<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended SEPTEMBER 30, 1997 Commission file number 0-19730
------------------ -------
VIEWLOGIC SYSTEMS, INC.
-----------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-2830649
-------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
293 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752-4615
----------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (508) 480-0881
--------------------------------------------------------------
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
----------- -----------
The number of shares outstanding of each of the issuer's classes of
common stock, as of:
DATE CLASS OUTSTANDING SHARES
September 30, 1997 Common Stock, $.01 par value 17,078,760
1
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VIEWLOGIC SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Statements of Income for the 3
Quarter and Nine Months Ended September 30, 1997 and 1996
Condensed Consolidated Balance Sheets as of 4
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Cash Flows for 5
the Nine Months Ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9
CONDITION AND RESULTS OF OPERATIONS.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
SIGNATURES 16
</TABLE>
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
--------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software $24,103 $21,023 $66,581 $58,589
Services and other 16,334 13,404 44,037 37,137
-------- -------- -------- --------
Total revenue 40,437 34,427 110,618 95,726
-------- -------- -------- --------
Costs and expenses:
Cost of software 2,713 2,943 8,339 8,065
Cost of services and other 4,165 3,353 11,633 9,926
Selling and marketing 16,116 14,406 45,938 42,360
Research and development 8,308 7,081 24,234 20,071
Purchased research and
development 5,500
General and administrative 3,037 3,374 7,772 8,578
-------- -------- -------- --------
Total operating expenses 34,339 31,157 103,416 89,000
-------- -------- -------- --------
Income from operations 6,098 3,270 7,202 6,726
-------- -------- -------- --------
Other income:
Interest income, net 662 598 1,791 1,437
Other income, net 6 1,212 2,721 1,225
-------- -------- -------- --------
Total other income 668 1,810 4,512 2,662
-------- -------- -------- --------
Income before income taxes 6,766 5,080 11,714 9,388
Provision for income taxes 2,605 1,956 6,628 3,613
-------- -------- -------- --------
Net income $4,161 $3,124 $5,086 $5,775
======== ======== ======== ========
Income per common share:
Primary:
Net income $0.23 $0.18 $0.29 $0.33
======== ======== ======== ========
Weighted average number
of common and common
equivalent shares
outstanding 18,321 17,403 17,805 17,250
======== ======== ========= =======
Fully diluted:
Net income $0.22 $0.18 $0.27 $0.33
======== ======== ========= =======
Weighted average number
of common and common
equivalent shares
outstanding 19,060 17,403 18,841 17,259
======== ======== ========= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $48,136 $41,297
Marketable securities 23,924 20,482
Accounts receivable (less allowance
for doubtful accounts, $1,761 in
1997 and $1,503 in 1996) 31,081 32,507
Prepaid expenses and other 7,501 6,779
Deferred income taxes 302 302
------------ ------------
Total current assets 110,944 101,367
------------ ------------
Marketable securities - non-current 6,226 5,565
------------ ------------
Property and equipment:
Equipment 29,677 25,360
Furniture and fixtures 4,035 3,625
------------ ------------
Total 33,712 28,985
Less accumulated depreciation 18,336 15,236
------------ ------------
Property and equipment - net 15,376 13,749
------------ ------------
Other assets:
Capitalized software costs - net 6,172 5,724
Purchased technology - net 2,857 2,261
Goodwill - net 2,500 1,582
Deposits and other 1,422 961
------------ ------------
Total other assets 12,951 10,528
------------ ------------
Total $145,497 $131,209
============ ============
Liabilities and stockholders' equity:
Current liabilities:
Current portion of capital lease
obligations $56 $32
Accounts payable 4,539 3,232
Accrued compensation 9,271 10,684
Accrued expenses 9,189 8,551
Deferred revenue 25,132 20,323
Deferred income taxes 1,304
------------ ------------
Total current liabilities 48,187 44,126
------------ ------------
Deferred income taxes 4,153 4,609
Capital lease obligations 195
Stockholders' equity:
Common stock, $.01 par value 181 174
Additional paid-in capital 80,651 73,944
Retained earnings 23,500 18,414
Unrealized holding gains, net of tax 46 1,470
Cumulative translation adjustment (848) (960)
------------ ------------
103,530 93,042
Less: Treasury stock, at cost (10,568) (10,568)
------------ ------------
Total stockholders' equity 92,962 82,474
------------ ------------
Total $145,497 $131,209
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $5,086 $5,775
Adjustments to reconcile net income to net
cash provided by operating activities:
Purchased research and development 5,500
Depreciation 4,059 3,812
Gain on sale of investment (2,431) (1,173)
Amortization of capitalized software
and purchased technology 2,818 2,210
Amortization of goodwill 321 175
Change in assets and liabilities:
Accounts receivable 1,426 1,035
Prepaid expense and other (678) (3,184)
Accounts payable 1,305 255
Accrued compensation (1,469) 1,597
Accrued expenses 491 3,285
Deferred revenue 4,209 2,539
------------- ------------
Net cash provided by operating
activities 20,637 16,326
------------- ------------
Cash flows from investing activities:
Purchase of marketable securities (26,720) (17,674)
Proceeds from sale of marketable
securities 22,768 17,090
Expenditures for property and equipment (5,266) (5,336)
Capitalized software costs (2,527) (2,075)
Purchased technology (335)
Decrease (increase) in deposits and other (458) 83
Purchase of Eagle Design Automation, Inc.,
net of cash (6,573)
Purchase of Silerity, Inc., net of cash (306)
------------- ------------
Net cash used in investing activities (19,417) (7,912)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,970 1,533
Proceeds from exercise of stock options 4,744 1,793
Repurchase of common stock (3,466)
Principal payment of capital lease
obligations (77) (70)
Repayment of notes to former
Silerity shareholders (2,805)
Repayment of foreign tax grant (1,304)
------------- ------------
Net cash provided by (used in)
financing activities 5,333 (3,015)
------------- ------------
Effect of exchange rate changes on cash 286 151
------------- ------------
Net increase in cash and cash equivalents 6,839 5,550
Cash and cash equivalents, beginning of
the period 41,297 34,387
------------- ------------
Cash and cash equivalents, end of the period $48,136 $39,937
============= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
VIEWLOGIC SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared by Viewlogic Systems, Inc. (the "Company") pursuant
to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete annual financial statements and
should be read in conjunction with the audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
In the opinion of management the accompanying unaudited condensed
consolidated financial statements have been prepared on 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 interim periods presented. The operating results
for the interim periods presented are not necessarily indicative of the
results expected for the full fiscal year.
2. Income per Common Share
-----------------------
Income per common share is computed using the weighted average number
of common and common equivalent shares outstanding during each period
presented.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share," which will become effective
for the Company for annual and interim reporting periods ending after
December 15, 1997. SFAS No. 128 replaces the presentation of primary
earnings per share with a basic earnings per share (which excludes
dilution) and a diluted earnings per share. Had SFAS No. 128 been used
for the periods presented, basic and diluted earnings per share would
have been $0.25 and $0.23, respectively, for the quarter ended
September 30, 1997 and $0.19 and $0.18, respectively, for the quarter
ended September 30, 1996. Basic and diluted earnings per share would
have been $0.31 and $0.29, respectively, for the nine months ended
September 30, 1997 and $0.35 and $0.33, respectively, for the nine
months ended September 30, 1996.
