SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 30, 2000 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
INNOVEDA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1137888
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(State or Other Jurisdiction (I.R.S. Employer
of Organization) Identification No.)
293 Boston Post Road West, Marlboro, Massachusetts 01752
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(Address of principal executive office)
Registrant's Telephone number, including area code: (508) 480 0881
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant, based upon the closing per share sale price of the Common Stock
on February 28, 2001 as reported on the Nasdaq National Market ($3.875), was
approximately $88,546,877. Shares of Common Stock held by each named executive
officer and director and by each entity known to the Registrant to beneficially
own 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of February 28, 2001, Registrant had outstanding 39,067,285 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders scheduled to be held on June 15, 2001 (the "2001 Proxy
Statement"), which will be filed with the Securities and Exchange Commission not
later than 120 days after December 30, 2000, are incorporated by reference into
Part III of this Annual Report on Form 10-K. With the exception of the portions
of the 2001 Proxy Statement expressly incorporated into this Annual Report on
Form 10-K by reference, such document shall not be deemed filed as part of this
Form 10-K.
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts,
included in this Annual Report on Form 10-K, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this Annual Report on Form 10-K, the words "will", "believe", "anticipate",
"intend", "estimate", "expect", "project", "plans", and similar expressions, are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. We cannot guarantee
future results, levels of activity, performance or achievements and you should
not place undue reliance on our forward-looking statements. Our forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or strategic alliances. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including in particular, the risks
discussed below under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Additional Risk Factors that
Could Affect Operating Results and Market Price of Stock". Unless required by
law, the Registrant undertakes no obligation to update any forward-looking
statements it may make.
PART I
ITEM 1. BUSINESS
GENERAL
Innoveda, Inc. was incorporated in the State of Delaware on December 29, 1993.
The Company's principal executive offices are located at 293 Boston Post Road
West, Marlboro, Massachusetts 01752 and its telephone number is (508) 480-0881.
Unless the context otherwise requires, the terms "Corporation", "Company",
"Registrant" and "Innoveda" as used in this report refer to Innoveda, Inc. and
its wholly owned subsidiaries.
On March 23, 2000, the Company completed the business combination of Viewlogic
Systems, Inc. and Summit Design, Inc. and was renamed Innoveda, Inc. At the
effective time of the merger, the former holders of Viewlogic's capital stock
held approximately 51% of the shares of Common Stock and thus, for accounting
and tax purposes, Viewlogic is considered to be the acquirer in that
transaction. On September 22, 2000, the Company completed its acquisition of
PADS Software, Inc.
INNOVEDA'S BUSINESS
Innoveda offers productivity enhancing software and services for the electronic
design automation market. Innoveda's products automate the design entry,
analysis and testing of electronic products (including their components and
systems). An electronic product is a product that is differentiated from
competitive products through its electronic content, including:
o entire electronic systems or products;
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o electrical devices, known as printed circuit boards, that contain
multiple chips and other components to create larger electrical
functions;
o high-speed components;
o cabling and interconnects;
o field programmable gate arrays;
o application-specific standard parts; and
o less complicated field programmable gate arrays known as
programmable logic devices.
Innoveda's service offerings help large organizations developing electronic
products become more productive, adopt new methods for designing their products
and accelerate their adoption of new software tools.
Innoveda markets and supports its software and services worldwide through direct
and indirect distribution channels to the telecommunications, networking,
consumer electronics, computer, medical, industrial and automotive industries.
The electronic products developed by companies in these industries include
everything from cellular telephones and personal organizers to network
equipment, personal computers and laptop computers, modems, automated teller
machines, televisions, video cassette recorders, automobiles and airplanes.
Industry Background
Electronic design automation software is software that automates the tasks and
process of designing electronic products and their related components and
systems. This software has played a critical role in accelerating the dramatic
advances in the electronics industry over the past two decades. For most of this
period, the need for more advanced electronic design automation tools has been
driven by the rapid increase in complexity of integrated circuits or chips,
which are found in virtually all electronic products. An integrated circuit, or
chip, is an electrical device consisting of various components, connections and
switches that can be designed to perform a specific function. The increase in
complexity of integrated circuits has been compounded by the scarcity of
engineers skilled in the design and testing of chips. Moreover, the increase in
the complexity of chips lengthens their development cycle. As a result, a
greater number of engineering hours are required to design many of today's more
complex chips, leading to either longer development schedules or the need for
larger design teams. At the same time, competitive pressures shorten the life
cycles of the electronic products that incorporate chips.
Innoveda believes that time-to-market pressures and the complexity of designing
chips will cause manufacturers of electronic products to move towards
differentiating their products at the system level - a design abstraction that
involves the design of the entire electronic system or subsystem - rather than
at the chip level, and plans to focus on providing tools for that purpose.
Electronic design automation has come to mean hardware design automation, and
Innoveda believes that term alone is no longer appropriate to describe the
breadth of the market for software tools used to automate the design of
electronic products. The scope of this expanded market can be defined by the
stages of the electronic design process that it includes, as shown in Figure 1.
