SUMMIT DESIGN INC, 424B4, 1996-10-21

SUMMIT DESIGN INC
424B4, 1996-10-21
PREPACKAGED SOFTWARE

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FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-06445

[LOGO OF SUMMIT APPEARS HERE]

4,000,000 SHARES

COMMON STOCK

Of the 4,000,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by Summit Design, Inc. ("Summit" or the "Company") and 2,000,000
shares are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. Prior to this offering, there has been
no public market for the Common Stock of the Company. See "Underwriting" for
information relating to the method of determining the initial public offering
price. Upon completion of this offering, the Company's officers, directors and
their affiliates will beneficially own approximately 44.7% of the Company's
Common Stock.

--------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.

--------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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===============================================================================================
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS COMPANY (1) STOCKHOLDERS (2)
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<S> <C> <C> <C> <C>
Per Share....................... $9.50 $0.665 $8.835 $8.835
- -----------------------------------------------------------------------------------------------
Total (2)....................... $38,000,000 $2,660,000 $17,670,000 $17,670,000
===============================================================================================
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(1) Before deducting expenses payable by the Company, estimated at $1,250,000.
(2) Certain Selling Stockholders have granted the Underwriters a 30-day option
to purchase up to an additional 600,000 shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $43,700,000,
$3,059,000 and $22,971,000, respectively.

--------------

The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about October 23, 1996.

ROBERTSON, STEPHENS & COMPANY NEEDHAM & COMPANY, INC.

The date of this Prospectus is October 18, 1996
<PAGE>

SUMMIT DESIGN'S SOFTWARE PRODUCTS enable organizations to more easily realize
the benefits of high level design automation by simplifying and automating IC
design entry and verification and by linking manufacturing test to design.
These products assist organizations in meeting market demands for rapid time to
market, increased product functionality and lower product cost.

THE CONVENTIONAL HLDA TOP-DOWN THE SUMMIT DESIGN PROCESS
DESIGN PROCESS

(Graphic showing steps (Graphic showing steps
in the conventional HLDA in the top-down design
top-down design process) process using Summit's
software products)

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>

BACKGROUND OF LINES OF HDL CODE

Most HLDA design and test
program generation tools require
IC developers to work with large
amounts of textual data. As a
result, the development and test
process is often error prone and
time consuming and yields results
that are difficult to communicate.

BACKGROUND OF LINES OF HDL CODE
<PAGE>

Summit's SLDA products allow engineers to graphically design ICs, thereby
eliminating the need to manually create designs in a textual HDL code. This
offers several benefits to
design engineers
including easier
design entry,
verification and
reuse, and faster,
more complete
design debugging.

(Graphic showing
screen shot of an
SLDA state diagram)

Summit's TDS
products can reduce
test program
development costs (Graphic showing
and can improve the screen shot
quality of of a TDS
manufacturing test flow chart)
programs by
providing a
graphical
environment to view, manage and manipulate the vast amounts of test based
data. Summit's Design to Test products provide graphical simulation test data
creation, graphical simulation results analysis and automatic manufacturing
test program generation.
<PAGE>

NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL NOVEMBER 12, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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TABLE OF CONTENTS

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PAGE
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Summary.................................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 32
Management............................................................... 48
Certain Transactions..................................................... 58
Principal and Selling Stockholders....................................... 61
Description of Capital Stock............................................. 65
Shares Eligible for Future Sale.......................................... 67
Underwriting............................................................. 69
Legal Matters............................................................ 70
Experts.................................................................. 70
Additional Information................................................... 71
Index to Financial Statements............................................ F-1
</TABLE>

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The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements examined by its independent public
accountants and quarterly reports containing unaudited financial information
for each of the first three quarters of each fiscal year.

Summit Design, the Summit logo, Visual HDL, Visual HDL for VHDL, TDS, Visual
Testbench and Wavebridge are trademarks of the Company. This Prospectus also
includes trademarks of companies other than the Company.

The Company was incorporated in the State of Delaware on December 29, 1993.
The Company's principal executive offices are located at 9305 S.W. Gemini
Drive, Beaverton, Oregon 97008 and its telephone number is (503) 643-9281.
Unless the context otherwise requires, the terms "Company" and "Summit" as used
in this Prospectus refer to (i) Summit Design, Inc. and its wholly-owned
subsidiaries following the acquisition of SEE Technologies Software Environment
for Engineers Ltd. ("SEE Technologies") and the reorganization of Test Systems
Strategies, Inc. ("TSSI") as a wholly-owned subsidiary of Summit (collectively,
the "Reorganization") and (ii) TSSI prior to the Reorganization. SEE
Technologies changed its name to Summit Design (EDA) Ltd. in September 1994.

3
<PAGE>

SUMMARY

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following summary is qualified in its entirety by the more
detailed information, including "Risk Factors," and the consolidated financial
statements and notes thereto, appearing elsewhere in this Prospectus.

THE COMPANY

Summit Design, Inc. ("Summit" or the "Company") is a leading provider of
graphical design entry and verification software tools and design to test
software tools. The Company's products assist integrated circuit ("IC") system,
design and test engineers in meeting the market demands for rapid time to
market, increased product functionality and lower product cost. Summit's
graphical Systems Level Design Automation ("SLDA") products enable IC systems
and design engineers to create and verify IC designs using familiar graphical
paradigms such as block diagrams, state machines, flow charts or truth tables
rather than the less intuitive textual hardware description language ("HDL")
code required by synthesis and simulation tools. The Company's SLDA products
automatically generate optimized HDL descriptions from graphical designs,
eliminating time consuming and error prone manual entry of HDL code. The
Company's Design to Test products provide graphical simulation test data
creation, graphical simulation results analysis and automatic manufacturing
test program generation.

Faced with a scarcity of qualified design and test engineers and the need to
improve time to market given shorter product lifecycles, corporations with IC
design requirements need to increase design productivity to keep pace with the
increasing complexity of IC designs and the growth in the number of new IC
designs starts. Electronic design automation ("EDA") software tools have
enabled engineers to accelerate IC development schedules and create more
complex chips. However, IC development productivity has continued to lag
advances in fabrication technology in part because these tools require circuits
to be described in a textual HDL. IC design engineers, who typically create a
design using hand-drawn graphical paradigms, must manually translate their
hand-drawn designs into HDL code. This process is time-consuming and error
prone, and requires the engineer to master a complex HDL programming language.
The complexity of the textual HDL code also inhibits the ability of design
teams to communicate the functional intent of the code and to reuse the code or
retarget the design in future projects. In addition, most manufacturing test
program generation software tools require IC test engineers to work with
complex textual test programs and related data and to debug these programs on
the actual manufacturing test equipment used to test the ICs, consuming
valuable equipment process time.

Summit's SLDA products allow engineers to graphically design and verify ICs
using familiar graphical paradigms and automatically produce a synthesis-ready
HDL design, thus eliminating manual textual coding in an HDL. Graphical IC
designs are more easily debugged and communicated among IC design teams,
facilitate review by engineering management and can be more easily modified and
reused in future developments. These products optimize and can automatically
re-target the design output for nearly all of the EDA industry's standard
synthesis and simulation tools. The Company's Design to Test tools allow design
and test engineers to graphically develop simulation test pattern and timing
data, analyze the complex and voluminous simulation results and automatically
generate manufacturing test programs. These graphical tools allow the engineer
to check the IC design for manufacturing testability prior to release from the
design cycle, minimizing the need to re-design the IC to improve testability.
Summit's Visual Testbench product, released in the fourth quarter of 1995,
integrates the design and test processes and allows the design engineer and
test engineer to cooperatively develop simulation and manufacturing test
programs.

The Company employs direct sales, distributors and telesales to target
individual customers and product market segments. The Company's end-user
customers include companies in a wide range of industries, including
semiconductor devices, semiconductor test equipment, telecommunications,
computer/peripherals, consumer electronics and aerospace/defense. The Company
has installed more than 1,300 seats of its SLDA tools in more than 125
companies, of which more than 100 companies have entered into support
contracts. In addition, the Company has more than 250 active installations of
its Design to Test products.

4
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THE OFFERING

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<S> <C>
Common Stock Offered by the
Company........................ 2,000,000 shares

Common Stock Offered by the
Selling Stockholders........... 2,000,000 shares

Common Stock Outstanding after
the Offering................... 13,319,204 shares (1)

Use of Proceeds................ Working capital and general corporate purposes
and to repay certain outstanding indebtedness.
See "Use of Proceeds."

Nasdaq National Market symbol.. SMMT
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (2):
Revenue............................ $ 7,240 $12,982 $14,070 $ 9,742 $14,355
Income (loss) from operations...... (1,503) (1,544) (2,576) (2,774) 1,313
Net income (loss).................. (1,622) (2,046) (3,151) (3,216) 1,023
Pro forma net income (loss) per
share (3)......................... $ (0.14) $ (0.17) $ (0.26) $ (0.27) $ 0.09
Pro forma number of shares used in
per share
calculation (3)................... 11,569 11,870 11,900 11,851 12,013
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED (4)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $2,459 $18,560
Working capital.......................................... 32 16,905
Total assets............................................. 9,792 25,219
Long-term obligations, less current portion.............. 969 748
Total stockholders' equity............................... 1,732 18,152
</TABLE>
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(1) Based on the number of shares outstanding as of September 30, 1996.
Excludes 880,034 shares issuable upon exercise of options outstanding as of
September 30, 1996 at a weighted average exercise price of $1.90 per share.
See "Capitalization."
(2) The results of SEE Technologies are included in the Consolidated Financial
Statements of the Company commencing January 1, 1994.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing pro forma net income
(loss) per share.
(4) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby at an initial public offering price of $9.50
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."

Except as otherwise indicated, all share information in this Prospectus
assumes the Underwriters' over-allotment option is not exercised, and is
adjusted to reflect the conversion of all outstanding shares of Preferred Stock
into an aggregate of 9,103,346 shares of Common Stock upon the closing of this
offering.

5
<PAGE>

RISK FACTORS

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In addition to the other information in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the Common Stock offered by this
Prospectus.

HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS

While the Company has generated net income in each of the four quarters in
the period ended September 30, 1996, it has not shown net income on an annual
basis since 1991. There can be no assurance that the Company will be
profitable in the future. In addition, the Company has experienced significant
quarterly fluctuations in operating results and cash flows and it is likely
that these fluctuations will continue in future periods. These fluctuations
have been, and may in the future be, caused by a number of factors, including
the rate of acceptance of new products, corporate acquisitions and
consolidations, product, customer and channel mix, the size and timing of
orders, lengthy sales cycles, the timing of new product announcements and
introductions by the Company and its competitors, seasonal factors,
rescheduling or cancellation of customer orders, the Company's ability to
continue to develop and introduce new products and product enhancements on a
timely basis, the level of competition, purchasing and payment patterns,
pricing policies of the Company and its competitors, product quality issues,
currency fluctuations and general economic conditions.

The Company has generally recognized a substantial portion of its revenue in
the last month of each quarter, with this revenue concentrated in the last
weeks of the quarter. Any significant deferral of purchases of the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations in any particular quarter, and
to the extent that significant sales occur earlier than expected, operating
results for subsequent quarters may be adversely affected. The Company's
revenue is difficult to forecast for several reasons. The market for certain
of the Company's software products is evolving. The Company's sales cycle is
typically six to nine months and varies substantially from customer to
customer. The Company operates with little product backlog because its
products are typically shipped shortly after orders are received. In addition,
a significant portion of the Company's sales are made through indirect
channels and can be harder to predict. The Company establishes its expenditure
levels for product development, sales and marketing and other operating
activities based primarily on its expectations as to future revenue. As a
result, if revenue in any quarter falls below expectations, expenditure levels
could be disproportionately high as a percentage of revenue, and the Company's
operating results for that quarter would be adversely affected. Based upon the
factors described above, the Company believes that its quarterly revenue,
expenses and operating results are likely to vary significantly in the future,
that period-to-period comparisons of its results of operations are not
necessarily meaningful and that, as a result, such comparisons should not be
relied upon as indications of the Company's future performance. Moreover,
although the Company's revenue has increased in recent periods, there can be
no assurance that the Company's revenue will grow in future periods or that
the Company will remain profitable on a quarterly or annual basis. Due to the
foregoing or other factors, it is likely that the Company's results of
operations may be below investors' and market analysts' expectations in some
future quarters, which could have a severe adverse effect on the market price
of the Company's Common Stock. See "Selected Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview" and "--Quarterly Results."

PRODUCT CONCENTRATION; UNCERTAINTY OF MARKET ACCEPTANCE OF SLDA AND DESIGN TO
TEST PRODUCTS

The Company's revenue is predominantly derived from two product lines,
Visual HDL, which includes Visual HDL for VHDL and Visual HDL for Verilog, and
TDS. The Company believes that these products will continue to account for a
substantial portion of its revenue in the future. As a result, factors
adversely affecting sales of these products, including increased competition,
inability to successfully introduce enhanced

6
<PAGE>

or improved versions of these products, product quality issues and
technological change, could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company's future success depends primarily upon the market acceptance of
its existing and future SLDA products. The Company commercially shipped its
first SLDA product, Visual HDL for VHDL, in the first quarter of 1994. For the
nine months ended September 30, 1996 and the years ended December 31, 1995 and
1994, revenue from SLDA products and related maintenance contracts represented
62.4%, 50.4% and 34.8%, respectively, of the Company's total revenue. The
Company's SLDA products incorporate certain unique design methodologies and
thus represent a departure from industry standards for design entry and
verification. The Company believes that broad market acceptance of its SLDA
products will depend on several factors, including the ability to
significantly enhance design productivity, ease of use, interoperability with
existing EDA tools, price and the customer's assessment of the Company's
financial resources and its technical, managerial, service and support
expertise. The Company also depends on its distributors to assist the Company
in gaining market acceptance of its products. There can be no assurance that
sufficient priority will be given by the Company's distributors to marketing
the Company's products or whether such distributors will continue to offer the
Company's products. There can be no assurance that the Company's SLDA products
will achieve broad market acceptance. A decline in the demand for, or the
failure to achieve broad market acceptance of, the Company's SLDA products
will have a material adverse effect on the Company's business, financial
condition and results of operations.

Although demand for SLDA products has increased in recent years, the market
for SLDA products is still emerging and there can be no assurance that it will
continue to grow or that, even if the market does grow, businesses will
continue to purchase the Company's SLDA products. If the market for SLDA
products fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, financial condition and results of
operations would be materially adversely affected.

Traditionally, EDA customers have been risk averse in accepting new design
methodologies. Because many of Summit's tools embody new design methodologies,
this risk aversion on the part of potential customers presents an ongoing
marketing and sales challenge to the Company and makes the introduction and
acceptance of new products unpredictable. The Company's newest Design to Test
product, Visual Testbench, introduced in the fourth quarter of 1995, provides
a new methodology and requires a change in the traditional design flow for
creating IC test programs. The Company anticipates a lengthy period of test
marketing for the Visual Testbench product. Accordingly, the Company cannot
predict the extent, if any, to which it will realize revenue from Visual
Testbench. The failure of Visual Testbench or any other future Design to Test
product to achieve market acceptance will have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Products" and "--Marketing and Sales."

COMPETITION

The EDA industry is highly competitive and the Company expects competition
to increase as other EDA companies introduce SLDA and Design to Test products.
The Company faces different competitive dynamics in the markets for its SLDA
and Design to Test products. In the SLDA market, the Company principally
competes with Mentor Graphics Corporation ("Mentor Graphics") and a number of
smaller firms. Indirectly, the Company also competes with other firms that
offer alternatives to SLDA and could potentially offer more directly
competitive products in the future. Certain of these companies have
significantly greater financial, technical and marketing resources and larger
installed customer bases than the Company. Some of the Company's current and
future competitors offer a more complete range of EDA products and may
distribute products that directly compete with the Company's SLDA products by
bundling such products with their core product line. In addition, the
Company's products perform a variety of functions, certain of which are, and
in the future may be, offered as separate products or discrete point solutions
by the Company's existing and future competitors. For example, certain
companies currently offer design entry products without simulators. There can
be no assurance that such competition will not cause the Company to offer
point solutions instead

7
<PAGE>

of, or in addition to, the Company's current software products. Such point
solutions would be priced lower than the Company's current product offerings
and could cause the Company's average selling prices to decrease, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In the Design to Test market, the Company competes
primarily with the internal design groups of its existing and potential
customers, many of which to date have designed and developed customized Design
to Test tools for their particular needs, as well as smaller emerging
companies.

The Company competes on the basis of certain factors including product
capabilities, product performance, price, support of industry standards, ease
of use, first to market and customer technical support and service. The
Company believes that it competes favorably overall with respect to these
factors. However, in particular cases, the Company's competitors may offer
SLDA or Design to Test products with functionality which is sought by the
Company's prospective customers and which differs from that offered by the
Company. In addition, certain competitors may achieve a marketing advantage by
establishing formal alliances with other EDA vendors. Further, the EDA
industry in general has experienced significant consolidation in recent years,
and the acquisition of one of the Company's competitors by a larger, more
established EDA vendor could create a more significant competitor. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on its business, financial
condition and results of operations. There can be no assurance that the
Company's current and future competitors will not be able to develop products
comparable or superior to those developed by the Company or to adapt more
quickly than the Company to new technologies, evolving industry trends or
customer requirements. Increased competition could result in price reductions,
reduced margins and loss of market share, all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Competition."

DEPENDENCE ON ELECTRONICS INDUSTRY MARKET

Because the electronics industry is characterized by rapid technological
change, short product life cycles, fluctuations in manufacturing capacity and
pricing and margin pressures, certain segments, including the computer,
semiconductor, semiconductor test equipment and telecommunications industries,
have experienced sudden and unexpected economic downturns. During these
periods, capital spending is commonly curtailed and the number of design
projects often decreases. Because the Company's sales are dependent upon
capital spending trends and new design projects, negative factors affecting
the electronics industry could have a material adverse effect on the Company's
business, financial condition and results of operations. A number of
electronics companies, including customers of the Company, have recently
experienced a slowdown in their businesses. The Company's future operating
results may reflect substantial fluctuations from period to period as a
consequence of such industry patterns, general economic conditions affecting
the timing of orders from customers and other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Background."

DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY

Because the Company's products must interoperate with EDA products of other
companies, particularly simulation and synthesis products, the Company must
have timely access to third party software to perform development and testing
of its products. Although the Company has established relationships with a
variety of EDA vendors to gain early access to new product information, these
relationships may be terminated by either party with limited notice. In
addition, such relationships are with companies that are current or potential
future competitors of the Company, including Synopsys, Inc. ("Synopsys"),
Mentor Graphics and Cadence Design Systems ("Cadence"). For example, the
Company's Visual HDL for Verilog product is currently designed to work
exclusively with the Verilog XL simulator product sold by Cadence. If any of
these relationships were terminated and the Company was unable to obtain, in a
timely manner, information regarding modifications of third party products
necessary for modifying its software products to interoperate with these third
party products, the Company could experience a significant increase in
development costs, the development process would take longer, product
introductions would be delayed and the Company's

8
<PAGE>

business, financial condition and results of operations could be materially
adversely affected. See "Business--Product Development."

NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS

The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. In
addition, customers in the EDA industry require software products that allow
them to reduce time to market, differentiate their products, improve their
engineering productivity and reduce their design errors. The Company's future
success will depend upon its ability to enhance its current products, develop
and introduce new products that keep pace with technological developments and
emerging industry standards and address the increasingly sophisticated needs
of its customers. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products
that respond to technological change or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
its new products will adequately meet the requirements of the marketplace and
achieve market acceptance. The Company has announced that it plans to release
new versions of its products in the second half of 1996. If the Company is
unable, for technological or other reasons, to develop and introduce products
in a timely manner in response to changing market conditions, industry
standards or other customer requirements, particularly if such product
releases have been pre-announced, the Company's business, financial condition
and results of operations will be materially adversely affected.

The Company's Design to Test products employ the Company's WGL format. The
Company permits others to use this format without charge, and the Company
believes that it has been widely adopted in the industry. An industry group in
which the Company currently participates is formulating a new format, STIL,
that it plans to present as a new industry standard. If this standard is
adopted commercially, the Company would be required to provide products that
operate with the STIL format. Development of such products would take
significant effort and expense. Moreover, any delay in the availability of
such products could materially adversely affect the Company's business,
financial condition and results of operations.

Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. The
Company has in the past discovered software errors in certain of its products
and has experienced delays in shipment of products during the period required
to correct these errors. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found,
resulting in loss of, or delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation or increased service
and warranty costs, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Products" and "--Product Development."

DEPENDENCE ON DISTRIBUTORS

The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 45.1% and 42.0% of the Company's
revenue for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively, were attributable to sales made through
distributors. The Company has also entered into a joint venture with Anam S&T
Co., Ltd. ("Anam") pursuant to which the joint venture corporation (Summit
Design Korea, Inc. ("Summit Asia")) shall acquire exclusive rights to sell,
distribute and support all of the Company's products in the Asia-Pacific
region, excluding Japan, until June 1997. Summit Asia has acted in such
capacity since April 1, 1996. Prior to that date, Anam was an independent
distributor of the Company's products. During the fourth quarter of 1995, the
Company entered into a distribution agreement with ATE Services Company, Ltd.
("ATE") pursuant to which ATE was granted exclusive rights to sell, distribute
and support all of Summit's Design to Test products within Japan until October
1998, subject to the Company's ability to terminate the relationship if ATE
fails to meet quarterly sales objectives. The agreement may also be terminated
by either party for breach. In addition, in the first

9
<PAGE>

quarter of 1996, the Company entered into a three-year, exclusive distribution
agreement for its SLDA products in Japan with Seiko Instruments, Inc.
("Seiko"). In the event Seiko fails to meet specified quotas for two or more
quarterly periods, exclusivity can be terminated by Summit, subject to Seiko's
right to pay a specified fee to maintain exclusivity. The agreement is
renewable for successive five-year terms by mutual agreement of the Company
and Seiko and is terminable by either party for breach. For the nine months
ended September 30, 1996, all sales of the Company's products in the Asia-
Pacific region were through Summit Asia, ATE and Seiko. There can be no
assurance the new relationships with Summit Asia, ATE and Seiko will be
effective in maintaining or increasing sales relative to the levels
experienced prior to such relationships. The Company also has independent
distributors in Europe and is dependent on the continued viability and
financial stability of its distributors. Since the Company's products are used
by skilled design engineers, distributors must possess sufficient technical,
marketing and sales resources and must devote these resources to a lengthy
sales cycle, customer training and product service and support. Only a limited
number of distributors possess these resources. In addition, Summit Asia, ATE
and Seiko, as well as the Company's other distributors, may offer products of
several different companies, including competitors of the Company. There can
be no assurance that the Company's current distributors will continue to
market or service and support the Company's products effectively, that any
distributor will continue to sell the Company's products or that the
distributors will not devote greater resources to products of other companies.
The loss of, or a significant reduction in, revenue from the Company's
distributors could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Marketing and Sales."

INTERNATIONAL SALES AND OPERATIONS

Approximately 52.9% and 53.1% of the Company's revenue for the nine months
ended September 30, 1996 and the year ended December 31, 1995, respectively,
were attributable to sales made outside the United States. The Company expects
that international revenue will continue to represent a significant portion of
its total revenue. The Company's international revenue is currently
denominated in U.S. dollars. As a result, increases in the value of the U.S.
dollar relative to foreign currencies could make the Company's products more
expensive and, therefore, potentially less competitive in those markets. The
Company pays the expenses of its international operations in local currencies
and does not engage in hedging transactions with respect to such obligations.
International sales and operations are subject to numerous risks, including
tariff regulations and other trade barriers, requirements for licenses,
particularly with respect to the export of certain technologies,
collectability of accounts receivable, changes in regulatory requirements,
difficulties in staffing and managing foreign operations and extended payment
terms. There can be no assurance that such factors will not have a material
adverse effect on the Company's future international sales and operations and,
consequently, on the Company's business, financial condition and results of
operations.

In order to successfully expand international sales, the Company may need to
establish additional foreign operations, hire additional personnel and recruit
additional international distributors. This will require significant
management attention and financial resources and could adversely affect the
Company's operating margins. In addition, to the extent that the Company is
unable to effect these additions in a timely manner, the Company's growth, if
any, in international sales will be limited. There can be no assurance that
the Company will be able to maintain or increase international sales of the
Company's products, and failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Marketing and Sales."

OPERATIONS IN ISRAEL

10
<PAGE>

from the government of Israel as described in "--Israeli Research, Development
and Marketing Grants." In addition, while all of the Company's sales are
denominated in U.S. dollars, a portion of the Company's annual costs and
expenses in Israel are paid in Israeli currency. These costs and expenses were
approximately $4.3 million and $2.9 million in 1995 and the nine months ended
September 30, 1996, respectively. Payment in Israeli currency subjects the
Company to foreign currency fluctuations and to economic pressures resulting
from Israel's generally high rate of inflation, which has been approximately
15%, 8% and 8% during 1994, 1995 and the eight months ended August 31, 1996,
respectively. The Company's primary expense which is paid in Israeli currency
is employee salaries for research and development activities. As a result, an
increase in the value of Israeli currency in comparison to the U.S. dollar
could increase the cost of research and development expenses and general and
administrative expenses. There can be no assurance that currency fluctuations,
changes in the rate of inflation in Israel or any of the other aforementioned
factors will not have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, coordination with
and management of the Israeli operations requires the Company to address
differences in culture, regulations and time zones. Failure to successfully
address these differences could be disruptive to the Company's operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Operations in Israel."

The Company's Israeli production facility has been granted the status of an
"Approved Enterprise" under the Israeli Investment Law for the Encouragement
of Capital Investments, 1959 (the "Investment Law"). Taxable income of a
company derived from an "Approved Enterprise" is eligible for certain tax
benefits, including significant income tax rate reductions for up to seven
years following the first year in which the "Approved Enterprise" has Israeli
taxable income (after using any available net operating losses). The period of
benefits cannot extend beyond 12 years from the year of commencement of
operations or 14 years from the year in which approval was granted, whichever
is earlier. The tax benefits derived from a certificate of approval for an
"Approved Enterprise" relate only to taxable income attributable to such
"Approved Enterprise" and are conditioned upon fulfillment of the conditions
stipulated by the Investment Law, the regulations promulgated thereunder and
the criteria set forth in the certificate of approval. In the event of a
failure by the Company to comply with these conditions, the tax benefits could
be canceled, in whole or in part, and the Company would be required to refund
the amount of the canceled benefits, adjusted for inflation and interest.
There can be no assurance that the Company's Israeli production facility will
continue to operate or qualify as an "Approved Enterprise" or that the
benefits under the "Approved Enterprise" regulations will continue, or be
applicable, in the future. The loss of, or any material decrease in, these
income tax benefits could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Effective Corporate Tax Rates" and "Business--Operations in Israel."

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends in large part on the continued service
of its key technical and management personnel and its ability to continue to
attract and retain highly-skilled technical, sales and marketing and
management personnel. The Company has entered into employment agreements with
certain of its executive officers, however, such agreements do not guarantee
the services of these employees and do not contain noncompetition provisions.
Competition for personnel in the software industry in general, and the EDA
industry in particular, is intense, and the Company has at times in the past
experienced difficulty in recruiting qualified personnel. There can be no
assurance that the Company will retain its key personnel or that it will be
successful in attracting and retaining other qualified technical, sales and
marketing and management personnel in the future. The loss of any key
employees or the inability to attract and retain additional qualified
personnel may have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not carry "key
person" life insurance on any of its key personnel. Additions of new personnel
and departures of existing personnel, particularly in key positions, can be
disruptive and can result in departures of additional personnel, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management" and "Business--Employees."

11
<PAGE>

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

Summit's Israeli subsidiary has obtained research and development grants
from the Office of the Chief Scientist (the "Chief Scientist") in the Israeli
Ministry of Industry and Trade of approximately $232,000 and $608,000 in 1993
and 1995, respectively. As of September 30, 1996, the Company was obligated to
pay back approximately $232,000 and $608,000 for the 1993 and 1995 grants,
respectively. Such obligations are secured by all tangible and intangible
assets of the Israeli subsidiary. The terms of the grants prohibit the
manufacture of products developed under these grants outside of Israel and the
transfer of the technology developed pursuant to these grants to any person,
without the prior written consent of the Chief Scientist. The Company's Visual
HDL for VHDL products have been developed under grants from the Chief
Scientist and thus are subject to these restrictions. If the Company is unable
to obtain the consent of the government of Israel, the Company would be unable
to take advantage of potential economic benefits such as lower taxes, lower
labor and other manufacturing costs and advanced research and development
facilities that may be available if such technology and manufacturing
operations could be transferred to locations outside of Israel. In addition,
the Company would be unable to minimize risks particular to operations in
Israel, such as hostilities involving Israel. See "--Operations in Israel."
Although the Company is eligible to apply for additional grants from the Chief
Scientist, it has no present plans to do so. The Company also received a
Marketing Fund Grant from the Israeli Ministry of Industry and Trade for an
aggregate of $399,000. The grant must be repaid at the rate of 3% of the
increase in exports over the 1993 export level of all Israeli products, until
repaid. As of September 30, 1996, approximately $370,000 was outstanding under
the grant. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business--Product Development" and "--Operations
in Israel" and Note 7 of Notes to Consolidated Financial Statements.

LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company's success depends in part upon its proprietary technology. The
Company relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures, licensing arrangements and technical means to
establish and protect its proprietary rights. As part of its confidentiality
procedures, the Company generally enters into non-disclosure agreements with
its employees, distributors and corporate partners, and limits access to, and
distribution of, its software, documentation and other proprietary
information. In addition, the Company's products are protected by hardware
locks and software encryption techniques designed to deter unauthorized use
and copying. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's products or technology
without authorization, or to develop similar technology independently.

The Company provides its SLDA products to end-users primarily under "shrink-
wrap" license agreements included within the packaged software. These
agreements are not negotiated with or signed by the licensee, and thus may not
be enforceable in certain jurisdictions. The Company provides its Design to
Test products to end-users under written license agreements, signed by each
licensee at the time of purchase of a license. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as
do the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate or that competitors will not independently develop similar
technology.

The Company could be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows,
the functionality of products in its industry segment overlaps and an
increasing number of software patents are granted by the United States Patent
and Trademark Office. There can be no assurance that a third party will not
claim such infringement by the Company with respect to current or future
products. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product delays or require the Company to
enter into royalty or licensing agreements. Such royalty or license
agreements, if required, may not be available on terms acceptable to the
Company or at all. Failure to protect its proprietary rights or claims of
infringement could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Proprietary
Rights."

12
<PAGE>

MANAGEMENT OF GROWTH

The Company's ability to achieve significant growth will require it to
implement and continually expand its operational and financial systems,
recruit additional employees and to train and manage current and future
employees. The Company expects any such growth will place a significant strain
on its operational resources and systems. Failure to effectively manage any
such growth would have a material adverse effect on the Company's business,
financial condition and results of operations.

CONTROL BY CURRENT STOCKHOLDERS

The Company's officers, directors and their affiliates will, in the
aggregate, beneficially own approximately 44.7% of the Company's outstanding
shares of Common Stock after this offering, assuming no exercise of the
underwriters' over-allotment option. As a result, these stockholders, if
acting together, would be able to effectively control most matters requiring
approval by the stockholders of the Company, including, in most cases, the
election of all of the directors. The Company has entered into agreements with
its officers and directors indemnifying them against losses they may incur in
legal proceedings arising from their service to the Company. See "Principal
and Selling Stockholders" and "Description of Capital Stock."

NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that a regular trading market will
develop and continue after this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price has been determined through negotiations between
the Company and the representatives of the Underwriters and may not be
indicative of the market price of the Common Stock following this offering.
The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the market
prices of the stocks of many companies which may not have been directly
related to the operating performance of those companies. Such broad market
fluctuations may adversely affect the market price of the Common Stock
following this offering. In addition, factors such as announcements of
technological innovations or new products by the Company or its competitors,
market conditions in the computer software or hardware industries and
quarterly fluctuations in the Company's operating results may have a
significant adverse effect on the market price of the Company's Common Stock.
See "--History of Operating Losses; Fluctuations in Quarterly Results" and
"Underwriting."

DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding Common Stock. As a result,
purchasers of the Common Stock offered hereby will incur immediate,
substantial dilution in net tangible book value equal to $8.14 per share. To
the extent that outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of equity securities.
Upon completion of the offering, the Company will have outstanding 13,319,204
shares of Common Stock, assuming no exercise of options after September 30,
1996. Of these shares, the 4,000,000 shares offered hereby (4,600,000 shares
if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act ("Rule 144"). The remaining 9,319,204 shares of Common Stock
outstanding upon completion of the offering are "restricted securities" as
that term is defined in Rule 144.

Beginning 90 days after the effective date of the Registration Statement
(the "Registration Statement") of which this Prospectus forms a part,
approximately 124,400 shares of Common Stock will be eligible for sale
pursuant to Rule 701 under the Securities Act ("Rule 701") and Rule 144. Upon
the expiration of lock-up

13
<PAGE>

agreements between certain of the Company's stockholders and the Underwriters
(the "Lock-up Agreements"), beginning 181 days after the effective date of the
Registration Statement (April 16, 1997), 7,664,658 shares will be eligible for
sale pursuant to Rule 701 and Rule 144, subject in certain cases to the
volume, manner of sale and notice requirements of Rule 144. In addition,
pursuant to lock-up provisions set forth in stock purchase agreements executed
in connection with the Reorganization, the Company's Investors' Rights
Agreement, as amended, and under the Company's incentive stock option plan
(the "Stand-Off Agreements"), an additional 297,435 shares will become
eligible for sale pursuant to Rule 701 and Rule 144 beginning 181 days after
the effective date of the Registration Statement (April 16, 1997). The
remaining 1,232,711 shares outstanding will become eligible for sale from time
to time more than 181 days after the effective date of the Registration
Statement as the Company's rights to repurchase such shares expire.

In addition to the foregoing, as of September 30, 1996, there were
outstanding options to purchase an aggregate of 880,034 shares of Common
Stock. If such options are exercised, 519,383 shares will be eligible for sale
beginning 181 days after the effective date of the Registration Statement
(April 16, 1997) upon expiration of the Lock-up Agreements and the lock-up
provisions contained in the Stand-Off Agreements. The Company has agreed not
to release shares from the lock-up provisions of the Stand-Off Agreements
without the prior written consent of the representatives of the Underwriters.
The representatives of the Underwriters have informed the Company that they
have no current intention to release shares from the Lock-up Agreements, nor
to permit the Company to release shares from the Stand-Off Agreements, prior
to expiration of the 180-day term of such agreements.

After this offering, the holders of approximately 8,366,314 shares of Common
Stock may require the Company, beginning six months after the effective date
of the Registration Statement, on not more than two occasions, to file a
registration statement under the Securities Act registering their shares at
the Company's expense, subject to certain conditions. See "Shares Eligible for
Future Sale" and "Description of Capital Stock--Registration Rights of Certain
Holders."

The Company intends to file a Form S-8 registration statement under the
Securities Act as soon as practicable after consummation of the offering to
register the issuance of shares of Common Stock reserved for issuance upon
exercise of options granted under its stock option and stock purchase plans.
See "Management--Stock Plans."

ANTITAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW

Upon consummation of this offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue shares of
Preferred Stock. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. Further, certain provisions of the Company's Amended
and Restated Certificate of Incorporation (the "Restated Certificate") and
Amended and Restated Bylaws, each of which will become effective upon
consummation of this offering, and of Delaware law could delay or make more
difficult a merger, tender offer or proxy contest involving the Company. These
provisions include advance notice procedures for stockholders to nominate
candidates for election as directors of the Company, a classified board of
directors, no stockholder action by written consent, limitations on persons
who can call stockholder meetings and supermajority voting procedures for
certain amendments to the Company's Restated Certificate. See "Description of
Capital Stock--Preferred Stock" and "--Delaware Anti-Takeover Law and Certain
Charter Provisions."

14
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$16,420,000 at an initial public offering price of $9.50 per share and after
deducting the underwriters' discounts and commissions and estimated offering
expenses payable by the Company. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Stockholders.

The Company expects to use the net proceeds for working capital and general
corporate purposes, including financing accounts receivable and capital
expenditures made in the ordinary course of its business, and to repay
$213,117 of indebtedness outstanding as of September 30, 1996 under a note
issued to a third-party real estate firm, $271,973 of indebtedness outstanding
as of September 30, 1996 under an equipment loan and $200,850 of indebtedness
outstanding as of September 30, 1996 under capital leases. The indebtedness
under the note and the equipment loan each bear interest at annual rates of
prime plus 1% and mature in September 1997 and June 1998, respectively. The
capital leases bear interest at annual rates of between 5.0% and 15.0% and
expire no later than December 1999. In addition, the Company may apply a
portion of the net proceeds of the offering to acquire complementary EDA
businesses, products or technologies. Although the Company has not identified
any specific businesses, products or technologies that it may acquire, nor are
there any current agreements or negotiations with respect to any such
transactions, the Company from time to time evaluates such opportunities.
Pending such uses, the Company will invest the net proceeds from this offering
in interest bearing securities. See "Certain Transactions."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings, if any, for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company's working capital line of credit
agreement prohibits the payment of dividends without the lender's prior
approval.

15
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis, (ii) on a pro forma basis to give
effect to the automatic conversion of all outstanding shares of Preferred
Stock into Common Stock and the filing of the Company's Restated Certificate
to authorize 30,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock at par values of $.01 per share upon the closing of this
offering and (iii) on an as adjusted basis to reflect the sale of the
2,000,000 shares of Common Stock offered by the Company hereby at the initial
public offering price of $9.50 per share and the application of the estimated
net proceeds therefrom after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use
of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion.... $ 969 $ 969 $ 748
-------- -------- -------
Stockholders' equity:
Preferred Stock, $.01 par value;
9,334,283 shares authorized, 9,103,346
shares issued and outstanding, actual;
5,000,000 shares authorized, no shares
issued and outstanding, pro forma and as
adjusted.................................... 91 -- --
Common Stock, $.01 par value; 20,000,000
shares authorized, 2,215,858 shares issued
and outstanding, actual; 30,000,000 shares
authorized, 11,319,204 shares issued and
outstanding, pro forma; 13,319,204 shares
issued and outstanding, as adjusted (1)..... 22 113 133
Additional paid-in capital................... 15,551 15,551 31,951
Accumulated deficit.......................... (13,932) (13,932) (13,932)
-------- -------- -------
Total stockholders' equity................. 1,732 1,732 18,152
-------- -------- -------
Total capitalization..................... $ 2,701 $ 2,701 $18,900
======== ======== =======
</TABLE>
- --------
(1) Excludes 880,034 shares issuable upon exercise of options outstanding as
of September 30, 1996 at a weighted average exercise price of $1.90 per
share. See "Management--Stock Plans."

16
<PAGE>

DILUTION

The net tangible book value of the Company at September 30, 1996 was
approximately $1.1 million, or $0.09 per share of Common Stock, after giving
effect to the conversion of all outstanding Preferred Stock. "Net tangible
book value" represents the amount of total tangible assets of the Company less
total liabilities divided by the number of shares of Common Stock outstanding.
After giving effect to the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby at an initial public offering price of $9.50 per
share (after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company), the Company's pro forma
net tangible book value at September 30, 1996 would have been approximately
$18.2 million, or $1.36 per share. This represents an immediate increase in
net tangible book value of $1.27 per share to existing stockholders and an
immediate dilution of $8.14 per share to new investors. The following table
illustrates this dilution per share:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................ $9.50
Net tangible book value per share before the offering........ $0.09
Increase in net tangible book value per share attributable to
new investors............................................... 1.27
-----
Pro forma net tangible book value per share after the
offering...................................................... 1.36
-----
Dilution per share to new investors............................ $8.14
=====
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1996, the differences in the total consideration paid and the average price
per share paid between the existing stockholders and the new investors with
respect to the 2,000,000 shares of Common Stock to be issued by the Company
based upon, in the case of new investors, an initial public offering price of
$9.50 per share (before deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company).

<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 11,319,204 85% $16,995,426 47% $1.50
New investors........... 2,000,000 15 19,000,000 53 9.50
---------- --- ----------- ---
Total............... 13,319,204 100% $35,995,426 100%
========== === =========== ===
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 9,319,204 shares, or 70% of the
total number of shares of Common Stock outstanding after the offering, and
will increase the number of shares held by new investors to 4,000,000
shares, or 30% of the total number of shares of Common Stock outstanding
after the offering.

The computations in the tables above exclude 880,034 shares of Common Stock
reserved for issuance at September 30, 1996 upon exercise of outstanding
options under the Summit Design, Inc. 1994 Stock Plan at a weighted average
exercise price of $1.90 per share. To the extent such options are exercised,
there will be further dilution to new investors. See "Capitalization,"
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements.

17
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statement of operations data for the
years ended December 31, 1993, 1994 and 1995 and the consolidated balance
sheet data at December 31, 1994 and 1995 are derived from the consolidated
financial statements of the Company, which have been audited by Coopers &
Lybrand L.L.P., and are included elsewhere in this Prospectus. The
consolidated balance sheet data at December 31, 1993 are derived from audited
financial statements not included in this Prospectus. The consolidated
statement of operations data for the years ended December 31, 1991 and 1992
and for the nine months ended September 30, 1995 and 1996 and the consolidated
balance sheet data at December 31, 1991 and 1992 and at September 30, 1995 and
1996 have been derived from unaudited financial statements that include all
adjustments that the Company considers necessary for a fair presentation of
the financial information set forth therein. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of the
results to be expected for future periods. The selected consolidated financial
data should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------ ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1):
Revenue:
Product licenses....... $7,540 $ 7,716 $ 4,693 $ 9,143 $10,383 $ 6,894 $10,927
Maintenance and
services.............. -- -- 2,547 2,323 2,637 1,848 3,003
Other.................. -- -- -- 1,516 1,050 1,000 425
------ ------- ------- ------- ------- ------- -------
Total revenue.......... 7,540 7,716 7,240 12,982 14,070 9,742 14,355
Cost of revenue:
Product licenses....... 298 434 440 681 651 478 433
Maintenance and
services ............. -- -- 330 390 400 307 323
------ ------- ------- ------- ------- ------- -------
Total cost of revenue.. 298 434 770 1,071 1,051 785 756
------ ------- ------- ------- ------- ------- -------
Gross profit .......... 7,242 7,282 6,470 11,911 13,019 8,957 13,599
Operating expenses:
Research and
development........... 2,414 2,642 2,381 4,632 5,113 3,878 3,888
Sales and marketing.... 3,414 4,456 3,673 5,867 7,370 5,475 6,319
General and
administrative........ 602 1,359 1,919 2,309 3,112 2,378 2,079
Restructuring expense.. -- 300 -- -- -- -- --
In-process technology.. -- -- -- 647 -- -- --
------ ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 6,430 8,757 7,973 13,455 15,595 11,731 12,286
------ ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 812 (1,475) (1,503) (1,544) (2,576) (2,774) 1,313
Other income (expense),
net.................... (56) (122) (119) (100) (176) (121) (47)
------ ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 757 (1,597) (1,622) (1,644) (2,752) (2,895) 1,266
Income tax provision.... 59 -- -- 402 399 321 243
------ ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 698 $(1,597) $(1,622) $(2,046) $(3,151) $(3,216) $ 1,023
====== ======= ======= ======= ======= ======= =======
Pro forma net income
(loss) per share (2)... $ (0.14) $ (0.17) $ (0.26) $ (0.27) $ 0.09
======= ======= ======= ======= =======
Pro forma number of
shares used in per
share calculation (2).. 11,569 11,870 11,900 11,851 12,013
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 387 $ 267 $ 429 $1,193 $ 592 $ 882 $ 2,459
Working capital........ 256 (1,265) (2,077) (444) (530) (793) 32
Total assets........... 3,053 2,670 2,703 8,036 8,903 7,614 9,792
Long-term obligations,
less current portion.. 181 580 302 253 1,216 804 969
Total stockholders'
equity (deficit)...... 396 (1,178) (1,304) 1,295 592 528 1,732
</TABLE>
- --------
(1) The results of SEE Technologies are included in the Consolidated Financial
Statements of the Company commencing January 1, 1994.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing pro forma net
income (loss) per share.

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus. The following discussion also should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.

OVERVIEW

Summit was founded in December 1993 to act as the holding company for TSSI
and SEE Technologies (now Summit Design (EDA) Ltd.). TSSI was founded in 1979
to develop and market IC manufacturing test products. In January 1993, TSSI
retained a new Chief Executive Officer and began to restructure its senior
management team. Thereafter, the Company broadened its strategy from focusing
primarily on manufacturing test products to include providing graphical SLDA
design entry and verification tools and integrating these with its core
technology. As part of its strategy, in early 1994, TSSI acquired SEE
Technologies, an Israeli company that, through its predecessor, began
operations in 1983 and had operated primarily as a research and development
and consulting company focused on the EDA and SLDA market. As a result of the
Reorganization, TSSI and SEE Technologies became wholly-owned subsidiaries of
Summit in the first quarter of 1994. The results of operations of the Company
prior to January 1, 1994 are those of TSSI and as of and after January 1, 1994
are the combined results of TSSI and SEE Technologies.

The Company's ongoing implementation of its strategy has involved
significant expenditures. Following the Reorganization, the Company
significantly increased its research and development expenditures to support
the continued development of SLDA and Design to Test products. To promote its
products, the Company has added sales and marketing staff, increasing its
sales and marketing expenditures by 101% from 1993 to 1995, and has
restructured its key distributor relationships. This concurrent effort to
develop products and promote market awareness and acceptance of its products
in a new and evolving market has contributed to the Company's annual losses.
Such losses were mitigated in part in each of the six quarters following the
Reorganization by revenue from initial stocking orders from distributors and
one-time sales of technology. The Company introduced its first SLDA product,
Visual HDL for VHDL 1.0, in the first quarter of 1994. This product lacked
compiled simulation and operated only on a PC platform. In the third quarter
of 1994, with the release of version 2.5, Summit expanded the simulation
capability of Visual HDL for VHDL and introduced its UNIX-based version of
this product. The Company has experienced increased sales of its SLDA products
in each of the nine quarters in the period ended September 30, 1996. As a
result, the Company generated net income in each of the last four quarters.
However, there can be no assurance that the Company will experience continued
growth in revenue or be profitable in the future.

Prior to the Reorganization, the Company's TDS product and related
maintenance revenue accounted for all of the Company's revenue. Currently, the
Company's revenue is predominantly derived from two product lines, Visual HDL,
which includes Visual HDL for VHDL and Visual HDL for Verilog, and TDS. The
Company believes these products will continue to account for a substantial
portion of its revenue in the future. See "Risk Factors--Product
Concentration; Uncertainty of Market Acceptance of SLDA and Design to Test
Products."

Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer training. Revenue from the sale of software
licenses is recognized at the later of the time of shipment or satisfaction of
all acceptance terms. Maintenance revenue is deferred and recognized ratably
over the term of the maintenance agreement, which is typically 12 months.
Revenue from customer training is recognized when the service is performed.
The Company sells its products through a direct sales force in North America
and selected European countries and through distributors in the Company's
other international markets. Revenue from product sales through distributors
is recognized net of the associated distributor discounts. Fees received for
granting distribution rights are deferred and recognized ratably over the term
of the distribution agreement. Although the Company has

19
<PAGE>

not adopted a formal return policy, the Company generally reimburses customers
in full for returned products. Estimated sales returns are recorded upon
delivery of the product.

The Company has a range of prices for its products which depends on
platform, HDL language, functionality, duration of license and distribution
channel. In addition, the Company's products perform a variety of functions,
certain of which are, and in the future may be, offered as separate products
or discrete point solutions by the Company's existing and future competitors.
For example, certain companies currently offer design entry products without
simulators. There can be no assurance that such competition will not cause the
Company to offer point solutions instead of, or in addition to, the Company's
current software products. Such point solutions would be priced lower than the
Company's current product offerings and could cause the Company's average
selling prices to decrease. Accordingly, based on these and other factors, the
Company expects that average selling prices for its products will continue to
fluctuate in the future.

The Company has entered into a joint venture with Anam, effective April 1,
1996, pursuant to which the joint venture corporation (Summit Asia) shall
acquire exclusive rights to sell, distribute and support all of Summit's
products in the Asia-Pacific region, excluding Japan, until June 1997. Summit
Asia has acted in such capacity since April 1, 1996. Prior to that date, Anam
was an independent distributor of the Company's products. The amount of
revenue from sales through Summit Asia which is remitted to the Company is
fixed by the joint venture agreement at a percentage which approximates the
percentage applicable to sales through Anam prior to the formation of the
joint venture. Excluding one-time sales of technology, sales through Anam
accounted for 2.4% and 3.6% of the Company's total revenue and for 21.7% and
33.8% of the Company's revenue attributable to the Asia-Pacific region
excluding Japan for the years ended December 31, 1995 and 1994, respectively.

The Company accounts for its ownership interest in Summit Asia on the equity
method of accounting and, as a result, the Company's pro rata share of the
profits and losses of Summit Asia will be recognized as income or losses on
the Company's income statement in "Other income (expense), net." The Company
does not expect Summit Asia to recognize a profit for the forseeable future
and thus does not expect to recognize income from its investment in Summit
Asia for the foreseeable future, if at all. See "Business--Marketing and
Sales."

Approximately 52.9% and 53.1% of the Company's total revenue for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively, were attributable to sales made outside the United States. The
Company expects that international revenue will continue to represent a
significant portion of its total revenue. The Company's international revenue
is currently denominated in U.S. dollars. As a result, increases in the value
of the U.S. dollar relative to foreign currencies could make the Company's
products more expensive and, therefore, potentially less competitive in those
markets. The Company pays the expenses of its international operations in
local currencies and does not engage in hedging transactions with respect to
such obligations. International sales and operations are subject to numerous
risks, including tariff regulations and other trade barriers, requirements for
licenses, particularly with respect to the export of certain technologies,
collectability of accounts receivable, changes in regulatory requirements,
difficulties in staffing and managing foreign operations and extended payment
terms. See "Business--Marketing and Sales."

20
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth the Company's Consolidated Statement of
Operations Data expressed as a percentage of total revenue for the periods
indicated.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue:
Product licenses............. 64.8% 70.4% 73.8% 70.8% 76.1%
Maintenance and services..... 35.2 17.9 18.7 18.9 20.9
Other........................ -- 11.7 7.5 10.3 3.0
------- ------- ------- ------ ------
Total revenue.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product licenses............. 6.0 5.2 4.6 4.9 3.0
Maintenance and services..... 4.6 3.0 2.9 3.2 2.3
------- ------- ------- ------ ------
Total cost of revenue...... 10.6 8.2 7.5 8.1 5.3
------- ------- ------- ------ ------
Gross profit............... 89.4 91.8 92.5 91.9 94.7
Operating expenses:
Research and development..... 32.9 35.7 36.3 39.8 27.1
Sales and marketing.......... 50.7 45.2 52.4 56.2 44.0
General and administrative... 26.5 17.8 22.1 24.4 14.5
In-process technology........ -- 5.0 -- -- --
------- ------- ------- ------ ------
Total operating expenses... 110.1 103.7 110.8 120.4 85.6
------- ------- ------- ------ ------
Income (loss) from operations.. (20.7) (11.9) (18.3) (28.5) 9.1
Other income (expense), net.... (1.7) (0.8) (1.3) (1.2) (0.3)
------- ------- ------- ------ ------
Income (loss) before income
taxes......................... (22.4) (12.7) (19.6) (29.7) 8.8
Income tax provision........... -- 3.1 2.8 3.3 1.7
------- ------- ------- ------ ------
Net income (loss).............. (22.4)% (15.8)% (22.4)% (33.0)% 7.1%
======= ======= ======= ====== ======
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995

Total Revenue

The Company's revenue is comprised of product licenses revenue, maintenance
and services revenue and other revenue. Total revenue increased by 47% from
$9.7 million for the nine months ended September 30, 1995 to $14.4 million for
the nine months ended September 30, 1996. For the nine months ended September
30, 1996, sales through Seiko and ATE, as distributors, accounted for 15.5%
and 10.3% of the Company's total revenue, respectively, and no customer
accounted for more than 10% of the Company's total revenue. For the nine
months ended September 30, 1995, other than the sale of certain non-core
technology to Soliton Systems K.K. ("Soliton") in a one-time transaction in
1995, no distributor or customer accounted for more than 10% of the Company's
total revenue.

Product licenses revenue. The Company's product licenses revenue is derived
from license fees from the Company's SLDA and Design to Test products. Product
licenses revenue increased by 59% from $6.9 million for the nine months ended
September 30, 1995 to $10.9 million for the nine months ended September 30,
1996. Revenue from SLDA and Design to Test products accounted for 56.0% and
44.0%, respectively, of product licenses revenue for the nine months ended
September 30, 1995 and for 71.9% and 28.1%, respectively, of product licenses
revenue for the nine months ended September 30, 1996.

21
<PAGE>

SLDA revenue increased 103% from $3.9 million for the nine months ended
September 30, 1995 to $7.9 million for the nine months ended September 30,
1996. The increase was primarily attributable to the hiring of the SLDA sales
force beginning in late 1994 and early 1995, improved international
distribution and thereafter increased market acceptance of the Company's SLDA
products and increased account penetration at major targeted accounts.

Design to Test revenue increased slightly from $3.0 million for the nine
months ended September 30, 1995 to $3.1 million for the nine months ended
September 30, 1996. Revenue from Design to Test products typically results
from fewer, larger orders and, as a result, the timing of orders can result in
significant variations in quarterly revenue.

Maintenance and services revenue. The Company's maintenance and services
revenue is derived from maintenance contracts related to the Company's SLDA
and Design to Test products and training classes offered to purchasers of the
Company's software products. Maintenance and services revenue increased 63%
from $1.8 million for the nine months ended September 30, 1995 to $3.0 million
for the nine months ended September 30, 1996. The increase was attributable to
an increase in maintenance revenue related to growth in the installed base of
SLDA customers and an increase in domestic Design to Test maintenance revenue
due to the Company hiring a telemarketing salesperson dedicated to sales of
maintenance.

Other revenue. Other revenue consists of revenue from one-time technology
sales and fees received for granting distribution rights. Other revenue for
the nine months ended September 30, 1995 was approximately $1.0 million, which
consisted of $850,000 related to a one-time sale of non-core technology and
$150,000 of distribution rights fees. For the nine months ended September 30,
1996 other revenue consisted of $425,000 of distribution rights fees. No
material costs were associated with other revenue for the six months ended
September 30, 1995 and 1996.

Cost of Revenue

Cost of product licenses revenue. Cost of product licenses revenue includes
product packaging, software documentation, labor and other costs associated
with handling, packaging and shipping product and other production related
costs. Cost of product licenses revenue decreased 9% from $478,000 for the
nine months ended September 30, 1995 to $433,000 for the nine months ended
September 30, 1996. The decrease was primarily attributable to one-time costs
incurred in the nine months ended September 30, 1995 associated with the
write-off of prepaid royalties and obsolete inventory and the production of
demonstration and evaluation materials related to the release of new versions
of the Company's SLDA products. As a percentage of product licenses revenue,
the cost of product licenses revenue decreased from 6.9% for the nine months
ended September 30, 1995 to 4.0% for same period in 1996. This decrease was
primarily due to leveraging fixed costs across increased product licenses
revenue and, to a lesser extent, to lower sales of TDS products as a
percentage of total product sales. TDS products have a higher cost of revenue
than the Company's SLDA products.

Cost of maintenance and services revenue. Cost of maintenance and services
revenue, which consists primarily of personnel costs for customer support and
training classes offered to purchasers of the Company's products, increased 5%
from $307,000 for the nine months ended September 30, 1995 to $323,000 for the
nine months ended September 30, 1996. As a percentage of maintenance and
services revenue, the cost of maintenance and services revenue decreased from
16.6% for the nine months ended September 30, 1995 to 10.8% for the nine
months ended September 30, 1996. The Company expects that its cost of
maintenance and services revenue will increase in future periods as the
Company adds customer support personnel.

Research and Development

Research and development expenses consist of the engineering and operations
support costs of developing new products and enhancements to existing products
and performing quality assurance activities. Research and development expenses
remained relatively unchanged at approximately $3.9 million for the nine

22
<PAGE>

months ended September 30, 1995 and 1996. As a percentage of total revenue,
research and development expenses decreased from 39.8% for the nine months
ended September 30, 1995 to 27.1% for the same period in 1996 due to the
increase in total revenue for the first nine months of 1996. The Company
believes that significant investment in research and development is required
to remain competitive in its markets, and the Company therefore anticipates
that research and development expenses will increase in absolute dollars in
future periods, but may vary as a percentage of total revenue.

Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which the Company is
required to capitalize software development costs after technological
feasibility has been established. To date, development costs have been
expensed as incurred since technological feasibility generally has not been
established until shortly before the release of a new product, and no material
development costs have been incurred after establishment of technological
feasibility.

Sales and Marketing

Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 15% from $5.5 million for the nine months
ended September 30, 1995 to $6.3 million for the nine months ended September
30, 1996. The increase was primarily attributable to increased commissions and
travel expenses. As a percentage of total revenue, sales and marketing
expenses decreased from 56.2% for the nine months ended September 30, 1995 to
44.0% for the same period in 1996. The decrease was primarily attributable to
the increase in total revenue for the first nine months of 1996. In the
future, the Company expects sales and marketing expenses to continue to
increase in absolute dollars, in part due to the hiring of additional sales
personnel.

General and Administrative

General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, legal and
auditing expenses of the Company. General and administrative expenses
decreased 13% from $2.4 million for the nine months ended September 30, 1995
to $2.1 million for the nine months ended September 30, 1996. During the nine
months ended September 30, 1995, the Company wrote-off expenses of
approximately $270,000 primarily related to prepaid expenses deemed to have no
future value and costs associated with the severance of a senior manager. As a
percentage of total revenue, general and administrative expenses decreased
from 24.4% for the nine months ended September 30, 1995 to 14.5% for the same
period in 1996. The decrease as a percentage of total revenue was primarily
attributable to the increase in total revenue in the first nine months of
1996. The Company expects general and administrative expenses to increase in
absolute dollars to support future operations and sales and the additional
costs associated with being a public company.

Other Income (Expense), Net

Other income (expense) consists of interest income and expense associated
with available cash balances, loans, lines of credit and gains or losses from
the sale of property and equipment. Other income (expense) was a net expense
of $121,000 for the nine months ended September 30, 1995 and a net expense of
$47,000 for the nine months ended September 30, 1996. The decrease in net
expense was primarily due to lower interest expense associated with
outstanding bank borrowings and capital lease obligations, partially offset by
interest earned on the Company's cash holdings.

Income Tax Provision

Income tax provision decreased from $321,000 for the nine months ended
September 30, 1995 to $243,000 for the nine months ended September 30, 1996.
The decrease was primarily attributable to the Company, as of June 1996, no
longer being required to pay Japanese withholding tax of approximately 10% on
its Japanese sales. State income tax payments were lower than statutory limits
due to the carryforward of net operating losses. See "--Effective Corporate
Tax Rates."

23
<PAGE>

YEARS ENDED DECEMBER 31, 1995, DECEMBER 31, 1994 AND DECEMBER 31, 1993

Total Revenue

Total revenue increased by 79% from $7.2 million in 1993 to $13.0 million in
1994 and by 8% to $14.1 million in 1995. The increase from 1993 to 1994
primarily resulted from the introduction of the Company's first SLDA product
in the first quarter of 1994 and one-time sales of non-core technology in 1994
of approximately $1.5 million. The increase from 1994 to 1995 primarily
resulted from increased sales of the Company's SLDA products. During 1993,
1994 and 1995, other than the sale of certain non-core technology to Credence
Systems Corporation ("Credence") in a one-time transaction in 1994, no
customer accounted for more than 10% of the Company's total revenue. Other
than sales through Seiko, which accounted for 15.7% and 12.7% of the Company's
total revenue in 1994 and 1995, respectively, no distributor accounted for
more than 10% of the Company's total revenue during 1993, 1994 and 1995.

Product licenses revenue. Product licenses revenue increased by 95% from
$4.7 million in 1993 to $9.1 million in 1994 and by 14% to $10.4 million in
1995. Revenue from SLDA and Design to Test products accounted for 0% and 100%,
respectively, of product licenses revenue for 1993, for 49.4% and 50.6%,
respectively, of product licenses revenue for 1994, and 58.5% and 41.5%,
respectively, of product licenses revenue for 1995.

The Company's first SLDA product, Visual HDL for VHDL, was introduced in the
first quarter of 1994 and accordingly the Company did not recognize any
revenue for SLDA licenses in 1993. SLDA revenue increased by 35% from $4.5
million in 1994 to $6.1 million in 1995. The increase was primarily
attributable to the hiring of the SLDA sales force beginning in late 1994 and
early 1995 and increased market acceptance of the product in 1995,
particularly in the second half of 1995. The increase was also attributable to
follow-on sales in 1995 to certain key customers that had initially purchased
SLDA products in 1994 and 1995.

Design to Test revenue decreased slightly from $4.7 million in 1993 to $4.6
million in 1994 and decreased by 7% to $4.3 million in 1995. The decreases
were principally due to the focus of the Company's sales force during 1995 on
promotion of the Company's SLDA products.

Maintenance and services revenue. Maintenance and services revenue decreased
by 9% from $2.5 million in 1993 to $2.3 million in 1994 and increased by 14%
to $2.6 million in 1995. The decrease from 1993 to 1994 was primarily
attributable to the Company's sales force focusing on the introduction of the
Company's SLDA products in 1994 rather than on the sale of maintenance
contracts. The increase from 1994 to 1995 was primarily the result of the
addition of a telemarketing salesperson dedicated to sales of maintenance
contract renewals and increased sales of SLDA maintenance contracts associated
with increased sales of SLDA products.

Other revenue. Other revenue was $0 in 1993, $1.5 million in 1994 and $1.1
million in 1995 due to one-time sales of technology and fees received for
granting distribution rights. Other revenue for 1994 and 1995 included $1.5
million and $850,000, respectively, attributable to non-core technology sales
to Credence and Soliton, respectively. No material costs were associated with
these sales.

Cost of Revenue

Cost of product licenses revenue. Cost of product licenses revenue increased
from $440,000 in 1993 to $681,000 in 1994 and decreased to $651,000 in 1995.
The increase from 1993 to 1994 primarily resulted from the addition of
facilities in Israel acquired in connection with the acquisition of SEE
Technologies in February 1994 and costs associated with the Company's SLDA
product, which was initially shipped in the first quarter of 1994. The
decrease from 1994 to 1995 was due in part to costs associated with the
introduction of the Company's SLDA product in 1994. As a percentage of product
licenses revenue, the cost of product licenses revenue decreased from 9.4% for
1993 to 7.4% for 1994 and to 6.3% for 1995. Cost of product licenses revenue
as a percentage of product licenses revenue decreased from 1993 through 1995
principally due to

24
<PAGE>

the Company's higher margin SLDA products constituting a greater percentage of
the Company's product mix and leveraging fixed costs across increased product
licenses revenue.

Cost of product licenses revenue for 1995 includes a one-time write-off of
$107,000 of prepaid royalty fees for software deemed unusable, offset by the
reduction of $84,000 of reserves related to the expiration of training
credits.

Cost of maintenance and services revenue. Cost of maintenance and services
revenue increased from $330,000 in 1993 to $390,000 in 1994 and increased
slightly to $400,000 in 1995. The increase from 1993 to 1994 resulted from the
addition of support personnel in connection with the introduction of the
Company's SLDA product. As a percentage of maintenance and services revenue,
the cost of maintenance and services revenue was 13.0%, 16.8% and 15.2% for
1993, 1994 and 1995, respectively.

Research and Development

Research and development expenses increased from $2.4 million in 1993 to
$4.6 million in 1994 and to $5.1 million in 1995. The increase from 1993 to
1994 was primarily due to the substantial increase in the number of research
and development employees as a result of the acquisition of SEE Technologies
in February 1994. The increase from 1994 to 1995 was primarily attributable to
an increase in salaries. As a percentage of total revenue, research and
development expenses increased from 32.9% in 1993 to 35.7% in 1994 and to
36.3% in 1995.

Sales and Marketing

Sales and marketing expenses increased from $3.7 million in 1993 to $5.9
million in 1994 and to $7.4 million in 1995. The increase from 1993 to 1994
were primarily attributable to the expansion of the Company's sales and
marketing organization and increased costs associated with the production of
marketing literature and trade show costs to support the introduction of the
Company's Visual HDL for VHDL product. The increase from 1994 to 1995 was
principally due to the continued expansion of the Company's direct sales
force. As a percentage of total revenue, sales and marketing expenses
decreased from 50.7% in 1993 to 45.2% in 1994 and increased to 52.4% in 1995.

General and Administrative

General and administrative expenses increased from $1.9 million in 1993 to
$2.3 million in 1994 and to $3.1 million in 1995. The increases from 1993 to
1995 were primarily due to increases in personnel, investments in financial
information and control systems to support expanded operations and costs
associated with the Company's international operations. During the second
quarter of 1995, the Company also wrote-off expenses of approximately $270,000
primarily related to prepaid expenses deemed to have no future value and costs
associated with the severance of a senior manager. As a percentage of total
revenue, general and administrative expenses decreased from 26.5% in 1993 to
17.8% in 1994 and increased to 22.1% in 1995.

In-Process Technology

The Company expensed $647,000 of acquired in-process technology in the first
quarter of 1994 attendant to the Reorganization. These costs related entirely
to the SLDA products being developed by SEE Technologies.

Other Income (Expense), Net

Other income (expense) was a net expense of $119,000, $100,000 and $176,000
for 1993, 1994 and 1995, respectively. The increases in net expense were
primarily a result of increased interest expense associated with outstanding
bank borrowings and capital lease obligations and a decrease in interest
income.

25
<PAGE>

Income Tax Provision

Income tax provision was $0 for 1993, $402,000 for 1994 and $399,000 for
1995. The increase in income tax expense from 1993 to 1994 and 1995 was the
result of a change in the Company's operational structure. For 1993 and prior,
the Company maintained a wholly-owned subsidiary in Japan which resulted in no
Japanese withholding taxes from sales. For 1994 and 1995, under the
restructured operations, the increase was primarily attributable to the
payment of withholding tax on Japanese and other Asian sales. State income tax
payments were lower than statutory limits due to operating losses. See "--
Effective Corporate Tax Rates."

26
<PAGE>

Quarterly Results

The following table sets forth selected unaudited quarterly financial
information for each of the seven quarters in the period ended September 30,
1996. This information has been derived from unaudited consolidated statements
of operations data that, in the opinion of management, are stated on a basis
consistent with the audited financial statements and include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The Company's quarterly results have been in the past,
and may be in the future, subject to significant fluctuations. The Company
believes that results of operations for the interim periods are not
necessarily indicative of the results to be expected in the future.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product licenses....... $ 1,821 $ 1,848 $ 3,225 $ 3,489 $ 3,547 $ 3,644 $3,736
Maintenance and
services.............. 521 681 646 789 918 977 1,108
Other.................. 400 550 50 50 142 142 141
------- ------- ------- ------- ------- ------- ------
Total revenue.......... 2,742 3,079 3,921 4,328 4,607 4,763 4,985
------- ------- ------- ------- ------- ------- ------
Cost of revenue:
Product licenses....... 134 213 131 173 132 146 155
Maintenance and
services.............. 103 107 97 93 102 109 112
------- ------- ------- ------- ------- ------- ------
Total cost of revenue.. 237 320 228 266 234 255 267
------- ------- ------- ------- ------- ------- ------
Gross profit........... 2,505 2,759 3,693 4,062 4,373 4,508 4,718
Operating Expenses:
Research and
development........... 1,266 1,360 1,252 1,235 1,332 1,287 1,269
Sales and marketing.... 1,778 1,979 1,718 1,895 2,097 2,041 2,181
General and
administrative........ 661 993 724 734 639 734 706
------- ------- ------- ------- ------- ------- ------
Total operating
expenses.............. 3,705 4,332 3,694 3,864 4,068 4,062 4,156
------- ------- ------- ------- ------- ------- ------
Income (loss) from
operations............. (1,200) (1,573) (1) 198 305 446 562
Other income (expense),
net.................... (52) (48) (21) (55) (52) (3) 8
------- ------- ------- ------- ------- ------- ------
Income (loss) before
income taxes........... (1,252) (1,621) (22) 143 253 443 570
Income tax provision.... 73 100 148 78 175 34 34
------- ------- ------- ------- ------- ------- ------
Net income (loss)....... $(1,325) $(1,721) $ (170) $ 65 $ 78 $ 409 $ 536
======= ======= ======= ======= ======= ======= ======
Pro forma net income
(loss) per share....... $ (0.11) $ (0.14) $ (0.01) $ 0.01 $ 0.01 $ 0.03 $ 0.04
Pro forma number of
shares used in per
share calculation...... 11,886 11,890 11,898 11,904 11,936 12,021 12,178
AS A PERCENTAGE OF TOTAL
REVENUE:
Revenue:
Product licenses....... 66.4% 60.0% 82.2% 80.6% 77.0% 76.5% 75.0%
Maintenance and
services.............. 19.0 22.1 16.5 18.2 19.9 20.5 22.2
Other.................. 14.6 17.9 1.3 1.2 3.1 3.0 2.8
------- ------- ------- ------- ------- ------- ------
Total revenue.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- ------
Cost of revenue:
Product licenses....... 4.8 6.9 3.3 4.0 2.9 3.1 3.1
Maintenance and
services.............. 3.8 3.5 2.5 2.1 2.2 2.3 2.2
------- ------- ------- ------- ------- ------- ------
Total cost of revenue.. 8.6 10.4 5.8 6.1 5.1 5.4 5.3
------- ------- ------- ------- ------- ------- ------
Gross profit........... 91.4 89.6 94.2 93.9 94.9 94.6 94.7
Operating Expenses:
Research and
development........... 46.3 44.2 31.9 28.5 28.9 27.0 25.5
Sales and marketing.... 64.8 64.3 43.8 43.8 45.5 42.9 43.7
General and
administrative........ 24.1 32.2 18.6 17.0 13.9 15.4 14.2
------- ------- ------- ------- ------- ------- ------
Total operating
expenses.............. 135.2 140.7 94.3 89.3 88.3 85.3 83.4
------- ------- ------- ------- ------- ------- ------
Income (loss) from
operations............. (43.8) (51.1) (0.1) 4.6 6.6 9.3 11.3
Other income (expense),
net.................... (1.9) (1.5) (0.5) (1.3) (1.1) 0.0 0.1
------- ------- ------- ------- ------- ------- ------
Income (loss) before
income taxes........... (45.7) (52.6) (0.6) 3.3 5.5 9.3 11.4
Income tax provision.... 2.6 3.3 3.7 1.8 3.8 0.7 0.7
------- ------- ------- ------- ------- ------- ------
Net income (loss)....... (48.3)% (55.9)% (4.3)% 1.5% 1.7% 8.6% 10.7%
======= ======= ======= ======= ======= ======= ======
</TABLE>

27
<PAGE>

Since the first quarter of 1995, the Company's total revenue has increased
in each subsequent quarter. The increase in revenue is primarily attributable
to increased market acceptance of the SLDA product line that commenced
shipment in the first quarter of 1994. The following table sets forth the
revenue from the Company's SLDA and Design to Test products for each of the
seven quarters in the period ended September 30, 1996. The Company believes
that product revenue for the interim periods is not necessarily indicative of
future results.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1995 1995 1995 1996 1996 1996
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCT
- -------
SLDA.................... $ 626 $1,138 $2,100 $2,207 $2,506 $2,589 $2,764
Design to Test.......... 1,195 710 1,125 1,282 1,041 1,055 972
</TABLE>

Effective June 1996, the Company is no longer required to pay the 10%
withholding tax on its Japanese sales. As a result, the income tax provision
for the quarters ended June 30 and September 30, 1996 decreased significantly
compared to prior quarters.

In the quarters ended March 31 and June 30, 1995, the Company recognized
other revenue of $350,000 and $500,000, respectively, related to the one-time
sale of certain technology. In addition, cost of product licenses revenue for
the second quarter of 1995 totaled $213,000, which includes a one-time write-
off of $107,000 of prepaid royalty fees for software deemed unusable.

Total operating expenses for the second quarter of 1995 increased as a
result of increases in each of its components. Research and development
expenses increased due to salary increases during the quarter, and were lower
in the following quarters primarily as a result of the departure of research
and development personnel associated with the development of technology which
had been sold and the restructuring of certain additional personnel to
increase efficiencies. Sales and marketing expenses increased in part due to
the forgiveness of a loan to a sales officer and the one-time write-off of
receivables deemed uncollectable. In addition, general and administrative
expenses increased in part due to the write-off of approximately $270,000
primarily related to prepaid expenses deemed to have no future value and costs
associated with the severance of a senior manager.

The Company has experienced significant quarterly fluctuations in operating
results and cash flows and it is likely that these fluctuations will continue
in future periods. These fluctuations have been, and may in the future be,
caused by a number of factors, including the rate of acceptance of new
products, corporate acquisitions and consolidations, product, customer and
channel mix, the size and timing of orders, lengthy sales cycles, the timing
of new product announcements and introductions by the Company and its
competitors, seasonal factors, rescheduling or cancellation of customer
orders, the Company's ability to continue to develop and introduce new
products and product enhancements on a timely basis, the level of competition,
purchasing and payment patterns, pricing policies of the Company and its
competitors, product quality issues, currency fluctuations and general
economic conditions.

28
<PAGE>

future revenue. As a result, if revenue in any quarter falls below
expectations, expenditure levels could be disproportionately high as a
percentage of revenue, and the Company's operating results for that quarter
would be adversely affected. Based upon the factors described above, the
Company believes that its quarterly revenue, expenses and operating results
are likely to vary significantly in the future, that period-to-period
comparisons of its results of operations are not necessarily meaningful and
that, as a result, such comparisons should not be relied upon as indications
of the Company's future performance. Moreover, although the Company's revenue
has increased in recent periods, there can be no assurance that the Company's
revenue will grow in future periods or that the Company will remain profitable
on a quarterly or annual basis. Due to the foregoing or other factors, it is
likely that the Company's results of operations may be below investors' and
market analysts' expectations in some future quarters, which could have a
severe adverse effect on the market price of the Company's Common Stock.

EFFECTIVE CORPORATE TAX RATES

The Company is taxed in its jurisdictions of operations based on the extent
of taxable income generated in each jurisdiction. For income tax purposes,
revenue is attributed to the taxable jurisdiction where the sales transactions
generating the revenue were initiated. All sales transactions by Summit Design
(EDA) Ltd., the Company's Israeli subsidiary, to the Company were recorded as
arm's length transactions based on an intercompany pricing agreement. All
sales transactions by the Company are to unrelated parties and are based upon
prevailing market prices. There is no offset of taxes between the United
States and Israel. The Israeli operations are performed entirely by Summit
Design (EDA) Ltd., which is a separate taxable Israeli entity.

The Company's future effective tax rate depends in part on the availability
of United States and Israeli net operating loss ("NOLs") and credit
carryforwards. As of September 30, 1996, the Company had recorded U.S. federal
and state NOLs of approximately $7.1 million and $5.7 million, respectively
and Israeli NOLs of approximately $9.5 million. To date, the Company has not
generated taxable income on an annual basis, and neither the United States nor
the Israeli taxing authorities have verified the accuracy or availability of
the Company's NOLs and credit carryforward amounts. In addition, such amounts
are subject to limitation in certain circumstances, including as a result of
certain changes of ownership or operations. Thus, due to a change in ownership
resulting from the Reorganization and a subsequent preferred stock financing,
as of September 30, 1996, approximately $3.4 million and $2.3 million of the
federal and state NOLs, respectively, are limited as to the timing of their
availability for use. The portion of affected NOL that is available for use
each year is approximately $1.7 million for federal purposes and $1.2 million
for state purposes. The remaining portion of the NOLs (including all Israeli
NOLs) is not subject to this limitation and is generally available for use
against future taxable income, if any. There can be no assurance as to the
amount of such NOLs or carryforwards that will be available to the Company, if
any, or that the Company will be able to avail itself of such benefits.

In addition to its NOLs and credit carryforwards, the Company is currently
scheduled to receive tax benefits over the next several years under a tax
holiday in Israel. The Company's existing Israeli production facility has been
granted "Approved Enterprise" status under the Israeli Investment Law, which
entitles the Company to reductions in the tax rate normally applicable to
Israeli companies with respect to the income generated by its "Approved
Enterprise" programs. In particular, the tax holiday covers the seven-year
period beginning the first year in which Summit Design (EDA) Ltd. generates
taxable income from its "Approved Enterprise" (after using any available
NOLs), provided that such benefits will terminate in 2006 regardless of
whether the seven-year period has expired. The tax holiday provides that,
during such seven-year period, a portion of the Company's taxable income from
its Israeli operations will be taxed at favorable tax rates. The termination
or reduction of the Company's Israeli tax benefits would have a material
adverse effect on the Company's overall actual effective tax rate. The Company
has recently applied for "Approved Enterprise" status with respect to a new
project and intends to apply in the future with respect to additional
projects. There can be no assurance that the Company will be granted any
approvals and therefore there can be no assurance the Company will continue to
receive favorable tax status, if at all. See "Risk Factors--Operations in
Israel."

29
<PAGE>

The Company has concluded that a valuation allowance is required to
eliminate the net deferred tax asset after taking into consideration the
Company's cumulative losses, the fact that the Company has not generated net
income on an annual basis and also the fact that the generation of future
taxable income is dependent on many uncertain factors, including market
acceptance of its existing and future SLDA products.

The Company is also subject to the risk that United States and foreign tax
laws and rates may change in a future period or periods, and that any such
changes may materially adversely affect the Company's tax rate. As a result of
the factors described above and other related factors, there can be no
assurance that the Company will maintain a favorable tax rate in future
periods. Any increase in the Company's effective tax rate, or variations in
the effective tax rate from period to period, could have a material adverse
effect on the Company's business, financial condition and results of
operations.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations primarily
through the private placement of approximately $15.4 million of capital stock,
as well as capital equipment leases, borrowings under its bank line of credit,
Israeli research and development grants and cash generated from operations. As
of September 30, 1996, the Company had approximately $2.5 million in cash,
cash equivalents and short term investments and a $2.0 million bank line of
credit with U.S. National Bank of Oregon. The line of credit expires on April
30, 1997 and borrowings thereunder accrue interest at specified percentages
above the prime lending rate based on the Company's ratio of debt to tangible
net worth. Advances under the line of credit are limited to a specified
percentage of eligible accounts receivable (as defined in the line of credit).
Borrowings under the line of credit are secured by the Company's accounts
receivable, inventory and general intangible assets, including its
intellectual property rights. As of September 30, 1996, the Company had no
borrowings outstanding under this line of credit. Additionally, as of
September 30, 1996, the Company had approximately $272,000 outstanding under
an equipment term loan. The loan matures in June 1998 and accrues interest at
the prime rate plus 1% (9.25% at September 30, 1996).

As of September 30, 1996, the Company had working capital of approximately
$32,000. The accounts receivable balance, net of allowance for doubtful
accounts, was $4.1 million, $5.5 million and $4.1 million at September 30,
1996 and December 31, 1995 and 1994, respectively. As of September 30, 1996,
approximately 99% of the Company's accounts receivable outstanding as of March
31, 1996 had been collected. The average accounts receivable days' sales
outstanding was 75 days, 115 days and 115 days as of September 30, 1996 and
December 31, 1995 and 1994, respectively. The number of days' sales
outstanding has varied significantly from quarter to quarter as a result of
certain factors, including a significant percentage of international sales
with payment terms ranging from 60 to 90 days and a large amount of sales in
the last weeks of a quarter.

Net cash generated by operating activities was approximately $3.7 million
for the nine months ended September 30, 1996. Net cash used by operating
activities was approximately $3.0 million, $2.6 million and $673,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. For the nine
months ended September 30, 1996, cash generated by operating activities
resulted primarily from improved collection of accounts receivable and
profitability during the period. For 1995 and 1994, the use of cash from
operations resulted primarily from the Company's net loss and the increase in
accounts receivable. For 1993, the use of cash from operations resulted
primarily from the Company's net loss.

Net cash used in investing activities was approximately $550,000, $758,000,
$552,000 and $129,000 for the nine months ended September 30, 1996 and for the
years ended December 31, 1995, 1994 and 1993, respectively. Net cash used in
investing activities was related primarily to the acquisition of property and
equipment.

Net cash used by financing activities was approximately $1.3 million for the
nine months ended September 30, 1996 and net cash provided by financing
activities was approximately $3.1 million, $3.9 million and $1.0 million for
the years ended December 31, 1995, 1994, and 1993, respectively. The cash used
in the

30
<PAGE>

first nine months of 1996 was primarily to repay amounts outstanding under the
Company's line of credit. The cash provided in 1995, 1994 and 1993 was related
primarily to the issuance of preferred stock and short-term borrowings,
partially offset by debt payments and principal payments on capital lease
obligations.

The Company presently believes the net proceeds from the sale of the common
stock offered by the Company hereby, together with existing funds and funds
expected to be generated from operations, will satisfy the Company's
anticipated working capital and other cash requirements for at least the next
12 months.

31
<PAGE>

BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.

INTRODUCTION

Summit Design, Inc. is a leading provider of graphical design entry and
verification software tools and design to test software tools. The Company's
products assist integrated circuit ("IC" or "chip") system, design and test
engineers in meeting the market demands for rapid time to market, increased
product functionality and lower product cost. Summit's graphical SLDA products
enable IC systems and design engineers to create and verify IC designs using
familiar graphical paradigms such as block diagrams, state machines, flow
charts or truth tables rather than the less intuitive textual HDL code
required by synthesis and simulation tools. The Company's SLDA products
automatically generate optimized HDL descriptions from graphical designs,
eliminating time consuming and error prone manual entry of HDL code. The
Company's Design to Test products provide a graphical simulation test data
creation, graphical simulation results analysis and automatic manufacturing
test program generation.

BACKGROUND

Electronic design automation ("EDA") software has played a critical role in
accelerating the dramatic advances in the electronics industry over the past
two decades. The need for EDA has resulted from the increasing complexity of
ICs as well as the increasing number of new IC design starts and the scarcity
of skilled IC design and test engineers. The increase in the complexity of ICs
lengthens the development cycle while, at the same time, competitive pressures
shorten product life cycles. The objectives of EDA are to reduce time to
market and the costs associated with product design and verification while
permitting the development of a greater number of designs of higher speed and
density chips that can be reliably manufactured and tested.

IC development productivity has increased through the evolution of EDA, but
has significantly lagged fabrication technology in recent years. Fabrication
technology has advanced from the ability to produce chips with over 1 thousand
gates at 5 micron line-widths in the 1970s, to more than 10,000 gates in the
1980s, to greater than 1 million gates at sub 0.5 micron line-widths today.
For example, the processor used in the original IBM PC in 1981 had
approximately 10,000 gates and was manufactured using 3 micron process
technology, whereas the Pentium Pro introduced in 1995 contains approximately
2 million gates and is manufactured using 0.35 micron process technology. This
trend of higher levels of integration is expected to continue since the
benefits include increasing speed and functionality at decreasing cost.

In contrast to the progress in fabrication technology, the productivity of
the average design engineer has not kept pace. For example, an average
engineer would typically design approximately 8 gates per day in the mid-
1970s, approximately 40 gates per day in the early 1980s and nearly 400 gates
per day in the late 1980s and early 1990s. As a result, a greater number of
engineering hours are required to produce many of today's more complex
designs, leading to either longer development schedules or the need for larger
design teams. To address this challenge, organizations with IC design
capabilities continue to search for EDA tools that enable them to increase
their productivity and meet the aggressive development schedules dictated by
competitive forces.

Advances in EDA

EDA tools emerged in the early 1970s with the introduction of computer aided
design ("CAD") software that permitted engineers to textually enter designs of
several thousand gates, and in the early 1980s evolved to computer aided
engineering ("CAE") software that enabled engineers to graphically enter
designs of tens of thousands of gates. Despite the advantages of graphical CAE
tools, design at the gate level became

32
<PAGE>

impractical and more error prone as design complexities and gate counts
increased. To address these problems, textual HDLs, logic synthesis and
functional level simulation tools were introduced in the late 1980s, allowing
engineers to engage in high level design automation ("HLDA"). To use the HLDA
methodology, engineers are required to describe their IC design in a textual
HDL, such as VHDL or Verilog. After the design is coded in HDL, the HDL
description can be executed using simulation software to emulate the operation
of the desired IC, allowing the engineer to debug the design without building
a hardware prototype. The HDL description can be automatically translated to a
gate level description using a synthesis software tool.

