<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
--------- ---------
Commission file number: 0-20923
SUMMIT DESIGN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1137888
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
9305 S. W. GEMINI DRIVE,
BEAVERTON, OREGON 97008
(Address of principal executive office)
Registrant's Telephone number, including area code: (503) 643-9281
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
As of August 5, 1997, the Registrant had outstanding 14,024,092 shares of
Common Stock.
<PAGE>
SUMMIT DESIGN, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996. 3
Condensed Consolidated Statements of Operations for the
three month periods ended June 30, 1997 and 1996 and for the
six month periods ended June 30, 1997 and 1996 (unaudited). 4
Condensed Consolidated Statements of Cash Flows for
the six month periods ended June 30, 1997 and 1996 (unaudited). 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1 Not Applicable
Item 2 Not Applicable
Item 3 Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 5 Not Applicable
Item 6 Exhibits and Reports on Form 8-K 25
Signature 26
Exhibit Index 27
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<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 21,992 $ 19,772
Accounts receivable.............................. 5,925 5,567
Prepaid expenses and other....................... 418 487
------------------- -------------------
Total current assets........................... 28,335 25,826
Furniture and equipment, net...................... 2,214 1,832
Notes receivable from related parties............. 425 -
Deferred taxes.................................... 500 500
Deposits and other assets......................... 331 468
------------------- -------------------
Total assets................................. $ 31,805 $ 28,626
------------------- -------------------
------------------- -------------------
LIABILITIES
Current liabilities:
Long-term debt, current portion.................. $ 391 $ 462
Capital lease obligations, current portion....... 41 65
Accounts payable................................. 1,605 1,454
Accrued liabilities.............................. 3,030 2,869
Deferred revenue................................. 3,372 3,758
------------------- -------------------
Total current liabilities...................... 8,439 8,608
Long-term debt, less current portion.............. 675 675
Capital lease obligations, less current portion... 70 95
Deferred revenue, less current portion............ 84 67
------------------- -------------------
Total liabilities.............................. 9,268 9,445
------------------- -------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized 30,000
shares; issued and outstanding 14,024 shares at
June 30, 1997 and 13,873 shares at
December 31, 1996................................. 140 139
Additional paid-in capital........................ 33,539 33,235
Accumulated deficit............................... (11,142) (14,193)
------------------- -------------------
Total stockholders' equity..................... 22,537 19,181
------------------- -------------------
Total liabilities and stockholders' equity... $ 31,805 $ 28,626
------------------- -------------------
------------------- -------------------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
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<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Product licenses................................. $ 5,576 $ 3,644 $ 10,454 $ 7,191
Maintenance and services......................... 1,418 977 2,899 1,895
Other............................................ 125 142 267 284
--------------------------- ----------------------------
Total revenue.................................. 7,119 4,763 13,620 9,370
Cost of revenue:
Product licenses................................. 164 146 349 278
Maintenance and services......................... 141 109 250 211
--------------------------- ----------------------------
Total cost of revenue.......................... 305 255 599 489
--------------------------- ----------------------------
Gross profit................................. 6,814 4,508 13,021 8,881
Operating expenses:
Research and development......................... 1,656 1,445 3,087 2,857
Sales and marketing.............................. 2,571 2,179 5,088 4,404
General and administrative....................... 878 830 2,055 1,544
--------------------------- ----------------------------
Total operating expenses....................... 5,105 4,454 10,230 8,805
Income from operations............................ 1,709 54 2,791 76
Interest expense.................................. (2) (9) (9) (76)
Other income, net................................. 231 7 449 22
--------------------------- ----------------------------
Income before income taxes........................ 1,938 52 3,231 22
Income tax provision.............................. 100 33 180 209
--------------------------- ----------------------------
Net income (loss)................................. $ 1,838 $ 19 $ 3,051 $ (187)
--------------------------- ----------------------------
--------------------------- ----------------------------
Net income (loss) per share....................... $ 0.13 $ 0.0 $ 0.21 $ (0.02)
--------------------------- ----------------------------
--------------------------- ----------------------------
Number of shares used in per share calculation.... 14,650 12,679 14,758 12,609
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
-4-
<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $ 3,051 $ (187)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................ 397 426
Loss on asset disposition..................................... 1 -
Changes in assets and liabilities:
Accounts receivable....................................... (358) 1,818
Prepaid expenses and other................................ 69 (107)
Accounts payable.......................................... 152 (228)
Accrued liabilities....................................... 160 61
Deferred revenue.......................................... (369) 1,795
Other, net................................................ 105 (123)
--------- --------
Net cash provided by operating activities......................... 3,208 3,455
--------- --------
Cash flows from investing activities:
Additions to furniture and equipment.............................. (747) (397)
Proceeds from sale of assets...................................... - 2
Note receivable from employees.................................... (425) -
Investment in joint venture....................................... - (100)
--------- --------
Net cash used in investing activities........................... (1,172) (495)
--------- --------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs................... 305 118
Issuance of TriQuest Preferred Stock.............................. - 987
Repurchase of common stock........................................ - (2)
Proceeds from long-term debt...................................... - 54
Short term borrowings............................................. - (1,050)
Principal payments of debt obligations............................ (71) (254)
Principal payments of capital lease obligations................... (50) (116)
--------- --------
Net cash provided by (used in) financing activities............. 184 (263)
--------- --------
Increase in cash and cash equivalents........................... 2,220 2,697
Cash and cash equivalents, beginning of period....................... 19,772 704
--------- --------
Cash and cash equivalents, end of period............................. $ 21,992 $ 3,401
--------- --------
--------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 9 $ 64
Income taxes.................................................. 38 188
Supplemental disclosure of non-cash investing and
financing activities:
Equipment acquired under capital leases - 23
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
-5-
<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Summit
Design, Inc. ("the Company") in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
accordance with such rules and regulations. In the opinion of management, the
accompanying unaudited financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position of the Company, and its results of operations and cash flows. These
financial statements should be read in conjunction with the audited financial
statements and notes thereto for the years ended December 31, 1996, 1995, and
1994 included in the Company's Form 10-K filed for December 31, 1996.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997 or any other future interim period, and the Company makes no
representations related thereto.
2. ACQUISITION OF TRIQUEST DESIGN AUTOMATION, INC.
On February 28, 1997, the Company acquired TriQuest Design Automation, Inc., a
California corporation ("TriQuest"). TriQuest develops hardware description
language analysis and optimization tools for the design of high performance,
deep submicron integrated circuits. The aggregate consideration for the
acquisition (including shares of common stock reserved for issuance upon
exercise of TriQuest options assumed by the Company) was 775,000 shares of
common stock. The transaction was accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles. In compliance with
such principles, the Company's operating results have been restated to include
the results of TriQuest as if the acquisition had occurred at the beginning of
the first period presented.
3. BALANCE SHEET COMPONENTS, (IN THOUSANDS)
June 30, 1997 December 31, 1996
------------- -----------------
(Unaudited)
Accounts Receivable:
Trade ................................ $ 6,364 $ 6,000
Less allowance for doubtful accounts.. (439) (433)
-------- ---------
$ 5,925 $ 5,567
-------- ---------
-------- ---------
Furniture and equipment:
Office furniture equipment............ $ 556 $ 513
Computer equipment.................... 3,622 3,124
Leasehold improvements................ 66 41
-------- ---------
4,244 3,678
Less accumulated depreciation.......... (2,030) (1,846)
-------- ---------
$ 2,214 $ 1,832
-------- ---------
-------- ---------
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<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Accrued expenses:
Commissions payable............................ $ 60 $ 173
Payroll and related benefits................... 1,798 1,610
Accrued management relocation costs............ 24
Accounting and legal........................... 282 301
Sales and state income taxes payable........... 219 115
Other.......................................... 671 647
-------- --------
Total accrued expenses....................... $3,030 $2,870
-------- --------
-------- --------
Long-term debt:
Marketing grant payable to the Israeli government $ 364 $ 364
Chief Scientist grant payable to the Israeli
government............................. 702 773
-------- --------
1,066 1,137
Less current portion............................ (391) (462)
-------- --------
Non current portion............................. $ 675 $ 675
-------- --------
-------- --------
4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") and
Statement of Financial Accounting Standards No. 129 "Disclosure of Information
about Capital Structure" ("SFAS 129"), which are effective for the Company's
1997 fiscal year. The Company's management has studied the implications of SFAS
128 and SFAS 129, and based on the initial evaluation, does not expect the
adoption to have a material impact on the Company's financial condition or
results of operations.
In June 1997, the FASB issued SFAS NO. 130, "Comprehensive Income." SFAS No.
130 becomes effective in 1998 and requires reclassification of earlier
financial statements for comparative purposes. SFAS NO. 130 requires that
changes in the amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities be shown
in the financial statements. SFAS No. 130 does not require a specific format
for the financial statement in which comprehensive income is reported, but
does require that an amount representing total comprehensive income be
reported in that statement. Management has not yet determined the effect, if
any, of SFAS No. 130 on the consolidated financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This Statement will change the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Statement is effective for fiscal
years beginning after December 15, 1997. Management has not yet determined
the effect, if any, of SFAS No. 131 on the consolidated financial statements.
5. SUBSEQUENT EVENT
On July 11, 1997 the Company sold substantially all of the assets used in its
business of developing and marketing its Test Development Series "TDS"
Products (the "Asset Sale") to Credence Systems Corporation ("CSC") for $5
million. CSC will also assume certain liabilities, including the Company's
obligations under TDS maintenance contracts entered into prior to the
closing. CSC also purchased $2 million of Visual interface licenses
in the second quarter of 1997. TDS product license, maintenance and services
and other revenue for the three months ended June 30, 1997 and 1996 were
$1,672,000 and $1,790,000 respectively, and for the six months ended June 30,
1997 and 1996 were $3,530,000 and $3,642,000, respectively, and $7,331,000
for the year ended December 31, 1996.
