SUMMIT DESIGN INC, 10-K, 1998-03-31

SUMMIT DESIGN INC
10-K, 1998-03-31
PREPACKAGED SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
--------------------------

/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 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 Indentification Number)
incorporation or organization)

9305 S.W. GEMINI DRIVE,
BEAVERTON, OREGON 97008
(Address of principal executive office)
Registrant's Telephone number, including area code: (503) 643-9281

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 par value
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 23,
1998 as reported on the Nasdaq National Market, was approximately $110,932,958
Shares of Common Stock held by each named executive officer and director and by
each entity that owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

As of March 23,1998, Registrant had outstanding 14,741,258 shares of Common
Stock.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference into Part III of this Form 10-K to
the extent stated herein certain sections of its definitive Proxy Statement for
the 1998 Annual Meeting of Stockholders to be held on May 14, 1998.

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PART I

ITEM 1. BUSINESS

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 particular, the risks discussed below and in Part II, Item 7
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations under the subheading "Additional Risk Factors that Could Affect
Operating Results and Market Price of Stock."

GENERAL

Summit Design, Inc. ("Summit" or the "Company") is a leading supplier of
software tools designed to solve the integrated circuit ("IC" or "chip")
engineering problems caused by increasing chip complexity and the corporate
problem of reusing highly valuable intellectual property ("IP") created by IC
engineers. The worldwide community of IC engineers is rapidly moving up in
the design hierarchy from physical design entry to functional level design.
This migration is intended to achieve greater engineering efficiency and
shorter time to market and to provide an excellent basis for IC intellectual
property management. At the functional level of design, engineers
conceptualize designs in graphical paradigms such as block diagrams, state
machines and flow diagrams and then write programs describing those concepts
in a textual language called a Hardware Descriptive Language ("HDL"). There
are two standard HDLs, Verilog and VHDL. There are two levels of functional
design, Register Transfer Level ("RTL") and Behavioral level. The
mathematical process to translate from an RTL design to the physical level of
design is called synthesis. With Summit's Visual HDL product, the IC
engineer can draw functional level designs on a workstation or PC using
familiar graphical paradigms such as block diagrams, state machines and flow
diagrams. Visual HDL compiles these graphical representations into correct
by construction, synthesis ready, behavioral or RTL designs. Summit's suite
of RTL simulation, verification and optimization software tools then provide
a highly efficient environment for getting a design from concept to
synthesis. The Company's IP solutions allow the synthesizable design with
graphical executable documentation to be placed in libraries for reuse or to
be distributed in a software model format for early inclusion in future
electronic system or product designs.

The Company was incorporated in the State of Delaware on December 29, 1993.
The Company's principal executive offices are located at 9305 SW Gemini
Drive, Beaverton, Oregon 97008 and its telephone number is (503) 643-9281.
Unless the context otherwise requires, the terms "Company" and "Summit" as
used in this report refer to (i) Summit Design, Inc. (ii) TriQuest Design
Automation, Inc. ("Triquest") which the Company acquired in February 1997 and
subsequently merged into the Company in December 1997 and (iii) the Company's
wholly-owned subsidiaries, Summit Design EDA, Ltd., and Summit Verification,
Inc., the surviving company from the acquisition of Simulation Technologies,
Corp. ("SimTech") in September 1997. In July 1997, the Company sold
substantially all of the assets used in its business of developing and
marketing the Test Development Series ("TDS") Products to Credence Systems
Corporation ("CSC"). Such assets were held in the company's Test Systems
Strategies Inc. ("TSSI") subsidiary which was subsequently merged into the
Company in December 1997.

BACKGROUND

Electronic design automation ("EDA") software has played a critical role in
accelerating the dramatic advances in the electronics industry over the past two
decades. The need for advances in EDA tools has resulted from the increasing
complexity of ICs, as well as the increasing number of new IC design starts and
the scarcity of skilled IC design and verification engineers. The increase in
the complexity of ICs lengthens the development cycle while, at the same time,
competitive pressures shorten product life cycles. The objectives of EDA are to
reduce time to market and the costs associated with product design, entry,
analysis, verification and optimization while

2
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permitting the development of a greater number of designs of higher speed and
density chips that can be reliably manufactured.

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

In contrast to the progress in fabrication technology, the productivity of the
average design engineer has not kept pace. As a result, a greater number of
engineering hours are required to produce many of today's more complex designs,
leading to either longer development schedules or the need for larger design
teams. To address this challenge, organizations with IC design capabilities
continue to search for EDA tools that enable them to increase their productivity
and meet the aggressive development schedules dictated by competitive forces.

ADVANCES IN EDA

EDA tools emerged in the early 1970s with the introduction of computer aided
design ("CAD") software that permitted engineers to textually enter designs of
several thousand gates, and in the early 1980s evolved to computer aided
engineering ("CAE") software that enabled engineers to graphically enter designs
of tens of thousands of gates. Despite the advantages of graphical CAE tools,
design at the gate level became impractical and more error prone as design
complexities and gate counts increased. To address these problems, textual HDLs,
logic synthesis and functional level simulation tools were introduced in the
late 1980s, allowing engineers to engage in high level design automation
("HLDA"). To use the HLDA methodology, engineers are required to describe their
IC design in a textual HDL, such as VHDL or Verilog. After the design is coded
in HDL, the HDL description can be executed using simulation software to emulate
the operation of the desired IC, allowing the engineer to debug the design
without building a hardware prototype. The HDL description can be automatically
translated to a gate level description using a synthesis software tool.

LIMITATIONS OF HLDA

HLDA tools have enabled engineers to accelerate IC development schedules and
create more complex chips. However, these tools have significant limitations.
First, the conventional design flow for IC engineers using HLDA tools is to
represent a design in hand-drawn graphical paradigms such as block diagrams,
state machines, flow charts or truth tables, and then laboriously translate
their hand-drawn graphical designs into a textual HDL which resembles software
program code. This process is time consuming and error prone, and requires the
engineer to master a complex programming language. Second, the numerous lines of
HDL code that comprise a design are very difficult for engineering teams to
understand and communicate during design reviews and equally difficult for
engineering management to understand and evaluate. Third, while it would be
possible to accelerate time to market by reusing portions of HDL code where
similar functions are needed, reuse of HDL code is difficult and often avoided
because the complex HDL code complicates understanding the design's functional
intent. Fourth, the HLDA methodology is further limiting because textual HDL
code typically must be written in either Verilog or VHDL and according to strict
rules unique to a specific synthesis tool. This limits the ability of engineers
to increase synthesis efficiency by using various HDL languages and multiple
synthesis tools. Finally, the lack of stylistic restrictions in HDLs often
allows designers to express an IC functional design several different ways. As a
result, an HDL design could comply with HDL programming constraints and yet not
be able to be synthesized. As importantly, the lack of restrictions allows a
designer to produce an HDL description that can be synthesized but that is not
as efficient in terms of the resulting gate count or circuit timing. Further,
the lack of programming consistency between engineers arising from the lack of
stylistic restrictions complicates design team management and design
integration. Primarily as a result of the above shortcomings, adoption of HLDA
tools as of 1995 had been limited to approximately 18% of the estimated 285,000
IC design engineers worldwide.

3
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In order to meet the market's demands for more powerful, higher density ICs and
to reduce both time to market and cost, IC designers and manufacturers seek
design, analysis, verification and optimization tools that overcome the
limitations of the current HLDA methodologies.

THE SUMMIT SOLUTION

Summit offers software products to assist design engineers meet the market
demands for rapid time to market, increased product functionality and lower
product cost while providing the corporations that employ these engineers an
efficient way to document, revise and distribute the highly valuable IC
intellectual property they create. In 1994, Summit introduced Visual HDL for
VHDL, its first graphical product, which accelerates the development, analysis
and documentation of single function ICs as well as complete systems on a chip.
Visual HDL products automate manual design entry and verification by enabling IC
systems and design engineers to create and verify IC designs using familiar
graphical paradigms such as block diagrams, state machines, flow charts and
truth tables, rather than less intuitive textual HDL code.

In 1997, Summit's software tool suite, named "HLDA Plus", became the market
leader in RTL solutions. Summit's HLDA Plus tools assist an IC engineer from
concept to synthesis in the shortest period of time and with a design that
has been analyzed and verified for correctness and optimized for IC speed and
or size. Visual HDL for VHDL and Verilog has become the industry leader for
graphical design creation, analysis and IP management for both Workstation
and PC based IC engineering. The Company's seven other HLDA Plus tools
include a mathematical RTL design verification product, HDL Alert, three
simulation analysis tools that help the engineer prepare simulation input
data, run simulations, analyze simulation results, and HDL Score which allows
the engineer to determine when the simulation process has tested the entire
design. State Optimize allows the engineer to optimize designs for IC speed
and or size and Virtual CPU ("V-CPU") provides a capability that allows a
software and hardware engineer to work together at design time in a highly
efficient co-verification environment.

The Company believes that its products provide the following benefits:

INCREASED DESIGN PRODUCTIVITY

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

DESIGN REUSE, RE-TARGETING AND CONSISTENCY

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

STRATEGY

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

4
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ACCELERATE MARKET ADOPTION OF HLDA PLUS

Summit intends to expand market acceptance by focusing on key customer
accounts to ensure their successful adoption of the HLDA Plus methodology.
The Company believes that successful adoption by certain key customers in
various industries will promote adoption by other customers within those
industries. The Company also believes that its joint development and
marketing programs with industry leaders promote awareness and adoption of
HLDA. In addition, Summit supports all of the industry's major synthesis,
simulation, layout and test products and continues to support and complement
new standards as they emerge. The Company also targets student engineers by
introducing them to its HLDA Plus tools through programs with various
universities.(1)

The Company will continue its aggressive third party position to form and
maintain relationships with EDA industry leaders. This strategy will promote
an open environment for our customers that provides for future flexibility
and maximum use of their capital investments. Seamless interoperability is
the mission of this strategic objective.

LEVERAGE SUMMIT'S HLDA PLUS TECHNOLOGY

The Company intends to integrate all of its technology into a design environment
that focuses on getting an IC engineer from product conceptualization through
design creation, analysis, verification and optimization. This environment will
provide the most efficient methodology to get a design correct and ready for
synthesis. In addition Summit's HLDA Plus software environment includes a
complete hardware /software coverification capability and the ability for the
engineer to create an encrypted software model of the synthesized design that
can be used by systems and electronic product designers long before a hardware
prototype is available. The products comprising this design environment can be
used as a bundled set or individually with other analysis, verification and
simulation products available from other EDA vendors.

BROADEN THE SCOPE OF HLDA PLUS

The Company will continue to identify challenges facing both IC systems
engineers and IC design engineers in the areas of HLDA and to focus its
development efforts on products to further increase productivity in the
creation, analysis, verification, documentation and optimization of single
function ICs and complete systems on a chip. The Company believes that power,
timing, thermal and cost constraints management and analog circuit design will
become increasingly significant bottlenecks, especially in the area of complete
systems on a chip. Summit believes that in the future its HLDA Plus products
will provide a graphical means for both systems and design engineers to specify
the functional intent and simulate the interoperability of hardware and
software, as well as providing the capability to perform what-if analysis on
constraints such as power, speed, temperature and cost at the front end of the
development process.(1)

PRODUCTS

Visual HDL for VHDL and Verilog provide system design management, graphical
design creation, graphical level simulation, HDL code generation and high
speed compiled simulation. These products are the result of a focused
five-year development effort of approximately 40 EDA software development
experts. Visual Testbench allows a design engineer to graphically create
timing and pattern data to drive the RTL simulation process. This product
allows the IC designer to "what-if" on timing variables with the goal of
quickly bringing a design to a substantially bug-free state. As a result of
the acquisitions of TriQuest and Simtech, the Company offers analysis,
verification, and optimization products which include V-CPU, VirSim, HDL
Score, HDL Alert and State Optimize which provide a design verification
environment for all RTL designs. Visual IP allows the

- ----------------------
(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 32
for a discussion of factors that could affect future performance.

5
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design engineer to create a software model of an RTL design that has high
quality graphical documentation and can be distributed to other electronic
designers to be used in IC systems and electronic products long before chips
are available.

The Company's products are constructed using modern software design methods and
programming languages such as C and C++. The Company's products operate on the
industry's most popular UNIX workstations and, on PCs running Windows 3.1,
Windows 95 and Windows NT.

DESIGN SOLUTION PRODUCTS

Visual HDL for VHDL and Visual HDL for Verilog (together, "Visual HDL") are
graphical creation and analysis solutions designed to simplify and accelerate
top-down design. Visual HDL can raise productivity by allowing system level,
behavioral level and functional level design entry using graphical design
methods such as block diagrams, state machines, flow charts and truth tables. As
a result, engineers no longer need to textually program their designs in lines
of VHDL or Verilog code. Once the design is graphically captured, Visual HDL can
then automatically generate synthesizable HDL code that is optimized for
specific synthesis tools.

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

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

Text-To-Graphics is now offered as an add-on to Visual HDL. With
Text-To-Graphics, the user can convert any VHDL or Verilog textual
description into graphics and control the process by choosing the resultant
graphical format. Text-To-Block-Diagram now contains the graphic bundling
feature (as described below). Text-To-State Machine converts VHDL/Verilog
descriptions into graphical State Diagrams, and the Text-To-Flow Chart
feature converts textual descriptions of VHDL and Verilog into graphical
flowcharts.

Visual HDL operates in both VHDL and Verilog on UNIX workstations and on PCs. It
supports a broad range of HLDA synthesis and simulation products, including
products from Synopsys, Inc. ("Synopsys"), Mentor Graphics Corporation ("Mentor
Graphics"), Cadence Design Systems ("Cadence"), IBM, Altera, Simplicity and
Exemplar. Visual HDL for VHDL was first shipped in the first quarter of 1994,
and Visual HDL for Verilog was first shipped in the fourth quarter of 1995.
The fifth major release of Visual HDL was released in December 1997.

As of February 28, 1998, Visual HDL's single seat list price ranged from
$18,000 to $30,000. The list price of the UNIX workstation version of Visual
HDL for VHDL is higher than that for PCs. The actual price for a system also
varies depending on the duration of the license and the simulation features
included. For example, because Visual HDL for VHDL generally includes a
Summit simulator, its price is higher than Visual HDL for Verilog, which uses
the Verilog XL simulator sold by Cadence. Finally, the Visual HDL price for a
floating license commands a premium over the node locked version since it
offers multi-user flexibility.

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Summit recently introduced Visual IP, which allows the design engineer to
create a software model of an RTL design that has high quality graphical
documentation and can be distributed to other electronic designers to be used
in IC systems and electronic products long before chips are available. The
synthesizable design with graphical executable documentation can be placed in
libraries for reuse or distribution in an encrypted, executable software
model format for early inclusion in future electronic systems or product
design.

Visual Testbench provides a methodology for creating simulation stimulus,
validating device timing specifications and tying simulation results directly to
test. Visual Testbench is designed to raise productivity by providing graphical
timing diagrams, specification spreadsheets and flowcharts for simulation
stimulus creation. In addition, this product allows the designer to check that
timing requirements have been met by the simulation. The Company anticipates a
lengthy period of test marketing for Visual Testbench. Accordingly, the Company
cannot predict the extent, if any, to which it will realize revenue from this
product.(1)

VERIFICATION SOLUTION PRODUCTS

The Company's verification products include V-CPU, VirSim, HDL
Score, HDL Alert and State Optimize.

V-CPU allows embedded-system designers to analyze and validate the interaction
between hardware and software early in the development process, while design
options are still open. Co-verification of software can begin as soon as there
is an executable description of the software and hardware. This early
integration of efforts allows problems to be detected while they are still easy
to fix. With V-CPU, software developers can test software against simulated
hardware at high execution rates, and hardware developers can validate the
system architecture with stimulus provided by the software.

VirSim provides an integrated set of advanced debug and analysis tools for use
with the leading Verilog simulators. VirSim is a multi-windowed product that
makes extensive use of graphics. It provides an advanced graphical debug
environment that includes multiple debug windows for presenting Verilog design
and simulation results in different graphical views. Outputs from both digital
and analog simulation runs are supported and signal values can be displayed as
digital or analog graphical waveforms. Multiple simulation runs can be debugged
at the same time, allowing signals from different simulations to be compared
easily in graphical and analytical formats.

HDL Score provides a quantitative measure of the quality of simulation tests
that have been applied to an entire design or to user-selected portions of a
design. Simply stated, HDL Score tells the design engineer when they have
performed an adequate amount of simulation. HDL Score works with all RTL designs
and simulation environments and fits seamlessly into the design verification
process. While using HDL Score prior to synthesis is the most productive way of
using the tool, HDL Score supports coverage for all levels of design and all HDL
language implementations.

HDL Alert is a static analysis product that mathematically verifies RTL designs.
It incorporates proprietary verification in algorithms that statistically
analyze a design and provides graphical information about design flows. HDL
Alert quickly finds design errors that simulation cannot detect or that require
excessive simulation hours to detect.

State Optimize is an optimization and exploration tool that works at the RTL
level of design. It accepts RTL descriptions of control logic and generates
multiple RTL implementation alternatives with various speed and IC area
characteristics. The engineer simply chooses the desired result from a
graphical display or plot and State Optimize produces the RTL design.

- -----------------------
(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 32
for a discussion of factors that could affect future performance.

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The Company's future success depends primarily upon the market acceptance of its
existing and future HLDA Plus products. The Company's HLDA Plus products
incorporate certain unique design methodologies and thus represent a departure
from industry standards for design entry and verification. The Company believes
that broad market acceptance of its HLDA Plus products will depend on several
factors, including the ability to significantly enhance design productivity,
ease of use, interoperability with existing EDA tools, price and the customer's
assessment of the Company's financial resources and its technical, managerial,
service and support expertise. Although demand for HLDA Plus products has
increased in recent years, the market for HLDA Plus 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 HLDA Plus
products. A decline in the demand for, or the failure to achieve broad market
acceptance of, the Company's HLDA Plus products will have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows.(1)

CUSTOMERS

The Company's end-user customers include companies in a wide range of
industries, including semiconductor devices, telecommunications,
computer/peripherals, consumer electronics, aerospace/defense and other
electronics entities. In 1997, sales to CSC accounted for 29% of the
Company's total revenue, no other customer accounted for more than 10% of
total revenue. As of February 28, 1998, the Company had installed more than
3,100 seats of its design solution tools in more than 350 companies, of which
more than 280 companies had entered into support contracts. In addition, as
of such date, the Company has installed more than 4,000 seats of verification
solution tools. The following table lists a representative sample of the
Company's worldwide end-user customers that generated at least $25,000 in
revenue for the Company in 1996 or 1997.

Semiconductor Devices Telecommunications Computer/ Consumer Aerospace/ Other
Peripherals Electronics Defense
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMD Alcatel Adaptec Canon Allied Signal Credence
Chips and Technologies Bay Networks Compaq Delco Electronics Hughes Aircraft Fuji/Xerox
Cisco Systems Bell Northern Digital Equipment Honeywell Lockheed-Martin Lucky Goldstar
I-Cube Bosch Fujitsu Matsushita Raytheon Teradyne
Level One Cabletron Hewlett-Packard Mitsubishi Rockwell Xerox
LSI Logic Ericsson Hitachi NEC TRW Zenith
Motorola Hitachi IBM Phillips
National Semi Lucent OKI Sharp
PMC Sierra Newbridge Networks Quantum Sony
SGS-Thomson Nokia Seagate
Texas Instruments Northern Telecom Siemans
Storagetek
Stratus
Sun Microsystems

</TABLE>

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

A major communications company used Visual HDL to provide solutions for their
electronic systems designers. The team designed an FPGA, which provided clock
signal controls for a backplane interface. There was an extremely tight
deadline on this project and the design team had no previous HDL experience. The
team found Visual HDL very intuitive and easy to adapt to fit their design
requirements which helped them complete their design in the short timeframe
allotted.

- ------------------------
(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 32
for a discussion of factors that could affect future performance.

8
<PAGE>

A workstation division of a major computer company used Visual HDL to develop
ASIC's for their hardware. Their objectives were governed by functionality,
cost, quality and time-to-market constraints. This industry is highly
competitive and required them to use leading edge technology to meet their
goals. Their design teams were a mix of expert and novice designers, which
necessitated finding a tool to accommodate everyone in the team. Using Visual
HDL's graphical capability improved the team's communication and coordination.
Visual HDL was a natural fit as they design in a top-down fashion.

A networking and communications division of a major electronics company believed
that the V-CPU hardware/software co-simulation environment allowed their
operation to develop software prior to having actual silicon. This capability
reduced software and hardware revisions as hardware/software integration was
verified prior to tape out, thereby reducing time to market. The flexibility of
the V-CPU product and the support from Summit enabled them to use the tool with
their hardware models and their software development environment within one
week.

A major semiconductor company selected VirSim for their entire Design Center
after having had excellent experiences with it on past projects. VirSim was
found to be a robust tool and became the mainstay of their development
environment. They believed the ease of building complex expressions for
identifying problems was exceptional. Projects which had previously taken hours
of scanning the screen can now be performed in seconds.

MARKETING AND SALES

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

The Company's sales strategy is to employ its direct sales as well as its
independent and affiliated distributors to efficiently and effectively target
individual customer and product market segments. As of December 31, 1997, the
Company had 39 employees in its sales organization and 9 employees in its
marketing group.

DIRECT SALES

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

The Company's direct sales force operates in the United States and portions of
Europe, with offices in Arizona California, Colorado, Florida, Massachusetts,
Minnesota, Oregon and Texas, as well as France, Germany and the United Kingdom.
Approximately 71%, 54% and 58% of the Company's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively, were generated through Summit's
direct sales force.

9
<PAGE>

DISTRIBUTORS

Distributors promote and distribute the Company's products in the
Asia-Pacific region, the United Kingdom, France, Germany, Sweden, Italy and
Israel. Approximately 29%, 46% and 42% of the Company's revenue in the years
ended December 31, 1997, 1996 and 1995, respectively, were attributable to
sales made through distributors. The Company has also entered into an
agreement with ANAM S&T Co., Ltd. ("ANAM") pursuant to which the Company and
ANAM created a joint venture corporation (Summit Design Korea, Inc. ("Summit
Asia")) which acquired exclusive rights to sell, distribute and support 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. The Company is
currently restructuring the ownership and responsibilities of Summit Asia.
There can be no assurance that any restructuring would result in Summit Asia
becoming profitable or that revenue attributable to sales in the Asia Pacific
region, excluding Japan, would increase. 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 HLDA
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 terminable by either party for
breach. In March 1997, the Company entered into a three year distribution
agreement with Kanematsu USA, Inc. to which Kanematsu was granted exclusive
distribution rights to sell, distribute and support certain verification
products in Japan. For the year ended December 31, 1997, all sales of the
Company's products in the Asia-Pacific region were made through Summit Asia,
ATE, Kanematsu and Seiko. There can be no assurance the relationships
with Summit Asia, ATE, Kanematsu 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 these
distributors.

Approximately 33%, 50% and 52% of the Company's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively, were attributable to sales made
outside of the United States. In order to successfully expand international
sales, the Company may need to establish additional foreign operations, hire
additional personnel and recruit additional international distributors. This
will require significant management attention and financial resources and could
adversely affect the Company's operating margins. In addition, to the extent
that the Company is unable to effect these additions in a timely manner, the
Company's growth, if any, in international sales will be limited. There can be
no assurance that the Company will be able to maintain or increase international
sales of the Company's products, and failure to do so could have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.

The Company's reliance on distributors involves certain risks. For example, the
Company is dependent on the continued viability and financial stability of its
distributors. Since the Company's products are used by skilled design engineers,
distributors must possess sufficient technical, marketing and sales resources
and must devote these resources to a lengthy sales cycle, customer training and
product service and support. Only a limited number of distributors possess these
resources. In addition, Summit Asia, ATE, Kanematsu 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, results of
operations or cash flows.

CUSTOMER SERVICES

Technical support is available to customers on both a pre-sale and post-sale
basis. Pre-sale support involves the Company's application engineers working
with the Company's direct sales force and distributors to provide on-site
support during the end user's evaluation and implementation process. Post-sale
support is provided through annual maintenance contracts which provide customers
access to the Company's technical support team via

10
<PAGE>

telephone, minor enhancements and any major upgrades. This program is sold
for 15% to 20% of the list price of the product, depending on the product.
The Company provides its customers with a 90-day warranty that its
product media is free from defects.

