWLOGIC MUST CONTINUE TO UPDATE ITS CURRENT PRODUCTS TO SERVE ITS INSTALLED
CUSTOMER BASE OR ITS REVENUE DERIVED FROM MAINTENANCE AGREEMENTS WILL
DECREASE.
A substantial portion of Viewlogic's revenue is derived from maintenance
agreements for existing products. In order to maintain that revenue, Viewlogic
must continue to offer those customers updates for those products or convert
those customers to new products. Viewlogic may not be able to do so.
VIEWLOGIC MAY NEED ADDITIONAL CAPITAL, WHICH IT MAY NOT BE ABLE TO RAISE, AND
WHICH, IF RAISED, MAY DILUTE YOUR OWNERSHIP INTEREST.
Viewlogic may need to raise additional funds through public or private
equity or debt financings in order to:
- develop new technology and upgrade current technology;
- take advantage of acquisition or expansion opportunities;
- expand its sales and marketing operations; or
- address additional working capital needs.
If Viewlogic cannot obtain financing on terms acceptable to it, Viewlogic
may be forced to curtail some or all of these activities. As a result, Viewlogic
may be unable to implement its business plan and may grow its business slowly.
Any additional capital raised through the sale of equity may dilute the
ownership interest of, and may be on terms that are unfavorable to, Viewlogic's
stockholders.
VIEWLOGIC FACES RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD REDUCE
ITS REVENUE DERIVED FROM INTERNATIONAL OPERATIONS.
Viewlogic derives a substantial portion of its revenue from its
international operations. There are certain risks inherent in doing business in
international markets which could adversely impact the success of Viewlogic's
international operations. These risks include:
- unexpected changes in regulatory requirements;
- export restrictions, tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- continued economic stagnation in Asia;
- political instability;
- fluctuations in currency exchange rates;
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
- potentially adverse tax consequences.
Additionally, Viewlogic must comply with United States Department of
Commerce regulations in shipping its software products and other technologies
outside the United States. Although Viewlogic has not had any significant
difficulty complying with these regulations to date, any significant future
difficulty in complying could harm Viewlogic's business.
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VIEWLOGIC HAS SUBSTANTIAL SECURED DEBT, WHICH MAY SUBSTANTIALLY RESTRICT
VIEWLOGIC'S ABILITY TO REACT TO THE RAPIDLY CHANGING ENVIRONMENT OF THE
ELECTRONIC DESIGN AUTOMATION INDUSTRY, AND WHICH IT MAY NOT BE ABLE TO
REPLACE.
As of October 2, 1999 Viewlogic had borrowings of approximately
$16.5 million under its credit facility. Borrowings under the credit facility
are secured by substantially all of Viewlogic's assets. The credit facility
contains limitations on additional indebtedness and capital expenditures, and
includes financial covenants, which include but are not limited to the
maintenance of minimum levels of interest and debt service coverage ratios and
maximum leverage ratios. Collectively, these limitations and covenants may
substantially restrict the flexibility of Viewlogic's management in quickly
adjusting its financial and operational strategies to react to changing economic
and business conditions and may compromise Viewlogic's ability to react to the
rapidly evolving environment of the electronic design automation industry. To
avoid default under this credit facility, Viewlogic must remain in compliance
with these limitations and covenants and make all required repayments or
Viewlogic must obtain replacement financing. Viewlogic may not be able to secure
replacement financing on terms acceptable to it or to its stockholders, or at
all. In the event of a default by Viewlogic, Viewlogic's lender may enforce its
security interest and take possession of substantially all or some of
Viewlogic's assets. As of October 2, 1999, Viewlogic had cash and cash
equivalents of $1,296,000.
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FORWARD-LOOKING STATEMENTS
Summit and Viewlogic make forward-looking statements in this joint proxy
statement/prospectus that involve substantial risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of Summit, Viewlogic and, if the business
combination is completed, the combined company, as well as statements preceded
by, followed by or that include the words "anticipates," "believes," "expects,"
"intends," "may," "should," "will" or similar expressions. You should understand
that many important factors, in addition to those discussed elsewhere in this
joint proxy statement/prospectus, could affect the future results of Summit,
Viewlogic and, if the business combination is completed, the combined company,
and could cause those results to differ materially from those expressed in these
forward-looking statements. You should carefully review the risks set forth in
this joint proxy statement/prospectus under "Risk Factors" beginning on page 10.
TRADEMARKS
This joint proxy statement/prospectus contains trademarks of Summit and
Viewlogic and may contain other trademarks which are the property of their
respective owners.
SUMMIT HAS PROVIDED ALL INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO SUMMIT AND HOOD ACQUISITION CORP. VIEWLOGIC
HAS PROVIDED ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
WITH RESPECT TO VIEWLOGIC.
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COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Summit
and Viewlogic and combined per share data on an unaudited pro forma basis after
giving effect to the business combination on a purchase basis of accounting,
assuming that 0.67928 shares of Summit common stock are issued in exchange for
one share of Viewlogic capital stock in the business combination. This data
should be read in conjunction with the selected historical financial data, the
unaudited pro forma combined condensed financial data, and the separate
historical financial statements of Summit and Viewlogic and notes, all of 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 business combination
been consummated as of the beginning of the periods presented and should not be
construed as representative of results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -----------------
<S> <C> <C>
HISTORICAL--SUMMIT
Earnings/(loss) per share--diluted............. $ 0.32 $(0.35)
Book Value per common share(1)................. $ 2.30 $ 1.93
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 2, OCTOBER 2,
1999 1999
---------- -----------------
<S> <C> <C>
HISTORICAL--VIEWLOGIC
Earnings/(loss) per share--diluted............... $ 0.73 $ 0.05
Book Value (deficit) per common share(1)......... $(12.06) $ (5.67)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -----------------
<S> <C> <C>
PRO FORMA COMBINED EARNINGS (LOSS) PER COMMON
SHARE--DILUTED
Per Summit share(2)............................ $ 0.18 $(0.24)
Equivalent Viewlogic share(3).................. $ 0.12 $(0.16)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -----------------
<S> <C> <C>
PRO FORMA COMBINED BOOK VALUE PER COMMON SHARE
Per Summit share(2)............................ $ 1.20 $ 1.18
Equivalent Viewlogic share(3).................. $ 0.81 $ 0.80
</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 year ended December 31, 1998 and for the nine-months ended
September 30, 1999 have been combined with Viewlogic's financial data for
the corresponding 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 Viewlogic common share
and equivalent pro forma combined book value per Viewlogic common share, on
an as converted basis, are calculated by multiplying the respective pro
forma combined per Summit amounts by an exchange ratio of 0.67928 shares of
Summit common stock for each share of Viewlogic capital stock.
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STOCK PRICE DATA
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing sale prices of Summit common stock as reported on
the Nasdaq National Market. Because there is no established trading market for
shares of Viewlogic capital stock, information with respect to the market prices
of Viewlogic's capital stock is omitted.
<TABLE>
<CAPTION>
SUMMIT
COMMON STOCK
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
1997 CALENDAR YEAR
First Quarter............................................... 11.875 7.375
Second Quarter.............................................. 9.375 5.25
Third Quarter............................................... 18.125 7.625
Fourth Quarter.............................................. 18.75 8.75
1998 CALENDAR YEAR
First Quarter............................................... 16.625 9.438
Second Quarter.............................................. 17.125 13.50
Third Quarter............................................... 15.375 5.875
Fourth Quarter.............................................. 9.625 4.75
1999 CALENDAR YEAR
First Quarter............................................... 9.563 3.313
Second Quarter.............................................. 3.938 2.469
Third Quarter............................................... 3.625 2.250
Fourth Quarter..............................................
2000 CALENDAR YEAR
First Quarter (through , 2000)...................
</TABLE>
On September 16, 1999, the last full trading day prior to the public
announcement of the execution and delivery of the merger agreement, the last
reported sale price on the Nasdaq National Market was $3.563 per share of Summit
common stock. On , 2000, the last reported price on Nasdaq was
$ per share of Summit 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 Viewlogic in the business combination. Summit
stockholders and Viewlogic stockholders are urged to obtain current market
quotations for Summit common stock prior to their respective special meetings.
DIVIDEND POLICY
In connection with its October 1998 recapitalization, Viewlogic paid to
Synopsys, then its sole stockholder, a cash dividend of an aggregate of
$30,000,000. Other than this cash dividend, Viewlogic has never paid any cash
dividend on shares of its capital stock, nor has Summit. 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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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 , 2000 at
p.m. local time.
PURPOSE
The purpose of the Summit special meeting is to consider and vote upon the
following proposals:
- the issuance of shares of Summit common stock to the stockholders of
Viewlogic pursuant to the agreement and plan of reorganization among
Summit, Viewlogic and Hood Acquisition Corp., a wholly owned subsidiary of
Summit, dated as of September 16, 1999;
- an amendment to Summit's certificate of incorporation increasing the
number of shares of Summit common stock authorized for issuance by
20 million shares to 50 million shares, contingent upon approval of the
above stock issuance proposal;
- an amendment to Summit's certificate of incorporation changing the
company's name to " ," contingent and effective upon completion
of the business combination with Viewlogic; and
- to transact all other business that may properly come before the Summit
special meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies, if necessary, to establish a quorum or to
obtain additional votes in favor of the approval of the above proposals,
or to postpone or adjourn the meeting.
RECORD DATE AND OUTSTANDING SHARES
Only Summit stockholders of record on , 2000 are entitled to
notice of and to vote at the Summit special meeting. As of the record date,
there were approximately holders of record holding an aggregate of
approximately shares of Summit common stock.
On or about , 2000, 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 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 merger
agreement requires the affirmative vote of a majority of the total votes cast
regarding such proposal. The amendments to the certificate of incorporation each
requires the affirmative vote of the holders of a majority of the outstanding
shares of Summit common stock. In each case, a quorum is necessary. BECAUSE
SUMMIT CURRENTLY DOES NOT HAVE SUFFICIENT AUTHORIZED SHARES OF COMMON STOCK TO
ISSUE TO VIEWLOGIC STOCKHOLDERS, THE PROPOSAL TO ISSUE SHARES OF COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT IS CONTINGENT UPON THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED 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 the first proposal above,
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 the second and third proposals above, the effect
of an abstention or broker non-vote is the same as a vote against the proposal.
29
<PAGE>
As of the Summit record date, officers, directors and affiliates of Summit
owned approximately % of the outstanding shares of Summit common stock.
PROXIES
Each of the persons named in the Summit 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 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 the Summit proxies. If no such instructions are
indicated, such proxies will be voted for:
- the issuance of shares of Summit common stock to the stockholders of
Viewlogic pursuant to the merger agreement;
- the amendment to Summit's corporate charter to increase the number of
shares of our common stock authorized for issuance from 30 million shares
to 50 million shares; and
- the amendment to Summit's corporate charter to change the company's name
to " ".
Any proxy given pursuant to this solicitation by Summit may be revoked by
the person giving it at any time before it is voted. Proxies may be revoked by:
- 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;
- 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
- 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 Summit directors, officers and regular employees personally or by
telephone, telegram, letter or facsimile. These persons will not receive
additional compensation, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with the 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 $10,000 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 these custodians,
nominees and fiduciaries, and Summit will reimburse these custodians, nominees
and fiduciaries for reasonable expenses.
RECOMMENDATIONS OF SUMMIT BOARD OF DIRECTORS
The Summit board of directors has unanimously approved the proposed business
combination and the merger agreement and determined that the transactions as
contemplated by the merger agreement are in the best interests of Summit and its
stockholders. The Summit board of directors therefore, unanimously recommends
that Summit's stockholders vote to APPROVE the issuance of the aggregate of
approximately 16.3 million shares of Summit common stock to Viewlogic's
stockholders pursuant to the merger agreement and APPROVE each of the proposed
amendments to Summit's certificate of incorporation.
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<PAGE>
VIEWLOGIC SPECIAL MEETING
DATE, TIME AND PLACE OF VIEWLOGIC SPECIAL MEETING
The Viewlogic special meeting will be held at the offices of Viewlogic,
293 Boston Post Road West, Marlboro, Massachusetts 01752 on , 2000
at p.m. local time.
PURPOSE
The purpose of the Viewlogic special meeting is to consider and vote upon
the following proposals:
- the approval and adoption of the agreement and plan of reorganization by
and among Summit Design, Inc., Hood Acquisition Corp., a wholly owned
subsidiary of Summit, and Viewlogic, pursuant to which Hood will merge
into Viewlogic and each outstanding share of capital stock of Viewlogic
will be converted into the right to receive 0.67928 of a share of Summit
common stock, and the transactions contemplated by the merger agreement,
including the merger; and
- to transact all other business as may properly come before the Viewlogic
special meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies, if necessary, to establish a quorum or to
obtain additional votes in favor of the approval and adoption of the
merger agreement and the transactions contemplated by the merger
agreement, or to postpone or adjourn the meeting.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record on , 2000 of Viewlogic common stock and
series A voting preferred stock are entitled to notice of and to vote at the
Viewlogic special meeting. As of the record date, there were approximately
holders of record holding an aggregate of approximately shares of
Viewlogic common stock and shares of Viewlogic's series A voting preferred
stock.
On or about , 2000, a notice of the Viewlogic special meeting
which complied with the requirements of Delaware law was mailed to all Viewlogic
stockholders of record as of the record date.
VOTE REQUIRED
Under Delaware law and Viewlogic's certificate of incorporation, approval
and adoption of the merger agreement and the business combination requires the
affirmative vote of a majority of the outstanding shares of Viewlogic common
stock and series A voting preferred stock as of the record date, voting together
as one class.
Each stockholder of record of Viewlogic common stock and series A voting
preferred stock on the Viewlogic 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 Viewlogic at the
Viewlogic special meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Viewlogic common stock and series A voting
preferred stock entitled to vote at the Viewlogic special meeting will
constitute a quorum. Broker non-votes and shares held by persons abstaining will
be counted in determining whether a quorum is present at the Viewlogic special
meeting. For the proposals above, the effect of an abstention is the same as a
vote against the proposal. For the purpose of the proposal approving and
adopting the merger agreement, a broker non-vote is the same as a vote against
the proposal, while for the purpose of the proposal approving all other business
as may properly come before the meeting, a broker non-vote will have no effect
on the voting on the matter.
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<PAGE>
As of the Viewlogic record date, officers, directors and affiliates of
Viewlogic owned approximately % of the outstanding shares of Viewlogic common
stock and series A voting preferred stock, voting together as one class.
On September 16, 1999, some stockholders of Viewlogic entered into voting
agreements with Summit pursuant to which they agreed to vote the Viewlogic
voting securities stock they own "FOR" approval and adoption of the merger
agreement and the business combination. On the record date for the special
meeting of stockholders, these stockholders aggregately owned and were entitled
to vote approximately % of the outstanding shares of Viewlogic common stock
and Viewlogic series A voting preferred stock, voting together as a single
class. The vote of these stockholders in accordance with the voting agreements,
alone and without the vote of any other Viewlogic stockholder is sufficient to
approve the business combination.
PROXIES
Each of the persons named in the proxy is an officer of Viewlogic. All
shares of Viewlogic common stock and series A voting preferred stock that are
entitled to vote and that are represented at the Viewlogic special meeting
either in person or by properly executed proxies received prior to or at the
Viewlogic special meeting and not duly and timely revoked will be voted at the
Viewlogic special meeting in accordance with the instructions indicated on such
proxies. If no instructions are indicated, these proxies will be voted for the
approval and adoption of the merger agreement and all other proposals that
properly came before the meeting.
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 Viewlogic at or before the taking of the vote at the
Viewlogic 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 Viewlogic before the taking of the
vote at the Viewlogic special meeting; or (iii) attending the Viewlogic special
meeting and voting in person (although attendance at the Viewlogic 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 Viewlogic at 293 Boston Post Road West, Marlboro, Massachusetts
01752, Attention: Secretary, or hand delivered to the Secretary of Viewlogic, in
each case at or before the taking of the vote at the Viewlogic special meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of proxies from Viewlogic stockholders will be
borne by Viewlogic. In addition, Viewlogic may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to beneficial owners. Proxies may also be
solicited by Viewlogic directors, officers and regular employees personally or
by telephone, telegram, letter or facsimile. These persons will not receive
additional compensation, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. 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 those
custodians, nominees and fiduciaries, and Viewlogic will reimburse custodians,
nominees and fiduciaries for their reasonable expenses.
RECOMMENDATIONS OF VIEWLOGIC BOARD OF DIRECTORS
The Viewlogic board of directors has unanimously approved the merger
agreement and the merger and has determined that the business combination is in
the best interests of Viewlogic and its stockholders. After careful
consideration, the Viewlogic board unanimously recommends a vote FOR the
approval and adoption of the merger agreement and the merger.
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APPROVAL OF THE BUSINESS COMBINATION AND RELATED TRANSACTIONS
THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES ELEMENTS OF
THE PROPOSED BUSINESS COMBINATION, INCLUDING THE MERGER AGREEMENT. WHILE WE
BELIEVE THAT THE DESCRIPTION COVERS THE MATERIAL TERMS OF THE BUSINESS
COMBINATION, THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS
WE REFER TO CAREFULLY FOR A MORE COMPLETE UNDERSTANDING OF THE BUSINESS
COMBINATION.
BACKGROUND OF THE BUSINESS COMBINATION
Summit is a leading provider of graphical software tools that help engineers
design computer chips. Summit's products assist integrated circuit, or chip,
design and test engineers in meeting the market demands for rapid time to
market, increased product functionality and lower product cost. Summit has
endeavored to expand its product offering to increase its resources both through
internal product development and consideration of strategic relationships.
Viewlogic is a leading provider of products and services that help a broad
range of companies design and deliver products that differentiate themselves
from competitive products through the use of electronics. Similar to Summit,
since October 1998, Viewlogic has focused its efforts on expanding its product
offerings through the development of new products and services and external
methods of expanding its product offerings, including acquisitions and entering
into strategic relationships with other companies. Since March 1999, Viewlogic
has acquired two companies with products and services which it believes
complement its product offerings.
In April 1999, James Griffeth, then a strategic consultant to Viewlogic,
contacted Larry J. Gerhard, then President and Chief Executive Officer of
Summit, by telephone to ascertain Summit's interest in a strategic relationship
with Viewlogic. Separately, Mr. Griffeth also contacted Richard Davenport,
President of Summit, for the same purpose.
On May 4, 1999, Viewlogic's board of directors discussed a strategic
business combination with Summit along with other potential strategic
transactions at a regularly scheduled meeting.
On May 13, 1999, William J. Herman, Viewlogic's President and Chief
Executive Officer, contacted Mr. Gerhard by telephone to discuss the possibility
of a strategic business combination of Summit and Viewlogic.
On May 20, 1999, members of Summit's and Viewlogic's management met at
Viewlogic's Marlboro, Massachusetts offices. Mr. Davenport, Mr. Loegering, Vice
President, Marketing--Verification Division of Summit, and C. Albert Koob, Chief
Financial Officer of Summit, represented Summit. Mr. Herman, Richard G. Lucier,
Viewlogic's Executive Vice President and Chief Operating Officer, and Kevin P.
O'Brien, Viewlogic's Vice President, Finance and Chief Financial Officer,
represented Viewlogic. During this meeting, the parties discussed Summit's
product offerings in detail and considered the strategic fit and vision for a
combined entity of Viewlogic and Summit.
Throughout May 1999, Mr. Herman periodically kept Keith Geeslin, a director
of Viewlogic, advised on the status of these preliminary discussions.
On June 3, 1999, Mr. Davenport and Mr. Koob met with Mr. Geeslin to discuss
the strategic fit of Summit with Viewlogic and valuation issues. Mr. Herman and
Mr. O'Brien participated in this meeting by telephone.
On June 4, 1999, Mr. Davenport contacted Mr. Herman to discuss follow-up
items from the previous day's conference call. Both parties expressed an
interest in continuing to explore a strategic business combination.
On June 8, 1999, Mr. Herman met with Mr. Geeslin to discuss the outcome of
the June 3, 1999 meeting with Summit and the follow-up call with Mr. Davenport.
Mr. Geeslin and Mr. Herman agreed that Mr. Herman should continue to pursue
discussions concerning a strategic business combination with Summit.
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<PAGE>
On June 11, 1999, Summit's board of directors was advised of the status and
substance of the foregoing discussions.
On June 14, 1999, Mr. Herman contacted Mr. Davenport by telephone to discuss
employee considerations relevant to a strategic business combination and to
reaffirm their joint vision of a merged entity.
On June 16, 1999, Mr. Herman, Mr. Lucier and Mr. Griffeth met with
Mr. Davenport, Moshe Guy, Chief Technology Officer of Summit and President of
Summit Design (EDA), Ltd., Mr. Loegering and Eric Benhayoun, Vice President and
General Manager--European Operations of Summit, at Summit's facilities in
Minneapolis, Minnesota to discuss sales and marketing issues relevant to a
strategic business combination.
On June 16 and 18, 1999, Summit's board of directors was advised of the
status and substance of the foregoing discussions.
On June 23, 1999, Mr. Herman met with Mr. Davenport in New Orleans,
Louisiana to discuss management and valuation issues relevant to a strategic
business combination.
On June 24, 1999, Mr. Herman contacted Mr. Davenport by telephone regarding
the status of the ongoing discussions and to enhance Viewlogic's understanding
of Summit's operations and structure. Mr. Herman and Mr. Davenport scheduled a
visit by Viewlogic management to Summit's primary development site in Herzlia,
Israel.
On July 16 and 17, 1999, Mr. Herman and Mr. Lucier met with Mr. Davenport,
Mr. Moshe, Mr. Botts and Mr. Amihai Ben-David at Summit's Herzlia, Israel
facilities. Mr. Herman and Mr. Lucier toured these facilities and continued
discussions concerning a strategic business combination.
On July 21, 1999, Summit's board of directors was advised of the status and
substance of the foregoing discussions.
On July 25 and 26, 1999, Summit's board of directors was advised of the
status and substance of the foregoing discussions at a regularly scheduled
meeting.
On July 28, 1999, Mr. Herman contacted Mr. Botts by telephone. Mr. Botts
proposed terms for a business combination between Viewlogic and Summit.
Mr. Botts also described management changes made at Summit during its recent
board meeting.
On August 2, 1999, Mr. Herman contacted Mr. Botts by telephone about the
possible financial terms of a business combination. Mr. Herman and Mr. Botts
shared ideas that each thought would be acceptable to the respective boards of
directors of both companies. Mr. Botts stated that he would schedule a
conference call of the Summit board of directors for August 3 or 4, 1999.
From August 3, 1999 through August 5, 1999, Mr. Herman, Mr. Lucier and
members of Viewlogic's marketing team met with Mr. Moshe and Mr. Rachamim in
Marlboro, Massachusetts to discuss the positioning of the proposed combined
company and possible communication to various constituencies.
On August 4, 1999, Summit's board of directors met telephonically to discuss
the proposed transaction with Viewlogic.
On August 4, 1999, Mr. Botts and Mr. Koob contacted Mr. Herman by telephone
to discuss the reaction of Summit's board of directors with respect to the
possible financial terms of the proposed business combination.
On August 5, 1999, Mr. Herman contacted Mr. Geeslin by telephone to discuss
a response to Summit's proposal. Viewlogic offered a counter-proposal.
On August 5, 1999, Mr. Herman spoke with Mr. Botts telephonically to discuss
Viewlogic's counter-proposal.
34
<PAGE>
On August 5, 1999, certain members of Summit's board of directors discussed
the most recent proposal for each company's ownership in the merged entity.
On August 5, 1999, Mr. Botts spoke with Mr. Herman by telephone regarding
the reaction of Summit's board of directors to the most recent proposal.
On August 6, 1999, Mr. Herman contacted Mr. Geeslin by telephone outlining
the most recent terms being discussed between the companies.
On August 6, 1999, Mr. Herman contacted Aart de Geus, Chief Executive
Officer of Synopsys, Inc., a major stockholder of Viewlogic, by telephone during
a previously scheduled call. During this conversation, Mr. Herman and
Dr. de Geus talked about the state of Viewlogic's discussions with Summit.
On August 9, 10, and 11, 1999, Mr. Herman, Mr. Lucier, Mr. Johnson, Mr.
O'Brien and Paula Cassidy, Vice President, Human Resources of Viewlogic, met
with Mr. Botts, Mr. Koob and Ms. Beelart to schedule logistics and to continue
negotiations.
On August 10, 1999, Mr. Kiaski contacted Mr. Davenport by telephone and
discussed the logistics of merging the worldwide sales forces of the companies.
From August 10 through September 13, 1999, management of Summit and
Viewlogic, together with their respective advisors, continued to conduct due
diligence and negotiate the terms of the business combination.
On September 14, 1999, the Summit board of directors held a special meeting.
Dain Rauscher Wessels, Summit's financial advisor, reviewed in detail its
financial analysis of the proposed business combination and the Summit board of
directors received a written opinion from Dain Rauscher Wessels that the equity
consideration to be paid by Summit pursuant to the proposed merger agreement was
fair to Summit and the holders of Summit common stock from a financial point of
view. Summit management reported on the terms of the proposed business
combination, the results of its due diligence review of Viewlogic and the
business synergies, risks, alternatives and assumptions of the proposed business
combination. Summit's legal advisors reviewed terms of the proposed merger
agreement. The Summit board of directors fully discussed the terms of the
proposed merger agreement and the proposed transactions and then unanimously
approved the merger agreement and the issuance of Summit shares in connection
with the business combination.
On September 14, 1999, the Viewlogic board of directors held a special
meeting. The directors reviewed in detail the terms of the proposed business
combination, the proposed merger agreement, the results of the due diligence
review conducted by Viewlogic's management and certain expected financial
characteristics of the combined company after the business combination. The
directors unanimously approved the merger agreement and the business
combination.
On September 16, 1999, Summit and Viewlogic executed the merger agreement
and issued a joint press release announcing the proposed business combination.
JOINT REASONS FOR THE BUSINESS COMBINATION
Each of the boards of directors of Summit and Viewlogic believe that by
combining the complementary product offerings of the two companies, the combined
company will have the potential to realize long-term improved operating and
financial results and a stronger position in the electronic design automation
industry. By offering customers a more complete range of electronic design
automation software products for comprehensive, cost effective electronic
product design and development solutions, the combined company may better meet
its customers' requirements. Additionally, Summit and Viewlogic believe that the
business combination will enhance the ability of the combined company to compete
effectively against their competitors.
In particular, Summit and Viewlogic believe that their customers want a
comprehensive set of software tools and linked solutions that enable the design
of complete electronic systems at higher
35
<PAGE>
levels of abstraction. As both the components and the integrated circuits used
in electronic products have become more complex, higher levels of design
abstraction are necessary in order to meet both time to market and design
complexity needs. System performance and features, system layout, system memory
requirements (software footprint), embedded processor configuration, silicon
area/cost, product cost, system power/battery life, system programmability,
board layout, cable routing and project schedules are all very important to
product design projects. With time to market becoming shorter and complexity of
electronics becoming greater, tools that involve all of these considerations
have become critical. Both companies believe that the business combination will
allow the combined company to provide a product line that is better able to
address the growing requirements of their customers as those requirements
evolve. Both companies also believe that the business combination will provide
opportunities for the combined company to develop and introduce new generations
of integrated electronic design automation products, providing the combined
company with a range of products and services better able to meet the needs of
its customers in the future.
Each of the boards of directors of Summit and Viewlogic has identified
additional potential mutual benefits of the business combination 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 channels;
- increased sales force efficiency and productivity through having more and
better products and solutions to offer customers;
- greater customer satisfaction as a result of offering a broader range of
solutions with a single source of support and maintenance; and
- greater ability to compete with the major electronic design automation
players whose development and acquisition strategies are moving them from
point tool suppliers to complete solutions providers for the electronic
design automation markets.
Summit and Viewlogic have each identified reasons for the business
combination, which are discussed below. Each board of directors has also
recognized, however, that the potential benefits of the business combination may
not be realized. See "Risk Factors."
SUMMIT'S REASONS FOR THE BUSINESS COMBINATION
At its September 14, 1999 meeting, the Summit board unanimously approved the
merger agreement and the business combination. Summit's board unanimously
recommends that the Summit stockholders vote for the issuance of shares of
Summit common stock pursuant to the merger agreement and the amendments to its
charter. In addition to the anticipated benefits described above, the Summit
board of directors believes that the following are additional reasons the
business combination will be beneficial to Summit and its stockholders:
- acquisition of an experienced and cohesive management team;
- increased Windows-based electronic design automation product offerings to
satisfy a broader range of developmental needs for electronic designers;
- larger combined entity will be better suited to compete in the electronic
design automation environment;
- increased sales force size and distribution;
- access to Viewlogic's installed customer base;
- larger market and increased product visibility;
- the ability to integrate products from both companies that will result in
better tools for the company's customers;
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<PAGE>
- larger and more comprehensive research and development team; and
- the opportunity for Summit stockholders to participate in the potential
for growth of the combined company after the business combination.
The Summit board of directors also considered the following factors relating
to the business combination prior to approving the business combination:
- the strategic benefits of the business combination, including the
potential market, product and sales channel synergies, potential customer
leverage and additional management talent;
- historical information concerning Summit's and Viewlogic's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position;
- Summit management's view of the financial condition, results of operations
and businesses of Summit and Viewlogic before and after giving effect to
the business combination, including financial analysts' expectations for
Summit;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Summit common stock;
- the consideration to be received by Viewlogic stockholders in the business
combination and the relationship between the market value of the Summit
common stock to be issued in exchange for each share of Viewlogic capital
stock and a comparison of comparable business combination transactions;
- the terms of the merger agreement, including the parties' representations,
warranties and covenants, and the conditions to their respective
obligations;
- Summit management's view of Summit's prospects as an independent company;
- the potential for other third parties to enter into strategic
relationships with, or to acquire, Summit or Viewlogic;
- the financial analysis and pro forma and other information with respect to
the business combination presented by Dain Rauscher Wessels to the Summit
board of directors, including an opinion dated September 14, 1999, that,
as of such date, the equity consideration to be paid by Summit pursuant to
the merger agreement was fair to Summit and the holders of Summit common
stock from a financial point of view;
- Summit management's views as to the expected impact of the business
combination on Summit's customers and employees; and
- reports from Summit management, legal and financial advisors as to the
results of their due diligence investigation of Viewlogic.
The Summit board of directors also considered the terms of the merger
agreement regarding Summit's and Viewlogic's respective rights to consider and
negotiate other acquisition proposals in certain circumstances, the possible
effects of the provisions regarding termination fees, voting agreements and
Summit's and Viewlogic's representation on the combined company's board of
directors. Summit's board further considered that, after the merger, the current
management of Viewlogic would be able to exert significant control over the
combined company, its business and direction, subject to the oversight of the
combined company's board of directors, and that such control, together with the
effects of future market factors and business conditions, could ultimately
evolve into an integration and business strategy that, when implemented,
differed from the then-anticipated strategy.
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<PAGE>
The Summit board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the business
combination, including, but not limited to:
- the risk that the potential benefits sought in the business combination
might not be fully realized;
- the possibility that the business combination might not be consummated and
the effect of public announcement of the business combination on
(a) Summit's and Viewlogic's sales and operating results, (b) Summit's and
Viewlogic's ability to attract and retain key management, marketing and
technical personnel and (c) progress of certain development projects;
- the potential dilutive effect of the issuance of Summit common stock in
the business combination; and
- the substantial charges to be incurred, primarily in the quarter in which
the business combination closes, in connection with the business
combination, including costs of integrating businesses, transaction
expenses arising from the business combination and on-going amortization
charges associated with purchase accounting.
The Summit board of directors believed that these risks were outweighed by
the potential benefits of the business combination. After considering the
positive and negative factors, including those listed above, and after extensive
discussion of each, the Summit board of directors approved the merger agreement,
the business combination and the charter amendments.
VIEWLOGIC'S REASONS FOR THE BUSINESS COMBINATION
The Viewlogic board of directors unanimously voted to recommend to the
holders of Viewlogic capital stock that the merger agreement and the business
combination be approved and adopted. In addition to the anticipated benefits
described above, the Viewlogic board of directors believes that the business
combination will be beneficial to Viewlogic and its stockholders for the
following reasons:
- the integration of Viewlogic's core Viewdraw design capture and fusion
simulation products with Summit's core VisualHDL product will offer
significant opportunity to market to the existing customer bases of these
products;
- the integration of Summit's core VisualHDL product with Viewlogic's field
programmable gate array design tools will enable the combined companies to
strengthen their joint position in the field programmable gate array
design marketplace;
- Summit's E-Sim software simulation product offers additional opportunities
to develop the system level design automation marketplace and enhance
Viewlogic's competitive position;
- Summit's V-CPU product adds hardware/software co-design capabilities to
Viewlogic's product line that will enhance Viewlogic's ability to capture
the systems designer;
- Summit's VisualSLD product line is an ideal platform for the ongoing
development of a multi-domain development environment (hardware, software,
electro-mechanical components);
- Summit's VisualIP and VisualSLD product lines represent a complimentary
environment to Viewlogic's for addressing the needs of the system-level
designer;
- combining Summit's talented and experienced research and development team
with that of Viewlogic will create a stronger basis for the development of
future products; and
- the combined company's greater financial strength.
OPINION OF SUMMIT'S FINANCIAL ADVISOR
Dain Rauscher Wessels, or DRW, a division of Dain Rauscher Incorporated, was
retained, pursuant to an engagement letter dated August 12, 1999, to furnish an
opinion as to the fairness, from a financial point of view, as to whether the
consideration, referred to as the business combination consideration, offered in
exchange for all of the issued and outstanding equity securities of Viewlogic,
including options to purchase shares of common stock of Viewlogic, pursuant to
the merger agreement is fair to Summit and its stockholders from a financial
point of view.
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On September 14, 1999, DRW rendered its oral opinion to the Summit board of
directors that, as of such date and based on the procedures followed, factors
considered and assumption made by DRW and certain other limitations the business
combination consideration was fair to Summit and its stockholders from a
financial point of view. DRW confirmed its oral opinion in a written opinion
dated September 14, 1999. A copy of DRW's written opinion is attached as Annex C
to this joint proxy statement/prospectus. Summit stockholders are urged to read
the DRW opinion in its entirety. The summary of the opinion set forth herein is
qualified in its entirety by reference to the full text of DRW's opinion.
DRW's opinion applies only to the fairness to Summit and its stockholders,
from a financial point of view, of the business combination consideration. DRW's
opinion was provided for the information and assistance of the Summit board of
directors in connection with its consideration of the business combination.
DRW's opinion was not prepared on behalf of, and was not intended to confer
rights or remedies upon, Summit, Viewlogic, any stockholder of Summit or
Viewlogic, or any persons other than the Summit board of directors. DRW's
opinion does not address the relative merits of the business combination and any
other transactions or business strategies discussed by the Summit board of
directors as alternatives to the business combination, or the underlying
business decision of the Summit board of directors to proceed with the business
combination. DRW's opinion and presentation to the Summit board of directors
were only two of many factors taken into consideration by the Summit board of
directors in making its determination to approve the merger agreement. The
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to the business combination. The Summit
board of directors did not impose any limitations on the scope of the
investigation of DRW with respect to rendering its opinion.
In rendering its opinion, DRW assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided by Summit and Viewlogic including the financial statements and related
notes of Summit and Viewlogic. DRW did not assume responsibility for
independently verifying and did not independently verify this information.
Additionally, DRW was not asked and did not consider the possible effects of
any litigation, other legal claims or any other contingent matters. DRW did not
assume responsibility for and did not perform any independent evaluation or
appraisal of any of the respective assets or liabilities of Summit or Viewlogic,
nor was DRW furnished with any evaluations or appraisals. DRW did not assume any
obligation to conduct, and did not conduct, any physical inspection of the
property or facilities of Summit or Viewlogic. DRW assumed that the business
combination will be treated as a purchase under applicable accounting
principles. DRW's opinion is based on the economic, market and other conditions
as they existed and the information supplied to DRW as of the date of its
opinion. Events occurring after the date of DRW's opinion may materially affect
the assumptions used in preparing the opinion, and DRW assumes no obligation to
update, revise or reaffirm its opinion.
In connection with its review of the business combination, and in arriving
at its opinion, DRW:
- reviewed and analyzed the financial terms of the merger agreement;
- reviewed and analyzed certain publicly available financial and other data
with respect to Summit and Viewlogic made available to DRW from internal
records of Summit and Viewlogic;
- conducted discussions with members of the senior management of Summit and
Viewlogic with respect to the business and prospects of Summit and
Viewlogic;
- reviewed and analyzed Summit's and Viewlogic's contribution to the pro
forma net income of the combined company;
- reviewed the reported prices and trading activity of Summit common stock
and similar information for other companies deemed by DRW to be comparable
to Viewlogic;
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- compared the financial performance of Viewlogic with that of publicly
traded companies deemed by DRW to be comparable to Viewlogic; and
- reviewed the financial terms, to the extent publicly available, of
comparable business combination transactions.
In addition, DRW has conducted the other analyses and examinations and
considered other financial, economic and market criteria as it deemed necessary
in arriving at its opinion.
For the purpose of rendering its opinion, DRW has assumed that, in all
respects material to its analysis, the representations and warranties of Summit
and Viewlogic contained in the merger agreement are true and correct, Summit and
Viewlogic each will perform all of the covenants and agreements to be performed
by it under the merger agreement, and all conditions to the obligations of each
of Summit and Viewlogic to effect the proposed transaction will be satisfied
without any waiver of any material terms or conditions to any party thereto. DRW
also has assumed that all material governmental, regulatory or other approvals
and consents required in connection with the consummation of the transactions
contemplated by the merger agreement will be obtained and that, in connection
with obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Summit or Viewlogic is a party or subject
or by which it is bound, no limitations, restrictions or conditions will be
imposed or amendments, modifications or waivers made that would have a material
adverse effect on Summit and Viewlogic or materially reduce the contemplated
benefits of the business combination to Summit.
The following is a summary of the financial analyses performed and deemed
material by DRW in connection with the delivery of its opinion but is not a
comprehensive description of all analyses performed or factors considered. These
summaries of financial analyses include information presented in tabular format.
In order to fully understand the summary of the financial analyses used by DRW,
the tables must be read together with the text of each summary. The tables alone
do not constitute a complete description of the financial analysis.
COMPARABLE COMPANY ANALYSIS. DRW used a comparable company analysis to
analyze Viewlogic's implied valuation relative to a group of publicly traded
companies that DRW deemed for purposes of its analysis to be comparable to
Viewlogic. In this analysis, DRW compared the value of Viewlogic implied by the
value of the business combination consideration to be issued pursuant to the
merger agreement based on the closing price of Summit's common stock on
September 10, 1999, expressed as a multiple of certain operating data, to the
values of the comparable companies implied by the public trading price of their
common stock, expressed as a multiple of the same operating data.
DRW selected these companies because all of them are publicly traded
companies that market products and services in the electronic design automation
market, the same market on which Viewlogic focuses its products and services. In
addition, each of these companies either directly or indirectly competes with
Viewlogic's products, or shares an overlapping targeted customer base with
Viewlogic.
DRW compared multiples of selected financial data for Viewlogic with those
of the following publicly traded companies: Analogy Inc., Avant! Corp., Cadence
Design Systems, Inc., IKOS Systems, Inc., Mentor Graphics, Inc., and Summit.
Although these companies were considered comparable to Viewlogic for the purpose
of this analysis based on certain characteristics of their respective businesses
and financial performance, none of these companies possesses characteristics
identical to those of Viewlogic.
DRW calculated the following valuation multiples based on an implied equity
value of $54.4 million for Viewlogic based on the last reported sale price of
Summit common stock as of September 10, 1999 and the business combination
consideration specified in the merger agreement and, as to the comparable
companies, on the market prices and other information available as of the same
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date. Multiples of future revenue and earnings for Viewlogic were based on
projected revenue and earnings as estimated by Viewlogic's management and, for
the comparable companies, on publicly available estimates.
The following table presents as of September 10, 1999 the mean and median
multiples of enterprise value to the calendar year 1999 and calendar year 2000
estimated revenue for Viewlogic, as implied by the business combination
consideration, and the comparable companies. Enterprise value is defined as
market capitalization, or equity value, plus debt less cash and cash
equivalents.
<TABLE>
<CAPTION>
COMPARABLE
COMPANIES VIEWLOGIC
----------------------------------------- (AS IMPLIED BY THE
LOW MEAN MEDIAN HIGH MERGER CONSIDERATION)
-------- -------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Enterprise value as a ratio of:
Projected calendar year 1999
revenue..................... 0.6x 1.4x 1.1x 3.1x 1.3x
Projected calendar year 2000
revenue..................... 0.6x 1.2x 0.9x 2.8x 1.1x
</TABLE>
The following table presents as of September 10, 1999 the mean and median
price-to-earnings multiples, excluding any goodwill amortization, for calendar
year 1999 and calendar year 2000 for Viewlogic, as implied by the business
combination consideration, and the comparable companies.
<TABLE>
<CAPTION>
COMPARABLE
COMPANIES VIEWLOGIC
------------------- (AS IMPLIED BY THE
MEAN MEDIAN MERGER CONSIDERATION)
-------- -------- ---------------------
<S> <C> <C> <C>
Price as a ratio of:
Projected calendar year 1999 earnings.... 32.1x 31.0x 41.4x
Projected calendar year 2000 earnings.... 14.1x 18.0x 21.3x
</TABLE>
COMPARABLE TRANSACTION ANALYSIS. DRW compared multiples of selected
financial data relating to the business combination with multiples paid in
selected business combination and acquisition transactions since January 1997 of
electronic design automation companies with aggregate equity transaction values
less than $500 million. Equity transaction value represents the aggregate value
of the consideration paid and excludes debt and includes cash (and cash
equivalents) of the acquired company. DRW noted that many of these transactions
involved target companies that were small, rapidly growing companies that are
not comparable to Viewlogic. From the 20 transactions analyzed, DRW selected
three transactions in the last year that it deemed more comparable to this
transaction based primarily on the similarities with the target's financial
performances, namely declining revenues and profitability. Additionally, the
OrCAD/Cadence transaction was deemed appropriate because of the product overlap
between OrCAD and Viewlogic in the printed circuit board design automation
market, and the Viewlogic buyout from Synopsys was deemed relevant because the
company's products, technologies and customer base have not gone through
significant changes since this recent transaction. The selected transactions
were:
- the acquisition of OrCAD Inc. by Cadence Design Systems Inc., announced on
June 14, 1999;
- the acquisition of Quickturn Design Systems Inc. by Cadence Design
Systems Inc., announced on December 9, 1998; and
- the acquisition of the Viewlogic Systems unit of Synopsys, Inc. by the
management of that unit, announced on October 2, 1998.
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The following table presents multiples of equity transaction value to latest
12-month revenues and operating incomes for Viewlogic and the selected
comparable transactions.
<TABLE>
<CAPTION>
SELECTED COMPARABLE TRANSACTIONS VIEWLOGIC
--------------------------------------------------------------- (AS IMPLIED BY THE
ORCAD/CADENCE QUICKTURN/CADENCE VIEWLOGIC BUYOUT MEAN MERGER CONSIDERATION)
------------- ----------------- ---------------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Equity transaction value as
a ratio of:
Latest 12 month
revenues............... 2.7x 2.6x 1.1x 1.0x 1.0x
Latest 12 month operating
incomes................ 20.6x NM(1) 4.5x 21.8x 21.8x
</TABLE>
- ------------------------
(1) Not meaningful because the latest 12 month operating income for Quickturn
was negative.
DISCOUNTED CASH FLOW ANALYSIS. DRW estimated the current value of Viewlogic
through a discounted cash flow analysis using projections of future operating
results obtained from Viewlogic's management. DRW calculated present values of
projected operating cash flows through September 2004 using a discount rate
range of 16.0% to 20.0%, which was in part based on the cost of capital for
Summit as derived from the Capital Asset Pricing Model and was deemed
appropriate for a company like Viewlogic. DRW estimated a terminal value
multiple of 6.0 to 8.0 times Viewlogic's projected fiscal year 2004 operating
income. The terminal value was discounted to present value using the same
discount rate as for the cash flows. DRW calculated an implied enterprise
valuation of Viewlogic by adding the present values of the cash flows and the
terminal value. DRW calculated an implied equity valuation of Viewlogic by
subtracting debt and adding cash (and cash equivalents) to the implied
enterprise value of Viewlogic. The range of implied equity values of Viewlogic
based on this analysis was $37.8 to $62.3 million, as shown in the following
summary of DRW's analysis:
<TABLE>
<CAPTION>
TERMINAL OPERATING
INCOME MULTIPLES
------------------------------
6.0X 7.0X 8.0X
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Discount Rate:
16.0%................................................ $47.2 $55.2 $63.2
18.0%................................................ $42.2 $49.6 $56.9
20.0%................................................ $37.8 $44.5 $51.2
</TABLE>
RELATIVE CONTRIBUTION ANALYSIS. DRW analyzed the relative contribution of
each of Summit and Viewlogic to a number of calendar year 1999 and 2000
financial statement categories of the pro forma combined company. The financial
statement categories included revenue, earnings before interest and taxes, net
income excluding goodwill amortization, net income including goodwill
amortization and book value. DRW compared these relative contributions to the
pro forma ownership percentage of Summit and Viewlogic securityholders in the
pro forma post-business combination combined company. DRW observed that, based
upon the exchange ratio set forth in the merger agreement, the relative
ownership of the combined company by Viewlogic and Summit securityholders would
be 50.8% and 49.2%, respectively, at the close of the business combination. Due
to the different capital structures of each company, DRW emphasized the relative
contribution of each company to calendar years 1999 and
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2000 net income, both including and excluding amortization, as the most
meaningful comparison. Following is a summary of this analysis:
<TABLE>
<CAPTION>
CALENDAR YEAR 1999 CALENDAR YEAR 2000
-------------------- --------------------
SUMMIT VIEWLOGIC SUMMIT VIEWLOGIC
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net income (including amortization)....... NM NM 45.9% 54.1%
Net income (excluding amortization)....... 34.7 % 65.3 % 49.2% 50.8%
Relative ownership post-business
combination............................. 49.2 % 50.8 % 49.2% 50.8%
</TABLE>
The preparation of a fairness opinion is a complex process that involves the
application of subjective business judgment in determining the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances and, therefore, is not necessarily susceptible
to partial consideration of the analyses or summary description. DRW believes
that its analyses must be considered as a whole and that selecting portions of
the analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete or misleading view of the
processes underlying its opinion. In arriving at its fairness determination, DRW
considered the results of all of its analyses as well as qualitative factors,
including the enhanced competitive position of the combined company from a
broader suite of products, the management team of Viewlogic, and the greater
size and critical mass of the combined company.
In view of the wide variety of factors considered in connection with its
evaluation of the fairness of the merger consideration to Summit from a
financial point of view, DRW did not find it practicable to assign relative
weights to the factors considered in reaching its opinion. No single company or
transaction used in the above analyses as a comparison is identical to Summit or
Viewlogic or the proposed business combination. The analyses were prepared
solely for purposes of DRW providing its opinion as to the fairness to Summit
and its stockholders of the business combination consideration and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold, which are inherently subject to uncertainty.
In connection with its analyses, DRW made, and was provided by Summit's
management with, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Summit's or Viewlogic's control. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
these analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of Summit, Viewlogic or their advisors,
none of Summit, DRW or any other person assumes responsibility if future results
or actual values are materially different from these forecasts or assumptions.
DRW is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and securities in connection with
business combinations and acquisitions, corporate restructurings, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DRW
regularly publishes research reports regarding the electronic design automation
industry and the businesses and securities of publicly owned companies in that
industry. In the ordinary course of business, DRW and its affiliates may
actively trade securities of Summit for their own account or the account of
their customers and, accordingly, may from time to time hold a long or short
position in those securities. Summit selected DRW to render its opinion based on
DRW's knowledge of the technology industry and its experience in business
combinations and acquisitions and in securities valuation generally.
Pursuant to an engagement letter, Summit paid DRW a nonrefundable fee of
$400,000 upon the rendering of its opinion. Payment of this fee to DRW was not
contingent upon the closing of the business combination. Summit has also agreed
to reimburse DRW for its reasonable out-of-pocket expenses and to indemnify DRW
against certain liabilities relating to or arising out of services
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performed by DRW in connection with the business combination. The terms of the
engagement letter, which Summit believes are customary for transactions of this
nature, were negotiated at arms'-length between Summit and DRW, and the Summit
board of directors was aware of this fee arrangement at the time of its approval
of the merger agreement.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material United States
federal income tax consequences of the transactions contemplated by the merger
agreement. This discussion is based on the Internal Revenue Code of 1986, as
amended, the related regulations, existing administrative interpretations and
court decisions, all of which are subject to change, possibly with retroactive
effect. This discussion assumes that Viewlogic stockholders hold their shares of
Viewlogic capital stock as capital assets within the meaning of Section 1221 of
the Internal Revenue Code. This discussion does not address all aspects of
United States federal income taxation that may be important to you in light of
your particular circumstances or if you are subject to special rules. These
special rules include rules relating to:
- stockholders who are not citizens or residents of the United States;
- financial institutions;
- tax-exempt organizations;
- insurance companies;
- dealers in securities; and
- stockholders who acquired their shares of Viewlogic capital stock through
the exercise of options or similar derivative securities or otherwise as
compensation.
Summit's and Viewlogic's obligations to complete the business combination
are conditioned on the delivery of an opinion to Summit from Wilson Sonsini
Goodrich & Rosati, Professional Corporation, and the delivery of an opinion to
Viewlogic from Hale and Dorr LLP, in each case that the business combination
will qualify as a tax free reorganization for United States federal income tax
purposes. Alternatively, this condition will be satisfied upon the delivery of a
tax opinion to Summit and Viewlogic from Wilson Sonsini Goodrich & Rosati or the
delivery of such a tax opinion to Summit and Viewlogic from Hale and Dorr.
Summit and Viewlogic believe, based on the advice of their respective
counsel, that the business combination will be a tax free reorganization and as
a result will have the United States federal income tax consequences discussed
below. The opinions of counsel referred to above will assume the absence of
changes in existing facts and will rely on assumptions, representations and
covenants including those contained in certificates executed by officers of
Summit, Viewlogic and others. The opinions referred to above neither bind the
IRS nor preclude the IRS from adopting a position contrary to that expressed in
the opinions, and no assurance can be given that contrary positions will not be
successfully asserted by the IRS or adopted by a court if the issues are
litigated. Neither Summit nor Viewlogic intends to obtain a ruling from the IRS
with respect to the tax consequences of the business combination.
TAX IMPLICATIONS TO SUMMIT STOCKHOLDERS. Stockholders of Summit will not
recognize gain or loss for United States federal income tax purposes as a result
of the business combination.
TAX IMPLICATIONS TO VIEWLOGIC STOCKHOLDERS. Except as discussed below,
stockholders of Viewlogic will not recognize gain or loss for United States
federal income tax purposes on the exchange of Viewlogic capital stock for
Summit common stock in the business combination. The aggregate tax basis of the
Summit common stock received as a result of the business combination will be the
same as the aggregate tax basis in the Viewlogic capital stock surrendered in
the exchange, reduced by the tax basis
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of any shares of Viewlogic common stock for which cash is received instead of
fractional shares of Summit common stock. The holding period of the Summit
common stock received as a result of the exchange will include the period during
which the Viewlogic capital stock exchanged in the business combination was
held. Viewlogic stockholders will recognize gain or loss for United States
federal income tax purposes with respect to the cash they receive instead of a
fractional share interest in Summit common stock. The gain or loss will be
measured by the difference between the amount of cash they receive and the
portion of the tax basis of their shares of Viewlogic capital stock allocable to
the shares of Viewlogic capital stock exchanged for the fractional share
interest. This gain or loss will be capital gain or loss and will be a long-term
capital gain or loss if the shares of Viewlogic capital stock have been held for
more than one year at the time the business combination is completed.
If the Internal Revenue Service were to successfully challenge the
"reorganization" status of the business combination, each Viewlogic stockholder
would recognize taxable gain or loss with respect to the Viewlogic capital stock
surrendered, measured by the difference between (i) the consideration received
in exchange for the stockholder's Viewlogic stock (the fair market value of the
Summit common stock received plus the amount of any cash received in lieu of
fractional shares of Summit common stock) and (ii) the stockholder's tax basis
in the Viewlogic capital stock surrendered in the business combination. In this
event, a stockholder's aggregate basis in the Summit common stock so received
would equal its fair market value as of the time of the business combination and
the holding period for such stock would begin the day after the merger.
TAX IMPLICATIONS TO SUMMIT AND VIEWLOGIC. Summit, including its business
combination subsidiary, and Viewlogic should not recognize gain or loss for
United States federal income tax purposes as a result of the business
combination.
THIS DISCUSSION IS ONLY INTENDED TO PROVIDE YOU WITH A GENERAL SUMMARY, AND
IT IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OR ANY OTHER CONSEQUENCES OF THE
BUSINESS COMBINATION. IN ADDITION, THIS DISCUSSION DOES NOT ADDRESS TAX
CONSEQUENCES WHICH MAY VARY WITH, OR ARE CONTINGENT ON, YOUR INDIVIDUAL
CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR
ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE BUSINESS COMBINATION.
ACCORDINGLY, YOU ARE STRONGLY URGED TO CONSULT WITH YOUR TAX ADVISOR TO
DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME
OR OTHER TAX CONSEQUENCES TO YOU OF THE BUSINESS COMBINATION.
ACCOUNTING TREATMENT
The business combination will be accounted for under the purchase method of
accounting. Although Summit will be acquiring Viewlogic, after the transaction,
Viewlogic stockholders will hold a controlling interest in Summit. Accordingly,
for accounting purposes, the acquisition will be a "reverse acquisition" and
Viewlogic will be the "accounting acquirer." As Viewlogic will be the accounting
acquirer, its accounts will be recorded at historical cost and the assets and
liabilities of Summit will be recorded at their estimated fair value as of the
closing date.
Viewlogic intends to record an expense of approximately $2.1 million in the
quarter in which the business combination closes with respect to the write-off
of in-process research and development acquired. In addition, the intangible
assets of approximately $22.2 million recorded with respect to the business
combination are expected to be amortized over a period of three to seven years
following the closing of the business combination.
GOVERNMENTAL AND REGULATORY APPROVALS
Summit and Viewlogic are not aware of any governmental or regulatory
approvals required for consummation of the business combination, other than
compliance with the federal securities laws, applicable securities and "blue
sky" laws of the various states and applicable Delaware corporate law.
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APPRAISAL RIGHTS
Because the shares of Summit common stock are quoted on the Nasdaq National
Market, Summit's stockholders are not entitled to appraisal rights under
Delaware law. Stockholders of Summit can sell their shares of common stock on
the Nasdaq National Market at prevailing prices, unless otherwise restricted by
securities laws or contractual obligations.
Delaware law grants appraisal rights in the business combination to the
holders of Viewlogic common and preferred stock. Under Delaware law, Viewlogic
stockholders may object to the business combination, and demand in writing that
Viewlogic pay the fair value of their shares. The determination of fair value
takes into account all relevant factors but excludes any appreciation or
depreciation in anticipation of the applicable business combination.
Stockholders who elect to exercise appraisal rights must comply with all of the
procedures to preserve those rights. We have attached a copy of Section 262 of
the Delaware General Corporation Law, which sets forth the appraisal rights, as
Annex D to this joint proxy statement/prospectus.
Section 262 of the Delaware General Corporation Law sets forth the required
procedure a stockholder seeking appraisal must follow. Making sure that you
actually perfect your appraisal rights can be complicated. The procedural rules
are specific and must be followed completely. Failure to comply with the
procedure may cause a termination of your appraisal rights. We are providing you
only a summary of your rights and the procedure. The following information is
qualified in its entirety by the provisions of Section 262 of the Delaware
General Corporation Law. Please review Section 262 for the complete procedure.
Viewlogic will not give you any notice other than as described in this joint
proxy statement/prospectus and as required by Delaware law.
APPRAISAL RIGHTS PROCEDURES
If you are a Viewlogic stockholder and you wish to exercise your appraisal
rights, you must satisfy the provisions of Section 262 of the Delaware General
Corporation Law. Section 262 requires the following:
- YOU MUST MAKE A WRITTEN DEMAND FOR APPRAISAL: You must deliver a written
demand for appraisal to Viewlogic before the vote on the merger agreement
is taken at the special meeting. This written demand for appraisal must be
separate from your proxy. In other words, a vote against the merger
agreement alone will not constitute demand for appraisal.
- YOU MUST REFRAIN FROM VOTING FOR APPROVAL OF THE BUSINESS COMBINATION: You
must not vote for approval and adoption of the merger agreement. If you
vote, by proxy or in person, in favor of the merger agreement, this will
terminate your right to seek appraisal. You can also terminate your right
to seek appraisal if you return a signed proxy and fail to vote against
approval of the business combination or fail to note that you are
abstaining from voting. Your appraisal rights will be terminated even if
you previously filed a written demand for appraisal.
- YOU MUST CONTINUOUSLY HOLD YOUR VIEWLOGIC SHARES: You must continuously
hold your shares of Viewlogic capital stock, from the date you make the
demand for appraisal through the completion of the business combination.
If you are the record holder of Viewlogic capital stock on the date the
written demand for appraisal is made but then transfer the shares before
the business combination, you will lose any right to appraisal in respect
of those shares. You should read the paragraphs below for more details on
making a demand for appraisal.
A written demand for appraisal of Viewlogic capital stock is only effective
if it is signed by, or for, the stockholder of record who owns such shares at
the time the demand is made. The demand must be signed as the stockholder's name
appears on each of their stock certificates. If you are the beneficial owner of
Viewlogic capital stock, but not the stockholder of record, you must have the
stockholder of record sign a demand for appraisal.
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If you own Viewlogic capital stock in a fiduciary capacity, such as a
trustee, guardian or custodian, you must disclose the fact that you are signing
the demand for appraisal in that capacity.
If you own Viewlogic capital stock with one or more persons, such as in a
joint tenancy or tenancy in common, all of the owners must sign, or have signed
for them, the demand for appraisal. An authorized agent, which could include one
or more of the joint owners, may sign the demand for appraisal for a stockholder
of record; however, the agent must expressly disclose who the stockholder of
record is and that the agent is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds Viewlogic capital
stock as a nominee for others, you may exercise a right of appraisal with
respect to the shares held for one or more beneficial owners, while not
exercising such right for other beneficial owners. In such a case, you should
specify in the written demand the number of shares as to which you wish to
demand appraisal. If you do not expressly specify the number of shares, we will
assume that your written demand covers all the shares of Viewlogic capital stock
that are in your name.
If you are a Viewlogic stockholder who elects to exercise appraisal rights,
you should mail or deliver by hand a written demand to:
Viewlogic Systems, Inc.