In addition to the transactions referenced in the above paragraph, the
Company and CSC also entered into a Software OEM License agreement ("OEM
Agreement") in which CSC agreed to purchase $16 million of Visual Testbench
licenses over a thirty-month period subject to specified quarterly maximums
and certain additional conditions. Additionally CSC entered into an 18 month
maintenance agreement for $2 million associated with the Visual Testbench
product.
Additionally, in July 1997, the Company entered into an agreement to lend up
to $2.5 million to an independent software development company pursuant to a
secured loan agreement. Borrowings under this agreement bear interest at
prime rate plus 2%.
-7-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
The following discussion contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Predictions of future events are inherently uncertain.
Actual events could differ materially from those predicted in the forward
looking statements as a result of the risks set forth in the following
discussion, and, in the particular, the risks discussed below under the
subheading "Additional Risk Factors that Could Affect Operating Results and
Market Price of Stock."
OVERVIEW
Summit was founded in December 1993 to act as the holding company for Test
Systems Strategies, Inc. ("TSSI") and SEE Technologies Software Environment for
Engineers Ltd. ("SEE Technologies"), (now Summit Design (EDA) Ltd.)
(collectively , the "Reorganization"). TSSI was founded in 1979 to develop and
market integrated circuit ("IC" or "chip") 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 Systems Level Design Automation ("SLDA") design creation and
verification tools and integrating these with its core technology. As part of
its strategy, in early 1994, TSSI acquired SEE Technologies, an Israeli company
that, through its predecessor, began operations in 1983 and had operated
primarily as a research and development and consulting company focused on the
electronic design automation ("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 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 147% from 1993 to 1996, 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
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.
Prior to the Reorganization, the Company's TDS product and related maintenance
revenue accounted for all of the Company's revenue. Since the Reorganization,
the Company's revenue has been predominantly derived from two product lines,
Visual HDL, which includes Visual HDL for VHDL and Visual HDL for Verilog, and
TDS.
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
-8-
<PAGE>
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 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's products have a range of prices which depend 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) sells,
distributes and supports all of Summit's products in the Asia-Pacific region,
excluding Japan. 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. For the year ended December 31, 1996, Anam and
Summit Asia together accounted for 3.8% of the Company's revenue and 31.0% of
the Company's revenue attributable to the Asia-Pacific region excluding Japan.
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
earnings and losses of Summit Asia will be recognized as income or losses in the
Company's income statement in "Other income, net." The Company does not expect
Summit Asia to recognize a profit for the foreseeable future and thus does not
expect to recognize income from its investment in Summit Asia for the
foreseeable future, if at all.
Approximately 37%, 40%, 45% and 50% of the Company's total revenue for the three
months ended June 30, 1997 and 1996, and for the six months ended June 30, 1997
and 1996, 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.
- --------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 17 for a discussion of factors that could affect future performance.
-9-
<PAGE>
On February 28, 1997, Summit completed its acquisition of TriQuest Design
Automation ("TriQuest"). TriQuest develops HDL analysis and optimization
tools for the design of high performance, deep submicron integrated
circuits. The transaction is being accounted for as a "pooling of
interest" in accordance with generally accepted accounting principals.
Effective July 1, 1997 the Company sold substantially all of the assets used
in its business of developing and marketing its Test Development Series
"TDS" Products (the "Asset Sale") to Credence Systems Corporation ("CSC").
The increase in the Company's product licenses revenue during the last nine
quarters has been primarily due to increased revenue associated with the
Company's SLDA products, and the Asset Sale will allow the Company to focus
on the development and marketing of these products.
Substantially all of the Company's Design to Test product license revenue and
related maintenance and services revenue for the year ended December 31, 1996
and the six months ended June 30, 1997 were attributable to the TDS products.
As of July 1, 1997, TDS products will cease to be a source of such revenues.
CSC assumed the Company's obligations under TDS maintenance contracts entered
into prior to the closing and the Company will not recognize deferred revenue
associated with such contracts after June 30, 1997. The Company believes that
its cost of revenue and operating expenses will decrease in absolute dollars
in the near term due to the absence of costs and expenses associated with the
TDS products and the related maintenance contracts.(1)
Summit maintained exclusive rights to its Visual Testbench technology and
CSC entered into an agreement to purchase a minimum of $16,000,000 of Visual
Testbench licenses over a thirty-month period subject to specified quarterly
maximums and certain additional conditions and $2,000,000 of maintenance over
an eighteen month period. At the completion of the thirty month period, under
certain conditions, CSC may obtain shared ownership to the Visual Testbench
for sales into the ATE marketplace.
- -------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 17 for a discussion of factors that could affect future performance.
-10-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial data
as a percentage of revenue.
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Product licenses................ 78.3% 76.5% 76.8% 76.8%
Maintenance and services........ 19.9 20.5 21.2 20.2
Other........................... 1.8 3.0 2.0 3.0
----- ----- ----- -----
Total revenue............... 100.0 100.0 100.0 100.0
Cost of revenue:
Product licenses................ 2.3 3.1 2.6 3.0
Maintenance and services........ 2.0 2.3 1.8 2.2
----- ----- ----- -----
Total cost of revenue....... 4.3 5.4 4.4 5.2
----- ----- ----- -----
Gross profit................ 95.7 94.6 95.6 94.8
Operating expenses:
Research and development........ 23.3 30.3 22.7 30.5
Sales and marketing............. 36.1 45.7 37.3 47.0
General and administrative (a).. 12.3 17.5 15.1 16.5
----- ----- ----- -----
Total operating expenses.... 71.7 93.5 75.1 94.0
----- ----- ----- -----
Income from operations............... 24.0 1.1 20.5 0.8
Other income (expense), net.......... 3.2 0.0 3.2 (0.6)
----- ----- ----- -----
Income (loss) before income taxes.... 27.2 1.1 23.7 0.2
Income tax provision................. 1.4 0.7 1.3 (2.2)
----- ----- ----- -----
Net income (loss).................... 25.8% 0.4% 22.4% (2.0)%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
(a) General and administrative expenses for the six months ended June 30, 1997
include a one-time charge of $379,000 (2.8% of revenue) for costs relating
to the acquisition of TriQuest.
TOTAL REVENUE
The Company's revenue is comprised of product licenses revenue, maintenance and
services revenue and other revenue. Total revenue increased by 50% from $4.8
million for the three months ended June 30, 1996 to $7.1 million for the three
months ended June 30, 1997 and total revenue increased by 45.5% from $9.4
million for the six months ended June 30, 1996 to $13.6 million for the six
months ended June 30, 1997.
Sales through one distributor accounted for 11.4% and 9.8% and sales through
another distributor accounted for 5.7% and 9.3% of the Company's total
revenue for the three months ended June 30, 1997 and 1996, respectively.
Sales through one distributor accounted for 13.5% and 14.9% and sales through
another distributor accounted for 5.2% and 10.7% of the Company's total
revenue for the six months ended June 30, 1997 and 1996, respectively. Sales
to one customer accounted for 28.3 % of total revenue for the three months
ended June 30, 1997 and 15.6% of total revenue for the six months ended June
30, 1997. Sales to two additional customers accounted for 12.0% and 10.7%,
respectively, of the Company's total revenue for the three months ended June
30, 1996. No single customer accounted for more than 10% of the Company's
total revenue for the six months ended June 30, 1996.
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 53% from $3.6 million for the three months ended
-11-
<PAGE>
June 30, 1996 to $5.6 million for the three months ended June 30, 1997, and
increased by 45.5% from $7.2 million for the six months ended June 30, 1996
to $10.5 million for the six months ended June 30, 1997. Revenue from SLDA
and Design to Test products accounted for 82.8% and 17.2% of product
licenses revenue for the three months ended June 30, 1997 and June 30, 1996,
respectively, and 71.0% and 29.0%, of product licenses revenue for the six
months ended June 30, 1997 and June 30, 1996, respectively. Revenue from
SLDA and Design to Test products accounted for 80.4% and 19.6%, respectively,
of product licenses revenue for the six months ended June 30, 1997 and 70.9%
and 29.1%, respectively, of product licenses revenue for the six months ended
June 30, 1996. Because of the addition of SLDA functionality to Visual
Testbench version 2.0, beginning with the release of version 2.0 in December
1996, the Company recognizes revenue from Visual Testbench products as SLDA
revenue instead of Design to Test revenue.
SLDA revenue increased 78.3 % from $2.6 million for the three months ended
June 30, 1996 to $4.6 million for the three months ended June 30, 1997. SLDA
revenue increased 64.9% from $5.1 million for the six months ended June 30,
1996 to $8.4 million for the three months ended June 30, 1997. The increase
in SLDA revenue for the three months ended June 30, 1997, over the same
period in 1996 was primarily attributable to sales of Visual interface
licenses to a single customer and the increase in revenue for the six months
ended June 30, 1997 was primarily attributable to revenue from the TriQuest
product portfolio that was not shipping in the comparable period in 1996 and
sales to the single customer. Significant sales to the single customer are
expected to continue over the next ten quarters pursuant to contractual
arrangements with that customer.
Design to Test revenue decreased slightly from $1.1 million for the three months
ended June 30, 1996 to $1.0 million for the three months ended June 30, 1997 and
remained stable at $2.1 million for the six months ended June 30, 1997 and 1996.
This decrease was anticipated as a result of entering into a definitive
agreement on May 19, 1997 to sell substantially all of the assets used in the
business of developing and marketing the TDS Products.
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 45.1% from $977,000 for the three months ended
June 30, 1996 to $1.4 million for the three months ended June 30, 1997.
Maintenance and services revenue increased 53.0% from $1.9 million for the six
months ended June 30, 1996 to $2.9 million for the six months ended June 30,
1997. The increase was primarily attributable to an increase in maintenance
revenue related to growth in the installed base of SLDA customers over the last
year, net of a slight decrease in Design to Test maintenance revenue. Design to
Test maintenance and services revenue was $695,000 and $710,000 for the three
months ended June 30, 1997 and 1996, respectively, and $1.4 million and $1.5
million for the six months ended June 30, 1997 and 1996, respectively.
