<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 2001
REGISTRATION NO. 333-45504
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIMPLEX SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7371 77-0492528
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
521 ALMANOR AVENUE
SUNNYVALE, CALIFORNIA 94085
(408) 617-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PENELOPE A. HERSCHER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SIMPLEX SOLUTIONS, INC.
521 ALMANOR AVENUE
SUNNYVALE, CALIFORNIA 94085
(408) 617-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LARRY W. SONSINI, ESQ. JUSTIN L. BASTIAN, ESQ.
ROBERT SANCHEZ, ESQ. AMIE PETERS, ESQ.
WILSON SONSINI GOODRICH & ROSATI MONICA HEEMIN CHA, ESQ.
PROFESSIONAL CORPORATION MORRISON & FOERSTER LLP
650 PAGE MILL ROAD 755 PAGE MILL ROAD
PALO ALTO, CA 94304 PALO ALTO, CA 94304
(650) 493-9300 (650) 813-5600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
PROPOSE MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE(3)
-----------------------------------------------------------------------------------------------------------------------
Common Stock $0.001 par value...... $5,175,000 $10.00 $62,500,000 $437.50
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes 675,000 shares which the underwriters have the option to purchase to
cover over-allotments, if any.
(2)Estimated solely for the purpose of computing the amounts of the registration
fee pursuant to Rule 457(a).
(3) An initial fee of $13,200 was previously paid with the registrant's initial
filing.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 8, 2001.
4,500,000 Shares
SIMPLEX SOLUTIONS, INC.
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
$10.00 per share. We have applied to have our common stock quoted on The Nasdaq
Stock Market's National Market under the symbol "SPLX".
The underwriters have an option to purchase a maximum of 675,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS SIMPLEX
--------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
ROBERTSON STEPHENS
SG COWEN
The date of this prospectus is , 2001
<PAGE> 3
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................. 1
RISK FACTORS....................... 5
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS....... 16
USE OF PROCEEDS.................... 17
DIVIDEND POLICY.................... 17
CAPITALIZATION..................... 18
DILUTION........................... 19
SELECTED CONSOLIDATED FINANCIAL
DATA............................. 20
SELECTED PRO FORMA CONSOLIDATED
FINANCIAL DATA................... 22
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........ 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS........................... 36
MANAGEMENT......................... 54
CERTAIN TRANSACTIONS............... 64
PRINCIPAL STOCKHOLDERS............. 67
DESCRIPTION OF CAPITAL STOCK....... 69
SHARES ELIGIBLE FOR FUTURE SALE.... 72
UNITED STATES TAX CONSEQUENCES TO
NON-U.S. HOLDERS................. 74
UNDERWRITING....................... 77
NOTICE TO CANADIAN RESIDENTS....... 80
LEGAL MATTERS...................... 80
EXPERTS............................ 81
WHERE YOU CAN FIND ADDITIONAL
INFORMATION...................... 81
INDEX TO FINANCIAL STATEMENTS...... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE ON THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2001 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 4
PROSPECTUS SUMMARY
SIMPLEX SOLUTIONS, INC.
We provide software and services that enable the design and first-time
production success of complex integrated circuits for communications, computer
and consumer products. Our products are designed to enable our customers to
rapidly deliver high-quality systems-on-chip with geometries at or below 0.18
micron. System-on-chip refers to an integrated circuit that includes computing,
memory and communications components that previously had been available only on
separate chips. Our customers can gain a competitive advantage by using our
products in advance of manufacture to verify that the integrated circuit design
will perform as intended. This competitive advantage manifests itself in our
customers' ability to deliver greater functionality in smaller and faster chips
for networking, computing and wireless products. Customers successfully using
our products include chip and system vendors such as AMD, ATI Technologies,
Cadence Design Systems, Infineon, LSI Logic, Matrox Graphics, MIPS Technology,
Philips Semiconductors, Silicon Graphics, STMicroelectronics, Sun Microsystems,
Texas Instruments, Toshiba and Vitesse Semiconductor.
Semiconductor, consumer electronics and other technology product
manufacturers depend on their ability to launch products successfully and cost
effectively within narrow market windows. First-mover advantage when introducing
new products is vital to capture dominant market share for a given product
segment, making the efficiency of design and manufacturing processes critical to
competitive positioning. Delays caused by unanticipated design flaws can force
product launch postponement or cancellation, resulting in the failure of
products, divisions and even companies.
At the same time, demand for portable, power-efficient and high-performance
electronic products, such as cell phones, has driven chip manufacturers to
design complex systems-on-chip with small feature sizes reaching 0.18 micron and
below, referred to as deep submicron. Feature size relates to the size of an
integrated circuit's components and is measured in microns, or millionths of a
meter. These systems-on-chip integrate digital components, such as
microprocessors and memory, together with analog components, such as
radio-frequency receivers and analog-to-digital converters, into a single chip.
According to the Integrated Circuit Engineering Corporation report
(ICE -- 2000), the worldwide market for system-on-chip and application-specific
integrated circuits is expected to grow from $23 billion in 1999 to $64 billion
in 2004. Of this total market in North America, according to Dataquest, the
percentage of chips manufactured at or below 0.18 micron will grow from less
than 10% of all chips manufactured in 1999 to over 85% of all chips manufactured
in 2004.
Designers of systems-on-chip face numerous constraints posed by
semiconductor physics at small feature sizes. These constraints often exceed the
capabilities of traditional design software and can result in expensive design
and manufacturing iterations. In addition, designers are sometimes unable to
diagnose and address design flaws that cause their chips to fail. The Collett
International Research, Inc. 1999 and 2000 surveys report that, over each of the
last two years, approximately one-half of the chips released to manufacture in
North America required more than one manufacturing iteration for production
ramp-up.
Our software and services are designed to provide comprehensive, high-speed
verification that an integrated circuit will perform as designed, taking into
account the complex effects of deep submicron semiconductor physics. Through our
recent acquisition of Altius, we provide design foundry services, focused on
first-to-market and first-to-volume delivery of systems-on-chip designs and
additional software products to enable accelerated chip development. The
benefits we provide to our customers stem from our expertise in chip design,
computer science algorithms and software engineering, and include:
- Advancing deep submicron integrated circuit design and manufacture: Our
full-chip analysis capabilities are a key enabler for electrical
correctness throughout the design process. Integrated circuits with deep
submicron geometries have electrical requirements, including power
integrity, timing integrity, signal integrity and reliability that must
be satisfied for a deep submicron chip to function as intended. Our
products are designed to facilitate DSM closure, the point in the deep
1
<PAGE> 5
submicron integrated chip design cycle where these electrical
requirements are met, early in the design process.
- Accelerating product time-to-market: Our software and services accelerate
time-to-market by helping designers deliver integrated circuits that
function as intended, with fewer costly design and manufacturing
iterations.
- Delivering lower cost per chip: Our products increase design process
efficiency, resulting in lower production costs, increased chip
reliability and reduced end product maintenance costs.
Our customers use our products to design integrated circuits such as
microprocessors, application-specific integrated circuits, digital signal
processors and high-end graphics processors for many equipment markets including
computers, networking, wireless and communications. In addition, we have
developed strategic relationships with semiconductor manufacturers and software
vendors in our customers' supply chain to integrate our software and services
throughout our customers' design-through-production cycle. For example, we work
with semiconductor manufacturers, or foundries, to measure the accuracy of our
products and to obtain access to the most advanced semiconductor processes.
These foundries include Chartered Semiconductor Manufacturing, IBM, NEC,
STMicroelectronics, Toshiba, Taiwan Semiconductor Manufacturing and United
Microelectronics. Many of these foundries now recommend the use of our products
to their customers to help ensure high-quality results from manufacturing. We
also participate in software integration programs with Cadence Design Systems,
Mentor Graphics and Synopsys.
We were incorporated in Delaware in April 1995. Our principal executive
offices are located at 521 Almanor Avenue, Sunnyvale, California 94085, and our
telephone number is (408) 617-6100. Our website is located at www.simplex.com.
The information contained on our website does not constitute part of this
prospectus.
RECENT DEVELOPMENTS
In October 2000, we acquired Altius Solutions, Inc., which is our wholly
owned subsidiary. Through our acquisition of Altius, we provide design foundry
services, focused on first-to-market and first-to-volume delivery of
systems-on-chip designs and additional software products to enable accelerated
chip development. We issued approximately 3.8 million shares of our common stock
to Altius stockholders in exchange for their shares of Altius common and
preferred stock. We have also reserved approximately 579,000 shares of our
common stock for issuance to holders of Altius options we assumed in connection
with the acquisition. The acquisition will be accounted for under the purchase
method of accounting.
2
<PAGE> 6
THE OFFERING
Common stock offered by Simplex
Solutions............................... 4,500,000 shares
Common stock to be outstanding after
this offering........................... 16,259,092 shares
Use of proceeds......................... For working capital and general
corporate purposes and,
potentially, for acquisition
opportunities that may arise in the
future.
Proposed Nasdaq National Market
Symbol.................................. SPLX
The number of shares to be outstanding upon completion of this offering is
based on shares outstanding as of September 30, 2000. This number excludes:
- 5,878,103 shares of common stock authorized for issuance under our 1995
Stock Plan, of which 3,188,209 shares were subject to outstanding
options;
- 112,307 shares of preferred stock subject to outstanding warrants at a
weighted average exercise price of $2.72 per share.
------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- a one for two reverse stock split of our common stock approved in January
2001;
- the conversion of all outstanding shares of our convertible preferred
stock into 6,273,128 shares of common stock upon the closing of this
offering;
- the filing of a certificate of incorporation upon the consummation of
this offering; and
- no exercise of the underwriters' over-allotment option to purchase
675,000 shares.
3
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial information sets forth our historical
information for the years ended September 30, 1998, 1999 and 2000. The pro forma
balance sheet data as of September 30, 2000 reflects the conversion of all
outstanding preferred stock and warrants into common stock and warrants upon the
closing of the initial public offering. The pro forma, as adjusted balance sheet
data gives effect to the assumed net proceeds from the sale of 4,500,000 shares
of common stock in this offering at an assumed price of $10.00 per share.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenue............................................... $ 6,537 $10,881 $22,817
Gross profit................................................ 5,640 8,811 19,334
Total operating expenses.................................... 12,782 15,930 23,580
Operating loss.............................................. (7,142) (7,119) (4,246)
Net loss.................................................... (6,830) (7,041) (4,772)
Basic and diluted net loss per share........................ $ (2.92) $ (2.42) $ (1.14)
------- ------- -------
Number of shares used in calculation of basic and diluted
net loss per share........................................ 2,335 2,917 4,202
------- ------- -------
Pro forma basic and diluted net loss per share.............. $ (0.46)
-------
Number of shares used in calculation of pro forma basic and
diluted net loss per share................................ 10,475
-------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- ------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 7,447 $ 7,447 $ 47,791
Working capital............................................ 2,669 2,669 43,013
Total assets............................................... 24,466 24,466 64,316
Convertible preferred stock and warrants................... 24,251 -- --
Total common stock and other stockholders' equity
(deficit)................................................ (12,382) 11,869 51,719
</TABLE>
4
<PAGE> 8
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about risks, together with
the other information contained in this prospectus, before you decide whether to
buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition could suffer
significantly. In any such case, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES. IF WE FAIL TO ACHIEVE AND TO MAINTAIN PROFITABILITY
IN THE FUTURE, OUR STOCK PRICE COULD BE MATERIALLY AND ADVERSELY AFFECTED.
We have spent significant funds to date to develop and to refine our
current technologies and services and to develop our sales and marketing
resources. If we are unable to execute on our strategy to become profitable, our
stock price could be negatively affected. We have incurred significant operating
losses in the past and have not yet achieved profitability. As of September 30,
2000, we had an accumulated deficit of $26.2 million. In addition, we expect to
continue to invest significantly in our next-generation research and development
projects and to continue to hire additional people in all areas of our company
to support our growing business. As a result of these factors, to achieve
profitability we will need to increase our customer base and to increase the
number of and amounts of products and services purchased by our customers. We
cannot assure you that we will be able to increase our revenue or operating
efficiencies in this manner. Because we expect to continue to increase our
investment in new areas of our business, our investment could outpace growth in
our revenue, thus preventing our ability to achieve and maintain profitability.
If we are unable to achieve and maintain profitability, our stock price could be
materially adversely affected.
IF WE FAIL TO RESPOND ADEQUATELY TO UNEXPECTED QUARTERLY REVENUE FLUCTUATIONS,
OUR OPERATING RESULTS MIGHT SUFFER, AND OUR STOCK PRICE MIGHT DROP.
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, all of which are at least partially beyond
our control. As a result of such fluctuations our quarterly operating results
might not meet expectations of securities analysts following our stock, and
therefore could negatively affect our stock price.
Factors that could cause our quarterly results and stock price to fluctuate
materially include:
- our ability to hire and retain the sales force necessary to promote our
products;
- our ability to develop high quality innovative products that are
responsive to customer needs;
- timely delivery of our next generation products;
- our dependence on the license of certain technology that enables or
facilitates the operation of our products;
- our ability to manage the seasonality of our sales cycle;
- our ability to assure the electronic delivery of our products during the
quarter in which they were purchased;
- timing and structure of our product license agreements;
- timing of research and development payments and hiring of sufficient
research and development personnel;
- changes in our pricing policies or those of our competitors; and
5
<PAGE> 9
- changes in accounting policies or standards, specifically changes
affecting methods of revenue recognition.
These factors, among others, make it difficult to predict our financial
performance. As our quarterly results fluctuate, they may fall short of the
expectations of public market analysts or investors. If this occurs, the price
of our common stock may drop.
OUR LIMITED OPERATING HISTORY MAKES OUR BUSINESS PROSPECTS DIFFICULT TO
EVALUATE. IF WE ARE UNABLE TO SUCCESSFULLY EXECUTE OUR BUSINESS PLAN, OUR
BUSINESS AND OPERATING RESULTS WILL SUFFER.
We were incorporated in April 1995 and shipped our first product in
November 1996. Our limited operating history makes it difficult to evaluate our
business, our prospects, or our ability to carry out our business plan. An
investor in our common stock must consider the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages of
development. Some of the risks we face relate to our ability to:
- convince the semiconductor industry to adopt our proprietary technology
and software products;
- expand our base of customers that purchase our products and serve as
reference accounts for our ongoing sales efforts;
- continue to develop and upgrade our technology to add additional features
required by customers, such as new interfaces with adjacent products and
additional functionality, such as speed, accuracy and capacity;
- continue to attract and retain qualified personnel, specifically
engineers and sales personnel; and
- geographically expand our sales channels into regions that are not
currently covered and regions that are not adequately covered.
We cannot assure you that our business strategy will be successful or that
we will successfully address these risks or difficulties. If we fail to address
these risks or difficulties adequately, our business will likely suffer.
OUR RECENT ACQUISITION OF SNAKETECH, S.A. HAS REQUIRED SIGNIFICANT MANAGEMENT
ATTENTION AND MIGHT FURTHER DISTRACT OUR MANAGEMENT AND DISRUPT OUR BUSINESS.
We acquired Snaketech, S.A., a French societe anonyme, in March 2000. If we
fail to successfully integrate Snaketech or any future acquisition into our
company, the revenue and operating results of the combined company would
decline. To realize the benefits of this recent acquisition, we must
successfully integrate Snaketech's research and development facility into our
existing operations despite differences in culture, language and legal
environments, such as the mandated 35 hour work week in France and different tax
treatments related to the issuance of equity to employees. Such integration has
required and will continue to require significant time and resources to manage;
we may not be able to manage such integration successfully. If our customers are
uncertain about our ability to operate on a combined basis, they could delay or
cancel orders for our products.
FUTURE ACQUISITIONS MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND MANAGEMENT DUE
TO DIFFICULTIES IN ASSIMILATING PERSONNEL AND OPERATIONS.
We intend to continue to make investments in complementary companies,
products or technologies. If we buy a company or a division of a company, we
could have difficulty in assimilating that company or division's personnel and
operations which could negatively affect our operating results. In addition, the
key personnel of the acquired company may decide not to work for us. If we make
other types of acquisitions, we could have difficulty in assimilating the
acquired technology or products into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees and increase
our expenses. In addition, future acquisitions could have a negative impact on
our business, financial condition
6
<PAGE> 10
and results of operations. Furthermore, we may have to incur debt or issue
equity securities to pay for any future acquisition, the issuance of which would
be dilutive to our existing stockholders.
For example on October 4, 2000, we acquired Altius Solutions, Inc., a
provider of system-on-chip design foundry services. Altius is now our wholly
owned subsidiary, and we issued approximately 3.8 million shares of our common
stock, 1.1 million of which are subject to a right of repurchase in favor of the
Company, to Altius stockholders in exchange for their outstanding shares of
Altius common and preferred stock. We also reserved for issuance upon the
exercise of options we assumed in connection with the proposed merger
approximately 579,000 shares of our common stock, subject to adjustment. There
can be no assurance that we will successfully integrate the additional
personnel, operations, acquired technology and products into our business, or
retain key personnel. Further, we cannot be sure that the acquisition of Altius
will not have a negative impact on our business and financial condition.
IF OUR SEMICONDUCTOR DESIGN AND MANUFACTURER CUSTOMERS DO NOT DESIGN INTEGRATED
CIRCUITS AT DEEP SUBMICRON GEOMETRIES, THEY MIGHT NOT ADOPT OUR SOFTWARE
PRODUCTS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS AND
FINANCIAL CONDITION.
The semiconductor and design software industries are characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. Our success depends upon the widespread adoption of deep submicron
geometries for chip design and on our ability to market our current products
that aid in chip design at such geometries. If the majority of semiconductor
designers and manufacturers do not choose to design integrated circuits at deep
submicron geometries, or if our software products do not perform as designed,
demand for our products and services will not develop, and our financial results
will suffer.
IF WE ARE UNABLE TO RESPOND TO RAPID CHANGES IN TECHNOLOGY AND GROWTH OF OUR
BUSINESS, OUR PRODUCTS AND SERVICES MIGHT BECOME OBSOLETE OR UNMARKETABLE,
RESULTING IN REDUCED GROSS MARGINS AND LOSS OF MARKET SHARE.
We devote a substantial amount of our resources to research and development
to enable us to enhance current products and develop new technologies. If we
fail to enhance our current products and develop and introduce new generations
of technology and products on a timely basis, or if we develop products that
achieve limited market acceptance, we will not be able to address the
increasingly sophisticated needs of our customers and our results of operations
will be harmed. As our business grows, it may become more difficult to develop
new products in a timely manner to meet market demand, which would harm our
business. In addition, if we devote substantial resources to the development of
technology or services that we are subsequently unable to successfully
commercialize, our business could be harmed. We cannot assure you that we will
be successful in developing and marketing product enhancements or new products
that respond to technological change, that we will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products, or that our new products and product enhancements
will achieve market acceptance. If we are unable to develop, introduce and
successfully market products and services in a timely manner in response to
changing market conditions or customer requirements, our business, operating
results and financial condition might be materially and adversely affected.
IF CHIP DESIGNERS AND MANUFACTURERS DO NOT INTEGRATE OUR SOFTWARE INTO EXISTING
SOFTWARE AND DESIGN FLOWS OR IF OTHER SOFTWARE COMPANIES DO NOT COOPERATE IN
INTEGRATING OUR PRODUCTS WITH THEIR PRODUCTS, DEMAND FOR OUR PRODUCTS WILL
SUFFER.
To successfully implement our business strategy, we must provide products
that are integrable with the software of other design software companies.
Execution of our business strategy is dependent upon our ability to develop
superior products and cooperative relationships with competitors so that they
work with us to integrate our software into a customers' design flow. Most of
these bigger design software companies offer software intended to address a
larger part of the market, including software which offer similar
7
<PAGE> 11
functionality as our software at highly discounted prices. Therefore, to market
our products, we must both convince our customers of the technological
superiority of our products and convince our competitors to cooperate in
integrating our software with their products that provide different
functionality. Currently, we have integrated our software with the existing
software of Cadence, Mentor Graphics, Synopsys and other interoperability
partners. If we are unable to convince customers to adopt our software solutions
over those of competitors offering a broader set of products or if we are unable
to convince other semiconductor companies to cooperate in integrating our
software with theirs to meet the complete demands of chip designers and
manufacturers, our business and operating results will suffer.
IF OUR PRODUCTS DO NOT PERFORM AS EXPECTED OUR REVENUE AND MARKET SHARE COULD
DECREASE AND OUR REPUTATION COULD BE HARMED.
If the software that we provide to our customers performs poorly, contains
errors or defects or is otherwise unreliable, our customers would likely be
dissatisfied. Any failure or poor performance of our products could result in:
- delayed or lost revenue;
- hindered market acceptance of our products due to adverse customer
reaction;
- negative publicity or loss of reputation regarding us and our products
and services;
- diversion of research and development and management resources; and
- claims for substantial damages against us.
OUR PRODUCTS HAVE A TYPICALLY LONG SALES CYCLE THAT MAKES IT DIFFICULT TO PLAN
OUR EXPENSES AND FORECAST OUR RESULTS.
The period between our initial contact with a potential customer and their
purchase of our products and services is relatively long making it difficult to
predict the quarter in which a particular sale will occur and to plan our
expenditures accordingly. If we do not correctly predict the timing of our
sales, the amount of revenue we recognize in that quarter could be negatively
impacted, which could negatively effect our operating results. Our sales cycle
is long due to several factors, including:
- limited access to key decision-makers of potential customers to authorize
the adoption of our products;
- long periods of time for potential customers to perform technical
evaluations of our products and validation of the integration flow of our
products with their existing products;
- the significant investment of resources required by a customer to
purchase and integrate our products;
- budget cycles of our customers which affect the timing of purchases; and
- delay of purchases due to announcements or planned introductions of new
products by us or our competitors.
The delay or failure to complete large orders and sales in a particular
quarter could significantly reduce revenue in that quarter, as well as
subsequent quarters over which revenue for the sale would likely be recognized.
If our sales cycle unexpectedly lengthens in general or for one or more large
orders, it would adversely affect the timing of our revenue, could cause us not
to meet research analysts expectations and cause our stock price to suffer. If
we were to experience a delay on a large order, it could harm our ability to
meet our forecasts for a given quarter.
8
<PAGE> 12
OUR MAINTENANCE OF OPERATIONS IN SEVERAL DIFFERENT COUNTRIES EXPOSES US TO RISKS
INHERENT IN DOING BUSINESS ON AN INTERNATIONAL LEVEL THAT COULD NEGATIVELY
IMPACT OUR RESULTS OF OPERATIONS.
We currently operate Simplex Solutions, S.A. and Simplex Solutions,
S.A.R.L. in France, Simplex Solutions K.K. in Japan, Simplex Solutions U.K.
Limited in the United Kingdom and Simplex Solutions GmbH in Germany. Maintenance
of these entities subjects us to risks of conducting business internationally
which could harm our business, financial condition and results of operations.
These risks include, among others:
- proper maintenance of corporate formalities for our international
entities;
- the uncertainty of Japanese sales due to the typically lengthy Japanese
sales cycle;
- potential adverse tax consequences, including restrictions on
repatriation of earnings and taxation of equity compensation for
employees and consultants;
- foreign currency exchange rate fluctuations;
- greater difficulty in collecting accounts receivable; and
- burdens of complying with foreign laws, particularly with respect to
intellectual property.
We generated 23% of our consolidated revenue from sales outside of North
America in fiscal 1999 and 34% of our consolidated revenue from sales outside
North America in fiscal 2000. All of our international sales to date have been
denominated in U.S. dollars. As a result, an increase in the value of the U.S.
dollar relative to foreign currencies could make our products less competitive
in international markets. Conversely, a decrease in the value of the U.S. dollar
relative to foreign currencies would increase the cost of our overseas
operations, which would reduce our gross margins.
FAILURE TO MANAGE OUR RAPID GROWTH SUCCESSFULLY COULD HARM OUR BUSINESS.
We have grown rapidly since our inception and need to grow quickly in the
future. Any failure to manage this growth could strain our resources, which
would impede our ability to increase revenue and achieve profitability. For
example, the number of our employees increased from 69 at September 1999 to 125
at September 2000. We expect this growth in personnel to continue and increase.
We currently anticipate that our growth will require us to relocate to larger
corporate offices within a year. Future expansion could be expensive and strain
our management and other resources. To manage growth effectively, we must:
- maintain a high level of customer service and support;
- improve our management, financial and information systems and controls;
- manage and expand our sales operations, which are in several locations;
and
- hire, train, manage and integrate new personnel.
There will be additional demands on our customer service support, research
and development, sales and marketing and administrative resources as we try to
increase our product and service offerings and expand our target markets. The
strains imposed by these demands are magnified by our relatively limited
operating history. If we cannot manage our growth effectively, our business and
results of operations could be adversely affected.
9
<PAGE> 13
BECAUSE A LIMITED NUMBER OF CUSTOMERS REPRESENT A HIGH PERCENTAGE OF OUR TOTAL
REVENUE, THE LOSS OF ANY OF THESE CUSTOMERS COULD SUBSTANTIALLY IMPACT OUR
REVENUE.
We currently derive, and we expect to continue to derive, a large
percentage of our total revenue from a relatively small number of customers. If
any of these customers terminates its relationship with us, our revenue could
decline significantly. Revenue concentration among our largest customers is as
follows:
- our 10 largest customers accounted for approximately 53.3% of our revenue
in fiscal 1999 and approximately 52.8% of our revenue in fiscal 2000;
- our largest single customer, Toshiba, accounted for approximately 4.7% of
our revenue in fiscal 1999 and approximately 18.4% of our revenue in
fiscal 2000.
The loss of revenue from any of our major customers could negatively impact
our results of operations, or limit our ability to execute our strategy. We
expect that we will continue to be dependent upon a limited number of customers
for a significant portion of our revenue in future periods.
BECAUSE MANY OF OUR CURRENT COMPETITORS HAVE LONGER OPERATING HISTORIES AND
SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL, MARKETING AND OTHER RESOURCES THAN
WE DO, WE MIGHT NOT BE ABLE TO ACHIEVE SUFFICIENT MARKET PENETRATION TO ACHIEVE
OR SUSTAIN PROFITABILITY OR BE ABLE TO GAIN ADDITIONAL MARKET SHARE.
Our current competitors control significantly greater market share than we
do. If we are unable to gain additional market share due to their pre-existing
relationships with our potential customers, our operating results could be
harmed. The design software industry is comprised of companies that offer
software products that are used to facilitate the chip design process. Our
products are used to facilitate complex deep submicron chip designs. Our
competitors who offer products that are used for other segments of the chip
design process often bundle their products together to offer discounts on
products competitive with those we offer, making it extremely attractive for our
customers to use alternative products to ours. In addition, these competitors
may not support our effort to integrate our products into their existing
software. These competitors include such companies as Avant!, Cadence, Mentor
Graphics and Synopsys. Since these competitors offer a more comprehensive range
of products than we do, they are often able to respond more quickly or price
more effectively to take advantage of new or changing opportunities and respond
to new technologies and customer requirements. If we lose such opportunities to
our competitors, our results of operations could be harmed.
AS THE DEEP SUBMICRON MARKET CONTINUES TO GROW, COMPETITORS MAY INCREASE THEIR
FOCUS ON THIS MARKET AND APPLY SUBSTANTIALLY GREATER RESOURCES TO THE
DEVELOPMENT AND DISTRIBUTION OF DESIGN SOFTWARE DIRECTLY COMPETITIVE WITH OUR
SOFTWARE.
We currently encounter direct competition from competitors such as Avant!,
Cadence, Mentor Graphics and Synopsys for design software at deep submicron
geometries. If the market for design software at 0.18 micron geometries and
below continues to grow, some of our competitors may increase their focus on
offering design software directly competitive with ours, whether by internal
development, external development or acquisition. If competition for software
competitive with ours increases, our competitors may attempt to keep us from
integrating our software with theirs, making it more difficult for our customers
to adopt our software in their design flows. If such increased competition were
to result in resistance to integration of our software with those of our
competitors, our business would be harmed.
IF WE CANNOT CONTINUALLY ATTRACT AND RETAIN SUFFICIENT SALES, MARKETING AND
TECHNICAL PERSONNEL, OUR RESULTS OF OPERATIONS WILL BE HARMED.
Our future success depends on our continuing ability to attract and retain
highly qualified technical personnel, particularly engineers, and qualified
sales and marketing personnel. If we cannot attract and retain the necessary
individuals we may not be able to continue our innovation and sell our products
which could negatively effect our operating results. We have experienced and
expect to continue to experience difficulty in hiring and retaining engineers
qualified to support our current products and develop next
10
<PAGE> 14
generation technologies. We need to expand substantially our sales operations
and marketing efforts, both domestically and internationally, to try to increase
market awareness and sales of our products and services. We will also need to
increase our technical staff to service customers and perform continued research
and development. Competition for such employees is intense, particularly in the
Silicon Valley, and we may not be able to attract or retain such key personnel.
We have previously experienced significant turnover in our sales force and any
future turnover might effect our revenues because initial sales by new sales
personnel are expected to be low. If we are unable to hire and retain qualified
personnel in the future, our business could be seriously harmed and our
operating results could suffer.
IF WE ARE UNABLE TO RETAIN OUR EXECUTIVE OFFICERS AND KEY PERSONNEL, OUR
BUSINESS COULD BE HARMED.
Our future success depends upon the continued service of our executive
officers and other key personnel, and their ability to work together. Of
particular importance to our continued operation are:
- Penelope A. Herscher, Chairman and Chief Executive Officer;
- Aki Fujimura, President and Chief Operating Officer;
- Aurangzeb Khan, Executive Vice President and General Manager;
- Luis P. Buhler, Chief Financial Officer;
- Steven L. Teig, Chief Technical Officer; and
- James D. Behrens, Executive Vice President of Worldwide Field Operations.
Searching for replacements for our key management could divert management's
time and result in increased operating expenses. None of our executive officers
or key employees is bound by an employment agreement for any specific term and
we do not maintain any key person life insurance policies. If we lose the
services of one or more of our executive officers or key employees, or if one or
more of them decide to join a competitor or otherwise compete directly or
indirectly with us, our business could be seriously harmed.
ANY INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY COULD IMPAIR OUR
COMPETITIVE ADVANTAGE, DIVERT MANAGEMENT ATTENTION, REQUIRE ADDITIONAL
INTELLECTUAL PROPERTY TO BE DEVELOPED AND/OR CAUSE US TO INCUR EXPENSES TO
ENFORCE OUR RIGHTS.
Because our products are based on the technology in our software, our
success depends on our ability to protect our intellectual property. If we are
not able to successfully protect our technology domestically and abroad, our
results of operations could suffer. We rely on a combination of patent,
copyright, trademark and trade secrets to establish and protect our intellectual
property rights. In addition, we seek to avoid disclosure of our trade secrets
through a number of means, including requiring those with access to our
intellectual property to execute nondisclosure agreements with us and
restricting access to our technology. We currently have one issued U.S. patent
and we have several patents pending relating to our technology. We cannot
provide any assurance that these applications will be granted. In addition, we
cannot assure that, even if granted, third parties have not or will not develop
competitive technologies or products without infringing our current patent or
any future patents, or that such patents would be held valid and enforceable by
a court having jurisdiction over a dispute involving such patents.
Despite our efforts to protect our intellectual property, unauthorized
parties may attempt to copy our software or obtain and use information we regard
as proprietary. Policing unauthorized use of software is difficult, especially
internationally. The laws of some foreign countries in which we do business do
not protect our intellectual property to as great an extent as do the laws of
the United States. Patent infringement and trade secret misappropriation
litigation is highly visible and increasing in our industry. As a result of all
these factors, our means of protecting our intellectual property may not be
adequate and our competitors may independently develop similar technology,
duplicate our products or design around our intellectual property.
11
<PAGE> 15
IF THIRD PARTIES ASSERT, REGARDLESS OF MERIT, THAT OUR TECHNOLOGIES INFRINGE
THEIR INTELLECTUAL PROPERTY RIGHTS, OUR REPUTATION AND ABILITY TO LICENSE OR
SELL OUR PRODUCTS COULD BE HARMED.
We expect that, like other software developers, we may increasingly be
subject to infringement claims. These claims could injure our reputation and
decrease or inhibit our ability to license or sell our products. For instance,
on November 1, 2000 we received a written notice of alleged infringement from a
third party. Based on a thorough review of the relevant intellectual property,
we believe this notice of alleged infringement to be without merit. However,
because of the uncertainties of litigation, if this matter proceeds to
litigation we cannot assure you that we would ultimately prevail or that this
matter not materially impact our business. Further, claims of infringement
relating to our intellectual property, or technology we license from third
parties, regardless of merit, might be costly and time-consuming to defend
against and could seriously harm our ability to develop and market our products
and manage our daily operations. Our customer contracts generally require us to
indemnify customers for losses resulting from third party infringement claims
resulting from the use of our products. Thus, in addition to any claims brought
directly against us, we could be responsible to indemnify customers for claims
brought against them. The competitive nature of the semiconductor industry and
the importance of our software products to our customers' design flows and
competitors' businesses may contribute to a higher likelihood of being subject
to third party claims of infringement.
IF WE NEED TO RAISE ADDITIONAL FUNDS IN THE FORESEEABLE FUTURE TO FUND OUR
OPERATIONS OR FUTURE ACQUISITIONS, THEY MIGHT NOT BE AVAILABLE TO US, ON
FAVORABLE TERMS OR AT ALL, AND IF UNAVAILABLE, COULD IMPAIR OUR ABILITY TO RUN
OUR BUSINESS.
We anticipate that our cash resources will be sufficient to meet our
currently predicted working capital and capital expenditure requirements for at
least the next 18 months. We might, however, need to raise additional funds
through public or private financings, strategic relationships or other
arrangements to do any of the following:
- develop next-generation technologies or enhance current products;
- fund additional sales and marketing programs;
- acquire complementary businesses or technologies;
- hire additional personnel;
- expand our operations faster than currently anticipated; or
- respond to competitive pressures in our industry.
If we are unable to fund such potential business requirements, our results
of operations could be harmed.
RISKS RELATED TO OUR INDUSTRY
IF THE INDUSTRIES INTO WHICH WE SELL OUR PRODUCTS EXPERIENCE RECESSION OR OTHER
CYCLICAL EFFECTS IMPACTING OUR CUSTOMERS' RESEARCH AND DEVELOPMENT BUDGETS, OUR
OPERATING RESULTS COULD BE NEGATIVELY IMPACTED.
The primary customers for our products are semiconductor design and
manufacturing companies. Any significant downturn in our customers' markets, in
particular, or in general economic conditions which result in the cut back of
research and development budgets would likely result in a reduction in demand
for our products and services and could harm our business. The markets for
semiconductor products are cyclical. For example, in recent years certain Asian
countries have experienced significant economic difficulties, including currency
devaluation and instability, business failures and a depressed business
environment. These difficulties triggered a significant downturn in the
semiconductor market, resulting in reduced budgets for chip design tools which,
in turn, negatively impacted us. Our business is harmed when research and
development budgets of our customers are curtailed. In addition, the electronics
industry has
12
<PAGE> 16
historically been subject to seasonal and cyclical fluctuations in demand for
its products, and this trend may continue in the future. Such industry downturns
have been, and may continue to be, characterized by diminished product demand,
excess manufacturing capacity and subsequent erosion of average selling prices.
IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR RESOURCES IN ANTICIPATION OF THE
EXPECTED SEASONALITY OF OUR REVENUE, OUR QUARTERLY OPERATING RESULTS MAY SUFFER
AND OUR STOCK PRICE MAY DECLINE.
We expect to experience significant seasonal variations in our revenue due
to sales incentives that result in increased sales efforts at the end of the
fiscal year. These seasonal trends materially affect our quarter to quarter
operating results, which, if not effectively managed, could negatively impact
our stock price. Based on our limited operating history, we expect that our
revenue in the first quarter each year will typically be lower than revenue in
other quarters. If we are unable to effectively manage our resources in
anticipation of the seasonality of our revenue and the costs we expect to incur
during periods of lower revenue, our operating results might be lower than
anticipated by investors. This would likely cause the trading price of our stock
to fall.
IF WE FAIL TO MAINTAIN COMPETITIVE STOCK OPTION PACKAGES FOR OUR EMPLOYEES, OR
IF OUR STOCK DECLINES MATERIALLY FOR A PROTRACTED PERIOD OF TIME, WE MIGHT HAVE
DIFFICULTY RETAINING OUR EMPLOYEES, PARTICULARLY IN THE SILICON VALLEY, AND OUR
BUSINESS MAY BE HARMED.
In today's competitive technology industry, employment decisions of highly
skilled personnel are influenced by stock option packages, which offer
incentives above traditional compensation only where there is a consistent,
long-term upward trend over time of a company's stock price. If our stock price
declines due to market conditions, investors' perceptions of the technology
industry or managerial or performance problems we have, our stock option
incentives may lose value to key employees and we may lose such employees or be
forced to grant additional options to retain such employees, which could result
in the following material adverse consequences to us:
- loss of employees due to negative impact on our option packages;
- immediate and substantial dilution to investors resulting from the grant
of additional options necessary to retain employees; and
- potential compensation charges against the company which could negatively
impact our operating results.
WE MIGHT BECOME SUBJECT TO LITIGATION BY COMPETITORS OR PRIOR EMPLOYEES, WHICH
COULD BE COSTLY TO DEFEND AND COULD DIVERT MANAGEMENT'S ATTENTION FROM FOCUSING
ON OUR BUSINESS AND OPERATIONS.
We may be subject to claims by competitors for infringement of their
intellectual property or prior employees for human resources-related claims. Our
insurance is limited to specific amounts per claim depending on the type of
claim involved. A successful liability claim brought against us in excess of
corresponding insurance coverage could be costly, which would harm our business,
financial condition and results of operations.
RISKS RELATED TO THIS OFFERING
INVESTORS WILL BE RELYING ON OUR MANAGEMENT'S JUDGMENT WITH WHICH THEY MAY
DISAGREE REGARDING THE USE OF PROCEEDS FROM THIS OFFERING.
We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering and have not committed the substantial majority of
these proceeds to any particular purpose, as more fully described in "Use of
Proceeds." Accordingly, our management will have broad discretion with respect
to the use of the net proceeds from this offering and investors will be relying
on the judgment of our management regarding the application of these proceeds.
These investments may not yield a favorable
13
<PAGE> 17
return. We have only made preliminary determinations as to the amount of net
proceeds to be used based upon our current expectations regarding our financial
performance and business needs over the foreseeable future. These expectations
may prove to be inaccurate, as our financial performance may differ from our
current expectations or our business needs may change as our business and the
industry we address evolve. As a result, the proceeds we receive in this
offering may be used in a manner significantly different from our current
allocation plans.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of our common stock. The pro forma net
tangible book value of a share of common stock purchased at an assumed initial
public offering price of $10.00 per share will be only $2.76. Additional
dilution may be incurred if holders of stock options, whether currently
outstanding or subsequently granted, exercise their options or if warrantholders
exercise their warrants to purchase common stock. See "Dilution" for a more
complete description.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
DEPRESS OUR STOCK PRICE.
Upon completion of this offering, based upon shares outstanding as of
September 30, 2000, we will have 16,259,092 shares of our common stock
outstanding, of which:
- all of the shares we are selling in this offering may be resold in the
public market immediately;
- another shares are subject to the lock-up agreements
described in "Underwriting" and will become available for resale in the
public market beginning 180 days after the date of this prospectus, and
- an additional shares subject to outstanding options will
be available for sale in the public market beginning 180 days after the
date of this prospectus.
In addition, some of our current stockholders have "demand" and/or
"piggyback" registration rights in connection with future offerings of our
common stock. "Demand" rights enable the holders to demand that their shares be
registered and may require us to file a registration statement under the
Securities Act at our expense. "Piggyback" rights provide for notice to the
relevant holders of our stock if we propose to register any of our securities
under the Securities Act, and grant such holders the right to include their
shares in the registration statement. All holders of registrable securities have
agreed not to exercise their registration rights until 180 days following the
date of this prospectus without the consent of Credit Suisse First Boston
Corporation.
