<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- --------------------------------------------------------------------------------
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1999 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: 000-20923
SUMMIT DESIGN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1137888
(State or other jurisdiction of (I.R.S. Employer Identification 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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of August 12, 1999, the Registrant had outstanding 15,694,520 shares of
Common Stock.
<PAGE>
SUMMIT DESIGN, INC.
INDEX
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998. 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1999 and 1998 and
for the six months ended June 30, 1999 and 1998 (unaudited). 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1999 and 1998 (unaudited). 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk 28
PART II OTHER INFORMATION
Item 4 Submissions of matters to a vote of security holders 29
Item 6 Exhibits and Reports on Form 8-K 29
Items 1, 2, 3 and 5 Not Applicable 29
Signature 30
Exhibit Index 31
</TABLE>
-2-
<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
----------------------- ----------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 24,028 $27,693
Accounts receivable, net..................... 8,533 8,852
Prepaid expenses and other................... 585 862
Deferred income taxes........................ 792 792
----------------------- ----------------------
Total current assets....................... 33,938 38,199
Furniture and equipment, net.................... 3,834 4,113
Intangibles, net................................ 2,366 2,870
Goodwill, net................................... 1,521 2,742
Deposits and other assets....................... 3,013 2,286
----------------------- ----------------------
Total assets............................ $44,672 $50,210
----------------------- ----------------------
----------------------- ----------------------
LIABILITIES
Current liabilities:
Long-term debt, current portion.............. $ 92 $ 54
Capital lease obligation, current portion.... 20 43
Accounts payable............................. 982 2,520
Accrued liabilities.......................... 4,873 5,687
Deferred revenue............................. 5,546 5,640
----------------------- ----------------------
Total current liabilities.................. 11,513 13,944
Long-term debt, less current portion............ - 156
Deferred revenue, less current portion.......... 117 146
Deferred income tax............................. 489 489
----------------------- ----------------------
Total liabilities.......................... 12,119 14,735
----------------------- ----------------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized
30,000 shares; issued and outstanding 15,694
shares at June 30, 1999 and 15,457 shares at
December 31, 1998. ............................. 156 155
Additional paid-in capital...................... 44,354 44,039
Accumulated deficit............................. (11,957) (8,719)
----------------------- ----------------------
Total stockholders' equity................. 32,553 35,475
----------------------- ----------------------
Total liabilities and stockholders' equity $44,672 $50,210
----------------------- ----------------------
----------------------- ----------------------
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
-3-
<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Product licenses................................. $ 4,549 $ 8,574 $ 8,605 $16,775
Maintenance and services......................... 2,633 2,347 5,393 4,411
Other............................................ - 91 - 183
------- ------- ------- -------
Total revenue.................................. 7,182 11,012 13,998 21,369
Cost of revenue:
Product licenses................................. 127 118 258 311
Maintenance and services......................... 348 279 606 504
Amortization of purchased technologies........... 166 166 331 331
------- ------- ------- -------
Total cost of revenue.......................... 641 563 1,195 1,146
------- ------- ------- -------
Gross profit................................ 6,541 10,449 12,803 20,223
Operating expenses:
Research and development......................... 2,491 2,978 5,167 5,907
Sales and marketing.............................. 3,179 3,258 6,087 6,306
General and administrative....................... 1,373 1,080 2,540 2,142
Amortization of goodwill and other intangibles... 697 697 1,395 1,395
Non-recurring charges............................ - 227 1,340 227
------- ------- ------- -------
Total operating expenses....................... 7,740 8,240 16,529 15,977
Income (loss) from operations....................... (1,199) 2,209 (3,726) 4,246
Other income, net................................... 195 204 488 492
------- ------- ------- -------
Income (loss) before income taxes................... (1,004) 2,413 (3,238) 4,738
Income tax provision................................ - 958 - 1,881
------- ------- ------- -------
Net income (loss)................................... $(1,004) $ 1,455 $(3,238) $ 2,857
------- ------- ------- -------
------- ------- ------- -------
Earnings (loss) per share:
Basic.......................................... $ (0.06) $ 0.10 $ (0.21) $ 0.19
------- ------- ------- -------
------- ------- ------- -------
Diluted........................................ $ (0.06) $ 0.09 $ (0.21) $ 0.18
------- ------- ------- -------
------- ------- ------- -------
Number of shares used in computing earnings (loss) per share:
Basic.......................................... 15,621 15,058 15,666 14,984
Diluted........................................ 15,621 16,285 15,666 16,240
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
-4-
<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $(3,238) $ 2,857
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 2,545 2,262
Amortization of future contingent share liability - 1,100
Loss on asset disposition........................ 34 -
Deferred taxes................................... - (81)
Equity in losses of and transactions with
unconsolidated joint venture.................. 120 350
Changes in assets and liabilities:
Accounts receivable......................... 320 (541)
Prepaid expenses and other.................. 276 216
Other, net.................................. (198) 131
Accounts payable............................ (1,539) 97
Accrued liabilities......................... (814) 1,066
Deferred revenue............................ (123) (37)
------- -------
Net cash provided by (used in) operating activities (2,617) 7,420
------- -------
Cash flows from investing activities:
Additions to furniture and equipment.................. (586) (1,045)
Proceeds from sale of assets.......................... 11 -
Notes receivable from related parties, net............ (650) (325)
Loan to a joint venture............................... - (750)
------- -------
Net cash used in investing activities............... (1,225) (2,120)
------- -------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs....... 317 1,046
Tax benefit of option exercises....................... - 825
Payments to acquire treasury stock.................... - (2,329)
Principal payments of debt obligations................ (117) (21)
Principal payments of capital lease obligations....... (23) (26)
------- -------
Net cash provided by (used in) financing activities. 177 (505)
------- -------
Increase (decrease) in cash and cash equivalents.... (3,665) 4,795
Cash and cash equivalents, beginning of period............. 27,693 19,973
------- -------
------- -------
Cash and cash equivalents, end of period................... $24,028 $24,768
------- -------
------- -------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................... $ 2 $ 3
Income taxes..................................... 1,167 667
Supplemental disclosure of non-cash financing activities:
Retirement of treasury stock.......................... 11,555
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
-5-
<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Summit
Design, Inc. ("Summit" or "the Company") in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in accordance with such rules and regulations. In the opinion of
management, the accompanying unaudited financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company, and its results of
operations and cash flows. These financial statements should be read in
conjunction with the audited financial statements and notes thereto for the
years ended December 31, 1998, 1997 and 1996 included in the Company's Form 10-K
filed for December 31, 1998.
The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999 or any other future interim period, and the Company makes no
representations related thereto.
2. BALANCE SHEET COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- ----------------------
(Unaudited)
<S> <C> <C>
Accounts receivable:
Trade receivables............................... $ 9,000 $ 9,363
Less allowance for doubtful accounts............ (467) (511)
---------------------- ----------------------
$ 8,533 $ 8,852
---------------------- ----------------------
---------------------- ----------------------
Furniture and equipment:
Office furniture equipment ..................... $ 571 $ 1,201
Computer equipment.............................. 5,639 5,138
Leasehold improvements.......................... 596 491
---------------------- ----------------------
6,806 6,830
Less: accumulated depreciation and amortization.... (2,972) (2,717)
---------------------- ----------------------
$ 3,834 $ 4,113
---------------------- ----------------------
---------------------- ----------------------
Accrued liabilities:
Payroll and related benefits.................... $ 2,322 $ 3,051
Severance....................................... 1,273 -
Sales and marketing............................. 445 332
Accounting and legal............................ 218 310
Federal and state income taxes payable.......... 352 1,549
Sales taxes payable............................. 45 160
Other ......................................... 218 285
---------------------- ----------------------
Total accrued liabilities..................... $ 4,873 $ 5,687
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
-6-
<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. RECONCILIATION OF EARNINGS PER SHARE
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." In accordance with SFAS No. 128,
basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period. Dilutive common equivalent shares consist
of common stock issuable upon exercise of stock options using the treasury stock
method. The following provides a reconciliation of the numerators and
denominators of the basic and diluted per share computations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1999 1998 1999 1998
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (1,004) $ 1,455 $ (3,238) $ 2,857
------------ --------- ---------- ---------
------------ --------- ---------- ---------
Denominator:
Denominator for basic earnings (loss) per share
weighted average shares 15,621 15,058 15,666 14,984
Effect of dilutive securities:
Employee stock options - 1,227 - 1,256
------------ --------- ---------- ---------
Denominator for diluted earnings (loss) per share 15,621 16,285 15,666 16,240
------------ --------- ---------- ---------
------------ --------- ---------- ---------
Net income (loss) per share - basic $ (0.06) $ 0.10 $ (0.21) $ 0.19
------------ --------- ---------- ---------
------------ --------- ---------- ---------
Net income (loss) per share - diluted $ (0.06) $ 0.09 $ (0.21) $ 0.18
------------ --------- ---------- ---------
------------ --------- ---------- ---------
</TABLE>
4. 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 North America
is as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ------------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Europe.................................... $1,664 $1,701 $2,922 $2,859
Japan..................................... 1,715 3,994 2,721 1,678
Other Asia Pacific........................ 100 654 201 501
As a Percentage of Total Revenue:
Europe.................................... 23.2% 15.4% 20.9% 13.4%
Japan..................................... 23.9 36.3 19.4 7.9
Other Asia Pacific........................ 1.4 5.9 1.4 2.3
</TABLE>
Sales through one distributor accounted for 23.5%, 17.7%, 24.3%, and 19.3% of
the Company's total revenue for the three months ended June 30, 1999 and
1998, and for the six months ended June 30, 1999 and 1998, respectively.