OTHER REVENUE
Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. For the three months ended June
30, 1997 and 1996, respectively, other revenue was comprised of $125,000 and
$142,000 of distribution rights fees. For the six months ended June 30, 1997
and 1996, respectively, other revenue was comprised of $267,000 and $284,000
of distribution rights fees. In May 1997 a distribution agreement expired;
the distribution rights fees paid at the inception of the agreement and
amortized to revenue at $50,000 each quarter over the agreement period will
no longer be a source of other revenue. Total other revenue relating to the
TDS product line amounted to $42,000 and $50,000 for the six months ended
June 30, 1997 and June 30, 1996, respectively. No material costs were
associated with other revenue for the three months and six months ended June
30, 1997 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. The cost of
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<PAGE>
product license revenue increased from $146,000 for the three months ended
June 30, 1996 to $164,000 for the three months ended June 30, 1997 and from
$278,000 for the six months ended June 30, 1996 to $349,000 for the six
months ended June 30, 1997. As a percentage of product licenses revenue, the
cost of product licenses revenue decreased from 3.1% of product license
revenue to 2.3% of product license revenue for the three months ended June
30, 1996 and 1997, respectively, and also decreased from 3.0% to 2.6% of
product license revenue for the six month ended June 30, 1996 and 1997,
respectively. The decrease in the cost of product license revenue as a
percent of revenue for the three months and six months ended June 30, 1997
over the same periods in 1996 was due primarily to a varying product mix
during the periods.
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 29.4% from $109,000 for the
three months ended June 30, 1996 to $141,000 for the three months ended June
30, 1997 and increased 18.5% from $211,000 for the six months ended June 30,
1996 to $250,000 for the six months ended June 30, 1997. As a percentage of
maintenance and services revenue, the cost of maintenance and services
revenue decreased from 2.3% for the three months ended June 30, 1996 to 2.0%
for the three months ended June 30, 1996 and decreased from 2.3% for the six
months ended June 30, 1996 to 1.8% for the six months ended June 30, 1997.
Additionally, the Company operated below forecasted staffing levels during
the first half of 1997, but anticipates increasing headcount during the
second half of 1997.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
Research and development expenses consist of the engineering and operations
support costs of developing new products and enhancements to existing
products and performing quality assurance activities. Research and
development expenses increased 14.6% from $1.4 million for the three months
ended June 30, 1996 to $1.7 million for the three months ended June 30, 1997.
Research and development expenses increased 8.1% from $2.9 million for the
six months ended June 30, 1996 to $3.1 million for the six months ended June
30, 1997. As a percentage of total revenue, research and development expenses
decreased from 30.3% for the three months ended June 30, 1996 to 23.3% for
the three months ended June 30, 1997 and also decreased as a percentage of
revenue from 30.5% for the six months ended June 30, 1996 to 22.7% for the
six months ended June 30, 1997 due to the increase in total revenue for 1997.
The Company believes that significant investment in research and development
is required to remain competitive in its markets.
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 18.0% from $2.2 million for the three months
ended June 30, 1996 to $2.6 million for the three months ended June 30, 1997
and increased 15.5% from $4.4 million for the six months ended June 30, 1996
to $5.1 million for the six months ended June 30, 1997. The increase was
attributable to the addition of ten sales and marketing personnel and the
related increased commissions and travel expenses. As a percentage of total
revenue, sales and marketing expenses decreased from 45.7% for the three
months ended June 30, 1996 to 36.1% for the three months ended June 30, 1997
and decreased from 47.0% for the six months ended June 30, 1996 to 37.4% for
the six months ended June 30, 1997. The percentage decrease was attributable
to the increase in total revenue for 1997.
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<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, and legal and
accounting expenses of the Company. General and administrative expenses
increased 5.8% from $830,000 for the three months ended June 30, 1996 to
$878,000 for the three months ended June 30, 1997 and increased 33.1% from
$1.5 million for the six months ended June 30, 1996 to $2.1 million for the
six months ended June 30, 1997, which includes a $379,000 one-time charge for
costs associated with the acquisition of TriQuest. Excluding this one-time
charge, expenses increased by $132,000 (8.5%) for the six months ended June
30, 1997 as compared to the same period in the prior year. As a percentage of
total revenue, excluding the one time charge for costs associated with the
acquisition of TriQuest, general and administrative expenses decreased from
17.4% for the three months ended June 30, 1996 to 12.3% for the three months
ended June 30, 1997 and decreased from 16.5% for the six months ended June
30, 1996 to 12.3% for the six months ended June 30, 1997. The decrease as a
percentage of total revenue was attributable to the increase in total revenue
in 1997. The sale of the TDS product line is not expected to significantly
affect general and administrative expense. The Company expects general and
administrative expenses to increase in absolute dollars to support future
sales and operations, including acquired operations, and the additional costs
associated with being a public company.(2)
INTEREST EXPENSE
Interest expense decreased from $9,000 for the three months ended June 30,
1996 to $2,000 for the three months ended June 30, 1997 and decreased from
$76,000 for the six months ended June 30, 1996 to $9,000 for the six months
ended June 30, 1997 due to decreased borrowings under the Company's bank
line of credit, long term debt and capital leases obligations.
OTHER INCOME, NET
Other income consists of interest income associated with available cash
balances, gains or losses from the sale of property and equipment, the
Company's pro rata share of earnings and losses of Summit Design Asia and
foreign exchange rate differences resulting from paying operating expenses of
foreign operations in the local currency. Other income was $7,000 for the
three months ended June 30, 1996 and $231,000 for the three months ended June
30, 1997 and $22,000 for the six months ended June 30, 1996 and $449,000 for
the six months ended June 30, 1997. The increase in other income was
primarily due to increased interest earned on the Company's cash holdings.
INCOME TAX PROVISION
The income tax provision decreased from $176,000 for the three months ended
June 30, 1996 to $80,000 for the three months ended June 30, 1997 and
decreased from $209,000 for the six months ended June 30, 1996 to $180,000
for the six months ended June 30, 1997. 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. The
provision for the three months and six months ended June 30, 1997 is
comprised primarily of Federal alternative minimum tax and Israeli income
taxes. The Company's regular Federal tax liability is fully offset by the
utilization of net operating loss carryforwards. The Federal alternative
minimum tax results from the limitation on the use of net operating loss
carryforwards for alternative minimum tax purposes.
- ----------
(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 17 for a discussion of factors that could affect future performance.
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<PAGE>
VARIABILITY OF OPERATING RESULTS
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 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 latter
part of the month. 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. 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.
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 December 31, 1996, the Company had recorded U.S.
federal and state NOLs of approximately $9.0 million and $5.6 million,
respectively and Israeli NOLs of approximately $4.7 million. 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
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<PAGE>
operations. Thus, due to a change in ownership resulting from the
Reorganization and a subsequent preferred stock financing, a portion of the
federal and state NOLs 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.(1)
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.
The Company has concluded that a valuation allowance is required to reduce
the net deferred tax asset to $500,000 after taking into consideration the
Company's cumulative losses and the fact that the Company has a limited
history of generating 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
The Company completed its initial public offering in October 1996, raising
$16.2 million, net of offering expenses. Prior to the IPO, the Company had
financed its operations primarily through the private placement of
approximately $15.4 million of capital stock, as well as capital equipment
leases, borrowings under its bank line of credit, Israeli research and
development grants and cash generated from operations. As of June 30, 1997,
the Company had approximately $22.0 million in cash and cash equivalents and
a $1.0 million bank line of credit with United States National Bank of
Oregon ("the Bank"). The line of credit expires on April 30, 1998.
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 collateralized by the
Company's accounts receivable, inventory and general intangible
- ----------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 17 for a discussion of factors that could affect future performance.
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<PAGE>
assets, including its intellectual property rights. As of June 30, 1997, the
Company had no borrowings outstanding under this line of credit.
The Company is obligated to lend up to $2.5 million to an independent
software development company pursuant to a secured loan agreement entered in
July 1997. Borrowings under the agreement bear interest at prime rate plus 2%.
As of June 30, 1997, the Company had working capital of approximately $19.9
million.
Net cash generated by operating activities was approximately $3.2 million and
$3.5 million for the six months ended June 30, 1997 and 1996, respectively.
Cash generated by operating activities resulted primarily from profitable
operations for the six months ended June 30, 1997, and from the significantly
improved collection of accounts receivable and an increase in deferred
revenues for the six months ended June 30, 1996.
Net cash used in investing activities was approximately $1.2 million and
$495,000 for the six months ended June 30, 1997 and 1996, respectively. Net
cash used in investing activities was related to the acquisition of
furniture and equipment in 1997 and 1996, $425,000 of loans to employees in
1997 and a $100,000 investment in a joint venture in 1996.
Net cash provided by financing activities for the six months ended June 30,
1997,was approximately $184,000. Approximately $305,000 was provided by the
issuance of common stock, while approximately $121,000 was used for repayment
of debt and capital lease obligations. Net cash used in financing activities
for the six months ended June 30, 1996, was approximately $263,000 which
resulted from approximately $1.4 million of cash used for repayment of short
term borrowings, long-term debt and capital lease obligations off set by
$54,000 of cash provided by proceeds from long-term debt and approximately
$1.1 million of cash provided from the issuance of Summit common and TriQuest
preferred stock.
The Company presently believes that its current cash and cash equivalents,
together with 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.(2)
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE OF
STOCK
HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS
While the Company has generated net income on an annual basis in 1996 and
the first two quarters of 1997, 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 latter
part of the month. Any significant deferral of purchases of the Company's
products could have a material adverse effect on the Company's business,
financial condition and
- ----------
(2) This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
this page for a discussion of factors that could affect future performance.