3. New Accounting Pronouncements
-----------------------------
Comprehensive Income
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
The Company has not determined the effects, if any, that SFAS No. 130
will have on its consolidated financial statements.
Segments of an Enterprise
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
the way that public companies report selected information about
operating segments. SFAS No. 131 is effective for financial
6
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statements for periods beginning after December 15, 1997. The
Company has not determined the effects, if any, that SFAS No. 131
will have on the disclosures in its consolidated financial statements.
4. Eagle Design Automation, Inc. Acquisition
-----------------------------------------
On February 19, 1997, the Company purchased the 80% of the capital
stock of Eagle Design Automation, Inc. ("Eagle") not previously owned
for $5,788 in cash and assumption of net liabilities. This acquisition
was accounted for as a purchase and the total purchase price of $6,597,
including acquisition expenses, was allocated to the assets acquired
and the liabilities assumed based on their estimated fair values. Of
the total, $5,500 was allocated to purchased research and development
and was charged to expense as of the acquisition date. This allocation
resulted in goodwill of $907 which is being amortized over seven years
and purchased software of $1,000 to be amortized over five years. In
addition, the Company is required to pay the former shareholders of
Eagle additional payments based on the sale by the Company of Eagle's
products over the three year period beginning after certain sales
targets have been met. There are no minimum or maximum payments based
on the sale of Eagle's products, however, if current sales projections
are met, such additional payments could total approximately $5,500.
The unaudited consolidated results of operations on a pro forma basis
as though the acquisition had occurred as of the beginning of the
periods presented are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenue $110,618 $95,726
Net income 4,673 4,345
Net income per share - primary $ 0.26 $ 0.25
Net income per share - fully diluted $ 0.25 $ 0.25
</TABLE>
The pro forma financial information is presented for informational
purposes only and is not indicative of the operating results that would
have occurred had the Eagle acquisition been consummated as of the
above dates, nor are they necessarily indicative of future operating
results.
5. Legal Proceedings
-----------------
On or about April 25, 1997, Deutsch Technology Research ("Deutsch")
filed a Demand for Arbitration under the Commercial Arbitration Rules
of the American Arbitration Association pursuant to the terms of the
OEM Agreement dated June 16, 1993 between Deutsch and the Company (the
"OEM Agreement"). Under the terms of the OEM Agreement, the arbitration
must be held in San Jose, California before a single arbitrator. The
arbitration is scheduled to begin on November 3, 1997. The Demand for
Arbitration alleges infringement of copyright, misappropriation of
trade secrets and failure to pay royalties and other sums under the OEM
Agreement. Recently, Deutsch's accountants, hired in connection with
this dispute, submitted a report stating that, based on assumptions
provided by Deutsch, royalties in excess of $53,000 are due. The
Company denies these allegations, disputes the assumptions on which the
accountants' report is based and intends to defend these claims
vigorously. The Company has also asserted counterclaims in this
arbitration seeking damages in excess of $500. The ultimate outcome of
this matter is not determinable, and an adverse outcome could have a
material adverse effect on the Company's financial position and results
of operations.
7
<PAGE>
6. Proposed Merger with Synopsys, Inc.
-----------------------------------
On October 14, 1997, the Company entered into the Agreement and Plan of
Merger by and among the Company, Synopsys, Inc. ("Synopsys") and Post
Acquisition Corp. ("Sub"), whereby Sub will be merged with and into
Viewlogic (the "Merger") and, among other things, Viewlogic will
survive the Merger and become a wholly-owned subsidiary of Synopsys. In
connection with the Merger, (1) each share of Viewlogic Common Stock
issued and outstanding at the effective time of the Merger will be
converted into 0.6521 (the "Exchange Ratio") of a share of Synopsys
Common Stock and (2) each stock option to purchase shares of Viewlogic
Common Stock will be assumed by Synopsys and converted into an option
to purchase Synopsys Common Stock based upon the Exchange Ratio.
Consummation of the Merger is subject to customary conditions to
closing including the approval of the stockholders of Viewlogic and the
stockholders of Synopsys and certain regulatory approvals. The Merger
is intended to be treated as a pooling of interests for accounting
purposes and is intended to qualify as a tax-free reorganization for
federal income tax purposes.
7. Radiant Design Tools, Inc. Acquisition
--------------------------------------
On October 22, 1997, the Company purchased all of the capital stock of
Radiant Design Tools, Inc. ("Radiant"). Pursuant to the terms of the
purchase, the Company paid the sole shareholder of Radiant $1,000. The
Company is also required to pay that shareholder an additional $500 on
or before April 22, 1998, and up to an additional $3,500 based on
future sales of certain of the Company's products.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion may contain certain forward looking statements which
involve risks and uncertainties, and the Company's actual results may differ
materially from those discussed. Some of the factors that might cause such a
difference are discussed below. (See "Factors That May Affect Future Results and
Financial Condition.")
PROPOSED MERGER WITH SYNOPSYS, INC.
On October 14, 1997, the Company entered into the Agreement and Plan of
Merger by and among the Company, Synopsys, Inc. ("Synopsys") and Post
Acquisition Corp. ("Sub"), whereby Sub will be merged with and into Viewlogic
(the "Merger") and, among other things, Viewlogic will survive the Merger and
become a wholly-owned subsidiary of Synopsys. In connection with the Merger, (1)
each share of Viewlogic Common Stock issued and outstanding at the effective
time of the Merger will be converted into 0.6521 (the "Exchange Ratio") of a
share of Synopsys Common Stock and (2) each stock option to purchase shares of
Viewlogic Common Stock will be assumed by Synopsys and converted into an option
to purchase Synopsys Common Stock based upon the Exchange Ratio. Consummation of
the Merger is subject to customary conditions to closing including the approval
of the stockholders of Viewlogic and the stockholders of Synopsys and certain
regulatory approvals. The Merger is intended to be treated as a pooling of
interests for accounting purposes and is intended to qualify as a tax-free
reorganization for federal income tax purposes.
RESULTS OF OPERATIONS
The Company's revenue and net income increased 17.5% and 33.2% to
$40,437,000 and $4,161,000, respectively, for the quarter ended September 30,
1997 as compared to the quarter ended September 30, 1996. Net income increased
73.2% from the third quarter of 1996 to the same period in 1997 after excluding
$1,173,000 pre-tax gains from the sale of an investment in the third quarter of
1996. Revenue increased 15.6% to $110,618,000 and net income decreased 11.9% to
$5,086,000 for the nine months ended September 30, 1997, both as compared to the
same period of the previous year. Excluding the non-recurring charge for
in-process research and development of $5,500,000 associated with the first
quarter 1997 acquisition of Eagle Design Automation, Inc. ("Eagle") and
$2,431,000 pre-tax gains from the sales of an investment in 1997, net income for
the nine months ended September 30, 1997 was $9,091,000, or $0.51 per share.