Sales to Credence Systems Corporation ("CSC") accounted for 23.2% and 27.0%
of the Company's total revenue for the three and six months ended June 31,
1998. Such revenue included $2.9 million of Visual Testbench license sales
made pursuant to an OEM agreement with CSC. As of December 31, 1998, CSC had
fully satisfied its obligation to purchase Visual Testbench Licenses pursuant
to the OEM agreement and the Company does not expect to receive any
additional revenue from sales of Visual Testbench licenses. The Company did
not receive any revenue from CSC for the six months ended June 30, 1999.
Revenue generated pursuant to another OEM agreement accounted for 10.7%,
7.5%, 12.6%, and 7.2% of the Company's total revenue for the three months
ended June 30, 1999 and 1998 and for the six months ended June 30, 1999 and
1998, respectively. Foreign operations of Summit Design (EDA) Ltd. accounted
for less than 10% of total revenue of the Company for the three and six
months ended June 30, 1999. Identifiable assets of the Company's Israeli
subsidiary were less than 10% of total assets at December 31, 1998.
-7-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates" and similar expressions identify such forward-looking
statements. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors which could cause actual
results to differ materially include those set forth in the following
discussion, and, in particular, the risks discussed below under the subheading
"Additional Risk Factors that Could Affect Operating Results and Market Price of
Stock." Unless required by law, the Company undertakes no obligation to update
publicly any forward-looking statements.
OVERVIEW
Summit Design, Inc. ( the "Company") was founded in December 1993 to act as the
holding company for Test Systems Strategies, Inc. ("TSSI") and SEE Technologies,
(now Summit Design (EDA) Ltd.) (collectively, the "Reorganization"). TSSI was
founded in 1979 to develop and market integrated circuit ("IC" or "chip")
manufacturing test products. In January 1993, TSSI retained a new Chief
Executive Officer and began to restructure its senior management team.
Thereafter, the Company broadened its strategy from focusing primarily on
manufacturing test products to include providing 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
electronic design automation ("EDA") market. As a result of the Reorganization,
TSSI and SEE Technologies became wholly-owned subsidiaries of the Company in the
first quarter of 1994.
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 a 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. With
the acquisition of TriQuest Design Automation, Inc. ("TriQuest") in February
1997, Simulation Technologies Corp ("SimTech"), in September 1997, and ProSoft
OY ("ProSoft") in June 1998, 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. Product license revenue is derived
from the sale of software licenses to distributors and end-users. Revenue from
the sale of software licenses is recognized upon shipment of the product if
remaining vendor obligations are insignificant and collection of the resulting
receivable is probable, otherwise revenue from such software products is
deferred until such time as vendor obligations are met. 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. Revenue earned on software arrangements involving
multiple elements is allocated to each element based on vendor-specific
objective evidence (VSOE) of the fair value of the various elements within the
arrangement. 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.
-8-
<PAGE>
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 when the related revenue is recognized.
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 entered into a joint venture with Anam, effective April 1, 1996,
pursuant to which the joint venture corporation (Summit Asia, Ltd. ("Summit
Asia")) acquired exclusive rights to sell, distribute and support all of the
Company's products in the Asia-Pacific regions, excluding Japan. Prior to that
date, Anam was an independent distributor of the Company's products in Korea. In
April 1998, the joint venture corporation, Summit Asia, which is headquartered
in Korea, was renamed Asia Design Corporation ("ADC"). In May 1998, the Company
exchanged a portion of its ownership in ADC for ownership in another company
located in Hong Kong, Summit Design Asia, Ltd. ("SDA"). SDA also acquired an
equity investment in ADC. In June 1998, the Company and Anam each loaned SDA
$750,000, which is guaranteed by ADC. SDA acquired from ADC the exclusive rights
to sell, distribute and support the Company's products in Asia Pacific region,
excluding Japan. SDA granted distribution rights to the Company's products to
ADC for the Asia Pacific region, excluding Japan. In December 1998, SDA
cancelled ADC's distribution rights in all areas except Korea and granted
non-exclusive distribution rights to Semiconductor Technologies Australia
("STA") for the Asia Pacific region, excluding Japan and Korea. For the six
months ended June 30, 1999 and 1998, sales through SDA accounted for 1.4% and
3.1% of the Company's revenue, respectively.
The Company accounts for its ownership interest in SDA and ADC on the equity
method of accounting and, as a result, the Company's share of the earnings and
losses of SDA and ADC are recognized as income or losses in the Company's income
statement in "Other income, net." The Company does not expect SDA or ADC to
recognize a profit for the foreseeable future and thus does not expect to
recognize income from its investment in SDA or ADC for the foreseeable future,
if at all. There can be no assurance that the restructuring will result in SDA
or ADC becoming profitable or that revenue attributable to sales in the Asia
Pacific region, excluding Japan, would increase.
Approximately 48.4%, 37.8%, 47.7%, and 35.1% of the Company's total revenue
for the three months ended June 30, 1999 and 1998, and for the six months
ended June 30, 1999 and 1998, respectively, were attributable to sales made
outside the United States, which includes the Asia Pacific region and Europe.
Approximately, 25.3%, 22.4%, 26.8% and 21.7% of the Company's revenue for the
three months ended June 30, 1999 and 1998, and for the six months ended June
30, 1999 and 1998, respectively, were attributable to sales made in the Asia
Pacific region. Approximately 23.2%, 15.4%, 20.9%, and 13.4% of the Company's
revenue for the three months ended June 30, 1999 and 1998, and for the six
months ended June 30, 1999 and 1998, respectively, were attributable to sales
made in Europe. The increase in the percentage of revenue from sales made
outside the United States in 1999 is primarily the result of a decrease in
domestic sales made to Credence Systems Corporation ("CSC") in 1998 pursuant
to an OEM agreement. As of December 31, 1998, CSC had satisfied its
obligations under the OEM agreement and the Company will not receive any
additional revenue pursuant to the OEM agreement. 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
-9-
<PAGE>
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 economic conditions. Demand for and sales of the Company's products
in the Asia Pacific region have continued to decrease and there can be no
assurance that such adverse economic conditions will not worsen. In June
1999, the Company lowered Seiko's specified quotas due to the adverse
economic conditions in the Asia Pacific Region. As a result, Summit expects
sales through Seiko to decrease for at least the current and following two
quarters and revenue attributable to sales in the Asia Pacific region to
decrease.(1)
On February 28, 1997, the Company 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 CSC. 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 since June 30, 1997.
The Company maintained exclusive rights to its Visual Testbench technology and
CSC agreed to purchase a minimum of $16 million of Visual Testbench licenses
over a thirty-month period beginning July 1997, subject to specified quarterly
maximums and certain additional conditions, and $2 million of maintenance over
an eighteen month period beginning July 1997. In December 1998, the Company and
CSC agreed to amend the agreement and as of December 31, 1998, CSC had satisfied
its obligation to purchase $16 million of Visual Testbench licenses. CSC also
obtained shared ownership of the Visual Testbench source code in December 1998
and has the right to sell Visual Testbench licenses based on the source code
received from the Company.
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 was 1,256,800 shares
of the Company's common stock, 723,200 options to purchase the Company's common
stock and $3.9 million in cash. The transaction was accounted for using the
purchase method of accounting. Accordingly, SimTech's 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.
After discussion with the staff of the Securities and Exchange Commission (the
"Staff") the Company restated the consolidated financial statements as of and
for the quarters ended September 30, 1997, March 31, 1998, June 30, 1998 and
September 30, 1998 and as of December 31, 1997 and for the year ended December
31, 1997 to reflect a change in the original accounting treatment to the
September 1997 acquisition of SimTech.
In connection with the acquisition of SimTech, the Company repurchased 939,000
shares of common stock in a private transaction at an average price of $12.30
per share for $11.6 million in September 1997.
- -------------------
(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 19 for a
discussion of factors that could affect future performance.
-10-
<PAGE>
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.
From January 1, 1998 to May 12, 1998, the Company repurchased 162,500 shares of
its common stock at a cost of $2.3 million. The Company subsequently issued
these shares through the exercise of stock options during the three months ended
June 30, 1998. On June 29, 1998, the Company cancelled this stock repurchase
plan.
On June 30, 1998, the Company completed its acquisition of ProSoft. ProSoft
develops software tools used to verify embedded systems software prior to the
availability of a hardware prototype. The aggregate consideration for the
acquisition (including shares of common stock reserved for issuance upon
exercise of ProSoft options, which were exchanged for options of the Company)
was 248,334 shares of common stock. The transaction has been accounted for as a
pooling of interests in accordance with generally accepted accounting
principles. In compliance with such principles, the Company's financial
statements have been restated to include the accounts of ProSoft as if the
acquisition had occurred at the beginning of the first period presented.
In September 1998, the Company announced its proposed acquisition of OrCAD, Inc.
In February 1999, the Company announced that its planned acquisition of OrCAD,
Inc. had been terminated. During the quarter ended December 31, 1998, the
Company incurred approximately $1.0 million in costs related to the terminated
acquisition.