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Figure 1. Electronic Product Design Automation Market
[Graphic; Strategic Business Planning/Product Proposal]
The system-level design automation phase of development is comprised of the
software and services that serve the needs of designers designing electronic
products that are composed of hardware, software and the interconnection between
hardware components. This system-level design is based on the cooperative design
of both hardware and software for the completed electronic product. An
increasing number of electronic products now include software as a major
component of the product. Therefore, system-level design involves managing
tradeoffs among the following factors:
o system performance and features;
o system memory requirements;
o processor selection;
o chip area and cost;
o product cost;
o system power and battery life;
o effects of cables and connectors;
o system programmability; and
o project schedule.
It is also the stage of a project where decisions are usually made about
adopting new design partners, methodologies, policies and automation tools.
These decisions include choices regarding software development tools, strategies
needed for the design and test of hardware and software components together,
chip vendors and electronic design automation tools and processes. In addition,
refinements to the processes and tools that are created to help large design
teams work together efficiently also emerge at this phase of development.
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In addition to the move towards differentiating products at the system level
rather than at the chip level, in recent years the lengthening design cycles for
chips and significant time-to-market pressures for electronic products have
influenced the choice of chip technologies. There has been a shift away from
fully customized integrated circuits and partially pre-designed integrated
circuits, also known as application-specific integrated circuits, to more
flexible technologies that shorten the design cycle. These more flexible
technologies include:
o chips whose function can be changed with software-like programming,
known as field programmable gate arrays;
o chips created to provide a fixed function for a specific
application, known as application-specific standard parts; and
o multi-purpose processing chips that actually run software programs,
known as embedded processors.
These integrated circuit choices help to provide greater flexibility and faster
time to market for companies that design electronic products. They also present
new design automation challenges, including designing and testing systems that
contain significant embedded software programs.
Further complicating the design task is the effect that faster chips have on
overall system design. Fast-switching signals (when an electrical signal changes
voltage beyond a predetermined amount) are required to achieve the very fast
processor speeds we now take for granted. These fast signals can cause
electrical signals to radiate from the chip or printed circuit board on which
the chips are placed and cause unintentional negative effects on other signals
on the chip or printed circuit board, potentially causing the system to fail. If
the necessary analysis and testing is not performed before the system is
manufactured, these problems can affect the quality of the final system in which
the chips are embedded. This situation has created the need for sophisticated
tools to design and test the wires on the chip and those that connect the chips
and other components within electronic products.
These emerging design challenges, driven by faster, more complex chips, create
many new problems for the manufacturers of electronic products and opportunities
for companies that provide tools for the design of electronic products. The
objectives of electronic design automation are to reduce time-to-market and the
costs associated with product design, analysis, testing and optimization, while
permitting the development of a greater number of product designs of higher
speed and greater complexity that can be manufactured reliably.
Innoveda Strategy
Innoveda's strategic objective is to become the leading provider of software and
services that help automate the design of electronic products by focusing on
those products and services that are targeted at system-level product design,
the design of printed circuit boards and certain components thereof, and the
design and analysis of certain electro-mechanical components and systems.
Innoveda plans to sell its products and services to electronic product design
companies worldwide, primarily in the following industry segments:
o telecommunications and networking;
o consumer electronics;
o computers and related devices;
o automotive; and
o industrial and medical.
Innoveda intends to compete in these segments by developing differentiated
products and services that address the special requirements for the design of
electronic products by companies in these industries. Two key issues dominate
the design of electronic products today. First, unprecedented design complexity
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has exceeded human ability to efficiently address design issues unaided,
requiring increased automation of the process for the design of electronic
products. Second, design problems are occurring in the gaps between design
stages as indicated in Figure 1 on page 4.
Innoveda intends to become the leading provider of design automation software
and services for electronic products by virtue of its product and market
strengths and its focus on addressing key electronic product design challenges.
Innoveda believes that the greatest advances in producing a competitive
electronic product will not come solely through incremental improvements in the
chip design process, but rather by creating an electronic product design
environment that enables design and testing at a more conceptual level and
across design stages and engineering disciplines. To achieve this electronic
product design automation environment takes a special focus.
Innoveda has chosen to focus on the system-level design, printed circuit board
design and electro-mechanical design markets. Most of our major competitors have
focused their resources on solving the challenges of application-specific
integrated circuit design automation.
Innoveda's market strategy is to focus on the following application segments:
o System-level design automation: the determination of whether
functions should be performed by hardware (and the type of hardware)
or software;
o Printed circuit board design: the design of printed circuit boards
and programmable components used with printed circuit boards;
o Interconnect design: the design of cables and the connections of
various devices within an electronic product; and
o Collaborative design: Internet-enabled design data management,
component information management, component library development and
maintenance, the re-use of designs and integration with other
systems within the design environment.
Innoveda Products
Innoveda's software products enable electrical engineers to design
state-of-the-art electronic products, and their components and systems, more
efficiently, while reducing development costs and reducing the time to get
products to market. These software products help designers to translate their
ideas into designs and verify the accuracy and manufacturability of those
designs.
eProduct Designer
eProduct Designer, Innoveda's umbrella design environment, offers engineers a
user interface running on the Windows environment and under UNIX on
workstations. eProduct Designer also has been created as an "Internet-aware"
suite of tools. This enables the product design and related data to be located
anywhere on the Internet. The related data can consist of many disparate data
sources such as engineering, purchasing and manufacturing that are merged and
presented in an accessible format through eProduct Designer. Data management
tools enable versions of designs to be created and enable teams of engineers to
work simultaneously on the same design data from any site in the world.