This represents a 79.9% increase over the $5,054,000 net income in the first
nine months of 1996, excluding $1,173,000 pre-tax gains from the sales of an
investment in 1996. Operating income before the non-recurring item, as a
percentage of revenue, was 15.1% and 11.5% for the quarter and nine month
periods ended September 30, 1997, as compared to 9.5% and 7.0% for the same
periods in 1996. These increases in operating income as a percentage of revenue
were mainly due to the larger increase in revenues over operating expenses in
the third quarter and first nine months of 1997.
On February 19, 1997, the Company acquired Eagle. The acquisition has
been accounted for as a purchase, and accordingly, the condensed consolidated
financial statements and management's discussion and analysis reflect the
combined operations only after the February 19, 1997 closing date.
9
<PAGE>
The following table sets forth, for the periods indicated, the
percentage of revenue of certain items in the Company's Condensed Consolidated
Statements of Income.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue: 100.0% 100.0% 100.0% 100.0%
Software 59.6 61.1 60.2 61.2
Services and other 40.4 38.9 39.8 38.8
Costs and expenses:
Cost of software 6.7 8.5 7.6 8.4
Cost of services and other 10.3 9.7 10.5 10.4
Selling and marketing 39.9 41.9 41.5 44.2
Research and development 20.5 20.6 21.9 21.0
Purchased research and
development 5.0
General and administrative 7.5 9.8 7.0 9.0
----- ----- ----- -----
Total operating expenses 84.9 90.5 93.5 93.0
----- ----- ----- -----
Income from operations 15.1 9.5 6.5 7.0
Total other income 1.6 5.3 4.1 2.8
----- ----- ----- -----
Income before income taxes 16.7 14.8 10.6 9.8
Provision for income taxes 6.4 5.7 6.0 3.8
----- ----- ----- -----
Net income 10.3% 9.1% 4.6% 6.0%
===== ===== ===== =====
</TABLE>
Revenue
- -------
The Company's total revenue increased 17.5% to $40,437,000 in the third
quarter of 1997 from $34,427,000 in the third quarter of 1996 and increased
15.6% to $110,618,000 in the first nine months of 1997 from $95,726,000 in the
first nine months of 1996. The increase in total revenue was primarily due to a
54.2% year-over-year increase in revenues from the Company's ASIC verification
solutions, including the Chronologic VCS(TM) simulator, Quad Motive(TM) timing
analysis tool and Sunrise TestGen(TM) tool suite. The ASIC product line
accounted for 60.0% of the Company's total third quarter 1997 revenues. The
growth in ASIC product sales was partially offset by a 14.8% decline in the
Company's sales of its Systems product line. The Systems segment of the
Electronic Design Automation ("EDA") market is the slower growing segment of
that market.
Software product revenue increased 14.7% and 13.6% to $24,103,000 and
$66,581,000 for the third quarter and first nine months of 1997, respectively,
up from $21,023,000 and $58,589,000 for the same periods in 1996. The Company's
percentage of total revenue attributable to software product licenses was 59.6%
and 60.2%, respectively, for the three months and nine months ended September
30, 1997 compared to 61.1% and 61.2%, respectively, for the same periods in
1996. Services and other revenue increased 21.9% to $16,334,000 and 18.6% to
$44,037,000 for the third quarter and first nine months of 1997, respectively.
These increases were due to the increase in maintenance and customer support
revenue from a growing installed base of products, as well as increased
consulting and customization services and training programs.
International revenue, as a percentage of total revenue, increased to
44.6% and 37.7% for the third quarter and first nine months of 1997,
respectively, from 37.5% and 34.9%, respectively, for the same periods in 1996.
The increase for the quarter was due primarily to a significant sale to a major
customer in Canada in the third quarter of 1997. The increase for the nine
months ended September 30,
10
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1997 was primarily due to strong sales in Europe, where revenues increased
35.6% from the first nine months of 1996.
Cost of Revenue
- ---------------
Cost of software revenue decreased 7.8% and increased 3.4% to
$2,713,000 and $8,339,000 for the three months and nine months ended September
30, 1997, respectively, as compared to the same periods of the prior year. The
decrease in the third quarter was due primarily to decreased royalty costs. The
increase for the nine month period was primarily due to increased amortization
of capitalized software and purchased research and development, offset by
decreased royalty costs. Cost of software as a percentage of software revenue
decreased from 14.0% and 13.8% in the third quarter and first nine months of
1996, respectively, to 11.3 % and 12.5% for the same periods in 1997.
Cost of services and other revenue increased 24.2% to $4,165,000 and
17.2% to $11,633,000 in the quarter and nine months ended September 30, 1997,
respectively, as compared to the same periods of the prior year. The increases
in both periods were due to higher personnel-related costs incurred in order to
grow the Company's consulting business, partially offset by the absence in 1997
of subcontracting costs associated with a major outsourcing contract. Cost of
services and other revenue as a percentage of services and other revenue were
25.5% and 26.4% in the third quarter and first nine months of 1997 as compared
to 25.0% and 26.7% for the same periods in 1996.
Selling and Marketing Expenses
- ------------------------------
Selling and marketing expenses increased 11.9% and 8.4% to $16,116,000
and $45,938,000 for the three month and nine month periods ended September 30,
1997, respectively, up from $14,406,000 and $42,360,000 for the same periods of
1996. The increases in 1997 were primarily due to an increase in commission
expense on higher revenues and the result of higher personnel-related costs due
to an increase in the number of worldwide sales and marketing personnel from 271
in September 1996 to 298 in September 1997. Selling and marketing expenses, as a
percentage of revenue, decreased from 41.9% and 44.2% in the third quarter and
first nine months of 1996 to 39.9% and 41.5% for the same periods of 1997. The
reduction of selling and marketing expenses, as a percentage of revenue, results
from increasing productivity of the Company's sales force.
Research and Development Expenses
- ---------------------------------
Research and development costs increased 17.3% to $8,308,000 and 20.7%
to $24,234,000 for the third quarter and nine months ended September 30, 1997,
respectively, as compared to the same periods of the prior year. The increases
in research and development expenses for both periods primarily reflect higher
personnel-related costs associated with the development of new products and
enhancement of existing products, including the establishment of a research and
development facility in India in the fourth quarter of 1996. The increase for
the nine months ended September 30, 1997 was also due the inclusion of research
and development costs associated with the Eagle acquisition which closed during
the first quarter of 1997. Research and development expenses as a percentage of
revenues were 20.5% and 21.9% in the third quarter and first nine months of
1997, respectively, compared to 20.6% and 21.0% for the same period of 1996.
The Company capitalized software development costs of $859,000 and
$2,527,000 for the third quarter and first nine months of 1997, respectively, as
compared to $685,000 and $2,075,000 for the corresponding periods of 1996 in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
The amounts capitalized represent 9.4% of total product development costs for
both the three month and nine month periods ended September 30, 1997,
respectively, as compared to 8.8% and 9.4 % for the same periods of 1996.
Capitalized software costs are amortized over the estimated life of the product
(in most cases four years.) The amortization of software development costs
included in cost of software revenue
11
<PAGE>
was $702,000 and $2,079,000 for the third quarter and first nine months of
1997, respectively, compared to $578,000 and $1,558,000 for the same periods of
1996.