-11-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial data
as a percentage of revenue.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Product licenses.......................... 63.3 % 77.9 % 61.5 % 78.5 %
Maintenance and services.................. 36.7 21.3 38.5 20.6
Other..................................... - 0.8 - 0.9
----- ----- ----- -----
Total revenue........................ 100.0 100.0 100.0 100.0
Cost of revenue:
Product licenses.......................... 1.8 1.1 1.8 1.5
Amortization of purchased technologies.... 4.8 2.5 4.3 2.4
Maintenance and services.................. 2.3 1.5 2.4 1.5
----- ----- ----- -----
Total cost of revenue................ 8.9 5.1 8.5 5.4
Gross profit......................... 91.1 94.9 91.5 94.6
Operating expenses:
Research and development.................. 34.7 27.0 36.9 27.6
Sales and marketing....................... 44.3 29.6 43.5 29.5
General and administrative ............... 19.1 9.8 18.1 10.0
Amortization of goodwill and other
intangibles............................ 9.7 6.3 10.0 6.5
Non-recurring charges (a)................. - 2.1 9.6 1.1
----- ----- ----- -----
Total operating expenses............. 107.8 74.8 118.1 74.7
----- ----- ----- -----
Income (loss) from operations.................. (16.7) 20.1 (26.6) 19.9
Other income (expense), net.................... 2.7 1.9 3.5 2.3
----- ----- ----- -----
Income (loss) before income taxes.............. (14.0) 22 (23.1) 22.2
Income (loss) tax provision.................... - 8.7 0.0 8.8
----- ----- ----- -----
----- ----- ----- -----
Net income (14.0)% 13.3 % (23.1)% 13.4 %
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
(a) Non-recurring charges of $1.3 million for the six months ended June 30,
1999 relate to severance obligations to certain management personnel, which
will be paid in future periods. Non-recurring charges of $227,000 for the
three and six months ended June 30, 1998 relate to the acquisition of
ProSoft.
TOTAL REVENUE
Total revenue decreased by 34.8% from $11 million for the three months ended
June 30, 1998 to $7.2 million for the three months ended June 30, 1999. Sales
through one distributor accounted for 23.5%, 17.7%, 24.3%, and 19.3% of the
Company's total revenue for the three months ended June 30, 1999 and 1998,
and for the six months ended June 30, 1999 and 1998, respectively. Sales to
CSC accounted for 23.2% and 27.0% of the Company's total revenue for the
three and six months ended June 31, 1998. Such revenue included $2.9 million
of Visual Testbench license sales made pursuant to an OEM agreement with CSC.
As of December 31, 1998, CSC had fully satisfied its obligation to purchase
Visual Testbench Licenses pursuant to the OEM agreement and the Company does
not expect to receive any additional revenue from sales of Visual Testbench.
The Company did not receive any revenue from CSC for the six months ended
June 30, 1999. Revenue generated pursuant to another OEM agreement accounted
for 10.7%, 7.5%, 12.6%, and 7.2% of the Company's total revenue for the three
months ended June 30, 1999 and 1998 and for the six months ended June 30,
1999 and 1998, respectively.
-12-
<PAGE>
REVENUE
PRODUCT LICENSES REVENUE
The Company's product licenses revenue is derived from license fees from the
Company's HLDA products. Product licenses revenue decreased by 46.9% from $8.6
million for the three months ended June 30, 1998 to $4.5 million for the three
months ended June 30, 1999. Product licenses revenue decreased by 48.7% from
$16.8 million for the six months ended June 30, 1998 to $8.6 million for the six
months ended June 30, 1999. The decrease in product licenses revenue was
primarily attributable to the Company ceasing to receive revenue from CSC
pursuant to the OEM Agreement. The decrease was also attributable to decreased
sales as a result of the Company hiring fewer sales and marketing personnel than
planned in the fourth quarter of 1998 and the first two quarters of 1999 and
attrition in the existing sales force during the first two quarters of 1999.
MAINTENANCE AND SERVICES REVENUE
The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's HLDA products and training classes offered to
purchasers of the Company's software products. Maintenance and services revenue
increased 12.2% from $2.3 million for the three months ended June 30, 1998 to
$2.6 million for the three months ended June 30, 1999. Maintenance and services
revenue increased 22.3% from $4.4 million for the six months ended June 30, 1998
to $5.4 million for the six months ended June 30, 1999. This increase is
primarily attributable to maintenance contract renewals by the installed base of
HLDA customers, and to a lesser extent from non-recurring engineering services
provided to one customer, which is not expected to reoccur.
OTHER REVENUE
Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue decreased 100% from
$91,000 for the three months ended June 30, 1998 to $0 for the three months
ended June 30, 1999. Other revenue decreased 100% from $183,000 for the six
months ended June 30, 1998 to $0 for the six months ended June 30, 1999.
Although the Company renewed a significant distribution agreement the renewal
did not include additional fees. As a result, the distribution rights fees paid
at the inception of the agreement and amortized into revenue at $91,000 each
quarter over the agreement period were no longer a source of other revenue as of
December 31, 1998.
COST OF REVENUE
COST OF PRODUCT LICENSES REVENUE
Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs. The cost of product
licenses revenue increased 7.6% from $118,000 for the three months ended June
30, 1998 to $127,000 for the three months ended June 30, 1999. The cost of
product licenses revenue decreased 17.0% from $311,000 for the six months ended
June 30, 1998 to $258,000 for the six months ended June 30, 1999. As a
percentage of product licenses revenue, the cost of product licenses revenue
increased from 1.4% of product license revenue for the three months ended June
30, 1998 to 2.8% of product license revenue for the three months ended June 30,
1999. As a percentage of product licenses revenue, the cost of product licenses
revenue increased from 1.9% of product license revenue for the six months ended
June 30, 1998 to 3.0% of product license revenue for the six months ended June
30, 1999. This increase as a percentage of product license revenue was primarily
due to fixed costs spread over decreased product license revenue.
-13-
<PAGE>
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 24.7% from $279,000 for the three months ended
June 30, 1998 to $348,000 for the three months ended June 30, 1999. Cost of
maintenance and services revenue increased 20.2% from $504,000 for the six
months ended June 30, 1998 to $606,000 for the six months ended June 30, 1999.
As a percentage of maintenance and services revenue, the cost of maintenance and
services revenue increased from 11.9% for the three months ended June 30, 1998
to 13.2% for the three months ended June 30, 1999. As a percentage of
maintenance and services revenue, the cost of maintenance and services revenue
decreased from 11.4% for the six months ended June 30, 1998 to 11.2% for the six
months ended June 30, 1999. The increase in the cost of maintenance and services
revenue as a percentage of revenue, and in actual dollars, for the three months
ended June 30, 1999 over the same period in 1998 was due primarily to additional
costs incurred in the three months ended June 30, 1999 related to the
distribution of a major upgrade to customers with maintenance contracts. The
decrease in the cost of maintenance and services revenue as a percent of revenue
for the six months ended June 30, 1999 over the same period in 1998 was
primarily the result of increased maintenance and services revenue in 1999.
AMORTIZATION OF PURCHASED TECHNOLOGIES
The Company recorded $2.4 million of purchased technologies (intangibles) as
part of the SimTech acquisition which are being amortized to cost of revenue on
a straight-line basis over periods ranging from two to five years beginning
September 9, 1997. The Company expensed approximately $166,000 for the three
months ended June 30, 1999 and 1998. The Company expensed approximately $331,000
for the six months ended June 30, 1999 and 1998, respectively.
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
decreased 16.4% from $3.0 million for the three months ended June 30, 1998 to
$2.5 million for the three months ended June 30, 1999. Research and development
expenses decreased 12.5% from $5.9 million for the six months ended June 30,
1998 to $5.1 million for the six months ended June 30, 1999. Research and
development expenses for the three and six months ended June 30, 1998 included
$550,000 and $1,100,000, respectively, of compensation expense recorded in
connection with the Company's acquisition of SimTech in September 1997.
The Company recorded a total of $4.4 million of compensation expense for
shares issued as part of the acquisition which were contingent upon continued
employment and were being expensed as the employment obligation lapsed. This
expense was being recorded on a straight-line basis over the two year
employment obligation period. However, in December 1998, the employment
agreements to which this contingent compensation related were amended to
eliminate the continued employment obligation and at that time, the remaining
unrecorded compensation was expensed. Excluding the $550,000 compensation
expense recorded in the three months ended June 30, 1998, research and
development expense increased 2% from $2.4 million for the three months ended
June 30, 1998 to $2.5 million for the same period in 1999. Excluding the
$1,100,000 compensation expense recorded in the six months ended June 30,
1998, research and development expense increased 7.5% from $4.8 million for
the six months ended June 30, 1998 to $5.2 million for the same period in
1999.
-14-
<PAGE>
As a percentage of total revenue, research and development expenses increased
from 27.0% and 27.6% for the three and six months ended June 31, 1998,
respectively, to 34.7% and 36.9% for the three and six months ended June 30,
1999, respectively. The increase in research and development expenses as a
percent of revenue is the result of a decrease in total revenues for the three
and six months ended June 30, 1999. The Company continues to believe that
significant investment in research and development is required to remain
competitive in its markets, and the Company therefore anticipates that research
and development expense will increase in absolute dollars in future periods, but
may vary as a percent of revenue. (1)
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions and
promotional costs, decreased 2.4% from $3.3 million for the three months ended
June 30, 1998 to $3.2 million for the three months ended June 30, 1999. Sales
and marketing expenses decreased 3.5% from $6.3 million for the six months ended
June 30, 1998 to $6.1 million for the six months ended June 30, 1999. This
decrease was primarily attributable to the Company hiring fewer sales and
marketing personnel than planned in the fourth quarter of 1998 and the first two
quarters of 1999 and attrition in the existing sales force during the first
quarter of 1999.