As restrictions on resale end, our stock price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them. These sales also might make it more difficult for us
to sell equity securities in the future at a time and at a price that we deem
appropriate.
OUR PRINCIPAL STOCKHOLDERS CAN EXERCISE A CONTROLLING INFLUENCE OVER OUR
BUSINESS AFFAIRS.
Our executive officers, directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 24.5% of our common stock
following this offering. If they were to act together, these stockholders would
be able to exercise control over most matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of our company, which could cause
our stock price to drop. These actions may be taken even if they are opposed by
the other investors, including those who purchase shares in this offering.
14
<PAGE> 18
OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE IT MORE DIFFICULT FOR A THIRD
PARTY TO ACQUIRE US, AND DISCOURAGE A TAKEOVER.
Provisions of our certificate of incorporation, bylaws, and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would benefit our stockholders. See "Description of Capital Stock-Anti-Takeover
Effects of Some Provisions of Delaware Law and Our Charter Documents" for a more
complete description of these provisions.
NEGOTIATIONS BETWEEN THE UNDERWRITERS AND US DETERMINED OUR INITIAL PUBLIC
OFFERING PRICE, BUT THE MARKET PRICE FOR OUR COMMON STOCK MAY BE VOLATILE, AND
YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC
OFFERING PRICE.
The initial public offering price of our common stock may vary from the
market price of our common stock following this offering. The market price of
our common stock may fluctuate in response to various factors, some of which are
beyond our control. Such factors include:
- changes in market valuations of our competitors or other technology
companies;
- actual or anticipated fluctuations in our operating results;
- technological advances in our industry either by us or our competitors;
- loss of key personnel;
- sale of significant amounts of our common stock or other securities in
the open market; and
- volume fluctuations, which are common for technology companies.
General economic conditions, such as recession or interest rate or currency
rate fluctuations in the United States or abroad, could negatively affect the
market price of our common stock. Please see "Underwriting."
THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN SINCE IT HAS NOT BEEN PUBLICLY
TRADED, AND OUR STOCK MAY BE ILLIQUID, RESULTING IN MORE VOLATILITY.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price for the shares
will be determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
MARKET PRICES OF TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE AND THE MARKET
FOR OUR STOCK MAY BE VOLATILE AS WELL.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies generally have been
extremely volatile. Recent initial public offerings by technology companies have
been accompanied by exceptional share price and trading volume changes in the
first days and weeks after the securities were released for public trading.
Investors may not be able to resell their shares at or above the initial public
offering price. In addition, an active public market for our common stock may
not develop or be sustained after this offering. In the past, following periods
of volatility in the market price of a public company's securities, securities
class action litigation has often been instituted against that company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources.
15
<PAGE> 19
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
This prospectus contains forward-looking statements that involve inherent
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. We use words such as "expect,"
"anticipate," "project," "believe," "plan," "intend," "future" and other similar
expressions to identify forward-looking statements. You should not place undue
reliance on these forward-looking statements. Our actual results may differ
materially from those anticipated in these forward-looking statements. Factors
that could contribute to differences include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this prospectus.
You should rely only on the information contained in this prospectus when
making a decision about whether to invest in our common stock. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of our common stock only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of when this prospectus or any shares of our common
stock is delivered.
16
<PAGE> 20
USE OF PROCEEDS
The net proceeds to us from the sale of the 4,500,000 shares of common
stock offered by us are estimated to be $39.9 million, after deducting the
underwriting discounts and commissions and estimated offering expenses and
assuming no exercise of the underwriters' over-allotment option to purchase
675,000 shares from us.
The principal purposes of this offering are to facilitate growth in
operations, to obtain additional working capital, to create a public market for
our common stock and to facilitate future access by us to public markets. We
expect to use the net proceeds of this offering for working capital and general
corporate purposes. In addition, we may use a portion of the net proceeds to
acquire complementary products, technologies or businesses; however, we
currently have no commitments or agreements and are not involved in any
negotiations to do so. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in interest-bearing, investment-grade
securities.
We do not have a definitive quantified plan with respect to the use of the
net proceeds of this offering. As a result, our management will have broad
discretion with respect to their use, and investors will be relying on the
judgement of our management regarding the application of these proceeds. In
addition, any investments, capital expenditures, cash acquisitions or other
application of the use of proceeds we make may not produce the anticipated
results.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our existing lines of credit prohibit the payment of cash
dividends.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth our total capitalization as of September 30,
2000:
- on an actual basis after giving effect to the one for two reverse stock
split of our common stock;
- on a pro forma basis to reflect the automatic conversion of all
outstanding shares of convertible preferred stock into 6,273,128 shares
of common stock upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of 4,500,000 shares
of common stock at an assumed initial public offering price of $10.00 per
share in this offering, after deducting underwriting discounts and
commissions and estimated offering expenses to be paid by us.
You should read this information together with the consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Notes payable and capital lease obligations, net of
current portion......................................... $ 321 $ 321 $ 321
-------- -------- --------
Convertible preferred stock and warrants, $0.001 par
value; 14,000,000 shares authorized, 12,546,255 shares
issued and outstanding, actual; no shares, issued and
outstanding pro forma and pro forma, as adjusted........ 24,251 -- --
-------- -------- --------
Common stock and other stockholders' equity (deficit):
Common stock; $0.001 par value, 22,000,000 shares
authorized, 5,485,964 shares issued and outstanding,
actual; 11,759,092 shares issued and outstanding, pro
forma and 16,259,092 shares issued and outstanding
pro forma, as adjusted............................... 5 12 16
Additional paid-in capital.............................. 17,743 41,987 81,833
Notes receivable from stockholders...................... (1,678) (1,678) (1,678)
Unearned stock-based compensation....................... (2,247) (2,247) (2,247)
Accumulated deficit..................................... (26,205) (26,205) (26,205)
-------- -------- --------
Total common stock and other stockholders' equity
(deficit).......................................... (12,382) 11,869 51,719
-------- -------- --------
Total capitalization................................. $ 12,190 $ 12,190 $ 52,040
======== ======== ========
</TABLE>
This table does not include:
- 3,188,209 shares subject to outstanding options as of September 30, 2000
at a weighted average exercise price of $4.66 per share;
- 599,708 additional shares available for grant as of September 30, 2000
under our 1995 Stock Plan;
- 112,307 shares of preferred stock subject to outstanding warrants as of
September 30, 2000 at a weighted average exercise price of $2.72 per
share;
- the amendment to our certificate of incorporation upon completion of this
offering to increase our authorized common stock and to decrease our
authorized preferred stock; and
- approximately 3.8 million shares of common stock issued in exchange for
outstanding shares of Altius preferred and common stock, and
approximately 579,000 shares reserved for issuance upon exercise of
options we assumed in connection with the Altius acquisition.
Upon completion of this offering, each outstanding share of convertible
preferred stock will convert into two shares of common stock.
18
<PAGE> 22
DILUTION
Our pro forma net tangible book value as of September 30, 2000 was
approximately $4.5 million, or $0.38 per share of common stock. Pro forma net
tangible book value per share is determined by dividing our tangible book value
(total tangible assets less total liabilities) by the number of outstanding
shares of common stock at that date after giving effect to the conversion of all
outstanding shares of our preferred stock into 6,273,128 shares of common stock
upon the closing of this offering. Dilution in net tangible bank value per share
represents the difference between the amount per share paid by purchasers of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to the sale of the
4,500,000 shares of our common stock offered at an assumed initial public
offering price of $10.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible book
value, as adjusted at September 30, 2000 would have been approximately $44.8
million, or $2.76 per share. This represents an immediate increase in the pro
forma net tangible book value of $2.38 per share to existing stockholders and an
immediate dilution of $7.24 per share to new investors purchasing shares at the
initial public offering price. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of
September 30, 2000..................................... $0.38
Increase in pro forma tangible book value, as adjusted,
per share attributable to new investors................ 2.38
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.76
------
Dilution per share to new investors......................... $ 7.24
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
2000, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
the existing stockholders and by the new public investors based upon an assumed
initial public offering price of $10.00 per share before deducting underwriting
discounts and commissions and estimated offering expenses and after giving
effect to the conversion of all outstanding shares of our preferred stock into
shares of common stock upon the closing of this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 11,759,092 72.3% $37,561,000 45.5% $ 3.19
New public investors............... 4,500,000 27.7% 45,000,000 54.5% $10.00
---------- ----- ----------- -----
Total............................ 16,259,092 100.0% $82,561,000 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters over-allotment option is exercised in full, the number
of shares held by new investors will increase to 5,175,000, or 30.6%, of the
total shares of common stock outstanding after this offering.
The above discussion and tables assume no exercise of stock options or
warrants outstanding as of September 30, 2000. To the extent that any of these
options or warrants are exercised, there will be further dilution to the new
public investors.
19
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and related notes and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in this prospectus. The consolidated statement of
operations data for the years ended September 30, 1998, 1999 and 2000 and the
balance sheet data as of September 30, 1999 and 2000 have been derived from our
audited consolidated financial statements that are included elsewhere in this
prospectus. Historical results are not necessarily indicative of results to be
expected in any future period.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1996 1997 1998 1999 2000
----------- ------- ------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue:
License........................................... $ -- $ 2,751 $ 5,385 $ 7,704 $ 14,679
Services.......................................... 224 250 1,152 3,177 8,138
------- ------- ------- ------- --------
Total revenue................................... 224 3,001 6,537 10,881 22,817
------- ------- ------- ------- --------
Costs of revenue:
License........................................... -- 512 458 96 92
Services.......................................... 3 198 439 1,974 3,391
------- ------- ------- ------- --------
Total cost of revenue........................... 3 710 897 2,070 3,483
------- ------- ------- ------- --------
Gross profit........................................ 221 2,291 5,640 8,811 19,334
------- ------- ------- ------- --------
Operating expenses:
Research and development.......................... 1,443 3,166 5,038 6,378 4,966
Selling and marketing............................. 463 3,394 6,288 7,314 10,373
General and administrative........................ 528 1,002 1,407 2,225 2,821
Amortization of goodwill and other intangibles.... -- -- -- -- 2,525
Stock-based compensation*......................... -- 7 49 13 1,795
In-process research and development............... -- -- -- -- 1,100
------- ------- ------- ------- --------
Total operating expenses........................ 2,434 7,569 12,782 15,930 23,580
------- ------- ------- ------- --------
Operating loss...................................... (2,213) (5,278) (7,142) (7,119) (4,246)
Interest and other income (expense), net............ 22 100 312 78 (284)
------- ------- ------- ------- --------
Loss before income tax.............................. 2,191 (5,178) (6,830) (7,041) (4,530)
Income tax expense.................................. -- -- -- -- (242)
------- ------- ------- ------- --------
Net loss............................................ $(2,191) $(5,178) $(6,830) $(7,041) $ (4,772)
======= ======= ======= ======= ========
Basic and diluted net loss per share................ $ (1.50) $ (2.78) $ (2.92) $ (2.42) $ (1.14)
======= ======= ======= ======= ========
Number of shares used in calculation of basic and
diluted net loss per share........................ 1,461 1,867 2,335 2,917 4,202
======= ======= ======= ======= ========
Amortization of stock-based compensation expense
would be allocated to the following expenses:
Cost of revenue................................... $ -- $ -- $ -- $ -- $ 254
Research and development.......................... -- -- 22 9 375
Selling and marketing............................. -- -- -- -- 262
General and administrative........................ -- 7 27 4 904
------- ------- ------- ------- --------
$ -- 7 $ 49 $ 13 $ 1,795
======= ======= ======= ======= ========
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments...................................... $ 2,081 $ 3,277 $ 7,041 $ 4,466 $ 7,447
Working capital.................................... 1,800 2,360 6,631 3,382 2,669
Total assets....................................... 2,736 6,261 10,727 11,803 24,466
Convertible preferred stock and warrants........... 4,404 11,044 23,333 24,184 24,251
Total common stock and other stockholder's
deficit.......................................... (2,276) (7,414) (14,854) (21,651) (12,382)
</TABLE>
21
<PAGE> 25
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
The pro forma statements of operations data for the year ended September
30, 2000 are derived from the unaudited pro forma combined financial
information, which reflect the acquisition of Snaketech and Altius as if such
acquisitions had occurred on October 1, 1999. The pro forma statements of
operations data are presented for informational purposes only and may not be
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of the period presented and
should not be construed as being representative of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
2000
--------------------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 31,681
Cost of revenue:............................................ 8,009
--------
Gross profit................................................ 23,672
--------
Operating expenses:
Research and development.................................. 5,988
Sales and marketing....................................... 12,119
General and administrative................................ 4,614
Amortization of goodwill and other intangibles............ 10,596
Stock-based compensation*................................. 6,530
In-process research and development....................... --
--------
Total operating expenses............................... 39,847
--------
Loss from operations........................................ (16,175)
Interest and other income (expense), net.................... 389
Interest expense............................................ (515)
--------
Loss before income tax...................................... (16,301)
Income tax expense.......................................... (745)
--------
Net loss.................................................... (17,046)
========
Basic and diluted net loss per share........................ $ (1.23)
========
Shares used in computing pro forma basic and diluted net
loss per share............................................ 13,904
========
</TABLE>
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Our actual results could differ materially from those discussed in the
forward-looking statements contained in this section. The following discussion
and analysis of our financial condition and results of operations should be read
in conjunction with "Selected Financial Data" and our consolidated financial
statements and notes thereto appearing elsewhere in this prospectus.
OVERVIEW
We provide software and services that enable the design and first-time
production success of complex integrated circuits for communications, computer
and consumer products. Our products are designed to enable our customers to
rapidly deliver high-quality systems-on-chip with geometrics at or below 0.18
micron.
From our incorporation in April 1995 until we shipped our first product in
November 1996, we primarily focused our activities on conducting research and
development for our software products. In November 1996, we shipped our first
product suite which included Fire & Ice and the predecessor to VoltageStorm SoC.
In March 1999, we shipped VoltageStorm along with the ElectronStorm, ClockStorm
and SI Report options. During the last two years, we have substantially extended
and improved our products. In September 1999, we shipped our next-generation
proprietary modeling product, Fire & Ice QX, that resulted in a 100x speedup
over the prior version. In June 2000, we introduced our next-generation power
integrity product, VoltageStorm SoC, which addresses the unique challenges of
system-on-chip design earlier in our customers' design flow.
In March 2000, we acquired all the outstanding capital stock of Snaketech
S.A., or Snaketech, in exchange for a total of approximately 1.4 million shares
of common stock and options to purchase approximately 155,500 shares of our
common stock. The acquisition of Snaketech added SubstrateStorm to our SoC
verification product family. The acquisition was accounted for using the
purchase method of accounting.
Source of Revenue
We derive our revenue from software licenses, maintenance, consulting,
training and the development of technologies under research and development
contracts. Our end customers include microprocessor companies, embedded memory
or digital signal processor suppliers, design and engineering service companies,
application-specific integrated circuit vendors and application-specific
standard products companies building high-end graphics, networking, wireless and
communications systems.
License Revenue
We generate our revenue under time-based licenses where revenue is
recognized ratably and term licenses where license revenue is recognized at time
of shipment. Our time-based licenses are typically 1 year or less and can be
renewed or remixed periodically. Our term licenses are typically for 3 or 20
years. We intend to increase the percentage of revenue derived from our
time-based licenses and our 3-year term licenses. License revenue was 64% of
total revenue in fiscal 2000 and 71% of our total revenue in fiscal year 1999.
Services
Services revenue is generated from:
- maintenance services;
- short-term consulting and training; and
- research and development contracts.
23
<PAGE> 27
Maintenance is sold to customers with term licenses and is renewed by
customers on an annual basis. We perform short-term consulting for and provide
training to end customers. We also have a research and development project with
one customer. Services revenue accounted for 36% of our total revenue in fiscal
2000 and 29% of our total revenue in fiscal 1999.
International Revenue
We have international sales offices located in the United Kingdom, France,
and Japan. North American sales offices are located in North Carolina, Texas and
California. We also use distributors and sales agents in Taiwan and Korea. Our
international sales offices and distributors accounted for 38% of our total
revenue in fiscal 2000 and 31% of our total revenue in fiscal 1999.
Revenue Recognition
We report revenue in two categories: license revenue and services revenue.
License revenue is derived from product sales to end users and distributors.
Services revenue is derived from providing consulting and training, and
maintenance and support services to end users and under research and development
contracts.
We recognize revenue in accordance with the American Institute of Certified
Public Accountants Statement of Position 97-2, Software Revenue Recognition, as
amended by Statement of Position 98-4, Deferral of the Effective Date of Certain
Provisions of SOP 97-2, ("SOP 97-2") and Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions. License revenue is derived from term and time-based licenses.
License revenue from term licenses is recognized upon shipment of the product,
if an executed agreement or purchase order has been received, the fee is fixed
and determinable and collection is deemed probable. We do not generally include
acceptance criteria or rights of return in our arrangements.
For contracts with multiple obligations (e.g., product licenses,
maintenance and other services), we allocate revenue to each component of the
contract based on vendor specific objective evidence of its fair value, which is
based on either the price when each component is sold separately, or the renewal
rates for maintenance in future years as specified in the arrangement. We
recognize revenue allocated to undelivered products and services when the
criteria for revenue set forth above are met.
License and maintenance revenue from time-based licenses for a term of one
year or less is recognized ratably over the period of the license, as
maintenance for these licenses is never sold separately from the license.
Services revenue from consulting, installation and training is recognized
as the related services are performed, when collectibility is probable and the
fee is fixed and determinable. Revenue from maintenance and support agreements
are deferred and recognized on a straight-line basis over the term of the
related agreement. Payments of maintenance fees are generally made in advance
and are nonrefundable.
Prior to the adoption of SOP 97-2, we recognized revenue from the sale of
product licenses upon shipment if remaining obligations were insignificant,
collections of resulting accounts receivable was probable and product returns
reasonably estimable.
We recognize revenues derived from research and development contracts in
accordance with American Institute of Certified Public Accountants Statement of
Position No. 81-1, Contract Accounting under the percentage-of-completion method
of accounting based on the estimated stage of completion of individual
contracts.
Deferred revenue primarily consists of maintenance and support services
under maintenance contracts and unearned revenue on time-based licenses.
Deferred revenue fluctuates at each period end in accordance with the mix of
contracts entered into.
24
<PAGE> 28
Cost of Revenue
Cost of license revenue consists primarily of the expenses related to
royalties, amortization and maintenance related to purchased or licensed
technologies. We deliver our product and associated documentation
electronically. Cost of services revenue consists primarily of personnel
expenses, costs related to outside consultants, travel and overhead expenses
related to program management, software installation, customer and technical
support, fees for sub-contractors and training.
Operating Expenses
Operating expenses consist of research and development expenses, selling
and marketing expenses, general and administrative expenses, stock-based
compensation expenses, amortization of acquired intangibles and in-process
research and development expenses. We allocate the total costs for overhead and
facilities based on headcount to each of the functional areas that use the
relevant services. These allocated charges include general overhead items such
as building rent, equipment-leasing costs, telecommunications charges and
depreciation expense.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation and benefits
for direct sales and marketing personnel, travel cost, public relations, sales
and other promotional materials, trade shows, advertising and other sales and
marketing programs.
Research and Development
Research and development costs consist primarily of expenses related to the
development of new functionality and upgrades of our software. These expenses
include compensation and benefits for software developers, quality assurance
personnel and for third-party contract development costs.
General and Administrative
General and administrative expenses consist primarily of compensation and
benefits for general and administrative employees and fees for professional
advisors.
Amortization of Goodwill and Other Intangibles
Amortization of goodwill and other intangibles consists of amortization of
goodwill and other intangible assets arising through our acquisition of
Snaketech. This acquisition was accounted for as a purchase and, accordingly,
the purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed on the basis of their respective fair values on
the acquisition date. Goodwill and other intangible assets are amortized on a
straight-line basis over their respective estimated useful lives from one to
seven years.
Stock-based Compensation
During the year ended September 30, 2000 we granted stock options and
issued restricted stock to our officers, employees and consultants at prices
deemed to be below the estimated fair value of the underlying common stock. As a
result, we recorded an unearned stock-based compensation charge of $4.0 million
for the year ended September 30, 2000. For employees, such amount represents the
difference at the grant date between the exercise price of each stock option
granted or the purchase price for each share of restricted stock and the fair
market value of the underlying common stock. This amount is being amortized,
using the accelerated vesting method, over the vesting period of the options or
restricted stock, generally four years. Stock-based compensation related to
consultants is measured on a fair-value basis using the Black-Scholes option
pricing methodology.
25
<PAGE> 29
RESULTS OF OPERATIONS
The following table presents certain financial data as a percentage of
total revenue for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net revenue:
License................................................... 82% 71% 64%
Services.................................................. 18 29 36
---- --- ---
Total revenue.......................................... 100 100 100
---- --- ---
Cost of revenue:
License................................................... 7 1 0
Services.................................................. 7 18 15
---- --- ---
Total cost of revenue.................................. 14 19 15
---- --- ---
Gross profit................................................ 86 81 85
---- --- ---
Operating expenses:
Research and development.................................. 77 59 22
Sales and marketing....................................... 96 67 45
General and administrative................................ 22 20 12
Amortization of goodwill and other intangibles............ -- -- 11
Stock-based compensation.................................. -- -- 8
In-process research and development....................... -- -- 5
---- --- ---
Total operating expenses............................... 195 146 103
---- --- ---
Operating loss.............................................. (109) (65) (18)
Interest and other income (expense), net.................... 5 -- (2)
---- --- ---
Net loss.................................................... (104)% (65)% (20)%
==== === ===
</TABLE>
YEARS ENDED SEPTEMBER 30, 1999 AND 2000
Revenue
Total Revenue. Total revenue increased 110% from $10.9 million for the year
ended September 30, 1999 to $22.8 million for the year ended September 30, 2000.
Our contracts with Toshiba accounted for 18% of total revenue for the year ended
September 30, 2000. As a percentage of total revenue, license revenue accounted
for 71% for the year ended September 30, 1999 and 64% for the year ended
September 30, 2000. Total revenue from sales to customers outside North America
accounted for 23% of total revenue for the year ended September 30, 1999 and 34%
of total revenue for the year ended September 30, 2000. We expect that revenue
derived from overseas customers will continue to account for a significant
portion of our future revenue.
License Revenue. License revenue increased 91% from $7.7 million for the
year ended September 30, 1999 to $14.7 million for the year ended September 30,
2000 due to the introduction of next generation models of our primary products
as well as an increase in the demand for our existing products primarily due to
technological advances in our industry which we expect to continue.
Services Revenue. Services revenue increased 156% from $3.2 million for the
year ended September 30, 1999 to $8.1 million for the year ended September 30,
2000. This increase was due to an approximately $3.6 million increase in
maintenance and other support of our customers and approximately $1.3 million
increase in revenue related to our research contract.
26
<PAGE> 30
Cost of Revenue
Licenses. Cost of licenses decreased 4% from $96,000 for the year ended
September 30, 1999 to $92,000 for the year ended September 30, 2000, due to
lower royalties incurred. As a percentage of licenses revenue, cost of licenses
were 1.2% for the year ended September 30, 1999, and 0.6% for the year ended
September 30, 2000.
Services. Cost of services increased 72% from $2.0 million in the year
ended September 30, 1999 to $3.4 million in the year ended September 30, 2000,
due to cost of services related to our research contract offset by a cost-saving
program that included a decrease in the use of outside consultants utilized for
application engineering in early fiscal 1999. As a percentage of services
revenue, cost of services was 62% for the year ended September 30, 1999, and 42%
for the year ended September 30, 2000.
Operating Expenses
Research and Development. Research and development expenses decreased 22%
from $6.4 million for the year ended September 30, 1999 to $5.0 million for the
year ended September 30, 2000. During the second quarter of fiscal 1999, we
limited the use of higher-priced outside consultants resulting in lower
expenses. We started increasing the level of staffing for research and
development after the acquisition of Snaketech in the third quarter of fiscal
2000. As a percentage of total revenue, research and development expenses were
59% for the year ended September 30, 1999 and 22% for the year ended September
30, 2000, attributable to increases in total revenue and lower expenses. We
believe that continued increase in our investment in research and development is
necessary to expand our market presence and to expand the technology and product
leadership. Therefore, we expect that research and development expenses will
increase in the future.
Sales and Marketing. Sales and marketing expenses increased 42% from $7.3
million for the year ended September 30, 1999 to $10.4 million for the year
ended September 30, 2000. Approximately $2.1 million of this increase was due to
the addition of sales personnel and increased commissions paid. As a percentage
of total revenue, sales and marketing expenses were 67% for the year ended
September 30, 1999 and 45% for the year ended September 30, 2000, due to the
growth of revenue outpacing the increase of sales and marketing expenses.
General and Administrative. General and administrative expenses increased
27% from $2.2 million for the year ended September 30, 1999 to $2.8 million for
the year ended September 30, 2000 due to the addition of personnel and increased
use of consultants and third party advisors. As a percentage of total revenue,
general and administrative expenses were 20% for the year ended September 30,
1999 and 12% for the year ended September 30, 2000. We expect general and
administrative expenses to continue to increase as a result of expenses
associated with being a public company, including annual and other public
reporting costs, increased directors and officers liability insurance, investor
relations programs and accounting and legal fees. Such expenses, however, are
expected to decline as a percentage of total revenue.
Amortization of Goodwill and Other Intangibles. Amortization of acquired
intangibles was $2.5 million for the year ended September 30, 2000. This amount
was due to the acquisition of Snaketech in March 2000. No amortization expense
was recorded in the year ended September 30, 1999.
Stock-based Compensation. We recorded an unearned stock-based compensation
charge of $4.0 million for the year ended September 30, 2000 and $20,000 for the
year ended September 30, 1999. Amortization of stock-based compensation was $1.8
million for the year ended September 30, 2000 and $13,000 for the year ended
September 30, 1999. This increased expense resulted from the increased level of
stock option grants and restricted stock issuances and increases in the deemed
fair market value of the underlying common stock.
In-process Research and Development. On March 31, 2000, we acquired
Snaketech. In connection with this acquisition, $1.1 million of acquired
in-process research and development has been allocated based on established
valuation techniques. At the date of the acquisition, this amount was expensed
as a non-recurring charge as the in-process technology had not yet reached
technological feasibility and had no
27
<PAGE> 31
alternative future use. Snaketech had one major in-process research and
development project in progress at the time of the acquisition. We expect to
incorporate this technology into our product development efforts.
Net Interest and Other Income (Expense). Net interest and other income was
$78,000 for the year ended September 30, 1999 and a net expense of $284,000 for
the year ended September 30, 2000. Net interest and other expense for the year
ended September 30, 2000 includes interest expense incurred on our line of
credit and capital leases, foreign withholding taxes, amortization of debt
discount and foreign currency translation loss, offset by interest income earned
on our cash, cash equivalent and short-term investment balances. We utilized the
line of credit starting June 1999.
Income taxes. During the year ended September 30, 2000, Simplex incurred
foreign taxes of $242,000. To date, we have never paid significant U.S. federal
or state income taxes and have net federal operating loss carryforwards of
approximately $18.7 million. We have a full valuation allowance to the extent of
all deferred tax assets since it is more likely than not that we will not
realize any benefit from these assets.
YEARS ENDED SEPTEMBER 30, 1998 AND 1999
Revenue
Total Revenue. Total revenue increased 66% from $6.5 million in fiscal 1998
to $10.9 million in fiscal 1999. AMD accounted for 12.6% and Sun Microsystems
accounted for 11.1% of total revenue in fiscal 1998. No customer accounted for
more than 10% of total revenue in fiscal 1999. As a percentage of total revenue,
license revenue accounted for 82% in fiscal 1998 and 71% in fiscal 1999. Total
revenue from sales to customers outside the United States accounted for 13% of
total revenue in fiscal 1998 and 31% of total revenue in fiscal 1999.
License Revenue. License revenue increased 43% from $5.4 million in fiscal
1998 to $7.7 million in fiscal 1999. This increase was attributable to expansion
of our distribution channels both in North America and internationally during
fiscal 1999.
Services Revenue. Services revenue increased 176% from $1.2 million in
fiscal 1998 to $3.2 million in fiscal 1999. The increase was primarily
attributable to approximately $1.5 million in additional maintenance and other
support in connection with the continued growth of the installed base of
customers licensing our products and approximately $500,000 in research and
development contract revenue. Most of our customers have purchased annual
maintenance contracts on initial licenses and have renewed such contracts upon
expiration.
Cost of Revenue
Licenses. Cost of licenses decreased from $458,000 in fiscal 1998 to
$96,000 in fiscal 1999. As a percentage of license revenue, cost of product
licenses were 9% in fiscal 1998 and 1% in fiscal 1999. The decrease in absolute
dollars was principally due to reduced sales of older products which continued
to incur royalty costs. We expect the cost of licenses to continue to decline as
a percentage of total revenue.
Services. Cost of services increased from $439,000 in fiscal 1998 to $2.0
million in fiscal 1999. As a percentage of services revenue, cost of services
were 38% in fiscal 1998 and 62% in fiscal 1999. The increase in fiscal 1999 was
a result of the expansion of application engineering that focuses on the
provision of maintenance and support services.
Operating Expenses
Research and Development. Research and development expenses increased by
27% from $5.0 million in fiscal 1998 to $6.4 million in fiscal 1999. This
increase was attributable to an approximately $1.6 million increase in
engineering compensation and benefits, offset by a reduction of high-priced
outside consultant expenses. As a percentage of total revenue, research and
development expenses were 77% of total revenue
28
<PAGE> 32
in fiscal 1998 and 59% of total revenue in 1999. The decrease was attributable
to an increase in total revenue.
Sales and Marketing. Sales and marketing expenses increased by 16% from
$6.3 million in fiscal 1998 to $7.3 million in fiscal 1999. As a percentage of
total revenue, sales and marketing expenses were 96% of total revenue in fiscal
1998 and 67% of total revenue in fiscal 1999. Sales and marketing expenses
increased due to the expansion of our worldwide direct sales and marketing
organization. During fiscal 1999, we established direct sales and support
offices in the United States, Europe, Taiwan and Japan.
General and Administrative. General and administrative expenses increased
58% from $1.4 million in fiscal 1998 to $2.2 million in fiscal 1999. As a
percentage of total revenue, general and administrative expenses were 22% of
total revenue in fiscal 1998 and 20% of total revenue in fiscal 1999. This
increase resulted from the addition of new management and administrative
personnel to support our growth.
Stock-based Compensation. We recorded unearned stock-based compensation of
$45,000 in fiscal 1998 and $20,000 in fiscal 1999. Amortization of stock-based
compensation was $49,000 in fiscal 1998 and $13,000 in fiscal 1999. This expense
resulted from stock options granted to non-employees.
Net Interest and Other Income (Expense). Net interest and other income
decreased from $312,000 in fiscal 1998 to $78,000 in fiscal 1999. This decrease
was due to decreased cash and cash equivalent balances.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
in dollar amounts and as a percentage of total revenues for each quarter of
fiscal 1999 and fiscal 2000. You should read the following table in conjunction
with our consolidated financial statements and the notes related thereto. This
table includes all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from our quarterly results of operations.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1999 1999 1999 1999 2000
------------ --------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue:
License.................... $ 1,642 $ 1,342 $ 2,006 $2,714 $3,192 $ 3,154
Services................... 495 529 662 1,491 1,050 1,997
------- ------- ------- ------ ------ -------
Total revenue.............. 2,137 1,871 2,668 4,205 4,242 5,151
------- ------- ------- ------ ------ -------
Cost of revenue:
License.................... 1 18 3 74 24 27
Services................... 574 599 400 401 579 712
------- ------- ------- ------ ------ -------
Total cost of revenue...... 575 617 403 475 603 739
------- ------- ------- ------ ------ -------
Research and development.... 1,566 1,762 1,636 1,414 910 1,046
Sales and marketing......... 1,838 1,961 1,677 1,838 2,022 2,490
General and
administrative............. 522 629 543 531 627 663
Amortization of goodwill and
other intangibles.......... -- -- -- -- -- --
Stock-based compensation.... 2 2 4 5 29 692
In-process research and
development................ -- -- -- -- -- 1,100
------- ------- ------- ------ ------ -------
Total operating expenses... 3,928 4,354 3,860 3,788 3,588 5,991
------- ------- ------- ------ ------ -------
Operating profit (loss)..... (2,366) (3,100) (1,595) (58) 51 (1,579)
Other (expense) income..... 74 60 47 (103) (83) (116)
------- ------- ------- ------ ------ -------
Net loss.................... $(2,292) $(3,040) $(1,548) $ (161) $ (32) $(1,695)
======= ======= ======= ====== ====== =======
<CAPTION>
QUARTER ENDED
------------------------
JUNE 30, SEPTEMBER 30,
2000 2000
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue:
License.................... $ 3,983 $ 4,350
Services................... 2,169 2,923
------- -------
Total revenue.............. 6,152 7,273
------- -------
Cost of revenue:
License.................... 24 17
Services................... 976 1,124
------- -------
Total cost of revenue...... 1,000 1,141
------- -------
Research and development.... 1,501 1,509
Sales and marketing......... 2,515 3,346
General and
administrative............. 771 760
Amortization of goodwill and
other intangibles.......... 1,261 1,264
Stock-based compensation.... 535 539
In-process research and
development................ -- --
------- -------
Total operating expenses... 6,583 7,418
------- -------
Operating profit (loss)..... (1,431) (1,286)
Other (expense) income..... (129) (198)
------- -------
Net loss.................... $(1,560) $(1,484)
======= =======
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1999 1999 1999 1999 2000
------------ --------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUE:
Net revenue:
License.................... 77% 72% 75% 65% 75% 61%
Services................... 23 28 25 35 25 39
------- ------- ------- ------ ------ -------
Total revenue.............. 100 100 100 100 100 100
------- ------- ------- ------ ------ -------
Cost of revenue:
License.................... -- 1 -- 2 -- 1
Services................... 27 32 15 10 14 14
------- ------- ------- ------ ------ -------
Total cost of revenue...... 27 33 15 12 14 15
------- ------- ------- ------ ------ -------
Research and development.... 73 94 61 33 21 21
Sales and marketing......... 86 105 63 44 48 48
General and
administrative............. 25 34 21 12 15 13
Amortization of goodwill and
other intangibles.......... -- -- -- -- -- --
Stock-based compensation.... -- -- -- -- 1 13
In-process research and
development................ -- -- -- -- -- 21
------- ------- ------- ------ ------ -------
Total operating expenses... 184 233 145 89 85 116
------- ------- ------- ------ ------ -------
Operating profit (loss)..... (111) (166) (60) (1) 1 (31)
Other (expense) income..... 4 3 2 (3) (2) (2)
------- ------- ------- ------ ------ -------
Net loss.................... (107)% (163)% (58)% (4)% (1)% (33)%
======= ======= ======= ====== ====== =======
<CAPTION>
QUARTER ENDED
------------------------
JUNE 30, SEPTEMBER 30,
2000 2000
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUE:
Net revenue:
License.................... 65% 60%
Services................... 35 40
------- -------
Total revenue.............. 100 100
------- -------
Cost of revenue:
License.................... -- --
Services................... 16 15
------- -------
Total cost of revenue...... 16 15
------- -------
Research and development.... 24 21
Sales and marketing......... 41 46
General and
administrative............. 12 10
Amortization of goodwill and
other intangibles.......... 21 18
Stock-based compensation.... 9 7
In-process research and
development................ -- --
------- -------
Total operating expenses... 107 102
------- -------
Operating profit (loss)..... (23) (17)
Other (expense) income..... (2) (3)
------- -------
Net loss.................... (25)% (20)%
======= =======
</TABLE>
Lower revenue in the quarter ended March 31, 1999 was the result of the
retroactive application of an accounting change, which required that revenue
from time-based licenses of 1 year or less be recognized ratably instead of at
the time of shipment. Although revenue has been recognized on a consistent basis
in all quarters presented above, the effect of this change was more prominent in
the quarter ended March 31, 1999 due to contract mix. Revenue deferred from this
change was recognized in the subsequent quarters. In June 1999, we announced the
introduction of Fire & Ice QX which included a 100X increase in speed. Fire and
Ice QX was first shipped in the our fourth quarter ended September 30, 1999. Our
new product introduction, along with the increased efforts of our sales force
due to traditional year-end incentives, produced an increase in license revenue
in the quarter ended September 30, 1999. In the quarter ended December 31, 1999,
sales continued to increase due to strong demand for our new products.
During the March 31, 1999 quarter, we began a cost-savings program which
included a shift away from the utilization of higher cost consulting personnel
to in-house employees. As a result, research and development, sales and
marketing and general and administrative expenses each began to decrease in the
following quarter. In-process research and development expenses of $1.1 million
in the quarter ended March 31, 2000 resulted from the Snaketech acquisition.
During the quarters ended June 30, 2000 and September 30, 2000, we recognized
amortization expenses of $1.3 million in each quarter related to the
acquisition.
Provision for Income Taxes
To date, we have only incurred a minimal amount of foreign taxes. No
provision for federal and state income taxes has been recorded since inception
because we have experienced significant net losses, which have resulted in
federal and state operating loss carryforwards of approximately $18.7 million at
September 30, 2000. In light of our cumulative operating losses, we have
provided a full valuation allowance for all deferred tax assets as we are
presently unable to conclude that it is more likely than not that the deferred
tax asset will be realized.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of preferred stock in aggregate of approximately $24.1 million, internally
generated funds, and the use of our line of credit with Transamerica Business
Credit Corporation. As of September 30, 2000, we had $7.4 million of cash and
30
<PAGE> 34
cash equivalents. As of September 30, 2000, we had $2.5 million outstanding
under our $5.0 million credit facility with Transamerica. Borrowing under this
credit facility bears interest at a minimum rate of 9.0% (13.25% as of September
30, 2000). We anticipate using available cash to fund growth in operations and
for working capital.
Net cash provided by operating activities was $1.6 million for the year
ended September 30, 2000. Net cash used in operating activities was $5.4 million
in fiscal 1999 and $6.5 million in fiscal 1998.
Net cash provided by investing activities was $807,000 million for the year
ended September 30, 2000. Net cash used in investing activities was $698,000 in
fiscal 1999 and $1.1 million in fiscal 1998. Net cash provided by investing
activities consisted primarily of cash received in the acquisition of Snaketech
and the proceeds from available-for-sale securities. Cash used in investing
activities consists primarily of purchases of property and equipment.
Net cash provided by financing activities was $0.9 million for the year
ended September 30, 2000, $3.2 million in fiscal 1999 and $11.4 million in
fiscal 1998. Cash provided by financing activities during these periods was
primarily due to proceeds from the issuance of preferred stock and common stock,
stock options exercised by employees and borrowings under our line of credit
facility.
We currently anticipate that our available cash resources combined with the
cash generated from operations will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 18
months. We do not have a definitive quantified plan with respect to the use of
the net proceeds of this offering. As a result, our management will have broad
discretion with respect to the use of the net proceeds from this offering, and
investors will be relying on the judgement of our management regarding the
application of these proceeds. If cash generated from operations is insufficient
to satisfy our liquidity requirements, we may need to raise additional funds to
finance more rapid expansion, to develop new or enhance existing services or
products, to respond to competitive pressures or to acquire complementary
products, businesses or technologies. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
our stockholders will be reduced and such securities may have rights,
preferences or privileges senior to those of our stockholders.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), which establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the financial
position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133, as amended is effective
for fiscal years beginning after June 15, 2000. There was no significant impact
from the adoption of this standard.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance on disclosure related to revenue
recognition policies. We believe that our company currently complies with SAB
101.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring
31
<PAGE> 35
during the period after December 15, 1998, or January 12, 2000, but before the
effective date of July 1, 2000, the effects of applying this Interpretation are
recognized on a prospective basis from July 1, 2000. There was not a significant
impact of the adoption of this Interpretation on the consolidated financial
statements.