Purchased Research and Development Expenses
- -------------------------------------------
The Company recorded a non-recurring expense of $5,500,000 in the first
quarter of 1997 for purchased research and development associated with the Eagle
acquisition.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses decreased 10.0% and 9.4% to
$3,037,000 and $7,772,000 for the third quarter and nine months ended September
30, 1997, respectively, as compared to $3,374,000 and $8,578,000 for the same
periods of the previous year. The decrease in both periods was primarily due to
the elimination of the Company's share of losses of Eagle which was recognized
under the equity method of accounting during 1996. General and administrative
expenses as a percentage of revenue decreased from 9.8% and 9.0% in the third
quarter and first nine months of 1996, respectively, to 7.5% and 7.0% in the
same periods of 1997.
Income from Operations
- ----------------------
Income from operations increased by 86.5% and 7.1% to $6,098,000 and
$7,202,000 for the three months and nine months ended September 30, 1997,
respectively, as compared to the corresponding periods in 1996. Excluding the
non-recurring costs associated with the Eagle acquisition, income from
operations for the nine months ended September 30, 1997 increased 88.8% to
$12,702,000. Both increases in operating income primarily reflect a larger
increase in revenues offset by a lesser increase in operating expenses from 1996
to 1997. Income from operations as a percentage of revenue increased from 9.5%
and 7.0% in the third quarter and first nine months of 1996, respectively, to
15.1% and 11.5% in the same periods of 1997, excluding the non-recurring costs
associated with the Eagle acquisition.
Total Other Income
- ------------------
Total other income decreased 63.1% to $668,000 and increased 69.5% to
$4,512,000 for the three month and nine month periods ended September 30, 1997,
respectively, from $1,810,000 and $2,662,000 for the same periods of 1996. The
decrease from the third quarter of 1996 to the same period in 1997 is primarily
due to the inclusion of $1,173,000 pre-tax gains from the sale of an investment
in the third quarter of 1996, offset by an increase in interest income in the
third quarter of 1997 due to larger cash balances in 1997 compared to 1996. The
increase from the first nine months of 1996 to the same period in 1997 is
primarily due to a larger gain on the sale of an investment in 1997 than in
1996, the impact of foreign exchange gains and an increase in interest income on
higher cash balances.
Income Taxes
- ------------
The provision for federal and state income taxes increased 33.2% from
$1,956,000 for the third quarter of 1996 to $2,605,000 for the third quarter of
1997, representing effective tax rates of 38.5% in both of those periods. For
the nine months ended September 30 1997, the provision was $6,628,000, an 83.4%
increase from $3,613,000 in the same period of 1996, representing effective tax
rates of 38.5% in both of those periods (excluding the non-recurring costs of
$5,500,000 in 1997 related to the purchased research and development associated
with the Eagle acquisition, which is not tax deductible).
12
<PAGE>
Net Income
- ----------
Net income in the third quarter of 1997 was $4,161,000, or $0.23 per
share, an increase of 73.2% from the $2,403,000, or $0.14 per share, net income
earned in the third quarter of 1996, excluding $1,173,000 pre-tax gains from the
sale of an investment in the third quarter of 1996. For the nine months ended
September 30, 1997 net income was $5,086,000, or $0.29 per share, a decrease of
11.9% from the $5,775,000, or $0.33 per share, net income earned in the same
period of 1996. Excluding the after-tax effect of non-recurring items
($5,500,000 purchased research and development expense and $2,431,000 pre-tax
gains on the sale of an investment, both in 1997, and $1,173,000 pre-tax gains
on the sale of an investment in 1996), net income increased 79.9% from
$5,054,000, or $0.29 per share, for the nine months ended September 30, 1996 to
$9,091,000, or $0.51 per share, for the same period of 1997.
Factors That May Affect Future Results and Financial Condition
- --------------------------------------------------------------
Future financial results are difficult or impossible to predict,
despite the Company's past financial performance. Intense competition and rapid
technological changes are inherent in the EDA industry. The Company faces the
many risks and uncertainties posed by that competition and technological change,
including the risks and uncertainties affecting and relating to success in
continuously developing and marketing new products; protection of its products
by effective utilization of intellectual property laws; product quality,
reliability, ease of use, feature set and price; diversity of product line;
general economic and business conditions; the ability to hire, retain and
motivate highly qualified personnel; business conditions and growth in the EDA
industry; industry-wide price erosion; and customer acceptance of the Company's
products.
The Company's products are in various stages of their life cycles. The
Company's success is dependent on its ability to develop complex and competitive
new products, to introduce them to the marketplace ahead of the competition and
to have them selected by customers. The Company is striving to bring new
products to market to meet customer needs, but there is no assurance that it
will succeed in doing so. Since product life cycles are continually becoming
shorter, if new product introductions are delayed or if new products do not
address market needs then revenues and profits for current and future products
may be affected as customers may shift to competitors to meet their
requirements. The Company's competitors consist of large companies, many of
which have greater market share and substantially greater financial and other
resources than the Company; emerging companies with new and innovative
technology; and customers who develop their own EDA tools.
As is common in the software industry, the Company frequently ships
more product in the third month of each quarter than in either of the first two
months of the quarter, and shipments in the third month are higher at the end of
that month. This pattern is likely to continue. The concentration of sales in
the last month of the quarter makes the Company's quarterly financial results
difficult to predict. Also, if sufficient business does not materialize or a
disruption in the Company's production or shipping occurs near the end of a
quarter, the Company's revenues for that quarter may be materially reduced.
A substantial portion of the Company's revenue is derived from its
international operations. As a result, the Company's operations and financial
results could be significantly affected by international factors, such as weak
economic conditions in foreign markets and differing technology or product
preferences in different countries.
The highly technical nature of the Company's products and services and
the intense competition in the Company's markets heightens the need and
importance of hiring, retaining and motivating highly qualified technical
personnel. The intense competition in the EDA industry increases the difficulty
in doing so and has created a shortage of highly qualified engineering and sales
personnel.
13
<PAGE>
Because of these and other factors, past financial results may not be a
useful predictor of future results and any forward looking statements about the
Company's financial performance, business operations and other factors should be
viewed with caution. Also, the Company's participation in a highly dynamic
industry often results in significant volatility of the Company's common stock
price.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through sales
of equity securities, equipment financing leases and positive cash flow from
operations. As of September 30, 1997, the Company had $78,286,000 of cash and
marketable securities compared to $67,344,000 of cash and marketable securities
as of December 31, 1996. These balances included $6,226,000 and $5,565,000 of
non-current marketable securities in 1997 and 1996, respectively. Working
capital as of September 30, 1997 was $62,757,000. As of September 30, 1997, the
Company had $48,187,000 in current liabilities and $195,000 of commitments under
long-term capital lease obligations.
Based on its operating plan, the Company currently believes that its
available cash and cash generated from operations will be sufficient to fund the
Company's operations for the foreseeable future.
On October 22, 1997, the Company purchased all of the capital stock of
Radiant Design Tools, Inc. ("Radiant"). Pursuant to the terms of the purchase,
the Company paid the sole shareholder of Radiant $1,000,000. The Company is also
required to pay that shareholder an additional $500,000 on or before April 22,
1998, and up to an additional of $3,500,000 based on future sales of certain of
the Company's products.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share" which will become effective for the Company for
annual and interim reporting periods ending after December 15, 1997. SFAS No.