293 Boston Post Road West
Marlboro, Massachusetts 01752
Attention: Secretary
It is important that Viewlogic receive all written demands before the vote
concerning the merger agreement is taken at the Viewlogic special meeting. As
explained above, this written demand should be signed by, or on behalf of, the
stockholder of record. The written demand for appraisal should specify the
stockholder's name and mailing address, the number of shares of capital stock
owned, and that the stockholder is thereby demanding appraisal of that
stockholder's shares.
If you fail to comply with any of these conditions and the business
combination becomes effective, you will only be entitled to receive the business
combination consideration provided in the merger agreement.
WRITTEN NOTICE. Within ten days after the completion of the business
combination, Viewlogic must give written notice that the business combination
has become effective to each stockholder who has fully complied with the
conditions of Section 262 of the Delaware General Corporation Law.
PETITION WITH THE CHANCERY COURT. Within 120 days after the completion of
the business combination, either the surviving corporation or any stockholder
who has complied with the conditions of Section 262, may file a petition in the
Delaware Court of Chancery. This petition should request that the chancery court
determine the value of the shares of Viewlogic stock held by all of the
stockholders who are entitled to appraisal rights. If you intend to exercise
your rights of appraisal, you should file a petition in the chancery court.
Viewlogic has no intention at this time to file a petition. Because Viewlogic
has no obligation to file a petition, if you do not file a petition within 120
days after the completion of the business combination, you will lose your rights
of appraisal.
WITHDRAWAL OF DEMAND. If you change your mind and decide you no longer want
appraisal rights, you may withdraw your demand for appraisal rights at any time
within 60 days after the closing of the business combination. You may also
withdraw your demand for appraisal rights after 60 days after the closing of
your business combination, but only with the written consent of Viewlogic. If
you effectively withdraw your demand for appraisal rights, you will receive the
business combination consideration provided in the merger agreement.
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REQUEST FOR APPRAISAL RIGHTS STATEMENT. If you have complied with the
conditions of Section 262, you are entitled to receive a statement from
Viewlogic. The statement will set forth the number of shares held by
stockholders that have demanded appraisal rights, and the number of stockholders
who own those shares. In order to receive this statement, you must send a
written request to Viewlogic within 120 days after the completion of the
business combination. After the business combination, Viewlogic has ten days
after receiving a request to mail you the statement.
CHANCERY COURT PROCEDURES. If you properly file a petition for appraisal in
the chancery court and deliver a copy to Viewlogic, Viewlogic will then have 20
days to provide the chancery court with a list of the names and addresses of all
stockholders who have demanded appraisal rights and have not reached an
agreement with Viewlogic as to the value of their shares. The chancery court
will then send notice to all of the stockholders who have demanded appraisal
rights. If the chancery court thinks it is appropriate, it has the power to
conduct a hearing to determine whether the stockholders have fully complied with
Section 262 of the Delaware General Corporation Law and whether they are
entitled to appraisal rights under Section 262. The chancery court may also
require you to submit your stock certificates to the Registry in Chancery so
that it can note on the certificates that an appraisal proceeding is pending. If
you do not follow the chancery court's directions, you may be dismissed from the
proceeding.
APPRAISAL OF SHARES. After the chancery court determines which stockholders
are entitled to appraisal rights, the chancery court will consider all relevant
factors except for any appreciation or depreciation due to the anticipation or
accomplishment of the business combination. After the chancery court determines
the fair value of the shares, it will direct Viewlogic to pay that value to the
stockholders who are entitled to appraisal rights. The chancery court can also
direct Viewlogic to pay interest, simple or compound, on that value if the
chancery court determines that interest is appropriate. In order to receive your
payment for your shares, you must then surrender your stock certificates to
Viewlogic.
The chancery court could determine that the fair value of shares of stock is
more than, the same as, or less than the business combination consideration. In
other words, if you demand appraisal rights, you could receive less
consideration than you would under the merger agreement. You should also be
aware that an opinion of an investment banking firm that the business
combination is fair is not an opinion that the business combination
consideration is the same as the fair value under Section 262.
COSTS AND EXPENSES OF APPRAISAL PROCEEDING. The costs and expenses of the
appraisal proceeding may be assessed against Viewlogic and the stockholders
participating in the appraisal proceeding, as the chancery court deems equitable
under the circumstances. You can request that the chancery court determine the
amount of interest, if any, Viewlogic should pay on the value of stock owned by
stockholders entitled to the payment of interest. You may also request that the
chancery court allocate the expenses of the appraisal action incurred by any
stockholder pro rata against the value of all of the shares entitled to
appraisal.
LOSS OF STOCKHOLDER'S RIGHTS. If you demand appraisal rights, after the
completion of the business combination you will not be entitled to:
- vote your shares of stock, for any purpose, for which you have demanded
appraisal rights;
- receive payment of dividends or any other distribution with respect to
such shares, except for dividends or distributions, if any, that are
payable to holders of record as of a record date prior to the effective
time of the business combination; or
- receive the payment of the consideration provided for in the merger
agreement, unless you properly withdraw your demand for appraisal.
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If no petition for an appraisal is filed within 120 days after the
completion of the business combination, your right to seek an appraisal will
cease. You may withdraw your demand for appraisal and accept the business
combination consideration by delivering to Viewlogic a written withdrawal of
your demand, except that:
- any attempt to withdraw made more than 60 days after the completion of the
business combination will require the written approval of Viewlogic; and
- an appraisal proceeding in the chancery court cannot be dismissed unless
the chancery court approves.
If you fail to comply strictly with the procedures described above you will
lose your appraisal rights. Consequently, if you wish to exercise your appraisal
rights, we strongly urge you to consult a legal advisor before attempting to
exercise your appraisal rights.
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THE MERGER AGREEMENT
THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES THE MERGER
AGREEMENT. WHILE WE BELIEVE THAT THE DESCRIPTION COVERS THE MATERIAL TERMS OF
THE MERGER AGREEMENT, THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU. THE MERGER AGREEMENT IS ATTACHED TO THIS JOINT PROXY
STATEMENT/ PROSPECTUS AS ANNEX A. WE URGE YOU TO READ IT CAREFULLY IN ITS
ENTIRETY.
REPRESENTATIONS AND WARRANTIES
Each of Summit and Viewlogic made a number of representations and warranties
in the merger agreement regarding aspects of their respective businesses,
financial condition, structure and other facts pertinent to the business
combination.
Viewlogic's representations and warranties include:
- Viewlogic's corporate organization and its qualification to do
business;
- Viewlogic's certificate of incorporation and bylaws;
- Viewlogic's capitalization;
- authorization of the merger agreement;
- Viewlogic's financial statements;
- changes in Viewlogic's business since the date of its financial
statements;
- Viewlogic's taxes;
- Viewlogic's title to the properties it owns and leases;
- intellectual property used by Viewlogic;
- permits required to conduct Viewlogic's business and compliance with
those permits;
- litigation involving Viewlogic;
- Viewlogic's employee benefit plans;
- Viewlogic's employee and labor matters;
- environmental laws that apply to Viewlogic;
- Viewlogic's material contracts;
- payments, if any, required to be made by Viewlogic to employees and
directors on account of the business combination;
- information supplied by Viewlogic in this joint proxy
statement/prospectus and the related registration statement filed by
Summit;
- approval by the Viewlogic board; and
- the inapplicability of Viewlogic's stockholders rights agreement or
"poison pill" to the business combination.
Summit's representations and warranties include:
- Summit's corporate organization and its qualification to do business;
- Summit's certificate of incorporation and bylaws;
- Summit's capitalization;
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- authorization of the merger agreement;
- Summit's financial statements;
- changes in Summit's business since the date of its financial
statements;
- Summit's taxes;
- Summit's title to the properties it owns and leases;
- intellectual property used by Summit;
- permits required to conduct Summit's business and compliance with those
permits;
- litigation involving Summit;
- Summit's employee benefit plans;
- Summit's employee and labor matters;
- environmental laws that apply to Summit;
- Summit's material contracts;
- payments, if any, required to be made by Summit to employees and
directors on account of the business combination;
- information supplied by Summit in this joint proxy statement/prospectus
and the related registration statement filed by Summit;
- approval by the Summit board;
- the fairness opinion received by Summit; and
- the inapplicability of Summit's stockholders rights agreement or
"poison pill" to the business combination.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles of the
merger agreement entitled "Representations and Warranties of Viewlogic" and
"Representations and Warranties of Summit and Merger Sub."
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE BUSINESS COMBINATION
Each of Summit and Viewlogic agreed that, until the completion of the
business combination or unless the other party consents in writing, it will use
commercially reasonable efforts consistent with past practices and policies to:
- preserve intact its present business organization;
- keep available the services of its present executive officers and key
employees; and
- preserve its relationships with customers, suppliers, licensors,
licensees, and others with which it has business dealings.
Each also agreed that, until the completion of the business combination or
unless the other party consents in writing, it would conduct its business in
compliance with certain specific restrictions relating to the following:
- the issuance and redemption of securities;
- modification of terms relating to stock options;
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- intellectual property;
- the issuance of dividends, other distributions or stock options;
- modification of certificate of incorporation and bylaws;
- any liquidation, restructuring, or business combination;
- the acquisition and disposition of assets;
- the incurrence of indebtedness;
- employees and employee benefits;
- capital expenditures;
- litigation;
- taxes;
- entrance into or modification of contracts;
- accounting policies and procedures; and
- waiver or release of rights.
The agreements related to the conduct of business in the merger agreement
are complicated and not easily summarized. You are urged to carefully read the
sections of the merger agreement entitled "Conduct of Business Prior to the
Effective Time."
NO SOLICITATION OF OTHER ACQUISITION PROPOSAL
Until the business combination is completed or the merger agreement is
terminated, each of Summit and Viewlogic has agreed not to directly or
indirectly take any of the following actions:
- solicit, initiate, encourage or induce any other acquisition proposal;
- participate in any discussions or negotiations regarding any other
acquisition proposal; and
- approve, endorse or recommend any other acquisition proposal.
However, after receipt of an unsolicited, written, bona fide acquisition
proposal that the applicable company's board of directors reasonably concludes
may result in a transaction more favorable to the company's stockholders from a
financial point of view than the business combination between Summit and
Viewlogic, the board of directors may engage in discussions with respect to the
other acquisition proposal. See "--Payment of Termination Fee."
TREATMENT OF VIEWLOGIC STOCK OPTIONS
Upon completion of the business combination, each outstanding option to
purchase Viewlogic common stock will be converted into an option to purchase the
number of shares of Summit common stock equal to 0.67928 times the number of
shares of Viewlogic common stock which could have been obtained before the
business combination upon the exercise of each option, rounded down to the
nearest whole share. The exercise price will be equal to the exercise price per
share of Viewlogic common stock subject to the option or warrant before
conversion divided by 0.67928, rounded up to the nearest whole cent. The other
terms of each option and the Viewlogic option plans above under which the
options were issued will continue to apply.
Summit intends to file a registration statement on Form S-8 for the shares
of Summit common stock issuable with respect to options under the Viewlogic
stock option plans and will maintain the effectiveness of that registration
statement for as long as any of the options remain outstanding.
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BOARD OF DIRECTORS AND OFFICERS OF THE COMBINED COMPANY
As of the effective time of the business combination, the combined company's
board of directors will consist of the following five members:
- William J. Herman (with a term expiring in 2000);
- Lorne Cooper and Steven Erwin (with terms expiring in 2001); and
- William Botts and Keith Geeslin (with terms expiring in 2002).
The officers of the combined company will consist of the following
individuals:
- William J. Herman--Chairman of the Board and Chief Executive Officer;
- Richard G. Lucier--Executive Vice President and Chief Operating Officer;
- Paula Cassidy--Vice President, Human Resources;
- Peter T. Johnson--Vice President, Business Development and Chief Legal
Officer;
- Gary Kiaski--Vice President, Worldwide Sales;
- Kevin O'Brien--Vice President, Finance and Chief Financial Officer;
- Guy Moshe--Senior Vice President and General Manager of Summit Israel; and
- Eric Benhayoun--Vice President, General Manager European Operations.
CONDITIONS TO COMPLETION OF THE BUSINESS COMBINATION
The respective obligations of Summit and Viewlogic to complete the business
combination and the other transactions contemplated by the merger agreement are
subject to the satisfaction or waiver of each of the following conditions before
completion of the business combination:
- Summit's registration statement as filed with the SEC of which this joint
proxy statement/ prospectus is a part must be effective, no stop order
suspending its effectiveness will be in effect and no proceedings for
suspension of its effectiveness will be pending before or threatened by
the SEC;
- the merger agreement must be approved and adopted by Viewlogic
stockholders;
- the issuance of shares of Summit common stock pursuant to the business
combination and an amendment to Summit's certificate of incorporation to
increase the authorized number of shares of Summit common stock must be
approved by Summit stockholders;
- no law, regulation or order must be enacted or issued which has the effect
of making the business combination illegal or otherwise prohibiting
completion of the business combination substantially on the terms
contemplated by the merger agreement; and
- Summit and Viewlogic must each receive from their respective tax counsel
an opinion to the effect that the business combination will constitute a
tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. However, if counsel to either Summit or Viewlogic
does not render this opinion, this condition will be satisfied if counsel
to the other party renders the opinion.
Viewlogic's obligations to complete the business combination and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the business combination:
- Summit's representations and warranties must be true and correct as if
made at and as of such time except (i) to the extent Summit's
representations and warranties address matters only as of
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a particular date, they must be true and correct as of that date and (ii)
that any qualification based on "material adverse effect", "material" or
similar phrases shall be disregarded for any applicable representations
and warranties;
- Summit must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by Summit at or before completion of the business
combination; and
- the shares of Summit common stock to be issued in connection with the
business combination shall be approved for quotation on the Nasdaq
National Market.
Summit's obligations to complete the business combination and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the business combination:
- Viewlogic's representations and warranties must be true and correct as if
made at and as of such time except (i) to the extent Viewlogic's
representations and warranties address matters only as of a particular
date, they must be true and correct as of that date and (ii) that any
qualification based on "material adverse effect", "material" or similar
phrases shall be disregarded for any applicable representations and
warranties;
- Viewlogic must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by Viewlogic at or before completion of the business
combination; and
- holders of no more than 7.5% of the outstanding Viewlogic capital stock
shall have exercised dissenters' rights.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to completion of
the business combination, whether before or after approval and adoption of the
merger agreement and approval of the business combination by Viewlogic
stockholders and Summit stockholders:
- by mutual consent of Summit and Viewlogic;
- by Summit or Viewlogic, if the business combination is not completed by
the earlier of (1) 75 days after the effective date of this joint proxy
statement/prospectus or (2) February 29, 2000 except that the right to
terminate the merger agreement 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 business combination to occur and such action or failure to act
constitutes a material breach of the merger agreement;
- by Summit or Viewlogic, if there is any order of a court or governmental
authority having jurisdiction over either company permanently enjoining,
restraining or prohibiting the completion of the business combination
which is final and nonappealable;
- by Summit or Viewlogic, if the requisite stockholder approval contemplated
under this joint proxy statement/prospectus shall not have been obtained,
except that the right to terminate the merger agreement pursuant to this
provision is not available to the party whose action or failure to act
cause the failure to obtain such stockholder approval and such action or
failure to act constitutes a material breach of the merger agreement;
- by Summit or Viewlogic, if Viewlogic's board of directors withdraws or
amends or modifies in a manner adverse to Summit its unanimous
recommendation in favor of the adoption and approval of the merger
agreement or the approval of the business combination;
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- by Summit or Viewlogic, if Summit's board of directors withdraws or amends
or modifies in a manner adverse to Viewlogic its unanimous recommendation
in favor of the adoption and approval of the merger agreement or the
approval of the business combination;
- by Viewlogic, upon a breach of any representation, warranty, covenant or
agreement on the part of Summit set forth in the merger agreement, or if
any of Summit's representations or warranties are or become untrue so that
the corresponding condition to completion of the business combination
would not be met. However, if the breach or inaccuracy is curable by
Summit through the exercise of its commercially reasonable efforts, and
Summit continues to exercise such commercially reasonable efforts,
Viewlogic may not terminate the merger agreement if the breach or
inaccuracy is being cured by Summit; or
- by Summit, upon a breach of any representation, warranty, covenant or
agreement on the part of Viewlogic set forth in the merger agreement, or
if any of Viewlogic's representations or warranties are or become untrue
so that the corresponding condition to completion of the business
combination would not be met. However, if the breach or inaccuracy is
curable by Viewlogic through the exercise of its commercially reasonable
efforts and Viewlogic continues to exercise such commercially reasonable
efforts Summit may not terminate the merger agreement if the breach or
inaccuracy is being cured by Viewlogic.
PAYMENT OF TERMINATION FEE
Summit is obligated to pay to Viewlogic a termination fee of $2.5 million if
the merger agreement is terminated in any of the following circumstances:
- by Viewlogic, if Summit's board of directors withdraws or amends or
modifies in a manner adverse to Viewlogic its unanimous recommendation in
favor of the adoption and approval of the merger agreement or the approval
of the business combination; or
- by Summit or Viewlogic, if the requisite stockholder approval contemplated
under this joint proxy statement/prospectus shall not have been obtained,
and, among other things, Summit enters into an alternative business
combination transaction within twelve months of such termination.
Viewlogic is obligated to pay to Summit a termination fee of $2.5 million if
the merger agreement is terminated in any of the following circumstances:
- by Summit, if Viewlogic's board of directors withdraws or amends or
modifies in a manner adverse to Summit its unanimous recommendation in
favor of the adoption and approval of the merger agreement or the approval
of the business combination; or
- by Summit or Viewlogic, if the requisite stockholder approval contemplated
under this joint proxy statement/prospectus shall not have been obtained,
and, among other things, Viewlogic enters into an alternative business
combination transaction within twelve months of such termination.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Summit and Viewlogic may amend the merger agreement before completion of the
business combination.
Either of Summit and Viewlogic may extend the other's time for the
performance of any of the obligations or other acts under the merger agreement,
waive any inaccuracies in the other's representations and warranties and waive
compliance by the other with any of the agreements or conditions contained in
the merger agreement other than stockholder approval.
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INTERESTS OF SUMMIT MANAGEMENT IN THE BUSINESS COMBINATION
In considering the recommendation of the Summit board of directors in favor
of the business combination and the related amendments to Summit's certificate
of incorporation, stockholders of Summit should be aware that the employment
agreement of Arthur Fletcher, Summit's Treasurer and Director of Investor
Relations, provides that, if Summit's headquarters are relocated from its
present location by more than 50 miles, then the vesting of Mr. Fletcher's
option for 50,000 shares of Summit common stock will accelerate in full. In
addition, Mr. Fletcher will receive certain severance benefits if his employment
is terminated after the relocation. Summit and Viewlogic intend to relocate
Summit's headquarters from Portland, Oregon to Boston, Massachusetts.
Accordingly, the above mentioned provisions will likely be triggered.
INTERESTS OF VIEWLOGIC DIRECTORS AND MANAGEMENT IN THE BUSINESS COMBINATION
In considering the recommendation of the Viewlogic board of directors in
favor of the merger agreement and business combination, stockholders of
Viewlogic should be aware that many of Viewlogic's directors and executive
officers have interests in the business combination that are different from, or
in addition to, the interests of stockholders of Viewlogic. These interests
relate to or arise from:
- the continued indemnification of all current directors and officers of
Viewlogic; and
- the retention of all executive officers and directors of Viewlogic as
executive officers and directors of the combined company.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Summit will, or will cause the combined
company to, fulfill and honor in all respects the obligations of Viewlogic to
indemnify each person who is or was a director or officer of Viewlogic pursuant
to any indemnification provision of the Viewlogic certificate of incorporation
or bylaws or equivalent constituent documents of Viewlogic as each was in effect
on the date of the merger agreement. The certificate of incorporation and bylaws
of Summit contain substantially the same provisions with respect to
indemnification set forth in the certificate of incorporation and bylaws of
Viewlogic. These indemnification provisions will not be amended, repealed or
otherwise modified for a period of six years after completion of the business
combination, in any manner that would adversely affect the rights of the current
directors or officers of Viewlogic.
VIEWLOGIC EXECUTIVE OFFICERS
After the business combination, the combined company will retain as
executive officers all six current executive officers of Viewlogic, and all
three directors of Viewlogic will serve as directors of the combined company.
- Mr. Herman will be employed by the combined company as Chairman of the
Board of Directors and Chief Executive Officer and will serve the combined
company as a director;
- Ms. Cassidy will be employed by the combined company as Vice President,
Human Resources;
- Mr. Johnson will be employed by the combined company as Vice President,
Business Development, Chief Legal Officer and Secretary;
- Mr. Kiaski will be employed by the combined company as Vice President,
Worldwide Sales;
- Mr. Lucier will be employed by the combined company as Executive Vice
President and Chief Operating Officer;
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- Mr. O'Brien will be employed by the combined company as Vice President,
Finance and Chief Financial Officer;
- Mr. Geeslin will serve as a director of the combined company; and
- Mr. Cooper will serve as a director of the combined company.
Mr. Herman's and Mr. Lucier's existing employment agreements with Viewlogic
will be assumed by the combined company if the business combination is
completed. In that event, each of Mr. Herman and Mr. Lucier will be entitled to
nine months' base salary and benefits if he is terminated by the combined
company without cause.
VOTING AGREEMENTS
Stockholders of Viewlogic who own an aggregate of shares of Viewlogic
voting securities, representing a approximately % ownership of Viewlogic's
voting securities as of the Viewlogic record date, have entered into voting
agreements with Summit. These stockholders have agreed to vote all shares of
Viewlogic voting securities they have beneficial ownership of and any Viewlogic
voting securities they acquire beneficial ownership of prior to the termination
of the voting agreements in favor of approval of the business combination. In
addition, these stockholders have granted irrevocable proxies to the board of
directors of Summit to vote their voting securities in favor of approval of the
business combination. These voting agreements are irrevocable provided the
merger agreement is not terminated. The vote of these stockholders in accordance
with the voting agreements, alone and without the vote of any other of
Viewlogic's stockholders is sufficient to approve the business combination on
behalf of Viewlogic.
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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 20,000,000 shares to 50,000,000 shares,
contingent upon stockholder approval of the business combination.
SUMMIT COMMON STOCK
As of the Summit record date, there were shares of Summit common stock
outstanding. Summit common stock is quoted 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 business combination 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, none 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 Equiserve and
its telephone number is (617) 434-2200.
DESCRIPTION OF VIEWLOGIC CAPITAL STOCK
The authorized capital stock of Viewlogic consists of (i) 35,000,000 shares
of common stock, $0.001 par value per share and (ii) 22,000,000 shares of
preferred stock, $0.001 par value per share, of which 17,000,000 shares have
been designated series A voting preferred stock and 5,000,000 shares have been
designated series A-1 non-voting preferred stock. There is no market for
Viewlogic capital stock.
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VIEWLOGIC COMMON STOCK
CAPITALIZATION
As of the Viewlogic record date, there were shares of Viewlogic
common stock outstanding. As of the Viewlogic record date, the outstanding
Viewlogic common stock was held of record by approximately stockholders.
Viewlogic's certificate of incorporation provides that the number of authorized
shares of Viewlogic common stock may be increased or decreased (but not below
the number then outstanding) by the affirmative vote of the holders of the
majority of the Viewlogic common stock entitled to vote, irrespective of the
provisions of Section 242(b)(2) of the Delaware General Corporation Law.
VOTING RIGHTS, LIQUIDATION AND OTHER RIGHTS
Stockholders of Viewlogic common stock are entitled to one vote for each
share held on matters submitted to a vote of stockholders. Holders of Viewlogic
common stock may take action by written consent. Holders of Viewlogic common
stock do not have cumulative voting rights. Upon the liquidation, dissolution or
winding up of Viewlogic, the holders of Viewlogic common stock are entitled to
receive ratably the net assets of Viewlogic available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. The Viewlogic common stock has no preemptive, subscription,
redemption or conversion rights. All outstanding shares of Viewlogic common
stock are fully paid and nonassessable.
DIVIDENDS
Holders of Viewlogic common stock are entitled to receive their
proportionate share of any dividends declared by the Viewlogic board of
directors, subject to any preferential dividend rights of outstanding preferred
stock. On October 2, 1998, Viewlogic paid a stock dividend of 3,965.722 shares
of Viewlogic common stock for each of the 1,000 shares of Viewlogic common stock
outstanding on October 1, 1998. Viewlogic also paid a cash dividend of
$7.56291971 per share of Viewlogic common stock outstanding immediately after
that stock dividend.
VIEWLOGIC PREFERRED STOCK
CAPITALIZATION
Viewlogic has 22,000,000 shares of preferred stock authorized. The Viewlogic
board of directors has the authority to issue 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 any
series, without any further vote or action by the Viewlogic stockholders. Of the
22,000,000 shares of Viewlogic preferred stock authorized, as of the Viewlogic
record date shares of series A voting preferred stock were outstanding
and shares of series A-1 non-voting preferred stock were outstanding.
As of the Viewlogic record date, the outstanding Viewlogic series A voting
preferred stock was held of record by approximately stockholders and
the outstanding Viewlogic series A-1 non-voting preferred stock was held by
stockholder.
CONVERSION
Subject to specified terms, conditions, limitations and adjustments set
forth in Viewlogic's certificate of incorporation, holders of Viewlogic
preferred stock have the right at their option to convert any of those shares,
without the payment of additional consideration, into the number of fully paid
and nonassessable shares of Viewlogic common stock as is determined by a formula
set forth in Viewlogic's certificate of incorporation. No fractional shares of
Viewlogic common stock may be issued
59
<PAGE>
upon conversion of Viewlogic preferred stock and the number of shares of
Viewlogic common stock to be issued will be rounded to the nearest whole share.
As of the Viewlogic record date, each share of series A voting preferred stock
and series A non-voting preferred stock was convertible into one share of
Viewlogic common stock.
VOTING RIGHTS
Holders of Viewlogic series A voting preferred stock are entitled to cast a
number of votes equal to the number of shares of Viewlogic common stock into
which such series A voting preferred stock could be converted on matters
submitted to a vote of stockholders. Holders of Viewlogic series A voting
preferred stock may take action by written consent. As long as at least a
majority of the shares of Viewlogic series A voting preferred stock originally
issued remain outstanding, the holders of Viewlogic series A voting preferred
stock are entitled to elect one director of Viewlogic at each annual election of
directors. Except as provided by law, and in specific situations set forth in
Viewlogic's certificate of incorporation, holders of Viewlogic series A voting
preferred stock vote together with the holders of Viewlogic common stock.
Holders of Viewlogic series A-1 non-voting preferred stock are not entitled to
vote or to receive notice of any meeting of stockholders.
Upon the consummation of the business combination, current preferred stock
holders of Viewlogic will hold approximately 30% of the common stock of the
combined company. These stockholders will hold large voting blocks and have
significant control over the combined company.
DIVIDENDS
Viewlogic's certificate of incorporation provides that the Viewlogic board
of directors may declare and Viewlogic may pay dividends on its capital stock.
The holders of Viewlogic preferred stock are entitled to receive cumulative
dividends at a specified rate, prior and in preference to any payment of any
dividend to holders of Viewlogic common stock. In addition, holders of Viewlogic
preferred stock are entitled to receive any payment of dividends to holders of
Viewlogic common stock in proportion to the number of shares of Viewlogic common
stock which would be held by each holder if all shares of Viewlogic preferred
stock were converted to Viewlogic common stock.
LIQUIDATION
Upon the liquidation, dissolution or winding up of Viewlogic, the holders of
Viewlogic preferred stock are entitled to receive, prior and in preference to
any distribution of any of the assets of Viewlogic to holders of Viewlogic
common stock, an amount per share equal to the sum of the purchase price of each
share of preferred stock, plus the sum of (i) any declared but unpaid dividends
and (ii) other dividends payable in connection with events specified in
Viewlogic's certificate of incorporation. If upon liquidation, dissolution or
winding up of Viewlogic the remaining assets of Viewlogic available for
distribution to its stockholders are insufficient to pay the holders of
Viewlogic preferred stock the full amount to which they are entitled, the
holders of Viewlogic preferred stock will share ratably in any distribution of
the remaining assets and funds of Viewlogic in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon the distribution if all amounts payable on or with respect to such shares
were paid in full.
REDEMPTION
At any time after October 2, 2006, with a written request from the holders
of not less than a majority of the then outstanding Viewlogic series A voting
preferred stock, Viewlogic will pay in cash holders of Viewlogic preferred stock
specified in the written request a sum per share equal to $2.00 per share plus
all declared but unpaid dividends on that share.
60
<PAGE>
REGISTRATION RIGHTS
Under an investors' rights agreement, holders of Viewlogic preferred stock
and some holders of Viewlogic common stock collectively holding in the aggregate
approximately 20,000,000 shares of Viewlogic common stock, on an actual and as
converted basis, are entitled, under specified conditions, to demand
registration under the Securities Act of their shares of common stock
then-issued or their shares of common stock issuable upon conversion of their
shares of Viewlogic preferred stock. Additionally, in the event Viewlogic
proposes to register any of its securities under the Securities Act, these
stockholders are entitled to include their shares in the registration, subject
to the right of the underwriter of any underwritten offering to exclude some or
all of their shares from the registration for marketing reasons. Subject to the
terms of voting agreements entered into between Summit and the holders of an
aggregate of 14,000,000 shares of Viewlogic common stock, on an as converted
basis, if the business combination is completed, these registration rights will
remain outstanding and will be applicable to the shares of Summit common stock
received by the holders of these registration rights in the business
combination.
COMPARISON OF CERTAIN RIGHTS
After consummation of the business combination, the holders of Viewlogic
capital stock who receive Summit common stock under the terms of the merger
agreement will become stockholders of the combined company. As stockholders of
Viewlogic, their rights are presently governed by Delaware law, the Viewlogic
certificate of incorporation and the Viewlogic bylaws. As stockholders of the
combined company, their rights will be governed by Delaware law, Summit's
certificate of incorporation and Summit's bylaws. The following discussion
compares the rights of holders of Viewlogic capital stock and holders of Summit
common stock and various provisions of the charters and bylaws of Viewlogic and
Summit. This summary is not complete and is qualified in its entirety by
reference to the Viewlogic certificate of incorporation and Viewlogic bylaws,
the Summit certificate of incorporation and the Summit bylaws and the relevant
provisions of Delaware law.
SPECIAL MEETING OF THE STOCKHOLDERS
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. The Summit certificate of incorporation provides
that special meetings of the stockholders generally may only be called by the
board of directors. The Viewlogic bylaws provide that special meetings of the
stockholders may be called by the board of directors or Viewlogic's President.
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 of incorporation does not allow for actions by written
consent of the stockholders. The Viewlogic bylaws permit actions by written
consent of the stockholders.
CUMULATIVE VOTING
Neither the Summit certificate of incorporation nor the Viewlogic
certificate of incorporation provides for cumulative voting by stockholders in
elections of directors.
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<PAGE>
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Summit certificate of incorporation and Summit bylaws provide that the
number of directors shall be five and shall be fixed from time to time by
amendments to the Summit certificate of incorporation or Summit bylaws adopted
by the Summit board or stockholders. The Summit certificate of incorporation
provides for three classes of directors, as nearly equal in size as possible,
with staggered terms. The Viewlogic bylaws provide that the number of directors
shall be fixed from time to time by resolution of either the Viewlogic
stockholders or the Viewlogic board of directors.
REMOVAL OF DIRECTORS
Under Delaware law, the stockholders of a corporation that has a classified
board of directors, such as Summit, may only remove directors for cause. The
Summit bylaws provide that any director or the entire board of directors may be
removed only for cause by the holders of a majority of the then-outstanding
shares of capital stock entitled to vote in the election of directors. The
Viewlogic bylaws provide that any director or the entire board of directors may
be removed with or without cause by holders of a majority of the shares then
entitled to vote in an election of directors, except that the directors elected
by the holders of a particular class or series of stock may be removed without
cause only by vote of the holders of a majority of the outstanding shares of
that class or series.
EXCULPATION OF DIRECTORS
Each of Summit and Viewlogic 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 bylaws and the Viewlogic certificate of incorporation and the
Viewlogic bylaws require indemnification of their directors and officers to the
maximum extent and in the manner permitted by Delaware law. The Summit bylaws
also permit Summit to indemnify its employees and agents.
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<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Pursuant to the September 16, 1999 merger agreement between Viewlogic and
Summit, Viewlogic will be merged with and into a wholly owned subsidiary of
Summit. Upon completion of the acquisition, the existing Viewlogic shareholders
will own approximately 51% of the outstanding common stock of the combined
company. Consequently, for accounting purposes, the transaction will be
accounted for as a reverse acquisition with Viewlogic as the acquirer.
Subsequent to consummation of the transaction, the historical financial
statements of Viewlogic will become the historical financial statements of the
combined company. The purchase price will be allocated to the assets and
liabilities of Summit based on their fair values. The purchase price will be
based on the value of Summit's equity using the average market price of Summit's
common stock of $3.075 for the five-day period (September 14, 1999 through
September 20, 1999) that includes the date of the agreement. Based on this
price, the purchase price as of September 30, 1999 has been estimated at
$54,299,000, using a $3.075 common stock price, which includes the value of the
outstanding Summit common stock, the fair value of outstanding options to
purchase Summit common stock and Viewlogic's estimated direct costs of the
acquisition. The ultimate purchase price will be dependent upon the number of
Viewlogic shares and options outstanding upon closing, as well as final
transaction costs related to the merger.
The unaudited pro forma financial information does not give effect to any
cost savings and other synergies that may result from the merger. Viewlogic is
developing its plans for integration of the business but cannot make final
decisions until the merger is complete. For purposes of the pro forma financial
information, Viewlogic has estimated that merger and integration costs,
consisting primarily of severance costs, asset impairments and facility shutdown
costs, will be approximately $2,400,000. Viewlogic will record a liability at
the closing date of approximately $2,574,000, representing the federal and state
taxes expected to be owed upon the repatriation of Summit's foreign earnings.
The purchase price will be allocated to the assets acquired and liabilities
assumed based on their fair values at the closing date. For purposes of the pro
forma financial information, Viewlogic has made a preliminary estimate of the
fair values of identifiable assets and liabilities of Summit at the date of
acquisition.
An independent third party appraisal company conducted a preliminary
valuation of Summit's intangible assets. These intangibles include existing
technology, in-process research and development, the customer base and the
in-place workforce. The preliminary valuation of intangibles included
$16,250,000 for existing technology, $2,050,000 for in-process research and
development, $2,100,000 for the customer base and $3,850,000 for the workforce.
The excess of the purchase price over the fair value of identifiable tangible
and intangible net assets of $14,879,000 will be allocated to goodwill.
Intangible assets are expected to be amortized over periods ranging from 3 to 10
years. The fair value of the in-process research and development, which relates
to Summit's Visual HDL 2000, Visual SLD and Regent 2.0 research projects, will
be recorded as an expense in the period in which the merger is completed.
The valuation of the existing technology and in-process research and
development was determined using the income method. Revenue and expense
projections as well as technology assumptions were prepared through 2009 based
on information provided by Summit management. The projected cash flows were
discounted using a 25% to 30% rate. The valuation of the in-process research and
development was determined separately from all other acquired assets using the
percentage of completion method. The percentage of completion ratio was
calculated by dividing the total expected expenditures for each project by the
total estimated expenditures to achieve technological feasibility.
The value assigned to in-process technology relates primarily to two
research projects, Visual HDL 2000 and Visual SLD. These technologies have not
yet reached technological feasibility and have no alternative future use. The
nature of the efforts required to develop the in-process technologies into
commercially viable products principally relate to the completion of all
planning, designing, prototyping, verification and testing activities that are
necessary to establish that the products can be designed to
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<PAGE>
meet their design specifications, including function, features and technical
performance requirements. Visual HDL 2000 represents a major rearchitecture of
the two existing Visual HDL products. This new generation product will integrate
these two existing products along with a newly developed compiler. The project
is approximately 25% complete with an initial release date expected to occur in
the fourth quarter of 2000. The Visual SLD research project represents the
development of an entirely new product targeted at a customer base not
previously approached for the Visual product line. This project is estimated to
be 75% complete and is expected to reach technological feasibility in the second
quarter of 2000.
Based on the timing of the closing of the transaction, the finalization of
the integration plans and other factors, the pro forma adjustments may differ
materially from those presented in the pro forma financial information. A final
appraisal of the intangibles will be performed as of the closing date and the
allocation adjusted accordingly. The income statement effect of these
adjustments will depend on the nature and amount of the assets or liabilities
adjusted.
The pro forma financial information does not purport to represent what the
consolidated financial position or results of operations actually would have
been if the merger in fact had occurred on September 30, 1999 or at the
beginning of the periods presented or to project the consolidated financial
position or results of operations as of any future date or any future period. It
should be read in conjunction with the historical consolidated financial
statements of Viewlogic and Summit, including the related notes, and other
financial information included in this joint proxy statement/prospectus.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
SUMMIT VIEWLOGIC ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $27,008 $ 1,296 $ $ 28,304
Accounts receivable, net................................ 6,217 12,303 18,520
Prepaid expenses and other.............................. 1,003 2,256 3,259
Deferred income taxes................................... 792 1,373 2,165
------- ------- -------- --------
Total current assets.................................. 35,020 17,228 -- 52,248
Property and equipment, net............................. 3,734 4,688 (600)(A) 7,822
Capitalized software costs--net......................... -- 2,427 (120)(B) 2,307
Purchased technology.................................... -- 3,825 16,250 (A) 20,075
Other intangibles....................................... 1,038 -- 2,100 (A) 5,950
3,850 (A)
(1,038)(A)
Goodwill................................................ 2,179 14,680 (A) 14,680
(2,179)(A)
Other................................................... 146 935 -- 1,081
------- ------- -------- --------
Total assets.......................................... $42,117 $29,103 $ 32,943 $104,163
======= ======= ======== ========
LIABILITIES
Current liabilities:
Notes payable, current portion.......................... $ 56 $ 3,000 $ $ 3,056
Capital lease obligations, current portion.............. 8 333 341
Accounts payable........................................ 1,072 1,956 3,028
Accrued compensation.................................... 4,007 3,033 7,040
Accrued expenses........................................ 1,280 3,941 2,688 (A) 7,909
Due to related party.................................... -- 155 155
Deferred revenue........................................ 4,843 13,034 (294)(A) 17,583
------- ------- -------- --------
Total current liabilities............................. 11,266 25,452 2,394 39,112
Notes payable, long-term portion........................ -- 13,000 -- 13,000
Line of credit.......................................... -- 500 -- 500
Deferred revenue, less current portion.................. 102 -- (6)(A) 96
Deferred tax liability.................................. 489 2,393 10,186 (A) 13,068
Capital lease obligations, long-term portion............ -- 580 580
------- ------- -------- --------
Total liabilities..................................... 11,857 41,925 12,574 66,356
------- ------- -------- --------
--
Redeemable, convertible preferred stock................... -- 32,000 (32,000)(A) --
------- ------- -------- --------
STOCKHOLDERS' EQUITY
Common stock............................................ 157 8 (8)(A) 319
162 (A)
Additional paid-in capital.............................. 44,360 4,750 40,128 (A) 89,238
Loans receivable from officers.......................... (927) (927)
Deferred compensation................................... -- (1,843) (1,843)
Accumulated deficit..................................... (14,257) (47,037) 14,257 (A) (49,207)
(2,050)(A)
(120)(B)
Accumulated other comprehensive income.................. -- 227 227
------- ------- -------- --------
Total stockholders' equity (deficit).................. 30,260 (44,822) 52,369 37,807
------- ------- -------- --------
Total liabilities and stockholders' equity............ $42,117 $29,103 $ 32,943 $104,163
======= ======= ======== ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
65
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
SUMMIT VIEWLOGIC ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product................................................. $33,589 $22,683 $ -- $56,272
Maintenance, services and other......................... 10,009 32,554 -- 42,563
------- ------- -------- -------
Total revenues........................................ 43,598 55,237 98,835
------- ------- -------- -------
Cost of revenues:
Product................................................. 744 5,113 5,857
Maintenance, services and other......................... 955 5,080 6,035
Amortization of purchased technologies.................. 661 -- (661)(A) 5,200
5,200 (C)
------- ------- -------- -------
Total cost of revenues................................ 2,360 10,193 4,539 17,092
------- ------- -------- -------
Gross margin.............................................. 41,238 45,044 (4,539) 81,743
Operating expenses:
Sales and marketing..................................... 11,713 18,953 30,666
Research and development................................ 13,042 10,070 23,112
General and administrative.............................. 4,398 3,717 8,115
Amortization of goodwill and other intangibles.......... 2,791 3,800 (C) 3,800
(2,791)(A)
Merger costs............................................ 1,249 452 1,701
------- ------- -------- -------
Total operating expenses.............................. 33,193 33,192 1,009 67,394
------- ------- -------- -------
Operating income...................................... 8,045 11,852 (5,548) 14,349
Interest income......................................... 171 171
Interest expense........................................ (4) (342) (346)
Other, net.............................................. 1,097 (1,761) (664)
------- ------- -------- -------
Income before income taxes............................ 9,138 9,920 (5,548) 13,510
Income tax provision.................................... 4,037 4,053 (2,761)(D) 7,669
1,300 (E)
1,040 (A)
------- ------- -------- -------
Net income............................................ $ 5,101 $ 5,867 $ (5,127) $ 5,841
======= ======= ======== =======
Net income per share--basic:
Net income per share.................................. $ 0.34 $ 1.48 $ 0.19
======= ======= =======
Number of shares used in computing basic net income
per share........................................... 15,155 3,966 31,390
======= ======= =======
Net income per share--diluted:
Net income per share.................................. $ 0.32 $ 0.73 $ 0.18
======= ======= =======
Number of shares used in computing diluted net income
per share........................................... 16,115 7,999 32,350
======= ======= =======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
66
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
SUMMIT VIEWLOGIC ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product.......................................... $13,477 $19,107 $ -- $32,584
Maintenance, services and other.................. 8,376 21,710 -- 30,086
------- ------- ------- -------
Total revenues................................. 21,853 40,817 -- 62,670
------- ------- ------- -------
Cost of revenues:
Product.......................................... 476 4,507 -- 4,983
Maintenance, services and other.................. 876 4,698 -- 5,574
Amortization of purchased technologies........... 472 -- (472)(A) 3,413
3,413 (C)
------- ------- ------- -------
Total cost of revenues......................... 1,824 9,205 2,941 13,970
------- ------- ------- -------
Gross margin....................................... 20,029 31,612 (2,941) 48,700
Operating expenses:
Sales and marketing.............................. 8,678 16,640 -- 25,318
Research and development......................... 7,739 8,518 -- 16,257
General and administrative....................... 4,004 3,153 -- 7,157
Amortization of goodwill and other intangibles... 1,924 354 2,850 (C) 3,204
(1,924)(A)
Severance and write-off of note receivable....... 4,005 -- -- 4,005
------- ------- ------- -------
Total operating expenses....................... 26,350 28,665 926 55,941
------- ------- ------- -------
Operating income (loss)........................ (6,321) 2,947 (3,867) (7,241)
Interest income.................................. -- 87 -- 87
Interest expense................................. (2) (981) (983)
Other, net....................................... 785 (278) -- 507
------- ------- ------- -------
Income (loss) before income taxes.............. (5,538) 1,775 (3,867) (7,630)
Income tax provision............................. -- 708 (708)(D) --
------- ------- ------- -------
Net income (loss).............................. $(5,538) $ 1,067 $(3,159) $(7,630)
======= ======= ======= =======
Net income (loss) per share--basic:
Net income(loss) per share..................... $ (0.35) $ 0.22 $ (0.24)
======= ======= =======
Number of shares used in computing basic net
income per share............................. 15,646 4,861 31,880
======= ======= =======
Net income (loss) per share--diluted:
Net income(loss) per share..................... $ (0.35) $ 0.05 $ (0.24)
======= ======= =======
Number of shares used in computing diluted net
income per share............................. 15,646 21,631 31,880
======= ======= =======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
67
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma combined condensed financial statements give effect
to Summit's acquisition of Viewlogic through a merger and exchange of shares.
The unaudited pro forma combined condensed statements of operations for the year
ended December 31, 1998 and the nine months ended September 30, 1999 reflect
this transaction as if it had taken place January 1, 1998. The unaudited pro
forma combined balance sheet gives effect to this transaction as if it had taken
place on September 30, 1999.
Below is a table of the estimated acquisition costs and purchase price
allocation (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Estimated acquisition cost:
Common stock.............................................. $48,283
Stock options............................................. 4,516
Acquisition costs......................................... 1,500
-------
Total estimated acquisition cost...................... $54,299
=======
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Purchase price allocation:
Tangible net assets acquired.............................. $27,343
Assets impaired by merger................................. (600)
Deferred income taxes..................................... (10,186)
Intangible net assets acquired:
Purchased technology, assembled workforce, and customer
base.................................................. 22,200
Goodwill.................................................. 14,680
In-process research and development....................... 2,050
Estimated merger related severance and shutdown costs, net
of tax benefits......................................... (1,188)
-------
Total................................................. $54,299
=======
</TABLE>
Summit options outstanding were valued using a Black-Scholes formula with
the following assumptions:
<TABLE>
<S> <C>
Life of options: 4 years,
Interest Rate: 3.95% to 7.90%
Volatility: Calculated for a 3-year period from 9/15/96
through 9/15/99, volatility was calculated at
87.4%
Dividend Rate: 0%
</TABLE>
This valuation was performed based on Summit options outstanding as of
September 16, 1999. No changes have been made to this valuation based upon the
fact that the changes in options outstanding were not significant.
Tangible net assets of Summit acquired principally include cash, accounts
receivable, inventory, fixed assets, deferred income taxes, accounts payable,
accrued liabilities and deferred revenue. To determine the value of purchased
technology, the expected future cash flows attributable to all existing
technology was discounted, taking into account risks related to the
characteristics and applications of the technology, existing and future markets,
and assessments of the life cycle stage of the technology. The valuation of
purchased technology represents amounts which have reached technological
feasibility and will therefore be capitalizable. The value of the assembled
workforce was derived by estimating the costs to replace the existing employees,
including recruiting, hiring, and training costs for each category of employee.
The value allocated to projects identified as in-process research and
development of
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<PAGE>
Summit and its wholly owned subsidiaries will be charged to expense upon
consummation of the merger but has not been reflected in the unaudited pro forma
combined condensed statements of operations as it is nonrecurring in nature.
However, this charge has been reflected in the unaudited pro forma combined
condensed balance sheet. The write-off was necessary because the acquired
in-process research and development had not yet reached technological
feasibility and had no future alternative uses. The combined companies expect
that the acquired in-process research and development will be successfully
developed, but these products may not achieve commercial viability. The nature
of the efforts required to develop the purchased in-process research and
development into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) To reflect the allocation of the purchase price and reverse acquisition
accounting to be recorded as a result of the merger (see note 1):
- record intangible assets and goodwill:
<TABLE>
<CAPTION>
<S> <C>
Purchased technology........................................ $ 16,250
Customer base............................................... 2,100
Workforce................................................... 3,850
Goodwill.................................................... 14,680
</TABLE>
- record deferred taxes which relate to the difference between the tax and
book basis of assets acquired ($7.6 million) and unremitted earnings of
foreign subsidiaries ($2.6 million).
- adjust Summit's deferred revenue for estimated selling costs of
approximately 6%.
- adjustment for merger related impairment of Summit's tangible assets of
$600 due to the closing of Summit's Beaverton Headquarters. Impaired
assets includes systems, computer equipment and furniture which will be no
longer used after the merger.
- accrual of Viewlogic's acquisition cost, estimated to be approximately
$2.7 million consisting of $1.5 million in direct transaction costs,
(primarily legal and accounting services) and approximately $1.2 million
in restructuring and severance costs (net of tax benefits of
$0.6 million). While the exact amount of the restructuring costs is not
known, management believes that the costs approximate $1.3 million related
to involuntary employee separation benefits and $0.5 million in facilities
consolidations. The separation benefits relates to approximately 30
employees; primarily in Beaverton Administrative Functions, who will be
terminated as a result of the merger. The facilities consolidations amount
is an estimate related to costs expected to be incurred to combine Summit
and Viewlogic's field sales offices.
- impact of "reverse acquisition" accounting:
<TABLE>
<CAPTION>
<S> <C>
issuance of Summit shares (16.2 million at $0.01 per value
option)................................................... $ 162
elimination of Viewlogic outstanding preferred stock........ (32,000)
elimination of Viewlogic common stock....................... (8)
elimination of Summit's accumulated deficit................. 14,257
</TABLE>
- To reflect the write off of in-process research and development of $2,050,
as of September 30, 1999.
- To reflect the elimination of Summit intangibles, goodwill and related
amortization, along with related tax effect of $1,040 for the year ended
December 31, 1998 and $0 for the nine months ended September 30, 1999.
(B) To record write off of $120 of Viewlogic capitalized software impaired as a
result of merger.
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<PAGE>
(C) To reflect the amortization of purchased technology, other intangible assets
and goodwill recorded as a result of the merger. Amortization has been
estimated based on the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Purchased technology........................................ 5 years
Customer base............................................... 5 years
Workforce................................................... 3 years
Goodwill.................................................... 7 years
</TABLE>
Amortization has been calculated on the straight-line method for all
intangibles except purchased technology for which amortization has been
calculated based on the greater of the ratio of revenue per period to total
estimated revenue or the straight-line method.
(D) To reflect income taxes on a pro forma basis assuming the transaction took
place at the beginning of the period presented.
(E) To reflect the tax provision of $1.3 million for the year ended
December 31, 1998 related to unremitted earnings of foreign subsidiaries.
(F) As required by Article 11 of Regulation S-X, the unaudited pro forma
condensed combined statements of operations exclude material non recurring
charges which result directly from the merger and which will be recorded
within twelve months following the merger. The following schedule shows the
effects of the write-off of the in-process research and development
described in Note 1 above of $2,050 and the write off of capitalized
software of $120 that will become obsolete due to product changes resulting
from the merger:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
------------------
<S> <C>
Net income.................................................. $3,671
Net income per share:
Basic..................................................... 0.12
Diluted................................................... 0.11
</TABLE>
NOTE 3. PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
The unaudited pro forma basic and diluted net income (loss) per share are
based on the weighted average number of shares of Summit common stock
outstanding during each period and the number of shares of Summit common stock
to be issued in connection with the Viewlogic merger. Options outstanding have
not been included in the computation of pro forma diluted net loss per share for
the nine months ended September 30, 1999 because their effect would be
antidilutive.
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INDUSTRY
INDUSTRY BACKGROUND
Electronic design automation software is software that automates the tasks
and process of designing electronic components, systems and products. This
software has played a critical role in accelerating the dramatic advances in the
electronics industry over the past two decades. For most of this period, the
need for more advanced electronic design automation tools has been driven by the
rapid increase in complexity of integrated circuits or chips. An integrated
circuit is an electrical device consisting of various components, connections
and switches that can be designed to perform a specific function. The increase
in complexity of integrated circuits has been compounded by the increasing
number of new chips being developed and the scarcity of engineers skilled in the
design and testing of chips. Moreover, the increase in the complexity of chips
lengthens their development cycle while, at the same time, competitive pressures
shorten the life cycles of the products that incorporate chips.
In recent years, chip development productivity has increased through the
evolution of electronic design automation. But this development productivity has
not kept pace with the advances in chip manufacturing technology. Chip
manufacturing technology has advanced from the ability to produce chips with
over one thousand switches and five micron wide wires connecting parts of the
chip in the 1970s to greater than one million switches at less than 0.5 micron
wire widths today.
The productivity of the average chip design engineer has not kept pace with
the progress in manufacturing technology. As a result, a greater number of
engineering hours are required to design many of today's more complex electronic
components and systems, leading to either longer development schedules or the
need for larger design teams. To address this challenge, organizations with chip
design capabilities continue to search for electronic design automation tools
that enable them to increase their productivity and meet the aggressive
development schedules dictated by competitive forces.
In recent years, lengthening design cycles and significant time-to-market
pressures have influenced a shift in the choice of chip technologies away from
fully customized integrated circuits and partially pre-designed integrated
circuits also know as application-specific integrated circuits, to more flexible
technologies that shorten the design cycle. These more flexible technologies
include:
- chips whose function can be changed with software-like programming known
as field programmable gate arrays;
- chips created to provide a fixed function for a specific application known
as application-specific standard parts; and
- multi-purpose processing chips that actually run software programs known
as embedded processors. These integrated circuit choices help to provide
greater flexibility and faster time to market for companies that design
electronic products. They also present new design automation challenges,
including design and testing of systems that contain significant embedded
software programs.
Further complicating the design task is the effect that faster chips have on
overall system design. Fast-switching signals (when an electrical signal changes
voltage beyond a predetermined amount) are required to achieve the very fast
processor speeds we now take for granted. These fast signals can cause
electrical signals to radiate from the chip and cause unintentional negative
effects on other signals on the chip, potentially causing the system to fail. If
the necessary analysis and testing is not performed before the system is
manufactured, these problems can affect the quality of the final system that the
chips are embedded in. This situation has created the need for sophisticated
tools to design and test the wires on the chip and those that connect the chips
and other components within electronic products.
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This emerging design challenge, driven by faster, more complex chips,
creates many new problems for the manufacturers of electronic products and
opportunities for companies that provide tools for the design of electronic
products. The objectives of electronic design automation are to reduce time to
market and the costs associated with product design, analysis, testing and
optimization, while permitting the development of a greater number of product
designs of higher speed and greater complexity which can be reliably
manufactured.
Summit and Viewlogic believe that time to market pressures and the
complexity of chip designing will cause manufacturers of electronic products to
move towards differentiating their products at the system level rather than at
the chip level and plan to focus on providing tools for that purpose.
Electronic design automation has come to mean hardware design automation,
and Summit and Viewlogic believe it is no longer appropriate to describe the
breadth of the market for software to automate the design of electronic
products. The scope of this expanded market can be defined by the stages of the
electronic design process which it includes, as shown in Figure 1.
FIGURE 1 ELECTRONIC PRODUCT DESIGN AUTOMATION MARKET
[The graphic is a series of rectangular boxes that, collectively, are presented
on top of a triangle. The first box, located at the tip of the triangle contains
the text "Strategic Business Planning/Product Proposal." The next box is located
directly below to the lower left and contains the text "Electronic Product
Development Plan." The next box is located directly to the right and contains
the text "Electronic Product Requirements Definition," "Electronic Product
Specification" and "Electronic Product Architecture." The next box is located
directly below to the right and contains the text "Interconnect, Power, Thermal,
EMI, Packaging Sub-systems Design." The next box is located directly to the
upper left and contains the text "Electronics/SW Sub-system Architecture,
Co-Design & Partitioning (SLDA Mkt)." The next box is located directly below and
contains the text "Software Design." The next box overlaps the previous box and
the box directly to the right and contains the text "Co-verif." The next
overlapped box is directly to the right and contains the text "Electronics
Design." The next box is directly below and contains the text "Software Test on
Electronics Prototype." The next box is directly below and contains the text
"Electronic Product Prototype System Integration & Test." The last box is at the
very bottom of the triangle and contains the text "Electronic Product Pilot
Manufacturing."]
The system-level design automation phase of development is comprised of the
software and services that serve the needs of designers designing electronic
products that also include computer software. This system-level design is based
on the cooperative design of both hardware and software for the completed
electronic product. An increasing number of electronic products now include
software as a major component of the overall functionality of the product.
Therefore, system-level design involves managing tradeoffs among the following
factors:
- system performance and features;
- system memory requirements;
- processor selection;
- chip area/cost;
- product cost;
- system power/battery life;
- system programmability; and
- project schedule.
It is also the stage of a project where decisions are usually made about
adopting new design partners, methodologies, policies and automation tools.
These decisions include choices regarding software development tools,
strategies needed for the design and test of hardware and software components
together, chip vendors and electronic design automation tools and processes. In
addition, refinements to the processes and tools that are created to help large
design teams work together efficiently also emerge at this phase of development.
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SUMMIT BUSINESS
INTRODUCTION
Summit's target marketplace for its software based front-end design tools
includes hardware companies who develop chips, such as Intel, AMD and Motorola,
as well as hardware companies who build electronic systems consisting of both
hardware and software, such as IBM, Sun Microsystems and Cisco Systems. More
specifically, Summit develops and licenses software applications which help our
customers to create and verify ICs and systems. The specific segments in the
front-end of the design cycle where Summit participates are:
- DESIGN ENTRY;
- SIMULATION; AND
- VERIFICATION
Summit's products include:
- - VISUAL HDL--a graphical design entry tool which allows engineers to
conceptualize and capture a design
- - TEXT TO GRAPHICS--converts a design model initially created in an all-text
style to the graphical representation of Visual HDL where it can be visualized
by those new to the design team and used for making modifications to the model
- - VISUAL IP--provides a method of packaging design models, a common form of
intellectual property, so they may be re-used in subsequent versions or other
designs
- - VIRSIM--a simulation utility that produces graphical waveforms, schematics
with time values and displays code execution while a model is being simulated
- - HDLSCORE--a verification tool which verifies how well a particular test or
tests have exercised a design
- - V-CPU--a co-verification tool which allows the system designer to execute
software code against a simulated model of a chip or system; V-CPU is used for
hardware/software co-verification to ensure the software design really works
on the proposed hardware before the chip is produced
The end users of Summit's products are electronic engineers and computer
science engineers who use Summit's products to create software models of
proposed chips and systems and verify these models for accuracy, speed and
behavior. These software models are typically written in a Hardware Description
Language, or HDL, which can be run in a simulation environment. The two
[principal] HDLs are Verilog and VHDL. The simulation environment allows the end
user to evaluate how the chip or system responds to various inputs and to make
timing measurements to establish how fast the chip or system can operate. Once
the model is perfected, it can be synthesized for physical implementation into
the real chip. This design process typically uses tools from multiple electronic
design automation, or EDA, companies.
The simplified front-end design flow below identifies where Summit's tools
are used in the design process:
DESIGN FLOW
<TABLE>
<S> <C> <C> <C> <C> <C>
Layout,
Design Entry Simulation Verification Synthesis Place & route Manufacture
SUMMIT PRODUCT OFFERINGS:
Visual HDL VirSim HDLScore
Visual IP V-CPU
</TABLE>
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SUMMIT STRATEGY
Summit's mission is to become the leading supplier of High Level Design
Automation or HLDA software and to achieve wide-spread acceptance of these
technologies by expanding the size of Summit's served market. The key elements
of Summit's strategy to achieve this mission are as follows:
ACCELERATE MARKET ADOPTION OF HLDA
Summit intends to expand market acceptance by focusing on key customer
accounts to ensure their successful adoption of the HLDA 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, and many test products and continues to
support and complement new standards as they emerge. Summit also targets student
engineers by introducing them to its HLDA products through programs with various
universities.