The Importance of Test

Once the IC development process has been completed and verified,
manufacturing can begin. As a part of the manufacturing process, millions of
chips are tested to verify their quality and functionality prior to shipment.
Manufacturing test must be both fast and exhaustive to allow high volume
manufacturing of ICs that approach a zero defect level. Test plays such a
critical role in the manufacturing process that chips are sometimes re-
designed just to optimize testability. Manufacturing test typically involves
multi-million dollar hardware test equipment running a software test program
which utilizes millions of elements of timing and pattern data for each chip
under test. The software test programs are typically produced after the design
process is completed but before manufacturing can begin. Today, EDA suppliers
provide automatic test program generation software tools that assist test
engineers in acquiring vast amounts of timing and pattern data from gate level
simulation tools. These tools then create a manufacturing test program by
combining the data with program templates for specific hardware test
equipment. Significant profits from the sale of ICs and related systems can be
lost as a result of delays in the completion of an adequate manufacturing test
program.

Limitations of HLDA and Test

HLDA tools have enabled engineers to accelerate IC development schedules and
create more complex chips. However, these tools have significant limitations.
First, the conventional design flow for IC engineers using HLDA tools is to
represent a design in hand-drawn graphical paradigms such as block diagrams,
state machines, flow charts or truth tables, and then laboriously translate
their hand-drawn graphical designs into a textual HDL which resembles software
program code. This process is time consuming and error prone, and requires the
engineer to master a complex programming language. Second, the numerous lines
of HDL code that comprise a design are very difficult for engineering teams to
understand and communicate during design reviews and equally difficult for
engineering management to understand and evaluate. Third, while it would be
possible to accelerate time to market by reusing portions of HDL code where
similar functions are needed, reuse of HDL code is difficult and often avoided
because the complex HDL code complicates understanding the design's functional
intent. Fourth, the HLDA methodology is further limiting because textual HDL
code typically must be written in either Verilog or VHDL and according to
strict rules unique to a specific synthesis tool. This limits the ability of
engineers to increase synthesis efficiency by using various HDL languages and
multiple synthesis tools. Finally, the lack of stylistic restrictions in HDLs
often allows designers to express an IC functional design several different
ways. As a result, an HDL design could comply with HDL programming constraints
and yet not be able to be synthesized. As importantly, the lack of
restrictions allows a designer to produce an HDL description that can be
synthesized but that is not as efficient in terms of the resulting gate count
or circuit timing. Further, the lack of programming consistency between
engineers arising from the lack of stylistic restrictions complicates design
team management and design integration. Primarily as a result of the above
shortcomings, adoption of HLDA tools as of 1995 had been limited to
approximately 11% of the estimated 285,000 IC design engineers worldwide.

Although EDA suppliers today provide automatic test program generation
software tools, test engineers are still required to spend substantial time
debugging the test programs and the timing and pattern data on the actual
manufacturing test equipment that will be used to test the ICs. This effort
lengthens time to market and consumes valuable equipment process time that
would otherwise be used for manufacturing test. The timing and pattern data
required by these test programs is either hand coded or converted from the
output of

33
<PAGE>

gate level simulators. As a result, the time required to develop a test
program and the related data is often longer than the time required to
complete the IC design. In addition, although the preparation of test data
begins during design simulation, the lack of integration of HLDA and automatic
test program generation tools forces the design process and the test
preparation process to be separate and serial. The separate nature of design
and test preparation often results in duplicative efforts of design and test
engineers which can lead to delayed product introduction. The serial nature of
design and test preparation can delay recognition of unacceptable testability
characteristics of an IC which can result in chip redesign.

In order to meet the market's demands for more powerful, higher density ICs
and to reduce both time to market and cost, IC designers and manufacturers
seek design and test tools that overcome the limitations of the current HLDA
and test development methodologies.

THE SUMMIT SOLUTION

Summit offers software products to assist design and test engineers in
meeting the market demands for rapid time to market, increased product
functionality and lower product cost. In 1994, Summit introduced Visual HDL
for VHDL, its first graphical SLDA product, which accelerates the development,
verification and documentation of single function ICs as well as complete
systems on a chip. Summit's SLDA products automate manual design entry and
verification by enabling IC systems and design engineers to create and verify
IC designs using familiar graphical paradigms such as block diagrams, state
machines, flow charts and truth tables, rather than less intuitive textual HDL
code. The Company's Design to Test software tools allow the design or test
engineer to graphically create simulation test data and compare simulation
results. The Design to Test software also automatically generates
manufacturing test programs. The Company's most recently introduced Design to
Test product integrates the design and test processes and allows the design
engineer and test engineer to cooperatively develop simulation and
manufacturing test programs.

The Company's software products enable organizations to more easily realize
the benefits of HLDA by simplifying and automating IC design entry and
verification and by linking manufacturing test to design.

(Diagram of (Diagram of
The Conventional The Summit
HLDA Top-Down Design Process)
Design Process)

34
<PAGE>

The Company believes that its products provide the following benefits:

Increased Design Productivity

Summit's SLDA products enhance designers' ability to create, verify and
document HDL designs while managing the HDL development environment. These
products provide the ability to capture, analyze and verify a variety of high
level graphical descriptions and automatically produce a synthesis-ready HDL
design, thus eliminating the need to perform time-consuming and error-prone
manual coding in an HDL. These familiar graphical descriptions are more easily
debugged and more easily communicated among IC engineering team members. The
descriptions also facilitate review and approval by engineering management.

Design Reuse, Re-targeting and Consistency

The Company's SLDA products enable engineers to use libraries of existing
VHDL or Verilog code. This code can be used as HDL inputs or automatically
converted into a graphical format. Due to the widespread ability of engineers
to understand this graphical format, designs can be more easily modified and
reused in future developments. In addition, Summit's products can optimize the
design output for nearly all of the EDA industry's standard synthesis and
simulation tools. In the event the designer requires a different synthesis or
simulation tool, the design can be automatically re-targeted to optimize the
HDL output for the desired tool set. Finally, because each engineer's work is
implemented using the Company's software, which automatically generates the
actual HDL code, design efficiency and consistency is maintained even when
several engineers work on a project.

Ensure Chip Functionality and Manufacturing Testability

The Company's Design to Test tools provide design and test engineers with
the capability to graphically develop simulation test pattern and timing data
and assist the engineers in the analysis of the complex and voluminous
simulation results. These graphical tools allow the engineer to check the IC
under development for manufacturing testability prior to release from the
design cycle, minimizing the need to re-design for improved manufacturing
testability. Summit's Design to Test tools automate test program generation,
thus reducing the need to debug test programs on expensive and highly utilized
manufacturing test equipment.

Reduced Test Development Time

The Company's Visual Testbench product, released in the fourth quarter of
1995, integrates the efforts of design engineers and test engineers to reduce
the time required for manufacturing test development. This product
automatically converts the millions of elements of pattern and timing data
from the graphically prepared simulation input and from simulation results.
The converted information is then combined with tester specific templates to
automatically generate manufacturing test programs. The Company believes that
Visual Testbench can reduce manufacturing test preparation time significantly.

STRATEGY

The Company's mission is to become the leading supplier of SLDA and Design
to Test software and to achieve wide-spread acceptance of these technologies
by expanding the size of the Company's served market. The key elements of the
Company's strategy to achieve this mission are as follows:

Accelerate Market Adoption of SLDA

Summit intends to expand market acceptance by focusing on key customer
accounts to ensure their successful adoption of the SLDA methodology. The
Company believes that successful adoption by certain key customers in various
industries will promote adoption by other customers within those industries.
The Company also believes that its joint development and marketing programs
with industry leaders promote

35
<PAGE>

awareness and adoption of SLDA. In addition, Summit supports all of the
industry's major synthesis, simulation, layout and test products and continues
to support and complement new standards as they emerge. The Company also
targets student engineers by introducing them to its SLDA products through
programs with various universities.

Integrate Design to Test Into SLDA Methodology

The Company is leveraging its test expertise by integrating its Test
Development Series technology into the SLDA design process. This integrated
approach can significantly reduce users' time to market by permitting test
design to occur in parallel with, and as part of, product design. The
Company's first step in implementing this strategy was its recent introduction
of Visual Testbench, a graphical tool that allows the design and test engineer
to verify designs and automatically generate test programs. The Company
intends to develop additional features and functionality in the areas of
graphical user interface and parallel test development with the goal of
reducing or eliminating manual test development.

Leverage SLDA Technology Leadership

The Company intends to continue to advance its technological leadership in
graphical design entry and verification to meet the future needs of current
users and to provide compelling reasons for adoption by new users. For
example, the Company's addition of Visual HDL for Verilog in the fourth
quarter of 1995 extended its graphical SLDA methodology to a new group of
users. In the future, the Company intends to expand its support of other
important modeling languages such as C and C++.

Broaden the Scope of SLDA

The Company will continue to identify challenges facing both IC systems
engineers and IC design engineers in the areas of SLDA and Design to Test and
to focus its development efforts on products to further increase productivity
in the creation, verification, documentation and test of single function ICs
and complete systems on a chip. The Company believes that power, timing,
thermal and cost constraints management and analog circuit design will become
increasingly significant bottlenecks, especially in the area of complete
systems on a chip. Summit believes that in the future its SLDA products will
provide a graphical means for both systems and design engineers to specify the
functional intent and simulate the interoperability of hardware and software,
as well as the capability to perform what-if analysis on constraints such as
power, speed, temperature and cost at the front end of the development
process.

PRODUCTS

The Company's SLDA products, Visual HDL for VHDL and Visual HDL for Verilog,
provide system design management, graphical design entry, graphical level
simulation, HDL code generation and high speed compiled simulation. These
products are the result of a focused five-year development effort of
approximately 40 EDA software development experts, and today are in their
third major release. The Company's Design to Test products, Test Development
Series ("TDS") and Visual Testbench, provide graphical simulation test data
creation, simulation results analysis and automatic manufacturing production
test program generation. The TDS product has been developed over a 15 year
period, and today is in its eighth major release. Visual Testbench has been
under development since 1994 and was first released in the fourth quarter of
1995.

The Company's products are constructed using modern software design methods
and programming languages such as C and C++. All of the Company's products
operate on the industry's most popular UNIX workstations, while Visual HDL for
VHDL also operates on PCs running Windows 3.1, Windows 95 and Windows NT.

System Level Design Automation

Visual HDL for VHDL and Visual HDL for Verilog (together, "Visual HDL") are
graphical entry and verification solutions designed to simplify and accelerate
top-down design. Visual HDL can raise productivity

36
<PAGE>

by allowing system level, behavioral level and functional level design entry
using graphical design methods such as block diagrams, state machines, flow
charts and truth tables. As a result, engineers no longer need to textually
program their designs in lines of VHDL or Verilog code. Once the design is
graphically captured, Visual HDL can then automatically generate synthesizable
HDL code that is optimized for specific synthesis tools.

Set forth below is a depiction of a block diagram, state machine, flow chart
and truth table created by design engineers using the Company's SLDA products.

[GRAPHIC APPEARS HERE]

Visual HDL for VHDL uses VHDL as its internal data format and Visual HDL for
Verilog uses Verilog as its internal data format, allowing both products to
support all the hardware modeling features of both of these standard HDL
languages. Competing products typically use proprietary internal languages
making them more difficult to use because the design engineer must learn an
additional textual language. Such products do not take full advantage of the
functionality of VHDL or Verilog, thus limiting the level of integration that
can be achieved with industry standard simulation and synthesis tools.

The Visual HDL design environment offers several benefits to top-down
designers, including: easier design entry, verification and reuse, and faster,
more complete design debugging. Because Visual HDL represents HDL code
graphically, designers can better communicate their ideas in a much more
intuitive manner. This allows experienced and novice HDL designers to work
together efficiently. Visual HDL automatically generates HDL code that is
optimized for efficient synthesis. It can also import VHDL or Verilog code and
automatically generate graphics from this source text. Utilizing the graphical
representations generated by Visual HDL, designers are able to quickly
determine the original design intent, allowing them to save time by reusing
design components in future designs. An important aspect of Visual HDL is its
graphical simulation and debug environment. This environment allows designers
to view the path of simulation execution and the simulation results. This
gives them the opportunity to shorten development time by focusing on
debugging their circuits instead of debugging their HDL code. Visual HDL also
provides point-and-click functionality which allows engineers to quickly
determine the cause of a bug by highlighting the specific line of text and the
related graphical representation where the error exists, thereby significantly
shortening the time to debug a program.

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<PAGE>

Visual HDL operates in both VHDL and Verilog on UNIX workstations and in
VHDL on PCs. It supports a broad range of HLDA synthesis and simulation
products, including products from Synopsys, Mentor Graphics, Cadence,
VIEWlogic, Compass, IBM, Altera, Simplicity and Exemplar. Visual HDL for VHDL
was first shipped in the first quarter of 1994, and Visual HDL for Verilog was
first shipped in the fourth quarter of 1995. To date, the Company has licensed
over 1,300 seats of Visual HDL. The fourth major release is scheduled for the
second half of 1996.

Visual HDL's single seat list price ranges from $12,500 to $50,000. The list
price of the UNIX workstation version of Visual HDL for VHDL is higher than
that for PCs. The actual price for a system also varies depending on the
duration of the license and the simulation features included. For example,
because Visual HDL for VHDL generally includes a Summit simulator, its price
is higher than Visual HDL for Verilog, which uses the Verilog XL simulator
sold by Cadence. Finally, the Visual HDL price for a floating license commands
a premium over the node locked version since it offers multi-user flexibility.

Design to Test Products

Test Development Series is a vendor-independent test software development
system with a comprehensive portfolio of tools designed to automatically
convert gate-level simulation data to test programs that operate on automatic
manufacturing test equipment. TDS provides simulation analysis, stimulus
generation, simulation rules checking, tester resource checking, automatic
manufacturing test equipment test program generation and test program
conversion. TDS accepts data from more than 30 of the industry's leading gate
level simulators and more than 20 automatic test pattern generators and
produces test programs for more than 80 models of ATE equipment.

Set forth below is a depiction of graphical simulation data created using
the Company's TDS products.

[GRAPHIC APPEARS HERE]

Test development engineers use TDS to convert design simulation data into
optimized and debugged test programs. TDS can reduce test program development
costs and can improve the quality of manufacturing test programs by providing
a graphical environment to view, manage and manipulate the vast amounts of
text-based test data. TDS provides simulation data converters and test program
generators (wavebridges) through a central database. This can help engineers
move test programs from one tester to another, providing greater flexibility
in the use of manufacturing test equipment. In addition, TDS offers
specialized timing data management tools that assist in the development of
test programs that can help IC manufacturers efficiently sort parts by their
operating speed. The ninth major release for TDS is scheduled for the fourth
quarter of 1996.

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<PAGE>

A typical fully configured TDS system would include graphical wave editors,
a library of simulation data converters and a wavebridge and would have a list
price of approximately $100,000. However, the components of a TDS system can
be sold individually. For example, each of the Company's installed base of
customers needs to purchase a new wavebridge for each new tester which the
customer uses in its manufacturing process. The list prices for components
range from approximately $15,000 for a simulation data converter to $40,000
for a wavebridge, excluding any additional development costs that may be
charged to the customer in connection with customized or special orders.

Visual Testbench provides a new methodology for creating simulation
stimulus, validating device specifications and tying simulation results
directly to test. Visual Testbench provides a structured solution to a task
traditionally resolved by manually writing lines of HDL code. Visual Testbench
is designed to raise productivity by providing graphical timing diagrams,
specification spreadsheets and flowcharts for simulation stimulus creation. In
addition, this product allows the designer to check that timing requirements
have been met by the simulation. Unique to Visual Testbench is its ability to
directly connect a Verilog simulation to ATE test equipment. In addition, the
Company is currently developing a VHDL version of Visual Testbench. The
Company believes that the market for Visual Testbench will be primarily design
teams and, as a result, the test development function will, to an extent, be
performed during the design phase. Visual Testbench's structured test program
development process should allow design teams to spend less time explaining
their test programs to test engineers or trying to put their devices into
production. The second major release for Visual Testbench is scheduled for the
second half of 1996.

The list price for Visual Testbench ranges from $25,000 to $40,000 depending
on the configuration. Visual Testbench provides a new methodology for creating
IC test programs. The Company anticipates a lengthy period of test marketing
for Visual Testbench. Accordingly, the Company cannot predict the extent, if
any, to which it will realize revenue from this product.

The Company's revenue is predominantly derived from two product lines,
Visual HDL, which includes Visual HDL for VHDL and Visual HDL for Verilog, and
TDS, and the Company believes that these products will continue to account for
a substantial portion of its revenue in the future. The Company's future
success depends primarily upon the market acceptance of its existing and
future SLDA products. The Company's SLDA products incorporate certain unique
design methodologies and thus represent a departure from industry standards
for design entry and verification. The Company believes that broad market
acceptance of its SLDA products will depend on several factors, including the
ability to significantly enhance design productivity, ease of use,
interoperability with existing EDA tools, price and the customer's assessment
of the Company's financial resources and its technical, managerial, service
and support expertise. Although demand for SLDA products has increased in
recent years, the market for SLDA products is still emerging and there can be
no assurance that it will continue to grow or that, even if the market does
grow, businesses will continue to purchase the Company's SLDA products. A
decline in the demand for, or the failure to achieve broad market acceptance
of, the Company's SLDA products will have a material adverse effect on the
Company's business, financial condition and results of operations.

39
<PAGE>

CUSTOMERS

The Company's end-user customers include companies in a wide range of
industries, including semiconductor devices, semiconductor test equipment,
telecommunications, computer/peripherals, consumer electronics,
aerospace/defense and other electronics entities. The Company has installed
more than 1,300 seats of its SLDA tools in more than 125 companies, of which
more than 100 companies have entered into support contracts. In addition, the
Company has more than 250 active installations of its Design to Test products.
No single customer represented more than 10% of the Company's total revenue in
1995. The following table lists a representative sample of the Company's
worldwide end-user customers that generated at least $25,000 in revenue for
the Company in 1995 or 1996.

<TABLE>
<CAPTION>
SEMICONDUCTOR SEMICONDUCTOR COMPUTER/ CONSUMER AEROSPACE/
DEVICES TEST EQUIPMENT TELECOMMUNICATIONS PERIPHERALS ELECTRONICS DEFENSE OTHER
- ----------------- -------------- ------------------- --------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
AMD Advantest Bay Networks Compaq Canon Allied Signal Anam
Level One Credence Bell Northern Fujitsu Honeywell Hughes Aircraft Fuji/Xerox
Microchip Teradyne Ericsson Hewlett-Packard Matsushita Lockheed-Martin InFocus Systems
Motorola General Instruments Hitachi Mitsubishi Rockwell Lucky Goldstar
National Semi. Hitachi IBM NEC TRW Sumitomo Metal
SGS-Thomson Lucent OKI Philips Xerox
Texas Instruments Nippon Denso Seagate Sharp Zenith
Northern Telecom Siemens Sony
Rohm Storage Tech.
</TABLE>

The following examples illustrate the selection and use of the Company's
products by certain of the Company's customers. There can be no assurance that
new or existing customers will achieve any of the benefits described below.

A supplier of networking products used Visual HDL to develop a twelve-port
Ethernet switch with an integrated ATM port for backbone or server
connectivity. For this customer, minimizing time-to-market was critical to
meeting market-share and profit objectives. The design team coded the entire
design in Visual HDL. The final chip consisted of graphical constructs
representing 60,000 lines of VHDL code that synthesized into 115,000 gates.
The ability to design and debug the chip using Visual HDL contributed to this
customer meeting its design schedule.

A workstation division of a computer supplier used Visual HDL to
successfully re-target an 11,000 gate ASIC for a workstation graphics chip.
The primary engineer had worked on the design for over two months targeting a
specific ASIC process. When the design needed to be re-targeted to a second
ASIC technology, the designer was able to retarget the design in less than one
day using Visual HDL. The same task could have taken the engineer up to a
month to complete using traditional re-targeting methods.

A computer peripheral manufacturer designed a 10,000-gate interrupt/local
bus controller using Visual HDL. The design team had to complete the new
design in three to four months, and had differing levels of design experience.
The engineer working on the most significant parts of the design had very
little knowledge of HDL-based design. The team leader estimated that it would
have taken up to two months to sufficiently familiarize the engineer with the
HDL code. The graphical design environment of Visual HDL enabled the engineer
to effectively communicate with the other team member and familiarize himself
with the HDL code. The design was completed on schedule.

A product line group at a semiconductor manufacturer purchased Test
Development Series products to replace its prior older generation test
manufacturing solution. The group thereafter has used TDS products in
substantially all of its test development. For example, TDS products were used
to create a different test program and translate Verilog scan vectors to a
different environment for a battery pack power management chip. The
translation was functionally correct and required little debug time.

40
<PAGE>

MARKETING AND SALES

The Company markets its products to customers worldwide who design or
manufacture ICs for their own use or sale in a wide variety of industries. The
primary objectives of the Company's marketing effort are to increase market
awareness of the Company's products, to promote the adoption of SLDA and
Design to Test methodologies, and to evaluate customer satisfaction and
determine additional customer demands. To increase market awareness, the
Company displays its SLDA and Design to Test products at all major industry
trade shows, including the annual Design Automation Conference and
International Test Conference. The Company also promotes its products through
advertisements in trade journals and by sponsoring various seminar series. To
promote the adoption of its methodologies, the Company offers its products at
a reduced cost to design engineer programs at several universities so that
engineering students may become familiar with Summit's products and design
techniques.

The Company's sales strategy is to employ its direct sales, independent and
affiliated distributors and telesales distribution channels to efficiently and
effectively target individual customer and product market segments. As of
September 30, 1996, the Company had 33 employees in its sales organization and
seven people in its marketing group.

Direct Sales. The Company employs direct sales teams which combine
technically proficient sales persons with skilled field applications engineers
capable of serving the sophisticated needs of the management and engineering
staff of its customers. The Company assigns selected direct sales personnel to
target major accounts, such as vertically integrated systems design houses
like Lucent, IBM, Motorola and Siemens that produce their own IC designs for
their electronic products. Major accounts receive particular focus because of
their size and influence as industry leaders.

Following the release of Visual HDL for VHDL, the direct sales force
concentrated on promoting that product, and sales efforts related to TDS
products decreased. The Company recently has adopted a strategy of designating
sales personnel as either SLDA or Design to Test specialists in an effort to
ensure that each product line receives focused attention from members of
Summit's direct sales force. The Company's direct sales force operates in the
United States and portions of Europe, with offices in California, Oregon,
Texas, Massachusetts, Florida, France and Germany. Approximately 54.9% and
58.0% of the Company's revenue for the first nine months of 1996 and for the
year ended December 31, 1995, respectively, were generated through Summit's
direct sales force.

Distributors. Distributors promote and distribute the Company's products in
the Asia-Pacific region, the United Kingdom, France, Germany, Sweden, Italy
and Israel. Approximately 45.1% and 42.0% of the Company's revenue in the
first nine months of 1996 and in the year ended December 31, 1995,
respectively, were attributable to sales made through distributors. During the
fourth quarter of 1995, the Company entered into a distribution agreement with
ATE pursuant to which ATE was granted exclusive rights to sell, distribute and
support all of Summit's Design to Test products within Japan until October
1998, subject to the Company's ability to terminate the relationship if ATE
fails to meet quarterly sales objectives. The agreement may also be terminated
by either party for breach. In addition, in the first quarter of 1996, the
Company entered into a three-year, exclusive distribution agreement for its
SLDA products in Japan with Seiko. In the event Seiko fails to meet specified
quotas for two or more quarterly periods, exclusivity can be terminated by
Summit, subject to Seiko's right to pay a specified fee to maintain
exclusivity. The agreement is renewable for successive five-year terms by
mutual agreement of the Company and Seiko and is terminable by either party
for breach.

In March 1996, to centralize management of the distribution of the Company's
products in the Asia-Pacific region, excluding Japan, the Company entered into
a joint venture with Anam, pursuant to which the joint venture corporation
(Summit Asia) shall acquire exclusive rights to sell, distribute and support
all of the Company's products in the Asia-Pacific region, excluding Japan,
until June 1997. Summit Asia has acted in such capacity since April 1, 1996.
Prior to that date, Anam was an independent distributor of the Company's

41
<PAGE>

products. The joint venture provides a direct sales force for the Company's
products in Korea and facilitates management and support of the independent
distributors that market the Company's products in Taiwan, Singapore, Hong
Kong, Australia, Malaysia and India. Anam currently owns approximately 80% of
the stock of Summit Asia. However, as payments are made by Summit Asia to Anam
for the repurchase from Anam of certain rights related to the Company's
products, and as stock options are exercised by employees and board members,
the Company's percentage ownership can increase until it is equal to that of
Anam. The Board of Directors of Summit Asia currently consists of two
representatives from Anam, one from Summit Asia and one from Summit. Actions
of the Board require approval of 75% of the directors.

For the nine months ended September 30, 1996, all sales of the Company's
products in the Asia-Pacific region were made through Summit Asia, ATE and
Seiko. There can be no assurance the new relationships with Summit Asia, ATE
and Seiko will be effective in maintaining or increasing sales relative to the
levels experienced prior to such relationships.

Telesales. Telesales is currently used to market the renewal of maintenance
and technical support agreements for both SLDA and Design to Test products in
North America, allowing the direct sales force to concentrate its efforts on
new accounts. The Company expects its use of the telesales channel to grow in
the future, in applications such as the marketing of product upgrades and add-
on business.

Approximately 52.9% and 53.1% of the Company's revenue for the nine months
ended September 30, 1996 and the year ended December 31, 1995, respectively,
were attributable to sales made outside of the United States. In order to
successfully expand international sales, the Company may need to establish
additional foreign operations, hire additional personnel and recruit
additional international distributors. This will require significant
management attention and financial resources and could adversely affect the
Company's operating margins. In addition, to the extent that the Company is
unable to effect these additions in a timely manner, the Company's growth, if
any, in international sales will be limited. There can be no assurance that
the Company will be able to maintain or increase international sales of the
Company's products, and failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations.

The Company's reliance on distributors involves certain risks. For example,
the Company is dependent on the continued viability and financial stability of
its distributors. Since the Company's products are used by skilled design
engineers, distributors must possess sufficient technical, marketing and sales
resources and must devote these resources to a lengthy sales cycle, customer
training and product service and support. Only a limited number of
distributors possess these resources. In addition, Summit Asia, ATE and Seiko,
as well as the Company's other distributors, may offer products of several
different companies, including competitors of the Company. There can be no
assurance that the Company's current distributors will continue to market or
service and support the Company's products effectively, that any distributor
will continue to sell the Company's products or that the distributors will not
devote greater resources to products of other companies. The loss of, or a
significant reduction in, revenue from the Company's distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations.

CUSTOMER SERVICES

Technical support is available to customers on both a pre-sale and post-sale
basis. Pre-sale support involves the Company's application engineers working
with the Company's direct sales force and distributors to provide on-site
support during the end user's evaluation and implementation process. Post-sale
support is provided through annual maintenance contracts which provide
customers with a choice of two programs. The first program allows the customer
to access the Company's technical support team via telephone and receive all
minor enhancements and any major upgrades. This program is sold for 20% of the
list price of the product. Under the second program, the customer purchases
telephone technical support for 8% of the list price of the product and can
purchase upgrades for between 15% and 20% of the list price depending on the
technical

42
<PAGE>

content of the upgrade and the current version used by the customer. The
Company provides its customers with a 90-day warranty that its products are
free from defects.

In addition to its maintenance, technical support and upgrade fees, the
Company also conducts a variety of training programs ranging from introductory
level courses to advanced training on full use of all of its products.
Training is offered at the Company's facilities, at distributors' facilities
and at customer locations worldwide. The Company intends to further expand its
focus on customer training. For the nine months ended September 30, 1996 and
the year ended December 31, 1995, maintenance and services provided
approximately 20.9% and 18.7% of the Company's total revenue, respectively.

COMPETITION

The EDA industry is highly competitive and the Company expects competition
to increase as other EDA companies introduce SLDA and Design to Test products.
The Company faces different competitive dynamics in the markets for its SLDA
and Design to Test products. In the SLDA market, the Company principally
competes with Mentor Graphics and a number of smaller firms. Indirectly, the
Company also competes with other firms that offer alternatives to SLDA and
could potentially offer more directly competitive products in the future.
Certain of these companies have significantly greater financial, technical and
marketing resources and larger installed customer bases than the Company. Some
of the Company's current and future competitors offer a more complete range of
EDA products and may distribute products that directly compete with the
Company's SLDA products by bundling such products with their core product
line. In addition, the Company's products perform a variety of functions,
certain of which are, and in the future may be, offered as separate products
or discrete point solutions by the Company's existing and future competitors.
For example, certain companies currently offer design entry products without
simulators. There can be no assurance that such competition will not cause the
Company to offer point solutions instead of, or in addition to, the Company's
current software products. Such point solutions would be priced lower than the
Company's current product offerings and could cause the Company's average
selling prices to decrease, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In the
Design to Test market, the Company competes primarily with the internal design
groups of its existing and potential customers, many of which to date have
designed and developed customized Design to Test tools for their particular
needs, as well as smaller emerging companies.