As a percentage of total revenue, sales and marketing expenses increased from
29.6% for the three months ended June 30, 1998 to 44.3% for the three months
ended June 30, 1999. As a percentage of total revenue, sales and marketing
expenses increased from 29.5% for the six months ended June 30, 1998 to 43.5%
for the six months ended June 30, 1999. The increase as a percentage of total
revenue was primarily attributable to the decrease in total revenue for 1999. 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 and
marketing personnel.(2)
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate, finance,
human resource, information services, administrative, and legal and accounting
expenses of the Company. General and administrative expenses increased 27.1%
from $1.1 million for the three months ended June 30, 1998, to $1.4 million for
the three months ended June 30, 1999. General and administrative expenses
increased 18.6% from $2.1 million for the six months ended June 30, 1998, to
$2.5 million for the six months ended June 30, 1999. As a percentage of total
revenue, general and administrative expenses increased from 9.8% for the three
months ended June 30, 1998 to 19.1% for the three months ended June 30, 1999. As
a percentage of total revenue, general and administrative expenses increased
from 10.0% for the six months ended June 30, 1998 to 18.1% for the six months
ended June 30, 1999. The increase in general and administrative expenses as a
percentage of total revenue and in actual dollars was primarily attributable to
the addition of four positions and the cost of the CEO search.
AMORTIZATION OF INTANGIBLES AND GOODWILL
The Company recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis
over periods ranging from two to five years beginning September 9, 1997. The
Company expensed $697,000 for the three months ended June 30, 1999 and 1998,
respectively. The Company expensed approximately $1.4 million for the six
months ended June 30, 1999 and 1998, respectively.
- ---------------
(2) This sentence 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 19 for a discussion of factors that could affect future performance.
-15-
<PAGE>
NON-RECURRING CHARGES
During the six months ended June 30, 1999, the Company recorded $1.3 million in
non-recurring charges related to severance obligations for certain management
personnel. For the three months ended June 30, 1998 the Company incurred
one-time charges of $227,000 related to the acquisition of ProSoft.
INTEREST EXPENSE
Interest expense remained constant at $1,000 for the three months ended June 30,
1999 and 1998. Interest expense also remained constant at $2,000 for the six
months ended June 30, 1999 and 1998. The Company incurred no interest expense
associated with the Company's bank line of credit for the three and six months
ended June 30, 1999 and 1998.
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 SDA and ADC and foreign exchange
rate differences resulting from paying operating expenses of foreign operations
in the local currency. Other income was approximately $195,000, $204,000,
$488,000, and $492,000 for the three months ended June 30, 1999 and 1998 and for
the six months ended June 30, 1999 and 1998, respectively.
INCOME TAX PROVISION
The income tax provision decreased from $958,000 for the three months ended June
30, 1998 to $0 for the three months ended June 30, 1999. The income tax
provision decreased from $1.9 million for the six months ended June 30, 1998 to
$0 for the six months ended June 30, 1999. The 1998 income tax provision
reflects the Company's estimated consolidated tax rate for federal, state and
foreign taxes of approximately 40% of taxable income. The Company's estimated
effective rate for the year ending December 31, 1999 is 0%, as the Company does
not expect to generate either taxable income or net operating losses in 1999.
EFFECTIVE CORPORATE TAX RATES
Prior to 1996, the Company had experienced losses for income tax purposes in the
United States. As of December 31, 1998, 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 are performed entirely by Summit Design (EDA)
Ltd., which is a separate taxable Israeli entity. The Company's existing Israeli
production facility has been granted ""Approved Enterprise" status under the
Israeli Investment Law, which entitles the Company to reductions in the tax rate
normally applicable to Israeli companies with respect to the income generated by
its "Approved Enterprise" programs. In particular, the tax holiday covers the
seven year period beginning the first year in which Summit Design (EDA) Ltd.
generates taxable income from its "Approved Enterprise" (after using any
available NOLs), provided that such benefits will terminate in 2006 regardless
of whether the seven year period has expired. The tax holiday provides that,
during such seven year 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.
-16-
<PAGE>
The Company had foreign income tax net operating losses of approximately $5.6
million at December 31, 1998. 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 has financed its operations primarily through a public offering in
1996, the private placement of capital stock, as well as capital equipment
leases, borrowings under its bank line of credit, Israeli research and
development grants and cash generated from operations. As of June 30, 1999, the
Company had approximately $24.0 million in cash and cash equivalents.
Additionally, the Company had a $1.0 million bank line of credit, which expired
on April 30, 1999. At April 30, 1999, the Company had no borrowings outstanding
under this line of credit and subsequently did not renew the line.
As of June 30, 1999, the Company has loaned $2.5 million to an independent
software company pursuant to a secured loan agreement entered into during
July 1997. Borrowings under the agreement bear interest at prime plus 2%.
As of June 30, 1999, the Company had working capital of approximately $22.4
million.
For the six months ended June 30, 1999, net cash used in operating activities
was approximately $2.6 million. For the six months ended June 30, 1998, net cash
generated by operating activities was approximately $7.4 million. Cash used in
operations for the six months ended June 30, 1999 resulted primarily from a net
loss offset by depreciation, amortization, and a decrease in accrued
liabilities.
Net cash used in investing activities was approximately $1.2 million and $2.1
million for the six months ended June 30, 1999 and 1998, respectively. Net cash
used in investing activities was related to the acquisition of furniture and
equipment and a loan to an independent software company for the six months ended
June 30, 1999 and 1998. Net cash used in investing activities also included
loans to a joint venture for the six months ended June 30, 1998.
Net cash generated by financing activities was approximately $177,000 for the
six months ended June 30, 1999. Net cash used by financing activities was
approximately $505,000 for the six months ended June 30, 1998. For the six
months ended June 30, 1999, financing activity cash was primarily generated by
proceeds from the issuance of common stock through stock options plans, offset
by payments of debt obligations and capital leases. For the six months ended
June 30, 1998 the use of cash was primarily from repurchasing 162,500 shares of
the Company's common stock, less proceeds from the issuance of common stock and
a tax benefit from option exercises.
The Company presently believes that its current cash and cash equivalents
will satisfy the Company's anticipated working capital and other cash
requirements for at least the next 12 months.(2)
- ----------------
(2) This sentence 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 19 for a discussion of factors that could affect future performance.
-17-
<PAGE>
YEAR 2000
The Year 2000 issue results from computer programs written using two, rather
than four, digits to define the applicable year. These computer programs may
recognize a date using "00" as the year 1900 instead of 2000 and cause system
failures or miscalculations, material disruptions of business operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business operations. If the Company,
its significant customers, suppliers, service providers and other related third
parties fail to take the necessary steps to correct or replace these problematic
computer programs, the Year 2000 issue could have a material adverse effect on
the Company. The Company cannot, however, quantify the impact at this time.
The Company has begun upgrading or replacing the software packages underlying
its financial, production, communication, desktop and other systems, as
appropriate, to address the Year 2000 issue. It has also performed an in-depth
analysis of all of its products and is in the process of modifying those
products that are not Year 2000 compliant. Moreover, the Company is contacting
all major external third parties that provide products and services to the
Company to assess their readiness for the Year 2000.
Management believes it has completed the review and assessment phase of affected
systems within the Company and those which are external to the Company. This
assessment indicated that most of the Company's significant internal information
systems could be affected by the Year 2000 issue, and that the Company could be
negatively impacted by non-compliance of related third parties. In addition,
this assessment concluded that certain of the Company's products were also at
risk.
The Company has begun the remediation phase of the Company's internal
information technology systems and has set October 1999 as the target for Year
2000 compliance of all of the Company's internal information technology systems.
The Company's internal information technology systems include the Company's
finance systems and those systems used in the research and development of the
Company's products.
The Company's products are subject to periodic upgrades. These upgrades are
typically released to end-users once a year. The Company intends to modify its
products, as required, in order to make such products Year 2000 compliant by
September 1999.
The Company is currently in the process of creating contingency plans for its
internal information technology systems and products. These contingency plans
are expected to be in place by October 31, 1999. In the event the Company's
information technology systems and/or products are not Year 2000 compliant by
October 31, 1999, the Company will decide at that time whether to implement the
necessary contingency plan(s).
The Company has queried its important suppliers and service providers and is
presently obtaining assurances and verification from those selected third
parties that they are or will be Year 2000 complaint. The inability of those
parties to complete their Year 2000 resolution process could materially impact
the Company. The effects of non-compliance by third parties where no system
interface exists is not determinable.
The Company will determine whether a contingency plan is necessary in relation
to third parties with whom the Company has material relationships once the
assessment of these third parties' Year 2000 compliance is complete. It is
anticipated that third party assessment will be complete by August 31, 1999.
Concurrent with performing the above steps, the Company will make certain
investments in systems, applications and products to address Year 2000 issues.
The Company has not tracked internal resources dedicated to the resolution of
the Year 2000 issue and, therefore, is unable to quantify internal costs
-18-
<PAGE>
incurred to date that are associated with the Year 2000 issue. The Company has,
however, hired external consultants to resolve internal information system
issues related to the resolution of the Year 2000 issue. Identifiable
expenditures for these consultants were approximately $250,000 through December
31, 1998. Expenditures to resolve Year 2000 issues are not expected to be
material and are expected to be funded through cash generated from operations.
The Company's plans to complete the Year 2000 modifications are based upon
management's best estimates, which were derived utilizing numerous assumptions
of future events including continued availability of certain resources, and
other factors. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences included the availability and
cost of personnel trained in this area, and the ability to locate and correct
all relevant computer codes.
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE
OF STOCK
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
FACTORS WHICH MAY CAUSE THE COMPANY'S OPERATING RESULTS TO FLUCTUATE. The
Company's quarterly operating results and cash flows have fluctuated in the past
and have fluctuated significantly in certain quarters. Such fluctuations
resulted from several factors including the size and timing of orders, the
incurrence of a large one-time charge as a result of an acquisition, seasonal
factors, the rate of acceptance of new products, product, customer and channel
mix, and lengthy sales cycles. These fluctuations are likely to continue in
future periods as a result of the factors discussed above and potentially due to
corporate acquisitions and consolidations and the integration of acquired
entities and the incurrence of any large one-time charges as a result of any
acquisitions, the timing of new product announcements and introductions by the
Company and its competitors, the 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.