In addition to its maintenance, technical support and upgrade fees, the Company
also conducts a variety of training programs ranging from introductory level
courses to advanced training on full use of all of its products. Training is
offered at the Company's facilities, at distributors' facilities and at customer
locations worldwide. The Company intends to further expand its focus on customer
training. For the years ended December 31, 1997, 1996 and 1995, maintenance and
services provided approximately 19%, 21% and 19% of the Company's total revenue,
respectively.

COMPETITION

The EDA industry is highly competitive and the Company expects competition to
increase as other EDA companies introduce HLDA products. 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 HLDA 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
HLDA Plus 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, results of operations or cash flows.

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 HLDA 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, results of operations or cash
flows. 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, results of operations or cash flows.

PRODUCT DEVELOPMENT

Development of HLDA products has been performed at the Company's offices in
Israel and at the Company's principal office in Beaverton, Oregon. As the
result of the acquisitions of TriQuest and SimTech during 1997, the Company
has added additional research and development facilities in Campbell,
California and New Brighton, Minnesota. As of December 31, 1997, the
Company's research and development team consisted of 92 software developers,
dedicated to the Company's products.

11
<PAGE>

For the years ended December 31, 1997, 1996, and 1995, the Company's research
and development expenditures were approximately $6.9 million, $5.8 million, and
$5.3 million, respectively, which represented approximately 22%, 29%, and 38% of
revenue in each such period. The Company has to date expensed all research and
development costs as incurred.

Summit's research and development strategy is to be proactive in determining
customer needs and to develop new HLDA products to meet these needs. The Company
believes that system-level definition and design analysis will become
increasingly significant bottlenecks in the IC development process and thus
present product development opportunities. The Company's research and
development efforts are focused on creating products to further increase
productivity in the creation, verification, documentation and the preservation
of both IC and system level designs.

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

The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. In
addition, customers in the EDA industry require software products that allow
them to reduce time to market, differentiate their products, improve their
engineering productivity and reduce their design errors. The Company's future
success will depend upon its ability to enhance its current products, develop
and introduce new products that keep pace with technological developments and
emerging industry standards and address the increasingly sophisticated needs of
its customers. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change or emerging industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. 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, results of operations or cash flows would be materially adversely
affected.

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, results of operations or cash flows.

PROPRIETARY RIGHTS

The Company's success depends upon its proprietary technology. The Company
relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures, licensing arrangements and technical means to
establish and protect its proprietary rights. As part of its confidentiality
procedures, the Company generally enters into non-disclosure agreements with its
employees, distributors and corporate partners, and limits access to, and
distribution of, its software, documentation and other proprietary information.
In addition,

12
<PAGE>

the Company's products are protected by hardware locks and software
encryption techniques designed to deter unauthorized use and copying. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use the Company's products or technology without authorization, or to
develop similar technology independently. In addition, effective protection of
intellectual property rights may be unavailable or limited in certain foreign
countries.

The Company provides its products to end-users primarily under "shrink- wrap"
license agreements included within the packaged software. In addition, the
Company delivers certain of its verification products electronically under an
electronic version of a "shrink wrap" license agreement. 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. Although the Company is not aware of any threatened litigation or
infringement claims, there can be no assurance that a third party will not claim
such infringement by the Company with respect to current or future products. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product delays or require the Company to enter into royalty or
licensing agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Company or at all. Failure to protect
its proprietary rights or claims of infringement could have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows.

OPERATIONS IN ISRAEL

The Company's research and development operations related to its Visual HDL
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, results of operations or cash flows 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
annual costs and expenses in Israel are paid in Israeli currency. These costs
and expenses were approximately $4.7, $4.3 and $4.3 million in 1997, 1996 and
1995, 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 7%, 11% and 8%
during 1997, 1996, and 1995, 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, results of operations or
cash flows. 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.

13
<PAGE>

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, results of operations or cash
flows.

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS.

Summit's Israeli subsidiary 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 December 31, 1997, all amounts have been repaid.
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 has 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 December 31, 1997, approximately
$261,000 was outstanding under the grant.

MANAGEMENT OF GROWTH AND ACQUISITIONS

Summit's ability to achieve significant growth will require it to implement
new and continually expand its existing 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. Summit's failure to effectively
manage any such growth would have a material adverse effect on Summit's
business, financial condition, results of operations or cash flows.

On February 28, 1997, Summit completed its acquisition of TriQuest and on
September 9, 1997, Summit completed its acquisition of SimTech. As a result of
these acquisitions, Summit's operating expenses are expected to increase. There
can be no assurance that the integration of TriQuest's and SimTech's business
can be successfully completed in a timely fashion, or at all, or that the
revenues from TriQuest and SimTech will be sufficient to support the costs
associated with the acquired businesses, 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, financial condition,
results of operations or cash flows. 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 concerns,
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.

14
<PAGE>

EMPLOYEES

As of December 31, 1997, the Company had 178 employees, 106 of whom were engaged
primarily in research and development and related operations, 48 of whom were
engaged primarily in sales and marketing and 24 of whom were engaged primarily
in corporate management and administration. A total of 112 of these employees
were located in the United States, 56 in Israel and 10 in Europe. The Company's
employees are not represented by any collective bargaining organization and the
Company has never experienced a work stoppage. The Company's future success will
depend, in part, on its ability to continue to attract, retain and motivate
highly qualified technical, marketing and management personnel, who are in great
demand.

15
<PAGE>

ITEM 2. PROPERTIES

The Company's principal facility, located in Beaverton, Oregon, consists of
approximately 31,000 square feet of office space leased pursuant to an agreement
which terminates on December 31, 1999. The rent and common area fees payable on
this facility are currently approximately $28,000 per month. This space is used
for the Company's U.S. research and development, production, sales and marketing
and administration.

The Company also leases approximately 9,800 square feet of office space in
Herzlia, Israel for research and development under a lease with DCL Technologies
Ltd. that expires on December 31, 1998. The rent payable on this office space is
currently $12,100 per month, and increases over the term of the lease based on
the Israeli consumer price index.

Additionally, the Company leases approximately 4,300 square feet of office space
in Campbell, California and 4,600 square feet in New Brighton, Minnesota for
research and development and sales activities. The aggregate rent payable for
both facilities is currently approximately $12,800 per month, and the leases
expire in April 1999 and June 1999, respectively. The leases for these
facilities were added through the Company's acquisitions of TriQuest and
SimTech.

The Company also leases office space for sales activities throughout the
United States and Europe at an aggregate annual rental of approximately
$100,000.

The Company expects that its current facilities will be adequate to serve its
needs for the foreseeable future.(2)

ITEM 3. LEGAL PROCEEDINGS

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

- -------------------------------
(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 32 for a discussion of factors that could affect future
performance.

16
<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

The executive officers of the Company and their ages as of March 23, 1998 are
as follows:

Name Age Position
---- --- ---------------------------------------

Larry J. Gerhard............. 57 Chairman of the Board, President and
Chief Executive Officer
C. Albert Koob............... 43 Vice President--Finance, Chief Financial
Officer and Secretary
Joseph G. Masarich........... 38 Senior Vice President--Worldwide
Marketing and Sales
Moshe Guy.................... 40 Vice President, General Manager and
Chief Operating Officer--Design
Solutions Division
Richard Davenport............ 53 Vice President and Chief Operating
Officer--Verification Products Division
Eric Benhayoun............... 44 Vice President, General Manager--European
Operations
Sharon L. Beelart............ 50 Corporate Controller
Arthur Fletcher.............. 33 Treasurer and Director of Investor
Relations

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

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

Mr. Masarich has served as Senior Vice President of Worldwide Marketing and
Sales since December 1997. From July 1997 to October 1997 Mr. Masarich was
the acting President and Chief Executive Officer of Junk Yard Dogs, Inc. a
manufacturer of electro-luminscent products. Mr. Masarich was the Vice
President of Worldwide Sales for Technology Modeling Associates, Inc., a
provider of physical simulation software to support integrated circuit design
and manufacturing, from January 1996 through May 1997. Additionally, Mr.
Masarich served for ten years in sales management positions with Cadence
Design Systems and Hewlett Packard.

Mr. Guy has served as Vice President, General Manager and Chief Operating
Officer of the Design Solutions Division of the Company since September of
1997. From May 1996 to September 1997 Mr. Guy served as General Manager of
Summit Design (EDA) Ltd. and as the Vice President of Product Marketing from
February 1994 to May 1996. Mr. Guy was the Director of Marketing and Sales
for SEE Technologies from January 1991 to January 1994. SEE Technologies was
the continuation of the Israeli Design Center of Daisy and the main supplier
of EDA Tools for Intergraph. From 1987 to 1991, Mr. Guy was a Technical
Manager for Daisy Systems. Prior to that time, Mr. Guy held various
engineering positions with companies in the computer design industry in
Israel.

17
<PAGE>

Mr. Davenport has served as Vice President and Chief Operating Officer of the
Verification Products Division since September 1997. Mr. Davenport was the
founder and CEO of SimTech from 1991 through September 1997. From 1987
through 1991, Mr. Davenport was a Regional Sales Manager for Gateway Design
Automation and Cadence Systems.

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

Ms. Beelart has served as Corporate Controller since December 1996. From April
1992 to December 1996, Ms. Beelart worked independently as a CPA and financial
consultant, serving from April 1996 to December 1996 with Summit. From June
1986 to April 1992, Ms. Beelart served as the Chief Financial Officer of Sierra
Detroit Diesel Allison, Inc., a $40 million distribution company in the San
Francisco Bay Area. From January 1978 to June 1986, Ms. Beelart held various
positions including audit manager with Coopers & Lybrand L.L.P.

Mr. Fletcher has served as Treasurer and Director of Investor Relations since
April 1996. From October 1995 to March 1996, Mr. Fletcher was Director of
Business and Financial Planning. From April 1994 to September 1995, Mr. Fletcher
was Manager of Financial Planning and Systems. Prior to April 1994, Mr. Fletcher
held a variety of finance and accounting positions with high technology
companies.

18
<PAGE>
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock commenced trading on the Nasdaq National Market under
the trading symbol SMMT on October 18, 1996. The price for the Common Stock as
of the close of business on March 23, 1998 was $14.25 per share. As of March
23, 1998, the Company had approximately 226 stockholders of record.

The following table sets forth the high and low sales prices per share of the
Company's Common Stock for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996:
Fourth Quarter (fromOctober 18, 1996) . . . . $12.375 $8.375

1997:
First Quarter . . . . . . . . . . . . . . . . $11.750 $7.375
Second Quarter. . . . . . . . . . . . . . . . $ 9.250 $5.375
Third Quarter . . . . . . . . . . . . . . . . $17.750 $7.875
Fourth Quarter. . . . . . . . . . . . . . . . $18.125 $9.312

1998: First Quarter (through March 23 1998) . . . . $16.125 $9.875
</TABLE>

The Company has never paid any cash dividends on its Common Stock. The Company
intends to retain any earnings for use in its business and does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.

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 Company's 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.

From October 1, 1997 to December 31,1997, the Company issued and sold 35,205
shares of Common Stock that were not registered under the Securities Act of
1933 at prices ranging from $0.0779 to $1.9477 per share upon exercise of
stock options. Such issuances were made in reliance upon the exemption from
registration set forth in Rule 701 promulgated under the Securities Act of
1933.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data relating to the Company should be read
in conjunction with the Company's consolidated financial statements and the
related notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included elsewhere in this report. The selected financial data set forth
below for the Company as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997 are derived from the
audited financial statements included elsewhere in this report. The selected
financial data set forth below for the Company as of December 31, 1993, 1994
and 1995 and for each of the two years in the period ended December 31, 1994
are derived from the financial statements not included elsewhere herein.

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
----------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (1):
Revenue:
Product licenses............................................ $ 24,676 $ 15,244 $ 10,383 $ 9,143 $ 4,693
Maintenance and services.................................... 6,068 4,300 2,637 2,323 2,547
Other....................................................... 450 567 1,050 1,516 --
----------- --------- --------- --------- ---------
Total revenue............................................. 31,194 20,111 14,070 12,982 7,240
Cost of revenue
Product licenses............................................ 804 573 651 681 440
Maintenance and services.................................... 607 460 400 390 330
----------- --------- --------- --------- ---------
Total cost of revenue..................................... 1,411 1,033 1,051 1,071 770
----------- --------- --------- --------- ---------
Gross profit................................................ 29,783 19,078 13,019 11,911 6,470
Operating expenses:
Research and development.................................... 6,929 5,766 5,343 4,632 2,381
Sales and marketing......................................... 10,532 9,252 7,477 5,867 3,673
General and administrative.................................. 4,196(4) 3,173 3,271 2,309 1,919
In-process technology....................................... 19,937 -- -- 647 --
----------- --------- --------- --------- ---------
Total operating expenses.................................. 41,594 18,191 16,091 13,455 7,973
----------- --------- --------- --------- ---------
Income (loss) from operations................................. (11,811) 887 (3,072) (1,544) (1,503)
Other income (expense), net 6,621(3) 119 (169) (100) (119)
----------- --------- --------- --------- ---------
Income (loss) before income taxes............................. (5,190) 1,006 (3,241) (1,644) (1,622)
Income tax provision (benefit)................................ 737 (245) 399 402 --
----------- --------- --------- --------- ---------
Net income (loss)............................................. $ (5,927) $ 1,251 $ (3,640) $ (2,046) $ (1,622)
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Net income (loss) per share (2)............................... $ (0.42) $ 0.10 $ (0.33) $ (0.22) $ (0.62)
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Number of shares used in per share calculation (2)............ 14,197 13,038 10,880 9,244 2,633

December 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
----------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 19,898 $ 19,772 $ 703 $ 1,193 $ 429
Working capital............................................. 14,576 17,218 (575) (444) (2,077)
Total assets................................................ 32,613 28,626 9,069 8,036 2,073
Long-term obligations, less current portion................. 199 837 1,349 253 302
Total stockholders' equity (deficit)........................ 20,253 19,181 590 1,295 (1,304)
</TABLE>

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

(1) The results of SEE Technologies are included in the Consolidated Financial
Statements of the Company commencing January 1, 1994.

(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing net income (loss) per
share.

(3) Includes a gain of $5,574,000 in connection with the sale of the TDS product
line.

(4) General and administrative expenses for the year ended December 31, 1997
included a one-time charge of $379,000 for costs relating to the acquisition
of TriQuest.

<PAGE>

ITEM 7. 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 TSSI
and SEE Technologies, (now Summit Design (EDA) Ltd.) TSSI was founded in
1979 to develop and market IC manufacturing test products. In January 1993,
TSSI retained a new Chief Executive Officer and began to restructure its
senior management team. Thereafter, the Company broadened its strategy from
focusing primarily on manufacturing test products to include providing HLDA
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 EDA and HLDA 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 HLDA and Design to Test products. To promote its products, the
Company has added sales and marketing staff, increasing its sales and
marketing expenditures by 187% from 1993 to 1997, 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 through 1995. The Company
introduced its first HLDA 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. After the
Reorganization and through June 30, 1997, the Company's revenue was
predominantly derived from two product lines, Visual HDL, which includes
Visual HDL for VHDL and Visual HDL for Verilog, and TDS. As the result of
the July 1997 sale of the TDS product line, Design to Test products are no
longer a source of revenue for the Company. Since the acquisition of
TriQuest in February 1997 and SimTech, in September 1997,the Company has also
derived revenue from verification products which include hardware-software
co-verification, code coverage, and HDL debugging products as well as
analysis, verification and RTL optimization tools.

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

<PAGE>

The Company's products have a range of prices which depend on platform, HDL
language, functionality and duration of license. 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 may 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) acquired
exclusive rights to sell, distribute and support 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 in Korea. 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.
For the years ended December 31, 1997 and 1996, Anam and Summit Asia together
accounted for 1.9% and 3.8% of the Company's revenue, respectively.

The Company accounts for its ownership interest in Summit Asia on the equity
method of accounting and, as a result, the Company's pro rata share of the
earnings and losses of Summit Asia are 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. The Company is currently restructuring the
ownership and responsibilities of Summit Asia. There can be no assurance that
any any restructuring would result in Summit Asia becoming profitable or that
revenue attributable to sales in the Asia Pacific region, excluding Japan,
would increase.

Approximately, 33% and 50% of the Company's total revenue for the years ended
December 31, 1997 and 1996, respectively, were attributable to sales made
outside the United States. The decline in the percentage of revenue from
sales made outside the United States in 1997 is primarily the result of (1)
domestic sales to one customer, (2) the loss of Design to Test product sales
in the last half of 1997 as a result of the sale of the product line, which
had a strong international market, and (3) the sale of products acquired in
the SimTech acquisition which have a principally domestic market. 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)

On February 28, 1997, Summit completed its acquisition of TriQuest. TriQuest
develops HDL analysis, optimization, and verification tools for the design
of high performance, deep submicron integrated circuits. The transaction has
been accounted for as a "pooling of interest" in accordance with generally
accepted accounting principles.

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 twelve
months has been

- --------------
(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 32
for a discussion of factors that could affect future performance.

<PAGE>

primarily due to increased revenue associated with the Company's HLDA
Plus products. 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 1997 were attributable to the TDS products. As of July 1, 1997, TDS
products ceased 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 has not recognized deferred revenue associated with such
contracts after June 30, 1997.

The Company maintained exclusive rights to its Visual Testbench technology
and CSC agreed to purchase a minimum of $16,000,000 of Visual Testbench
licenses over a thirty-month period beginning July 1997 subject to specified
quarterly maximums and certain additional conditions, and $2,000,000 of
maintenance over an eighteen month period beginning July 1997. 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.

On September 9, 1997, the Company acquired SimTech, a company that develops and
distributes hardware-software co-verification, code coverage and HDL debugging
software. The aggregate consideration for the acquisition (including shares of
common stock reserved for issuance upon exercise of SimTech options assumed by
the Company) was 1,980,000 shares of Summit common stock and $3,875,000 in cash.
The transaction was accounted for using the purchase method of accounting.
Accordingly, the results of operations for the period from September 9, 1997 are
included in the consolidated statements of operations. The purchase price was
allocated to the net assets acquired based on their estimated fair market values
at the date of acquisition. The fair value of tangible assets acquired and
liabilities assumed were $1.3 million and $2.2 million, respectively. In
addition, $19.9 million was allocated to in-process technology which had not
reached technological feasibility and had no probable alternative uses, which
the Company expensed as of the acquisition date. The remainder of the purchase
price was allocated to purchased technology ($1,037,000) and identifiable
intangibles ($735,000), which are being amortized on a straight line basis over
three and five years respectively.

In connection with the purchase of SimTech, the Company repurchased 939,000
shares of common stock in private transactions at an average price of $12.30
per share for $11,555,000 in September 1997.

On December 23, 1997, the Company announced that the Board of Directors had
authorized the repurchase of up to 750,000 shares of the Company's Common
Stock in the open market from time to time. From January 1, 1998 to March 23,
1998, the Company repurchased 162,500 shares of its Common Stock at a cost of
$2.3 million.

<PAGE>

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of total
revenue represented by selected income statement items.

Income statement data:

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Product licenses............................................................... 79.1% 75.8% 73.8%
Maintenance and services....................................................... 19.5 21.4 18.7
Other.......................................................................... 1.4 2.8 7.5
----------- ----------- -----------
Total revenue................................................................ 100.0 100.0 100.0

Cost of revenue:
Product licenses............................................................... 2.6 2.8 4.6
Maintenance and services....................................................... 1.9 2.3 2.9
----------- ----------- -----------
Total cost of revenue........................................................ 4.5 5.1 7.5
----------- ----------- -----------
Gross profit................................................................. 95.5 94.9 92.5
Operating expenses:
Research and development....................................................... 22.2 28.7 38.0
Sales and marketing............................................................ 33.8 46.0 53.1
General and administrative..................................................... 13.5(a) 15.8 23.2
In-process technology.......................................................... 63.9 -- --
----------- ----------- -----------
Total operating expenses..................................................... 133.4 90.5 114.3
----------- ----------- -----------
Income (loss) from operations.................................................... (37.9) 4.4 (21.8)
Other income (expense), net...................................................... 21.3(b) 0.6 (1.2)
----------- ----------- -----------
Income (loss) before income taxes................................................ (16.6) 5.0 (23.0)
Income tax provision (benefit)................................................... 2.4 (1.2) 2.8
----------- ----------- -----------
Net income (loss)................................................................ (19.0)%(c) 6.2% (25.8)%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

(a) General and administrative expenses for the year ended December 31, 1997
included a one-time charge of $379,000 (1.2% of revenue) for costs relating
to the acquisition of TriQuest.

(b) Includes a gain of $5,574, 000 (17.9% of revenues) in conjunction with the
sale of the TDS product line.

(c) Excluding the $19.9 million write-off of in-process technology related to
the purchase of Simulation Technologies, the $5.6 million gain on sale of
the TDS product line, and a $2.1 million tax provision related to these
transactions, the Company would have recorded net income of $10.6 million
(33.8% of revenue).

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

TOTAL REVENUE

The Company's revenue is comprised of product licenses revenue, maintenance
and services revenue and other revenue. Total revenue increased by 55.1%
from $20.1 million for the year ended December 31, 1996 to $31.2 million for
the year ended December 31, 1997. Sales through one distributor, accounted
for 12.1% and 14.7% of the Company's total revenue for the years ended
December 31, 1997 and 1996, respectively. Sales to CSC accounted for 28.8% of
the Company's total revenue for the year ended December 31, 1997. Such
revenue included $6.2 million of Visual Testbench license sales made pursuant
to the Company's contract with CSC. See "Overview." No customer accounted
for more than 10% of the Company's total revenue for the year ended December
31, 1996.

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the
Company's HLDA Plus products and, additionally, from Design to Test products
through June 30, 1997. Product licenses revenue increased by 61.9% from $15.2
million for the year ended December 31, 1996 to $24.7 million for the year ended
December 31, 1997. Revenue from HLDA and Design to Test products accounted for
72.2% and 27.8%, respectively, of product licenses revenue for the year ended
December 31, 1996 and 91.7% and 8.3%, respectively, of product licenses revenue
for the year ended December 31, 1997.

Because of the addition of HLDA 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 HLDA revenue instead of
Design to Test revenue.

<PAGE>

HLDA revenue increased 105.5 % from $11.0 million for the year ended December
31, 1996 to $22.6 million for the year ended December 31, 1997. The increase
in HLDA revenue over the same periods in 1996 was primarily attributable to
sales to a single customer and to revenue from the Verification product
portfolio that was not shipping in the comparable period in 1996. Significant
sales to the single customer are expected to continue over the next eight
quarters pursuant to contractual arrangements with that customer.

Design to Test revenue decreased from $4.2 million for the year ended December
31, 1996 to $2.1 million for the year ended December 31, 1997 as a result of the
sale of all of the assets used in the business of developing and marketing the
TDS Products effective July 1, 1997.

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's HLDA and Design to Test products and training
classes offered to purchasers of the Company's software products. Maintenance
and services revenue increased 41.1% from $4.3 million for the year ended
December 31, 1996 to $6.1 million for the year ended December 31, 1997. The
increase in maintenance and services revenue was attributable to maintenance
contracts for verification products acquired in the SimTech acquisition, a
maintenance contract with one customer, and additional maintenance revenue
related to growth in the installed base of HLDA customers over the previous
year, less a decrease in Design to Test maintenance revenue of $1.6 million, due
to the sale of the TDS product line.

OTHER REVENUE

Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue decreased 20.6% from
$567,000, for the year ended December 31, 1996 to $450,000 for the year ended
December 31, 1997. There was no revenue from one time technology sales during
the years ended December 31, 1996 or 1997. In May 1997, a distribution agreement
expired; and as a result, the distribution rights fees paid at the inception of
the agreement and amortized into revenue at $50,000 each quarter over the
agreement period will no longer be a source of other revenue.

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 plus the amortization of
purchased technology acquired in the SimTech purchase. Cost of product licenses
revenue increased 40% from $573,000 for the year ended December 31, 1996 to
$804,000 for the year ended December 31, 1997. As a percentage of product
licenses revenue, the cost of product licenses revenue decreased from 3.8% for
the year ended December 31, 1996 to 3.3% for the year ended December 31,1996.
This decrease was primarily due to leveraging fixed costs across increased
product licenses revenue.