LEVERAGE SUMMIT'S HLDA TECHNOLOGY
Summit's products target HDLA users and support both popular hardware
description languages: Verilog and VHDL. There is significant investment being
made in the EDA industry to move up further in abstraction to certain
programming languages such as C and C++. In 1999, Summit embarked on product
development for a new design entry product, SLD (System Level Design). SLD will
include the core technology of Visual HDL, but will also be enhanced to
accommodate the higher level programming languages and will be tightly
integrated with the Summit's V-CPU and related technology to produce a true
system level design entry and analysis product for any design language the end
user desires. In addition, SLD will be optimized to handle analysis and
simulation of both the hardware and software components of the design. Summit is
the only EDA company who has access to technology for integrating real-time
operating system, or RTOS, functions into the system simulation.
BROADEN THE SCOPE OF SUMMIT'S HLDA SOLUTIONS
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 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 early in the design cycle.
SUMMIT PRODUCTS
VISUAL HDL
In 1994, Summit introduced Visual HDL. It is the result of a focused
five-year development effort of approximately 40 EDA software development
experts. Visual HDL provides system design management, graphical design
creation, graphical level simulation, automatic HDL code generation and high
speed compiled code simulation of the design. It assists design engineers in
meeting 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. Visual HDL automates
manual design entry and verification by enabling IC systems and design engineers
to create and verify IC
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designs using familiar graphical paradigms rather than less intuitive textual
HDL code. Visual HDL 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. Visual HDL has become an industry leader for graphical design creation,
analysis and IP management and is available for use on both UNIX and PC based
workstations.
Visual HDL is designed to provide the following key benefits:
- - Increased design productivity
- - Highly interactive cause and effect feedback for design debugging
- - Enhanced documentation of designs algorithms
- - Graphical presentation to allow new developers to better understand a design
- - Complete and understandable design archives for future design revisions
TEXT TO GRAPHICS
Introduced in 1997, Text to Graphics provides companies who purchase Visual
HDL an automated methodology to convert their existing designs into the Visual
format. Prior to this product, Visual HDL was only purchased for doing new
designs. Existing HDL text based designs had to be dealt with in the old
fashioned way--by reviewing thousands of lines of code to try and understand how
a model worked. Text to graphics thus expanded the use of Visual HDL by making
it easy to convert text-based code to a graphics-based presentation. Working
from a graphics representation is especially useful to international users who
may not understand the nuances of the common English programming constructs.
Text to Graphics provides the following key benefits:
- - Automatic conversion from a text-based design to a graphical representation of
the design which can be used in Visual HDL for design analysis and simulation
- - Re-constructs the design graphically so that new users can easily grasp the
designs concepts and algorithms
VISUAL IP
Companies spend significant budgets in developing and testing models, and
re-use is a key strategy for many companies to leverage their existing
technology. The goal of Summit's Visual IP product is to provide a mechanism for
distributing these highly confidential simulation models to other users, either
within the organization or externally, while at the same time protecting the
intellectual value through encryption. The protection is not only so they can
not be copied, but so that internal users cannot change the source code which
represents the design thus eliminating the value of all the prior testing that
has been done on the IC model.
Visual IP is designed to provide the following benefits:
- - Encryption of intellectual property for design reuse
- - Generates models which can be used with any simulator
- - Generates models which can be executed stand alone allowing the user to apply
his own criteria to a model before selecting it for reuse
- - Provides a safe mechanism for companies to provide soft versions of their
design while maintaining the proprietary nature of their intellectual property
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VIRSIM
VirSim is a debug and analysis tool which provides an integrated set of
debug capabilities for use with the leading HDL simulators provided by other EDA
companies. VirSim makes extensive use of graphics in presenting detailed yet
cohesive information to the user about simulation results. Outputs from both
digital and analog simulations are supported and signal values can be displayed
as digital or analog waveforms. Multiple simulation runs can be debugged at the
same time, allowing signals from different simulations to be compared easily.
VirSim is designed to provide the following benefits:
- - Fast waveform tracing with minimum file size
- - Extensive waveform editing and algebraic combination capabilities
- - Color coded source tracing with breakpoint insertion
- - Powerful graphical logic tracing even from text based designs
- - Integration with all the popular simulators
HDL SCORE
HDLScore provides a quantitative measure of the quality of simulation tests
that have been applied to an entire design model or to selected portions of a
design. Simply stated, HDL Score answers the question "have I adequately tested
my design with the tests I have developed?" To answer this question, HDLScore
provides a percentage measurement of how much of the design has been exercised
with the provided tests. At the end of any simulation, the user can get the
score or coverage he has accomplished. HDL Score works with all popular
simulation environments and fits seamlessly into the design verification
process. In addition, HDLScore provides a graphic user interface which displays
exactly which statements in the model have been executed and, more importantly,
which statements have not been executed.
HDLScore is designed to provide the following benefits:
- - Answers the question, "how much of my design has been tested?"
- - Provides graphical display of untested areas of the design
- - Provides a percentage of the design covered by each test so that tests which
are redundant can be eliminated to save simulation time
- - Provides test ordering capability so high coverage tests can be simulated
first, thus exposing potential errors early in the simulation run
V-CPU
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 allows problems to be detected while they are still easy to
fix. With V-CPU, software 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. In short, V-CPU
allows early simulation of hardware with the actual software before the IC's are
even built.
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V-CPU is designed to provide the following benefits:
- - Use the actual software to test the hardware under design, exposing potential
miscommunication between hardware and software groups
- - Encourages early design communication between hardware and software groups
when co-verification displays unexpected results
- - Minimizes the activity in the hardware simulator allowing for fast run times
- - Provides a specific interface to the hardware simulator to allow use of
standard programming languages to create test suites
SUMMIT 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 1998
and 1997, sales to CSC accounted for 25% and 29% of Summit's total revenue,
respectively. In 1996, no single customer accounted for more than 10% of total
revenue. As of February 28, 1999, Summit had installed more than 4,600 seats of
its Design tools in more than 420 companies, of which more than 285 companies
had entered into support contracts. In addition, as of such date, Summit had
licensed more than 4,500 seats of verification solution tools.
SUMMIT BACKLOG
Summit's backlog was $5.9 million and $7.0 million at December 31, 1998 and
1997, respectively. Such backlog amounts include $5.4 million and $5.7 million
that were reflected in deferred revenue in Summit's financial statements for
December 31, 1998 and 1997, respectively. Backlog consists of orders for which
Summit has received a firm purchase order for products that are currently
shippable and certain amounts previously invoiced to customers which are
included in deferred revenue. Amounts included in deferred revenue consist of
maintenance and support contracts that are expected to be completed within one
year, orders for customer training services that are expected to be completed
within one year, prepaid exclusivity fees that are expected to be recognized
within one year, and shipments made subject to conditions that are expected to
be satisfied within one year. In addition to the backlog amounts reflected
above, at December 31, 1997, Summit had the right to ship up to a maximum of
$8.8 million of Visual Testbench licenses during 1998 to CSC pursuant to a
contract with CSC. During 1998, all obligations pursuant to the contract with
CSC were satisfied such that, at December 31, 1998, CSC had no further
obligation to purchase Visual Testbench licenses. Third-parties to such
commitments may terminate or breach their obligations. Therefore, these revenues
may not be recognized in fiscal 1999 or in any later period.
SUMMIT 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 (i) increase market awareness of
Summit's products, (ii) promote the adoption of HLDA methodologies, and
(iii) evaluate customer satisfaction and determine additional customer demands.
To increase market awareness, Summit displays its HLDA products at all major
industry trade shows, including the annual Design Automation Conference in the
U.S., Design Automation and Test Conference in Europe, Japan DAC in Japan and
the Embedded Systems Conference in the U.S. 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.
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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 worldwide.
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.
Summit's direct sales force operates in the United States and portions of
Europe, with offices in Arizona, California, Colorado, Florida, Maryland,
Massachusetts, Minnesota, Oregon and Texas, as well as France, Germany, Italy
and the United Kingdom. Approximately 77%, 71% and 54% of Summit's revenue for
the years ended December 31, 1998, 1997 and 1996, respectively, were generated
through Summit's direct sales force.
DISTRIBUTORS
Summit relies on distributors for licensing and support of Summit's products
outside of North America. Approximately 23%, 29% and 46% of Summit's revenue for
the years ended December 31, 1998, 1997 and 1996, respectively, came from sales
made through distributors. In Asia, Summit Design Asia, Ltd., or SDA, a
partially-owned subsidiary of Summit, has the exclusive rights to sell,
distribute and support Summit's products in the Asia Pacific region, excluding
Japan. In turn, SDA has granted exclusive rights to sell, distribute and support
products in Korea to Asia Design Corporation, or ADC, a company in which SDA has
an equity investment. SDA has also granted non-exclusive distribution rights to
Semiconductor Technologies Australia for the Asia Pacific region, excluding
Japan and Korea.
In addition, in the first quarter of 1996, Summit entered into a three-year,
exclusive distribution agreement for Summit's HLDA products in Japan with Seiko.
The agreement is renewable for successive five-year terms by mutual agreement of
Summit and Seiko and is terminable by either party for breach. The agreement was
renewed for an additional five-year term which began in February 1999. Sales
through Seiko accounted for 14%, 12%, and 15%, of its total for the years ended
December 31, 1998, 1997, and 1996, respectively. In June 1999, Summit lowered
Seiko's first quarter 2000 product quota in recognition of the adverse economic
conditions in the Asia Pacific Region. In December 1999, Summit agreed to waive
Seiko's first quarter 2000 product quota requirements to maintain distribution
exclusivity. As a result, Summit expects sales through Seiko to decrease for at
least the current and following two quarters and revenue attributable to sales
in the Asia Pacific region to decrease.
INTERNATIONAL SALES
Approximately 36%, 34% and 50% of Summit's revenue for the years ended
December 31, 1998, 1997 and 1996, respectively, came from sales made outside of
the United States which includes the Asia Pacific region and Europe.
Approximately 22%, 22% and 34% of Summit's revenue for the years ended
December 31, 1998, 1997 and 1996, respectively, came from sales made in the Asia
Pacific region and approximately 14%, 12% and 16% of Summit's revenue for the
years ended December 31, 1998, 1997 and 1996, respectively, came from sales made
in Europe. 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. Summit may not be able to maintain or increase
international
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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. In addition, financial markets and economies in the Asia Pacific region
have been experiencing adverse economic conditions. Demand for and sales of
Summit's products in the Asia Pacific region have decreased and may further
decrease.
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 world wide web (internet) 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. For the years ended December 31, 1998, 1997 and 1996,
maintenance and services provided approximately 22%, 20% and 21% of Summit's
total revenue, respectively.
SUMMIT COMPETITION
The electronic design automation industry is highly competitive and Summit
expects competition to increase as other electronic design automation companies
introduce HLDA products. Summit's Design Entry products compete principally with
Mentor Graphics and Escalade, a small private company. Summit's Verification
products compete with Cadence Design Systems, Synopsys, Mentor Graphics and
Verisity. 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 electronic design automation products and may distribute
products that directly compete with Summit's HLDA 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. Competition may cause Summit to offer point
solutions instead of, or in addition to, Summit's current software products.
Such point solutions might 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
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- 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
electronic design automation vendors. Further, the electronic design automation
industry in general has experienced significant consolidation in recent years.
The acquisition of one of Summit's competitors by a larger, more established
electronic design automation vendor could create a more significant competitor.
Summit may not be able to compete successfully against current and future
competitors. Competitive pressures faced by Summit may have a material adverse
effect on its business, financial condition, results of operations or cash
flows. Summit's current and future competitors may be able to develop products
comparable or superior to those developed by Summit or 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.
SUMMIT 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 San Jose,
California, New Brighton, Minnesota, and Finland. As of December 31, 1998,
Summit's research and development team consisted of 92 software developers,
dedicated to Summit's products.
For the years ended December 31, 1998, 1997, and 1996, Summit's research and
development expenditures were approximately $13.0 million, $7.7 million, and
$5.9 million, respectively, which represented approximately 30%, 25%, and 29% of
revenue in each such period. Summit has to date expensed all research and
development costs as incurred. Summit's $13.0 million expenditure in 1998 and
$7.7 million expenditure in 1997 included $3.7 million and $733,000,
respectively, of expense in connection with the acquisition of SimTech in
September 1997. In connection with Summit's acquisition of SimTech in September
1997, Summit recorded a total of $4.4 million of compensation expense for shares
issued as part of the acquisition which were contingent upon continued
employment and were being expensed as the employment obligation lapsed. See
"Summit Management's Discussion and Analysis of Financial Condition and Results
of Operations." 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 electronic design automation 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 electronic design automation 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 relationships mutually benefit
Summit and the electronic design automation vendors by fostering development and
facilitating interoperability of Summit's and vendors' complimentary 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
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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 electronic design automation 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 make existing products obsolete and
unmarketable. In addition, customers in the electronic design automation
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. Summit may not be successful
in developing and marketing product enhancements or new products that respond to
technological change or emerging industry standards. Summit may experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or its new products may not
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 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. Despite testing by Summit and by current and potential customers,
errors may 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.
SUMMIT 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. Summit's means of protecting its proprietary rights in the United States
or abroad may not be adequate, and competitors may 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
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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, a third party may 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.
SUMMIT OPERATIONS IN ISRAEL
Summit's research and development operations related to Visual HDL products
are located in Israel. Economic, political and military conditions may affect
Summit's operations in that country. Hostilities involving Israel, for example,
could materially adversely affect Summit's business, financial condition and
results of operations. 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 further heightens the potential
impact.
While all of Summit's sales are denominated in U.S. dollars, a portion of
its annual costs and expenses in Israel are paid in Israeli currency. Payment in
Israeli currency subjects Summit to foreign currency fluctuations and to
economic pressures resulting from Israel's generally high rate of inflation of,
for example, approximately 9% in 1998. 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.
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 disrupt 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) subject to certain conditions.
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.
No "Approved Enterprise" tax benefits had been realized by Summit from its
Israeli operations as of December 31, 1995 since the Israeli operations were
still incurring losses at that time. During 1998, Summit realized income of $4.3
million from its Israeli operations and "Approved Enterprise" tax benefits of
$1.9 million. Summit has recently applied for "Approved Enterprise" status with
respect to a new project and intends to apply in the future with respect to
additional projects. However, Summit's Israeli production facility may not
continue to operate or qualify as an "Approved Enterprise", and the benefits
under the "Approved Enterprise" regulations may not continue, or be applicable,
in the future. Management of Summit intends to permanently reinvest earnings of
the Israeli subsidiary outside the U.S. If such earnings were remitted to the
U.S., additional U.S. federal and foreign taxes may be due. 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 Office of the Chief Scientist in the Israeli Ministry of Industry and Trade
of approximately $232,000 and $608,000 in 1993
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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.
SUMMIT EMPLOYEES
As of September 30, 1999, Summit had 171 employees, 99 of whom were engaged
primarily in research and development and related operations, 43 of whom were
engaged primarily in sales and marketing and 29 of whom were engaged primarily
in corporate management and administration. A total of 90 of these employees
were located in the United States, 63 in Israel and 18 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.
SUMMIT 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 March 31, 2000. The rent and common area fees payable on
this facility are currently approximately $28,000 per month. This space is used
for Summit's production, sales and marketing and administration. Summit also
leases approximately 12,000 square feet of office space in Herzlia, Israel for
research and development pursuant to a lease that expires on December 8, 2003
with an option to renew for five years. The rent payable on this office space is
currently $24,650 per month.
Additionally, Summit leases approximately 9,300 square feet of office space
in San Jose, California and 16,600 square feet in St. Paul, Minnesota for
research and development and sales activities. The aggregate rent payable for
both facilities is currently approximately $54,000 per month, and the leases
expire in October 2003 and August 2004, respectively.
Summit also leases office space for sales activities throughout the United
States and Europe at an aggregate annual rental of approximately $200,000.
Summit expects that its current facilities will be adequate to serve its
needs for the foreseeable future.
SUMMIT 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.
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SUMMIT SELECTED HISTORICAL AND UNAUDITED FINANCIAL DATA
The following selected historical financial data of Summit has been derived
from Summit's historical financial statements. Summit's audited balance sheets
as of December 31, 1997 and 1998, its audited statements of operations for each
of the years ended December 31, 1996, 1997 and 1998, its unaudited balance sheet
as of September 30, 1999 and its unaudited statements of operations for the
nine-month periods ended September 30, 1998 and 1999 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 1994, 1995 and 1996 are not included herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Product licenses.............................. $ 9,327 $10,604 $15,446 $24,828 $33,589 $25,480 $13,477
Maintenance and services...................... 2,323 2,637 4,301 6,161 9,642 6,929 8,376
Other......................................... 1,517 1,051 567 450 367 274 --
------- ------- ------- ------- ------- ------- -------
Total revenue............................... 13,167 14,292 20,314 31,439 43,598 32,683 21,853
------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Product licenses.............................. 681 651 573 701 744 490 476
Maintenance and services...................... 390 400 466 632 955 773 876
Amortization of purchased technologies........ -- -- -- 219 661 496 472
------- ------- ------- ------- ------- ------- -------
Total cost of revenue....................... 1,071 1,051 1,039 1,552 2,360 1,759 1,824
------- ------- ------- ------- ------- ------- -------
Gross profit.................................. 12,096 13,241 19,275 29,887 41,238 30,924 20,029
Operating expenses:
Research and development...................... 4,751 5,447 5,867 7,749 13,042 8,928 7,739
Sales and marketing........................... 5,947 7,547 9,319 10,591 11,713 9,541 8,678
General and administrative.................... 2,326 3,286 3,188 3,785 4,398 3,264 4,004
Amortization of intangibles and goodwill...... -- -- -- 942 2,791 2,093 1,924
Merger costs.................................. -- -- -- 379 (1) 1,249(1) 227 (1) --
Severance and write-off of note receivable.... -- -- -- -- -- -- 4,005 (2)
In-process technology......................... 647 -- -- 11,689 -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses.................... 13,671 16,280 18,374 35,135 33,193 24,053 26,350
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations................... (1,575) (3,039) 901 (5,248) 8,045 6,871 (6,321)
Other income (expense), net..................... (103) (172) 117 6,619 (3) 1,093 790 783
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes............... (1,678) (3,211) 1,018 1,371 9,138 7,661 (5,538)
Income tax provision (benefit).................. 404 400 (245) 940 4,037 3,043 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................... $(2,082) $(3,611) $ 1,263 $ 431 $ 5,101 $ 4,618 $(5,538)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per diluted share............. $ (0.22) $ (0.33) $ 0.10 $ 0.03 $ 0.32 $ 0.28 $ (0.35)
======= ======= ======= ======= ======= ======= =======
Number of shares used in per diluted share
calculation................................... 9,449 11,085 13,243 15,402 16,115 16,208 15,646
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents..................... $ 1,203 $ 711 $19,801 $19,973 $27,693 $24,662 $27,008
Working capital (deficit)..................... (439) (540) 17,236 14,603 24,255 21,142 23,754
Total assets.................................. 8,097 9,151 28,700 39,670 50,210 46,649 42,117
Long-term debt, less current portion.......... 253 1,216 770 237 156 164 --
Total stockholders' equity.................... 1,224 548 19,151 26,196 35,475 32,128 30,260
</TABLE>
- ------------------------------
(1) During 1997, Summit incurred $379,000 in costs relating to the TriQuest
acquisition. During 1998, Summit incurred $227,000 in costs relating to the
ProSoft acquisition and approximately $1.0 million related to the terminated
acquisition of OrCAD.
(2) Charges of $4.0 million for the nine months ended September 30, 1999 relate
to severance obligations to certain management personnel and $2.7 million
write off of a note receivable.
(3) Includes a gain of $5.6 million in connection with the sale of the TDS
product line.
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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 SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS ITEM CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING
STATEMENTS. FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
INCLUDE THOSE SET FORTH UNDER "RISK FACTORS" COMMENCING ON PAGE 10.
OVERVIEW
Summit was founded in December 1993 to act as the holding company for Test
Systems Strategies, Inc., or TSSI, and SEE Technologies, (now Summit Design
(EDA) Ltd.). TSSI was founded in 1979 to develop and market integrated circuit,
also known as IC or chip, manufacturing test products. In January 1993, TSSI
retained a new Chief Executive Officer and began to restructure its senior
management team. After that, Summit broadened its strategy from focusing
primarily on manufacturing test products to include providing 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 electronic design automation market. As a result of the reorganization,
TSSI and SEE Technologies became wholly owned subsidiaries of Summit in the
first quarter of 1994.
Prior to the reorganization, Summit's TDS product and related maintenance
revenue accounted for all of Summit's revenue. After the reorganization
mentioned above 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 a 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 Design Automation, Inc., or TriQuest,
in February 1997, Simulation Technologies, Inc., or SimTech, in September 1997,
and ProSoft in June 1998, Summit has also generated 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 generated net losses in 1993, 1994 and 1995, as a result of investing
heavily in research and development as well as developing a direct sales channel
for new products. In 1996, this investment generated increased revenues, which
resulted in net income. Summit operates with high gross margins and, as such, a
downturn in revenue could have a significant impact on income from operations
and net income.
Revenue consists primarily of fees for licenses of Summit's software
products, maintenance and customer training. Product license revenue is
generated from the sale of software licenses to distributors and end-users.
Revenue from the sale of software licenses is recognized upon shipment of the
product if remaining vendor obligations are insignificant and collection of the
resulting receivable is probable, otherwise revenue from such software products
is deferred until such time as vendor obligations are met. 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 international markets. Revenue from product sales through distributors is
recognized net of the
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associated distributor discount. Fees received for granting distribution rights
are deferred and recognized ratably over the term of the distribution agreement.
Summit's sales contracts do not include a right of return provision. Summit does
occasionally allow a product return, and generally reimburses customers in full
for returned products. Estimated sales returns are recorded when the related
revenue is recognized.
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. 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., or Summit
Asia) acquired exclusive rights to sell, distribute and support all of Summit's
products in the Asia-Pacific regions, 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, or ADC. In May 1998, Summit exchanged a portion
of its ownership in ADC for ownership in another company located in Hong Kong,
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. In December 1998,
SDA cancelled ADC's distribution rights in all areas except Korea. In April
1999, SDA granted non-exclusive distribution rights to Semiconductor
Technologies Australia for the Asia Pacific region, excluding Japan and Korea.
For the year ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999, sales through SDA accounted for 1.9%, 1.7%, 3.1%
and 2.3% 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 share of the earnings and losses
of SDA and ADC are recognized as income or losses in Summit's income statement
in "Other income, 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, would increase.
Approximately 50%, 34%, 36%, 36%, and 46% of Summit's total revenue for the
year ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, respectively, were attributable to sales made
outside the United States, which includes the Asia Pacific region and Europe.
Approximately, 34%, 22%, 22%, 23% and 27% of Summit's revenue for the year ended
December 31, 1996, 1997 and 1998, and for the nine months ended September 30,
1998 and 1999, respectively, were attributable to sales made in the Asia Pacific
region. Approximately 16%, 12%, 14%, 13%, and 20% of Summit's revenue for the
year ended December 31, 1996, 1997 and 1998, and for the nine months ended
September 30, 1998 and 1999, respectively, were attributable to sales made in
Europe. The increase in the percentage of revenue from sales made outside the
United States in 1999 is primarily the result of a decrease in domestic sales
made to Credence Systems Corporation, or CSC, in 1998 pursuant to an OEM
agreement. As of December 31, 1998, CSC had satisfied its obligations under the
OEM agreement and Summit will not receive any additional revenue pursuant to the
OEM agreement. 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
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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. These factors may 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 economic conditions. Demand for and sales of Summit's
products in the Asia Pacific region have continued to decrease and these adverse
economic conditions may worsen. In June 1999, Summit lowered Seiko's specified
quotas due to the adverse economic conditions in the Asia Pacific Region. As a
result, Summit expects sales through Seiko to decrease for at least the current
and following two quarters and revenue attributable to sales in the Asia Pacific
region to decrease.(1)
On February 28, 1997, Summit completed its acquisition of TriQuest. TriQuest
develops HDL analysis, optimization, and verification tools for the design of
high performance, deep submicron integrated circuits. The transaction 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 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 products. Substantially all of Summit's Design to Test product
license revenue and related maintenance and services revenue for the nine months
ended September 30, 1997 came from the TDS products. As of July 1, 1997, TDS
products ceased to be a source of these 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 million of Visual Testbench licenses
over a thirty-month period beginning July 1997, subject to specified quarterly
maximums and certain additional conditions, and $2 million of maintenance over
an eighteen month period beginning July 1997. In December 1998, Summit and CSC
agreed to amend the agreement and as of December 31, 1998, CSC had satisfied its
obligation to purchase $16 million of Visual Testbench licenses. CSC also
obtained shared ownership of the Visual Testbench source code in December 1998
and has the right to sell Visual Testbench licenses based on the source code
received from Summit.
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 was 1,256,800 shares
of Summit common stock, 723,200 options to purchase 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.
- ------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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After discussion with the staff of the Securities and Exchange Commission,
Summit restated the consolidated financial statements as of and for the quarters
ended September 30, 1997, March 31, 1998, June 30, 1998 and September 30, 1998
and as of and for the year ended December 31, 1997 to reflect a change in the
original accounting treatment to the September 1997 acquisition of SimTech.
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.
In September 1998, Summit announced its proposed acquisition of OrCAD, Inc.
In February 1999, Summit announced that its planned acquisition of OrCAD, Inc.
had been terminated. During the quarter ended December 31, 1998, Summit incurred
approximately $1.0 million in costs related to the terminated acquisition.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue represented by selected income statement items.
Income statement data:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Product licenses........................... 76.0% 79.0% 77.1% 78.0% 61.7 %
Maintenance and services................... 21.2 19.6 22.1 21.2 38.3
Other...................................... 2.8 1.4 0.8 0.8 --
----- ----- ----- ----- -----
Total revenue............................ 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product licenses........................... 2.8 2.2 1.7 1.5 2.2
Maintenance and services................... 2.3 2.0 2.2 2.4 4.0
Amortization of purchased technologies..... -- 0.7 1.5 1.5 2.1
----- ----- ----- ----- -----
Total cost of revenue.................... 5.1 4.9 5.4 5.4 8.3
----- ----- ----- ----- -----
Gross profit............................. 94.9 95.1 94.6 94.6 91.7
Operating expenses:
Research and development................... 28.9 24.7 29.9 27.3 35.4
Sales and marketing........................ 45.9 33.7 26.8 29.2 39.7
General and administrative................. 15.7 12.0 10.1 10.0 18.3
Amortization of intangibles and goodwill... -- 3.0 6.4 6.4 8.8
Merger costs............................... -- 1.2(a) 2.9(a) 0.7(a) --
Severance and write off of
note receivable.......................... -- -- -- -- 18.3(b)
In-process technology...................... -- 37.2 -- -- --
----- ----- ----- ----- -----
Total operating expenses................. 90.5 111.8 76.1 73.6 120.5
----- ----- ----- ----- -----
Income (loss) from operations................ 4.4 (16.7) 18.5 21.0 (28.8)
Other income, net............................ 0.6 21.1(c) 2.5 2.4 3.6
----- ----- ----- ----- -----
Income before income taxes................... 5.0 4.4 21.0 23.4 (25.2)
Income tax provision (benefit)............... (1.2) 3.0 9.3 9.3 0.0
----- ----- ----- ----- -----
Net income (loss)............................ 6.2% 1.4% 11.7% 14.1% (25.2)%
===== ===== ===== ===== =====
</TABLE>
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(a) During 1997, Summit incurred $379,000 in costs relating to the TriQuest
acquisition. For the nine months ended September 30, 1998, Summit incurred
$227,000 in costs relating to the ProSoft acquisition and for the year ended
December 31, 1998 Summit incurred additional costs of approximately $1.0
million related to the terminated acquisition of OrCAD.
(b) Charges of $4.0 million for the nine months ended September 30, 1999 relate
to severance obligations to certain management personnel and a charge of
$2.7 million for the write-off of a note receivable.
(c) Includes a gain of $5.6 million (17.7% of revenues) in conjunction with the
sale of the TDS product line.
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NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
TOTAL REVENUE
Total revenue decreased by 33.1% from $32.7 million for the nine months
ended September 30, 1998 to $21.9 million for the nine months ended
September 30, 1999. Sales through one distributor accounted for 17.4%, and 23.2%
of Summit's total revenue for the nine months ended September 30, 1998 and 1999,
respectively. Sales to CSC accounted for 25.2% of Summit's total revenue for the
nine months ended September 30, 1998. Such revenue included $8.2 million of
Visual Testbench license and maintenance sales made pursuant to an OEM agreement
with CSC. As of December 31, 1998, CSC had fully satisfied its obligation to
purchase Visual Testbench Licenses pursuant to the OEM agreement and Summit does
not expect to receive any additional revenue from sales of Visual Testbench
licenses to CSC. Summit did not receive any revenue from CSC for the nine months
ended September 30, 1999. Revenue generated pursuant to another OEM agreement
accounted for 8.9%, and 13.0% of Summit's total revenue for the nine months
ended September 30, 1998 and 1999, respectively.
PRODUCT LICENSES REVENUE
Summit's product licenses revenue is derived from license fees from Summit's
HLDA products. Product licenses revenue decreased by 47.1% from $25.5 million
for the nine months ended September 30, 1998 to $13.5 million for the nine
months ended September 30, 1999. The decrease in product licenses revenue was
primarily attributable to Summit ceasing to receive revenue from CSC pursuant to
the OEM Agreement. The decrease was also attributable to decreased sales as a
result of Summit hiring fewer sales and marketing personnel than planned in the
fourth quarter of 1998 and the first two quarters of 1999 and attrition in the
existing sales force during the first two quarters of 1999.
MAINTENANCE AND SERVICES REVENUE
Summit's maintenance and services revenue is derived from maintenance
contracts related to Summit's HLDA products and training classes offered to
purchasers of Summit's software products. Maintenance and services revenue
increased 20.9% from $6.9 million for the nine months ended September 30, 1998
to $8.4 million for the nine months ended September 30, 1999. This increase is
primarily attributable to maintenance contract renewals by the installed base of
HLDA customers, and to a lesser extent from non-recurring engineering services
provided to one customer, which is not expected to reoccur.
OTHER REVENUE
Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue decreased 100% from
$274,000 for the nine months ended September 30, 1998 to $0 for the nine months
ended September 30, 1999. Although Summit renewed a significant distribution
agreement the renewal did not include additional fees. As a result, the
distribution rights fees paid at the inception of the agreement and amortized
into revenue at $91,000 each quarter over the agreement period were no longer a
source of other revenue subsequent to December 31, 1998.
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. The cost of product
licenses revenue decreased 2.9% from $490,000 for the nine months ended
September 30, 1998 to $476,000 for the nine months ended September 30, 1999. As
a percentage of product licenses revenue, the cost of product licenses revenue
increased from 1.9% of product license revenue for the nine months ended
September 30, 1998 to 3.5% of product license revenue for the
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nine months ended September 30, 1999. This increase as a percentage of product
license revenue was primarily due to fixed costs spread over decreased product
license 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 13.3% from $773,000 for the nine months ended
September 30, 1998 to $876,000 for the nine months ended September 30, 1999. As
a percentage of maintenance and services revenue, the cost of maintenance and
services revenue decreased from 11.2% for the nine months ended September 30,
1998 to 10.5% for the nine months ended September 30, 1999. The decrease in the
cost of maintenance and services revenue as a percent of revenue for the nine
months ended September 30, 1999 over the same period in 1998 was primarily the
result of increased maintenance and services revenue in 1999.
AMORTIZATION OF PURCHASED TECHNOLOGIES
Summit recorded $2.4 million of purchased technologies (intangibles) as part
of the SimTech acquisition which are being amortized to cost of revenue on a
straight-line basis over periods ranging from two to five years beginning
September 9, 1997. Summit expensed approximately $496,000 and $472,000 for the
nine months ended September 30, 1998 and 1999, respectively.
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
decreased 13.3% from $8.9 million for the nine months ended September 30, 1998
to $7.7 million for the nine months ended September 30, 1999. Research and
development expenses for nine months ended September 30, 1998 includes $1.7
million of compensation expense recorded in connection with Summit's acquisition
of SimTech in September 1997.
Summit recorded a total of $4.4 million of compensation expense for shares
issued as part of the acquisition which were contingent upon continued
employment and were being expensed as the employment obligation lapsed. This
expense was being recorded on a straight-line basis over the two year employment
obligation period. However, in December 1998, the employment agreements to which
this contingent compensation related were amended to eliminate the continued
employment obligation and at that time, the remaining unrecorded compensation
was expensed. Excluding the $1.7 million compensation expense recorded in the
nine months ended September 30, 1998, research and development expense increased
6.3% from $7.3 million for the nine months ended September 30, 1998 to $7.7
million for the same period in 1999.
As a percentage of total revenue, research and development expenses
increased from 27.3% for the nine months ended September 30, 1998 to 35.4% for
the nine months ended September 30, 1999. The increase in research and
development expenses as a percent of revenue is the result of a decrease in
total revenues for the nine months ended September 30, 1999. 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.(2)
- ------------------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, decreased 9.1% from $9.5 million for the nine months
ended September 30, 1998 to $8.7 million for the nine months ended
September 30, 1999. This decrease was primarily attributable to Summit hiring
fewer sales and marketing personnel than planned in the fourth quarter of 1998
and the first two quarters of 1999 and attrition in the existing sales force
during the first quarter of 1999.
As a percentage of total revenue, sales and marketing expenses increased
from 29.2% for the nine months ended September 30, 1998 to 39.7% for the nine
months ended September 30, 1999. The increase as a percentage of total revenue
was primarily attributable to the decrease in total revenue for 1999. 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 and marketing
personnel.(2)
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
22.7% from $3.3 million for the nine months ended September 30, 1998, to $4.0
million for the nine months ended September 30, 1999. As a percentage of total
revenue, general and administrative expenses increased from 10.0% for the nine
months ended September 30, 1998 to 18.3% for the nine months ended
September 30, 1999. The increase in general and administrative expenses as a
percentage of total revenue and in actual dollars was primarily attributable to
the addition of four positions and the cost of the CEO search.
AMORTIZATION OF INTANGIBLES AND GOODWILL
Summit recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis over
periods ranging from two to five years beginning September 9, 1997. Summit
expensed approximately $2.1 million and $1.9 million for the nine months ended
September 30, 1998 and 1999, respectively.
MERGER COSTS
For the nine months ended September 30, 1998 Summit incurred costs of
$227,000 related to the acquisition of ProSoft.
SEVERANCE AND WRITE OFF OF NOTE RECEIVABLE
For the nine months ended September 30, 1999, Summit recorded $1.3 million
in non-recurring charges relating to severance obligations for certain
management personnel. A significant amount of the liability relates to the
retirement of Summit's Chairman of the Board and Chief Executive Officer in June
1999. Payments to four individuals will be made over a period of nine to
twenty-four months. At September 30, 1999, the balance of the severance benefits
payable was $1.1 million. Additionally, for the nine months ended September 30,
1999, Summit wrote-off a note receivable of $2.7 million. Summit had loaned
$2.7 million to an independent software company pursuant to a secured loan
agreement entered into in July 1997. During the third quarter of 1999, it became
evident that because of missed product development milestones, the independent
software company's cash flows would not be sufficient to repay the loan. Summit
exercised its right under the terms of the contract with the independent
software company to retain co-ownership of the technology and distribution
rights to the
- ------------------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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product in satisfaction of the note. During the third quarter Summit also
evaluated its business strategy relative to the technology acquired from the
software company. Based on Summit's assessment of market potential, revised
sales projections, and limited manpower resources, management decided that
Summit could not provide the support necessary to successfully market and sell
this product. Summit concluded that the technology had no value and Summit has
no plans to sell this product in the future. Summit therefore wrote-off the
balance of the note receivable of $2.7 million.
INTEREST EXPENSE
Interest expense was $3,000 and $2,000 for the nine months ended
September 30, 1998 and 1999 respectively. Summit incurred no interest expense
associated with Summit's bank line of credit for the nine months ended
September 30, 1998 and 1999.
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 SDA and ADC and foreign exchange rate
differences resulting from paying operating expenses of foreign operations in
the local currency. Other income was approximately $793,000, and $785,000 for
the nine months ended September 30, 1998 and 1999, respectively.
INCOME TAX PROVISION
The income tax provision decreased from $1.2 million for the nine months
ended September 30, 1998 to $0 for the nine months ended September 30, 1999. The
1998 income tax provision reflects Summit's estimated consolidated tax rate for
federal, state and foreign taxes of approximately 40% of taxable income.
Summit's estimated effective rate for the year ending December 31, 1999 is 0%,
as Summit does not expect to generate either taxable income or net operating
losses in 1999.
EFFECTIVE CORPORATE TAX RATES
Prior to 1996, Summit had experienced losses for income tax purposes in the
United States. As of December 31, 1998, Summit recognized the benefit of its
U.S. net operating loss carryforwards and tax credit carryforwards in their
financial statements.
Summit's Israeli operations are performed entirely by Summit Design (EDA)
Ltd., which is a separate taxable Israeli entity. Summit's existing Israeli
production facility has been granted "Approved Enterprise" status under the
Israeli Investment Law, which entitles Summit to reductions in the tax rate
normally applicable to Israeli companies with respect to the income generated by
its "Approved Enterprise" programs. In particular, the tax holiday covers the
seven year period beginning the first year in which Summit Design (EDA) Ltd.
generates taxable income from its "Approved Enterprise" (after using any
available NOLs), provided that such benefits will terminate in 2006 regardless
of whether the seven year period has expired. The tax holiday provides that,
during such seven year periods, a portion of Summit's taxable income from its
Israeli operations will be taxed at favorable tax rates. Summit has recently
applied for "Approved Enterprise" status with respect to a new project and
intends to apply in the future with respect to additional projects. There can be
no assurance that Summit will be granted any approvals and therefore there can
be no assurance Summit will continue to have favorable tax status in Israel.
Management of Summit intends to permanently reinvest earnings of the Israeli
subsidiary outside the U.S. If such earnings were remitted to the U.S.,
additional U.S. federal and foreign taxes may be due.
Summit has foreign income tax net operating losses of approximately $5.6
million at December 31, 1998. 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.
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Summit is also subject to risk that United States and foreign tax laws and
rates may change in a future period or periods, and that any such changes may
materially adversely affect Summit's tax rate. As a result of the factors
described above and other related factors, there can be no assurance that Summit
will maintain a favorable tax rate in future periods. Any increase in Summit's
effective tax rate, or variations in the effective tax rate from period to
period, could have a material adverse effect on Summit's business, financial
condition, results of operations and cash flows.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998
Total Revenue
Summit's revenue is comprised of product licenses revenue, maintenance and
services revenue and other revenue. Total revenue increased by 38.7% from $31.4
million for the year ended December 31, 1997 to $43.6 million for the year ended
December 31, 1998. Sales through one distributor accounted for 12.1% and 14.0%
of Summit's total revenue for the years ended December 31, 1997 and 1998,
respectively. Sales to CSC accounted for 28.6% and 25.1% of Summit's total
revenue for the years ended December 31, 1997 and 1998, respectively. Revenues
for the years ended December 31, 1997 and 1998 include $6.2 million and $9.8
million of Visual Testbench licenses sales made pursuant to an OEM agreement
with CSC. As of December 31, 1998, CSC had fully satisfied its obligation to
purchase Visual Testbench Licenses pursuant to the OEM agreement and Summit does
not expect to receive any additional revenue from sales of Visual Testbench
licenses to CSC.
PRODUCT LICENSES REVENUE
Summit's product licenses revenue is derived from license fees from Summit's
HLDA products and, additionally, from Design to Test products through June 30,
1997. Product licenses revenue increased by 35.3% from $24.8 million for the
year ended December 31, 1997 to $33.6 million for the year ended December 31,
1998. Revenue from HLDA and Design to Test products accounted for 91.7% and
8.3%, respectively, of product licenses revenue for the year ended December 31,
1997, respectively, and 100% and 0% of product licenses revenue for the year
ended December 31, 1998, respectively. The decline in revenue from Design to
Test products is a result of the sale of the TDS product line effective July 1,
1997.
HLDA revenue increased 47.5% from $22.8 million for the year ended December
31, 1997 to $33.6 million for the year ended December 31, 1998. Revenues
attributable to products existing in 1997 accounted for 46% of the increase in
HLDA revenues, while revenues from products introduced in 1998 accounted for 54%
of the increase in such revenues. A significant amount of the increase in the
existing products revenue for 1998 over the same period in 1997 was attributable
to sales of Visual Testbench and Visual to one customer. The increase in
revenues from new products was primarily from sales of products developed from
in-process technology acquired in the SimTech acquisition in September 1997.
Design to Test revenue decreased from $2.1 million for the year ended
December 31, 1997 to $0 for the year ended December 31, 1998 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 56.5% from $6.2 million for the year ended
December 31, 1997 to $9.6 million for the year ended December 31, 1998. 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
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<PAGE>
year, less a decrease in Design to Test maintenance revenue of $1.4 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 18.4% from
$450,000, for the year ended December 31, 1997 to $367,000 for the year ended
December 31, 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, ($83,000 for the year ended December 31, 1997) were no
longer 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 6.1% from $701,000 for the year ended December 31, 1997 to
$744,000 for the year ended December 31, 1998. As a percentage of product
licenses revenue, the cost of product licenses revenue decreased from 2.8% for
the year ended December 31, 1997 to 2.2% for the year ended December 31, 1998.
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 51.1% from $632,000 for the year ended
December 31, 1997 to $955,000 for the year ended December 31, 1998. As a
percentage of maintenance and services revenue, the cost of maintenance and
services revenue decreased from 10.3% for the year ended December 31, 1997 to
9.9% for the year ended December 31, 1998. The decrease in the cost of
maintenance and services revenue as a percentage of maintenance and services
revenue was primarily a result of the 56.5% increase in maintenance and services
revenue for the year ended December 31, 1998.
AMORTIZATION OF PURCHASED TECHNOLOGIES
Summit recorded $2.4 million of purchased technologies (intangibles) as part
of the SimTech acquisition which are being amortized to cost of revenue on a
straight-line basis over periods ranging from two to five years beginning
September 9, 1997. Summit expensed $219,000 and $661,000 for the years ended
December 31, 1997 and 1998, respectively.
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 68.3% from $7.7 million for the year ended December 31, 1997 to $13.0
million for the year ended December 31, 1998. As a percentage of total revenue,
research and development expenses increased from 24.7% for the year ended
December 31, 1997 to 29.9% for the year ended December 31, 1998. The majority of
the increase was attributable to compensation expense recorded in connection
with Summit's acquisition of SimTech in September 1997. Summit recorded a total
of $4.4 million of compensation expense for shares issued as part of the
acquisition which were contingent upon continued employment and were being
expensed as the
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employment obligation lapsed. This expense was being recorded on a straight-line
basis over the two year employment obligation period. However, in
December 1998, the employment agreements to which this contingent compensation
related were amended to eliminate the continued employment obligation. At that
time, the remaining unrecorded compensation was expensed. As a result, Summit
recorded $723,000 and $3.7 million of compensation related to contingent
employment for the years ended December 31, 1997 and 1998, respectively. The
remaining increase in research and development expenses was primarily
attributable to an increase in the number of engineers employed by Summit.
During the second half of 1997, Summit hired 38 additional engineers. 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.(2)
Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which Summit is required to
capitalize software development costs after technological feasibility has been
established. To date, development costs have been expensed as incurred since
technological feasibility generally has not been established until shortly
before the release of a new product, and no material development costs have been
incurred after establishment of technological feasibility.
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 10.6% from $10.6 million for the year ended
December 31, 1997 to $11.7 million for the year ended December 31, 1998. This
increase was primarily attributable to expenses related to the sales and
marketing of products acquired in the SimTech acquisition in September 1997. As
a percentage of total revenue, sales and marketing expenses decreased from 33.7%
for the year ended December 31, 1997 to 26.9% for the year ended December 31,
1998. The decrease was primarily attributable to the increase in total revenue
for 1998. The decrease was also attributable to Summit hiring fewer sales and
marketing personnel than planned during 1998. Summit expects sales and marketing
expenses to continue to increase in absolute dollars, in part due to the hiring
of additional sales and marketing personnel.(2)
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, legal and
auditing expenses of Summit. General and administrative expenses increased 16.2%
from $3.8 million for the year ended December 31, 1997 to $4.4 million for the
year ended December 31, 1998. As a percentage of total revenue, general and
administrative expenses decreased from 12.0% for 1997 to 10.1% for 1998. 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.(2)
AMORTIZATION OF INTANGIBLES AND GOODWILL
Summit recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis over
periods ranging from two to five years beginning September 9, 1997. Summit
expensed $942,000 and $2.8 million for the years ended December 31, 1997 and
1998, respectively.
- ------------------------
(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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MERGER COSTS
Charges relate to costs associated with business combinations and
acquisitions. During 1997, Summit incurred $379,000 in costs relating to the
TriQuest acquisition. During 1998, Summit incurred $227,000 in costs relating to
the ProSoft acquisition and approximately $1.0 million related to the terminated
acquisition of OrCAD.
IN-PROCESS TECHNOLOGY
For the year ended December 31, 1997, $11.7 million of the purchase price
for the acquisition of SimTech ($25.4 million) was allocated to in-process
technology and, accordingly, was expensed as of the acquisition date (September
9, 1997). The amount allocated to the in-process technology represented the
technology that had not yet reached technological feasibility and had no
alternative future use. Summit had no acquisitions in 1998 that generated a
charge to in-process technology.
The value assigned to purchased in-process technology in 1997 was related
primarily to two research projects for which technological feasibility had not
been established, V-CPU ($8.1 million) and HDL Score ($3.1 million). The value
was determined by estimating the net cash flows from the sale of products
resulting from the completion of such projects, and discounting the net cash
flows back to their present value adjusted for the stage of completion of the
technologies at the date of acquisition.
Summit released the commercial version of the V-CPU hardware/software
co-verification product in the first quarter of 1998, consistent with
expectations at the time of the acquisition. A market requirement for extensive
embedded system component interfaces called bus functional models ("BFM") and
instruction set simulators ("ISS") was underestimated in the introduction
schedule and has caused delays in initial sales of the product. Summit
introduced the HDL Score product in the second quarter of 1998, approximately
four months later than originally anticipated, due to delays in completing the
control logic support functionality that was essential for product introduction
to take place. For 1998, revenues from the sales of the products acquired in
connection with the SimTech acquisition fell short of forecast by 10%. Summit's
forecast of revenues for 1999 reflects that the shortfall of revenues in 1998
related to HDL Score will be realized in 1999 and that V-CPU will have revenues
that are approximately 50% of those originally estimated due to the delays in
availability of BFM's and ISS's.(2) Although these delays affected the timing of
the realization of revenue from these products as originally estimated by
Summit, Summit believes the aggregate revenue streams originally anticipated
from these products will be realized and that there has been no material change
in expected return on investment related to these products.(2) However, there
can be no assurance that Summit will realize revenue for V-CPU and HDL Score in
the amounts estimated, and actual revenue realized from either or both of these
products may be significantly lower than expected.(1)
Interest Expense
Interest expense decreased from $12,000 for the year ended December 31, 1997
to $4,000 for the year ended December 31, 1998 due to the expiration of certain
capital leases obligations.
- ------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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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 SDA and ADC and foreign exchange rate
differences resulting from paying operating expenses of foreign operations in
the local currency. Other income was $1.1 million for the years ended December
31, 1997 and 1998. Interest income increased approximately $200,000, to $1.3
million for the year ended December 31, 1998. This increase was offset by losses
recorded on the equity method which were incurred in SDA and ADC.
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 Test Development Series "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 $5.6 million in 1997.
Income Tax Provision
The income tax provision increased from $940,000 for the year ended December
31, 1997 to $4.0 million for the year ended December 31, 1998. Summit utilized
substantially all its U.S. federal and state net operating loss carryforwards to
offset a considerable portion of U.S. taxable income for the year ended December
31, 1997. The provision of $940,000 for 1997 is comprised of $1.7 million of
Federal, State and foreign taxes payable, less $719,000 of deferred tax benefit
recognized for NOL's available from the TriQuest acquisition as well as research
and development credits and alternative minimum tax credits. The provision of
$4.0 million for 1998 is comprised of $3.4 million of federal, state and foreign
taxes payable, plus $659,000 of deferred tax liabilities. The effective tax rate
decreased from 69% for the year ended December 31, 1997 to 44% for the year
ended December 31, 1998. The 1997 effective tax rate was high primarily due to
the write-off of in-process research and development costs which are not
deductible for tax purposes, reduced by the tax benefit realized in 1997 for
utilizing the net operating loss carryforwards. The 1998 effective tax rate is
higher than the statutory rate due primarily to nondeductible amortization and
contingent stock compensation expense relating to the SimTech acquisition.
YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997
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 14.7% and 12.1%
of Summit's total revenue for the years ended December 31, 1996 and 1997,
respectively. Revenues for the year ended December 31, 1997 include $6.2 million
of Visual Testbench licenses sales pursuant to an OEM agreement with CSC. Sales
to CSC accounted for 28.6% of Summit's total revenue for the year ended
December 31, 1997. 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 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
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72.6% and 27.4%, respectively, of product licenses revenue for the year ended
December 31, 1996 and 91.7% and 8.3%, respectively, of product licenses revenue
for the year ended December 31, 1997.
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. Revenue
attributable to products existing in 1996 accounted for 76% of the increase in
HLDA revenues, while revenues from products introduced in 1997 accounted for 23%
of the increase in such revenues. A significant amount of the increase in
revenue from existing products over the same period in 1996 was attributable to
sales of Visual Testbench and Visual to one customer. The increase in revenue
from new products was primarily from sales of products added as a result of the
SimTech acquisition.
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 22.3% from $573,000 for the year ended December 31, 1996 to
$701,000 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 2.8% 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.
AMORTIZATION OF PURCHASED TECHNOLOGIES
Summit recorded $2.4 million of purchased technologies (intangibles) as part
of the SimTech acquisition which are being amortized to cost of revenue on a
straight-line basis over periods ranging from two to five years beginning
September 9, 1997. Summit expensed $219,000 for the year ended December 31,
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 32.1% from $5.9 million for the year ended December 31, 1996 to $7.7
million for the year ended December 31, 1997. A significant amount of the
increase was attributable to compensation expense in the amount of $723,000 for
the year ended December 31, 1997 recorded in connection with Summit's
acquisition of SimTech in September 1997. Summit recorded $4.4 million of
compensation expense for shares issued as part of the acquisition which were
contingent upon continued employment and were being expensed as the employment
obligation lapsed. 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 a net of 25 engineers during 1997. As a percentage of
total revenue, research and development expenses decreased from 28.9% for the
year ended December 31, 1996 to 24.6% 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.(2)
Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which Summit is required to
capitalize software development costs after technological feasibility has been
established. To date, development costs have been expensed as incurred since
technological feasibility generally has not been established until shortly
before the release of a new product, and no material development costs have been
incurred after establishment of technological feasibility.
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 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
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(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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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.(2)
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, legal and
auditing expenses of Summit. General and administrative expenses increased 18.7%
from $3.2 million for the year ended December 31, 1996 to $3.8 million for the
year ended December 31, 1997. As a percentage of total revenue, general and
administrative expenses decreased from 15.7% for 1996 to 12.0% 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.(2)
AMORTIZATION OF INTANGIBLES AND GOODWILL
Summit recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis over
periods ranging from two to five years beginning September 9, 1997. Summit
expensed $942,000 for the year ended December 31, 1997.
MERGER COSTS
Charges relate to costs associated with business combinations and
acquisitions. During 1997, Summit incurred $379,000 in costs relating to the
TriQuest acquisition.
IN-PROCESS TECHNOLOGY
For the year ended December 31, 1997, $11.7 million of the purchase price
for the acquisition of SimTech ($25.4 million) was allocated to in-process
technology and, accordingly, was expensed as of the acquisition date
(September 9, 1997). The amount allocated to the in-process technology
represented the technology that had not yet reached technological feasibility
and had no alternative future use.
The value assigned to purchased in-process technology was related primarily
to two research projects for which technological feasibility had not been
established, V-CPU ($8.1 million) and HDL Score ($3.1 million). The value was
determined by estimating the net cash flows from the sale of products resulting
from the completion of such projects, and discounting the net cash flows back to
their present value adjusted for the stage of completion of the technologies at
the date of acquisition.
The nature of the efforts to develop the purchased in-process technology
into commercially viable products principally related to the completion of all
planning, designing, prototyping, verification and testing activities that are
necessary to establish that the product can be produced to meet its design
specification, including function, features and technical performance
requirements. The originally estimated costs to be incurred to develop the
purchased in-process technology into commercially viable products was
approximately $1.8 million. The estimated resulting net cash flows from such
products were based on Summit management's estimates of revenues, costs of
sales, research and development costs, selling, general and administrative
costs, and income taxes from such projects.
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(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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The estimated revenues include average compounded annual revenue growth
rates for the V-CPU and HDL Score products of 155% to 88% during 1998 to 2000,
declining slightly in 2001 and declining thereafter as other new products are
expected to enter the market.(2) These projections are based on Summit
management's estimates of market size and growth (which are supported by
independent market data), expected trends in technology and the nature and
expected timing of new product introductions by Summit.
Estimated cost of sales of 5% is consistent with Summit's current cost of
sales and future expectations for cost of sales. Sales, marketing and general
administrative costs are expected to be higher than Summit's average costs in
the introduction phase and then stabilize upon introduction at levels that are
expected to be consistent with Summit's expected overall costs in these areas in
future periods. Research and development costs are expected to be higher than
Summit's average costs in the introduction and early phases of product sales and
then decline below Summit's average costs as sales of the products begin to
decline in 2001. This research and development cost pattern is consistent with
Summit's historical experience through product life cycles. Income taxes were
estimated at 30%, which are consistent with Summit's anticipated tax rate for
the foreseeable future.(1)
Summit released the commercial version of the V-CPU hardware/software
coverification product in the first quarter of 1998, consistent with
expectations at the time of the acquisition. A market requirement for extensive
embedded system component interfaces called bus functional models ("BFM") and
instruction set simulators ("ISS") was underestimated in the introduction
schedule and has caused delays in initial sales of the product. Summit
introduced the HDL Score product in the second quarter of 1998, approximately
four months later than originally anticipated, due to delays in completing the
control logic support functionality that was essential for product introduction
to take place. For 1998, revenues from the sales of the products acquired in
connection with the SimTech acquisition fell short of forecast by 10%. Summit's
forecast of revenues for 1999 reflects that the shortfall of revenues in 1998
related to HDL Score will be realized in 1999 and that V-CPU will have revenues
that are approximately 50% of those originally estimated due to the delays in
availability of BFM's and ISS's.(2) Although these delays affected the timing of
the realization of revenue from these products as originally estimated by
Summit, Summit believes the aggregate revenue streams originally anticipated
from these products will be realized and that there has been no material change
in expected return on investment related to these products.(2) However, there
can be no assurance that Summit will realize revenue for V-CPU and HDL Score in
the amounts estimated, and actual revenue realized from either or both of these
products may be significantly lower than expected.(1)
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.
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(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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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 Test Development Series "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 $5.6 million in 1997.
Income Tax Provision
The income tax provision increased from a benefit of $245,000 for the year
ended December 31, 1996 to a tax provision of $940,000 for the year ended
December 31, 1997. Summit utilized substantially all its U.S. Federal and State
net operating loss carryforwards to offset a considerable portion of U.S.
taxable income for the year ended December 31, 1997. The provision for 1996 is
comprised primarily of Japanese withholding tax of approximately 10% on Japanese
sales through June 1996 and alternative minimum tax. The provision of $940,000
for 1997 is comprised of $1.7 million of Federal, State and foreign taxes
payable, less $719,000 of deferred tax benefit recognized for NOL's available
from the TriQuest acquisition as well as research and development credits and
alternative minimum tax credits. The effective tax rate increased from a benefit
of 24% for the year ended December 31, 1996 to 69% for the year ended
December 31, 1997. The 1996 effective tax rate was substantially lower than the
statutory rate due primarily to the utilization of previously unrecognized
deferred tax assets. The 1997 effective tax rate was high primarily due to the
write-off of in-process technology costs which are not deductible for tax
purposes, reduced by the tax benefit realized in 1997 for utilizing the net
operating loss carryforwards.
Effective Corporate Tax Rates
Prior to 1996, Summit had experienced losses for income tax purposes in the
United States. Summit is now profitable in the United States and expects to pay
income taxes at or near the statutory tax rate on its U.S. taxable earnings. As
of December 31, 1997, Summit has recognized the benefit of its U.S. net
operating loss carryforwards and tax credit carryforwards in its financial
statements.
Summit's Israeli operations are performed entirely by Summit Design (EDA)
Ltd., which is a separate taxable Israeli entity. Summit's existing Israeli
production facility has been granted "Approved Enterprise" status under the
Israeli Investment Law, which entitles Summit to reductions in the tax rate
normally applicable to Israeli companies with respect to the income generated by
its "Approved Enterprise" programs. In particular, the tax holiday covers the
seven year period beginning the first year in which Summit Design (EDA) Ltd.
generates taxable income from its "Approved Enterprise" (after using any
available NOLs), provided that such benefits will terminate in 2006 regardless
of whether the seven year period has expired. The tax holiday provides that,
during such seven year periods, a portion of Summit's taxable income from its
Israeli operations will be taxed at favorable tax rates. Summit has recently
applied for "Approved Enterprise" status with respect to a new project and
intends to apply in the future with respect to additional projects. There can be
no assurance that Summit will be granted any approvals and therefore there can
be no assurance Summit will continue to have favorable tax status in Israel.
Management of Summit intends to permanently reinvest earnings of
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the Israeli subsidiary outside the U.S. If such earnings were remitted to the
U.S., additional U.S. federal and foreign taxes may be due.
Summit has foreign income tax net operating losses of approximately
$5.6 million at December 31, 1998. 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.
Summit is also subject to risk that United States and foreign tax laws and
rates may change in a future period or periods, and that any such changes may
materially adversely affect Summit's effective tax rate. As a result of the
factors described above and other related factors, there can be no assurance
that Summit will maintain a favorable tax rate in future periods. Any increase
in Summit's effective tax rate, or variations in the effective tax rate from
period to period, could have a material adverse effect on Summit's business,
financial condition, results of operations or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
SEPTEMBER 30, 1999
As of September 30, 1999, Summit had approximately $27.0 million in cash and
cash equivalents. Additionally, Summit had a $1.0 million bank line of credit,
which expired on April 30, 1999. At April 30, 1999, Summit had no borrowings
outstanding under this line of credit and subsequently did not renew the line.
As of September 30, 1999, Summit had loaned $2.7 million to an independent
software company pursuant to a secured loan agreement entered into during July
1997. During the third quarter of 1999, it became evident that because of missed
product development milestones, the independent software company's cash flows
would not be sufficient to repay the loan. Summit exercised its right under the
terms of the contract with the independent software company to retain
co-ownership of the technology and distribution rights to the product in
satisfaction of the note. During the third quarter Summit also evaluated its
business strategy relative to the technology acquired from the software company.