Qualitative and Quantitative Disclosures about Market Risk
We develop products in the United States and France and sell our products
globally, through our direct sales force and independent distributors. Our
products are sold primarily in North America, Europe and Japan. Most of our
sales are currently denominated in U.S. dollars; however we anticipate an
increasing amount of sales to be denominated in the Japanese yen and possibly
the euro. As a result, our financial results may be directly affected by changes
in foreign currency exchange rates and weak economic conditions in foreign
markets.
We currently do not invest in, or hold for trading or other purposes, any
financial instruments subject to market risk. As of September 30, 2000, we had
$7.4 million of cash and cash equivalents. Our interest income is sensitive to
changes in the general level of United States interest rates and any declines of
interest rates over time would reduce our interest income from our portfolio. As
of September 30, 2000, we had total debt of $2.8 million, most of which accrues
interest based on the prime rate. Therefore, we are subject to exposure to
interest rate risk for these borrowings based on fluctuations in the prime rate.
However, as we expect to repay the outstanding debts with the proceeds of this
offering, we do not expect our exposure to market risk from changes in interest
rates to be material.
ALTIUS RESULTS OF OPERATIONS
In October 2000, we acquired Altius Solutions, Inc., which is now our
wholly owned subsidiary. Through our acquisition of Altius, we now provide
design foundry services which enable accelerated chip development. Altius was
incorporated in December 1998, and received its first revenue for system-on-chip
design services in March 1999. Past growth and results of business and
operations are not necessarily indicative of future performance. This
transaction will be accounted for under the purchase method of accounting.
32
<PAGE> 36
The following table presents certain Altius financial data derived from
audited financial statements for the year ended December 31, 1999 and for the
nine months ended September 30, 2000, and from unaudited financial statements
for the nine month periods ended September 30, 1999. In the opinion of
management, the unaudited statements have been prepared on substantially the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods presented. This
information should be read in conjunction with the financial statements and
notes to those financial statements included elsewhere in this prospectus (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1999 1999 2000
------------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
System-on-chip design services........................... $2,037 $ 993 $6,528
License.................................................. 441 424 39
Maintenance and other services........................... 541 395 398
------ ------ ------
Total revenue......................................... 3,019 1,812 6,965
------ ------ ------
Cost of revenue:
System-on-chip design services........................... 1,711 849 3,426
License.................................................. 51 51 77
Maintenance and other services........................... -- -- 59
------ ------ ------
Total cost of revenue................................. 1,762 900 3,562
------ ------ ------
Gross profit............................................... 1,257 912 3,403
------ ------ ------
Operating expenses:
Research and development................................. 497 396 333
Sales and marketing...................................... 363 288 752
General and administrative............................... 180 103 1,297
Stock-based compensation................................. 63 25 230
------ ------ ------
Total operating expenses.............................. 1,103 812 2,612
------ ------ ------
Operating profit........................................... 154 100 791
Other income (expense), net................................ 40 15 48
------ ------ ------
Income before income taxes................................. 194 115 839
Provision for income taxes................................. 95 56 409
------ ------ ------
Net income................................................. $ 99 $ 59 $ 430
====== ====== ======
</TABLE>
RESULTS OF OPERATIONS FOR ALTIUS SOLUTIONS, INC.
Nine Months Ended September 30, 1999 and 2000
Total Revenue. Total revenue increased from $1.8 million for the nine
months ended September 30, 1999 to $7.0 million for the nine months ended
September 30, 2000. One customer accounted for 46% of total revenues for the
nine months ended September 30, 1999. Two customers accounted for 65% of total
revenue for the nine months ended September 30, 2000. As a percentage of total
revenue, design services revenue accounted for 55% in the nine months ended
September 30, 1999 and 94% in the nine months ended September 30, 2000. Total
revenue from sales to customers outside the United States accounted for 18% of
total revenue for the nine months ended September 30, 1999, 64% of total revenue
for the nine months ended September 30, 2000.
System-on-Chip Design Services Revenue. System-on-Chip Design services
revenue increased from $1.0 million for the nine months ended September 30, 1999
to $6.5 million for the nine months ended September 30, 2000 as Altius achieved
increased market adoption of its initial services.
License Revenue. License revenue decreased from $424,000 for the nine
months ended September 30, 1999 to $39,000 for the nine months ended September
30, 2000. The decrease in license revenue was due to the cessation of sales of
third party owned software. Altius commenced shipping its software product, IP
Station on September 27, 2000, and recorded the sale in deferred revenue.
33
<PAGE> 37
Maintenance and Other Services Revenue. Maintenance and other services
revenue increased from $395,000 for the nine months ended September 30, 1999 to
$398,000 for the nine months ended September 30, 2000 due to assuming
maintenance services for the installed base of third party license products. The
third party license products were assumed by Altius starting in the quarter
ended June 30, 1999.
Cost of Revenue
System-on-Chip Design Services. Cost of system-on-chip design services
increased from $849,000 for the nine months ended September 30, 1999 to $3.4
million for the nine months ended September 30, 2000 due to approximately
$155,000 in increased licensing fees associated with software design tools, $2.0
million in increased compensation and benefits expense and $462,000 in increased
overhead allocation. As a percentage of system-on-chip design services revenue,
cost of design services were 86% for the nine months ended September 30, 1999
and 53% for the nine months ended September 30, 2000.
Licenses. Cost of licenses increased from $51,000 for the nine months ended
September 30, 1999 to $77,000 for the nine months ended September 30, 2000. The
costs consisted of royalty payments to a third party and overhead allocation. As
a percentage of licenses revenue, cost of licenses were 12% for the nine months
ended September 30, 1999, and 196% for the nine months ended September 30, 2000.
Maintenance and Other Services. Cost of maintenance and other services
increased to $59,000 for the nine months ended September 30, 2000 due to the
addition of a customer service platform, including hot-line and on-site
installation assistance services.
Operating Expenses
Research and Development. Research and development expenses decreased from
$396,000 for the nine months ended September 30, 1999 to $333,000 for the nine
months ended September 30, 2000. During the first quarter of fiscal 2000, one of
Altius' software projects achieved technological feasibility and, as a result,
we capitalized approximately $667,000 of research and development costs. As a
percentage of total revenue, research and development expenses were 22% for the
nine months ended September 30, 1999 and 5% for the nine months ended September
30, 2000. The decrease was attributable to the commencement of capitalization of
research and development in accordance with the requirements of United States
generally accepted accounting principles.
Sales and Marketing. Sales and marketing expenses increased from $288,000
for the nine months ended September 30, 1999 to $752,000 for the nine months
ended September 30, 2000 due to approximately $278,000 in increased compensation
for sales personnel, $186,000 in increased cost incurred for trade show expenses
and overhead allocation. As a percentage of total revenue, sales and marketing
expenses were 16% for the nine months ended September 30, 1999 and 11% for the
nine months ended September 30, 2000. The decrease as a percentage of total
revenue is due to the higher levels of total revenue.
General and Administrative. General and administrative expenses increased
from $103,000 for the nine months ended September 30, 1999 to $1,297,000 for the
nine months ended September 30, 2000 due to approximately $516,000 for costs
related to mergers and acquisitions, $500,000 in increased compensation and
benefit expenses and $178,000 in increased overhead allocation. As a percentage
of total revenue, general and administrative expenses were 6% for the nine
months ended September 30, 1999 and 19% for the nine months September 30, 2000.
Stock-based Compensation. Altius recorded unearned compensation of $592,000
for the nine months ended September 30, 1999 and $1.2 million for the nine
months ended September 30, 2000. Amortization of stock-based compensation was
$25,000 for the nine months ended September 30, 1999; $230,000 for the nine
months ended September 30, 2000. This expense resulted from stock options
granted to employees at exercise prices less than deemed fair market value.
34
<PAGE> 38
Interest and Other Income (Expense), net. Interest and other income
(expense), net increased from $15,000 for the nine months ended September 30,
1999 to $48,000 for the nine months ended September 30, 2000. Interest and other
income (expense), net for the nine months ended September 30, 1999 consists of
interest earned on Altius' money market investments, partially offset by
interest expenses incurred on a term loan.
35
<PAGE> 39
BUSINESS
INTRODUCTION
We provide software and services that enable the design and first-time
production success of complex integrated circuits for communications, computer
and consumer products. Our products are designed to enable our customers, timely
delivery of high-quality systems-on-chip with geometries at or below 0.18
micron. System-on-Chip refers to an integrated circuit that includes the
computing, memory and communications components that previously had been
available only on separate chips. Our customers can gain a competitive advantage
by using our products in advance of manufacture to verify that the integrated
circuit design will perform as intended.
Demand for electronic products that are portable, power-efficient and
high-performance, such as cell phones, has driven chip manufacturers to design
complex systems-on-chip with small feature sizes reaching 0.18 micron and below.
These systems-on-chip integrate digital components, such as microprocessors and
memory, together with analog components, such as radio-frequency receivers and
analog-to-digital converters, into a single chip. Successful development and
commercialization of systems-on-chip require the design and manufacture of
integrated circuits with increasingly small feature sizes. Designing systems-
on-chip with these small feature sizes magnifies semiconductor physics
constraints, which presents significant challenges to designers and traditional
design software. Sometimes, designers are unable to diagnose and therefore to
correct the design decisions that cause their designs to fail.
INDUSTRY BACKGROUND
Advances in the communications and electronics industries have stimulated
consumer and business demand for communications and networking equipment,
desktop computers, handheld computing wireless devices and other
semiconductor-powered products. Demand for systems-on-chip is increasing
dramatically as manufacturers seek to remain competitive by rapidly introducing
products with higher performance, lower cost and smaller size. According to the
Integrated Circuit Engineering Corporation report (ICE -- 2000), the worldwide
market for systems-on-chip and application-specific integrated circuits is
expected to grow from $23 billion in 1999 to $64 billion in 2004.
Breakthrough Chip Design Technology
Successful development and commercialization of systems-on-chip requires
the design and manufacture of integrated circuits with extremely small features,
or geometries. Feature size, which is measured in millionths of a meter, or
microns, refers to the size of physical structures that underlie a semiconductor
device's transistors and the wires, or interconnect, that connect these
transistors. The configuration of the transistors and interconnect together make
up the chip's geometry.
Advances in chip manufacturing technology have reduced feature sizes from
3.0 micron in 1980 to 0.18 micron and below in today's advanced semiconductors.
Integrated circuit geometries at or below 0.18 micron are commonly referred to
as deep submicron geometries. Reductions in feature size make it possible to
increase the number of transistors on each chip dramatically, producing
corresponding increases in integrated circuit computing power and functionality.
According to Dataquest, 25% of integrated circuits manufactured in 2000 will
incorporate geometries at or below 0.18 micron geometries, with continuing
adoption expected to grow to 62% by 2003. Dataquest also reports that in 1998,
only 2% of the engineers were doing designs with more than 10 million
transistors, whereas in 2000, 32% will be using more than 20 million
transistors.
The New Era of Physics-Dominated Chip Design
Designing systems-on-chip with geometries at 0.18 micron or below presents
major challenges both to designers and to traditional design software, making it
extremely difficult to build chips that function as intended. These challenges
are analogous to the complexity of powering a city. Ten years ago, the
complexity of the power grid on a typical chip could be compared with that
powering Des Moines, Iowa.
36
<PAGE> 40
The power grids on today's chips are as complex as that powering the entire
state of California, with every citizen toggling a light switch one billion
times per second. As geometries shrink, chip devices and interconnect become so
densely packed that the different components of a chip interact in unintended
ways and impact the proper functioning of the whole chip. These unintended
interactions, which are negligible at larger geometries and thus have
traditionally been ignored in chip design, are particularly acute at geometries
of 0.18 micron and below. As designs become more dense, accurate analysis, or
modeling, of interconnect signal transmission becomes fundamental to first-time
production success of complex integrated circuits.
The laws of semiconductor physics ultimately dictate an integrated
circuit's behavior. Yet, properly accounting for the effects of semiconductor
physics at 0.18 micron represents a significant barrier to the successful
manufacture of today's deep submicron designs. At deep submicron geometries,
modeling the entire semiconductor chip, including transistors, interconnect and
the underlying silicon, or substrate structure, has become essential to timely,
cost-effective chip production. Historically, chip design focused on modeling
the electrical properties of only the transistors to predict chip performance
and functionality because the effects of other components were negligible.
[Heading: "Physical Cross-Section of an IC" Graphic: representation of the
physical cross-section of an IC, including the interconnect, device and
substrate layers. Description of cross section: "Internet & Device & Substrate"]
GRAPHIC
Discontinuity Between Manufacturing Capability and Effective Design. The
chip industry's ability to manufacture integrated circuits at deep submicron
geometries has surpassed designers' ability to deliver designs that function as
intended once manufactured in such densely configured geometries. The continued
move to deep submicron has had an inordinate impact on design and manufacturing
process efficiency including, but not limited to:
- increasing the likelihood of prototype failure;
- diminishing the ability to predict chip performance;
- lowering manufacturing yield;
- decreasing the reliability of end-products used by customers over time;
and
- increasing run-time for analysis and completion of complex designs.
To avoid these adverse effects, chip designers have increasingly recognized
a need for improved design methodologies and enabling technologies that can
analyze deep submicron effects on all of the chip's components without
sacrificing speed or accuracy.
As a result, full-chip analysis has become critical due to the interrelated
nature of electrical current flow across an integrated circuit's transistors,
interconnect and substrate. Segmented analyses of separate system-on-chip
components and regions are frequently too inaccurate to ensure that new
integrated circuits will be fully operational.
37
<PAGE> 41
Specific factors that govern chip performance include:
- Power Integrity: Each subsection of an integrated circuit requires a
consistent voltage supply for proper operation. Localized reductions or
fluctuations in voltage can result in total chip failure, analogous to a
"blackout," or failure to operate at intended speeds, analogous to a
"brownout." Because electrical current follows the path of least
resistance, the current flowing across an integrated circuit may be drawn
from one section to another in an unexpected way, making full-chip
analysis essential. Most currently available technologies lack the
capacity to analyze all sections of the chip simultaneously, which limits
their ability to detect potential power integrity problems.
- Timing Integrity: A chip's proper operation requires internal signals to
arrive at intended device locations at precise time intervals. Timing
analysis requires accurate modeling of the electrical properties of the
chip's interconnect in order to predict the arrival time of these signals
correctly. As geometries shrink, the interconnect physics become more
difficult to model, and proper signal arrival times thus become
increasingly difficult to predict. Inaccuracies in timing of the arrival
of the signals produce errors in chip function or insufficient
performance. Most currently available technology lacks an adequate
ability to model the interconnect physics for the full chip at practical
speeds.
- Signal Integrity: When many signals operate in close proximity at
extremely high speeds, current flowing through one wire can disrupt the
current flow in an adjacent wire, causing unintended interference between
signals and possibly even chip failure. Similarly, in designs with both
digital and analog components, or mixed-signal designs, current
fluctuations caused by the switching of digital components can
unexpectedly flow through the substrate on which the transistors and
interconnect are placed. This can affect signal levels in an unintended
manner, causing the chip to fail. Most currently available technology
lacks the ability to build accurate models of the substrate and
interconnect physics or the flow of current and so fails to detect such
unanticipated and unintended current flow.
- Reliability: Decreasing the width of the interconnect increases the
probability that the interconnect will be designed without sufficient
capacity to carry the intended current flow over time, ultimately causing
wires to break and chips to fail. Because a chip might not immediately
fail, faulty design is not always immediately evident. Therefore, proper
design tools are needed to ensure that the interconnect can support the
expected operating current of the chip over its anticipated lifetime.
Most currently available technology lacks the capacity to analyze current
flow across the entire chip, resulting in an inability to predict and to
detect where breakages will occur.
Trend of Market Disaggregation. Over the last ten years, the semiconductor
industry has been disaggregating. In the early stages of this disaggregation,
many companies began to outsource silicon manufacturing, focusing instead on
system and integrated circuit design in an effort to reduce the costs and risks
associated with increasingly complex semiconductor fabrication. This outsourcing
of manufacturing led to the rise of silicon foundries, which concentrate
exclusively on the manufacture of semiconductor chips. As the complexities of
designing a system-on-chip increase, many semiconductor companies have chosen to
focus on system design and, as a result, have begun to outsource design
implementation as well.
38
<PAGE> 42
This trend towards outsourcing design implementation is reflected in the
emergence of design foundries, which aim to reduce the risk of designing complex
chips under aggressive time-to-market constraints.
[Graphic: depiction of the design process of systems-on-chips and the
shifting away of the design process from traditional semiconductor companies to
system companies]
GRAPHIC
Business Challenges Facing System-on-Chip Design Companies
Time-to-Market Delays. In today's increasingly competitive high-technology
economy, the inability to launch products successfully and cost-effectively into
narrow market windows can mean the success or failure of products, divisions and
even companies. First-mover advantage in introducing new products is vital to
capturing dominant market share for a given product segment, making the
efficiency of design and manufacturing processes critical to competitive
positioning. Delays introduced by unanticipated design flaws can force product
launch postponement or cancellation. As integrated circuit geometries have
reached 0.18 micron and below, the percentage of defective chips has increased
dramatically. The Collett International Research, Inc. 2000 survey reports that
in 1999, 48% of chips released to manufacture in North America required more
than one manufacturing iteration for production ramp-up. Design decisions that
cause chips to fail are frequently not identified until significant
manufacturing resources have been committed. As deep submicron design becomes
more prevalent, design companies are increasingly experiencing time-to-market
delays along with an increased incidence of design flaws.
Increased Incidence of Design Flaws Identified after Manufacturing. The
lack of accurate software used throughout the design and final testing, or
sign-off verification, processes has increased the incidence of manufactured
design flaws. Whether design flaws are evident upon initial manufacture or
become evident over time with a product's use, the costs associated with
integrated circuit redesign and remanufacture are significant. Dataquest
estimates that direct, non-recurring engineering costs per 0.18 micron
system-on-chip design are $500,000.
Managing the complexity of deep submicron effects has emerged as a critical
barrier to the design and first-time production success of systems-on-chip with
the desired levels of performance. Advances in manufacturing technologies alone
can no longer mitigate the increased risk of delayed system-on-chip product
introduction or failure without corresponding advances in design technologies.
As a result, the chip design industry must integrate advanced methodologies and
software products that manage design complexity and that incorporate full-chip
deep submicron effects into all aspects of their design process.
39
<PAGE> 43
OUR SOLUTION
Our software and services offer a comprehensive, high-speed solution for
chip verification that performs complex modeling and analysis of the physical
effects of deep submicron in system-on-chip designs. Our customers gain a
competitive advantage by using our products in advance of manufacture to verify
that the chip design will perform as intended. The benefits of our platform,
which stem from our expertise in chip design, computer science algorithms and
software engineering, include the following key benefits:
Enabling Deep Submicron Chip Design and Manufacture. Our design technology
is engineered to analyze deep submicron effects throughout an integrated circuit
without sacrificing speed or accuracy. In the environment of increasingly
complex chip designs and correspondingly increased system-on-chip design
requirements, we believe that we enable electrical correctness throughout the
full chip during the design process. Our modeling and analysis capabilities are
designed to enable our customers to verify the integrity of their designs prior
to completing the design process and manufacturing the chip. A number of chips
designed with current technology fail without designers locating the cause of
such fatal failures. We believe our products provide our customers with a
competitive advantage in the design and delivery of high-performance chips.
Accelerating Time-to-Market. Using our products, our customers accelerate
their time-to-market by incorporating deep submicron effects during the design
cycle, not simply after the designs are released to manufacture, thus preventing
unanticipated design and manufacture iterations. Our software and services help
to provide customers with designs ready for production volume, thus avoiding a
significant delay and the corresponding loss of revenue for the design supplier.
Lowering Cost per Chip. By reducing design iterations for each design, our
products help enable faster, more efficient design processes that substantially
reduce production costs. Designers using our products test their chip designs
during the design cycle. Our software is designed to limit the number of
iterations required to design a reliable chip, therefore decreasing both the
production cost per chip and the opportunity cost of time spent redesigning
instead of innovating.
Our software and services offer the following key attributes:
Comprehensive Platform for System-on-Chip, or SoC, Verification. We provide
software products that model the entire semiconductor and enable the delivery of
designs with power integrity, timing integrity, signal integrity, and
reliability. These products analyze complete system-on-chip designs without
compromising speed or accuracy, enabling our customers to design and to test
complex integrated circuits.
High-performance and High-accuracy Verification. Our products have the
capacity and speed to verify the full chip without partitioning it into smaller
blocks. Our products also capture the higher accuracy of transistor-level models
in the simpler, gate-level at which transistors are grouped into blocks.
Gate-level refers to the simplified representation of frequently used groups of
transistors. As a result, we provide our customers with transistor-level
accuracy at gate-level speeds.
Advanced Design Services for System-on-Chip Implementation. We offer
services designed to help our customers be first-to-market and first-to-volume
by delivering electrically correct integrated circuits. We expect to achieve
this through the combination of our software with Altius' proprietary
system-on-chip design methodology and software.
Integrated Total Solution with Semiconductor Manufacturing
Foundries. Anticipating the essential role physics would play in the chip design
process, we are one of the first in the industry to create and to market an
integration program with silicon foundries. Our program enables our research and
development staff to work on site at silicon foundries to develop and to certify
models of the foundries' semiconductor processes for use with our software. Our
program provides us with validation that our software is accurate and scalable.
It also gives us a first-hand look at the manufacturers' present and future
technologies enabling us to focus our innovation in areas that will serve our
customers' needs. The resulting models are made available to our customers for
use during system-on-chip design verification. To date, Chartered
40
<PAGE> 44
Semiconductor Manufacturing, IBM Corporation, NEC, ST Microelectronics, Toshiba,
TSMC and UMC are among the members of our integration program.
STRATEGY
Our objective is to make our customers more successful by enabling them to
design systems-on-chip with ever decreasing geometries. In order to achieve this
objective, we employ a number of strategies:
Fiscal years 1995 through 2000:
From our inception in 1995 through the first quarter of fiscal 1997, our
operations were primarily focused on research and development related to
development of our analysis products and certain extraction tools related to our
analysis products. During fiscal 1997 and fiscal 1998 we generated our revenues
primarily from the role of our early analysis and extraction products.
System-on-Chip Verification Leadership. In fiscal years 1999 and 2000, we
developed and strengthened our market position within the application-specific
integrated circuit, or ASIC, and integrated device manufacturer, or IDM, markets
through our global direct sales force, becoming a leading provider of
system-on-chip verification software.
Broader Range of Products. During 1999 and, 2000, we released several
enhancements to our major products including the addition of reliability, signal
integrity and timing integrity capabilities, and the launch of our new product,
Fire & Ice QX. In addition, through our acquisition of Snaketech, S.A. in March
2000, we have complemented our device and interconnect verification products
with substrate analysis, allowing us to provide to our customers a more
comprehensive verification product line.
Increase Market Penetration Through Sales and Support Organization
Development. In 1998 and 1999, we opened offices in the United Kingdom, France
and Japan to expand penetration of the semiconductor design market in these
regions while simultaneously increasing support and close working relationships
with our customers.
Fiscal year 2000 and beyond:
Broaden Customer Service Offering. Because we view the continuing
disaggregation of the semiconductor industry as creating an opportunity for
silicon engineering, we have begun complementing our verification software and
services with design services. To initiate this strategy, we acquired Altius
Solutions in October 2000, adding their SoC Design Foundry to our product
offerings. By adding Altius' capabilities, we are now able to provide customers
a more complete solution by combining our tools with physical design services
that can be additive or in replacement of the customer's design expertise.
Extend Market Leadership into Newer Products. We intend to use our
leadership in these system-on-chip verification markets to introduce newer
software products to our customers. In our experience, once customers have
adopted our power integrity products, they have proven to be more likely to
adopt our other products.
Broaden Addressable Markets. We intend to expand our design capacity to
develop broader market acceptance of our system-on-chip design foundry products.
As system-on-chip design becomes more prevalent, both system-on-chip design and
deep submicron physics expertise will become increasingly vital to the
successful design of integrated circuits. We intend to leverage our expertise to
help customers not only verify but also create new chip designs and design
techniques. In addition, we anticipate that many companies will find it valuable
to outsource design capability due to the high cost of keeping up with changing
technology.
Continue our Commitment to Quality and Customer Satisfaction. We focus on
the development of high-quality software, and we believe we have a strong
emphasis on customer service. Our customer support services are highly regarded
in the industry not only for our ability to integrate products from a variety of
vendors, but also for our proactive working relationships with chip
manufacturers and designers.
41
<PAGE> 45
We focus on the development of quality software without the need for additional
development time. This Quality-on-Time(TM) approach to software development is a
key component to customer satisfaction with our software and services. Through
our intensive focus on company-wide quality, our engineering and support
resources have the freedom to devote more time and energy to innovation.
Advance and Develop Strategic Relationships. We intend to expand our
industry-partner relationships with technology leaders to deliver to our
customers further integration of the technologies and design capabilities
critical to successful system-on-chip design and production. We will continue to
develop relationships with leading semiconductor manufacturers such as IBM, TSMC
and UMC for the next generation of our integration program. In addition, we
intend to expand our integration relationships with leading design tool vendors
so that we are able to provide customers with integrated software solutions
using our products as well as the products of other vendors.
Pursue Strategic Acquisitions; Invest in Next-Generation Technology. We
intend to acquire strategic technology that will broaden our product offerings
into related markets or will expand or improve our product line in
system-on-chip verification.
TECHNOLOGY
The adoption of geometries at 0.18 micron and below has widened the gap
between the performance potential of chip manufacturing technology and
designers' ability to create high-performance designs. Because preparing an
integrated circuit design for manufacture is increasingly expensive and time-
consuming, it has become even more critical to design with electrically correct
methodology and to verify in advance that each chip, once manufactured, will
work as specified. Further, the rapid emergence of system-on-chip design styles
has introduced new requirements for design tools and methodologies that overcome
the limitations of previously available solutions.
To satisfy these requirements, we create software models that capture the
intricate details of semiconductor physics that are relevant to real-world
integrated circuit designs. Our analysis tools then apply these models
efficiently to a full chip, providing the designer with an accurate assessment
of the expected performance and reliability of an integrated circuit before
manufacturing. It is only by bridging the disparate disciplines of semiconductor
physics, computer science and chip design that we have been able to develop our
innovative technologies, and our strong emphasis on advanced software
engineering methodologies has resulted in the rapid development of high-quality
software products.
Semiconductor Physics. An integrated circuit's behavior is ultimately
dictated by the laws of semiconductor physics. The complexity of the interaction
between different components of an integrated circuit increases with higher
design speeds and dense geometries, and phenomena such as crosstalk, voltage
drops, and noise become severe. The continuing, dramatic increase in the number
of devices on a chip concomitantly increases the likelihood of deep
submicron-related design failures.
Our technical staff has an unusual breadth and depth of experience, both in
industry and academia, at modeling semiconductor physics, and our expertise
manifests itself in the correlation of our models to silicon. To keep our
products and the designs we create at the forefront of semiconductor technology,
we maintain close relationships with semiconductor manufacturers worldwide,
providing us with ongoing access to the leading experts in the field and to the
most advanced fabrication technologies.
Computer Science and Software Engineering. The rapidly rising complexity of
today's deep submicron integrated circuits can pose an overwhelming challenge to
both the designer and traditional design software, making it extremely difficult
to prevent chip failure. For example, the power grid on a typical chip today is
more than ten times as complex as the power grids of just five or six years ago,
and transistors now switch more than one billion times per second on the
highest-performance chips. Even with today's fast computers, accurately
analyzing tens of millions of wires overnight can be very difficult, and we
address this problem through continual innovation in computer science. For
example, our unique technologies for computational geometry, including the QIC
engine and our adaptive substrate grid, and our matrix solver provide high speed
and capacity, while the adaptive analytical modeling technology
42
<PAGE> 46
provides high accuracy. Our extensive computer science expertise draws from
disciplines as diverse as cartography, aeronautics, computational chemistry,
statistics and electronics.
Chip Design and Manufacturing. The design and manufacture of today's
integrated circuits involves dozens of complex steps, each of which contains
potential sources of error. Without a deep understanding of each step and its
consequences, it is impossible to design chips that work upon first manufacture
and to develop effective verification solutions. Across our organization
including design engineers, software developers, salespeople, applications
engineers and marketing and executive staff, we apply our broad expertise in
both chip design and fabrication in developing our products and in building
relationships with our customers.
The intersection of these three key disciplines, physics, software and
design, is the foundation on which we have built and continue to build our
diverse technologies. Our principal technologies and algorithms are listed
below.
SELECTED PROPRIETARY TECHNOLOGIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
TECHNOLOGY DESCRIPTION BENEFITS
<S> <C> <C>
--------------------------------------------------------------------------------------------
QIC Engine Novel geometry data Fastest commercial interconnect modeling and
processing power integrity analysis
Modeling of more than 10 million gates
overnight on one processor
200,000+ nets per hour on a single processor
--------------------------------------------------------------------------------------------
Lightning High-capacity matrix Automatic computation of current
solver distribution
Solving networks with more than 200 million
resistors overnight
Capacity to handle designs of more than
120 million transistors
--------------------------------------------------------------------------------------------
Thunder Dynamic circuit High-capacity for full chip simulation
simulation 100x faster than the industry standard SPICE
--------------------------------------------------------------------------------------------
Accura Static power Vector-independent solution
estimation World's first statistical power estimation
technology
Combined speed and accuracy
--------------------------------------------------------------------------------------------
Adaptive Analytical High accuracy wire Accuracy to a standard deviation of 4%
3D Extraction modeling versus
silicon
200,000+ nets per hour on a single processor
--------------------------------------------------------------------------------------------
Self-adjusting grid Self-adjusting grid Highest-accuracy commercially available
generation for substrate modeling
substrate modeling 100x improved performance over fixed-grid
solution
--------------------------------------------------------------------------------------------
COSMIC Semiconductor process Capacitance measurement on silicon to
characterization femtofarad (10(-15) F) precision
Certified models to foundry customers
A standard for evaluating and tuning
software
models
--------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 47
PROPRIETARY SOFTWARE METHODOLOGIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
TECHNOLOGY DESCRIPTION BENEFITS
<S> <C> <C>
--------------------------------------------------------------------------------------------
DFT Design for testability Improved software quality and reliability
(software engineering Increased software development productivity
technology)
--------------------------------------------------------------------------------------------
APIGen(TM) Automatic code Accelerated software development cycles
generation Reduction of common software errors
--------------------------------------------------------------------------------------------
QoT(TM) Quality on Time High quality of software on schedule
Enhanced internal efficiency
Software product management with quality on
time
--------------------------------------------------------------------------------------------
ECSM(TM) Efficient current Improved performance of characterization
source model Accuracy within 2% of SPICE
--------------------------------------------------------------------------------------------
</TABLE>
SYSTEM-ON-CHIP DESIGN PROCESS OVERVIEW
Chip Design Flow
In today's system-on-chip design methodology, the chip design flow involves
the following steps:
System-level Design. In the system-level design phase, the designer
specifies the architecture and overall design of an integrated circuit,
partitioning the proposed system into hardware and software components and
defining which hardware is appropriate.
Logic and Physical Design. Logic and physical design is an implementation
phase that maps the chip design into a combination of primitive elements and
assigns a location for each of these elements and their connections. Once logic
and physical design is complete, physical verification is necessary to ensure
that the manufactured chip will function correctly.
Physical Verification. The physical verification step certifies that the
results of physical design contain only those connections specified by the
designer and that they satisfy manufacturing requirements.
44
<PAGE> 48
CHIP DESIGN FLOW
[Graphic: rendition of the flow of IC design from system -- level design to
logic and physical design to physical verification to IC manufacturing and the
integration of SOC verification at the logic and physical design and physical
verification stages]
GRAPHIC
CHIP DESIGN FLOW
Simplex SoC Verification Process
Our software products can be used to perform system-on-chip verification
both concurrently with the physical design tasks and as part of the final
sign-off procedures. When used concurrently, system-on-chip verification
software provides early feedback to the designers in order for them to reach
deep submicron, or DSM, Closure. DSM Closure is the point in the deep submicron
chip design cycle where deep submicron-related problems are corrected, and power
integrity, timing integrity, signal integrity and reliability goals are met.
Used in final sign-off, our system-on-chip verification products provide the
last opportunity to ensure the integrity of the design before the expensive
manufacturing process begins.
45
<PAGE> 49
SOC VERIFICATION
[Graphic: rendition of systems-on-chip verification consisting of the three
major steps: technology characterization, interconnect, device, and substrate
modeling; and the combination of power integrity, timing integrity, signal
integrity and reliability]
GRAPHIC
System-on-chip, or SoC, verification consists of three major steps:
technology characterization; interconnect, device, and substrate modeling; and
the combination of power integrity, timing integrity, signal integrity and
reliability analysis.
Technology Characterization. Our technology characterization constructs
models by simulating the semiconductor process using highly accurate field
solvers, which are high-resolution simulators of the physics of electromagnetic
fields. This characterization step is an essential part of the process because
it provides correlation between silicon and the software models used by the SoC
verification software. This task is performed in close cooperation with the
semiconductor manufacturers to benefit from the expertise of their process
engineers.
Interconnect, Device and Substrate Modeling. The electrical properties of
the chip's interconnect, devices and underlying substrate must be modeled in
order to perform power integrity, timing integrity, signal and reliability
verifications. This modeling must be accurate for meaningful verification. Our
modeling software simultaneously delivers the accuracy, speed and capacity
required to create the models that describe the electrical behavior of
integrated circuits.
Power Integrity. To verify the power integrity of complex chips, it is
essential to perform a full-chip analysis with transistor-level accuracy. Our
products combine the accuracy obtained by modeling integrated circuits at the
transistor level with the efficiency and performance of modeling them at the
gate level: a simplified representation of frequently used groups of transistors
for faster analysis. Our solution is integrated at various points in the chip
design flow to provide early feedback as well as final sign-off.
Timing Integrity. The timing integrity of complex integrated circuits with
geometries at or below 0.18 micron is dictated by the performance of the
interconnect. Timing analysis products, such as those provided by our
interoperability partners, require the combination of accurate models of an
integrated circuit's interconnect with accurate delay calculation in order to
predict chip timing behavior. By providing both transistor-level and gate-level
interconnect modeling, we address the timing integrity needs of each segment of
the semiconductor community.
Signal Integrity. Frequently, noise problems, or interference between
signals, are incorrectly diagnosed as manufacturing problems as they can be
intermittent, appearing only on certain chips when tested at certain operating
speeds. Identifying and modeling noise propagation through complex integrated
circuits is essential to ensure the performance and functionality of both
mixed-signal and high-performance digital designs. Our signal integrity
verification product performs a detailed, transistor-level analysis of the noise
propagation through the interconnect and the substrate, providing an accurate
measure of circuit noise behavior. This technology is critical for
radio-frequency, mixed-signal and high-end digital chip designs.
Reliability. The increasing operating frequencies of today's integrated
circuits, when combined with the reduction of power supply levels, introduce
significant electromigration risks. Electromigration is an excessive
46
<PAGE> 50
wear of the interconnect, potentially resulting in breakage due to the high
density of current flow. Identifying portions of the design where the current
density is excessive and can cause reliability problems is an extremely complex
task. The technologies in our reliability product analyze the complete current
flows through both signal and supply wires, providing feedback to designers so
they can improve design reliability.
PRODUCTS
We currently provide several products that address our customers' SoC
verification needs. Since different customers encounter different combinations
of challenges in their designs, we often provide integrated bundles of our
various products and their options in an attempt to address their needs.
Although customers frequently purchase these bundles, we have organized the
component products in the table below by their estimated impact on fiscal 2000
revenue, ranging from largest to smallest.
Our products address the needs of SoC verification as described in this
table:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
PRODUCT FEATURES SEGMENTS BENEFITS
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOC VERIFICATION PRODUCTS
------------------------------------------------------------------------------------------------------------
VoltageStorm SoC, Power grid voltage and Power Integrity and Large design capacity (over
First customer shipment electromigration for IC Reliability 100 million transistors)
in March 1999 designs Proven technology (over 300
designs verified)
Static and dynamic analysis
------------------------------------------------------------------------------------------------------------
Fire & Ice QX, Modeling interconnect in Interconnect and Designed for high throughput
First customer shipment integrated circuits for Device Modeling Architected for unlimited
in September 1999 timing integrity capacity
4% standard deviation to
silicon
------------------------------------------------------------------------------------------------------------
SubstrateStorm, Integrated circuit Substrate Modeling Estimate of interference
Acquired from Snaketech modeling and noise Signal Integrity between sensitive analog and
in March, 2000 analysis for radio- noisy digital circuitry
frequency, analog and Support of most advanced
mixed-signal designs semiconductor processes
Graphical user interface for
identifying noise-critical
path
------------------------------------------------------------------------------------------------------------
OTHER ANALYSIS PRODUCTS
------------------------------------------------------------------------------------------------------------
ElectronStorm option, Electromigration analysis Reliability Full-chip reliability solution
First customer shipment option to VoltageStorm Identification of design flaws
in March 1999 SoC affecting
integrated circuits' longevity
and
manufacturing
yields
------------------------------------------------------------------------------------------------------------
ClockStorm option, High-speed clock analysis Timing Integrity Transistor-level analysis
First customer shipment option to VoltageStorm providing timing accuracy
in March 1999 SoC within 10% of
industry-standard SPICE
Designed to handle complex
design styles
Accounting for non-uniformity
of power distribution
------------------------------------------------------------------------------------------------------------
SI Report option, Noise Analysis option to Signal Integrity Automatic calculation of
First customer shipment Fire & Ice QX worst-
in March 1999 case noise conditions on full-
chip
Full integration for very high
performance and reduced data
file size
------------------------------------------------------------------------------------------------------------
IP_Station, Analysis for system-on- Timing Integrity Automatic IP characterization
Acquired from Altius in chip electrical sign-off Power Integrity Accurate within 2% of SPICE
October, 2000 Signal Integrity Function recognition for
complete automation
------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 51
SERVICES
We provide services in addition to our software products to enable our
customers to produce working chips while focusing primarily on system-level
design. Reflecting our emphasis on customer satisfaction and proficiency in the
use of our software products, we offer verification services to help our
customers realize the full potential of our software, thereby increasing the
adoption of our technology. Through the acquisition of Altius, we also offer
design foundry services that aim to enable our customers to create their most
complex, system-on-chip designs. We have organized the services in the table
below in decreasing order of their strategic importance to the business.
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------------------------
SERVICES DESCRIPTION BENEFITS
----------------------------------------------------------------------------------------------------------
Design Foundry Contract chip design Targeted use of our expertise on critical
Services designs
Electrically correct designs
Fast turnaround from design to successful
manufacture
----------------------------------------------------------------------------------------------------------
SoC Verification Single or multiple full- Targeted use of our expertise on critical
Services chip verification designs
Fastest adoption/rollout of our products and
solutions
Additional support to meet customer's project
schedules
----------------------------------------------------------------------------------------------------------
Technology Integration Software integration in Custom integration for improved efficiency
Services integrated circuit design Fast adoption/rollout of the technology
flow Custom interface to 3rd party solutions
Available for end customers and software vendors
----------------------------------------------------------------------------------------------------------
Research Services Contract research Development of specialized technology on a
contract basis
----------------------------------------------------------------------------------------------------------
</TABLE>
CUSTOMERS
We have customers in each segment of the semiconductor community,
including:
- design and engineering services;
- microprocessor suppliers;
- embedded-memory manufacturers and designers;
- digital signal processor DSP, suppliers;
- application-specific integrated circuit or ASIC, vendors;
- application-specific standard products, or ASSP;
- high-end graphics; and
- networking, wireless and communications systems.
48
<PAGE> 52
These customers of Simplex and Altius accounted for license, maintenance,
and design services revenue of more than $200,000 in 1999 and 2000.