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<PAGE>
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.
PRODUCT CONCENTRATION; UNCERTAINTY OF MARKET ACCEPTANCE OF SLDA
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.
Effective July 1, 1997, as a result of the Asset Sale, TDS products will
cease to be a source of such revenue. The Company believes that Visual HDL
products will continue to account for substantially all of its revenue in
the future. As a result, factors adversely affecting sales of these products,
including increased competition, inability to successfully introduce enhanced
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 three months and the six months ended June 30, 1997 and for the years
ended December 31, 1996, 1995 and 1994, respectively, revenue from SLDA
products and related maintenance contracts represented 76.5%, 74.1%, 60.9%,
43.6% 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 creation 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.
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<PAGE>
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 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 in excess of the revenue expected to be received pursuant to
an OEM agreement entered into in July 1997. The failure of Visual Testbench
to achieve market acceptance will have a material adverse effect on the
Company's business, financial condition and results of operations.
COMPETITION
The EDA industry is highly competitive and the Company expects competition to
increase as other EDA companies introduce SLDA 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.
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 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.
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<PAGE>
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.
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,
Mentor Graphics and 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 business, financial condition and results
of operations could be materially adversely affected.
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. 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.
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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.
DEPENDENCE ON DISTRIBUTORS
The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 43%, 49%, 46%, 42% and 38% of the
Company's revenue for the six months ended June 30, 1997 and 1996 and for the
years ended December 31, 1996, 1995 and 1994, respectively, were attributable
to sales made through distributors. The Company has also entered into a joint
venture with Anam pursuant to which the joint venture corporation (Summit
Design Korea, Inc. ("Summit Asia")) sells, distributes and supports all of
the Company's products in the Asia-Pacific region, excluding Japan. 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 first
quarter of 1997, the Company entered into a distribution agreement with ATE
pursuant to which ATE was granted exclusive rights to sell, distribute and
support Summit's Visual Testbench 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. For the year ended December 31, 1996 and six months ended June
30, 1997, 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
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.
INTERNATIONAL SALES AND OPERATIONS
Approximately 50%, 52% and 39% of the Company's revenue for the years ended
December 31, 1996, 1995 and 1994, 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,
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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.
MANAGEMENT OF GROWTH AND ACQUISITIONS
Summit's ability to achieve significant growth will require it to implement
and continually expand its operational and financial systems, recruit
additional employees and train and manage current and future employees.
Summit expects any such growth will place a significant strain on its
operational resources and systems. Failure effectively to manage any such
growth would have a material adverse effect on Summit's business, financial
condition and results of operations.
On February 28, 1997, Summit completed its acquisition of TriQuest. As a
result of the acquisition, Summit's operating expenses are expected to
increase. There can be no assurance that the integration of TriQuest's
business can be successfully completed in a timely fashion, or at all, or
that the revenues from TriQuest will be sufficient to support the costs
associated with TriQuest's business, without adversely affecting Summit's
operating margins. Any failure to successfully complete the integration in a
timely fashion or to generate sufficient revenues from the acquired business
could have a material adverse effect on Summit's business and results of
operations. In addition, Summit regularly evaluates acquisition
opportunities. Future acquisitions by Summit could result in potentially
dilutive issuance's of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and
other intangible assets, which could materially adversely affect Summit's
results of operations. Product and technology acquisitions entail numerous
risks, including difficulties in the assimilation of acquired operations,
technologies and products, diversion of management's attention to other
business concern, risks of entering markets in which Summit has no or
limited prior experience and potential loss of key employees of acquired
companies. Summit's management has had limited experience in assimilating
acquired organizations and products into Summit's operations. No assurance
can be given as to the ability of Summit to integrate successfully any
operations, personnel or products that have been acquired or that might be
acquired in the future, and the failure of Summit to do so could have a
material adverse effect on Summit's results of operations.
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 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
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annual costs and expenses in Israel are paid in Israeli currency. These
costs and expenses were approximately $4.3, $4.3 and $2.9 million in 1996,
1995 and 1994, 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
11%, 8% and 15% during 1996, 1995, and 1994, 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 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.
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.
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 June 30, 1997, the Company was obligated to
pay back approximately $232,000 and $470,000 for the 1993 and 1995 grants,
respectively. Such obligations are
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collateralized 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. 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 $423,000. 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 JUNE 30, 1997,
approximately $364,000 was outstanding under the grant.
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. 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.
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POSSIBLE VOLATILITY OF STOCK PRICE
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. 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.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to the stockholders at the Company's
Annual Meeting of Stockholders held on May 28, 1997. Each of these matters
was approved by a majority of the shares present at the meeting.
1. The election of a Class I director to serve for a term of one year,
the election of two Class II directors to serve for a term of two years and
the election of two Class III directors to serve for a term of three years:
VOTES FOR VOTES WITHHELD
--------- --------------
CLASS I DIRECTOR
Steven P. Erwin 10,531,425 9,824
CLASS II DIRECTORS
William V. Botts 10,478,981 62,268
Barbara M. Karmel 10,480,481 60,678
CLASS III DIRECTORS
Amihai Ben-David 10,531,425 9,824
Larry J. Gerhard 10,529,925 11,324
2. The ratification of the appointment of Coopers & Lybrand L.L.P. as
the independent accountants for the Company for the fiscal year ending
December 31, 1997:
VOTES FOR VOTES AGAINST ABSTENTIONS
----------- ------------- -----------
10,526,386 10,233 4,630
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 Amended and Restated Bylaws, as amended.
10.20+ Software OEM License Agreement between the Registrant, Test
Systems Strategies, Inc. and Credence Systems Corporation
dated May 19, 1997.
10.21 Loan Agreement between the Registrant and Moshe Guy dated May
20, 1997.
11.1 Statement of Computation of Net Income per Share.
27 Financial Data Schedule.
+ Confidential treatment has been requested for certain portions
of this exhibit.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
Items 1, 2, 3 and 5 are not applicable and have been omitted.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT DESIGN, INC.
By: /s/ C. ALBERT KOOB
-------------------
C. Albert Koob
Vice President - Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
Date: August 13, 1997
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EXHIBIT INDEX
EXHIBIT 3.2 Amended and Restated Bylaws, as amended.
EXHIBIT 10.20+ Software OEM License Agreement between Registrant, Test
Systems Strategies, Inc. and Credence Systems Corporation
dated May 19, 1997.
EXHIBIT 10.21 Loan Agreement between registrant and Moshe Guy dated May 20,
1997.
EXHIBIT 11.1 Statement of Computation of Net Income Per Share
EXHIBIT 27 Financial Data Schedule
+ Confidential treatment has been requested for certain portions
of this exhibit.
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
SUMMIT DESIGN, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Friday of June in each year at 3:00 p.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected and
any other proper business may be transacted.
<PAGE>
(a) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (B) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than sixty (60)
days nor more than ninety (90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
to be timely must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and address, as they appear
on the corporation's books, of the stockholder proposing such business,
(iii) the class and number of shares of the corporation which are beneficially
owned by the stockholder, (iv) any material interest of the stockholder in such
business and (v) any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "1934 Act"), in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act. Notwithstanding
anything in these bylaws to the contrary, no business shall be conducted at any
annual meeting except in accordance with the procedures set forth in this
paragraph (a). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting in accordance with the provisions of this paragraph (a), and,
if he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
(b) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (b) shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (b). Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (a) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
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understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (a) of
this Section 2.2. At the request of the board of directors, any person
nominated by a stockholder for election as a director shall furnish to the
Secretary of the corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (b). The chairman
of the meeting shall, if the facts warrants, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
2.3 SPECIAL MEETING
Special meetings of stockholders for any purpose or purposes may be called
at any time by the board of directors, or by a committee of the board of
directors which has been duly designated by the board of directors and whose
powers and authority, as expressly provided in a resolution of the board of
directors, include the power to call such meetings, but, except as otherwise
provided in Section 3.4(c) of these bylaws, such special meetings may not be
called by any other person or persons.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting and (i) in the case of a special meeting,
the purpose or purposes for which the meeting is called (no business other than
that specified in the notice may be transacted) or (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the stockholders (but any
matter properly brought before the meeting may be presented at the meeting for
such action). The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees who, at the time of the
notice, the board intends to present for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer
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agent of the corporation that the notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
The stockholders present at a duly called or held meeting at which a quorum
is present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
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2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
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If the board of directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting (if permitted), when no
prior action by the board of directors is necessary, shall be the day on which
the first written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of
Section 212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The authorized number of directors shall be seven (7). This number may be
changed by a duly adopted amendment to the certificate of incorporation or by an
amendment to this bylaw adopted by the vote or written consent of the holders of
a majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall hold
office until the expiration of the term for which elected. Directors need not
be stockholders unless so required by the certificate of incorporation or these
bylaws, wherein other qualifications for directors may be prescribed. Each
director, including a director elected to fill a vacancy, shall hold office
until his successor is elected and qualified or until his earlier resignation or
removal.