Based on Summit's assessment of market potential, revised sales projections, and
limited manpower resources, management decided that Summit could not provide the
support necessary to successfully market and sell this product. Summit concluded
that the technology had no value and Summit has no plans to sell this product in
the future. Summit therefore wrote-off the balance of the note receivable of
$2.7 million.
As of September 30, 1999, Summit had working capital of approximately $23.8
million.
For the nine months ended September 30, 1998 and 1999, net cash generated by
operating activities was approximately $8.6 million and $1.0 million,
respectively. Cash generated by operations for the nine months ended September
30, 1999 resulted primarily from a net loss offset by depreciation,
amortization, provision for loan impairment, decreases in accounts payable and
collections of accounts receivable.
Net cash used in investing activities was approximately $3.4 million and
$1.9 million for the nine months ended September 30, 1998 and 1999,
respectively. Net cash used in investing activities was related to the
acquisition of furniture and equipment and a loan to an independent software
company for the nine months ended September 30, 1998 and 1999. Net cash used in
investing activities also included loans to a joint venture for the nine months
ended September 30, 1998.
Net cash used by financing activities was approximately $465,000 for the
nine months ended September 30, 1998. Net cash generated by financing activities
was approximately $134,000 for the nine months ended September 30, 1999. For the
nine months ended September 30, 1998 the use of cash was primarily from
repurchasing 162,500 shares of Summit's common stock, less proceeds from the
issuance
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of common stock and a tax benefit from option exercises. For the nine months
ended September 30, 1999, financing activity cash was primarily generated by
proceeds from the issuance of common stock through stock option plans, offset by
payments of debt obligations and capital leases.
Summit presently believes that its current cash and cash equivalents will
satisfy Summit's anticipated working capital and other cash requirements through
fiscal year 2000.(2)
DECEMBER 31, 1996, 1997 AND 1998
Summit completed its initial public offering 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 approximately $15.4
million of capital stock, as well as capital equipment leases, borrowings under
its bank line of credit, Israeli research and development grants and cash
generated from operations. As of December 31, 1998, Summit had approximately
$27.7 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, 1998, 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%. At December 31,
1998, $1.7 million had been advanced to the independent software Summit.
As of December 31, 1998, Summit had working capital of approximately $24.3
million.
Net cash generated by operating activities was approximately $4.7 million,
$12.1 million and $11.9 million for the years ended December 31, 1996, 1997 and
1998, respectively. For 1996, cash generated from operating activities resulted
primarily from increases in deferred revenue and profitability during the
period. 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 the year ended December 31, 1998, cash generated by
operating activities resulted primarily from an increase in profitability, and
to a lesser extent from an increase in accounts payable and accrued liabilities
offset by an increase in accounts receivable.
Net cash used in investing activities was approximately $855,000, $1.3
million, and $4.5 million for the years ended December 31, 1996, 1997 and 1998,
respectively. During 1996, net cash used in investing activities was related
primarily to the acquisition of furniture and equipment. 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 the year ended December 31, 1998, net
cash used was primarily related to the acquisition of furniture and equipment
and loans to an independent software development company and to an
unconsolidated joint venture.
Net cash provided by financing activities was approximately $15.3 million
and $345,000 for the years ended December 31, 1996 and 1998, respectively. Net
cash used in financing activities was
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(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on
page 10 for a discussion of factors that could affect future performance.
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approximately $10.6 million for the year ended December 31, 1997. The net cash
provided in 1996 was primarily a result of Summit's initial public offering,
partially offset by the repayment of $2.1 million of outstanding debt and
capital lease obligations. The net cash provided in 1998 was primarily a result
of the proceeds from the issuance of stock through stock option plans and the
employee stock purchase plan and the tax benefit of option exercises, partially
offset by the repurchase of $2.3 million of Summit's outstanding common stock.
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.
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.(2)
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 and cause system
failures or miscalculations, material disruptions of business 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 upgraded or replaced the software packages underlying its financial,
production, communication, desktop and other systems, as appropriate, to address
the Year 2000 issue. It has also performed an in-depth analysis of all of its
products and has determined that all significant products are Year 2000
compliant. Moreover, Summit contacted all major external third parties that
provide products and services to Summit to assess their readiness for the Year
2000.
Summit's products are subject to periodic upgrades. These upgrades are
typically released to end-users once a year. Management believes its products
are Year 2000 compliant, and will continue to test upgrades for Year 2000
compliance.
Concurrent with performing the above steps, Summit made certain investments
in systems, applications and products to address Year 2000 issues. Summit has
not tracked internal resources dedicated to the resolution of the Year 2000
issue and, therefore, is unable to quantify internal costs incurred to date that
are associated with the Year 2000 issue. Summit has, however, hired external
consultants to resolve internal information system issues related to the
resolution of the Year 2000 issue. Identifiable expenditures for these
consultants were approximately $250,000 through December 31, 1999. Expenditures
to resolve Year 2000 issues were not material.
As of January 20, 2000, Summit is not aware of any Year 2000 issues relating
to its products, internal systems or suppliers and service providers.
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(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that Summit's actual future
performance will meet Summit's current expectations. Investors are strongly
encouraged to review the section entitled "Risk Factors" commencing on page
10 for a discussion of factors that could affect future performance.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Summit is exposed to market risk from interest rate changes, foreign
currency fluctuations, and changes in the market values of its investments.
INTEREST RATE RISK. Summit invests its excess cash in debt instruments of
the U.S. Government and its agencies, and in high-quality corporate issuers and,
by policy, limits the amount of credit exposure to any one issue. Summit
attempts to protect and preserve its invested funds by limiting default, market
and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, Summit's future investment income may
fall short of expectations due to changes in interest rates and Summit may
suffer losses in principal if forced to sell securities which have declined in
market value due to changes in interest rates.
FOREIGN CURRENCY RISK. Summit pays the expenses of its international
operations in local currencies. Summit's international operations are subject to
risks typical of an international business, including, but not limited to:
differing economic conditions, changes in political climate, differing tax
structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, Summit's future results could be materially adversely
impacted by changes in these or other factors.
Summit is also exposed to foreign exchange rate fluctuations as they relate
to operating expenses as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability. The effect of foreign exchange rate fluctuations
on Summit in 1998 was not material.
INVESTMENT RISK. Summit has made equity investments in ADC and SDA and has
provided loans to ADC and a privately-held, independent software company for
business and strategic purposes. These investments are included in other
long-term assets and are accounted for under the equity method when ownership is
greater than 20% and Summit does not exert control. For these investments in
privately-held companies, Summit's policy is to regularly review the assumptions
underlying the operating performance and cash flow forecasts in assessing the
carrying values. Summit identifies and records impairment losses on long-lived
assets when events and circumstances indicate that such assets might be
impaired.
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<PAGE>
SUMMIT DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of Summit who will serve as executive
officers and directors of the combined company and their ages as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION WITH SUMMIT
- ---- -------- --------------------------------------------------------
<S> <C> <C>
William V. Botts............ 64 Interim Chief Executive Officer and Chairman of the
Board
Guy Moshe................... 42 Chief Technology Officer and President of Summit Design
(EDA), Ltd.
Eric Benhayoun.............. 46 Vice President, General Manager--European Operations
Steven P. Erwin............. 56 Director
</TABLE>
William V. Botts has served as a director of Summit since May 1997 and as
Interim Chief Executive Officer and Chairman of the Board since July 1999.
Mr. Botts has been the Interim Chief Executive Officer of California Lifestyles,
Inc., a footwear company, from August 1997 to July 1999. 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 business combinations,
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.
Guy Moshe has served as Chief Technology Officer and President of Summit
Design (EDA), Ltd. Since February 1999 and as Vice President, General Manager
and Chief Operating Officer of the Design Solutions Division of Summit Design,
Inc. since September 1997. From May 1996 to September 1997 Mr. Moshe served as
General Manager of Summit Design (EDA) Ltd. Mr. Moshe served as the Vice
President of Product Marketing for Summit Design Inc. from February 1994 to
May 1996. Mr. Moshe was the Director of Marketing and Sales for SEE Technologies
from January 1991 to February 1994. SEE Technologies was the continuation of the
Israeli Design Center of Daisy and the main supplier of electronic design
automation tools for Intergraph. From 1987 to 1991, Mr. Moshe was a Technical
Manager for Daisy Systems. Prior to that time, Mr. Moshe held various
engineering positions with companies in the computer design industry in Israel.
Eric 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 electronic design automation supplier.
Steven P. Erwin has served as a director 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.
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.
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<PAGE>
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid during the last three
fiscal years to each executive officer of Summit who will serve as a director or
executive officer of the combined company.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM AWARDS
-------------------------------------------- ----------------------------
NO. OF
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(2) COMPENSATION($) OPTIONS COMPENSATION($)
- --------------------------- -------- ------------ ----------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William V. Botts (3)............ 1999 -- -- 130,250(4) 30,000
Director 1998 -- -- 25,000(5) 10,000 --
1997 -- -- 15,865(5) 10,000 --
Guy Moshe....................... 1999 180,000 -- 12,804(6) 256,681
Chief Technology Officer 1998 170,000 30,000 12,804(6) 1,755 --
And President of Summit 1997 113,392 69,810(7) 10,515(6) 34,152 --
Design (EDA), Ltd.
Eric Benhayoun.................. 1999 153,860 39,174(8) -- 75,000 --
Vice President, General 1998 154,890 57,109(9) -- -- --
Manager-European 1997 120,252 26,945(10) -- 32,500 --
Operations
</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 February of the following year.
(3) Mr. Botts became Interim Chief Executive Officer of Summit in July 1999.
(4) Consists of $20,000 of director's fee and $110,250 of Interim Chief
Executive Officer compensation.
(5) Consists of director's fee.
(6) Consists of car allowance.
(7) Consists of $64,000 bonus and $5,810 of commissions.
(8) Consists of commissions, $12,305 of which was paid in 2000.
(9) Consists of commissions, $21,194 of which was paid in 1999.
(10) Consists of commissions, $12,000 of which was paid in 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during the fiscal year ended December 31, 1998 to each of the executive officer
of Summit who will serve as a director or executive officer of the combined
company.
109
<PAGE>
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------------------- ANNUAL RATES OF
% OF TOTAL FAIR STOCK PRICE
NO. OF OPTIONS MARKET APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE VALUE ON OPTION TERM(3)
UNDERLYING EMPLOYEES IN PRICE($)/ DATE OF EXPIRATION ---------------------
OPTIONS GRANTED(1) 1999(2) SHARE GRANT($) DATE 5%($) 10%($)
------------------ ------------ --------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
William V. Botts.......... 10,000 0.5 2.50 2.50 5/26/09 15,722 39,844
20,000 1.1 2.56 2.56 7/26/09 32,199 81,600
Guy Moshe................. 100,000 5.3 3.44 3.44 2/25/09 216,340 548,247
2,892 0.2 3.00 3.00 4/16/09 5,456 13,827
150,000 8.0 3.00 3.00 9/16/09 283,003 717,184
3,789 0.2 2.38 2.38 10/15/99 5,222 13,234
Eric Benhayoun............ 75,000 4.0 3.44 3.44 10/25/09 162,255 411,186
</TABLE>
- ------------------------
(1) Options granted in 1999 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, 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 1,879,360 options granted to all employees and
consultants during 1999.
(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 Summit common stock price.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the executive officer of Summit who
will serve as a director or executive officer of the combined company, certain
information concerning stock options exercised during 1999 and the number of
shares subject to exercisable and unexercisable stock options as of
December 31, 1999. The table also sets forth certain information with respect to
the value of stock options held by such individuals as of December 31, 1999.
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<PAGE>
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1999 AND OPTION VALUES ON
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISABLE OPTIONS
AT FISCAL YEAR END VALUE OF UNEXERCISED IN-
------------------------- THE-MONEY OPTIONS AT
SHARES EXERCISE FISCAL YEAR END ($)(1)
ACQUIRED PRICE($) VALUE ---------------------------
NAME ON EXERCISE SHARE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
William V. Botts....... 0 9.13 0 10,000 0 0 0
0 14.50 0 10,000 0 0 0
0 2.56 0 20,000 0 18,800 0
0 2.50 0 0 10,000 0 10,000
Guy Moshe.............. 0 9.25 0 11,875 3,125 0 0
0 8.00 0 5,166 2,834 0 0
0 17.00 0 391 0 0 0
0 9.63 0 13,541 11,459 0 0
0 15.87 0 535 0 0 0
0 6.75 0 1,220 0 0 0
0 3.44 0 41,666 58,334 2,500 3,500
0 3.00 0 2,892 0 1,446 0
0 2.38 0 3,789 0 4,244 0
0 3.00 0 0 150,000 0 75,000
Eric Benhayoun......... 0 8.12 0 12,916 7,084 0 0
0 9.63 0 6,770 5,730 0 0
0 3.44 0 18,750 56,250 1,125 3,375
0 1.75 0 0 11,500 0 20,125
</TABLE>
- ------------------------
(1) These values have been calculated based on the last reported sale price of
Summit common stock on the Nasdaq National Market on December 31, 1999 of
$3.50 per share minus the exercise price.
EMPLOYMENT AGREEMENTS
Effective February 25, 1999, Summit entered into a four-year employment
agreement with Mr. Moshe, 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. Moshe is terminated other
than for cause, he is entitled to severance equal to his then monthly base
salary plus benefits for a period of fifteen months. In addition, the unvested
portion of the stock option covering 100,000 shares of common stock granted to
Mr. Moshe on February 25, 1999 shall become fully exercisable.
Effective April 1, 1999, 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. In the event Mr. Benhayoun is terminated
other than for cause, he is entitled to severance equal to his then monthly base
salary plus benefits for a period of twelve months. In addition, the unvested
portion of the stock option covering 75,000 shares of common stock granted to
Mr. Benhayoun on February 25, 1999 shall become fully exercisable upon
termination of Mr. Benhayoun without cause or upon a sale of more than 75% of
the assets of Summit or if more than 50% of the outstanding shares of Summit
have been acquired by another company.
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<PAGE>
SUMMIT 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 November 30, 1999, 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 of the executive officers and directors
of Summit, and (c) 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 common stock indicated as being beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF TOTAL(1)
- ------------------------ --------------------- -------------------
<S> <C> <C>
Dimensional Fund Advisors Inc.(2)......................... 1,348,000 8.5%
Massi McGuire
1299 Ocean Avenue
Santa Monica, CA 90401
Amihai Ben-David(8)....................................... 987,730 6.3%
DCL Technologies Ltd.
P.O. Box 544
46105 Herzlia, Israel
DCL Technologies Ltd.(3).................................. 977,730 6.2%
Amihai Ben-David
P.O. Box 544
46105 Herzlia, Israel
Paul J. Schupf Associates(4).............................. 779,100 4.9%
Paul J. Schupf
27 Payne Street
Hamilton, NY 13346
Richard Davenport......................................... 468,582 3.0%
C. Albert Koob(5)......................................... 49,956 *
Guy Moshe(6).............................................. 81,075 *
Eric Benhayoun(7)......................................... 52,445 *
William Botts(9).......................................... 62,500 *
Steven P. Erwin(10)....................................... 25,000 *
Barbara M. Karmel, Ph.D.(11).............................. 21,000 *
All directors and executive officers as a group (10 1,812,036 10.7%
persons)(12)............................................
</TABLE>
- ------------------------
* Represents less than 1% of the total.
(1) Based on 15,814,487 shares of Common Stock outstanding as of December 31,
1999. 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) As indicated in the Schedule 13G filed by Dimensional Fund Advisors, Inc.
pursuant to the Exchange Act on November 15, 1999.
(3) 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 and 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,
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<PAGE>
Ltd.: Comverse Technologies, Inc., ISCAL Holdings Ltd., Uri Melamed, Bank
Hapoalim, Danbar Ltd. and Amihai Ben-David.
(4) As indicated in the Schedule 13G filed by Paul J. Schupf Associates
pursuant to the Exchange Act on November 15, 1999.
(5) Includes 49,956 shares issuable upon exercise of options within sixty (60)
days of December 31, 1999.
(6) Includes 81,075 shares issuable upon exercise of options within sixty (60)
days of December 31, 1999.
(7) Includes 49,936 shares issuable upon exercise of options within sixty (60)
days of December 31, 1999.
(8) 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. Also includes 10,000 shares issuable upon
exercise of options within sixty (60) days of December 31, 1999.
(9) Includes 40,000 shares issuable upon exercise of options within sixty (60)
days of December 31, 1999.
(10) Includes 20,000 shares issuable upon exercise of options within sixty (60)
days of December 31, 1999.
(11) Includes 20,000 shares issuable upon exercise of options within sixty (60)
days of December 31, 1999.
(12) Includes 318,898 shares issuable upon exercise of options within sixty
(60) days of December 31, 1999.
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<PAGE>
PRO FORMA COMBINED SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of common stock on a pro forma basis of the combined company as of
December 31, 1999 which includes Summit common stock outstanding as of
December 31, 1999 and Viewlogic pro forma capital stock as of January 1, 2000
converted at the ratio of 0.67928 Viewlogic shares for each Summit share, of
(a) each beneficial owner of more than 5% of either the Summit common stock or
the Viewlogic capital stock, (b) each of the executive officers and directors of
the pro forma combined company, and (c) all directors and executive officers of
the pro forma combined company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF TOTAL(1)
- ------------------------ --------------------- -------------------
<S> <C> <C>
The Sprout Group.......................................... 9,509,920 29.6%
300 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Synopsys, Inc............................................. 2,694,515 8.4%
700 East Middlefield Road
Mountain View, CA 93404
Dimensional Fund Advisors, Inc............................ 1,348,000 4.2%
Massi McGuire
100 East Pratt Street
Baltimore, MD 21202
DCL Technologies Ltd...................................... 977,730 3.0%
Amihai Ben-David
P.O. Box 544
46105 Herzlia, Israel
Needham Capital Partners II, L.P.......................... 849,100 2.6%
445 Park Avenue
New York, NY 10022
Paul J. Schupf Associates................................. 779,100 2.4%
Paul J. Schupf
27 Payne Street
Hamilton, NY 13346
Lorne Cooper.............................................. 0 0.0%
Keith B. Geeslin.......................................... 9,509,920 29.6%
William J. Herman......................................... 860,047 2.7%
Richard G. Lucier......................................... 679,280 2.1%
Gary L. Kiaski............................................ 180,840 *
Kevin P. O'Brien.......................................... 180,847 *
Peter T. Johnson.......................................... 142,649 *
Guy Moshe................................................. 81,075 *
William Botts............................................. 62,500 *
Eric Benhayoun............................................ 52,445 *
Paula J. Cassidy.......................................... 45,210 *
Steven P. Erwin........................................... 25,000 *
All directors and executive officers as a group 11,819,805 36.8%
(11 persons)............................................
</TABLE>
- ------------------------
* Represents less than 1% of the total.
(1) Based on 32,095,470 shares of the combined company common stock outstanding
as of December 31, 1999 on a pro forma basis. 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.
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<PAGE>
VIEWLOGIC BUSINESS
INTRODUCTION
Viewlogic offers productivity enhancing software and services for the
electronic design automation market. Viewlogic's products automate the design
entry, analysis and testing of any electronic system or product. An electronic
products is a product that is defferentiated from competitive products through
its electronic content, including:
- electrical devices, known as printed circuit boards, that contain multiple
chips and other components to create larger electrical functions;
- high-speed components, cabling and interconnects;
- field programmable gate arrays; and
- less complicated field programmable gate arrays known as programmable
logic devices; and
- entire electronic systems or products.
Viewlogic's service offerings help large organizations developing electronic
products to become more productive, adopt new methods for designing their
products and accelerate their adoption of new software tools.
Viewlogic markets and supports its software and services worldwide through
direct and indirect distribution channels to the communications, networking,
consumer electronics, computer, medical, industrial and automotive industries.
The electronic products developed by companies in these industries include
everything from cellular telephones and personal organizers to network
equipment, personal computers and laptop computers, modems, automated teller
machines, televisions, video cassette recorders and even automobiles and
airplanes.
VIEWLOGIC STRATEGY
Viewlogic's strategic objective is to become the leading provider of
software and services that help automate the design of electronic products.
Viewlogic plans to sell its products and services to electronic product design
companies worldwide, primarily in the following industry segments:
- communications and networking;
- consumer electronics;
- computers and related devices;
- automotive; and
- industrial and medical.
Viewlogic intends to compete in these segments by developing differentiated
products and services that address the special requirements for the design of
electronic products by companies in these industries.
Two key issues dominate the design of electronic products today. First,
unprecedented design complexity has exceeded man's ability to efficiently
address design issues unaided, requiring increased automation of the process for
the design of electronic products. Second, design problems are occurring in the
gaps between design stages as indicated in Figure 1 on page 72.
Viewlogic intends to become the leading provider of design automation
software and services for electronic products by virtue of its product and
market strengths and its focus on addressing key electronic product design
challenges. Viewlogic believes that the greatest advances in producing a
competitive electronic product will not come solely through incremental
improvements in the chip
115
<PAGE>
design process, but rather by creating an electronic product design environment
that enables design and testing at more conceptual level and across design
stages and engineering disciplines. To achieve this electronic product design
automation environment takes a special focus.
Since October 1998, Viewlogic has chosen to focus on the field-programmable
gate array, printed circuit board and system-level design automation markets.
Most major competitors have focused their resources on solving the challenges of
application-specific integrated circuit design automation.
Viewlogic's market strategy is to focus on the following application
segments:
- System-level design automation--the determination of whether functions
should be performed by hardware (and the type of hardware) or software,
design and testing;
- Chip-in-system design--the design of field-programmable gate arrays,
programmable logic devices, and printed circuit boards;
- Interconnect design--the design of cables and the connections of various
devices within an electronic product; and
- Collaborative design--Internet-enabled design data management, component
information management, component library development and maintenance, the
re-use of designs, and integration with other systems within the design
environment.
VIEWLOGIC PRODUCTS
Viewlogic's software products enable electrical engineers to design
state-of-the-art electronic products more efficiently, while reducing
development costs and reducing the time to get products to market. These
software products help designers to translate their ideas into designs and
verify the accuracy and manufacturability of those designs.
eProduct Designer, Viewlogic's umbrella design environment offers engineers
a user interface based on the familiar Windows environment. eProduct Designer
also has been created as an "Internet-aware" suite of tools. This enables the
product design and related data to be located anywhere on the Internet. The
related data can consist of many disparate data sources such as engineering,
purchasing and manufacturing that are merged and presented in an accessible
format through eProduct Designer. Data management tools enable versions of
designs to be created, and enable teams of engineers to work simultaneously on
the same design data from any site in the world.
Through Viewlogic's eProduct Designer design capture environment, engineers
can enter and maintain their design throughout the entire design process.
Viewlogic's tool suites are organized around the specific challenges systems
designers face, including printed circuit board design, field programmable gate
array design, high-speed design, design verification and enterprise integration.
The printed circuit board design portion of Viewlogic's eProduct Designer
environment is based on ViewDraw, used for graphical capture and manipulation of
the design, itself. With ViewDraw, ViewSim, Viewlogic's simulation tool, and the
company's printed circuit board Netlisters, the software tools that convert the
graphical design into a format readable by other design tools, form the backbone
of Viewlogic's design methodology. Additionally, Viewlogic also offers the
Fusion co-simulation products, SpeedWave and ViewAnalog. Viewlogic also sells
and supports other simulation products such as VCSi and VCS Express under a
license agreement with Synopsys.
As the speed at which electronic products run continually increases and the
speed at which the signals in the product continually drop, traditional system
design methods are no longer adequate. Viewlogic's High-Speed System Design
products allow designers to consider high-speed effects early and throughout the
design process so that they can eliminate this new class of design errors before
being prototyped in manufacturing.
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<PAGE>
Viewlogic's High Speed System Design product line includes:
- BLAST: for analyzing the speed of various parts of the design to ensure
that the product will function correctly;
- XTK: for analyzing the effects that one connection on the printed circuit
board may have on another;
- QUIET and QUIET Expert: for analyzing the potential for electrical
radiation from a wire;
- AC Grade: for analyzing the effect of large ground-plane signal changes on
the rest of the printed circuit board; and
- ISIS Preview: for producing a graphical diagram of how chips are located
on the printed circuit board and relocating those chips as needed.
Viewlogic's field programmable gate array design solution consists of the
following:
- HDLPad: for editing the textual description of the field programmable gate
array;
- ViewDraw: for graphical entry of the design;
- StateCAD: for a high-level graphical description of the function of the
field programmable gate array; and
- Fusion for simulation of designs to test whether the function of the
design matches its expectations.
For field programmable gate array synthesis (to translate and optimize the
design), Viewlogic partners with Synopsys to sell and support FPGA Express.
Viewlogic's IntelliFlow automated process manager pulls the entire field
programmable gate array solution together. With IntelliFlow, users can control
their design process from a single, easy-to-use graphical interface. IntelliFlow
manages the tools and data throughout the entire field programmable gate array
design process, even running the applicable device vendor's place and route
tools--those tools used for the final physical design of the chip.
To enhance productivity in a geographically diverse company or enterprise,
Viewlogic has a set of Internet-enabled design data management tools called
Design Exchange. These tools include:
- Dx Databook: for chip search and selection from a local or corporate
database;
- Dx Library Studio: for centralized chip and model (an electrical
description of the chip) management; and
- Dx Data Manager: for team-based, work-in-progress design data management.
Design Exchange tools allow disperse teams of designers to work together
over the Internet or an Intranet and link to a customer's other systems, so that
design teams can work with the approved library of electronic components and
with manufacturing groups within their company.
New product offerings in eProduct Designer include:
- ePlanner. A new product that simulates electrical characteristics before
producing the printed circuit board. ePlanner allows the user to enter
overall product design constraints into the software tool and to specify
many physical design aspects of a printed circuit board long before
committing the design to manufacturing.
- eArchitect. A product for design specification and determining whether
functions should be performed by hardware or software and making other
critical system-level tradeoffs during the early stages of the electronic
product design process.
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<PAGE>
- Dx Variant Manager. Provides web-based capabilities that enable designs to
be reused and customized.
In August 1999, Viewlogic acquired Transcendent Design Technology, Inc.
Viewlogic plans to merge Transcendent's products into Viewlogic's eProduct
Designer tools to provide solutions from concept through the manufacturing of
complex systems. The Transcendent product family includes:
- TransCable, a design environment for the design of cables and connectors;
- TransDatabook, a parts library (containing previously designed cables and
connectors) browser system;
- TransLayout, for synthesizing cable connectors;
- Interfaces to mechanical computer aided design systems; and
- TransAnalysis, for simulating the electronic effects of wire harness and
cable systems within electronic products.
VIEWLOGIC CUSTOMERS
Users of Viewlogic's products range from small companies to some of the
world's largest manufacturing organizations. Industries represented include
computers, consumer electronics, semiconductors, telecommunications,
military/defense, aerospace, industrial, medical equipment and universities.
VIEWLOGIC BACKLOG
Viewlogic generally ships its products within 30 days after acceptance of a
customer purchase order and execution of a license agreement. Accordingly,
Viewlogic does not believe that its backlog at any particular point in time is
indicative of future sales levels.
VIEWLOGIC SALES
Viewlogic has developed multiple distribution channels, including a direct
sales organization, telesales, independent distributors, value-added resellers,
and strategic sales alliances with certain significant semiconductor and printed
circuit board layout software vendors.
DIRECT SALES ORGANIZATION. Viewlogic markets its products in North America,
Europe, China and Japan primarily through a direct sales organization, which
consisted of 96 salespersons and application engineers as of September 30, 1999.
Viewlogic currently has 18 sales offices located throughout North America,
Europe, Japan and the Far East.
Direct Sales teams, generally consisting of one salesperson and one
application engineer, focus on large accounts in assigned territories. These
sales teams are responsible for all sales activities within their assigned
territories and coordinate the activities of distributors and value-added
resellers. Application engineers specializing in certain products are assigned
to each sales territory and support individual sales teams. Each member of
Viewlogic's direct sales and support teams is assigned sales quotas and has a
significant portion of their compensation based on sales performance.
Approximately 50% and 30% of expected compensation for salespersons and
application engineers respectively are typically based on sales performance.
The telesales channel consists of telesales representatives covering
assigned geographic territories in North America and Europe. These
representatives are an inside counterpart to the field, focusing on upgrading
and servicing the installed customer base. They provide sales support for
renewal maintenance, software sales and otherwise upgrade existing customers by
selling additional seats.
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Approximately 45% of expected compensation for a telesales representative is
based on sales performance.
DISTRIBUTORS. Viewlogic appoints independent distributors to market its
products to customers not served by Viewlogic's direct sales organization.
Viewlogic uses distributors as its principal distribution channel in much of
Asia, and currently has distributors covering Israel, Taiwan, Korea, Australia,
Singapore, China and India. Distributors are also appointed in the United
States, Japan and Europe to supplement Viewlogic's direct sales efforts by
focusing on customers not served by direct sales teams.
VALUE-ADDED RESELLER. Viewlogic has established a broad-based VAR
distribution network. This group primarily focuses on selling Viewlogic's
Workview Office tools to the small and medium size accounts of electronic
engineers in North America.
VIEWLOGIC MARKETING
Viewlogic's marketing organization performs the product marketing, technical
marketing, corporate communications and strategic marketing functions. The group
consists of 19 marketing professionals with specialized technical knowledge and
experience in the design automation software business. The marketing
organization:
- develops strategy and identifies target markets;
- keeps abreast of customer design methodologies;
- identifies customer requirements and new product opportunities;
- establishes product vision and direction for both existing products and
new products;
- provides the sales channel with training, competitive analyses, pricing,
packaging, collateral materials, demonstrations and reference accounts;
and
- provides marketing communications support for branding, visibility and
lead generation through press relations, advertising, direct mail,
promotions, trade shows, seminars and web sites.
VIEWLOGIC COMPETITION
The electronic design automation industry is highly competitive and
Viewlogic expects competition to increase as other electronic design automation
companies introduce software tools used to design electronic products. Viewlogic
principally competes with Cadence Design Systems, Inc. and Mentor Graphics
Corporation and a number of smaller firms. Indirectly, Viewlogic also competes
with other firms that offer alternatives to electronic product design automation
tools and could potentially offer more directly competitive products in the
future. Certain of these companies have significantly greater financial,
technical, sales and marketing resources and a larger installed customer bases
than Viewlogic. They also have established relationships with many customers
which can increase the complexity, difficulty and time required to compete for
business from these customers. Some of Viewlogic's current and future
competitors offer a more complete range of electronic design automation products
and may distribute products that directly compete with Viewlogic's products.
Viewlogic competes on the basis of certain factors including:
- product capabilities;
- product performance and capacity;
- availability of electronic chip information;
- price;
- support of industry standards;
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- ease of use;
- first to market; and
- customer technical support and service.
Viewlogic believes that it competes favorably overall with respect to these
factors. However, in particular cases, Viewlogic's competitors may offer
products with functionality which is sought by Viewlogic's prospective customers
and which differs from that offered by Viewlogic. In addition, some competitors
may achieve a marketing advantage by establishing formal alliances with other
electronic design automation vendors and chip manufacturers. Further, the
electronic design automation industry in general has experienced significant
consolidation in recent years, and the acquisition of one of Viewlogic's
competitors by a larger, more established electronic design automation vendor
could create a more significant competitor. Viewlogic may not be able to compete
successfully against current and future competitors. Viewlogic's current and
future competitors may be able to develop products comparable or superior to
those developed by Viewlogic or adapt more quickly than Viewlogic 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 Viewlogic's
business, financial condition, results of operations or cash flows.
VIEWLOGIC PRODUCT DEVELOPMENT
Viewlogic's product development efforts are focused on enhancing and
broadening its current line of products, including the development of new
products and the release of improved versions of existing products on a regular
basis. Most of Viewlogic's products to date represent the evolution of its core
Workview Office and Powerview product lines, plus ongoing developments utilizing
resources and technologies gained in recent acquisitions. As of September 30,
1999, Viewlogic's product development and customer support staff consisted of 98
persons. Viewlogic's product development staff receives support from both
Viewlogic's consulting services personnel and its product and industry marketing
organization to enable it to develop products that satisfy market requirements.
Viewlogic maintains cooperative relationships with most major hardware
vendors on which Viewlogic's products operate, as well as with new hardware
vendors who desire Viewlogic to modify its products for operation on their
computer systems. Viewlogic believes that these relationships allow it to design
products that respond to emerging trends in computing, graphics and networking
technologies. In certain instances, these relationships include joint marketing
agreements that primarily outline a procedure for communication between
Viewlogic and the vendor with respect to technology and possible sales leads.
During the fiscal years ended December 31, 1997 and January 2, 1999 and the
nine months ended October 2, 1999, Viewlogic's research and development expenses
were $14,954, $10,028 and $8,380, respectively. Viewlogic believes that it must
continue to commit substantial resources to enhance and extend its product line
to remain competitive. Viewlogic intends to continue to devote substantial
resources to its internally-funded product development and, if appropriate, to
enter into development agreements with third parties.
VIEWLOGIC SERVICE AND SUPPORT
A key part of Viewlogic's strategy to help make its customers successful is
to provide a wide range of support services including on-site and hot-line
support for designers, in-house and on-site training on all products and
consulting services for specialized tool development, tool and methodology
training and design work. Viewlogic believes its focus on customer service has
helped it achieve a high degree of customer satisfaction.
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Product support is provided pursuant to maintenance agreements that
generally extend for one year after the expiration of the product warranty,
which is generally thirty days, and are renewable annually thereafter. The
standard annual maintenance fee charged to customers is currently 15% of the
then-current list price for the product. Viewlogic's distributors and strategic
sales partners charge their customers for maintenance and remit a negotiated
portion to Viewlogic. Training and consulting services are generally not
included in Viewlogic's software license or maintenance fees and are usually
provided on a separately negotiated basis.
PRODUCT REVISIONS AND UPGRADES. Customers with maintenance agreements
receive all product revisions without additional charge. Product upgrades, which
add significant new product functionality, are provided to customers for a fee
which is generally equal to the difference between the list price for the
upgrade and the license fee previously paid by the customer for the applicable
product.
ON-SITE AND HOT LINE SUPPORT. Support is available to Viewlogic's software
users on both a pre-and post-sale basis. Application engineers work directly
with Viewlogic's direct sales force to provide on-site support that is often
needed during critical stages of the user's evaluation and design process.
The majority of Viewlogic's customers requiring support contact Viewlogic
through Viewlogic's toll-free hotlines, which allow users access to engineers
who are knowledgeable in the use of the product. Support is available from 8:30
a.m. to 8:00 p.m., Eastern Standard Time, Monday through Friday, excluding
holidays. In addition to the hotline, questions or suggestions can be submitted
by fax, an electronic bulletin board or the Internet network mail system.
In addition, post-sales product application support is provided to customers
through a series of automated support channels, including:
- a quarterly technical support newsletter providing answers to common
questions;
- an electronic bulletin board system providing a forum for exchanging data
and idea; and
- a fax-on-demand system enabling customers to retrieve faxes of technical
application notes.
An automatic call distribution system connects North American support
callers with technical support personnel based in Marlboro, Massachusetts, San
Jose, California and Camarillo, California. Additionally, technical support
personnel based in California, Massachusetts, the United Kingdom and Japan have
immediate access to shared, problem-solving technical information via a
sophisticated on-line software support system.
CUSTOMER TRAINING. Viewlogic offers a variety of training programs for
users ranging from introductory, broad-based courses to advanced and specialized
courses. Training is offered at Viewlogic's facilities in Marlboro,
Massachusetts, San Jose, California, London, Marseilles, Munich and Tokyo.
On-site training is also available.
VIEWLOGIC CONSULTING SERVICES. The Viewlogic Consulting Services Group is a
global consulting organization staffed by experts in electronic design. The goal
of the Viewlogic Consulting Services Group is to meet the diverse and demanding
needs of customers designing today's complex systems. The Viewlogic Consulting
Services Group provides a complete line of consulting services including
training, product jumpstart programs, product design methodology assessment and
partial or full design implementation. Other specialized services include
systems integration, design database translation and custom library development.
VIEWLOGIC PROPRIETARY RIGHTS
Viewlogic relies on a combination of contracts, patents, copyright and trade
secret laws to establish and protect proprietary rights in its technology.
Viewlogic generally licenses and distributes its products under written
agreements providing for non-exclusive licenses. The licensed software may be
used solely
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for internal operations on designated computers or networks. The source code of
Viewlogic's products is protected both as a trade secret and as an unpublished
copyrighted work and is not generally made available to third parties. Despite
these precautions, third parties may unlawfully copy or otherwise obtain and use
Viewlogic's products or technology without authorization.
VIEWLOGIC EMPLOYEES
As of September 30, 1999 Viewlogic had 278 employees, including 117 in
marketing and sales, 66 in product research and development, 52 in customer
support, consulting and training, 12 in manufacturing and sales administration
and 31 in general and administrative activities. None of Viewlogic's employees
is represented by a labor union or is subject to a collective bargaining
agreement. Viewlogic has never experienced a work stoppage and believes that its
employee relations are excellent.
VIEWLOGIC PROPERTIES
Viewlogic occupies 74,683 square feet of space at its headquarters in
Marlboro, Massachusetts under a lease expiring in 2002, subject to Viewlogic's
right to extend the lease for up to six additional years. Viewlogic also leases
16,965 square feet in San Jose, California, 21,000 square feet in Camarillo,
California, 13,829 square feet of office space in the United Kingdom and a
number of small sales and support offices in locations in North America, Europe
and Asia.
VIEWLOGIC LEGAL PROCEEDINGS
Viewlogic is not a party to any material legal proceedings.
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VIEWLOGIC SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of Viewlogic should be read
in conjunction with Viewlogic's consolidated financial statements and the
related notes, "Viewlogic Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included elsewhere in this joint proxy statement/prospectus. The selected
financial data set forth below for Viewlogic for years ended December 31, 1997
and January 2, 1999 as well as the nine months ended October 2, 1999 have been
derived from, and should be read in conjunction with, Viewlogic's audited
consolidated financial statements and the accompanying notes, which are
contained elsewhere in this joint proxy statement/prospectus. Viewlogic's
results of operations for each of the nine month periods ended October 3, 1998
and October 2, 1999 are not necessarily indicative of its results of operations
for the entire year.
The results of operations for the fiscal years prior to December 31, 1997
are derived from the historical financial statements of an entity of which the
Viewlogic business was previously a part. Viewlogic does not have balance sheet
data for its business prior to December 31, 1997. See further discussion in
Viewlogic's "Management Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
--------------------------- ----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 2, OCT. 3, OCT. 2,
1995 1996 1997 1999 1998 1999
------------- ------------- ------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Software............................... $42,758 $34,691 $29,071 $ 22,683 $17,070 $ 19,107
Services and other..................... 32,223 34,935 34,916 32,554 24,095 21,710
------- ------- ------- -------- ------- --------
Total revenue........................ 74,981 69,626 63,987 55,237 41,165 40,817
------- ------- ------- -------- ------- --------
COSTS AND EXPENSES:
Cost of software....................... 6,594 5,624 3,340 5,113 3,639 4,507
Cost of services and other............. 7,921 8,802 7,513 5,080 3,522 4,698
Selling and marketing.................. 31,238 28,914 24,897 18,953 13,299 16,640
Research and development............... 10,078 11,901 14,954 10,070 7,496 8,518
General and administrative............. 5,631 5,529 4,054 3,717 2,938 3,153
Amortization of goodwill and other
intangibles.......................... -- -- -- -- 354
Litigation Settlement and related
costs................................ -- 4,500 -- -- --
Restructuring charge................... -- 6,725 -- -- --
Transaction costs...................... -- -- 452 452 --
------- ------- ------- -------- ------- --------
Total operating expenses............. 61,462 60,770 65,983 43,385 31,346 37,870
------- ------- ------- -------- ------- --------
INCOME (LOSS) FROM OPERATIONS............ 13,519 8,856 (1,996) 11,852 9,819 2,947
------- ------- ------- -------- ------- --------
OTHER INCOME (EXPENSE):
Other income (expense), net.......... (71) (1,932) (1,762) (1,172)
------- -------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES........ (2,067) 9,920 8,057 1,775
PROVISION (BENEFIT) FOR INCOME TAXES..... (868) 4,053 3,261 708
------- -------- ------- --------
NET INCOME (LOSS)........................ $(1,199) $ 5,867 $ 4,796 $ 1,067
======= ======== ======= ========
EARNINGS PER SHARE
Net income per common share
Basic................................ $ 1.48 $ 1.21 $ 0.22
======== ======= ========
Diluted.............................. $ 0.73 $ 1.21 $ 0.05
======== ======= ========
Weighted average shares outstanding
Basic................................ 3,966 3,966 4,861
======== ======= ========
Diluted.............................. 7,999 3,966 21,631
======== ======= ========
BALANCE SHEET DATA
Working capital (deficit).............. (14,719) (6,509) (8,224)
Total assets........................... 25,377 24,892 29,103
Long-term debt, less current
maturities........................... 130 15,873 14,080
Redeemable preferred stock............. 32,000 32,000
Stockholders' (deficiency)............. (5,629) (47,845) (44,822)
</TABLE>
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VIEWLOGIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS ITEM CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING
STATEMENTS. FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
INCLUDE THOSE SET FORTH UNDER "RISK FACTORS" COMMENCING ON PAGE 10.
OVERVIEW
Viewlogic operates in the United States and international markets
developing, marketing and providing technical support for a comprehensive family
of software tools used by engineers in the design of advanced electronic
products and systems. Viewlogic currently markets and sells its products
worldwide through multiple distribution channels, including independent
distributors, value added resellers, a direct sales organization, telesales and
strategic sales alliances with OEM partners.
On December 4, 1997, a company which offered two primary product
lines--tools used by engineers designing integrated circuits and tools used by
engineers designing printed circuit boards and complete systems--became a wholly
owned subsidiary of Synopsys, Inc. in a transaction accounted for as a pooling
of interests. That company was also called Viewlogic Systems, Inc. and we refer
to it as the Prior Viewlogic. On January 1, 1998, the Prior Viewlogic
transferred the integrated circuit design tools business and other assets to
Synopsys leaving only the printed circuit board and complete system design tools
business in the Prior Viewlogic. Synopsys created a new legal entity to conduct
the printed circuit board and complete system design tools business of the Prior
Viewlogic, which became Viewlogic in a corporate reorganization on March 31,
1998. For the period from December 4, 1997 through October 2, 1998, Viewlogic
operated as a wholly owned subsidiary of Synopsys and some treasury services
were provided by Synopsys at no charge. The fair value of these services was not
significant. On October 2, 1998, a group of investors purchased 16.0 million
shares of Viewlogic's preferred stock for $32.0 million and Viewlogic borrowed
$18.0 million from a commercial bank. Synopsys received the proceeds from these
financings through a recapitalization of Viewlogic. As a result of these
transactions, the investors owned 80.1% of the capital stock of Viewlogic and
Synopsys owned 19.9%. These transactions were accounted for as a
recapitalization (see Note 2 of Notes to Viewlogic Consolidated Financial
Statements).
The results of operations for the year ended December 31, 1997 represent the
results of the printed circuit board and complete system design tools business
derived from the historical financial statements of the Prior Viewlogic and
exclude the integrated circuit design tools business. During 1997, the Prior
Viewlogic established separate departments to capture product development,
technical support and product marketing expenses of both the printed circuit
board and complete system design tools business and integrated circuit design
tools business. In addition, the Prior Viewlogic segregated its revenue and
product costs and created income statements for each business. Prior to
December 4, 1997, the Prior Viewlogic centralized many administrative, marketing
and other services. In addition, the Prior Viewlogic distributed both its
integrated circuit design tools and printed circuit board and complete system
design tools products primarily through one combined sales force. Accordingly,
Viewlogic has made allocations of these expenses based on revenue, personnel,
space, estimates of time spent to provide services or other appropriate bases.
Viewlogic's management believes that the Prior Viewlogic made these allocations
on a reasonable basis. However they are not necessarily indicative of the costs
that would have been incurred on a stand-alone basis.
Before 1997, the Prior Viewlogic did not prepare internal income statements
for the integrated circuit design tools and printed circuit board and complete
system design tools business and therefore did not capture revenue and costs in
the same manner as it did in 1997. To prepare the financial data
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for the printed circuit board and complete system design tools business for the
years ended December 31, 1995 and December 31, 1996, Viewlogic made assumptions
in order to classify revenue as related to either printed circuit board and
complete system design tools or integrated circuit design tools. Where possible,
the identifiable direct costs of printed circuit board and complete system
design tools revenue have been reflected as direct expenses. In addition to
these direct expenses, all expenses which could not be clearly identified as
integrated circuit design tools or printed circuit board and complete system
design tools expenses have been allocated on bases which Viewlogic's management
believes are appropriate, similar to 1997. Based on this methodology,
Viewlogic's management believes the attached income statements for 1995 and 1996
reasonably approximate the revenue, costs and expenses of the printed circuit
board and complete system design tools business on a historical basis.
At the end of 1997, the Prior Viewlogic restructured its operations and, 222
employees were retained by the printed circuit board and complete system design
tools business, 291 employees transferred to Synopsys and 217 people were
terminated. During the nine months of calendar year 1998 during which Viewlogic
was a wholly owned subsidiary of Synopsys, its primary goal was to optimize
short-term profitability. Viewlogic sought to achieve this goal by reducing its
consulting, sales, marketing and research and development expenditures and
focusing its remaining resources primarily on servicing its installed base of
customers. Since October 2, 1998, through September 30, 1999, Viewlogic
increased staffing from 219 to 278. Viewlogic's management believes this
increase was appropriate in order to build its business for the long term.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenue of certain items in Viewlogic's Condensed Consolidated Statements of
Income:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
------------------------------ -------------------
DEC. 31 DEC. 31 JAN. 2 OCT. 3 OCT. 2
1996 1997 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Software....................................... 50% 45% 41% 41% 47%
Services and other............................. 50 55 59 59 53
--- --- --- --- ---
Total Revenue.................................. 100 100 100 100 100
--- --- --- --- ---
Cost and expenses:
Cost of software............................... 8 5 9 9 11
Cost of services and other..................... 13 12 9 9 11
Sales and marketing............................ 42 39 34 32 41
Research and development....................... 17 23 18 18 21
General and administrative..................... 8 6 7 7 8
Amortization................................... -- -- -- -- 1
Non-recurring charges.......................... -- 18 1 1 --
--- --- --- --- ---
Total cost and expenses........................ 87 103 78 76 93
--- --- --- --- ---
Income (loss) from operations.................. 13 (3) 22 24 7
Other income (expense), net.................... 0 (3) (4) (3)
--- --- --- ---
Income (loss) before income taxes.............. (3) 19 20 4
Provision for income taxes..................... (1) 7 8 1
--- --- --- ---
Net income (loss).............................. (2%) 12% 12% 3%
=== === === ===
</TABLE>
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NINE MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 2, 1999
Revenue
For the nine months ended October 3, 1998 and October 2, 1999, Viewlogic's
total revenue decreased 1% from $41.2 million to $40.8 million. The decrease in
revenue was due to a 10% drop in service revenue which was offset primarily by
an increase in software license revenue. As a percentage of total revenue,
software license revenue increased from 41% for the nine months ended
October 3, 1998 to 47% for the nine months ended October 2, 1999. Software
license revenue for the nine months ended October 3, 1998 and October 2, 1999
increased 12% from $17.1 million to $19.1 million. Since the recapitalization on
October 2, 1998, Viewlogic has increased its direct sales staff and marketing
expenditures. Viewlogic believes that this has led to increased software license
sales, particularly in the number of large dollar orders. Service revenue
decreased from $24.1 million for the nine months ended October 3, 1998 to
$21.8 million for the nine months ended October 2, 1999 due to decreased
maintenance revenues. The decrease was primarily attributable to several major
customers not renewing their maintenance contracts due to the fact they were
using Viewlogic's products in applications related to integrated circuit design
tools, which are no longer fully supported by Viewlogic. In addition, a number
of Viewlogic's customers migrated their products from the version based on the
Unix operating system to the version based on the Microsoft Windows NT operating
system, which have lower maintenance prices. Training and consulting revenues
remained relatively unchanged for the nine months ended October 3, 1998 and
October 2, 1999.
Revenue generated from European operations was $6.3 million and
$6.6 million for the nine months ended October 3, 1998 and October 2, 1999,
respectively, or 16% of total Viewlogic revenue in each period. Revenue from
Japan was $3.4 million and $3.2 million, or 8% of total Viewlogic revenue in
each period. No customer accounted for more than 10% of revenue in either
period.
Cost of Revenue
COST OF SOFTWARE REVENUE
Cost of software revenue increased 24% from $3.6 million for the nine months
ended October 3, 1998 to $4.5 million for the nine months ended October 2, 1999,
primarily due to increased royalty costs payable to Synopsys resulting from new
licensing arrangements entered into at the time of the recapitalization. The
amortization of capitalized software included in cost of software revenue for
the nine months ended October 3, 1998 was $684,000 and $694,000 for the nine
months ended October 2, 1999.
COST OF SERVICES AND OTHER
Cost of service revenue increased 33% from $3.5 million to $4.7 million and,
as a percentage of service revenue, increased from 15% to 22% for the nine
months ended October 3, 1998 and October 2, 1999. The increase was primarily due
to an increase in Viewlogic's consulting staff in anticipation of future growth
in this area.
SALES AND MARKETING
Sales and marketing expenses increased 25% from $13.3 million for the nine
months ended October 3, 1998 to $16.6 million for the nine months ended
October 2, 1999. The increase was primarily attributable to higher
personnel-related costs due to an increase in the number of worldwide sales and
marketing personnel from 95 in September 1998 to 113 in September 1999. Another
contributing factor was increased spending on marketing programs. Selling and
marketing expenses, as a percentage of total revenue, increased from 32% to 41%
for the nine months ended October 3, 1998 and October 2, 1999.
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RESEARCH AND DEVELOPMENT
Research and development costs increased 14% from $7.5 million to
$8.5 million for the nine months ended October 3, 1998 and October 2, 1999. The
increase in research and development expenses primarily reflects higher
personnel-related costs associated with Viewlogic's investment in new product
development and enhancement of existing products. This includes the addition of
staff associated with the purchase of assets from OmniView, Inc., which was
completed during the first quarter of 1999, as well as the acquisition of
Transcendent Design Technology, Inc. which was completed in August 1999.
Research and development expense as a percentage of total revenue was 18% for
the nine months ended October 3, 1998 and 21% for the nine months ended
October 2, 1999. The amount of software development costs capitalized for the
nine months ended October 3, 1998 was $681,000 or 10% of research and
development costs for that period and for the nine months ended October 2, 1999
was $811,000 or 11% of total research and development costs for that period.
GENERAL AND ADMINISTRATIVE
General and administrative expense increased from $2.9 million to
$3.1 million for the nine months ended October 3, 1998 to October 2, 1999.
General and administrative expense as a percentage of total revenue increased,
from 7% to 8% for the nine months ended October 31, 1998 and October 2, 1999.
AMORTIZATION OF INTANGIBLES
On March 16, 1999, Viewlogic purchased some of the assets and intellectual
property of OmniView, Inc. The purchase price consisted of $1.1 million in cash,
400,000 shares of Viewlogic's common stock and acquisition expenses and was
allocated to the assets based on their fair value, including $1.2 million of
intangible assets. On August 15, 1999, Viewlogic purchased Transcendent Design
Technology, Inc. by means of a subsidiary merger in which Viewlogic issued
724,000 shares of common stock and assumed options exerciseable into 78,000
additional shares of common stock. The allocation of the purchase price in this
transaction resulted in $2.6 million of intangible assets. The intangibles
created in these two transactions resulted in $354,000 of amortization expense
for the nine months ended October 2, 1999.
INTEREST EXPENSE NET
Viewlogic incurred interest expense, net of interest income, of $894,000 for
the nine months ended October 2, 1999 compared to net interest income received
of $127,000 for the nine months ended October 3, 1998, primarily due to
increased borrowings under Viewlogic's credit facility. In addition, during 1999
Viewlogic entered into capital lease agreements to finance the purchases of
computer equipment and software increasing its capital lease obligation, which
also contributed to the increase in interest expense.
OTHER INCOME/(EXPENSE), NET
Other income/(expense) consists of gains or losses on the disposal of
property and equipment, foreign currency gains and losses and amortization of
professional fees incurred in connection with Viewlogic's credit facility. Other
expense was $1.9 million for the nine months ended October 3, 1998 and was
$278,000 for the nine months ended October 2, 1999. During 1998 Viewlogic's
Japanese subsidiary repaid an amount that had previously been treated as a
long-term investment. The repayment of this amount resulted in a realized
transaction loss of $1.4 million.
INCOME TAXES
The provision for federal and state income taxes decreased 78% from
$3.3 million for the nine months ended October 3, 1998 to $708,000 for the nine
months ended October 2, 1999, primarily due to the drop in income before taxes.
The effective tax rate was 40% for each of the nine months ended October 3, 1998
and October 2, 1999.
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YEARS ENDED DECEMBER 31, 1997 AND JANUARY 2, 1999
Revenue
Viewlogic derives its revenue primarily from software license fees,
maintenance and services. Revenue from product or software sales is recognized
upon shipment or delivery of the product provided that the license fee is fixed
and determinable and collection is probable. Service revenues are derived from
maintenance, training and consulting. Maintenance revenue is deferred and
recognized ratably over the maintenance period. Revenue from training and
consulting is recognized as the related services are performed.
Viewlogic's total revenue decreased 14% from $64.0 million in the year ended
December 31, 1997 to $55.2 million in the year ended January 2, 1999. This
decrease resulted from a 22% decline in software revenue from $29.1 million for
the year ended December 31, 1997 to $22.7 million for the year ended January 2,
1999. Viewlogic believes this decrease was a result of the restructuring that
occurred after the merger of the Prior Viewlogic with Synopsys, which
significantly reduced the number of direct sales representatives selling
Viewlogic's products, and the amount spent on marketing programs. At the end of
the year ended December 31, 1997, the Prior Viewlogic had over 78 field sales
representatives selling its products. At the beginning of the year ended
January 2, 1999, Viewlogic was reorganized and the number of field sales
representatives responsible for selling Viewlogic's products was reduced to 17.
Service revenue decreased 7% from $34.9 million for the year ended December 31,
1997 to $32.6 million for the year ended January 2, 1999 due to a drop in
training and consulting services, a decrease that was partially offset by an
increase in maintenance revenue. Training and consulting revenue decreased year
over year due to a reduction in Viewlogic's training and consulting resources at
the end of 1997. Viewlogic believes that the maintenance revenue growth in the
year ended January 2, 1999 was due primarily to Viewlogic focusing its efforts
during 1998 on selling to, and supporting, its existing installed base of
customers. As a percentage of total revenue, software license revenue decreased
from 45% in the year ended December 31, 1997 to 41% in the year ended
January 2, 1999 while service revenue, as a percentage of total revenue,
increased from 55% in 1997 to 59% in 1998 due to the factors discussed above.
Revenue generated in Europe was $10.8 million or 17% of total Viewlogic
revenue for the year ended December 31, 1997 and was $8.6 million or 16% of
total Viewlogic revenue for the year ended January 2, 1999. Viewlogic believes
this decrease was due primarily to the above-described reduction in staffing.
Revenue generated in Japan was $4.3 million or 7% of total Viewlogic revenue for
the year ended December 31, 1997 and was $4.9 million or 9% of total Viewlogic
revenue for the year ended January 2, 1999. Viewlogic believes this increase was
mainly due to much of the revenue in Japan being derived from sales through
distributors. Therefore the restructuring did not have a significant impact on
those sales. No customer accounted for more than 10% of revenue in the years
ended December 31, 1997 or January 2, 1999.
Cost of Revenue
COSTS OF SOFTWARE REVENUE
Cost of software revenue consists primarily of expenses associated with
product documentation, packaging, royalty costs, amortization of capitalized
software and purchased technology, duplication and order administration.
Cost of software revenue increased 53% from $3.3 million for the year ended
December 31, 1997 to $5.1 million for the year ended January 2, 1999. Cost of
software, as a percentage of software revenue increased from 11% for the year
ended December 31, 1997 to 23% for the year ended January 2, 1999. The dollar
amount and percentage increases were due primarily to an increase in royalty
costs and amortization of capitalized software. Royalty costs increased
approximately $1.0 million for the year ended January 2, 1999, as compared to
the year ended December 31, 1997, primarily due to royalties paid to Synopsys
during the year ended January 2, 1999 for products licensed from Synopsys that
the Prior Viewlogic previously owned. Amortization of capitalized software
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increased approximately $379,000 from the year ended December 31, 1997 to the
year ended January 2, 1999. This increase was primarily due to the relatively
high amount of software capitalized during 1997 having a full year impact in
1998. The amortization of capitalized software included in cost of software
revenue was $678,000 for the year ended December 31, 1997 and was $1.1 million
for the year ended January 2, 1999.
COST OF SERVICES AND OTHER
Cost of services consists primarily of customer support, training expenses
and the expense of consulting services provided to customers. Cost of service
revenue decreased 32% from $7.5 million for the year ended December 31, 1997 to
$5.1 million for the year ended January 2, 1999. This decrease was due primarily
to Viewlogic reducing its consulting resources at the end of 1997 and
de-emphasizing the consulting service business in order to achieve higher
margins. Accordingly, cost of services, as a percentage of service revenue
decreased from 22% for the year ended December 31, 1997 to 16% for the year
ended January 2, 1999.
SALES AND MARKETING EXPENSES
Sales and marketing expenses decreased 24% from $24.9 million for the year
ended December 31, 1997 to $18.9 million for the year ended January 2, 1999.
This decrease was attributable primarily to the restructuring of Viewlogic at
the end of calendar year 1997, as described above. Selling and marketing
expenses, as a percentage of total revenue, decreased from 39% for the year
ended December 31, 1997 to 34% for the year ended January 2, 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased 33% from $15.0 million for the
year ended December 31, 1997 to $10.0 million for the year ended January 2,
1999. The decrease in research and development expenses primarily reflects the
effect of transferring some of Viewlogic's products and related development to
Synopsys at the end of calendar year 1997. Viewlogic now pays a royalty to
Synopsys for these products. In addition, Viewlogic also reduced research and
development spending in other areas in anticipation of lower revenue during the
year ended January 2, 1999. Research and development expenses as a percentage of
total revenues was 23% for the year ended December 31, 1997 and was 18% for the
year ended January 2, 1999.
Software development costs are accounted for in accordance with SFAS No. 86
under which Viewlogic is required to capitalize software development costs once
technological feasibility has been established. The amount of software
development costs capitalized for the year ended December 31, 1997 was
$1.2 million or 8% of total research and development costs and for the year
ended January 2, 1997 was $1.2 million or 12% of total research and development
costs. Viewlogic amortizes these amounts over four years. See Note 1 of Notes to
Consolidated Financial Statements.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 8% from $4.1 million for the
year ended December 31, 1997 to $3.7 million for the year ended January 2, 1999.