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 32.0% from $460,000 for the year ended December
31, 1996 to $607,000 for the year ended December 31, 1997. As a percentage of
maintenance and services revenue, the cost of maintenance and services revenue
decreased from 10.7% for the year ended December 31, 1996 to 10.0% for the year
ended December 31, 1997. The decrease in the cost of maintenance and services
revenue as a percentage of maintenance and services revenue was primarily a
result of the Company operating below forecasted staffing levels during the
first half of 1997. The Company increased headcount during the second half of
1997, and expects to continue to increase headcount.(2)

- -----------
(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 32
for a discussion of factors that could affect future performance.

<PAGE>

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 20.2% from $5.8 million for the year ended
December 31, 1996 to $6.9 million for the year ended December 31, 1997. In
connection with the sale of the TDS product line on July 1, 1997, the
Company's research and development staff decreased by 15 engineers. With the
acquisition of SimTech on September 9, 1997 the Company added 28 engineers.
Additionally, the Company added 25 engineers net, during 1997. As a
percentage of total revenue, research and development expenses decreased from
28.7% for the year ended December 31, 1996 to 22.2% for the year ended
December 31, 1997 primarily 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, and the Company, therefore,
anticipates that research and development expenses will increase in absolute
dollars in future periods, but may vary as a percentage of total revenue.(2)

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 13.8% from $9.3 million for the year ended December
31, 1996 to $10.5 million for the year ended December 31, 1997. The increase was
primarily attributable to the addition of 8 sales and marketing personnel and
the related increased commissions and travel expenses. As a percentage of total
revenue, sales and marketing expenses decreased from 46.0% for the year ended
December 31, 1996 to 33.8% for the year ended December 31, 1997. The decrease
was primarily attributable to the increase in total revenue for 1997. In the
future, the Company expects sales and marketing expenses to continue to increase
in absolute dollars, in part due to the hiring of additional sales personnel.(2)

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate, finance,
human resource, information services, administrative, legal and auditing
expenses of the Company. General and administrative expenses increased 32.2%
from $3.2 million for the year ended December 31, 1996 to $4.2 million for the
year ended December 31, 1997 which includes a $379,000 one-time charge for costs
associated with the acquisition of TriQuest. Excluding this one-time charge for
costs associated with the TriQuest acquisition, general and administrative
expenses increased $644,000 (20.3%) as compared to the same period in 1996. As
a percentage of total revenue, excluding the one-time charge associated with the
acquisition of TriQuest, general and administrative expenses decreased from
15.8% for 1996 to 12.2% for 1997. The decrease as a percentage of total revenue
was primarily attributable to the increase in total revenue in 1997. The Company
expects general and administrative expenses to increase in absolute dollars to
support future sales and operations.

ACQUIRED IN-PROCESS TECHNOLOGY

For the year ended December 31, 1997, $19.9 million of the purchase price for
the acquisition of Simulation Technologies Corp. ($22.1 million) was allocated
to in-process technology and accordingly, was expensed as of the acquisition
date (September 9, 1997). The amount allocated to the in-process technology
represented the

- ----------
(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 32 for a discussion of factors that could affect future performance.

<PAGE>

estimated fair value determined based upon known valuation techniques in the
high technology industry. The technological feasibility of the in-process
technology had not been established and had no alternative future use at the
time of the acquisition. The Company intends to develop this in-process
technology although there can be no assurance that technological feasibility
and commercial viability can be achieved.

INTEREST EXPENSE

Interest expense decreased from $99,000 for the year ended December 31, 1996 to
$11,000 for the year ended December 31, 1997 due to decreased borrowings under
the Company's bank line of credit and long term debt and the expiration of
certain 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 the 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 $218,000 for the year ended
December 31, 1996 and $1.1 million for the year ended December 31, 1997. The
increase in other income was primarily due to increased interest earned on the
Company's cash holdings resulting from the initial public offering in October of
1996.

GAIN ON SALE OF TDS PRODUCT LINE

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
to Credence Systems Corporation ("CSC") for $5 million. CSC assumed certain
liabilities, including the Company's obligations under TDS maintenance contracts
entered into prior to the closing. The Company has recorded a gain on the sale
of $5.6 milllion.

INCOME TAX PROVISION

The income tax provision increased from a benefit of $245,000 for the year
ended December 31, 1996 to a tax provision of $737,000 for the year ended
December 31, 1997. The Company utilized substantially all its U.S. Federal and
State net operating loss carryforwards to offset a considerable portion of U.S.
taxable income for the year ended December 31, 1997. The provision of $737,000
for 1997 is comprised of $1,659,000 of Federal, State and foreign taxes payable,
less $922,000 of deferred tax benefit recognized for NOL's available from the
TriQuest acquisition as well as research and development credits and alternative
minimum tax credits. The provision for 1996 is comprised primarily of Japanese
withholding tax of approximately 10% on Japanese sales through June 1996 and
alternative minimum tax.

YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

The Company's acquisition of Triquest in February 1997 was accounted for as a
pooling of interests as defined by generally accepted accounting principles
and, therefore, the Company's financial statements have been restated.

TOTAL REVENUE

The Company's revenue is comprised of product licenses revenue, maintenance and
services revenue and other revenue. Total revenue increased by 42.9% from $14.1
million for the year ended December 31, 1995 to $20.1 million for the year ended
December 31, 1996. Sales through one distributor accounted for 14.6% and 12.7%
of the Company's total revenue for the years ended December 31, 1996 and 1995,
respectively. No customer accounted for more than 10% of the Company's total
revenue for the years ended December 31, 1996 and 1995.

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the
Company's HLDA and Design to Test products. Product licenses revenue increased
by 46.8% from $10.4 million for the year ended December 31, 1995 to $15.2
million for the year ended December 31, 1996. Revenue from HLDA and Design to
Test

<PAGE>

products accounted for 58.5% and 41.5%, respectively, of product licenses
revenue for the year ended December 31, 1995 and 72.2% and 27.8%, respectively,
of product licenses revenue for the year ended December 31, 1996.

HLDA revenue increased 81.3 % from $6.1 million for the year ended December 31,
1995 to $11.0 million for the year ended December 31, 1996. The increase was
primarily attributable to the hiring of the HLDA sales force beginning in late
1994 and early 1995, improved international distribution and thereafter
increased market acceptance of the Company's HLDA products and increased account
penetration at major targeted accounts.

Design to Test revenue decreased slightly from $4.3 million for the year ended
December 31, 1995 to $4.2 million for the year ended December 31, 1996. Revenue
from Design to Test products typically results from fewer, larger orders and, as
a result, the timing of orders can result in significant variations in quarterly
revenue.

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's HLDA and Design to Test products and training
classes offered to purchasers of the Company's software products. Maintenance
and services revenue increased 63.1% from $2.6 million for the year ended
December 31, 1995 to $4.3 million for the year ended December 31, 1996. The
increase was attributable to an increase in maintenance revenue related to
growth in the installed base of HLDA customers and an increase in domestic
Design to Test maintenance revenue due to the Company hiring a telemarketing
salesperson dedicated to sales of renewal maintenance.

OTHER REVENUE

Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue for the year ended
December 31, 1995 was approximately $1.1 million, which consisted of $850,000
related to a one-time sale of non-core technology and $200,000 of distribution
rights fees. For the year ended December 31, 1996 other revenue consisted of
$567,000 of distribution rights fees. No material costs were associated with
other revenue for the years ended December 31, 1995 and 1996.

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs. Cost of product licenses
revenue decreased 12% from $651,000 for the year ended December 31, 1995 to
$573,000 for the year ended December 31, 1996. The decrease was primarily
attributable to one-time costs incurred in the year ended December 31, 1995
associated with the write-off of prepaid royalties and obsolete inventory and
the production of demonstration and evaluation materials related to the release
of new versions of the Company's HLDA products. As a percentage of product
licenses revenue, the cost of product licenses revenue decreased from 6.3% for
the year ended December 31, 1995 to 3.8% for the year ended December 31,1996.
This decrease was primarily due to leveraging fixed costs across increased
product licenses revenue.

COST OF MAINTENANCE AND SERVICES REVENUE

<PAGE>

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions and
promotional costs, increased 23.7% from $7.5 million for the year ended December
31, 1995 to $9.3 million for the year ended December 31, 1996. The increase was
primarily attributable to increased commissions and travel expenses. As a
percentage of total revenue, sales and marketing expenses decreased from 53.1%
for the year ended December 31, 1995 to 46.0% for the year ended December 31,
1996. The decrease was primarily attributable to the increase in total revenue
for 1996.

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate, finance,
human resource, information services, administrative, legal and auditing
expenses of the Company. General and administrative expenses decreased 3.0% from
$3.3 million for the year ended December 31, 1995 to $3.2 million for the year
ended December 31, 1996. During 1995, the Company wrote-off expenses of
approximately $270,000 primarily related to prepaid expenses deemed to have no
future value and costs associated with the severance of a senior manager. As a
percentage of total revenue, general and administrative expenses decreased from
23.2% for 1995 to 15.8% for 1996. The decrease as a percentage of total revenue
was primarily attributable to the increase in total revenue in 1996 and the
absence of any one time charges.

INTEREST EXPENSE

Interest expense decreased from $203,000 for the year ended December 31, 1995 to
99,000 for the year ended December 31, 1996 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
and gains or losses from the sale of property and equipment. Other income was
$34,000 for the year ended December 31, 1995 and $218,000 for the year ended
December 31, 1996. 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 $399,000 for the year ended December 31,
1995 to a tax benefit of $245,000 for the year ended December 31, 1996. The
decrease was primarily attributable to the Company, as of June 1996, no longer
being required to pay Japanese withholding tax of approximately 10% on its
Japanese

<PAGE>

sales and the recognition in the fourth quarter of 1996 of a net deferred tax
asset of $500,000. State income tax payments were lower than statutory limits
due to the carryforward of net operating losses.

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, 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

Prior to 1996, the Company had experienced losses for income tax purposes in
the United States. The Company is now profitable in the United States and
expects to pay income taxes at or near the applicable federal and state
statutory tax rates on its U.S. taxable earnings. As of December 31, 1997,
the Company has recognized the benefit of its U.S. net operating loss
carryforwards and tax credit carryforwards in their financial statements.

The Company's Israeli operations, Summit Design (EDA) Ltd., a wholly owned
subsidiary, is a separate taxable Israeli entity. Summit Design (EDA) Ltd.
has been granted "Approved Enterprise" status under the Israeli Investment
Law, which entitles it to reductions in the tax rate normally applicable to
Israeli companies with respect to the income generated by its "Approved
Enterprise" programs. In particular, this program 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 program provides that, during
such seven year periods, a portion of the Company's taxable income from its
Israeli operations will be taxed at favorable tax rates. 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 have favorable tax status in Israel. Management of the Company intends to
permanently reinvest earnings of the Israeli subsidiary outside the U.S. If
such earnings were remitted to the U.S., additional U.S. federal and foreign
taxes may be due.

<PAGE>

The Company has foreign income tax net operating losses, related to the
operations of Summit Design (EDA) Ltd., of approximately $5.6 million at
December 31, 1997. These foreign losses were generated in Israel over several
years and have not yet received final assessment from the Israeli government.
Consequently, management is uncertain as to the availability of a substantial
portion of such foreign loss carryforwards.

The Company is also subject to 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, results of operations and cash flows.

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 December 31, 1997, the Company had
approximately $19.9 million in cash and cash equivalents. Additionally, the
Company has a $1.0 million bank line of credit with a bank. The line of credit
expires on April 30, 1998 and borrowings thereunder accrue interest at specified
percentages above the prime lending rate based on the Company's ratio of debt to
tangible net worth. Advances under the line of credit are limited to a specified
percentage of eligible accounts receivable (as defined in the line of credit).
Borrowings under the line of credit are collateralized by the Company's accounts
receivable, inventory and general intangible assets, including its intellectual
property rights. As of December 31, 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
into during July 1997. Borrowings under the agreement bear interest at prime
plus 2%.

As of December 31, 1997, the Company had working capital of approximately $14.6
million.

Net cash generated by operating activities was approximately $12.0 million and
$4.6 million for the years ended December 31, 1997 and 1996, respectively. Net
cash used in operating activities was approximately $3.3 million for the year
ended December 31, 1995. For the year ended December 31, 1997, cash generated by
operating activities resulted primarily from improved collection of accounts
receivable, an increase in deferred revenues and accrued liabilities and
profitability during the period. For 1996, cash generated from operating
activities resulted from improved collections, increases in deferred revenue and
profitability during the period, while in 1995, the use of cash from operations
resulted primarily from the Company's net loss and the increase in accounts
receivable.

Net cash used in investing activities was approximately $1,297,000, $847,000,
and $785,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
For the year ended December 31, 1997, net cash

<PAGE>

used was primarily related to the acquisition of furniture and equipment, the
acquisition of Simulation Technologies, and a loan to an independent software
development company, which was partially offset by proceeds from the sale of
the TDS product line. For 1996 and 1995, net cash used in investing
activities was related primarily to the acquisition of furniture and
equipment.

Net cash used in financing activities was approximately $10.6 million for the
year ended December 31, 1997. Net cash provided by financing activities was
approximately $15.3 million, and $3.6 million for the years ended December
31, 1996, and 1995, respectively. For the year ended December 31, 1997 net
cash used in financing activities resulted primarily from the Company
repurchasing approximately 939,000 shares of treasury stock and repayment of
debt, less proceeds from the issuance of common stock. The cash provided in
1996 was primarily a result of the Company's initial public offering,
partially offset by the repayment of $2.1 million of outstanding debt and
capital lease obligations. The cash provided in 1995 was related primarily to
the issuance of preferred stock and short-term borrowings, partially offset
by debt payments and principal payments on capital lease obligations.

From January 1, 1998 to March 23, 1998 the Company repurchased 162,500 shares
of its common stock for $2.3 million.

The Company presently believes that its current cash and cash equivalent,
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)

The Company is currently reviewing its products, internal systems and
infrastructure in order to identify and modify those products and systems
that are not Year 2000 compliant. The Company expects any required
modification to be made on a timely basis and does not believe that the cost
of any such modifications will have a material adverse effect on the
Company's operating results. There can be no assurance, however, that there
will not be a delay in, or increased costs associated with, implementation of
any such modifications and the Company's inability to implement such
modifications could have an adverse effect on the Company's future operating
results.

ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE OF
STOCK

HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS

The Company incurred a net loss in 1997 and 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.

<PAGE>

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 HLDA

Prior to July 1997, the Company's revenue was 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 ceased to be a source of revenue. With the acquisition of TriQuest in
February 1997 and SimTech in September 1997, the Company also derives revenue
from verification products which include hardware-software co-verification, code
coverage, and HDL debugging products as well as analysis, verification and RTL
optimization tools.

The Company believes that HLDA 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 HLDA products. The Company commercially shipped its first
HLDA product, Visual HDL for VHDL, in the first quarter of 1994. For the years
ended December 31, 1997, 1996 and 1995, respectively, revenue from HLDA products
and related maintenance contracts represented 76.5%, 63.5%, and 43.6%,
respectively, of the Company's total revenue. The Company's HLDA 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 HLDA 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 HLDA products will achieve broad market acceptance.
A decline in the demand for, or the failure to achieve broad market acceptance
of, the Company's HLDA products will have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.

Although demand for HLDA products has increased in recent years, the market for
HLDA 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 HLDA products. If the market for HLDA products fails
to grow or grows more slowly than the Company currently anticipates, the
Company's business, financial condition, results of operations or cash flows
would be materially adversely affected.

Traditionally, EDA customers have been risk averse in accepting new design
methodologies. Because many of Summit's tools embody new design
methodologies, this risk aversion on the part of potential customers presents
an ongoing marketing and sales challenge to the Company and makes the
introduction and acceptance of new products unpredictable. The Company's
Visual Testbench product, 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, to which it will realize revenue from Visual Testbench in
excess of the revenue expected to be received pursuant to an OEM agreement
with CSC entered into in July 1997. As part of this agreement, CSC must
purchase a minimum of $16.0 million of Visual Testbench licenses over a
thirty-month period which began in July 1997. As of December 31, 1997, the
Company had sold $6.2 million of Visual Testbench licenses to CSC pursuant to
the agreement. The Company will need to replace this revenue when the $16.0
million purchase obligation is satisfied and the failure of the Company to
replace this revenue would have a material adverse effect on the Company's
operating results.

<PAGE>

COMPETITION

The EDA industry is highly competitive and the Company expects competition to
increase as other EDA companies introduce HLDA products. In the HLDA 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 HLDA 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 HLDA 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, results of
operations, or cash flows.

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 HLDA 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, results of operations, or cash
flows. 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, results of operations or cash flows.

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, results
of operations, or cash flows. 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. If
any of these relationships

<PAGE>

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, results of
operations or cash flows could be materially adversely affected.

NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS

DEPENDENCE ON DISTRIBUTORS

The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 29%, 46% and 42% of the Company's
revenue for the years ended December 31, 1997, 1996 and 1995, 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 Asia acquired exclusive rights to sell, distribute and support 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. The Company is currently
restructuring the ownership and responsibilities of Summit Asia. There can be
no assurance that any restructuring would result in Summit Asia becoming
profitable or that revenue attributable to sales in the Asia Pacific region,
excluding Japan, would increase. 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 HLDA products in Japan with Seiko. In the event
Seiko fails to meet specified quotas for two or more quarterly periods,
exclusivity can be terminated by Summit, subject to Seiko's right to pay a
specified fee to maintain exclusivity. The agreement is renewable for successive
five-year terms by mutual agreement of the Company and Seiko and is terminable
by either party for breach. In March 1997, the Company entered into a three-year
distribution agreement with Kanematsu USA Inc. pursuant to which Kanematsu was
granted exclusive distribution rights to sell, distribute and support certain
verification products in Japan. For the year ended December 31, 1997, all sales
of the Company's products in the Asia-Pacific region were through Seiko, Summit
Asia, ATE and Kanematsu.

<PAGE>

There can be no assurance the relationships with Seiko, Summit Asia, ATE and
Kanematsu 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, Seiko, Summit Asia, ATE and
Kanematsu, 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, results
of operations or cash flows.

INTERNATIONAL SALES AND OPERATIONS

Approximately 33%, 50% and 52% of the Company's revenue for the years ended
December 31, 1997, 1996 and 1995, respectively, were attributable to sales made
outside the United States. The Company expects that international revenue will
continue to represent a significant portion of its total revenue. The Company's
international revenue is currently denominated in U.S. dollars. As a result,
increases in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in those markets. The Company pays the expenses of its international
operations in local currencies and does not engage in hedging transactions with
respect to such obligations. International sales and operations are subject to
numerous risks, including tariff regulations and other trade barriers,
requirements for licenses, particularly with respect to the export of certain
technologies, collectability of accounts receivable, changes in regulatory
requirements, difficulties in staffing and managing foreign operations and
extended payment terms. There can be no assurance that such factors will not
have a material adverse effect on the Company's future international sales and
operations and, consequently, on the Company's business, financial condition,
results of operations or cash flows. In addition, financial markets and
economies in the Asia Pacific Region have been experiencing adverse conditions
which could adversely affect demand for the Company's products in such region.

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, results of operations or cash flows.

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, results of operations
or cash flows.

<PAGE>

opportunities. Future acquisitions by Summit could result in potentially
dilutive issuances 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
affect on Summit's results of operations.

OPERATIONS IN ISRAEL

The Company's research and development operations related to its HLDA 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 annual costs and expenses in Israel
are paid in Israeli currency. These costs and expenses were approximately $4.7,
$4.3 and $4.3 million in 1997, 1996 and 1995, 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 7%, 11% and 8% during 1997, 1996, and 1995, 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, results of
operations, or cash flows. 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, results of operations or
cash flows.

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

<PAGE>

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, results of operations or cash
flows. The Company does not carry "key person" life insurance on any of its
key personnel. The Company recently hired a new Vice President of Worldwide
Marketing and Sales and several new sales persons. The Company's future
success will depend in part on the ability of these new persons to rapidly
and effectively transition into their new positions. 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, results of operations or cash flows.

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

Summit's Israeli subsidiary 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 December 31, 1997, all amounts have been repaid. 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 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 December 31, 1997, approximately $261,000 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 HLDA Plus products to end-users primarily under
"shrink-wrap" license agreements included within the packaged software In
addition, the Company delivers certain of its verification products
electronically under an electronic version of a "shrink wrap" license agreement.
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

<PAGE>

protect its proprietary rights or claims of infringement could have a
material adverse effect on the Company's business, financial condition,
results of operations or cash flows.

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.

YEAR 2000

39
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPORTING DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants............................. 41

Consolidated Balance Sheets as of December 31, 1997 and 1996.. 42

Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995.............................. 43

Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 ................. 44

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.............................. 45

Notes to Consolidated Financial Statements.................... 46
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Summit
Design, Inc. and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Summit Design,
Inc. and its subsidiaries as of December 31, 1997 and 1996, and the results
of their consolidated operations and their cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Portland, Oregon
January 30, 1998

<PAGE>

SUMMIT DESIGN, INC.

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

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $19,898 $19,772
Accounts receivable, less allowance for
doubtful accounts of $592 and $433 . . . . . . . 5,110 5,567
Prepaid expenses and other. . . . . . . . . . . . . 520 487
Deferred income taxes . . . . . . . . . . . . . . . 1,209 -
------- -------
Total current assets . . . . . . . . . . . . . . 26,737 25,826

Furniture and equipment, net . . . . . . . . . . . . . . 2,666 1,832
Intangibles, net . . . . . . . . . . . . . . . . . . . . 1,622 -
Deferred income taxes. . . . . . . . . . . . . . . . . . 533 500
Deposits and other assets. . . . . . . . . . . . . . . . 1,055 468
------- -------
Total assets . . . . . . . . . . . . . . . . . . $32,613 $28,626
------- -------
------- -------

LIABILITIES
Current liabilities:
Long-term debt, current portion . . . . . . . . . . $ 105 $ 462
Capital lease obligation, current portion . . . . . 49 65
Accounts payable. . . . . . . . . . . . . . . . . . 1,182 1,454
Accrued liabilities . . . . . . . . . . . . . . . . 5,157 2,869
Deferred revenue. . . . . . . . . . . . . . . . . . 5,668 3,758
------- -------
Total current liabilities. . . . . . . . . . . . 12,161 8,608

Long-term debt, less current portion . . . . . . . . . . 156 675
Capital lease obligation, less current portion . . . . . 43 95
Deferred revenue, less current portion . . . . . . . . . - 67
------- -------
Total liabilities. . . . . . . . . . . . . . . . 12,360 9,445
------- -------
------- -------

Commitments and contingencies (Notes 10 and 17)

STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized 30,000;
issued and outstanding 15,631 shares in 1997
and 13,874 shares in 1996. . . . . . . . . . . . . . 156 139
Additional paid-in capital . . . . . . . . . . . . . . . 51,772 33,235
Treasury stock, at cost, 939 shares in 1997. . . . . . . (11,555) -
Accumulated deficit. . . . . . . . . . . . . . . . . . . (20,120) (14,193)
------- -------
Total stockholders' equity . . . . . . . . . . . 20,253 19,181
------- -------
Total liabilities and stockholders' equity . . . $ 32,613 $ 28,626
------- -------
------- -------
</TABLE>

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

<PAGE>

SUMMIT DESIGN, INC.