CUSTOMERS
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
HIGH-PERFORMANCE DATA DESIGN AND WIRELESS, NETWORKING
PROCESSING/HIGH-END GRAPHICS ENGINEERING SERVICES ASIC SUPPLIERS AND COMMUNICATIONS
----------------------------------------------------------------------------------------------------------
3DFX Aspec Technology Infineon Technologies Adaptec
Advanced Micro Devices Cadence Design Systems AG Conexant Systems
ATI Technologies Quadic Systems Kawasaki Steel Cypress Semiconductor
Cirrus Logic Tality Corporation Corporation empowerTel Networks
Fujitsu LSI Logic ICS
HAL Computer Systems Lucent Lara Networks
Matrox Electronics Matsushita Mitel Semiconductor
Systems NEC Corporation MMC Networks
MIPS Technologies Philips/VLSI Oren Semiconductor
Quantum Effect Devices ST Microelectronics PLX Technology
Quickturn -- a Toshiba Rosun Technologies
Cadence division Transwitch
S3 Incorporated Vitesse Semiconductor
Silicon Graphics
SiByte
SiliconMagic Corporation
SiliconMotion
Silicon Spice
Silicon Storage Technology
Silicon Value
Sony Electronics
Stream Machine
Sun Microsystems
Texas Instruments
----------------------------------------------------------------------------------------------------------
</TABLE>
CUSTOMER CASE STUDIES
STMICROELECTRONICS. STMicroelectronics (formerly SGS-THOMSON
Microelectronics) is the second-largest global supplier of analog and
mixed-signal ASSPs and ASICs.
Business challenge. In order to exploit the potential of semiconductor
processes, STMicroelectronics must continue to develop designs that incorporate
the most advanced fabrication technologies. As feature sizes continue to
decrease, a major barrier to successful integration of mixed-signal circuits is
interference between the highly sensitive analog circuitry and the digital
blocks residing on the same chip.
Solution. After evaluating the different solutions available on the market,
STMicroelectronics chose Simplex's substrate modeling and analysis tools for
their speed and accuracy in simulating interference caused by substrate noise.
STMicroelectronics now includes SubstrateStorm in their standard 0.18 micron
CMOS, BiCMOS and RFCMOS design kits, and several of their design teams have
already deployed these tools in their production design flows.
STMicroelectronics has successfully applied Simplex's technologies to several
mixed-signal designs, one of which is an advanced, single-chip, satellite radio
frequency receiver for cable television. Simplex's verification tools helped the
design team achieve first-time silicon success.
TOSHIBA. Toshiba Semiconductor Company is one of the world's leading
manufacturers and suppliers of semiconductor products including LSIs,
microprocessors and controllers, and advanced memory products, in addition to
discrete and bipolar components.
Business challenge. Toshiba realized that the tools they used for 0.35 and
0.25 micron designs were not sufficient to meet the challenges they faced
designing for their 0.18 and 0.14 micron, system-level
49
<PAGE> 53
integration ASIC family featuring embedded DRAM and CPU cores. Toshiba
recognized that power integrity and timing integrity were primary issues for
deep submicron design as it became increasingly difficult to predict whether
their integrated circuits would work once manufactured.
Solution. Consequently, Toshiba chose to integrate Simplex's VoltageStorm
SoC and Fire & Ice QX, into their design flow for their 0.18 and 0.14 micron SLI
ASIC family to address the power integrity problems and to increase their
efficiency and performance by avoiding excessive overdesign. We believe that it
would be virtually impossible for Toshiba's design teams to produce chips in
these advanced technologies today without the use of Simplex tools.
CONEXANT. Conexant Systems is the world's largest company focused
exclusively on providing semiconductor products for communications electronics.
Business challenge. Developing highly complex ASSPs in the most advanced
process technologies, Conexant design teams require advanced design tools in
order to reduce their time to market while creating high-performance,
differentiated products. When Conexant designers started to adopt 0.18 micron
process technologies, they could no longer guarantee the timing integrity of
their designs from within their design flow.
Solution. After an extensive evaluation of the products targeting their
needs, Conexant selected Simplex's Fire & Ice QX technology, which combined the
performance, capacity and accuracy levels required for their advanced chip
designs. Today, Conexant guarantees the timing integrity of the most demanding
digital integrated circuits they develop using Simplex tools.
SUN MICROSYSTEMS. Sun Microsystems is the leading provider of
industrial-strength hardware, software and services that power the Internet. The
Processor Product Group of Sun Microsystems is responsible for the development
of high-performance microprocessor solutions, including the company's flagship
UltraSPARC(TM) processor products. The UltraSPARC processors leverage a unique
combination of semiconductor design expertise and industry leading
functionality; powering systems that interact seamlessly in complex,
multifaceted networked environments that demand nothing less than peak
performance.
Business challenge. Sun's chip designers are at the forefront of the
intensely competitive high-performance microprocessor market by developing
UltraSPARC processors that incorporate the most advanced deep sub-micron
fabrication technology and expand design limits. The deep sub-micron technology
presents new challenges in the physical design verification of power integrity
and signal integrity.
Solution. Following a complete evaluation of the physical verification
solutions available, Sun Microsystems has adopted Simplex's physical design
verification solutions as a vital part of its design methodology for next
generation UltraSPARC processor products. Sun depends on Simplex's products to
verify chip designs for power integrity, signal integrity and reliability using
Voltage Storm, Fire and Ice Qx and ElectronStorm during final signoff of the
design.
STRATEGIC ALLIANCES
Through our wide network of industry partners, we seek to ensure complete
interoperability of our software products with those of our partners to
facilitate faster adoption and increased ease of use.
Interoperability. By working closely with the leading providers of
complementary technologies, we provide seamless integration with our products.
These alliances range from interoperability programs, for validation of our
products' interoperability, to relationships through which customer-specific
applications are jointly developed.
Foundry. We have developed relationships with the leading foundries and
semiconductor companies worldwide to demonstrate the accuracy of our chip
verification products. By jointly developing and supporting accurate models of
the most commonly-used semiconductor processes, we provide our mutual customers
with validated verification products. Part of our close relationship with
foundries revolves around our integration program.
50
<PAGE> 54
Integration Program. Our integration program with semiconductor industry
leaders for the standardization of the measurement and characterization of
interconnect on silicon. Leading semiconductor vendors have successfully used
our integration standard to manufacture test chips and to validate the accuracy
of our chip verification tools. To date, we have completed test chips with
Chartered Semiconductor Manufacturing, IBM, NEC, TSMC, and UMC Group.
<TABLE>
<S> <C> <C>
Interoperability relationships Artisan Components Cadence Design Systems
CadMOS Design Technology Magma Design Automation
Mentor Graphics MIPS Technologies
Monterey Design Systems Nassda
Sapphire Design Automation SiliconPerspective
Silvaco International Synopsys
Foundry relationships Chartered Semiconductor IBM
Manufacturing STMicroelectronics
NEC Taiwan Semiconductor
Toshiba Manufacturing Co.
United Microelectronics
</TABLE>
SALES AND MARKETING
We sell and market our services primarily through a direct sales force. In
fiscal 2000, our sales and marketing expenses were $10.4 million, excluding
stock-based compensation. Our sales force consists of salespeople, pre-sales
application engineers and post-sales application engineers. As of September 30,
2000, we had 49 sales and marketing employees of which 34 are located in the
United States, 10 are located in Europe and 5 are located elsewhere. Our
acquisition of Snaketech S.A. in March 2000 provided us with additional sales
and marketing support for our products that focus on the substrate layer of an
integrated circuit. We intend to expand our direct sales organization to all
major global markets; specifically, we intend to focus expansion in Europe and
Asia.
We focus our marketing efforts on achieving brand recognition, market
awareness and sales campaign support. We currently market our services through
direct advertising and targeted events, including trade shows, conferences,
technical publications and live and web-based seminars. Our current customers
provide references, and we feature customer recommendations in our promotional
activities.
RESEARCH AND DEVELOPMENT
From our inception through the first quarter of fiscal 1997, our operations
were primarily focused on research and development related to the development of
our early analysis and extraction products. In fiscal 2000, our research and
development expenses were $5.0 million, excluding stock-based compensation. As
of September 30, 2000, we had 54 employees in our research and development team
of which 43 are located in the United States and 11 are located in Europe. We
have made use of modern networking and communications technologies to maintain
close working relationships with our geographically remote developers, and we
intend to continue recruiting developers worldwide. Research and development
capabilities are essential to our strategy to enhance and expand our products
and services. We have invested, and expect to continue to invest, significant
resources in creating a structured process for undertaking all of our research
and development and have recruited personnel with the appropriate computer
science and software engineering experience. The complexity of system-on-chip
design verification at deep submicron levels requires expertise in semiconductor
physics, computer science and software engineering, and chip design and
manufacturing. We believe that the multidisciplinary expertise of our team of
scientists and engineers will continue to advance our market and technological
leadership.
COMPETITION
We compete with suppliers of software for the design of integrated
circuits. We believe that the key competitive factors in this market are product
capabilities and performance, quality, price, interoperability
51
<PAGE> 55
and a reputation for technical excellence and integrity. We believe that we
compete favorably with respect to each of these factors.
We compete with domestic and international suppliers of software for chip
design. Our principal competitors include Avant!, Cadence Design Systems, Mentor
Graphics and Synopsys.
Many of our competitors have longer operating histories and presence in key
markets, great name recognition, access to larger customer bases and
significantly greater financial, sales and marketing, technical and other
resources. As a result, our competitors may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products.
Current and potential competitors have established or might establish financial
or strategic relationships among themselves or with existing or potential
customers or third parties. Accordingly, new competitors or alliances among
existing competitors might emerge and rapidly acquire significant market share.
In addition, our competitors might develop technologies in the future that more
effectively address the design of integrated circuits at deep submicron levels
at a lower cost.
RECENT ACQUISITIONS
On March 17, 2000, we acquired all of the outstanding capital stock of
Snaketech S.A., and thereby, Snaketech became our wholly owned subsidiary.
Following this transaction, Snaketech was renamed Simplex S.A. Simplex S.A.
currently provides sales and marketing support for our products that address the
substrate layer of an integrated circuits as well as research and development
services.
In October 2000 we acquired Altius Solutions, Inc. which is now our wholly
owned subsidiary. Pursuant to the terms of this transaction, we issued
approximately 3.8 million shares of our common stock to former Altius
stockholders and options to purchase approximately 579,000 shares of our common
stock to former Altius option holders. Altius provides semiconductor design
foundry services to various semiconductor manufacturers. We believe that the
combination of Altius' design expertise with our current products and services
will allow us to offer customers a more complete solution for the design of
semiconductors at 0.18 micron and below by combining our tools with physical
design services that can be additive or in replacement of the customer's design
expertise.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks and
trade secrets and other intellectual property rights as critical to our future
success. We rely on various intellectual property laws and contractual
restrictions, such as confidentiality and nondisclosure agreements and licensing
arrangements, to protect our proprietary rights in products and services. The
license agreements with our customers limit their rights to the technologies
that we offer and develop for our customers. In addition, we seek to avoid
disclosure of our trade secrets through a number of means, including requiring
those persons with access to our proprietary information to execute
nondisclosure agreements and restricting access to such information. We also
rely on technologies that we license from third parties. These licenses might
not continue to be available to us on commercially reasonable terms in the
future, if at all. As a result, we might be required to develop or obtain
substitute technology at additional cost. We have applied for registration of
the following trademarks: ClockStorm, COSMIC, ElectronStorm, SignalStorm,
Simplex Solutions and VoltageStorm. Fire & Ice QX is our registered trademark.
In addition, we have filed applications for nine patents. We currently have one
patent.
EMPLOYEES
As of September 30, 2000, we had 125 employees, including 45 in sales and
marketing, 62 in research and development and 18 in general and administrative.
None of our employees is represented by a labor union. We have never experienced
a work stoppage and believe our relationship with our employees is good.
52
<PAGE> 56
FACILITIES
Our headquarters includes approximately 30,000 square feet in Sunnyvale,
California pursuant to a lease that expires May 15, 2002. Although we believe
our facilities are adequate for our needs in the intermediate term, due to the
rapid growth of our employee base we might need either to lease or to find
alternative facilities in order to accommodate future expansion. In addition, we
have sales offices in Texas and North Carolina, and we lease space in United
Kingdom, France and Japan.
LEGAL PROCEEDINGS
We are not currently a party to any litigation. On November 1, 2000, we
received written notice from a third party claiming that one of our current
products allegedly infringes a patent held by such third party. Based on a
thorough review of the intellectual property at issue, we believe that the
allegation of infringement by such third party is without merit. However,
because of the uncertainties of litigation, if this matter proceeds to
litigation we cannot assure you that we would ultimately prevail or that this
matter will not materially impact our business.
53
<PAGE> 57
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of our executive officers and directors as of
October 20, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Penelope A. Herscher........ 40 Chief Executive Officer and Chairman of the Board of Directors
Aki Fujimura................ 41 President, Chief Operating Officer and Director
Aurangzeb Khan.............. 44 Executive Vice President and General Manager
James D. Behrens............ 48 Executive Vice President, Worldwide Field Operations
Luis P. Buhler.............. 47 Chief Financial Officer
Steven L. Teig.............. 39 Chief Technical Officer
Joseph B. Costello(1)....... 46 Director
Harvey C. Jones, 47 Director
Jr.(1)(2).................
F. Gibson Myers, Jr.(2)..... 58 Director
A. Richard Newton(1)(2)..... 49 Director
Larry W. Sonsini............ 59 Director
</TABLE>
---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Penelope A. Herscher has served as our Chief Executive Officer since April
1996. From May 1996 to July 2000 Ms. Herscher served as our President. In July
2000, Ms. Herscher was appointed Chairman of our Board of Directors. From June
1988 to April 1996 Ms. Herscher held several management positions at Synopsys,
Inc., an electronic design automation company, including Director of Product
Marketing, Vice President of Marketing and Vice President and General Manager.
Ms. Herscher serves on the board of directors of both Mizbiz.com Inc. and the
EDA Consortium. Ms. Herscher holds a B.A. in mathematics from Cambridge
University in England.
Aki Fujimura has served as our Chief Operating Officer and as a member of
our Board of Directors since August 1997. In July 2000, Mr. Fujimura was
appointed our President. From April 1993 to October 1996, Mr. Fujimura served on
the Board of Directors and as Vice President for Pure Software, a developer of
automated software quality products and services. Mr. Fujimura serves on the
Board of Directors of Bristol Technology Inc. Mr. Fujimura holds a B.S. and an
M.S. in electronic engineering and computer science from the Massachusetts
Institute of Technology.
Aurangzeb Khan has served as our Executive Vice President and General
Manager since October 2000. Mr. Khan co-founded Altius and has served as its
President and Chief Executive Officer since March 1999. From February 1996 to
March 1999, Mr. Khan was Vice President, Silicon Engineering at Cirrus Logic,
Inc. From October 1983 to February 1996, Mr. Khan held various positions at
Tandem Computers, Inc., including Director of Engineering, Technology & CAD
Development. Prior to October 1983, Mr. Khan served as Senior Design Engineer,
SRAM Development, for Fairchild Semiconductor Corp. Mr. Khan holds an M.S. in
Engineering Management and an M.S. in Electrical Engineering from Stanford
University, a B.S. in Electrical Engineering and Computer Sciences and a B.S. in
Nuclear Engineering from University of California, Berkeley, and a B.Sc. in
Physics and Mathematics (with highest honors) from University of Punjab.
James D. Behrens has served as our Vice President of Worldwide Field
Operations since April, 2000. From August 1999 to April 2000, Mr. Behrens served
as President and Chief Executive Officer of Snaketech, S.A., which we acquired
in March 2000. From January 1999 to August 1999, Mr. Behrens served as a partner
at Quanah Consulting. From February, 1998 to January 1999, Mr. Behrens served as
Vice President of Business Development for Aspec Technology, Inc. (now Ingenuus
Corporation), a provider of electronic design automation software tools. From
August 1997 to February 1998 Mr. Behrens
54
<PAGE> 58
served as President of SIS Microelectronics, which was acquired by Aspec
Technology in February 1998. From November 1989 to March 1997 Mr. Behrens held
various management roles at Cadence Design Systems, Inc. Mr. Behrens holds a
B.S. in chemistry from Colorado State University.
Luis P. Buhler has served as our Chief Financial Officer since January
1999. From February 1998 to January 1999, Mr. Buhler served as a consultant and
as a principal at Rockledge Associates, a finance and public affairs consulting
firm. From January 1997 to February 1998, Mr. Buhler served as Deputy Secretary
for Economic Development at the California Trade and Commerce Agency, which
included acting as Executive Director for California Infrastructure and Economic
Development Bank. From August 1988 to September 1996, Mr. Buhler held several
positions at Trans Ocean Ltd., an international equipment leasing company,
including Vice President of International Marketing and Vice President
Treasurer. Mr. Buhler holds a B.A. in economics and an M.B.A. from Stanford
University and an M.A. in Urban Studies from Occidental College.
Steven L. Teig has served as our Chief Technical Officer since August 1998.
From April 1995 to August 1998, Mr. Teig served as Vice-President, Advanced
Technology at CombiChem, Inc., a drug discovery company, where he developed
their core Discovery Engine technology. In June 1989, Mr. Teig co-founded BioCAD
Corporation, the commercial developer of the Catalyst drug discovery software,
and served as its Chief Technical Officer until its merger with Molecular
Simulations Inc. in August 1994. Thereafter, Mr. Teig served as President and
Chief Technical Officer of Entropix Corp., a subsidiary of Molecular
Simulations, from August 1994 through April 1995. Mr. Teig holds a B.S.E. in
Electrical Engineering and Computer Science from Princeton University.
Joseph B. Costello has served on our Board of Directors since March 2000.
Mr. Costello has served as President and Chief Executive Officer of think3, Inc.
since January 1998. Prior to joining think3, from September 1984 to November
1997, Mr. Costello was president and CEO of Cadence Design Systems, Inc., a
provider of electronic design automation products and services. Mr. Costello
holds a B.S. in mathematics and physics from Harvey Mudd College, an M.S. in
physics from Yale University and an M.S. in physics from the University of
California, Berkeley. Mr. Costello serves on the boards of Zamba Corporation, a
consulting and systems integration company focused on the customer care market,
Calico Commerce Inc., a provider of seller-focused electronic commerce software,
and Saba Software, a provider of software and services to businesses and
governments for the creation of global networks. Mr. Costello serves on the
board of directors of several private companies.
Harvey C. Jones, Jr. has served on our Board of Directors since December
1995. From December 1987 through February 1998, Mr. Jones held various positions
at Synopsys Inc., a developer of electronic design automation software, where he
served as President through December 1992, Chief Executive Officer until January
1994 and as Executive Chairman of the Board until February 1998. Prior to
joining Synopsys, Mr. Jones served as President and Chief Executive Officer of
Daisy Systems Limited, a computer-aided engineering company he co-founded in
1981. Mr. Jones is a director of nVidia, Remedy, Numerical Technologies Inc. and
Synopsys. Mr. Jones also serves on the board of directors of several private
companies. Mr. Jones holds a B.S. in mathematics and computer sciences from
Georgetown University and an M.S. in management from MIT's Sloan School of
Management.
F. Gibson Myers, Jr. has served on our Board of Directors since July 1995.
Mr. Myers serves as a partner emeritus of the Mayfield Fund, which he joined in
1970. Mr. Myers serves on the board of directors of Latitude Communications,
Inc., a provider of enterprise e-conferencing solutions and SpectraLink
Corporation, a provider of on premises wireless telephone systems. Mr. Myers
holds an A.B. in engineering from Dartmouth University and an M.B.A. from
Stanford University.
A. Richard Newton has served on our Board of Directors since July 1995. Mr.
Newton has been a professor at the University of California at Berkeley since
1979 in the Department of Electrical Engineering and Computer Sciences and
currently serves as Dean of the College of Engineering. Mr. Newton has served as
a Venture Partner at the Mayfield Fund since 1998. From November 1994 to July
1995, Professor Newton was the acting President and CEO of Silicon Light
Machines (formerly Echelle, Inc), a private company which is developing display
systems based on the application of
55
<PAGE> 59
micromachined silicon light-valves. Mr. Newton is a director of Synopsys and
several private companies. Mr. Newton holds B.Eng. and M.Eng.Sci degrees from
the University of Melbourne, Australia and a Ph.D. degree from the University of
California at Berkeley in 1978.
Larry W. Sonsini has served on our Board of Directors since June 1998. Mr.
Sonsini has been an attorney with the law firm of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, since 1966 and currently serves as the
Chairman and CEO of the firm. Mr. Sonsini also serves as a director of Brocade
Communications Systems, Inc., Commerce One, Inc., Lattice Semiconductor
Corporation, LSI Logic Corporation, Novell, Inc., Pixar Animation Studios and
Tibco Software, Inc. Mr. Sonsini received A.B. and L.L.B. degrees from the
University of California, Berkeley.
CLASSIFIED BOARD
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, one of the nominees to the board will be elected
to a one-year term, three will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Larry W. Sonsini has been designated a Class I director whose
term expires at the 2001 annual meeting of stockholders. F. Gibson Myers, Jr.,
Penelope A. Herscher and A. Richard Newton have been designated Class II
directors whose term expires at the 2002 annual meeting of stockholders. Harvey
C. Jones, Jr., Joseph B. Costello and Aki Fujimura have been designated Class
III directors whose term expires at the 2003 annual meeting of stockholders. For
more information on the classified board, see the section entitled "Description
of Capital Stock -- Anti-takeover Effects of Provisions of Our Certificate and
Bylaws and Delaware Law."
Executive officers are appointed by the board of directors and serve until
their successors have been duly elected and qualified. There are no family
relationships among any of our directors, officers or key employees.
BOARD COMMITTEES
On May 13, 1998, our board of directors designated a Compensation Committee
and on September 7, 2000 an Audit Committee. Prior thereto, there were no such
committees of the board of directors and decisions regarding the compensation of
executive officers were made by the board of directors as a whole. The
Compensation Committee, which consists of Messrs. Jones, Myers and Newton, makes
recommendations to the board concerning the compensation of our officers and
directors and the administration of our 1995 Stock Plan, 2001 Incentive Stock
Plan and 2001 Employee Stock Purchase Plan. The Audit Committee, which consists
of Messrs. Jones, Newton and Costello, reviews our financial controls, evaluates
the scope of the annual audit, reviews audit results, consults with management
and our independent auditors prior to the presentation of financial statements
to stockholders and, as appropriate, initiates inquiries into aspects of our
internal accounting controls and financial affairs.
Director Compensation
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Jones, Myers and
Newton. Prior to the formation of the Compensation Committee, the board of
directors performed the functions typically assigned to a compensation
committee. Each of Ms. Herscher and Mr. Fujimura participated in the board's
deliberations concerning the compensation of officers other than themselves. No
member of the Compensation Committee and none of our executive officers has a
relationship that would constitute an interlocking relationship with executive
officers and directors of another entity.
56
<PAGE> 60
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation paid by us during the fiscal year ended September 30, 2000 to our
Chief Executive Officer and our other executive officers who earned more than
$100,000 during the fiscal year. In this prospectus, these individuals are
referred to as the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ----------------
COMPENSATION RESTRICTED SECURITIES
----------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS(1) COMPENSATION
--------------------------- ---- -------- ------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Penelope A. Herscher............ 2000 $183,000 $ -- $200 100,000 $ 5,658(2)
Chief Executive Officer and
Chairman of the Board of
Directors
Aki Fujimura.................... 2000 183,000 1,236 200 100,000 85,106(3)
President, Chief Operating
Officer and Director
Steven L. Teig.................. 2000 168,750 -- 200 125,000 37,423(4)
Chief Technical Officer
Luis P. Buhler.................. 2000 160,398 -- 200 37,500 27,684(5)
Chief Financial Officer
James D. Behrens................ 2000 92,500 -- -- 142,409 38,015(6)
Executive Vice President of
Worldwide Operations
</TABLE>
---------------
(1) Information regarding the number of options granted consists of all options
granted in the fiscal year ended September 30, 2000.
(2) Includes $4,947 in health insurance premiums and $711 in life insurance
premiums.
(3) Includes forgiveness of $82,031 of indebtedness in accordance with the terms
of a promissory note issued by Mr. Fujimura in favor of us dated February
12, 1998. Also includes $2,489 in health insurance premiums and $586 in life
insurance premiums.
(4) Includes $34,805 as a performance bonus for meeting milestones. Also
includes $2,032 in health insurance premiums and $586 in life insurance
premiums.
(5) Includes $24,609 as a performance bonus for meeting milestones. Also
includes $2,489 in health insurance premiums and $586 in life insurance
premiums.
(6)Includes $20,781 as a performance bonus for meeting milestones. Also includes
$1,838 in health insurance premiums, $396 in life insurance premiums and
$15,000 housing assistance of
57
<PAGE> 61
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
September 30, 2000.
The information regarding stock options granted to the named executive
officers as a percentage of total options granted to employees in the fiscal
year, as disclosed in the table, is based upon options to purchase an aggregate
of 2,161,752 shares of common stock that were granted to all employees as a
group, including the named executive officers, in the fiscal year ended
September 30, 2000.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATE
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Penelope A. Herscher.... 100,000(1) 4.63% $4.00 1/19/10 $1,228,894 $2,193,742
Aki Fujimura............ 100,000(1) 4.63 4.00 1/19/10 1,228,894 2,193,742
Steven L. Teig.......... 125,000(2) 5.78 4.00 1/19/10 1,536,118 2,742,178
Luis P. Buhler.......... 37,500(1) 1.73 4.00 1/19/10 460,836 822,653
James D. Behrens........ 142,409(3) 6.59 4.00 3/28/10 1,750,056 3,124,086
</TABLE>
-------------
(1)These options vest at the rate of 1/48 of the shares at the end of each month
from the vesting commencement date. These options expire ten years from their
date of grant and are subject to continued service as an employee or
consultant.
(2)Includes options to purchase 62,500 shares which vest at the rate of 1/48 at
the end of each month. Also includes options to purchase 62,500 shares which
vest at the rate of 1/48 at the end of each month beginning one year from the
vesting commencement date. These options expire ten years from their date of
grant and are subject to continued service as an employee or consultant.
(3)Includes options to purchase 54,889 shares which vest at the rate of 1/4 of
shares beginning one year from the vesting commencement date and 1/48 at the
end of each month thereafter. Also includes options to purchase 87,520 shares
which vest immediately upon grant. These options expire ten years from their
date of grant and are subject to continued service as an employee or
consultant.
The potential realizable value is calculated based on the term for the
option, which is 10 years and a per share price of $10.00. The assumed rates of
appreciation are prescribed by the Securities and Exchange Commission for
illustrative purposes only and are not intended to forecast or predict future
stock prices. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the offering price per share at the indicated rate
from the date of grant appreciates for the entire term of the option and that
the option is exercised at $4.00 per share and sold on the last day of its term
at its appreciated price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
SHARES NUMBER OF OPTIONS AT IN-THE-MONEY
ACQUIRED SEPTEMBER 30, 2000 OPTIONS(2)
ON OPTIONS VALUE -------------------- ----------------------
NAME EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
---- ---------- ----------- ------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Penelope A. Herscher..... -- $-- 89,583 135,417 $683,335 $ 916,676
Aki Fujimura............. -- -- 42,396 112,604 272,197 676,012
Steven L. Teig........... -- -- 94,583 212,917 718,452 1,437,351
Luis P. Buhler........... 29,166 -- 18,751 89,583 112,506 537,498
James D. Behrens......... -- -- 87,521 54,889 201,298 126,245
</TABLE>
---------------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) Based upon the assumed initial public offering price of $10.00 per share
less the exercise price per share.
58
<PAGE> 62
COMPENSATION PLANS
Amended and Restated 1995 Stock Plan
Our amended and restated 1995 Stock Plan was adopted by our board of
directors and approved by our stockholders in September 1995. The maximum number
of shares that may be issued under the 1995 Stock Plan is 5,878,103 shares of
our common stock. As of September 30, 2000, options to purchase 3,188,209 shares
of our common stock were outstanding with a weighted average exercise price of
$4.66 per share, 2,192,696 shares subject to options had been exercised and
599,708 shares were available for future grant. Our board of directors has
decided that upon completion of this offering no further options will be granted
under the 1995 Stock Plan. However, the provisions of our 1995 Stock Plan will
still govern outstanding options. The 1995 Stock Plan provides for the grant of
incentive stock options, within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, referred to as the Code, to our employees, and
for the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants. Additionally, we adopted a sub-plan
pursuant to the 1995 Stock Plan that allows us to grant options to our French
employees allowing such employees to receive preferential treatment under French
tax laws. In the event of our merger with or into another corporation where the
successor corporation issues its securities to our stockholders or a sale of
substantially all of our assets, the successor corporation will assume or
substitute each option or stock purchase right. If the successor corporation
refuses to assume or substitute for outstanding options or stock purchase
rights, such options or stock purchase rights will terminate upon the
consummation of such merger or sale of assets.
2001 Incentive Stock Plan
Our board of directors will adopt the 2001 Incentive Stock Plan, or 2001
Stock Plan, in January 2001 and our stockholders will approve our 2001 Stock
Plan before completion of this offering. Our 2001 Stock Plan provides for the
grant of incentive stock options, within the meaning of Section 422 of the Code,
to our employees, and for the grant of nonstatutory stock options and stock
purchase rights to our employees, directors and consultants.
Number of Shares of Common Stock Available under the 2001 Stock Plan. As of
January, 2001, a total of 2,400,000 shares of our common stock were reserved for
issuance pursuant to the 2001 Stock Plan, of which no options were issued and
outstanding as of that date. The 2001 Stock Plan will become effective on the
completion of this offering. At that time, the remaining shares reserved under
the 1995 Stock Plan will be transferred to the 2001 Stock Plan and no further
grants will be made under the 1995 Stock Plan. In addition, our 2001 Stock Plan
provides for annual increases in the number of shares available for issuance
under our 2001 Stock Plan on the first day of each fiscal year, beginning with
our fiscal year 2002, equal to the lesser of 5% of the outstanding shares of
common stock on the first day of our fiscal year, 2,500,000 shares or an amount
our board may determine.
Administration of the 2001 Stock Plan. Our board of directors or a
committee of our board administers the 2001 Stock Plan. In the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the committee will consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The administrator
has the power to determine the terms of the options or stock purchase rights
granted, including the exercise price, the number of shares subject to each
option or stock purchase right, the exercisability of the options and the form
of consideration payable upon exercise.
Options. The administrator determines the exercise price of options granted
under the 2001 Stock Plan, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code and all incentive stock options, the exercise price
must at least be equal to the fair market value of our common stock on the date
of grant. The term of an incentive stock option generally may not exceed ten
years and the administrator determines the term of all other options.
59
<PAGE> 63
No optionee may be granted an option to purchase more than 500,000 shares
in any fiscal year. In connection with his or her initial service, an optionee
may be granted an additional option to purchase up to 1,000,000 shares.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for 3 months. However, an option may never be
exercised later than the expiration of its term.
Stock Purchase Rights. The administrator determines the exercise price of
stock purchase rights granted under our 2001 Stock Plan. Unless the
administrator determines otherwise, the restricted stock purchase agreement will
grant us a repurchase option that we may exercise upon the voluntary or
involuntary termination of the purchaser's service with us for any reason
(including death or disability). The purchase price for shares we repurchase
will generally be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The administrator
determines the rate at which our repurchase option will lapse.
Transferability of Options and Stock Purchase Rights. Our 2001 Stock Plan
generally does not allow for the transfer of options or stock purchase rights
and only the optionee may exercise an option and stock purchase right during his
or her lifetime.
French Sub-Plan. The 2001 Stock Plan has an addendum that will apply to
options granted to our French employees allowing us and the employees granted
options under its terms to receive preferential tax treatment under French tax
laws. The addendum provides that options may not be granted for less than fair
market value on the date of grant. To receive the preferential treatment,
holders of options must not sell the shares subject to the option for a
statutorily mandated period of time from the date of grant, which is currently 5
years. The addendum will be effective for 5 years from the effective date of the
2001 Stock Plan. In most other respects the options granted under the addendum
will have the same terms as options not granted under the addendum.
Adjustments upon Merger or Asset Sale. Our 2001 Stock Plan provides that in
the event of our merger with or into another corporation or a sale of
substantially all of our assets, the successor corporation will assume or
substitute an equivalent option or right for each outstanding option or stock
purchase right. If following the assumption or substitution of an option
automatically granted to one of our outside directors any such outside director
is terminated other than by his or her voluntary resignation, then he or she
will have the right to exercise the option as to all of the shares subject to
the option, including shares which would not otherwise be exercisable.
If there is no assumption or substitution of outstanding options or stock
purchase rights, the administrator will provide notice to the optionee that he
or she has the right to exercise the option or stock purchase right as to all of
the shares subject to the option or stock purchase right, including shares which
would not otherwise be exercisable, for a period of 15 days from the date of the
notice. The option or stock purchase right will terminate upon the expiration of
the 15-day period.
Amendment and Termination of our 2001 Stock Plan. Our 2001 Stock Plan will
automatically terminate in 2011, unless we terminate it sooner. In addition, our
board of directors has the authority to amend, suspend or terminate the 2001
Stock Plan provided it does not adversely affect any option previously granted
under it.
Altius 1999 Stock Plan
In connection with the Altius acquisition, we assumed all outstanding
options issued under the Altius 1999 Stock Plan as of October 4, 2000. These
assumed options became options to purchase an aggregate of 575,961 shares of our
common stock and warrants to purchase 3,137 shares of our common stock. All
material terms of the Altius options are the same as the terms of our 1995 Stock
Plan and 2001 Incentive Stock Plan as described above.
60
<PAGE> 64
2001 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish an Employee Stock
Purchase Plan, or Purchase Plan.
Number of Shares of Common Stock Available under the Purchase Plan. A total
of 250,000 shares of our common stock will be made available for sale. In
addition, our Employee Stock Purchase Plan provides for annual increases in the
number of shares available for issuance under the Employee Stock Purchase Plan
on the first day of each fiscal year, beginning with our fiscal year 2001, equal
to the lesser of 2% of the outstanding shares of our common stock on the first
day of the fiscal year, 800,000 shares, or such other amount as may be
determined by our board of directors.
Administration of the Purchase Plan. Our board of directors or a committee
of our board administers the Purchase Plan. Our board of directors or its
committee has full and exclusive authority to interpret the terms of the
Employee Stock Purchase Plan and determine eligibility.
Eligibility to Participate. All of our employees are eligible to
participate if they are customarily employed by us or any participating
subsidiary for at least 20 hours per week and more than five months in any
calendar year. However, an employee may not be granted an option to purchase
stock if such employee:
- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock or of
any subsidiary, or
- whose rights to purchase stock under all of our employee stock purchase
plans and of our subsidiary accrues at a rate that exceeds $25,000 worth
of stock for each calendar year.
Offering Periods and Contributions. Our Employee Stock Purchase Plan is
intended to qualify under Section 423 of the Code and contains consecutive,
overlapping 24-month offering periods. Each offering period includes four
6-month purchase periods. The offering periods generally start on the first
trading day on or after May 1 and November 1 of each year, except for the first
such offering period which will commence on the first trading day on or after
the effective date of this offering and will end on the first trading day on or
after the earlier of (i) May 1, 2003 or (ii) 27 months from the beginning of the
first offering period.
Our Employee Stock Purchase Plan permits participants to purchase common
stock through payroll deductions of up to 15% of their eligible compensation
which includes a participant's base, 50% commissions and bonuses but exclusive
of other compensation remuneration paid directly to the employee. A participant
may purchase a maximum of 5,000 shares during a 6-month purchase period.
Purchase of Shares. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at the beginning of an offering period or on the exercise date. If
the fair market value at the end of a purchase period is less than the fair
market value at the beginning of the offering period, participants will be
withdrawn from the current offering period following their purchase of shares on
the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Upon termination, an
employee may participate for up to 3 months following such termination. Upon the
expiration of such 3 month period, participation shall automatically end.
Transferability of Rights. A participant may not transfer rights granted
under the Employee Stock Purchase Plan other than by will, the laws of descent
and distribution or as otherwise provided under the Purchase Plan.
Adjustments upon Merger or Change of Control. In the event of our merger or
change of control, a successor corporation may assume or substitute each
outstanding option. If the successor corporation
61
<PAGE> 65
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened, and a new exercise date will be set.
Amendment and Termination of the Purchase Plan. Our board of directors has
the authority to amend or terminate our Purchase Plan, except that, subject to
certain exceptions described in the Purchase Plan, no such action may adversely
affect any outstanding rights to purchase stock under our Purchase Plan.
401(k) RETIREMENT PLAN
On October 1, 1996, we adopted the Simplex 401(k) Retirement Plan, which
covers all of our eligible employees who have attained the age of 21 and have
completed one month of service with us. The 401(k) Plan currently excludes from
participation employees of affiliated employers, collectively bargained
employees and nonresident alien employees. The 401(k) Plan is intended to
qualify under Sections 401(a) of the Internal Revenue Code and the 401(k) Plan
trust is intended to qualify under Section 501(a) of the Internal Revenue Code.
All contributions to the 401(k) Plan by eligible employees, and the investment
earnings thereon, are not taxable to such employees until withdrawn and are 100%
vested immediately. Our eligible employees may elect to reduce their current
compensation up to the maximum statutorily prescribed annual limit, and to have
such salary reductions contributed on their behalf to the 401(k) Plan and
related trust.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation provides that we are authorized to
indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our certificate of
incorporation covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in their capacity as an officer, director, employee or other
agent, regardless of whether we would have the power to indemnify him or her
under Delaware law.
In addition to the indemnification provided for in our certificate of
incorporation, we have entered into agreements to indemnify our directors and
executive officers. These agreements, among other things, require us to
indemnify these directors and executive officers for certain expenses, including
attorney's fees, judgments, fines and settlement amounts incurred by these
persons in any action or proceeding, including any action by or in our right,
arising out of that person's services as a director or executive officer for us,
any subsidiary of ours or any other company or enterprise to which the person
provides services at our request.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a
62
<PAGE> 66
derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards against our directors and
executive officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification would be
required or permitted. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification. We believe
that these provisions and agreements are necessary to attract and retain
qualified directors and executive officers.
63
<PAGE> 67
CERTAIN TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PREFERRED STOCK SALES
In March 1997, we sold an aggregate of 2,213,781 shares of Series D
Preferred Stock, at a purchase price of $3.36 per share, and sold warrants to
acquire Series D Preferred Stock, at an exercise price of $3.36 per share. If we
sell shares in this offering below a certain price, holders of our Series D
Preferred Stock will receive additional shares of our common stock. In April
1998, we sold an aggregate of 3,253,336 shares of Series E Preferred Stock, at a
purchase price of $3.75 per share, and sold warrants to acquire Series E
Preferred Stock, at an exercise price of $3.75 per share. If we sell shares in
this offering below a certain price, holders of our Series E Preferred Stock
will receive additional shares of our common stock.
The following directors, officers, 5% stockholders and their respective
family members purchased shares in the following preferred stock financings:
<TABLE>
<CAPTION>
NO. OF NO. OF
SHARES OF SHARES OF
SERIES D SERIES E AGGREGATE
PURCHASER PREFERRED PREFERRED TOTAL CONSIDERATION
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Harvey C. Jones, Jr.(1) 27,407 -- 27,407 $ 92,088
Penelope A. Herscher(2) 100,000 -- 100,000 336,000
Aki Fujimura Trust U/D/T Dated October 31, 1996(3) 200,000 -- 200,000 672,000
Entities affiliated with Mayfield Fund:(4)
Mayfield Associates Fund II 34,738 13,333 48,071 166,718
Mayfield VII 660,021 253,334 913,355 3,167,673
Intel Corporation(5) -- 1,866,667 1,866,667 7,000,001
</TABLE>
---------------
(1) Harvey C. Jones, Jr. is a director of Simplex.
(2) Penelope A. Herscher is the Chairman and Chief Executive Officer of Simplex.
(3) Aki Fujimura, the President and Chief Operating Officer of Simplex and a
Director of Simplex, is the Trustee of the Aki Fujimura Trust U/D/T dated
October 31, 1996.
(4) Entities affiliated with Mayfield Fund are a holder of more than 5% of our
stock in the aggregate. F. Gibson Myers, Jr., one of our directors, is a
partner emeritus at Mayfield Fund.