Through Innoveda's eProduct Designer design capture environment, engineers can
enter and maintain their design throughout the entire design process. Innoveda's
tool suites are organized around the specific challenges systems designers face,
including printed circuit board design, field programmable gate array design,
high-speed design, design verification and enterprise integration.
The printed circuit board design portion of Innoveda's eProduct Designer
environment is based on ViewDraw, used for graphical capture and manipulation of
the design, itself. With ViewDraw, ViewSim (one of Innoveda's simulation tools)
and Innoveda's printed circuit board Netlisters (the software tools that
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convert the graphical design into a format readable by other design tools) form
the backbone of Innoveda's design methodology. Additionally, Innoveda offers the
Fusion co-simulation products, SpeedWave and ViewAnalog.
Product offerings within eProduct Designer include:
o ePlanner. A new product that simulates electrical characteristics
before producing the printed circuit board. ePlanner allows the user
to enter overall product design constraints into the software tool
and to specify many physical design aspects of a printed circuit
board long before committing the design to manufacturing;
o eArchitect. A product for design specification and determining
whether functions should be performed by hardware or software and
making other critical system-level tradeoffs during the early stages
of the electronic product design process; and
o Dx Variant Manager. A product that provides web-based capabilities
that enable designs to be reused and customized.
In August 1999, Innoveda acquired Transcendent Design Technology, Inc.
Transcendent's products are used, primarily in the automotive and aerospace
industries, to design cable systems and connectors. The Transcendent product
family includes:
o TransCable, a design environment for the design of cables and
connectors;
o TransDatabook, a parts library (containing previously designed
cables and connectors) browser system;
o TransLayout, for synthesizing cable connectors;
o interfaces to mechanical computer aided design systems; and
o TransAnalysis, for simulating the electronic effects of wire harness
and cable systems within electronic products.
o TransOVM, an options and variants manager that simplifies the
process of designing complex wiring harnesses.
o TransHarness, a tool for defining manufacturable harnesses.
o TranSACT, a tool for the automated creation of physical schematics.
o Computer Graphics Metafiles (CGM) Interfaces, three interfaces that
complement Innoveda's TransCable, TransLayout and TranSACT tools.
o CAT/TransCable, Bi-directional software interface to CATIA.
o SDRC/TransCable, Bi-directional software interface to SDRC's
I-DEAS(TM)
Visual HDL
Visual HDL is a graphical design entry tool that allows engineers to
conceptualize and capture a design. It provides system design management,
graphical design creation, graphical level simulation, automatic code generation
and high-speed compiled code simulation of the design. It assists design
engineers in meeting the market demands for rapid time-to-market, increased
product functionality and lower product cost while providing the companies that
employ these engineers an efficient way to document, revise and distribute the
highly valuable intellectual property they create. Visual HDL automates manual
design entry and verification by enabling design engineers to create and verify
designs using familiar graphical paradigms rather than less
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intuitive textual code. Visual HDL allows engineers to quickly determine the
cause of a bug by highlighting the specific line of text and the related
graphical representation where the error exists, thereby significantly
shortening the time to debug a program. Visual HDL has become an industry leader
for graphical design creation, analysis and intellectual property management and
is available for use on both UNIX workstations and personal computers.
Visual HDL is designed to provide the following key benefits:
o increased design productivity;
o highly interactive cause and effect feedback for design debugging;
o enhanced documentation of designs algorithms;
o graphical presentation to allow new developers to better understand
a design; and
o complete and understandable design archives for future design
revisions.
Visual Elite
Visual Elite, which the Company released in January of 2001, is the next
generation of the company's Visual HDL tool for high-level graphical and textual
design, verification and reuse. It is an advanced HDL (hardware description
language) and system-level design tool that supports C/C++, VHDL and Verilog
modeling with a state-of-the-art Graphical User Interface (GUI) and
multi-language textual and graphical editors. Visual Elite supports system-level
design, enabling users to capture and integrate their specification at any
level, and co-simulate both C++ and HDL, all in the same design environment
through a common GUI. Visual Elite is part of the Innoveda SLD (system level
design) suite, a complete, integrated environment for the design, exploration
and verification of hardware and software architectures.
Visual Elite is designed to provide the following key benefits:
o enable users to create C/C++, VHDL and Verilog blocks in a single
tool;
o perform co-simulation of Verilog and VHDL designs;
o co-simulate C/C++ and HDL designs.
o allow users to generate a virtual prototype of the system (C-based
design) that can be linked to the application software for early
verification of the software against the system hardware model.
Text To Graphics
Text To Graphics converts a design model initially created in an all-text style
to the graphical representation of Visual HDL where it can be visualized by
those new to the design team and used for making modifications to the model.
Text to Graphics provides companies who purchase Visual HDL and Visual Elite
with an automated methodology to convert their existing designs into the Visual
HDL or Visual Elite format. Prior to development of this product, Visual HDL was
generally purchased for doing new designs. Existing text-based designs, which
can contain thousands of lines of code, had to be reviewed line by line to
understand how a model worked. Text to graphics thus expanded the use of Visual
HDL by making it easy to convert text-based code to a graphics-based
presentation. Working from a graphics representation is especially useful to
international users who may not understand the nuances of the common English
programming constructs.