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

YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product licenses. . . . . . . . . . $ 24,676 $ 15,244 $ 10,383
Maintenance and services. . . . . . 6,068 4,300 2,637
Other . . . . . . . . . . . . . . . 450 567 1,050
-------- -------- --------
Total revenue . . . . . . . . . . 31,194 20,111 14,070
Cost of revenue: . . . . . . . . . . . .
Product licenses. . . . . . . . . . 804 573 651
Maintenance and services. . . . . . 607 460 400
-------- -------- --------
Total cost of revenue . . . . . . 1,411 1,033 1,051
-------- -------- --------
Gross profit . . . . . . . . . . . . . . 29,783 19,078 13,019
Operating expenses:
Research and development. . . . . . 6,929 5,766 5,343
Sales and marketing . . . . . . . . 10,532 9,252 7,477
General and administrative. . . . . 4,196 3,173 3,271
In-process technology . . . . . . . 19,937 - -
-------- -------- --------
Total operating expenses. . . . . 41,594 18,191 16,091
-------- -------- --------
Income (loss) from operations. . . . . . (11,811) 887 (3,072)
Interest expense . . . . . . . . . . . . (11) (99) (203)
Other income, net. . . . . . . . . . . . 1,058 218 34
Gain on sale of TDS product line . . . . 5,574 - -
-------- -------- --------
Income (loss) before income taxes. . . . (5,190) 1,006 (3,241)
Income tax provision (benefit) . . . . . 737 (245) 399
-------- -------- --------
Net income (loss). . . . . . . . . . . . $(5,927) $ 1,251 $ (3,640)
-------- -------- --------
-------- -------- --------

Earnings per share - Basic:. . . . . . .
Earnings per share . . . . . . . . . . $ (0.42) $ 0.10 $ (0.33)
-------- -------- --------
-------- -------- --------
Number of shares used in
computing basic earnings per share . . 14,197 12,035 10,880

Earnings per share - Diluted:. . . . . .
Earnings per share . . . . . . . . . . $ (0.42) $ 0.10 $ (0.33)
-------- -------- --------
-------- -------- --------
Number of shares used in
computing diluted earnings per share . 14,197 13,038 10,880
</TABLE>

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

<PAGE>

SUMMIT DESIGN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1997, 1996 and 1995
(In thousands, except shares)

<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
----------------------- ------------------------
Shares Amount Shares Amount
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.......................... 8,599,012 86 1,968,590 20
Issuance of Series E preferred stock................ 600,000 6
Issuance of Series A preferred stock................ 80,383 444
Repurchase of Series C preferred stock.............. (65,000) (1)
Repurchase of Series D preferred stock.............. (30,666)
Issuance of common stock............................ 141,722 43
Issuance of common stock under stock option plan.... 71,757 1
Repurchase of common stock.......................... (153,705) (2)
Net loss............................................
---------- ----------- ----------- -----
Balance, December 31, 1995.......................... 9,183,729 535 2,028,364 62
Issuance of convertible Preferred stock............. 290,938 986
Issuance of common stock in in initial public
offering, net of Issuance costs.................... 2,000,000 20
Issuance of common stock under stock option plan and
other.............................................. 383,952 6
Conversion of preferred stock to common stock....... (9,474,667) (1,521) 9,474,667 95
Repurchase of common stock.......................... (12,737)
Conversion of TriQuest common stock................. (44)
Net income..........................................
---------- ----------- ----------- -----
Balance, December 31, 1996.......................... -- -- 13,874,246 139
Issuance of common stock............................ 23,859
Issuance of common stock under stock option plan.... 440,711 4
Issuance of common stock under employee stock
purchase plan...................................... 58,701 1
Repurchase of common stock.......................... (23,760)
Issuance of common stock in conjunction with a
business combination............................... 1,256,777 12
Purchase of treasury stock..........................
Tax benefit of option exercises.....................
Net loss............................................
---------- ----------- ----------- -----
Balance, December 31, 1997.......................... -- $ -- 15,630,534 $ 156
---------- ----------- ----------- -----
---------- ----------- ----------- -----

Additional Treasury Stock Total
Paid-in --------------------- Accumulated Stockholders'
Capital Shares Amount Deficit Equity
----------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994.......................... 12,993 (11,804) 1,295
Issuance of Series E preferred stock................ 2,575 2,581
Issuance of Series A preferred stock................ 444
Repurchase of Series C preferred stock.............. (64) (65)
Repurchase of Series D preferred stock.............. (115) (115)
Issuance of common stock............................ 43
Issuance of common stock under stock option plan.... 49 50
Repurchase of common stock.......................... (1) (3)
Net loss............................................ (3,640) (3,640)
----------- --------- --------- ------------- -------------
Balance, December 31, 1995.......................... 15,437 -- -- (15,444) 590
Issuance of convertible Preferred stock............. 986
Issuance of common stock in in initial public
offering, net of Issuance costs.................... 16,204 16,224
Issuance of common stock under stock option plan and
other.............................................. 134 140
Conversion of preferred stock to common stock....... 1,418 (8)
Repurchase of common stock.......................... (2) (2)
Conversion of TriQuest common stock................. 44 --
Net income.......................................... 1,251 1,251
----------- --------- --------- ------------- -------------
Balance, December 31, 1996.......................... 33,235 -- -- (14,193) 19,181
Issuance of common stock............................ 8 8
Issuance of common stock under stock option plan.... 561 565
Issuance of common stock under employee stock
purchase plan...................................... 349 350
Repurchase of common stock.......................... (4) (4)
Issuance of common stock in conjunction with a
business combination............................... 16,654 16,666
Purchase of treasury stock.......................... (939,381) (11,555) (11,555)
Tax benefit of option exercises..................... 969 969
Net loss............................................ (5,927) (5,927)
----------- --------- --------- ------------- -------------
Balance, December 31, 1997.......................... $ 51,772 (939,381) $ (11,555) $ (20,120) $ 20,253
----------- --------- --------- ------------- -------------
----------- --------- --------- ------------- -------------
</TABLE>

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

<PAGE>
SUMMIT DESIGN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................... $ (5,927) $ 1,251 $ (3,640)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........................................... 974 858 599
(Gain) loss on asset disposition........................................ 2 18 (1)
Gain on sale of TDS product line........................................ (5,574) -- --
Write-off of acquired in-process technology............................. 19,937 -- --
Deferred taxes.......................................................... (1,242) (500) --
Changes in assets and liabilities:
Accounts receivable................................................... 962 (46) (1,377)
Prepaid expenses...................................................... 4 (158) (4)
Accounts payable...................................................... (278) 411 (306)
Accrued liabilities................................................... 1,651 553 821
Deferred revenue...................................................... 1,595 2,066 380
Other, net............................................................ (68) 160 194
---------- ---------- ----------
Net cash provided by (used in) operating activities................. 12,036 4,613 (3,334)
---------- ---------- ----------
Cash flows from investing activities:
Additions to furniture and equipment...................................... (1,612) (755) (802)
Acquisitions, net of cash received........................................ (3,816) -- --
Proceeds from sale of product line........................................ 4,666 -- --
Proceeds from sale of assets.............................................. 30 8 17
Notes receivable.......................................................... (565) -- --
Investment in joint venture............................................... -- (100) --
---------- ---------- ----------
Net cash used in investing activities................................. (1,297) (847) (785)
---------- ---------- ----------
Cash flows from financing activities:
Issuance of preferred stock............................................... -- 977 3,025
Issuance of common stock, net............................................. 922 16,364 77
Tax benefit of option exercises........................................... 969 -- --
Payments to acquire treasury stock........................................ (11,555) -- --
Proceeds from notes payable and long-term debt............................ -- 96 3,310
Repurchase of preferred stock............................................. -- -- (180)
Repurchase of common stock................................................ (4) (2) (13)
Principal payments of debt obligations.................................... (876) (1,928) (2,329)
Principal payments of capital lease obligations........................... (69) (205) (260)
---------- ---------- ----------
Net cash (used in) provided by financing activities................... (10,613) 15,302 3,630
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents...................... 126 19,068 (489)
Cash and cash equivalents, beginning of year................................ 19,772 704 1,193
---------- ---------- ----------
Cash and cash equivalents, end of year...................................... $ 19,898 $ 19,772 $ 704
---------- ---------- ----------
---------- ---------- ----------

Supplemental disclosure (see Note 16)
</TABLE>

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

<PAGE>
SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY:

Summit Design, Inc. (Summit or the Company) develops, manufactures and markets
software which enhances and accelerates the creation of electronic systems and
integrated circuits using top-down design methodologies. The Company provides
software products for design specification entry, design analysis and
verification. Subsidiaries of the Company are located in the United States and
Israel. The Company markets and sells its products in the United States, Europe,
and Asia through its direct sales force and distributor relationships.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Summit Verification, Inc. and Summit Design (EDA)
Ltd. Upon consolidation, all intercompany accounts, transactions and profits
have been eliminated.

REVENUE RECOGNITION

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

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

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

The Company records revenue from sales through distributors upon sales from
distributors to a third party or end user.

RESEARCH AND DEVELOPMENT COSTS

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

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less when purchased to be cash equivalents. At
December 31, 1997, substantially all of the Company's cash and cash equivalents
are invested in interest-bearing deposits and other short-term investments with
several major banks.

46
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FURNITURE AND EQUIPMENT

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

INTANGIBLES

Intangible assets include goodwill and purchased technology which are being
amortized on a straight line basis over five and three years, respectively.
Purchased technology represents acquired software which has been fully
developed, achieved technological feasibility, reached commercial viability,
and is generating revenue. The carrying value of intangible assets are reviewed
whenever circumstances occur which indicate that the carrying value may not be
recoverable. Total accumulated amortization related to these intangible assets
is $150,000 at December 31, 1997.

INCOME TAXES

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

CONCENTRATION OF CREDIT RISK

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

FOREIGN CURRENCY TRANSLATION

The Company's subsidiary in Israel uses the U.S. dollar as its functional
currency for financial reporting purposes. The Company's sales to foreign
distributors and customers are denominated in U.S. dollars. Operating expenses
of the Company's subsidiary in Israel and other international operations are
paid in the local currency. Transaction gains and losses, as well as gains and
losses experienced with respect to remeasurement to the functional currency are
recorded in the consolidated statement of operations.

47
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ESTIMATES

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

DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable, other current assets, accounts payable and
accrued liabilities approximated fair value as of December 31, 1997 and 1996
because of the relatively short maturity of these instruments. The carrying
value of capital lease obligations and long-term debt approximated fair value as
of December 31, 1997 and 1996, based upon the interest rates available to the
Company for similar instruments.

COMPUTATION OF NET INCOME (LOSS) PER SHARE

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard (SFAS) No. 128 EARNINGS PER SHARE
effective for fiscal periods ending after December 15, 1997. This statement
simplifies the standards for computing earnings per share ("EPS") previously
found in APB Opinion No. 15, EARNINGS PER SHARE, and makes them comparable with
international EPS standards. This statement requires restatement of all prior
period data presented and, therefore, the Company has restated EPS for the years
ended December 31, 1996 and 1995, respectively. The principal differences
between the provisions of SFAS No. 128 and previous authoritative pronouncements
are exclusion of common stock equivalents in the determination of basic EPS and
the market price at which common stock equivalents are calculated in the
determination of diluted EPS. Basic EPS is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted EPS is
computed using the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the period.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, 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 a
statement of comprehensive income. Management does not expect the adoption
to have a material effect 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 and will modify the disclosure of certain segment information for the
Company.

48
<PAGE>
SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. The statement suggests
combined formats for presentation of pension and other postretirement benefit
disclosures. The statement also permits reduced disclosures for nonpublic
entities. This statement is effective for fiscal years beginning after December
15, 1997. Management does not expect the adoption to have any effect on the
consolidated financial statements.

In October 1997, the AICPA issued SOP 97-2, "Software Revenue Recognition",
which supersedes SOP 91-1 and is effective for transactions entered into in
years beginning after December 15, 1997. Management has not yet determined
the effect of the adoption of this statement.

3. 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 ("HDL") analysis, optimization and verification 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.

The following presents the previously separate results of TriQuest for the year
ended December 31, 1996, and the two months ended February 28, 1997:

<TABLE>
<CAPTION>
December 31, 1996 February 28, 1997
----------------- -----------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C>
Revenues $ 151 $ 199
-------- --------
-------- --------

Net loss $ 1,425 $ 143
-------- --------
-------- --------
</TABLE>

4. SALE OF TDS PRODUCT LINE:

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
assumed certain liabilities, including the Company's obligations under TDS
maintenance contracts entered into prior to the closing. CSC also agreed to
purchase $2 million of Visual interface licenses in the second quarter. TDS
product license, maintenance and services and other revenue for the years ended
December 31, 1995, 1996 and 1997 were $6,978,000, $7,331,000 and $3,500,000,
respectively.

The Company and CSC also entered into a software 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.

49
<PAGE>
SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ACQUISITION OF SIMULATION TECHNOLOGIES CORP.:

On September 9, 1997, the Company acquired Simulation Technologies Corp.
("SimTech"), a Minnesota Corporation. SimTech develops and distributes
hardware-software co-verification, code coverage and HDL debugging software.
The aggregate consideration for the acquisition (including shares of common
stock reserved for issuance upon exercise of SimTech options assumed by the
Company) was 1,980,000 shares of Summit common stock and $3,875,000 in cash.
The transaction was accounted for using the purchase method of accounting,
accordingly, the results of operations from September 9, 1997 are included in
the consolidated statements of operations. The total purchase price of $22.1
million was determined based upon the cash paid and the market value of the
stock and options issued and was allocated to the net assets acquired based on
their estimated fair market values at the date of acquisition. The fair value of
tangible assets acquired and liabilities assumed were $1.3 million and $2.2
million, respectively. In addition, $19.9 million was allocated to in-process
technology which had not reached technological feasibility and had no probable
alternative uses, which the Company expensed as of the acquisition date. The
remainder of the purchase price was allocated to purchased technology
($1,037,000) and identifiable intangibles ($735,000), which are being amortized
on a straight line basis over three and five years, respectively.

The following table reflects unaudited pro forma combined results of operations
of the Company and SimTech on a basis that the acquisitions had taken place at
the beginning of the fiscal year for each of the periods presented, excluding
the effect of the one-time charge of in-process technology:

<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------ ------------
(in thousands, except per share data)

<S> <C> <C>
Revenues $ 24,188 $ 35,033
--------- ---------
--------- ---------
Net income $ 1,447 $ 11,809
--------- ---------
--------- ---------
Basic earnings per share $ 0.11 $ 0.78
--------- ---------
--------- ---------
Diluted earnings per share $ 0.10 $ 0.74
--------- ---------
--------- ---------
Number of shares used in
computing basic earnings
per share 13,292 15,062
--------- ---------
--------- ---------
Number of shares used in
computing diluted earnings
per share 14,295 16,059
--------- ---------
--------- ---------
</TABLE>

In management's opinion, the unaudited pro forma combined results of operations
are not indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of 1996 or at the beginning of
1997 or under the ownership and management of the Company.

In connection with this transaction the Company also repurchased 939,000 shares
of Summit common stock in private transactions at an average price of $12.30 per
share for $11,555,000 in cash.

50
<PAGE>
SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. FURNITURE AND EQUIPMENT:

Furniture and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1997 1996
-------- --------
<S> <C> <C>
Office furniture and equipment . . . . . . . . . . $ 596 $ 513
Computer equipment . . . . . . . . . . . . . . . . 3,553 3,124
Leasehold improvements . . . . . . . . . . . . . . 66 41
-------- --------
4,215 3,678
Less accumulated depreciation and amortization . . (1,549) (1,846)
-------- --------
$ 2,666 $ 1,832
-------- --------
-------- --------
</TABLE>

7. NOTE RECEIVABLE:

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 loan
agreement which is collateralized by the intellectual property and stock of
the software development company. Borrowings under this agreement bear
interest at prime rate plus 2%. Total amounts due to the Company under this
agreement at December 31, 1997 are $490,000 and are included in other
non-current assets.

8. NOTE PAYABLE TO BANK:

The Company has available a $1 million line of credit with U.S. National Bank of
Oregon, which matures April 30, 1998 and is collateralized by accounts
receivable, inventory, chattel paper, general intangibles, patents, trademarks,
copyrights and products and proceeds of the foregoing. Maximum borrowings under
the line shall not exceed 75% of eligible accounts receivable. Interest on the
unpaid balance accrues at a rate that ranges from prime to prime plus 0.75%,
depending on the debt to tangible net worth ratio maintained by the Company, and
is payable monthly. The prime rate at December 31, 1997 was 8.5%. There was no
amount outstanding at December 31, 1997.

The line of credit agreement contains financial covenants, including covenants
relating to maintenance of a minimum level of working capital, net worth, the
ratio of debt to net worth and dividend restrictions. The Company was in
compliance with these covenants at December 31, 1997.

9. ACCRUED LIABILITIES:

Accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------- --------
1997 1996
-------- --------
<S> <C> <C>
Payroll and related benefits . . . . . . $ 2,862 $ 1,610
Sales and marketing. . . . . . . . . . . 435 225
Accounting and legal . . . . . . . . . . 260 301
Federal and state income taxes payable . 819 -
Sales taxes payable. . . . . . . . . . . 114 115
Other. . . . . . . . . . . . . . . . . . 667 618
-------- --------
$ 5,157 $ 2,869
-------- --------
-------- --------
</TABLE>

51
<PAGE>
SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. LEASES:

The Company is obligated under capital leases for equipment that expire at
various dates during the next three years. The leased assets are included in
equipment at a capitalized amount of $197,000 and $662,000 at December 31, 1997
and 1996, respectively. Related accumulated amortization of $108,000 and
$508,000 at December 31, 1997 and 1996 is included in accumulated depreciation.

The Company has entered into a noncancelable operating lease for the use of a
building. Rental expense was approximately $285,000, $303,000, and $261,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. In addition,
Summit Design (EDA) Ltd. has entered into a sublease with a related party for
its premises. The lease expires in 1998. Annual rent is contingent on the
Israeli consumer price index and is approximately $145,000 annually.

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

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- --------
<S> <C> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52 $ 860
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 44 549
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . - 106
-------- --------
Total minimum lease payments. . . . . . . . . . . . . 96 $ 1,515
Less amount representing interest (at 4%) . . . . . . (4) --------
-------- --------
Present value of minimum capital lease payments . . . 92
Current portion of capital lease obligation . . . . . (49)
--------
Capital leases obligation, less current portion . . . $ 43
--------
--------
</TABLE>

11. LONG-TERM DEBT:

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

<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Marketing grant payable to the Israeli government. . . . . $ 261 $ 364
Chief Scientist grant payable to the Israeli government. . - 773
-------- --------
261 1,137
Current portion. . . . . . . . . . . . . . . . . . . . . . (105) (462)
-------- --------
Non-current portion. . . . . . . . . . . . . . . . . . . . $ 156 $ 675
-------- --------
-------- --------
</TABLE>

The Chief Scientist grant represents research and development funding of
approximately $232,000 in 1993 and $608,000 in 1995 received from the Israeli
government. The Company repaid both the 1993 and 1995 grants in full during
1997.

The Company received a Marketing Fund grant of $423,000 from the Israeli
Ministry of Industry and Trade through December 31, 1997. This grant is to be
repaid at the rate of 3% of the increase in export sales of all Israeli products
over the base year until repaid.

52
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

12. STOCKHOLDERS' EQUITY:

1994 INCENTIVE STOCK OPTION PLAN

The Company has an Incentive Stock Option Plan ("1994 Plan") pursuant to
which the Company may grant options to employees and consultants. Under the
terms of the 1994 Plan, the option price is determined as the fair value of
the Company's common stock at the time the option is granted. Under the plan,
2,322,000 shares of common stock are authorized for issuance. Options granted
prior to the Company's initial public offering generally became immediately
exercisable. Shares issued are subject to repurchase until vested. Options
granted subsequent to the Company's initial public offering are exercisable
upon vesting. Options generally vest 25% twelve months after the date of
grant and the remainder at 1/48th of the grant amount in each successive
month thereafter. Options expire no later than 10 years after the date of
grant.

There were 25,607, 366,094, and 622,915 shares of common stock reserved for the
grant of stock options under the 1994 Plan at December 31, 1997, 1996 and 1995,
respectively.

1996 DIRECTOR OPTION PLAN

Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan (the "Director Plan"). The Director Plan provides for an
automatic grant of an option to purchase 7,500 shares of common stock to each
non-employee director on the date on which the Director Plan becomes effective
or, if later, an option to purchase 10,000 shares of common stock on the date on
which the person first becomes a non-employee director and 10,000 shares on the
date of the annual meeting of each subsequent year, provided that he or she is
then a non-employee director and, provided further, that on such date he or she
has served on the Board for at least six months. Options granted under the
Director Plan generally become vested and all exercisable 12 months after the
grant date and are granted at an exercise price equal to 100% of the fair market
value per share on the date of the grant. The company has reserved 150,000
shares of common stock for issuance under the 1996 Director Plan. The Company
granted 40,000 options under this plan in 1997.

1997 NONSTATUTORY STOCK OPTION PLAN

The Company established the 1997 Nonstatutory Stock Option Plan
("Nonstatutory Plan") in order to provide additional incentive to employee's,
directors and consultants. Options granted under the plan will be
nonstatutory stock options and are not intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code.
Options generally vest 25% twelve months after the date of grant and the
remainder at 1/48th of the grant amount in each successive month thereafter.
Options expire no later than 10 years after the grant date. In addition, no
more than 25,000 options may be granted to directors and persons considered
"officers" by the NASDAQ Stock Market. The maximum aggregate number of
shares of common stock authorized for issuance is 250,000 shares. The Company
granted 143,000 options under the Nonstatutory Plan in 1997.

53
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of the status of the Company's stock option plans as of December 31,
1997, 1996 and 1995 and changes during the years ended on those dates is
presented below:

<TABLE>
<CAPTION>
Exercise
Options Price Range
--------- --------------
<S> <C> <C>
Balance, December 31, 1994 . . . . . . . 873,457 $0.02 -- $5.00
Options granted. . . . . . . . . . . 558,627 $0.33 -- $1.75
Options exercised. . . . . . . . . . (71,757) $0.02 -- $0.51
Options canceled . . . . . . . . . . (196,845) $0.02 -- $2.50
---------
Balance, December 31, 1995 . . . . . . . 1,163,482 $0.02 -- $2.50
Options granted. . . . . . . . . . . 722,575 $0.33 -- $10.50
Options exercised. . . . . . . . . . (345,278) $0.02 -- $2.50
Options canceled . . . . . . . . . . (146,905) $0.02 -- $10.50
---------
Balance, December 31, 1996 . . . . . . . 1,393,874 $0.02 -- $10.50
Options granted. . . . . . . . . . . 1,620,173 $0.08 -- $17.00
Options exercised. . . . . . . . . . (470,715) $0.02 -- $7.00
Options canceled . . . . . . . . . . (442,906) $0.02 -- $12.75
---------
Balance, December 31, 1997 . . . . . . . 2,100,426 $0.08 -- $17.00
---------
---------
</TABLE>

The following are the shares exercisable at the corresponding weighted average
exercise price at December 31, 1997, 1996 and 1995, respectively: 949,261 at
$2.3119, 1,186,986 at $2.0662 and 1,171,185 at $1.1217. The weighted average
exercise price per share of options outstanding at December 31, 1997 is
$4.61. The following are the weighted-average grant date fair value of
options granted for the years ended December 31, 1997, 1996 and 1995,
respectively: $8.96, $5.95 and $1.52. At December 31, 1997, 219,761 shares
were subject to repurchase.

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

The following table summarizes information about stock options outstanding at
December 31,1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ----------------------
Weighted Weighted Weighted Weighted
Shares Average Average Shares Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Remaining Life Price at 12/31/97 Price
- ------------------ ----------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.08 to $ 0.63 555,100 7.28 $ 0.4310 389,197 $ 0.3738
$ 1.17 to $ 1.95 580,670 7.94 1.6409 402,761 1.6591
$ 4.67 to $ 7.00 99,005 9.18 5.4049 39,403 5.8608
$ 8.13 to $ 9.50 654,500 9.47 8.8667 110,666 9.3135
$ 9.63 to $10.50 165,000 9.96 9.6356 583 10.5000
$12.75 to $17.00 46,151 9.82 13.3625 6,651 17.0000

</TABLE>

54
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1996 EMPLOYEE STOCK PURCHASE PLAN

The Company has established the 1996 Employee Stock Purchase Plan ("1996
Purchase Plan"). The 1996 Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue code, permits eligible employees of the
Company to purchase common stock through payroll deductions of up to 10% of
their base salary up to a maximum of $25,000 of common stock for all purchase
periods ending within any calendar year. The price of common stock purchased
under the 1996 Purchase Plan will be 85% of the lower of the fair market value
of the common stock on the first day of each 24 month offering period or the
last day of the applicable six-month purchase period. The Company has reserved
150,000 shares of common stock for issuance under the 1996 Purchase Plan. The
Company issued approximately 59,000 shares of common stock under the 1996
Purchase Plan during 1997.

SFAS NO. 123 DISCLOSURE

The Company to applies APB No. 25 and related interpretations in accounting for
its plans. However, in accordance with SFAS No. 123, pro forma disclosures as
if the Company adopted the cost recognition requirements under No. SFAS 123 in
1997, 1996 and 1995 are presented below.

The fair value of each option granted during the years ended December 31,1997,
1996, and 1995 are estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Average dividend yield 0% 0% 0%
Expected volatility 44% 46% 46%
Expected life in years 4 5 5
Risk free interest rate:
Low 5.787% 5.546% 5.487%
High 6.421% 6.453% 7.022%
</TABLE>

Had the Company used the fair value methodology for determining compensation
expense, the Company's net income (loss) and net income (loss) per share would
approximate the pro forma amounts below (in thousands, except per share data):

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) - as reported $ (5,927) $ 1,251 $ (3,640)
Net income (loss)- pro forma $ (7,854) $ 702 $ (3,882)
Diluted net income (loss) per common
share - as reported $ (0.42) $ 0.10 $ (0.33)
Diluted net income (loss) per common
share - pro forma $ (0.55) $ 0.05 $ (0.33)

</TABLE>

The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.