(5) Intel Corporation is a holder of more than 5% of our stock in the aggregate.
As a result of the one for two reverse stock split and provisions of our
amended and restated certificate of incorporation, each two shares of preferred
stock will automatically convert into one share of common stock upon
consummation of the Offering.
COMMON STOCK SALES
On February 12, 1998, we sold 375,000 shares of our common stock to Aki
Fujimura, our President, Chief Operating Officer and Director, at a purchase
price of $1.36 per share. Mr. Fujimura paid for his shares with a promissory
note in the amount of $509,250 and $750 in cash. On March 30, 1999, we sold
70,834 shares of our common stock to Mr. Fujimura at a purchase price of $4.00
per share. Mr. Fujimura paid for his shares with a promissory note in the amount
of $283,334. Mr. Fujimura's shares are subject to a repurchase option by us. Our
repurchase right lapses 25% after the date of the respective agreements and
1/48 each month thereafter. See "Loans to Executive Officers and Directors" for
more information.
On May 26, 1998, we sold 50,000 shares of our common stock to Shashank Goel
at a purchase price of $6.75 per share. Mr. Goel paid for his shares with a Loan
and Pledge Agreement.
On January 19, 1999, we sold 96,563 shares of our common stock to Steven L.
Teig, our Chief Technical Officer, at a purchase price of $2.50 per share. Mr.
Teig paid for his shares with a promissory note in the amount of $241,406. We
have the right to repurchase Mr. Teig's shares at their original
64
<PAGE> 68
purchase price of $2.50 per share in the event of voluntary or involuntary
termination of employment with us. Our repurchase right lapsed as to 20% of the
shares on August 1, 1999 and has and will continue to lapse as to 1/60 of the
total number of shares at the end of each month thereafter. See "Loans to
Executive Officers and Directors" for more information.
On March 30, 1999, we sold 50,000 shares of our common stock to Luis P.
Buhler, our Chief Financial Officer, at a purchase price of $4.00 per share. Mr.
Buhler paid for his shares with a promissory note in the amount of $200,000. We
have the right to repurchase Mr. Buhler's shares at their original purchase
price of $4.00 per share in the event of voluntary or involuntary termination of
employment with us. Our repurchase right lapsed as to 25% of the shares on
January 20, 2000 and has and will continue to lapse as to 1/48 of the total
number of shares at the end of each month thereafter. See "Loans to Executive
Officers and Directors" for more information.
In connection with the above transactions, we entered into an agreement
with the investors providing for registration rights with respect to these
shares. For more information regarding this agreement, see "Description of
Capital Stock -- Registration Rights."
In October 2000, we acquired Altius Solutions, Inc., now our wholly owned
subsidiary, in exchange for approximately 3.8 million shares of common stock, of
which 1.1 million were restricted and assumption of options to purchase
approximately 579,000 shares of our common stock. Joseph B. Costello, one of our
directors, was a director of Altius. Mr. Costello received approximately 392,000
shares of our common stock in respect of shares of Altius capital stock he
owned.
SALES TO STOCKHOLDERS
Intel Corporation, a holder of more than 5% of our stock in the aggregate,
through its subsidiary Level One Communications, purchased products and services
totaling $217,500 in fiscal year 1999 and $349,175 in fiscal 2000.
EXECUTIVE OFFICER EMPLOYMENT ARRANGEMENTS
In March 2000, we entered into an offer letter with James D. Behrens, our
Executive Vice President, Worldwide Field Operations, pursuant to which we
agreed to pay Mr. Behrens a base salary of $175,000. Under the offer letter, if
Mr. Behrens is terminated involuntarily for any reason other than for cause
before March 31, 2001, Mr. Behrens is entitled to receive a severance payment
equal to three months' base salary as then in effect and accelerated vesting of
50% of his initial option grant. Mr. Behrens' employment with us is on an
at-will basis.
We entered into management continuity agreements with our named executive
officers, Penelope A. Herscher, Aki Fujimura, Steven L. Teig and Luis P. Buhler.
These agreements provide that, except for Luis P. Buhler, in the event that we
terminate the employment of such executive officers other than for cause within
six months of a change in control, our repurchase option in with respect to any
unvested shares of our common stock shall partially lapse and such executive
officer shall become vested as to that number of shares that would have vested
as of the date twelve months after the date of termination. If such executive
officer continues to be employed by us six months following a change in control,
he or she will be entitled to twelve months from such date of accelerated
vesting. Under our management continuity agreement with Luis P. Buhler, Mr.
Buhler is entitled to the greater of (i) twelve months of accelerated vesting or
(ii) 75,000 shares in the event of his continued employment six months following
a change in control. Under these management continuity agreements, the
accelerated vesting provisions may become null and void if the non-employee
Board members unanimously determine that any acceleration would preclude pooling
of interest accounting for any business combination involving a change of
control.
In September 2000 in connection with the merger with Altius, we entered
into an employment agreement with Aurangzeb Khan, our Executive Vice President
and General Manager, pursuant to which we agreed to pay Mr. Khan a base salary
of $195,603. Under the agreement, Mr. Khan is entitled to participate in our
Management by Objectives Bonus Program at an annual level of thirty-five percent
or
65
<PAGE> 69
higher. In addition, if Mr. Khan is terminated involuntarily for any reason
other than for cause, Mr. Khan is entitled to receive a severance payment equal
to twelve months of his base salary as then in effect and accelerated vesting of
shares that would have vested as of the date twenty-four months after the date
of termination. Mr. Khan's employment with us is on an at-will basis.
LOANS TO EXECUTIVE OFFICERS AND DIRECTORS
On February 12, 1998, Aki Fujimura borrowed $509,250 from us pursuant to a
Pledge and Security Agreement, Secured Loan Agreement and full recourse Secured
Promissory Note to exercise his warrant to purchase 375,000 shares of our common
stock. This loan is payable on termination or cessation of employment with us,
accrues interest at a rate of 6.0% per annum is forgiven up to $375,000, $93,750
of which was forgiven August 13, 1998 and an additional $7,812.50 has been and
will be forgiven on a monthly basis until $375,000 has been forgiven as long as
Mr. Fujimura remains employed with us. The $509,250 loan is secured by the
375,000 shares of our common stock. On February 12, 1998, Mr. Fujimura borrowed
$671,800 pursuant to a Secured Loan Agreement and full recourse Secured
Promissory Note to exercise his warrant to purchase 200,000 shares of our Series
D Preferred Stock. This loan is payable on termination or cessation of
employment with us, accrues interest at a rate of 5.7% per annum and is secured
by the 100,000 shares of our common stock. The $671,800 loan was paid in full on
March 5, 1999. On March 30, 1999, Mr. Fujimura borrowed $283,334 from us
pursuant to a full recourse Promissory Note and Security Agreement to purchase
70,834 shares of our common stock. The loan accrues interest at a rate of 4.83%
per annum, is secured by 70,834 shares of our common stock and is payable upon
termination or cessation of employment with us, and in any event no later than
March 30, 2004.
On January 19, 1999, Steven L. Teig borrowed $241,406 from us pursuant to a
full recourse Promissory Note and Security Agreement to purchase 96,563 shares
of our common stock. The loan accrues interest at a rate of 4.63% per annum, is
secured by 96,563 shares of our common stock and is payable upon termination or
cessation of employment with us, and in any event no later than January 19,
2004.
On March 30, 1999, Luis P. Buhler borrowed $200,000 from us pursuant to a
full recourse Promissory Note and Security Agreement to purchase 50,000 shares
of our common stock. The loan accrues interest at a rate of 4.83% per annum, is
secured by 50,000 shares of our common stock and the entire unpaid balance is
payable upon termination or cessation of employment with us, and in any event no
later than March 30, 2004.
On May 26, 1998, Shashank Goel, pursuant to a severance arrangement,
borrowed $556,190 from us pursuant to a Loan and Pledge Agreement in exchange
for our option to purchase 50,000 shares of our common stock of the 85,000
shares pledged as collateral. The non-recourse loan accrues interest at a rate
of 5.69% per annum, is secured by 85,000 shares of our common stock and is
payable on or before the earlier of (i) May 15, 2002 or (ii) one year after the
closing of this offering, in both cases subject to prepayment obligations under
certain circumstances.
CERTAIN BUSINESS RELATIONSHIPS
Larry Sonsini, a partner in Wilson Sonsini Goodrich & Rosati, a
professional corporation, which currently acts as our outside counsel is also a
member of our board of directors. In addition, Mr. Sonsini owns stock options
currently exercisable to acquire 12,500 shares of our common stock.
66
<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of October 20, 2000, and as adjusted
to reflect the sale of common stock offered hereby, by the following:
- each stockholder known by us to own beneficially more than 5% of our
common stock;
- each of our executive officers named in the compensation table above;
- each of our directors; and
- all directors and executive officers as a group.
As of October 20, 2000, there would have been 15,592,644 shares of our
common stock outstanding, assuming that all outstanding preferred stock has been
converted into common stock. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below, based on the information
furnished by such owners, have sole voting power and investment power with
respect to such shares. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percent ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or that will become exercisable within 60 days after
October 20, 2000 are deemed outstanding, while such shares are not deemed
outstanding for the purposes of computing percent ownership of any other person.
Unless otherwise indicated in the footnotes below, the persons and entities
named in the table have sole voting and investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
The address for those individuals for which an address is not otherwise
indicated is c/o Simplex Solutions, Inc., 521 Almanor Avenue, Sunnyvale, CA
94085.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING(2)
NUMBER OF SHARES ---------------------------------
NAME AND ADDRESS BENEFICIALLY OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- --------------------- --------------- --------------
<S> <C> <C> <C>
Entities affiliated with Mayfield Fund, F.
Gibson Myers, Jr.(1)........................ 3,473,389 22.3% 17.3%
2800 Sand Hill Road
Menlo Park, CA 94025
Intel Corporation(2).......................... 933,334 6.0 4.6
2625 Walsh Avenue SC4
Santa Clara, CA 95052
Penelope A. Herscher(3)....................... 508,196 3.2 2.5
Aki Fujimura(4)............................... 569,217 3.6 2.8
Steven L. Teig(5)............................. 198,500 1.3 1.0
Luis P. Buhler(6)............................. 105,311 * *
Joseph B. Costello(7)......................... 553,205 3.5 2.8
Harvey C. Jones, Jr.(8)....................... 195,311 1.5 1.0
A. Richard Newton(9).......................... 165,357 1.4 *
Larry W. Sonsini(10).......................... 12,500 * *
James D. Behrens(11).......................... 89,604 * *
Aurangzeb Khan................................ 392,111 2.5 2.0
All directors and officers as a group (11
persons)(12)................................ 2,789,310 17.4 13.6
</TABLE>
---------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 173,668 shares held by Mayfield Associates II, a California
Limited Partnership and 3,299,721 shares held by Mayfield VII, a California
Limited Partnership. F. Gibson Myers, Jr. is a member of our board of
directors and a partner emeritus of Mayfield Fund. Mr. Myers disclaims
beneficial ownership of all the shares held by the entities affiliated with
Mayfield Fund except to the extent of his pecuniary interest therein. The
following natural persons exercise voting and/or dispositive powers for the
shares held by Mayfield Fund: F. Gibson Myers, Jr., A. Grant
67
<PAGE> 71
Heidrich, III, Michael J. Levinthal, William D. Unger, Wendell G. Van
Auken, III, Kevin A. Fond, and Yogen K. Dalal.
(2) Includes 933,334 shares held by Intel Corporation. The following natural
persons exercise voting and/or dispositive powers for the shares held by
Intel Corporation: Michael Ye.
(3) Includes 103,646 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20,
2000; also includes 10,000 shares held by Penelope Herscher as custodian
for Melanie Herscher and Sebastian Herscher.
(4) Includes 50,834 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20,
2000; also includes 518,334 shares held by Aki Fujimura as trustee for the
Aki Fujimura Trust U/D/T dated October 31, 1996 of which 183,421 shares are
subject to a lapsing right of repurchase by the Company, subject to
continued employment. Aki Fujimura is a member of our Board of Directors,
President and Chief Operating Officer.
(5) Includes 109,687 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20,
2000; also includes 57,938 shares subject to a lapsing right of repurchase
by the Company, subject to continued employment.
(6) Includes 26,095 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20,
2000; also includes 28,125 shares subject to a lapsing right of repurchase
by the Company, subject to continued employment.
(7) Includes 2,188 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20,
2000.
(8)Includes 16,250 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20, 2000.
(9) Includes 12,500 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20,
2000.
(10) Includes 12,500 shares issuable upon the exercise of currently exercisable
stock options and options exercisable within sixty days of October 20,
2000.
(11) Includes 39,604 shares issuable upon the exercise of options exercisable
within sixty days as of October 20, 2000.
(12) Includes 269,483 shares subject to a right of repurchase by the Company
which lapses over time, subject to continued employment
68
<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock as of October 20, 2000 consisted of 22,000,000
shares of common stock, and 14,000,000 shares of preferred stock. As of October
20, 2000, there were outstanding 9,319,517 shares of common stock and 12,546,255
shares of preferred stock. These shares were held of record by a total of 339
stockholders.
Upon the closing of this offering and subject to stockholder approval:
- our certificate of incorporation will be amended and restated to provide
for total authorized capital consisting of 100,000,000 shares of common
stock and 10,000,000 shares of preferred stock; and
- all shares of preferred stock will convert into common stock, and a total
of 16,180,988 shares of common stock and no shares of preferred stock
will be outstanding, based on the number of shares outstanding as of
October 20, 2000 and assuming no exercise of the underwriters'
over-allotment option.
Common Stock
The holders of our common stock are entitled to receive dividends as may be
declared by our board of directors and paid out of legally available funds.
Holders of shares of common stock are entitled to one vote per share upon all
matters upon which stockholders have the right to vote. Cumulative voting of
shares is not permitted. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of our common stock are
entitled to receive and share ratably in all assets remaining available for
distribution to stockholders after payment of any preferential amounts to which
the holders of preferred stock may be entitled. Our common stock has no
preemptive rights and is not redeemable, assessable or entitled to the benefits
of any sinking fund. Shares of our common stock are not convertible into any
other security. All outstanding shares of our common stock are, and the common
stock to be issued in this offering will be validly issued, fully paid and
nonassessable.
Preferred Stock
Upon the closing of this offering, each outstanding share of preferred
stock will automatically convert into one share of common stock. Pursuant to an
amended and restated certificate of incorporation to be filed upon the closing
date, a total of 10,000,000 shares of preferred stock will be authorized for
issuance, none of which has been designated in any series. Our board of
directors is authorized, without further stockholder action, to authorize and
issue any of the 10,000,000 undesignated shares of preferred stock in one or
more series and to fix the voting rights, liquidation preferences, dividend
rights, repurchase rights, conversion rights, preemption rights, redemption
rights and terms, including sinking fund provisions and certain other rights and
preferences of such shares of our preferred stock. The issuance of any class or
series of preferred stock could adversely affect the rights of the holders of
common stock by restricting dividends on, diluting the power of, impairing the
liquidation rights of common stock, or delaying, deferring or preventing a
change in control of us. We have no present plans to issue any preferred stock.
Warrants
In connection with debt arrangements, we issued to Comdisco Ventures
warrants to purchase a total of 12,820 shares of Series B Preferred Stock before
our 2-for-1 stock split at an exercise price of $1.56 per share on September 26,
1995 and 20,000 shares of Series C Preferred Stock at an exercise price of $1.75
per share on March 1, 1997. Following the closing of this offering, the warrants
automatically will become exercisable for a similar number of shares of common
stock at the same exercise price per share. Comdisco may exercise this amount in
whole or in part at any time prior to the expiration of the warrant. The warrant
issued in connection with the Series B Preferred Stock Financing shall terminate
on the later of (i) September 26, 2002 or (ii) three years from the date of this
offering. The warrant issued in
69
<PAGE> 73
connection with the Series C Preferred Stock Financing shall be exercisable for
a period of one year from the effective date of this offering.
In connection with our credit facility lease with Transamerica Business
Credit Corporation, or TBCC Funding Trust II, on June 29, 1999 we issued to
Transamerica a warrant to purchase 66,667 shares of Series E Preferred Stock at
an exercise price of $3.75 per share. This warrant shall expire on June 29, 2006
or on the later of (i) thirty days after Transamerica receives written notice
specifying the terms and conditions of a change of control or dissolution of us
or (ii) the closing date of such change of control or dissolution.
In connection with our acquisition of Altius Solutions, Inc., we have
assumed a warrant to Silicon Valley Bank which was issued on November 1, 1999,
to purchase a total of 3,137 shares of common stock at an exercise price of
$1.00 per share. This warrant shall expire on November 1, 2004.
REGISTRATION RIGHTS
Pursuant to registration rights agreements we entered into with holders of
8,087,041 shares of our common stock, assuming conversion of all outstanding
shares of preferred stock, and the holders of all outstanding warrants, the
holders of these shares are entitled to registration rights regarding these
shares. The registration rights provide that if we propose to register any
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, they are
entitled to notice of the registration and are entitled to include shares of
their common stock in the registration. This right is subject to conditions and
limitations, including the right of the underwriters in an offering to limit the
number of shares included in the registration. The holders certain of these
shares may also require us to file up to two registration statements under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our best efforts to effect this registration, subject to
conditions and limitations. Furthermore, the holders of these shares may require
us to file additional registration statements on Form S-3, subject to conditions
and limitations. These rights terminate the earlier of five years after the
effective date of this offering, the date on which all securities holding
registration rights have been sold, or when a holder is able to sell all its
shares pursuant to Rule 144 under the Securities Act in any 90-day period. All
holders of registrable securities have agreed not to exercise their registration
rights until 180 days following the date of this prospectus without the consent
of Credit Suisse First Boston Corporation.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AND
BYLAWS AND OF DELAWARE LAW
Some provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:
- acquisition of us by means of a tender offer
- acquisition of us by means of a proxy contest or otherwise, or
- removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board and the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates
70
<PAGE> 74
for election as directors, other than nominations made by or at the direction of
the board of directors or a committee of the board of directors.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held by
stockholders.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. For more information on the
classified board, see the section entitled "Classified Board." This system of
electing and removing directors may tend to discourage a third party from making
a tender offer or otherwise attempting to obtain control of us because it
generally makes it more difficult for stockholders to replace a majority of the
directors.
Elimination of Cumulative Voting. Our certificate of incorporation and bylaws do
not provide for cumulative voting in the election of directors. Cumulative
voting provides for a minority stockholder to vote a portion or all of its
shares for one or more candidates for seats on the board of directors. Without
cumulative voting, a minority stockholder will not be able to gain as many seats
on our board of directors based on the number of shares of our stock that such
stockholder holds than if cumulative voting were permitted. The elimination of
cumulative voting makes it more difficult for a minority stockholder to gain a
seat on our board of directors to influence the board of directors' decision
regarding a takeover.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 80% of the outstanding
common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is LaSalle Bank N.A.
National Association.
LISTING
We have applied to list our common stock on the Nasdaq Stock Market's
National Market under the symbol SPLX.
71
<PAGE> 75
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 16,259,092 shares of common
stock outstanding. Of these shares, the shares sold in this
offering will be freely tradable without restriction under the Securities Act,
unless purchased by our "affiliates," as that term is defined in Rule 144 under
the Securities Act. Substantially all shares of our stock outstanding prior to
this offering are subject to the lock-up agreements described in "Underwriting."
Upon the expiration of the lock-up agreements, approximately
additional shares will be available for sale in the public market, subject in
some cases to compliance with the volume and other limitations of Rule 144. The
following table shows when the shares will be available for sale in the public
market.
<TABLE>
<CAPTION>
NUMBER OF SHARES
ELIGIBLE FOR SALE COMMENT
----------------- -------
<C> <S>
After the date of this prospectus, freely tradable shares
sold in this offering and shares saleable under Rule 144(k)
that are not subject to the 180-day lock-up.
After 180 days from the date of this prospectus, the
180-day lock-up terminates and these shares are saleable
under Rule 144 (subject in some cases to volume
limitations), Rule 144(k) or Rule 701 (subject in some cases
to a restriction on transfer due to a right of repurchase by
us).
After 180 days from the date of this prospectus,
restricted securities that are held for less than one year
and are not yet saleable under Rule 144.
</TABLE>
RULE 144
In general, under Rule 144 a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of
- 1% of the then outstanding shares of our common stock, or approximately
shares immediately after this offering, or
- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.
A person, or persons whose shares are aggregated, who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.
STOCK OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act to register 3,408,975 shares of our common stock that are subject to
outstanding options or reserved for issuance under our 1995 Stock Plan, 2001
Incentive Stock Plan and our 2001 Employee Stock Purchase Plan within 180 days
after the date of this prospectus, thus permitting the resale of these shares by
nonaffiliates in the public market without restriction under the Securities Act.
72
<PAGE> 76
WARRANTS
Upon consummation of the initial public offering, warrants to purchase up
to 59,290 shares of our common stock will remain outstanding all of which will
have the registration rights described in the section entitled "Description of
Capital Stock -- Registration Rights."
RULE 701
Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of October 20, 2000, the holders of options exercisable for
approximately 3,228,378 shares of our common stock will be eligible to sell
their shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the
expiration of the 180-day lockup period.
REGISTRATION RIGHTS
After this offering, the holders of 8,087,041 shares of our common stock
will be entitled to rights with respect to registration of their shares under
the Securities Act. Registration of these shares under the Securities Act would
result in these shares becoming freely tradable without restriction under the
Securities Act, except for shares purchased by our affiliates. All holders of
registrable securities have agreed not to exercise their registration rights
until 180 days following the date of this prospectus without the consent of
Credit Suisse First Boston Corporation. See "Description of Capital
Stock -- Registration Rights."
73
<PAGE> 77
UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following general discussion summarizes some of the material United
States Federal income and estate tax consequences of the ownership and
disposition of our common stock by a non-U.S. holder of common stock. A
"non-U.S. holder" generally is a holder of common stock that is not, for United
States Federal income tax purposes, any of the following:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any of its potential subdivisions;
- an estate, the income of which is subject to U.S. Federal income taxation
regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
U.S. court, and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
If you are an individual, you may be deemed to be a resident alien, if you
are present in the United States for at least 31 days in the calendar year and
for an aggregate of at least 183 days during a three-year period ending in the
current calendar year (counting for such purposes all of the days present in the
current year, one-third of the days present in the immediately preceding year,
and one-sixth of the days present in the second preceding year). A resident
alien is subject to United States Federal income tax as if such individual was a
citizen of the United States.
If a partnership is a beneficial owner of our common stock, the tax
treatment of a partner will generally depend upon the status of the partner and
upon the activities of the partnership. If you are a partner of a partnership
holding common stock, you should consult your tax advisor about the U.S. tax
consequences of holding and disposing of shares of our common stock.
This discussion is limited to non-U.S. holders who hold our common stock as
a capital asset. This discussion does not consider all aspects of U.S. Federal
income and estate taxation or the specific facts and circumstances that may be
relevant to particular non-U.S. holders in light of their particular
circumstances, such as insurance companies, tax-exempt organizations, financial
institutions, broker-dealers or persons who hold our common stock as part of a
risk reduction transaction, and does not address the treatment of those holders
under the laws of any state, local or foreign taxing jurisdiction. In addition,
this discussion does not address any special tax provisions which may apply to
you if you relinquished United States citizenship or residence. Further, the
discussion is based on provisions of the United States Internal Revenue Code of
1986, as amended, or the "Code," Treasury regulations under the Code, and
administrative and judicial interpretations of the Code as in effect on the date
of this prospectus. All of these authorities are subject to change or different
interpretation on a possibly retroactive basis.
EACH PROSPECTIVE HOLDER IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO
THE UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF ACQUIRING,
HOLDING AND DISPOSING OF COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES THAT MAY
ARISE UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
DIVIDENDS
Dividends, if any, paid to a non-U.S. holder of common stock generally will
be subject to United States Federal withholding tax at a 30% rate or a lower
rate as may be specified by an applicable income tax treaty. Dividends that are
effectively connected with the non-U.S. holder's conduct of a trade or business
within the United States (and if an income tax treaty applies, are attributable
to a United States permanent establishment of such non-U.S. holder) will not be
subject to withholding tax provided that such non-U.S. holder complies with
applicable certification and disclosure requirements. Instead, the "effectively
connected" dividends will be subject to U.S. Federal income tax on a net basis
at applicable graduated rates in the same manner as dividends paid to United
States citizens, resident aliens and domestic United States corporations. Any
effectively connected dividends received by a corporate non-U.S.
74
<PAGE> 78
holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or a lower rate as may be specified by an
applicable income tax treaty.
Under recently finalized United States Treasury regulations that will
generally be effective for distributions after December 31, 2000, or the "Final
Withholding Regulations," a non-U.S. holder of common stock who wishes to claim
the benefit of an applicable treaty rate is required to satisfy applicable
certification requirements. Other certification requirements may apply, for
example to a partnership or other flow-through entity through which the non-U.S.
holder owns common stock.
A non-U.S. holder of common stock that is eligible for a reduced rate of
United States withholding tax under a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the United States Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States Federal
income tax for gain recognized on a sale or other disposition of common stock
unless one of the following conditions is satisfied:
- the gain is effectively connected with a trade or business conducted by
the non-U.S. holder in the United States (and, if an income tax treaty
applies, is attributable to a permanent establishment maintained in the
United States by such non-U.S. holder). The non-U.S. holder will, unless
an applicable treaty provides otherwise, be taxed on its net gain derived
from the sale or other disposition under regular graduated U.S. Federal
income tax rates. Effectively connected gains realized by a corporate
non-U.S. holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or a lower rate as may be
specified by an applicable income tax treaty;
- in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition and certain other conditions exist;
- we are or have been a "United States real property holding corporation"
for U.S. Federal income tax purposes within the shorter of the five-year
period preceding such disposition or such non-U.S. holder's holding
period. We believe that we are not currently, and are not likely to
become, a "United States real property holding corporation" for U.S.
Federal income tax purposes. If we were to become a "United States real
property holding corporation," under currently effective United States
Treasury regulations, any gain recognized by a non-U.S. holder still would
not be subject to U.S. Federal income tax if the shares were considered to
be "regularly traded on an established securities market," and the
non-U.S. holder did not hold, directly or indirectly at any time during
the shorter of the periods described above, more than 5% of our common
stock; or
FEDERAL ESTATE TAX CONSEQUENCES
Common stock held by an individual non-U.S. holder at the time of death
will be included in such holder's gross estate for U.S. Federal estate tax
purposes, and may be subject to U.S. Federal estate tax, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the United States Internal Revenue Service and
to each non-U.S. holder the amount of dividends paid to, and the tax withheld
with respect to, such holder, regardless of whether any tax was actually
withheld. This information may also be made available to the tax authorities in
the non-U.S. holder's country of residence. Payment of dividends is subject to
United States backup withholding at a rate of 31% unless the holder certifies
its non-United States status under penalties of perjury or otherwise establishes
an exemption.
75
<PAGE> 79
In general, under the Final Withholding Regulations, United States
information reporting and backup withholding requirements also will not apply to
a payment made outside the United States of the proceeds of a sale of common
stock to or through an office outside the United States of a non-United States
broker. However, United States information reporting, but not backup
withholding, requirements will apply to a payment made outside the United States
of the proceeds of a sale of common stock through an office outside the United
States of a broker that, for United States Federal Income tax purposes, is a
United States person, a "controlled foreign corporation," or a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or, in the case of payments
made after December 31, 2000, a foreign partnership that at any time during its
tax year either is engaged in the conduct of a trade or business in the United
States or has as partners one or more United States persons that, in the
aggregate, hold more than 50% of the income or capital interest in the
partnership, unless the broker has documentary evidence in its records that the
holder or beneficial owner is a non-United States person or the holder or
beneficial owner otherwise establishes an exemption. Payment of the proceeds of
the sale of common stock to or through a United States office of a broker is
currently subject to both United States backup withholding and information
reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
such non-U.S. holder's Federal income tax liability, if any, provided that the
required information is furnished to the Internal Revenue Service.
76
<PAGE> 80
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Robertson
Stephens, Inc. and SG Cowen Securities Corporation are acting as representatives
the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Robertson Stephens, Inc. ...................................
SG Cowen Securities Corporation.............................
----------
Total.....................................................
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions paid
by us.................................... $ $ $ $
Expenses payable by us..................... $ $ $ $
</TABLE>
The representatives have informed us that the underwriters do not expect
discretionary sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
the filing of a registration statement on Form S-8 under the Securities Act,
grants of options to purchase shares of common stock under the plans disclosed
in this prospectus and existing on the date of this prospectus or issuances of
shares of common stock pursuant to the exercise of employee stock options
outstanding on the date of this prospectus.
Our officers and directors and certain other stockholders, including
holders of our preferred stock and warrants, have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
77
<PAGE> 81
consequences of ownership of our common stock, whether any of these transactions
are to be settled by delivery of our common stock or other securities, in cash
or otherwise, or publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any of these types of transactions, swap, hedge
or other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus. Credit Suisse First Boston Corporation has no current intention of
releasing the Company, its officers, directors or stockholders from these
obligations.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors
and other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "SPLX".
Prior to the offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be determined
by negotiation between us and the representatives, and does not reflect the
market price for the common stock following the offering. The principal factors
considered in determining the initial public offering price will include:
- the information in this prospectus and otherwise available to the
representatives;
- market conditions for initial public offerings;
- the history of and prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
- the general condition of the securities markets at the time of this
offering.
We cannot be sure that the initial public offering price will correspond to
the price at which the common stock will trade in the public market following
this offering or that an active trading market for the common stock will develop
and continue after this offering.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-alloted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may
78
<PAGE> 82
close out any short position by either exercising their over-allotment
option and/or purchasing shares in the open market.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares
in the open market after pricing that could adversely affect investors
who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of the common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of the common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations. Credit Suisse First Boston Corporation may effect an
on-line distribution through its affiliate, CSFBdirect Inc., an on-line
broker/dealer, as a selling group member.
79
<PAGE> 83
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws;
- where required by law, the purchaser is purchasing as principal and not
as agent; and
- the purchaser has reviewed the text above under "Resale Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California and for the underwriters by Morrison &
80
<PAGE> 84
Foerster LLP, Palo Alto, California. At the close of this offering, WS
Investments, an investment partnership composed of some current and former
members of and persons associated with Wilson Sonsini Goodrich & Rosati, a
Professional Corporation, as well as an individual attorney at this firm, will
beneficially own a total of 12,500 shares of our common stock. As of the date of
this prospectus, Larry Sonsini, a partner in that firm, is a member of our board
of directors and owns stock options currently exercisable to acquire 12,500
shares of common stock.
EXPERTS
The consolidated financial statements of Simplex Solutions, Inc. as of
September 30, 2000 and 1999 and for each of the three years in the period ended
September 30, 2000 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Snaketech S.A. as of December 31,
1999 and 1998 and for the two years then ended included in this prospectus have
been so included in reliance on the report of Befec-Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Altius Solutions, Inc. as of September 30, 2000
and for the nine-month period then ended included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Altius Solutions, Inc. as of and for the year
ended December 31, 1999 included in this prospectus 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.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offer hereby. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules filed as part of
the registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedules filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedules, may
be inspected without charge at the principal office of the Securities and
Exchange Commission in Washington, D.C., and copies of all or any part of it may
be obtained from that office after payment of fees prescribed by the Securities
and Exchange Commission. The Securities and Exchange Commission maintains a
website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the website of the SEC referred to above.
We intend to provide our stockholders with annual reports containing, among
other information, financial statements audited by an independent public
accounting firm and to make available to our stockholders quarterly reports
containing unaudited financial data for the first three quarters of each fiscal
year.
81
<PAGE> 85
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Convertible Preferred Stock and
Stockholders' Deficit..................................... F-5
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-9
SNAKETECH S.A.
Report of Independent Accountants........................... F-27
Consolidated Balance Sheets................................. F-28
Consolidated Statements of Operations....................... F-29
Consolidated Statements of Shareholders' Equity (Deficit)... F-30
Consolidated Statements of Cash Flows....................... F-31
Notes to Consolidated Financial Statements.................. F-32
ALTIUS SOLUTIONS, INC.
Report of Independent Accountants........................... F-40
Independent Auditors' Report................................ F-41
Balance Sheets.............................................. F-42
Statements of Income........................................ F-43
Statements of Stockholders' Equity and Comprehensive
Income.................................................... F-44
Statements of Cash Flows.................................... F-45
Notes to Financial Statements............................... F-46
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Pro Forma Consolidated Balance Sheet (unaudited)............ F-55
Pro Forma Combined Statements of Operations (unaudited)..... F-57
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Simplex Solutions, Inc.
The reverse stock-split described in Note 15 to the financial statements
has not been consummated at January 8, 2001. When it is consummated, we will be
in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of convertible preferred
stock and stockholders' deficit, and of cash flows present fairly, in all
material respects, the financial position of Simplex Solutions, Inc. and
subsidiaries as of September 30, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of Simplex Solutions, Inc.'s management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States of America, 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 our opinion."
PRICEWATERHOUSECOOPERS LLP
San Jose, California
October 23, 2000, except for the
second paragraph of Note 15 and the
fifth paragraph of Note 10, as to
which the date is January 8, 2001.
F-2
<PAGE> 87
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
CONVERTIBLE
PREFERRED
STOCK AND
STOCKHOLDERS'
SEPTEMBER 30, EQUITY
-------------------- SEPTEMBER 30,
1999 2000 2000
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,204 $ 7,447
Short-term investments.................................... 262 --
Accounts receivable, net of allowance for doubtful
accounts of $171 and $185, respectively................. 5,416 7,142
Prepaid expenses and other current assets................. 350 356
-------- --------
Total current assets.................................... 10,232 14,945
Property and equipment, net................................. 1,218 1,742
Other assets................................................ 353 891
Intangible assets, net...................................... -- 6,888
-------- --------
Total assets............................................ $ 11,803 $ 24,466
======== ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND WARRANTS AND
COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations.............. $ 102 $ 29
Current portion of notes payable.......................... -- 58
Line of credit, net of discount........................... -- 2,442
Accounts payable.......................................... 315 741
Accrued liabilities....................................... 539 594
Accrued payroll and related expenses...................... 1,533 2,758
Deferred revenue.......................................... 4,361 5,654
-------- --------
Total current liabilities............................... 6,850 12,276
Capital lease obligations, net of current portion........... 56 23
Line of credit, net of discount............................. 2,364 --
Notes payable............................................... -- 298
-------- --------
Total liabilities....................................... 9,270 12,597
-------- --------
Commitments and contingencies (Note 10)
Convertible preferred stock and warrants, $0.001 par value:
Authorized: 14,000,000 shares
Issued and outstanding: 12,526,255 shares at September 30,
1999, 12,546,255 at September 30, 2000 (actual) and no
shares at September 30, 2000 (pro forma) (Aggregate
liquidation value $24,131).............................. 24,184 24,251 $ --
-------- -------- --------
Common stock and other stockholders' equity (deficit):
Common stock, $0.001 par value:
Authorized: 22,000,000 shares
Issued and outstanding: 3,662,319 shares at September 30,
1999, 5,485,964 shares at September 30, 2000 (actual)
and 11,759,092 shares at September 30, 2000 (pro
forma).................................................. 4 5 12
Additional paid-in capital................................ 1,484 17,743 41,987
Notes receivable from stockholders........................ (1,692) (1,678) (1,678)
Unearned stock-based compensation......................... (16) (2,247) (2,247)
Accumulated other comprehensive income.................... 2 -- --
Accumulated deficit....................................... (21,433) (26,205) (26,205)
-------- -------- --------
Total common stock and other stockholders' equity
(deficit)............................................. (21,651) (12,382) $ 11,869
-------- -------- ========
Total liabilities, convertible preferred stock and
warrants and common stock and other stockholders'
equity (deficit)...................................... $ 11,803 $ 24,466
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 88
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Net revenue:
License................................................... $ 5,385 $ 7,704 $14,679
Services.................................................. 1,152 3,177 8,138
------- ------- -------
Total revenue.......................................... 6,537 10,881 22,817
------- ------- -------
Cost of revenue:
License................................................... 458 96 92
Services.................................................. 439 1,974 3,391
------- ------- -------
Total cost of revenue.................................. 897 2,070 3,483
------- ------- -------
Gross profit................................................ 5,640 8,811 19,334
------- ------- -------
Operating expenses:
Research and development.................................. 5,038 6,378 4,966
Sales and marketing....................................... 6,288 7,314 10,373
General and administrative................................ 1,407 2,225 2,821
Amortization of goodwill and other intangibles............ -- -- 2,525
Stock-based compensation*................................. 49 13 1,795
In-process research and development....................... -- -- 1,100
------- ------- -------
Total operating expenses............................... 12,782 15,930 23,580
------- ------- -------
Operating loss.............................................. (7,142) (7,119) (4,246)
Interest and other income (expense), net.................... 343 211 178
Interest expense............................................ (31) (133) (462)
------- ------- -------
Loss before income taxes.................................... (6,830) (7,041) (4,530)
Income tax expense.......................................... -- -- (242)
------- ------- -------
Net loss.................................................... $(6,830) $(7,041) $(4,772)
======= ======= =======
Basic and diluted net loss per share........................ $ (2.92) $ (2.42) $ (1.14)
======= ======= =======
Number of shares used in calculation of basic and diluted
net loss per share........................................ 2,335 2,917 4,202
======= ======= =======
Pro forma basic and diluted net loss per share.............. $ (0.46)
=======
Number of shares used in calculation of pro forma basic and
diluted net loss per share................................ 10,475
=======
*Amortization of stock-based compensation expense is
excluded from the following expenses:
Cost of revenue........................................... $ -- $ -- $ 254
Research and development.................................. 22 9 375
Selling and marketing..................................... -- -- 262
General and administrative................................ 27 4 904
------- ------- -------
Total.................................................. $ 49 $ 13 $ 1,795
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 89
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES NOTES
PREFERRED STOCK RECEIVABLE COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED
-------------------- FROM ------------------ PAID-IN FROM STOCK-BASED
SHARES AMOUNT STOCKHOLDERS SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- ------------ --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1,
1997................... 9,022,919 $11,044 -- 3,084,823 $ 3 $ 158 $ -- $(13)
Issuance of Series E
convertible preferred
stock, net of issuance
costs of $55........... 3,503,336 12,985 (672) -- -- -- -- --
Issuance of common stock
in exchange for note
receivable............. -- -- -- 375,000 -- 509 (509) --
Amortization of
stockholder note
forgiven............... -- -- -- -- -- -- 101 --
Interest accrued from
stockholder notes
receivable............. -- -- (24) -- -- -- (29) --
Note receivable from
stockholder............ -- -- -- -- -- -- (556) --
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 72,684 -- 44 -- --
Repurchase of restricted
common stock........... -- -- -- (21,928) -- (3) -- --
Repurchase of founder
common stock........... -- -- -- (166,320) -- (246) -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 20,000 -- 30 -- --
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- -- -- 45 -- (45)
Stock-based compensation
expense................ -- -- -- -- -- -- -- 49
Net loss................. -- -- -- -- -- -- -- --
---------- ------- ----- --------- --- ----- ----- ----
Balances, September 30,
1998................... 12,526,255 $24,029 $(696) 3,364,259 $ 3 $ 537 $(993) $ (9)
---------- ------- ----- --------- --- ----- ----- ----
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT LOSS DEFICIT
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balances, October 1,
1997................... $ -- $ (7,562) $ -- $ (7,414)
Issuance of Series E
convertible preferred
stock, net of issuance
costs of $55........... -- -- -- --
Issuance of common stock
in exchange for note
receivable............. -- -- -- --
Amortization of
stockholder note
forgiven............... -- -- -- 101
Interest accrued from
stockholder notes
receivable............. -- -- -- (29)
Note receivable from
stockholder............ -- -- -- (556)
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 44
Repurchase of restricted
common stock........... -- -- -- (3)
Repurchase of founder
common stock........... -- -- -- (246)
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 30
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- --
Stock-based compensation
expense................ -- -- -- 49
Net loss................. -- (6,830) $ (6,830) (6,830)
---- -------- ======== --------
Balances, September 30,
1998................... $ -- $(14,392) $(14,854)
---- -------- --------
</TABLE>
F-5
<PAGE> 90
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES NOTES
PREFERRED STOCK RECEIVABLE COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED
-------------------- FROM ------------------- PAID-IN FROM STOCK-BASED
SHARES AMOUNT STOCKHOLDERS SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- ------------ ---------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1998................... 12,526,255 $24,029 $(696) 3,364,259 $ 3 $ 537 $ (993) $ (9)
Repayment of stockholder
note receivable........ -- -- 696 -- -- -- -- --
Issuance of restricted
common stock in
exchange for notes
receivable............. -- -- -- 217,396 -- 725 (725) --
Interest accrued from
stockholder notes
receivable............. -- -- -- -- -- -- (68) --
Amortization of
stockholder note
forgiven............... -- -- -- -- -- -- 94 --
Repurchase of restricted
common stock........... -- -- -- (51,005) -- (13) -- --
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 111,669 1 165 -- --
Warrants granted in
consideration for
capital lease
financing.............. -- 155 -- -- -- -- -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 20,000 -- 50 -- --
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- -- -- 20 -- (20)
Stock-based compensation
expense................ -- -- -- -- -- -- -- 13
Comprehensive loss
Net loss................. -- -- -- -- -- -- -- --
Unrealized gain on
investments............ -- -- -- -- -- -- -- --
---------- ------- ----- ---------- --- ------- ------- -------
Comprehensive loss.......