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Text to Graphics is designed to provide the following key benefits:
o automatic conversion from a text-based design to a graphical
representation of the design which can be used in Visual HDL for
design analysis and simulation; and
o Re-constructs the design graphically so that new users can easily
grasp the designs concepts and algorithms.
Visual IP
Visual IP provides a method of packaging design models, a common form of
intellectual property, so they may be re-used in, and thus reducing the design
time for, subsequent versions or other designs. Companies spend significant
amounts in developing and testing models, and re-use is a key strategy for many
companies to leverage their existing technology. Visual IP provides a mechanism
for distributing these highly confidential simulation models to other users,
either within the organization or externally, while at the same time protecting
the intellectual property value through encryption. The protection is not only
so they cannot be copied, but so that internal users cannot change the source
code which represents the design, thus eliminating the value of all the prior
testing that has been done on the model.
Visual IP is designed to provide the following benefits:
o encryption of intellectual property for design re-use;
o generation of models which can be used with any simulator;
o generation of models which can be executed stand-alone allowing the
user to apply his own criteria to a model before selecting it for
reuse; and
o providing a safe mechanism for companies to provide soft versions of
their design while maintaining the proprietary nature of their
intellectual property.
High-Speed System Design Products
As the speed at which electronic products run continually increases, traditional
system design methods are no longer adequate. Innoveda's High-Speed System
Design products allow designers to consider high-speed effects early and
throughout the design process so that they can eliminate this type of design
error before being prototyped.
Innoveda's High-Speed System Design product line includes:
o BLAST: for analyzing the speed of various parts of the design to
ensure that the product will function correctly;
o XTK: for analyzing the effects that one connection on the printed
circuit board may have on another;
o QUIET and QUIET Expert: for analyzing the potential for electrical
radiation from a wire;
o AC Grade: for analyzing the effect of large ground-plane signal
changes on the rest of the printed circuit board; and
o ISIS Preview: for producing a graphical diagram of how chips are
located on the printed circuit board and relocating those chips as
needed.
o HyperLynx: for pre- and post-layout signal integrity simulation,
including EMC and crosstalk analysis.
o Field Programmable Gate Array Design Products
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Innoveda's IntelliFlow automated process manager pulls the entire field
programmable gate array solution together. With IntelliFlow, users can control
their design process from a single, easy-to-use graphical interface. IntelliFlow
manages the tools and data throughout the entire field programmable gate array
design process, even running the applicable device vendor's place and route
tools - those tools used for the final physical design of the chip.
Innoveda's Field Programmable Gate Array products include:
o HDLPad: for editing the textual description of the field
programmable gate array;
o ViewDraw: for graphical entry of the design;
o StateCAD: for a high-level graphical description of the function of
the field programmable gate array; and
o Fusion: for simulation of designs to test whether the function of
the design matches its expectations.
For field programmable gate array synthesis (to translate and optimize the
design), Innoveda partners with Synopsys to sell and support FPGA Express.
HDL Score
HDL Score is a verification tool that verifies how well a particular test or
tests have exercised a design. It provides a quantitative measure of the quality
of simulation tests that have been applied to an entire design model or to
selected portions of a design. Simply stated, HDL Score answers the question
"have I adequately tested my design with the tests I have developed?" To answer
this question, HDL Score provides a percentage measurement of how much of the
design has been exercised with the tests. At the end of any simulation, the user
can get the "score" (or coverage) he has accomplished. HDL Score works with all
popular simulation environments and fits seamlessly into the design verification
process. In addition, HDL Score provides a graphic user interface that displays
exactly which statements in the model have been executed and, more importantly,
which statements have not been executed.
HDL Score is designed to provide the following benefits:
o determine how much of the design has been tested;
o provide graphical display of untested areas of the design;
o provide a percentage of the design covered by each test so that
tests that are redundant can be eliminated to save simulation time;
and
o provide test ordering capability so high coverage tests can be
simulated first, thus exposing potential errors early in the
simulation run.
V-CPU
V-CPU is a co-verification tool that allows the system designer to execute
software code by running it on a simulated model of a chip or system. It is used
for hardware/software co-verification to ensure the software design works
properly on the proposed hardware before the chip is produced. V-CPU allows
embedded-system designers to analyze and validate the interaction between
hardware and software early in the development process, while design options are
still open. Co-verification of software can begin as soon as there is an
executable description of the software and hardware. This early integration
allows problems to be detected while they are still easy to fix. With V-CPU,
software developers can test software against simulated hardware at high
execution rates, and hardware developers can validate the system architecture
with stimulus provided by the software. In short, V-CPU allows early simulation
of hardware with the actual software before the hardware is built.
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V-CPU is designed to provide the following benefits:
o use of the actual software to test the hardware under design,
exposing potential miscommunication between hardware and software
groups;
o encourage early design communication between hardware and software
groups when co-verification displays unexpected results;
o minimize the activity in the hardware simulator allowing for faster
run times; and
o provide a specific interface to the hardware simulator to allow use
of standard programming languages to create test suites.