55
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. INCOME TAXES:

The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . . . $ 765 $ 26 $ -
State. . . . . . . . . . . . . . . . . 426 4 1
Foreign. . . . . . . . . . . . . . . . 468 225 398
------ ------ ------
1,659 255 399
------ ------ ------
Deferred:
Federal. . . . . . . . . . . . . . . . (665) (373) -
State. . . . . . . . . . . . . . . . . (10) (27) -
Foreign. . . . . . . . . . . . . . . . (247) (100) -
------ ------ ------
(922) (500) -
------ ------ ------
$ 737 $ (245) $ 399
------ ------ ------
------ ------ ------
</TABLE>

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

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate. . . . $ (2,455) $ 826 $ (907)
In-process research and development. . . . . . . 6,779 - -
Alternative minimum tax. . . . . . . . . . . . . - 26 -
Foreign withholding taxes. . . . . . . . . . . . 221 225 398
Increase (decrease) in valuation allowance . . . (3,774) (964) 1,503
Utilization of net operating losses. . . . . . . (104) (545) -
Other. . . . . . . . . . . . . . . . . . . . . . (346) 183 (596)
State. . . . . . . . . . . . . . . . . . . . . . 416 4 1
-------- -------- --------
$ 737 $ (245) $ 399
-------- -------- --------
-------- -------- --------
</TABLE>

At December 31, 1997, the Company had net operating loss carryforwards for
federal and state income tax purposes which can be used to offset future income
subject to taxes. In addition, there are unused research and experimentation and
foreign tax credits which may be available for offset against future federal
income taxes after use of the loss carryforwards. Such loss carryforwards and
tax credits are summarized below (in thousands):

<TABLE>
<CAPTION>
Expiration
Amount Dates
------ ------------
<S> <C> <C>
Loss carryforwards:
Federal. . . . . . . . . . . . . . . . $1,341 2009 -- 2010
State. . . . . . . . . . . . . . . . . 1,341 2009 -- 2010
Research and experimentation
credits (federal only) . . . . . . . . 313 2003 -- 2011
Foreign tax credits (federal only) . . . 727 1998 -- 2002

</TABLE>

Due to the acquisition of TriQuest, the federal and state net operating loss
carryforwards are limited in use to approximately $300,000 annually. The tax
credit carryforwards are also subject to limitation due to the acquisition of
TriQuest.

56
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In addition, the Company has foreign income tax net operating losses of
approximately $5.6 million. These foreign losses were generated in Israel over
several years and have not yet received final assessment from the Israeli
government. Consequently, management is uncertain as to the availability of a
substantial portion of such foreign loss carryforwards and as such has
recorded a valuation allowance against the resulting deferred tax asset. A
provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of the Company's foreign subsidiary, as those earnings
are considered to be permanently reinvested. If such earnings were remitted
to the U.S., additional federal and foreign taxes may be due. It is not
practical to determine the amount of such taxes that might be payable on
these foreign earnings.

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

<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Federal and state net operating
loss carryforwards. . . . . . . . $ 548 $ 3,037
Foreign operating loss
carryforwards . . . . . . . . . . 563 701
Research and experimentation
credit carryforwards. . . . . . . 313 263
Foreign tax credit carryforwards. . 727 711
Other deferred tax items. . . . . . 1,259 1,133
------- -------
Total deferred tax assets . . . . 3,410 5,845
Less valuation allowances . . . . . (563) (5,018)
------- -------
Net deferred tax assets . . . . . 2,847 827
------- -------
Deferred tax liabilities:
Other deferred tax items. . . . . . (1,105) (327)
------- -------
Total deferred tax liabilities. . . (1,105) (327)
------- -------
$ 1,742 $ 500
------- -------
------- -------
Net deferred income taxes:
Current . . . . . . . . . . . . . . $ 1,209 $ --
Deferred . . . . . . . . . . . . . 533 500
------- -------
Net deferred taxes. . . . . . . . $ 1,742 $ 500
------- -------
------- -------
</TABLE>

The Company has established a valuation allowance against a portion of deferred
tax assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred tax
assets and the level of the valuation allowance. The net change in the valuation
allowance for the years ended December 31, 1997 and 1996 was a decrease of
approximately $4,455,000 and $964,000, respectively. The decrease in the
valuation allowance for the year ended December 31, 1997 resulted primarily from
the utilization of net operating loss carryforwards and management's evaluation
of the future recoverability of net deferred tax assets due to the likelihood of
future taxable income. Approximately $3.8 million of the decrease in the
valuation allowance for the year ended December 31, 1997 resulted from the
operating loss carryforwards utilized in such year.

57
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. RECONCILIATION OF EARNINGS PER SHARE

The following provides a reconciliation of the numerators and denominators of
the basic and diluted per share computations:

<TABLE>
<CAPTION>
December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ (5,927) $ 1,251 $ (3,640)

Denominator:
Denominator for basic earnings per
share weighted average shares 14,197 12,035 10,880

Effect of dilutive securities:
Employee stock options 1,003

Denominator for diluted earnings
per share 14,197 13,038 10,880
-------- -------- --------
-------- -------- --------
Net income (loss) per share - basic $ (0.42) $ 0.10 $ (0.33)
-------- -------- --------
-------- -------- --------
Net income (loss) per share - diluted $ (0.42) $ 0.10 $ (0.33)
-------- -------- --------
-------- -------- --------
</TABLE>

Options to purchase 998,000 shares of common stock at various prices were
outstanding during 1997, but were not included in the computation of diluted EPS
because their effect on EPS for the year ended December 31, 1997 would have been
anti-dilutive.

15. 401(k) PLAN:

The Company maintains a tax qualified defined contribution plan that meets the
requirements of Section 401(k) of the Internal Revenue Code (the Plan) and
covers substantially all U.S. employees meeting minimum service requirements.
The Plan was amended in 1997 to include a mandatory Company matching
contribution up to a maximum of 1.5% of employee compensation. At its
discretion, the Company may make additional contributions to the plan. In
connection with the required match, the Company's contribution to the Plan was
approximately $50,000 in 1997. The Company made a discretionary contribution to
the Plan of $10,000 in 1995. There were no contributions in 1996.

58
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Supplemental cash flow information is as follows:

<TABLE>
<CAPTION>
Year ended December 31
----------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash paid for interest $ 11 $ 111 $ 195
Cash paid for income taxes $ 175 $ 254 $ 1

Noncash investing and financing activities:
Equipment acquired under capital leases - $ 23 $ 170
Conversion of preferred stock to
common stock - $ 91 -
Acquisition of Simulation Technologies:
In-process technology $ 19,937 - -
Purchased technology and intangibles $ 1,772 - -
Property and other assets acquired $ 941 - -
Deferred revenue assumed $ (1,460) - -
Other liabilities assumed $ (707) - -
Common stock issued $(16,667) - -
Sale of TDS product line
Property and other assets sold $ (369) - -
Deferred revenue sold $ 1,213 - -
Other liabilities sold $ 64 - -

</TABLE>

17. COMMITMENTS AND CONTINGENCIES:

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

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

The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse affect on the Company's consolidated financial
statements.

The Company has guaranteed the rent payments for a software development
company of $4,200 per month for the first 18 months of the lease term
beginning November 1997.

18. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:

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

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Europe. . . . . . . . . . . . . . . $3,337 $3,091 $1,893
Asia Pacific. . . . . . . . . . . . 7,020 6,855 5,447

As a Percentage of Total Revenue:. . . .
Europe. . . . . . . . . . . . . . . 10.7% 15.4% 13.5%
Asia Pacific. . . . . . . . . . . . 22.5% 34.1% 38.7%

</TABLE>

59
<PAGE>

SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During 1997 one customer accounted for 28.8% of total revenue. In 1996, no
single customer accounted for more than 10% of total revenue. Sales through a
single distributor accounted for 12.1%, 14.7% and 12.7% of the Company's total
revenue in 1997, 1996 and 1995, respectively. Foreign operations of Summit
Design (EDA) Ltd. accounted for less than 10% of total revenue of the Company in
each of the three years in the period ended December 31, 1997. Identifiable
assets of the Company's Israeli subsidiary were less than 10% of total assets at
December 31, 1997.

The Company entered into an agreement with Seiko Instruments, Inc. (Seiko)
during the first quarter of 1996, which granted to Seiko an exclusive right to
distribute and support certain Summit products in Japan. Under the terms of the
agreement, Seiko will pay the Company a distribution rights fee of $1.1 million
during the period of the agreement which is three years ending February 1999.
The Company will receive payments from Seiko of $800,000, $200,000 and $100,000
in 1996, 1997 and 1998, respectively. In the year ended December 31, 1997 and
1996, the Company recognized revenue of $367,000 associated with this agreement.

19. RELATED PARTIES:

Summit Design (EDA) Ltd. leases its corporate offices from a stockholder under a
four-year sublease agreement on the same terms and conditions that the
stockholder leases such space. Lease expense due to the stockholder for the year
ended December 31, 1997, 1996 and 1995 were $145,000, $141,000 and $138,000,
respectively.

Effective April 1, 1996, the Company invested $100,000 for a minority
interest in a joint venture corporation which acquired the exclusive rights
to sell, distribute and support all of the Company's products in the
Asia-Pacific region, excluding Japan. The Company has recorded a net loss in
equity of the joint venture of $67,000 and $33,000 for the years ended
December 31, 1997 and 1996, respectively. Total product licenses and
maintenance revenue for sales to the joint venture totaled approximately
$590,000 and $586,000 for the years ended December 31,1997 and 1996,
respectively, total accounts receivable, with payment terms similar to other
customers in the Asia-Pacific region, was $357,000 at December 31, 1997.

The Company holds a note from an employee in the amount of $75,000, bearing
interest at 6%, due in March of 2000, and collateralized by stock.

60
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

On February 9, 1996, Coopers & Lybrand L.L.P. was engaged as the principal
independent accountants for the Company and its subsidiaries, replacing KPMG
Peat Marwick LLP ("KPMG"), which was dismissed in January, 1996. The change was
approved by the audit committee of the Company's Board of Directors. In
connection with the audits of the two fiscal years in the period ended December
31, 1995 and through the interim period ended January 31, 1996, there were no
disagreements with KPMG on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to KPMG's satisfaction would have caused them to
make reference to the matter in their report. The audit reports of KPMG on the
consolidated financial statements of the Company as of and for the year ended
December 31, 1994 did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty or audit scope. The audit
report for the year ended December 31, 1994 was modified to include a discussion
on the restatement of the Company's 1993 financial statements for the timing of
when certain expenses were recognized in the financial statements. During the
audit period ended December 31, 1994, and through the interim period ended
January 31, 1996, there have been no reportable events.

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

61
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the
information set forth in the sections entitled "Election of Class I Directors"
and "Compliance with Section 16(a) of the Securities Exchange Act contained in
the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders, to be
filed by the Company with the Securities and Exchange Commission within 120 days
of the end of the Company's fiscal year ended December 31, 1997, except that the
information required by this item concerning the executive officers of the
Company is incorporated by reference to the information set forth in the section
entitled "Executive Officers of the Company" at the end of Part I of this Form
10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Executive Officer Compensation"
contained in the Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders to be filed by the Company with the Securities and Exchange
Commission within 120 days of the end of the Company's fiscal year ended
December 31, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's Proxy Statement for
its 1998 Annual Meeting of Stockholders and is incorporated herein by reference
to be filed by the Company with the Securities and Exchange Commission within
120 days of the end of the Company's fiscal year ended December 31, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Certain Transactions" contained
in the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders to
be filed by the Company with the Securities and Exchange Commission within 120
days of the end of the Company's fiscal year ended December 31, 1997.

62
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS

The following financial statements and the Report of Independent Accountants
therein are filed as part of this Form 10-K.

Page No.
- ------------------------------------------------------------
Report of Independent Accountants 41

Consolidated Balance Sheets as of
December 31, 1997 and 1996 42

Consolidated Statements of Operations
for the years ended December 31,
1997, 1996 and 1995 43

Consolidated Statements of
Stockholders Equity for the years
ended December 31, 1997, 1996 and
1995 44

Consolidated Statements of Cash Flows
for the years ended December 31,
1997, 1996 and 1995 45

Notes to Consolidated Financial
Statements 46

(a)(2) FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule for the years ended December 31,
1995, 1996 and 1997, filed as part of this Form 10-K should be read in
conjunction with the consolidated financial statements and related notes thereto
and report of independent accountants filed herewith:

Page No.
--------

Schedule II Valuation and Qualifying Accounts S-1

Report of Independent Accountants on financial statement schedule S-2

Schedules not listed above have been omitted because the information required to
be set forth therein is not required, not applicable or the information is
otherwise included elsewhere in this Form 10-K.

63
<PAGE>

(a)(3) EXHIBITS

Exhibit No.
- ----------
2.1 Agreement and Plan of Reorganization dated as of February 17, 1997.
(2)
2.2 Asset Purchase Agreement between the Registrant, Credence Systems
Corporation and Test Systems, Strategies, Inc., dated as of May 19,
1997. (3)
2.3 Agreement and Plan of Reorganization between the Registrant, Star
Acquisition, Inc. and Simulation Technologies Corp. dated as of
September 5, 1997. (6)
3.1 Amended and Restated Certificate of Incorporation. (1)
3.2 Amended and Restated Bylaws. (5)
4.1 Specimen Common Stock Certificate of Company. (1)
4.2 Investors' Rights Agreement between the Registrant and the parties
named therein dated February 10, 1994, as amended. (1)
10.1 Form of Indemnification Agreement between Registrant and its executive
officers and directors. (1)
10.2* 1994 Stock Plan, as amended. (1)
10.3* 1996 Employee Stock Purchase Plan. (1)
10.4* 1996 Director Option Plan. (1)
10.5* Employment Agreement between the Registrant and Larry J. Gerhard dated
as of August 1, 1997.
10.6* Employment Agreement between the Registrant and C. Albert Koob dated
October 21, 1995. (1)
10.7* Employment Agreement between the Registrant and Richard Davenport
dated September 9, 1997.
10.8* Employment Agreement between the Registrant and Arthur Fletcher dated
July 1, 1996.
10.9* Employment Agreement between the Registrant and Eric Benhayoun dated
October 31, 1994.(1)
10.10* Employment Agreement between the Registrant and Moshe Guy dated
as of July 1, 1997.
10.11* Employment Agreement between the Registrant and Joseph Masarich
dated as of December 22, 1997.
10.12+ Software OEM License Agreement between the Registrant, Test System
Strategies, Inc. and Credence Systems Corporation dated May 19,
1997. (5)
10.13 Lease Agreement between the Registrant and Petula Associates Ltd. and
Koll Creekside Associates II dated October 26, 1993, as amended. (1)
10.14 Sublease Agreement, dated as of January 1993 between DCL Technologies,
Ltd. and SEE Technologies, Ltd. (1)
10.15 Bank Line of Credit Agreement between Registrant and U.S. National
Bank of Oregon dated June 24, 1997. (7)
10.16+ Joint Venture Agreement between Summit Design Israel, Inc. and Anam
S&T Co., Ltd. dated March 21, 1996. (1)
10.17+ Distributor Agreement between the Registrant and Seiko Instruments,
Inc., dated February 1, 1996. (1)
10.18+ Distributor Agreement between the Registrant and ATE Service Co.,
Ltd., dated October 23, 1995, and amended as of April 9, 1996. (1)
10.19++ Amendment to the Distributor Agreement between the Registrant and
Seiko Instruments, Inc.
10.20 Loan Agreement between the Registrant and Moshe Guy dated May 20,
1997. (5)
10.21 Loan Agreement between the Registrant and Dasys, Inc. dated July 26,
1997. (7)
10.22* TriQuest Design Automation, Inc. 1995 Stock Option Plan and form of
agreement thereto. (4)
10.23* Simulation Technologies Corp. 1994 Stock Option Plan and form of
agreement thereto. (8)
10.24* 1997 NonStatutory Stock Option Plan and form of agreement thereto. (9)
10.25 Promissory Notes between the Registrant and John DiFerdinado dated
July 15, 1997.
10.26* Employment Agreement between the Registrant and John DiFerdinando
dated as of April 15, 1997.
16.1 Letter re Change in Certifying Accountant. (1)
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P.
24.1 Power of attorney, see page 66.
27.1 Financial Data Schedule.

64
<PAGE>

(1) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-06445) as declared effective by the Securities and Exchange
Commission October 17, 1996.
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated February 28, 1997.
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated July 11, 1997.
(4) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-32551) as filed on July 31, 1997.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
(6) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 9, 1997.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.
(8) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-47481) as filed on March 6, 1998.
(9) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-47545) as filed on March 9, 1998.
+ Documents for which confidential treatment has been granted.
++ Document for which confidential treatment has been requested.
* Indicates management compensatory plan, contract or arrangement.

(b) REPORTS ON FORM 8-K

No reports on Form 8-K have been filed by the Registrant during the quarter
ended December 31, 1997.

See Item 14(a)(3) above.

(d) FINANCIAL STATEMENT SCHEDULES

See Item 14(a)(2) above.

65
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, on this
30th day of March 1998.
SUMMIT DESIGN, INC.

By: /s/ LARRY J. GERHARD
-------------------------------------
Larry J. Gerhard
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Larry J. Gerhard and C. Albert Koob, and
each of them, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, or any of them, shall do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:

Signature Title Date
--------------------------- --------------------------- --------------

/s/ LARRY J. GERHARD Chairman of the Board, March 30, 1998
--------------------------- President and Chief
Larry J. Gerhard Executive Officer
(Principal Executive
Officer)

/s/ C. ALBERT KOOB Vice President - Finance, March 30, 1998
--------------------------- Chief Financial Officer and
C. Albert Koob Secretary (Principal
Financial and Accounting
Officer)

/s/ AMIHAI BEN-DAVID Director March 30, 1998
---------------------------
Amihai Ben-David

/s/ WILLIAM V. BOTTS Director March 30, 1998
---------------------------
William V. Botts

/s/ STEVEN P. ERWIN Director March 30, 1998
---------------------------
Steven P. Erwin

/s/ BARBARA M. KARMEL Director March 30, 1998
---------------------------
Barbara M. Karmel

66
<PAGE>

SUMMIT DESIGN, INC.

Schedule II - Valuation and Qualifying Accounts

Years ended December 31, 1995, 1996, 1997

(in thousands)
<TABLE>
<CAPTION>
Balance Additions
at charged to Balance at
beginning costs and end of
of period expenses Deductions period
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts $ 355 $ 306 $ 206 $ 455

Year ended December 31, 1996:
Allowance for doubtful accounts 455 3 25 433

Year ended December 31, 1997:
Allowance for doubtful accounts 433 270 111 592

</TABLE>

S-1

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
Summit Design, Inc.:

Our report on the consolidated financial statements of Summit Design, Inc.
and subsidiaries is included on page 41 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the
related financial statement schedule listed in the index on page S-1 of this
Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

Coopers & Lybrand L.L.P.

Portland, Oregon
January 30, 1998

S-2

<PAGE>

Exhibit 10.5

SUMMIT DESIGN, INC.
EMPLOYMENT AGREEMENT

This agreement (the "Agreement") is entered into as of August 1, 1997,
effective as of such date, between SUMMIT DESIGN, INC., a Delaware
corporation (the "Company") and Larry J. Gerhard ("Gerhard").

1. EMPLOYMENT AND DUTIES. The Company hereby employs Gerhard to serve and
perform in the role of President and Chief Executive Officer reporting to the
Board of Directors of the Company (the "Board"). Gerhard agrees to perform
the duties of these positions to the best of his ability, and to devote full
time and attention to the transaction of the Company's business.

2. TERM.

(a) This Agreement shall have a term of three (3) years, unless
terminated in accordance with subsections 2(b) - (f) below. After the
initial term of three (3) years, the term of the Agreement shall be
automatically extended for additional one-year terms unless terminated by
either party with at least 90 days written notice prior to the end of the
then current term. Both parties acknowledge that the employment created
herein is employment "at will" and may be terminated with or without cause
under the terms stated herein.

(b) This Agreement may be immediately terminated by the Board in the
event Gerhard engages or becomes engaged in any criminal practice which the
Board reasonably determines is detrimental or harmful to the good name,
goodwill or reputation of the Company, or which does or could adversely
affect the interests of the Company. Termination under this subsection 2(b)
shall be "Termination for Cause."

(c) This Agreement may be terminated by the Company for Convenience and
by Gerhard for Construction. In such event, the Company shall pay Gerhard
$33,333.33 per month plus all then-current benefits for twenty-four (24)
months after the date of such termination.

(d) For purposes of subsection 2(c), "Convenience" and "Construction
shall have the following meanings:

(i) "Convenience" shall mean termination of this Agreement by the
Company for any reason other than (A) a Termination for Cause or (B) as a
result of Gerhard's death or disability.

(ii) "Construction" shall mean, without Gerhard's express written
consent, (A) a reduction of Gerhard's duties, authority or responsibilities
relative to Gerhard's duties, authority and responsibilities as in effect
immediately prior to such reduction; (B) a substantial reduction, without
good business reasons, of the facilities and perquisites available to Gerhard
immediately prior to such reduction; (C) a reduction by the Company in
Gerhard's base salary as in effect immediately prior to such reduction; or
(D) a material reduction by the Company in the kind or level of employee
benefits to which Gerhard is entitled immediately prior to such reduction.

<PAGE>

(e) In the event that Gerhard voluntarily resigns, other than upon a
termination of this Agreement for Construction or disability, prior to the
expiration of the three-year term of this Agreement, this Agreement shall
automatically terminate on the date of such resignation. Gerhard agrees to
provide to the Board a minimum of three (3) months prior written notice of
any such voluntary resignation.

(f) This Agreement shall automatically terminate upon termination of
Gerhard's employment as a result of Gerhard's disability or death.

(g) Termination of this Agreement shall not release Gerhard from any
obligations under Sections 2(f) (if applicable), 4, 5, 6 and 7 hereof; or the
Company from any obligations under Sections 2(c) or 2(e) hereof, as
applicable.

3. COMPENSATION. In consideration of the services to be performed by
Gerhard, the Company agrees to pay Gerhard compensation consisting of the
following:

(a) Base salary of $33,333.33 per month and reviews for change on or
about August 1 of each year.

(b) Annual bonus of 25% of Gerhard's base salary as of December 31 of
such year payable upon publishing audited annual financial statements for the
year then ended if, but only if, total revenue for the applicable year
exceeds the average of the annual revenue plans (the "Average Annual Revenue
Target") proposed by financial analysts for such year at the start of such
year. However, if the Company completes an acquisition or disposition during
the applicable year and financial analysts publish revised annual revenue
plans to reflect the effects of the acquisition or disposition, the Average
Annual Revenue Target shall be adjusted to reflect the revised annual revenue
plans for any fiscal quarters which have not yet been completed.

(c) A grant of an option to purchase up to 75,000 shares of the
Company's common stock (the "Option") at an exercise price equal to the
closing price of the common stock on July 25, 1997. One thirty-sixth
(1/36th) of the shares subject to the Option shall vest on the 28th day of
each month after the grant, so that all of the shares subject to the Option
shall be vested three (3) years after the date of grant. Notwithstanding the
foregoing, all shares subject to the Option shall vest immediately upon
termination of Gerhard for Convenience or Construction.

(d) All benefits as specified in the Company's handbook and that are in
effect generally for the executive officers of the Company. These benefits
include 100% medical, dental and optical coverage for Gerhard and his wife
and children under the Company's medical/dental/optical plans, disability,
accidental death and dismemberment and life insurance as specified in the
employee handbook, the Company sponsored 401(k) retirement savings plan as
provided to all employees and four (4) weeks paid time off per year as
specified in the Employee handbook. Gerhard shall also be entitled to
reimbursement (including any necessary tax gross up) for plan deductibles and
all other

-2-
<PAGE>

medical/dental/optical expenses not covered under the Company's benefit
plans, except for elective cosmetic surgery.

(e) An allowance for car expenses of $1,000.00 per month.

