<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended December 30, 1995 or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to __________
COMMISSION FILE NUMBER 0-18623
--------------------
IKOS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0100318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19050 PRUNERIDGE AVE., CUPERTINO, CA 95014
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(408) 255-4567
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK $.01 PAR VALUE 7,052,000
--------------------------- ---------
(Title of Class) (Outstanding as of December 30, 1995)
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<PAGE>
IKOS SYSTEMS, INC.
FORM 10-Q
QUARTER ENDED DECEMBER 30, 1995
INDEX
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<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I: Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets at
December 30, 1995 and September 30, 1995........... 3
Consolidated Statements of Income
for the three months ended
December 30, 1995 and December 31, 1994............ 4
Consolidated Statements of Cash Flows
for the three months ended
December 30, 1995 and December 31, 1994............ 5
Notes to Consolidated Financial Statements........... 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations... 8
Part II: Other Information
Item 6: Exhibits and Reports on Form 8-K..................... 10
Signatures................................................... 12
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IKOS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 30, September 30,
1995 1995
------------- --------------
(Unaudited) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 16,459 $ 7,305
Short-term investments....................................... 5,505 450
Accounts receivable (net of allowances for
doubtful accounts of $196 and $171, respectively)........... 3,813 6,046
Inventories.................................................. 1,637 1,328
Prepaid expenses and other current assets.................... 131 271
-------- --------
Total current assets....................................... 27,545 15,400
Equipment and leasehold improvements:
Office and evaluation equipment.............................. 2,879 2,730
Machinery and equipment...................................... 5,025 4,985
Leasehold improvements....................................... 305 287
-------- --------
8,209 8,002
Less allowances for depreciation and amortization.......... (6,319) (6,363)
-------- --------
1,890 1,639
Other assets.................................................. 114 113
-------- --------
$ 29,549 $ 17,152
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 2,294 $ 1,613
Accrued payroll and related expenses......................... 1,217 1,195
Accrued commissions.......................................... 168 697
Income taxes payable......................................... 226 188
Other accrued liabilities.................................... 166 480
Deferred maintenance revenues................................ 3,844 3,030
Current portion of long-term debt............................ 676 688
-------- --------
Total current liabilities.................................. 8,591 7,891
Long-term debt, less current portion.......................... 1,106 1,300
Accrued rent.................................................. 251 251
Stockholders' equity:
Preferred stock, $.01 par value; 10,000 shares authorized,
none issued or outstanding.................................. -- --
Common stock, $.01 par value; 25,000 shares authorized,
7,052 and 5,886 issued and outstanding, respectively........ 71 59
Additional paid-in capital................................... 37,538 27,034
Accumulated deficit.......................................... (18,008) (19,383)
-------- --------
Total stockholders' equity................................. 19,601 7,710
-------- --------
$ 29,549 $ 17,152
======== ========
</TABLE>
(1) These amounts have been derived from audited financial statements
See notes to consolidated financial statements.
3
<PAGE>
IKOS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
December 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
Net revenues:
Product............................... $7,639 $5,030
Maintenance........................... 1,638 1,078
------ ------
Total net revenues............... 9,277 6,108
Cost of revenues:
Product............................... 1,917 1,314
Maintenance........................... 219 330
------ ------
Total cost of revenues........... 2,136 1,644
------ ------
Gross profit............................ 7,141 4,464
Operating expenses:
Research and development.............. 1,541 919
Sales and marketing................... 3,494 2,582
General and administrative............ 689 483
------ ------
Total operating expenses......... 5,724 3,984
------ ------
Income from operations.................. 1,417 480
Other income (expense):
Interest income....................... 197 23
Interest expense...................... (18) (38)
Other income.......................... 29 29
------ ------
Total other income............... 208 14
------ ------
Income before income taxes.............. 1,625 494
Provision for income taxes.............. 250 46
------ ------
Net income.............................. $1,375 $ 448
====== ======
Net income per share.................... $ 0.18 $ 0.08
====== ======
Common and common equivalent shares
used in computing per share amounts... 7,519 5,783
====== ======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
IKOS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents in thousands
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
December 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
Operating activities:
Net income............................................... $ 1,375 $ 448
Adjustment to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization........................... 243 350
Loss on retirement of equipment......................... -- 2
Deferred rent........................................... -- 9
Changes in operating assets and liabilities:
Accounts receivable..................................... 2,233 (1,350)
Inventories............................................. (309) (16)
Prepaid expenses and other current assets............... 140 53
Other assets............................................ (1) 5
Accounts payable........................................ 681 (83)
Accrued payroll and other expenses...................... 22 (52)
Accrued commissions..................................... (529) (447)
Income taxes payable.................................... 38 (13)
Other accrued liabilities............................... (314) (143)
Deferred maintenance revenues........................... 814 217
------- -------
Net cash provided by (used in) operating activities... 4,393 (1,020)
Investing activities:
Purchases of equipment and leasehold improvements........ (494) (109)
Purchase of short-term investments....................... (5,505) (6)
Maturities of short-term investments..................... 450 --
------- -------
Net cash used in investing activities.................. (5,549) (115)
Financing activities:
Principal payments on long-term borrowings............... (206) (85)
Sale of common stock..................................... 10,516 8
------- -------
Net cash provided by (used in) financing activities.... 10,310 (77)
------- -------
Increase (decrease) in cash and cash equivalents.......... 9,154 (1,212)
Cash and cash equivalents at beginning of period.......... 7,305 3,422
------- -------
Cash and cash equivalents at end of period................ $16,459 $ 2,210
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
IKOS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying consolidated financial statements at December 30, 1995 and
for the three month periods ended December 30, 1995 and December 31, 1994,
have been prepared in conformity with generally accepted accounting
principles, consistent with those applied in, and should be read in
conjunction with, the audited consolidated financial statements for the
year ended September 30, 1995 included in the Form 10-K as filed with the
Securities and Exchange Commission on December 22, 1995. The unaudited
interim financial information reflects all normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement of
results for the interim periods presented. The results for the three month
period ended December 30, 1995 are not necessarily indicative of results
expected for the full year.