128 replaces the presentation of primary earnings per share with a basic
earnings per share (which excludes dilution) and a diluted earnings per share.
Had SFAS No. 128 been used for the periods presented, basic and diluted earnings
per share would have been $0.25 and $0.23, respectively, for the quarter ended
September 30, 1997 and $0.19 and $0.18, respectively, for the quarter ended
September 30, 1996. Basic and diluted earnings per share would have been $0.31
and $0.29, respectively, for the nine months ended September 30, 1997 and $0.35
and $0.33, respectively, for the nine months ended September 30, 1996.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company has not determined the
effects, if any, that SFAS No. 130 will have on its consolidated financial
statements.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public companies report selected information about operating segments. SFAS
No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Company has not determined the effects, if any, that SFAS
No. 131 will have on the disclosures in its consolidated financial statements.
14
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about April 25, 1997, Deutsch Technology Research ("Deutsch")
filed a Demand for Arbitration under the Commercial Arbitration Rules of the
American Arbitration Association pursuant to the terms of the OEM Agreement
dated June 16, 1993 between Deutsch and the Company (the "OEM Agreement"). Under
the terms of the OEM Agreement, the arbitration must be held in San Jose,
California before a single arbitrator. The arbitration is scheduled to begin on
November 3, 1997. The Demand for Arbitration alleges infringement of copyright,
misappropriation of trade secrets and failure to pay royalties and other sums
under the OEM Agreement. Recently, Deutsch's accountants, hired in connection
with this dispute, submitted a report stating that, based on assumptions
provided by Deutsch, royalties in excess of $53,000,000 are due. The Company
denies these allegations, disputes the assumptions on which the accountants'
report is based and intends to defend these claims vigorously. The Company has
also asserted counterclaims in this arbitration seeking damages in excess of
$500,000. The ultimate outcome of this matter is not determinable, and an
adverse outcome could have a material adverse effect on the Company's financial
position and results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits
10.1 - Merger Agreement between the Company and Synopsys, Inc.
and the other agreements referenced therein
10.2 - Retention Agreement dated July 1, 1997 between
the Company and each of its executive officers
11 - Statement Regarding Computation of Per Share Earnings
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
</TABLE>
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 29, 1997 Viewlogic Systems, Inc.
-----------------------
(Registrant)
By: /s/ William J. Herman
---------------------
William J. Herman, President, Chief
Executive Officer and Director
Date: October 29, 1997 By: /s/ Ronald R. Benanto
---------------------
Ronald R. Benanto, Senior Vice
President of Finance, Chief
Financial Officer and Treasurer
16
<PAGE>
VIEWLOGIC SYSTEMS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
10.1(1) Merger Agreement between the Company and Synopsys, Inc. --
and the other agreements referenced therein
10.2 Retention Agreement dated July 1, 1997 between the Company 18
and each of its executive officers
11 Statement Regarding Computation of Per Share Earnings 42
27(2) Financial Data Schedule --
<FN>
(1) Incorporated herein by reference to the Synopsys, Inc.
Registration Statement on Form S-4 as filed with The
Securities and Exchange Commission on October 29, 1997.
(2) In electronic version only.
</FN>
</TABLE>
17
<PAGE>
Exhibit 10.2
VIEWLOGIC SYSTEMS, INC.
Retention Agreement
-------------------
THIS RETENTION AGREEMENT by and between Viewlogic Systems, Inc., a
Delaware corporation (the "Company") and (the "Executive") is
------------------
made as of July 1, 1997 (the "Effective Date").
WHEREAS, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control of the
Company exists and that such possibility, and the uncertainty and questions
which it may raise among key personnel, may result in the departure or
distraction of key personnel to the detriment of the Company and its
stockholders, and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued employment and dedication of the Company's key personnel without
distraction from the possibility of a change in control of the Company and
related events and circumstances.
NOW, THEREFORE, as an inducement for and in consideration of the
Executive remaining in its employ, the Company agrees that the Executive shall
receive the severance benefits set forth in this Agreement in the event the
Executive's employment with the Company is terminated under the circumstances
described below subsequent to a Change in Control (as defined in Section 1.1).
1. KEY DEFINITIONS.
18
<PAGE>
As used herein, the following terms shall have the following respective
meanings:
1.1 "CHANGE IN CONTROL" means:
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any
capital stock of the Company if, after such acquisition, such Person beneficial-
ly owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
50% or more of either (i) the then-outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting Securi-
ties"); PROVIDED, however, that for purposes of this subsection 1.1(a), the fol-
lowing acquisitions shall not constitute a Change in Control:(i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
all of clauses (i), (ii) and (iii) of subsection (c) of this Section 1.1; or
(b) individuals who, as of the date hereof, constitute the mem-
bers of the Board (the "Incumbent Directors") ceasing for any reason to
19
<PAGE>
constitute at least a majority of the Board; PROVIDED, however, that any indi-
vidual becoming a director subsequent to the date hereof whose election, or nom-
ination for election by the Company's stockholders, was approved by a vote of at
least a majority of the Incumbent Directors then in office shall be deemed
to be an Incumbent Director (except that this provison shall not apply to any
individual whose initial election as a director occurs as a result of an
actual or threatened election contest with respect to the election or removal
of directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board); or
(c) the consummation of a reorganization, merger or consolidation
involving the Company or a sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), unless, immediately
following such Business Combination, each of the following three conditions is
satisfied: (i) all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of the then-outstanding
shares of common stock and the combined voting power of the then-outstanding
voting securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
20
<PAGE>
result of such transaction owns the Company or substantially all of the
Company's assets either directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, respectively, (ii) no
Person (excluding the Acquiring Corporation or any employee benefit plan (or
related trust) maintained or sponsored by the Company or the Acquiring
Corporation) beneficially owns, directly or indirectly, 50% or more of the then
outstanding shares of common stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding voting securities of such
corporation (except to the extent that such ownership existed prior to the
Business Combination) and (iii) a majority of the members of the board of
directors of the Acquiring Corporation were Incumbent Directors at the time of
the execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
1.2 "CHANGE IN CONTROL DATE" means the first date during the
Term (as defined in Section 2) on which a Change in Control occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change in Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on
21
<PAGE>
which the Change in Control occurs or if any event which constitutes
Good Reason (as defined in Section 1.4) occurs prior to the date on which a
Change in Control occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment or event which constitutes Good Reason (i)
was at the request of a third party who has taken steps reasonably calculated to
effect a Change in Control or (ii) otherwise arose in connection with or in
anticipation of a Change in Control, then for all purposes of this Agreement the
"Change in Control Date" shall mean the date immediately prior to the date of
such termination of employment or event which constitutes Good Reason.