This decrease was attributable primarily to the restructuring of Viewlogic that
occurred at the end of calendar year 1997, as Viewlogic reduced its
administrative personnel in anticipation of lower overall revenue. As a
percentage of total revenue, general and administrative expense increased from
6% for the year ended December 31, 1997 to 7% for the year ended January 2, 1999
due to the overall drop in revenue.
TRANSACTION COSTS
For the year ended January 2, 1999, Viewlogic paid approximately $452,000 in
professional fees in connection with its recapitalization on October 2, 1998.
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LITIGATION SETTLEMENT
During calendar year 1997, at the time of its merger with Synopsys, the
Prior Viewlogic agreed to settle a claim for product royalties alleged to be
owed to a supplier under a licensing agreement. The claim was primarily based on
the allegation that the Prior Viewlogic allowed its customers to evaluate its
ViewSpice product which Viewlogic licensed from this supplier for resale at no
charge for periods substantially longer than the thirty-day evaluation period
permitted in the supply agreement and otherwise underpaid royalties due to the
supplier for sales of this product by the Prior Viewlogic. The license agreement
with this supplier was terminated by the Prior Viewlogic and is no longer in
effect. The Prior Viewlogic paid approximately $4.0 million to settle the
litigation and incurred approximately $500,000 in related fees. As part of the
settlement, Viewlogic and the supplier each released the other from all claims
and liabilities without admitting any liability by either party.
RESTRUCTURING CHARGE
The restructuring plan for the Prior Viewlogic included the merger of the
businesses other than the printed circuit board and complete system design tools
business to other divisions of Synopsys, a discontinuation of marketing and
sales efforts with certain business products, and workforce reductions resulting
from these changes in the businesses. A restructuring charge of approximately
$6.7 million is included in Viewlogic's financial statements for the year ended
December 31, 1997. The charge includes approximately $2.3 million in severance
charges, $2.5 million in non-cash impairment of capitalized software assets and
a $1.4 million write-off of other assets associated with discontinued products,
and $415,000 of non-cancelable commitments. The severance charge represents a
workforce reduction of 108 employees either directly related to the printed
circuit board and complete system design tools business or whose salaries had
been allocated to Viewlogic's financial statements for the year ended
December 31, 1997, as discussed in Note 1. The asset write-offs included
$512,000 of furniture and computer equipment associated with the terminated
workforce and discontinued products, $441,000 of prepaid royalties for products
discontinued by Viewlogic in the restructuring and $415,000 of goodwill related
to the discontinuance of the operations of a previously acquired European
subsidiary. The non-cancelable commitments consisted principally of a contract
for phone service.
INTEREST EXPENSE AND INTEREST INCOME
On October 2, 1998, in connection with the recapitalization, Viewlogic
entered into a $24.0 million credit facility consisting of a $6.0 million
revolving line of credit and an $18.0 million term loan. As a result of
borrowings under the credit facility, interest expense, net of interest income,
increased from $15,000 for the year ended December 31, 1997 to $171,000 for the
year ended January 2, 1999. See Note 4 of Notes to Consolidated Financial
Statements.
OTHER INCOME/(EXPENSE), NET
Other income/(expense) consists of gains or losses on the disposal of
property and equipment and foreign currency gains and losses. Other expense was
$56,000 for the year ended December 31, 1997 and was $1.8 million for the year
ended January 2, 1999. During the year ended January 2, 1999, in connection with
the recapitalization, one of Viewlogic's international subsidiaries repaid an
amount that had been previously treated as a long-term investment. The repayment
of this amount resulted in a realized foreign exchange transaction loss of
$1.4 million that is included in other expense.
INCOME TAXES
Income taxes for the year ended January 2, 1999 was $4.1 million and
Viewlogic recognized an income tax benefit of $868,000 for the year ended
December 31, 1997. The effective tax rate for combined federal and state income
taxes was 42% for the year ended December 31, 1997 and was 41% for the year
ended January 2, 1999. For the period from December 5, 1997 through October 2,
1998, Viewlogic was included in the consolidated tax returns of Synopsys. Prior
to December 5, 1997, the printed circuit board and complete system business was
included in the tax returns of the Prior
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Viewlogic. For financial statement purposes, Viewlogic computed the tax
provision for the year ended December 31, 1997, based on the effective tax rate
of the Prior Viewlogic and for the year ended January 2, 1999, as if the two
companies had filed separate tax returns.
YEARS ENDED DECEMBER 31, 1996 AND 1997
As discussed previously, the revenue and expense information presented below
for 1996 and 1997 represents results of the printed circuit board and complete
system design tools business derived from the historical financial statements of
the prior Viewlogic and exclude the integrated circuit design tool business.
Printed circuit board and complete system design tool business revenue
declined 8% from $69.6 million in 1996 to $64.0 million in 1997. The decrease
was due to an internal refocusing of the Prior Viewlogic's worldwide sales
organization, which was responsible for selling both integrated circuit design
tool and printed circuit board and complete system design tool products. This
revenue decline occurred during a period in which the overall market for
systems-related products was relatively flat while the overall market for
integrated circuit design tool-related products in general, and the Prior
Viewlogic's integrated circuit design tool business in particular, were
experiencing strong growth. As a result, the Prior Viewlogic sales organization
focused their integrated circuit design tool products.
Cost of software declined 40% from $5.6 million in 1996 to $3.3 million in
1997 and decreased as a percentage of revenue from 8% to 5%. This was due
primarily to lower royalty costs which resulted from both discontinuing the sale
of certain products and lower overall software sales of products with royalty
related content.
Cost of services declined 15% from $8.8 million in 1996 to $7.5 million in
1997 and decreased as a percentage of revenue from 21% to 17%. The decline was
due primarily to the decline in service revenues in the printed circuit board
and complete system design tool business as resources were shifted to support
the integrated circuit design tool business.
Sales and marketing expenses declined 15% from $28.9 million in 1996 to
$24.9 million in 1997. This decline in total dollars resulted from a decline in
overall headcount and a decrease in marketing activities in addition to lower
sales costs allocated as a result of lower revenue. As a percentage of revenue,
sales and marketing expenses declined from 42% in 1997 to 38% in 1996. This
improvement was due in part to higher efficiencies and quotas achieved by the
sales force as well the previously mentioned decrease in marketing activities.
Research and development expenses increased from $11.9 million in 1996 to
$15.0 million in 1997 and increased as a percentage of revenue from 17% to 23%.
This increase was due, in part, to a significant amount of printed circuit board
and complete system design tool business software development expense being
capitalized in 1996 lowering overall research and development expenses in that
year. The amount of software capitalized in 1997 was significantly less. During
1997, there was also an increase in allocated expenses due to a significant
growth in the Prior Viewlogic's overall research and development expenses.
General and administrative costs declined 27% from $5.5 million in 1996 to
$4.1 million in 1997 and decreased as a percentage of revenue from 8% to 6%. The
decline in dollars was due primarily to lower costs being allocated to the
printed circuit board and complete system design tool business due to its lower
revenue relative to the Prior Viewlogic's total revenue. The percentage drop is
due primarily to higher overall revenues achieved by the Prior Viewlogic, which
lowered general and administrative costs as a percentage of revenue.
As described previously, 1997 results include a restructuring charge of
$6.7 million incurred at the time of the Prior Viewlogic's merger with Synopsys
and a charge of $4.5 million to settle a claim for product royalties alleged to
be owed to a supplier under a licensing agreement.
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LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Prior to its recapitalization, Viewlogic funded its activities primarily
through operations. In connection with the recapitalization, on October 2, 1998,
Viewlogic entered into a $24.0 credit facility with Fleet Bank consisting of a
$6.0 revolving line of credit and an $18.0 million term loan. See Note 4 of
Notes to Consolidated Financial Statements. Borrowings under the credit facility
are secured by substantially all of Viewlogic's assets. The credit facility
contains limitations on additional indebtedness and capital expenditures, and
includes financial covenants, including covenants related to the maintenance of
minimum levels of interest and debt service coverage ratios and maximum leverage
ratios. At October 2, 1999, Viewlogic had borrowings of approximately
$16.5 million outstanding under the credit facility. Viewlogic was in compliance
with the covenants at October 2, 1999. Payments of principal outstanding under
the credit facility may be made at any time and must be repaid in full by
September 30, 2003. As of October 2, 1999, Viewlogic had cash and cash
equivalents of $1.3 million. Viewlogic also had an additional $5.5 million
available under its line of credit. Fleet Bank has required that Summit become
party to the credit facility upon completion of the business combination.
Viewlogic's operating activities provided cash of approximately
$1.2 million for the nine months ended October 2, 1999. Cash generated from
operations for the nine months ended October 2, 1999 was attributable primarily
to net income of $1.1 million, non-cash depreciation and amortization of
$2.9 million, and an increase in deferred revenue of approximately $44,000,
which were offset in part by an increase in accounts receivable of
$2.5 million, and a decrease in deferred income taxes and accounts payable of
$40,000.
Net cash used in investing activities was approximately $2.8 million for the
nine months ended October 2, 1999. Viewlogic used $1.2 million in cash for the
nine months ended October 2, 1999 for the purchase of certain assets of OmniView
and the remainder being used for property and equipment and capitalized
software.
Net cash used in financing activities for the nine months ended October 2,
1999 was approximately $1.6 million, primarily to repay long-term debt.
Viewlogic believes that its current cash and cash equivalents combined with
its current line of credit, and together with funds expected to be generated
from operations, will satisfy Viewlogic's anticipated cash requirements for at
least the next twelve months.
YEAR 2000
Many older computer software programs refer to years in terms of their final
two digits only. Such programs may interpret the year 2000 to mean the year 1900
instead. If not corrected, those programs could cause date-related transaction
failures.
Year 2000 problems could affect the manufacture, distribution and use of
Viewlogic's products, communications with its customers and suppliers and
conduct of financial and administrative operations. Viewlogic has made
programming modifications and upgrades to correct or replace the systems
critical to its business, which it has identified as non-year 2000 compliant.
Viewlogic has tested the current version of the products it currently plans
to sell and believes the current versions of these products are year 2000
compliant, when configured and used in accordance with the related
documentation, so long as the underlying operating system of the host machine
and any other software used with or in the host machine or with the products are
also year 2000 compliant. Older versions of Viewlogic's products may not be year
2000 compliant, and Viewlogic encourages users of these versions to upgrade to
the latest version. Viewlogic's customers who have maintenance agreements with
Viewlogic have the right to receive the latest version of these products.
Viewlogic's customers who do not have maintenance agreements with Viewlogic may
purchase the latest version of these products.
External and internal costs specifically associated with modifying
Viewlogic's products and internal use software for year 2000 compliance are
expensed as incurred. To date, expenditures related to the
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year 2000 problem have not been material. Viewlogic does not expect the future
costs relating to year 2000 compliance to have a material effect on its results
of operations or financial condition.
These expectations are subject to uncertainties. For example, if Viewlogic
is unsuccessful in identifying or fixing all year 2000 problems in its critical
operations, or if it is affected by the failure of suppliers or major customers
to continue operations due to such a problem, its results of operations or
financial condition could be materially and adversely impacted.
The total costs that Viewlogic may incur in connection with the year 2000
compliance will be influenced by Viewlogic's successful identification of year
2000 problems, the nature and amount of programming required to fix affected
programs, the related labor and/or consulting costs for this remediation and the
success of third parties with whom it has business relationships in addressing
their own year 2000 concerns.
The information presented above is based upon Viewlogic's estimates, which
Viewlogic made using assumptions of future events. Uncontrollable factors such
as the compliance of the systems of third parties and the availability of
resources could materially increase the cost of, or delay, remedying year 2000
problems. As of January 20, 2000, Viewlogic is not aware of any significant year
2000 issues relating to its products, internal systems or suppliers and service
products.
MARKET RISK
Viewlogic is exposed to interest rate risk primarily through its credit
facility. On October 2, 1998, Viewlogic entered into a $24.0 million credit
facility with Fleet Bank consisting of a $6.0 million revolving line of credit
and an $18.0 million term loan. Interest terms on the line of credit and the
term loan are determined, at the option of Viewlogic, for varying periods.
Viewlogic may elect to have the interest rate based on the bank's prime rate or
based on the LIBOR rate at the time of the election, depending on Viewlogic's
leverage financial rate as defined in the credit facility. As of January 2,
1999, the interest rate on the line of credit was 8.25% and on the term loan was
7.31%. As of October 2, 1999, the interest rate on the line of credit was 8.25%
and on the term loan was 7.51%. Payments of principal outstanding under either
the line of credit or the term loan may be made at any time and must be repaid
in full by September 30, 2003.
On October 3, 1998, as required under the credit facility, Viewlogic entered
into a no-fee interest swap agreement with Fleet Bank to reduce the impact of
changes in interest rates on its floating rate credit facility. This agreement
effectively converts a portion of the floating-rate obligation into a fixed-
rate obligation of 7.2% for a period of 60 months, expiring on September 30,
2003. The notional principal amount of the interest rate-swap agreement was $9.0
million as of October 2, 1999. Viewlogic is exposed to credit loss in the event
of nonperformance by the counterparties to the interest rate-swap agreement.
Open interest rate contracts are reviewed regularly by Viewlogic to ensure that
they remain effective as hedges of interest rate exposure. Management believes
that the rate-swap agreement approximates fair value. After taking into
consideration the interest swap agreement, a hypothetical 10% adverse movement
in average interest rates, would not have a material effect on Viewlogic's
financial results.
Viewlogic is also exposed to the impact of foreign currency fluctuations.
Since Viewlogic translates foreign currencies into U.S. dollars for reporting
purposes, weakened currencies in our subsidiaries have a negative, though
immaterial, impact on its results. It also believes that the exposure to
currency exchange fluctuation risk is insignificant because its international
subsidiaries sell to customers, and satisfy their financial obligations, almost
exclusively in their local currencies. During fiscal 1998, Viewlogic did not
engage in foreign currency hedging activities. Based on a hypothetical 10%
adverse movement in foreign currency exchange rates, the potential losses in
future earnings, fair value of risk-sensitive instruments, and cash flows are
immaterial, although the actual effects may differ materially from the
hypothetical analysis.
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VIEWLOGIC DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of Viewlogic who will serve as
executive officers and directors of the combined company, and their ages as of
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH VIEWLOGIC
- ---- -------- ------------------------------------------
<S> <C> <C>
William J. Herman......................... 40 President and Chief Executive Officer and
Director
Paula J. Cassidy.......................... 31 Vice President, Human Resources
Peter T. Johnson.......................... 51 Vice President, Business Development,
Chief Legal Officer and Secretary
Gary L. Kiaski............................ 45 Vice President, Worldwide Sales
Richard G. Lucier......................... 40 Executive Vice President, Chief Operating
Officer
Kevin P. O'Brien.......................... 43 Vice President, Finance and Chief
Financial Officer
Lorne J. Cooper........................... 42 Director
Keith B. Geeslin.......................... 46 Director
</TABLE>
WILLIAM J. HERMAN has served as President and Chief Executive Officer and
Director of Viewlogic since October 1998. Prior to serving Viewlogic in these
capacities, from December 1997 to September 1998, Mr. Herman served as President
of the Viewlogic Systems Group of Synopsys, Inc., an electronic design
automation company. From March 1995 to November 1997, Mr. Herman served in
various senior management capacities, most recently as President and Chief
Executive Officer, at the former Viewlogic Systems, Inc., a larger electronic
design automation company which Mr. Herman co-founded in 1984. From February
1994 to February 1995, Mr. Herman served as President of Silerity, Inc., a
computer-aided engineering software company.
PAULA J. CASSIDY has served as Vice President, Human Resources of Viewlogic
since October 1998. Prior to serving Viewlogic in this capacity, from December
1997 to September 1998, Ms. Cassidy served as Vice President of Human Resources
of the Viewlogic Systems Group of Synopsys. From 1989 to November 1997, Ms.
Cassidy served in various capacities, most recently as Manager, Human Resources,
at the former Viewlogic Systems, Inc.
PETER T. JOHNSON has served as Vice President, Business Development and
Chief Legal Officer of Viewlogic since October 1998 and as Secretary since May
1999. Prior to serving Viewlogic in these capacities, from May 1998 to October
1998, Mr. Johnson served as Vice President, Chief Legal Officer and Secretary of
Avid Technology, Inc., a digital media software developer. From December 1997 to
April 1998, Mr. Johnson served as Vice President and General Counsel of the
Viewlogic Systems Group of Synopsys. From June 1995 to November 1997,
Mr. Johnson served as Vice President, General Counsel and Secretary of the
former Viewlogic Systems, Inc. From 1993 to February 1995, Mr. Johnson served as
General Counsel and Secretary of Phoenix Technologies Ltd., a software
development firm.
GARY L. KIASKI has served as Vice President, Worldwide Sales of Viewlogic
since October 1998. Prior to serving Viewlogic in this capacity, from December
1997 to September 1998, Mr. Kiaski served as Vice President of Worldwide Sales
of the Viewlogic Systems Group of Synopsys. From 1988 to November 1997,
Mr. Kiaski served in various capacities, most recently as Vice President,
Western Region Sales, at the former Viewlogic Systems, Inc.
RICHARD G. LUCIER has served as Executive Vice President and Chief Operating
Officer of Viewlogic since October 1998 and served as a director of Viewlogic
from October 1998 to December 1999. Prior
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to serving Viewlogic in these capacities, from December 1997 to September 1998,
Mr. Lucier served as Senior Vice President of Engineering and Marketing of the
Viewlogic Systems Group of Synopsys. From 1986 to November 1997, Mr. Lucier
served in various capacities, most recently as Group Vice President of the
Systems Group, at the former Viewlogic Systems, Inc.
KEVIN P. O'BRIEN has served as Vice President, Finance and Chief Financial
Officer of Viewlogic since October 1998 and as Secretary from October 1998 to
May 1999. Prior to serving Viewlogic in this capacity, from April 1998 to
September 1998, Mr. O'Brien served as Vice President of Finance of the Viewlogic
Systems Group of Synopsys. From September 1997 to March 1998, Mr. O'Brien served
as an independent management consultant. From October 1995 to August 1997,
Mr. O'Brien served as Chief Financial Officer at SmarTel Communications, Inc., a
telecommunications company. From 1989 to June 1995 Mr. O'Brien served in various
capacities, most recently as Vice President, Finance and Chief Financial
Officer, at Easel Corporation, a client server software developer. Mr. O'Brien
is a certified public accountant.
KEITH B. GEESLIN has served as a director of Viewlogic since October 1998.
Since July 1984, Mr. Geeslin has served in various capacities, most recently as
a general partner, of The Sprout Group, a venture capital firm. In addition,
Mr. Geeslin is a general or limited partner in a series of investment funds
associated with The Sprout Group, a division of DLJ Capital Corporation, which
is a subsidiary of Donaldson, Lufkin & Jenrette. Mr. Geeslin is also a director
of GlobeSpan, Inc., Paradyne Corp., Rhythms NetConnections Inc., SDL, Inc., and
several privately held companies.
LORNE J. COOPER has served as a director of Viewlogic since December 1999.
Since November 1994, Mr. Cooper has served as the President of Sente, Inc., a
software company that develops and markets tools for electronic design
automation. From July 1985 to November 1994, he served in various senior
management positions at the former Viewlogic Systems, Inc., most recently as
Senior Vice President of Engineering and Chief Technology Officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For most of fiscal year 1999, Viewlogic's board of directors consisted of
William J. Herman, Viewlogic's Chief Executive Officer, Richard G. Lucier,
Viewlogic's Chief Operating Officer, and Keith Geeslin, a general partner of the
Sprout Group. Lorne J. Cooper joined Viewlogic's board of directors in December
1999. Because Mr. Geeslin was the only non-employee director of Viewlogic until
December 1999, during fiscal 1999, Mr. Geeslin performed many of the functions
customarily performed by a compensation committee of a board of directors,
including determining the compensation for executive officers described below.
Base salary, cash bonuses and stock option grants for Viewlogic's executive
officers were determined by Mr. Geeslin based on recommendations made by
Mr. Herman. Stock option grants were confirmed and formally granted by the board
of directors. Compensation for the fiscal year ended January 2, 1999 includes
compensation paid by the Viewlogic Systems Group of Synopsys.
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VIEWLOGIC EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid during the fiscal years
ended January 2, 1999 and January 1, 2000 to the Chief Executive Officer and the
four other most highly paid executive officers of Viewlogic who were serving as
executive officers of Viewlogic on January 1, 2000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------- RESTRICTED
OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($)(2) AWARDS($)(3)
- --------------------------- -------- ------------ -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
William J. Herman........ 1999 220,000 69,800 6,000 1,658,611
President and Chief 1998 220,000 238,309 6,000 --
Executive Officer and
Director
Richard G. Lucier........ 1999 215,000 71,611 6,000 1,290,000
Executive Vice President 1998 215,000 221,450 6,000 --
and Chief Operating
Officer
Peter T. Johnson(5) ..... 1999 185,000 43,383 -- 275,100
Vice President, Business 1998 92,832 51,475 2,258 --
Development, Chief
Legal Officer and
Secretary
Gary L. Kiaski........... 1999 257,908 16,542 6,000 --
Vice President, Worldwide 1998 233,090 25,859 6,000 --
Sales
Kevin P. O'Brien(6)...... 1999 145,000 28,646 -- 348,752
Vice President, Finance 1998 95,962 43,854 -- --
and Chief Financial
Officer
<CAPTION>
LONG TERM AWARDS
-------------------------------
NO. OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION OPTIONS COMPENSATION($)(4)
- --------------------------- ---------- ------------------
<S> <C> <C>
William J. Herman........ 0 1,500
President and Chief 1,266,115 5,028
Executive Officer and
Director
Richard G. Lucier........ 0 1,500
Executive Vice President 1,000,000 4,829
and Chief Operating
Officer
Peter T. Johnson(5) ..... 0 1,500
Vice President, Business 210,000 438,820
Development, Chief
Legal Officer and
Secretary
Gary L. Kiaski........... 0 1,500
Vice President, Worldwide 266,223 4,686
Sales
Kevin P. O'Brien(6)...... 0 1,500
Vice President, Finance 266,223 1,500
and Chief Financial
Officer
</TABLE>
- ------------------------
(1) Amounts shown include cash and non-cash compensation earned and received by
executive officers as well as amounts earned but deferred at the election of
those officers.
(2) Consists of car allowance.
(3) All shares of restricted stock were issued upon the exercise of stock
options. On November 23, 1998, Mr. Herman was granted options to purchase
1,266,115 shares of Viewlogic common stock, Mr. Lucier was granted options
to purchase 1,000,000 shares of Viewlogic common stock, Mr. Johnson was
granted options to purchase 210,000 shares of Viewlogic common stock,
Mr. Kiaski was granted options to purchase 266,223 shares of Viewlogic
common stock and Mr. O'Brien was granted options to purchase 266,223 shares
of Viewlogic common stock. All of these options were exercisable in full
immediately upon grant, but the shares issuable upon exercise are restricted
shares, subject to a repurchase right of Viewlogic if the executive officer
ceases to be an employee, officer or director of, or a consultant to,
Viewlogic. The shares issuable upon exercise of the options vest from this
repurchase right over time. Twenty-five percent of the shares for
Mr. Herman, Mr. Lucier, Mr. Kiaski and Mr. O'Brien vested on October 2,
1999, and 25% of the shares for Mr. Johnson vested on October 19, 1999. The
remaining 75% vest in equal
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monthly increments over the succeeding 36 months. If the executive officer
ceases to be an employee, officer or director of, or a consultant to,
Viewlogic as a result of Viewlogic's actions without cause, 50% of the
original number of shares subject to the executive's options vest. If,
within 24 months after a change of control of Viewlogic, the executive
officer ceases to be an employee, officer or director of, or a consultant
to, Viewlogic as a result of termination without cause by Viewlogic or for
good reason by the executive, 100% of the original number of shares subject
to the executive's options vest. The business combination with Summit does
not constitute a change of control of Viewlogic for purposes of the vesting
of restricted stock. Each holder of restricted stock is entitled to the same
dividends with respect to his restricted stock as are paid to holders of
unrestricted shares of Viewlogic common stock.
Mr. Herman, Mr. Johnson and Mr. O'Brien exercised their options in full on
August 11, 1999. Mr. Lucier exercised his options in full on August 12,
1999. As of these dates, all shares of stock issued upon exercise were
restricted stock.
All amounts set forth under the heading "Restricted Stock Awards" represent
the aggregate dollar value of all shares of restricted stock issued to the
executive officer based upon the fair market value of the restricted stock
on the date of the issuance minus the aggregate exercise price of the stock
options. There was no public market for Viewlogic common stock on either
August 11, 1999 or August 12, 1999. Accordingly, the fair market value is
determined by multiplying the closing sale price of Summit common stock on
August 11, 1999 ($2.41) or August 12, 1999 ($2.38), as appropriate, by the
exchange ratio to be applied in the business combination (0.67928).
Similarly, on December 31, 1999, the last trading day in fiscal 1999, there
was no public market for Viewlogic common stock. Therefore, the fair market
value as of December 31, 1999 is determined by multiplying the closing sale
price of Summit common stock on December 31, 1999 ($3.50) by the exchange
ratio to be applied in the business combination (0.67928). On December 31,
1999, Mr. Herman held 896,831 shares of restricted stock at a value of
$2,134,458, Mr. Lucier held 708,333 shares of restricted stock at a value of
$1,685,833, Mr. Johnson held 148,750 shares of restricted stock at a value
of $354,025, Mr. Kiaski held no shares of restricted stock and Mr. O'Brien
held 188,575 shares of restricted stock at a value of $448,809.
(4) Unless otherwise specified consists of matching contributions under
Viewlogic's 401(k) plan.
(5) During the fiscal year ended January 2, 1999, Mr. Johnson was employed by
the Viewlogic Systems Group of Synopsys from January 1, 1998 until
April 30, 1998. Amounts under the heading "All Other Compensation" for the
fiscal year ended January 2, 1999 for Mr. Johnson include $436,274 in
severance payments from the Viewlogic Systems Group of Synopsys and $2,546
in matching contributions under Viewlogic's 401(k) plan.
(6) Mr. O'Brien joined Viewlogic on March 30, 1998.
OPTION GRANTS IN YEAR ENDED JANUARY 1, 2000
Viewlogic did not grant any stock options to its executive officers during
the fiscal year ended January 1, 2000. Viewlogic has never granted stock
appreciation rights.
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Chief Executive Officer and the
four other most highly paid executive officers, information concerning stock
options exercised during fiscal 1999 and the number of shares subject to
exercisable and unexercisable stock options as of January 1, 2000. The table
also sets forth information with respect to the value of stock options held by
these individuals as of January 1, 2000.
137
<PAGE>
AGGREGATED OPTION EXERCISES IN YEAR ENDED JANUARY 1, 2000 AND OPTION VALUES ON
JANUARY 1, 2000
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT
SHARES VALUE END FISCAL YEAR END ($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Herman............... 1,266,115 1,658,611 -- -- -- --
Richard G. Lucier............... 1,000,000 1,290,000 -- -- -- --
Peter T. Johnson................ 210,000 275,100 -- -- -- --
Gary L. Kiaski.................. -- -- 266,223 -- 545,757 --
Kevin P. O'Brien................ 266,223 348,752 -- -- -- --
</TABLE>
- ------------------------
(1) Represents the aggregate dollar value of all shares issued to the executive
officer based upon the fair market value of the shares on the date of the
issuance minus the aggregate exercise price of the stock options.
Mr. Herman, Mr. Johnson and Mr. O'Brien exercised their options on
August 11, 1999. Mr. Lucier exercised his options on August 12, 1999. There
was no public market for Viewlogic common stock on either August 11, 1999 or
August 12, 1999. Accordingly, the fair market value is determined by
multiplying the closing sale price of Summit common stock on August 11, 1999
($2.41) or August 12, 1999 ($2.38), as appropriate, by the exchange ratio to
be applied in the business combination (0.67928). All shares issued upon
exercise of the stock options described above are restricted stock. Amounts
set forth under the heading "Value Realized" are the same as the amounts set
forth under the heading "Restricted Stock Awards" in the Summary
Compensation Table above. See footnote (3) to the Summary Compensation Table
above for a more complete description of the restricted stock.
(2) Represents the aggregate fair market value of all shares of common stock
underlying outstanding stock options as of December 31, the last trading day
of fiscal 1999, minus the aggregate exercise price of the stock options.
There was no public market for Viewlogic common stock on December 31, 1999.
Accordingly, the fair market value is determined by multiplying the closing
sale price of Summit common stock on December 31, 1999 ($3.50) by the
exchange ratio to be applied in the business combination (0.67928).
EMPLOYMENT AGREEMENTS
On October 2, 1998 Viewlogic entered into an employment agreement with
Mr. Herman. Under the terms of this agreement, Mr. Herman's employment will
continue until October 2, 2001 unless Mr. Herman resigns or Viewlogic terminates
his employment. Mr. Herman receives a base salary of $220,000 annually and
standard benefits afforded other employees of Viewlogic. If Viewlogic terminates
Mr. Herman's employment without cause, he will continue to receive his benefits
and base salary for a period of nine months. This agreement includes
post-termination restrictions for a period of one year which restrict
Mr. Herman from competing with Viewlogic and which prohibit him from soliciting
Viewlogic's employees and customers during that period. Mr Herman's compensation
is subject to adjustment after the first year of employment but his base salary
may not be decreased.
On October 2, 1998 Viewlogic entered into an employment agreement with
Mr. Lucier. Under the terms of this agreement, Mr. Lucier's employment will
continue until October 2, 2001 unless Mr. Lucier resigns or Viewlogic terminates
his employment. Mr. Lucier receives a base salary of $215,000 annually and
standard benefits accorded other employees of Viewlogic. If Viewlogic terminates
Mr. Lucier's employment without cause, he will continue to receive his benefits
and base salary for a period of nine months. This agreement includes
post-termination restrictions for a period of one year which restrict
Mr. Lucier from competing with Viewlogic and which prohibit him from
138
<PAGE>
soliciting Viewlogic's employees and customers during that period. Mr Lucier's
compensation is subject to adjustment after the first year of employment but his
base salary may not be decreased.
In November 1998, Viewlogic granted Mr. Kiaski an option to purchase 266,223
shares of Viewlogic common stock at a per share purchase price of $0.33.
Pursuant to the merger agreement, the stock option will be converted into a
stock option to acquire 180,839 shares of Summit common stock at a per share
purchase price of $0.49, but otherwise on the same terms and conditions set
forth in Mr. Kiaski's stock option agreement with Viewlogic. In the event
Mr. Kiaski's employment is terminated prior to October 2, 2002, this stock
option will accelerate (i) as to the first 133,112 shares, if he is terminated
without cause and (ii) in full, if he is terminated without cause or resigns his
employment for good reason in connection with, or within 24 months subsequent
to, a change of control. If completed, the business combination between Summit
and Viewlogic will not constitute a change of control for purposes of this stock
option.
139
<PAGE>
VIEWLOGIC CERTAIN TRANSACTIONS
SERIES A PREFERRED STOCK FINANCING
In October 1998, Viewlogic effected a recapitalization pursuant to which it
ceased to be a wholly owned subsidiary of Synopsys, Inc. This recapitalization
was financed, in part, by a $32.0 million preferred stock financing. In this
financing, six investment funds affiliated with The Sprout Group purchased an
aggregate of 9,381,904 shares of Viewlogic's series A voting preferred stock and
4,618,096 shares of Viewlogic's series A-1 non-voting preferred stock for an
aggregate of $28.0 million.
In connection with this preferred stock financing, Viewlogic entered into an
investors' rights agreement with the six investment funds affiliated with The
Sprout Group and other stockholders of Viewlogic. Pursuant to the investors'
rights agreement, Viewlogic granted to the investment funds demand and "piggy
back" registration rights. If the business combination is completed, the
registration rights will remain outstanding and will apply to the shares of
Summit common stock received by the investment funds, subject to specific
modifications to the registration rights set forth in voting agreements entered
into between Summit and each of the investment funds in September 1999.
Keith Geeslin, a director of Viewlogic, is a general partner of The Sprout
Group. If the business combination between Summit and Viewlogic is completed,
Mr. Geeslin will be a director of the combined company.
STOCK PLEDGE
In connection with its October 1998 recapitalization, Viewlogic entered into
a $24.0 million credit facility with Fleet Bank consisting of a $6.0 million
revolving line of credit and an $18.0 million term loan. Borrowings under the
credit facility are secured by substantially all of Viewlogic's assets. In
addition, under the terms of stock pledge agreements between Fleet Bank and six
investment funds affiliated with The Sprout Group, borrowings under the credit
facility are secured by the 14,000,000 shares of Viewlogic's series A voting
preferred stock and series A-1 non-voting preferred stock beneficially owned by
The Sprout Group. In the event of specified defaults by Viewlogic under its
credit facility, Fleet Bank may enforce its security interest in those shares of
Viewlogic capital stock. If so, a change in control of Viewlogic may occur.
OPTION EXERCISES
In August 1999, in connection with the exercise of stock options, Viewlogic
issued and sold an aggregate of 2,808,894 shares of common stock to Mr. Herman,
Ms. Cassidy, Mr. Johnson, Mr. Lucier and Mr. O'Brien. This common stock was paid
for by means of promissory notes, bearing no interest and secured by the common
stock, with the principal amount due upon the earliest of (1) August 2006;
(2) eighteen months after the first date on which Viewlogic's common stock is
listed on a national securities exchange or the Nasdaq stock market; (3) three
months after the termination of employment; or (4) one month before the
expiration of the option. The aggregate amount outstanding pursuant to these
secured promissory notes is $926,935.02
The number of Viewlogic common shares purchased and the principal amount of
the promissory note for each person are as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PRINCIPAL AMOUNT
- ---- ---------------- ----------------
<S> <C> <C>
William J. Herman 1,266,115 $417,817.95
Paula J. Cassidy 66,556 $ 21,963.48
Peter T. Johnson 210,000 $ 69,300.00
Richard G. Lucier 1,000,000 $330,000.00
Kevin P. O'Brien 266,223 $ 87,853.59
</TABLE>
140
<PAGE>
VIEWLOGIC SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of common stock of Viewlogic, as of January 1, 2000, of (a) each
beneficial owner of more than 5% of Viewlogic common stock, (b) each of the
executive officers and directors of Viewlogic, and (c) all directors and
executive officers of Viewlogic as a group. Unless otherwise noted in the
footnotes to the table, Viewlogic believes that the stockholders named in the
table have sole voting and investing power with respect to all shares of common
stock indicated as being beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED TOTAL
- ------------------------ ---------------- ----------
<S> <C> <C>
The Sprout Group(1)......................................... 14,000,000 58.4%
300 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Synopsys, Inc............................................... 3,966,722 16.5%
700 East Middlefield Road
Mountain View, CA 93404
William J. Herman........................................... 1,266,115 5.3%
Viewlogic Systems, Inc.
293 Boston Post Road West
Marlboro, MA 01752
Needham Capital Partners II, L.P.(2)........................ 1,250,000 5.2%
445 Park Avenue
New York, NY 10022
Richard G. Lucier........................................... 1,000,000 4.2%
Gary L. Kiaski(3)........................................... 266,223 1.1%
Kevin P. O'Brien............................................ 266,233 1.1%
Peter T. Johnson............................................ 210,000 *
Paula J. Cassidy............................................ 66,556 *
Keith B. Geeslin(4)......................................... 14,000,000 58.4%
All directors and executive officers as a group (7 17,075,117 71.2%
persons)....................................................
</TABLE>
- ------------------------
* Represents less than 1% of the total.
(1) Consists of 1,136,079 shares owned by DLJ ESC II, L.P., 9,481,811 shares
owned by Sprout Capital VIII, L.P., 2,583,906 shares owned by Sprout
Growth II, L.P., 43,095 shares owned by Sprout CEO Fund, L.P., 273,700
shares owned by DLJ Capital Corp., and 568,909 shares owned by Sprout
Venture Capital, L.P.
(2) Includes 154,532 shares owned by Needham Capital Partners II
(Bermuda), L.P.
(3) Consists of 266,233 shares issuable upon the exercise of a stock option held
by Mr. Kiaski.
(4) Consists of 14,000,000 shares beneficially owned by The Sprout Group, as
more fully described in note (1) above. Mr. Geeslin is a general partner of
The Sprout Group. Mr. Geeslin disclaims beneficial ownership of all shares
owned by The Sprout Group.
141
<PAGE>
CHANGES IN CONTROL
The Sprout Group has pledged all of the shares of capital stock beneficially
owned by it to Fleet Bank as security under Viewlogic's $24.0 million credit
facility. In the event of specified defaults by Viewlogic under its credit
facility, Fleet Bank may enforce its security interest in the Viewlogic shares
pledged to it by The Sprout Group. If so, a change in control of Viewlogic may
occur. See "Viewlogic Certain Transactions--Stock Pledge."
LEGAL MATTERS
The validity of the shares of Summit common stock to be issued pursuant to
the business combination and the federal income tax consequences of the business
combination will be passed upon for Summit by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters in
connection with the business combination and the federal income tax consequences
of the business combination will be passed upon for Viewlogic by Hale and
Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Summit Design, Inc. as of
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998, included in this joint proxy statement/prospectus and the
related financial statement schedule included elsewhere in this registration
statement on Form S-4, have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Viewlogic Systems, Inc. as of January 2, 1999
and October 2, 1999 and for the year ended January 2, 1999 and nine months ended
October 2, 1999 and the statement of revenues and expenses for the year ended
December 31, 1997 included in this joint proxy statement/ prospectus (which
report expresses an unqualified opinion and includes an explanatory paragraph
referring to the basis of presentation discussed in Note 1 to the consolidated
financial statements), have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
STOCKHOLDER 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 1999 Annual Meeting of Stockholders, in order to be so included
for the 2000 annual meeting, stockholder proposals must be received by Summit no
later than December , 1999, and must otherwise comply with the requirements of
Rule 14a-8.
WHERE YOU CAN FIND MORE INFORMATION
Summit has filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 that registers the distribution of
shares of Summit common stock to Viewlogic stockholders in connection with the
business combination. The registration statement, including the attached
exhibits and schedules, contains additional information about Viewlogic, Summit
and Summit common stock. Wherever Summit or Viewlogic makes reference in this
joint proxy statement/prospectus to any of its respective contracts, agreements
or other documents, the references are not necessarily complete, and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract, agreement or other document. The rules and regulations of the
SEC allow Summit and
142
<PAGE>
Viewlogic to omit some information included in the registration statement from
this joint proxy statement/prospectus.
In addition, Summit files reports, proxy statements and other information
with the SEC. You may read and copy this information at the following locations
of the SEC:
<TABLE>
<CAPTION>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, DC 20549 New York, NY 10048 Chicago, IL 60661
</TABLE>
You may also obtain copies of this information by mail from the public
reference section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, DC
20549, at prescribed rates. You can obtain further information on the operation
of the SEC's public reference room in Washington, DC by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy
statements and other information about issuers, such as Summit, which file
documents electronically with the SEC. The address of that site is
http://www.sec.gov.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS TO VOTE. NEITHER SUMMIT NOR VIEWLOGIC HAS AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 2000. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE. THE
MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO SUMMIT OR VIEWLOGIC
STOCKHOLDERS AND THE ISSUANCE OF SUMMIT COMMON STOCK IN CONNECTION WITH THE
BUSINESS COMBINATION SHOULD NOT CREATE ANY IMPLICATION TO THE CONTRARY.
143
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SUMMIT
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999 (unaudited)........................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 and for the Nine Months
Ended September 30, 1999 (unaudited) and 1998
(unaudited)............................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998 and for the
Nine Months Ended September 30, 1999 (unaudited).......... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and for the Nine Months
Ended September 30, 1999 (unaudited)...................... F-6
Notes to Consolidated Financial Statements.................. F-7
VIEWLOGIC
Independent Auditors' Report................................ F-26
Consolidated Balance Sheets as of January 2, 1999 and
October, 2 1999........................................... F-27
Statements of Revenues and Expenses for the Year Ended
December 31, 1997 and Consolidated Statements of
Operations for the year ended January 2, 1999 and for the
Nine Months Ended October 3, 1998 (unaudited) and October
2, 1999................................................... F-28
Consolidated Statements of Comprehensive Income for the year
ended January 2, 1999 and for the Nine Months Ended
October 3, 1998 (unaudited) and October 2,1999............ F-29
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Year Ended January 2, 1999 and for the Nine
Months Ended October 2, 1999.............................. F-30
Consolidated Statements of Cash Flows for the Year Ended
January 2, 1999 and for the Nine Months Ended October 3,
1998 (unaudited) and October 2, 1999...................... F-31
Notes to Consolidated Financial Statements.................. F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Summit Design, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Summit Design, Inc. and its subsidiaries at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
February 3, 1999, except as to
Note 21, which is as of
September 16, 1999
F-2
<PAGE>
SUMMIT DESIGN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1997 1998 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,973 $27,693 $ 27,008
Accounts receivable, less allowance for doubtful accounts
of $592, $511 and $392.................................. 5,131 8,852 6,217
Prepaid expenses and other................................ 540 862 1,003
Deferred income taxes..................................... 1,209 792 792
-------- ------- --------
Total current assets.................................... 26,853 38,199 35,020
Furniture and equipment, net................................ 2,698 4,113 3,734
Intangibles, net............................................ 5,571 2,870 1,038
Goodwill, net............................................... 3,493 2,742 2,179
Deposits and other assets................................... 1,055 2,286 146
-------- ------- --------
Total assets............................................ $ 39,670 $50,210 $ 42,117
======== ======= ========
LIABILITIES
Current liabilities:
Long-term debt, current portion........................... $ 134 $ 54 $ 56
Capital lease obligation, current portion................. 49 43 8
Accounts payable.......................................... 1,211 2,520 1,072
Accrued liabilities....................................... 5,182 5,687 5,287
Deferred revenue.......................................... 5,674 5,640 4,843
-------- ------- --------
Total current liabilities............................... 12,250 13,944 11,266
Long-term debt, less current portion........................ 194 156 --
Capital lease obligation, less current portion.............. 43 -- --
Deferred revenue, less current portion...................... -- 146 102
Deferred income taxes....................................... 987 489 489
-------- ------- --------
Total liabilities....................................... 13,474 14,735 11,857
-------- ------- --------
Commitments and contingencies (Notes 10 and 17)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized 30,000; issued and
outstanding 15,841 shares at December 31, 1997, 15,457
shares at December 31, 1998 and 15,702 shares at
September 30, 1999........................................ 159 155 157
Additional paid-in capital.................................. 51,412 44,039 44,360
Treasury stock, at cost, 939 shares in 1997................. (11,555) -- --
Accumulated deficit......................................... (13,820) (8,719) (14,257)
-------- ------- --------
Total stockholders' equity.............................. 26,196 35,475 30,260
-------- ------- --------
Total liabilities and stockholders' equity.............. $ 39,670 $50,210 $ 42,117
======== ======= ========
</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>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product licenses............................. $15,446 $24,828 $33,589 $25,480 $13,477
Maintenance and services..................... 4,301 6,161 9,642 6,929 8,376
Other........................................ 567 450 367 274 --
------- ------- ------- ------- -------
Total revenue.............................. 20,314 31,439 43,598 32,683 21,853
------- ------- ------- ------- -------
Cost of revenue:
Product licenses............................. 573 701 744 490 476
Maintenance and services..................... 466 632 955 773 876
Amortization of purchased technologies....... -- 219 661 496 472
------- ------- ------- ------- -------
Total cost of revenue...................... 1,039 1,552 2,360 1,759 1,824
------- ------- ------- ------- -------
Gross profit................................... 19,275 29,887 41,238 30,924 20,029
Operating expenses:
Research and development..................... 5,867 7,749 13,042 8,928 7,739
Sales and marketing.......................... 9,319 10,591 11,713 9,541 8,678
General and administrative................... 3,188 3,785 4,398 3,264 4,004
Amortization of intangibles and goodwill..... -- 942 2,791 2,093 1,924
Merger costs................................. -- 379 1,249 227 --
Severance and write off of note receivable... -- -- -- -- 4,005
In-process technology........................ -- 11,689 -- -- --
------- ------- ------- ------- -------
Total operating expenses................... 18,374 35,135 33,193 24,053 26,350
------- ------- ------- ------- -------
Income (loss) from operations.................. 901 (5,248) 8,045 6,871 (6,321)
Interest expense............................... (101) (12) (4) (3) (2)
Other income, net.............................. 218 1,057 1,097 793 785
Gain on sale of TDS product line............... -- 5,574 -- -- --
------- ------- ------- ------- -------
Income (loss) before income taxes.............. 1,018 1,371 9,138 7,661 (5,538)
Income tax provision (benefit)................. (245) 940 4,037 3,043 --
------- ------- ------- ------- -------
Net income (loss).............................. $ 1,263 $ 431 $ 5,101 $ 4,618 $(5,538)
======= ======= ======= ======= =======
Net income (loss) per share--Basic:
Net income (loss) per share.................. $ 0.10 $ 0.03 $ 0.34 $ 0.31 $ (0.35)
======= ======= ======= ======= =======
Number of shares used in computing basic net
income (loss) per share.................... 12,240 14,403 15,155 15,072 15,646
======= ======= ======= ======= =======
Net income (loss) per share--Diluted:
Net income (loss) per share.................. $ 0.10 $ 0.03 $ 0.32 $ 0.28 $ (0.35)
======= ======= ======= ======= =======
Number of shares used in computing diluted
net income (loss) per share................ 13,243 15,402 16,115 16,208 15,646
======= ======= ======= ======= =======
</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
--------------------- ---------------------- PAID-IN -------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT
---------- -------- ----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995......... 9,183,729 $ 535 2,233,260 $ 64 $15,463 -- $ --
Issuance of convertible preferred
stock............................ 290,938 986
Issuance of common stock in in
initial public offering, net of
issuance costs................... 2,000,000 20 16,204
Issuance of common stock under
stock option plan and other...... 383,952 6 134
Conversion of preferred stock to
common stock..................... (9,474,667) (1,521) 9,474,667 95 1,418
Repurchase of common stock......... (12,737) (2)
Conversion of TriQuest common
stock............................ (44) 44
Net income.........................
---------- ------ ----------- ---- ------- -------- -------
Balance, December 31, 1996......... -- -- 14,079,142 141 33,261 -- --
Issuance of common stock........... 29,733 3
Issuance of common stock under
stock option plan................ 440,711 5 563
Issuance of common stock under
Employee Stock Purchase plan..... 58,701 1 349
Repurchase of common stock......... (23,760) (4)
Issuance of common stock in
conjunction with a business
combination...................... 1,256,777 12 15,538
Purchase of treasury stock......... (939,381) (11,555)
Tax benefit of option exercises.... 969
Amortization of contingent share
liability........................ 733
Net income.........................
---------- ------ ----------- ---- ------- -------- -------
Balance, December 31, 1997......... -- -- 15,841,304 159 51,412 (939,381) (11,555)
Issuance of common stock........... 14,616 11
Issuance of common stock under
stock option plan................ 460,590 5 994
Issuance of common stock under
Employee Stock Purchase Plan..... 80,252 1 602
Purchase of treasury stock......... (162,500) (2,330)
Reissuance of treasury stock....... (2,330) 162,500 2,330
Retirement of treasury stock....... (939,381) (10) (11,545) 939,381 11,555
Amortization of contingent share
liability........................ 3,666
Tax benefit of option exercises.... 1,229
Net income.........................
---------- ------ ----------- ---- ------- -------- -------
Balance, December 31, 1998......... -- -- 15,457,381 155 44,039 -- --
Issuance of common stock under
stock option plan (unaudited).... 174,325 1 118
Issuance of common stock under
Employee Stock Purchase Plan
(unaudited)...................... 70,001 1 203
Net loss (unaudited)...............
---------- ------ ----------- ---- ------- -------- -------
Balance, September 30, 1999
(unaudited)...................... -- $ -- 15,701,707 $157 $44,360 -- $ --
========== ====== =========== ==== ======= ======== =======
<CAPTION>
TOTAL
STOCK
ACCUMULATED HOLDERS'
DEFICIT EQUITY
------------ --------
<S> <C> <C>
Balance, December 31, 1995......... $(15,514) $ 548
Issuance of convertible preferred
stock............................ 986
Issuance of common stock in in
initial public offering, net of
issuance costs................... 16,224
Issuance of common stock under
stock option plan and other...... 140
Conversion of preferred stock to
common stock..................... (8)
Repurchase of common stock......... (2)
Conversion of TriQuest common
stock............................ --
Net income......................... 1,263 1,263
-------- --------
Balance, December 31, 1996......... (14,251) 19,151
Issuance of common stock........... 3
Issuance of common stock under
stock option plan................ 568
Issuance of common stock under
Employee Stock Purchase plan..... 350
Repurchase of common stock......... (4)
Issuance of common stock in
conjunction with a business
combination...................... 15,550
Purchase of treasury stock......... (11,555)
Tax benefit of option exercises.... 969
Amortization of contingent share
liability........................ 733
Net income......................... 431 431
-------- --------
Balance, December 31, 1997......... (13,820) 26,196
Issuance of common stock........... 11
Issuance of common stock under
stock option plan................ 999
Issuance of common stock under
Employee Stock Purchase Plan..... 603
Purchase of treasury stock......... (2,330)
Reissuance of treasury stock....... --
Retirement of treasury stock....... --
Amortization of contingent share
liability........................ 3,666
Tax benefit of option exercises.... 1,229
Net income......................... 5,101 5,101
-------- --------
Balance, December 31, 1998......... (8,719) 35,475
Issuance of common stock under
stock option plan (unaudited).... 118
Issuance of common stock under
Employee Stock Purchase Plan
(unaudited)...................... 204
Net loss (unaudited)............... (5,538) (5,538)
-------- --------
Balance, September 30, 1999
(unaudited)...................... $(14,257) $ 30,260
======== ========
</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>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 1,263 $ 431 $ 5,101 $ 4,618 $(5,538)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 870 1,984 4,649 3,439 3,620
Amortization of contingent share liability............. -- 733 3,666 1,650 --
Loss on asset disposition.............................. 18 2 -- -- 34
Gain on sale of TDS product line....................... -- (5,574) -- -- --
Write-off of acquired in-process technology............ -- 11,689 -- -- --
Deferred taxes......................................... (500) (1,044) (81) (81) --
Equity in losses of and transactions with
unconsolidated joint venture......................... 33 77 520 420 255
Provision for impairment of note receivable............ -- -- -- -- 2,665
Changes in assets and liabilities:
Accounts receivable.................................. (21) 951 (3,721) (2,523) 2,635
Prepaid expenses..................................... (157) (13) (322) (249) (141)
Accounts payable..................................... 406 (254) 1,309 536 (1,448)
Accrued liabilities.................................. 561 1,667 505 1,303 (400)
Deferred revenue..................................... 2,067 1,601 112 (641) (840)
Other, net........................................... 127 (145) 134 98 184
------- -------- ------- ------- -------
Net cash provided by (used in) operating
activities....................................... 4,667 12,105 11,872 8,570 (1,026)
------- -------- ------- ------- -------
Cash flows from investing activities:
Additions to furniture and equipment..................... (763) (1,613) (2,619) (1,811) (891)
Acquisitions, net of cash received....................... -- (3,816) -- -- --
Proceeds from sale of TDS product line................... -- 4,666 -- -- --
Proceeds from sale of assets............................. 8 30 7 -- 11
Notes receivable advances................................ -- (565) (1,210) (855) (965)
Notes receivable repayments.............................. -- -- 75 -- --
Investment in and advances to joint venture.............. (100) -- (750) (750) --
------- -------- ------- ------- -------
Net cash used in investing activities.............. (855) (1,298) (4,497) (3,416) (1,845)
------- -------- ------- ------- -------
Cash flows from financing activities:
Issuance of preferred stock.............................. 977 -- -- -- --
Issuance of common stock, net of expenses................ 16,364 922 1,613 1,118 323
Tax benefit of option exercises.......................... -- 969 1,229 875 --
Payments to acquire treasury stock....................... -- (11,555) -- (2,329) --
Proceeds from notes payable and long-term debt........... 96 -- -- -- --
Repurchase of common stock............................... (2) (4) (2,330) -- --
Principal payments of debt obligations................... (1,952) (898) (118) (91) (154)
Principal payments of capital lease obligations.......... (205) (69) (49) (38) (35)
------- -------- ------- ------- -------
Net cash provided by (used in) financing
activities....................................... 15,278 (10,635) 345 (465) 134
------- -------- ------- ------- -------
Increase (decrease) in cash and cash equivalents... 19,090 172 7,720 4,689 (685)
Cash and cash equivalents, beginning of period............. 711 19,801 19,973 19,973 27,693
------- -------- ------- ------- -------
Cash and cash equivalents, end of period................... $19,801 $ 19,973 $27,693 $24,662 $27,008
======= ======== ======= ======= =======
Supplemental disclosure (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,
Israel and Finland. 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. Investments in business entities
in which the Company does not have control, but has the ability to exercise
significant influence over operating and financial policies (generally 20-50
percent ownership), are accounted for by the equity method.
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 software products is deferred until such time as vendor
obligations are met. 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. Revenue from product sales through distributors is recognized net
of the associated distributor discounts. 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 when revenue is recognized.
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.
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.
F-7
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 and 1998, substantially all of the Company's 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 AND GOODWILL
Intangibles, which include purchased technologies and other intangibles are
being amortized on a straight-line basis over two to five years for purchased
technologies and two years for other intangibles. Purchased technology
represents acquired software which has been fully developed, achieved
technological feasibility, reached commercial viability, and is generating
revenue. Goodwill, which represents the excess of the purchase price over
identifiable net assets acquired, is being amortized over five years. The
carrying value of intangible assets and goodwill are reviewed whenever
circumstances occur which indicate that the carrying value may not be
recoverable.
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.
F-8
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company has made equity investments in ADC and SDA and has provided
loans to ADC and a privately-held, independent software company for business and
strategic purposes. The Company identifies and records impairment losses on
these investments when events and circumstances indicate that such assets might
be impaired.
FOREIGN CURRENCY TRANSLATION
The Company's subsidiaries in Israel and Finland use 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 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. As the gains
and losses are insignificant in 1997 and 1998, such amounts were recorded as
other income, net.
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 1998
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 1998, based upon the interest rates available to the
Company for similar instruments. The carrying amount of notes receivable at
December 31, 1997 and 1998 approximates fair value which is evaluated based upon
the present value of the expected future cash flows and the fair value of the
underlying collateral.
COMPUTATION OF NET INCOME (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. 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. Common equivalent shares from stock options are excluded from the
computation when their effect is antidilutive.
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
F-9
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999 or any other future interim
period, and the Company makes no representations related thereto.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement changed the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. The statement was effective for fiscal years beginning after
December 15, 1997 and has not significantly modified the disclosure of segment
information for the Company.
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. This statement is effective for fiscal years beginning after
December 15, 1997. The adoption of this statement has not had any effect on the
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. This statement is effective for
fiscal years beginning after June 15, 2000. Management does not expect the
adoption of this statement to have any effect on the consolidated financial
statements.
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 SOPs 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
F-10
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ratably over the term of the maintenance agreement and revenue allocated to
services is recognized as the services are performed.
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 SOPs 97-2 and 98-4 did not have a significant effect on revenue
recognized for the year ended December 31, 1998.
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 Summit and
TriQuest (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------- TWO MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 FEBRUARY 28, 1997
----------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Summit
Revenues.................. $14,292 $20,163 $1,473
Net income (loss)......... (3,123) 2,688 (921)
TriQuest
Revenues.................. -- 151 199
Net income (loss)......... (488) (1,425) 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
of 1997. 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.
F-11
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 was 1,256,800 shares of Summit
common stock, 723,200 options to purchase Summit common stock and $3,875,000 in
cash. An additional $315,000 of direct acquisition costs were also incurred and
included in the purchase price.
After discussion with the staff of the Securities and Exchange Commission
(the "Staff"), the Company restated the consolidated financial statements as of
and for the quarters ended September 30, 1997, March 31, 1998, June 30, 1998 and
September 30, 1998 and as of and for the year ended December 31, 1997 to reflect
a change in the original accounting treatment to the September 1997 acquisition
of SimTech.
The total consideration at estimated fair value is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
ORIGINALLY
REPORTED AS RESTATED
---------- -----------
<S> <C> <C>
Cash.................................................... $ 3,875 $ 3,875
Common stock of Summit.................................. 11,367 14,649
Options to purchase Summit common stock................. 5,299 5,299
Other direct acquisition costs.......................... 315 315
------- -------
$20,856 $24,138
======= =======
</TABLE>
The transaction was accounted for using the purchase method of accounting.
Accordingly, the results of operations have been combined with those of Summit
since the date of acquisition. The allocation of the purchase price to the net
assets acquired based upon their estimated fair values as originally reported
and as restated is summarized as follows (in thousands):
<TABLE>
<CAPTION>
ORIGINALLY
REPORTED AS RESTATED
---------- -----------
<S> <C> <C>
Current assets.......................................... $ 937 $ 937
Property and equipment.................................. 377 377
In-process technology................................... 19,937 11,689
Purchased technology.................................... 1,037 2,390
Identifiable intangibles................................ 735 4,079
Goodwill................................................ -- 3,756
Current liabilities assumed............................. (707) (707)
Unearned revenue assumed................................ (1,460) (1,460)
Deferred taxes.......................................... -- (1,322)
Compensation expense contingent upon future
employment............................................ -- 4,399
------- -------
$20,856 $24,138
======= =======
</TABLE>
The amount allocated to in-process technology was written off immediately
subsequent to the acquisition of SimTech as the in-process technology had not
reached technological feasibility and had no probable alternative future use.
The amounts allocated to purchased technology and identifiable intangibles are
being amortized on a straight-line basis over two to five years. Additionally,
the
F-12
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION OF SIMULATION TECHNOLOGIES CORP. (CONTINUED)
Company recorded a charge to expense for shares issued in the transaction which
were contingent upon continued employment for up to two years from the
acquisition date. A total of $4.4 million of compensation expense was recorded
as the employment obligation lapsed.