2. Short-Term Investments
The Company accounts for certain investments in accordance with Financial
Accounting Standards Board, Statement of Financial Accounting Standards No.
115 (FAS 115), "Accounting for Certain Investments in Debt and Equity
Securities." All debt securities of the Company are classified as held-to-
maturity. The fair values for marketable debt securities are based on
quoted market prices. The Company's investments are primarily U.S.
Treasury Securities and U.S. Corporate notes.
3. Revenue Recognition
Product revenues, which include licensing and software revenues, are
generally recognized on shipment provided that no significant vendor or
post-contract support obligations remain outstanding and collection of the
resulting receivable is deemed probable. Insignificant vendor and post-
support obligations are accrued upon shipment. Revenue under maintenance
contracts is recognized ratably over the term of the related contract,
generally twelve months.
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of (in thousands):
<TABLE>
<CAPTION>
December 30, September 30,
1995 1995
------------ -------------
<S> <C> <C>
Purchase parts $ 232 $ 347
Work-in-process 1,144 563
Finished goods 261 418
------ ------
Total inventories $1,637 $1,328
====== ======
</TABLE>
5. Net Income Per Share
Net income per share is based on the weighted average number of common
shares outstanding during the period. Common equivalent shares from
options have been included in the computation when dilutive.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NET REVENUES
First quarter net revenues totaled $9,277,000, an increase of approximately 52%
over the same quarter in fiscal 1995. The increase is primarily the result of
the continued growth in sales of the Voyager product line and the introduction
of the new Gemini product during the latter part of fiscal year 1995. These
products contributed the vast majority of product net revenues during
the three months ending December 30, 1995. Product net revenues exclude
maintenance, consulting, training, rentals and other non-product related sales.
Maintenance revenue for the quarter increased substantially over the same
quarter of the previous fiscal quarter as a result of the growing customer base.
International sales for the quarter increased approximately 8% over the same
quarter in fiscal 1995 and accounted for approximately 22% of total sales for
the quarter. As the Company continues to penetrate the Asian market,
international sales are expected to increase during the year.
GROSS PROFIT MARGINS
Gross profit margins improved to approximately 77% of net revenues for the first
quarter of fiscal 1996, an increase from approximately 73% for the first quarter
of fiscal 1995. The increase was primarily the result of increases in
maintenance revenues and a reduction in maintenance expenses. The maintenance
revenue increase is a direct result of the growing customer base. The reduced
expenses are a result of the transfer of certain personnel from maintenance
support to marketing without any replacements during the quarter. Gross profit
margins are expected to remain strong in subsequent quarters provided revenues
of newer products continue to increase.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in the first quarter of fiscal 1996 totaled
$1,541,000, representing an increase of approximately 68% over the same quarter
of fiscal year 1995. The increase was primarily attributable to the acquisition
of software technology. Additionally research and development expenses have
increased as a result of increased headcount and associated expenses. The
Company expects research and development expenses to increase in absolute
dollars over the remainder of the year but remain flat as a percentage of
revenues over that same period as the Company continues to develop its future
generation of products.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased by $912,000 to $3,494,000 for the first
quarter of 1996 when compared to the same period in fiscal 1995. The increase
is primarily the result of additional headcount and increased commissions as a
result of higher revenue levels, as well as increased expenses for international
operations. Sales and marketing expenses are expected to continue to increase
in absolute dollars over the next three fiscal quarters reflecting increased
headcount, commission expense and marketing expenses.
7
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $689,000 in the first quarter of fiscal
1996. This compares to $489,000 for the same period in fiscal 1995. The
increase is due to several factors including additional headcount, increased
investor relations expenses, professional services and profit sharing expenses.