Balances September 30,
1999................... 12,526,255 $24,184 $ -- 3,662,319 $ 4 $ 1,484 $(1,692) $ (16)
---------- ------- ----- ---------- --- ------- ------- -------
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT LOSS DEFICIT
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balances, September 30,
1998................... $ -- $(14,392) $ -- $(14,854)
Repayment of stockholder
note receivable........ -- -- -- --
Issuance of restricted
common stock in
exchange for notes
receivable............. -- -- -- --
Interest accrued from
stockholder notes
receivable............. -- -- -- (68)
Amortization of
stockholder note
forgiven............... -- -- -- 94
Repurchase of restricted
common stock........... -- -- -- (13)
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 166
Warrants granted in
consideration for
capital lease
financing.............. -- -- -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 50
Issuance of stock options
to non-employees in
exchange for
services............... -- -- -- --
Stock-based compensation
expense................ -- -- -- 13
Comprehensive loss
Net loss................. -- (7,041) (7,041) (7,041)
Unrealized gain on
investments............ 2 -- 2 2
------ -------- -------- --------
Comprehensive loss....... $ (7,039)
========
Balances September 30,
1999................... $ 2 $(21,433) $(21,651)
------ -------- --------
</TABLE>
F-6
<PAGE> 91
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES NOTES
PREFERRED STOCK RECEIVABLE COMMON STOCK ADDITIONAL RECEIVABLE UNEARNED
-------------------- FROM ------------------- PAID-IN FROM STOCK-BASED
SHARES AMOUNT STOCKHOLDERS SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- ------- ------------ ---------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1999................... 12,526,255 $24,184 -- 3,662,319 $ 4 $ 1,484 $(1,692) $ (16)
Repayment of stockholder
note receivable........ -- -- -- -- -- -- 16 --
Interest accrued from
stockholder notes
receivable............. -- -- -- -- -- -- (95) --
Amortization of
stockholder note
forgiven............... -- -- -- -- -- -- 93 --
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 414,997 -- 854 -- --
Issuance of common stock
in connection with
acquisition of
Snaketech.............. -- -- -- 1,393,498 1 10,729 -- --
Issuance of fully vested
common stock options in
connection with
acquisition of
Snaketech.............. -- -- -- -- -- 609 -- --
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 10,000 -- 40 -- --
Issuance of preferred
stock pursuant to
exercise of warrants... 20,000 67 -- -- -- -- -- --
Repurchase of restricted
common stock........... -- -- -- (150) -- -- -- --
Issuance of restricted
common stock in
exchange for
services............... -- -- -- 5,300 -- 31 -- (31)
Unearned stock-based
compensation........... -- -- -- -- -- 3,996 -- (3,996)
Stock-based compensation
expense................ -- -- -- -- -- -- -- 1,796
Net loss................. -- -- -- -- -- -- -- --
Realized loss on
investments............ -- -- -- -- -- -- -- --
---------- ------- ----- ---------- --- ------- ------- -------
Comprehensive loss.......
Balances, September 30,
2000................... 12,546,255 $24,251 $ -- 5,485,964 $ 5 $17,743 $(1,678) $(2,247)
========== ======= ===== ========== === ======= ======= =======
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
INCOME DEFICIT LOSS DEFICIT
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balances, September 30,
1999................... $ 2 $(21,433) $ -- $(21,651)
Repayment of stockholder
note receivable........ -- -- -- 16
Interest accrued from
stockholder notes
receivable............. -- -- -- (95)
Amortization of
stockholder note
forgiven............... -- -- -- 93
Issuance of common stock
pursuant to exercise of
stock options.......... -- -- -- 854
Issuance of common stock
in connection with
acquisition of
Snaketech.............. -- -- -- 10,730
Issuance of fully vested
common stock options in
connection with
acquisition of
Snaketech.............. -- -- -- 609
Issuance of restricted
common stock in
exchange for cash...... -- -- -- 40
Issuance of preferred
stock pursuant to
exercise of warrants... -- -- -- --
Repurchase of restricted
common stock........... -- -- -- --
Issuance of restricted
common stock in
exchange for
services............... -- -- -- --
Unearned stock-based
compensation........... -- -- -- --
Stock-based compensation
expense................ -- -- -- 1,796
Net loss................. -- (4,772) (4,772) (4,772)
Realized loss on
investments............ (2) -- (2) (2)
------ -------- -------- --------
Comprehensive loss....... $ (4,774)
========
Balances, September 30,
2000................... $ -- $(26,205) $(12,382)
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 92
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(6,830) $(7,041) $ (4,772)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of discount on lease financing and line of
credit................................................. 20 19 83
Issuance of common stock in exchange for services....... -- -- --
Stock-based compensation................................ 49 13 1,795
Interest accrued on stockholder note receivable......... (53) (68) (95)
Allowance for doubtful accounts......................... 10 161 14
Depreciation and amortization........................... 777 907 843
Amortization of stockholder note forgiven............... 101 94 93
Amortization of goodwill and other intangibles.......... -- -- 2,525
In-process research and development..................... -- -- 1,100
Changes in operating assets and liabilities:
Accounts receivable................................... (383) (3,888) (1,607)
Prepaid expenses and other current assets............. (4) (259) 198
Other assets.......................................... (20) (17) (538)
Accounts payable...................................... (60) 96 189
Accrued liabilities; including payroll and related
expenses............................................. 87 948 486
Deferred revenue...................................... (216) 3,651 1,251
------- ------- --------
Net cash (used in) provided by operating
activities.......................................... (6,522) (5,384) 1,565
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from acquisition of Snaketech............... -- -- 1,591
Acquisition of property and equipment..................... (782) (436) (1,044)
Proceeds from available-for-sale securities............... -- 404 1,066
Purchase of certificate of deposit........................ (300) -- --
Purchase of available-for-sale securities................. -- (664) (806)
------- ------- --------
Net cash (used in) provided by investing
activities.......................................... (1,082) (696) 807
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit.............................. -- 2,500 --
Proceeds from issuance of convertible preferred stock..... 12,313 -- 67
Proceeds from issuance of common stock.................... 73 216 894
Repurchase of common stock................................ (249) (13) --
Repayment of borrowings under capital lease obligations
and line of credit...................................... (213) (156) (106)
Payments from (loans to) stockholders..................... (556) 696 16
------- ------- --------
Net cash provided by financing activities........... 11,368 3,243 871
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 3,764 (2,837) 3,243
Cash and cash equivalents at beginning of period............ 3,277 7,041 4,204
------- ------- --------
Cash and cash equivalents at end of period.................. $ 7,041 $ 4,204 $ 7,447
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 31 $ 106 $ 379
Assets acquired under capital lease....................... -- 119 --
Issuance of common stock for stockholder note
receivable.............................................. 509 725 --
Warrants granted for financing services................... -- 155 --
Issuance of preferred stock in exchange for stockholder
note.................................................... 672 -- --
Issuance of restricted common stock in exchange for
services................................................ -- -- 31
Unearned stock-based compensation......................... 45 20 3,996
ASSETS ACQUIRED AND LIABILITIES ASSUMED IN CONNECTION WITH
ACQUISITION OF SNAKETECH:
Fair value of assets acquired............................. $ 11,576
In-process research and development....................... 1,100
Cash received............................................. 1,591
Common stock and fully vested common stock options
issued.................................................. (11,339)
--------
Liabilities assumed................................... $ 2,928
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 93
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:
Simplex Solutions, Inc. ("Simplex") was incorporated in the State of
Delaware in April 1995. Simplex provides software and services that enable the
design and first-time production success of complex integrated circuits for
computer, communications, and consumer products. Simplex' products are designed
to enable its customers to deliver timely, competitive systems-on-chips
implemented in deep submicron technologies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Simplex and its wholly owned subsidiaries, Simplex Solutions UK Ltd., Simplex
Solutions S.A.R.L., Simplex Solutions GmbH, Simplex Solutions KK, Simplex
Solutions, S.A. (together "Simplex"). All material intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of Simplex' foreign subsidiaries is the U.S.
dollar. Accordingly, the financial statements of those subsidiaries, which are
maintained in the local currency, are remeasured into U.S. dollars in accordance
with Statement of Financial Accounting Standards No. 52, Foreign Currency
Translation. Exchange gains or losses from remeasurement of monetary assets and
liabilities that are not denominated in U.S. dollars were not material for any
period presented and are included in the consolidated statements of operations.
CASH AND CASH EQUIVALENTS
Simplex considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents, except those held
as collateral for Simplex' lease arrangement (Note 10).
SHORT-TERM INVESTMENTS
Investments with original maturities greater than three months and
remaining maturities of less than one year are classified as short-term
investments. Short-term investments, which are classified as available-for-sale,
consist of commercial paper and are reported at fair value. The cost of
securities sold is determined using the specific identification method when
computing realized gains and losses. Fair value is determined using available
market information. At September 30, 2000, there were no short-term investments
or investments with maturities greater than one year.
BUSINESS RISKS AND CONCENTRATION OF CREDIT RISK
Simplex' licenses and services are concentrated in the area of enabling
companies to design complex integrated circuits. This industry is characterized
by rapid technological advances, changes in customer requirements and evolving
industry standards.
F-9
<PAGE> 94
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Any failure by Simplex to anticipate or respond adequately to technological
changes in its industry, changes in customer requirements or changes in industry
standards could have a material adverse effect on Simplex' business and
operating results.
Financial instruments which potentially subject Simplex to concentrations
of credit risk consist primarily of cash, cash equivalents and accounts
receivable. Simplex places its cash and cash equivalents with two major
financial institutions. Deposits at any time may exceed federally insured
limits. For accounts receivable, Simplex performs ongoing credit evaluations of
its customers' financial condition and does not require collateral. Simplex
maintains allowances for potential credit losses and such losses have been
within management's expectations.
At September 30, 1999, three customers each accounted for 10%, 11%, and
16%, respectively, of aggregate accounts receivable; at September 30, 2000,
three customers each accounted for 10%, 11%, and 15%, respectively, of aggregate
accounts receivable. Two customers each accounted for 13% and 11%, respectively,
of total revenue for the year ended September 30, 1998. No customers accounted
for greater than 10% of the total revenue for the year ended September 30 1999.
Revenue from one customer accounted for 15% of total revenue for the year ended
September 30, 2000, exclusive of revenue of 3% sold to this customer through a
distributor.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of Simplex' financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, notes payable,
and line of credit approximate fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets,
generally three to five years. Leased assets are amortized on a straight-line
basis over the lesser of the estimated useful life or the lease term.
Maintenance and repairs are charged to expense as incurred. When assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in operations.
INTANGIBLE ASSETS
Intangible assets include goodwill, assembled workforce and acquired
technology from the acquisition of Snaketech, S.A. ("Snaketech") (see Note 3).
Goodwill and other intangible assets are amortized on a straight-line basis over
the estimated periods of benefit, which are as follow:
<TABLE>
<S> <C>
Goodwill.......................................... 5 years
Acquired technology............................... 1-4 years
Assembled workforce............................... 7 years
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
Simplex evaluates the recoverability of long-lived assets, goodwill related
to those assets and enterprise goodwill in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121").
SFAS No. 121 requires recognition of impairment of long-lived assets upon the
occurrence of certain events and in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.
F-10
<PAGE> 95
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Simplex' reports revenue in two categories; license and services revenue.
License revenue is derived from product sales to end users and distributors.
Services revenue is derived from providing consulting, training, maintenance and
support services to end users, research and development services, and
customization services related to software.
Simplex recognizes revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition, as amended by Statement of Position 98-4, Deferral of the Effective
Date of Certain Provisions of SOP 97-2, ("SOP 97-2") and Statement of Position
98-9, Modification of SOP 97-2, Software Revenue Recognition With Respect to
Certain Transactions. License revenue is derived from term and time-based
licenses. Time-based licenses are for a period of 1 year or less. Term licenses
are typically for a period of 3 to 20 years. License revenue of term licenses is
recognized upon shipment of the license, if an executed agreement or purchase
order has been received, a signed license agreement exists, the fee is fixed and
determinable and collection is deemed probable. All licenses commence upon
execution of a Simplex license agreement. Simplex' standard payment terms are
net 30. Simplex does not generally include acceptance criteria or rights of
return in its arrangements. When acceptance criteria or rights of return are
included in these license arrangements, revenue is deferred until acceptance is
received or the rights of return expire.
For contracts with multiple obligations (e.g., product licenses,
maintenance and other services), and which do not involve significant
customization or modification of software, Simplex allocates revenue to each
component of the contract based on vendor specific objective evidence of its
fair value, which is based on either the price when each component is sold
separately, or the renewal rates for maintenance in future years. Vendor
specific objective evidence exists for maintenance, consulting and training
based upon a history of separate sales of these services. As Simplex has not
generally sold its licenses separately, it uses the residual method to determine
the allocation of revenue to the license portion of multiple-element
arrangements and, as such, no revenue is recognized until delivery. Simplex
recognizes revenue allocated to undelivered products when the criteria for
product revenue set forth above are met.
License and maintenance revenue from time-based licenses are recognized
ratably over the period of the license as vendor specific objective evidence of
the fair value of the maintenance is not established, as maintenance for these
licenses is never sold separately from the license.
Services revenue from consulting and training are recognized as the related
services are performed, when collectibility is probable and the fee is fixed and
determinable. Revenue from maintenance and support agreements is deferred and
recognized on a straight-line basis over the period of the related agreement.
Payments of maintenance fees are generally made in advance and are
nonrefundable.
Simplex adopted SOP 97-2 on April 1, 1998. Prior to the adoption of SOP
97-2, Simplex recognized revenue from the sale of products upon shipment if
remaining obligations were insignificant, collection of the resulting accounts
receivable was probable and product returns reasonably estimable. There was no
material impact on the financial statements upon the adoption of SOP 97-2.
Simplex recognizes service revenue derived from long-term research and
development contracts in accordance with Statement of Financial Accounting
Standard No. 68, Research and Development Arrangements and SOP 81-1, Contract
Accounting, ("SOP 81-1") under the percentage-of-completion method of accounting
based on the estimated stage of completion of individual contracts. Simplex
currently has only one long-term research and development contract. Revenue
recorded related to this contract amounted to $1.7 million for the year ended
September 30, 2000.
Simplex also recognizes service and license revenue for contracts which
require significant customization or modification of its software under SOP
81-1, using the percentage-of-completion method
F-11
<PAGE> 96
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
based on the estimated stage of completion of the individual contracts. To date,
such arrangements have been minimal.
Deferred revenue primarily consists of maintenance and support services
under maintenance contracts and unearned revenue on time-based licenses.
ADVERTISING
Simplex expenses advertising costs as they are incurred. For the years
ended September 1998, 1999 and 2000, advertising expense was $22,992, $140,554
and $0, respectively.
INCOME TAXES
Simplex accounts for income taxes using the liability method whereby
deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax bases of assets and liabilities and measured
at tax rates that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets where it is more likely than not the deferred tax assets will not be
realized.
STOCK-BASED COMPENSATION
Simplex has elected to adopt the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
("SFAS No. 123"). Simplex accounts for stock-based compensation using Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, ("APB
No. 25") and, accordingly, pro forma disclosures required under SFAS No. 123
have been presented. Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant, between the deemed fair value of
Simplex common stock and the exercise price of the option. Additionally,
pursuant to Emerging Issues Task Force Issue 96-18, ("EITF 96-18") Accounting
for Equity Instruments that are issued to other than Employees for Acquiring, or
in conjunction with Selling, Goods or Services, equity instruments issued to
non-employees are measured at fair value over the period of performance using
the Black-Scholes option pricing model.
RESEARCH AND DEVELOPMENT EXPENDITURES
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 and ending when a product is available for general release to
customers. To date, attaining technological feasibility and general release have
substantially coincided. As a result, Simplex has not capitalized any software
development costs.
NET LOSS PER SHARE
Simplex computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share, ("SFAS No. 128").
Under the provisions of SFAS No. 128, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed by dividing the net loss for the period
by the weighted average number of common and dilutive common equivalent shares
outstanding during the period. For all periods presented, options, warrants and
convertible preferred stock were not included in the computation of diluted net
loss per share because the effect would be antidilutive.
F-12
<PAGE> 97
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of shares used in the calculation of basic and diluted net
loss per share follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Basic and diluted net loss per share:
Numerator:
Net loss............................................... $(6,830) $(7,041) $(4,772)
======= ======= =======
Denominator:
Weighted average common shares outstanding............. 3,206 3,553 4,582
Weighted average unvested common shares subject to
repurchase........................................... (871) (636) (380)
------- ------- -------
Denominator for basic and diluted calculation.......... 2,335 2,917 4,202
======= ======= =======
Basic and diluted net loss per share attributable to
common stockholders.................................. $ (2.92) $ (2.42) $ (1.14)
======= ======= =======
Antidilutive securities including options, warrants
unvested common stock and preferred stock not
included in net loss per share calculations.......... 7,567 7,954 9,508
======= ======= =======
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma basic and diluted net loss per share for the year ended September
30, 2000 is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the conversion of convertible
preferred stock into common stock on an as-if-converted basis. Common equivalent
shares, composed of common shares issuable upon the exercise of stock options
and warrants, are not included in pro forma diluted net loss per share as such
shares are antidilutive.
The following table sets forth the computation of pro forma basic and
diluted net loss per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
2000
-------------
(UNAUDITED)
<S> <C>
Numerator:
Net loss.................................................. $(4,772)
=======
Denominator:
Shares used in computing basic and diluted net loss per
share.................................................. 4,202
Adjustment to reflect assumed conversion of all preferred
stock from date of issuance............................ 6,273
-------
Shares used in computing pro forma basic and diluted net
loss per share......................................... 10,475
=======
Basic and diluted pro forma net loss per share.............. $ (0.46)
=======
Antidilutive securities including options and warrants not
included in pro forma net loss per share calculation...... 3,245
=======
</TABLE>
F-13
<PAGE> 98
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA SEPTEMBER 30, 2000 (UNAUDITED)
Pro forma convertible preferred stock and stockholders' equity includes the
pro forma effect of the conversion of convertible preferred stock and warrants
into common stock and warrants effective prior to the closing of the offering on
an as-if-converted basis.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes unrealized gains and losses on
available for sale securities that are excluded from net loss and reflected
instead in stockholders' equity (deficit).
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), which establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the financial
statements, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133, as amended, is effective
for fiscal years beginning after June 15, 2000. There was no significant impact
from the adoption of this pronouncement.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance on disclosure related to revenue
recognition policies. Simplex believes that it currently complies with SAB 101.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. There was not a significant impact to Simplex from adoption
of the Interpretation.
NOTE 3 -- ACQUISITION:
In March 2000, Simplex acquired all of the common stock and outstanding
options to purchase common stock of Snaketech for a purchase price of
approximately $11.8 million, which consisted of 1,393,498 shares of Simplex'
common stock, options to purchase 155,502 shares of Simplex common stock, and
related acquisition expenses totaling approximately $422,000. Simplex valued its
stock issued based upon the then deemed fair market value of $7.70 from a
contemporaneous appraisal which aggregated $10,729,935. Options to purchase
Simplex stock issued to replace outstanding options were reflected at
fair-value, using the Black-Scholes option pricing model method. The fair market
value of options issued amounted to $608,707 and was calculated using the
following assumptions: option term, 3 years; volatility 70%; risk-free rate of
return 6.47% and fair-market value of Simplex stock of $7.70. Snaketech was
incorporated in 1996 in France as a developer and marketer of high-performance
physical design solutions
F-14
<PAGE> 99
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for integrated circuits. The acquisition was accounted for as a purchase and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date. The allocation of the purchase
price is summarized below (in thousands):
<TABLE>
<S> <C>
Acquired technology......................................... $ 5,100
Assembled workforce......................................... 700
Goodwill.................................................... 3,613
In-process research and development......................... 1,100
Property and equipment...................................... 303
Net current assets.......................................... 1,014
-------
Total purchase price.............................. $11,830
=======
</TABLE>
The excess of the purchase price over the fair value of the net tangible
and identifiable intangible assets acquired has been recorded as goodwill.
The following unaudited pro forma financial information reflects the
results of operations for the years ended September 30, 1999 and 2000 as if the
acquisition of Snaketech had occurred on October 1, 1999 and 1998, respectively,
and after giving effect to purchase accounting adjustments. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what operating results would have been had the acquisition
actually taken place on October 1, 1999 and 1998, and may not be indicative of
future operating results (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1999 2000
------------- -----------
(UNAUDITED)
<S> <C> <C>
Net revenue........................................ $ 11,708 $23,508
Operating loss..................................... (14,435) (4,283)
Pro forma basic and diluted net loss per share..... (3.32) (0.88)
</TABLE>
NOTE 4 -- IN-PROCESS RESEARCH AND DEVELOPMENT:
In connection with the acquisition of Snaketech in March 2000 (see Note 3),
Simplex incurred purchased in-process research and development costs of $1.1
million. The fair values of Snaketech's existing products, as well as the
technology currently under development were determined using the income
approach, which discounts expected future cash flows from the acquired
in-process technology to present value. The discount rates used in the present
value calculations were derived from a weighted average cost of capital of 21%,
adjusted upward by a premium of 5% for the in-process project from the Snaketech
acquisition to reflect additional risks inherent in the development lifecycle.
Although Simplex expects to achieve certain expense reductions as a result of
integrating the acquired in-process technology, the valuation assumptions do not
include any expense reductions in the amounts allocated to in-process research
and development. The in-process software product acquired is of reasonable
complexity and its final completion and integration into Simplex products is
uncertain. Should the product not be successfully completed or integrated into
Simplex products, or if such development efforts go beyond the timeframe
estimated by management, Simplex will not receive the full benefits anticipated
from the acquisition. Benefit from development efforts, if any, are not expected
to commence until after fiscal 2001. The percent
F-15
<PAGE> 100
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
complete, the estimated cost to complete and the value assigned for the
Snaketech project included in-process research and development is as follows:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
PERCENT COST TO VALUE
PROJECT COMPLETION COMPLETE ASSIGNED
------- ---------- --------- ----------
<S> <C> <C> <C>
A................................................ 80.8% $300,000 $1,100,000
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 2000
------- --------
<S> <C> <C>
Land and buildings.......................................... $ -- $ 94
Computer equipment.......................................... 2,770 3,811
Furniture and fixtures...................................... 292 397
Leasehold improvements...................................... 175 331
------- -------
3,237 4,633
Less: Accumulated depreciation and amortization............. (2,019) (2,890)
------- -------
$ 1,218 $ 1,742
======= =======
</TABLE>
NOTE 6 -- INTANGIBLE ASSETS:
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1999 2000
------------- -------------
<S> <C> <C>
Acquired technology....................... $ -- $ 5,100
Assembled workforce....................... -- 700
Goodwill.................................. -- 3,613
------- -------
-- 9,413
Less: Accumulated amortization............ -- (2,525)
------- -------
$ -- $ 6,888
======= =======
</TABLE>
NOTE 7 -- LINE OF CREDIT AND NOTES PAYABLE:
At September 30, 2000, Simplex had $2,500,000 outstanding under a
$5,000,000 revolving line of credit which consists of a $2,500,000 non-formula
based amount and a $2,500,000 amount available based on 85% of Simplex's
eligible accounts receivable, as defined and determined by the lender. The
$2,441,775 outstanding balance, which is presented net of discount of $58,225,
is due May 31, 2001, subject to automatic renewal. Interest is due monthly at
2.0% and 3.75% above the highest base rate for the formula-based amount and the
non-formula-based amount, respectively, with a minimum interest rate of 9.0%,
(13.25% for non-formula and 11.5% for formula at September 30, 2000). The line
of credit is collateralized by all of Simplex' assets.
In connection with the revolving line of credit, Simplex granted the lender
a warrant to purchase 66,667 shares of Series E preferred stock at $3.75 per
share as described more fully in Note 8.
At September 30, 2000, Simplex had a note payable of $265,800 which had
been assumed from Snaketech. Snaketech had been granted two interest free
advances from the French government for software development projects, repayable
in three non-equal installments commencing March 31, 2001. If
F-16
<PAGE> 101
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the development project is unsuccessful as determined by the Agence Nationale de
Valorisation de la Recherche ("ANVAR"), repayment of all or a portion of the
advances will not be required. Conversely, if the development project is
successful, Simplex is obligated to repay the loan. Simplex believes these
projects were successful and therefore reported these advances as repayable
loans at September 30, 2000.
At September 30, 2000, Simplex also had $89,843 outstanding for a $107,206
note entered into in September 1999 by Snaketech. This note is repayable in
monthly installments over 15 years at a fixed interest rate of 4.25% per annum.
This loan is guaranteed by Snaketech and collateralized by a building owned by a
subsidiary of Snaketech.
Future maturities for the line of credit and notes payable as of September
30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-------------
<S> <C>
2001...................................................... $ 2,559
2002...................................................... 105
2003...................................................... 118
2004...................................................... 5
2005...................................................... 6
Thereafter................................................ 63
-------
2,856
Less: discount............................................ (58)
Less: current portion..................................... (2,500)
-------
Long-term portion......................................... $ 298
=======
</TABLE>
NOTE 8 -- CONVERTIBLE PREFERRED STOCK:
At September 30, 2000, the proceeds, terms and liquidation values of Series
A, B, C, D and E preferred stock are as follows:
<TABLE>
<CAPTION>
COMMON STOCK
NET ISSUED AND RESERVED FOR LIQUIDATION
SERIES PROCEEDS AUTHORIZED OUTSTANDING CONVERSION VALUE
------ ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
A $ 1,101,561 4,278,854 4,278,854 2,139,427 $ 1,112,502
B 1,244,797 1,625,924 1,600,284 800,142 1,248,222
C 2,056,936 1,200,000 1,180,000 590,000 2,065,000
D 7,482,462 2,250,000 2,233,781 1,116,891 7,505,504
E 12,145,180 4,000,000 3,253,336 1,626,668 12,200,010
Warrants 220,459 -- -- --
Undesignated -- 645,222 -- -- --
----------- ---------- ---------- ---------- -----------
$24,251,395 14,000,000 12,546,255 6,273,128 $24,131,238
=========== ========== ========== ========== ===========
</TABLE>
VOTING RIGHTS
Simplex' Series A, B, C, D and E preferred stock have voting rights equal
to the number of common shares into which each preferred share converts. Each
share of Series A, B, C, D and E preferred stock is convertible into common
stock on a one-for-two basis, subject to certain adjustments as described in the
Preferred Stock Purchase Agreements. Conversion is automatic upon the effective
date of an initial public offering of common stock for which the aggregate
proceeds are not less than $7,500,000 and the offering price is not less than
$8.00 per share of common stock.
F-17
<PAGE> 102
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DIVIDENDS
The holders of the Series A, B, C, D and E preferred stock are also
entitled to registration rights as described in the preferred stock purchase
agreement and receive annual dividends of $0.0208, $0.0624, $0.14, $0.2688 and
$0.30 per share for Series A, B, C, D and E preferred stock, respectively,
whenever funds are legally available and when declared by the Board of
Directors. Preferred dividends are noncumulative and are in preference to any
common stock dividends. As of September 30, 2000, no dividends have been
declared.
LIQUIDATION
In the event of any liquidation, dissolution, or winding up of Simplex,
either voluntary or involuntary, the holders of the then outstanding Series A,
B, C, D and E preferred stock are entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the corporation to
the holders of the common stock, the amount of $0.26, $0.78, $1.75, $3.36 and
$3.75 per share for Series A, B, C, D and E preferred stock, respectively, plus
all declared but unpaid dividends for each share of preferred stock. If, upon
occurrence of such event, the assets and funds thus distributed among the
holders of the preferred stock shall be insufficient to permit the payment to
such holders to the full preferential amount, then the entire assets and funds
of Simplex legally available for distribution will be distributed ratably among
the holders of the preferred stock in proportion to their liquidation preference
(as defined). Any reorganization, merger or consolidation which results in the
transfer of 50% or more of the then outstanding voting power of Simplex shall be
treated as a liquidation event.
WARRANTS
Simplex has issued warrants in connection with the extension of its capital
equipment lease line and facility lease, to purchase up to 25,640 shares of
Series B preferred stock and 20,000 shares of Series C preferred stock, at $0.78
and $1.75 per share, respectively. As of September 30, 2000, these warrants are
exercisable at any time and generally expire upon execution of an initial public
offering.
Simplex valued the warrants using the Black-Scholes option pricing model
and the following assumptions: dividend yield of 0%, volatility of 55%,
risk-free interest rates of 6.42% and 6.58% and terms of 5 years. The fair value
of their warrants was recorded as a discount against the leases and are being
amortized over the life of the leases using the effective interest method.
On June 29, 1999, in conjunction with the revolving line of credit, Simplex
granted warrants to purchase 66,667 shares of Simplex' Series E preferred stock
at $3.75 per share. Using the Black-Scholes pricing model, Simplex determined
that the fair value of the warrants was $155,268 at the date of grant. The
significant assumptions made in determining fair value were volatility of 55%,
risk-free interest rate of 6.05%, dividend yield of 0% and an expected life of 7
years. The warrants have been recorded as a discount on the borrowing under the
line of credit and will be amortized to interest expense over the term of the
line of credit. For the years ended September 30, 1999 and 2000 Simplex recorded
an expense of $19,408 and $77,635, respectively. The total unamortized discount
at September 30, 2000 was $58,225. The warrant expires the earlier of June 29,
2006 or thirty days after a substantial change of control as defined in the
agreement. If the current market price (as defined by the agreement) at the date
of exercise is greater than the exercise price, in lieu of exercising the
warrants, the lender may elect to receive shares of preferred stock equal to the
value of equivalent shares as determined by a formula in the agreement subject
to adjustment for stock splits and other recapitalizations.
F-18
<PAGE> 103
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- STOCKHOLDERS' EQUITY (DEFICIT):
NOTES RECEIVABLE FROM STOCKHOLDERS
On February 12, 1998, Simplex entered into a promissory note agreement with
an employee in the amount of $509,250 which bears interest at the rate of 6% per
annum with principal and interest due on February 12, 2002, unless forgiven by
Simplex. Under the terms of the note, Simplex shall forgive up to a total of
$375,000 of the outstanding principal of this note at the rate of $93,750 one
year from the vesting date (August 1997) and $7,813 each month thereafter until
a total of $375,000 has been forgiven. This note is a full recourse note
collateralized by certain shares of Simplex' common stock. The note becomes due
and payable immediately upon termination of the employment relationship.
Also on February 12, 1998 Simplex issued 200,000 shares of Series D
preferred stock in exchange for a note receivable for $671,800. This note was
repaid on March 5, 1999.
On May 26, 1998, Simplex entered into a settlement agreement with a former
employee, under which Simplex loaned $556,191 to the former employee. The loan
bears interest at the rate of 5.69% per annum, is a full recourse obligation and
is due on the earlier of May 15, 2002 or one year after the closing of Simplex'
initial public offering in one lump sum of cash or shares of Simplex common
stock. The loan is collateralized by 85,000 shares of Simplex common stock owned
by the former employee. In addition, Simplex paid the former employee
approximately $106,000 in consideration for an option granted by the former
employee to Simplex to purchase up to 50,000 shares of common stock of the
85,000 owned by him at $6.75 per share. The option terminates on the earlier of
May 15, 2002 or the closing of Simplex' initial public offering. The fair value
of the option was determined to be $41,445 and the excess of the consideration
over that value was recognized as compensation expense during the year ended
September 30, 1998.
In January 1999, Simplex accepted a full recourse promissory note from an
executive of Simplex in the amount of $241,406 collateralized by 96,563 shares
of restricted common stock. Such note is due no later than January 19, 2004 and
bears interest at 4.63% per annum.
In March 1999, Simplex accepted full recourse promissory notes from two
executives of Simplex in the amounts of $283,334 and $200,000 collateralized by
70,833 and 50,000 shares of restricted common stock. Such notes are due no later
than March 30, 2004 and bear interest at 4.83% per annum.
COMMON STOCK
Simplex issued shares of its common stock to the founders and others under
stock purchase agreements. Each share of common stock is entitled to one vote.
The holders of common stock are also entitled to receive dividends whenever
funds are legally available and when declared by the Board of Directors, subject
to the prior rights of holders of all classes of stock outstanding.
COMMON STOCK SUBJECT TO REPURCHASE
Simplex, since inception, has issued 2,558,446 shares of common stock to
the founders and others that were subject to repurchase by Simplex. Simplex has
the right to repurchase unvested shares at book value, or the value paid per
share by the original purchaser, which is intended to approximate fair value at
the time of issuance. Vesting is generally over four years on a monthly basis.
All common stock subject to repurchase has been issued out of the 1995 Stock
Option Plan (the "Plan") except the founder's shares. Stock purchase rights of
237,396 and 15,300 were granted under the Plan during the years ended September
30, 1999 and 2000, respectively. As of September 30, 2000, 323,985 shares were
subject to repurchase by Simplex.
F-19
<PAGE> 104
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At September 30, 2000, Simplex had reserved shares of common stock for
future issuance as follows (in thousands):
<TABLE>
<S> <C>
Convertible preferred stock................................. 6,273
Warrants.................................................... 56
Stock option plan........................................... 3,788
------
10,117
======
</TABLE>
1995 STOCK OPTION PLAN
In 1995, Simplex adopted the 1995 Stock Option Plan, which was subsequently
amended and restated as of March 2000 by the Board of Directors to include a
sub-division called the 2000 Stock Plan (together "the Plans").
Under the Plans, Simplex has reserved 5,878,103 shares of common stock for
the grant of stock purchase rights and stock options to employees, directors or
consultants under the terms and provisions established by the Board of
Directors.
Options granted under the Plans have a term of ten years measured from the
grant date and are initially unvested. Participants either vest in the option
shares granted over a four-year period with (i) twenty-five percent of the
option shares vesting upon the completion of one year of service and (ii) the
balance of the option shares in thirty-six successive equal monthly installments
upon the completion of each additional month of service, over a four year period
with forty-eight successive equal monthly installments upon the completion of
additional month of service, or over a five-year period with (i) twenty percent
of the option shares vesting upon the completion of one year of service and (ii)
the balance of the option shares in forty-eight successive equal monthly
installments upon the completion of each additional month of service.
Under the Plan, incentive stock options may be granted at prices not lower
than fair market value at the date of grant or 110% of the fair market value if
the optionee, immediately prior to the grant, owns stock representing 10% or
more of the voting power or value of all securities. Nonstatutory options may be
granted at prices not lower than 85% of fair market value at the date of grant
or 110% of the fair market value if the optionee, immediately prior to the
grant, owns stock representing 10% or more of the voting power or value of all
securities. Stock options granted under the Plan are exercisable and vest at
such times and under such conditions as determined by the Board of Directors.
Stock options generally expire from five to ten years from date of grant. Stock
purchase rights are subject to repurchase by Simplex at such times as determined
by the Board of Directors, typically four years.
F-20
<PAGE> 105
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of Simplex' stock option plans as of September 30,
1998, 1999 and 2000, and changes during the periods ended on these dates is
presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
WEIGHTED
AVERAGE
OPTIONS NUMBER EXERCISE
AVAILABLE OF OPTIONS PRICE
FOR GRANT OUTSTANDING PER SHARE
---------- ----------- ---------
<S> <C> <C> <C>
Balances, October 1, 1997................................ 809,028 551,350 $0.50
Additional shares reserved............................... 500,000
Restricted stock granted................................. (395,000) $1.36
Options granted.......................................... (970,500) 970,500 $1.98
Options canceled......................................... 178,263 (178,263) $0.68
Options exercised........................................ (72,685) $0.60
Restricted stock repurchased............................. 21,928 $0.14
---------- ---------
Balances, September 30, 1998............................. 143,719 1,270,902 $1.60
Additional shares reserved............................... 1,000,000
Restricted stock granted................................. (237,396) $3.26
Options granted.......................................... (769,834) 769,834 $3.64
Options canceled......................................... 304,071 (304,071) $2.92
Options exercised........................................ (111,668) $1.50
Restricted stock repurchased............................. 51,004 $0.28
---------- ---------
Balances, September 30, 1999............................. 491,564 1,624,997 $2.32
Additional shares reserved............................... 2,101,503
Restricted stock granted................................. (15,300) $2.62
Options granted.......................................... (2,161,752) 2,161,752 $5.88
Options canceled......................................... 183,543 (183,543) $4.34
Options exercised........................................ (414,997) $2.06
Restricted stock repurchased............................. 150 $4.00
---------- ---------
Balances, September 30, 2000............................. 599,708 3,188,209 $4.66
========== =========
</TABLE>
The options outstanding and currently exercisable by exercise price at
September 30, 2000 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT SEPTEMBER 30, 2000 OPTIONS EXERCISABLE AT
------------------------------------------- SEPTEMBER 30, 2000
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
-------- ------------ ---------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.06 - $0.36 55,699 5.54 $ 0.198 46,687 $0.168
$0.68 - $1.36 223,774 7.24 $ 1.336 119,369 $1.35
$1.50 - $2.00 159,044 7.61 $ 1.936 89,043 $1.942
$2.50 362,460 5.75 $ 2.50 152,829 $2.50
$4.00 1,369,574 9.07 $ 4.00 241,847 $4.00
$7.70 984,658 9.57 $ 7.70 147,863 $7.70
$9.34 33,000 9.96 $ 9.34 -- $9.34
--------- ---------
3,188,209 797,638 $3.54
========= =========
</TABLE>
F-21
<PAGE> 106
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options exercisable at September 30, 1997, 1998 and 1999 were 66,697,
182,375, and 488,983, respectively.
STOCK-BASED COMPENSATION
In connection with certain stock option grants to employees during the year
ended September 30, 2000, Simplex recorded stock-based compensation
approximating $3,944,000, which is being amortized in accordance with FASB
Interpretation No. 28 over the vesting periods of the related options, which is
generally four years. In addition, Simplex also recorded a deferred charge in
connection with options granted to non-employees, approximating $52,000 which
will be adjusted over the period of performance in accordance with EITF 96-18.
Stock-based compensation amortization recognized during the year ended September
30, 2000 totaled $1,795,399.