PRODUCT DEVELOPMENT

The Reorganization in early 1994 resulted in the joining of SEE
Technologies, a technological leader in graphical design entry and
verification, with TSSI, a technological leader in production test products.
Thus,

43
<PAGE>

development of SLDA products has been performed at the Company's offices in
Israel and development of Design to Test products has been conducted at the
Company's principal office in Beaverton, Oregon. As of September 30, 1996, the
Company's research and development team consisted of 65 software developers,
including 42 dedicated to the Company's SLDA products and 23 focused on Design
to Test products.

For the nine months ended September 30, 1996 and for the years ended
December 31, 1995, 1994 and 1993, the Company's research and development
expenditures were approximately $3.9 million, $5.1 million, $4.6 million and
$2.4 million, respectively, which represent approximately 27.1%, 36.3%, 35.7%
and 32.9% of revenue in each such period. The Company has to date expensed all
research and development costs as incurred. In addition, the Company has
received grants from the Israeli Chief Scientist. See "--Operations in Israel"
and Consolidated Financial Statements.

Summit's research and development strategy is to be proactive in determining
customer needs and to develop new SLDA and manufacturing test products to meet
these needs. The Company believes that system-level definition and design
analysis will become increasingly significant bottlenecks in the IC
development process and thus present product development opportunities. The
Company's research and development efforts are focused on creating products to
further increase productivity in the creation, verification, documentation and
production test of both IC and system level designs. Accordingly, in addition
to continued development of SLDA and TDS products, the Company is continuing
to dedicate resources to integrating its TDS technology into the SLDA design
process. Visual Testbench, first shipped in the fourth quarter of 1995, is a
product of such efforts.

The Company has actively sought to establish cooperative relationships with
certain EDA industry leaders in order to gain early access to new product
information and to better integrate the Company's products with those supplied
by other vendors in the EDA market. For example, the Company maintains a
relationship with Advantest in the Design to Test area through which the
Company receives product information from Advantest from which the Company is
developing a wavebridge for third-party customers. In addition, in the SLDA
products area, the Company has a relationship with Cadence pursuant to which
Cadence helps specify the integration between Summit's Visual HDL for Verilog
and Cadence Verilog XL simulator. The Company believes that these
relationships mutually benefit the Company and the EDA vendors by fostering
development and facilitating interoperability of the Company's and vendors'
complimentary products. These relationships are informal and may be terminated
by either party with limited notice. In addition, such relationships are with
companies that are current or potential future competitors of the Company. If
any of these relationships were terminated and the Company was unable to
obtain in a timely manner information regarding modifications of third party
products necessary for modifying its software products to interoperate with
these third party products, the Company could experience a significant
increase in development costs, the development process would take longer,
product introductions would be delayed and the Company's business, financial
condition and results of operations could be materially adversely affected.

The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. In
addition, customers in the EDA industry require software products that allow
them to reduce time to market, differentiate their products, improve their
engineering productivity and reduce their design errors. The Company's future
success will depend upon its ability to enhance its current products, develop
and introduce new products that keep pace with technological developments and
emerging industry standards and address the increasingly sophisticated needs
of its customers. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products
that respond to technological change or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
its new products will adequately meet the requirements of the marketplace and
achieve market acceptance. The Company has announced that it plans to release
new versions of certain of its products in the second half of 1996. If the
Company is unable, for technological or other reasons, to develop and
introduce products in a timely manner

44
<PAGE>

in response to changing market conditions, industry standards or other
customer requirements, particularly if such product releases have been pre-
announced, the Company's business, financial condition and results of
operations would be materially adversely affected.

PROPRIETARY RIGHTS

The Company's success depends upon its proprietary technology. The Company
relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures, licensing arrangements and technical means to
establish and protect its proprietary rights. As part of its confidentiality
procedures, the Company generally enters into non-disclosure agreements with
its employees, distributors and corporate partners, and limits access to, and
distribution of, its software, documentation and other proprietary
information. In addition, the Company's products are protected by hardware
locks and software encryption techniques designed to deter unauthorized use
and copying. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's products or technology
without authorization, or to develop similar technology independently. In
addition, effective protection of intellectual property rights may be
unavailable or limited in certain foreign countries.

The Company could be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows,
the functionality of products in its industry segment overlaps and an
increasing number of software patents are granted by the United States Patent
and Trademark Office. Although the Company is not aware of any threatened
litigation or infringement claims, there can be no assurance that a third
party will not claim such infringement by the Company with respect to current
or future products. Any such claims, with or without merit, could be time-
consuming, result in costly litigation, cause product delays or require the
Company to enter into royalty or licensing agreements. Such royalty or license
agreements, if required, may not be available on terms acceptable to the
Company or at all. Failure to protect its proprietary rights or claims of
infringement could have a material adverse effect on the Company's business,
financial condition and results of operations.

45
<PAGE>

OPERATIONS IN ISRAEL

The Company's research and development operations related to its SLDA
products are located in Israel and may be affected by economic, political and
military conditions in that country. Accordingly, the Company's business,
financial condition and results of operations could be materially adversely
affected if hostilities involving Israel should occur. This risk is heightened
due to the restrictions on the Company's ability to manufacture or transfer
outside of Israel any technology developed under research and development
grants from the government of Israel. In addition, while all of the Company's
sales are denominated in United States dollars, a portion of the Company's
annual costs and expenses in Israel are paid in Israeli currency. These costs
and expenses were approximately $4.3 million and $2.9 million in 1995 and the
nine months ended September 30, 1996, respectively. Payment in Israeli
currency subjects the Company to foreign currency fluctuations and to economic
pressures resulting from Israel's generally high rate of inflation, which has
been approximately 15%, 8% and 8% during 1994, 1995 and the eight months ended
August 31, 1996, respectively. The Company's primary expense which is paid in
Israeli currency is employee salaries for research and development activities.
As a result, an increase in the value of Israeli currency in comparison to the
U.S. dollar could increase the cost of research and development expenses and
general and administrative expenses. There can be no assurance that currency
fluctuations, changes in the rate of inflation in Israel or any of the other
aforementioned factors will not have a material adverse effect on the
Company's business, financial condition or results of operations. In addition,
coordination with and management of the Israeli operations requires the
Company to address differences in culture, regulations and time zones. Failure
to successfully address these differences could be disruptive to the Company's
operations.

The Company's Israeli production facility has been granted the status of an
"Approved Enterprise" under the Investment Law. Taxable income of a company
derived from an "Approved Enterprise" is eligible for certain tax benefits,
including significant income tax rate reductions for up to seven years
following the first year in which the "Approved Enterprise" has Israeli
taxable income (after using any available net operating losses). The period of
benefits cannot extend beyond 12 years from the year of commencement of
operations or 14 years from the year in which approval was granted, whichever
is earlier. The tax benefits derived from a certificate of approval for an
"Approved Enterprise" relate only to taxable income attributable to such
"Approved Enterprise" and are conditioned upon fulfillment of the conditions
stipulated by the Investment Law, the regulations promulgated thereunder and
the criteria set forth in the certificate of approval. In the event of a
failure by the Company to comply with these conditions, the tax benefits could
be canceled, in whole or in part, and the Company would be required to refund
the amount of the canceled benefits, adjusted for inflation and interest. The
Company believes that it operates in compliance with all the "Approved
Enterprise" conditions and criteria applicable to it. However, there can be no
assurance that the Company's Israeli production facility will continue to
operate or qualify as an "Approved Enterprise" or that the benefits under the
"Approved Enterprise" regulations will continue, or be applicable, in the
future. The loss of or any material decrease in these income tax benefits
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Effective Corporate Tax
Rates."

Israeli Research, Development and Marketing Grants. Summit's Israeli
subsidiary has obtained research and development grants from the Chief
Scientist in the Israeli Ministry of Industry and Trade of approximately
$232,000 and $608,000 in 1993 and 1995, respectively. As of September 30,
1996, the Company was obligated to pay back approximately $232,000 and
$608,000 for the 1993 and 1995 grants, respectively. Such obligations are
secured by all tangible and intangible assets of the Israeli subsidiary. The
terms of the grants prohibit the manufacture of products developed under these
grants outside of Israel and the transfer of the technology developed pursuant
to these grants to any person, without the prior written consent of the Chief
Scientist. The Company's Visual HDL for VHDL products have been developed
under grants from the Chief Scientist and thus are subject to these
restrictions. If the Company is unable to obtain the consent of the government
of Israel, the Company would be unable to take advantage of potential economic
benefits such as lower taxes, lower labor and other manufacturing costs and
advanced research and development facilities that may be available if such
technology and manufacturing operations could be transferred to locations
outside of Israel. In addition, the Company would be unable to minimize risks
particular to

46
<PAGE>

operations in Israel, such as hostilities involving Israel. See "Risk
Factors--Operations in Israel." Although the Company is eligible to apply for
additional grants from the Chief Scientist, it has no present plans to do so.
The Company also received a Marketing Fund Grant from the Israeli Ministry of
Industry and Trade for an aggregate of $399,000. The grant must be repaid at
the rate of 3% of the increase in exports over the 1993 export level of all
Israeli products, until repaid. As of September 30, 1996, approximately
$370,000 was outstanding under the grant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Product
Development" and Note 7 of Notes to Consolidated Financial Statements.

EMPLOYEES

As of September 30, 1996, the Company had 123 employees, 65 of whom were
engaged primarily in research and development and related operations, 40 of
whom were engaged primarily in sales and marketing and 18 of whom were engaged
primarily in corporate management and administration. A total of 75 of these
employees were located in the United States, 43 in Israel and five in Europe.
The Company's employees are not represented by any collective bargaining
organization and the Company has never experienced a work stoppage. The
Company's future success will depend, in part, on its ability to continue to
attract, retain and motivate highly qualified technical, marketing and
management personnel, who are in great demand.

LITIGATION

The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
upon the Company's business, operating results or financial condition.

FACILITIES

The Company's principal facility, located in Beaverton, Oregon, consists of
approximately 31,000 square feet of office space leased pursuant to an
agreement which terminates on December 31, 1999. The rent and common area fees
payable on this facility are currently approximately $23,000 per month, and
increase over the term of the lease to approximately $29,000 per month. This
space is used for the Company's U.S. research and development, production,
sales and marketing and administration. The Company also leases approximately
9,800 square feet of office space in Herzlia, Israel for research and
development under a lease with DCL Technologies that expires on December 31,
1997. The rent payable on this office space is currently $13,750 per month,
and increases over the term of the lease based on the Israeli consumer price
index. The Company expects that its current facilities will be adequate to
serve its needs for the foreseeable future.

47
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
executive officers and directors of the Company as of September 30, 1996.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Larry J. Gerhard................. 55 Chairman of the Board, President and
Chief Executive Officer
C. Albert Koob................... 42 Vice President--Finance, Chief
Financial Officer and Secretary
Zamir Paz........................ 47 Vice President--Worldwide Engineering
and Operations and Director
Daniel C. Skilken................ 37 Vice President--Worldwide Marketing
D. Gregory Kott.................. 36 Vice President--Worldwide Sales
Roger A. Bitter.................. 52 General Manager--TSSI Division
Eric Benhayoun................... 42 Vice President, General Manager--
European Operations
Robert Meehl..................... 35 Corporate Controller
Art Fletcher..................... 32 Treasurer and Director of Financial
Planning
Amihai Ben-David (1)............. 47 Director
John Grillos (1)(2).............. 54 Director
Fred L. Hanson (2)............... 57 Director
Jay B. Morrison.................. 49 Director
Mark Stevens (1)................. 36 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

Mr. Gerhard has served as President, Chief Executive Officer and Director of
the Company since January 1993 and was elected Chairman of the Board in May
1996. From November 1991 to November 1992, Mr. Gerhard was the President and
Chief Executive Officer of Enterprise Communications and Computing Inc., a
communications products provider for the Unix-based virtual mainframe market.
Mr. Gerhard was the President and Chief Executive Officer of Ventura Software,
Inc. ("Ventura"), a desktop publishing company and a wholly-owned subsidiary
of Xerox Corporation from November 1989 to November 1991. Prior to that time,
Mr. Gerhard was employed for nine years with Decision Data, Inc., a supplier
of peripherals and applications software for IBM System 3X and AS400,
including the last three years as President and Chief Executive Officer.

Mr. Koob has served as Vice President--Finance and Chief Financial Officer
since October 1995 and Secretary since May 1996. From October 1989 to April
1994, Mr. Koob was the Vice President and Chief Financial Officer of Ventura.
Mr. Koob was the Vice President and General Manager of Decision Business
Solutions, an IBM midrange system reseller, from 1987 to 1989. Prior to 1987,
Mr. Koob held various senior level financial management positions with
technology companies.

Mr. Paz has served as Vice President--Worldwide Engineering and Operations
and Director of the Company since January 1994. From January 1991 to January
1994, Mr. Paz was President and Managing Director of SEE Technologies Software
Environment for Engineers, Ltd. Prior to that time, Mr. Paz was employed for
eight years at Daisy Systems Israel, an EDA provider, where he served as
Director of Design Entry and Technical Marketing.

Mr. Skilken has served as Vice President--Worldwide Marketing since December
1993. From June 1991 to December 1993, Mr. Skilken was the Director of
Corporate Marketing at COMPASS Design Automation,

48
<PAGE>

Inc. (a subsidiary of VLSI Technology) ("COMPASS"), an EDA supplier. From
December 1989 to June 1991, Mr. Skilken was the Director of ASIC Marketing for
the IC Group at Mentor Graphics, an EDA provider. From December 1988 to
December 1989, Mr. Skilken worked at Daisy-Cadnetix, an EDA supplier, most
recently as Director of Semiconductor Industry Marketing. From January 1983 to
December 1988, Mr. Skilken worked at VLSI Technology, a semiconductor
manufacturer, where his last position was Product Marketing Manager for the
ASIC Division.

Mr. Kott has served as Vice President--Worldwide Sales since June 1996 and
as Vice President--North American Sales from August 1994 to June 1996. From
June 1994 to August 1994, he served as Director, Major Accounts. From January
1994 to May 1994, Mr. Kott was the Western Area Sales Director for the Logic
Modeling Division of Synopsys, an EDA provider. From January 1987 to January
1994, Mr. Kott held various sales positions at Mentor Graphics, most recently
as Director of IC Sales.

Mr. Bitter has served as General Manager--TSSI Division since March 1996.
From January 1994 to February 1996, Mr. Bitter served as Vice President--Far
East Sales Operations. From August 1991 to January 1994, Mr. Bitter was
President of COMPASS Japan K.K. From August 1986 to June 1990, Mr. Bitter held
various positions at Silicon Compiler Systems, an EDA supplier, where he
served most recently as Vice President of Far East Operations. From October
1985 to August 1986, Mr. Bitter served as Vice President--Worldwide Sales for
SDA, an EDA company. From August 1983 to October 1985, Mr. Bitter was the
Western Regional Sales Manager for the Western U.S. sales offices of Mentor
Graphics.

Mr. Benhayoun has served as Vice President, General Manager--European
Operations since June 1996 and as Vice President--European Sales Operations
from November 1994 to June 1996. From June 1994 to November 1994, Mr.
Benhayoun was the European Marketing Manager for the Modeling Product Division
of Synopsys. From March 1990 to June 1994, Mr. Benhayoun was the General
Manager and Director of Logic Modeling Corporation France, an SDA provider
which was acquired by Synopsys in January 1994. Prior to that time, he held
various European sales and marketing management positions with Cadnetix
Corporation and Daisy Systems, each an EDA supplier.

Mr. Meehl has served as Corporate Controller since March 1996. From February
1995 to March 1996, Mr. Meehl was Manager, Financial Planning and Analysis of
TriQuint Semiconductor, Inc. ("TriQuint"), a semiconductor manufacturer. From
January 1992 to February 1995, Mr. Meehl held various positions at the Oregon
Department of Transportation, most recently as Manager, Financial and Economic
Analysis. From March 1990 to January 1992, Mr. Meehl was employed as a
Financial Analyst of Industrial Funding Corporation ("Industrial Funding"), an
equipment leasing company.

Mr. Fletcher has served as Treasurer and Director of Financial Planning
since April 1996. From October 1995 to March 1996, Mr. Fletcher was Director
of Business and Financial Planning. From April 1994 to September 1995, Mr.
Fletcher was Manager of Financial Planning and Systems. From February 1992 to
April 1994, Mr. Fletcher managed the financial planning and analysis function
for TriQuint. Prior to that time, Mr. Fletcher was employed by Industrial
Funding for three years in a finance and accounting position.

Mr. Ben-David has served as a Director of the Company since January 1994. He
has been the founder, Chief Executive Officer and Chairman of DCL Technologies
Ltd., a public company located in Israel and traded on the Tel-Aviv Stock
Exchange, since May 1982. DCL Technologies Ltd. specializes in the development
of high technology companies in the areas of communications, computer
telephony, expert systems and electronic design automation. From January 1991
until the Reorganization, Mr. Ben-David was Chairman of the Board of SEE
Technologies.

Mr. Grillos has served as a Director of the Company since February 1994. Mr.
Grillos has been employed by Robertson, Stephens & Company LLC, an investment
banking firm, in its venture capital group since August 1988. He is also a
director of CBT Group PLC and of several private companies.

49
<PAGE>

Mr. Hanson has served as a Director of the Company since September 1995. He
has been President and Chief Executive Officer of Information Optics Corp., an
optical memory company, since October 1995. From October 1994 to December
1995, Mr. Hanson was part owner and Chief Executive Officer of Acquisitions,
Mergers and Reorganizations, Inc., a consulting company. From August 1992 to
April 1993, he was President and Chief Executive Officer of Burr-Brown Corp.,
an electronic components company. He was President and Chief Executive Officer
of Bipolar Integrated Technology, an integrated circuits company, from April
1990 to August 1992. Mr. Hanson started his career with Hewlett-Packard where
his final position was General Manager of the Corvalis Division in Corvalis,
Oregon.

Mr. Morrison has served as a Director of the Company since May 1996. He has
been a General Partner of Newbury Ventures, Inc., a venture capital investment
firm, since January 1992. From July 1990 to December 1991, he was President of
Berkeley International Capital Corp., which was a wholly-owned subsidiary of
Govett & Co. Ltd. that specialized in private equity investments.

Mr. Stevens has served as a Director of the Company since February 1994. He
has been a General Partner of Sequoia Capital VI, a venture capital investment
fund, since March 1993. Prior to that time, beginning in July 1989, Mr.
Stevens was an associate at Sequoia Capital. Mr. Stevens currently serves on
the Board of Directors of Aspect Development, a client/server applications
software company, and several private companies. Prior to working at Sequoia
Capital, Mr. Stevens held technical sales and marketing positions at Intel
Corporation.

The Company's Bylaws currently authorize eight directors, which number may
be changed from time-to-time by the Board of Directors. All directors hold
office until the next annual meeting of stockholders or until their successors
are duly elected and qualified. The Amended and Restated Bylaws, which will
become effective upon consummation of this offering, authorize seven directors
and provide that, beginning with the first annual meeting of stockholders
following this offering, the Board of Directors will be divided into three
classes, with each class serving staggered, three-year terms. Certain of the
current directors of the Company were nominated and elected in accordance with
voting rights provided to the various series of preferred stock, which voting
rights will terminate when the preferred stock is automatically converted to
common stock upon the closing of this offering. Executive officers of the
Company are elected by the Board of Directors on an annual basis and serve
until their successors have been duly elected and qualified. There are no
family relationships among any of the executive officers or directors of the
Company.

The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee oversees actions taken by the Company's
independent auditors, recommends the engagement of auditors and reviews the
Company's internal audits. The Compensation Committee approves the
compensation of executives of the Company and makes recommendations to the
Board of Directors with respect to standards for setting compensation levels.
The Compensation Committee also administers the Company's employee stock
option and stock purchase plans. See "--Stock Plans."

DIRECTOR COMPENSATION

Directors do not currently receive any cash compensation for their services
as members of the Board of Directors or its committees, except for Fred
Hanson. The Company entered into a one-year directorship agreement with Mr.
Hanson in September 1995 pursuant to which he receives a salary of $17,500 per
year as compensation for acting as a director and is entitled to reimbursement
for expenses incurred in attending board meetings outside of the Oregon area.
In addition, in September 1995, Mr. Hanson was granted an option to purchase
20,000 shares of the Company's Common Stock at an exercise price of $1.75 per
share. In lieu of the quarterly salary payments, the Company, on Mr. Hanson's
behalf, purchased 10,000 of the shares subject to the option for an aggregate
purchase price of $17,500. Mr. Ben-David is reimbursed for travel costs
incurred in attending board meetings. Effective as of the date of the first
annual meeting of stockholders following the consummation of this offering,
all non-employee directors will receive $20,000 per year and $1,000 per
meeting (excluding committee meetings) as compensation for their services as
members of the

50
<PAGE>

Board of Directors. Members also will be reimbursed for all travel and related
expenses incurred in connection with attending board and committee meetings.
The Company recently established a director stock option plan that provides
for nondiscretionary annual stock option grants to non-employee directors. The
director stock option plan will become effective upon the effective date of
this offering. See "--Stock Plans--1996 Director Option Plan" and "Certain
Transactions."

EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to the Chief Executive
Officer and each of the four other most highly compensated executive officers
of the Company whose salary and bonus exceeded $100,000 (collectively, the
"Named Executive Officers") for services rendered in all capacities to the
Company and its subsidiaries during the year ended December 31, 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NO. OF
----------------------------------- SECURITIES
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL UNDERLYING ALL OTHER
POSITION (1) ($) (2) ($)(2) COMPENSATION ($) OPTIONS COMPENSATION ($)
- --------------------------- ------- ------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Larry J. Gerhard
President and Chief
Executive Officer...... 240,000 -- -- -- 6,589 (3)

Daniel C. Skilken
Vice President--
Worldwide Marketing.... 125,000 -- -- -- --

D. Gregory Kott
Vice President--
Worldwide Sales........ 116,042 25,000 1,200 (4) 52,500 (5) 342 (6)

Roger A. Bitter
General Manager--TSSI
Division............... 135,157 -- -- -- 121,200 (7)

Eric Benhayoun
Vice President, General
Manager--European
Operations............. 117,557 53,732 (8) -- -- (9) --
</TABLE>
- --------
(1) Throughout the year ended December 31, 1995, Mr. Kott served as Vice
President--North American Sales, Mr. Bitter served as Vice President--Far
East Sales Operations and Mr. Benhayoun served as Vice President--European
Sales Operations.
(2) Amounts shown include cash and noncash compensation earned and received by
executive officers as well as amounts earned but deferred at the election
of those officers.
(3) Includes $5,389 paid to Mr. Gerhard for moving expenses incurred in
connection with completing his relocation from Southern California and
$1,200 in medical expenses not covered by the Company's medical plan.
(4) Consists of a car allowance.
(5) Includes an option granted on March 1, 1995 to purchase 45,000 shares of
Common Stock and an option granted on December 20, 1995 to purchase 7,500
shares of Common Stock. On September 13, 1995, in connection with a
repricing of all outstanding options having an exercise price in excess of
$1.75 per share, the Company canceled and replaced the option to purchase
45,000 shares of Common Stock at a purchase price of $2.50 per share with
a new option to purchase the same number of shares of Common Stock at an
exercise price of $1.75 per share. Such new option is not reflected in the
above table.
(6) Contribution made by the Company on behalf of Mr. Kott pursuant to the
Company's 401(k) Plan.
(7) Consists of reimbursements to Mr. Bitter for taxes and housing costs in
Japan.
(8) Commissions earned during the fiscal year ended December 31, 1995, $9,625
of which was paid in 1996.
(9) On September 13, 1995, in connection with a repricing of all outstanding
options having an exercise price in excess of $1.75 per share, the Company
canceled and replaced the option granted to Mr. Benhayoun on October 25,
1994 to purchase 58,500 shares of Common Stock at a purchase price of
$2.50 per share with a new option to purchase the same number of shares of
Common Stock at an exercise price of $1.75 per share. Such new option is
not reflected in the above table.

51
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth information regarding stock options granted
during the fiscal year ended December 31, 1995 to each of the Named Executive
Officers.

OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NO. OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS FAIR STOCK PRICE
UNDERLYING GRANTED TO MARKET APPRECIATION
OPTIONS EMPLOYEES EXERCISE VALUE ON FOR OPTION TERM (3)
GRANTED IN 1995 PRICE DATE OF EXPIRATION ---------------------
NAME (1) (2) ($)/SHARE GRANT($) DATE 5% ($) 10% ($)
---- ---------- ---------- --------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry J. Gerhard........ -- -- -- -- -- -- --
Daniel C. Skilken....... -- -- -- -- -- -- --
D. Gregory Kott......... 52,500 9.5% (4) 1.75 (5) 1.75 (5) 3/1/2005 (6) 720,589 1,201,882
Roger A. Bitter......... -- -- -- -- -- -- --
Eric Benhayoun(7)....... -- -- -- -- -- -- --
</TABLE>
- --------
(1) Options granted in 1995 are immediately exercisable and generally vest
over four years, with 25% of the option shares becoming fully vested one
year from the grant date and 1/48th vesting in each successive month, with
full vesting occurring on the fourth anniversary date. The Company has a
repurchase right for shares not vested. Under the terms of the 1994 Stock
Plan, the administrator retains discretion, subject to plan limits, to
modify the terms of outstanding options and to reprice outstanding
options. The options have a term of 10 years, subject to earlier
termination in certain situations related to termination of employment.
See "Stock Plans" for a description of the material payment terms of the
options.
(2) Based on a total of 551,187 options granted to all employees and
consultants during 1995.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. The initial
public offering price of $9.50 per share was used as the base price for
these calculations.
(4) On September 13, 1995, in connection with a repricing of all outstanding
options having an exercise price in excess of $1.75 per share, 357,869
options were canceled and replaced. If such options were included in the
number of options granted in 1995, the total number of options granted to
all employees and consultants in 1995 would be 909,056, the total number
of options granted to Mr. Kott would be 97,500 and Mr. Kott's percentage
of total options granted in 1995 would be 10.7%.
(5) On September 13, 1995, in connection with a repricing of all outstanding
options having an exercise price in excess of $1.75 per share, the Company
canceled and replaced an option to purchase 45,000 shares of Common Stock
at a purchase price of $2.50 per share with a new option to purchase the
same number of shares of Common Stock at an exercise price of $1.75 per
share. Such new option is not reflected in the above table.
(6) The expiration date for 7,500 of the options granted is 12/20/2005.
(7) On September 13, 1995, in connection with a repricing of all outstanding
options having an exercise price in excess of $1.75 per share, the Company
canceled and replaced the option granted to Mr. Benhayoun on October 25,
1994 to purchase 58,500 shares of Common Stock at a purchase price of
$2.50 per share with a new option to purchase the same number of shares of
Common Stock at an exercise price of $1.75 per share. Such new option is
not reflected in the above table.

52
<PAGE>

Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

There were no option exercises by the Named Executive Officers during the
fiscal year ended December 31, 1995. The following table sets forth certain
information with respect to the value of stock options held by such
individuals as of December 31, 1995.

AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1995
AND DECEMBER 31, 1995 OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT 12/31/95 OPTIONS AT 12/31/95($)(2)
ACQUIRED ON VALUE ---------------------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry J. Gerhard........ -- -- -- -- -- --
Daniel C. Skilken....... -- -- -- -- -- --
D. Gregory Kott......... -- -- 82,500 (3) -- 676,875 --
Roger A. Bitter......... -- -- -- -- -- --
Eric Benhayoun.......... -- -- 58,500 (4) -- 453,375 --
</TABLE>
- --------
(1) Unvested options are immediately exercisable, provided that any unvested
shares are subject to repurchase by the Company at the original exercise
price paid per share upon the optionee's cessation of service to the
Company.
(2) There was no public trading market for the Common Stock at December 31,
1995. Accordingly, these values have been calculated based on the initial
public offering price of $9.50 per share, minus the exercise price.
(3) Includes 63,750 unvested shares of Common Stock that would have been
subject to repurchase by the Company on December 31, 1995 if the options
had been exercised.
(4) Includes 26,813 unvested shares of Common Stock that would have been
subject to repurchase by the Company on December 31, 1995 if the options
had been exercised.