General and administrative expenses are expected to increase slightly in
absolute dollars and decrease as a percent of net revenues over the next three
fiscal quarters of fiscal 1996 as a result of increased headcount, salaries and
related expenses.
INCOME TAXES
The provision for income taxes consists primarily of federal alternative minimum
tax, state and foreign taxes and Japanese withholding taxes. The tax rate is
substantially below the federal statutory rate due to the utilization of net
operating loss carryovers for which no benefit has previously been taken.
LIQUIDITY AND CAPITAL RESOURCES
As of December 30, 1995, the Company had $21,964,000 in cash, cash equivalents
and short term investments which compares to $7,755,000 as of September 30,
1995.
Net cash provided by operating activities was $4,393,000 for the three
months ended December 30, 1995 and was primarily due to net income, a
substantial reduction in outstanding accounts receivable, depreciation and
amortization and increased deferred maintenance revenues partially offset by
increase in inventories and a decrease in accrued commissions and other accrued
liabilities.
Net cash used in investing activities was approximately $5,549,000 due primarily
to net purchases of approximately $5,505,000 of short-term investments and
$494,000 of equipment during the three months ended December 30, 1995. The
Company expects capital expenditures to increase throughout the remainder of the
year as the expected headcount additions will require additional workstations.
Net cash provided by financing activities for the three months ended December
30, 1995 was $10,310,000 which was a result of the completion of the Company's
public stock offering and the exercise of options by Company employees.
Proceeds from the sale of 1,150,000 shares of common stock, net of offering
costs, was approximately $10,450,000. Offsetting the increases in cash provided
by financing activities were principal payments of approximately $206,000 on
long-term debt.
The Company's primary unused sources of funds at December 30, 1995, consisted of
$21,964,000 of cash, cash equivalents and short term investments. The Company
believes that its present cash position and cash generated from operations will
be sufficient to meet its capital needs for at least the next twelve months.
Forward-looking statements in this Quarterly Report on Form 10-Q are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that all forward-looking statements
involve risks and uncertainties, including, without limitation, a developing
market and continued acceptance of the Company's products, changes in the
marketplace and increased levels of competition for the Company, the Company's
dependence upon third-party suppliers and the Company's intellectual property
rights. Further information on potential factors which could affect the
Company's financial results are included in the Company's Annual Report on Form
10-K for the year ended September 30, 1995 and the Company's Registration
Statement on Form S-2, effective October 12, 1995.
8
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exh. No. Documentation Description Page
- ------- ------------------------- ----
<C> <S> <C>
4.1 Certificate of Amendment of Certificate of Incorporation filed May 5,
1994. (Incorporated by reference to Exhibit 4.1 of the Company's
registration statement on Form S-2 effective October 12, 1995.)
4.2 Certificate of Amendment of Certificate of Incorporation filed April 24,
1995. (Incorporated by reference to Exhibit 4.2 of the Company's
registration statement on Form S-2 effective October 12, 1995.)
4.4 Rights Agreement dated as of January 27, 1992 between the Company and
Manufacturers Hanover Trust Company of California, Rights Agent.
(Incorporated by reference to Exhibit (C)1, in the Company's current
report on Form 8-K filed February 10, 1992.)
10.1 Lease Agreement for the Company's principal facility dated March 20,
1992, between Ames Avenue Associates and the Company, as amended.
(Incorporated by reference to Exhibit 10.1 of the Company's annual report
on 10-K for the year ending September 26, 1992.)
10.2 Form of Director and Officer Indemnity Agreement. (Incorporated by
reference to Exhibit 10.6 of the Company's registration statement on
Form S-1 effective July 25, 1990.)
10.3 1988 Stock Option Plan. (Incorporated by reference to Exhibit 10.14 of
the Company's registration statement on Form S-1 effective July 25,
1990.)
10.4 Patent Cross License Agreement dated May 17, 1989 with Zycad Corporation.
(Incorporated by reference from Zycad Corporation's Annual Report
on Form 10-K filed April 2, 1990.) (Incorporated by reference to
Exhibit 10.20 of the Company's registration statement on Form S-1
effective July 25, 1990.)
10.5 International Distributorship Agreement dated April 11, 1988, with C.
Itoh & Co., Ltd. (with certain confidential portions excised).
(Incorporated by reference to Exhibit 10.24 of the Company's registration
statement on Form S-1 effective July 25, 1990.)
10.6 OEM Software License Agreement between CAD Language Systems, Inc. and
IKOS Systems, Inc. dated June 22, 1989 and amendment dated September
1991. (Incorporated by reference to Exhibit 10.18 of the Company's
Annual Report for the year ended September 28, 1991.)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Exh. No. Documentation Description Page
- ------- ------------------------- ----
<C> <S> <C>
10.7 Technology Transfer and Joint Development Agreement with Racal-Redac,
Inc. dated July 1, 1993 (with certain portions excised). (Incorporated
by reference to Exhibit 10.19 of the Company's quarterly report on Form
10-Q for the quarter ended July 3, 1993.)