FAIR VALUE DISCLOSURE
The following information concerning Simplex stock option plans is provided
in accordance with SFAS No. 123. Simplex accounts for such plans in accordance
with APB No. 25.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for grants:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------------------------
1998 1999 2000
------- ------- -----------
<S> <C> <C> <C>
Risk-free interest rate..................................... 5.23% 4.74% 5.93%
Expected life............................................... 5 years 5 years 5 years
Dividend yield.............................................. -- -- --
Expected volatility......................................... 0% 0% 0%
Weighted average fair value................................. $ 0.46 $ 0.92 $ 3.34
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options are amortized over the option's vesting period. Pro forma information
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
Net loss.................................................... $(6,830) $(7,041) $(4,772)
======= ======= =======
Net loss -- SFAS 123 adjusted............................... $(6,946) $(7,415) $(6,129)
======= ======= =======
Net loss per share -- as reported basic and diluted......... $ (2.92) $ (2.42) $ (1.14)
======= ======= =======
Net loss per share -- SFAS 123 adjusted basic and diluted... $ (2.98) $ (2.54) $ (1.46)
======= ======= =======
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts. Additional awards in future periods are
anticipated.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
Simplex leases administrative, engineering and sales facilities in the
United States, United Kingdom, France and Japan under noncancelable operating
leases that expire at various dates through 2005. Simplex is generally
responsible for insurance and property taxes. Simplex' primary lease in
Sunnyvale, California is
F-22
<PAGE> 107
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subject to annual payment increases based on the consumer price index. Simplex
also leases computer equipment under leases classified as capital leases.
Simplex leases its office facilities and certain office equipment under
noncancelable operating leases which expire through May 2002. Simplex is
responsible for certain taxes, maintenance costs and insurance under the leases.
Under the terms of the facility lease agreement, Simplex is obligated to provide
the lessor with a letter of credit of approximately $300,000. The letter of
credit is collateralized by a certificate of deposit, which is included in other
assets.
At September 30, 2000, the aggregate future minimum lease payments under
all noncancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
------------------------- ------- ---------
<S> <C> <C>
2001................................................... $ 40 $ 183
2002................................................... 24 697
2003................................................... -- 288
---- ------
Total minimum lease payments................................ 64 $1,168
======
Less: Amount representing interest.......................... (6)
Amount representing discount................................ (6)
----
Present value of capital lease obligations.................. 52
Current portion............................................. (29)
----
Long-term portion........................................... $ 23
====
</TABLE>
Rent expense in the years ended September 30, 1998, 1999 and 2000 was
$671,521, $744,167 and $789,621, respectively.
On November 1, 2000, Simplex received written notice from a third party
claiming that one of the Company's current products allegedly infringes a patent
held by such party. Based upon a thorough review of the intellectual property
issue, Simplex believes that the allegation of infringement by such third party
is without merit. However, because of the uncertainties of the legal process, if
this matter leads to litigation there can be no assurance that this matter will
not materially impact the Company.
NOTE 11 -- INCOME TAXES:
Net income (loss) allocable to United States and foreign sources are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------------
1998 1999 2000
------- ------- -------
<S> <C> <C> <C>
United States......................................... $(6,830) $(7,100) $(4,025)
Foreign............................................... -- 59 (747)
------- ------- -------
$(6,830) $(7,041) $(4,772)
======= ======= =======
</TABLE>
F-23
<PAGE> 108
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of deferred tax assets as of September 30, 1998, 1999, 2000
and June 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
Capitalized costs.................................... $ 307 $ 424 $ 259
Accrued liabilities.................................. 316 672 162
Research and development credit...................... 676 1,525 2,406
Net operating loss................................... 3,956 7,091 7,000
Property and equipment............................... 99 176 89
Other................................................ 20 -- 398
------- ------- --------
Total deferred tax assets............................ 5,374 9,888 10,314
Valuation allowance.................................. (5,374) (9,888) (10,314)
------- ------- --------
$ -- $ -- $ --
======= ======= ========
</TABLE>
In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that a
tax benefit may be realized from the asset in the future. Simplex has
established a valuation allowance to the full extent of its deferred tax assets
since it is not certain that a benefit can be realized in the future due to
Simplex's recurring operating losses.
The change in the valuation allowance was $2,844,000, $4,514,000 and
$426,000 for the years ended September 30, 1998, 1999 and 2000, respectively.
Simplex had federal and state net operating loss carryforwards of
approximately $18.7 million at September 30, 2000. Simplex's federal and state
net operating loss carryforwards will expire beginning in the year 2010 and
2002, respectively, if not utilized. Simplex also has federal and state research
and development credits of approximately $1.1 million and $957,000,
respectively, which expire in years commencing 2010 through 2020 if not used.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. In the event Simplex has a change in ownership,
utilization of the carryforwards could be restricted.
The expected U.S. Federal statutory income tax rate (34%) differs from the
effective tax rate as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
U.S. Federal income tax benefit at statutory rates.......... (34.0)% (34.0)% (34.0)%
Permanent differences/Research and development credits...... (2.0) (24.0) 35.0
State income tax benefit, net of federal benefit............ (6.0) (6.0) (6.0)
Foreign tax................................................. 0.0 0.0 5.0
Change in valuation allowance............................... 42.0 64.0 10.0
----- ----- -----
0.0% 0.0% 10.0%
===== ===== =====
</TABLE>
Tax expense for the year ended September 30, 2000 was limited to foreign
taxes of $242,000, all of which were currently payable.
NOTE 12 -- EMPLOYEE RETIREMENT PLAN:
Simplex maintains a 401(k) plan for its employees. The plan allows eligible
employees to defer up to 15% of their earnings, not to exceed the statutory
amount per year on a pretax basis through contributions
F-24
<PAGE> 109
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to the plan. The plan provides for employer contributions at the discretion of
the Board of Directors; however, no such contributions were made during the
years ended September 30, 1998, 1999 and 2000.
NOTE 13 -- SEGMENT INFORMATION:
Simplex operates in a single business segment, the development and
licensing of software products and the provision of services to companies which
are used to verify the design of integrated circuits. Simplex uses only one
measure of profitability. Operations of Simplex' overseas subsidiaries consist
of license revenue and services.
Information regarding geographic areas at September 30, 1998, 1999, and
2000 and for each of the years then ended is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED STATES EUROPE ASIA ELIMINATIONS TOTAL
------------- ------ ------ ------------ -------
<S> <C> <C> <C> <C> <C>
September 30, 1998 and for the year then
ended:
Revenue from unaffiliated customers... $ 5,864 $ 407 $ 266 -- $ 6,537
======= ====== ====== == =======
Long-lived assets..................... $ 1,906 -- -- -- $ 1,906
======= ====== ====== == =======
September 30, 1999 and for the year then
ended:
Revenue from unaffiliated customers... $ 8,325 $1,665 $ 891 -- $10,881
======= ====== ====== == =======
Long-lived assets..................... $ 1,535 $ 28 $ 8 -- $ 1,571
======= ====== ====== == =======
September 30, 2000 and for the year then
ended:
Revenue from unaffiliated customers... $15,041 $3,379 $4,397 -- $22,817
======= ====== ====== == =======
Long-lived assets..................... $ 8,252 $ 445 $ 296 -- $ 8,993
======= ====== ====== == =======
</TABLE>
Revenue from external customers are attributed based upon the geographic
location of the customer. European revenue is principally from the United
Kingdom, and revenue in Asia is principally from Japan.
NOTE 14 -- RELATED PARTIES:
During the year ended September 30, 2000, Simplex sold software amounting
to $269,000 to Altius Solutions, Inc., a company with which it had entered into
a definitive merger agreement and subsequently purchased in October 2000.
A partner in a law firm which operates as Simplex' general counsel is a
member of the Board of Directors. This firm provided legal services amounting to
approximately $704,000 to Simplex for the year ended September 30, 2000.
Simplex sold certain licenses and maintenance to a subsidiary of a
corporation which also was a 6% shareholder. Such sales amounted to $217,500 and
$349,175 for the years ended September 30, 1999 and 2000, respectively.
F-25
<PAGE> 110
SIMPLEX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- SUBSEQUENT EVENTS:
ACQUISITION
On October 4, 2000, Simplex acquired Altius Solutions, Inc., which provides
systems-on-chip design foundry services. Simplex issued approximately 3.8
million shares of common stock, subject to adjustment, to Altius stockholders in
exchange for their shares of Altius common and preferred stock. Simplex also
reserved approximately 579,000 of its options for issuance to holders of Altius
options and warrants. This transaction will be accounted for under the purchase
method of accounting.
STOCK SPLIT
On January 8, 2001, the stockholders approved a reverse-split of Simplex'
stock on a ratio of one to two. Completion of this split is subject to approval
by the Delaware Secretary of State. All references in the financial statements
to shares and per share amounts have been restated to give effect to this
reverse-split.
F-26
<PAGE> 111
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Snaketech S.A.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity
(deficit), and of cash flows present fairly, in all material respects, the
financial position of Snaketech S.A. and its subsidiaries as of December 31,
1998 and 1999, and the results of their operations and their cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States. These consolidated financial statements are the
responsibility of Snaketech S.A.'s management; our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
conducted our audits of these consolidated financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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.
August 17, 2000
Befec-Price Waterhouse
Olivier Auscher
F-27
<PAGE> 112
SNAKETECH S.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 376,151 $ 2,284,141
Accounts receivable....................................... 217,541 333,752
Prepaid expenses and other current assets................. 26,993 115,781
--------- -----------
Total current assets................................... 620,685 2,733,674
Property and equipment, net................................. 87,089 318,929
--------- -----------
$ 707,774 $ 3,052,603
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings, current....................................... $ 124,509 $ 5,566
Accounts payable.......................................... 210,557 330,811
Accrued liabilities....................................... 14,530 30,133
Deferred revenue.......................................... 249,618 853,979
--------- -----------
Total current liabilities.............................. 599,214 1,220,489
Borrowings, non current..................................... -- 360,999
--------- -----------
599,214 1,581,488
--------- -----------
Commitments (see Note 5)
Shareholders' equity:
Common stock (4,275 and 6,015,000 shares issued and
outstanding in 1998 and 1999 respectively)............. 71,833 130,141
Additional paid in capital................................ 661,367 3,488,730
Unearned stock compensation............................... -- (48,623)
Accumulated deficit....................................... (648,325) (1,966,819)
Other comprehensive income (loss)......................... 23,685 (132,314)
--------- -----------
Total shareholders' equity............................. 108,560 1,471,115
--------- -----------
$ 707,774 $ 3,052,603
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 113
SNAKETECH S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1998 1999
---------- -----------
<S> <C> <C>
Revenue:
Software licenses......................................... $ 380,784 $ 597,433
Services.................................................. 32,302 102,302
Development fee........................................... 175,914 159,524
---------- -----------
Total revenue.......................................... 589,000 859,259
---------- -----------
Cost of revenue:
Cost of software licenses................................. 5,827 5,330
Cost of services.......................................... 17,301 46,827
Cost of development fee................................... -- --
---------- -----------
Cost of revenue........................................ 23,128 52,157
---------- -----------
Gross profit................................................ 565,872 807,102
---------- -----------
Operating expenses:
Research and development (exclusive of stock based
compensation of $0 in 1998 and $1950 in 1999).......... 567,844 747,981
Sales and marketing (exclusive of stock based compensation
of $0 in 1998 and $659 in 1999......................... 195,032 516,228
General and administrative (exclusive of stock based
compensation of $0 in 1998 and $258 in 1999)........... 365,044 962,193
Stock-based compensation expense.......................... -- 2,867
---------- -----------
Total operating expenses............................... 1,127,920 2,229,269
---------- -----------
Loss from operations........................................ (562,048) (1,422,167)
Interest income (expense)................................... (670) 103,849
Other expenses, net......................................... (148) (176)
---------- -----------
Net loss.................................................... (562,866) (1,318,494)
Other comprehensive income (loss)........................... 23,685 (155,999)
---------- -----------
Comprehensive loss.......................................... $ (539,181) $(1,474,493)
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 114
SNAKETECH S.A.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED OTHER
-------------------- ADDITIONAL STOCK-BASED ACCUMULATED COMPREHENSIVE
SHARES AMOUNT PAID-IN CAPITAL COST DEFICIT INCOME (LOSS) TOTAL
--------- -------- --------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997... 2,500 $ 41,749 $ -- $ -- $ (85,459) $ -- $ (43,710)
Issuance of common stock...... 1,775 30,084 661,367 -- -- -- 691,451
Net loss...................... -- -- -- -- (562,866) -- (562,866)
Other comprehensive income.... -- -- -- -- -- 23,685 23,685
--------- -------- ---------- -------- ----------- --------- -----------
Balances, December 31, 1998... 4,275 71,833 661,367 -- (648,325) 23,685 108,560
Issuance of common stock...... 6,010,725 58,308 2,775,873 -- -- -- 2,834,181
Deferred compensation cost.... -- -- 51,490 (51,490) -- -- --
Amortization of unearned
compensation................ -- -- -- 2,867 -- -- 2,867
Net loss...................... -- -- -- -- (1,318,494) -- (1,318,494)
Other comprehensive loss...... -- -- -- -- -- (155,999) (155,999)
--------- -------- ---------- -------- ----------- --------- -----------
Balances, December 31, 1999... 6,015,000 $130,141 $3,488,730 $(48,623) $(1,966,819) $(132,314) $ 1,471,115
========= ======== ========== ======== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 115
SNAKETECH S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1998 1999
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(562,866) $(1,318,494)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.......................... 25,777 53,702
Profit on disposal of fixed assets..................... -- (815)
Changes in operating assets and liabilities:
Increase in accounts receivable...................... (180,597) (227,572)
Increase in prepaid expenses and other current
assets.............................................. (17,318) (14,409)
Increase in accounts payable......................... 84,746 133,807
Increase in accrued liabilities...................... 14,040 26,296
Increase in deferred revenue......................... 156,436 635,313
--------- -----------
Net cash used in operating activities............. (479,782) (712,172)
--------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (78,023) (301,415)
Sale of property and equipment............................ -- 1,845
--------- -----------
Net cash used in investing activities............. (78,023) (299,570)
--------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 691,451 2,834,181
Cash received from new borrowings......................... 119,195 274,114
Loan repayments........................................... (44,023) (1,353)
--------- -----------
Net cash provided by financing activities......... 766,623 3,106,942
--------- -----------
Effect of exchange rate differences on cash and cash
equivalents............................................... 34,392 (187,210)
Net increase in cash and cash equivalents................... 243,210 1,907,990
Cash and cash equivalents at the beginning of the year...... 132,941 376,151
--------- -----------
Cash and cash equivalents at the end of the year............ $ 376,151 $ 2,284,141
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 116
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:
Snaketech S.A. ("Snaketech") was founded in Voiron, France in January 1996
to develop products and deliver services to companies which develop integrated
circuit designs in the deep submicron era. These products and services enable
Snaketech's customers to verify the design of integrated circuits. Snaketech's
customers are mainly located in Europe and Asia.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Snaketech and its wholly owned subsidiaries, Snaketech Corporation and SCI
Parvimmo. All material intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Snaketech considers all highly liquid debt instruments including commercial
paper, money market funds and certificates of deposits with an original maturity
of three months or less at the date of purchase to be cash equivalents.
The portfolio of cash and cash equivalents consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- ----------
<S> <C> <C>
Cash................................................. $376,151 $ 579,309
Money market funds................................... -- 1,704,832
-------- ----------
$376,151 $2,284,141
======== ==========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of certain of Snaketech's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate fair value due to their short maturities. The
reported amounts of loans payable approximate fair value due to their current
market interest rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the company to
concentrations of credit risk consist primarily of cash, money market accounts
and accounts receivable. Cash and money market funds are held primarily in one
financial institution.
Snaketech performs ongoing credit evaluations within the context of the
industry in which it operates, does not require collateral and maintains
reserves for potential credit losses on customer accounts when
F-32
<PAGE> 117
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
deemed necessary. To date, such losses have been within management's
expectations. Revenue and receivables are concentrated among a limited number of
customers.
The following table sets forth customers comprising 10% or more of
Snaketech's total revenue for each of the period presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
CUSTOMER 1998 1999
-------- ---- ----
<C> <S> <C> <C>
A 17% 12%
B....... 17% -- ....
C 17% -- ....
D 10% -- ....
E....... -- 23%
</TABLE>
At December 31, 1998, two customers accounted for 21% of total accounts
receivable. At December 31, 1999, three customers accounted for 34% of total
accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets, 20
years for building and generally 3 to 5 years for other fixed assets. Gains and
losses upon asset disposal are taken into income in the year of disposal.
Maintenance and repairs are charged to operations as incurred.
REVENUE RECOGNITION
Snaketech derives revenue from two sources as follows: (i) software license
revenue and (ii) services revenue which include consulting, training services
and customer support. Effective January 1, 1998, Snaketech adopted SOP 97-2,
Software Revenue Recognition, with the exception of the provision deferred by
SOP 98-4, Deferral of the Effective Date of a Provision of SOP 97-2. In
accordance with the adopted provisions of SOP 97-2, Snaketech records revenue
from licensing of software products to end-users when a license agreement is
signed by both parties, the fee is fixed and determinable, collection is
probable and delivery of the product has occurred. Snaketech's business practice
is to provide payment terms that range from thirty days to one year from the
invoice date. Accordingly, payment terms that exceed one year are not considered
fixed and determinable and revenue is recognized as payments become due. When
contracts contain multiple elements, and for which vendor specific objective
evidence ("VSOE") of fair value exists for the undelivered elements, Snaketech
recognizes revenue for the delivered elements based upon the residual method.
Undelivered elements consist primarily of postcontract customer support ("PCS")
and other services such as consulting and training. VSOE is established based on
the price charged when the element is sold separately. Snaketech recognizes
revenue allocated to maintenance and support ratably over the period of the
maintenance and the support contracts, respectively, which is generally twelve
months. For revenue allocated to consulting services, such as training,
Snaketech recognizes revenue as the related services are performed. To date,
Snaketech has not been able to establish VSOE for undelivered elements.
Therefore, revenues for license contracts with multiple elements have been
recognized ratably over the term of the PCS period.
Snaketech also received non refundable funds from governmental and
nongovernmental organizations. Each payment received is recognized ratably over
the period of the project.
F-33
<PAGE> 118
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 1998 and 1999, comprehensive income (loss)
represents net income (loss) plus foreign currency translation adjustments which
are included in shareholders' equity but not in net income (loss).
INCOME TAXES
Snaketech has accounted for income taxes using an asset and liability
approach which requires the recognition of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in Snaketech's financial
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax law. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
SOFTWARE DEVELOPMENT COSTS
Costs related to research, design and development of products are charged
to research and development expenses as incurred. Under Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, software development costs
are capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. During the years ended December 31, 1998 and 1999, the establishment
of technological feasibility of the Snaketech's product and general release
substantially coincided. As a result, no software production costs were
capitalized since costs meeting the requirements of SFAS No. 86 were not
significant.
STOCK-BASED COMPENSATION
Snaketech accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, and complies with the disclosures
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
grant, between the fair value of Snaketech's common stock and the exercise price
of the option. SFAS No. 123 defines a "fair value" based method of accounting
for an employee stock option or similar equity investment. The pro forma
disclosures of the difference between the compensation expense included in net
loss and the related cost measured by the fair value method are presented in
Note 9.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations where the functional currency
is the local currency, are translated into French franc at the balance sheet
date exchange rate. Revenues and expenses are translated at the average rate
prevailing during the period. The related gains and losses from translation are
recorded as a translation adjustment in a separate component of shareholders'
equity.
Although the French Franc is the functional currency of Snaketech, these
financial statements have been presented using the U.S. Dollar as the reporting
currency.
ADVERTISING COSTS
Snaketech expenses advertising costs as they are incurred. Advertising
expense was $14,500 and $17,358 for the year ended December 31, 1998 and 1999,
respectively.
F-34
<PAGE> 119
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes a new model for accounting of derivatives and hedging activities and
supercedes and amends a number of existing accounting standards. SFAS No. 133
requires that all derivatives be recognized in the balance sheet at their fair
market value and the corresponding derivative gains or losses be either reported
in the statement of operations or as a deferred item depending on the type of
hedge relationship that exists with respect to such derivatives. In July 1999,
the Financial Accounting Standards Board issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133. SFAS No. 133 deferred the effective date until the
quarter ending June 30, 2000. Snaketech does not believe that the adoption of
this pronouncement will have a material impact on its financial condition or
results of operations.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9 (SOP 98-9), Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions. SOP 98-9 requires use
of the "residual method" when there is vendor-specific objective evidence of
fair value of all undelivered elements in a multiple element arrangement,
vendor-specific objective evidence of fair value does not exist for the
delivered element(s) and all other revenue criteria of SOP 97-2 are met. SOP
98-9 is effective December 15, 1998 to the extent that it extends the deferral
of certain passages of SOP 97-2, Software Revenue Recognition, previously
extended by SOP 98-4, Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition. All other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999.
Snaketech believes that it currently complies with SOP 98-9.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation is effective July 1, 2000,
but certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation are recognized on a prospective basis
from July 1, 2000. This Interpretation is not expected to affect Snaketech due
to its acquisition (Note 12).
NOTE 3 -- PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Land and buildings..................................... $ -- $101,080
Computer equipment..................................... 87,940 159,713
Software............................................... 21,044 48,030
Office furniture and other assets...................... 15,752 89,726
-------- --------
124,736 398,549
Less: Accumulated depreciation and amortization........ (37,647) (79,620)
-------- --------
$ 87,089 $318,929
======== ========
</TABLE>
Depreciation and amortization expense was $25,777 and $53,702 for the years
ended December 31, 1998 and 1999, respectively.
F-35
<PAGE> 120
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- BORROWINGS:
Snaketech had a line of credit of $124,509 and $259,359 at December 31,
1998 and 1999, respectively. Snaketech was granted two interest-free government
advances for software development projects, repayable in three non-equal
installments commencing March 31, 2001. If the development project is deemed
successful, as determined by the Agence Nationale de Valorisation de la
Recherche ("ANVAR"), the funds received will not be entirely repayable.
Conversely, if the development project is successful, Snaketech is obligated to
repay the loan. Such determination should be made after June 30, 2000. Snaketech
expects that these projects will be deemed successful. Snaketech has reported
these advances as repayable loans.
In September 1999, SCI Parvimmo obtained a loan of $107,206, repayable in
monthly installments over 15 years at a fixed interest rate of 4.25% per annum.
This loan is guaranteed by Snaketech and collateralized by the building owned by
SCI Parvimmo.
Future maturities for the loan and the line of credit as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
2000...................................................... $ 5,566
2001...................................................... 66,767
2002...................................................... 120,609
2003...................................................... 90,228
2004...................................................... 6,254
Thereafter................................................ 77,141
--------
366,565
Less: Current portion..................................... (5,566)
--------
Long-term portion......................................... $360,999
========
</TABLE>
NOTE 5 -- COMMITMENTS:
Snaketech leases part of its office facilities under noncancelable
operating leases which expire through July 2008. Future minimum rental payments
as of December 31, 1999 are $14,592 per annum (excluding taxes), indexed to
inflation.
Rent expense was $2,644 and $14,621 for the years ended December 30, 1998
and 1999, respectively.
NOTE 6 -- SHAREHOLDERS' EQUITY:
Snaketech's common stock consists of 4,275 shares and 6,015,000 shares at
December 31, 1998 and 1999 respectively. These shares are all of the same class
and were converted from French francs to Euro during 1999, at which point the
number of shares was multiplied by 1000.
F-36
<PAGE> 121
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES:
The components of deferred tax assets and liabilities as of December 31,
1998 and 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Capitalized start-up costs........................... $ 3,249 $ 2,469
Net operating loss................................... 110,584 827,847
Depreciation......................................... 785 4,300
--------- ---------
Net deferred tax assets.............................. 114,618 834,616
Valuation allowance.................................. (114,618) (834,616)
--------- ---------
Net.................................................. $ -- $ --
========= =========
</TABLE>
In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is uncertain that a
tax benefit may be realized from the asset in the future. Snaketech has
established a valuation allowance to the full extent of its deferred tax assets
since it is not certain that a benefit can be realized in the future due to
Snaketech's recurring operating losses.
The change in the valuation allowance was $114,618 and $719,998 for the
years ended December 31, 1998 and 1999, respectively.
Snaketech has loss carryforwards of $45,335, $341,939 and $418,320 expire
in 2003, 2004 and 2013, respectively, if not used beforehand to offset taxable
income. Additionally, Snaketech had operating loss of $22,253 at December 31,
1999, which can be carryforwarded indefinitely.
NOTE 8 -- EMPLOYEE RETIREMENT PLAN:
The costs of retirement for the employees of the Snaketech and SCI Parvimmo
are covered by the State Pension system and any additional costs to be borne by
Snaketech are not considered significant.
There is no employee retirement plan for the employees of Snaketech.
NOTE 9 -- STOCK OPTION PLAN:
Snaketech has a stock option plan (the "Plan") under which 925,000 shares
of Snaketech's common stock could be issued following the exercise of stock
options to employees, directors, or consultant under terms and provisions
established by the Board of Directors.
Under the Plan, incentive options may be granted at prices not lower than
95% and no higher than 100% of the price set up as the basis of the last capital
increase voted by the Board of Directors prior to the grant. Stock options
granted under the Plan vest during the four year period with a maximum of 25%
per year after the date of grant. Stock options expire four years from date of
grant.
In addition to the stock option plan, 125,250 stock purchase rights and
none were granted during the year ended December 31, 1999 and 1998 respectively.
The exercise price of these stock purchase rights is $1.55 per share. Stock
purchase rights are exercisable and vest at such times and under such conditions
as determined by the Board of Directors.
F-37
<PAGE> 122
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes activity under Snaketech's stock option
plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE
FOR GRANT SHARES PRICE AMOUNT
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Balances, December 31, 1998....................... -- -- $ -- $ --
Additional shares to be issued.................... 925,000
Options granted................................... -- 701,500 1,395 978,747
Options cancelled................................. -- -- -- --
Options repurchased............................... -- -- -- --
Options exercised................................. -- -- -- --
------- ------- ------ --------
Balances, December 31, 1999....................... 925,000 701,500 $1,395 $978,747
======= ======= ====== ========
</TABLE>
The following table summarizes information concerning outstanding vested
and exercisable options as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
WEIGHTED
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OUTSTANDING LIFE (IN YEARS)
-------- ----------- ---------------
<S> <C> <C>
$0.615............................................. 61,200 3.1
$1.469............................................. 430,000 3.8
$1.469............................................. 210,300 3.9
-------
701,500
=======
</TABLE>
At December 31, 1999, there are no options vested or exercisable.
FAIR VALUE DISCLOSURES
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
Snaketech has accounted for its employee stock options granted under the fair
value method. The fair value for these options was estimated using the
Black-Scholes option pricing model.
Snaketech calculated the minimum fair value of each option grant on the
date of grants using the Black-Scholes option pricing method as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Risk-free rates............................................. 4.88%
Expected lives (in years)................................... 4.0
Dividend yield.............................................. 0.0%
Expected volatility......................................... 0.0%
</TABLE>
The weighted average fair value of the options granted in 1999 was $0.30.
F-38
<PAGE> 123
SNAKETECH S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Had compensation costs been determined based upon the fair value at the
grant date for awards under these plans, consistent with the methodology
prescribed under SFAS No. 123, Snaketech's pro forma net loss under SFAS No. 123
would have been (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
--------- -----------
<S> <C> <C>
Net loss
As reported............................................... $(562,866) $(1,318,494)
Pro forma................................................. $(562,866) $(1,330,306)
</TABLE>
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants, Snaketech recognized
unearned compensation which is being amortized over the vesting periods of the
related options, usually 48 months. The total unearned compensation recorded by
Snaketech from January 1, 1998 through December 31, 1999 was $51,490.
Amortization expense recognized during the year ended December 31, 1998 and 1999
was $nil and $2,867, respectively.
NOTE 10 -- SUBSEQUENT EVENT:
In March 2000, Simplex Solutions, Inc. ("Simplex") acquired all of the
common stock and outstanding options of Snaketech for a purchase price of
approximately $11.8 million, which consisted of 2,786,966 shares of Simplex
common stock and 311,003 options to purchase Simplex common stock, exclusive of
acquisition expenses.
F-39
<PAGE> 124
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Altius Solutions, Inc.
In our opinion, the accompanying balance sheet and the related statements
of income, of convertible preferred stock, of stockholders' equity and
comprehensive income, and of cash flows present fairly, in all material
respects, the financial position of Altius Solutions, Inc. as of September 30,
2000, and the results of its operations and its cash flows for the nine-month
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of Altius Solutions, Inc.'s management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with auditing
standards generally accepted in the United States of America, 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 audit provides a reasonable basis
for our opinion.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
October 23, 2000
F-40
<PAGE> 125
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders'
of Altius Solutions, Inc.:
We have audited the accompanying balance sheet of Altius Solutions, Inc.
(the "Company") as of December 31, 1999, and the related statements of income
convertible preferred stock and stockholders' equity and comprehensive income
and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Altius Solutions, Inc. at December 31, 1999,
and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
San Jose, California
September 8, 2000
F-41
<PAGE> 126
ALTIUS SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,600,965 $2,793,769
Accounts receivable....................................... 1,384,833 2,139,708
Prepaid expenses and other current assets................. 193,643 164,189
Deferred tax assets....................................... 8,500 260,000
---------- ----------
Total current assets.............................. 3,187,941 5,357,666
Software and equipment, net................................. 766,665 1,740,339
Other assets................................................ 28,667 135,553
---------- ----------
Total............................................. $3,983,273 $7,233,558
========== ==========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable.......................................... $ 456,166 $ 165,900
Current portion of long-term obligations.................. 38,817 486,815
Accrued expenses.......................................... 366,699 1,756,456
Deferred revenue.......................................... 344,686 827,292
Other current liabilities................................. 29,687 17,012
---------- ----------
Total current liabilities......................... 1,236,055 3,253,475
Deferred tax liabilities.................................... -- 326,000
Long-term obligations....................................... 150,218 --
Other liabilities........................................... -- 178,942
Commitments (Note 7)
Convertible preferred stock -- $0.001 par value; 9,000,000
shares authorized; 8,812,500 shares issued and outstanding
(liquidation preference
$2,350,000)............................................... 2,350,000 2,350,000
Stockholders' equity:
Common stock -- $0.001 par value; 26,000,000 shares
authorized; 6,140,625 and 9,488,625 shares issued and
outstanding at December 31, 1999 and September 30,
2000, respectively..................................... 653,750 1,412,600
Deferred stock compensation............................... (558,000) (857,850)
Accumulated other comprehensive income.................... 51,804 40,936
Retained earnings......................................... 99,446 529,455
---------- ----------
Total stockholders' equity........................ 247,000 1,125,141
---------- ----------
Total............................................. $3,983,273 $7,233,558
========== ==========
</TABLE>
See notes to financial statements.
F-42
<PAGE> 127
ALTIUS SOLUTIONS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------
1999 1999 2000
------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Design services..................................... $2,036,900 $ 992,900 $6,528,197
Licenses............................................ 441,379 424,000 39,296
Maintenance and other services...................... 540,979 394,770 397,809
---------- ---------- ----------
Total revenues.............................. 3,019,258 1,811,670 6,965,302
Cost of revenue:
Design Services..................................... 1,710,858 848,717 3,426,278
Licenses............................................ 51,000 51,000 76,922
Maintenance and other services...................... -- -- 58,922
---------- ---------- ----------
Total cost of revenue....................... 1,761,858 899,717 3,562,122
---------- ---------- ----------
Gross profit.......................................... 1,257,400 911,953 3,403,180
---------- ---------- ----------
Operating expenses:
Research and development (exclusive of non-cash
compensation shown below)........................ 497,037 396,143 332,721
Sales and marketing (exclusive of non-cash
compensation shown below)........................ 363,420 287,759 752,099
General and administrative (exclusive of non-cash
compensation shown below)........................ 179,799 102,627 1,296,996
Stock-based compensation(*)......................... 63,000 25,000 230,250
---------- ---------- ----------
Total operating expenses.................... 1,103,256 811,529 2,612,066
---------- ---------- ----------
Operating profit...................................... 154,144 100,424 791,114
Other income:
Interest and other income (expense), net............ 25,982 14,936 58,759
Interest expense.................................... (689) -- (35,849)
Other income........................................ 15,009 -- 24,985
---------- ---------- ----------
Total other income.......................... 40,302 14,936 47,895
---------- ---------- ----------
Income before taxes................................... 194,446 115,360 839,009
Provision for income taxes............................ 95,000 56,000 409,000
---------- ---------- ----------
Net income............................................ $ 99,446 $ 59,360 $ 430,009
========== ========== ==========
(*)Stock-based compensation:
Cost of revenue.................................... $ 40,000 $ 16,000 $ 118,150
Research and development........................... 11,000 5,000 63,600
Sales and marketing................................ 8,000 3,000 21,200
General and administrative......................... 4,000 1,000 27,300
---------- ---------- ----------
Total....................................... $ 63,000 $ 25,000 $ 230,250
========== ========== ==========
</TABLE>
See notes to financial statements.
F-43
<PAGE> 128
ALTIUS SOLUTIONS, INC.
STATEMENTS OF CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
STOCKHOLDERS EQUITY
--------------------------------------------------------------------------------
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK DEFERRED OTHER
---------------------- ---------------------- STOCK COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION INCOME EARNINGS EQUITY
--------- ---------- --------- ---------- ------------ ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1999.... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of stock.... 8,812,500 2,350,000 6,140,625 32,750 -- -- 32,750
Stock option
grants............. -- -- -- 621,000 (621,000) -- -- --
Amortization of
deferred stock
compensation....... -- -- -- -- 63,000 -- -- 63,000
Currency translation
adjustment......... -- -- -- -- 51,804 -- 51,804
Net income........... -- -- -- -- -- -- 99,446 99,446
--------- ---------- --------- ---------- --------- ------- -------- ----------
Balance,
December 31, 1999.. 8,812,500 2,350,000 6,140,625 653,750 (558,000) 51,804 99,446 247,000
Stock option
grants............. -- -- -- 530,100 (530,100) -- --
Amortization of
deferred stock
compensation....... -- -- -- -- 230,250 -- -- 230,250
Exercise of stock
options............ -- -- 3,348,000 228,750 -- -- -- 228,750
Currency translation
adjustment......... -- -- -- -- (10,868) -- (10,868)
Net income........... -- -- -- -- -- -- 430,009 430,009
--------- ---------- --------- ---------- --------- ------- -------- ----------
Balance,
September 30,
2000............... 8,812,500 $2,350,000 9,488,625 $1,412,600 $(857,850) $40,936 $529,455 $1,125,141
========= ========== ========= ========== ========= ======= ======== ==========
<CAPTION>
COMPREHENSIVE
INCOME
-------------
<S> <C>
Balance,
January 1, 1999.... $ --
Issuance of stock.... --
Stock option
grants............. --
Amortization of
deferred stock
compensation....... --
Currency translation
adjustment......... 51,804
Net income........... 99,446
--------
$151,250
========
Balance,
December 31, 1999..
Stock option
grants............. --
Amortization of
deferred stock
compensation....... --
Exercise of stock
options............ --
Currency translation
adjustment......... $(10,868)
Net income........... 430,009
--------
$419,141
========
Balance,
September 30,
2000...............
</TABLE>
See notes to financial statements.
F-44
<PAGE> 129
ALTIUS SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, --------------------------
1999 1999 2000
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 99,446 $ 59,360 $ 430,009
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization.................. 69,856 29,328 257,380
Deferred taxes................................. (8,500) -- 74,500
Stock-based compensation expense............... 63,000 25,000 230,250
Changes in assets and liabilities:
Accounts receivable.......................... (1,363,529) (1,393,128) (754,875)
Prepaid expenses and other current assets.... (192,956) (90,323) 21,538
Accounts payable............................. 52,119 108,224 107,036
Other assets................................. (28,667) -- (106,886)
Accrued expenses............................. 347,604 116,882 1,389,757
Deferred revenue............................. 332,343 370,433 482,606
Other current liabilities.................... 47,324 -- (12,675)
Other liabilities............................ -- -- 178,942
----------- ----------- -----------
Net cash provided by (used) in operating
activities.............................. (581,960) (774,224) 2,297,582
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of software and equipment................ (401,012) (232,261) (1,628,356)
----------- ----------- -----------
Net cash used in investing activities..... (401,012) (232,261) (1,628,356)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock................ 32,750 32,750 228,750
Proceeds from sale of preferred stock............. 2,350,000 2,230,000 --
Proceeds from equipment loan...................... 189,035 -- 395,169
Repayments on equipment loan...................... -- -- (97,389)
----------- ----------- -----------
Net cash provided by financing
activities.............................. 2,571,785 2,262,750 526,530
----------- ----------- -----------
CASH EFFECTS OF FOREIGN CURRENCY TRANSLATION........ 12,152 (8,463) (2,952)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS........... 1,600,965 1,247,802 1,192,804
Cash and cash equivalents, beginning of period.... -- -- 1,600,965
----------- ----------- -----------
Cash and cash equivalents, end of period.......... $ 1,600,965 $ 1,247,802 $ 2,793,769
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................... $ 689 $ -- $ 35,849
=========== =========== ===========
Income taxes paid................................. $ 85,800 $ 800 $ 360,000
=========== =========== ===========
Fixed assets purchased included in accounts
payable........................................ $ 397,302 $ -- $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-45
<PAGE> 130
ALTIUS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Altius Solutions, Inc. ("Altius") was incorporated in California on
December 17, 1998. Altius provides SOC design foundry services, focused on
first-to-market and first-to-volume system-on-chip ("SOC") design delivery and
software products which enable accelerated development of complex SOC's. Altius
is headquartered in Santa Clara, California. In addition, Altius operates a
sales and research and development office in Yokohama, Japan.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION Altius recognizes revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral
of the Effective Date of Certain Provisions of SOP 97-2, ("SOP 97-2") and
Statement of Position 98-9, Modification of SOP 97-2, Software Revenue
Recognition With Respect to Certain Transactions. License revenue is recognized
upon delivery of a software license file, which allows the customer to use
software downloaded from Altius' website, and assuming all revenue recognition
criteria set forth in SOP 97-2 have been met. Revenue from optional software
maintenance contracts are recognized on a straight line basis over the life of
the maintenance agreement. For contracts with multiple obligations (e.g.,
product licenses, maintenance and other services), and which do not involve
significant customization or modification of software, Altius allocates revenue
to each component of the contract based on vendor specific objective evidence of
its fair value, which is based on either the price when each component is sold
separately, or the renewal rates for maintenance in future years as specified in
the arrangement. Altius recognizes revenue allocated to undelivered products
when the criteria for product revenue set forth above are met. Engineering
consulting services represent (i) engineering contracts with the objective of
completion of specific tasks, or (ii) engineering contracts committing Altius
engineering capacity for specified periods of time. For those engineering
contracts relating to the completion of specific tasks, revenue is recognized
based on the percentage of completion of the overall contract. For engineering
contracts representing commitment of Altius engineering capacity, revenue is
recognized as services are rendered over the length of the contract. When the
amount invoiced exceeds the revenue recognized, the excess is reported as
deferred revenue in the financial statements.
INTERIM FINANCIAL STATEMENTS (UNAUDITED) -- The consolidated statements of
operations and of cash flows for the nine months ended September 30, 1999 are
unaudited but have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial statements and the
rules of the Securities and Exchange Commission and do not include all
disclosures required by accounting principles generally accepted in the United
States for annual financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation have been included. The results of operations for any interim
period are not necessarily indicative of the results of operations for the full
year.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates used in the financial statements include the
estimates of (i) collectibility of accounts receivable and (ii) revenue
recognition as a percentage of completion method.
CONCENTRATIONS -- Financial instruments that potentially subject Altius to
concentration of credit risk consist principally of cash and cash equivalents,
which are on deposit with financial institutions, and accounts receivable, with
two customers representing 43% and 25% of the balance at December 31, 1999
F-46
<PAGE> 131
ALTIUS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and four customers representing 35%, 25%, 14% and 14% of the balance at
September 30, 2000. In addition, Altius had two customers which represented 10%
or more of the total revenues (42% and 17%) for the year ended December 31, 1999
and two customers which represented 10% or more of the total revenues (52% and
12%) for the nine month period ended September 30, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of the Company's cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate their carrying value due to the short maturity or market rate
structure of those instruments.