EMPLOYMENT AGREEMENTS

The Company entered into a five-year employment agreement with Mr. Gerhard
effective January 14, 1993 pursuant to which he receives an annual base
salary, an annual bonus of up to 25% of his base salary and all standard
benefits accorded other executives of the Company. In addition, in the event
Mr. Gerhard is terminated other than for cause, he is entitled to severance of
$20,000 per month plus all insurance benefits until he accepts other full time
employment, but in no event longer than 18 months (24 months in certain
circumstances). Under the employment agreement and accompanying stock
restriction agreement, Mr. Gerhard was granted the right to purchase 412,777
shares of Common Stock at a specified price per share, of which 294,840 shares
are subject to vesting over a four-year period. Mr. Gerhard also received an
option to purchase shares of preferred stock of TSSI at the same price and
terms as other investors in such preferred stock. The employment agreement
further provides that the Company would facilitate Mr. Gerhard's relocation to
the Company's headquarters by arranging for the sale of Mr. Gerhard's prior
residence. In the event Mr. Gerhard resigned within 36 months after the
effective date of the agreement, he was obligated to resell to the Company up
to 147,420 shares at $0.01 per share and assume certain liabilities associated
with his relocation to Oregon. In the event Mr. Gerhard resigns or is
terminated for cause at any time, any unvested options, and shares issued upon
early exercise of such unvested options, may be repurchased by the Company at
$0.01 per share. Upon consummation of this offering, all unvested options will
automatically vest. See "Certain Transactions."

In May 1996, the Board of Directors authorized the Company to enter into a
new four-year employment agreement with Mr. Gerhard. The agreement will
provide for an initial grant of options to purchase up to 75,000 shares
(subject to a four-year vesting period) at an exercise price equal to the
public offering price set forth on the cover of this Prospectus, an annual
base salary and certain medical benefits and severance payments. The agreement
also will provide for an annual bonus of $75,000 payable only if the Company
achieves its annual revenue plan, which for 1998 and thereafter will be
determined with

53
<PAGE>

reference to the two highest revenue plans forecasted by independent financial
analysts, and an annual option to purchase up to 75,000 shares of Common Stock
to be granted only if the Company's total revenue for the applicable year
exceeds the total revenue for the previous year by at least 20%.

On November 20, 1993, the Company entered into a four-year employment
agreement with Mr. Skilken pursuant to which he receives an annual base
salary, an annual bonus of up to 25% of his base salary, all standard benefits
accorded other executives of the Company and relocation expenses. Under the
agreement, Mr. Skilken was granted options to purchase up to 103,194 shares of
Common Stock, subject to vesting over a four-year period, and the right to
purchase preferred stock of TSSI on the same terms and conditions as other
purchasers. In addition, in the event Mr. Skilken is terminated other than for
cause, the options automatically vest and he is entitled to severance of
$10,416 per month plus all insurance benefits until he accepts other full time
employment, but in no event longer than 12 months. In the event Mr. Skilken
resigns within 48 months after the date of the employment agreement, any
unvested options, and shares issued upon early exercise of such unvested
option, may be repurchased by the Company at the option exercise price.

On March 1, 1995, the Company entered into a four-year employment agreement
with Mr. Kott pursuant to which he receives an annual base salary, an annual
bonus of up to 25% of his base salary and all standard benefits accorded other
executives of the Company. Under the agreement, Mr. Kott was granted options
to purchase up to 52,500 shares of Common Stock, subject to vesting over a
four-year period. Such options automatically vest upon termination of Mr. Kott
other than for cause and upon the sale of more than 50% of the assets or
outstanding capital stock of the Company. In addition, in the event Mr. Kott
is terminated other than for cause, he is entitled to severance of $10,000 per
month plus all insurance benefits until he accepts other full time employment,
but in no event longer than six months. In the event Mr. Kott resigns or is
terminated for cause within 36 months after the date of the employment
agreement, any vested and unvested options, and shares issued upon exercise of
such options, may be repurchased by the Company at the option exercise price.

On January 1, 1995, the Company entered into a four-year employment
agreement with Mr. Bitter pursuant to which he receives an annual base salary,
an annual bonus of up to 25% of his base salary, all standard benefits
accorded other executives of the Company and relocation costs. In addition,
pursuant to the agreement, the Company also reimbursed Mr. Bitter for certain
living expenses while he resided in Japan and, subject to certain conditions,
agreed to provide Mr. Bitter with a loan to repay his prior tax liabilities,
which loan has been forgiven by the Company. The agreement also provides that
options to purchase up to 103,194 shares of Common Stock previously granted to
Mr. Bitter shall automatically vest upon termination of Mr. Bitter other than
for cause and upon the sale of more than 20% of the assets or more than 50% of
the outstanding capital stock of the Company. In addition, upon consummation
of this offering, the four-year vesting schedule with respect to such options
will accelerate by one year. In the event Mr. Bitter is terminated for other
than cause, he is entitled to severance of $10,000 per month plus all
insurance benefits until he accepts other full time employment, but in no
event longer than nine months. In the event Mr. Bitter resigns or is
terminated for cause within 48 months after the date of the employment
agreement, the Company may cancel the options to purchase the 103,194 shares,
whether vested or unvested, and any shares previously issued upon exercise of
such options may be repurchased by the Company at the option exercise price.
However, in certain circumstances, the Company's right to repurchase or cancel
is limited to 67% of such options or shares issued in respect of options.

Effective October 31, 1994, the Company entered into a four-year employment
agreement with Mr. Benhayoun pursuant to which he receives an annual base
salary, an annual bonus of 30% of his base salary if he meets specified
revenue targets, and all standard benefits accorded other executives of the
Company. Under the employment agreement, Mr. Benhayoun was granted options to
purchase up to 58,500 shares of Common Stock, of which 15,000 vested
immediately, 15,000 vested on October 31, 1995, and the remainder vest ratably
over the 24 months following October 31, 1995. Such options also automatically
vest upon termination of Mr. Benhayoun other than for cause and upon the sale
of more than 50% of the assets

54
<PAGE>

or outstanding capital stock of the Company. In addition, upon the
consummation of this offering, the two-year vesting schedule with respect to
such options will accelerate by one year. In addition, in the event
Mr. Benhayoun is terminated other than for cause, he is entitled to severance
of 52,083 French francs (approximately $10,085 as of September 30, 1996) per
month plus all insurance benefits until he accepts other full-time employment,
but in no event longer than nine months. In the event Mr. Benhayoun resigns
within 36 months after the date of the employment agreement, any unvested
options and any options which vested, and shares issued upon exercise of such
options, within one year prior to such resignation or termination may be
repurchased by the Company at the option exercise price.

STOCK PLANS

1994 Stock Plan. The Company's 1994 Stock Plan (the "1994 Plan") was adopted
by the Board of Directors and approved by the Company's stockholders in
January 1994 and was amended by the Board in May 1996, subject to stockholder
approval. The 1994 Plan is administered by the Board of Directors or a
committee appointed by the Board (the "Administrator") and has a term of 10
years. Pursuant to the Plan, options to acquire an aggregate of 2,322,000
shares of Common Stock may be granted. The Plan provides for grants to
employees (including officers and employee directors) and consultants of the
Company and is intended to qualify as an "incentive stock option plan" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

Subject to the provisions of the 1994 Plan, the Administrator has the
authority to determine the individuals to whom stock options are to be
granted, the number of shares to be covered by each option, the exercise
price, the fair market value, the type of option, the term of the option, the
restrictions, if any, on the exercise of the option, the terms for the payment
of the option price and other terms and conditions. Incentive stock options
granted under the 1994 Plan must have an exercise price of at least 100% of
the fair market value on the date of grant. Payments by optionholders upon
exercise of an option may be made (as determined by the Administrator) in cash
or such other form of payment as permitted under the 1994 Plan. In addition,
an optionee may engage in a same day exercise of an option and sale of the
underlying stock, using a portion of the proceeds from the sale of the stock
to pay the exercise price. In the event of a proposed merger of the Company
with or into another corporation or a sale of substantially all of the assets
of the Company, outstanding options may be assumed or equivalent options
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume options or substitute equivalent options, optionees shall have
the right to exercise their options as to all shares subject to such options,
including shares as to which options would not otherwise be exercisable.

1996 Employee Stock Purchase Plan. The material terms of the Company's 1996
Employee Stock Purchase Plan (the "1996 Purchase Plan") were approved by the
Board of Directors in May 1996. The 1996 Purchase Plan will be submitted to
the Board of Directors for further approval, and to the stockholders of the
Company for approval prior to consummation of this offering. The Company has
reserved a total of 150,000 shares of Common Stock for issuance under the 1996
Purchase Plan. The 1996 Purchase Plan, which is intended to qualify under
Section 423 of the Code, permits eligible employees of the Company to purchase
Common Stock through payroll deductions of up to 10% of their base salary, up
to a maximum of $25,000 of Common Stock (determined as of the first day of the
offering period) for all purchase periods ending within any calendar year. The
price of Common Stock purchased under the 1996 Purchase Plan will be 85% of
the lower of the fair market value of the Common Stock on the first day of
each 24-month offering period or the last day of the applicable six-month
purchase period. Employees may end their participation in the 1996 Purchase
Plan at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination
of employment with the Company. Rights granted under the 1996 Purchase Plan
are not transferable by a participant other than by will, the laws of descent
and distribution, or as otherwise provided under the plan. The first offering
period of the 1996 Purchase Plan will begin on the effective date of this
offering and will end on the last trading day on or before October 31, 1998.
The first purchase period will be approximately six and one-half months,
ending on the last trading day in the period ending April 30, 1997. Subsequent
offering periods will last 24 months and will commence on the

55
<PAGE>

first trading day on or after May 1 and November 1 of each year during which
the 1996 Purchase Plan is in effect, and will terminate on the last trading
day in the periods ending 24 months later. Each 24-month offering period will
consist of four purchase periods of approximately six months duration. The
1996 Purchase Plan will be administered by the Board of Directors or by a
committee appointed by the Board. Employees are eligible to participate if
they are customarily employed by the Company or any designated subsidiary for
at least 20 hours per week and for more than five months in any calendar year.

1996 Director Option Plan. Non-employee directors are entitled to
participate in the Company's 1996 Director Option Plan (the "Director Plan").
The material terms of the Director Plan were approved by the Board of
Directors in May 1996. The Director Plan will be submitted to the Board of
Directors for further approval, and to the stockholders of the Company for
approval prior to consummation of this offering, but shall not become
effective until the effective date of this offering. A total of 150,000 shares
of Common Stock has been reserved for issuance under the Director Plan.

The Director Plan provides for an automatic grant of an option (the "First
Option") to purchase 7,500 shares of Common Stock to each non-employee
director on the date on which the Director Plan becomes effective or, if
later, an option to purchase 10,000 shares of Common Stock on the date on
which the person first becomes a non-employee director. After the First Option
is granted to the non-employee director, he or she shall automatically be
granted an option to purchase 10,000 shares (a "Subsequent Option") on the
date of the annual meeting of each subsequent year, provided he or she is then
a non-employee director and, provided further, that on such date he or she has
served on the Board for at least six months. First Options and each Subsequent
Option shall have terms of ten years. All of the shares subject to a First
Option shall become vested and exercisable 12 months after the date of the
grant, provided that the shares subject to the First Option granted on the
effective date of the Director Plan shall become vested and exercisable one
business day prior to the date of the Company's first annual meeting after the
grant date. All of the shares subject to each Subsequent Option shall become
vested and exercisable on the earlier of (i) 12 months after the date of the
grant or (ii) one business day prior to the date of the Company's first annual
meeting after the grant date. Vesting of the First Option and each Subsequent
Option are subject to the optionee continuing to serve as a director on the
vesting date. The exercise prices of the First Option and each Subsequent
Option shall be 100% of the fair market value per share of the Company's
Common Stock on the date of the grant of the option.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Amended and Restated Certificate, to be filed upon the closing
of the offering, limits the liability of directors to the maximum extent
permitted by Delaware law. Delaware law provides that a corporation's
certificate of incorporation may contain a provision eliminating or limiting
the personal liability of a director for monetary damages for breach of their
fiduciary duties as directors, except for liability (i) for any breach of
their duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit.

The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its directors and officers and may indemnify its employees and
agents to the fullest extent permitted by law. The Company believes that
indemnification under its Amended and Restated Bylaws covers at least
negligence and gross negligence on the part of indemnified parties.

The Company has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Company's
Amended and Restated Bylaws. These agreements, among other things, indemnify
the Company's directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or officer of

56
<PAGE>

the Company, any subsidiary of the Company or any other company or enterprise
to which the person provides services at the request of the Company. The
Company believes that these provisions and agreements are necessary to attract
and retain qualified directors and officers.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee was formed in August 1994 and is currently
composed of Messrs. Ben-David, Grillos and Stevens. No interlocking
relationship exists between any member of the Company's Compensation Committee
and any member of any other company's board of directors or compensation
committee.

57
<PAGE>

CERTAIN TRANSACTIONS

In connection with the Reorganization, in December 1993, DCL Holding and
Investments in Technology (1993), Ltd. ("DCL") and Zamir Paz, the former
stockholders of SEE Technologies, exchanged all of their shares of SEE
Technologies stock for an aggregate of 2,661,154 and 935,000 shares of Series
A Preferred Stock of Summit, respectively. As a result, SEE Technologies
became a wholly-owned subsidiary of Summit. In February 1994, DCL and Mr. Paz
contributed an aggregate of 185,474 and 43,680 and shares of Series A
Preferred Stock, respectively, to Summit. Also in connection with the
Reorganization, a wholly-owned subsidiary of Summit merged with and into TSSI,
with TSSI being the surviving corporation. As consideration, the former
stockholders of TSSI received capital stock of Summit under the following
conversion schedule: (i) holders of TSSI common stock received .5896815 shares
of Common Stock of Summit for each TSSI share; (ii) holders of TSSI Series A,
B and C Preferred Stock received .5896815 shares of Series B Preferred Stock
of Summit for each such TSSI share; and (iii) holders of TSSI Series D
Preferred Stock received 1.179363 shares of Series B Preferred Stock of Summit
for each TSSI Series D share.

On February 10, 1994, the Company sold $400,000 aggregate principal amount
of convertible subordinated debentures (the "Convertible Debentures") in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof. The following directors, executive officers
and beneficial holders of at least 5% of the capital stock of the Company
(including members of their immediate family) purchased Convertible Debentures
as follows:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
PURCHASER CONVERTIBLE DEBENTURES
--------- ----------------------
<S> <C>
Larry J. Gerhard (1)(2)(3)......................... $75,000
Zamir Paz (1)(2)(3)................................ 10,000
Daniel C. Skilken (1).............................. 40,000
Roger A. Bitter (1)................................ 10,000
DCL (3)............................................ 30,000
</TABLE>
- --------
(1) Executive officer of the Company.
(2) Director of the Company.
(3) Holder of more than 5% of the Company's outstanding capital stock. Amihai
Ben-David is a director of both DCL and the Company.

Interest on the Convertible Debentures accrued at an annual rate of 5%. On
November 11, 1994, all of the then outstanding Convertible Debentures were
converted at the Company's option into an aggregate of 375,000 shares of
Series C Preferred Stock. Prior to consummation of the offering, all
outstanding shares of Series C Preferred Stock will convert into shares of
Common Stock on a one-for-one basis.

58
<PAGE>

In May 1994, the Company sold 823,091 shares of Series D Preferred Stock at
a price of $3.75 per share in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof. The
following directors, executive officers and beneficial holders of at least 5%
of the Company's capital stock purchased Series D Preferred Stock:

<TABLE>
<CAPTION>
SHARES OF
PURCHASER (1) SERIES D PREFERRED STOCK
------------- ------------------------
<S> <C>
Entities affiliated with Robertson, Stephens &
Company (2)..................................... 26,665
Entities affiliated with Sequoia Capital (3)..... 400,000
First Century Partnership III (4)................ 68,622
Daniel C. Skilken (5)............................ 10,666
Stuart Schube (6)................................ 66,665
Walter Cunningham (7)............................ 57,332
</TABLE>
- --------
(1) See note to table of beneficial ownership in "Principal and Selling
Stockholders" for information relating to the beneficial ownership of such
shares.
(2) Includes 13,736 shares and 12,929 shares held by Bayview Investors, Ltd.
and RCS III, L.P., respectively. Mr. Grillos, a director of the Company,
is employed by Robertson, Stephens & Company LLC in its venture capital
group.
(3) Includes 376,000 shares and 24,000 shares acquired by Sequoia Capital
Growth Fund and Sequoia Technology Partners III, respectively. Mr.
Stevens, a director of the Company, is a General Partner of Sequoia
Capital IV.
(4) Holder of more than 5% of the Company's capital stock.
(5) Executive officer of the Company.
(6) Includes 53,333 shares held by Genesis Fund Ltd. and 6,666 shares held by
A.G. Edwards & Sons, Inc. as custodian for Stuart Schube IRA.
(7) Includes 53,333 shares held by Genesis Fund Ltd., of which Mr. Cunningham
is a General Partner, and 1,333 shares held by Walter Cunningham, IRA.

Prior to consummation of the offering, all outstanding shares of Series D
Preferred Stock will convert into shares of Common Stock on a one-for-one
basis.

In June and July 1995, the Company sold 600,000 shares of Series E Preferred
Stock at a price of $4.52 per share in transactions exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof. An aggregate of 122,675 shares were sold to an entity affiliated with
Jay Morrison, a director of the Company. Prior to consummation of the
offering, all outstanding shares of Series E Preferred Stock will convert into
shares of Common Stock on a one-for-one basis.

The Company has entered into employment agreements with certain officers.
See "Management--Employment Agreements." The Company has also entered into
indemnification agreements with each of its directors and executive officers.
Such agreements require the Company to indemnify such individuals to the
fullest extent permitted by Delaware law.

In September 1995, the Company entered into a one-year directorship
agreement with Fred Hanson, a non-employee director of the Company, pursuant
to which Mr. Hanson receives a salary of $17,500 per year. The Company also
issued Mr. Hanson an option to purchase 20,000 shares of the Company's Common
Stock at an exercise price of $1.75 per share. In lieu of receiving quarterly
salary payments, the Company, on Mr. Hanson's behalf, purchased 10,000 of the
shares subject to the option for the aggregate purchase price of $17,500.

At the time of the Reorganization, the Company and DCL entered into a one-
year financial services agreement pursuant to which DCL, in exchange for an
aggregate of $100,000, agreed to provide to the Company on an as-needed basis
certain financial consulting services, including bookkeeping, tax filings,
payroll, accounts payable and statutory filings. The agreement terminated on
February 10, 1995.

59
<PAGE>

At the time of the Reorganization, the Company and DCL entered into a one-
year agreement pursuant to which DCL agreed to provide to the Company certain
engineering consulting services on an as-needed basis in exchange for an
aggregate of $1.4 million. Similarly, at the same time, SEE Technologies and
DCL entered into a one-year agreement pursuant to which SEE Technologies
agreed to provide to DCL certain engineering consulting services on an as-
needed basis in exchange for an aggregate of $1.3 million. No services were
required by either party under such agreements and no payments were made
thereunder. Each of the foregoing agreements terminated on February 10, 1995.

At the time of the Reorganization, SEE Technologies entered into a four-year
sublease pursuant to which SEE Technologies subleases space for its corporate
offices from DCL on terms and conditions similar to those under which DCL
leases such office space from the third-party owner of the office space. The
Company believes that the terms of the foregoing lease are no less favorable
to the Company than those that could have been obtained from unaffiliated
third parties.

On April 1, 1991, DCL and SEE Technologies entered into an agreement with
Intergraph Corporation pursuant to which it agreed to perform certain
engineering services for Intergraph. On February 10, 1994, DCL, Intergraph and
SEE Technologies entered into an agreement which terminated the previous
agreement and extinguished any rights or ownership interests of Intergraph in
the Visual HDL technology developed by SEE Technologies. In connection with
this termination, the Company issued 168,000 shares of common stock to
Intergraph.

To facilitate the relocation of Larry J. Gerhard to Beaverton, Oregon in
October 1993, the Company agreed with a third-party real estate firm ("PHH")
that PHH would purchase Mr. Gerhard's former residence in Southern California
and thereafter undertake to resell such residence. The Company further agreed
to reimburse PHH for all expenses and any loss incurred on resale. The
residence was sold for $870,000 in August 1995 following a drop in the
Southern California housing market and, as a result, in addition to payment of
certain carrying costs, the Company issued to PHH a note in the aggregate
principal amount of $441,705. The note matures on August 30, 1997 and accrues
interest at an annual rate of prime plus 1%. However, the closing of this
offering will cause the maturity date of the note to accelerate to ten
business days after the closing date. As of September 30, 1996, an aggregate
of $213,117 was outstanding under the note. The Company intends to use a
portion of the net proceeds of this offering to repay all outstanding
indebtedness under the note. See "Use of Proceeds."

In February 1996, the Company agreed to forgive a loan of approximately
$101,000 made to Roger Bitter, an executive officer of the Company, as part of
Mr. Bitter's relocation back to the United States. The loan was originally
made to Mr. Bitter to repay his prior tax liabilities while residing in Japan.
The loan accrued interest at an annual rate of 6% and, prior to forgiveness,
was repayable by Mr. Bitter upon demand by the Company. As of the date of
forgiveness, the outstanding amount due on the loan was approximately $89,892.

In September 1995, the Company loaned $87,056 to Zamir Paz, an executive
officer of the Company, for the purchase of a primary residence pursuant to a
promissory note that bore interest at the annual rate of prime plus 1%. The
principal was repaid in October 1995 and the interest was repaid in June 1996.

Robertson, Stephens & Company LLC ("Robertson, Stephens") is acting as lead
underwriter of the offering. For acting in this capacity, Robertson, Stephens
will be entitled to receive customary underwriting fees. John Grillos is an
employee of Robertson, Stephens and a director of the Company. Certain
affiliates of Robertson, Stephens will beneficially own approximately 7.8% of
the outstanding Common Stock of the Company upon completion of the offering.
See "Underwriting."

60
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock, as of September 30, 1996, and as adjusted to
reflect the sale of the shares of Common Stock pursuant to the offering by
(a) each person known by the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock, (b) each of the Company's
directors, (c) each of the Named Executive Officers, (d) each additional
Selling Stockholder and (e) all directors and executive officers of the
Company as a group. Unless otherwise noted in the footnotes to the table, (i)
the Company believes that the persons named in the table have sole voting and
investing power with respect to all shares of Common Stock indicated as being
beneficially owned by them and (ii) officers and directors can be contacted at
the principal offices of the Company.

Robertson, Stephens &
Company (4)............. 1,285,655 11.4 250,000 1,035,655 7.8
555 California Street
Suite 2600
San Francisco, CA 94104

Sequoia Capital (5)..... 1,171,242 10.3 -- 1,171,242 8.8
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025

Stuart Schube (6)....... 825,950 7.3 188,429 637,521 4.8
520 Post Oak Boulevard
Houston, TX 77027
STAR Venture Capital

Management GmbH (7)..... 797,659 7.0 240,017 557,642 4.2
9 Possartstr
81679 Munich, Germany

First Century Partners
(8)..................... 768,835 6.8 250,000 518,835 3.9
One Palmer Square
Princeton, NJ 08542

Fiering & Sjolie
Handelsgesellschaft
m.b.H. ................. 601,320 5.3 100,000 501,320 3.8
A-1180 Wien
Ruhrhofergasse 12
Austria

Larry J. Gerhard (9).... 646,735 5.7 75,000 571,735 4.3
c/o Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97008

C. Albert Koob (10)..... 83,000 * 4,000 79,000 *
Zamir Paz (11).......... 601,320 5.3 100,000 501,320 3.8
c/o Summit Design, Inc.
9305 S.W. Gemini Drive
Beaverton, OR 97008

Daniel C. Skilken (12).. 153,860 1.4 6,666 147,194 1.1
D. Gregory Kott (13).... 90,500 * 5,000 85,500 *
Roger A. Bitter (14).... 125,194 1.1 10,000 115,194 *
Eric Benhayoun (15)..... 66,500 * 1,000 65,500 *
Amihai Ben-David (16)... 2,305,680 20.4 250,000 2,055,680 15.4
John Grillos (17)....... 1,285,655 11.4 250,000 1,035,655 7.8
Fred L. Hanson (18)..... 20,000 * -- 20,000 *
Jay B. Morrison (19).... 265,886 2.3 80,000 185,886 1.4
Mark Stevens (20)....... 1,171,242 10.3 -- 1,171,242 8.8
</TABLE>

61
<PAGE>

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING NUMBER OF OWNED
(1) SHARES BEING AFTER OFFERING (2)
--------------------- OFFERED -----------------------
NAME OF BENEFICIAL OWNERS NUMBER PERCENT FOR SALE NUMBER PERCENT
- ------------------------- ------------ -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
ADDITIONAL SELLING
STOCKHOLDERS:
Ilana Achimeir (21)..... 27,484 * 9,984 17,500 *
Michael Bragg........... 766 * 766 -- --
Jerome J. Brown......... 7,622 * 7,622 -- --
Charles Burrows......... 2,948 * 2,948 -- --
Copley Partners I,
L.P. ................... 18,624 * 18,624 -- --
Crossroads Capital
Limited Partnership..... 37,249 * 37,249 -- --
William Den Beste (22).. 2,948 * 2,948 -- --
Lawrence Evans.......... 2,594 * 2,594 -- --
David H. Flaningham..... 78,616 * 78,616 -- --
Norman Green............ 19,179 * 1,784 17,395 *
Grenly, Rotenberg,
Laskowski, Evans &
Bragg, P.C. ............ 5,896 * 5,896 -- --
Moshe Guy (23).......... 95,000 * 10,000 85,000 *
Elkanon Herzog (24)..... 92,500 * 9,850 82,650 *
How & Company........... 27,937 * 27,937 -- --
Intergraph Corporation.. 168,000 1.5 168,000 -- --
Jerusalem Pacific
Ventures (1994) LP...... 265,886 2.3 80,000 185,886 1.4
Charles McIntyre (25)... 24,323 * 24,323 -- --
David Moffenbeier (26).. 49,484 * 10,000 39,484 *
Quality Electronics,
Inc. ................... 133,329 1.2 20,000 113,329 *
Norman Rickles.......... 471 * 471 -- --
ROC Venture Company,
Ltd. ................... 236,898 2.1 71,069 165,829 1.2
Ilan Regev (27)......... 50,000 * 10,000 40,000 *
Stanley Rotenberg....... 707 * 707 -- --
Steve Tsubota........... 40,388 * 10,000 30,388 *
UNCO Ventures, Ltd...... 363,863 3.2 28,429 335,434 2.5
Wesbanc Ventures, Ltd... 239,801 2.1 160,000 79,801 *
Kuo Wu (28)............. 84,984 * 8,500 76,484 *
All directors and
executive officers as a
group (14 persons) (29). 6,857,879 59.2 781,666 6,076,213 44.7
</TABLE>
- -------
* Represents less than 1% of the total.

(1) Based on 11,319,204 shares of Common Stock outstanding prior to the
offering. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days upon the exercise of
options. Calculations of percentage of beneficial ownership assume the
exercise by only the respective named stockholder of all options for the
purchase of Common Stock held by such stockholder which are exercisable
within 60 days.