Design Exchange
To enhance productivity in a geographically diverse company or enterprise,
Innoveda has a set of Internet-enabled design data management tools called
Design Exchange. These tools include:
o Dx Databook: for chip search and selection from a local or corporate
database;
o Dx Library Studio: for centralized chip and model (an electrical
description of the chip) management; and
o Dx Data Manager: for team-based, work-in-progress design data
management.
Design Exchange tools allow disperse teams of designers to work together over
the Internet or an Intranet and link to a customer's other systems, so that
design teams can work with the approved library of electronic components and
with manufacturing groups within their company.
In September 2000, Innoveda acquired PADS Software. Innoveda plans to integrate
PADS products into Innoveda's design tools to provide solutions from concept
through the manufacturing of printed circuit boards. The PADS product family
includes:
PowerPCB
PowerPCB, is a shape-based printed circuit board layout system. PowerPCB enables
design engineers to develop complex printed circuit boards while optimizing
board geometries, electrical performance and manufacturing efficiencies.
Innoveda also offers additional integrated products that address other steps in
the interconnect design process, including:
o BlazeRouter, for automatic interconnect routing;
o PowerBGA, a high density interconnect solution that automates
advanced packaging design;
o LineSim, a tool that calculates transmission line constraints at the
schematic entry level;
o BoardSim, a tool for printed circuit board signal integrity and
emission analysis;
o CAM350, a tool that automates and optimizes the fabrication process
for printed circuit boards, multi-chip modules and advanced
packaging designs; and
o PowerLogic, a tool for creating schematic diagrams.
When employed as a family, these products integrate the interconnect development
process from schematic capture through board fabrication.
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Innoveda Customers
Users of Innoveda's products range from small companies to some of the world's
largest manufacturing organizations. Industries represented include computers,
consumer electronics, semiconductors, telecommunications, military/defense,
automotive and aerospace, industrial, medical equipment and universities. In
2000, 1999 and 1998, no single customer accounted for more than 10% of total
revenue.
Innoveda Backlog
Innoveda generally ships its products within 30 days after acceptance of a
customer purchase order and execution of a license agreement. Accordingly,
Innoveda does not believe that its backlog at any particular point in time is
indicative of future sales levels.
Innoveda Sales
Innoveda has developed multiple distribution channels, including a direct sales
organization, telesales, independent distributors, value-added resellers, and
strategic sales alliances with certain significant semiconductor and printed
circuit board layout software vendors.
Direct Sales Organization. Innoveda markets its products in North America,
Europe and China primarily through a direct sales organization, which consisted
of 95 salespersons and application engineers as of February 28, 2001. Innoveda
currently has 24 sales offices located throughout North America, Europe and
China.
Direct sales teams, generally consisting of one salesperson and one application
engineer, focus on large accounts in assigned territories. These sales teams are
responsible for all sales activities within their assigned territories and
coordinate the activities of distributors and value-added resellers. Application
engineers specializing in certain products are assigned to each sales territory
and support individual sales teams. Each member of Innoveda's direct sales and
support teams is assigned sales quotas and has a significant portion of their
compensation based on sales performance. Approximately 50% and 30% of expected
compensation for salespersons and application engineers, respectively, are
typically based on sales performance.
Telesales. The telesales channel consists of telesales representatives covering
assigned geographic territories in North America and Europe. These
representatives are an inside counterpart to the field, focusing on upgrading
and servicing the installed customer base. They provide sales support for
renewal maintenance, software sales and otherwise upgrade existing customers by
selling additional seats. Approximately 45% of expected compensation for a
telesales representative is based on sales performance.
Distributors. Innoveda appoints independent distributors to market its products
to customers not served by Innoveda's direct sales organization. Innoveda uses
distributors as its principal distribution channel in much of Asia, and
currently has distributors covering Japan, Israel, Taiwan, Korea, Australia,
Singapore, China and India. Distributors are also appointed in the United States
and Europe to supplement Innoveda's direct sales efforts by focusing on
customers not served by direct sales teams.
Value Added Reseller. Innoveda has established a broad-based value added
reseller distribution network. This group primarily focuses on selling
Innoveda's software tools to the small and medium size accounts in North
America.
Innoveda Marketing
Innoveda's marketing organization performs the product marketing, technical
marketing, corporate communications and strategic marketing functions. The group
consists of 38 marketing professionals with specialized technical knowledge and
experience in the design automation software business. The marketing
organization:
o develops strategy and identifies target markets;
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o keeps abreast of customer design methodologies;
o identifies customer requirements and new product opportunities;
o establishes product vision and direction for both existing products
and new products;
o provides the sales channel with training, competitive analyses,
pricing, packaging, collateral materials, demonstrations and
reference accounts; and
o provides marketing communications support for branding, visibility
and lead generation through press relations, advertising, direct
mail, promotions, trade shows, seminars and web sites.
Innoveda Competition
The electronic design automation industry is highly competitive and Innoveda
expects competition to increase as other electronic design automation companies
continue to introduce new software tools used to design electronic products.
Innoveda principally competes with Cadence Design Systems, Mentor Graphics and a
number of smaller firms. Indirectly, Innoveda also competes with other firms
that offer alternatives to electronic product design automation tools and could
potentially offer more directly competitive products in the future. Certain of
these companies have significantly greater financial, technical, sales and
marketing resources and larger installed customer bases than Innoveda. They also
have established relationships with many customers, which can increase the
complexity, difficulty and time required to compete for business from these
customers. Some of Innoveda's current and future competitors offer or may offer
a more complete range of electronic design automation products and may
distribute products that directly compete with Innoveda's products.