4. CONFIDENTIALITY. Gerhard acknowledges that certain customer lists,
design work, and related information, equipment, computer software, and other
proprietary products and information, whether of a technical or non-technical
nature, including but not limited to schematics, drawings, models,
photographs, sketches, blueprints, printouts, and program listings of the
Company (collectively referred to as "Technology"), were and will be
developed by the Company at great expense and over lengthy periods of time,
are secret and confidential, are unique and constitute the exclusive property
and trade secrets of the Company, and any use or disclosure of such
Technology, except in accordance with and under the provisions of this or any
other written agreements between the parties, would be wrongful and would
cause irreparable injury to the Company. Gerhard hereby agrees that he will
not, at any time, without the express written consent of the Company,
publish, disclose, or divulge to any person, firm, or corporation, any of the
Technology, nor will Gerhard use, directly or indirectly, for Gerhard's own
benefit or the benefit of any other person, firm, or corporation, any of the
Technology, except in accordance with this Agreement or other written
agreements between the parties.

5. INVENTIONS. All original written materials, including without
limitation programs, charts, schematics, drawings, tables, tapes, listings,
and technical documentation, that have been or shall be prepared partially or
solely by Gerhard in connection with employment by the Company shall belong
exclusively to the Company.

6. RETURN OF DOCUMENTS. Gerhard acknowledges that all originals and copies
of records, reports, documents, lists, plans, drawings, memoranda, notes, and
other documentation related to the business of the Company or containing any
confidential information of the Company shall be the sole and exclusive
property of the Company, and shall be returned to the Company upon the
termination of Gerhard's employment with the Company for any reason
whatsoever or upon the written request of the Company.

7. COMPLIANCE. Gerhard agrees to comply with all of the Company's written
employment policies, guidelines, and procedures as contained in the Company's
employment manual, including revisions and additions thereto.

8. INJUNCTION. In addition to all other legal rights and remedies, the
Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief of any actual or threatened
violation of any term hereof without requirement of bond, as well as an
equitable accounting of all profits or benefits arising out of such violation.

9. WAIVER. The waiver of either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach thereof.

-3-
<PAGE>

10. DISPUTES. The legal relations of the parties hereunder, and all other
matters hereunder, shall be governed by the laws of the State of Delaware.
Unresolved disputes shall be resolved in a court of competent jurisdiction in
Washington County, Oregon, and all parties hereto consent to the jurisdiction
of such court.

10. BOARD APPROVAL. The effectiveness of this Agreement shall be subject to
the prior approval of the Board.

11. LIMITATION ON PAYMENTS. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Gerhard
(i) constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Gerhard's severance benefits under subsections 2(c), 2(e) and
3(c), as the case may be, shall be payable either

(i) in full, or

(ii) as to such lesser amount which would result in no portion of such
severance benefits being subject to excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by Section
4999, results in the receipt by the Gerhard on an after-tax basis, of the
greatest amount of severance benefits under subsections 2(c), 2(e) and 3(c),
as the case may be, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code. Unless the
Company and the Gerhard otherwise agree in writing, any determination
required under this Section 11 shall be made in writing by the Company's
independent public accountants (the "Accountants"), whose determination shall
be conclusive and binding upon the Gerhard and the Company for all purposes.
For purposes of making the calculations required by this Section 11, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The
Company and the Gerhard shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 11.

12. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties hereto, and fully supersedes any and all prior agreements
or understandings, written or oral between the parties hereto pertaining to
the subject matter hereof. Without limiting the generality of the foregoing,
the Employment Agreement dated as of August 12, 1996 between the Company and
Gerhard is superseded in all respects by this Agreement. No modification of
amendment hereof is effective unless in writing and signed by both parties.

-4-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

"COMPANY": SUMMIT DESIGN, INC.
a Delaware Corporation

By: /s/ Amihai Ben-David
----------------------------------------
Name: Amihai Ben-David
--------------------------------------
Title: Chairman, Compensation Committee
-------------------------------------

"GERHARD": /s/ Larry J. Gerhard
-------------------------------------------
Larry J. Gerhard

-5-

<PAGE>

EXHIBIT 10.7

SUMMIT DESIGN, INC.
EMPLOYMENT AGREEMENT

EMPLOYEE: RICHARD DAVENPORT
EFFECTIVE DATE: SEPTEMBER 9, 1997

This agreement (the "Agreement") is entered into as of the above date by
and between SUMMIT DESIGN, INC., a Delaware corporation ("SUMMIT"), and the
above-named employee ("Davenport").

RECITALS

A. Davenport is an employee of Simulation Technologies Corp.
("SimTech"); and

B. SUMMIT, SimTech and Star Acquisition, Inc., a wholly-owned
subsidiary of SUMMIT ("Merger Sub"), have entered into an Agreement and Plan
of Reorganization dated as of September 5, 1997 (the "Reorganization
Agreement"), which requires, among other things, that the Employee enter into
this Employment Agreement in connection with the merger of SimTech with and
into Merger Sub (the "Merger"), as described in the Reorganization Agreement
(capitalized terms not otherwise defined herein shall have the meanings set
forth in the Reorganization Agreement);

NOW, THEREFORE, IT IS HEREBY AGREED by and between the parties hereto as
follows:

1. EMPLOYMENT AND DUTIES. SUMMIT hereby employs Davenport to serve
and perform in the role of Vice President, General Manager of Verification
Products Division reporting to the Chief Executive Officer or Chief Operating
Officer of SUMMIT. Davenport agrees to perform the duties of this position
to the best of his ability and to devote full time and attention to the
transaction of SUMMIT's business.

2. TERM AND TERMINATION.

(a) This Agreement shall have an initial term of three (3) years,
unless sooner terminated in accordance with Subsection 2(b), 2(c), 2(d)
and/or 2(e) below. After the initial term of three (3) years, or any
extension thereof, the term of the Agreement shall automatically extend for
additional one (1) year periods unless terminated by either party with at
least ninety (90) days' advanced written notice prior to the end of the
then-current term. Both parties acknowledge that the

<PAGE>

employment created herein is Employment-at-Will and may be terminated with or
without cause under the terms stated herein.

(b) In the event that Davenport notifies SUMMIT of termination of
his employment with SUMMIT for any reason other than specified in Section
2(d), this Agreement shall terminate as of the date of such notification.
Termination under this Section 2(b) is "Resignation."

(c) In the event that SUMMIT notifies Davenport of termination of
his employment by SUMMIT because Davenport willfully abandoned the duties of
his position or engaged in any business or criminal practice which the Chief
Executive Officer and Board of Directors reasonably determines is detrimental
or harmful to the good name, goodwill or reputation of SUMMIT, or which does
or could adversely effect the interests of SUMMIT, then this Agreement shall
terminate as of the date of such notification. Termination under this
Section 2(c) is "Cause."

(d) In the Event that Davenport notifies SUMMIT of his resignation
as an employee of SUMMIT for any of the following reasons:

(i) the assignment to Davenport of employment
responsibilities which are not of substantially comparable
responsibility and status as the employment responsibilities held
by Davenport immediately following the Closing in the position of
Vice President, General Manager of the Verification Products
Division of SUMMIT;

(ii) a reduction by SUMMIT in Davenport's base salary as
provided in Section 3 or the failure to pay up to the target bonus
as provided in Section 3 if such bonus is paid to other executive
officers of SUMMIT;

(iii) SUMMIT requiring Davenport to be based anywhere
other than within fifty (50) miles of Minneapolis, Minnesota,
except for requirements of temporary travel on the Company's
business to an extent substantially consistent with Davenport's
business travel obligations;

(iv) except to the extent otherwise required by applicable
law, the failure by SUMMIT to provide Davenport with substantially
the same benefits under SUMMIT's employee benefits plans as are
provided to the Chief Financial Officer and the Senior Vice
President of World Wide Marketing of SUMMIT;

(v) the failure by SUMMIT to release the Securities from the
lock-up as provided in Section 4; or

(vi) the failure by SUMMIT to obtain, as specified in Section
18, an assumption of the obligations of Summit to perform this
Agreement by any successor to SUMMIT;

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<PAGE>

then this Agreement shall terminate as of the date of such notification.
Termination under this Section 2(d) is "Construction."

(e) In the event that SUMMIT notifies Davenport of termination of
his employment by SUMMIT for any reason other than specified in Section 2(b)
and/or 2(c) and/or 2(d), this Agreement shall terminate as of the date of
such notification. Termination under this Section 2(e) is "Convenience."

(f) Notwithstanding the above, termination of this Agreement shall
not release Davenport from any obligations under Sections 4 through 8, 10, 12
through 14 and 16 hereof.

3. COMPENSATION AND BENEFITS. In consideration of the services to be
performed by Davenport, SUMMIT agrees to pay Davenport the compensation and
extend to Davenport the benefits consisting of the following:

(a) Annual Base Salary of $141,000, paid twice monthly and
prorated and beginning on the first pay period following the date agreed upon
by Davenport and the Chief Executive Officer.

(b) Auto allowance of $750 per month.

(c) An annual bonus commencing with SUMMIT'S 1998 fiscal year of
up to 25% of annual base salary plus auto allowance under the terms of the
Executive Bonus Plan.

(d) Davenport shall be provided the right to participate in the
health, dental, and life insurance programs provided for the senior level
executives of SUMMIT.

(e) Davenport shall earn four (4) weeks paid time off during his
first year of employment and each year thereafter. This paid time off shall
be available for use as earned according to the standard policy of SUMMIT.

(f) In the event that this Agreement is terminated for
Construction as defined in Section 2(d) or Convenience as defined in Section
2(e), then SUMMIT shall pay Davenport $12,500 per month. This payment shall
continue monthly for twelve (12) months provided, however, that if Davenport
accepts full-time employment from another party prior to the end of such
twelve (12) months, these monthly payments shall immediately terminate.

4. LOCK-UP AGREEMENT. In consideration of the agreement of SUMMIT to
enter into the Reorganization Agreement, to Davenport and for other good and
valuable consideration, receipt of which is hereby acknowledged by Davenport,
Davenport hereby agrees, from the date hereof until and including the date
which is three (3) years from the date hereof, (the "Lock-Up Period"), not to
offer to sell, contract to sell or otherwise sell, dispose of or grant any
rights with respect to (collectively, a "Disposition") any shares of Common
Stock of SUMMIT issued to Davenport in connection with the Merger or issuable
to Davenport upon exercise of options granted by SimTech

-3-
<PAGE>

and assumed by SUMMIT in connection with the Merger (collectively, the
"Securities" and the aggregate of such Securities, the "Initial Securities
Amount") otherwise than as follows:

(a) Subject to compliance with applicable securities laws, twenty
percent (20%) of the Initial Securities Amount may be sold six (6) months
after the Closing Date.

(b) Subject to compliance with applicable securities laws, an
additional twenty percent (20%) of the Initial Securities Amount may be sold
twelve (12) months after the Closing Date.

(c) Subject to compliance with applicable securities laws, an
additional twenty percent (20%) of the Initial Securities Amount may be sold
eighteen (18) months after the Closing Date.

(d) Subject to compliance with applicable securities laws, an
additional twenty percent (20%) of the Initial Securities Amount may be sold
twenty-four (24) months after the Closing Date.

(e) Subject to compliance with applicable securities laws, the
remaining twenty percent (20%) of the Initial Securities Amount (the "Escrow
Shares") may be sold twenty-four (24) months and one (1) day after the
Closing Date. Davenport agrees that the Escrow Shares shall be held in
escrow by SUMMIT from the Closing Date until the date which is twenty-four
(24) months and one (1) day after the Closing Date.

The foregoing restriction is expressly agreed to preclude Davenport from
engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities
during the Lock-Up Period even if such Securities would be disposed of by
someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including
without limitation any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or
index) that includes, relates to or derives any significant part of its value
from Securities. Furthermore, Davenport hereby agrees and consents to the
entry of stop transfer instructions with SUMMIT's transfer agent against the
transfer of the Securities held by the undersigned except in compliance with
this Lock-Up Agreement.

5. EFFECT OF TERMINATION ON SECURITIES. If Davenport is terminated
for:

(a) Cause or Resignation during the two (2) year period following
the Closing Date, (i) Davenport will forfeit the Escrow Shares that have not
yet become eligible for sale by Davenport as provided in Section 4 and (ii)
Davenport will not effect a Disposition of any Securities not previously
released pursuant to Section 4 for a period of three (3) years from the
Closing Date.

-4-
<PAGE>

(b) Convenience, Construction or circumstances of death and
disability during the two (2) year period following the Closing Date, (i) the
Escrow Shares shall be promptly released to Davenport and (ii) the Lock-up
Period shall immediately terminate.

6. NON-COMPETITION.

(a) The parties understand and agree that this Agreement is
entered into in connection with the acquisition of SimTech by SUMMIT,
effected by the Merger. The parties further understand and agree that
Davenport was a substantial shareholder of SimTech, a key and significant
member of the management of SimTech, and that SUMMIT paid Davenport
substantial consideration in order to acquire Davenport's stock interest in
SimTech. In addition, the parties agree that, prior to the Merger, SimTech
was engaged in its business in each of the fifty states of the United States
(hereinafter referred to as the "Geographic Scope of SimTech's business").
The parties further agree that SUMMIT and Merger Sub following the Merger
will continue conducting such business in all parts of the Geographic Scope
of SimTech's business. As a result of the foregoing, the parties expressly
understand and agree that the non-competition provisions contained in this
Agreement are permissible and enforceable pursuant to the provisions of
applicable law, including without limitation California Business and
Professions Code Section 16601.

(b) Davenport agrees that during his employment with SUMMIT, its
subsidiaries or Merger Sub (collectively, the "Employer"), Davenport will not
engage in any other employment competitive with the business or proposed
business of the Employer or which otherwise conflicts with or adversely
affects in any way Davenport's performance of his employment obligation to
the Employer.

(c) Commencing at the Closing Date and continuing until one (1)
year following termination by Resignation or for Cause, Davenport will not,
as an Davenport, agent, consultant, advisor, independent contractor, general
partner, officer or director of any corporation, partnership or other entity,
or in any other similar capacity, participate or engage in the design,
development, manufacture, production, marketing, sale or servicing of any
product, or the provision of any service, that relates to the hardware
definition language design analysis, verification, simulation and graphical
user interface business (the "Business") in the United States.

Without limiting the foregoing, SUMMIT hereby acknowledges that
Davenport's ownership, directly or indirectly, of up to five percent (5%) of
any class of "publicly traded securities" of any person or entity which owns
a competitive Business shall not be a violation of this Agreement. For the
purposes of this Section 6, the term "publicly traded securities" shall mean
securities that are traded on a national securities exchange or listed on the
National Association of Securities Dealers Automated Quotation System.

Notwithstanding the foregoing, Davenport will not be prohibited from
competing with Employer in the United States if Employer, or any entity
deriving title to their goodwill or shares, ceases to carry on a like
Business therein; this exception to Davenport's covenant not to compete

-5-
<PAGE>

only applies to the country in which the Business is no longer carried on and
does not effect the enforceability of this Section 6(c) in the countries in
which the Business is continued.

Notwithstanding the foregoing, with the prior approval of the Chief
Executive Officer or Chief Operating Officer of SUMMIT (which approval shall
not be unreasonably withheld), Davenport will be permitted to acquire any
class of securities of private companies that engage in a competitive
Business.

(d) Notwithstanding any provision of this Agreement to the
contrary, the provisions of this Section 6 shall not apply in the event this
Agreement is terminated for reasons other than a termination for Resignation
or a termination for Cause.

(e) If any restriction set forth in Sections 6(a), (b) or (c)
above is held to be unreasonable, then Davenport agrees, and hereby submits,
to the reduction and limitation of such prohibition to such area or period as
shall be deemed reasonable.

7. COVENANT NOT TO SOLICIT. Davenport agrees that he will not, while
employed by SUMMIT, Merger Sub or any other subsidiary of SUMMIT and for a
period of one (1) year following termination of such employment:

(a) solicit, encourage, or take any other action which is intended
to induce any other employee of SUMMIT, Merger Sub or any of their
subsidiaries to terminate his or her employment with SUMMIT, Merger Sub or
any of their subsidiaries; or

(b) interfere in any manner with the contractual or employment
relationship between SUMMIT, Merger Sub or any of their subsidiaries and any
such employee of SUMMIT, Merger Sub or any of their subsidiaries.

The foregoing shall not prohibit Davenport or any entity with which Davenport
may be affiliated from hiring a former or existing employee of SUMMIT, Merger
Sub or any of their subsidiaries, provided that such hiring results
exclusively from such employee's affirmative response to a general
recruitment effort carried out through a public solicitation or a general
solicitation. In addition, notwithstanding any provision of this Agreement
to the contrary, the provisions of this Section 8 shall not apply in the
event this Agreement is terminated for reasons other than a termination for
Resignation or a termination for Cause.

8. PROPRIETARY INFORMATION AGREEMENT. Upon commencement of the
Davenport's employment, the Davenport will sign SUMMIT's standard proprietary
information agreement.

9. CONFIDENTIALITY. Davenport acknowledges that certain customer
lists, design work, and related information, equipment, computer software,
and other proprietary products and information, whether of a technical or
non-technical nature, including but not limited to schematics, drawings,
models, photographs, sketches, blueprints, printouts, and program listings of
SUMMIT, collectively referred to as "Technology", were and will be designed
and developed by SUMMIT at

-6-
<PAGE>

great expense and over lengthy periods of time, are secret and confidential,
are unique and constitute the exclusive property and trade secrets of SUMMIT,
and any use or disclosure of such Technology, except in accordance with and
under the provisions of this or any other written agreements between the
parties, would be wrongful and would cause irreparable injury to SUMMIT.
Davenport hereby agrees that he will not, at any time, without the express
written consent of SUMMIT, publish, disclose, or divulge to any person, firm,
or corporation any of the Technology, nor will Davenport use, directly or
indirectly, for Davenport's own benefit or the benefit of any other person,
firm, or corporation, any of the Technology, except in accordance with this
Agreement or other written agreements between the parties.

10. INVENTIONS. All original written material including programs,
charts, schematics, drawings, tables, tapes, listings, and technical
documentation which are prepared partially or solely by Davenport in
connection with employment by SUMMIT shall belong exclusively to SUMMIT.

11. RETURN OF DOCUMENTS. Davenport acknowledges that all originals and
copies of records, reports, documents, lists, plans, drawings, memoranda,
notes, and other documentation related to the business of SUMMIT or
containing any confidential information of SUMMIT shall be the sole and
exclusive property of SUMMIT, and shall be returned to SUMMIT upon the
termination of employment for any reason whatsoever or upon the written
request of SUMMIT.

12. COMPLIANCE. Davenport agrees to comply with all of SUMMIT's
written employment policies, guidelines, and procedures as contained in an
employment manual, including revisions and additions thereto.

13. INJUNCTION. In addition to all other legal rights and remedies,
SUMMIT shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief of any actual or threatened
violation of any term hereof without requirement of bond, as well as an
equitable accounting of all profits or benefits arising out of such violation.

14. WAIVER. The waiver of either party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.

15. DISPUTES. The legal relations of the parties hereunder, and all
other matters hereunder, shall be governed by the laws of the State of
Oregon. Unresolved disputes shall be resolved in a court of competent
jurisdiction in Washington County, Oregon, and all parties hereto consent to
the jurisdiction of such court.

16. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties hereto, and fully supersedes any and all prior agreements
or understandings, written or oral, between the parties hereto pertaining to
the subject matter hereof. No modification or amendment hereof is effective
unless in writing and signed by both parties.

-7-
<PAGE>

17. INDEMNIFICATION. As an officer of Merger Sub, Davenport shall be
entitled to indemnification by Merger Sub in his capacity as an officer of
Merger Sub to the extent provided in the Articles of Incorporation or Bylaws
of Merger Sub.

18. SUCCESSORS; BINDING AGREEMENT; ASSIGNMENT. SUMMIT will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise), to all or substantially all of the business and/or assets of
SUMMIT, by agreement in form and substance satisfactory to Davenport, to
expressly assume and agree to perform this Agreement in the same manner and
to the same extent that SUMMIT would be required to perform it if no such
succession had taken place. Failure of SUMMIT to obtain such agreement prior
to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Davenport to compensation from SUMMIT in the same
amount and on the same terms as Davenport would be entitled hereunder if
Davenport terminated his employment for Construction, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the termination date. As used in this
Agreement, "SUMMIT" shall mean SUMMIT as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 18 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation
of law.

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

-8-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first herein above written.

"EMPLOYER":

SUMMIT DESIGN, INC.
A Delaware Corporation

By: /s/ Larry J. Gerhard
-----------------------------------
Larry J. Gerhard
President and Chief Executive Officer

"EMPLOYEE":

/s/ Richard Davenport
--------------------------------------
Richard Davenport

-9-

<PAGE>
EXHIBIT 10.8

SUMMIT DESIGN, INC.
EMPLOYMENT AGREEMENT

EMPLOYEE: ARTHUR W. FLETCHER
EFFECTIVE DATE: July 1, 1996

This Agreement is entered into as of the above date by and between SUMMIT
DESIGN, INC., a Delaware corporation ("SUMMIT") and the above-named employee
("Fletcher").

1. EMPLOYMENT AND DUTIES. SUMMIT hereby employs Fletcher to serve and
perform in the role of Treasurer and Director of Business Development
reporting to the Chief Financial Officer. Fletcher agrees to perform the
duties of this position to the best of his ability and to devote full time
and attention to the transaction of SUMMIT's business.

2. TERM AND TERMINATION.

(a) This Agreement shall have an initial term of two (2) years,
unless sooner terminated in accordance with Subsection 2(b) and/or 2(c)
and/or 2(d) below. After the initial term of two (2) years, or any extension
thereof, the term of the Agreement shall automatically extend for additional
one (1) year period unless terminated by either party with at least thirty
(30) days' advanced written notice prior to the end of the then-current term.
Both parties acknowledge that the employment created herein is
Employment-at-Will and may be terminated with or without cause under the
terms stated herein.

(b) In the event that Fletcher notifies Summit of termination of his
employment with Summit for any reason, this Agreement shall terminate as of
the date of such notification. Termination under this Section 2(b) is
"Resignation".

(c) In the event that Summit notifies Fletcher of termination of his
employment by Summit because Fletcher willfully abandoned the duties of his
position or engaged in any business or criminal practice which the Officer to
whom Fletcher reports and the Chief Executive Officer reasonably determines
is detrimental or harmful to the good name, goodwill, or reputation of
Summit, or which does or could adversely effect the interests of Summit, then
this Agreement shall terminate as of the date of such notification.
Termination under this Section 2(c) is "Cause".

(d) In the event that Summit notifies Fletcher of termination of his
employment by Summit for any reason other than specified in Section 2(b)
and/or 2(c), this Agreement shall terminate as of the date of such
notification. Termination under this Section 2(d) is "Convenience".

(e) Notwithstanding the above, termination of this Agreement shall
not release Fletcher from any obligations under Sections 4, 5, 6, and 7
hereof.

<PAGE>

3. COMPENSATION AND BENEFITS. In consideration of the services to be
performed by Fletcher, SUMMIT agrees to pay Fletcher the compensation and
extend to Fletcher the benefits consisting of the following:

(a) Annual Base Salary of $65,636, paid twice monthly and prorated
and beginning on the first pay period following the date agreed upon by
Fletcher and the Chief Executive Officer.

(b) Annual bonus of 25% under the terms of the Executive Bonus Plan:

Summit has granted Fletcher incentive stock options
described in Attachment A. These shares are governed by the terms and
conditions of the Summit Incentive Stock Option Plan ("ISO Plan").

In addition, if more than 75% of the assets, or more than
50% of the outstanding shares of Summit are sold to another company, all
of the shares covered under this Section 3(c)(i) shall be 100% vested at
closing of the transaction.

In addition, if this Agreement is terminated for
Resignation as defined in Section 2(b) or Cause as defined in Section
2(c) within 24 months of the effective date of this Agreement, then
Summit shall have the right to repurchase all unvested shares and all
vested shares that have been vested for less than one (1) year for the
price at which they were granted.

In addition, in the event of death or disability, vesting
shall continue for twelve (12) months.

(d) Fletcher shall be provided the right to participate in the
health, dental, and life insurance programs provided for the employees of
Summit.

(e) Fletcher shall earn three (3) weeks vacation during each year of
employment. This vacation shall be available for use as earned according to
the standard policy of Summit.

(f) In the event that this Agreement is terminated for convenience as
defined in Section 2(d), then Summit shall pay Fletcher $5,470 per month plus
all insurance benefits normally paid by Summit. This payment shall continue
monthly for six (6) months provided, however, that if Fletcher accepts
full-time employment from another party prior to the end of such six (6)
months, these monthly payments shall immediately terminate.