REVENUE DIFFICULT TO FORECAST. The Company's revenue is difficult to forecast
for several reasons. The Company operates with little product backlog because
its products are typically shipped shortly after orders are received.
Consequently, license backlog at the beginning of any quarter has in the past
represented only a small portion of that quarter's expected revenue. As a
result, license fee revenue in any quarter is difficult to forecast because it
is substantially dependent on orders booked and shipped in that quarter.
Moreover, the Company generally recognizes a substantial portion of its revenue
in the last month of the quarter, frequently 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. Quarterly license fee revenue is also
difficult to forecast because the Company's sales cycle is typically six to nine
months and varies substantially from customer to customer. In addition, a
portion of the Company's sales are made through indirect channels and can be
harder to predict.
SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING RESULTS. 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. Because a high percentage of the Company's expenses are
relatively fixed in the near term, if revenue in any quarter is below
expectations, expenditure levels could be disproportionately high as a
percentage of revenue and the Company's operating results would be materially
adversely affected.
-19-
<PAGE>
OPERATING RESULTS LIKELY TO FLUCTUATE. Based upon the factors described above,
the Company believes that its quarterly revenue, expenses and operating results
are likely to vary significantly from quarter to quarter, that period-to-period
comparisons of its operating results are not necessarily meaningful and that, as
a result, such comparisons should not be relied upon as indications of the
Company's future performance. Additionally, as of December 31, 1998, CSC had
satisfied its obligation to purchase a minimum number of Visual Testbench
licenses pursuant to an OEM agreement entered into in July 1997, and the Company
does not expect to receive any additional revenue from sales of Visual Testbench
to CSC. The Company will need to replace this revenue and the failure of the
Company to replace this revenue would have a material adverse affect on the
Company's operating results. In addition, the Company operates with high gross
margins and as such, a downturn in revenue has had a significant impact on
income from operations and net income. Due to the foregoing or other factors,
the Company's results of operations were below investors' and market makers'
expectations for the quarter ended June 30, 1999 and are likely to be below
investors' and market makers' expectations in other quarters, which could have a
severe adverse effect on the market price of the Company's Common Stock.
DEPENDENCE ON HLDA PRODUCTS
The Company's future success depends primarily upon the broad market acceptance
of the Company's 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, 1998, 1997 and 1996, revenue from HLDA
products and related maintenance contracts represented 100%, 88.8%, and 63.9%,
respectively, of the Company's total revenue. 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.
UNCERTAINTY OF BROAD MARKET ACCEPTANCE OF HLDA PRODUCTS
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 the Company'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.
-20-
<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 they compete 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.
-21-
<PAGE>
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 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
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 will be materially adversely
affected.
RISKS OF SOFTWARE DEFECTS
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.
DEPENDENCE ON DISTRIBUTORS
The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 41.9%, 24.9%, 23.1%, 28.7% and 45.6% of
the Company's revenue for the six months ended June 30, 1999 and 1998 and for
the years ended December 31, 1998, 1997 and 1996, respectively, were
attributable to sales made through distributors. Effective April 1, 1996, the
Company entered into a joint venture with Anam pursuant to which the joint
venture corporation, Summit Asia, acquired exclusive rights
-22-
<PAGE>
to sell, distribute and support all of the Company's products in the Asia
Pacific region, excluding Japan. In April 1998, the joint venture
corporation, Summit Asia, which is headquartered in Korea, was renamed Asia
Design Corporation ("ADC"). In May 1998, the Company exchanged a portion of
its ownership in ADC for ownership in another company located in Hong Kong,
renamed Summit Design Asia, Ltd. ("SDA"). SDA also acquired an equity
investment in ADC. In June 1998, the Company and Anam each loaned SDA
$750,000, which is guaranteed by ADC. SDA acquired from ADC the exclusive
rights to sell, distribute and support the Company's products in the Asia
Pacific region, excluding Japan. SDA granted distribution rights to the
Company's products to ADC for the Asia Pacific region, excluding Japan. In
December 1998, SDA cancelled ADC's distribution rights in all areas except
Korea and granted non-exclusive distribution rights to Semiconductor
Technologies Australia ("STA") for the Asia Pacific region excluding Japan
and Korea. There can be no assurance that this restructuring will result in
SDA or ADC becoming profitable or that revenue attributable to sales in the
Asia Pacific region, excluding Japan, would increase. 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. 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. The
agreement was renewed for an additional five-year term, which began in
February 1999. In the event Seiko fails to meet specified quotas for two or
more quarterly periods, exclusivity can be terminated by the Company, subject
to Seiko's right to pay a specified fee to maintain exclusivity. Sales
through Seiko accounted for 24.3%, 19.3%, 17.8%, 14.5%, and 15.1%, of the
Company's total revenue for the six months ended June 30, 1999 and 1998 and
for the years ended December 31, 1998, 1997, and 1996, respectively. In June
1999, the Company lowered Seiko's specified quotas due to the adverse
economic conditions in the Asia Pacific Region. As a result, Summit expects
sales through Seiko to decrease for at least the current and following two
quarters and revenue attributable to sales in the Asia Pacific region to
decrease.
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, SDA and ADC, 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 47.7%, 35.1%, 35.8%, 33.2%, and 49.8% of the Company's revenue
for the six months ended June 30, 1999 and 1998 and for the years ended
December 31, 1998, 1997 and 1996, respectively, were attributable to sales
made outside the United States, which includes the Asia Pacific region and
Europe. Approximately, 26.8%, 21.7%, 21.9%, 22.3%, and 34.3% of the Company's
revenue for the six months ended June 30, 1999 and 1998 and for the years
ended December 31, 1998, 1997 and 1996, respectively, were attributable to
sales made in the Asia Pacific region and approximately 20.9%, 13.4%, 13.9%,
11.4% and 15.5% of the Company's revenue for the six months ended June 30,
1999 and 1998 and for the years ended December 31, 1998, 1997 and 1996,
respectively, were attributable to sales made in Europe. 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
-23-
<PAGE>
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 economic conditions. Demand for and sales of the
Company's products in the Asia Pacific region have continued to decrease and
there can be no assurance that such adverse economic conditions will not
worsen or that demand for and sales of the Company's products in such region
will not further decrease.
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
The Company's ability to achieve significant growth will require it to implement
and continually expand its operational and financial systems, recruit additional
employees and train and manage current and future employees. The Company expects
any such growth will place a significant strain on its operational resources and
systems. Failure to effectively manage any such growth would have a material
adverse effect on the Company's business, financial condition, results of
operations or cash flows.
The Company has consummated a series of acquisitions including the acquisition
of TriQuest in February 1997, SimTech in September 1997, and ProSoft in June
1998 and regularly evaluates acquisition opportunities. Future acquisitions by
the Company, if any, could result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, amortization
expenses related to goodwill and other intangible assets, and large one-time
charges which could materially adversely affect the Company'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 the Company has no or limited prior experience and
potential loss of key employees of acquired companies. The Company's management
has had limited experience in assimilating acquired organizations and products
into the Company's operations. No assurance can be given as to the ability of
the Company to integrate successfully any operations, personnel or products that
have been acquired or that might be acquired in the future, and the failure of
the Company to do so could have a material adverse effect on the Company's
results of operations.
OPERATIONS IN ISRAEL
RISKS ASSOCIATED WITH OPERATING 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 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 $5.2, $4.7 and $4.3
million in 1998, 1997 and 1996, respectively. Payment in Israeli currency
subjects the Company to foreign currency fluctuations
-24-
<PAGE>
and to economic pressures resulting from Israel's generally high rate of
inflation, which has been approximately 9%, 7% and 11% during 1998, 1997, and
1996, respectively. The Company's primary expense, which is paid in Israeli
currency, is employee salaries for research and development activities. As a
result, an increase in the value of Israeli currency in comparison to the
U.S. dollar could increase the cost of research and development expenses and
general and administrative expenses. There can be no assurance that currency
fluctuations, changes in the rate of inflation in Israel or any of the other
aforementioned factors will not have a material adverse effect on the
Company's business, financial condition, 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.
RISKS ASSOCIATED WITH "APPROVED ENTERPRISE" STATUS. 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. No "Approved Enterprise" tax benefits had
been realized by the Company from its Israeli operations as of December 31, 1995
since the Israeli operations were still incurring losses at that time. During
1996, the Company realized income of $1.4 million from its Israeli operations
and "Approved Enterprise" tax benefits of $53,000. During 1997, the Company
realized income of $2.7 million from its Israeli operations and "Approved
Enterprise" tax benefits of $702,000. During 1998, the Company realized income
of $4.3 million from its Israeli operations and "Approved Enterprise" tax
benefits of $1.9 million. 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. However, there can be no assurance
that the Company's Israeli production facility will continue to operate or
qualify as an "Approved Enterprise" or that the benefits under the "Approved
Enterprise" regulations will continue, or be applicable, in the future.
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. 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 success will continue to depend in large part on its key
technical and management personnel and its ability 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 non-competition provisions. The Company recently
entered into a new employment agreement with C. Albert Koob, the Company's
Chief Financial Officer. Mr. Koob's employment agreement provides that he is
entitled to certain guaranteed severance payments and has been provided an
incentive to remain with the Company through December 31, 1999 or such
earlier date that a permanent Chief Executive Officer or Chief Financial
Officer has begun working at the Company.