Effective as of the date of the first regularly-scheduled annual meeting
of the stockholders following the closing date of this corporation's initial
public offering (the "Closing Date"), the directors of the corporation shall
be divided into three classes as nearly equal in size as is practicable,
hereby designated Class I, Class II and Class III. The term of office of the
initial Class I directors shall expire at the second annual meeting of the
stockholders following the Closing Date, the term of office of the initial
Class II directors shall expire at the third annual meeting of the
stockholders following the Closing Date and the term of office of the initial
Class III directors shall expire at the fourth annual meeting of the
stockholders following the Closing Date. At each annual meeting of
stockholders, commencing with the second regularly-scheduled annual meeting
of stockholders following the Closing Date, each of the successors elected to
replace the directors of a Class whose term shall have expired at such annual
meeting shall be elected to hold office until the third annual meeting next
succeeding his or her election and until his or her respective successor
shall have been
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duly elected and qualified. If the number of directors is hereafter changed,
any newly created directorships or decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal in
number as is practicable, provided that no decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
(a) Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, unless otherwise provided in the certificate of
incorporation, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
(b) Unless otherwise provided in the certificate of incorporation or
these bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
(c) If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
(d) If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors
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then in office as aforesaid, which election shall be governed by the
provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
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communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute, or by the certificate of
incorporation or in these bylaws. If a quorum is not present at any meeting of
the board of directors, then the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may
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be, consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be removed
only for cause by the holders of a majority of the shares then entitled to vote
at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of
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any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the board of directors or in the bylaws of the
corporation, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to
all papers that may require it; but no such committee shall have the power or
authority to (i) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of
directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement
of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (iii) recommend to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property
and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a chief financial officer. The corporation may
also have, at the discretion of the board of directors, a chairman of the board,
one or more assistant vice presidents, assistant secretaries and any such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 of these bylaws, shall be
chosen by the board of directors, subject to the rights, if any, of an officer
under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the corporate officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate corporate officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be
such administrative officers of the corporation as may be designated and
appointed from time to time by the president of the corporation.
Administrative officers shall perform such duties and have such powers as
from time to time may be determined by
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the president or the board of directors in order to assist the corporate
officers in the furtherance of their duties. In the performance of such
duties and the exercise of such powers, however, such administrative officers
shall have limited authority to act on behalf of the corporation as the board
of directors shall establish, including but not limited to limitations on the
dollar amount and on the scope of agreements or commitments that may be made
by such administrative officers on behalf of the corporation, which
limitations may not be exceeded by such individuals or altered by the
president without further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation or any subsidiary, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of
its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising
by reason of the fact that such person is or was an agent of the corporation.
For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is
or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or
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other enterprise, or (iii) who was an employee or agent of a corporation
which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
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so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
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Corporation Law of Delaware, in lieu of the foregoing requirements there may
be set forth on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests
the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
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8.9 SEAL
The corporate seal shall have the name of the corporation inscribed thereon
and shall be in such form as may be approved from time to time by the board of
directors.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
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ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation
entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in accordance
with the provisions of Section 275 of the General Corporation Law of Delaware
and setting forth the names and residences of the directors and officers
shall be executed, acknowledged, and filed and shall become effective in
accordance with Section 103 of the General Corporation Law of Delaware. Upon
such certificate's becoming effective in accordance with Section 103 of the
General Corporation Law of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
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(a) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(b) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(c) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF
THE ASSISTANT SECRETARY OF
SUMMIT DESIGN, INC.
I, Steven V. Bernard, being the duly elected and acting Assistant Secretary
of Summit Design, Inc. (the "Company"), do hereby certify that the following is
a true and correct copy of a resolution of the Company adopted by the Board of
Directors on April 16, 1997, and that such resolution has not been amended or
rescinded, and is now in full force and effect:
RESOLVED: That the Board of Directors hereby approves the amendment and
restatement of Section 3.2 of the Company's Amended and Restated Bylaws, in
substantially the form attached hereto as EXHIBIT A, with such changes as
the officers deem appropriate in consultation with legal counsel, to
decrease the number of authorized directors from seven (7) to five (5),
effective concurrently with the election of directors at the 1997 Annual
Meeting of Stockholders.
IN WITNESS WHEREOF, I have hereunto subscribed my name.
DATE: April 28, 1997 /s/ Steven V. Bernard
----------------------------------------
Steven V. Bernard
Assistant Secretary
<PAGE>
EXHIBIT A
That Section 3.2 of Article III of the Amended and Restated Bylaws be amended
and restated to read as follows:
"Section 3.2 NUMBER OF DIRECTORS. The authorized number of directors
shall be five (5). This number may be changed by a duly adopted amendment
to the certificate of incorporation or by an amendment to this bylaw
adopted by the vote or written consent of the holders of a majority of the
stock issued and outstanding and entitled to vote or by resolution of a
majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term expires."
<PAGE>
Exhibit 10.20
SOFTWARE OEM LICENSE AGREEMENT
This Software License and OEM Agreement ("Agreement") is entered into this
19th day of May, 1997 (the "Effective Date") by and between Summit Design, Inc.,
a Delaware corporation with principal offices at 9305 SW Gemini Drive,
Beaverton, Oregon 97008 and Test Systems Strategies, Inc., an Oregon corporation
(collectively, "SDI"), and Credence Systems Corporation, a Delaware corporation
with principal offices at 215 Fourier Avenue, Fremont, California 94539 ("CSC").
RECITALS
WHEREAS, CSC desires to purchase licenses to certain SDI software products,
and SDI desires to sell such licenses to CSC in accordance with the terms of
this Agreement; and
WHEREAS, SDI desires to grant to CSC, and CSC desires to receive from SDI,
a non-exclusive license to bundle certain of SDI's products with certain CSC
products and to distribute such SDI products, in object code format only, with
CSC's products in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
Section 1
DEFINITIONS
For purposes of this Agreement the following terms shall have the meanings
set forth below:
1.1 CSC PRODUCTS. "CSC Products" means those CSC automatic test equipment
products which are described on SCHEDULE A attached to this Agreement, as it may
be amended from time to time by mutual agreement of the parties.
1.2 SDI DOCUMENTATION. "SDI Documentation" means all written or
electronic technical documentation furnished by SDI during the term of this
Agreement that relates to the VTB Software.
1.3 VTB. "VTB Software" means SDI's proprietary software, in
machine-readable, compiled object code format only, as more fully described
on SCHEDULE B, including any bug fixes, corrections, or other modifications
hereinafter furnished to CSC by SDI in connection with the VTB Software,
whether requested by CSC pursuant to a Maintenance Agreement between CSC and
SDI or initiated by SDI.
1.4 MAINTENANCE AGREEMENT. "Maintenance Agreement" shall mean the
maintenance agreement for maintenance of the VTB Software in the form set forth
in SCHEDULE C.
<PAGE>
1.5 END USER LICENSE AGREEMENT. "End User License Agreement" shall mean
the end user license agreement for the VTB Software in the form set forth in
SCHEDULE E.
Section 2
PURCHASE GRANT AND DELIVERABLES
2.1 VTB SOFTWARE LICENSE PURCHASE. CSC shall purchase licenses to the VTB
Software for the prices and in the quantity set forth in SCHEDULE D, in
accordance with the terms set forth in SCHEDULE D. Each of such licenses shall
be subject to the terms of the End User License Agreement.
2.2 MAINTENANCE PURCHASE. CSC and SDI shall execute the Maintenance
Agreement set forth in SCHEDULE C, as of the date hereof. CSC shall sign an
irrevocable purchase order for such Maintenance Agreement for eighteen (18)
months of maintenance for an aggregate purchase price of $2,000,000. Payment
shall be made upon Closing (as defined in the Asset Purchase Agreement among
CSC, SDI and Test Systems, Inc.) ("Closing") by wire transfer to a bank account
designated by SDI.
2.3 DISTRIBUTION LICENSE. Subject to the terms and conditions of this
Agreement, SDI hereby grants to CSC and its affiliates, under all of SDI's
intellectual property rights in and to the VTB Software, a worldwide,
non-exclusive, non-transferable (except as provided in Section 10.2 below)
license to use the VTB Software for internal purposes (provided a license for
such use has been purchased from SDI) and distribute units of VTB Software
purchased hereunder through its normal distribution channels, in
machine-readable, compiled object code format only, and only when bundled
with CSC Products or sold to customers of CSC who have purchased CSC
Products. For each CSC Product sold to a customer, CSC shall only issue one
(1) VTB Software license and the VTB Software shall only be distributed to
end users who agree to be bound by the terms of the End User License
Agreement. Except as expressly provided in Section 2.4 below, CSC shall have
no right to sublicense the rights granted hereunder by SDI, provided that CSC
and its affiliates may use subdistributors in their distribution efforts.
CSC agrees that it shall be responsible for the compliance of its affiliates
and subdistributors of the relevant terms of this Agreement. CSC shall not
distribute or market the VTB Software in any manner except as expressly
provided in this Section 2.3. Notwithstanding the foregoing, SDI agrees that
it shall not distribute the VTB Software through OEM's which are automatic
test equipment vendors to the semiconductor industry prior to January 1, 2000.
2.4 SUBLICENSING OF VTB SOFTWARE BY CSC.
2.4.1 RESTRICTIONS. Each unit of VTB Software shall be
distributed by CSC with a license in the form set forth on SCHEDULE E.
2.4.2 INDEMNITY. CSC shall be solely responsible for, and SDI
shall have no obligation to honor, any warranties that CSC provides to its
customers with respect to the VTB Software that are in addition to, or
inconsistent with, the warranties provided by SDI in this
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Agreement or the End User License Agreement. CSC shall defend any claim
against SDI arising in connection with any such warranties to CSC's
customers, express, implied, statutory, or otherwise, and shall pay any
settlements or damages awarded to SDI that are based on any such warranty.
2.4.3 INFRINGEMENTS. CSC agrees to use reasonable commercial
efforts to enforce violations or infringements under any agreements for the VTB
Software with its customers and to inform SDI promptly of any known violation,
infringement or breach.
2.5 DOCUMENTATION. SDI shall provide the SDI Documentation included with
each unit of the VTB Software.
2.6 PROPRIETARY NOTICES. CSC shall not remove, efface or obscure any
copyright notices or other proprietary notices or legends from any SDI materials
provided hereunder.
2.7 OWNERSHIP. SDI shall retain all right, title and interest, including
all intellectual property rights, in and to the VTB Software and SDI
Documentation, except as otherwise provided in the Software Development
Agreement of even date herewith.
2.8 REPORTING. CSC shall, within thirty (30) days of the end of each
calendar quarter during the term of this Agreement, prepare a report summarizing
the number and type of copies of VTB Software distributed during such quarter.