The following table reflects unaudited pro forma combined results of
operations of the Company and SimTech on a basis that the acquisition had taken
place at the beginning of the fiscal year for each of the periods presented,
excluding the effect of the one-time charge of in-process technology:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.................................... $24,391 $35,278
Net income (loss)........................... $(4,104) $ 6,563
Basic net income (loss) per share........... $ (0.31) $ 0.43
Diluted net income (loss) per share......... $ (0.31) $ 0.40
Number of shares used in computing basic net
income per share.......................... 13,292 15,268
======= =======
Number of shares used in computing diluted
net income per share...................... 13,292 16,267
======= =======
</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 1998
-------- --------
<S> <C> <C>
Office furniture and equipment............................ $ 596 $ 1,201
Computer equipment........................................ 3,679 5,138
Leasehold improvements.................................... 66 491
------- -------
4,341 6,830
Less accumulated depreciation and amortization............ (1,643) (2,717)
------- -------
$ 2,698 $ 4,113
======= =======
</TABLE>
7. DEPOSITS AND OTHER ASSETS:
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% and are due April 1, 2000. Total amounts due to the
F-13
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEPOSITS AND OTHER ASSETS: (CONTINUED)
Company under this agreement at December 31, 1997 and 1998 were $490,000 and
$1.7 million, respectively, and are included in other assets.
Also included in Deposits and Other Assets are investments in and advances
to two joint ventures (see Note 19) of which $0 and $230,000 are outstanding at
December 31, 1997 and December 31, 1998, respectively. Advances bear interest at
5% per year and are due June 2003.
UNAUDITED--During the third quarter of 1999, it became evident that because
of missed product development milestones, the independent software company's
cash flows would not be sufficient to repay the loan. Summit exercised its right
under the terms of the contract with the independent software company to retain
co-ownership of the technology and distribution rights to the product in
satisfaction of the note. During the third quarter Summit also evaluated its
business strategy relative to the technology acquired from the software company.
Based on Summit's assessment of market potential, revised sales projections, and
limited manpower resources, management decided that Summit could not provide the
support necessary to successfully market and sell this product. Summit concluded
that the technology had no value and Summit has no plans to sell this product in
the future. Summit therefore wrote-off the balance of the note receivable of
$2.7 million.
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 prime and is payable monthly. The prime rate at
December 31, 1998 was 7.75%. There was no amount outstanding at December 31,
1998.
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, 1998.
9. ACCRUED LIABILITIES:
Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Payroll and related benefits................................ $2,887 $3,051
Sales and marketing......................................... 435 332
Accounting and legal........................................ 260 310
Federal and state income taxes payable...................... 819 1,549
Sales taxes payable......................................... 114 160
Other....................................................... 667 285
------ ------
$5,182 $5,687
====== ======
</TABLE>
F-14
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASES:
The Company is obligated under capital leases for equipment that expire at
various dates during the next three years. The leased assets are included in
equipment at a capitalized amount of $197,000 at December 31, 1997 and 1998.
Related accumulated amortization of $108,000 and $153,000 at December 31, 1997
and 1998 is included in accumulated depreciation.
The Company has entered into significant noncancelable operating leases for
the use of buildings in Beaverton, Oregon, Herzlia, Israel, and San Jose,
California. Rental expense was approximately $470,000, $495,000, and $653,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
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>
1999....................................................... $ 45 $1,349
2000....................................................... -- 966
2001....................................................... -- 953
2002....................................................... -- 759
2003....................................................... -- 617
---- ------
Total minimum lease payments............................. 45 $4,644
======
Less amount representing interest (at 4%)................ (2)
----
Present value of minimum capital lease payments.......... 43
Current portion of capital lease obligation.............. (43)
----
Capital leases obligation, less current portion.......... $ --
====
</TABLE>
11. LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Marketing grant payable to the Israeli government........... $261 $187
Other....................................................... 67 23
---- ----
328 210
Current portion............................................. (134) (54)
---- ----
Non-current portion......................................... $194 $156
==== ====
</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, 1998. 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.
F-15
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LONG-TERM DEBT: (CONTINUED)
Future principal payments of debt outstanding for the years ending
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999........................................................ $ 54
2000........................................................ 156
----
Total..................................................... $210
====
</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 1994 Plan,
2,822,000 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 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 1/48(th) of the grant amount in each successive month
thereafter. Options expire no later than 10 years after the date of grant.
There were 366,094, 2,659, and 342,026 shares of common stock reserved for
the grant of stock options under the 1994 Plan at December 31, 1996, 1997 and
1998, 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 are 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 Director Plan. The Company granted
40,000 options under this Director Plan in both 1997 and 1998.
F-16
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
</TABLE>
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 Nonstatutory 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
1/48(th) 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 101,623 options
under the Nonstatutory Plan in 1998.
A summary of the status of the Company's stock option plans as of
December 31, 1996, 1997 and 1998 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE RANGE
--------- --------------------
<S> <C> <C>
Balance, December 31, 1995...................... 1,163,482 $0.02--$ 2.50
Options granted................................. 722,575 $0.33--$10.50
Options exercised............................... (345,278) $0.02--$ 2.50
Options canceled................................ (146,905) $0.02--$10.50
---------
Balance, December 31, 1996...................... 1,393,874 $0.02--$10.50
Options granted................................. 1,643,121 $0.08--$17.00
Options exercised............................... (470,715) $0.02--$ 7.00
Options canceled................................ (442,906) $0.02--$12.75
---------
Balance, December 31, 1997...................... 2,123,374 $0.08--$17.00
Options granted................................. 380,599 $6.75--$15.88
Options exercised............................... (623,087) $0.08--$ 9.25
Options canceled................................ (147,773) $1.17--$17.00
---------
Balance, December 31, 1998...................... 1,733,113 $0.08--$17.00
=========
</TABLE>
The following are the shares exercisable at the corresponding weighted
average exercise price at December 31, 1996, 1997, and 1998, respectively:
1,186,986 at $2.0662, 949,261 at $2.3119, and 780,195 at $5.2121. The weighted
average exercise price per share of options outstanding at December 31, 1998 is
$6.976. The following are the weighted average grant date fair value of options
granted for the years ended December 31, 1996, 1997, and 1998, respectively:
$5.95, $8.96, and $12.00. At December 31, 1998, 127,083 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.
F-17
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE AVERAGE SHARES AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 REMAINING LIFE PRICE AT 12/31/98 PRICE
--------------- ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.08 to $ 0.62..... 318,423 6.59 $ 0.3778 223,916 $ 0.3237
$ 1.17 to $ 1.95..... 250,275 7.25 1.7116 159,203 1.7053
$ 4.67 to $ 7.00..... 94,160 9.08 6.1831 41,712 6.2183
$ 8.13 to $ 9.50..... 642,938 8.57 8.8846 277,025 8.9756
$ 9.63 to $10.50..... 197,000 8.98 9.9194 34,833 9.6522
$12.75 to $17.00..... 230,317 9.24 14.2973 43,506 14.7214
</TABLE>
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
385,000 shares of common stock for issuance under the 1996 Purchase Plan. The
Company issued approximately 80,252 shares of common stock under the 1996
Purchase Plan during 1998.
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
1996, 1997 and 1998 are presented below.
The fair value of each option granted during the years ended December 31,
1996, 1997, and 1998 are estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Average dividend yield............................ 0% 0% 0%
Expected volatility............................... 46% 44% 57%
Expected life in years............................ 5 4 4
Risk free interest rate:
Low............................................. 5.546% 5.787% 4.050%
High............................................ 6.543% 6.421% 5.665%
</TABLE>
F-18
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY: (CONTINUED)
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>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net income--as reported............................ $1,263 $ 431 $5,101
Net income (loss)--pro forma....................... $ 714 $(1,496) $1,802
Diluted net income per common share--as reported... $ 0.10 $ 0.03 $ 0.32
Diluted net income (loss) per common share--pro
forma............................................ $ 0.05 $ (0.10) $ 0.11
</TABLE>
The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
13. INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $ 26 $ 765 $1,811
State............................................. 4 426 457
Foreign........................................... 225 468 1,110
------ ------ ------
255 1,659 3,378
------ ------ ------
Deferred:
Federal........................................... (373) (486) 693
State............................................. (27) 14 93
Foreign........................................... (100) (247) (127)
------ ------ ------
(500) (719) 659
------ ------ ------
$ (245) $ 940 $4,037
====== ====== ======
</TABLE>
F-19
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES: (CONTINUED)
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,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate.......... $ 826 $ (452) $1,554
In-process technology.............................. -- 3,974 --
Amortization of goodwill........................... -- 101 255
Compensation expense for contingent stock.......... -- 282 1,246
Alternative minimum tax............................ 26 -- --
Foreign taxes...................................... 225 221 983
Deferred taxes:
Utilization of net operating losses.............. (1,509) (3,392) --
Other.............................................. 183 (210) (343)
State.............................................. 4 416 342
------ ------- ------
$ (245) $ 940 $4,037
====== ======= ======
</TABLE>
The tax provision (benefit) at statutory rate is calculated based on U.S.
income and does not include tax on earnings from foreign operations. Tax on
earnings from foreign operations is included in foreign income and withholding
taxes.
At December 31, 1998, 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 foreign tax credits which may be
available for offset against future federal income taxes after use of the loss
carryforwards. Such loss carryforwards and tax credits are summarized below (in
thousands):
<TABLE>
<CAPTION>
AMOUNT EXPIRATION DATES
-------- ----------------
<S> <C> <C>
Loss carryforwards:
Federal............................................ $1,035 2009--2010
State.............................................. 1,035 2009--2010
Foreign tax credits (federal only)................... 625 2000--2001
</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 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards....... $ 548 $ 398
Foreign operating loss carryforwards..................... 563 336
Research and experimentation credit carryforwards........ 313 --
Foreign tax credit carryforwards......................... 727 625
Other deferred tax items................................. 773 271
------ -------
Total deferred tax assets.............................. 2,924 1,630
Less valuation allowances................................ (563) (336)
------ -------
Net deferred tax assets................................ 2,361 1,294
------ -------
Deferred tax liabilities:
Other deferred tax items................................. (2,139) (991)
------ -------
Total deferred tax liabilities......................... (2,139) (991)
------ -------
Net deferred taxes..................................... $ 222 $ 303
====== =======
Net deferred income taxes:
Current.................................................. $1,209 $ 792
Deferred................................................. (987) (489)
------ -------
$ 222 $ 303
====== =======
</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, 1996, 1997 and 1998 was
a decrease of approximately $964,000, $4,455,000 and $227,000, respectively. The
decrease in the valuation allowance for the year ended December 31, 1998
resulted from a decrease in the effective tax rate in Israel. 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.
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:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss).................... $ 1,263 $ 431 $ 5,101 $ 4,618 $(5,538)
======= ======= ======= ======= =======
Denominator:
Denominator for basic earnings (loss)
per share:
Weighted average shares............ 12,240 14,403 15,155 15,072 15,646
Effect of dilutive securities:
Employee stock options............. 1,003 999 960 1,136 --
------- ------- ------- ------- -------
Denominator for diluted earnings
(loss) per share:
Weighted average shares........... 13,243 15,402 16,115 16,208 15,646
======= ======= ======= ======= =======
Net income (loss) per share--basic..... $ 0.10 $ 0.03 $ 0.34 $ 0.31 $ (0.35)
======= ======= ======= ======= =======
Net income (loss) per share--diluted... $ 0.10 $ 0.03 $ 0.32 $ 0.28 $ (0.35)
======= ======= ======= ======= =======
</TABLE>
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 contributions to the Plan were
approximately $50,000 and $98,000 in 1997 and 1998, respectively. 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:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for interest............ $111 $ 11 $ 3 $ 3 $ 2
Cash paid for income taxes........ $254 $ 175 $ 2,108 $ 2,063 $1,198
Noncash investing and financing
activities:
Retirement of treasury stock.... -- -- $11,555 $11,555 --
Equipment acquired under capital
leases........................ $ 23 -- -- -- --
Conversion of preferred stock to
common stock.................. $ 91 -- -- -- --
Acquisition of Simulation
Technologies:
In-process technology........... -- $ 11,689 -- -- --
Purchased technologies,
intangibles and goodwill...... -- $ 10,225 -- -- --
Property and other assets
acquired...................... -- $ 941 -- -- --
Deferred revenue assumed........ -- $ (1,460) -- -- --
Other liabilities assumed....... -- $ (707) -- -- --
Common stock issued............. -- $(15,550) -- -- --
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.
UNAUDITED--For the nine months ended September 30, 1999, Summit recorded $1.3
million in non-recurring charges relating to severance obligations for certain
management personnel. A significant amount of the liability relates to the
retirement of Summit's Chairman of the Board and Chief
F-23
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Executive Officer in June 1999. Payments to four individuals will be made over a
period of nine to twenty four months. At September 30, 1999, the balance of the
severance benefits payable was $1.1 million.
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 region outside the United States that
constitutes more than 10% of the Company's total revenue is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Europe............................ $3,294 $3,582 $6,061 $4,210 $4,300
Japan............................. 6,157 6,311 7,373 5,671 5,076
Other Asia Pacific................ 698 709 2,191 1,193 704
As a Percentage of Total Revenue:
Europe............................ 16.2% 11.4% 13.9% 12.9% 19.7%
Japan............................. 30.4% 20.0% 16.9% 17.4% 23.2%
Other Asia Pacific................ 3.4% 2.3% 5.0% 6.1% 3.2%
</TABLE>
During 1997 and 1998 one customer accounted for 28.6% and 25.1% of total
revenue, respectively. In 1996, no single customer accounted for more than 10%
of total revenue. Sales through a single distributor accounted for 14.7%, 12.1%
and 14.0% of the Company's total revenue in 1996, 1997 and 1998, 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, 1998. Identifiable assets of the Company's Israeli subsidiary were
less than 10% of total assets at December 31, 1998.
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 received payments from Seiko of $800,000, $200,000 and $100,000 in
1996, 1997 and 1998, respectively. In the years ended December 31, 1996, 1997
and 1998, the Company recognized revenue of $367,000 associated with this
agreement.
19. RELATED PARTIES:
Summit Design (EDA) Ltd. leased its corporate offices from a stockholder
under a four-year sublease agreement which expired in December 1998, on the same
terms and conditions that the stockholder leases such space. Lease expense paid
to the stockholder for the year ended December 31, 1996, 1997 and 1998 were
$141,000, $145,000 and $180,000, respectively.
F-24
<PAGE>
SUMMIT DESIGN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. RELATED PARTIES: (CONTINUED)
Effective April 1, 1996, the Company invested $100,000 for a minority
interest in a joint venture corporation, Asia Design Corporation ("ADC"), which
acquired the exclusive rights to sell, distribute and support all of the
Company's products in the Asia-Pacific region, excluding Japan. In May 1998, the
Company exchanged a portion of its investment in the joint venture for a 50%
non-controlling interest in Summit Design Asia, Ltd. ("SDA"). The Company loaned
$750,000 to SDA. As of December 31, 1998, the Company owned 50% of SDA and 30%
of ADC through direct and indirect ownership. The Company has reflected in other
income a loss in equity of and loans to the joint ventures of $33,000, $77,000
and $360,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Total product licenses and maintenance revenue for sales to the joint venture
totaled approximately $586,000, $590,000 and $501,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. Total accounts receivable, with
payment terms similar to other customers in the Asia-Pacific region, was $67,000
at December 31, 1998.
20. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table sets forth selected unaudited quarterly financial
information:
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENTHREE-MONTH PERIODS ENDED
---------------------------------------------------------------------------------------
------------------------------------------
1997 1998
------------------------------------------ ------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................................ $6,520 $7,180 $ 7,909 $9,830 $10,357 $11,012 $11,314 $10,915
Gross margin........................... 6,225 6,874 7,519 9,269 9,774 10,449 10,701 10,314
Net income (loss)...................... 1,193 1,863 (4,508) 1,883 1,402 1,455 1,761 483
Net income (loss) per share--basic..... $ 0.09 $ 0.13 $ (0.31) $ 0.13 $ 0.09 $ 0.10 $ 0.12 $ 0.03
Net income (loss) per share--diluted... $ 0.08 $ 0.12 $ (0.31) $ 0.12 $ 0.09 $ 0.09 $ 0.11 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENDED 1999
-----------------------------------------
MAR. 31, JUNE 30, SEPTEMBER 30,
-------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue.................................................. $ 6,816 $ 7,182 $ 7,854
Gross margin............................................. 6,262 6,541 7,227
Net income (loss)........................................ (2,234) (1,004) (2,300)
Net income (loss) per share--basic....................... $ (0.14) $ (0.06) $ (0.15)
Net income (loss) per share--diluted..................... $ (0.14) $ (0.06) $ (0.15)
</TABLE>
21. SUBSEQUENT EVENTS:
On September 16, 1999, the Company entered into a definitive agreement to
merge with Viewlogic Systems, Inc. ("Viewlogic") a privately held software
company headquartered in Marlboro, Massachusetts under which the Company will
acquire Viewlogic. Each share of Viewlogic Preferred and Common Stock will be
assumed by the Company will be exchanged for 0.67928 shares for Summit Common
Stock upon closing of the transaction. In addition, the Company will assume all
options outstanding under Viewlogic's stock option plan. The Company intends to
account for this acquisition as a purchase. Although Summit will be acquiring
Viewlogic, after such transaction, Viewlogic stockholders will hold a
controlling interest in Summit. Accordingly, for accounting purposes, the
acquisition will be a "reverse acquisition" and Viewlogic will be the
"accounting acquirer". As Viewlogic will be the accounting acquirer, its
accounts will be recorded at historical cost and the assets and liabilities of
Summit will be recorded at their estimated fair value as of the closing date.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Viewlogic Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Viewlogic
Systems, Inc. and subsidiaries (the "Company") as of January 2, 1999 and
October 2, 1999, and the related consolidated statements of operations,
comprehensive income, stockholders' equity (deficiency), and cash flows for the
year ended January 2, 1999 and for the nine months ended October 2, 1999. We
have also audited the consolidated statement of revenues and expenses for the
year ended December 31, 1997 of the Systems Business (Note 1). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 2, 1999
and October 2, 1999, and the results of its operations, comprehensive income and
its cash flows for the year ended January 2, 1999 and for the nine months ended
October 2, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, the consolidated statement of revenues and expenses
presents fairly, in all material respects, the revenues and expenses of the
Systems Business for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
As discussed in Note 1, through October 2, 1998, the Company and the Systems
Business were operated as a subsidiary of Synopsys, Inc. or a component of the
Prior Viewlogic, respectively.
Deloitte & Touche LLP
Boston, Massachusetts
December 3, 1999
F-26
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1999 AND OCTOBER 2, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS' EQUITY
JANUARY 2, OCTOBER 2, (DEFICIENCY)
1999 1999 OCTOBER 2, 1999
---------- ----------- ---------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,487 $ 1,296
Accounts receivable (less allowances of $1,940 at January
2, 1999 and $1,455 at October 2, 1999).................. 9,581 12,303
Prepaid expenses and other................................ 1,189 2,256
Deferred income taxes..................................... 1,580 1,373
-------- --------
Total current assets.................................... 16,837 17,228
-------- --------
PROPERTY AND EQUIPMENT:
Equipment................................................. 11,259 12,647
Furniture and fixtures.................................... 1,459 1,517
-------- --------
Total................................................... 12,718 14,164
Less accumulated depreciation............................. 7,967 9,476
-------- --------
PROPERTY AND EQUIPMENT--Net................................. 4,751 4,688
-------- --------
OTHER ASSETS:
Capitalized software costs--net........................... 2,310 2,427
Purchased technology--net................................. -- 3,825
Other..................................................... 994 935
-------- --------
Total other assets...................................... 3,304 7,187
-------- --------
TOTAL....................................................... $ 24,892 $ 29,103
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Note payable--current portion............................. $ 2,250 $ 3,000
Current portion of capital lease obligations.............. 71 333
Accounts payable.......................................... 1,315 1,956
Accrued compensation...................................... 3,262 3,033
Accrued expenses.......................................... 3,506 3,941
Due to related party...................................... 549 155
Deferred revenue.......................................... 12,393 13,034
-------- --------
Total current liabilities............................... 23,346 25,452
-------- --------
LONG-TERM LIABILITIES:
Note payable--long-term portion........................... 15,250 13,000
Line of credit............................................ 500 500
Deferred tax liability.................................... 1,518 2,393
Capital lease obligations................................. 123 580
-------- --------
Total long-term liabilities............................. 17,391 16,473
-------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE, CONVERTIBLE PREFERRED STOCK..................... 32,000 32,000 $ --
-------- --------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.001 par value, authorized, 35,000 shares,
issued 3,966 shares at January 2, 1999 and 7,899 shares
at October 2, 1999. Pro forma shares outstanding at
October 2, 1999; 23,899................................. 4 8 24
Notes from stockholders................................... -- (927) (927)
Additional paid-in capital................................ 1,918 4,750 36,718
Deferred compensation..................................... (1,801) (1,843) (1,843)
Accumulated deficit....................................... (48,104) (47,037) (47,037)
Accumulated other comprehensive income.................... 138 227 227
-------- -------- --------
Total stockholders' equity (deficiency)................. (47,845) (44,822) $(12,838)
-------- -------- ========
TOTAL....................................................... $ 24,892 $ 29,103
======== ========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT OF REVENUES AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997
AND
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 2, 1999
AND FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 AND OCTOBER 2, 1999
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------- ------------------------
DECEMBER 31, JANUARY 2, OCTOBER 3, OCTOBER 2,
1997 1999 1998 1999
------------ ---------- ----------- ----------
(NOTE 1) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Software.................................................. $29,071 $22,683 $17,070 $19,107
Services and other........................................ 34,916 32,554 24,095 21,710
------- ------- ------- -------
Total revenue........................................... 63,987 55,237 41,165 40,817
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of software (includes $1 and $4 of non-cash stock
based compensation for the year ended January 2, 1999
and the nine-months ended October 2, 1999,
respectively)........................................... 3,340 5,113 3,639 4,507
Cost of services and other (includes $8 and $28 of
non-cash stock based compensation for the year ended
January 2, 1999 and the nine-months ended October 2,
1999, respectively)..................................... 7,513 5,080 3,522 4,698
Selling and marketing (includes $23 and $76 of non-cash
stock based compensation for the year ended January 2,
1999 and the nine-months ended October 2, 1999,
respectively)........................................... 24,897 18,953 13,299 16,640
Research and development (includes $42 and $138 of
non-cash stock based compensation for the year ended
January 2, 1999 and the nine-months ended October 2,
1999, respectively)..................................... 14,954 10,070 7,496 8,518
General and administrative (includes $42 and $138 of
non-cash stock based compensation for the year ended
January 2, 1999 and the nine-months ended October 2,
1999, respectively)..................................... 4,054 3,717 2,938 3,153
Amortization of intangibles............................... -- -- -- 354
Litigation settlement and related costs................... 4,500 -- -- --
Restructuring charge...................................... 6,725 -- -- --
Transaction costs--recapitalization....................... -- 452 452 --
------- ------- ------- -------
Total operating expenses................................ 65,983 43,385 31,346 37,870
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS............................... (1,996) 11,852 9,819 2,947
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income........................................... 171 127 87
Interest expense.......................................... (15) (342) -- (981)
Other, net, principally foreign exchange losses........... (56) (1,761) (1,889) (278)
------- ------- ------- -------
Other income (expense), net............................. (71) (1,932) (1,762) (1,172)
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES........................... (2,067) 9,920 8,057 1,775
PROVISION (BENEFIT) FOR INCOME TAXES........................ (868) 4,053 3,261 708
------- ------- ------- -------
NET INCOME (LOSS)........................................... $(1,199) $ 5,867 $ 4,796 $ 1,067
======= ======= ======= =======
EARNINGS PER SHARE (Note 1):
Net income per common share--basic........................ $ 1.48 $ 1.21 $ 0.22
======= ======= =======
Net income per common share--diluted...................... $ 0.73 $ 1.21 $ 0.05
======= ======= =======
Weighted average shares outstanding--basic................ 3,966 3,966 4,861
======= ======= =======
Weighted average shares outstanding--diluted.............. 7,999 3,966 21,631
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED JANUARY 2, 1999 AND NINE MONTHS ENDED OCTOBER 3, 1998 AND
OCTOBER 2, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ------------------------
JANUARY 2, OCTOBER 3, OCTOBER 2,
1999 1998 1999
---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
NET INCOME.................................................. $5,867 $4,796 $1,067
FOREIGN CURRENCY TRANSLATION ADJUSTMENT..................... 1,800 1,231 89
------ ------ ------
COMPREHENSIVE INCOME........................................ $7,667 $6,027 $1,156
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED JANUARY 2, 1999 AND NINE MONTHS ENDED OCTOBER 2, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED
STOCK NOTES DUE ADDITIONAL EARNINGS OTHER
COMMON PAR FROM PAID-IN DEFERRED (ACCUMULATED COMPREHENSIVE
SHARES VALUE SHAREHOLDERS CAPITAL COMPENSATION DEFICIT) INCOME (LOSS)
-------- -------- ------------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 AFTER
CORPORATE REORGANIZATION
(NOTE 1).................... 3,966 $ 4 $ -- $ $ -- $ (3,971) $(1,662)
Compensation related to stock
options..................... -- -- -- 1,918 (1,918) -- --
Amortization of stock
compensation................ -- -- -- -- 117 -- --
Net income.................... -- -- -- -- -- 5,867 --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- 1,800
Recapitalization payment to
parent...................... -- -- -- -- -- (50,000) --
------- ----- ----- -------- ------- -------- -------
BALANCE, JANUARY 2, 1999...... 3,966 4 -- 1,918 (1,801) (48,104) 138
Issuance of common stock...... 1,124 1 -- 1,482 -- -- --
Compensation related to stock
options..................... -- -- -- 426 (426) -- --
Amortization of stock
compensation................ -- -- -- -- 384 -- --
Net income.................... -- -- -- -- -- 1,067 --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- 89
Exercise of stock options..... 2,809 3 (927) 924 -- -- --
------- ----- ----- -------- ------- -------- -------
BALANCE, OCTOBER 2, 1999...... 7,899 $ 8 $(927) $ 4,750 $(1,843) $(47,037) $ 227
======= ===== ===== ======== ======= ======== =======
<CAPTION>
TOTAL
--------
<S> <C>
BALANCE, JANUARY 1, 1998 AFTER
CORPORATE REORGANIZATION
(NOTE 1).................... $ (5,629)
Compensation related to stock
options..................... --
Amortization of stock
compensation................ 117
Net income.................... 5,867
Foreign currency translation
adjustment.................. 1,800
Recapitalization payment to
parent...................... (50,000)
--------
BALANCE, JANUARY 2, 1999...... (47,845)
Issuance of common stock...... 1,483
Compensation related to stock
options..................... --
Amortization of stock
compensation................ 384
Net income.................... 1,067
Foreign currency translation
adjustment.................. 89
Exercise of stock options..... --
--------
BALANCE, OCTOBER 2, 1999...... $(44,822)
========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JANUARY 2, 1999 AND NINE MONTHS ENDED OCTOBER 3, 1998 AND
OCTOBER 2, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -------------------------
JANUARY 2, OCTOBER 3, OCTOBER 2,
1999 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 5,867 $ 4,796 $ 1,067
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 3,205 2,252 2,854
Compensation under stock option agreements................ 117 -- 384
Loss on disposal of fixed assets.......................... 820 820 --
Change in assets and liabilities:
Accounts receivable..................................... (668) (2,162) (2,525)
Prepaid and other assets................................ (213) (247) (1,059)
Deferred income taxes................................... 220 199 40
Accounts payable........................................ 872 2,770 219
Accrued compensation.................................... (2,412) (1,627) (302)
Accrued expenses........................................ (6,946) (7,248) 428
Deferred revenue........................................ 2,005 3,329 44
-------- -------- -------
Net cash provided by (used in) operating activities... 2,867 2,882 1,150
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (1,257) (1,042) (743)
Capitalized software costs.................................. (1,111) (681) (811)
Purchase of OmniView........................................ -- -- (1,153)
Purchase of Transcendent, net of cash aquired (note 1)...... -- -- 285
Other....................................................... (449) (443) (300)
-------- -------- -------
Net cash used in investing activities................. (2,817) (2,166) (2,722)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt............................................ (500) -- (1,500)
Proceeds from debt.......................................... 18,500 18,500 --
Recapitalization payment to Parent.......................... (50,000) (50,000) --
Advances from parent........................................ 3,100 3,100 --
Proceeds from sales of redeemable convertible preferred
stock..................................................... 32,000 32,000 --
Repayments of capital lease obligations..................... (64) (43) (94)
-------- -------- -------
Net cash provided by (used in) financing activities... 3,036 3,557 (1,594)
-------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... 1,401 1,128 (25)
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 4,487 5,401 (3,191)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. -- -- 4,487
-------- -------- -------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD................ $ 4,487 $ 5,401 $ 1,296
======== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF BUSINESS--Viewlogic Systems, Inc. (the "Company") operates in the
United States and international markets developing, marketing and providing
technical support for a comprehensive family of software tools used by engineers
in the design of advanced electronic products and systems.
BASIS OF PRESENTATION--Prior to December 4, 1997, a company also named
Viewlogic Systems, Inc. (the "Prior Viewlogic") offered two primary product
lines, consisting of software tools used by engineers designing integrated
circuits (the "ASIC Business") and software tools used by engineers designing
printed circuit boards and complete systems (the "Systems Business"). On
December 4, 1997, the Prior Viewlogic became a wholly owned subsidiary of
Synopsys, Inc. ("Synopsys") in a transaction accounted for as a pooling of
interests. On January 1, 1998, the Prior Viewlogic transferred the ASIC Business
and certain other assets to Synopsys, leaving only the Systems Business in the
Prior Viewlogic. The Prior Viewlogic operated as the Systems Business through
March 31, 1998 when, in a legal reorganization, the Systems Business was
transferred to a new legal entity, Viewlogic Systems, Inc. The reorganization
was for legal purposes only and there was no substantive change in the
operations of the business.
On October 2, 1998, a group of investors purchased 16,000 shares of the
Company's preferred stock for $32,000 and the Company borrowed $18,000 from a
bank. The proceeds of these financings were paid to Synopsys with the result
that Synopsys' interest in the Company was reduced to 19.9%. This transaction
was accounted for as a recapitalization.
The accompanying consolidated financial statements include the operations of
the Prior Viewlogic through March 31, 1998 and of the Company from April 1, 1998
through January 2, 1999. For the period from January 1, 1998 through the
October 2, 1998 recapitalization, certain treasury services were provided by
Synopsys at no charge. The fair value of services were not significant. The
Company charged Synopsys $1,386 for transition services for the nine months
ended October 3, 1998, and $987, $682, and $153 for occupancy costs for the year
ended January 2, 1999, and the nine months ended October 3, 1998, and
October 2, 1999, respectively, related to the transfer of the ASIC Business to
Synopsys. The Company did not charge Synopsys for any additional costs beyond
July 3, 1999.
The statement of revenues and expenses for the year ended December 31, 1997
represents a "carve out" of the Systems Business from the historical financial
statements of the Prior Viewlogic. Accordingly, it excludes the ASIC Business
and other operations transferred to Synopsys on January 1, 1998. Prior to
January 1, 1998, certain administrative, marketing, sales, and other services of
the Prior Viewlogic were centralized. Accordingly, allocations of these expenses
have been made primarily based on personnel, revenue, space, direct costs of
related activities or estimates of time spent to provide services. These
allocations include amounts for facilities, marketing, general management,
treasury, audit, legal, financial reporting, benefits administration, insurance,
communication, public affairs, information management, income taxes, termination
costs, and other miscellaneous services.
Management believes that the foregoing allocations were made on a reasonable
basis, however, they are not necessarily indicative of the costs that would have
been incurred on a stand-alone basis. Because the Prior Viewlogic did not
account separately for the Systems and ASIC businesses, it is not
F-32
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
practicable to prepare a complete statement of cash flows for the year ended
December 31, 1997. However, for the year ended December 31, 1997, significant
cash flow information is as follows:
<TABLE>
<S> <C>
Net Income (Loss)........................................... $(1,199)
Non cash charges:
Depreciation expense...................................... 2,300
Amortization of capitalized software...................... 678
Restructuring charge...................................... 3,908
-------
Operating cashflow before changes in operating assets and
liabilities............................................... $ 5,687
-------
Investing Activities:
Purchases of property and equipment....................... $ 3,100
Capitalized software costs................................ 1,229
-------
Cash flow for investing activities.......................... $ 4,329
=======
</TABLE>
UNAUDITED INTERIM FINANCIAL INFORMATION--The statements of operations and
cash flows for the nine months ended October 3, 1998 are unaudited.
In the opinion of management, all adjustments, consisting of only normal
recurring items, which are necessary for a fair presentation, have been included
in such unaudited interim financial information. The results for interim periods
are not necessarily indicative of results which may be expected for any other
interim period or for the full year and may not necessarily reflect the results
of operations, financial position, changes in equity and cash flows of the
Company in the future.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY (DEFICIENCY)--The holders of
preferred stock have agreed to convert all of the shares of preferred stock into
shares of common stock upon the closing of the Merger (Note 14). The unaudited
pro forma stockholders' equity (deficiency) reflects the conversion as if had
occurred on October 2, 1999.
FISCAL YEAR--Prior to 1998, the Company's year end was December 31. The
Company has changed its year end to a 52-53-week year ending on the Saturday
closest to December 31.
USE OF ESTIMATES--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures of certain assets and liabilities at the balance sheet date.
Actual results may differ from such estimates.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Viewlogic Systems, Inc. and its subsidiaries, all of which are
wholly owned. All significant intercompany balances and transactions have been
eliminated.
FOREIGN CURRENCY TRANSLATION--The functional currency of international
operations is deemed to be the local country's currency. Assets and liabilities
of operations outside the United States are translated into United States
dollars using current exchange rates at the balance sheet date. Results of
operations
F-33
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
are translated at average exchange rates prevailing during each period.
Translation adjustments are included in other comprehensive income. In 1998, as
part of the recapitalization, one of the Company's international subsidiaries
repaid an amount that had been previously treated as a long-term investment. The
repayment of this amount resulted in a realized transaction loss of $1,400 that
is included in other expense.
REVENUE RECOGNITION--Software revenue is recognized upon the shipment of the
product provided that the license fee is fixed and determinable and collection
is probable. Revenues earned on software arrangements involving multiple
elements are allocated to each element based on vendor-specific objective
evidence (VSOE) of the fair value of the various elements in a multiple element
arrangement. VSOE is determined based on the prices at which the elements are
sold separately. Revenue from maintenance and support contracts is deferred and
recognized ratably over the service period. Revenue from training and consulting
is recognized as the related services are performed. Maintenance and support
revenue included with an initial license fee is unbundled and recognized ratably
over the service period.
CASH EQUIVALENTS--The Company considers all short-term, highly liquid
investments purchased with a remaining maturity of three months or less to be
cash equivalents.
Supplemental cash flow information is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 2, OCTOBER 3, OCTOBER 2,
1999 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest........................ $ 14 $ -- $ 1,290
Cash paid for income taxes.................... 90 -- 1,205
Asset acquired under capital leases........... 89 -- 813
Issuance of stock in OmniView acquisition..... -- -- 280
Acquisition of Transendent:
Fair value of assets acquired (including
intangibles)............................ 3,373
Fair value of common stock issued......... (1,159)
Fair value of Transendent options
assumed................................. (44)
Transaction costs......................... (354)
-------
Liabilities assumed....................... 1,816
Exercise of stock options through issuance of
shareholder notes........................... 927
</TABLE>
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the related assets (three to five years). Equipment leased under
capital leases is amortized over the lesser of its useful life or the lease
term.
CAPITALIZED SOFTWARE COSTS AND PURCHASED TECHNOLOGY--Certain software costs
for products and product enhancements are capitalized after technological
feasibility has been established. Amortization
F-34
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
is provided over estimated lives of four years on a straight-line basis or based
on the ratio of current revenues to the total expected revenues in a product's
life, if greater. Accumulated amortization was $2,135 and $2,870 at January 2,
1999 and October 2, 1999, respectively. Amortization expense for the fiscal
years ended December 31, 1997 and January 2, 1999 and for the nine months ended
October 3, 1998 and October 2, 1999 was $678 and $1,057 and $684 and $694,
respectively. Research and development costs and software development costs
incurred before technological feasibility has been established are expensed as
incurred. Purchased technology is being amortized over three to four years.
OTHER ASSETS--Other assets consist primarily of financing costs incurred in
connection with the Company's long-term financing agreements. These costs are
being amortized over the term of the agreement using the straight-line method.
INCOME TAXES--The Company computes deferred income taxes based on the
differences between the financial statement and tax basis of assets and
liabilities using enacted rates in effect in the years in which the differences
are expected to reverse. The Company establishes valuation allowances to offset
temporary deductible differences, net operating loss carryforwards, and tax
credits, which are not likely to be realized.
For the period from December 5, 1997 through October 3, 1998, the Company
was included in the consolidated returns of Synopsys. Prior to December 5, 1997,
the Systems Business was included in the tax returns of the Prior Viewlogic. For
financial statement purposes, the Company has computed the tax provision for the
year ended December 31, 1997 based on the effective tax rate of the Prior
Viewlogic and for the year ended January 2, 1999 as if it had filed separate
returns.
FOREIGN EXCHANGE CONTRACTS--The Company enters into foreign exchange
contracts as a hedge against certain accounts receivable denominated in foreign
currencies. Market value gains and losses are recognized, and the resulting
credit or debit offsets foreign exchange gains or losses on those receivables.
Realized and unrealized gains and losses on foreign exchange contracts for the
year ended January 2, 1999 were insignificant. There were no foreign exchange
contracts used for the nine-months ended October 2, 1999 and no open foreign
exchange contracts outstanding as of October 2, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Financial instruments held or used by
the Company include cash and cash equivalents, accounts receivable, accounts
payable, capital lease obligations, notes and line of credit payables, foreign
exchange contracts (if any) and interest rate swap agreements. The fair values
of these instruments, which could change if market conditions change, are based
on management's estimates. Management believes that the carrying value of these
instruments approximates their fair values.
INTEREST RATE SWAP AGREEMENT--The net differential to be paid or received
under the Company's interest rate swap agreement is accrued as interest rates
change and is recognized over the life of the agreement.
STOCK-BASED COMPENSATION--The Company uses the intrinsic value-based method
of Accounting Principles Board Opinion No. 25, as permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation," to account for employee stock-based
compensation plans.
F-35
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE--Basic earnings per share are based on the weighted
average number of common shares outstanding during each period. Diluted earnings
per share are computed based on the weighted average number of common shares
outstanding for basic plus the effect of outstanding stock options (using the
treasury stock method) and preferred stock (using the if converted method). If
the preferred stock had been converted on January 3, 1999, basic earnings per
share for the nine months ended October 2, 1999 on a pro forma basis would be
the same as actual diluted earnings per share for that period.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities. "SFAS No. 133 as amended establishes new
standards of accounting and reporting for derivative instruments and hedging
activities and will be effective for the Company in fiscal 2001. Management is
currently evaluating the effect of adopting SFAS No. 133 on the consolidated
financial statements.
2. RECAPITALIZATION
On October 2, 1998, a group of investors purchased 16,000 shares of the
Company's Preferred Stock for $32,000 and the Company borrowed $18,000 from a
bank. The proceeds from these financings were paid to Synopsys as a dividend of
$30,000 and repayment of a note payable of $20,000. As a result of the
recapitalization, Synopsys' interest in the Company being reduced to 19.9%. As
part of the agreements relating to the sale of the Preferred Stock (Note 5), the
Company agreed not to compete with Synopsys in its ASIC Business for a period of
two years or until the completion of an initial public offering by the Company,
whichever occurs first. In addition, there are certain conditions limiting
changes of control in the Company without the approval of Synopsys.
3. ACQUISITIONS
On March 1, 1999, the Company purchased certain assets and intellectual
property of OmniView, Inc. ("OmniView"). The purchase price consisted of $1,100
in cash, 400 shares of the Company's common stock and acquisition expenses. The
purchase price has been allocated to the assets acquired based on their fair
values as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchased technology........................................ $1,083
Intangible workforce........................................ 197
Property and equipment...................................... 146
Prepaid expenses............................................ 7
------
Total..................................................... $1,433
======
</TABLE>
F-36
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
</TABLE>
The unaudited consolidated results of operations on a pro forma basis as
though the acquisition had occurred as of the beginning of the periods presented
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 2, OCTOBER 2,
1999 1999
---------- -----------------
<S> <C> <C>
Revenue.......................................... $55,443 $40,817
======= =======
Net income....................................... $ 4,653 $ 969
======= =======
Net income per share:
Basic.......................................... $ 1.17 $ 0.20
Diluted........................................ $ 0.58 $ 0.04
</TABLE>
On August 9, 1999, the Company acquired Transcendent Design Technologies
("Transcendent"). Transcendent develops, markets and distributes
electromechanical design and analysis software. The acquisition was accounted
for under the purchase method. The purchase price for the acquisition was 724
shares of Viewlogic common stock, options to purchase 78 shares of Viewlogic
common stock and $354 in direct acquisition costs. The purchase price has been
allocated to the acquired assets and liabilities based on their fair values as
follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents................................... $ 639
Accounts receivable......................................... 50
Purchased technology and other intangibles.................. 2,609
Other assets................................................ 75
Accounts payable and accrued expenses....................... (183)
Deferred revenues........................................... (592)
Deferred tax liability...................................... (1,041)
-------
$ 1,557
=======
</TABLE>
The unaudited consolidated results of operations on a pro forma basis as
though the acquisition had occurred as of the beginning of the periods presented
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 2, OCTOBER 2,
1999 1999
----------- ------------------
<S> <C> <C>
Revenue.................................... $57,129 $41,872
======= =======
Net Income................................. $ 5,571 $ 497
======= =======
Net income per share:
Basic...................................... $ 1.19 $ 0.09
Diluted.................................... $ 0.64 $ 0.02
</TABLE>
F-37
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. DEBT
CREDIT FACILITY--On October 2, 1998, the Company entered into a $24,000
credit facility with a commercial bank consisting of a $6,000 revolving line of
credit ("Line of Credit") and an $18,000 term loan (the "Term Loan") (together,
the "Credit Facility"). Interest terms on the Line of Credit and the Term Loan
are determined, at the option of the Company, for varying periods. The Company
may elect to have the interest rate based on the bank's prime rate or based on
the LIBOR rate at the time of the election, depending on the Company's leverage
financial ratio as defined in the Credit Facility. The interest rates on the
Line of Credit and the Term Loan at January 2, 1999 and October 2, 1999 were
8.25% and 7.31%, respectively, and 8.25% and 7.51%, respectively. Payments of
principal outstanding under either the Line of Credit or the Term Loan may be
made at any time and must be repaid in full by September 30, 2003.
Certain information with respect to line of credit borrowings was as
follows:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE
WEIGHTED AVERAGE AMOUNT AMOUNT
INTEREST RATE OUTSTANDING OUTSTANDING
---------------- ----------- -----------
<S> <C> <C> <C>
Period October 2, 1998 to January 2,
1999................................. 8.50% $ 500 $500
Nine months ended October 2, 1999...... 7.26% $1,000 $588
</TABLE>
Under the Term Loan, minimum repayments are due as follows (on a quarterly
basis) as of October 2, 1999:
<TABLE>
<CAPTION>
FISCAL YEARS
- ------------
<S> <C>
1999 (Remainder of year).................................... $ 750
2000........................................................ 3,125
2001........................................................ 3,625
2002........................................................ 4,375
2003........................................................ 4,125
-------
$16,000
=======
</TABLE>
The Credit Facility also calls for other mandatory repayments: (a) after the
end of each fiscal year in the case that cash flow leverage, as defined in the
Credit Facility, is greater than 2.0 times, 50% of the excess cash flow as
defined in the Credit Facility, (b) upon availability of cash from the net
proceeds of any sale of certain of the Company's assets and (c) upon completion
of an initial public offering of common stock.
The Company pays a commitment fee of .50% per annum of the unused portion of
the Line of Credit.
Borrowings under the Credit Facility are collateralized by substantially all
of the Company's assets. The Credit Facility contains certain limitations on
additional indebtedness, capital expenditures, and includes financial covenants
which include, but are not limited to, the maintenance of certain minimum levels
of interest, and debt service coverage ratios and maximum leverage ratios.
F-38
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. DEBT (CONTINUED)
On October 3, 1998, as required under the Credit Facility, the Company
entered into a no-fee interest rate swap agreement with a bank to reduce the
impact of changes in interest rates on its floating rate Credit Facility. This
agreement effectively converts a portion of the floating-rate obligation into a
fixed-rate obligation of 7.2% for a period of 60 months, expiring on
September 30, 2003. The notional principal amount of the interest rate-swap
agreement is $9,000 as of October 2, 1999. The Company is exposed to credit loss
in the event of nonperformance by the counterparties to the interest rate-swap
agreement.
Open interest rate contracts are reviewed regularly by the Company to ensure
that they remain effective as hedges of interest rate exposure. Management
believes that the rate-swap agreement approximates fair value.
CAPITAL LEASE--The Company is obligated under capital leases for its phone
system, computer equipment and software that expire at various dates during the
next three years. The recorded value of the assets was $295 and $1,135 as of
January 2, 1999 and October 2, 1999, respectively. The related accumulated
amortization on these assets was $110 and $228 as of January 2, 1999 and
October 2, 1999, respectively.
Future aggregate minimum annual lease payments under capital leases at
October 2, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
- ------------
<S> <C>
1999 (Remainder of year).................................... $ 97
2000........................................................ 391
2001........................................................ 376
2002........................................................ 149
--------
Total minimum payments (excluding taxes, maintenance and
insurance)................................................ 1,013
Less amount representing interest........................... (100)
--------
Present value of minimum lease payments..................... 913
Less current maturities..................................... (333)
--------
Long-term portion........................................... $ 580
========
</TABLE>
5. REDEEMABLE, CONVERTIBLE PREFERRED STOCK
The Company has authorized 22,000 shares of $.001 par value, redeemable,
convertible preferred stock ("Preferred Stock") of which 17,000 are designated
as Series A Voting Preferred Stock ("Series A") and 5,000 are designated as
Non-voting Series A-1 Preferred Stock ("Series A-1"). At January 2, 1999 and
October 2, 1999, 11,382 shares of Series A and 4,618 shares of Series A-1 were
issued and outstanding.
DIVIDENDS--The holders of the Preferred Stock are entitled to cumulative
dividends at a rate of $0.16 per share per year (the "Contingent Dividend") if
the Company fails to achieve 80% of its fiscal year 2000 operating income target
and either (1) a liquidation event occurs in which the holders of the Preferred
Stock receive less than $2.00 per share plus a 35% compound annual return or
(2) the
F-39
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. REDEEMABLE, CONVERTIBLE PREFERRED STOCK (CONTINUED)
Company completes a public offering of its common stock in which the per share
offering price is less than $2.00 plus an amount equal to a 35% compound annual
return on the Preferred Stock. The holders of the Preferred Stock are also
entitled to receive dividends proportionate to any dividend declared on common
stock based on the number of shares of common stock into which the shares are
then convertible.
CONVERSION--Each share of Preferred Stock is convertible at any time at the
option of the holder into shares of common stock at an initial conversion rate
of one-for-one. The conversion rate is subject to adjustment in the event of
certain dilutive issuances of equity securities. The Preferred Stock will be
automatically converted into common stock upon the closing of a public offering
of the Company's common stock at an equivalent price of $4.00 per share with
aggregate proceeds of $20,000. In connection with the merger (Note 14), the
holders of the Preferred Stock have agreed to convert all of the preferred
shares into common shares.
LIQUIDATION PREFERENCE--In the event of liquidation, the holders of the
Preferred Stock are entitled to receive $2.00 per share plus the Contingent
Dividend, if applicable, prior to any distribution to holders of common stock.
After the holders of common stock have received an amount per share equal to the
amount per share paid to the holders of the Preferred Stock, the holders of the
Preferred Stock participate in the remaining distributions, if any, as if they
had converted their shares into common stock at the then applicable conversion
rate. A liquidation event for purposes of the liquidation preference includes,
among other things, a greater than 50% change in ownership of the Company or the
sale of substantially all of the Company's assets.
REDEMPTION--At any time after October 2, 2006, the holders of a majority of
the then outstanding shares of Preferred Stock may require the Company to redeem
all or a portion of the outstanding shares of Preferred Stock at a price of
$2.00 per share plus all declared but unpaid dividends.
VOTING RIGHTS--The Series A shares have voting rights equal to the number of
common shares into which they are convertible.
F-40
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. STOCK OPTIONS
On October 2, 1998, the Company adopted the 1998 Stock Incentive Plan (the
"Plan"). Under the Plan either shares of the Company's common stock or options
to purchase shares of the Company's stock may be issued at the discretion of the
Company's Board of Directors. The initial 6,656 shares authorized to be issued
under the Plan increase automatically by five percent of the original shares
authorized annually during the Plan's existence. No more than 1,300 shares of
stock can be awarded to a single employee in any calendar year. Options
generally vest over a period of four years and expire after ten years. Options
granted to certain officers are exercisable when granted; however, the shares
are subject to repurchase rights by the Company at the exercise price. The
Company's right to repurchase the shares generally lapses ratably over four
years. The following is a summary of all option activity under the Plan:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1998..................... -- $ --
Granted.......................................... 5,416 0.33
Exercised........................................ -- --
Forfeited........................................ (8) 0.33
------ -----
Outstanding at January 2, 1999..................... 5,408 0.33
Granted.......................................... 569 0.35
Exercised........................................ (2,809) 0.33
Assumed Transcendent options..................... 78 1.53
Forfeited........................................ (237) 0.33
------ -----
Outstanding at October 2, 1999..................... 3,009 $0.38
====== =====
Options Exercisable, January 2, 1999............... 3,075 $0.33
====== =====
Options Exercisable, October 2, 1999............... 639 $0.38
====== =====
</TABLE>
At October 2, 1999, 2,809 shares issued upon exercise of options by certain
officers of the Company were subject to repurchase by the Company at the
exercise price.
The following table sets forth information regarding options outstanding as
of October 2, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES SHARES PERIODS IN YEARS PRICE SHARES PRICE
- --------------- -------- ---------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$0.21 35 8.33 $0.21 35 $0.21
0.33 2,649 9.09 0.33 569 0.33
0.54 290 9.85 0.54 0 0.54
2.44 13 8.53 2.44 13 2.44
3.61 22 9.36 3.61 22 3.61
</TABLE>
F-41
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. STOCK OPTIONS (CONTINUED)
For financial reporting purposes, the deemed fair value of the common stock
at the dates of grants resulted in deferred compensation expense of $1,918 for
the year ended January 2, 1999 and $426 for the nine months ended October 2,
1999. These charges are being recognized ratably over the vesting period.
Compensation expense recognized amounted to $117 and $384 for the year ended
January 2, 1999 and for the nine months ended October 2, 1999, respectively.
The Prior Viewlogic had two stock options plans, the 1991 Restated Stock
Option Plan and the Outside Directors' Stock Option Plan. Under the Company's
1991 Restated Stock Option Plan, non- qualified and incentive stock options to
purchase shares of common stock were granted to certain employees, officers,
consultants and directors at exercise prices not less than fair market value at
the date of grant. Options became exercisable in installments of 25% per year on
each of the first through the fourth anniversaries of the grant date and
continued for the period determined by the Board of Directors but not in excess
of ten years for incentive stock options and five years for incentive stock
options granted to 10% shareholders. The Outside Directors' Stock Option Plan
permitted the granting of non-qualified options to purchase shares of common
stock to non-employee members of the Board of Directors. The exercise price of
the options could not be less than fair market value on the date of grant.
Options under the 1996 Director Plan became exercisable upon grant and continued
for the period determined by the Board of Directors but not in excess of five
years. Effective with the pooling-of-interests by the Prior Viewlogic and
Synopsys on December 4, 1997, all of the options outstanding under these stock
option plans were converted into options to purchase Synopsys common stock.
No options were granted to employees of the Company under the Synopsys stock
options plans and all options to purchase Synopsys shares held by employees of
the Company as a result of options granted by the Prior Viewlogic expired, if
not exercised, 90 days after the recapitalization transaction described in
Note 2.
The Prior Viewlogic accounted for stock options under APB Opinion No. 25 and
all options granted by the Prior Viewlogic were granted at fair market value.
Accordingly, there was no compensation expense recognized with respect to those
options. The number shares as to which options were granted and exercise prices
related to those options is not presented since the information is not
meaningful. The Company has included an allocation related to the Prior
Viewlogic options in the pro forma disclosures below.
PRO FORMA DISCLOSURES--As described in Note 1, the Company applies the
intrinsic value method of Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plan. Had compensation cost
been determined based on the fair value at the grant dates for awards under the
Plan and the Prior Viewlogic's stock option plans consistent with the method
F-42
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. STOCK OPTIONS (CONTINUED)
required by FASB Statement 123, the Company's net income and net income per
share would have been:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
------------------------- ENDED
DECEMBER 31, JANUARY 2, OCTOBER 2,
1997 1999 1999
------------ ---------- -----------
<S> <C> <C> <C>
Net income (loss)........................ $(3,457) $5,789 $1,031
Net income per common share:
Basic.................................. -- $ 1.46 $ 0.21
Diluted................................ -- $ 0.72 $ 0.05
</TABLE>
For purposes of the pro forma disclosures, the fair value of the options
granted under the Company's stock option plans during the nine months ended
October 2, 1999 and year ended January 2, 1999 was estimated on the date of
grant using the Black-Scholes option pricing model. The fair value of employee
purchase rights under the Company's stock purchase plans was also estimated
using the Black-Scholes option pricing model. For the period January 1, 1997
through December 31, 1997, the pro forma disclosure of net income is based upon
an allocation of the fair value of the options granted under the Prior
Viewlogic's option plans for that period.
Key assumptions used to apply this pricing model are as follows for the
periods presented:
<TABLE>
<CAPTION>
YEAR ENDED 9 MONTHS
------------------------- ENDED
DECEMBER 31, JANUARY 2, OCTOBER 2,
1997 1999 1999
------------ ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate.................. 5.7%-6.9% 6.0% 5.3%-6.0%
Expected life of option grants........... 4 years 4 years 4 years
Expected volatility of underlying
stock.................................. 58% 0% 0%
Expected dividend payment rate........... 0% 0% 0%
</TABLE>
7. INCOME TAXES
The components of income before income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED 9 MONTHS
JANUARY 2, ENDED
1999 OCTOBER 2, 1999
---------- ----------------
<S> <C> <C>
Domestic............................................ $9,503 $1,643
Foreign............................................. 417 132
------ ------
Total............................................. $9,920 $1,775
====== ======
</TABLE>
F-43
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. INCOME TAXES (CONTINUED)
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED 9 MONTHS
JANUARY 2, ENDED
1999 OCTOBER 2, 1999
---------- ----------------
<S> <C> <C>
Current:
Federal........................................... $3,475 $301
State............................................. 619 41
Foreign........................................... 75 134
------ ----
Total............................................... 4,169 476
Deferred:
Federal........................................... (353) 171
State............................................. (24) 23
Foreign........................................... 261 38
------ ----
Total provision for income taxes.................... $4,053 $708
====== ====
</TABLE>
A reconciliation between the statutory U.S. Federal income tax and the
Company's effective tax rate for the respective periods is as follows:
<TABLE>
<CAPTION>
YEAR ENDED 9 MONTHS
JANUARY 2, ENDED
1999 OCTOBER 2, 1999
---------- ----------------
<S> <C> <C>
U.S. Federal statutory rate......................... 35.0% 35.0%
State taxes--net of Federal tax benefit............. 2.9 2.7
Foreign taxes....................................... 1.5 2.6
Other--net.......................................... 1.5 (0.4)
---- ----
Total............................................... 40.9% 39.9%
==== ====
</TABLE>
For the period from December 5, 1997 through October 3, 1998, the Company
was included in the consolidated tax return of Synopsys. Prior to December 5,
1997, the Systems Business was included in the tax returns of the Prior
Viewlogic. For financial statement purposes, the Company has computed the tax
provision for the year ended December 31, 1997 based on the effective tax rate
of the Prior Viewlogic and for the year ended January 2, 1999, as if it had
filed separate returns.
F-44
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
JANUARY 2, OCTOBER 2,
1999 1999
---------- ----------
<S> <C> <C>
Current assets:
Accounts receivable................................... $ 774 $ 561
Deferred compensation................................. 411 487
Net operating loss carryforward....................... 229 187
Other................................................. 166 138
------ -------
Total current assets.................................... 1,580 1,373
------ -------
Noncurrent liabilities:
Purchased technology.................................. -- 1,041
Capitalized software costs............................ 891 822
Depreciation and amortization......................... 534 530
Other................................................. 93 --
------ -------
Total liabilities....................................... 1,518 2,393
------ -------
Total net deferred tax asset (liability)................ $ 62 $(1,020)
====== =======
</TABLE>
At October 2, 1999, the Company had available foreign net operating loss
carryforwards of approximately $448, which expire in 2003 to 2004.
8. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases its principal office facilities and certain
computer equipment under noncancelable operating leases expiring on various
dates through 2003. The Company's headquarters office lease is through 2002. The
lease includes three two-year renewal options to extend the lease through 2008.
The lease contains a three-month rental abatement and a rental escalation
clause, the effects of which are being recognized ratably over the lease term.
At October 2, 1999, future minimum lease payments under these noncancelable
leases were approximately as follows: 1999, $1,625; 2000, $2,209; 2001, $1,872;
2002, $1,819; and 2003, $5. The Company leases other office facilities under
operating lease agreements for which lease terms are one year or less. Total
rent expense was approximately $1,778 and $2,232 for the years ended
December 31, 1997 and January 2, 1999, respectively, and $1,774 and $2,453 for
the nine months ended October 3, 1998 and October 2, 1999, respectively.
CONTINGENCIES--The Company is involved in certain legal proceedings which
have arisen in the ordinary course of business. Management believes the outcome
of these proceedings will not have a material adverse impact on the Company's
consolidated financial condition or operating results.
9. RELATED-PARTY AGREEMENTS
On October 2, 1998, the Company entered into two OEM agreements with
Synopsys pursuant to which the Company has the right to resell certain Synopsys
software. The agreements are for two and
F-45
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. RELATED-PARTY AGREEMENTS (CONTINUED)
three years and are automatically renewed on a year-to-year basis thereafter.
The three-year agreement requires minimum annual payments of $750. Under a prior
agreement, the Company paid royalties to Synopsys aggregating approximately
$713. Under the new agreements, the Company paid royalties to Synopsys of $0 and
$1,890 for the year ended January 2, 1999 and the nine months ended October 2,
1999, respectively. See Note 1 regarding transition services and occupancy costs
charged to Synopsys.
10. SEGMENT INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires that public companies report profits and losses and
certain other information on its "reportable operating segments" in its annual
and interim financial statements.
Management has determined that the Company has only one "reportable
operating segment," given the financial information provided to and used by the
"chief decision maker" of the Company to allocate and assess the Company's
performance. Revenue consists of software sales and service and other.