SOFTWARE AND EQUIPMENT -- Software and equipment purchased is stated at
cost and is depreciated using the straight-line method over estimated useful
lives of three to five years.
INCOME TAXES -- Altius accounts for income taxes using an asset and
liability approach. Deferred tax liabilities are recognized for future taxable
amounts and deferred tax assets are recognized for future deductions, net of a
valuation allowance to reduce net deferred tax assets to amounts that are more
likely than not to be realized.
RESEARCH AND DEVELOPMENT -- Research and development costs relate to the
development of a computer software product. In accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software To Be Sold, Leased or Otherwise Marketed," costs are expensed as
incurred until technological feasibility has been established.
Capitalization of computer software development costs begins upon the
establishment of technological feasibility, which is generally the completion of
a working model. Software development costs capitalized were $667,029 at
September 30, 2000. No software development costs were capitalized during 1999.
Amortization of computer software development costs is computed on a
straight-line method over the software's estimated economic life of
approximately three years.
No software amortization expense for software development costs was
recorded for the nine month period ended September 30, 2000 as the product was
not available for general release to customers until the end of the period.
TRANSLATION OF FOREIGN CURRENCIES -- The Japanese yen is the functional
currency for Altius' international operations. Gains and losses from translation
of the foreign division's financial statements are reported as other
comprehensive income within the statement of stockholders' equity. Net gains and
losses from foreign currency transactions are included in the determination of
net income.
STOCK-BASED COMPENSATION -- Altius accounts for its stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Altius provides additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," ("SFAS 123").
COMPREHENSIVE INCOME -- Altius adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), for the year
ended December 31, 1999. SFAS No. 130 requires that an enterprise report, by
major component and as a single total, the change in its net assets during the
period from nonowner sources. Altius has presented its total comprehensive
income in the statements of stockholders' equity.
F-47
<PAGE> 132
ALTIUS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), which establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133, as amended, is effective for
fiscal years beginning after June 15, 2000. We are assessing the potential
impact of this pronouncement on the financial statements, however, we do not
expect any significant impact.
In December 1999, the SEC issued Staff Accounting Bulletin 101, Revenue
Recognition ("SAB 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance on disclosure related to revenue recognition policies.
Altius believes that it currently complies with SAB 101.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB 25
(the "Interpretation"). This Interpretation clarifies (a) the definition of an
employee for purposes of applying APB 25, (b) the criteria for determining
whether a stock plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation became effective July 1,
2000, but certain conclusions in this Interpretation cover specific events that
occur after either December 15, 1998 or January 12, 2000. To the extent that
this Interpretation covers events occurring during the period after December 15,
1998 or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation will be applied prospectively. The
adoption of the provisions of this Interpretation did not have a material impact
on the financial statements.
RECLASSIFICATIONS -- Certain reclassifications have been made to previously
reported amounts in order to conform to current period classification.
3. BALANCE SHEET COMPONENTS
Software and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
Software................................................... $584,040 $1,607,096
Computer equipment......................................... 193,608 377,297
Office furniture and fixtures.............................. 59,770 84,079
-------- ----------
Total software and equipment............................... 837,418 2,068,472
Less accumulated depreciation.............................. (70,753) (328,133)
-------- ----------
Software and equipment, net...................... $766,665 $1,740,339
======== ==========
</TABLE>
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
Payroll and related expenses............................... $103,527 $1,327,930
Other accrued expenses..................................... 263,172 428,526
-------- ----------
$366,699 $1,756,456
======== ==========
</TABLE>
F-48
<PAGE> 133
ALTIUS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
The provision for income taxes as of December 31, 1999 and September 30,
2000 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
Current:
Federal.................................................. $ 82,500 $271,000
State.................................................... 21,000 63,000
-------- --------
103,500 334,000
Deferred:
Federal benefit.......................................... (7,500) 65,000
State benefit............................................ (1,000) 10,000
-------- --------
Total provision.................................. $ 95,000 $409,000
======== ========
</TABLE>
Altius' actual effective tax rate differs from the U.S. statutory income
tax rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
U.S. federal statutory rate................................ 35% 34%
Stock-based compensation expense........................... 11 8
State taxes net of federal tax benefit..................... 2 6
Other...................................................... 1 1
-- --
49% 49%
== ==
</TABLE>
Altius' deferred tax balances at December 31, 1999 and September 30, 2000
are as follows:
<TABLE>
<S> <C> <C>
Deferred tax assets:
Accrued liabilities and reserves......................... $6,500 $ 112,000
Deferred revenue......................................... -- 148,000
Research and development credits......................... 2,500 --
------ ---------
Total deferred tax assets................................ 9,000 260,000
Deferred tax liabilities................................... (500) (326,000)
------ ---------
Deferred tax assets (liabilities) -- net......... $8,500 $ (66,000)
====== =========
</TABLE>
At September 30, 2000 and December 31, 1999, Altius has not recorded a
valuation allowance. Realization of the deferred tax assets is dependent on
generating sufficient taxable income prior to the expiration of such benefits.
Although realization is not assured, management believes it is more likely than
not that the deferred tax assets will be realized. The deferred tax assets
considered realizable could be reduced if estimates of future taxable income
during the carryforward periods are reduced.
At December 31, 1999 and September 30, 2000, Altius had federal research
tax credits of $0 and $2,500, respectively which expire beginning in 2020.
5. LONG TERM OBLIGATIONS
EQUIPMENT LOAN
At September 30, 2000, Altius had $486,815 outstanding on a $700,000
equipment line of credit. Borrowings under the equipment line of credit bear
interest at the bank's prime rate (9.5% at September 30, 2000) plus 0.5% and are
collateralized by substantially all of Altius' software and equipment. Repayment
terms of the equipment loan required 36 equal monthly installments of principal,
plus accrued interest, beginning May 1, 2000. The balance of $486,815 plus
accrued interest, outstanding at September 30, 2000 was repaid in full
subsequent to the period end.
F-49
<PAGE> 134
ALTIUS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK -- Altius' Series A preferred stock is
convertible, at the option of the holder, into an equivalent number of common
shares at the conversion price ($0.26 at September 30, 2000). In addition, the
holders of Series A preferred shares are entitled to receive, prior to the
holders of the Altius' common stock, payment of dividends or, upon liquidation,
return of contributed capital. Significant terms of the outstanding preferred
stock are as follows:
- Each share of Series A preferred stock is convertible into shares of
common stock on a one-for-one basis, subject to adjustment in certain
instances, at the option of the shareholder. Such shares will be
converted automatically upon the sale of Altius' common stock pursuant to
a registration statement under the Securities Act of 1933 meeting certain
criteria or the affirmative vote of the holders of a majority of the
shares of preferred stock outstanding at the time of such vote.
- Each share of Series A preferred stock has voting rights equivalent to
the number of shares of common stock into which it is convertible.
- Series A preferred shareholders are entitled to receive noncumulative
dividends as declared by the Altius Board of Directors out of any assets
legally available, prior to and in preference to any declaration or
payment of any dividend on the common stock. No dividends have been
declared as of September 30, 2000.
- A change in control of the Company is deemed, under certain
circumstances, to be a liquidation event and entitle the preferred
shareholders a return of contributed capital.
COMMON STOCK -- Common stock issued to the Altius' founders is subject to
repurchase agreements whereby Altius has the option to repurchase unvested
shares at the original price upon termination of employment. 1,535,156 shares
were vested upon issuance and the remaining shares, 4,605,469, vest equally over
three years. At September 30, 2000, 2,106,445 shares of common stock were
subject to repurchase by the Company.
In November 1999, the Altius Board of Directors authorized a 1.5 to 1 split
of common and preferred stock authorized and issued. Additionally, in March
2000, the Altius Board of Directors authorized a 5 to 4 split of common and
preferred stock authorized and issued. All share amounts have been restated to
give effect to such stock splits.
COMMON STOCK RESERVED -- At September 30, 2000, Altius has reserved the
following number of shares of common stock for future issuance:
<TABLE>
<S> <C>
Conversion of Series A preferred stock...................... 11,250,000
Exercise of stock options................................... 2,761,375
Conversion of warrants...................................... 15,000
----------
Total............................................. 14,026,375
==========
</TABLE>
STOCK OPTION PLAN -- Under Altius' 1999 Stock Option Plan (the "1999
Plan"), Altius may grant options to purchase up to 2,761,375 shares of common
stock to employees, directors and consultants with exercise prices at the fair
market value of the common stock for incentive stock options. The options
generally expire ten years from the date of issuance, depending on the
recipient, and vest over four years.
F-50
<PAGE> 135
ALTIUS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Balance, January 1, 1999.................................... -- $ --
Options granted............................................. 2,956,875 $0.03
----------
Balance, December 31, 1999.................................. 2,956,875 $0.03
Options granted............................................. 3,145,313 $1.67
Options exercised........................................... (3,348,000) $0.07
----------
Balance, September 30, 2000................................. 2,754,188 $1.85
==========
</TABLE>
As of September 30, 2000, 2,461,542 of the shares issued were unvested and
were subject to repurchase.
DEFERRED STOCK COMPENSATION -- During the period ended September 30, 2000
and in the year ended December 31, 1999, in connection with the grant of certain
stock options to employees, Altius recorded deferred stock compensation which
represents the difference between the exercise price of the options and the
estimated fair value of Altius's common stock on the date of grant. Such amounts
are being amortized on a straight-line basis over the vesting period of the
related options, generally 48 months.
The following table summarizes information as of September 30, 2000
concerning currently outstanding options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OF CONTRACTUAL EXERCISE OF EXERCISE
PRICE SHARES LIFE (YEARS) PRICE SHARES PRICE
-------- --------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.03....................................... -- 8.79 $0.03 -- $0.03
$0.08....................................... 65,625 9.13 $0.08 65,625 $0.08
$0.16....................................... 62,500 9.42 $0.16 62,500 $0.16
$0.60....................................... 40,000 9.79 $0.60 40,000 $0.60
$1.95....................................... 2,586,063 10.00 $1.95 2,586,063 $1.95
--------- ---------
2,754,188 2,754,188
========= =========
</TABLE>
At December 31, 1999 2,956,875 shares were exercisable at a weighted
average price of $0.03.
ADDITIONAL STOCK PLAN INFORMATION -- SFAS 123 requires the disclosure of
pro forma net income and earnings per share had Altius adopted the fair value
method as of the beginning of fiscal 1999. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though these models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from Altius' stock option awards. These models also require
subjective assumptions, including the expected time to exercise, which greatly
affect the calculated values. Altius' calculations were made using the minimum
value method with the following weighted average assumptions: expected life, 4
years; risk free interest rates, averaging 5.9% in 1999; and no dividends during
the expected term. The weighted average fair value of options granted for the
year ended December 31, 1999 and for the nine months ended September 30, 2000
was $0.006 and $0.41, respectively. Altius' calculations are based on a single
option valuation approach and forfeitures are recognized as they occur. Pro
forma net income, had the computed fair values of the 1999 and 2000
F-51
<PAGE> 136
ALTIUS SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
awards been amortized to expense over the vesting period of the awards, is
$94,446 and $318,990 respectively.
7. COMMITMENTS AND CONTINGENCIES
Altius leases its facilities under a noncancelable operating lease
expiring in 2004. Altius also sublet certain property for the period from
October 2000 to September 2003. The terms of the sublease included payment
of a refundable deposit, which is included in other liabilities. Rent
expense was approximately $224,000 for the period ended September 30, 2000.
In addition, Altius is committed to payments under certain noncancelable
software license agreements which expire through 2002.
Future minimum lease payments for the operating lease and software
license agreements including future minimum sublease rental receipts under
noncancelable operating lease are as follows:
<TABLE>
<CAPTION>
OPERATING SUBLEASE
YEARS ENDED SEPTEMBER 30, LEASES INCOME
------------------------- ---------- ----------
<S> <C> <C>
2001................................................ $1,824,683 $ 691,200
2002................................................ 1,594,772 719,280
2003................................................ 1,215,852 747,360
2004................................................ 1,264,530 --
---------- ----------
Total minimum lease payments and sublease
income.................................. $5,899,837 $2,157,840
========== ==========
</TABLE>
8. SUBSEQUENT EVENTS
On October 2, 2000, Altius repaid its equipment loan amounting $486,815
plus accrued interest outstanding as of September 30, 2000.
In October 2000, Altius was acquired by Simplex Solutions, Inc.,
("Simplex") a company which provides software and services that enable the
design and first-time productions success of integrated-circuits.
9. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999 and nine month period ended
September 30, 2000 Altius made purchases from Simplex, of $133,000 and $269,000,
respectively.
During the nine month period ended September 30, 2000 Altius made purchases
from a company, where the President and CEO is a member of the Board of
Directors, of $84,000. There were no such purchases made during the year ended
December 31, 1999.
F-52
<PAGE> 137
SIMPLEX SOLUTIONS, INC.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
Simplex completed the acquisition of all the outstanding capital stock of
Snaketech in March 2000. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the net assets and results of operations
of Snaketech have been included in Simplex' consolidated financial statements
since the acquisition date.
The purchase consideration was approximately $11.8 million which consisted
of approximately 1.4 million shares of Simplex' common stock, options to
purchase 155,502 shares of Simplex' common stock and related acquisition
expenses totaling approximately $422,000.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Intangible assets........................................... $ 5,800
Goodwill.................................................... 3,613
In-process research and development......................... 1,100
Property and equipment...................................... 303
Net current assets.......................................... 1,014
-------
$11,830
=======
</TABLE>
In September 2000, Simplex entered into a definitive agreement to acquire
Altius, under which Simplex will issue approximately 3.8 million shares of
common stock and reserved approximately 555,000 of its options, subject to
adjustment, for issuance to the holders of Altius stock and options. The
transaction was completed in October 2000 and will be accounted for under the
purchase method of accounting.
The purchase consideration was approximately $29.1 million, excluding $10.3
million for the intrinsic value of unvested stock options, and consisted of
approximately 3.8 million shares of Simplex' common stock and options to
purchase 579,000 shares of Simplex' common stock. Included in the 3.8 million
shares granted are 1.1 million shares subject to repurchase.
In respect of the proposed acquisition of Altius, the purchase price
allocation, which is based on management's best estimates, is preliminary and is
subject to change. These estimates are as follows (in millions):
<TABLE>
<S> <C>
Acquired technology......................................... $ 0.6
Acquired workforce.......................................... 2.0
Goodwill.................................................... 23.0
Other net assets acquired (at fair value)................... 3.5
-----
$29.1
=====
</TABLE>
The following unaudited pro forma consolidated balance sheet as at
September 30, 2000 includes the historical balance sheet of Simplex, which
includes the net assets acquired from Snaketech, and gives effect to the
acquisition of Altius as if it had occurred on September 30, 2000.
The following unaudited pro forma combined consolidated financial
statements of operations for the year ended September 30, 2000 and gives effect
to the acquisitions of Snaketech and of Altius as if they had occurred on
October 1, 1999.
The unaudited pro forma combined consolidated statements of operations are
not necessarily indicative of the operating results that would have been
achieved had the transactions been in effect as of the beginning of the periods
presented ad should not be construed as being representative of future operating
results.
F-53
<PAGE> 138
The historical financial statements of Simplex, Snaketech and Altius are
included elsewhere in this prospectus and the unaudited pro forma financial
information presented herein should be read in conjunction with those financial
statements and related notes.
F-54
<PAGE> 139
SIMPLEX SOLUTIONS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
----------------------------------------------
SIMPLEX
SIMPLEX ALTIUS ADJUSTMENTS PRO FORMA
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 7,447 $2,794 $ -- $ 10,241
Accounts receivable, net of allowance for
doubtful accounts............................. 7,142 2,140 -- 9,282
Prepaid expenses and other current assets........ 356 164 -- 520
Deferred tax assets.............................. -- 260 (260)(B) --
-------- ------ ------- --------
Total current assets.......................... 14,945 5,358 (260) 20,043
Property and equipment, net........................ 1,742 1,740 (667)(B) 2,815
Other assets....................................... 891 135 -- 1,026
Intangible assets, net............................. 6,888 -- 25,641(B) 32,529
-------- ------ ------- --------
Total assets.................................. $ 24,466 $7,233 $24,714 $ 56,413
======== ====== ======= ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
WARRANTS AND CAPITAL STOCK AND OTHER
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations and
notes payable................................. $ 87 $ 487 $ -- $ 574
Line of credit, net of discount.................. 2,442 -- -- 2,442
Accounts payable and accrued liabilities......... 4,093 1,939 500(B) 6,532
Deferred revenue................................. 5,654 827 (581)(B) 5,900
-------- ------ ------- --------
Total current liabilities..................... 12,276 3,253 (81) 15,448
Deferred tax liability........................ -- 326 (326)(C) --
Capital lease obligations and notes payable, net of
current portion and other liabilities............ 321 179 -- 500
-------- ------ ------- --------
Total liabilities............................. 12,597 3,758 (407) 15,948
-------- ------ ------- --------
Convertible preferred stock........................ 24,251 2,350 (2,350)(C) 24,251
-------- ------ ------- --------
Common stock and other stockholders' equity:
Common Stock..................................... 16,070 1,413 37,472 54,955
Unearned stock-based compensation................ (2,247) (858) (9,431) (12,536)
Accumulated other comprehensive income........... -- 41 (41) --
Accumulated deficit.............................. (26,205) 529 (529) (26,205)
-------- ------ ------- --------
Total common stock and other stockholders'
equity (deficit)............................ (12,382) 1,125 27,471(C) 16,214
-------- ------ ------- --------
Total liabilities, convertible preferred stock
and warrants and common stock and other
stockholders' equity........................ $ 24,466 $7,233 $24,714 $ 56,413
======== ====== ======= ========
</TABLE>
The following adjustments were applied to Simplex' historical financial
statements and those of Altius to arrive at the pro forma financial information.
(A) The purchase price of $29.1 million consists of the fair value of
Simplex common stock and options of $34.4 million, based upon assumed
issuance of 3.8 million shares of Simplex common stock and 579,000 options
for the purchase of Simplex stock, plus estimated closing costs of
$500,000. In accordance with FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of
APB 25, the intrinsic value of option awards and common stock
F-55
<PAGE> 140
subject to repurchase of $10.3 million for which vesting is dependent on
future service has been separately allocated from the fair value of the
options and will be amortized over the service period.
(B) Allocates the excess of the purchase price over the assumed fair
values of the net assets acquired (in thousands).
<TABLE>
<S> <C>
Total fair value of common stock and options
issued, using an assumed fair market value of
$9.34 per share of common stock................. $ 38,925
Estimated closing costs........................... 500
Less: FIN 44 adjustment for options and restricted
stock........................................... (10,289)
--------
29,136
Less: book value of net assets acquired........... (3,475)
Less: reallocation of capitalized software to
intangible assets for existing products......... (667)
Add: reduction of deferred revenue to represent
fair value...................................... 581
Add: elimination of net deferred taxes to
recognize tax attributes of combined company.... 66
--------
Goodwill and other intangibles.................... $ 25,641
========
</TABLE>
(C) Increases the net equity of Simplex on a pro-forma basis to
reflect purchase accounting as follows:
<TABLE>
<S> <C>
Purchase price..................................... $29,136
Less: fair value of acquired net tangible assets... (3,515)
Less: closing costs................................ (500)
-------
$25,121
=======
Preferred stock.................................... $(2,350)
Common stock and other stockholders' equity........ 27,471
-------
$25,121
=======
</TABLE>
F-56
<PAGE> 141
SIMPLEX SOLUTIONS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 2000
----------------------------------------------------------------------------------------
SIMPLEX SIMPLEX
SNAKETECH(1) SIMPLEX ADJUSTMENTS PRO FORMA ALTIUS(2) ADJUSTMENTS PRO FORMA
------------ ------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 691 $22,817 $ -- $23,508 $8,173 $ -- $ 31,681
Cost of revenue........... 17 3,483 -- 3,500 4,509 -- 8,009
------- ------- ------- ------- ------ ------- --------
Gross profit.............. 674 19,334 -- 20,008 3,664 -- 23,672
------- ------- ------- ------- ------ ------- --------
Operating expenses:
Research and
development........... 429 4,966 -- 5,395 593 -- 5,988
Sales and marketing..... 918 10,373 -- 11,291 828 -- 12,119
General and
administrative........ 578 2,821 -- 3,399 1,215 -- 4,614
Amortization of acquired
intangibles........... -- 2,525 2,533(A) 5,058 -- 5,538(B) 10,596
Stock-based
compensation.......... 2 1,795 -- 1,797 262 4,471(E) 6,530
In-process research and
development........... -- 1,100 -- 1,100 -- (1,100)(D) --
------- ------- ------- ------- ------ ------- --------
Total operating
expenses............ 1,927 23,580 2,533 28,040 2,898 (8,909) 39,847
------- ------- ------- ------- ------ ------- --------
Operating loss............ (1,253) (4,246) (2,533) (8,032) 766 (8,909) (16,175)
Interest and other income
(expense), net.......... 78 178 -- 256 133 -- 389
Interest expense.......... 7 (462) -- (455) (60) -- (515)
------- ------- ------- ------- ------ ------- --------
Net loss before taxes..... (1,168) (4,530) (2,533) (8,231) 839 (8,909) (16,301)
Income tax expense........ -- (242) -- (242) (503) -- (745)
------- ------- ------- ------- ------ ------- --------
Net loss.................. $(1,168) $(4,772) $(2,533) $(8,473) $ 336 $(8,909) $(17,046)
======= ======= ======= ======= ====== ======= ========
Pro forma basic and
diluted net loss per
share................... (1.23)(C)
--------
Number of shares used in
calculation of pro forma
basic and diluted net
loss per share.......... 13.904
--------
</TABLE>
---
(1)The pro-forma statement of operations amounts for Snaketech has been
presented based upon a September 30, 2000 year end rather than a December 31,
2000 year end, which was Snaketech's fiscal year end. In addition, the
amounts presented are net of Snaketech revenue since acquired by Simplex,
which are already included in Simplex' results.
(2)The pro-forma statement of operations amounts for Altius have been presented
based upon a September 30, 2000 year end, rather than a December 31, 2000
year end, which was Altius fiscal year end.
The following adjustments were applied to the historical financial
statements to arrive at the pro forma financial information.
(A) The pro forma Simplex statements of operations for the year ended
September 30, 2000 were adjusted to record the amortization of
goodwill and other intangible assets related to Simplex' acquisition
of Snaketech as if the transaction occurred on October 1, 1999 as
follows:
F-57
<PAGE> 142
<TABLE>
<CAPTION>
AMORTIZATION
EXPENSE
--------------
YEAR ENDED
AMORTIZATION SEPTEMBER 30,
AMOUNT PERIOD 2000
-------------- ------------ --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Assembled workforce................. $ 700 7 years $ 100
Acquired technology................. 5,100 1 - 4 years 4,235
Goodwill............................ 3,613 5 years 723
------
$5,058
======
</TABLE>
(B) The pro forma statements of operations statement for the year ended
September 30, 2000 was adjusted to record the amortization of
goodwill related to Simplex acquisition of Altius as if the
transaction occurred on October 1, 1999. The purchase price
allocation, which is based on management's best estimates at this
time, is preliminary and is subject to change. To account for the
proposed acquisition the following assumptions have been made:
(a) the issuance of 3.8 million shares of Simplex' common stock.
(b) the grant of vested and unvested options to purchase 579,000
shares of Simplex' common stock which, in accordance with
Financial Accounting Standards Board, Interpretation No. 44, have
been valued at their fair value, using the Black-Scholes option
pricing model, and recorded as part of the purchase price.
Excluded from this valuation and included in unearned stock based
compensation is the intrinsic value of unvested options and
restricted common stock.
(c) the excess of purchase price over fair value of assets acquired
is reflected as follows:
<TABLE>
<CAPTION>
AMORTIZATION AMORTIZATION
AMOUNT PERIOD EXPENSE
-------------- ------------ --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Assembled workforce................. $2,000 3 years $ 667
Acquired technology................. 600 5 years 120
Goodwill............................ 23,758 5 years 4,752
------
$5,538
======
</TABLE>
(C) Pro forma basic and diluted net loss per share for the year ended
September 30, 2000 is computed using the weighted average number of
common shares outstanding, including the proforma effects of the
conversion of Simplex's convertible preferred stock as if such
conversion occurred on October 1, 1999.
(D)In-process research and development is removed from the pro-forma
results of operations since the charge is non-recurring.
(E) Represents amortization of unearned stock-based compensation arising
from the allocation of the intrinsic value of the unvested options
issued in connection with the acquisition of Altius pursuant to FIN
44.
F-58
<PAGE> 143
DESCRIPTION OF GRAPHICS FOR INSIDE FRONT COVER
In the top left hand section of the page appears the phrase, "Simplex provides
software and services designed to enable first-time silicon success of complex
systems-on-chip." To the right of this phrase appear three rectangular graphics
of portions of semiconductor chips. In the center of the page is one large
semiconductor chip with different colors in different areas of the chip. In the
bottom left hand corner of the page is the word "Simplex," which, including the
stylized "S" is the Company's logo. To the right of the Simplex logo are two
more rectangular graphics of portions of semiconductor chips.
DESCRIPTION OF GRAPHICS FOR BACK COVER
In the left hand corner of the page is the Simplex logo, which includes a
stylized "S" along with the word "Simplex." In the center of the page under the
logo, broken into three lines, is the phrase, "Simplex SoC Design Foundry:
First-to-Market, First-to-Volume System-on-Chip Designs." Centered under this
phrase is a large square graphic of a semiconductor chip, with different colors
in different areas of the chip. Centered below this large graphic in two lines
is the phrase, "Cirrus Logic's 3Ci Single-Chip Disk Drive Delivered to
Production by Simplex SoC Design Foundry."
<PAGE> 144
[LOGO]
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $ 13,200
NASD Fee.................................................... 5,500
Nasdaq National Market Listing Fee.......................... 1,000
Printing and Engraving...................................... 200,000
Legal Fees and Expenses..................................... 500,000
Accounting Fees and Expenses................................ 1,000,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent Fees......................................... 15,000
Miscellaneous............................................... *
----------
Total..................................................... $ *
==========
</TABLE>
---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care to the Company or its stockholders. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the certificate of incorporation of the Registrant provides, inter alia, that
each person who is made a party or is threatened to be made a party to or
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the Company or, while a
director or officer of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer, is
authorized to be indemnified and held harmless by the Company to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an
indemnitee's heirs, executors and administrators; provided, however, that,
except with respect to the proceedings brought by an indemnitee to enforce
rights to indemnification (subject to certain restrictions and as more fully
described in the Registrant's certificate of incorporation), the Company shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in the Registrant's certificate of incorporation
includes the right to be paid by the Company the expenses incurred in connection
with any such proceeding in advance of its final disposition; provided, however,
that, if and to the extent that the Delaware General Corporation Law requires,
such an advancement of expenses incurred by an indemnitee in his or her capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service with respect to an employee benefit plan, shall be made only
upon delivery to the Company of an undertaking by or on behalf of such
indemnitee, to repay all amounts so advanced if it
II-1
<PAGE> 146
shall ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under the Company's certificate of incorporation or otherwise.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. In addition, such indemnity agreements provide that directors and
executive officers will be indemnified to the fullest possible extent not
prohibited by law against all expenses (including attorney's fees) and
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the Registrant, on account
of their services as directors or executive officers of the Registrant or as
directors or officers of any other company or enterprise when they are serving
in such capacities at the request of the Registrant. Pursuant to the indemnity
agreements, the Company will not be obligated to indemnify or advance expenses
to an indemnified party with respect to proceedings or claims initiated by the
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the Board of Directors or brought to enforce a right
to indemnification under such indemnity agreement, the Company's certificate of
incorporation, Bylaws or any statute or law, or as otherwise required under
Section 145 of the Delaware General Corporation Law. Also under the indemnity
agreements, the Company is not obligated to indemnify the indemnified party for
(i) any expenses incurred by the indemnified party with respect to any
proceeding instituted by the indemnified party to enforce or interpret the
agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the indemnified party in such proceeding was not
made in good faith or was frivolous, (ii) acts, omissions or transactions on the
part of the indemnified party from which such party may not be relieved of
liability under applicable law or (iii) expenses and the payment of profits
arising from the purchase and sale by the indemnified party of securities in
violation of Section 16(b) of the Exchange Act, or any similar or successor
statute.
The indemnification provisions in the certificate of incorporation and the
indemnification agreements entered into between the Registrant and its directors
and executive officers, may be sufficiently broad to permit indemnification of
the Registrant's officers and directors for liabilities arising under the
Securities Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
------- --------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
Form of Amended and Restated Certificate of Incorporation of
the Registrant
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers
3.3 Bylaws of the Registrant
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, we have issued the following unregistered
securities:
(a) On April 6, May 6 and June 6, 1998, we sold an aggregate of
3,253,336 shares of our Series E Preferred Stock to a group of six (6)
private investors for an aggregate purchase price of $12,200,010 which was
paid in cash. We believe the sale of the shares were exempt from
registration by virtue of Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. The purchasers (i) represented to
us that they were accredited investors within the definition of Rule 501 of
Regulation D, (ii) represented to us that they understood that the
securities were restricted and must be held for an indefinite period of
time, (iii) represented to us that they
II-2
<PAGE> 147
were acquiring the shares for investment for their own account and not with
a view to the distribution thereof and (iv) were afforded the opportunity
to ask questions of our management.
(b) On February 12, 1998, we sold 375,000 shares of our common stock
to Aki Fujimura, our President, Chief Operating Officer and Director, at a
purchase price of $1.36 per share. Mr. Fujimura paid for his shares with a
promissory note in the amount of $509,250 and $750 in cash. On March 30,
1999, we sold 70,834 shares of our common stock to Mr. Fujimura at a
purchase price of $4.00 per share. We believe the sale was exempt from
registration by virtue of Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder. The purchase: (I) represented to us
that he understood that the securities were restricted and must be held for
an indefinite period of time, (II) represented to us that he was acquiring
the shares for investment for their own account and not with a view to
distribution thereof and (III) were afforded the opportunities to ask
questions of management.
(c) On January 19, 1999, we sold 96,563 shares of our common stock to
Steven L. Teig, our Chief Technical Officer, at a purchase price of $2.50
per share. Mr. Teig paid for his shares with a promissory note in the
amount of $241,406. We believe the sale was exempt from registration by
virtue of Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder. The purchase: (I) represented to us that he
understood that the securities were restricted and must be held for an
indefinite period of time, (II) represented to us that he was acquiring the
shares for investment for their own account and not with a view to
distribution thereof and (III) were afforded the opportunities to ask
questions of management.
(d) On March 30, 1999, we sold 50,000 shares of our common stock to
Luis P. Buhler, our Chief Financial Officer, at a purchase price of $4.00
per share. Mr. Buhler paid for his shares with a promissory note in the
amount of $100,000. We believe the sale was exempt from registration by
virtue of Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder. The purchase: (I) represented to us that he
understood that the securities were restricted and must be held for an
indefinite period of time, (II) represented to us that he was acquiring the
shares for investment for their own account and not with a view to
distribution thereof and (III) were afforded the opportunities to ask
questions of management.
(e) From September 1999 through September 2000, we sold an aggregate
of 543,610 shares of our common stock for an aggregate consideration of
$827,817 pursuant to the exercise of options granted to certain of our
employees, directors and consultants under our 1995 Stock Plan. We believe
the sales were exempt from registration by virtue of Rule 701 promulgated
under Section 3(b) of the Securities Act because they were each
transactions pursuant to a compensatory benefit plan or a written contract
relating to compensation.
(f) From September 1999 through September 2000, we sold an aggregate
of 630,612 shares of our common stock for an aggregate consideration of
$1,441,979 pursuant to the exercise of options granted to certain of our
directors and officers under our 1995 Stock Plan. We believe the sales were
exempt from registration by virtue of Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated thereunder. The purchasers were
accredited investors within the meaning of Rule 501 of Regulation D.
(g) On June 29, 1999, we granted a warrant to purchase aggregate of
66,667 shares of our Series E Preferred Stock to TBCC Funding Trust II. We
believe the sales were exempt from registration by virtue of Section 4(2)
of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
The purchasers were accredited investors within the meaning of Rule 501 of
Regulation D.
(h) On March 31, 2000, we issued an aggregate of 1,393,498 shares of
our common stock in conjunction with the acquisition of all of the
outstanding capital stock of Snaketech S.A. We believe the sales were
exempt from registration by virtue of Section 4(2) of the Securities Act,
Rule 506 of Regulation D promulgated thereunder and Regulation S.
II-3
<PAGE> 148
(i) On October 4, 2000, we issued approximately 3.8 million shares of
our common stock in connection with our acquisition of all of the
outstanding capital stock of Altius Solutions, Inc. We believe the sales
were exempt from registration by virtue of Section 4(2) of the Securities
Act, Rule 506 of Regulation D promulgated thereunder and Regulation S.
(j) On October 4, 2000, in connection with our acquisition of Altius,
we assumed a warrant to Silicon Valley Bank to purchase a total of 3,137
shares of common stock at an exercise price per share of $1.00 per share.
We believe the sales were exempt from registration by virtue of Section
4(2) of the Securities Act. The purchaser was an accredited investor within
the meaning of Rule 501 of Regulation D.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access to information about the Company.
In particular, the securities described in the Preferred Stock financings
and warrant issuances are owned in their entirety by individuals or large
institutional investors who (A) represented to us that they were "accredited
investors" within the definition of Rule 501 of Regulation D, familiar with
investing in private companies, (B) represented to us that they understood that
the securities they were purchasing were restricted and the risk of possible
loss associated with their investment, (C) represented to us that they were
familiar with our history and business, (D) received our recent financial
information and (E) were afforded the opportunity to ask questions of our
management. Each of the investors had expressed previous interest to our
officers and directors in making an investment in us when an opportunity was
available, and such investors were contacted only on a one-on-one basis without
any general solicitation or advertising of the investment opportunity.
Accordingly, we believe that the each of the foregoing transactions was exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof.
II-4
<PAGE> 149
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1** Share Purchase Agreement by and among Simplex and SnakeTech
S.A. dated as of March 13, 2000
2.2** Agreement and Plan of Reorganization by and among Simplex,
Atlas Acquisition Corp. and Altius Solutions dated as of
October 4, 2000
3.1** Amended and Restated Certificate of Incorporation of the
Registrant
3.2** Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3** Bylaws of the Registrant
3.4 Form of Amended and Restated Bylaws of the Registrant
3.5 Certificate of Amendment of the Certificate of Incorporation
of the Registrant
3.6 Form of Certificate of Amendment of the Registrant
4.1* Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being
issued
10.1** Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2** Form of Management Continuity Agreement entered into by and
between the Registrant and certain of its officers
10.3** 1995 Stock Plan
10.4 2001 Incentive Stock Plan
10.5 Employee Stock Purchase Plan 2001
10.6** Series E Preferred Stock Agreement of the Registrant dated
April 6, 1998
10.7** Fourth Amended and Restated Rights Agreement of the
Registrant dated April 6, 1998
10.8** Registration Rights Agreement dated March 31, 2000 by and
between the Registrant and Shareholders of SnakeTech S.A.
10.9* Promissory Note of Aki Fujimira
10.10* Form of Promissory Note of the Registrant
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.3 Consent of Befec-Price Waterhouse, Independent Accountants
23.4 Consent of Deloitte & Touche LLP, Independent Auditors
24.1 Power of Attorney (see page II-8)
27.1 Financial Data Schedule
</TABLE>
---------------
* To be filed by amendment.
**Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts.
II-5
<PAGE> 150
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Simplex Solutions, Inc.
In connection with our audits of the consolidated financial statements of
Simplex Solutions, Inc. as of September 30, 1999 and 2000, and for each of the
three years in the period ended September 30, 2000, which consolidated financial
statements are included in the Prospectus, we have also audited the financial
statement schedule listed in Item 16(b) herein. In our opinion, this financial
statement schedule, 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
San Jose, California
October 23, 2000
II-6
<PAGE> 151
SIMPLEX SOLUTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS END
OF YEAR (DEDUCTIONS) WRITE-OFFS OF YEAR
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended September 30, 1998................ $ 0 $ 10 $-- $ 10
Year ended September 30, 1999................ 10 161 -- 171
Year ended September 30, 2000................ 171 14 -- 185
Valuation allowance for deferred tax assets:
Year ended September 30, 1998................ $2,530 $2,844 $-- $ 5,374
Year ended September 30, 1999................ 5,374 4,514 -- 9,888
Year ended September 30, 2000................ 9,888 426 -- 10,314
</TABLE>
II-7
<PAGE> 152
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, 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 and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus 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.
II-8
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the eighth day of January, 2001.
SIMPLEX SOLUTIONS, INC.
By: /s/ PENELOPE A. HERSCHER
------------------------------------
Penelope A. Herscher,
Chief Executive Officer and Chairman
of
the Board of Directors
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THIS
AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PENELOPE A. HERSCHER Chief Executive January 8, 2001
----------------------------------------------------- Officer and Chairman
Penelope A. Herscher of the Board of
Directors (Principal
Executive Officer)
* President, Chief January 8, 2001
----------------------------------------------------- Operating Officer and
Aki Fujimura Director
/s/ LUIS P. BUHLER Chief Financial January 8, 2001
----------------------------------------------------- Officer (Principal
Luis P. Buhler Financial and
Accounting Officer)
* Director January 8, 2001
-----------------------------------------------------
Joseph B. Costello
* Director January 8, 2001
-----------------------------------------------------
Harvey C. Jones, Jr.
* Director January 8, 2001
-----------------------------------------------------
F. Gibson Myers, Jr.
* Director January 8, 2001
-----------------------------------------------------
A. Richard Newton
* Director January 8, 2001
-----------------------------------------------------
Larry W. Sonsini
*By: /s/ LUIS BUHLER
-----------------------------------------------------
LUIS BUHLER
Attorney-in-Fact
</TABLE>
II-9
<PAGE> 154
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL PAGE
EXHIBIT EXHIBIT DESCRIPTION NUMBER
------- ------------------- ---------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
2.1** Share Purchase Agreement by and among Simplex and SnakeTech
S.A. dated as of March 13, 2000.............................
2.2** Agreement and Plan of Reorganization by and among Simplex,
Atlas Acquisition Corp. and Altius Solutions dated as of
October 4, 2000.............................................
3.1** Amended and Restated Certificate of Incorporation of the
Registrant..................................................
3.2** Form of Amended and Restated Certificate of Incorporation of
the Registrant..............................................
3.3** Bylaws of the Registrant....................................
3.4 Form of Amended and Restated Bylaws of the Registrant.......
3.5 Certificate of Amendment of the Certificate of Incorporation
of the Registrant...........................................
3.6 Form of Certificate of Amendment of the Registrant..........
4.1* Form of Registrant's Common Stock Certificate...............
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being
issued......................................................
10.1** Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers..........................................
10.2** Form of Management Continuity Agreement entered into by and
between the Registrant and certain of its officers..........
10.3** 1995 Stock Plan.............................................
10.4 2001 Incentive Stock Plan...................................
10.5 Employee Stock Purchase Plan 2001...........................
10.6** Series E Preferred Stock Agreement of the Registrant dated
April 6, 1998...............................................
10.7** Fourth Amended and Restated Rights Agreement of the
Registrant dated April 6, 1998..............................
10.8** Registration Rights Agreement dated March 31, 2000 by and
between the Registrant and Shareholders of SnakeTech S.A....
10.9* Promissory Note of Aki Fujimira.............................
10.10* Form of Promissory Note of the Registrant...................
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).......................
23.2 Consent of PricewaterhouseCoopers LLP.......................
23.3 Consent of Befec-Price Waterhouse, Independent
Accountants.................................................
23.4 Consent of Deloitte & Touche LLP, Independent Auditors......
24.1 Power of Attorney (see page II-8)...........................
27.1 Financial Data Schedule.....................................
</TABLE>
---------------
* To be filed by amendment
**Previously filed.