4. CONFIDENTIALITY. Fletcher acknowledges that certain customer lists,
design work, and related information, equipment, computer software, and other
proprietary products and information, whether of a technical or non-technical
nature, including but not limited to schematics, drawings, models,
photographs, sketches, blueprints, printouts, and program listings of SUMMIT,
collectively referred to as "Technology", were and will be designated and
developed by SUMMIT at great expense and over lengthy periods of

<PAGE>

time, are secret and confidential, are unique and constitute the exclusive
property and trade secrets of SUMMIT, and any use or disclosure of such
Technology, except in accordance with and under the provisions of this or any
other written agreements between the parties, would be wrongful and would
cause irreparable injury to SUMMIT. Fletcher hereby agrees that he will not,
at any time, without the express written consent of SUMMIT, publish,
disclose, or divulge to any person, firm, or corporation any of the
Technology, nor will Fletcher use, directly or indirectly, for Fletcher's own
benefit or the benefit of any other person, firm, or corporation, any of the
Technology, except in accordance with this Agreement or other written
agreements between the parties.

5. INVENTIONS. All original written material including programs, charts,
schematics, drawings, tables, tapes, listings, and technical documentation
which are prepared partially or solely by Fletcher in connection with
employment by SUMMIT shall belong exclusively to SUMMIT.

6. RETURN OF DOCUMENTS. Fletcher acknowledges that all originals and
copies of records, reports, documents, lists, plans, drawings, memoranda,
notes, and other documentation related to the business of SUMMIT or
containing any confidential information of SUMMIT shall be the sole and
exclusive property of SUMMIT, and shall be returned to SUMMIT upon the
termination of employment for any reason whatsoever or upon the written
request of SUMMIT.

7. COMPLIANCE. Fletcher agrees to comply with all of SUMMIT's written
employment policies, guidelines, and procedures as contained in an employment
manual, including revisions and additions thereto.

8. INJUNCTION. In addition to all other legal rights and remedies,
SUMMIT shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief of any actual or threatened
violation of any term hereof without requirement of bond, as well as an
equitable accounting of all profits or benefits arising out of such violation.

9. WAIVER. The waiver of either party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.

10. DISPUTES. The legal relations of the parties hereunder, and all other
matters hereunder, shall be governed by the laws of the State of Oregon.
Unresolved disputes shall be resolved in a court of competent jurisdiction in
Washington County, Oregon, and all parties hereto consent to the jurisdiction
of such court.

11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties hereto, and fully supersedes any and all prior agreements
or understandings, written or oral, between the parties hereto pertaining to
the subject matter herein. No modification of amendment hereof is effective
unless in writing and signed by both parties.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first herein above written.

<PAGE>

"EMPLOYER": SUMMIT:
A Delaware Corporation

By: /s/ LARRY J. GERHARD
-------------------------
Larry J. Gerhard
Chief Executive Officer, SUMMIT

"EMPLOYEE": By: /s/ ARTHUR W. FLETCHER
-------------------------
Arthur W. Fletcher

<PAGE>

EXHIBIT 10.10

EMPLOYMENT AGREEMENT

EMPLOYEE: MOSHE GUY
--------------------------

This Agreement is entered into as of July 1, 1997 (hereinafter "Starting
Day"). By and between Summit Design (EDA), Ltd. an Israeli corporation
(hereinafter "EDA"), a wholly owned subsidiary of Summit Design, Inc., a
Delaware corporation (hereinafter "Summit") and the above referenced
employee (hereinafter "Guy"), pursuant to the Employment Agreement
between EDA and Moshe Guy.

1. EMPLOYMENT AND DUTIES:

EDA hereby employs Guy to serve and perform for Summit and EDA in the role of
Vice President of Israel Operations for Summit Design, Inc. or President,
Summit Design (EDA) Ltd., reporting to the President and Chief Executive
Officer, or Chief Operating Officer, agrees to perform the duties of this
position to the best of his ability, and to devote full time and attention to
the transaction of Summit's and EDA's business.

2. TERM:

(a) This Agreement shall have an initial term of four (4) years, unless
sooner terminated in accordance with Section 2(b) and (c) below.
After the initial term of four years, or any extension term, the
term of Agreement shall be automatically extended for additional
one-year terms unless terminated by either party with at least 90
days advance written notice (the "Notice") prior to the end of the
then current term. Without limiting the provisions of Section 2(b)-
(d) below, both parties acknowledge that the employment created
herein is employment -at- will, and may be terminated with or
without cause under the terms stated herein.

(b) Notwithstanding the foregoing, this Agreement may be immediately
terminated by EDA in the event that Guy resigns or willfully
abandons the duties of his position or engages or becomes engaged
in any criminal or unethical practice which the Board determines is
detrimental or harmful to the good name, goodwill, or reputation of
Summit or EDA, or which does or could adversely effect the
interests of Summit and EDA.

(c) In the event that this Agreement is terminated for any reasons
other than those specified in paragraph 2(b) or in the event Summit
and/or EDA requires Guy to perform in any role other than as
described in Section 1 above without Guy's consent, then EDA shall
pay Guy his monthly Base Salary plus all current benefits, each for
a total of twelve (12 ) months minus any amount and period provided
for by Managers Insurance (bituach menahalim) as defined in section
7(b). This total period is the ("Severance Period"). During the
Severance Period, Guy will be considered an EDA employee, and will
not have to perform any active task or active duty for EDA in order
to maintain the payments and benefits mentioned in this subsection
(c). However, if Guy accepts full-time employment

<PAGE>

or consulting from another party prior to the expiration of the
Severance Period, all payment and benefits under this subsection
(c) shall immediately terminate.

(d) It is agreed that in no way does the entering into this Employment
Agreement cause a break in Guy's employment continuity at EDA (the
start date of which is as set forth in Guy's employment Agreement
with EDA attached as exhibit (A)), and until Guy is no longer
employed by EDA, his employment shall be considered continuous
under Israeli law.

3. COMPENSATION:

In consideration of the services to be performed by Guy, EDA agrees to pay
Guy a base salary of Four hundred sixty two thousand eight hundred New
Israeli Schekels (NIS462,800) per year ("Base Salary") and Fringe Benefits.
EDA agrees to review Guy's Base Salary at least once a year.

In addition, Guy shall receive the following:

(a) Annual bonus of up to 25% of the Base Salary, as determined by the
terms of the Summit Executive Bonus Plan.

(b) Compensation for each additional one year period for which Guy's
employment is extended under Section 2 shall be fixed within 60
days of the expiration of the preceding one year period that this
Agreement is in effect.

(c) All cash compensation provided under this Agreement shall be
subject to usual withholdings and payroll taxes as required by
Israeli law.

4. CONFIDENTIALITY:

Guy acknowledges that certain customer lists, design work and related
information, equipment, computer software, and other proprietary products,
whether of technical or non-technical nature, including but not limited to
schematics, drawings, models, photographs, sketches, blueprints, printouts,
and program listing of Summit and its subsidiaries, collectively referred to
at "Technology", were and will be designated and developed by Summit at great
expense and over lengthy period of time, are secret and confidential, are
unique and constitute the exclusive property and trade secrets of Summit and
its subsidiaries, and the use or disclosure of such Technology, except in
accordance with and under the provisions of this or any other written
Agreements between the parties, would be wrongful and would cause irreparable
injury to Summit and its subsidiaries.

Guy therefore agrees that he will not, at any time, without the express
written consent of Summit and its subsidiaries, publish, disclose or divulge
to any person, firm or corporation any of the Technology, nor will Guy use,
directly or indirectly, for Guy's own benefit or the benefit of any other
person, firm or corporation, any of the Technology, except in accordance with
this Agreement or other written Agreements between the parties.

<PAGE>

5. INVENTIONS:

All original written material including programs, charts, schematics, drawings,
tables, tapes, listings and technical documentation which are prepared partially
or solely by Guy in connection with employment by EDA, shall belong to EDA.

6. RETURN OF DOCUMENTS:

Guy acknowledges that all originals and copies of records, reports,
documents, lists, plans, drawings, memoranda, notes, and other documentation
related to the business of Summit or its subsidiaries or containing any
confidential information of Summit or its subsidiaries shall be the sole and
exclusive property of Summit or its subsidiaries, as appropriate, upon the
termination of employment for any reason whatsoever, or upon the written
request of Summit or its subsidiaries.

7. COMPLIANCE:

(a) Guy agrees to comply with all written employment policies,
guidelines and procedures of EDA, as contained in an employment
manual, including revisions and additions thereto.

(b) Exhibit (A) hereunder represents the previous employment Agreement
between Guy and EDA. Paragraphs relating to definitions of work
hours, fringe benefits, conflict of interests and non-competition
are in force and are not being canceled or modified by this
Agreement ( excluding the automatic release of the Managers
Insurance as specified hereunder).

"Fringe Benefits" is defined as follows:

MANAGER'S INSURANCE (BITUACH MENAHALIM): 5% pension fund into
"Managers Insurance" policy (Guy is required to invest 5% into
the same fund from his monthly base salary); 8 1/3% severance
fund into "Managers Insurance" policy.

It is agreed that Guy will be entitled to all funds (including
earnings) accrued in the "Managers Insurance" policy in any event
that the employment agreement is terminated either by EDA or by
Guy. The policy belongs only to Guy and will automatically be
released to Guy once the employment agreement is terminated
without the need of a written release letter from EDA.

7.5% into Educational Fund (keren hishtalmut) (Guy is required to
contribute 2.5% into the same fund or this 7.5% is added to his
base salary).

A company car.

<PAGE>

Up to thirty (30) days of Sick Leave per year (with a doctor's
written approval).

Twenty two (22) Vacation days per year, with an accrual cap of
two (2) years or forty four (44) days.

Annual recreational grant (Dmei Havra'a) as specified in exhibit
(A).

8. INJUNCTION:

In addition to other legal rights and remedies, Summit and its subsidiaries
shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief of any actual or threatened
violation of any term hereof without requirement of bond, as well as an
equitable accounting of all profits or benefits arising out of such violation.

9. WAIVER:

The waiver by either part of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach thereof.

10. DISPUTES:

The legal relations of the parties hereunder, and all other matters
hereunder, shall be governed by the laws of Israel. Unresolved disputed shall
be resolved in a court of competent jurisdiction in Israel, and all parties
hereto consent to the jurisdiction of such court.

11. ENTIRE AGREEMENT:

This Agreement sets forth the entire Agreement between the parties hereto,
and fully supersedes any and all prior Agreements or understandings, written
or oral, between the parties hereto pertaining to the subject matter hereof.
No modification of amendment is effective unless in writing and signed by
both parties.

<PAGE>

In WITNESS WHEREOF, the parties have executed this Agreement as of
the date first herein above written.

"EMPLOYER": Summit Design (EDA), Ltd. an Israel
Corporation

By: /s/ LARRY J. GERHARD
---------------------------
Larry J. Gerhard
President

"EMPLOYEE": By: /s/ MOSHE GUY
---------------------------
Moshe Guy

<PAGE>

EXHIBIT 10.11
EMPLOYMENT AGREEMENT BETWEEN REGISTRANT AND JOSEPH G. MASARICH

SUMMIT DESIGN, INC.
EMPLOYMENT AGREEMENT

EMPLOYEE: JOSEPH G. MASARICH
EFFECTIVE DATE: DECEMBER 22, 1997

This Agreement is entered into as of the above date by and between SUMMIT
DESIGN, INC., a Delaware corporation ("SUMMIT") and the above-named employee
("Masarich").

1. EMPLOYMENT AND DUTIES. SUMMIT hereby employs Masarich to serve and
perform in the role of Senior Vice President of Worldwide Sales and Marketing
reporting to the Chief Executive Officer of SUMMIT. Masarich will enter
SUMMIT on the agreed start date as Senior Vice President Of Worldwide Sales
and will be named Senior Vice President of Worldwide Sales and Marketing
prior to March 31, 1998. Masarich agrees to perform the duties of this
position to the best of his ability and to devote full time and attention to
the transaction of SUMMIT's business.

2. TERM AND TERMINATION.

(a) This Agreement shall have an initial term of four (4) years,
unless sooner terminated in accordance with Subsection 2(b) and/or 2(c)
and/or 2(d) and/or 2(e) below. After the initial term of four (4) years, or
any extension thereof, the term of the Agreement shall automatically extend
for additional one (1) year periods unless terminated by either party with at
least ninety (90) days' advanced written notice prior to the end of the
then-current term. Both parties acknowledge that the employment created
herein is Employment-at-Will and may be terminated with or without cause
under the terms stated herein.

(b) In the event that Masarich notifies Summit (in writing) of
termination of his employment with Summit for any reason other than specified
in Section 2(d), this Agreement shall terminate as of the date of such
notification. Termination under this Section 2(b) is "Resignation".

(c) In the event that Summit notifies Masarich (in writing) of
termination of his employment by Summit because Masarich willfully abandoned
the duties of his position or engaged in any business or criminal practice
which the Chief Executive Officer and Board of Directors reasonably
determines is detrimental or harmful to the good name, goodwill, or
reputation of Summit, or which does or could adversely affect the interests
of Summit, then this Agreement shall terminate as of the date of such
notification. Termination under this Section 2(c) is "Cause".

(d) In the event that Masarich notifies Summit (in writing) of his
resignation as an employee of Summit because Summit has required (in writing)
Masarich to perform solely in any role other than Sr. Vice President of
Worldwide Sales and Marketing, reporting to the Chief Executive Officer,
without Masarich's consent (in writing), then this Agreement shall terminate
as of the date of

<PAGE>

such notification by Masarich. In addition, if more than 75% of the assets,
or more than 50% of the outstanding shares of Summit are sold to another
company and Masarich notifies Summit (in writing) of his resignation, then
this Agreement shall terminate as of the date of such notification by
Masarich. Termination under this Section 2(d) is "Construction".

(e) In the event that Summit notifies Masarich (in writing) of
termination of his employment by Summit for any reason other than specified
in Section 2(b) and/or 2(c) and/or 2(d), then this Agreement shall terminate
as of the date of such notification. Termination under this Section 2(e) is
"Convenience".

(f) Notwithstanding the above, termination of this Agreement shall
not release Masarich from any obligations under Sections 4, 5, 6, and 7
hereof.

3. COMPENSATION AND BENEFITS. In consideration of the services to be
performed by Masarich, SUMMIT agrees to pay Masarich the compensation and
extend to Masarich the benefits consisting of the following:

(a) Annual Base Salary of $160,000, paid twice monthly and
prorated and beginning on the first pay period following the date agreed upon
by Masarich and SUMMIT. In addition Masarich shall receive up to $120,000 of
variable compensation starting in 1998 according to the achievement of
SUMMIT's Annual Business Plan revenue as approved by the Board of Directors.
The commission plan's target income is $120,000 annually and the commission
rate is expressed as a constant percentage rate from $0 to $50,000,000.

(b) Equity:

(i) Summit hereby grants Masarich an incentive stock option
of 165,000 shares of Summit common stock at $ 9.3125 per share (the
Fair Market Value) as defined in the Summit Design, Inc. 1994
Stock Plan (the "ISO Plan") These shares are governed by the terms
and conditions of the ISO Plan. Notwithstanding the terms and
conditions of the ISO Plan, 25% of these shares shall vest 12
months after the effective date of this agreement, and the
remaining shares shall thereafter vest at the rate of 1/36 per
month such that Masarich is 100% vested 48 months after the
effective date of this Agreement.

In addition, if this Agreement is terminated for
Construction as defined in Section 2(d) or Convenience as defined
in Section 2(e), all shares covered under this Section 3(b)(i)
shall be 100% vested.

In addition, if this Agreement is terminated for
Resignation as defined in Section 2(b) or Cause as defined in
Section 2(c) within 24 months of the effective date of this
Agreement, then (A) all options granted under Section3(b)(i) above
(whether vested or unvested) shall terminate and (B) SUMMIT shall
have the right to repurchase all shares of common stock acquired
upon exercise of the options granted under Section 3(b)(I) above
("Purchased Shares") at the Exercise

<PAGE>

Price per share. This paragraph is void upon Masarich's completed
relocation of himself and his family to the Portland area.

(c) Masarich shall be provided the right to participate in the
health, dental, and life insurance programs provided for the senior level
executives of Summit.

(d) Masarich shall receive a $750 per month auto allowance, paid
in the first payroll check of each month.

(e) Masarich shall be granted four (4) weeks paid time off during
his first full year of employment and each year thereafter according to
SUMMITS paid time off policy.

(f) In addition, to assist in Masarich's relocation from
California to Oregon, Summit agrees to provide Masarich with a relocation
package to reimburse Masarich for expenses incurred for real estate fees (not
to exceed 7%, however at Masarich's option, a $80,000 bonus may replace the
house sale commission and closing costs provision. This choice must be
confirmed in writing no later than December 29, 1998) for selling his home in
California, opening costs for the purchase of a home in Oregon (not to exceed
$10,000), transfer of household goods from California to Oregon and travel
for Masarich and his family to Portland for the purpose of area
familiarization and final move (up to four (4) trips). Summit also agrees to
provide temporary living expenses for up to three (3) months as follows:

- - Housing - not to exceed $2,000.00 per month;
- - Meals - not to exceed $100.00 per week; and
- - Travel - not to exceed four (4) trips per month

In addition, if Summit and Masarich can determine a commercially available
relocation program that is more beneficial to Masarich and no more expensive
to Summit, then Masarich may agree to this program in lieu of the $80,000
bonus.

(g) In the event that this Agreement is terminated for
Construction as defined in Section 2(d) or Convenience as defined in Section
2(e), then Summit shall pay Masarich $13,333.33 per month plus all insurance
benefits normally paid by Summit. This payment and benefits shall continue
monthly for twelve (12) months provided, however, that if Masarich accepts
full-time employment from another party prior to the end of such twelve (12)
months, these monthly payments and benefits shall immediately terminate.

4. CONFIDENTIALITY. Masarich acknowledges that certain customer lists,
design work, and related information, equipment, computer software, and other
proprietary products and information, whether of a technical or non-technical
nature, including but not limited to schematics, drawings, models,
photographs, sketches, blueprints, printouts, and program listings of SUMMIT,
collectively referred to as "Technology", were and will be designated and
developed by SUMMIT at great expense and over lengthy periods of time, are
secret and confidential, are unique and constitute the exclusive property and
trade secrets of SUMMIT, and any use or disclosure of such Technology, except
in accordance with and under the provisions of this or any other written
agreements between the parties, would be wrongful and would cause irreparable
injury to SUMMIT. Masarich hereby agrees that he will not, at any time,
without the express written consent of SUMMIT, publish, disclose, or divulge
to any person, firm, or corporation any of the Technology, nor will Masarich
use, directly or indirectly, for Masarich's own benefit or the benefit of any
other person, firm, or corporation, any of the Technology, except in
accordance with this Agreement or other written agreements between the
parties hereto.

<PAGE>

5. INVENTIONS. All original written material including programs, charts,
schematics, drawings, tables, tapes, listings, and technical documentation
which are prepared partially or solely by Masarich in connection with
employment by SUMMIT shall belong exclusively to SUMMIT.

6. RETURN OF DOCUMENTS. Masarich acknowledges that all originals and
copies of records, reports, documents, lists, plans, drawings, memoranda,
notes, and other documentation related to the business of SUMMIT or
containing any confidential information of SUMMIT shall be the sole and
exclusive property of SUMMIT, and shall be returned to SUMMIT upon the
termination of employment for any reason whatsoever or upon the written
request of SUMMIT.

7. COMPLIANCE. Masarich agrees to comply with all of SUMMIT's written
employment policies, guidelines, and procedures as contained in an employment
manual, including revisions and additions thereto.

8. INJUNCTION. In addition to all other legal rights and remedies, SUMMIT
shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief of any actual or threatened
violation of any term hereof without requirement of bond, as well as an
equitable accounting of all profits or benefits arising out of such violation.

9. WAIVER. The waiver of either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach thereof.

11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement between
the parties hereto, and fully supersedes any and all prior agreements or
understandings, written or oral, between the parties hereto pertaining to
the subject matter hereof. No modification of amendment hereof is effective
unless in writing and signed by both parties.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first herein above written.

"EMPLOYER": SUMMIT:
A Delaware Corporation

By: /s/ LARRY J. GERHARD
------------------------------
Name: Larry J. Gerhard
Title: President, CEO, Chairman, SUMMIT

"EMPLOYEE": /s/ JOSEPH G. MASARICH
---------------------------------
Joseph G. Masarich

<PAGE>
EXHIBIT 10.19

Term Sheet Agreement

BETWEEN
SEIKO INSTRUMENTS, INC. ("SII") AND SUMMIT DESIGN, INC. ("SUMMIT")

AGREEMENT

- - PURPOSE:

Through acquisition, funding and development endeavors, Summit has
recently procured and created the rights to New Products. When
combined with Visual HDL, these products provide a sophisticated and
complete Behavioral and RTL design environment for IC engineers.
Summit and SII desire to amend the current Summit/SII Distributor
agreement to include the New Products. Toward that end, the parties
agree to the following terms and conditions.

- - NEW PRODUCTS:

I. Products from Dasys Inc.:
A. ***
B. Rapid Path Behavioral Synthesis (Scheduler and Allocator)

II. Products from Simtech:
A. Virsim
B. HDL Score
C. V-CPU

III. Combination products developed by Summit through technology
creation and integration:
A. Visual IP
B. ***
C. ***
D. ***

- - LOAN AUTHORIZATION INVENTORY:

I. SII agrees to purchase *** units of Loan Authorization
Inventory (LAI) for $***.

II. This purchase shall be made immediately upon signing of this
agreement and payment will be made on or before December 1, 1997.

III. Summit will ship up to *** copies of each product shown below
when such product is released for production. Additional Loan
Authorization Inventory and upgrade Loan Authorization
Inventory can be purchased by SII for $***. per copy with the
approval of Summit.

<TABLE>
<CAPTION>
LAI UPGRADE
NEW PRODUCTS OR PURCHASE PRICE
<S> <C>
*** $***
RAPID PATH $***
VIRSIM $***
HDL SCORE $***
V-CPU $***
*** $***
*** $***
*** $***
VISUAL IP $***
TOTAL PURCHASE $***
</TABLE>

*** 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>

IV. SII can loan LAI units in efforts of sales of New Products or
in conjunction with sales of each of the New Products.

V. Summit will issue Time Limited Authorization Codes immediately
upon SII written requests that are accompanied with the time
specification ***, customer name,
customer address and a customer contact.

VI. LAI units can not be sold or leased to customers.

- - QUOTA & END USER SALES:

I. SII guarantees the Quarterly Product Quotas shown in appendix A.

II. Maintenance price shall be at least *** of customer purchase
price.

III. Maintenance revenue will be shared *** by Summit and *** by SII.

IV. This section of "Quota and End User sales" replaces and
supersedes any previous sections on Quotas and End User Sales.

V. In addition SII agrees to purchase *** of Advanced
Inventory of New Products in each of *** consecutive
quarters beginning in the fourth quarter of 1997. ***

A. 1998 - *** of orders in excess of Total Quota as
shown on Appendix A will be filled from Advanced
Inventory.

B. 1999 through 2003 - orders in excess of New Product
Quota will be filled *** unit from Summit then *** unit
from Advanced Inventory.

- - NON COMPETITIVE PRODUCTS:

I. SII agrees not to sell products that by reasonable comparison and
in the judgment of Summit are competitive with Summit products
without the prior written consent of Summit.

II. In the event that SII sells competitive products, then Summit may
have additional Distributors for the Summit products for which SII
products compete.