Summarized information about the Company's operations by geographic area for
the periods stated are as follows:
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE JAPAN CONSOLIDATED
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
October 2,1999
Revenue............................. $31,033 $ 6,590 $3,194 $40,817
Long-lived assets................... 9,899 274 605 10,778
January 2, 1999
Revenue............................. $41,667 $ 8,655 $4,915 $55,237
Long-lived assets................... 7,109 344 612 8,065
December 31, 1997
Revenue............................. $48,805 $10,837 $4,345 $63,987
Long-lived assets................... 8,343 634 243 9,220
</TABLE>
No customer accounted for more than 10% of revenue for the years ended
January 2, 1999 and December 31, 1997 and for the nine months ended October 2,
1999.
11. RETIREMENT SAVINGS PLAN
In 1988, the Company established a qualified 401(k) retirement savings plan
covering substantially all of the Company's domestic employees. As of March 1,
1998 and effective through October 2, 1998, the Company adopted and contributed
to the Synopsys' 401(k) retirement savings plan. On November 1, 1998, the
Company established a new 401(k) retirement savings plan under which domestic
employees are allowed to contribute a certain percentage of their pay. The
Company matches 40% of employee elected pretax contributions, up to an annual
maximum. Employer contributions for all plans amounted to $292 and $361 for the
years ended December 31, 1997 and January 2, 1999,
F-46
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. RETIREMENT SAVINGS PLAN (CONTINUED)
respectively, and $267 and $254 for the nine months ended October 3, 1998 and
October 2, 1999, respectively.
12. LITIGATION SETTLEMENT AND RESTRUCTURING
LITIGATION SETTLEMENT--During calendar year 1997, at the time of its merger
with Synopsys, the Prior Viewlogic agreed to settle a claim for product
royalties alleged to be owed to a supplier under a licensing agreement. The
claim was primarily based on the allegation that the prior Viewlogic allowed its
customers to evaluate a product which Viewlogic licensed from this supplier for
resale at no charge for periods substantially longer than the thirty-day
evaluation period permitted in the supply agreement and otherwise underpaid
royalties due to the supplier for sales of this product by the Prior Viewlogic.
The license agreement with this supplier was terminated by the Prior Viewlogic
and is no longer in effect. The Prior Viewlogic paid approximately $4.0 million
to settle the litigation and incurred approximately $500,000 in related fees. As
part of the settlement, Viewlogic and the supplier each released the other from
all claims and liabilities without admitting any liability by either party.
RESTRUCTURING--The restructuring plan for the Prior Viewlogic included the
merger of the non-Systems businesses to other divisions of Synopsys, a
discontinuation of marketing and sales efforts with respect to certain Systems
Business products, and workforce reductions resulting from these changes in the
businesses. A restructuring charge of approximately $6,700 has been included in
the Company's financial statements for the year ended December 31, 1997. The
charge includes approximately $2,344 in severance charges, $2,540 in non-cash
impairment of capitalized software assets, $1,368 write-off of other assets
associated with discontinued products, and $415 of non-cancelable commitments.
The severance charge represents a workforce reduction of 108 employees either
directly related to the Systems Business or whose salaries had been allocated to
the Company's financial statements for the year ended December 31, 1997 as
discussed in Note 1. The asset write-offs included $512 of furniture and
computer equipment associated with the terminated workforce and discontinued
products, $441 of prepaid royalties for products discontinued by the Company in
the restructuring and $415 of goodwill related to the discontinuance of the
operations of a previously acquired European subsidiary. The non-cancelable
commitments consisted principally of a contract for
F-47
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. LITIGATION SETTLEMENT AND RESTRUCTURING (CONTINUED)
phone service. The following table presents the components of the restructuring
charge accrued during the year ended December 31, 1997 and the charges against
the reserves through January 2, 1999:
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
NON-CASH AMOUNTS BALANCE AMOUNTS BALANCE
TOTAL WRITE-OFFS PAID DECEMBER 31, PAID JANUARY 2,
CHARGE 1997 1997 1997 1998 1999
-------- ---------- ---------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Severance and related............ $2,344 $ -- $ -- $2,344 $2,344 $ --
Non-cancelable commitments....... 473 -- -- 473 473
Capitalized software............. 2,540 2,540 -- --
Fixed assets associated with
terminated employees........... 512 512 -- --
Prepaid royalties................ 441 441 -- --
Goodwill......................... 415 415 -- --
Totals......................... $6,725 $3,908 $ -- $2,817 $2,817 $ --
====== ====== ========== ====== ====== ==========
</TABLE>
F-48
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 3, 1998 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
13. EARNINGS PER SHARE
The calculations for earnings per share for the fiscal year ended
January 2, 1999 and the nine months ended October 3, 1998 and October 2, 1999
are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------
JANUARY 2, OCTOBER 3, OCTOBER 2,
1999 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net Income.................................................. $ 5,867 $4,796 $ 1,067
======= ====== =======
Weighted average number of common shares--basic............. 3,966 3,966 4,861
Assumed number of shares issued from:
Dilutive effects of stock options......................... -- -- 770
Assumed conversion of Preferred Stock (Note 1)............ 4,033 -- 16,000
------- ------ -------
Weighted average number of common and common equivalents
shares--diluted........................................... 7,999 3,966 21,631
======= ====== =======
Net income per share--basic................................. $ 1.48 $ 1.21 $ 0.22
======= ====== =======
Net income per share--diluted............................... $ 0.73 $ 1.21 $ 0.05
======= ====== =======
</TABLE>
14. SUBSEQUENT EVENTS
PROPOSED MERGER WITH SUMMIT, INC.--On September 16, 1999, the Company
entered into an Agreement and Plan of Reorganization (the "Merger") with
Summit, Inc. ("Summit"). Summit is a publicly held company engaged a business
similar to that of the Company. In connection with the Merger, (1) each share of
Viewlogic Common Stock and Preferred stock issued and outstanding at the
effective time of the merger will be converted into 0.67928 (the "Exchange
Ratio") of a share of Summit Common Stock and (2) each option to purchase shares
of Viewlogic Common Stock will be converted into an option to purchase Summit
Common Stock based upon the Exchange Ratio. The Merger is subject to the
customary conditions to closing including the approval of the stockholders of
the Company and the stockholders of Summit.
The Merger will be treated as a purchase for accounting purposes and is
intended to qualify as a tax-free reorganization for federal income tax
purposes. Upon completion of the merger, the Company's shareholders will own a
majority of the outstanding shares of Summit. Consequently, for accounting
purposes the transaction will be accounted for as a reverse acquisition, whereby
the Company will be treated as the accounting acquirer. As a result, the
financial statements of the Company will become the historical financial
statements of the combined company and the assets and liabilities of Summit will
be revalued based on the value of Summit's equity interest at the date of the
agreement.
F-49
<PAGE>
Annex A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SUMMIT DESIGN, INC.
HOOD ACQUISITION CORP.
AND
VIEWLOGIC SYSTEMS, INC.
DATED AS OF SEPTEMBER 16, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I THE MERGER.................................................... A-1
1.1 The Merger.................................................. A-1
1.2 Effective Time; Closing..................................... A-1
1.3 Effect of the Merger........................................ A-2
1.4 Certificate of Incorporation; Bylaws........................ A-2
1.5 Directors and Officers...................................... A-2
1.6 Effect on Capital Stock..................................... A-2
1.7 Dissenting Stockholders..................................... A-4
1.8 Surrender of Certificates................................... A-4
1.9 No Further Ownership Rights in Viewlogic Capital Stock...... A-5
1.10 Lost, Stolen or Destroyed Certificates...................... A-6
1.11 Tax Consequences............................................ A-6
1.12 Taking of Necessary Action; Further Action.................. A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF VIEWLOGIC.................. A-6
2.1 Organization of Viewlogic................................... A-6
2.2 Viewlogic Capital Structure................................. A-7
2.3 Obligations With Respect to Capital Stock................... A-7
2.4 Authority................................................... A-8
2.5 Viewlogic Financial Statements.............................. A-8
2.6 Absence of Certain Changes or Events........................ A-9
2.7 Tax and Other Returns and Reports........................... A-10
2.8 Title to Properties; Absence of Liens and Encumbrances...... A-11
2.9 Intellectual Property....................................... A-11
2.10 Compliance; Permits; Restrictions........................... A-14
2.11 Litigation.................................................. A-14
2.12 Brokers' and Finders' Fees.................................. A-14
2.13 Employee Matters and Benefit Plans.......................... A-14
2.14 Viewlogic Employees; Labor Matters.......................... A-17
2.15 Environmental Matters....................................... A-17
2.16 Agreements, Contracts and Commitments....................... A-18
2.17 Change of Control Payments.................................. A-19
2.18 Statements; Joint Proxy Statement/Prospectus................ A-19
2.19 Board Approval.............................................. A-20
2.20 Section 203 of the Delaware General Corporation Law Not
Applicable................................................ A-20
2.21 Representations Complete.................................... A-20
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SUMMIT AND MERGER SUB....
A-20
3.1 Organization of Summit...................................... A-20
3.2 Summit Capital Structure.................................... A-21
3.3 Obligations With Respect to Capital Stock................... A-21
3.4 Authority................................................... A-22
3.5 SEC Filings; Summit Financial Statements.................... A-23
3.6 Absence of Certain Changes or Events........................ A-24
3.7 Tax and Other Returns and Reports........................... A-24
3.8 Title to Properties; Absence of Liens and Encumbrances...... A-25
3.9 Intellectual Property....................................... A-26
3.10 Compliance; Permits; Restrictions........................... A-28
3.11 Litigation.................................................. A-28
3.12 Brokers' and Finders' Fees.................................. A-28
3.13 Employee Matters and Benefit Plans.......................... A-28
3.14 Summit Employees; Labor Matters............................. A-31
3.15 Environmental Matters....................................... A-31
3.16 Agreements, Contracts and Commitments....................... A-31
3.17 Change of Control Payments.................................. A-33
3.18 Statements; Joint Proxy Statement/Prospectus................ A-33
3.19 Board Approval.............................................. A-33
3.20 Fairness Opinion............................................ A-33
3.21 Section 203 of the Delaware General Corporation Law Not
Applicable................................................ A-33
3.22 Representations Complete.................................... A-33
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................... A-34
4.1 Conduct of Business......................................... A-34
ARTICLE V ADDITIONAL AGREEMENTS......................................... A-36
5.1 Registration Statement; Other Filings; Board
Recommendations........................................... A-36
5.2 Meetings of Stockholders.................................... A-37
5.3 Confidentiality; Access to Information...................... A-38
5.4 Non-Solicitation............................................ A-38
5.5 Public Disclosure........................................... A-39
5.6 Legal Requirements.......................................... A-39
5.7 Third Party Consents........................................ A-39
5.8 Notification of Certain Matters............................. A-39
5.9 Best Efforts and Further Assurances......................... A-39
5.10 Stock Options............................................... A-40
5.11 Summit Option Plans......................................... A-40
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
5.12 Affiliate Agreements........................................ A-40
5.13 Form S-8.................................................... A-40
5.14 Nasdaq Listing.............................................. A-41
5.15 Comfort Letter.............................................. A-41
5.16 Board of Directors of the Combined Company.................. A-41
5.17 Officers of Combined Company; Executive Committee........... A-41
5.18 Indemnification and Insurance............................... A-41
ARTICLE VI CONDITIONS TO THE MERGER..................................... A-43
6.1 Conditions to Obligations of Each Party to Effect the
Merger.................................................... A-43
6.2 Additional Conditions to Obligations of Viewlogic........... A-43
6.3 Additional Conditions to the Obligations of Summit and
Merger Sub................................................ A-44
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER........................... A-45
7.1 Termination................................................. A-45
7.2 Notice of Termination; Effect of Termination................ A-46
7.3 Fees and Expenses........................................... A-46
7.4 Amendment................................................... A-47
7.5 Extension; Waiver........................................... A-47
ARTICLE VIII NO SURVIVAL................................................ A-47
8.1 No Survival of Representations and Warranties............... A-47
ARTICLE IX GENERAL PROVISIONS........................................... A-48
9.1 Notices..................................................... A-48
9.2 Interpretation; Knowledge................................... A-48
9.3 Counterparts................................................ A-49
9.4 Entire Agreement; Third Party Beneficiaries................. A-49
9.5 Severability................................................ A-49
9.6 Other Remedies; Specific Performance........................ A-49
9.7 Governing Law............................................... A-49
9.8 Rules of Construction....................................... A-49
9.9 Assignment.................................................. A-49
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization is made and entered into as of
September 16, 1999, 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 Viewlogic Systems, Inc., a Delaware
corporation ("VIEWLOGIC").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Delaware ("DELAWARE
LAW"), Summit and Viewlogic intend to enter into a business combination
transaction.
B. The Board of Directors of Viewlogic (the "VIEWLOGIC 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 Viewlogic and fair to, and in
the best interests of, Viewlogic and its stockholders, (ii) has unanimously
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) has determined to recommend that the stockholders of
Viewlogic 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 fair to, and in the best interests of, Summit and its
stockholders, (ii) has unanimously approved this Agreement, the Merger and the
other transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Summit adopt and approve this Agreement and
approve the Merger and the issuance of shares of Summit Common Stock (as defined
below) to the stockholders of Viewlogic pursuant to the terms of the Merger.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to Summit's willingness to enter into this Agreement, certain
shareholders of Viewlogic are entering into voting agreements in form and
substance reasonably satisfactory to Summit.
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").
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
Viewlogic (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and Viewlogic shall continue as the surviving corporation to be governed
by the laws of the State of Delaware. Viewlogic 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
A-1
<PAGE>
used herein refers collectively to this Agreement and Plan of Reorganization and
the Certificate of Merger. The closing of the Merger (the "CLOSING") shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, CA, at a time and date to be specified by the parties, which shall be
no later than the third business day after the satisfaction or valid 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") (other than the
delivery of closing certificates and opinions).
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 Viewlogic and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Viewlogic 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 law and such Certificate of Incorporation of the
Surviving Corporation; 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 a name mutually agreed to by
Summit and Viewlogic and set forth in the Joint Proxy Statement (as defined in
Section 2.18 of this Agreement).
(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; PROVIDED, HOWEVER, that as of the
Effective Time, the Bylaws of the Surviving Corporation shall be amended to
provide that the number of directors on the Board of Directors of the Surviving
Corporation shall be one.
1.5 DIRECTORS AND OFFICERS. The initial director of the Surviving
Corporation shall be William J. Herman, until his successor is duly elected or
appointed and qualified. The initial officers of the Surviving Corporation shall
be the officers of Viewlogic immediately prior to the Effective Time, until
their respective successors are duly appointed.
1.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Summit, Merger Sub, Viewlogic or the holders of any of the
securities of Summit, Merger Sub or Viewlogic:
(a) CONVERSION OF VIEWLOGIC COMMON STOCK. Each share of Common Stock,
$0.001 par value per share, of Viewlogic (the "VIEWLOGIC COMMON STOCK") issued
and outstanding immediately prior to the Effective Time, (other than any shares
of Viewlogic Common Stock to be canceled pursuant to Section 1.6(c) and any
Dissenting Shares (as defined in Section 1.7)) will be canceled and extinguished
and automatically converted (subject to Sections 1.6(f) and (g)) into the right
to receive, upon surrender of the certificate representing such share of
Viewlogic Common Stock in the manner provided in Section 1.8 (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 1.10), such number of fully
paid and nonassessable shares of Common Stock, par value $0.01 per share, of
Summit (the "SUMMIT COMMON STOCK") as is equal to 0.67928 (the "EXCHANGE
RATIO"). Notwithstanding anything contained herein to the contrary, Viewlogic
shall use its commercially reasonable efforts to provide that any right of
repurchase by Viewlogic with respect to any shares of Viewlogic Common Stock in
existence immediately prior to the Effective Time shall remain in full force and
effect in accordance with its terms on and after the Effective Time including,
without limitation, obtaining all necessary consents of existing stockholders to
the assignment and assumption of these rights to Summit or its successors and
A-2
<PAGE>
valid assigns and the amendment or modification of any agreement relating to
these rights; PROVIDED, THAT, Summit shall use its commercially reasonable
efforts to cooperate with Viewlogic to effectuate the assignment of such rights;
and PROVIDED FURTHER THAT, such rights shall then be exercisable only by Summit
or its successors and valid assigns.
(b) CONVERSION OF VIEWLOGIC PREFERRED STOCK.
(i) SERIES A VOTING PREFERRED STOCK. Each share of Series A Voting
Preferred Stock, $0.001 par value per share, of Viewlogic (the "SERIES A
PREFERRED") issued and outstanding immediately prior to the Effective Time
(other than any shares of Series A Preferred that are converted into shares of
Viewlogic Common Stock immediately prior to the Effective Time, any shares of
Series A Preferred to be canceled pursuant to Section 1.6(c) and any Dissenting
Shares) will be canceled and extinguished and automatically converted (subject
to Section 1.6(f) and (g)) into the right to receive, upon surrender of the
certificate representing such share of Series A Preferred in the manner provided
in Section 1.8 (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 1.10), such number of fully paid and nonassessable shares of Summit
Common Stock as is equal to the Exchange Ratio.
(ii) SERIES A-1 NON-VOTING PREFERRED STOCK. Each share of
Series A-1 Non-Voting Preferred Stock, $0.001 par value per share, of Viewlogic
("SERIES A-1 PREFERRED" and, collectively with the Series A Preferred, the
"VIEWLOGIC PREFERRED STOCK") issued and outstanding immediately prior to the
Effective Time (other than any shares of Series A-1 Preferred that are converted
into shares of Series A Preferred, any shares of Series A-1 Preferred that are
converted into shares of Viewlogic Common Stock immediately prior to the
Effective Time, any shares of Series A-1 Preferred to be canceled pursuant to
Section 1.6(c) and any Dissenting Shares) will be canceled and extinguished and
automatically converted (subject to Sections 1.6(f) and (g)) into the right to
receive, upon surrender of the certificate representing such share of
Series A-1 Preferred in the manner provided in Section 1.8 (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 1.10), such number of fully paid
and nonassessable shares of Summit Common Stock as is equal to the Exchange
Ratio.
(c) CANCELLATION OF VIEWLOGIC-OWNED STOCK. Each share of the Viewlogic
Common Stock and Viewlogic Preferred Stock (together, the "VIEWLOGIC CAPITAL
STOCK") held by Viewlogic or owned by Merger Sub, Summit or any direct or
indirect wholly owned subsidiary of Viewlogic or of Summit immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof.
(d) STOCK OPTIONS. At the Effective Time, all options to purchase
Viewlogic Common Stock then outstanding under Viewlogic's 1998 Stock Incentive
Plan and the Transcendent Design Technology Inc. Stock Option Plan.
(collectively, the "VIEWLOGIC STOCK OPTION PLANS") shall be assumed by Summit in
accordance with Section 5.10 hereof.
(e) 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.
(f) 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 Viewlogic Capital Stock), reorganization,
recapitalization, reclassification or other like change with respect to Summit
Common Stock or Viewlogic Capital Stock occurring on or after the date hereof
and prior to the Effective Time.
A-3
<PAGE>
(g) 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
Viewlogic Capital 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 in U.S. dollars (rounded to the nearest whole cent) equal to
the product of (i) such fraction, MULTIPLIED BY (ii) the average last reported
sale 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 DISSENTING STOCKHOLDERS.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Viewlogic Capital Stock held by a holder who has demanded and
perfected appraisal or dissenters' rights for such shares in accordance with
applicable Delaware Law and who, as of the Effective Time, has not effectively
withdrawn or lost such appraisal or dissenters' rights ("DISSENTING SHARES"),
shall not be converted into or represent a right to receive Summit Common Stock
pursuant to Section 1.6, but the holder thereof shall only be entitled to such
rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Viewlogic Capital Stock who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Summit Common Stock and
cash in lieu of any fractional shares as provided in Section 1.6, without
interest thereon, upon surrender of the certificate representing such shares of
Viewlogic Capital Stock in the manner provided in Section 1.8 (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 1.10).
(c) Viewlogic shall give Summit (i) prompt notice of any written demands
for appraisal of any shares of Viewlogic Capital Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and received
by Viewlogic and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. Viewlogic
shall not, except with the prior written consent of Summit, voluntarily make any
payment with respect to any demands for appraisal of shares of capital stock of
Viewlogic or offer to settle or settle any such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Summit shall select an institution reasonably
acceptable to Viewlogic to act as the exchange agent (the "EXCHANGE AGENT") in
the Merger.
(b) SUMMIT TO PROVIDE COMMON STOCK. At 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 Viewlogic Capital Stock and cash in an amount
sufficient for payment in lieu of fractional shares pursuant to Section 1.6(g).
(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 Viewlogic Capital
Stock whose shares were converted into the right to receive shares of Summit
Common Stock pursuant to Section 1.6 and cash in lieu of any fractional shares
pursuant to Section 1.6(g) the following: (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 customary
provisions as Summit may
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reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Summit
Common Stock and cash in lieu of any fractional shares pursuant to Section
1.6(g). Upon the proper surrender of Certificates for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Summit
and reasonably acceptable to Viewlogic, 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 Viewlogic Capital Stock
were converted at the Effective Time pursuant to Section 1.6 and payment in lieu
of fractional shares which such holders have the right to receive pursuant to
Section 1.6(g) and the Certificates so surrendered shall be canceled. Until so
surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the ownership of
the number of whole shares of Summit Common Stock into which such shares of
Viewlogic Capital Stock have been 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(g) and shall cease to have any rights with respect to the shares of
Viewlogic Common Stock formerly represented thereby, except as required by
applicable law.
(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 in the manner provided in
Section 1.8(c). Subject to applicable law, following surrender of any such
Certificates in the manner provided in Section 1.8(c), 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(g)
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 1.8, neither the Exchange Agent, Summit, Viewlogic, nor the Surviving
Corporation shall be liable to a holder of shares of Summit Common Stock or
Viewlogic Capital Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN VIEWLOGIC CAPITAL STOCK. From and after
the Effective Time, 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(g)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Viewlogic Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Viewlogic Capital 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.
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1.10 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 Viewlogic Capital Stock represented by such
Certificates were converted pursuant to Section 1.6 and cash for fractional
shares, if any, as may be required pursuant to Section 1.6(g); 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.
1.11 TAX CONSEQUENCES. 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.
1.12 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 Viewlogic and Merger Sub, the officers and directors of
Summit, Viewlogic 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 VIEWLOGIC
Viewlogic represents and warrants to Summit and Merger Sub as of the date
hereof and as of immediately prior to the Closing, subject only to the
exceptions specifically disclosed in writing in the disclosure schedule (which
such exceptions shall specifically reference the appropriate section number of
the representations and warranties of Viewlogic to be qualified by such
exceptions; PROVIDED, THAT, if a reasonable person would determine that any such
exception contains enough information to qualify or otherwise apply to other
representations and warranties of Viewlogic, such exceptions shall qualify or
otherwise apply to such other representations and warranties of Viewlogic)
supplied by Viewlogic to Summit dated as of the date hereof and certified by a
duly authorized officer of Viewlogic (the "VIEWLOGIC SCHEDULES"), the following
are true and correct:
2.1 ORGANIZATION OF VIEWLOGIC.
(a) Viewlogic 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 Viewlogic.
(b) Viewlogic has delivered to Summit a true and complete list of all of
Viewlogic's subsidiaries as of the date of this Agreement, indicating the
jurisdiction of incorporation of each subsidiary and Viewlogic's equity interest
therein.
(c) Viewlogic has delivered or made available to Summit a true and
complete copy of the Certificate of Incorporation and Bylaws of Viewlogic 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 Viewlogic
nor any of its subsidiaries is in violation of any of the provisions of its
charter or bylaws or similar governing instruments.
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(d) When used in connection with Viewlogic, 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 Viewlogic 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,
(ii) conditions affecting the industry in which Viewlogic competes as a whole or
(iii) conditions resulting from announcement and pendency of the Merger).
2.2 VIEWLOGIC CAPITAL STRUCTURE. The authorized capital stock of Viewlogic
consists (a) of 35,000,000 shares of Common Stock, $0.001 par value per share,
of which there are 7,899,627 shares issued and outstanding and no shares held in
treasury, and (b) 22,000,000 shares of Preferred Stock, $0.001 par value per
share, of which (x) 17,000,000 shares are designated Series A Voting Preferred
Stock, of which there are 11,381,904 shares issued and outstanding and no shares
held in treasury and (y) 5,000,000 shares are designated Series A-1 Non-Voting
Preferred Stock, of which there are 4,618,096 shares issued and outstanding and
no shares held in treasury. All outstanding shares of Viewlogic capital 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 Viewlogic or any agreement or document to which
Viewlogic is a party or by which it is bound. The Viewlogic Capital Stock is
held of record by the persons and entities and in the amounts set forth in
Section 2.2 of the Viewlogic Schedules. As of the date hereof, Viewlogic had
reserved an aggregate of 3,920,025 shares of Viewlogic Common Stock, net of
exercises, for issuance to employees, consultants and non-employee directors
pursuant to the Viewlogic Stock Option Plans. As of the date hereof, there were
options outstanding to purchase an aggregate of 2,991,468 shares of Viewlogic
Common Stock, issued to employees, consultants and non-employee directors
pursuant to the Viewlogic Stock Option Plans. All shares of Viewlogic 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
Viewlogic Schedules list for each person who holds options to acquire shares of
Viewlogic 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.
2.3 OBLIGATIONS WITH RESPECT TO CAPITAL STOCK. Except as set forth in
Section 2.2 or the Viewlogic Schedules, there are no equity securities,
partnership interests or similar ownership interests of any class of Viewlogic
Capital Stock, 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
Viewlogic 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
Viewlogic, 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 Viewlogic 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
Viewlogic or any of its subsidiaries is a party or by which it or any of its
subsidiaries is bound obligating Viewlogic 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
Viewlogic or any of its subsidiaries or obligating Viewlogic 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 Viewlogic is a party or by which it is
bound with respect to any equity security of any class of
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Viewlogic Capital Stock or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its subsidiaries.
2.4 AUTHORITY.
(a) Viewlogic has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby,
subject to the requisite approval of the Agreement and the transactions
contemplated hereby by Viewlogic's stockholders. 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 Viewlogic,
subject only to the approval and adoption of this Agreement and the approval of
the Merger by Viewlogic's stockholders and the filing of the Certificate of
Merger pursuant to Delaware Law. This Agreement has been duly executed and
delivered by Viewlogic and, assuming the due authorization, execution and
delivery by Summit and, if applicable, Merger Sub, constitutes the valid and
binding obligation of Viewlogic, enforceable against Viewlogic 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 by Viewlogic does not, and the performance of this Agreement by
Viewlogic will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of Viewlogic 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 Viewlogic's stockholders and
compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Viewlogic or any of its subsidiaries or by which Viewlogic 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 Viewlogic'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 Viewlogic 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 Viewlogic or any of its subsidiaries is a party or by which
Viewlogic or any of its subsidiaries or its or any of their respective
properties are bound or affected. The Viewlogic Schedules list all consents,
waivers and approvals under any of Viewlogic'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 Viewlogic, Viewlogic's 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 Viewlogic 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) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal, foreign and state securities (or related) or
antitrust laws and the securities or antitrust laws of any foreign country, and
(iii) such other consents, authorizations, filings, approvals and registrations
which if not obtained or made would not have a Material Adverse Effect on
Viewlogic or would otherwise have a material adverse effect on the ability of
the parties to consummate the Merger.
2.5 VIEWLOGIC FINANCIAL STATEMENTS.
(a) Section 2.5 of the Viewlogic Schedules sets forth Viewlogic's
audited consolidated balance sheet as of October 3, 1998 and the related audited
consolidated statements of operations and cash
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flows for the 39-week period then ended and Viewlogic's unaudited consolidated
balance sheet as of July 3, 1999 and the related unaudited statements of
operations and cash flows for the 39-week period then ended (collectively, the
"VIEWLOGIC FINANCIALS"). The Viewlogic Financials have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
basis consistent throughout the periods indicated and consistent with each other
subject, in the case of the unaudited financial statements, to the absence of
footnotes and normal year-end adjustments, which will not be material in amount.
The Viewlogic Financials present fairly in all material respects the financial
condition and operating results of Viewlogic as of the dates and for the periods
indicated therein. The balance sheet of Viewlogic dated July 3, 1999 is
hereinafter referred to as the "VIEWLOGIC BALANCE SHEET."
(b) Except as disclosed in the Viewlogic Financials or in the Viewlogic
Balance Sheet, since the date of the Viewlogic Balance Sheet neither Viewlogic
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 Viewlogic and its subsidiaries
taken as a whole, except for (i) liabilities identified in the Viewlogic Balance
Sheet, or (ii) liabilities incurred since the date of the Viewlogic Balance
Sheet in the ordinary course of business consistent with past practice and
immaterial in the aggregate.
2.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Viewlogic
Balance Sheet there has not been:
(a) any Material Adverse Effect on Viewlogic and its subsidiaries, taken
as a whole;
(b) any material change by Viewlogic in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP;
(c) any material revaluation by Viewlogic 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;
(d) any material transaction by Viewlogic except in the ordinary course
of business;
(e) any amendments or changes to the Certificate of Incorporation or
Bylaws of Viewlogic;
(f) any capital expenditures or commitments by Viewlogic other than in
the ordinary course of business;
(g) any destruction of, damage to or loss of any material assets,
business or customer of Viewlogic (whether or not covered by insurance);
(h) any declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of Viewlogic, or any direct or
indirect redemption, purchase or other acquisition by Viewlogic of any of its
capital stock;
(i) any sale, lease, license or other disposition of any of the assets
or properties of Viewlogic, except in the ordinary course of business,
consistent with past practices;
(j) any amendment or termination of any material contract, agreement or
license to which Viewlogic is a party or by which it is bound, other than in the
ordinary course of business;
(k) any loan by Viewlogic to any person or entity, incurrence by
Viewlogic of any indebtedness, guarantee by Viewlogic of any indebtedness,
issuance or sale of any debt securities of Viewlogic or guarantee of any debt
securities of others except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practice,
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(l) any waiver or release of any material right or claim of Viewlogic,
including any writeoff or other compromise of any account receivable of
Viewlogic,
(m) any issuance or sale by Viewlogic of any of its shares of capital
stock, or securities exchangeable for, convertible or exercisable therefor, or
of any other of its securities,
(n) any negotiation or agreement by Viewlogic or any officers or
employees thereof to do any of the things described in the preceding clauses (a)
through (m) (other than negotiations with Summit and its representatives
regarding the transactions contemplated by this Agreement).
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
Viewlogic Schedules:
(i) Each of Viewlogic and its subsidiaries has 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 Viewlogic 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) Each of Viewlogic and its subsidiaries (A) has paid or accrued
all Taxes it is required to pay or accrue and (B) has withheld with respect to
its employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(iii) Neither Viewlogic 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 Viewlogic or any of its subsidiaries,
nor has Viewlogic 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 Viewlogic or any
of its subsidiaries is presently in progress, nor has Viewlogic or any of its
subsidiaries been notified of any request for such an audit or other
examination.
(v) Neither Viewlogic 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 Viewlogic Balance
Sheet or accrued in accordance with GAAP in the ordinary course of business
since the date of the Viewlogic Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and neither Viewlogic nor any of its subsidiaries has
knowledge of any basis for the assertion of any such liability attributable to
the assets or operations of Viewlogic or any of its subsidiaries.
(vi) Viewlogic 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 Viewlogic'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 any of the assets or
properties of Viewlogic or any of its subsidiaries relating to or attributable
to Taxes.
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(viii) Neither Viewlogic nor any of its subsidiaries has knowledge of
any reasonable basis for any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on any of the assets or
properties of Viewlogic or any of its subsidiaries.
(ix) None of Viewlogic'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 Viewlogic 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 Viewlogic 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 Viewlogic or any of its
subsidiaries.
(xii) Neither Viewlogic nor any of its subsidiaries is a party to a
tax sharing or allocation agreement nor does Viewlogic nor any of its
subsidiaries owe any amount under any such agreement.
(xiii) Neither Viewlogic 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.
2.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Viewlogic Schedules list the real property owned by Viewlogic or
any of its subsidiaries as of the date of this Agreement. The Viewlogic
Schedules list all real property leases to which Viewlogic or any of its
subsidiaries 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) Each of Viewlogic and its subsidiaries 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 Viewlogic 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 amount 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.
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"VIEWLOGIC INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Viewlogic 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 or abandoned; (ii) registered
trademarks, applications to register trademarks, intent-to-use
applications, or other registrations or applications related to
trademarks that have not been withdrawn, cancelled or abandoned;
(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 Viewlogic Schedules lists all of the Registered
Intellectual Property owned by, or filed in the name of, Viewlogic or any of its
subsidiaries (the "VIEWLOGIC REGISTERED INTELLECTUAL PROPERTY") and all patent,
copyright, trademark or industrial design registrations or applications that
have been withdrawn, cancelled or abandoned since January 1, 1998.
(b) Section 2.9 of the Viewlogic 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 Viewlogic Intellectual Property.
(c) Viewlogic (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 Viewlogic.
(d) Other than restrictions imposed by laws of general applicability or
limitations on use inherent in the content of the registrations themselves, no
Viewlogic Intellectual Property owned by Viewlogic or product or service of
Viewlogic 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 Viewlogic or its subsidiaries, or which
may affect the validity, use or enforceability of such Viewlogic Intellectual
Property.
(e) Each item of Viewlogic 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 Viewlogic Schedules, to
Viewlogic's knowledge: (i) Viewlogic or a Viewlogic subsidiary owns and has good
and exclusive title to, or has license to, each item of Viewlogic Intellectual
Property, including all Viewlogic Registered Intellectual Property listed in
Section 2.9 of the Viewlogic Schedules, free and clear of any material Lien
(excluding licenses and related restrictions); and (ii) Viewlogic is the
exclusive owner of all material trademarks and trade names used in connection
with the operation or conduct of the business of Viewlogic or its subsidiaries,
including the sale of any products or the provision of any services by Viewlogic
or its subsidiaries, but excluding trademarks and trade names commonly
identified by Viewlogic or its subsidiaries as the property of a third party
(e.g. "Microsoft NT").
(g) Viewlogic owns exclusively, and has good title to, or has an
irrevocable, fully paid license to all copyrighted works that are Viewlogic
products (other than third-party software code to which Viewlogic holds valid
and enforceable distribution licenses) or which Viewlogic otherwise expressly
purports to own.
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(h) To Viewlogic's knowledge, Viewlogic or its subsidiaries owns or has
the right to use 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 Viewlogic or its subsidiaries and the performance of all services
provided by Viewlogic or its subsidiaries.
(i) To the extent that any material work, invention or material has been
developed or created by a third party for Viewlogic, Viewlogic has a written
agreement with such third party with respect thereto and Viewlogic 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 Viewlogic Schedules or in
the ordinary course of business, (i) Viewlogic has not transferred ownership of,
or granted any rights to use any of the Viewlogic Intellectual Property; and
(ii) Viewlogic has not granted to any person, nor authorized any person to
retain, any rights in the Viewlogic Intellectual Property.
(k) Section 2.9 of the Viewlogic Schedules lists all material contracts,
licenses and agreements to which Viewlogic is a party (i) with respect to
Viewlogic 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
Viewlogic.
(l) Following the Closing Date, the Surviving Corporation will be
permitted to exercise all of Viewlogic's material rights under the contracts,
licenses and agreements required to be listed in Section 2.9 of the Viewlogic
Schedules to the same extent Viewlogic would have been able had the consummation
of the transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which Viewlogic would otherwise be required to pay or
which are not material in amount.
(m) Section 2.9 of the Viewlogic Schedules lists or specifically refers
to all contracts, licenses and agreements between Viewlogic and any third party
wherein or whereby Viewlogic 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 Viewlogic
or such third party of the Intellectual Property of any third party, except such
contracts entered into in the ordinary course of Viewlogic's business.
(n) Viewlogic has not received written notice from any third party that
the operation of the business of Viewlogic or any act, product or service of
Viewlogic, 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 Viewlogic Schedules, to
the knowledge of Viewlogic, no person has or is infringing or misappropriating
any Viewlogic Intellectual Property.
(p) Except as set forth in Section 2.9 of the Viewlogic Schedules, there
have been, and are, no claims asserted against Viewlogic or its subsidiaries or,
to its knowledge, against any customer of Viewlogic, related to any product or
service of Viewlogic or its subsidiaries.
(q) Each of Viewlogic and its subsidiaries has and has taken
commercially reasonable steps to enforce a policy requiring each employee and
contractor to execute a proprietary information / confidentiality agreement
substantially in Viewlogic's standard forms for employees and contractors,
respectively, and all current and former employees and contractors of Viewlogic
and its subsidiaries have executed such an agreement, except where the failure
to do so could not reasonably expected to result in a Material Adverse Effect on
Viewlogic.
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2.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Except for conflicts, violations and defaults that (individually or
in the aggregate) would not cause Viewlogic or its subsidiaries to lose benefits
aggregating to $250,000 or more, or cause Viewlogic or its subsidiaries to incur
liabilities aggregating to $250,000 or more, neither Viewlogic 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 Viewlogic or any of its subsidiaries or by which Viewlogic 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 Viewlogic or any of
its subsidiaries is a party or by which Viewlogic or any of its subsidiaries or
its or any of their respective properties is bound or affected, No investigation
or review by any Governmental Entity is pending or, to Viewlogic's knowledge,
has since January 1, 1998 been threatened against Viewlogic or any of its
subsidiaries, nor, to Viewlogic's knowledge, has any Governmental Entity
indicated an intention to conduct an investigation of Viewlogic or any of its
subsidiaries. There is no material agreement, judgment, injunction, order or
decree binding upon Viewlogic or any of its subsidiaries which has the effect of
prohibiting or materially impairing any business practice of Viewlogic or any of
its subsidiaries, any acquisition of material property by Viewlogic or any of
its subsidiaries or the conduct of business by Viewlogic as currently conducted.
(b) Viewlogic and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
governmental authorities that are material to and required for the operation of
the business of Viewlogic as currently conducted (collectively, the "VIEWLOGIC
PERMITS"). Viewlogic and its subsidiaries are in compliance in all material
respects with the terms of the Viewlogic Permits.
2.11 LITIGATION. There is no action, suit, proceeding, claim, arbitration or
investigation pending, and, to Viewlogic's knowledge, threatened against
Viewlogic or any of its subsidiaries which would reasonably be expected to have
a Material Adverse Effect on Viewlogic or which in any manner challenges or
seeks to prevent, enjoin, alter or delay any of the transactions contemplated by
this Agreement. No Governmental Entity has at any time since January 1, 1998
challenged or questioned the legal right of Viewlogic to manufacture, offer or
sell any of its products.
2.12 BROKERS' AND FINDERS' FEES. Viewlogic 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 Viewlogic 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, or any successor statute thereto and the rules and
regulations promulgated thereby;
(iii) "VIEWLOGIC 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
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been maintained, contributed to, or required to be contributed to, by Viewlogic
or any Affiliate for the benefit of any "Viewlogic Employee" (as defined below),
and pursuant to which Viewlogic or any Affiliate has or may have any material
liability contingent or otherwise;
(iv) "VIEWLOGIC EMPLOYEE" shall mean any current, former, or retired
employee, officer or director of Viewlogic or any Affiliate;
(v) "VIEWLOGIC EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between Viewlogic or any Affiliate
and any Viewlogic 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) "VIEWLOGIC PENSION PLAN" shall refer to each Viewlogic Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) SCHEDULE. Section 2.13 of the Viewlogic Schedules contains a true
and complete list of each Viewlogic Employee Plan and each Viewlogic Employee
Agreement, together with a schedule of all liabilities, whether or not accrued,
under each such Viewlogic Employee Plan or Viewlogic Employee Agreement.
Viewlogic does not have any plan or commitment to establish any new Viewlogic
Employee Plan or Viewlogic Employee Agreement, to modify any Viewlogic Employee
Plan or Viewlogic Employee Agreement (except to the extent required by law or to
conform any such Viewlogic Employee Plan or Viewlogic 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
Viewlogic Employee Plan or Viewlogic Employee Agreement, nor does it have any
intention or commitment to do any of the foregoing.
(c) DOCUMENTS. Viewlogic has made available to Summit (i) true and
complete copies of all documents embodying or relating to each Viewlogic
Employee Plan and each Viewlogic Employee Agreement, including all amendments
thereto and written interpretations thereof; (ii) the most recent annual
actuarial valuations, if any, prepared for each Viewlogic 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
Viewlogic Employee Plan or related trust; (iv) if Viewlogic Employee Plan is
funded, the most recent annual and periodic accounting of Viewlogic 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 Viewlogic Employee Plan; (vi) all IRS determination letters and
rulings relating to Viewlogic Employee Plans and copies of all applications and
correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any Viewlogic Employee Plan; (vii) all communications material to any
Viewlogic Employee or Viewlogic Employees relating to any Viewlogic Employee
Plan and any proposed Viewlogic 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 Viewlogic; and (viii) all registration statements
and prospectuses prepared in connection with each Viewlogic Employee Plan.
(d) VIEWLOGIC EMPLOYEE PLAN COMPLIANCE. Except as set forth in Section
2.13 of the Viewlogic Schedules, (i) Viewlogic has performed in all material
respects all obligations required to be performed by it under each Viewlogic
Employee Plan and each Viewlogic 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) no "prohibited
transaction", within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Viewlogic Employee Plan; (iii) there are
no actions, suits or claims
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pending, or, to the knowledge of Viewlogic, threatened or anticipated (other
than routine claims for benefits) against any Viewlogic Employee Plan or against
the assets of any Viewlogic Employee Plan; and (iv) each Viewlogic Employee Plan
can be amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Viewlogic, the Surviving
Corporation, Summit or any Affiliates (other than ordinary administration
expenses typically incurred in a termination event and benefits accrued through
the date of such amendment, termination or discontinuance); (v) there are no
inquiries or proceedings pending or, to the knowledge of Viewlogic or any
affiliates, threatened by the IRS or DOL with respect to any Viewlogic Employee
Plan; and (vi) neither Viewlogic nor any Affiliate is subject to any penalty or
tax with respect to any Viewlogic Employee Plan under Section 502(i) of ERISA or
Section 4975 through 4980 of the Code.
(e) VIEWLOGIC PENSION PLANS. Viewlogic does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Viewlogic 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 Viewlogic contributed to or been
required to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in Section 2.13
of the Viewlogic Schedules, no Viewlogic Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee benefits to any
Viewlogic Employee upon his or her retirement or termination of employment for
any reason, except as may be required by statute, and Viewlogic has never
represented, promised or contracted (whether in oral or written form) to any
Viewlogic Employee (either individually or to Viewlogic Employees as a group)
that such Viewlogic 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 in Section 2.13 of the Viewlogic Schedules, 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 Viewlogic Employee Plan, Viewlogic 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 Viewlogic Employee.
(ii) Except as set forth in Section 2.13 of the Viewlogic Schedules,
no payment or benefit which will or may be made by Viewlogic or Summit or any of
their respective affiliates with respect to any Viewlogic Employee will be
characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
(i) EMPLOYMENT MATTERS. Viewlogic 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 Viewlogic 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 Viewlogic 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 Viewlogic Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice).
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(j) LABOR. No work stoppage, labor strike, material slowdown or lockout
with respect to any of the employees of Viewlogic or its subsidiaries is pending
or, to the knowledge of Viewlogic, threatened. Except as set forth in Section
2.13 of the Viewlogic Schedules, Viewlogic is not involved in or, to the
knowledge of Viewlogic, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Viewlogic Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in material liability to Viewlogic.
Neither Viewlogic 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
liability to Viewlogic. Except as set forth in Section 2.13 of the Viewlogic
Schedules, neither Viewlogic nor any of its subsidiaries is presently, nor has
it been in the past, a party to, or bound by, any collective bargaining
agree-ment or union contract with respect to Viewlogic Employees and no
collective bargaining agreement is being negotiated by Viewlogic. To Viewlogic's
knowledge, there are no activities or proceedings of any labor union to organize
any employees of Viewlogic or any of its subsidiaries.
2.14 VIEWLOGIC EMPLOYEES; LABOR MATTERS. To Viewlogic's knowledge, no
employee of Viewlogic 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 Viewlogic and
disclosing to Viewlogic trade secrets or proprietary information of such
employer. Viewlogic 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).
2.15 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. To Viewlogic's knowledge, except for such
instances as would not reasonably be considered likely to result in Material
Adverse Effect on Viewlogic, 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 Viewlogic or any of its subsidiaries or any affiliate of Viewlogic,
or, to Viewlogic'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 Viewlogic or any of
its subsidiaries has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. To Viewlogic's knowledge, except for
such instances as would not reasonably be considered likely to result in
Material Adverse Effect on Viewlogic (i) neither Viewlogic 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 Viewlogic 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 material 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. Viewlogic and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"VIEWLOGIC ENVIRONMENTAL PERMITS") necessary for the conduct of
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Viewlogic's and its subsidiaries' Hazardous Material Activities and other
businesses of Viewlogic and its subsidiaries as such activities and businesses
are currently being conducted. Viewlogic and its subsidiaries are in compliance
in all material respects with the terms of the Viewlogic Environmental Permits.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, claim or injunction is pending, and to
Viewlogic's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ, claim or injunction has since January 1, 1998 been threatened
by any Governmental Entity against Viewlogic or any of its subsidiaries
concerning any Viewlogic Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of Viewlogic or any of its subsidiaries.
2.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in Section
2.16 of the Viewlogic Schedules, neither Viewlogic 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 member of Viewlogic's Board of Directors, other than those that
are terminable by Viewlogic or any of its subsidiaries on no more than thirty
days notice without material liability or financial obligation, except to the
extent general principles of wrongful termination law may limit Viewlogic'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 Viewlogic 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 Viewlogic or any of its
subsidiaries to engage in any line of business which is material to Viewlogic
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 Viewlogic 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 Viewlogic 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 Viewlogic or any of its subsidiaries have continuing material
obligations to jointly market any product, technology or service and which may
not be canceled without material penalty upon notice of 90 days or less, or any
agreement pursuant to which Viewlogic 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 Viewlogic or any of its subsidiaries and which
may not be canceled without material 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
Viewlogic and its subsidiaries taken as a
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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 Viewlogic
and/or any of its subsidiaries ceases to do business or fails to provide
appropriate maintenance;
(h) any agreement, contract or commitment currently in force to license
any third party to manufacture or reproduce any Viewlogic product, service or
technology except as a distributor in the ordinary course of business;
(i) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing of money or
extension of credit involving at least $250,000, including guaranties;
(j) any agreement relating to capital expenditures and involving future
payments in excess of $250,000 or
(k) any other agreement that involves $250,000 or more or is not
cancelable without penalty within thirty (30) days.
Each Viewlogic Contract (as defined below) is in full force and effect.
Neither Viewlogic nor any of its subsidiaries, nor to Viewlogic's knowledge, any
other party to a Viewlogic Contract, is in breach, violation or default under,
and neither Viewlogic 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 Viewlogic
or any of its subsidiaries is a party or by which it is bound that are required
to be disclosed in the Viewlogic Schedules pursuant to clauses (a) through (k)
above or pursuant to Section 2.9 hereof (any such agreement, contract or
commitment, a "VIEWLOGIC CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Viewlogic Contract, or would permit any
other party to seek damages, which would be reasonably likely to exceed $250,000
(for any or all of such breaches, violations or defaults, in the aggregate).
2.17 CHANGE OF CONTROL PAYMENTS. Section 2.17 of the Viewlogic 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 Viewlogic as a result of or in connection with the Merger.
2.18 STATEMENTS; JOINT PROXY STATEMENT/PROSPECTUS. The information supplied
by Viewlogic for inclusion in the Registration Statement (as defined in Section
3.4(b)) will not at the time the Registration Statement is filed with the
Securities and Exchange Commission (the "SEC") and at the time it becomes
effective under the Securities Act of 1933, as amended ("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 Viewlogic for inclusion in
the joint proxy statement/prospectus to be sent to the stockholders of both
Viewlogic and Summit in connection with the meeting or action by written consent
of Viewlogic's stockholders (the "VIEWLOGIC STOCKHOLDERS' MEETING") and the
meeting of Summit's stockholders (the "SUMMIT STOCKHOLDERS' MEETING"),
respectively (such joint proxy statement/prospectus as amended or supplemented
is referred to herein as the "JOINT PROXY STATEMENT") will not, on the date the
Joint Proxy Statement is first mailed to Viewlogic's stockholders or Summit's
stockholders or at the time of the Viewlogic 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
content of the Joint Proxy Statement furnished by Viewlogic to Summit for
inclusion in the Joint Proxy Statement will comply as to form in all material
respects with the provisions of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), and the rules and regulations thereunder. If at any
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time prior to the Effective Time any event relating to Viewlogic or any of its
affiliates, officers or directors should be discovered by Viewlogic which is
required to be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement, Viewlogic shall promptly inform Summit
of the facts relating to such event. Notwithstanding the foregoing, Viewlogic
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.
2.19 BOARD APPROVAL. The Viewlogic Board has, as of the date of this
Agreement, determined (i) that the Merger is in the best interests of Viewlogic
and its stockholders, and (ii) subject to the terms and conditions set forth in
this Agreement, to recommend that the stockholders of Viewlogic approve and
adopt this Agreement and approve the Merger.
2.20 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW NOT APPLICABLE. The
Viewlogic Board has taken all actions so that the restrictions contained in
Section 203 of the Delaware General Corporation 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.
2.21 REPRESENTATIONS COMPLETE. None of the representations or warranties made
by Viewlogic (as modified by the Viewlogic Schedules), nor any statement made in
the Viewlogic Schedules or certificate furnished by Viewlogic pursuant to this
Agreement, or furnished by Viewlogic for inclusion in or in connection with
documents to be mailed or delivered to stockholders of Viewlogic in connection
with soliciting their consent to this Agreement and the transactions
contemplated hereby, contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUMMIT AND MERGER SUB
Summit and Merger Sub represent and warrant to Viewlogic as of the date
hereof and as of immediately prior to the Closing, subject only to the
exceptions specifically disclosed in writing in the disclosure schedule (which
such exceptions shall specifically reference the appropriate section number of
the representations and warranties of Summit to be qualified by such exceptions;
PROVIDED, THAT, if a reasonable person would determine that any such exception
contains enough information to qualify or otherwise apply to other
representations and warranties of Summit, such exceptions shall qualify or
otherwise apply to such other representations and warranties of Summit) supplied
by Summit to Viewlogic 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"), the following are true and correct:
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 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.
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(b) Summit has delivered to Viewlogic 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 Viewlogic a true and
complete 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 charter
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,
(ii) conditions affecting the industry in which Summit competes as a whole, or
(iii) conditions resulting from announcement and pendency of the Merger).
3.2 SUMMIT CAPITAL STRUCTURE. The authorized capital stock of Summit
consists of (a) 30,000,000 shares of Common Stock, $0.01 par value per share, of
which there were 15,695,290 shares issued and outstanding and none held in
treasury and (b) 5,000,000 shares of Preferred Stock, $0.01 par value per share,
of which there are no shares issued or outstanding. 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 3,408,319 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 2,198,602 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 holds 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. 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.
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 capital stock,
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
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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 or any of its subsidiaries 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 capital stock 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, subject to the requisite approval of this Agreement and the
transactions contemplated hereby by Summit's stockholders. 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 filing of the Certificate of
Merger pursuant to Delaware Law and the approval of Summit's stockholders of
(i) the increase in the number of authorized shares of common stock under
Summit's Certificate of Incorporation to such amount as is necessary and
appropriate to effect the transactions contemplated by this Agreement, and
(ii) the issuance of shares of Summit Common Stock by virtue of the Merger
(collectively, the "Summit Proposals"). This Agreement has been duly executed
and delivered by Summit and Merger Sub and, assuming the due authorization,
execution and delivery by Viewlogic, 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 by Summit and Merger Sub does not, and
the performance of this Agreement by Summit and Merger Sub 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 Summit's stockholders of the Summit
Proposals as contemplated in Section 5.2 and compliance with the requirements
set forth in Section 3.4(b) below, 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 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's
subsidiaries, Viewlogic or the Surviving Corporation as a result of the Merger.
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(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 transactions contemplated hereby,
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 a Joint 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) or antitrust 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 have a Material Adverse
Effect on Summit or would otherwise 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
Viewlogic 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. Since the date of the
latest filings with the SEC, no event has occurred which would require Summit to
file a current report on Form 8-K under the Exchange Act. 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 and consistent with each other (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 in all material respects 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 and
consistent with each other, subject in the case of unaudited financial
statements, to the absence of footnotes and normal year-end adjustments, which
will not be material in amount. The balance sheet of Summit contained in Summit
SEC Reports as of December 31, 1998 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, 1999 previously
delivered to Viewlogic, 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 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 practice
and immaterial in the aggregate.
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(c) Summit has heretofore furnished to Viewlogic a true and complete
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 there has not been:
(a) any Material Adverse Effect on Summit and its subsidiaries, taken as
a whole;
(b) any material change by Summit in its accounting methods, principles
or practices, except as required by concurrent changes in GAAP;
(c) 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;
(d) any material transaction by Summit except in the ordinary course of
business;
(e) any amendments or changes to the Certificate of Incorporation or
Bylaws of Summit;
(f) any capital expenditures or commitments by Summit other than in the
ordinary course of business;
(g) any destruction of, damage to or loss of any material assets,
business or customer of Viewlogic (whether or not covered by insurance);
(h) any declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of Summit, or any direct or
indirect redemption, purchase or other acquisition by Summit of any of its
capital stock;
(i) any sale, lease, license or other disposition of any of the assets
or properties of Summit, except in the ordinary course of business, consistent
with past practices;
(j) any amendment or termination of any material contract, agreement or
license to which Summit is a party or by which it is bound, other than in the
ordinary course of business;
(k) any loan by Summit to any person or entity, incurrence by Summit of
any indebtedness, guarantee by Summit of any indebtedness, issuance or sale of
any debt securities of Summit or guarantee of any debt securities of others
except for advances to employees for travel and business expenses in the
ordinary course of business, consistent with past practice;
(l) any waiver or release of any material right or claim of Summit,
including any writeoff or other compromise of any account receivable of Summit;
(m) any issuance or sale by Summit of any of its shares of capital
stock, or securities exchangeable for, convertible or exercisable therefor, or
of any other of its securities; and
(n) any negotiation or agreement by Summit or any officers or employees
thereof to do any of the things described in the preceding clauses (a) through
(m) (other than negotiations with Viewlogic and its representatives regarding
the transactions contemplated by this Agreement).
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) Each of Summit and each of its subsidiaries has 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.
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(ii) Each of Summit and its subsidiaries (A) has paid or accrued all
Taxes it is required to pay or accrue and (B) has 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 Viewlogic 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 any of the assets or properties 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
reasonable basis for any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on any of the assets or
properties of Summit or any of its subsidiaries.
(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) 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) 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) 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) 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 or any
of its subsidiaries as of the date of this Agreement. The Summit Schedules list
all real property leases to which Summit or any of its subsidiaries 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
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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) Each of Summit and its subsidiaries 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, amount, 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, cancelled or abandoned since January 1, 1998.
(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.
(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 owned by Summit 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 material Lien
(excluding licenses and related restrictions); and (ii) Summit is the exclusive
owner of all material 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").
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(g) Summit owns exclusively, and has good title to, or has an
irrevocable, fully paid license 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 use 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 and the performance of all services provided by
Summit or its subsidiaries.
(i) To the extent that any material 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) Following the Closing Date, Summit will be permitted to exercise all
of Summit's material rights under the contracts, licenses and agreements
required to be listed in Section 3.9 of the Summit Schedules to the same extent
Summit would have been able had the consummation of the transactions
contemplated by this Agreement not occurred and without the payment of any
additional amounts or consideration other than ongoing fees, royalties or
payments which Summit would otherwise be required to pay or which are not
material in amount.
(m) 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
third party of the Intellectual Property of any third party, except such
contracts entered into in the ordinary course of Summit's business.
(n) 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.
(o) 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.
(p) Except as set forth in Section 3.9 of the Summit Schedules, there
have been, and are, no claims asserted against Summit or its subsidiaries or, to
its knowledge, against any customer of Summit, related to any product or service
of Summit or its subsidiaries.
(q) Each of Summit and its subsidiaries has and has taken commercially
reasonable efforts to enforce a policy requiring each employee and contractor to
execute a proprietary information/ confidentiality agreement substantially in
Summit's standard forms for employees and contractors, respectively, and all
current and former employees and contractors of Summit and its subsidiaries have
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executed such an agreement, except where the failure to do so could not
reasonably expected to be result in a Material Adverse Effect on Summit.
3.10 COMPLIANCE; PERMITS; RESTRICTIONS.
(a) Except for conflicts, violations and defaults that (individually or
in the aggregate) would not cause Summit or its subsidiaries to lose benefits
aggregating to $250,000 or more, or cause Summit or its subsidiaries to incur
liabilities aggregating to $250,000 or more, 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. No investigation or
review by any Governmental Entity is pending or, to Summit's knowledge, has
since January 1, 1998 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 authorities 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, threatened against Summit or
any of its subsidiaries which would reasonably be expected to have a Material
Adverse Effect on Summit or which in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
No Governmental Entity has at any time since January 1, 1998 challenged or
questioned the legal right of Summit to manufacture, offer or sell any of its
products.
3.12 BROKERS' AND FINDERS' FEES. Summit 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.
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
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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 a true
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 made available to Summit (i) true 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 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) 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, Viewlogic, the Surviving
Corporation or any Affiliates (other than ordinary administration expenses
typically incurred in a termination event and benefits accrued through the date
of such amendment, termination or
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discontinuance); (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) neither Summit nor any Affiliate is
subject to any penalty or tax with respect to any Summit Employee Plan under
Section 502(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 Section
3.13(g) of the Summit Schedules, 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 Section 3.13(h)(i) of the Summit Schedules, 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 in Section 3.13(h)(ii) of the Summit
Schedules, no payment or benefit which will or may be made by Summit, Viewlogic
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.
(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, labor strike material slow down or lockout with
respect to any of the employees of Summit or its subsidiaries is pending or, to
the knowledge of Summit, threatened. Except as set forth in Section 3.13(j) of
the Summit Schedules, 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 material liability to Summit. Neither Summit nor any of its
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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 liability to Summit. Except as set
forth in Section 3.13(j) of the Summit Schedules, neither Summit nor any of its
subsidiaries is 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.
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.
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. 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. To Summit's knowledge, except for such instances
as would not reasonably be considered 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. To Summit's knowledge, except for
such instances as would not reasonably be considered 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 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, 1998 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. Except as set forth in Section
3.16 of the Summit Schedules, 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 material 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;
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(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 material 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 material 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
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 ordinary course of business;
(i) any mortgage, indenture, loan or credit agreement, security
agreement or other agreement or instrument relating to the borrowing of money or
extension of credit involving at least $250,000, including guaranties;
(j) any agreement relating to capital expenditures and involving future
payments in excess of $250,000 or
(k) any other agreement that involves $250,000 or more or is not
cancelable without penalty within thirty (30) days.
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
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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 (k) 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
$250,000 (for any or all of such breaches, violations or defaults, in the
aggregate).
3.17 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.