10.8 Settlement Agreement and Release dated March 31, 1994 between Racal
Redac, Inc. and the Company. (Incorporated by reference to Exhibit 10.13
of the Company's registration statement on Form S-2 effective
October 12, 1995.)
10.9 Software License Agreement dated December 31, 1993 between Compass Design
Automation and the Company. (Incorporated by reference to Exhibit 10.17
of the Company's quarterly report on Form 10-Q for the quarter ended
January 1, 1994.)
10.10 Agreement dated June 2, 1994, between the Company and Gerald S. Casilli.
(Incorporated by reference to Exhibit 10.18 of the Company's quarterly
report on Form 10-Q for the quarter ended July 2, 1994.)
10.11 Agreement dated June 2, 1994, between the Company and William B.
Fazakerly. (Incorporated by reference to Exhibit 10.18 of the Company's
quarterly report on Form 10-Q for the quarter ended July 2, 1994.)
10.12 Agreement dated June 2, 1994, between the Company and Daniel R. Hafeman.
(Incorporated by reference to Exhibit 10.18 of the Company's quarterly
report on Form 10-Q for the quarter ended July 2, 1994.)
10.13 Agreement dated June 2, 1994, between the Company and Stephen M.
McLaughlin. (Incorporated by reference to Exhibit 10.18 of the Company's
quarterly report on Form 10-Q for the quarter ended July 2, 1994.)
10.14 Agreement dated June 2, 1994, between the Company and Lawrence A.
Melling. (Incorporated by reference to Exhibit 10.18 of the Company's
quarterly report on Form 10-Q for the quarter ended July 2, 1994.)
10.15 Agreement dated June 2, 1994, between the Company and Ramon A. Nunez.
(Incorporated by reference to Exhibit 10.18 of the Company's quarterly
report on Form 10-Q for the quarter ended July 2, 1994.)
10.16 Agreement dated June 2, 1994, between the Company and Joseph W. Rockom.
(Incorporated by reference to Exhibit 10.18 of the Company's quarterly
report on Form 10-Q for the quarter ended July 2, 1994.)
10.17 The Company's 1995 Outside Directors Stock Option Plan. (Incorporated by
reference to Exhibit 10.22 of the Company's registration statement on
Form S-2 effective October 12, 1995.)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Exh. No. Documentation Description Page
- ------- ------------------------- ----
<C> <S> <C>
10.18 Development and OEM Agreement for Verilog/IKOS Co-simulation Interface
dated August 26, 1994 by and between the Company and Precedence
Incorporated. (Incorporated by reference to Exhibit 10.24 of the
Company's registration statement on Form S-2 effective October 12, 1995.)
10.19 Agreement dated June 19, 1995 by and between the Company and William B.
Fazakerly. (Incorporated by reference to Exhibit 10.20 of the Company's
annual report on Form 10-K for the year ended September 30, 1995.)
10.20 Amendment to OEM Agreement for the acquisition of certain software
technology, by and between Compass Design Automation, Inc. and the
Company dated December 27, 1995.
10.21 Amended and Restated Employment Agreement dated August 1, 1995 by and
between the Company and Ramon Nunez.
11.1 Statements of Computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K - Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IKOS SYSTEMS, INC.
-----------------
Registrant
Date: February 9, 1996 /s/ Joseph W. Rockom
---------------- ---------------------
(JOSEPH W. ROCKOM, CFO)
Principal Financial Officer,
Duly Authorized Officer
11
<PAGE>
EXHIBIT 10.20
AMENDMENT TO OEM AGREEMENT
This Amendment is entered into by and between COMPASS Design Automation, Inc. as
successor in interest to CAD Language Systems, Inc. ("COMPASS") and IKOS
Systems, Inc. ("IKOS"). The Effective Date of this Amendment is the later date
signed below by the parties.
COMPASS and IKOS are parties to that certain OEM Software License Agreement (the
"Agreement") dated June 25, 1989, as amended. The parties wish to amend the
Agreement further to (i) formalize the grant of the non-exclusive, world wide
license referred to in Section 1 of this Amendment and (ii) delete certain
provisions of this Agreement and modify others in connection with the fully
paid, non-exclusive world wide license referred to in Section 2 of this
Amendment.
Now therefore, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. GRANT OF LICENSE
Subject to the provisions of the Agreement, COMPASS grants to IKOS a license to
use VTIP-XL, COMPASS part number VS-R-917-S, and extends the grant of licenses
to use VTIP/VHDL COMPASS part number number VS-R-910-S, both of which include
the complete development environment to VTIP-XL and VTIP/VHDL, respectively,
consisting of the object code, source code, compile scripts and publicly
releasable VHDL test cases (the "Licensed Code"). IKOS may modify, copy,
enhance, port, maintain and create derivative works from the source code of the
Licensed Code, which derivative works shall be part of the Licensed Code. The
use of the Licensed Code is limited to internal use only by IKOS and may not be
distributed to any third party without the written consent of COMPASS. This
Licensed Code is COMPASS Confidential Information and will be treated by IKOS
with the same level of confidentiality and protection as IKOS handles its own
confidential code. COMPASS will supply the Licensed Code to IKOS within 5 days
of the Effective Date of this Amendment.