Signed
By: /s/ LARRY J. GERHARD By: /s/ SHINICHI ISHIBASHI
------------------------- -------------------------
Larry J. Gerhard Shinichi Ishibashi
President, CEO Division Manager
Summit Design, Inc. SII EDA Systems Division

*** 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>
APPENDIX A (PAGE 1)

SII GUARANTEED PRODUCT QUOTA
Net to Summit in Thousands of Dollars

<TABLE>
<CAPTION>
SUMMIT PRODUCTS 1998 1998 1998 1999 1999 1999
--------------- ---- ---- ---- ---- ---- ----
VISUAL ONLY NEW PRODUCTS TOTAL VISUAL ONLY NEW PRODUCTS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Q1 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X
*** X X
*** *** X X
*** *** X X
*** $ *** $ ***
- ----------------------------------------------------------------------------------------------------------------------------
Q2 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X
*** X X
*** *** X X
*** *** X X
*** $ *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Q3 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X
*** X X X X
*** *** X X
*** *** X X
*** $ ***
- ----------------------------------------------------------------------------------------------------------------------------
Q4 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X
*** X X X X
*** *** X X
*** *** X X
*** $ ***

Summit Total Annual Revenue *** *** *** *** *** ***
*** *** ***
SII Total Annual Revenue *** *** *** *** *** ***

Total End User Product Sales *** *** *** *** *** ***
</TABLE>

*** 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>
APPENDIX A (PAGE 2)

SII GUARANTEED PRODUCT QUOTA
Net to Summit in Thousands of Dollars

<TABLE>
<CAPTION>
SUMMIT PRODUCTS 2000 2000 2000 2001 2001 2001
--------------- ---- ---- ---- ---- ---- ----
VISUAL ONLY NEW PRODUCTS TOTAL VISUAL ONLY NEW PRODUCTS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Q1 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***
- ----------------------------------------------------------------------------------------------------------------------------
Q2 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***
- ----------------------------------------------------------------------------------------------------------------------------
Q3 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***
- ----------------------------------------------------------------------------------------------------------------------------
Q4 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***

Summit Total Annual Revenue *** *** *** *** *** ***

SII Total Annual Revenue *** *** *** *** *** ***

Total End User Product Sales *** *** *** *** *** ***
</TABLE>

*** 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>
APPENDIX A (PAGE 3)

SII GUARANTEED PRODUCT QUOTA
Net to Summit in Thousands of Dollars

<TABLE>
<CAPTION>
SUMMIT PRODUCTS 2002 2002 2002 2003 2003 2003
--------------- ---- ---- ---- ---- ---- ----
VISUAL ONLY NEW PRODUCTS TOTAL VISUAL ONLY NEW PRODUCTS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Q1 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***
- ----------------------------------------------------------------------------------------------------------------------------
Q2 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***
- ----------------------------------------------------------------------------------------------------------------------------
Q3 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***
- ----------------------------------------------------------------------------------------------------------------------------
Q4 Guaranteed Product Quota *** *** *** *** *** ***
- ----------------------------------------------------------------------------------------------------------------------------
Visual HDL X X X X
Visual Simulate VHDL X X X X
Visual Simulate Verilog X X X X
T2G X X X X
Visual IP X X X X
HDL Score X X X X
V-Cpu X X X X
Virsim X X X X
Behavioral Synthesis X X X X
*** X X X X
*** X X X X
*** X X X X
*** X X X X
***

Summit Total Annual Revenue *** *** *** *** *** ***
SII Total Annual Revenue *** *** *** *** *** ***
Total End User Product Sales *** *** *** *** *** ***

</TABLE>

*** 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>

EXHIBIT 10.25

PROMISSORY NOTE

$51,000.00 LAKE OSWEGO, OREGON JULY 15 , 1997

I, John DiFerdinando and I, Denise DiFerdinando ("Makers"), promise to
pay to the order of Summit Design, Inc. ("Payee"), the sum of Fifty-One
Thousand and No/100ths Dollars ($51,000.00), with interest thereon at the
rate of 5.98 percent per annum compounded semi-annually from July 15, 2002,
until paid in full. The entire balance owing on this Note, including
principal and all accrued interest, shall be due and payable in full upon
sale of Makers' current residence commonly known as 1310 Sunny Ayr Way in
Lansdale, PA 19446 or July 15, 2002, whichever first occurs. Makers shall
not be obligated to make monthly payments on this Note and there shall be no
penalty for early repayment.

This Note is made in conjunction with an employee relocation package
offered to John DiFerdinando by Payee in order to provide funds to Makers to
make a down payment on the purchase of a new home. It is intended that the
proceeds from the sale of Makers ' current home in Lansdale, PA shall be used
to repay this loan when that transaction is closed.

Pursuant to a Security Agreement of even date herewith, Makers grant
Payee as collateral for this note, a security interest in the stocks and
stock options that Makers hold in Summit Design, Inc., NASDAQ: SMMT.

The following constitute a default under this Note:

a. Makers fail to make any payment provided for herein when due, and
such default continues for a period of ten (10) days;

1 - Promissory Note

<PAGE>

b. Makers shall fail (or have failed) to observe or perform any term,
condition, or provision set forth in this Note or the accompanying Security
Agreement, and such de fault shall continue for a period of thirty (30) days
after notice thereof from the Payee or any holder of this Note specifying the
nature of such default; or

c. Makers shall file for bankruptcy protection or otherwise admit or
declare in writing that they are insolvent.

In the event of a default of this Note or the Security Agreement, all
principal and interest owing hereunder shall become immediately due and
payable at the option of the holder of this Note.

If the Note is placed in the hands of an attorney for collection, we
promise and agree to pay the holder's reasonable attorney's fees and
collection costs, even though no suit or action is filed hereon. However, if
a suit or action is filed, the amount of reasonable attorney's fees shall be
fixed by the court, or courts in which the suit or action, including any
appeal herein, is tried, heard, or decided.

No delay or omission on the part of the holder hereof in exercising any
right, power, or privilege hereunder shall operate as a waiver hereof, nor
shall any single or partial exercise of any right, power, or privilege
hereunder preclude other or further exercise thereof or the exercise of any
other right, power, or privilege.

This agreement shall be binding upon and inure to the benefit of the
parties hereto, their heirs, personal representatives, successors, and
assigns.

/ / /

2 - Promissory Note

<PAGE>

This note was prepared by Edward L. Ferrero, attorney for payee. Makers
have reviewed this document and to the extent they thought necessary,
consulted with independent legal counsel.

Makers hereby waive presentment, demand, notice of dishonor, and notice
of protest.

/s/ John DiFerdinando
------------------------------------------
John DiFerdinando

/s/ Denise DiFerdinando
------------------------------------------
Denise DiFerdinando

3 - Promissory Note
<PAGE>

PROMISSORY NOTE

$114,000.00 Lake Oswego, Oregon July 15, 1997

I, John DiFerdinando and I, Denise DiFerdinando ("Makers"), promise to
pay to the order of Summit Design, Inc. ("Payee"), the sum of One Hundred
Fourteen Thousand and No/100ths Dollars ($114,000.00), with interest thereon
at the rate of 5.98 percent per annum compounded semi-annually from July 15,
1997, until paid in full. The entire balance owing on this Note, including
principal and all accrued interest, shall be due and payable in full upon the
sale of the Maker's current residence at 1310 Sunny Ayr Way, Lansdale, PA
19446 or July 15, 2002, whichever first occurs. Makers shall not be
obligated to make monthly payments on this Note and there shall be no penalty
for early repayment.

This Note is made in conjunction with an employee relocation package
offered to John DiFerdinando by Payee in order to provide funds to Makers to
make a down payment on the purchase of a new home. It is intended that the
proceeds from the sale of Makers ' current home in Lansdale, PA shall be
applied to the repayment of this note when that transaction is closed.

This Note is made in conjunction with and will be secured by a Trust
Deed of even date herewith granting Payee a security interest in real estate
commonly known as 4767 Dogwood Drive in Lake Oswego, Oregon 97035.

The following constitute a default under this Note:

a. Makers fail to make any payment provided for herein when due, and
such default continues for a period of ten (10) days;

1- Promissory Note

<PAGE>

b. Makers shall fail (or have failed) to observe or perform any term,
condition, or provision set forth in this Note or the accompanying Trust
Deed, and such default shall continue for a period of thirty (30) days after
notice thereof from the Payee or any holder of this Note specifying the
nature of such default; or

c. Makers shall file for bankruptcy protection or otherwise admit or
declare in writing that they are insolvent.

Any breach of this Note shall be a default under said Trust Deed, and
any breach of the Trust Deed a default under this Note. In the event of a
default of this Note or the Trust Deed, all principal and interest owing
hereunder are to become immediately due and payable at the option of the
holder of this Note.

This agreement shall be binding upon and inure to the benefit of the
parties hereto, their heirs, personal representatives, successors, and
assigns.

2- Promissory Note

<PAGE>

This note and the accompanying Trust Deed were prepared by Edward L.
Ferrero, attorney for Payee. Makers have reviewed these documents and to the
extent they thought necessary, consulted with independent legal counsel.

Makers hereby waive presentment, demand, notice of dishonor, and notice
of protest.

/s/ John DiFerdinando
-----------------------------------------
John DiFerdinando

/s/ Denise DiFerdinando
-----------------------------------------
Denise DiFerdinando

3- Promissory Note

<PAGE>

SUMMIT DESIGN, INC.
EMPLOYMENT AGREEMENT

EMPLOYEE: JOHN DIFERDINANDO
EFFECTIVE DATE: April 15, 1997

This Agreement is entered into as of the above date by and between SUMMIT
DESIGN, INC., a Delaware corporation ("SUMMIT") and the above-named employee
("DiFerdinando").

1. EMPLOYMENT AND DUTIES. SUMMIT hereby employs DiFerdinando to serve
and perform in the role of Vice President of Worldwide Marketing, SLDA
Products reporting to the Chief Executive Officer or Chief Operating Officer
or General Manager, SLDA Products. DiFerdinando agrees to perform the duties
of this position to the best of his ability and to devote full time and
attention to the transaction of SUMMIT's business.

2. TERM AND TERMINATION.

(a) This Agreement shall have an initial term of four (4) years,
commencing on the effective date, unless sooner terminated in accordance with
Subsection 2(b) and/or 2(c) and/or 2(d) and/or 2(e) below. After the initial
term of four (4) years, or any extension thereof, the term of the Agreement
shall automatically extend for additional one (1) year periods unless
terminated by either party with at least ninety (90) days' advanced written
notice prior to the end of the then-current term. Both parties acknowledge
that the employment created herein is Employment-at-Will and may be
terminated with or without cause under the terms stated herein.

(b) In the event that DiFerdinando notifies Summit of termination of
his employment with Summit for any reason other than specified in Section
2(d), this Agreement shall terminate as of the date of such notification.
Termination under this Section 2(b) is "Resignation".

(c) In the event that Summit notifies DiFerdinando of termination of
his employment by Summit because DiFerdinando willfully abandoned the duties
of his position or engaged in any business or criminal practice which the
Chief Executive Officer, or Chief Operating Officer, or Board of Directors
reasonably determines is detrimental or harmful to the good name, goodwill,
or reputation of Summit, or which does or could adversely affect the
interests of Summit, then this Agreement shall terminate as of the date of
such notification. Termination under this Section 2(c) is "Cause".

(d) In the event that DiFerdinando notifies Summit of his resignation
as an employee of Summit because Summit has required (in writing)
DiFerdinando

<PAGE>

to perform solely in any role other than Vice President of Worldwide
Marketing, SLDA Products without DiFerdinando's consent (in writing), then
this Agreement shall terminate as of the date of such notification.
Termination under this Section 2(d) is "Construction".

(e) In the event that Summit notifies DiFerdinando of termination of
his employment by Summit for any reason other than specified in Section 2(b)
and/or 2(c) and/or 2(d), this Agreement shall terminate as of the date of
such notification. Termination under this Section 2(e) is "convenience".

(f) Notwithstanding the above, termination of this Agreement shall
not release DiFerdinando from any obligations under Sections 4, 5, and 6
hereof.

3. COMPENSATION AND BENEFITS. In consideration of the services to be
performed by DiFerdinando, and effective July 1, 1997, SUMMIT agrees to pay
DiFerdinando the compensation and extend to DiFerdinando the benefits
consisting of the following:

(a) Annual Base Salary of $130,000, paid twice monthly and prorated
and beginning on the first pay period following the date agreed upon by
DiFerdinando and the Chief Executive Officer.

(b) Annual bonus of 25% of base salary, as determined by the terms
and conditions specified in the Executive Bonus Plan.

(i) Summit hereby grants DiFerdinando an incentive stock
option of 25,000 shares of Summit common stock at a price to be
determined at the close of the market on the day of approval by the
Summit Design Board of Directors. These shares are governed by the terms
and conditions of the Summit Incentive Stock Option Plan ("ISO Plan").
Notwithstanding the terms and conditions of the ISO Plan, 25% of these
shares shall vest 12 months after the effective date of this Agreement
and the remaining shares shall vest at a rate of 1/36 per month for the
next 36 months.

(ii) In addition, if more than 50% of the assets or more
than 50% of the outstanding shares of Summit are sold to another
company, all of the shares covered under this Section 3(c)(i) shall be
100% vested at closing of the transaction.

(iii) In addition, if this Agreement is terminated for
Construction as defined in Section 2(d) or convenience as defined in
Section 2(e), all shares covered under this Section 3(c)(i) shall be
100% vested.

(iv) In addition, if this Agreement is terminated for
Resignation as defined in Section 2(b) or Cause as defined in Section
2(c) within 36 months of the effective date of this Agreement, then
Summit

<PAGE>

shall have the right to repurchase all vested shares and all unvested
shares for their issued price. For the purpose of this Section
3(c)(iv), "repurchase" shall mean payment of the issued price for
return of any shares purchased by DiFerdinando and cancellation of
all outstanding and unexercised options to purchase shares.

(v) In addition, in the event of death or disability,
vesting shall continue for twelve (12) months.

(d) DiFerdinando shall be provided the right to participate in the
health, dental, and life insurance programs provided for the senior level
executives of Summit.

(e) DiFerdinando shall be granted fifteen (15) days of paid time
off, in addition to eleven (11) paid holidays and up to seven (7) days paid
in case of illness, during his first year of employment and each year
thereafter. This paid time off shall be available for use according to the
standard policy of Summit.

(f) In the event that this Agreement is terminated for
Construction as defined in Section 2(d) or Convenience as defined in Section
2(e), then Summit shall pay DiFerdinando $10,833.00 per month plus all
insurance benefits normally paid by Summit. This payment shall continue
monthly for six (6) months provided, however, that if DiFerdinando accepts
full-time employment from another party prior to the end of such six (6)
months, these monthly payments and benefits shall immediately terminate.

4. RELOCATION. Summit Design agrees to pay for relocation of
DiFerdinando and his family from Pennsylvania to Oregon, provided that the
move takes place by September 30, 1997, and according to the following terms:

(a) Reimbursement for the cost of moving household goods by a
Summit approved moving company, including packing, unpacking, insurance, and
two vehicles in accordance with attached Exhibit A;

(b) equity protection in his Pennsylvania home that will net
DiFerdinando proceeds equal to $411,000, available for settlement by July 31,
1997;

(c) three (3) annual payments not to exceed $3,720, due upon
settlement and at twelve (12) month intervals thereafter, to compensate
DiFerdinando for the difference in interest cost on his home mortgage;

(d) reimbursement of closing costs equal to no more than 1% of
the purchase price of his home in Oregon;

(e) reimbursement of the cost to transport DiFerdinando, his
spouse, and children from Pennsylvania to Oregon under the terms of Summit's
Travel Policy;

<PAGE>

(f) $1,500 per month, plus storage fees, for up to 30 days for
total temporary living expenses in the Portland area, and one (1) rental car
until movers arrive with DiFerdinando's personal auto; and

(g) up to two (2) house hunting trips for DiFerdinando and his
spouse to the Portland area, including air, rental car, accommodations, and
meals in accordance with the Summit Design Travel Policy.

5. CONFIDENTIALITY. DiFerdinando acknowledges that certain customer
lists, design work, and related information, equipment, computer software,
and other proprietary products and information, whether of a technical or
non-technical nature, including but not limited to schematics, drawings,
models, photographs, sketches, blueprints, printouts, and program listings of
SUMMIT, collectively referred to as "Technology", were and will be designated
and developed by SUMMIT at great expense and over lengthy periods of time,
are secret and confidential, are unique and constitute the exclusive property
and trade secrets of SUMMIT, and any use or disclosure of such Technology,
except in accordance with and under the provisions of this or any other
written agreements between the parties, would be wrongful and would cause
irreparable injury to SUMMIT. DiFerdinando hereby agrees that he will not, at
any time, without the express written consent of SUMMIT, publish, disclose,
or divulge to any person, firm, or corporation any of the Technology, nor
will DiFerdinando use, directly or indirectly, for DiFerdinando's own benefit
or the benefit of any other person, firm, or corporation, any of the
Technology, except in accordance with this Agreement or other written
agreements between the parties.

6. INVENTIONS. All original written material including programs, charts,
schematics, drawings, tables, tapes, listings, and technical documentation
which are prepared partially or solely by DiFerdinando in connection with
employment by SUMMIT shall belong exclusively to SUMMIT.

7. RETURN OF DOCUMENTS. DiFerdinando acknowledges that all originals and
copies of records, reports, documents, lists, plans, drawings, memoranda,
notes, and other documentation related to the business of SUMMIT or
containing any confidential information of SUMMIT shall be the sole and
exclusive property of SUMMIT, and shall be returned to SUMMIT upon the
termination of employment for any reason whatsoever or upon the written
request of SUMMIT.

8. COMPLIANCE. DiFerdinando agrees to comply with all of SUMMIT's
written employment policies, guidelines, and procedures as contained in an
employment manual, including revisions and additions thereto.

9. INJUNCTION. In addition to all other legal rights and remedies,
SUMMIT shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief of any actual or threatened
violation of any term hereof without requirement of bond, as well as an
equitable accounting of all profits or benefits arising out of such violation.

<PAGE>

10. WAIVER. The waiver of either party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.

11. DISPUTES. The legal relations of the parties hereunder, and all other
matters hereunder, shall be governed by the laws of the State of Oregon.
Unresolved disputes shall be resolved in a court of competent jurisdiction in
Washington County, Oregon, and all parties hereto consent to the jurisdiction
of such court.

12. ENTIRE AGREEMENT. This Employment Agreement sets forth the entire
agreement between the parties hereto, and fully supersedes any and all prior
employment agreements or understandings, written or oral, between the parties
hereto pertaining to the subject matter hereof. No modification of amendment
hereof is effective unless in writing and signed by both parties.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first herein above written.

"EMPLOYER": SUMMIT:
A Delaware Corporation

By: /s/ LARRY J. GERHARD
---------------------------------
Larry J. Gerhard
Chief Executive Officer, SUMMIT

"EMPLOYEE": By: /s/ JOHN DIFERDINANDO
---------------------------------
John DiFerdinando

EXHIBIT A

SHIPMENT OF HOUSEHOLD GOODS
- ---------------------------

A Summit-approved moving company of your choice will provide this service for
you. The cost should be billed directly to you and will be promptly
reimbursed by Summit.

SERVICES WILL INCLUDE:
- - Unlimited poundage of personal effects, from old principal residence to new
principal residence, for you and your accompanying family members.

<PAGE>

- - Packing and unpacking (you must request the unpacking service when
receiving quotes from moving companies)
- - Thirty (30) days of storage for your household goods
- - Maximum of two (2) operational vehicles (motorcycle can be substituted)

EXCLUDED ITEMS:
- - Storage of vehicles
- - Extra pick ups/deliveries
- - Weekend pick up/delivery
- - Storage over 30 days
- - Shipment of: Accounts, bills, deeds, letters of credit, jewelry, furs,
precious stones, bullion and precious metals, watches, stamps (including
stamp collections), currency, money, notes, securities or evidence of debt,
ammunition, flammables, foliage, firewood, alcohol, wine and any type of
liquid in bottles/containers (cooking oil, condiments, medicine,
pesticides), animals, and aircraft
- - Unique items not considered household goods

INSURANCE

Household goods, with certain exclusions as stated below, are insured for
replacement value up to $250,000.00. Replacement value means that your goods
will be adjusted based on today's cost of the item of "like kind" and
quality. Coverage applies while your goods are in transit and while in
storage. Should the value of your goods exceed $250,000.00, you must contact
Human Resources at 503-526-6374.

<PAGE>

ADDENDUM TO EMPLOYMENT AGREEMENT

Pursuant to the Employment Agreement between John DiFerdinando
("Employee") and Summit Design, Inc.("Employer"), dated April 15, 1997, and
as part of the relocation package referenced therein, Employer is to assume
the cost of maintaining Employee's residence in Pennsylvania until it can be
sold. By mutual agreement of the parties, this Addendum shall supplement and
amend the terms of the Employment agreement to clarify the rights and
obligations of both parties thereto relative to Employee's house in Lansdale,
PA. The residence is commonly known as 1310 Sunny Ayr Way, Lansdale, PA
19446.

Section 4 of the Employment Agreement is hereby supplemented and amended
as follows:

Beginning on July 15, 1997, and continuing thereafter for a period not
to exceed three years or until the house is sold, whichever occurs first,
Employer shall undertake the following obligations with respect to the
Employee's Lansdale house:

1. Employer will pay the existing monthly principal and interest
payments on the Lansdale house, pay the insurance, and pay the real property
taxes on the property. The insurance shall be maintained at its current
amount and Employer shall be named as an additional loss payee on the policy.

2. Employer shall be responsible for the ordinary upkeep of the
property.

a. Ordinary upkeep shall mean maintaining the existing yard and
landscaping. Employer shall be responsible for mowing the lawn, weeding the
yard and flower beds, watering the plants, and trimming trees and shrubs.

b. Ordinary upkeep shall also mean keeping the house in good
repair. Employer's responsibilities shall include the repair of broken
windows, doors, and pipes.

c. Under no circumstances shall the Employer be responsible for
making cosmetic repairs or repairs required by a lender or prospective
purchaser of the property.

3. Employer shall also be responsible for maintaining the utilities
for the house including water, electricity, heat, and phone service.
Employer is obligated to continue such utility service only to the extent
that such utilities are necessary to maintain the house and yard or to the
extent that such utilities are necessary to facilitate the sale of the house.

/ / /

<PAGE>

4. There shall be no obligation for Mr. DiFerdinando to repay Summit
Design for the cost of assuming the financial obligations and upkeep of the
Lansdale house.

Except as specifically amended above, the remaining terms and conditions
of the Employment Agreement remain in effect and are hereby reconfirmed.

DATED this 15th day of July, 1997

EMPLOYER:

Summit Design, Inc., a Delaware Corporation

/s/ Arthur Fletcher
--------------------------------------------
Name: Arthur Fletcher
Title: Treasurer and Director of Financial Planning

EMPLOYEE:

/s/ John DiFerdinando
--------------------------------------------
John DiFerdinando

<PAGE>

EXHIBIT 21.1

List of Subsidiaries, Summit Design, Inc.

1. Summit Design (EDA) Ltd.

2. Summit Verification, Inc.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANT

We consent to the incorporation by reference in the registration statements
of Summit Design, Inc. on Form S-8 (File Nos. 333-18063, 333-47481, 333-32551
and 333-47545) and Form S-3 (File No. 333-46557 and 333-44003) of our report
dated January 30, 1998 on our audits of the consolidated financial statements
and financial statement schedule of Summit Design, Inc., as of December 31,
1997 and 1996 and for each of the three years in the period ended
December 31, 1997, which report is included in this Annual Report on Form 10-K.

/s/ COOPERS & LYBRAND L.L.P.

Portland, Oregon
March 30, 1998

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY INFORMATION EXTRACTED FROM THE
RESPECTIVE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997, DECEMBER 31,
1996 AND DECEMBER 31, 1995 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS
FOR THE RESPECTIVE PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 19,898 19,772 704
<SECURITIES> 0 0 0
<RECEIVABLES> 5,702 6,000 5,976
<ALLOWANCES> 592 433 455
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 26,737 25,826 6,554
<PP&E> 4,215 3,678 3,016
<DEPRECIATION> 1,549 1,846 1,183
<TOTAL-ASSETS> 32,613 28,626 9,069
<CURRENT-LIABILITIES> 12,161 8,608 7,129
<BONDS> 0 0 0
0 0 0
0 0 91
<COMMON> 156 139 21
<OTHER-SE> 20,097 19,042 478
<TOTAL-LIABILITY-AND-EQUITY> 32,613 28,626 9,069
<SALES> 0 0 0
<TOTAL-REVENUES> 31,194 20,111 14,070
<CGS> 0 0 0
<TOTAL-COSTS> 1,411 1,033 1,051
<OTHER-EXPENSES> 41,594 18,191 16,091
<LOSS-PROVISION> 270 3 306
<INTEREST-EXPENSE> 11 99 203
<INCOME-PRETAX> (5,190) 1,006 (3,241)
<INCOME-TAX> 737 (245) 399
<INCOME-CONTINUING> (5,927) 1,251 (3,640)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (5,927) 1,251 (3,640)
<EPS-PRIMARY> (0.42) 0.10 (0.33)
<EPS-DILUTED> (0.42) 0.10 (0.33)

</TABLE>