2.9 AUDIT. CSC shall maintain complete and accurate accounting records,
in accordance with sound accounting practices, to support and document VTB
Software licenses distributed in connection with this Agreement. Such records
shall be retained for a period of at least two (2) years after the year to which
they pertain.
2.10 VTB SOFTWARE STEERING COMMITTEE. SDI and CSC will each appoint two
(2) representatives to a steering committee to coordinate information on the
development of the VTB Product in accordance with Section 2.1 of the Software
Development Agreement of even date herewith.
Section 3
SDI TRADEMARKS
CSC acknowledges that the symbols, trademarks and service marks adopted by
SDI or its suppliers to identify the VTB Software, as set forth in SCHEDULE F
attached to this Agreement (the "Trademarks"), belong to SDI and its suppliers
and that CSC shall have no rights in such Trademarks except as expressly set
forth herein. All VTB Software distributed by CSC hereunder and all
documentation, associated brochures, packaging and advertising shall display the
Trademarks in accordance with SDI's reasonable instruction, samples of all
materials that may be distributed by CSC displaying the Trademarks shall be
submitted to SDI upon SDI's reasonable request, and the Trademarks shall be used
only in a form so approved by SDI.
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Section 4
TERM
4.1 INITIAL TERM. This Agreement shall become effective on the Effective
Date and shall remain in effect until January 1, 2000. This Agreement may be
renewed upon the mutual written agreement of the parties. Each party's remedy
for breach of this Agreement shall be an action for damages or injunctive
relief; neither party shall be entitled to terminate this Agreement for any
reason.
4.2 SURVIVAL. The sublicenses granted to end users pursuant to
Section 2.4.1 shall survive the expiration of this Agreement pursuant to their
terms. Also, provisions of Sections 2.7 (Ownership), 2.10 (Audit), 4 (Term),
5 (Confidentiality), 9 (Limitation of Liability) and 10 (Miscellaneous) shall
survive the expiration of this Agreement.
Section 5
CONFIDENTIALITY
5.1 OBLIGATIONS. Each party (the "receiving party") acknowledges and
agrees that any business and technical information provided to the receiving
party by the other party (the "disclosing party") hereunder constitutes the
confidential and proprietary information of the disclosing party, and that the
receiving party's protection thereof is essential to this Agreement and a
condition to the receiving party's use and possession thereof. The receiving
party shall retain in strict confidence and not disclose to any third party
(except as authorized by this Agreement) without the disclosing party's express
written consent, any and all such information. CSC acknowledges and agrees that
the VTB Software is confidential and proprietary information of SDI.
5.2 EXCEPTIONS. The receiving party shall be relieved of this obligation
of confidentiality to the extent any such information:
(i) was in the public domain at the time it was disclosed
or has become in the public domain through no fault of the receiving party;
(ii) the receiving party can prove was known to the
receiving party, without restriction, at the time of disclosure as shown by
the files of the receiving party in existence at the time of disclosure;
(iii) is disclosed by the receiving party with the prior
written approval of the disclosing party;
(iv) the receiving party can prove was independently
developed by the receiving party without any use of the disclosing party's
confidential information and by
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employees or other agents of the receiving party who have not had access to
any of the disclosing party's confidential information; or
(v) becomes known to the receiving party, without
restriction, from a source other than the disclosing party without breach
of this Agreement by the receiving party and otherwise not in violation of
the disclosing party's rights.
5.3 SOURCE CODE PROTECTIONS. Unless as otherwise permitted under this
Agreement or another written agreement between CSC and SDI, CSC shall not under
any circumstances attempt, or knowingly permit others to attempt, to decompile,
decipher, disassemble, reverse engineer or otherwise determine the source code
for the VTB Software.
5.4 CONFIDENTIALITY AGREEMENTS. The receiving party, prior to permitting
access by any individual to any of the disclosing party's confidential
information, shall enter into a confidentiality agreement with each such
individual which (i) incorporates the protections and restrictions set forth
herein for the disclosing party's confidential information; (ii) provides that
the individual's obligations with respect to the disclosing party's confidential
information shall continue after termination of the individual's employment,
consulting relationship or other relationship with the receiving party; and
(iii) provides that the disclosing party is a direct and intended beneficiary of
the agreement and entitled to enforce it directly against the individual.
5.5 NOTIFICATION OF SECURITY BREACH. The receiving party agrees to notify
the disclosing party promptly in the event of any breach of its security under
conditions in which it would appear that the trade secrets contained in the VTB
Software were prejudiced or exposed to loss. The receiving party shall, upon
request of the disclosing party, take all other reasonable steps necessary to
recover any compromised trade secrets disclosed to or placed in the possession
of the receiving party by virtue of this Agreement. The cost of taking such
steps shall be borne solely by the receiving party.
5.6 INJUNCTIVE RELIEF. Each receiving party acknowledges that any breach
of any of its obligations with respect to confidentiality or use of the
disclosing party's confidential information hereunder is likely to cause or
threaten irreparable harm to the disclosing party, and, accordingly, the
receiving party agrees that in the event of such breach the disclosing party
shall be entitled to seek equitable relief to protect its interest therein,
including but not limited to preliminary and permanent injunctive relief, as
well as money damages.
Section 6
REPRESENTATIONS AND WARRANTIES
6.1 WARRANTY OF TITLE. SDI warrants and represents to CSC that (i) CSC
shall acquire good and clear title to the VTB Software, free and clear of all
liens and encumbrances, (ii) all materials and services provided hereunder
including, without limitation, the VTB Software, are either owned or properly
licensed by SDI or are in the public domain and the use thereof by CSC, its
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representatives, distributors or dealers will not infringe any proprietary
rights of any third party; provided, however, that SDI's obligations under
Section 7 shall be CSC's sole remedy for any breach of this warranty; and
(iii) SDI has the full power to enter into this Agreement, to carry out its
obligations under this Agreement and to grant the rights and licenses granted to
CSC in this Agreement.
6.2 PRODUCT WARRANTY. SDI warrants the VTB Software under the warranty
set forth in the End User License Agreement.
Section 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY SDI. SDI agrees to indemnify, defend and hold
harmless CSC, its affiliates, and their respective officers, directors,
employees, distributors, agents, successors and assigns from and against any and
all loss, damage, settlement or expense (including reasonable legal expenses),
as incurred, resulting from or arising out of any claims which allege that the
VTB Software or the use or sale thereof infringe upon, misappropriate or violate
any patents, copyrights, or trade secret rights or other proprietary rights of
persons, firms or entities who are not parties to this Agreement; provided that
CSC (i) promptly notifies SDI, in writing, of any notice or claim of such
alleged infringement or misappropriation involving the VTB Software of which it
becomes aware; (ii) permits SDI to control, the defense, settlement, adjustment
or compromise of any such claim; (iii) the claim does not result from
modification of the VTB Software which modification is not authorized by SDI;
and (iv) the claim does not result from the combination of the VTB Software with
software or equipment not provided by SDI if the VTB Software alone would not be
the subject of the claim. CSC may employ counsel, at its own expense (provided
that if such counsel is necessary because SDI does not assume control, SDI will
bear such expense), to assist it with respect to any such claim. CSC shall have
no authority to settle any claim on behalf of SDI.
7.2 INJUNCTION. If by reason of such infringement claim, CSC or its
customers shall be prevented or are likely to be prevented by legal means from
selling or using any VTB Software, or if, in SDI's opinion, such claim is likely
to occur, SDI will use its commercially reasonable efforts, at its expense, to:
(i) obtain all rights required to permit the sale or use of the VTB Software by
CSC; or (ii) modify or replace such VTB Software to make then non-infringing
(and extend this indemnity thereof), provided that any such replacement or
modified VTB is functionally equivalent to the VTB Software. If SDI is unable
to achieve either of the options set forth above within a reasonable period of
time after the issuance of the injunction, or reasonably believes that an
injunction will issue and that such options cannot be achieved within a
reasonable period of time, then neither party will sell or distribute the VTB
Software in accordance with the terms of such injunction or SDI's reasonable
instructions. Notwithstanding the foregoing, all payments due from CSC
hereunder shall be paid whether or not the VTB Software may be used, sold or
distributed by any of the parties under such injunction or instructions of SDI.
This Section 7 states SDI's entire obligation with respect to claims that the
VTB Software or any rights therein infringe or misappropriate the rights of any
third party.
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Section 8
CSC WAVEBRIDGE PRODUCTS
CSC agrees to sell CSC Wavebridge products to SDI's customers who have
purchased VTB Software from SDI. Upon CSC's approval, subject to SDI executing
CSC's standard Sales Representative Agreement, SDI may solicit orders from its
VTB Software customers for CSC Wavebridge products, in which case CSC shall pay
to SDI a commission of forty percent (40%) of the amount received from CSC under
such sale.
Section 9
LIMITATION OF LIABILITY
EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS IN SECTIONS 2.4.2 AND 7, AND THE
CONFIDENTIALITY OBLIGATIONS IN SECTION 5, IN NO EVENT SHALL EITHER PARTY'S
LIABILITY ARISING OUT OF THIS AGREEMENT OR THE TERMINATION OF THIS AGREEMENT
EXCEED THE AMOUNTS PAID BY CSC TO SDI PURSUANT TO THIS AGREEMENT. IN NO EVENT
SHALL EITHER PARTY HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING
OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY.
Section 10
MISCELLANEOUS
10.1 CONFIDENTIALITY OF AGREEMENT. Both SDI and CSC agree that the terms
and conditions of this Agreement shall be treated as confidential information
and that no reference to the terms and conditions of this Agreement or to
activities pertaining thereto can be made in any form without the prior written
consent of the other party; provided, however, that the general existence of
this Agreement shall not be treated as confidential information and that either
party may disclose the terms and conditions of this Agreement:
(i) as required by any court or other governmental body;
(ii) as otherwise required by law including SDI's
obligations under applicable securities laws;
(iii) to legal counsel of the parties;
-7-
<PAGE>
(iv) in confidence, to accountants, banks, proposed
investors, and financing sources and their advisors;
(v) in confidence, in connection with the enforcement of
this Agreement or rights under this Agreement; or
(vi) in confidence, in connection with a merger or
acquisition or proposed merger or acquisition, or the like.