The Licensed Code is licensed on an "AS-IS" basis and COMPASS shall have no
obligation under Section 7 of the Agreement to IKOS or its customers with
respect thereto and COMPASS shall be held harmless by IKOS for any claims
arising from using, maintaining, enhancing, modifying or porting of the Licensed
Code.
2. GRANT OF RUN TIME LICENSES
Subject to the provisions of the Agreement, COMPASS grants to IKOS a fully paid
perpetual license to distribute and sublicense run time object code versions of
both VTIP/VHDL, derived from COMPASS part number VS-R-910-S ("VTIP/VHDL") and
VTIP-XL, derived from COMPASS part number VS-R-917-5 ("VTIP-XL"), or derivative
works produced therefrom, only as integrated with IKOS VHDL simulation products.
Amendment to OEM Agreement Page 1 of 3 December 27, 1995
<PAGE>
3. SERVICES TO BE PROVIDED
COMPASS shall supply four man weeks of training and consulting to facilitate the
transfer of the VTIP-XL Source Code to IKOS. This consulting will be available
from the period January 1, 1996 to September 30, 1996 and must be used by IKOS
during that period or will be lost. Delivery of such consulting will be made at
mutually agreed to times, but not later than two weeks after IKOS may request.
After that period any additional consulting may be available at COMPASS' then
prevailing rates for such consulting. Reasonable travel expenses for COMPASS
personnel to travel and deliver such services at any site other than COMPASS
Columbia, Md. site shall be borne by IKOS.
IKOS shall receive, at no additional charge, new versions of the Licensed Code
resulting from changes, updates and bug fixes by COMPASS to the Licensed Code
during the 18 month period following the Effective Date of this Amendment.
COMPASS will also provide telephonic and e-mail maintenance support, including
bug fixes to the Licensed Code through September 30, 1996.
4. PAYMENT
IKOS shall make a non-refundable $350,000.00 payment to COMPASS within 30 days
of the Effective Date of this Agreement.
5. COMPLETED OBLIGATIONS
COMPASS obligations to maintain the originally licensed product, "VTIP", now
known as VTIP/VHDL, COMPASS part number series V5-x-910, as described in Section
4 and all subsections pertaining thereto shall cease on June 30, 1996. The
following Sections of the OEM Agreement are deleted in their entirety:
Section 5 Reports, Payments and Pricing
Section 5.1 Reports
Section 5.2 Pricing
Section 5.3 Payment
Section 5.4 Payment upon Termination
Section 6 Audit Rights
Section 18 Publicity
Section 22 Escrow of VTIP Code
Exhibit E: CLSI Base Prices
Exhibit G: VTIP Code Escrow Provisions
The Amendment Agreement effective September 10, 1991 is no longer applicable and
the obligations and requirements specified therein are deemed by both parties to
have been fulfilled.
Amendment to OEM Agreement Page 2 of 3 December 27, 1995
<PAGE>
6. TERM OF AGREEMENT
Sections 10 and 11 are deleted in their entirety and replaced with the new
Sections as follows:
"SECTION 10 TERM OF THE AGREEMENT
The initial term of this Agreement is extended for five years from the
Effective Date of this amendment. Licensee shall have the sole option to
renew the Agreement for a successive five year term by written notice to
Licensor with 90 days notice in advance of the 5 year anniversary date. In
the event of a normal termination of the Agreement, i.e. not termination
by breach by IKOS, the following provisions will survive such normal
termination: Section 1 and 2 of this Amendment and Paragraph 8 of the
Agreement.
This Agreement may be terminated by either party as a result of a material
breach by the other party that has remained uncured for a period of 30
days from written notice of such breach.
SECTION 11 RESERVED"
7. To the extent that the terms of this Amendment are in conflict with the terms
of the Agreement or amendment(s) thereto, the terms of this Amendment will
prevail.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be
executed by its duly authorized representative.
IKOS Systems, Inc.
By: /s/ Ramon Nunez
--------------------------
Ramon Nunez
Title: President & CEO
Date: 12-27-95
COMPASS Design Automation, Inc.
By: /s/ Taylor Scanlon
--------------------------
Taylor Scanlon
Title: V.P. North America
Date: 12-27-95
Amendment to OEM Agreement Page 3 of 3 December 27, 1995
<PAGE>
EXHIBIT 10.21
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This Amended and Restated Employment Agreement is made and entered into
by and between IKOS Systems, Inc. (the "Company") and Ramon A. Nunez ("Nunez")
as of August 1, 1995, (the "Restated Agreement").