1.3 "CAUSE" means:
(a) the Executive's intentional, willful and continuous failure
to substantially perform his or her reasonable assigned duties (other than any
such failure resulting from incapacity due to physical or mental illness or any
failure after the Executive gives notice of termination for Good Reason), which
failure is materially and demonstrably injurious to the Company, and which
failure is not cured within 30 days after a written demand for substantial
performance is received by the Executive from the Board which specifically
identifies the manner in which the Board believes the Executive has not
substantially performed the Executive's duties; or
(b) the Executive's intentional and willful engagement in il-
legal conduct or gross misconduct which is materially and demonstrably
22
<PAGE>
injurious to the Company.
For purposes of this Section 1.3, no act or failure to act by the
Executive shall be considered "willful" unless it is done, or omitted to be
done, in bad faith and without reasonable belief that the Executive's action or
omission was in the best interests of the Company.
1.4 "GOOD REASON" means the occurrence, without the
Executive's written consent, of any of the events or circumstances set forth in
clauses (a) through (f) below. Notwithstanding the occurrence of any such event
or circumstance, such occurrence shall not be deemed to constitute Good Reason
if, prior to the Date of Termination specified in the Notice of Termination
(each as defined in Section 3.2(a)) given by the Executive in respect thereof,
such event or circumstance has been fully corrected and the Executive has been
reasonably compensated for any losses or damages resulting therefrom (provided
that such right of correction by the Company shall only apply to the first
Notice of Termination for Good Reason given by the Executive).
(a) any significant diminution in the Executive's duties, re-
sponsibilities or authority in effect immediately prior to the earliest to occur
of (i) the Change in Control Date, (ii) the date of the execution by the Company
of the initial written agreement or instrument providing for the Change in Con-
trol or (iii) the date of the adoption by the Board of Directors of a resolution
providing for the Change in Control (with the earliest to occur of such dates
referred to herein as
23
<PAGE>
the "Measurement Date");
(b) a reduction in the Executive's annual base salary as in
effect on the Measurement Date or as the same may be increased from time to
time;
(c) the failure by the Company to (i) continue in effect any
material compensation or benefit plan or program (a "Benefit Plan") in which
the Executive participates or which is applicable to the Executive immediately
prior to the Measurement Date, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan or reasonable cash compensation in lieu
thereof) has been made with respect to such plan or program, (ii) continue the
Executive's participation in a Benefit Plan (or in such substitute or
alternative plan or make reasonable cash compensation in lieu thereof) on a
basis not materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to other
participants, than the basis existing immediately prior to the Measurement Date
or (iii) award cash bonuses to the Executive in amounts and in a manner
substantially consistent with past practice in light of the Company's financial
performance;
(d) a change by the Company in the location at which the
Executive performs the Executive's principal duties for the Company to a new
location that is either (i) outside a radius of 35 miles from the Executive's
principal residence immediately prior to the Measurement Date or (ii) more than
30 miles from the location at which the Executive performs his or her principal
duties for
24
<PAGE>
the Company immediately prior to the Measurement Date, and which results in an
increase in the Executive's daily commuting distance; or a requirement by the
Company that the Executive travel on Company business to a substantially greater
extent than required immediately prior to the Measurement Date;
(e) the failure of the Company to obtain the agreement, in a
form reasonably satisfactory to the Executive, from any successor to the Company
to assume and agree to perform this Agreement, as required by Section 7.1; or
(f) any failure of the Company to pay or provide to the
Executive any portion of the Executive's compensation or benefits due under any
Benefit Plan within seven days of the date such compensation or benefits are
due, or any material breach by the Company of any employment agreement with the
Executive.
The Executive's right to terminate his or her employment for Good
Reason shall not be affected by his or her incapacity due to physical or mental
illness.
1.5 "DISABILITY" means the Executive's absence from the
full-time performance of the Executive's duties with the Company for 180
consecutive calendar days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
2. TERM OF AGREEMENT. This Agreement, and all rights and obligations of
the parties hereunder, shall take effect upon the Effective Date and shall
expire
25
<PAGE>
upon the first to occur of (a) the expiration of the Term (as defined
below) if a Change in Control has not occurred during the Term, (b) the date 24
full calendar months after the Change in Control Date, if the Executive is still
employed by the Company as of such later date, or (c) the fulfillment by the
Company of all of its obligations under Sections 4 and 6.2 if the Executive's
employment with the Company terminates within 24 full calendar months following
the Change in Control Date, provided that Section 5 shall remain in effect from
the Effective Date until 24 full calendar months after the Date of Termination
of the Executive, if such termination occurs during the Term. "Term" shall mean
the period commencing as of the Effective Date and continuing in effect through
December 31, 2000; PROVIDED, however, that commencing on January 1, 2001 and
each January 1 thereafter, the Term shall be automatically extended for one
additional year unless, not later than 90 days prior to the scheduled expiration
of the Term (or any extension thereof), the Company shall have given the
Executive written notice that the Term will not be extended.
3. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL.
3.1 NOT AN EMPLOYMENT CONTRACT. The Executive acknowledges
that this Agreement does not constitute a contract of employment or impose on
the Company any obligation to retain the Executive as an employee and that this
Agreement does not prevent the Executive from terminating employment at any
time. If the Executive's employment with the Company terminates for any reason
26
<PAGE>
and subsequently a Change in Control shall occur, the Executive shall not be
entitled to any benefits hereunder, except as otherwise provided pursuant to
Section 1.2.
3.2 TERMINATION OF EMPLOYMENT.
(a) If the Change in Control Date occurs during the Term, any
termination of the Executive's employment by the Company or by the Executive
within 24 full calendar months following the Change in Control Date (other than
due to the death of the Executive) shall be communicated by a written notice to
the other party hereto (the "Notice of Termination"), given in accordance with
Section 8. Any Notice of Termination shall:(i) indicate the specific termination
provision (if any) of this Agreement relied upon by the party giving such
notice, (ii) to the extent applicable, set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and (iii) specify
the Date of Termination (as defined below). The effective date of an employment
termination (the "Date of Termination") shall be the close of business on the
date specified in the Notice of Termination (which date may not be less than
30 days or more than 60 days after the date of delivery of such Notice of
Termination), in the case of a termination other than due to the Executive's
death, or the date of the Executive's death, as the case may be.
(b) The failure by the Executive or the Company to set forth
27
<PAGE>
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting any such fact or circumstance in enforcing the
Executive's or the Company's right hereunder.
(c) Any Notice of Termination for Cause given by the Company
must be given within 90 days of the occurrence of the event(s) or circum-
stance(s) which constitute(s) Cause. Prior to any Notice of Termination for
Cause being given (and prior to any termination for Cause being effective), the
Executive shall be entitled to a hearing before the Board at which he or she
may, at his or her election, be represented by counsel and at which he
or she shall have a reasonable opportunity to be heard. Such hearing shall be
held on not less than 15 days prior written notice to the Executive stating the
Board's intention to terminate the Executive for Cause and stating in detail the
particular event(s) or circumstance(s) which the Board believes constitutes
Cause for termination.
(d) Any Notice of Termination for Good Reason given by the
Executive must be given within six months of the occurrence of the events or
circumstances which constitutes Good Reason.