3.18 STATEMENTS; JOINT PROXY STATEMENT/PROSPECTUS. The information supplied
by Summit and Merger Sub for inclusion in the Registration Statement will 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 Joint Proxy
Statement will not, on the date the Joint Proxy Statement is first mailed to
Viewlogic's stockholders or Summit's stockholders or at the time of the
Viewlogic 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 content of the Joint Proxy Statement
furnished by Summit for inclusion in the Joint 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 is required to be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, Summit
shall promptly inform Viewlogic of the facts relating to such event.
Notwithstanding the foregoing, neither Summit nor Merger Sub makes any
representation or warranty with respect to any information supplied by Viewlogic
which is contained in any of the foregoing documents.
3.19 BOARD APPROVAL. The Summit and Merger Sub Boards have, as of the date of
this Agreement, determined (i) that the Merger is in the best interests of
Summit and its stockholders, and (ii) subject to the terms and conditions set
forth in this Agreement, to recommend that the stockholders of Summit approve
the issuance of shares of Summit Common Stock by virtue of the Merger.
3.20 FAIRNESS OPINION. Summit's Board of Directors has received a written
opinion from Dain Rauscher Wessels dated as of September 14, 1999, 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 Viewlogic a copy of such
opinion.
3.21 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW NOT APPLICABLE. The
Summit Board has taken all actions so that the restrictions contained in Section
203 of the Delaware General Corporation 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.
3.22 REPRESENTATIONS COMPLETE. None of the representations or warranties made
by Summit or Merger Sub (as modified by the Summit Schedules), nor any statement
made in the Summit Schedules or certificate furnished by Summit or Merger Sub
pursuant to this Agreement, or furnished by Summit for inclusion in or in
connection with documents to be mailed or delivered to stockholders of Summit in
connection with soliciting their consent to this Agreement and the transactions
contemplated hereby,
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contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
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, Viewlogic (which for the purposes of this
Article IV shall include Viewlogic and each of its subsidiaries) and Summit
(which for the purposes of this Article IV 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 Viewlogic 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 and
notwithstanding the foregoing, except as expressly contemplated or permitted by
the terms of this Agreement, without the prior written consent of the other,
neither Viewlogic 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
Viewlogic nor Summit shall permit its subsidiaries to do any of the following
(except as otherwise required by law):
(a) Other than as required pursuant to an agreement or document
described in the Viewlogic Schedules or the Summit Schedules or as a result of
the transactions contemplated by this Agreement, 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; PROVIDED, HOWEVER, that Summit shall use its
reasonable best efforts (including without limitation the payment of reasonable
consideration) to cancel (with the written consent of the optionees given for
consideration actually paid, copies of such consents and proof of such payments
to be presented to Viewlogic prior to the Effective Time) options exercisable
for up to 250,000 shares of Common Stock under its option plans at any time
prior to the Effective Time, as set forth in Section 5.11;
(b) grant any severance or termination pay in excess of $10,000 in any
one case or $100,000 in the aggregate 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 Viewlogic 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, set aside 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
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substitution for any capital stock other than the issuance, delivery and/or sale
of (i) shares of Viewlogic 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 Viewlogic Common Stock or Summit
Common Stock to be granted at fair market value (determined in accordance with
past practice) 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 options to be granted by Viewlogic shall
not (without the prior written approval of Summit) exceed 10,000 per person or
100,000 in the aggregate and options to be granted by Summit shall not (without
the prior written approval of Viewlogic) exceed 7,500 per person or 75,000 in
the aggregate, (iii) shares of Viewlogic Common Stock or Summit Common Stock, as
the case may be, issuable upon the exercise of the options referred to in clause
(ii), (iv) shares of Summit Common Stock issuable to participants in Summit's
1996 Employee Stock Purchase Plan in accordance with its terms (v) shares of
Viewlogic Capital Stock issuable upon conversion of the shares of Viewlogic
Preferred Stock and (vi) shares of Viewlogic Common Stock issued pursuant to the
transactions contemplated by that certain Agreement and Plan of Merger dated as
of July 16, 1999 by and among Viewlogic, Tech Design, Inc. and Transcendent
Design Technology, Inc.;
(e) repurchase, redeem 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 Viewlogic 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
Viewlogic Common Stock or Summit Common Stock to be granted at fair market value
(determined in accordance with past practice) 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 options to be granted
by Viewlogic shall not (without the prior written approval of Summit) exceed
10,000 per person or 100,000 in the aggregate and options to be granted by
Summit shall not (without the prior written approval of Viewlogic) exceed 7,500
per person or 75,000 in the aggregate, (iii) shares of Viewlogic Common Stock or
Summit Common Stock, as the case may be, issuable upon the exercise of the
options referred to in clause (ii), (iv) shares of Summit Common Stock issuable
to participants in Summit's 1996 Employee Stock Purchase Plan in accordance with
its terms (v) shares of Viewlogic capital stock issuable upon conversion of the
shares of Viewlogic Preferred Stock and (vi) shares of Viewlogic Common Stock
issued pursuant to the transactions contemplated by that certain Agreement and
Plan of Merger dated as of July 16, 1999 by and among Viewlogic, Tech Design,
Inc. and Transcendent Design Technology, Inc.
(g) cause, permit or propose any amendments to any charter document or
bylaw (or similar governing instruments of any subsidiaries), other than as
contemplated by this Agreement;
(h) acquire or agree to acquire by merging or consolidating with, or by
purchasing, other than in the ordinary course of business, consistent with past
practice, 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 Viewlogic or Summit, as the case may be, or
enter into any material joint ventures, strategic partnerships or alliances,
other than Viewlogic's purchase of up to 50,000 shares of Series A Preferred
Stock of Routech, Inc. in exchange for the waiver of royalties of not more than
$300,000;
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(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 Viewlogic 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 materially 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
Viewlogic may guarantee any indebtedness of any subsidiary of Viewlogic, and any
subsidiary of Viewlogic may guarantee any indebtedness of Viewlogic or of any
other subsidiary of Viewlogic, 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 of
Viewlogic or Summit 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: (i) offer letters and letter agreements with employees who are terminable
"at will," or (ii) as required by law), pay any special bonus or special
remuneration to any director or employee (except to the extent contemplated by
Sections 2.13 or 3.13 or pursuant to contracts existing prior to the date of
this Agreement), or increase the salaries or wage rates of its officers or
employees other than, with respect to employees who are not officers, 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 that Viewlogic may grant reasonable increases in the
salaries of its officers in connection with a contemplated annual review on or
about October, 1999;
(l) make any payments outside of the ordinary course of business for
purposes of settling any dispute;
(m) commence any litigation other than in the ordinary course of
business;
(n) other than in the ordinary course of business, make or change any
material election in respect of Taxes, adopt or change any material 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;
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT; OTHER FILINGS; BOARD RECOMMENDATIONS.
(a) As promptly as practicable after the execution of this Agreement,
Viewlogic and Summit will prepare, and file with the SEC, the Joint Proxy
Statement and Summit will prepare and file with the SEC the Registration
Statement in which the Joint Proxy Statement will be included as a prospectus.
Each of Viewlogic 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 Joint 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 Viewlogic and
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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, state, foreign
or Blue Sky or related laws relating to the Merger and the transactions
contemplated by this Agreement (the "OTHER FILINGS"). Each of Viewlogic 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 Joint 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 Joint Proxy Statement, the
Merger or any Other Filing. Each of Viewlogic 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 Joint Proxy Statement, the Registration Statement
or any Other Filing, Viewlogic 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
Viewlogic or Summit, such amendment or supplement.
(b) The Joint Proxy Statement will include (x) the unanimous
recommendation of the Summit Board in favor of the Summit Proposals (except that
notwithstanding anything to the contrary contained in this Agreement, the Summit
Board may withdraw, modify or refrain from making such recommendation or
recommend a Superior Proposal (as defined in Section 5.4 of this Agreement) to
the extent that the Summit Board determines, in good faith, after consultation
with, and with the advice of, outside legal counsel, that such action is
necessary for the Summit Board to comply with its fiduciary duties to its
stockholders under applicable law) and (y) the unanimous recommendation of the
Viewlogic Board in favor of the adoption and approval of the Agreement and the
adoption of the Merger (except that notwithstanding anything to the contrary
contained in this Agreement, the Viewlogic Board may withdraw, modify or refrain
from making such recommendation or recommend a Superior Proposal to the extent
that the Viewlogic Board determines, in good faith, after consultation with, and
with the advice of, outside legal counsel, that such action is necessary for the
Viewlogic Board to comply with its fiduciary duties to its stockholders under
applicable law.)
5.2 MEETINGS OF STOCKHOLDERS.
(a) 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 approving the Summit Proposals. Unless the Summit
Board withdraws, modifies or refrains from making the recommendation set forth
in Section 5.1(b) or recommends a Superior Proposal, either in accordance with
Section 5.1(b), Summit will use its best efforts to solicit from its
stockholders proxies in favor of the Summit Proposals 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.
(b) Promptly after the date hereof, Viewlogic will take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene the Viewlogic 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 adoption and approval of the
Agreement and the adoption of the Merger. Unless the Viewlogic Board withdraws,
modifies or refrains from making the recommendation set forth in Section 5.1(b)
or recommends a Superior Proposal, either in accordance with Section 5.1(b),
Viewlogic will use its best efforts to solicit from its stockholders proxies in
favor of the adoption
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and approval of the 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 Delaware Law to obtain such approvals.
5.3 CONFIDENTIALITY; ACCESS TO INFORMATION.
(a) The parties acknowledge that Viewlogic and Summit have previously
executed a Letter Agreement, dated as of August 27, 1999 (the "NON-DISCLOSURE
AGREEMENT"). The parties agree that the Non-Disclosure Agreement (excluding the
fifth paragraph thereof, which is superseded by the provisions of this
Agreement) will continue in full force and effect in accordance with its terms.
(b) Viewlogic will afford Summit and its accountants, counsel and other
representatives reasonable access at Summit's expense during normal business
hours to the properties, books, records and personnel of Viewlogic 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 Viewlogic, as Summit
may reasonably request. Summit will afford Viewlogic and its accountants,
counsel and other representatives reasonable access at Viewlogic's expense
during normal business hours 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 Viewlogic may reasonably request. No information or knowledge obtained by
either Summit or Viewlogic in any investigation pursuant to this Section 5.3
will affect or be deemed to modify any representation or warranty contained in
this Agreement.
5.4 NON-SOLICITATION.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with Section
7.1, neither Viewlogic nor Summit shall, directly or indirectly, through any
officer, director, employee, representative or agent, (i) solicit, initiate or
knowingly encourage any proposals that constitute, or could reasonably be
expected to result in, a proposal or offer for a merger, consolidation, share
exchange, business combination, sale of substantial assets, sale of shares of
capital stock (including without limitation pursuant to a tender offer) or
similar transaction or series of transactions (but specifically excluding the
purchase by Viewlogic of 50,000 shares of Series A Preferred Stock from Routech,
Inc.) involving Viewlogic or Summit, respectively, other than the transactions
contemplated by this Agreement (any of the foregoing proposals being referred to
in this Agreement as an "ACQUISITION PROPOSAL"), or (ii) engage in negotiations
or discussions concerning, or provide any non-public information regarding
Viewlogic or Summit, as applicable, to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to, approve or recommend to its
stockholders any Acquisition Proposal; PROVIDED, HOWEVER, that nothing contained
in this Agreement shall prevent Viewlogic or its Board of Directors or Summit or
its Board of Directors, as the case may be, from (A) furnishing non-public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity (including a new and unsolicited Acquisition Proposal
received by Viewlogic or Summit after the execution of this Agreement from a
person or entity whose initial contact with Viewlogic or Summit may have been
solicited by Viewlogic or Summit, respectively, prior to the execution of this
Agreement) or recommending such an unsolicited bona fide written Acquisition
Proposal to the stockholders of Viewlogic or Summit, respectively, if and only
to the extent that (1) the Board of Directors of Viewlogic or the Board of
Directors of Summit, as the case may be, believes in good faith (after
consultation with its financial advisors) that such Acquisition Proposal would,
if consummated, result in a transaction more favorable to Viewlogic stockholders
or Summit stockholders, respectively, from a financial point of view than the
transaction contemplated by the Agreement (any such more favorable Acquisition
Proposal being referred to in this Agreement as a "SUPERIOR PROPOSAL") and the
Board of Directors of Viewlogic or the Board of Directors of Summit determines
in
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good faith after consultation with, and with the advice of, its outside legal
counsel that such action is necessary for the Board of Directors of Viewlogic or
the Board of Directors of Summit, as the case may be, to comply with its
fiduciary duties to its stockholders under applicable law and (2) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, such Board of Directors receives from
such person or entity an executed non-disclosure agreement with terms no less
favorable to such party than those contained in the Non-Disclosure Agreement or
(B) complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act of
1934, as amended, with regard to an Acquisition Proposal.
5.5 PUBLIC DISCLOSURE. Summit and Viewlogic will consult with each other,
and agree, before issuing any press release or otherwise making any public
statement with respect to the Merger and this Agreement, 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.
5.6 LEGAL REQUIREMENTS. Each of Summit, Merger Sub and Viewlogic 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. Viewlogic 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.
5.7 THIRD PARTY CONSENTS. As soon as practicable following the date hereof,
Summit and Viewlogic 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.
5.8 NOTIFICATION OF CERTAIN MATTERS. Summit and Merger Sub will give prompt
notice to Viewlogic, and Viewlogic 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
or Merger Sub or Viewlogic, as the case may be, or 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 will not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
5.9 BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of Summit and Viewlogic under this Agreement, each of the
parties to this Agreement will use its reasonable best
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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 Viewlogic 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.
5.10 STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares of
Viewlogic Common Stock (each a "VIEWLOGIC STOCK OPTION") under the Viewlogic
Stock Option Plans, whether or not exercisable, will be assumed by Summit. Each
Viewlogic 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 and repurchase rights) set forth in the applicable Viewlogic Stock
Option Plan or related agreements immediately prior to the Effective Time and
the Viewlogic Stock Option by which it is evidenced, except that (i) each
Viewlogic 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 Viewlogic Common
Stock that could be issuable upon exercise of such Viewlogic Stock Option if all
vesting conditions are satisfied multiplied by the Exchange Ratio, rounded down
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 Viewlogic Stock Option will be equal to the quotient determined by
dividing the exercise price per share of Viewlogic Common Stock at which such
Viewlogic Stock Option was exercisable immediately prior to the Effective Time
by the Exchange Ratio, rounded up to the nearest whole cent. After the Effective
Time, Summit will issue to each holder of an outstanding Viewlogic Stock Option
a notice describing the foregoing assumption of such Viewlogic Stock Option by
Summit. It is intended that Viewlogic 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 Viewlogic Stock Options qualified as
incentive stock options immediately prior to the Effective Time and the
provisions of this Section 5.10 shall be applied consistent with such intent.
(b) Summit will reserve sufficient shares of Summit Common Stock for
issuance under Section 5.10 and under Section 1.6 hereof.
5.11 SUMMIT OPTION PLANS. Notwithstanding anything contained in this
Agreement to the contrary, Summit shall use its reasonable best efforts
(including without limitation the payment of reasonable consideration) to cancel
(with the written consent of the optionees given for consideration actually
paid, copies of such consents and proof of such payments to be presented to
Viewlogic prior to the Effective Time) options for up to 250,000 shares of
Common Stock under its option plans at any time prior to the Effective Time.
5.12 AFFILIATE AGREEMENTS. Section 5.12 of the Viewlogic Schedules sets forth
those persons who, in Viewlogic's reasonable judgment, are or may be
"affiliates" (as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act) of Viewlogic (collectively, the "AFFILIATES"). The parties
acknowledge and agree that Summit shall place appropriate restrictive legends
related to Rule 145 under the Securities Act on the certificates evidencing any
Summit Common Stock to be received by Affiliates, and to issue appropriate stop
transfer instructions to the transfer agent for Summit Common Stock.
5.13 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 Viewlogic Stock
Options as soon as reasonably
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practical after the Effective Time 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.
5.14 NASDAQ LISTING. Summit agrees (i) to have the shares of Summit Common
Stock issuable, and those required to be reserved for issuance, in connection
with the Merger, approved for quotation on the Nasdaq National Market System
subject only to official notice of issuance and (ii) to continue the inclusion
of the Summit Common Stock on the Nasdaq National Market until the Effective
Time.
5.15 COMFORT LETTER. Viewlogic shall use reasonable best efforts to cause
Deloitte & Touche, certified public accountants to Viewlogic, to provide a
letter reasonably acceptable to Summit, relating to their review of the
financial statements relating to Viewlogic contained in or incorporated by
reference in the Registration Statement. Summit shall use reasonable best
efforts to cause PriceWaterhouseCoopers, certified public accountants to Summit,
to provide a letter reasonably acceptable to Viewlogic, relating to their review
of the financial statements relating to Summit contained in or incorporated by
reference in the Registration Statement.
5.16 BOARD OF DIRECTORS OF THE COMBINED COMPANY. The Board of Directors of
Summit will take all actions necessary to cause the Board of Directors of
Summit, as of the Effective Time, to (i) consist of the following five persons:
William J. Herman, Keith Geeslin, William Botts, Steven Erwin and as fifth
director to be mutual chosen by these four directors and (ii) be classified as
follows:
<TABLE>
<CAPTION>
<S> <C>
Class I directors:
(Term expiring in 2001) Steven Erwin and Lorne Cooper
Class II directors:
(Term expiring in 2002) William Botts and Keith Geeslin
Class III directors:
(Term expiring in 2000) William J. Herman
</TABLE>
5.17 OFFICERS OF COMBINED COMPANY; EXECUTIVE COMMITTEE. As of the Effective
Time, the Board of Directors of Summit will take all actions necessary to elect
the following individuals as officers of Summit to hold the offices set forth
opposite their names below pursuant to the bylaws of Summit:
<TABLE>
<CAPTION>
<S> <C>
William J. Herman Chairman of the Board of Directors and Chief
Executive Officer
Richard G. Lucier Executive Vice President and Chief Operating
Officer
Paula Cassidy Vice President, Human Resources
Peter T. Johnson Vice President, Business Development and
Chief Legal Officer
Gary Kiaski Vice President, Worldwide Sales
Kevin O'Brien Vice President, Finance and Chief Financial
Officer
Guy Moshe Vice President, Chief Technology Officer and
President of Summit Israel
Eric Benhayoun Vice President, General Manager European
Operations
</TABLE>
5.18 INDEMNIFICATION AND INSURANCE.
(a) From and after the Effective Time, Summit will, or will cause the
Surviving Corporation to, fulfill and honor in all respects the obligations of
Summit and Viewlogic pursuant to their respective certificates of incorporation
and bylaws and any indemnification agreements between Summit, Viewlogic and each
of its respective directors and officers existing prior to the Effective Time.
The Certificate of Incorporation and By laws of each of Summit and the Surviving
Corporation will contain
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the provisions with respect to indemnification set forth in the Certificate of
Incorporation and By-laws of Summit and Viewlogic, respectively, prior to the
Effective Time, which provisions will not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who, immediately
prior to the Effective Time, were directors, officers, employees or agents of
Summit or Viewlogic, unless such modification is required by law.
(b) From and after the Effective Time, Summit will, and will cause the
Surviving Corporation, to the fullest extent permitted under applicable law or
under Summit's and the Surviving Corporation's respective Certificate of
Incorporation or By laws, to indemnify and hold harmless, each director or
officer of Summit and Viewlogic (collectively, the "INDEMNIFIED PARTIES")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, to the extent arising out of
or pertaining to any action or omission in his or her capacity as a director or
officer of Summit or Viewlogic, respectively, for a period of six years after
the date hereof. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time must be reasonably satisfactory to Summit and the Surviving Corporation,
(ii) after the Effective Time, Summit will, and will cause the Surviving
Corporation, to pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received and (iii) Summit will, and will cause the
Surviving Corporation to cooperate in the defense of any such matter; PROVIDED,
HOWEVER, that neither Summit nor the Surviving Corporation will be liable for
any settlement effected without its written consent (which consent will not be
unreasonably withheld); and PROVIDED, FURTHER, that, in the event that any claim
or claims for indemnification are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or claims will
continue until the disposition of any and all such claims; PROVIDED, FURTHER,
that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under Delaware
Law, Summit's or Viewlogic's respective certificate of incorporation or bylaws
or such agreements, as the case may be, shall be made by independent legal
counsel selected by the Indemnified Party and reasonably acceptable to Summit;
and PROVIDED, FURTHER, that nothing in this Section 5.18 shall impair any rights
or obligations of any present or former employees, agents, directors or officers
of Summit or Viewlogic. The Indemnified Parties as a group may retain only one
law firm (in addition to local counsel) to represent them with respect to any
single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Indemnified Parties. In the event Summit or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in each
such case, to the extent necessary to effectuate the purposes of this Section
5.18, proper provision shall be made so that the successors and assigns of
Summit and Viewlogic assume the obligations set forth in this Section 5.18 and
none of the actions described in clause (i) or (ii) shall be taken until such
provision is made.
(c) For a period of six years after the Effective Time, Summit will, and
will cause the Surviving Corporation to, use its commercially reasonable efforts
to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by Summit's and
Viewlogic's directors' and officers' liability insurance policies on terms at
least comparable to those in effect on the date hereof.
(d) This Section 5.18 will survive any termination of this Agreement and
the consummation of the Merger at the Effective Time, is intended to benefit
Summit, Viewlogic, the Surviving
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Corporation and the Indemnified Parties, and will be binding on all successors
and assigns of Summit, Viewlogic and the Surviving Corporation.
(e) Without limiting any other provision of this Section 5.18, Summit
shall use its best efforts to cause its existing director and officer insurance
policy to be renewed effective upon the October 1999 expiration date for the
existing policy.
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 each of
the following conditions:
(a) STOCKHOLDER APPROVAL OF VIEWLOGIC. 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 Viewlogic.
(b) STOCKHOLDER APPROVAL OF SUMMIT. The Summit Proposals shall each 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.
(c) REGISTRATION STATEMENT EFFECTIVE; JOINT 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 Joint Proxy Statement, shall have been initiated or
threatened in writing by the SEC.
(d) 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.
(e) TAX OPINIONS. Summit and Viewlogic shall each have received
substantially identical written opinions from their respective tax counsel
(Wilson Sonsini Goodrich & Rosati, P.C. and Hale and Dorr LLP, respectively), in
form and substance reasonably acceptable Summit or Viewlogic, as the case may
be, 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 Viewlogic
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 and customary representations as may be requested by such counsel for
the purpose of rendering such opinions.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF VIEWLOGIC. The obligation of
Viewlogic 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 Viewlogic:
(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 3.5) 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
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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). Viewlogic shall have received a certificate
with respect to the foregoing signed on behalf of Summit by the Chief Executive
Officer and the Chief Financial Officer of Summit.
(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 Viewlogic shall have received a certificate to such effect
signed on behalf of Summit by the Chief Executive Officer and the Chief
Financial Officer of Summit.
(c) NASDAQ NATIONAL MARKET LISTING. The shares of Summit Common Stock
issuable to stockholders of Viewlogic 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 approved for quotation on the Nasdaq National
Market System subject only to official notice of issuance.
(d) RESIGNATIONS. Viewlogic shall have received copies of the
resignations effective as of the Effective Time, of each director and officer of
Summit set forth on Schedule 6.2(d) attached hereto.
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 Viewlogic 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 and 2.5) to be true and correct in each
case or in the aggregate does not constitute a Material Adverse Effect on
Viewlogic, (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 Viewlogic) (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). Summit shall have received
a certificate with respect to the foregoing signed on behalf of Viewlogic by the
Chief Executive Officer and the Chief Financial Officer of Viewlogic.
(b) AGREEMENTS AND COVENANTS. Viewlogic 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 Viewlogic by the Chief Executive Officer and the Chief Financial
Officer of Viewlogic.
(c) NO DISSENTERS. Holders of no more than 7.5% of the outstanding
Viewlogic Capital Stock shall have exercised dissenters' rights with respect to
the transactions contemplated by this Agreement.
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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 Viewlogic or the approval of the Summit Proposals by the
stockholders of Summit:
(a) by mutual written consent duly authorized by the respective Boards
of Directors of Summit and Viewlogic;
(b) by either party 75 days after the Joint Proxy Statement is declared
effective by the Securities and Exchange Commission; PROVIDED, HOWEVER, that,
notwithstanding the time, if any, the Joint Proxy Statement has been declared
effective by the Securities and Exchange Commission, this Agreement may be
terminated by either Viewlogic or Summit, if the Effective Time has not occurred
by February 29, 2000; and PROVIDED, FURTHER, 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 Viewlogic 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 otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(d) by either Viewlogic or Summit if the required approvals of the
stockholders of Viewlogic 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 (or, in the case of Viewlogic, an action by written consent
of stockholders) (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 or Viewlogic, as the case may be, at any time prior to the
approval of the Merger by Viewlogic's stockholders, if the Viewlogic 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 in accordance with Section 5.1(b);
(f) by Viewlogic or Summit, as the case may be, at any time prior to the
approval of the Merger by Summit's stockholders, if the Summit Board shall have
withheld, withdrawn or modified in a manner adverse to Viewlogic its
recommendation in favor of the issuance of shares of Summit Common Stock by
virtue of the Merger in accordance with Section 5.1(b);
(g) by Viewlogic, 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 Viewlogic 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 Viewlogic 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
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<PAGE>
(h) by Summit, upon a breach of any representation, warranty, covenant
or agreement on the part of Viewlogic set forth in this Agreement, or if any
representation or warranty of Viewlogic 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
Viewlogic's representations and warranties or breach by Viewlogic is curable by
Viewlogic 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 Viewlogic 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 Viewlogic's breach or inaccuracy).
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of this
Agreement under Section 7.1 above 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 Section 5.3, this Section 7.2 and Section 7.3 and Article IX (General
Provisions), each of which shall survive the termination of this Agreement, and
(ii) nothing herein shall relieve any party from liability for any 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.
7.3 FEES AND EXPENSES.
(a) 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 Viewlogic 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
Joint Proxy Statement (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) Viewlogic shall pay Summit a cash termination fee of $2.5 million
upon the earliest to occur of the following events: (i) the termination of this
Agreement by Summit or Viewlogic pursuant to Section 7.1(e); or (ii) the
termination of this Agreement by Summit pursuant to Section 7.1(d) as a result
of the failure of Viewlogic to receive the required approval by the stockholders
of Viewlogic at the Viewlogic Stockholders Meeting if (x) prior to such
termination there shall have been announced or commenced an Alternative
Transaction (as defined below) with respect to Viewlogic, (y) the Viewlogic
Board of Directors shall not have recommended against such Alternative
Transaction affirmatively and (z) within 12 months following such termination
Viewlogic shall have executed an agreement to engage in such Alternative
Transaction. The fees, if applicable, payable pursuant to this Section 7.3(b)
shall be paid within ten (10) business days after the first to occur of the
events (inclusive of any applicable cure period) described in Section
7.3(b)(i) or (ii) above; PROVIDED, HOWEVER, that in no event shall Viewlogic be
required to pay any termination fee, if applicable, to Summit, if
(i) immediately prior to the termination of this Agreement, Summit was in
material breach of any of its material obligations set forth in Articles IV and
V under this Agreement or (ii) the Board of Directors of Summit shall have
withdrawn or modified its recommendation of the Summit Proposals in a manner
materially adverse to Viewlogic or shall have publicly announced its intention
to do any of the foregoing.
(c) Summit shall pay Viewlogic a cash termination fee of $2.5 million
upon the earliest to occur of the following events: (i) the termination of this
Agreement by Viewlogic or Summit pursuant to Section 7.1(f); or (ii) the
termination of this Agreement by Viewlogic pursuant to Section 7.1(d) as a
result of the failure of Summit to receive the required approval by the
stockholders of Summit at the
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Summit Stockholders Meeting if (x) there shall have been announced or commenced
an Alternative Transaction with respect to Summit, (y) the Summit Board of
Directors shall not have recommended against such Alternative Transaction
affirmatively and (z) within 12 months following such termination Summit shall
have executed an agreement to engage in such an Alternative Transaction. The
fee, if applicable, payable pursuant to this Section 7.3(c) shall be paid within
ten (10) business days after the first to occur of the events (inclusive of any
applicable cure period) described in Section 7.3(c)(i) or (ii) above; PROVIDED,
HOWEVER, that in no event shall Summit be required to pay any termination fee,
if applicable, to Viewlogic, if (i) immediately prior to the termination of this
Agreement, Viewlogic, if applicable, was in material breach of any of its
material obligations set forth in Articles IV and V under this Agreement or
(ii) the Board of Directors of Viewlogic shall have withdrawn or modified its
recommendation of the Viewlogic Proposals in a manner materially adverse to
Summit or shall have publicly announced its intention to do any of the
foregoing.
(d) As used in this Agreement, "Alternative Transaction" means either
(i) a transaction pursuant to which any person (or group of persons) other than,
with respect to Viewlogic, Summit or its affiliates, or with respect to Summit,
Viewlogic or its affiliates, (a "Third Party"), acquires more than 20% of the
outstanding shares of Viewlogic capital stock or Summit capital stock,
respectively, pursuant to a tender offer or exchange offer or otherwise, (ii) a
merger or other business combination involving Viewlogic or Summit pursuant to
which any Third Party acquires more than 20% of the outstanding equity
securities of Viewlogic or Summit or the entity surviving such merger or
business combination, (iii) any other transaction pursuant to which any Third
Party acquires control of assets (including for this purpose the outstanding
equity securities of subsidiaries of Viewlogic or Summit, and the entity
surviving any merger or business combination including any of them) of Viewlogic
or Summit having a fair market value (as determined by the Board of Directors of
Viewlogic or Summit in accordance with recent practice) equal to more than 20%
of the fair market value of all the assets of Viewlogic or Summit immediately
prior to such transaction ("Material Assets"), 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.
(e) Payment of the fees described in Sections 7.3(b) and 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 only 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 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
NO SURVIVAL
8.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of Viewlogic's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Viewlogic Schedules) and all
of Summit's and Merger Sub's representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement (each as modified by the
Summit Schedules) shall terminate at the Effective Time.
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<PAGE>
ARTICLE IX
GENERAL PROVISIONS
9.1 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, Oregon 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 Viewlogic, to:
Viewlogic Systems, Inc.
293 Boston Post
Road West
Marlboro, Massachusetts 01752
Attention: Chief Executive Officer
Telephone No.: (508) 480-0881
Facsimile No.: (508) 480-0888
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: John A. Burgess, Esq.
Telephone No.: (617) 526-6000
Facsimile No.: (617) 526-5000
9.2 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.
A-48
<PAGE>
(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 9.2(b) of the Summit Schedules and
(ii) as it relates to Viewlogic, the term "KNOWLEDGE" means, with respect to any
matter in question, the actual knowledge of any of the persons listed in Section
9.2(b) of the Viewlogic Schedules.
9.3 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.
9.4 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 Viewlogic 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) except with respect to
Section 5.19, are not intended to confer upon any other person any rights or
remedies hereunder.
9.5 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.
9.6 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.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced 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.
9.8 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.
9.9 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.
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<PAGE>
IN WITNESS WHEREOF, Summit, Merger Sub and Viewlogic have caused this
Agreement to be executed by their duly authorized respective officers as of the
date first written above.
SUMMIT DESIGN, INC.
By: /s/
--------------------------------------
Name:
Title:
HOOD ACQUISITION CORP.
By: /s/
--------------------------------------
Name:
Title:
VIEWLOGIC SYSTEMS, INC.
By: /s/
--------------------------------------
Name:
Title:
A-50
<PAGE>
Annex B
VIEWLOGIC VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of
September 16, 1999, between Summit Design, Inc., a Delaware corporation
("SUMMIT"), and the undersigned stockholder ("STOCKHOLDER") of Viewlogic
Systems, Inc., a Delaware corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Summit, the Company
and Hood Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Summit ("MERGER SUB"), are entering into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") which provides for the merger (the
"MERGER") of Merger Sub with and into the Company. Pursuant to the Merger, all
of the shares of capital stock of the Company will be converted into the right
to receive shares of Common Stock of Summit on the basis described in the Merger
Agreement.
B. The Stockholder is the record holder and beneficial owner of such number
of shares of the outstanding capital stock of the Company as is indicated on the
final page of this Agreement (the "SHARES").
C. As a material inducement to enter into the Merger Agreement, Summit
desires the Stockholder to agree, and the Stockholder is willing to agree, to
vote the Shares and any New Shares (as defined in Section 1.2 of this Agreement)
so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. AGREEMENT TO VOTE SHARES; ADDITIONAL PURCHASES.
1.1 AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
the Company called with respect to any of the matters set forth in clause
(x) or (y) of this Section 1.1, and at every adjournment thereof, and on
every action or approval by written consent of the stockholders of the
Company with respect to any of the matters set forth in clause (x) or (y) of
this Section 1.1, Stockholder shall vote the Shares and any New Shares (as
defined below) in favor of (x) approval of the Merger Agreement and the
Merger and (y) any matter that could reasonably be expected to facilitate
the Merger.
1.2 ADDITIONAL PURCHASES. Stockholder agrees that any shares of capital
stock of the Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the execution of
this Agreement and prior to the termination of this Agreement in accordance
with Section 6 ("NEW SHARES") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Summit a proxy in the form attached hereto as
Annex A (the "PROXY"), which shall be irrevocable, with respect to the Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. Stockholder
represents and warrants that he, she or it: (i) is the beneficial owner of the
Shares, which at the date hereof are free and clear of any liens, claims,
options, charges or other encumbrances; (ii) does not beneficially own any
shares of capital stock of the Company other than the Shares (excluding shares
as to which Stockholder currently disclaims beneficial ownership in accordance
with applicable law); and (iii) has full power and authority to make, enter into
and carry out the terms of this Agreement.
B-1
<PAGE>
4. ADDITIONAL DOCUMENTS. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Summit, to carry out the intent of this Agreement.
5. CONSENTS AND WAIVERS. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Stockholder is a party or pursuant to any rights
Stockholder may have and acknowledges that immediately prior to, as of and after
the Effective Time (as defined in the Merger Agreement), if the Effective Time
occurs, the Stockholder will have only those rights relating to the Shares as
are held by an ordinary holder of shares of common stock; PROVIDED, THAT, the
Stockholder shall retain its registration rights as set forth in Section 1 of
that certain Investors' Rights Agreement dated as of October 2, 1998 (the
"Rights Agreement"), subject to the following limitations: (i) the undersigned
may request only up to an aggregate of two registrations pursuant to Sections
1.2 and 1.4 of the Rights Agreement (the "Demand Registrations"); (ii) the
undersigned may not request a Demand Registration until after the date six
months after the Effective Time; (iii) the undersigned may request the
registration of no more than 50% of the total shares of SSS Common Stock (as
defined in the Merger Agreement) issued to the undersigned pursuant to the
Merger in any one Demand Registration; and (iv) upon the effectiveness of a
registration statement filed with the Securities and Exchange Commission
pursuant to a Demand Registration, the undersigned may not request another
Demand Registration until the date six months after the date of such
effectiveness.
6. TERMINATION. This Agreement shall terminate and shall have no further
force or effect as of the earlier to occur of: (i) the date and time on which
the Merger shall become effective in accordance with the terms and provisions of
the Merger Agreement and (ii) the date and time the Merger Agreement is
terminated in accordance with its terms.
7. MISCELLANEOUS.
7.1 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
7.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other. Stockholder
acknowledges and agrees that, until termination of this Agreement pursuant to
Section 6 hereof, Stockholder shall only transfer Shares and New Shares, if any,
to persons who shall have first agreed in writing to be bound by the terms of
this Agreement and who shall have executed an irrevocable proxy in the form
attached hereto as Annex A.
7.3 AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by each of the parties hereto.
7.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Summit will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Summit upon any such violation, Summit
shall have the right to seek to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to
Summit at law or in equity.
7.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered in person, by telegram or facsimile, or sent by
B-2
<PAGE>
mail (registered or certified mail, postage prepaid, return receipt requested)
or overnight courier (prepaid) to the respective parties as follows:
<TABLE>
<C> <S>
If to Summit: Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97008
Attn: Chief Executive Officer
Fax: 503-646-9320
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Steven V. Bernard
Fax: (650) 493-6811
If to the Stockholder: To the address for notice set forth on the last
page hereof.
With a copy to: Hale & Dorr LLP
60 State Street
Boston, MA 02109
Attn: John A. Burgess
Fax: (617) 526-5000
</TABLE>
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.6 GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of Delaware
(without regard to conflicts of laws principles thereof).
7.7 ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties in respect of the subject matter hereof, and supersedes all
prior negotiations and understandings between the parties with respect to
such subject matter.
7.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7.9 EFFECT OF HEADINGS. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
B-3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be duly
executed as of the date and year first above written.
<TABLE>
<S> <C> <C>
SUMMIT DESIGN, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
STOCKHOLDER
Stockholder Name:
By:
-------------------------------------
Signatory Name:
Title:
Stockholder's Address for Notice:
</TABLE>
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<PAGE>
ANNEX A TO VIEWLOGIC VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned stockholder of Viewlogic Systems, Inc., a Delaware
corporation (the "COMPANY"), hereby irrevocably appoints the members of the
Board of Directors of Summit Design, Inc., a Delaware corporation ("SUMMIT"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of the Company beneficially owned by the undersigned, which shares are listed on
the final page of this Irrevocable Proxy (the "SHARES"), and any and all other
securities or shares of capital stock of the Company that the undersigned
purchases or with respect to which the undersigned otherwise acquires beneficial
ownership on or after the date hereof and prior to the date this proxy
terminates, until the earlier to occur of (i) such time as the transactions
contemplated by that certain Agreement and Plan of Reorganization dated as of
September 16, 1999 (the "MERGER AGREEMENT"), among Summit, Hood Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Summit ("MERGER
SUB"), and the Company, including the Merger (as defined in the Merger
Agreement), are effective and (ii) the date that the Merger Agreement is
terminated in accordance with its terms. Upon the execution hereof, all prior
proxies given by the undersigned with respect to the Shares and any and all
other securities or shares of capital stock of the Company that the undersigned
purchases or with respect to which the undersigned otherwise acquires beneficial
ownership on or after the date hereof are hereby revoked and no subsequent
proxies will be given until such time as this proxy shall be terminated in
accordance with its terms.
This proxy is irrevocable, is granted pursuant to the Voting Agreement dated
as of September 16, 1999 between Summit and the undersigned stockholder (the
"VOTING AGREEMENT"), and is granted in consideration of Summit entering into the
Merger Agreement. Summit and the undersigned stockholder agree and acknowledge
that the grant of this irrevocable proxy is a material inducement for Summit to
enter into the Merger Agreement, and is therefore coupled with an interest and
irrevocable. The attorneys and proxies named above will be empowered at any time
prior to termination of the Merger Agreement to exercise all voting and other
rights (including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned in favor of approval of
the Merger and the Merger Agreement and any matter that could reasonably be
expected to facilitate the Merger at every annual, special or adjourned meeting
of the Company stockholders, and in every written consent in lieu of such a
meeting, or otherwise. This proxy will terminate upon the termination of the
Voting Agreement in accordance with its terms.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares and other securities subject hereto at any time prior to termination
of the Merger Agreement at every annual, special or adjourned meeting of the
stockholders of the Company and in every written consent in lieu of such
meeting, in favor of approval of the Merger and the Merger Agreement and any
matter that could reasonably be expected to facilitate the Merger. The
undersigned stockholder may vote the Shares and other securities subject hereto
on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
B-A-1
<PAGE>
Dated: September , 1999
Name of Stockholder:
By:
-------------------------------------------------
Print Name of Signatory:
Title of Signatory:
Number of Shares of Common Stock Beneficially Owned:
Number of Shares of Preferred Stock Beneficially Owned:
B-A-2
<PAGE>
Annex C
September 14, 1999
CONFIDENTIAL
Board of Directors
Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97008
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding capital stock of Summit Design, Inc.
("Summit") of the Aggregate Merger Consideration (as defined below) to be issued
by Summit pursuant to the terms of the Agreement and Plan of Reorganization, as
of September 14, 1999 (the "Merger Agreement"), providing for the merger (the
"Merger") of a wholly owned subsidiary of Summit with Viewlogic Systems, Inc.
("Viewlogic"). The Merger will result in Viewlogic becoming a wholly owned
subsidiary of Summit. Pursuant to the terms of the Merger Agreement, all of the
issued and outstanding equity securities of Viewlogic, including options to
purchase common stock of Viewlogic, will be converted into the right to receive
18,317,580 shares of common stock of Summit (the "Aggregate Merger
Consideration"). We understand that the Merger will be accounted for as a
purchase under applicable accounting principles. We have assumed that the Merger
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
The terms and conditions of the Merger are set forth more fully in the Merger
Agreement.
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain Rauscher
Wessels"), as part of its investment banking services, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, corporate restructurings, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Dain Rauscher Wessels will receive
a fee for our services in connection with the rendering of this opinion.
In connection with our review of the Merger, and in arriving at our opinion, we
have: (i) reviewed and analyzed the financial terms of the Merger Agreement;
(ii) reviewed and analyzed certain financial and other data with respect to
Viewlogic made available to us from Viewlogic; (iii) reviewed and analyzed
certain financial and other data with respect to Summit made available to us
from Summit; (iv) conducted discussions with members of the senior management of
Viewlogic and Summit with respect to the business and prospects of Viewlogic and
Summit; (v) reviewed and discussed with management the potential cost savings
and other synergies that may be achieved in the Merger; (vi) analyzed the pro
forma impact of the Merger on Summit's earnings per share and balance sheet;
(vii) reviewed the reported prices and trading activity of Summit Common Stock
and similar information for certain other companies deemed by us to be
comparable to Summit; (viii) compared the financial performance of Viewlogic and
Summit with that of certain other publicly-traded companies deemed by us to be
comparable to both companies; and (ix) reviewed the financial terms, to the
extent publicly available, of certain comparable merger transactions. In
addition, we have conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we have deemed necessary
in arriving at our opinion.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by Viewlogic and Summit (including without limitation the
financial statements and related notes thereto of Viewlogic and
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The Board of Directors
September 14, 1999
Page 2
Summit), and have not assumed responsibility for independently verifying and
have not independently verified such information. We have not assumed any
responsibility to perform, and have not performed, an independent evaluation or
appraisal of any of the respective assets or liabilities of Viewlogic or Summit
and we have not been furnished with any such valuations or appraisals. In
addition, we have not assumed any obligation to conduct, and have not conducted,
any physical inspection of the property or facilities of Viewlogic or Summit.
With respect to the financial forecast information and the expected cost savings
and other synergies furnished to or discussed with us by Summit and Viewlogic,
we have assumed that such information has been reasonably prepared and reflects
the best currently available estimates and judgment of Summit's or Viewlogic's
management as to the expected future financial performance of Summit or
Viewlogic, as the case may be, and as to the expected cost savings and other
synergies. Additionally, we have not been asked and did not consider the
possible effects of any litigation, other legal claims or any other contingent
matters.
Our opinion speaks only as of the date hereof, is based on the conditions as
they exist and information which we have been supplied as of the date hereof,
and is without regard to any market, economic, financial, legal or other
circumstance or event of any kind or nature which may exist or occur after such
date. The opinion expressed herein is provided for the information and
assistance of the Board of Directors of Summit in connection with its
consideration of the transaction contemplated by the Merger Agreement and such
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to the Merger. Further, our opinion does
not address the merits of the underlying decision by Summit to engage in such
transaction. In addition, we are not expressing any opinion herein as to the
price at which common stock of Summit will trade at any point in the future.
Except as provided in our engagement letter, this opinion shall not be published
or otherwise used, nor shall references to us be made, without our prior written
approval.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion that, as of the date hereof, the Aggregate Merger Consideration to be
issued by Summit in connection with the Merger is fair, from a financial point
of view, to the stockholders of Summit.
Very truly yours,
/s/ DAIN RAUSCHER WESSELS
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
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Annex D
SECTION 262
OF
GENERAL CORPORATION LAW
OF THE
STATE OF DELAWARE
262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor commented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) if this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to Sections 251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractions depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section 253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
SUCH STOCKHOLDER'S shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of SUCH
STOCKHOLDER'S shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of SUCH STOCKHOLDER'S shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holders shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of the
merger or consolidation, either (i) each such constituent corporation shall send
a second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of
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stock of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw SUCH
STOCKHOLDER'S demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and 9d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
SUCH STOCKHOLDER'S written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
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(h) After determining the stockholders entitled to appraisal, the Court
shall apraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger of
consolidation, together with a fair rate of interest, in any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
SUCH STOCKHOLDER'S certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that SUCH STOCKHOLDER is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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<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 NO.
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<C> <S>
2.1** Agreement and Plan of Reorganization dated as of
September 16, 1999 between Summit, Viewlogic and Hood
Acquisition Corp.
2.2*** Form of Viewlogic Voting Agreement.
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(3)
4.1 Specimen Common Stock Certificate of Company.(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, P.C.
8.1**** Tax Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
8.2**** Tax Opinion of Hale and Dorr LLP
10.1 Form of Indemnification Agreement between 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 February 25, 1999.(10)
10.6* Employment Agreement between the Registrant and C. Albert
Koob dated July 30, 1999.(12)
10.7* Employment agreement between the Registrant and Richard
Davenport dated September 9, 1997.(14)
10.8* Employment agreement between the Registrant and Arthur
Fletcher dated July 1, 1997.(7)
10.9* Employment Agreement between the Registrant and Eric
Benhayoun dated February 25, 1999.(12)
10.10* Employment Agreement between the Registrant and Moshe Guy
dated February 25, 1999.(12)
10.11* Employment Agreement between the Registrant and Joseph
Masarich dated December 22, 1997.(7)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO.
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<C> <S>
10.12+ Software OEM License Agreement between the Registrant, Test
System Strategies Inc. and Credence Systems Corporation
dated May 19, 1997.(3)
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 DCL
Technologies, Ltd. and SEE Technologies, Ltd.(1)
10.15 Bank Line of Credit Agreement between Registrant and U.S.
National Bank of Oregon dated June 24, 1997.(4)
10.16* Employment Agreement between the Registrant and Sharon L.
Beelart dated January 5, 1998.(10)
10.17+ Distributor Agreement between the Registrant and Seiko
Instruments, Inc., dated February 1, 1996.(1)
10.18 Option Exchange Agreement dated as of June 30, 1998 among
the Registrant, ProSoft Oy, and Optionholders of ProSoft
Oy.(8)
10.19* First Amendment to Employment Agreement between the
Registrant and Richard Davenport dated December 21,
1998.(10)
10.20 Loan Agreement between the Registrant and Moshe Guy dated
May 20, 1997.(3)
10.21 Loan Agreement between the Registrant and Dasys, Inc. dated
July 26, 1997.(4)
10.22* TriQuest Design Automation, Inc. 1995 Stock Option Plan.(2)
10.23* Simulation Technologies 1994 Stock Option Plan and form of
agreement thereto.(5)
10.24* 1997 NonStatutory Stock Option Plan and for of agreement
thereto.(6)
10.25 Amendment to the Distributor Agreement between the
Registrant and Seiko Instruments, Inc.(7)
10.26+ Amendment to Software OEM License Agreement between the
Registrant and Credence Systems Corporation dated
December 18, 1998.(13)
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.(13)
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)
10.34 First Amendment to Employment Agreement between the
Registrant and Larry J. Gerhard dated February 29, 1999.(11)
10.35X Viewlogic 1998 Stock Incentive Plan, as amended, and form of
agreements thereto.
10.36X Transcendent Design Technology, Inc. Restricted Stock Plan
and form of agreements thereto.
10.37X Transcendent Design Technology, Inc. Stock Option Plan and
form of agreements thereto.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO.
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<C> <S>
10.38X Employment Agreement between Viewlogic and Richard G. Lucier
dated October 2, 1998.
10.39X Employment Agreement between Viewlogic and William J. Herman
dated October 2, 1998.
10.40X Investors' Rights Agreement between Viewlogic and the
parties named therein dated October 2, 1998.
10.41X VCS OEM Agreement between Viewlogic and Synopsys dated
October 2, 1998.
10.42X FPGA OEM Agreement between Viewlogic and Synopsys dated
October 2, 1998.
10.43X Software Assignment and License Agreement between Viewlogic
and Synopsys dated October 2, 1998.
10.44X Patent Assignment and Cross-License Agreement between
Viewlogic and Synopsys dated October 2, 1998.
10.45X Blast Software License and Assignment Agreement between
Viewlogic and Synopsys dated October 2, 1998.
10.46X Loan Agreement, Secured Term Loan and Secured Revolving
Credit Loan between Viewlogic and the parties named therein,
as amended, dated October 2, 1998.
10.47X Office Lease Agreement between Viewlogic and Rosewood III
Associates Limited Partnership, as amended, dated
November 16, 1989.
10.48X Secured Promissory Note by Paula J. Cassidy and John F.
Cassidy in favor of Viewlogic dated August 11, 1999.
10.49X Secured Promissory Note by Peter T. Johnson and Andrea R.
Johnson in favor of Viewlogic dated August 11, 1999.
10.50X Secured Promissory Note by William J. Herman in favor of
Viewlogic dated August 11, 1999.
10.51X Secured Promisory Note by Richard G. Lucier in favor of
Viewlogic dated August 12, 1999.
10.52X Secured Promissory Note by Kevin P. O'Brien in favor of
Viewlogic dated August 11, 1999.
21.1X List of Subsidiaries.
23.1**** Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in opinions filed as exhibits 5.1 and 8.1).
23.2**** Consent of Hale and Dorr LLP (included in opinion filed as
exhibit 8.2).
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Deloitte & Touche LLP.
24.1X Power of attorney.
99.1X Form of Summit Proxy Card.
99.2X Form of Viewlogic Proxy Card.
</TABLE>
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(1) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-06445) as declared effective by the Securities and Exchange
Commission October 17, 1996.
(2) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-32551) as filed on July 31, 1997.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(4) Incorporated by reference to the Registrant's Quarterly Report on From 10-Q
for the quarter ended September 30, 1997.
(5) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-47481) as filed on March 6, 1998.
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(6) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-47545) as filed on March 9, 1998.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year-ended December 31, 1997.
(8) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated June 30, 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 Annual Report on Form 10-K
for the fiscal year-ended December 31, 1998.
(11) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
(12) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
(13) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
+ Documents for which confidential treatment has been granted.
* Indicates management compensatory plan, contract or arrangement.
** Filed as Annex A to the joint proxy statement/prospectus constituting part
of this registration statement and incorporated herein by reference.
*** Filed as Annex B to the joint proxy statement/prospectus constituting part
of this registration statement and incorporated herein by reference.
**** To be filed by amendment.
X Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Registrant
Schedule II--Valuation and Qualifying Accounts
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
II-4
<PAGE>
(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 Securities 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.
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 Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Beaverton, state of Oregon, on January 21, 2000.
<TABLE>
<S> <C> <C>
SUMMIT DESIGN, INC.
By: /s/ C. ALBERT KOOB
-----------------------------------------
VICE PRESIDENT OF FINANCE, CHIEF FINANCIAL
OFFICER AND SECRETARY
</TABLE>
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 January 21, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
------------------------------------------- Interim Chief Executive Officer and Chairman
William V. Botts of the Board (Principal Executive Officer)
/s/ C. ALBERT KOOB Vice President of Finance, Chief Financial
------------------------------------------- Officer and Secretary (Principal Financial
C. Albert Koob and Accounting Officer)
*
------------------------------------------- Director
Amihai Ben-David
*
------------------------------------------- Director
Steven P. Erwin
*
------------------------------------------- Director
Barbara M. Karmel
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ C. ALBERT KOOB
---------------------------------------
C. Albert Koob
ATTORNEY IN FACT
</TABLE>
II-6
<PAGE>
SUMMIT DESIGN, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS/
(CREDITS)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts..................... $455 $ 3 $ 25 $433
Year ended December 31, 1997:
Allowance for doubtful accounts..................... 433 270 111 592
Year ended December 31, 1998:
Allowance for doubtful accounts..................... 592 (63) 18 511
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Summit Design, Inc.
Our report on the consolidated financial statements of Summit Design, Inc.
and subsidiaries is included on page F-2 of this Registration Statement on Form
S-4. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule on page S-1 of this Form S-4.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
February 3, 1999
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
2.1** Agreement and Plan of Reorganization dated as of
September 16, 1999 between Summit, Viewlogic and Hood
Acquisition Corp.
2.2*** Form of Viewlogic Voting Agreement.
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(3)
4.1 Specimen Common Stock Certificate of Company.(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, P.C.
8.1**** Tax Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
8.2**** Tax Opinion of Hale and Dorr LLP
10.1 Form of Indemnification Agreement between 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 February 25, 1999.(10)
10.6* Employment Agreement between the Registrant and C. Albert
Koob dated July 30, 1999.(12)
10.7* Employment agreement between the Registrant and Richard
Davenport dated September 9, 1997.(14)
10.8* Employment agreement between the Registrant and Arthur
Fletcher dated July 1, 1997.(7)
10.9* Employment Agreement between the Registrant and Eric
Benhayoun dated February 25, 1999.(12)
10.10* Employment Agreement between the Registrant and Moshe Guy
dated February 25, 1999.(12)
10.11* Employment Agreement between the Registrant and Joseph
Masarich dated December 22, 1997.(7)
10.12+ Software OEM License Agreement between the Registrant, Test
System Strategies Inc. and Credence Systems Corporation
dated May 19, 1997.(3)
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 DCL
Technologies, Ltd. and SEE Technologies, Ltd.(1)
10.15 Bank Line of Credit Agreement between Registrant and U.S.
National Bank of Oregon dated June 24, 1997.(4)
10.16* Employment Agreement between the Registrant and Sharon L.
Beelart dated January 5, 1998.(10)
10.17+ Distributor Agreement between the Registrant and Seiko
Instruments, Inc., dated February 1, 1996.(1)
10.18 Option Exchange Agreement dated as of June 30, 1998 among
the Registrant, ProSoft Oy, and Optionholders of ProSoft
Oy.(8)
10.19* First Amendment to Employment Agreement between the
Registrant and Richard Davenport dated December 21,
1998.(10)
10.20 Loan Agreement between the Registrant and Moshe Guy dated
May 20, 1997.(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.21 Loan Agreement between the Registrant and Dasys, Inc. dated
July 26, 1997.(4)
10.22* TriQuest Design Automation, Inc. 1995 Stock Option Plan.(2)
10.23* Simulation Technologies 1994 Stock Option Plan and form of
agreement thereto.(5)
10.24* 1997 NonStatutory Stock Option Plan and for of agreement
thereto.(6)
10.25 Amendment to the Distributor Agreement between the
Registrant and Seiko Instruments, Inc.(7)
10.26+ Amendment to Software OEM License Agreement between the
Registrant and Credence Systems Corporation dated
December 18, 1998.(13)
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.(13)
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)
10.34 First Amendment to Employment Agreement between the
Registrant and Larry J. Gerhard dated February 29, 1999.(11)
10.35X Viewlogic 1998 Stock Incentive Plan, as amended, and form of
agreements thereto.
10.36X Transcendent Design Technology, Inc. Restricted Stock Plan
and form of agreements thereto.
10.37X Transcendent Design Technology, Inc. Stock Option Plan and
form of agreements thereto.
10.38X Employment Agreement between Viewlogic and Richard G. Lucier
dated October 2, 1998.
10.39X Employment Agreement between Viewlogic and William J. Herman
dated October 2, 1998.
10.40X Investors' Rights Agreement between Viewlogic and the
parties named therein dated October 2, 1998.
10.41X VCS OEM Agreement between Viewlogic and Synopsys dated
October 2, 1998.
10.42X FPGA OEM Agreement between Viewlogic and Synopsys dated
October 2, 1998.
10.43X Software Assignment and License Agreement between Viewlogic
and Synopsys dated October 2, 1998.
10.44X Patent Assignment and Cross-License Agreement between
Viewlogic and Synopsys dated October 2, 1998.
10.45X Blast Software License and Assignment Agreement between
Viewlogic and Synopsys dated October 2, 1998.
10.46X Loan Agreement, Secured Term Loan and Secured Revolving
Credit Loan between Viewlogic parties named therein, as
amended, dated October 2, 1998.
10.47X Office Lease Agreement between Viewlogic and Rosewood III
Associates Limited Partnership, as amended, dated
November 16, 1989.
10.48X Secured Promissory Note by Paula J. Cassidy and John F.
Cassidy in favor of Viewlogic dated August 11, 1999.
10.49X Secured Promissory Note by Peter T. Johnson and Andrea R.
Johnson in favor of Viewlogic dated August 11, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.50X Secured Promissory Note by William J. Herman in favor of
Viewlogic dated August 11, 1999.
10.51X Secured Promisory Note by Richard G. Lucier in favor of
Viewlogic dated August 12, 1999.
10.52X Secured Promissory Note by Kevin P. O'Brien in favor of
Viewlogic dated August 11, 1999.
21.1X List of Subsidiaries.
23.1**** Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in opinions filed as exhibits 5.1 and 8.1).
23.2**** Consent of Hale and Dorr LLP (included in opinion filed as
exhibit 8.2).
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Deloitte & Touche LLP.
24.1X Power of attorney.
99.1X Form of Summit Proxy Card.
99.2X Form of Viewlogic Proxy Card.
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-06445) as declared effective by the Securities and Exchange
Commission October 17, 1996.
(2) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-32551) as filed on July 31, 1997.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(4) Incorporated by reference to the Registrant's Quarterly Report on From 10-Q
for the quarter ended September 30, 1997.
(5) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-47481) as filed on March 6, 1998.
(6) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-47545) as filed on March 9, 1998.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year-ended December 31, 1997.
(8) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated June 30, 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 Annual Report on Form 10-K
for the fiscal year-ended December 31, 1998.
(11) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
(12) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
(13) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
+ Documents for which confidential treatment has been granted.
* Indicates management compensatory plan, contract or arrangement.
** Filed as Annex A to the joint proxy statement/prospectus constituting part
of this registration statement and incorporated herein by reference.
*** Filed as Annex B to the joint proxy statement/prospectus constituting part
of this registration statement and incorporated herein by reference.
**** To be filed by amendment.
X Previously filed.
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Summit Design, Inc. of our report dated February 3, 1999, except as to Note 21,
which is as of September 16, 1999 relating to the consolidated financial
statements, and of our report dated February 3, 1999 relating to the financial
statement schedule of Summit Design, Inc., which appear in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
January 19, 2000
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-89491 of Summit Design, Inc. on Form S-4 of our report dated December 3,
1999 relating to the financial statements of Viewlogic Systems, Inc. (the report
on the consolidated financial statements which expresses an unqualified opinion
and includes an explanatory paragraph referring to the basis of presentation
discussed in Note 1 to the consolidated financial statements) appearing in the
Joint Proxy Statement/ Prospectus, which is part of this Registration Statement,
and to the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
January 20, 2000