The Company and Nunez wish to amend and restate the Employment Agreement
dated September 27, 1994 by and between the Company and Nunez (the "Former
Agreement") to clarify certain technical matters regarding position and duties
and compensation as a result of Nunez' promotion to Chief Executive Officer of
the Company and as a result of the Company's one-for-two reverse stock split
effective April 24, 1995.
1. Position and Duties: Nunez shall be employed by the Company as its
-------------------
President and Chief Executive Officer ("CEO") reporting to the Company's Board
of Directors (the "Board"), effective August 1, 1995 (the "Commencement Date").
As President and CEO, Nunez agrees to devote his full business time, energy and
skill to his duties at the Company. These duties shall include, but not be
limited to, any duties consistent with his position which may be assigned to
Nunez from time to time by the Company's Board.
2. Term of Employment: Nunez' employment with the Company, pursuant to
------------------
this Agreement, is for no specified term and may be terminated by the Company or
Nunez at any time, with or without cause. Upon the termination of Nunez'
employment with the Company, for any reason, neither Nunez nor the Company shall
have any further obligation or liability to the other, except as set forth in
Sections 4, 5, 7 and 8 below.
3. Compensation: Nunez shall be compensated by the Company for his
------------
services as follows:
(a) Salary: As President and CEO, Nunez shall be paid a monthly
------
salary of $16,250.00 ($195,000.00 on an annualized basis), subject to applicable
withholding, in accordance with the Company's normal payroll procedures. Such
salary shall be reviewed annually by the Board.
(b) Benefits: As the Company's CEO, Nunez shall have the right, on
--------
the same basis as other members of senior management of the Company, to
participate in and to receive benefits under any of the Company's employee
benefit plans, including the medical, dental, vision and disability group
insurance plans. Nunez shall also be entitled to participate in the 401(k) Plan
maintained by the Company in accordance with its terms. In addition, Nunez shall
be entitled to the benefits afforded to other members of senior management under
the Company's vacation, holiday and business expense reimbursement policies.
1
<PAGE>
(c) Stock Options:
-------------
(i) Upon execution of the Former Agreement, Nunez was granted a
nonqualified stock option to purchase 150,000 shares of the Company's Common
Stock at an exercise price equal to the fair market value of the Company's
Common Stock as determined by the Board as of the date of grant. The shares
subject to that option vest as follows: (i) upon six (6) months' anniversary of
the Former Agreement, 12.5%; (ii) during the next forty-two (42) month period,
2.083% per month. The options are and shall be subject to the terms and
conditions of the Company's Stock Option Plan and the Company's standard form of
Stock Option Agreement.
(ii) If the Company achieves its earnings per share objective as
set forth in the Company's annual business plan approved by the Board, Nunez
shall be granted additional stock options to purchase shares according to the
following chart:
Earnings Per Share Objectives
% of Plan Number of Shares
----------------------------- ----------------
90% of Earnings Per Share Attained............ 0
91% of Earnings Per Share Attained............ 1,250
92% of Earnings Per share Attained............ 2,500
93% of Earnings Per Share Attained............ 3,750
94% of Earnings Per Share Attained............ 5,000
95% of Earnings Per Share Attained............ 6,250
96% of Earnings Per Share Attained............ 7,500
97% of Earnings Per Share Attained............ 8,750
98% of Earnings Per Share Attained............ 10,000
99% of Earnings Per Share Attained............ 11,250
100% of Earnings Per Share Attained............ 12,500
(iii) In addition to the above, for every $.01 earnings per
share that the Company achieves over its objectives, Nunez shall be granted
additional stock options to purchase 1,000 shares. The stock options earned by
Nunez under this Section 3(c)(iii) will vest as follows: 8.3333% per month. The
exercise price for these options shall be equal to the fair market value of the
Company's Common Stock determined by the Board as of their date of grant. These
options shall be subject to the terms and conditions of the Company's Stock
Option Plan and the Company's standard form of Stock Option Agreement.
Up to forty percent (40%) of the stock options referred
to in Sections 3(c)(ii) and 3(c)(iii) above shall be earned in the first half of
the applicable fiscal year and up to sixty percent (60%) shall be earned in the
second half of the applicable fiscal year.