4. BENEFITS TO EXECUTIVE.
4.1 COMPENSATION. If the Change in Control Date occurs during
the Term and the Executive's employment with the Company terminates within 24
full
28
<PAGE>
calendar months following the Change in Control Date, the Executive shall
be entitled to the following benefits:
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If the Execu-
tive's employment with the Company is terminated by the Company (other than for
Cause, Disability or Death) or by the Executive for Good Reason within 24 full
calendar months following the Change in Control Date, then the Executive
shall be entitled to the following benefits:
(i) the Company shall pay to the Executive either in a
lump sum in cash within 30 days after the Date of Termination, or, if the
Executive so elects in writing within 15 days after the Date of Termination, in
48 bi-monthly installments, without interest, beginning on the date of the
first normal executive payroll of the Company which occurs more than 30 days
after the Date of Termination, the aggregate of the following amounts:
(1) the sum of (A) the Executive's base salary
through the Date of Termination, (B) the product of (x) the Executive's total
on target quarterly and annual bonuses for the current fiscal year (meaning the
maximum amount of bonus for which the Executive is eligible for the entire
fiscal year under the Company's executive bonus plan assuming that the Company
and the Executive achieved all of their goals, excluding only the portion of the
bonuses referred to as the "Stretch Bonus" (the "Target Bonus")) and (y) a frac-
tion, the numerator of which is the number of days in the current fiscal year
through the
29
<PAGE>
Date of Termination, and the denominator of which is 365 and (C) the
amount of any compensation previously deferred by the Executive (together with
any accrued interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not previously paid, whether in quarterly bonus payments, or
otherwise, (the sum of the amounts described in clauses (A) and (C) shall be
hereinafter referred to as the "Accrued Obligations"); and
(2) the amount equal to (A) two multiplied by (B)
the sum of (x) the higher of the Executive's annual base salary as of the
Measurement Date or as of the date immediately before the Date of Termination;
and (y) the Executive's Target Bonus for the current fiscal year.
(ii) for 24 full calendar months after the Date of Ter-
mination, or such longer period as may be provided by the terms of the appro-
priate plan, program, practice or policy, the Company shall continue to provide
benefits to the Executive (other than any benefits under the executive bonus
plan or the Viewlogic Systems, Inc. 401(k) Savings Plan) and the Executive's
family at least equal to those which would have been provided to them if the Ex-
ecutive's employment had not been terminated, in accordance with the applicable
Benefit Plans in effect on the Measurement Date or, if more favorable to the
Executive and his or her family, in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies;
PROVIDED, however, that if the Executive becomes reemployed with another
30
<PAGE>
employer and is eligible to receive comparable life, medical, dental, health,
and accident or disability insurance benefits under another employer-provided
plan, on terms at least as favorable to the Executive and his or her family,
then the benefits described in this clause (ii) shall be reduced to the extent
such other benefits are available to the Executive and his or her family;
(iii) to the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or bene-
fits required to be paid or provided or which the Executive is eligible to re-
ceive following the Executive's termination of employment under any plan, pro-
gram, policy, practice, contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits");
(iv) for purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
to which the Executive is entitled, the Executive shall be considered to
have remained employed by the Company until 24 months after the Date of
Termination;
(v) the Executive shall become immediately and fully
vested with respect to any contribution made by the Company for the account of
the Executive under the Viewlogic Systems, Inc. 401(k) Savings Plan; and
(vi) The Company shall pay the commercially reasonable
fees of one executive outplacement firm's services provided to the
31
<PAGE>
Executive, such firm to be chosen by the Executive; and for a period of 24 full
calendar months after the Date of Termination, the Company shall provide the
Executive with an office, the use of a telephone, the use of an administrative
assistant, the use of office equipment and related supplies to assist such
Executive in his or her search for employment.
(b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR CAUSE;
TERMINATION FOR DEATH OR DISABILITY. If the Executive voluntarily terminates his
or her employment with the Company within 24 full calendar months following the
Change in Control Date, excluding a termination for Good Reason, or if the Exec-
utive's employment with the Company is terminated by the Company for Cause, or
by reason of the Executive's death or Disability within 24 full calendar months
following the Change in Control Date, then the Company shall (i) pay the
Executive (or his or her estate, if applicable), in a lump sum in cash within
15 days after the Date of Termination, the Accrued Obligations and (ii) timely
pay or provide to the Executive the Other Benefits.
4.2 STOCK OPTION ACCELERATION. This Agreement shall not alter
the terms of any stock option agreement outstanding on the Effective Date or
subsequently granted to the Executive; provided however, that any stock options
granted to the Executive after the Effective Date and prior to a Change in
Control shall provide for a two-year acceleration of vesting upon a termination
by the Company without Cause or termination by the Executive for Good Reason
within
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<PAGE>
24 full calendar months after the Change in Control Date, such
acceleration calculated as follows: the number of shares which will be vested
for such options on the Date of Termination will equal the total number of
shares of the option times a fraction, the numerator of which shall equal the
number of full calendar months from the date of grant of the option to the Date
of Termination plus 24 months, and the denominator of which shall equal the
number of full calendar months from the date of grant to the date on which the
option would have been fully vested, absent a termination in employment;
provided however, that any such acceleration shall not be effective if it would
prevent the Company from engaging in a transaction that will be treated as a
pooling for accounting purposes.
4.3 TAXES. Payments under Sections 4.1 and 4.2 shall be made
without regard to whether the deductibility of such payments (or any other
"parachute payments," as that term is defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code")("Section 280G"), to or for the
Executive's benefit) would be limited or precluded by Section 280G and without
regard to whether such payments (or any other "parachute payments" as so
defined) would subject the Executive to the federal excise tax levied on certain
"excess parachute payments" under Section 4999 of the Code (the "Excise Tax");
provided that if the total of all "parachute payments" to or for the Executive's
benefit, after reduction for all federal, state and local taxes (including the
Excise Tax, if applicable) with respect to such payments (the "Total After-Tax
Payments"),
33
<PAGE>
would be increased by the limitation or elimination of any payment
under Section 4.1, amounts payable under Section 4.1 shall be reduced to the
extent, and only to the extent, necessary to maximize the Total After-Tax
Payments. For purposes of determining whether and to what extent the amounts
payable under Section 4.1 are to be reduced or eliminated no portion of the
payments under Sections 4.1 or 4.2 shall be taken into account which based upon
the advice of tax counsel to the Company do not constitute a "parachute payment"
within the meaning of Section 280G. The determination as to whether and to what
extent payments under Section 4.1 are required to be reduced in accordance with
the preceding sentence shall be made at the Company's expense by Deloitte &
Touche, LLP or by such other certified public accounting firm as the Board may
designate prior to the Change in Control Date. If the payments under Section 4.1
are to be so reduced pursuant to this Section 4.3, the Executive shall choose
which payment or payments to be made under Section 4.1 are to be eliminated or
reduced. In the event of any underpayment or overpayment under Section 4.1, as
adjusted by this Section 4.3, as determined by Deloitte & Touche, LLP (or such
other firm as may have been designated in accordance with this Section 4.3), the
amount of such underpayment or overpayment shall forthwith be paid to Executive
or refunded to the Company, as the case may be, with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
4.4 MITIGATION. The Executive shall not be required to
mitigate the
34
<PAGE>
amount of any payment or benefits provided for in this Section 4 by
seeking other employment or otherwise. Further, except as provided in Section
4.1(a)(ii), the amount of any payment or benefits provided for in this Section 4
shall not be reduced by any compensation earned by the Executive as a result of
employment by another employer, by retirement benefits, by disability or death
benefits, by offset against any amount claimed to be owed by the Executive to
the Company or otherwise.