10.2 ASSIGNMENT. Neither this Agreement nor any rights, licenses or
obligations hereunder, may be assigned by either party without the prior written
approval of the non-assigning party. Notwithstanding the foregoing, either
party may assign this Agreement to a subsidiary or any acquiror of all or of
substantially all of such party's may assign this Agreement to any acquiror of
all or of substantially all of such party's equity securities, assets or
business relating to the subject matter of this Agreement, except to a direct
competitor of the other party. As a condition to such purported assignment, the
purported assignor shall provide to the other party written confirmation prior
to such assignment of such successor's assumption of this Agreement. Any
attempted assignment in violation of this Section shall be void and without
effect. Subject to the foregoing, this Agreement will benefit and bind the
parties' successors and assigns.
10.3 NOTICES. All notices between the parties shall be in writing and
shall be deemed to have been given if personally delivered or sent by certified
or registered mail (return receipt) or telecopy to the addresses set forth as
follows, or such other address as is provided by notice as set forth herein:
If to SDI to: Summit Design, Inc.
9305 SW Gemini Drive
Beaverton, Oregon 97008
Attn: Larry J. Gerhard
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Steven Bernard
If to CSC to: Credence Systems Corporation
215 Fourier Avenue
Fremont, California 94539
Attn: Wilmer R. Bottoms
with a copy to: Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303
Attn: Warren Lazarow
-8-
<PAGE>
Notices shall be deemed effective upon receipt or, if delivery is not
effected by reason of some fault of the addressee, when tendered.
10.4 RELATIONSHIP OF THE PARTIES. The parties hereto expressly understand
and agree that each party is an independent contractor in the performance of
each and every part of this Agreement, is solely responsible for all of its
employees and agents and its labor costs and expenses arising in connection
therewith. Neither party nor its agents or employees are the representatives of
the other party for any purpose and neither party has the power or authority as
agent, employee or any other capacity to represent, act for, bind or otherwise
create or assume any obligation on behalf of the other party for any purpose
whatsoever.
10.5 IMPORT AND EXPORT. Upon CSC's request, SDI shall provide all
information under its control which is necessary or useful for CSC to obtain any
export or import licenses required for CSC to ship or receive VTB Software,
including, but not limited to, certificates of origin, (NAFTA, etc.),
manufacturer's affidavits, and Buy America qualification, if applicable. This
information is to be provided within ten (10) business days of CSC's request.
10.6 GOVERNING LAW; FORUM SELECTION. This Agreement shall be governed by
the laws of the State of California, without reference to its conflict of laws
principles. All disputes arising out of this Agreement shall be subject to the
exclusive jurisdiction and venue of the California state courts of Santa Clara
County, California (or, if there is exclusive federal jurisdiction, the United
Stated District Court for the Northern District of California), and the parties
consent to the personal and exclusive jurisdiction of these courts.
10.7 SEVERABILITY. Any term or provision of this Agreement held to be
illegal or unenforceable shall, if possible, be interpreted so as to be
construed as valid, but in any event the validity or enforceability of the
remainder hereof shall not be affected.
10.8 EXPORT REGULATIONS. CSC understands that SDI is subject to regulation
by agencies of the U.S. government, including the U.S. Department of Commerce,
which prohibit export or diversion of certain technical products to certain
countries. CSC warrants that it will comply in all respects with the export and
re-export restrictions applicable to the technology and documentation licensed
hereunder.
10.9 WAIVER. The waiver of, or failure to enforce, any breach or default
hereunder shall not constitute the waiver of any other or subsequent breach or
default.
10.10 ENTIRE AGREEMENT. This Agreement, along with the Schedules
attached hereto which are incorporated herein by reference, sets forth the
entire Agreement between the parties and supersedes any and all prior proposals,
agreements, and representations between them, whether written or oral. This
Agreement may be changed only by mutual agreement of the parties in writing.
[Remainder of page intentionally left blank.]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by duly authorized officers or representatives as of the Effective
Date.
SUMMIT DESIGN, INC. CREDENCE SYSTEMS CORPORATION
By: /s/ Larry J. Gerhard By: /s/ Richard Y. Okumoto
------------------------------- --------------------------------------
Name: Larry J. Gerhard Name: Richard Y. Okumoto
----------------------------- ------------------------------------
Title: President, CEO Title: Executive Vice President & CFO
---------------------------- -----------------------------------
Date: 5/19/97 Date: 5/19/97
----------------------------- ------------------------------------
-10-
<PAGE>
SCHEDULE A
CSC PRODUCTS
VISTA/DUO SERIES TESTERS
SC SERIES TESTERS
<PAGE>
SCHEDULE B
VTB SOFTWARE
VISUAL TESTBENCH COMPONENTS
Visual Testbench consists of modified Visual HDL for Verilog and VHDL, Visual
Testbench harness code, Visual HDL simulation interface, various internal TDS
routines, WDB input/output routines and Visual Testbench on-line documentation.
For customer delivery these source code modules are compiled to a single Visual
Testbench binary executable module
A Testbench is created using the Visual HDL Flow chart editor, Block diagram
editor and Waveform/Timing diagram editor. The Testbench is connected to the
simulated circuit using the Visual HDL Block Diagram editor and the Visual
Testbench Launch editor.
The Testbench harness is compiled with the customer's simulator and design as to
stimulate and examine the circuit under investigation. The Testbench harness
reads and writes TSSI WDB databases through binary linkable library functions.
The examples include Visual HDL databases and Verilog or VHDL codes sufficient
to demonstrate basic and advanced product operation. The examples are
operational and will produce legitimate WDB output.
DOCUMENTATION
Visual Testbench documentation consists of a binary file in Framemaker mif
format describing theory of operation, external controls, and function call
interface of the product. The mif file is interpreted by a view for run time
viewing of the test.
<PAGE>
SCHEDULE C
MAINTENANCE AGREEMENT
This Maintenance Agreement ("Agreement") is entered into between Summit
Design, Inc., a Delaware Corporation ("Summit") and Credence Systems Corp.
("CSC") for the products described in the Software OEM License Agreement
between Summit and CSC ("the Software"), which is incorporated herein by
this reference.
IN CONSIDERATION OF THE MUTUAL COVENANTS SET FORTH HEREIN, THE PARTIES
AGREE AS FOLLOWS:
1. FEES
During the term of this Agreement and any renewal term thereof, Customer
shall pay a maintenance fee for each term ("the Maintenance Fee") as
determined by the parties. The Maintenance Fee is due upon the execution of
this Agreement, or the expiration of any applicable warranty period for the
above-described Software ("Software"), whichever last occurs.
2. TERM
The term of this Agreement shall be eighteen (18) months. Thereafter, this
Agreement can be renewed for successive annual terms within the ninety (90)
day period immediately prior to the expiration of the current term or any
renewal term. After the eighteen months, this Agreement may be terminated
by either party upon thirty (30) days' written notice: however, in the
event of termination by Customer, Summit shall not be obligated to refund
any advance maintenance fees, and any fees due and payable shall remain due
and payable without adjustment for early termination.
3. CUSTOMER OBLIGATIONS
To facilitate Summit's performance under this Agreement, Customer shall:
3.1 Promptly notify Summit in writing or by telephone of the need for
maintenance services, the Software License Agreement Number, the Serial
Numbers and Release Numbers of the Software, the location of the
Software site number, a description of the CPU on which the Software is
being used, and the nature of the problem.
3.2 Cooperate with Summit as reasonably necessary to identify the nature
and cause of the problem.
3.3 Allow Summit access to Customers' hardware, products, systems and
information (including confidential information), as may be reasonably
necessary to facilitate Summit's identification of the nature, cause
and potential remedy of the problem, all subject to Customers' security
and safety rules.
<PAGE>
4. SUMMIT'S OBLIGATIONS
4.1 During the term of the Agreement and any renewal term thereof, Summit
shall respond to CSC requirements for telephone technical support and
bug fix requests.
5. SPECIAL TERMS AND CONDITIONS
5.1. This maintenance agreement does not provide for upgrade releases.
5.2 This Agreement shall apply to the Software in its standard form, and
shall not apply to custom enhancements and modifications. Any
requested service on custom enhancements and modifications shall be
charged to Customer at Summit Design's standard service rates then in
effect.
5.3 This Agreement shall apply only to the original release of the
Software.
5.4 Although Summit will exert reasonable efforts to provide prompt
service, Summit is not liable for damages resulting from delay in the
provision of service caused by circumstances beyond reasonable control.
5.5 Summit's maintenance obligations under this Agreement do not include;
(a) services connected with system reconfiguration or relocation, (b)
service resulting from neglect, misuse or accidental damages to the
Software, (c) service resulting from modifications or repairs of the
Software without Summit's authority, (d) service resulting from the
failure of Customer to provide and maintain a suitable installation
environment, (e) service resulting from the use of the Software for
other than the purposes for which it was designed, (f) the provision
of supplies, accessories, or media.
<PAGE>
SCHEDULE D
LICENSE FEE AND PAYMENT
Per Copy License Fee:
US $***
Payment and Delivery Schedule:
CSC shall issue to SDI an irrevocable purchase order for *** VTB Software
licenses for the amount of $16,000,000 on the Closing. Also on the Closing,
CSC shall establish an irrevocable letter of credit with a nationally
recognized financial institution reasonably acceptable to SDI, in the amount
of $16,000,000 for payment of such *** VTB Software licenses. SDI shall have
the right to ship up to the number of licenses corresponding to the maximum
payments set forth below and SDI shall receive the payment calculated at $***
per license, drawn from the letter of credit upon each such shipment. If SDI
does not ship the permitted maximum during a quarter, the shortfall will be
carried forward to the next quarter's maximum amount.