(d) Performance Bonus. Effective August 1, 1995, Nunez shall have
-----------------
the opportunity to earn an annual Performance Bonus. As President and CEO, Nunez
may earn an annual Performance Bonus of up to $100,000.00 per year. The
Performance Bonus shall have two components: (i) 80% of the Performance Bonus
may be earned on the basis of revenue objectives and earnings per share; and
(ii) 20% of the Performance Bonus is discretionary and will be granted based
upon Nunez' job performance and other factors as determined by the Board. The
Performance Bonus shall be determined as follows:
2
<PAGE>
(i) Based upon the achievement of the Company's revenue objectives
and earnings per share objectives pursuant to and measured against its annual
business plan, as approved by the Board, Nunez shall have the opportunity to
earn up to 80% of the annual Performance Bonus ($80,000) as follows:
a. Up to 50% of this component ($40,000) may be earned if the
Company achieves its revenue objectives for the Company's fiscal year as set
forth in the Company's annual business plan according to the following chart:
Revenue Objectives Bonus Earned
% of Plan % of $40,000
------------------------ ------------
90% of Revenues Attained........ 0% Earned
91% of Revenues Attained........ 10% Earned
92% of Revenues Attained........ 20% Earned
93% of Revenues Attained........ 30% Earned
94% of Revenues Attained........ 40% Earned
95% of Revenues Attained........ 50% Earned
96% of Revenues Attained........ 60% Earned
97% of Revenues Attained........ 70% Earned
98% of Revenues Attained........ 80% Earned
99% of Revenues Attained........ 90% Earned
100% of Revenues Attained........ 100% Earned
Up to forty percent (40%) of the Performance Bonus amount referred
to in this Section 3(d)(i)a. ($16,000), shall be earned in the first half of the
applicable fiscal year and up to sixty percent (60%) of the Performance Bonus
amount referred to in this Section 3(d)(i)a. ($24,000), shall be earned in the
second half of the applicable fiscal year. Notwithstanding the above, if the
objectives are not achieved in the first half of the fiscal year, such
objectives may not be recouped in the second half of the fiscal year.
3
<PAGE>
b. Up to 50% of this component ($40,000) may be earned if the Company
achieves its earnings per share objectives for the Company's fiscal year as set
forth in the Company's annual business plan according to the following chart:
Earnings Per Share Objectives Bonus Earned
% of Plan % of $40,000
----------------------------- ------------
90% of Earnings Attained....... 0% Earned
91% of Earnings Attained....... 10% Earned
92% of Earnings Attained....... 20% Earned
93% of Earnings Attained....... 30% Earned
94% of Earnings Attained....... 40% Earned
95% of Earnings Attained....... 50% Earned
96% of Earnings Attained....... 60% Earned
97% of Earnings Attained....... 70% Earned
98% of Earnings Attained....... 80% Earned
99% of Earnings Attained....... 90% Earned
100% of Earnings Attained....... 100% Earned
Up to forty percent (40%) of the Bonus amount referred to in this
Section 3(d)(i)b. ($16,000) shall be earned in the first half of the applicable
fiscal year and up to sixty percent (60%) of the Bonus amount referred to in
this Section 3(d)(i)b. ($24,000) shall be earned in the second half of the
applicable fiscal year. Notwithstanding the above, if the objectives are not
achieved in the first half of the fiscal year, such objectives may not be
recouped in the second half of the fiscal year.
(ii) Nunez shall have the opportunity to earn up to 20% of the annual
Performance Bonus ($20,000) based upon achievement of his job performance and
other duties. Such component of the annual Performance Bonus shall be payable
at the sole discretion of the Board's Compensation Committee. Up to forty
percent (40%) of the Bonus amount referred to in this Section 3(d)(ii) ($8,000)
may be earned in the first half of the applicable fiscal year and up to sixty
percent (60%) ($12,000) may be earned in the second half of the applicable
fiscal year.
(iii) The Performance Bonus, if any, to be paid to Nunez, pursuant to
this Section (3)(d), shall be paid to Nunez in a lump sum payment no later than
thirty days following the completion of the first half of the Company's fiscal
year and no later than thirty days following the completion of the second half
of the Company's fiscal year.
(iv) Nunez shall not participate in any profit sharing plan that is
available to other officers of the Company.
4. Benefits Upon Voluntary Termination: In the event that Nunez
-----------------------------------
voluntarily resigns from his employment with the Company, or in the event that
Nunez' employment terminates as a result of his death or disability, Nunez shall
be entitled to no compensation or benefits from the Company other than those
earned under Section 3 above through the date of his termination.
5. Benefits Upon Other Termination: Nunez agrees that his employment may
-------------------------------
be terminated by the Company at any time, with or without cause. In the event of
the termination of Nunez' employment by the Company for the reasons set forth
below, he shall be entitled to the following:
4
<PAGE>
(a) Termination for Cause: If Nunez' employment is terminated by the
---------------------
Company for cause as defined below, Nunez shall be entitled to no compensation
or benefits from the Company other than those earned under Section 3 through
the date of his termination.
For purposes of this Agreement, a termination "for cause" occurs if
Nunez is terminated for any of the following reasons:
(i) theft, dishonesty, or falsification of any employment or
Company records;
(ii) improper disclosure of the Company's confidential or
proprietary information;
(iii) any intentional act by Nunez which has a material detrimental
effect on the Company's reputation or business; or
(iv) any material breach of this Agreement, which breach is not
cured within thirty (30) days following written notice of such breach from the
Company.