-25-
<PAGE>
However, there can be no assurance that Mr. Koob will continue his employment
until such date. Mr. Gerhard, the Company's former Chief Executive Officer
resigned from his positions with the Company as of June 30, 1999. William V.
Botts, a director of the Company, is currently serving as the Company's
Interim Chief Executive Officer while the Company seeks a permanent Chief
Executive Officer. The Company's failure to timely hire suitable replacements
for Mr. Gerhard or Mr. Koob could have a material adverse effect on the
Company.
Competition for personnel in the software industry in general, and the EDA
industry in particular, is intense, and the Company has at times in the past
experienced difficulty in recruiting qualified personnel. There can be no
assurance that the Company will retain its key personnel or that it will be
successful in attracting and retaining other qualified technical, sales and
marketing and management personnel in the future. The loss of any key
employees or the inability to attract and retain additional qualified
personnel may have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. 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.
NEED TO EXPAND SALES AND MARKETING ORGANIZATIONS
The Company's success will depend on its ability to build and expand its
sales and marketing organizations. The Company hired fewer sales and
marketing personnel than planned in the fourth quarter of 1998 and the first
two quarters of 1999 and experienced attrition in the existing sales force
during the first quarter of 1999. As a result of the lack of sales people,
the Company's revenues for the fourth quarter of 1998 and first two quarters
of 1999 were lower than expected. In February 1999, the Company's Senior Vice
President of Worldwide Marketing and Sales resigned. The Company is seeking a
Vice President of Sales and a Vice President of Marketing. The Company's
future success will depend in part on its ability to hire and retain
qualified sales and marketing personnel and the ability of these new persons
to rapidly and effectively transition into their new positions. Competition
for qualified sales and marketing personnel is intense, and the Company may
not be able to hire and retain the number of sales and marketing personnel
needed which would have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.
ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS
The Company's Israeli subsidiary obtained research and development grants from
the Chief Scientist in the Israeli Ministry of Industry and Trade of
approximately $232,000 and $608,000 in 1993 and 1995, respectively. As of
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 June 30, 1999, approximately $92,000 was
outstanding under the grant.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
NO ASSURANCE THAT EFFORTS TO PROTECT PROPRIETARY TECHNOLOGY WILL SUCCEED. 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
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<PAGE>
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 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.
RISKS OF INFRINGEMENT CLAIMS. The Company could be increasingly subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows, the functionality of products in its industry segment
overlaps and an increasing number of software patents are granted by the United
States Patent and Trademark Office. There can be no assurance that a third party
will not claim such infringement by the Company with respect to current or
future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product delays or require the
Company to enter into royalty or licensing agreements. Such royalty or license
agreements, if required, may not be available on terms acceptable to the Company
or at all. Failure to protect its proprietary rights or claims of infringement
could have a material adverse effect on the Company's business, financial
condition, 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
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
modification 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
inability to implement such modifications could have an adverse effect on the
Company's future operating results.
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<PAGE>
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from interest rate changes, foreign
currency fluctuations, and changes in the market values of its investments.
INTEREST RATE RISK. The Company invests its excess cash in debt instruments of
the U.S. Government and its agencies, and in high-quality corporate issuers and,
by policy, limits the amount of credit exposure to any one issue. The Company
attempts to protect and preserve its invested funds by limiting default, market
and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, the Company's future investment income may fall
short of expectations due to changes in interest rates and the Company may
suffer losses in principal if forced to sell securities which have declined in
market value due to changes in interest rates.
FOREIGN CURRENCY RISK. The Company pays the expenses of its international
operations in local currencies. The Company's international operations are
subject to risks typical of an international business, including, but not
limited to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign
exchange rate volatility. Accordingly, the Company's future results could be
materially adversely impacted by changes in these or other factors.
The Company is also exposed to foreign exchange rate fluctuations as they relate
to operating expenses as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability. The effect of foreign exchange rate fluctuations
on the Company in 1999 was not material.
INVESTMENT RISK. The Company has made equity investments in ADC and SDA and has
provided loans to ADC and a privately-held, independent software company for
business and strategic purposes. These investments are included in other
long-term assets and are accounted for under the equity method when ownership is
greater than 20% and the Company does not exert control. For these investments
in privately-held companies, the Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events and circumstances indicate that such
assets might be impaired.
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<PAGE>
PART II
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to the stockholders at the
Company's Annual Meeting of Stockholders held on May 26, 1999. Each of these
matters was approved by a majority of the shares present at the meeting.
1. The election of two Class II director to serve for a term of three years:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
CLASS II DIRECTORS --------- --------------
<S> <C> <C>
William V. Botts 10,717,760 693,221
Barbara M. Karmel 10,717,560 693,421
</TABLE>
2. The amendment of the Company's 1994 Stock Plan to increase the number of
shares reserved for issuance thereunder by 625,000 shares:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD
--------- ------------- --------------
<S> <C> <C>
7,773,819 3,599,506 37,656
</TABLE>
3. The amendment of the Company's 1996 Employee Stock Purchase Plan to
increase the number of shares reserved for issuance thereunder by 150,000
shares:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD
--------- ------------- --------------
<S> <C> <C>
11,108,697 242,720 59,564
</TABLE>
4. The ratification of the appointment of PricewaterhouseCoopers LLP as the
independent accountants for the Company for the fiscal year ending
December 31, 1999:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD
--------- ------------- --------------
<S> <C> <C>
11,356,271 41,531 13,179
</TABLE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.6 Employment Agreement between between the Registrant and
C. Albert Koob dated as of July 30, 1999.
10.7 Employment agreement between the Registrant and Richard
Davenport dated __, 1999.
10.9 Employment agreement between the Registrant and Eric
Benayoun dated February 25, 1999.
10.10 Employment agreement between the Registrant and Moshe Guy
dated February 25, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On June 11, 1999, the Company filed a Current Report on Form 8-K
dated June 11, 1999 in connection with the resignation of Larry
Gerhard, Chairman and Chief Executive Officer.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT DESIGN, INC.
By: /s/ C. Albert Koob
------------------------------------
C. Albert Koob
Vice President - Finance,
Chief Financial Officer and Secretary
Principal Financial and Accounting
Officer and Duly Authorized Officer)
Date: August 13, 1999
-30-
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
EXHIBIT 10.6 Employment agreement between the Registrant and C. Albert Koob
dated July 30, 1999.
EXHIBIT 10.7 Employment agreement between the Registrant and Richard
Davenport dated February 25, 1999.
EXHIBIT 10.9 Employment agreement between the Registrant and Eric Benhayoun
dated February 25, 1999.
EXHIBIT 10.10 Employment agreement between the Registrant and Moshe Guy dated
February 25, 1999.
EXHIBIT 27.1 Financial Data Schedule
</TABLE>
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<PAGE>
Exhibit 10.6
SUMMIT DESIGN, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EMPLOYEE: C. ALBERT KOOB
EFFECTIVE DATE: July 30, 1999
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
("Koob").
1. EMPLOYMENT AND DUTIES. Summit hereby employs Koob to serve and
perform in the role of Vice President of Finance and Chief Financial Officer;
provided that, if Summit shall hire a new full-time Vice President of Finance
and/or Chief Financial Officer prior to the expiration of this Agreement,
Summit shall employ Koob as a Vice President who shall assist the new Vice
President of Finance and/or Chief Financial Officer. Koob 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 Summit's business.
2. TERM AND TERMINATION.
(a) This Agreement shall expire on the earlier of (i) the date
that is 30 days after the date a new CEO or CFO has begun working at Summit
on a full-time basis (a "CEO/CFO Hiring Date"), (ii) the date that is two
weeks after the closing of any acquisition of another company by Summit (an
"Acquisition Closing Date") or (iii) December 31, 1999. Koob hereby agrees
that if he is still an employee of Summit on such date, unless otherwise
mutually agreed upon in writing, he will resign his employment with Summit.
Both parties acknowledge that the employment created herein is
Employment-at-Will and may be terminated at any time with or without cause
under the terms stated herein.
(b) In the event that Koob 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 Koob of termination of
his employment by Summit because Koob willfully abandoned the duties of his
position or engaged in any 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; provided, however, that the
Chief Executive Officer or the Board of Directors shall notify Koob upon the
commencement of any investigation by either of them into any of Koob's acts
which may be determined to be a criminal practice. Termination under this
Section 2(c) is "Cause".
(d) In the event that Koob notifies Summit of his resignation
as an employee of Summit because Summit has required (in writing)
<PAGE>
Koob to perform without Koob's consent (in writing) solely in any role other
than Vice President of Finance and Chief Financial Officer, or, in the event
that Summit has hired another person in the position of Vice President of
Finance and/or Chief Financial Officer, in any role other than a Vice
President who shall assist the new Vice President of Finance and/or Chief
Financial Officer, 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 Koob of termination of
his employment by Summit for any reason other than specified in Section 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 Koob from any obligations under Sections 5, 6, 7, and 8
hereof.
3. COMPENSATION AND BENEFITS. In consideration of the services to be
performed by Koob, Summit agrees to pay Koob the compensation and extend to
Koob the benefits consisting of the following:
(a) Annual Base Salary of $160,000, paid twice monthly.
(b) Koob shall be provided the right to participate in the
health, dental, and life insurance programs provided for the senior level
executives of Summit.
(c) Koob shall earn up to two (2) weeks of Paid Time Off
during the term of this Agreement in addition to the two (2) weeks of Paid
Time Off already earned during the first half of 1999. This Paid Time Off
shall be available for use as earned according to the standard policy of
Summit.
(d) An allowance for car expenses of $750.00 per month.
(e) A one-time retention bonus in the amount of $100,000 (the
"Retention Bonus") to be paid on January 2, 2000 if Koob is an employee on
December 31, 1999.