62
<PAGE>

(2) Assumes no exercise of the Underwriters' over-allotment option. If such
option is exercised in full, RCS III, L.P. would sell an additional
350,000 shares and Robertson, Stephens & Company would then hold 685,655
shares (4.9%); Sequoia Capital Growth Fund would sell 51,700 shares,
Sequoia Technology Partners III would sell 3,300 shares and Sequoia
Capital would then hold 1,116,242 shares (8.0%); UNCO Ventures, Ltd.
would sell an additional 43,946 shares and would then hold 291,488 shares
(2.1%), Wesbanc Ventures, Ltd. would sell an additional 13,946 shares and
would then hold 65,855 shares (*), and Stuart Schube would then hold
579,629 shares (4.2%); First Century Partnership III would sell an
additional 132,108 shares and First Century Partners would then hold
386,727 shares (2.8%); and Roger Bitter would sell an additional 5,000
shares and would then hold 110,194 shares (*).
(3) Includes 2,275,680 shares held by DCL Holding & Investments in Technology
(1993) Ltd., a wholly-owned subsidiary of DCL Technologies Ltd., of which
250,000 shares are being sold in the offering. DCL Technologies Ltd. is
an Israeli public company, the shares of which are traded on the Tel-Aviv
stock exchange. The Company believes that the following shareholders own
at least 5% of the outstanding shares of DCL Technologies Ltd.: Comverse
Technologies Inc., ISCAL Holdings Ltd., Uri Melamed, Bank Hapoalim,
Danbar Ltd. and Amihai Ben-David.
(4) Includes 172,568 shares held by Bayview Investors, Ltd. and 1,113,087
shares held by RCS III, L.P. RCS III, L.P. is selling 250,000 shares in
the offering.
(5) Includes 68,376 shares held by Sequoia Technology Partners III, 1,071,255
shares held by Sequoia Capital Growth Fund, 20,445 shares held by Sequoia
XVI and 11,166 shares held by Sequoia XVII.
(6) Includes 10,204 shares held by A.G. Edwards & Sons, Inc. as Custodian for
Stuart Schube, IRA, 2,599 shares held by Stuart Schube Money Purchase
Plan, 184,813 shares held by The Genesis Fund, Ltd., 363,863 shares held
by UNCO Ventures, Ltd. and 239,801 shares held by Wesbanc Ventures, Ltd.
Wesbanc Ventures, Ltd. is selling 160,000 shares in the offering and UNCO
Ventures, Ltd. is selling 28,429 shares. Mr. Schube is a General Partner
of The Genesis Fund, Ltd., UNCO Ventures, Ltd. and Wesbanc Ventures, Ltd.
and therefore may be deemed to be a beneficial owner of the shares.
Mr. Schube disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein.
(7) Includes 170,034 shares held by Dandana Ltd., 337,517 shares held by SVE
STAR Ventures Enterprises No. 111 GbR ("SVE STAR No. 111 GbR"), 28,237
shares held by SVE STAR Ventures Enterprises No. 111a GbR ("SVE STAR No.
111a GbR"), 148,524 shares held by SVM STAR Ventures
Managementgesellschaft mbH NR. 3 & Co. Beteiligungs KG ("SVM STAR mbH NR.
3") and 113,347 shares held by Yozma Venture Capital Ltd. The total
number of shares offered for sale includes 51,164 shares to be sold by
Dandana Ltd., 34,106 shares to be sold by Yozma Venture Capital Ltd.,
101,559 shares to be sold by SVE STAR No. 111 GbR, 8,497 shares to be
sold by SVE STAR No. 111a GbR and 44,691 shares to be sold by SVM STAR
mbH NR. 3.
(8) Includes 753,491 shares held by First Century Partnership III and 15,344
shares held by Omega Partners, L.P. First Century Partnership III is
selling 250,000 in the offering.
(9) Includes 65,000 shares held by Smith Barney, custodian for the IRA of
Larry J. Gerhard and 10,000 shares held by Smith Barney, custodian for
the IRA of Kathleen Gerhard, the spouse of Larry Gerhard, all of which
are being sold in the offering. Also includes 531,735 shares held by L&K
Properties Limited Partnership, of which Mr. Gerhard is the sole general
partner and a limited partner, 20,000 shares held by the Kristen Noel
Gerhard Trust and 20,000 shares held by the Kamala Nicole Gerhard Trust.
Mr. Gerhard disclaims beneficial ownership of the shares held by the
trusts.
(10) Includes 75,000 shares issuable upon exercise of options, all of which
would be subject to the Company's right of repurchase if issued as of
September 30, 1996.
(11) All shares are held by Fiering & Sjolie Handelsgesellschaft m.b.H. Mr.
Paz may be deemed to be a beneficial owner of such shares, but disclaims
beneficial ownership of such shares.
(12) Includes 32,249 shares subject to the Company's right of repurchase as of
September 30, 1996.
(13) Includes 82,500 shares issuable upon exercise of options, of which 41,251
shares would be subject to the Company's right of repurchase if issued as
of September 30, 1996.

63
<PAGE>

(14) Includes 34,399 shares subject to the Company's right of repurchase, and
12,000 shares issuable upon exercise of options of which all would be
subject to the Company's right of repurchase if issued as of September
30, 1996.
(15) Includes 58,500 shares issuable upon exercise of options, of which 15,438
shares would be subject to the Company's right of repurchase if issued as
of September 30, 1996.
(16) Includes 2,275,680 shares held by DCL Holding & Investments in Technology
(1993) Ltd. and 30,000 shares held by DCL Technologies Ltd. DCL Holding &
Investments in Technology (1993) Ltd. is selling 250,000 shares in the
offering. Mr. Ben-David is the Chief Executive Officer and Chairman of
DCL Technologies Ltd. and disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein.
(17) Includes 172,568 shares held by Bayview Investors, Ltd. and 1,113,087
shares held by RCS III, L.P. RCS III, L.P. is selling 250,000 shares in
the offering. Robertson, Stephens & Company Private Equity Group, LLC is
the general partner of RCS III and Bayview Investors, Ltd. Mr. Grillos
has been employed by Robertson, Stephens & Company LLC in its venture
capital group and is a limited partner of Bayview Investors, Ltd. As
such, Mr. Grillos may be deemed to have or to share investment control
over the above shares. Mr. Grillos disclaims any beneficial interest in
such shares in excess of his pecuniary interest as an employee of
Robertson, Stephens & Company LLC in its venture capital group and as a
limited partner of Bayview Investors, Ltd.
(18) Includes 10,000 shares issuable upon exercise of options, of which 7,500
shares would be subject to the Company's right of repurchase if issued as
of September 30, 1996.
(19) These shares are owned by Jerusalem Pacific Ventures (1994) L.P., of
which Mr. Morrison is affiliated with the General Partner of the fund
that manages Jerusalem Pacific Ventures (1994) L.P. and as such may be
deemed a beneficial owner of such shares. Mr. Morrison disclaims
beneficial ownership of such shares.
(20) Includes 68,376 shares held by Sequoia Technology Partners III, 1,071,255
shares held by Sequoia Capital Growth Fund, 20,445 shares held by Sequoia
XVI and 11,166 shares held by Sequoia XVII. Mr. Stevens is a special
limited partner of Sequoia Capital Growth Fund and, as such, may be
deemed to be a beneficial owner of such shares. Mr. Stevens disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(21) Includes 9,984 shares held by Dorning Investments Ltd. which are being
sold in the offering. Also includes 1,167 shares subject to the
Company's right of repurchase and 3,500 shares issuable upon exercise of
options, of which 2,188 would be subject to the Company's right of
repurchase if issued as of September 30, 1996.
(22) Mr. Den Beste is a former executive officer of the Company and TSSI.
(23) Includes 7,085 shares subject to the Company's right of repurchase as of
September 30, 1996.
(24) Includes 6,877 shares subject to the Company's right of repurchase as of
September 30, 1996.
(25) Mr. McIntyre is a former executive officer of the Company and TSSI.
(26) Mr. Moffenbeier is a former director of the Company, TSSI and Summit
Design (EDA) Ltd.
(27) Includes 2,334 shares subject to the Company's right of repurchase and
12,000 shares issuable upon exercise of options, of which 7,501 would be
subject to the Company's right of repurchase if issued as of September
30, 1996.
(28) Includes 10,298 shares subject to the Company's right of repurchase as
of September 30, 1996.
(29) Includes 66,648 shares subject to the Company's right of repurchase and
268,500 shares issuable upon exercise of options, of which 179,295 would
be subject to the Company's right of repurchase if issued as of September
30, 1996.

64
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of common stock, par value $.01 per
share, and 5,000,000 shares of Preferred Stock, par value $.01 per share.

COMMON STOCK

As of September 30, 1996, there were 11,319,204 shares of Common Stock
outstanding (after giving effect to the conversion of all outstanding
Preferred Stock) held of record by 180 stockholders. The holders of Common
Stock are entitled to one vote for each share held of record on all matters to
be voted on by stockholders. Subject to preferences that may be applicable to
any Preferred Stock which may be outstanding, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior liquidation
rights of Preferred Stock, if any, then outstanding. Holders of Common Stock
have no preemptive rights or rights to convert their Common Stock into other
securities. There are no redemption or sinking fund provisions applicable to
the Common Stock.

PREFERRED STOCK

Upon the closing of this offering, 5,000,000 shares of undesignated
Preferred Stock will be authorized and no shares will be outstanding. The
Board of Directors will have the authority to issue the shares of Preferred
Stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and
the number of shares constituting any series or the designation of such series
without any further vote or action by the stockholders. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock or the likelihood that such holders will receive dividend payments or
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

After this offering, the holders of approximately 8,366,314 shares of Common
Stock, or their transferees, will be entitled to certain rights with respect
to the registration of such shares under the Securities Act. Under the terms
of an agreement between the Company and such holders, if the Company proposes
to register any of its securities under the Securities Act, either for its own
account or the account of other securityholders exercising registration
rights, the holders are entitled to notice of such registration and are
entitled to include shares of such Common Stock therein; provided, among other
conditions, that the underwriters of any offering have the right to limit the
number of such shares included in such registration. In addition, the
securityholders benefiting from these rights may require the Company,
beginning six months after the date of this Prospectus, on not more than two
occasions to file a registration statement under the Securities Act with
respect to such shares, and the Company is required to use its best efforts to
effect such registration, subject to certain conditions and limitations.
Further, holders of a specified percentage of shares may require the Company
to file a registration statement on Form S-3 to register all or a portion of
their shares when such form becomes available to the Company, subject to
certain conditions and limitations. Registration of such shares under the
Securities Act would result in such shares becoming freely tradeable and could
have an adverse effect on the market price for the Company's Common Stock.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), which prohibits a publicly held
Delaware corporation from engaging in any "business

65
<PAGE>

combination" with an "interested stockholder" for three years following the
date that such stockholder became an interested stockholder, unless (i) prior
to such date, the board of directors of the corporation approved either the
business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced; or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.

Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholders. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior did own) 15% or
more of the corporation's voting stock.

The Company's Restated Certificate, which will become effective upon
consummation of this offering, will require that any action required or
permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors or a
committee of the Board. These provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.

TRANSFER AGENT AND REGISTRAR

The First National Bank of Boston has been appointed as the transfer agent
and registrar for the Company's Common Stock.

66
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, based on the number of shares outstanding
as of September 30, 1996, the Company will have outstanding an aggregate of
13,319,204 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the 4,000,000 shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 9,319,204 shares of Common Stock held by
existing stockholders are "restricted" securities within the meaning of Rule
144 under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below.

Beginning 90 days after the effective date of the Registration Statement,
approximately 124,400 shares of Common Stock will be eligible for sale
pursuant to Rule 701 and Rule 144. Upon the expiration of lock-up agreements
between certain of the Company's stockholders and the Underwriters (the "Lock-
up Agreements"), beginning 181 days after the effective date of the
Registration Statement (April 16, 1997), 7,664,658 shares will be eligible for
sale pursuant to Rule 701 and Rule 144, subject in certain cases to the
volume, manner of sale and notice requirements of Rule 144. In addition,
pursuant to lock-up provisions set forth in stock purchase agreements executed
in connection with the Reorganization, the Investors' Rights Agreement, as
amended, and under the Company's incentive stock option plan (the "Stand-Off
Agreements"), an additional 297,435 shares will become eligible for sale
pursuant to Rule 701 and Rule 144 beginning 181 days after the effective date
of the Registration Statement (April 16, 1997). The remaining 1,232,711 shares
outstanding will become eligible for sale from time to time more than 181 days
after the effective date of the Registration Statement as the Company's rights
to repurchase such shares expire.

In addition to the foregoing, as of September 30, 1996, there were
outstanding options to purchase an aggregate of 880,034 shares of Common
Stock. If such options are exercised, 519,383 shares will be eligible for sale
upon expiration of the lock-up provisions contained in the Stand-Off
Agreements beginning 181 days after the effective date of the Registration
Statement (April 16, 1997). The Company has agreed not to release shares from
the lock-up provisions of the Stand-Off Agreements without the prior written
consent of the representatives of the Underwriters.

In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years but less than
three years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Common Stock (approximately 13,319 shares immediately after the
offering) or (ii) the average weekly trading volume during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned his or her shares for at least three years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. In general, under Rule 701 under the Securities Act as
currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement related to compensation is eligible to
resell such shares 90 days after the effective date of the offering in
reliance on Rule 144, but without compliance with certain restrictions
contained in Rule 144.

67
<PAGE>

the resale of such shares by non-affiliates in the public market without
restriction under the Securities Act, subject to compliance with the
contractual provisions described above. Such registration statement will
become effective immediately upon filing.

After this offering, the holders of approximately 8,366,314 shares are
entitled to certain registration rights with respect to such shares. If such
registration rights are exercised, the shares can be sold without any holding
period or sales volume limitation. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, such sales could have an adverse effect on the market
price for the Company's Common Stock. If the Company were required to include
in a Company-initiated registration the shares held by such holders pursuant
to the exercise of their registration rights, such sales might have an adverse
effect on the Company's ability to raise needed capital. See "Description of
Capital Stock--Registration Rights of Certain Holders."

Prior to this offering, there has been no public market for the Common Stock
of the Company and no predictions can be made as to the effect, if any, that
market sales of shares of Common Stock prevailing from time to time may have
on the market price of the Common Stock. Nevertheless, sales of significant
numbers of shares of the Common Stock in the public market may adversely
affect the market price of the Common Stock offered hereby and could impair
the Company's future ability to raise capital through an offering of its
equity securities.

68
<PAGE>

UNDERWRITING

The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC and Needham & Company, Inc. (the
"Representatives"), have severally agreed with the Company and the Selling
Stockholders, subject to the terms and conditions of the Underwriting
Agreement, to purchase the numbers of shares of Common Stock set forth
opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC.................................... 1,820,000
Needham & Company, Inc............................................... 1,820,000
Sutro & Co. Incorporated............................................. 100,000
Unterberg Harris..................................................... 100,000
Black & Company, Inc. ............................................... 80,000
Pacific Crest Securities............................................. 80,000
---------
Total............................................................ 4,000,000
=========
</TABLE>

The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession of not
in excess of $0.38 per share, of which $0.10 may be reallowed to other
dealers. After the initial public offering, the offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by the Company as
set forth on the cover page of this Prospectus.

Certain Selling Stockholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 600,000 additional shares of Common Stock, at the same price
per share as the Company and Selling Stockholders will receive for the
4,000,000 shares that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise this option, each of the Underwriters will have
a firm commitment to purchase approximately the same percentage of such
additional shares that the number of shares of Common Stock to be purchased by
it shown in the above table represents as a percentage of the 4,000,000 shares
offered hereby. If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the 4,000,000 shares are
being sold.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.

Each officer and director of the Company, and certain other persons that
beneficially own or have dispositive power over substantially all of the
shares of the Company's Common Stock, have agreed with the Representatives for
a period of 180 days after the effective date of the Registration Statement
(the "Lock-Up Period"), subject to certain exceptions, not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock now owned or hereafter acquired
directly by such holders or with respect to which they have or hereafter
acquire the power of disposition, without the prior written consent of
Robertson, Stephens & Company LLC. Robertson, Stephens & Company LLC may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. Pursuant to pre-existing
agreements, substantially all other holders of Common Stock and options to
purchase Common Stock have agreed not to sell such shares or shares issuable
upon the exercise of options for at least 180 days after the effective date of
the Registration Statement without the prior written consent of the Company.
In addition, the Company has

69
<PAGE>

agreed that during the Lock-Up Period, the Company will not, without the prior
written consent of Robertson, Stephens & Company LLC, subject to certain
exceptions, issue, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into, exercisable for or exchangeable for
shares of Common Stock other than the Company's sales of shares in this
offering, the issuance of Common Stock upon the exercise of outstanding
options and the Company's issuance of options and stock under the 1994 Plan,
the 1996 Purchase Plan and Director Plan.

Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock was determined through negotiations among the Company, the Selling
Stockholders and the Representatives. Among the factors considered in such
negotiations were prevailing market conditions, certain financial information
of the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.

The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.

Certain venture funds affiliated with Robertson, Stephens & Company LLC
beneficially owned 1,285,655 shares of the Company's Common Stock as of
September 30, 1996. See "Management," "Certain Transactions" and "Principal
and Selling Stockholders." In view of this relationship, the offering is being
made in accordance with Schedule E of the By-Laws of the National Association
of Securities Dealers, Inc., which provides, among other things, that the
price of the Common Stock can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Needham & Company, Inc. is serving in such role and
will recommend the maximum public offering price of the Common Stock. Needham
& Company, Inc. has also participated in the preparation of the Registration
Statement of which this Prospectus is a part and has performed due diligence
with respect thereto.

John Grillos, a director of the Company, is employed by Robertson, Stephens
& Company LLC in its venture capital group.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Wilson Sonsini Goodrich & Rosati,
P.C., Palo Alto, California. As of September 30, 1996, certain members and
investment partnerships of Wilson Sonsini Goodrich & Rosati, P.C.,
beneficially owned an aggregate of 11,229 shares of the Company's Common
Stock. Certain legal matters will be passed upon for the Underwriters by Gray
Cary Ware & Freidenrich, A Professional Corporation, Palo Alto, California.

EXPERTS

The consolidated financial statements and schedule of the Company as of
December 31, 1994 and December 31, 1995 and for each of the three years in the
period ended December 31, 1995 included in this Prospectus have been so
included in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, which includes explanatory paragraphs with respect to a change in
accounting method related to accounting for income taxes and restatements of
the 1993 and 1994 financial statements, given on the authority of said firm as
experts in auditing and accounting.

On February 9, 1996, Coopers & Lybrand L.L.P. was engaged as the principal
independent accountants for the Company and its subsidiaries, replacing KPMG
Peat Marwick LLP ("KPMG"), which was dismissed

70
<PAGE>

in January, 1996. The change was approved by the audit committee of the
Company's Board of Directors. In connection with the audits of the two fiscal
years in the period ended December 31, 1995 and through the interim period
ended January 31, 1996, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to KPMG's
satisfaction would have caused them to make reference to the matter in their
report. The audit reports of KPMG on the consolidated financial statements of
the Company as of and for the years ended December 31, 1993 and 1994 did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified
or modified as to uncertainty or audit scope. The audit report for the year
ended December 31, 1993 was modified for the change in accounting method
related to SFAS No. 109, "Accounting for Income Taxes." The audit report for
the year ended December 31, 1994 was modified to include a discussion on the
restatement of the Company's 1993 financial statements for the timing of when
certain expenses were recognized in the financial statements. During the audit
period ended December 31, 1994, and through the interim period ended January
31, 1996 there have been no reportable events.

During the two fiscal years ended December 31, 1995, and through the interim
period ended February 8, 1996, the Company had not consulted with Coopers &
Lybrand L.L.P. on items which concerned the subject matter of a disagreement
or reportable event with the former auditor.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule thereto. For further
information with respect to the Company and such Common Stock, reference is
made to the Registration Statement and the exhibits and schedule filed as part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and,
in each instance, if such contract or document is filed as an exhibit,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference to such exhibit. A copy of the Registration
Statement, and the exhibits and schedule thereto, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048, and copies of all or any part of the
Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission. The Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.

71
<PAGE>

SUMMIT DESIGN, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and
1996 (unaudited)......................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 and for the Nine Months Ended September
30, 1996 (unaudited)..................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and
1996 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
Summit Design, Inc.

We have audited the accompanying consolidated balance sheets of Summit
Design, Inc. and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Summit
Design, Inc. and its subsidiaries as of December 31, 1995 and 1994, and the
results of their consolidated operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.

As discussed in Note 9 of Notes to Consolidated Financial Statements,
effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."

As discussed in Note 2 of Notes to Consolidated Financial Statements, the
1993 and 1994 financial statements have been restated.

Coopers & Lybrand L.L.P.

Portland, Oregon
June 18, 1996

F-2
<PAGE>

SUMMIT DESIGN, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------------
1996
PRO FORMA
1994 1995 1996 (NOTE 1)
-------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS

Current assets:
Cash and cash equivalents........ $ 1,193 $ 592 $ 2,459
Accounts receivable, less
allowance for doubtful accounts
of $355, $455 and $436.......... 4,144 5,521 4,088
Prepaid expenses and other....... 324 319 418
-------- -------- --------
Total current assets........... 5,661 6,432 6,965
Furniture and equipment, net....... 1,449 1,790 1,698
Deposits and other assets.......... 926 681 1,129
-------- -------- --------
Total assets................... $ 8,036 $ 8,903 $ 9,792
======== ======== ========
LIABILITIES

Current liabilities:
Note payable to bank............. $ 1,516 $ 1,000 $ --
Long-term debt, current portion.. 411 854 833
Capital lease obligation, current
portion......................... 239 191 94
Accounts payable................. 1,347 994 965
Accrued liabilities.............. 1,496 2,247 2,667
Deferred revenue................. 1,096 1,676 2,374
-------- -------- --------
Total current liabilities...... 6,105 6,962 6,933
Long-term debt, less current
portion........................... 60 1,065 862
Capital lease obligations, less
current portion................... 193 151 107
Deferred revenue, less current
portion........................... 283 83 158
Other long-term liabilities........ 100 50 --
-------- -------- --------
Total liabilities.............. 6,741 8,311 8,060
-------- -------- --------
Commitments and contingencies
(Notes 6 and 11)

STOCKHOLDERS' EQUITY

Convertible preferred stock, $.01
par value. Authorized 9,334 shares
in 1995 and 1996 and 5,000 shares
pro forma; issued and outstanding:
8,599 shares in 1994, 9,103 shares
in 1995 and 1996, and no shares
pro forma; aggregate liquidation
preference of $19,315 at December
31, 1995.......................... 86 91 91 --
Common stock, $.01 par value.
Authorized 20,000 shares in 1995
and 1996 and 30,000 shares pro
forma; issued and outstanding
1,969 shares in 1994, 1,887 shares
in 1995, 2,216 shares in 1996 and
11,319 shares pro forma;
liquidation preference of $189 at
December 31, 1995 ................ 20 19 22 $ 113
Additional paid-in capital......... 12,993 15,437 15,551 15,551
Accumulated deficit................ (11,804) (14,955) (13,932) (13,932)
-------- -------- -------- --------
Total stockholders' equity..... 1,295 592 1,732 $ 1,732
-------- -------- -------- ========
Total liabilities and
stockholders' equity.......... $ 8,036 $ 8,903 $ 9,792
======== ======== ========
</TABLE>

The accompanying notes are integral part of the consolidated financial
statements.

F-3
<PAGE>

SUMMIT DESIGN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product licenses............... $ 4,693 $ 9,143 $10,383 $ 6,894 $10,927
Maintenance and services....... 2,547 2,323 2,637 1,848 3,003
Other.......................... -- 1,516 1,050 1,000 425
------- ------- ------- ------- -------
Total revenue................ 7,240 12,982 14,070 9,742 14,355
Cost of revenue:
Product licenses............... 440 681 651 478 433
Maintenance and services....... 330 390 400 307 323
------- ------- ------- ------- -------
Total cost of revenue........ 770 1,071 1,051 785 756
------- ------- ------- ------- -------
Gross profit..................... 6,470 11,911 13,019 8,957 13,599
Operating expenses:
Research and development....... 2,381 4,632 5,113 3,878 3,888
Sales and marketing............ 3,673 5,867 7,370 5,475 6,319
General and administrative..... 1,919 2,309 3,112 2,378 2,079
In-process technology.......... -- 647 -- -- --
------- ------- ------- ------- -------
Total operating expenses..... 7,973 13,455 15,595 11,731 12,286
------- ------- ------- ------- -------
Income (loss) from operations.... (1,503) (1,544) (2,576) (2,774) 1,313
Other income (expense), net...... (119) (100) (176) (121) (47)
------- ------- ------- ------- -------
Income (loss) before income
taxes........................... (1,622) (1,644) (2,752) (2,895) 1,266
Income tax provision............. -- 402 399 321 243
------- ------- ------- ------- -------
Net income (loss)................ $(1,622) $(2,046) $(3,151) $(3,216) $ 1,023
======= ======= ======= ======= =======
Pro forma net income (loss) per
share........................... $ (0.14) $ (0.17) $ (0.26) $ (0.27) $ 0.09
======= ======= ======= ======= =======
Pro forma number of shares used
in per share calculation........ 11,569 11,870 11,900 11,851 12,013
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>

SUMMIT DESIGN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1993, 1994 and 1995
and the nine months ended September 30, 1996 (unaudited)
(In thousands, except shares)

<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------- ----------------- PAID-IN ACCUMULATED FROM STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDER EQUITY
---------- ------- --------- ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1992 .................. 4,840,894 $ 6,878 1,170,970 $ 80 $ -- $ (8,136) $-- $(1,178)
Issuance of Series D
preferred stock net of
issuance costs......... 800,000 1,181 -- -- -- -- -- 1,181
Conversion of bridge
loan into preferred
stock.................. 200,000 300 -- -- -- -- -- 300
Issuance of common
stock.................. -- -- 750,000 8 -- -- (7) 1
Issuance of common stock
under stock option
plan................... -- -- 128,807 14 -- -- -- 14
Net loss................ -- -- -- -- -- (1,622) -- (1,622)
---------- ------- --------- ---- ------- -------- ---- -------
BALANCE, DECEMBER 31,
1993................... 5,840,894 8,359 2,049,777 102 -- (9,758) (7) (1,304)
Recapitalization........ (1,806,973) (8,319) (841,061) (89) 8,408 -- -- --
Issuance of Series A
preferred stock in
merger................. 3,367,000 34 -- -- 1,077 -- -- 1,111
Conversion of Series C
Debentures into Series
C preferred stock...... 375,000 4 -- -- 371 -- -- 375
Issuance of Series D
preferred stock, net of
issuance costs......... 823,091 8 -- -- 3,079 -- -- 3,087
Payments from
stockholder............ -- -- -- -- -- -- 7 7
Issuance of common
stock.................. -- -- 188,048 1 4 -- -- 5
Exercise of warrants.... -- -- 47,174 1 -- -- -- 1
Repurchase of common
stock.................. -- -- (3,898) -- (1) -- -- (1)
Issuance of common stock
under stock option
plan................... -- -- 528,550 5 55 -- -- 60
Net loss................ -- -- -- -- -- (2,046) -- (2,046)
---------- ------- --------- ---- ------- -------- ---- -------
BALANCE, DECEMBER 31,
1994................... 8,599,012 86 1,968,590 20 12,993 (11,804) -- 1,295
Issuance of Series E
preferred stock........ 600,000 6 -- -- 2,575 -- -- 2,581
Repurchase of Series C
preferred stock........ (65,000) (1) -- -- (64) -- -- (65)
Repurchase of Series D
preferred stock........ (30,666) -- -- -- (115) -- -- (115)
Issuance of common stock
under stock option
plan................... -- -- 71,757 1 49 -- -- 50
Repurchase of common
stock.................. -- -- (153,705) (2) (1) -- -- (3)
Net loss................ -- -- -- -- -- (3,151) -- (3,151)
---------- ------- --------- ---- ------- -------- ---- -------
BALANCE, DECEMBER 31,
1995................... 9,103,346 91 1,886,642 19 15,437 (14,955) -- 592
Issuance of common stock
under stock option plan
and other.............. -- -- 341,767 3 116 -- -- 119
Repurchase of common
stock.................. -- -- (12,551) -- (2) -- -- (2)
Net income.............. -- -- -- -- -- 1,023 -- 1,023
---------- ------- --------- ---- ------- -------- ---- -------
BALANCE, SEPTEMBER 30,
1996 (UNAUDITED)....... 9,103,346 $ 91 2,215,858 $ 22 $15,551 $(13,932) $-- $ 1,732
========== ======= ========= ==== ======= ======== ==== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>

SUMMIT DESIGN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................ $(1,622) $(2,046) $(3,151) $(3,216) $1,023
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.. 197 457 588 513 638
(Gain) loss on disposal of
assets........................ 150 15 (1) 6 5
Gain on sale of subsidiary..... (72) -- -- -- --
In-process technology.......... -- 647 -- -- --
Changes in assets and
liabilities:
Accounts receivable.......... 385 (2,599) (1,377) 81 1,433
Prepaid expenses and other... 38 (230) 6 (37) (99)
Accounts payable............. (97) 787 (353) (764) (29)
Accrued liabilities.......... 311 (2) 751 1,074 420
Deferred revenue............. 183 357 380 605 773
Other, net................... (146) (14) 195 (101) (476)
------- ------- ------- ------- ------
Net cash provided by (used
in) operating activities.. (673) (2,628) (2,962) (1,839) 3,688
------- ------- ------- ------- ------
Cash flows from investing
activities:
Additions to furniture and
equipment....................... (62) (937) (773) (416) (456)
Cash acquired in merger.......... -- 212 -- -- --
Cash included in sale of
subsidiary...................... (67) -- -- -- --
Investment in joint venture...... -- -- -- -- (100)
Proceeds on asset dispositions... -- 173 15 15 6
------- ------- ------- ------- ------
Net cash used in investing
activities................ (129) (552) (758) (401) (550)
------- ------- ------- ------- ------
Cash flows from financing
activities:
Issuance of preferred stock...... 1,181 3,087 2,581 2,581 --
Issuance of common stock......... 15 72 50 27 119
Proceeds from notes payable and
long-term debt.................. -- 1,052 3,260 872 73
Repurchase of preferred stock.... -- -- (180) (156) --
Repurchase of common stock....... -- -- (3) (3) (2)
Principal payments of debt
obligations..................... (120) (67) (2,329) (1,200) (1,297)
Principal payments of capital
lease obligations............... (112) (200) (260) (192) (164)
------- ------- ------- ------- ------
Net cash provided by (used
in) financing activities.. 964 3,944 3,119 1,929 (1,271)
------- ------- ------- ------- ------
Increase (decrease) in cash
and cash equivalents...... 162 764 (601) (311) 1,867
Cash and cash equivalents,
beginning of period............... 267 429 1,193 1,193 592
------- ------- ------- ------- ------
Cash and cash equivalents, end of
period............................ $ 429 $ 1,193 $ 592 $ 882 $2,459
======= ======= ======= ======= ======
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest....................... $ 109 $ 144 $ 195 $ 148 $ 100
Income taxes................... $ 3 $ 3 $ 1 $ 1 $ 1
Supplemental disclosure of noncash
investing and financing
activities:
Equipment acquired under capital
leases.......................... $ 292 $ 232 $ 170 $ -- $ 23
Net assets acquired in merger.... $ -- $ 1,111 $ -- $ -- $ --
Conversion of debt to preferred
stock........................... $ 300 $ 375 $ -- $ -- $ --
Note received in sale of
subsidiary...................... $ 586 $ -- $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 is unaudited)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Summit Design, Inc. (Summit or the Company) is a provider of graphical
design entry and verification software tools and design to test software
tools. North American sales are principally made by the Company's direct sales
force. Sales in Europe and Asia are primarily made through distributors.
Approximately 42% and 45.1% of the Company's revenue for the year ended
December 31, 1995 and the nine months ended September 30, 1996, respectively,
were attributable to sales made through distributors.