(b) Termination for Other Than Cause: If Nunez' employment is
--------------------------------
terminated by the Company for any reason other than cause, Nunez shall be
entitled to the following separation benefits:
(i) payment of a monthly amount for nine months and such monthly
payment shall change from month-to-month as it shall be equal to Nunez' average
monthly income that he received over the last twelve (12) months. Such average
monthly income shall take into account all compensation that Nunez received from
the Company;
(ii) continued vesting in any unvested shares of the Company's
stock which were granted to Nunez pursuant to the stock options described in
Section 3(c) above; and
(iii) continued provision of the employee benefits described in
Section 3(b) for a period of nine (9) months following such termination.
(c) Termination Due to an Ownership Change and/or a Transfer of
-----------------------------------------------------------
Control. In the event of an Ownership Change and/or a Transfer of Control as
- -------
defined in the agreement dated June 2, 1994 and attached hereto as Exhibit A
---------
(hereinafter the "Transfer of Control Agreement)" and Nunez' employment with the
Company is terminated by the Company or by Nunez for the reasons set forth in
the Transfer of Control Agreement, Nunez shall only be entitled to the benefits
set forth therein.
6. Exclusive Remedy: Subject to Section 5 above, Nunez shall be entitled to
----------------
no further compensation for any damage or injury arising out of the termination
of his employment by the Company.
7. Confidential Information and Inventions Agreement: Nunez agrees to abide
-------------------------------------------------
by the terms and conditions of the Company's standard employee Confidential
Information and Inventions Agreement that was executed by Nunez and attached
hereto as Exhibit B.
---------
5
<PAGE>
8. Conflict of Interest: Nunez agrees that for a period of two (2) years
--------------------
after termination of his employment with the Company, he will not, directly or
indirectly, solicit the services of or in any other manner persuade an employee
or customers of the Company to discontinue that person's relationship with or
to the Company as an employee or customer, as the case may be.
9. Attorneys' Fees: The prevailing party shall be entitled to recover from
---------------
the losing party its attorneys' fees and costs incurred in any action brought
to enforce any right arising out of this Restated Agreement.
10. Interpretation: Nunez and the Company agree that this Restated
--------------
Agreement shall be interpreted in accordance with and governed by the laws of
the State of California.
11. Successors and Assigns: This Restated Agreement shall inure to the
----------------------
benefit of and be binding upon the Company and its successors and assigns. In
view of the personal nature of the services to be performed under this Restated
Agreement by Nunez, he shall not have the right to assign or transfer any of
his rights, obligations or benefits under this Restated Agreement, except as
otherwise noted herein.
12. Entire Agreement: This Restated Agreement constitutes the entire
----------------
employment agreement between Nunez and the Company regarding the terms and
conditions of his employment, with the exception of (i) the Confidentiality and
Inventions Agreement described in Section 7, (ii) any stock option agreement
between Nunez and the Company as described in Section 3(c)(i) and (iii) the
Transfer of Control Agreement attached hereto as Exhibit A. This Agreement
---------
supersedes all prior negotiations, representations or agreements between Nunez
and the Company, whether written or oral, concerning Nunez' employment by the
Company, including but not limited to, the Employment Agreement by and between
the Company and Nunez dated September 27, 1994.
13. No Representations: Nunez acknowledges that he is not relying, and has
------------------
not relied, on any promise, representation or statement made by or on behalf of
the Company which is not set forth in this Restated Agreement.
14. Validity: If any one or more of the provisions (or any part thereof) of
--------
this Restated Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby.
6
<PAGE>
15. Modification: This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by Nunez and the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
IKOS SYSTEMS, INC.
By: /s/ Gerald S. Casilli
------------------------------------
Its: Chairman
------------------------------------
/s/ Ramon A. Nunez
---------------------------------------
Ramon A. Nunez
7
<PAGE>
Exhibit 11.1
IKOS SYSTEMS, INC.
STATEMENTS OF COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
December 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Net income....................................................... $1,375 $ 448
====== ======
Number of shares used in computing per share amounts:
Weighted average common stock outstanding...................... 6,886 5,509
Common equivalent shares attributable to
stock options (treasury stock method)........................ 633 274
------ ------
Total weighed average common shares outstanding................ 7,519 5,783
====== ======
Net income per share............................................. $ 0.18 $ 0.08
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 16,549
<SECURITIES> 5,505
<RECEIVABLES> 4,009
<ALLOWANCES> (196)
<INVENTORY> 1,637
<CURRENT-ASSETS> 27,545
<PP&E> 8,209
<DEPRECIATION> (6,319)
<TOTAL-ASSETS> 29,549
<CURRENT-LIABILITIES> 8,591
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 19,530
<TOTAL-LIABILITY-AND-EQUITY> 29,549
<SALES> 7,639
<TOTAL-REVENUES> 9,277
<CGS> 1,917
<TOTAL-COSTS> 2,136
<OTHER-EXPENSES> 5,724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 1,625
<INCOME-TAX> 250
<INCOME-CONTINUING> 1,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,375
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