4. TERMINATION PAYMENT.
(a) In the event that this Agreement is terminated prior to December
31, 1999 (i) for Construction as defined in Section 2(d), (ii) for
Convenience as defined in Section 2(e), (iii) as a result of a CEO/CFO Hiring
Date or an Acquisition Closing Date as defined in Section 2(a), or (iv) as a
result of Koob's death or disability, then Summit shall pay Koob the
Retention Bonus within 15 days of Mr. Koob's termination and, beginning in
the month that Koob's employment is terminated, Summit shall also pay Koob
$13,333.33 per month plus all benefits set forth in Sections 3(b) and 3(d).
This payment shall continue monthly for a total of twelve (12) months;
provided, however, that as a condition precedent to Koob receiving the
Retention Bonus and the monthly payments and benefits, Koob must execute the
Settlement Agreement in the form attached hereto as Annex A and the seven (7)
day revocation period referenced in Section 7 thereof shall have expired.
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<PAGE>
(b) In the event that this Agreement is terminated as a result
of Mr. Koob's Resignation, then beginning in the month that Mr. Koob's
employment is terminated, Summit shall pay Koob $13,333.33 per month plus the
benefits set forth in Section 3(b) and [3(d)] and continue such benefits
monthly for a total of twelve (12) months; provided, however, that as a
condition precedent to Koob receiving the monthly payments and the benefits
set forth in Sections 3(b) and 3(d), Koob must execute the Settlement
Agreement in the form attached hereto as Annex A and the seven (7) day
revocation period referenced in Section 7 thereof shall have expired.
(c) In the event that Koob remains employed by Summit pursuant
to this Agreement until December 31, 1999, Summit shall pay Koob the
Retention Bonus on January 2, 2000 and, beginning in January 2000, Summit
shall pay Koob $13,333.33 per month plus all benefits set forth in Sections
3(b) and 3(d). This payment shall continue monthly, with the last payment
being made for the month ended December 31, 2000; provided, however, that as
a condition precedent to Koob receiving the monthly payments and benefits,
Koob must execute the Settlement Agreement in the form attached hereto as
Annex A and the seven (7) day revocation period referenced in Section 7
thereof shall have expired.
(d) Notwithstanding Sections 4(a), 4(b), 4(c), in the event
that more than 75% of the assets or more than 50% of the outstanding shares
of Summit are acquired by another company while Koob is an employee of
Summit, then payment of the Retention Bonus shall be accelerated and Summit
shall pay Koob the Retention Bonus in full on the date of the closing of the
acquisition which payment shall be in lieu of and in satisfaction of the
Retention Bonus which would otherwise be required to be paid by Summit to
Koob pursuant to Sections 4(a) and 4(c).
5. CONFIDENTIALITY. Koob 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. Koob 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 Koob use,
directly or indirectly, for Koob'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 Koob in connection
with employment by Summit shall belong exclusively to Summit.
- 3 -
<PAGE>
7. RETURN OF DOCUMENTS. Koob 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. Koob 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.
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 Agreement and Annex A hereto set 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, including without limitation
that certain Employment Agreement dated as of October 21, 1995 and that
certain Employment Agreement dated February 14, 1999 by and between Summit
and Koob. 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 herein above written.
"EMPLOYER": SUMMIT DESIGN, INC.
a Delaware Corporation
By:________________________________________
Name: Amihai Ben-David
Title: Compensation Committee Member
By:________________________________________
Name: William V. Botts
Title: Compensation Committee Member
"EMPLOYEE": ___________________________________________
C. Albert Koob
- 5 -
<PAGE>
EXHIBIT 10.7
SUMMIT DESIGN, INC.
EMPLOYMENT AGREEMENT
RICHARD DAVENPORT
February 25, 1999
This Agreement is entered into as of February 25, 1999 by and
between Summit Design, Inc., a Delaware corporation ("Summit") and Richard
Davenport ("Davenport").
1. EMPLOYMENT AND DUTIES. Summit hereby employs Davenport to
serve and perform in the role of President and Chief Operating Officer.
Davenport shall report to the Board of Directors of Summit until such time as
a Chief Executive Officer is hired to replace Larry J. Gerhard at which time
Davenport shall report to the Chief Executive 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 a term of two (2)
years, unless sooner terminated in accordance with subsections 2(b) and/or
2(c) and/or 2(d) and/or 2(e) 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) 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 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 because (i) Summit has required (in
writing) Davenport to perform in any role that does not include President and
Chief Operating Officer without Davenport's consent (in writing); (ii) Summit
has hired a Chief Executive Officer other than Larry J. Gerhard without
Davenport's prior written consent; (iii) of incompatibility with the Chief
Executive Officer hired to replace Larry J. Gerhard and such resignation
occurs within 30 days after such Chief Executive Officer's first day of work
at Summit or (iv) more than 75% of the assets or more than 50% of the
outstanding shares of Summit have been acquired by another company, then this
Agreement shall terminate as of the date of such notification. Termination
under this Section 2(d) is "Construction".
<PAGE>
(e) In the event that Summit notifies Davenport of
termination of his employment by Summit for any reason other than specified
in Section 2(c), this Agreement shall terminate as of the date of such
notification. Termination under this Section 2(e) is "Convenience".
(f) This Agreement shall automatically terminate
upon termination of Davenport's employment as a result of Davenport's death
or disability.
(g) Notwithstanding the above, termination of this
Agreement shall not release Davenport from any obligations under Sections 4,
5, 6 and 7 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) Effective as of April 1, 1999, annual base salary
of $225,000 (the "Annual Base Salary"), paid twice monthly.
(b) Annual bonus of up to 25% of Davenport's Annual
Base Salary as of December 31 of such year under the terms of the executive
bonus plan to be adopted by the Board.
(c) Davenport shall be provided the right to
participate in the medical, dental, optical, and life insurance programs
provided for the senior level executives of Summit.
(d) Davenport shall earn up to four (4) weeks of paid
time off during each year of employment. This paid time off shall be
available for use as earned according to the standard policy of Summit.
(e) An allowance for car expenses of $750.00 per
month.
(f) A retention bonus in the amount of $150,000 (the
"Retention Bonus") to be paid on January 1, 2000 if Davenport is an employee
of Summit on such date.
(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 Davenport (i) his then-current monthly
base salary during the 12 months subsequent to the termination date; (ii) all
benefits set forth in Section 3(c) during the 12 months subsequent to the
termination date; plus (iii) the Retention Bonus if the Agreement is
terminated prior to January 1, 2000. Notwithstanding the foregoing, as a
condition precedent to Davenport receiving the monthly payments and benefits
set forth in (i) and (ii) above and the Retention Bonus set forth in (iii)
above, Davenport must execute the Settlement Agreement in the form attached
hereto as ANNEX A and the seven (7) day revocation period referenced in
Section 7 thereof shall have expired.
(h) In the event that this Agreement is terminated by
Davenport notifying Summit of his resignation as an employee of Summit
because of his incompatibility with the Chief Executive Officer hired to
replace Larry J. Gerhard and such resignation occurs more than 30 days but
less than one year after such Chief Executive Officer's first day of work at
Summit, then Summit shall pay Davenport (i) his then-current monthly base
salary during the 6 months subsequent to the date of Davenport's resignation;
(ii) all benefits set forth in Section 3(c) during the 6 months subsequent to
- 2 -
<PAGE>
the date of Davenport's resignation; plus (iii) fifty percent (50%) of
Davenport's Retention Bonus if his resignation occurs prior to January 1,
2000. Notwithstanding the foregoing, as a condition precedent to Davenport
receiving the monthly payments and any portion of his Retention Bonus,
Davenport must execute the Settlement Agreement in the form attached hereto
as ANNEX A and the seven (7) day revocation period referenced in Section 7
thereof shall have expired.
4. 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 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. 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.
5. 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.
6. 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.
7. 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.
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.
- 3 -
<PAGE>
11. BOARD APPROVAL. The effectiveness of this Agreement shall
be subject to the prior approval of the Compensation Committee of the
Company's Board of Directors.
12. LIMITATION ON PAYMENTS. In the event that the severance
and other benefits provided for in this Agreement or otherwise payable to
Davenport (i) constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii)
but this Section, would be subject to the excise tax imposed by Section 4999
of the Code, then Davenport severance benefits under subsection 3(f) 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 Davenport on an after-tax basis, of the
greatest amount of severance benefits under subsection 3(f) notwithstanding
that all or some portion of such severance benefits may be taxable under
Section 4999 of the Code. Unless the Company and Davenport otherwise agree in
writing, any determination required under this Section 12 shall be made in
writing by the Company's independent public accountants (the "Accountants"),
whose determination shall be conclusive and binding upon Davenport and the
Company for all purposes. For purposes of making the calculations required by
this Section 12, 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 Davenport 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
13. 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 application of
any provisions of this Agreement, all sections of the Employment Agreement
dated as of September 1997 (the "1997 Employment Agreement") between Summit
and Davenport are superseded in all respects by this Agreement, except for
Sections 4, 5, 6 and 7. No modification or 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 herein above written.
"EMPLOYER": SUMMIT DESIGN, INC.:
A Delaware Corporation
By: _________________________________________
Name: Amihai Ben-David
Title: Compensation Committee Member
By: _________________________________________
Name: William V. Botts
Title: Compensation Committee Member
"EMPLOYEE": _____________________________________________
Richard Davenport
- 5 -
<PAGE>
EXHIBIT 10.9
SUMMIT DESIGN, INC.