Innoveda competes on the basis of various factors including:
o product capabilities;
o product performance and capacity;
o availability of electronic chip information;
o price;
o support of industry standards;
o ease of use;
o distribution channel alignment with customers;
o first to market; and
o customer technical support and service.
Innoveda believes that it competes favorably overall with respect to these
factors. However, in particular cases, Innoveda's competitors may offer products
with functionality which is sought by Innoveda's prospective customers and which
differs from that offered by Innoveda. In addition, some competitors may achieve
a marketing advantage by establishing formal alliances with other electronic
design automation vendors and chip manufacturers. Further, the electronic design
automation industry in general has experienced significant consolidation in
recent years, and the acquisition of one of Innoveda's competitors by a larger,
more established, electronic design automation vendor could create a more
significant competitor.
Innoveda Product Development
Innoveda's product development efforts are focused on integrating products
acquired in recent acquisitions and enhancing and broadening its current line of
products, including the development of new products and
13
the release of improved versions of existing products on a regular basis. As of
February 28, 2001, Innoveda's product development and customer support staff
consisted of 214 persons. Innoveda's product development staff receives support
from both Innoveda's consulting services personnel and its product marketing
organization to enable it to develop products that satisfy market requirements.
Innoveda has product development facilities in Marlboro, Massachusetts;
Camarillo, California; Arden Hills, Minnesota; Redmond, Washington; Herzlia,
Israel; and Oulu, Finland. Innoveda also contracts with Melina, Inc. for certain
development work that is conducted in Moscow, Russia.
Innoveda maintains cooperative relationships with most major hardware vendors on
which Innoveda's products operate, as well as with new hardware vendors who
desire Innoveda to modify its products for operation on their computer systems.
Innoveda believes that these relationships allow it to design products that
respond to emerging trends in computing, graphics and networking technologies.
In certain instances, these relationships include joint marketing agreements
that primarily outline a procedure for communication between Innoveda and the
vendor with respect to technology and possible sales leads.
During the fiscal years ended December 30, 2000, January 1, 2000 and January 2,
1999, Innoveda's research and development expenses were approximately $22.6
million, $11.3 million and $10 million, respectively. Innoveda believes that it
must continue to commit substantial resources to enhance and extend its product
line to remain competitive. Innoveda intends to continue to devote substantial
resources to its internally-funded product development and, if appropriate, to
enter into development agreements with third parties.
Innoveda Service and Support
A key part of Innoveda's strategy to help make its customers successful is to
provide a wide range of support services including on-site and hot-line support
for designers, in-house and on-site training on all products, and consulting
services for specialized tool development, tool and methodology training and
design work. Innoveda believes its focus on customer service has helped it
achieve a high degree of customer satisfaction.
Product support is provided pursuant to maintenance agreements that generally
extend for one year after the expiration of the product warranty, which is
generally thirty days, and are renewable annually thereafter. The standard
annual maintenance fee charged to customers is currently 15% of the then-current
list price for the product. Innoveda's distributors and strategic sales partners
charge their customers for maintenance and remit a negotiated portion to
Innoveda. Training and consulting services are generally not included in
Innoveda's software license or maintenance fees and are usually provided on a
separately negotiated basis.
Product Revisions and Upgrades. Customers with maintenance agreements receive
all product revisions without additional charge. Product upgrades, which add
significant new product functionality, are provided to customers for a fee that
is generally equal to the difference between the list price for the upgrade and
the license fee previously paid by the customer for the applicable product.
On-Site, Web and HotLine Support. Support is available to Innoveda's software
users on both a pre- and post-sale basis. Application engineers work directly
with Innoveda's direct sales force to provide on-site support that is often
needed during critical stages of the user's evaluation and design process.
The majority of Innoveda's customers requiring support contact Innoveda through
Innoveda's toll-free hotlines, which allow users access to engineers who are
knowledgeable in the use of the product. Support is available from 8:30 a.m. to
8:00 p.m., Eastern Time, Monday through Friday, excluding holidays. In addition
to the hotline, questions or suggestions can be submitted by fax, an electronic
bulletin board or the Internet network mail system. Innoveda also offers a free
web-based 24x7 streaming video service called TecTips, that is available 24
hours per day and 7 days per week and that answers the most commonly asked
customer questions and shows customers how to solve technical problems and use
the Company's tools effectively.
14
In addition, post-sales product application support is provided to customers
through a series of automated support channels, including:
o a quarterly technical support newsletter providing answers to common
questions;
o an electronic bulletin board system (a web-based support system)
providing a forum for exchanging data and ideas; and
o a fax-on-demand system enabling customers to retrieve faxes of
technical application notes.
An automatic call distribution system connects North American support callers
with technical support personnel based in Marlboro, Massachusetts, San Jose,
California and Camarillo, California. Additionally, technical support personnel
based in California, Massachusetts, the United Kingdom, Israel and Japan have
immediate access to shared, problem-solving technical information via a
sophisticated on-line software support system.