Year and
Calendar Quarterly Annual
Quarter Maximum Maximum
---------- --------- ---------
1997 Q1
1997 Q2
1997 Q3 $ ***
1997 Q4 $ ***
1997 Total $ ***
1998 Q1 $ ***
1998 Q2 $ ***
1998 Q3 $ ***
1998 Q4 $ ***
1998 Total $ ***
1999 Q1 $ ***
1999 Q2 $ ***
1999 Q3 $ ***
1999 Q4 $ ***
1999 Total $ ***
Shipment of VTB Software shall be made by the fifteenth day of the first
month for each quarter and payment shall be drawn from the letter of credit
on the same day. VTB Software will be shipped to CSC via overnight courier.
* Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
SCHEDULE E
END USER LICENSE AGREEMENT
This is a legal Agreement between you, the end user, and Summit Design, Inc.
By opening this sealed media package and/or by using the Software, you are
agreeing to be bound by the terms of this Agreement.
GRANT OF LICENSE. Summit Design, Inc. ("Summit") grants you the right to use
one (1) copy of the enclosed Summit software program and accompanying
documentation (together with any upgrades supplied by Summit, the "Software")
according to the conditions specified below. Usage area to be less than one
kilometer in radius and subject to the terms and conditions of this
Agreement. All rights not expressly granted herein are reserved by Summit,
its suppliers, licensors, or successors.
YOU MAY:
a. Install the Software and its License Manager (FlexLM) on only one
computer or workstation;
b. make no more than one (1) copy of the Software in machine readable form,
solely for back-up purposes, provided that you reproduce all proprietary
notices on the copy; and
c. physically transfer the Software from one computer to another, provided
that the Software is used on only one computer at a time, and within a usage
area to be less than one kilometer in radius.
YOU MAY NOT:
a. Use the Software on more than one computer or workstation at a time;
b. modify, translate, reverse engineer, decompile, disassemble, create
derivative works based on, or copy (except to create the back-up copy) the
Software;
c. rent, lend, transfer, distribute, or grant any rights in the Software in
any form to any person without the written consent of Summit;
d. remove any proprietary notices, labels, or marks from the Software; or
e. operate the Software on networks where two client nodes using Summit
products of this type are greater than two (2) kilometers from each other
(WAN).
UPGRADE PRODUCTS. Any upgrades to the Software may only be used in conjunction
with the prior version of the Software.
LIMITED WARRANTY AND DISCLAIMER. Summit warrants that for a period of ninety
(90) days from the date of sale of the Software to you, the media on which the
Software is furnished will, under normal use, be free from defects in materials
and workmanship. Summit's entire liability and your exclusive remedy under this
warranty (which is subject to you returning the Software to Summit) will be, at
Summit's option, to replace the media or to refund the purchase price and
terminate this Agreement. Except for these express limited warranties, Summit
makes, and you receive, no warranties or conditions, express, implied,
statutory, or otherwise, and Summit specifically disclaims any implied
warranties of merchantability, noninfringement and fitness for a particular
purpose. Summit does not warrant that the Software will meet your requirements
or that the operation of the Software will be uninterrupted or error free. You
assume the responsibility for the selection of your requirements, software, and
hardware to achieve your intended results; for installation; for use; and that
the operations of the Software will be uninterrupted or error free. Some States
do not allow the exclusion of implied warranties so that the above exclusions
may not apply to you. This warranty gives you specific legal rights. You may
also have other rights which vary from State to State.
PROPRIETARY RIGHTS. This license is not a sale. Title and copyrights to the
Software and accompanying documentation, including the enclosed copies and any
copy made by you, remain with Summit or its suppliers, licensors, or successors.
LIMITATION OF LIABILITY. Summit's liability arising out of this Agreement shall
not exceed the amounts paid by you to obtain the Software. In no event will
Summit be liable for any loss of data, lost opportunity of profits, cost of
cover, or special, incidental, consequential, or indirect damages arising from
the use of the Software in this Agreement, however caused and on any theory of
liability. These limitations will apply even if Summit or an authorized dealer
has been advised of the possibility of such damage, and notwithstanding any
failure of essential purpose of any limited remedy. You acknowledge that the
amount paid for the Software reflects this allocation of risk. Some States do
not allow the limitation or exclusion of liability for incidental or
consequential damages, so the above limitation or exclusion may not apply to
you.
<PAGE>
EXPORT RESTRICTIONS. You agree that you will not export or re-export the
Software in any form without the appropriate United States and foreign
government licenses, and Summit written approval. Your failure to comply with
this provision is a material breach of this contract. If you need advice on
such export laws and regulations, you should contact the U.S. Department of
Commerce, Export Division, Washington, DC 20230, USA , for clarification.
TERMINATION. This Agreement is effective until terminated. You may terminate
this Agreement at any time by removing from your system and destroying all
copies of the Software and the accompanying documentation. Unauthorized copying
of the software or the accompanying documentation or otherwise failing to comply
with the terms and conditions of this Agreement will result in automatic
termination of this Agreement and will make available to Summit other legal
remedies. Upon termination of this Agreement, the license granted herein will
terminate and you must immediately destroy the Software and accompanying
documentation, and all back-up copies thereof.
U.S. GOVERNMENT USE. The Software and accompanying documentation are deemed to
be "commercial computer software" and "commercial computer software
documentation," respectively, pursuant to DFAR Section 227.7202 and FAR Section
12.212, as applicable. Any use, modification, reproduction, release,
performing, displaying or disclosing of the Software and accompanying
documentation by the U. S. Government shall be governed solely by the terms of
this Agreement and shall be prohibited except to the extent expressly permitted
by the terms of this Agreement.
MISCELLANEOUS. This is the entire Agreement between the parties relating to
the subject matter hereof and no waiver or modification of the Agreement
shall be valid unless signed by each party. The waiver of a breach of any
term hereof shall in no way be construed as a waiver of any other term or
breach hereof. If any provision of this Agreement shall be held by a court
of competent jurisdiction to be contrary to law, the remaining provisions of
this Agreement shall remain in full force and effect. This Agreement is
governed by the laws of the State of Oregon without reference to conflict of
laws principles. All disputes arising out of this Agreement shall be subject
to the exclusive jurisdiction of the state and federal courts located in
Multnomah County, Oregon, and the parties agree and submit to the personal
and exclusive jurisdiction and venue of these courts. Should you have any
question about this Agreement, or if you desire to contract Summit Design,
Inc., please write: Summit Design, Inc., 9305 S.W. Gemini Drive, Beaverton,
Oregon 97008 USA (503-643-9281).
BEFORE OPENING THIS ENVELOPE, carefully read the License Agreement on the
reverse side of this envelope. By opening this envelope and/or by using the
software contained herein, you are agreeing to be bound by the terms of the
License Agreement.
<PAGE>
SCHEDULE F
TRADEMARKS
Visual Test Serial No. 75/002, 501 US
Visual Test 11216-TM1003 US
Visual Testbench 11216-TM1034 International Class 9
<PAGE>
EXHIBIT 10.21
Date: May 20, 1997
Subject: LOAN TO MR. MOSHE GUY
---------------------
Mr. Moshe Guy will receive a loan from Summit Design (EDA) Ltd. (The Company)
on May 22, 1997. The Loan will be in the amount of $350,000, and will bear an
interest rate of 5% per year, payable on 12/31 each year or earlier if the loan
is paid in full.
The loan must be repaid out of Mr. Moshe Guy's proceeds of selling his house and
his stock in Summit Design Inc. The loan will be paid back within 5 years
unless Mr. Moshe Guy leaves the company and in that case the loan will be paid
back immediately.
Summit is to effect a security interest in Mr. Moshe Guy's new home (first
position) and in his Summit Stock.
/s/ LARRY C. GERHARD /s/ MR. GUY MOSHE
- ------------------------ -------------------
Summit Design (EDA) Ltd. Mr. Guy Moshe
/s/ C. ALBERT KOOB /s/ MRS. GUY HAYA
- ----------------------- ----------------------
Summit Design, Inc. Mrs. Guy Haya
C. Albert Koob
CFO
<PAGE>
Exhibit 11.1
SUMMIT DESIGN, INC.
STATEMENT OF COMPUTATION OF
NET INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 13,963 2,465 13,932 2,438
Common stock equivalents arising
from stock options (1) 687 1,111 826 1,068
Convertible preferred shares (2) - 9,103 - 9,103
------- ------ ------ ------
14,650 12,679 14,758 12,609
Net income (loss) $ 1,838 $ 19 $ 3,051 $ (187)
------- ------- ------ ------
------- ------- ------ ------
Net income (loss) per share $ 0.13 $ 0.00 $ 0.21 $ (0.02)
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
(1) Assumes exercise of all outstanding options and options issued
within one year of the date of the initial public offering
which options are considered exercised in all periods presented
prior to the initial public offering.
(2) Assumes conversion of all preferred shares outstanding as of
the date of the filing of the initial public offering which
shares are considered outstanding for all periods presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,992
<SECURITIES> 0
<RECEIVABLES> 6,364
<ALLOWANCES> 439
<INVENTORY> 0
<CURRENT-ASSETS> 28,335
<PP&E> 4,244
<DEPRECIATION> 2,030
<TOTAL-ASSETS> 31,805
<CURRENT-LIABILITIES> 8,439
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 22,397
<TOTAL-LIABILITY-AND-EQUITY> 31,805
<SALES> 13,620
<TOTAL-REVENUES> 13,620
<CGS> 599
<TOTAL-COSTS> 10,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 3,231
<INCOME-TAX> 180
<INCOME-CONTINUING> 3,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,051
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0
</TABLE>