EMPLOYMENT AGREEMENT
ERIC BENHAYOUN
February 25, 1999
This Agreement is entered into as of February 25, 1999 by and
between Summit Design, Inc., a Delaware corporation ("Summit"), and Eric
Benhayoun ("Benhayoun").
1. EMPLOYMENT AND DUTIES. Summit hereby employs Benhayoun to
serve and perform in the role of Vice President, General Manager of European
Operations of Summit reporting to the Vice President of Worldwide Sales or
the President or the Chief Executive Officer of Summit. Benhayoun 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. These duties
will be carried out at Summit's branch office in France or at any other place
to which the two parties agree.
2. TERM AND TERMINATION.
(a) This Agreement shall have a term of four (4)
years, unless sooner terminated in accordance with subsections 2(b) and/or
2(c) and/or 2(d) and/or 2(e) 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) In the event that Benhayoun 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 Benhayoun of
termination of his employment by Summit because Benhayoun willfully abandoned
the duties of his position or engaged in any business or criminal practice
which the Chief Executive 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 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 Benhayoun notifies Summit of
his resignation as an employee of Summit because (i) Summit has required (in
writing) Benhayoun to perform in any role that does not include Vice
President, General Manager of European Operations without Benhayoun's consent
(in writing) or (ii) more than 75% of the assets or more than 50% of the
outstanding shares of Summit have been acquired by another company, 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 Benhayoun of
termination of his employment by Summit for any reason other than specified
in Section 2(c), this Agreement shall terminate as of the date of such
notification. Termination under this Section 2(e) is "Convenience".
<PAGE>
(f) This Agreement shall automatically terminate upon
termination of Benhayoun's employment as a result of Benhayoun's death or
disability.
(g) Notwithstanding the above, termination of this
Agreement shall not release Benhayoun from any obligations under Sections 4,
5, 6, and 7 hereof.
3. COMPENSATION AND BENEFITS. In consideration of the
services to be performed by Benhayoun, Summit agrees to pay Benhayoun the
compensation and extend to Benhayoun the benefits consisting of the following:
(a) Annual base salary of 935,000 French Francs, paid
monthly.
(b) Benhayoun shall be eligible for an annual
commission to be determined in January of each year by mutual agreement of
Benhayoun and Summit and which will be based on the operating plan for the
year.
(c) Benhayoun shall be provided the right to
participate in the medical, dental and life insurance programs provided for
the senior level executives of Summit.
(d) Benhayoun shall earn and be entitled to use
vacation equal to the Summit standard vacation policy for European employees.
(e) Benhayoun shall be provided an automobile and
specified operating expenses which are mutually agreeable to Summit and
Benhayoun.
(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 Benhayoun (i) his then-current monthly
base salary during the 12 months subsequent to the termination date; plus
(ii) all benefits set forth in Section 3(c) during the 12 months subsequent
to the termination date. Notwithstanding the foregoing, as a condition
precedent to Benhayoun receiving the monthly payments and benefits set forth
in (i) and (ii) above, Benhayoun must execute the Settlement Agreement in the
form attached hereto as ANNEX A and the seven (7) day revocation period
referenced in Section 7 thereof shall have expired.
(g) In the event that (i) this Agreement is
terminated for Construction as defined in Section 2(d) or Convenience as
defined in Section 2(e), or (ii) more than 75% of the assets or more than 50%
of the outstanding shares of Summit have been acquired by another company,
then the unvested portion of the stock option granted to Benhayoun on
February 25, 1999 exercisable for 75,000 shares of Summit's Common Stock
shall automatically accelerate and such option shall be fully exercisable.
Notwithstanding the foregoing, if it is determined by Summit's independent
public accountants that the grant of the option or the acceleration of the
vesting of the option would preclude accounting for a transaction as a
pooling of interests for financial accounting purposes, the granting of the
option or this acceleration provision, as the case may be, shall be null and
void.
4. CONFIDENTIALITY. Benhayoun 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,
- 2 -
<PAGE>
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. Benhayoun 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 Benhayoun
use, directly or indirectly, for Benhayoun'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 Benhayoun
in connection with employment by Summit shall belong exclusively to Summit.
6. RETURN OF DOCUMENTS. Benhayoun 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. Benhayoun 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. BOARD APPROVAL. The effectiveness of this Agreement shall
be subject to the prior approval of the Compensation Committee of the
Company's Board of Directors.
12. LIMITATION ON PAYMENTS. In the event that the severance
and other benefits provided for in this Agreement or otherwise payable to
Benhayoun (i) constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") and (ii)
but this Section, would be subject to the excise tax imposed by Section 4999
of the Code, then Benhayoun severance benefits under subsection 3(f) shall be
payable either
(i) in full, or
- 3 -
<PAGE>
(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 Benhayoun on an after-tax basis, of the
greatest amount of severance benefits under subsection 3(f) notwithstanding
that all or some portion of such severance benefits may be taxable under
Section 4999 of the Code. Unless the Company and Benhayoun otherwise agree in
writing, any determination required under this Section 12 shall be made in
writing by the Company's independent public accountants (the "Accountants"),
whose determination shall be conclusive and binding upon Benhayoun and the
Company for all purposes. For purposes of making the calculations required by
this Section 12, 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 Benhayoun 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
13. 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 October 31, 1994 between
Summit and Benhayoun is superseded in all respects by this Agreement. No
modification or 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 herein above written.
"EMPLOYER": SUMMIT DESIGN, INC.:
A Delaware Corporation
By:__________________________________________
Name: Amihai Ben-David
Title: Compensation Committee Member
By:__________________________________________
Name: William V. Botts
Title: Compensation Committee Member
"EMPLOYEE": _____________________________________________
Eric Benhayoun
- 5 -
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
Employee: MOSHE GUY ID. No. _______________
This Agreement is entered into as of February 25, 1999 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 ").
1. EMPLOYMENT AND DUTIES:
EDA hereby employs Guy to serve and perform for Summit and EDA in the
role of President of EDA and Chief Technology Officer of Summit,
reporting to the Chief Operating Officer or President or Chief
Executive Officer of Summit. Guy 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 a term of four (4) years, unless
sooner terminated in accordance with subsections 2(b) and/or
2(c) 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 (i) that Guy
resigns or willfully abandons the duties of his position, (ii)
Guy 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 or (iii) of Guy's death or disability.
(c) In the event that this Agreement is terminated by EDA for any
reasons other than those specified in paragraph 2(b) or in the
event Summit and/or EDA has required (in writing) Guy to
perform in any role that does not include President of EDA
without Guy's consent (in writing), then
(i) EDA shall pay Guy his then-current monthly Base
Salary plus the Fringe Benefits described in Sections
7(b)(i), (ii) and (iii), each for a total of fifteen
(15) months minus any amount and period provided for
by Managers Insurance (bituach menahalim) as defined
in Section 7(b). This total period is
<PAGE>
the ("Severance Period"). Notwithstanding the
foregoing, as a condition precedent to Guy receiving
these monthly payments and benefits, Guy must
execute the Settlement Agreement in the form
attached hereto as ANNEX A and the seven (7) day
revocation period referenced in Section 7 thereof
shall have expired.
(ii) In addition, the unvested portion of the stock
option granted to Guy on February 25, 1999
exercisable for 100,000 shares of Summit's Common
Stock shall automatically accelerate and such
option shall be fully exercisable. Notwithstanding
the foregoing, if it is determined by Summit's
independent public accountants that the grant of
the option or the acceleration of the vesting of
the option would preclude accounting for a
transaction as a pooling of interests for
financial accounting purposes, the granting of the
option or this acceleration provision, as the case
may be, shall be null and void.
(d) It is agreed that in no way does the entering into this
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 721,800 New Israeli Schekels per year ("Base
Salary") and Fringe Benefits as defined in Section 7(b). 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 Guy's Base Salary, as determined
by the terms of Summit's executive bonus plan to be adopted by
the Board.
(b) All cash compensation provided under this Agreement shall be
subject to usual withholding 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 and information, 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 as "Technology," were and will
be designated and developed by Summit and its subsidiaries 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
- 2 -
<PAGE>
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.
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 exclusively 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, and shall be returned to 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 a 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:
(i) MANAGERS 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 this Agreement
is
- 3 -
<PAGE>
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.
(ii) 7.5% into Educational Fund (keren hishtalmut) (Guy
is required to contribute 2.5% into the same fund or
else this 7.5% are added to his base salary).
(iii) A company car.
(iv) Up to 30 days of sick leave per year (with doctor's
written approval).
(v) 22 vacation days per year, accrued up to 2 years (44
days).
(vi) 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 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 Israel. Unresolved
disputes 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 in conjunction with the paragraphs in the agreement
attached as Exhibit A specifically referred to herein constitute the
entire agreement between the parties hereto, and fully supersede 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 July 1, 1997 between EDA and Guy 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 herein above written.
"EMPLOYER: Summit Design (EDA), Ltd. an Israel Corporation
By: _____________________________________________
Name: _______________________________________
Title:_______________________________________
By: _____________________________________________
Name: _______________________________________
Title:_______________________________________
"EMPLOYEE": ___________________________________________________
Moshe Guy
- 5 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 24,028
<SECURITIES> 0
<RECEIVABLES> 9,000
<ALLOWANCES> 467
<INVENTORY> 0
<CURRENT-ASSETS> 33,938
<PP&E> 6,806
<DEPRECIATION> 2,972
<TOTAL-ASSETS> 44,672
<CURRENT-LIABILITIES> 11,513
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 32,397
<TOTAL-LIABILITY-AND-EQUITY> 44,672
<SALES> 0
<TOTAL-REVENUES> 13,998
<CGS> 1,195
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,529
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (3,238)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,726)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,238)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