The Company produces two main product lines--SLDA and Design to Test. Each
of these product lines contributed approximately 50% to the Company's revenue
in 1995.

Summit Design (EDA) Ltd., a wholly-owned subsidiary of the Company (formerly
SEE Technologies Software Environment for Engineers Ltd., hereafter SEE
Technologies), provides product research and development as well as sales and
support of certain product lines.

Summit Design, Inc. is headquartered in Beaverton, Oregon. Summit Design
(EDA) Ltd. is located in Herzlia, Israel, near Tel Aviv.

The following is a summary of the Company's significant accounting policies:

Basis of Consolidation

The 1994, 1995 and 1996 consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Test System
Strategies, Inc. (TSSI) and Summit Design (EDA) Ltd. The 1993 consolidated
financial statements include the accounts of TSSI and its wholly-owned
subsidiary, TSSI-Japan, which was sold in December 1993. Upon consolidation,
all intercompany accounts, transactions and profits have been eliminated.

The Company was formed to accomplish the recapitalization and merger of TSSI
and SEE Technologies (the Reorganization). Under the terms of the merger
agreement which was effective January 1, 1994, all outstanding shares of stock
of TSSI and SEE Technologies were exchanged for approximately 60% and 40%
ownership in the Company, respectively. The Series A, B, C and D preferred
stockholders of TSSI received Summit Series B preferred stock at conversion
rates of .5896815 or 1.179363, resulting in 4,033,921 shares of Summit Series
B preferred being issued. Approximately 2 million outstanding shares of TSSI
common stock were converted at the rate of one share of TSSI common stock into
.5896815 shares of Summit common stock. The stockholders of SEE Technologies
received Summit Series A preferred stock totaling 3,367,000 shares. The
acquisition was accounted for under the purchase method of accounting with the
Company acquiring SEE Technologies for approximately $1.1 million. The
operations of SEE Technologies have been included commencing January 1, 1994.

F-7
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The approximate fair value of assets and liabilities acquired at the date of
merger are as follows (in thousands):

<TABLE>
<S> <C>
Cash............................................................. $ 212
Accounts receivable.............................................. 178
Prepaids and other assets........................................ 663
Inventories...................................................... 12
Marketable securities............................................ 101
Furniture and equipment.......................................... 150
In-process technology............................................ 647
Accrued and other liabilities.................................... (504)
Chief Scientist grant............................................ (348)
------
$1,111
======
</TABLE>

The amount allocated to in-process technology was determined based upon
known valuation techniques in the high technology industry. The technological
feasibility of in-process technology had not been established and had no
alternative future use at the time of merger. Accordingly, the entire amount
of approximately $647,000 was charged to operations in the first quarter of
1994.

Revenue Recognition

Product licenses revenue is derived from the sale of products to
distributors and end-users. Revenue from the sale of product licenses is
recognized upon delivery of the product if remaining vendor obligations are
insignificant and collection of the resulting receivable is probable. The
Company provides a ninety-day warranty on certain products. Estimated sales
returns and provisions for insignificant vendor obligations and estimated
warranty costs are recorded upon delivery of the product.

Maintenance and services revenue includes software maintenance and other
service revenue, primarily from training. Software maintenance revenue is
deferred and recognized ratably over the life of the maintenance contract.
Other service revenue is recognized as the related service is performed.

Fees received for granting distribution rights are deferred and recognized
ratably over the term of the distribution agreement.

Research and Development Costs

Costs related to research, design and development of products are charged to
research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established by completion of a working model of the product and ending when a
product is available for general resale to customers. To date, completion of a
working model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software
development costs since such costs have not been significant.

Cash Equivalents

The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less when purchased to be cash equivalents.

F-8
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Furniture and Equipment

Furniture and equipment, consisting primarily of computer equipment and
office furniture, are stated at cost, net of related depreciation. Maintenance
and repairs are charged to expense as incurred. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets
ranging from three to seven years. Amortization of equipment under capital
leases is provided using the straight-line method over the shorter of the
related lease terms or economic life of the leased assets. Upon disposal of an
asset subject to depreciation, the cost and related accumulated depreciation
are removed from the accounts and resulting gains and losses are reflected in
operations.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting and
tax bases of assets and liabilities and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period of change. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amounts expected to be
realized.

Concentration of Credit Risk

The Company sells its products primarily to commercial end-users across many
industries directly and through independent and affiliated distributors in
North America, Europe and Asia. The Company's end-user customers include
companies in a wide range of industries, including semiconductor devices,
semiconductor test equipment, telecommunications, computer/peripherals,
consumer electronics, aerospace/defense and other electronics entities. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
allowances for potential losses, and such losses have been within management's
expectations.

At December 31, 1995, substantially all of the Company's cash and cash
equivalents are invested in interest-bearing deposits with a major bank.

Foreign Currency Translation

The Company's subsidiary in Israel uses the U.S. dollar as its functional
currency for financial reporting purposes. The Company's sales to foreign
distributors and customers are denominated in U.S. dollars.

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Disclosure of Fair Value of Financial Instruments

The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable, other current assets, accounts payable and
accrued liabilities approximated fair value as of December 31, 1995 because of
the relatively short maturity of these instruments. The carrying value of note
payable and long-term debt approximated fair value as of December 31, 1995,
based upon the interest rates available for the same or similar loans.

F-9
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro Forma

Upon the closing of an initial public offering of the Company's common
stock, all convertible preferred stock outstanding will convert into an
aggregate of 9,103,346 shares of common stock. The unaudited pro forma
stockholders' equity at September 30, 1996 is adjusted for the conversion of
the convertible preferred stock outstanding at September 30, 1996, as
disclosed on the face of the consolidated balance sheets.

Computation of Net Income (Loss) Per Share

Historical net income (loss) per share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent shares
from stock options are excluded from the computation when their effect is
antidilutive, except that, pursuant to the Securities Exchange Commission
Staff Accounting Bulletins, common and common equivalent shares, issued at
prices below the anticipated public offering price during the twelve months
immediately preceding the initial filing date of the Company's initial public
offering, have been included as if they were outstanding for all periods
presented using the treasury stock method and the initial public offering
price of $9.50. Pro forma net income (loss) per share includes common shares
issuable upon the conversion of the outstanding preferred stock (using the if-
converted method) as if they were outstanding for all periods ending prior to
the Company's initial public offering.

The historical net income (loss) per share of the Company and the shares
used in the calculation of historical net income (loss) per share are as
follows (shares in thousands):

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------------- SEPTEMBER 30,
1993 1994 1995 1996
------ ------ ------ -------------
<S> <C> <C> <C> <C>
Net income (loss) per share.............. $(1.05) $(1.11) $(1.68) $ 0.09
====== ====== ====== ======
Shares used in per share calculation..... 1,542 1,842 1,873 12,013
</TABLE>

Interim Financial Data (Unaudited)

The consolidated financial statements as of September 30, 1996 and for the
nine months ended September 30, 1995 and 1996 are unaudited; however, these
financial statements have been prepared on a basis consistent with the audited
financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows
in accordance with generally accepted accounting principles. Results of the
interim periods are not necessarily indicative of results for the entire year.

Accounting for Stock Options

During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123) which established a fair value based method of
accounting for stock based compensation plans. While the Company is studying
the impact of the pronouncement, it continues to account for employee stock
options under APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS 123 will be effective for fiscal years beginning after December 15, 1995.

F-10
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. RESTATEMENT:

The Company has restated its 1993 and 1994 financial statements to charge
software development costs incurred prior to technological feasibility to
research and development expense. The 1994 financial statements have also been
restated to adjust for misstatements of 1994 distribution rights fees and
depreciation expense. The effect of these restatements was to increase net
loss and pro forma per share net loss by $738,000 and $0.07 in 1993 and
$2,030,000 and $0.18 in 1994, respectively. The increase in 1993 net loss is
comprised of $738,000 related to software development costs. The increase in
1994 net loss is comprised of $1,265,000, $483,000 and $282,000 related to
software development costs, distribution rights fees and depreciation,
respectively.

3. FURNITURE AND EQUIPMENT:

Furniture and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Office furniture and equipment................ $ 262 $ 261 $ 181
Computer equipment............................ 1,415 1,969 2,448
Leasehold improvements........................ 35 38 38
Vehicles...................................... 39 14 14
Capital leases................................ 711 682 705
------- ------- ------
2,462 2,964 3,386
Less accumulated depreciation and
amortization................................. (1,013) (1,174) (1,688)
------- ------- ------
$ 1,449 $ 1,790 $1,698
======= ======= ======
</TABLE>

4. NOTE PAYABLE TO BANK:

The Company has available a $2 million line of credit with U.S. National
Bank of Oregon, which matures April 30, 1997 and is collateralized by accounts
receivable, inventory, chattel paper, general intangibles, patents,
trademarks, copyrights and products and proceeds of the foregoing. Maximum
borrowings under the line shall not exceed 75% of eligible accounts
receivable. Interest on the unpaid balance accrues at a rate that ranges from
prime plus 1.25% to prime plus 2.0%, depending on the debt to tangible net
worth ratio maintained by the Company, and is payable monthly. Prime at
December 31, 1995 was 8.25%. At December 31, 1995, approximately $1 million
was outstanding under the Company's line of credit. There was no amount
outstanding at September 30, 1996.

The line of credit agreement contains financial covenants, including
covenants relating to the ratio of current assets to current liabilities,
working capital, net worth, the ratio of debt to net worth and dividend
restrictions.

F-11
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ACCRUED LIABILITIES:

Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Commissions payable................................. $ 194 $ 340 $ 93
Payroll and related benefits........................ 722 1,384 1,504
Accrued management relocation costs................. 400 47 64
Accounting and legal................................ -- 80 191
Sales and state income taxes payable................ 84 42 22
Other............................................... 96 354 793
------ ------ ------
$1,496 $2,247 $2,667
====== ====== ======
</TABLE>

6. LEASES:

The Company is obligated under capital leases for equipment that expire at
various dates during the next five years. The leased assets are included in
equipment at a capitalized amount of $682,000 at December 31, 1995. Related
accumulated amortization of $398,000 at December 31, 1995 is included in
accumulated depreciation and amortization.

The Company has entered into a noncancelable operating lease for the use of
a building. Rental expense was approximately $179,000, $193,000, $261,000,
$188,000 and $226,000 for the years ended December 31, 1993, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996, respectively. In addition,
Summit Design (EDA) Ltd. entered into a sublease with a related party for its
premises. The lease expires in 1997. Annual rental is contingent on the
Israeli consumer price index and is approximately $165,000 annually.

Future minimum lease payments under these operating leases and capital
leases for the years ending December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996........................................................ $ 208 $ 454
1997........................................................ 65 347
1998........................................................ 48 324
1999........................................................ 48 344
----- ------
Total minimum lease payments.............................. 369 $1,469
======
Less amount representing interest (at rates ranging from 5%
to 15%).................................................... (27)
-----
Present value of minimum capital lease payments........... 342
Less current installments of obligations under capital lease
payments................................................... (191)
-----
Obligations under capital leases, excluding current
installments............................................. $ 151
=====
</TABLE>

F-12
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1994 1995 1996
----- ------ -------------
<S> <C> <C> <C>
Equipment note, payable in monthly installments of
$14 plus interest at prime plus 1% (9.25% at
December 31, 1995), collateralized by the equipment
financed, due June 1998............................ $ -- $ 381 $ 272
Note payable to a corporation, payable in monthly
installments of $19 plus interest at the prime rate
plus 1% (9.25% at December 31, 1995), due September
1997............................................... -- 391 213
Marketing grant payable to the Israeli government... 60 298 370
Chief Scientist grant payable to the Israeli
government......................................... 348 849 840
Other............................................... 63 -- --
----- ------ ------
471 1,919 1,695
Current portion..................................... 411 854 833
----- ------ ------
Noncurrent portion.................................. $ 60 $1,065 $ 862
===== ====== ======
</TABLE>

The Chief Scientist grant represents research and development funding of
approximately $232,000 in 1993 and $608,000 in 1995 received from the Israeli
government which is to be repaid at the rate of 3% to 5% of the sale of Visual
HDL for VHDL until 150% and 100% of the 1993 and 1995 grants, respectively,
are repaid in full. The 1993 grant is reflected at 150% of the original grant
received. The Company has entered into an agreement with the Israeli
government whereby the amount under the 1995 grant will be unconditionally
repaid no later than July 31, 2000.

The Company received a Marketing Fund grant of $399,000 from the Israeli
Ministry of Industry and Trade through September 30, 1996. This grant is to be
repaid at the rate of 3% of the increase in export sales of all Israeli
products over the base year until repaid.

Future principal payments of debt outstanding for the years ending December
31 are as follows (in thousands):

F-13
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. STOCKHOLDERS' EQUITY:

Preferred Stock

Preferred stock is summarized as follows (dollar amounts in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Series A -- $.01 par; 3,367,000 shares
authorized, issued and outstanding; liquidation
preference of $4,411 at December 31, 1995...... $ 34 $ 34 $34
Series B -- $.01 par; 4,033,949 shares
authorized and 4,033,921 shares issued and
outstanding; liquidation preference of $7,584
at December 31, 1995........................... 40 40 40
Series C -- $.01 par; 400,000 shares authorized,
375,000 shares in 1994 and 310,000 shares in
1995 and 1996 issued and outstanding;
liquidation preference of $310 at December 31,
1995........................................... 4 3 3
Series D -- $.01 par; 933,334 shares authorized,
823,091 shares in 1994 and 792,425 shares
issued and outstanding in 1995 and 1996;
liquidation preference of $2,972 at December
31, 1995....................................... 8 8 8
Series E -- $.01 par; 600,000 shares authorized,
issued and outstanding; liquidation preference
of $4,038 at December 31, 1995................. -- 6 6
------ ------ ---
$ 86 $ 91 $91
====== ====== ===
</TABLE>

Each share of preferred stock has voting rights and is convertible (subject
to anti-dilutive adjustments in certain circumstances) into one share of
common stock at the option of the holder, or automatically upon the sale of
the Company's common stock pursuant to a public offering with aggregate net
cash proceeds to the Company of at least $10 million and a price to the public
of at least $5.50 per share.

In the event of a liquidation, which includes a merger or sale of
substantially all of the Company's assets, the holders of Series E preferred
stock receive preference in the amount of $6.73 per share, plus all declared
but unpaid dividends, over all other outstanding shares of stock. Holders of
Series D preferred stock have a liquidation priority over holders of Series A,
Series B and Series C preferred stock and common stock up to a liquidation
preference of $3.75, plus all declared but unpaid dividends. Holders of Series
A and Series B preferred stock, treated as one class, have a liquidation
priority over holders of Series C preferred stock and common stock up to a
liquidation preference of $1.31 and $1.88 per share, respectively, plus all
declared but unpaid dividends. Holders of Series C preferred stock have
liquidation priority over holders of common stock up to a liquidation priority
of $1.00 per share. Common stockholders have a liquidation preference up to
$.10 per share upon satisfaction of the Series A, Series B, Series C, Series D
and Series E preferred preferences. Any remaining assets shall be shared
equally among all outstanding stockholders.

If, in the event of liquidation, the Company's assets are insufficient to
pay the holders of any particular series of preferred stock their full
preferential amount, then legally available assets of the Company will be
distributed ratably among holders of that series of preferred stock after
payment of the full preferential amount has been made to all series of
preferred stock having a senior liquidation preference.

Each share of preferred stock has a dividend rate of $.10. Dividends are not
cumulative and none have been declared or paid to date.

F-14
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1994 Stock Plan

The Company has a stock plan pursuant to which the Company may grant options
to employees and consultants. Under the terms of the plan, the option price is
determined by the Board of Directors at the time the option is granted. Under
the plan, 1,687,000 shares of common stock are authorized for issuance.
Options granted are immediately exercisable, and ownership generally vests 25%
twelve months after the date of grant and the remainder at 1/48 of the grant
amount in each successive month thereafter. Shares issued are subject to
repurchase until vested. Options expire no later than 10 years after the date
of grant.

At December 31, 1995, options to purchase 612,282 shares were vested.
Options outstanding and transactions were as follows:

<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE RANGE
--------- --------------
<S> <C> <C>
Balance, December 31, 1992........................... 213,615 $0.25 -- $0.51
Options granted.................................... 370,024 $0.01 -- $0.20
Options exercised.................................. (75,955) $0.25 -- $0.51
Options canceled................................... (32,726) $0.20 -- $0.51
--------- --------------
Balance, December 31, 1993........................... 474,958 $0.01 -- $0.51
Options granted.................................... 1,035,796 $0.02 -- $2.50
Options exercised.................................. (528,550) $0.02 -- $0.51
Options canceled................................... (108,747) $0.01 -- $1.75
--------- --------------
Balance, December 31, 1994........................... 873,457 $0.02 -- $5.00
Options granted.................................... 551,187 $1.75
Options exercised.................................. (71,757) $0.02 -- $0.51
Options canceled................................... (192,075) $0.02 -- $2.50
--------- --------------
Balance, December 31, 1995........................... 1,160,812 $0.02 -- $2.50
Options granted.................................... 119,095 $1.75 -- $7.50
Options exercised.................................. (320,911) $0.02 -- $1.75
Options canceled................................... (78,962) $0.35 -- $2.50
--------- --------------
Balance, September 30, 1996.......................... 880,034 $0.02 -- $7.50
========= ==============
</TABLE>

Effective September 13, 1995, the Board of Directors of the Company approved
an adjustment to the exercise price of the Company's outstanding stock options
with an exercise price in excess of $1.75. All outstanding options subject to
the adjustment were repriced to $1.75, the fair market value at that date as
determined by the Board. Participation by each option holder was voluntary.
The weighted average exercise price per share of options outstanding at
September 30, 1996 is $1.90.

Right to Repurchase Stock

The Company has the right of first refusal to repurchase common stock issued
to employees or common stock issued upon exercise of warrants. This right
terminates 90 days after the first sale of Company common stock pursuant to a
Registration Statement filed with the Securities and Exchange Commission.

F-15
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common Shares Reserved

As of December 31, 1995, the Company has reserved shares of common stock for
issuance as follows:

<TABLE>
<S> <C>
Conversion of preferred stock..................................... 9,103,346
Exercise of common stock options.................................. 1,160,812
----------
10,264,158
==========
</TABLE>

9. INCOME TAXES:

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 on a prospective basis effective January 1, 1993. The
adoption did not have a significant impact on the Company's financial
statements. The provision for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $ -- $ -- $ -- $ -- $ 11
State.................................. -- -- 1 -- 2
Foreign................................ -- 402 398 321 230
------- ------- ------- ------- ------
$ -- $ 402 $ 399 $ 321 $ 243
======= ======= ======= ======= ======
</TABLE>

The difference between the effective income tax rate and the statutory U.S.
federal income tax rate is as follows (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Tax provision (benefit) at
statutory rate................... $ (551) $ (334) $ (907) $ (984) $ 430
Foreign withholding taxes......... -- 402 398 321 230
Deferred taxes, primarily increase
in valuation allowance and
utilization of net operating
losses........................... 551 334 907 (984) (419)
State............................. -- -- 1 -- 2
------- ------- ------- ------- ------
$ -- $ 402 $ 399 $ 321 $ 243
======= ======= ======= ======= ======
</TABLE>

F-16
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At September 30, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes which can be used to offset future
income subject to taxes. In addition, there are unused research and
experimentation and foreign tax credits which may be available for offset
against future federal income taxes after use of the loss carryforwards. Such
loss carryforwards and tax credits are summarized below (in thousands):

<TABLE>
<CAPTION>
EXPIRATION
AMOUNT DATES
------ ------------
<S> <C> <C>
Loss carryforwards:
Federal................................................... $9,524 2001 -- 2010
State..................................................... 7,077 2001 -- 2010
Research and experimentation credits (federal only)......... 263 2001 -- 2011
Foreign tax credits (federal only).......................... 694 1998 -- 1999
</TABLE>

Due to changes in the Company's ownership structure which occurred as a
result of the Reorganization and a subsequent preferred stock financing, the
federal and state net operating loss carryforwards are limited in use to
approximately $1.7 million and $1.2 million annually, respectively. The tax
credit carryforwards are also subject to limitation due to the change in
ownership.

In addition, the Company has foreign income tax net operating losses of
approximately $5.7 million. These foreign losses were generated in Israel over
several years and have not yet received final assessment from the Israeli
government. Consequently, management is uncertain as to the continued
availability of a substantial portion of such foreign loss carryforwards.

The approximate effects of temporary differences which give rise to deferred
tax assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Federal and state net operating loss
carryforwards............................... $ 2,710 $ 3,836 $3,581
Foreign operating loss carryforwards......... 1,062 1,134 1,010
Research and experimentation credit
carryforwards............................... 263 263 263
Foreign tax credit carryforwards............. 77 486 694
Other deferred tax items..................... 873 735 732
------- ------- ------
Total gross deferred tax assets............ 4,985 6,454 6,280
Less valuation allowances.................... (4,479) (5,982) (5,761)
------- ------- ------
Net deferred tax assets.................... 506 472 519
------- ------- ------
Deferred tax liabilities:
Other deferred tax items..................... (506) (472) (519)
------- ------- ------
Total gross deferred tax liabilities....... (506) (472) (519)
------- ------- ------
Net deferred taxes......................... $ -- $ -- $ --
======= ======= ======
</TABLE>

F-17
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred
tax assets and the level of the valuation allowance. The net change in the
valuation allowance for the years ended December 31, 1994 and 1995 was an
increase of approximately $900,000 and $1.5 million, respectively. The
valuation allowance at January 1, 1994 was approximately $3.6 million.
Approximately $1.1 million of the increase in the valuation allowance for the
year ended December 31, 1995 resulted from the operating loss generated in
such year.

10. 401(K) PLAN:

The Company has a 401(k) plan (the Plan) covering substantially all
employees meeting minimum service requirements. The Plan allows for the
Company to make discretionary matching contributions as determined by a
committee of the Board of Directors. The Company provided a discretionary
contribution of $6,000 and $10,000 in 1994 and 1995, respectively.

11. COMMITMENTS AND CONTINGENCIES:

Summit Design (EDA) Ltd. has registered floating charges on all its assets
as security for compliance with the terms attached to Israeli investment
grants received.

The Company has entered into employment agreements with certain of its
executive officers. These agreements provide for base annual compensation and
certain incentive bonuses and stock options on various vesting schedules as
well as severance compensation in the event of termination without cause.

12. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:

The Company operates in a single industry segment comprising the electronic
design automation industry. Net revenue by geographic region (in thousands)
and as a percentage of total revenue for each region outside the United States
that constitutes more than 10% of the Company's total revenue is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- --------------
1993 1994 1995 1995 1996
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Europe................................. $ 671 $1,164 $1,893 $1,119 $2,064
Asia Pacific........................... 2,089 3,850 5,447 4,199 5,280
As a Percentage of Total Revenue:
Europe................................. 9.3% 9.0% 13.5% 11.5% 14.4%
Asia Pacific........................... 28.9% 29.6% 38.7% 43.1% 36.8%
</TABLE>

During 1993, 1994, and 1995 and the nine months ended September 30, 1995 and
1996, other than the purchaser of certain technology in a one-time
transaction, no single customer accounted for more than 10% of total revenue.
Foreign operations of Summit Design (EDA) Ltd. accounted for less than 10% of
total revenue of the Company in each of the three years in the period ended
December 31, 1995. Identifiable assets of the Company's Israeli subsidiary
were $1.3 million at December 31, 1995.

F-18
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. RELATED PARTIES:

At the time of the Reorganization, the Company entered into a one-year
financial services agreement with a significant stockholder pursuant to which
the stockholder provided the Company certain financial consulting services
related to its subsidiary in Israel. The Company entered into an agreement to
pay $100,000 to this stockholder in 1994 in conjunction with this agreement.
Additionally, Summit Design (EDA) Ltd. leases its corporate offices from the
stockholder under a four-year sublease agreement on the same terms and
conditions that the stockholder leases such space.

14. SUBSEQUENT EVENTS:

In May 1996, the Company's Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. Also in May 1996, the Board of Directors approved an Amended and
Restated Certificate of Incorporation to be filed upon the completion of this
offering. The Amended and Restated Certificate of Incorporation, among other
things, authorizes 5,000,000 shares, $0.01 par value of Preferred Stock and
increased the authorized number of shares of Common Stock, par value $0.01 per
share, from 20,000,000 shares to 30,000,000 shares. Additionally, the Board
authorized increases in the number of shares issuable under the 1994 Stock
Plan to 2,322,000.

The Company entered into an agreement with Seiko Instruments, Inc. (Seiko)
during the first quarter of 1996, which granted to Seiko an exclusive right to
distribute and support certain Summit products in Japan. Under the terms of
the agreement, Seiko will pay the Company a distribution rights fee of
$1,100,000 during the period of the agreement which is three years ending
February 1999. The Company will receive payments from Seiko of $800,000,
$200,000 and $100,000 in 1996, 1997 and 1998, respectively. In the nine months
ended September 30, 1996, the Company recognized revenue of $275,000
associated with this agreement.

Effective April 1, 1996, the Company invested $100,000 for a 20% interest in
a joint venture corporation which shall acquire the exclusive rights to sell,
distribute and support all of the Company's products in the Asia-Pacific
region, excluding Japan.

F-19
<PAGE>

VISUAL HDL

VISUAL HDL CAN RAISE DESIGNER PRODUCTIVITY by allowing system level,
behavioral level and functional level design entry using graphical design
methods such as block diagrams, state machines, flow charts and truth tables.
Summit has installed more than 1,300 seats of its SLDA tools in more than 125
companies, of which more than 100 companies have entered into support
contracts.

[GRAPHIC SHOWING SCREEN SHOTS OF SLDA BLOCK DIAGRAMS,
STATE MACHINES, FLOW CHARTS AND TRUTH TABLES]

TDS

TEST DEVELOPMENT ENGINEERS USE TDS to convert design simulation data into
optimized and debugged test programs. Summit has more than 250 active
installations of its TDS products.

[GRAPHIC SHOWING SCREEN SHOTS OF SIMULATION DATA]
<PAGE>

[GRAPHIC OF MOUNTAIN]

[SUMMIT DESIGN LOGO APPEARS HERE]