5 NON-SOLICITATION OF EMPLOYEES. From the date of this Agreement until
two years after the Date of Termination the Executive shall not directly or
indirectly (a) solicit for hire, as an employee, consultant, contractor or
otherwise, any then current employee of the Company; or (b) hire, as an
employee, consultant, contractor or otherwise, any person who is, or has been,
an employee of the Company, unless (i) such person has not been an employee of
the Company (directly or indirectly) for more than six months prior to the date
of hire, or (ii) such person's employment was terminated by the Company and not
by such person.
6. DISPUTES.
6.1 SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the
Executive for benefits under this Agreement shall be directed to and determined
by the Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing and
shall set
35
<PAGE>
forth the specific reasons for the denial and the specific provisions
of this Agreement relied upon. The Board shall afford a reasonable opportunity
to the Executive for a review of the decision denying a claim. Any further
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in Boston, Massachusetts, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction.
6.2 EXPENSES. The Company agrees to pay as incurred, to the
full extent permitted by law, all attorney, accounting, arbitration and other
fees and expenses which the Executive may reasonably incur as a result of any
claim or contest by the Company, the Executive or others regarding the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including, without limitation, as a result of
any contest by the Executive regarding the amount of any payment or benefits
pursuant to this Agreement) provided that the Executive prevails in such claim
or contest, plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.
7. SUCCESSORS; BINDING AGREEMENT.
7.1 The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform
36
<PAGE>
this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if the Executive elects to terminate employment (and such
termination shall be deemed to have occurred after a Change in Control), except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement, by operation of law or otherwise.
7.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable to the Executive or
his or her family hereunder if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
8. NOTICE. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
37
<PAGE>
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable
nationwide overnight courier service, in each case addressed to the Company at
293 Boston Post Road West, Marlboro, MA 01752, Attention: President, and to the
Executive at the home address most recently provided by the Executive to the
Company (or to such other address as either the Company or the Executive may
have furnished to the other in writing in accordance herewith). Any such notice,
instruction or communication shall be deemed to have been delivered five
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service. Either party may give any notice,
instruction or other communication hereunder using any other means, but no such
notice, instruction or other communication shall be deemed to have been duly
delivered unless and until it actually is received by the party for whom it is
intended.
9. MISCELLANEOUS.
9.1 EMPLOYMENT BY SUBSIDIARY. For purposes of this Agreement,
the Executive's employment with the Company shall not be deemed to have
terminated solely as a result of the Executive continuing to be employed by a
wholly-owned subsidiary of the Company.
9.2 SEVERABILITY. If any provision of this Agreement is
declared invalid or unenforceable, such provision shall be deemed automatically
adjusted to
38
<PAGE>
conform to the requirements for validity or enforceability as
declared at such time while maintaining the original intent of the provision to
the greatest extent possible and, as so adjusted, shall be deemed a provision of
this Agreement as though originally included herein. If the provision
invalidated or deemed unenforceable is of such a nature that it cannot be so
adjusted, the provision shall be deleted from this Agreement as though it had
never been included therein. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9.3 INJUNCTIVE RELIEF. The Company and the Executive agree
that any breach of this Agreement by the Company or the Executive is likely to
cause the Executive or the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such other remedies
which may be available, the Executive or the Company shall have the right to
seek specific performance and injunctive relief.
9.4 GOVERNING LAW. The validity, interpretation, construction,
enforceability and performance of this Agreement shall be governed by the
internal laws of the Commonwealth of Massachusetts, without regard to conflicts
of law principles.
9.5 WAIVERS. No waiver by the Executive at any time of any
breach of, or compliance with, any provision of this Agreement to be performed
by
39
<PAGE>
the Company shall be deemed a waiver of that or any other provision at any
subsequent time.
9.6 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but both of which
together will constitute one and the same instrument.
9.7 TAX WITHHOLDING. Any payments provided for hereunder shall
be paid net of any applicable tax withholding required under federal, state or
local law.
9.8 ENTIRE AGREEMENT. Except as provided in the Executive's
stock option agreements or Invention and Non-Disclosure Agreement (or any
comparable agreement with a different title), this Agreement sets forth the
entire agreement of the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto; and any
prior agreement of the parties hereto in respect of the subject matter contained
herein is hereby terminated and cancelled. Nothing contained in this Agreement
shall limit the Executive's or the Company's rights, obligations and benefits
under the Executive's stock option agreement and Invention and Non-Disclosure
Agreement.
9.9 AMENDMENTS. The Executive and the Company may, by mutual
agreement, amend or modify this Agreement, provided, however that any
40
<PAGE>
such amendment or modification shall only be effected by a written
instrument executed by both the Company and the Executive.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as a sealed instrument as of the day and year first set forth above.
VIEWLOGIC SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
EXECUTIVE
---------------------------
Name:
----------------------
41
<PAGE>
Exhibit 11
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Primary Earnings Per Share
- --------------------------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding:
Common stock 16,886 16,772 16,669 16,911
Common equivalent shares
resulting from stock options and
warrants (treasury stock method) 1,435 631 1,136 608
Less: Repurchased shares (269)
------ ------ ------ ------
Total 18,321 17,403 17,805 17,250
====== ====== ====== ======
Net income $4,161 $3,124 $5,086 $5,775
====== ====== ====== ======
Net income per common share $ 0.23 $ 0.18 $ 0.29 $ 0.33
======= ======= ======= =======
Fully-Diluted Earnings Per Share
- --------------------------------
Weighted average number of shares
outstanding:
Common stock 16,886 16,772 16,669 16,911
Common equivalent shares
resulting from stock options and
warrants (treasury stock method) 2,174 631 2,172 617
Less: Repurchased shares (269)
------ ------ ------ ------
Total 19,060 17,403 18,841 17,259
====== ====== ====== ======
Net income $4,161 $3,124 $5,086 $5,775
====== ====== ====== ======
Net income per common share $ 0.22 $ 0.18 $ 0.27 $ 0.33
======= ======= ======= =======
</TABLE>
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Condensed Consolidated Statement of Income for the Nine Months
Ended September 30, 1997 and the Condensed Consolidated Balance
Sheet as of September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 48,136
<SECURITIES> 30,150
<RECEIVABLES> 32,842
<ALLOWANCES> 1,761
<INVENTORY> 0
<CURRENT-ASSETS> 110,944
<PP&E> 33,712
<DEPRECIATION> 18,336
<TOTAL-ASSETS> 145,497
<CURRENT-LIABILITIES> 48,187
<BONDS> 0
0
0
<COMMON> 181
<OTHER-SE> 92,781
<TOTAL-LIABILITY-AND-EQUITY> 145,497
<SALES> 66,581
<TOTAL-REVENUES> 110,618
<CGS> 8,339
<TOTAL-COSTS> 19,972
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 807
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 11,714
<INCOME-TAX> 6,628
<INCOME-CONTINUING> 5,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,086
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.27
</TABLE>