Customer Training. Innoveda offers a variety of training programs for users
ranging from introductory, broad-based courses to advanced and specialized
courses. Training is offered at Innoveda's facilities in Marlboro,
Massachusetts; San Jose, California; London, England; Marseilles, France;
Munich, Germany; and Tokyo, Japan. On-site training is also available.
Innoveda Consulting Services. The Innoveda Consulting Services Group is a global
consulting organization staffed by experts in electronic design. The goal of the
Innoveda Consulting Services Group is to meet the diverse and demanding needs of
customers designing today's complex systems. The Innoveda Consulting Services
Group provides a complete line of consulting services including training,
product jumpstart programs, product design methodology assessment and partial or
full design implementation. Other specialized services include systems
integration, design database translation and custom library development.
Innoveda Proprietary Rights
Innoveda relies on a combination of contracts, patents, copyright and trade
secret laws to establish and protect proprietary rights in its technology.
Innoveda generally licenses and distributes its products under agreements
providing for non-exclusive licenses. The licensed software may be used solely
for internal operations on designated computers or networks. The source code of
Innoveda's products is protected both as a trade secret and as an unpublished
copyrighted work and is not generally made available to third parties. Despite
these precautions, third parties may unlawfully copy or otherwise obtain and use
Innoveda's products or technology.
Innoveda provides its products to end-users primarily under "shrink-wrap"
license agreements included within the software or as part of the packaging for
the software. In addition, Innoveda delivers certain of its 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 Innoveda 's proprietary rights as fully as do
the laws of the United States. Innoveda's means of protecting its proprietary
rights in the United States or abroad may not be adequate, and competitors may
independently develop similar technology. Innoveda could be increasingly subject
to infringement claims as the number of products and competitors in Innoveda's
industry segment grows, the functionality of products in its industry segment
overlaps and an increasing number of software patents are granted by the United
States Patent and Trademark Office. Although Innoveda is not aware of any
threatened litigation or infringement claims, a third party may claim such
infringement by Innoveda 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 Innoveda to enter into royalty or
licensing agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to Innoveda or at all. Failure to protect its
proprietary rights or claims of infringement could have a material adverse
effect on Innoveda 's business, financial condition, results of operations or
cash flows.
15
Innoveda Employees
As of February 28, 2001 Innoveda had 529 employees, including 189 in marketing
and sales, 181 in product research and development, 62 in customer support,
consulting and training, 27 in manufacturing and sales administration and 70 in
general and administrative activities. None of Innoveda's employees is
represented by a labor union or is subject to a collective bargaining agreement.
Innoveda has never experienced a work stoppage and believes that its employee
relations are excellent.
ITEM 2. PROPERTIES
Innoveda occupies 101,634 square feet of space at its headquarters in
Marlboro, Massachusetts under a lease expiring in 2002, subject to Innoveda's
right to extend the lease for up to six additional years. Innoveda also
leases 14,397 square feet in Herzlia, Israel, 8,525 square feet in San Jose,
California, 13,450 square feet in Camarillo, California, 8,500 square feet of
office space in the United Kingdom and small sales and support offices in
locations in North America, Europe and Asia.
ITEM 3. LEGAL PROCEEDINGS
Innoveda is not currently subject to any material legal proceedings. From time
to time, Innoveda is subject to various legal proceedings incidental to the
conduct of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 30, 2000, there were
no matters submitted to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company, and their respective ages and positions
with the Company as of February 28, 2001, are as follows:
Name Age Position
---- --- --------
William J. Herman 41 President and Chief Executive Officer; Director
Paula J. Cassidy 32 Vice President of Human Resources
Peter T. Johnson 53 Vice President of Business Development and Chief
Legal Officer, Secretary
Gary L. Kiaski 46 Vice President of Worldwide Sales
Richard G. Lucier 41 Executive Vice President and Chief Operating Officer
Guy Moshe 43 Senior Vice President and General Manager of
Innoveda Israel
Kevin P. O'Brien 44 Vice President of Finance and Chief Financial Officer
William J. Herman has served as the Company's President and Chief Executive
Officer and a director since March 2000. From October 1998 to March 2000, Mr.
Herman served as President and Chief Executive Officer and a director of
Viewlogic Systems, Inc. From December 1997 to September 1998, Mr. Herman served
as President of the Viewlogic Systems Group of Synopsys, Inc., an electronic
design automation company. From 1995 to November 1997, Mr. Herman served in
various senior management capacities, most recently as President and Chief
Executive Officer, at Viewlogic Systems, Inc. From 1994 to 1995, Mr. Herman
served as President of Silerity, Inc., a computer-aided engineering software
company.
Paula J. Cassidy has served as the Company's Vice President of Human Resources
since March 2000. Ms. Cassidy served as the Vice President of Human Resources of
Viewlogic systems, Inc. from October 1998 to
16
March 2000. From December 1997 to September 1998, Ms. Cassidy served as Vice
President of Human Resources of the Viewlogic Systems Group of Synopsys. From
1989 to November 1997, Ms. Cassidy served in various capacities, most recently
as Manager, Human Resources, at Viewlogic Systems, Inc.
Peter T. Johnson has served as the Company's Vice President of Business
Development, Chief Legal Officer and Secretary since March 2000. Mr. Johnson
served as the Vice President of Business Development and Chief Legal Officer of
Viewlogic Systems, Inc. from October 1998 to March 2000 and as Secretary from
May 1999 to March 2000. From May 1998 to October 1998, Mr. Johnson served as
Vice President, Chief Legal Officer and Secretary of Avid Technology, Inc., a
digital media software developer. From December 1997 to April 1998, Mr. Johnson
served as Vice President and General Counsel of the Viewlogic Systems Group of
Synopsys. From 1995 to November 1997, Mr. Johnson served as Vice President,
General Counsel and Secretary of Viewlogic Systems, Inc.
Gary L. Kiaski has served as the Company's Vice President, Worldwide Sales since
March 2000. Mr. Kiaski served as the Vice President, Worldwide Sales of
Viewlogic System, Inc. from October 1998 to March 2000. From December 1997 to
September 1998, Mr. Kiaski served as Vice President of Worldwide Sales of the
Viewlogic Systems Group of Synopsys. From 1988 to November 1997, Mr. Kiaski
served in various capacities, most recently as Vice President, Western Region
Sales, at Viewlogic Systems, Inc.
Richard G. Lucier has served as the Company's Executive Vice President and Chief
Operating Officer since March 2000. Mr. Lucier served as the Executive Vice
President and Chief Operating Officer of Viewlogic Systems, Inc. from October
1998 to March 2000 and served as a director of Viewlogic from October 1998 to
December 1999. From December 1997 to September 1998, Mr. Lucier served as Senior
Vice President of Engineering and Marketing of the Viewlogic Systems Group of
Synopsys. From 1986 to November 1997, Mr. Lucier served in various capacities,
most recently as Group Vice President of the Systems Group, at Viewlogic
Systems, Inc.
Guy Moshe has served as the Company's Senior Vice President and General Manager
of Innoveda Israel since March 2000. Mr. Moshe served as Chief Technology
Officer and President of Summit Design (EDA), Ltd. from February 1999 to March
2000 and as Vice President, General Manager and Chief Operating Officer of the
Design Solutions Division of the Company from September 1997 to March 2000. From
May 1996 to September 1997 Mr. Moshe served as General Manager of Summit Design
(EDA) Ltd. Mr. Moshe served as the Vice President of Product Marketing of the
Company from 1994 to May 1996.
Kevin P. O'Brien has served as the Company's Vice President, Finance and Chief
Financial Officer since March 2000. Mr. O'Brien served as the Vice President,
Finance and Chief Financial Officer of Viewlogic Systems, Inc. from October 1998
to March 2000 and as Secretary from October 1998 to May 1999. From April 1998 to
September 1998, Mr. O'Brien served as Vice President of Finance of the Viewlogic
Systems Group of Synopsys. From September 1997 to March 1998, Mr. O'Brien served
as an independent management consultant. From October 1995 to August 1997, Mr.
O'Brien served as Chief Financial Officer at SmarTel Communications, Inc., a
telecommunications company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market under
the trading symbol SMMT on October 18, 1996. Prior to that date, there was no
established trading market for the Common Stock. On March 24, 2000, in
connection with the change of the Company's name from Summit Design, Inc. to
Innoveda, Inc., the trading symbol was changed to INOV. The closing sale price
for the Common Stock as of the close of business on February 28, 2001 was $3.875
per share. As of February 28, 2001, the Company had approximately 270
stockholders of record. This number does not include stockholders who hold their
sharers in "street name" or through broker or nominee accounts.
17
The following table sets forth the high and low sales prices per share of the
Company's Common Stock for the periods indicated, as quoted on the Nasdaq
National Market:
FISCAL 1999
Quarter ended March 31, 1999........................ $9.56 $3.31
Quarter ended June 30, 1999......................... $3.94 $2.47
Quarter ended September 30, 1999.................... $3.63 $2.25
Quarter ended December 31, 1999..................... $4.19 $2.13
FISCAL 2000
Quarter ended April 1, 2000......................... $9.38 $3.44
Quarter ended July 1, 2000.......................... $6.09 $3.19
Quarter ended September 30, 2000.................... $4.81 $3.53
Quarter ended December 30, 2000..................... $3.50 $1.75
FISCAL 2001
Quarter ended March 31, 2001........................ $4.31 $2.06
(through February 28, 2001)
The Company did not pay any cash dividends on its Common Stock during the fiscal
years ended December 30, 2000 and January 1, 2000. The Company intends to retain
any earnings for use in its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The terms of Innoveda's
line of credit and term loan with Fleet Bank contain restrictions on Innoveda's
ability to pay dividends without the consent of Fleet Bank.
The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the market
prices of the stocks of many companies which may not have been directly related
to the operating performance of those companies. Such broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, factors such as announcements of technological innovations or new
products by the Company or its competitors, market conditions in the computer
software or hardware industries and quarterly fluctuations in the Company's
operating results may have a significant adverse effect on the market price of
the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data relating to the Company should be read
in conjunction with the Company's consolidated financial statements and the
related notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the other financial information
included herein. The selected balance sheet financial data set forth below
for the Company as of December 30, 2000 and January 1, 2000 and the selected
statement of operations financial data for each of the three years in the
period ended December 30, 2000 are derived from the audited financial
statements included elsewhere herein. All other selected financial data set
forth below for the Company is derived from the financial statements not
included elsewhere herein.
18
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Years Ended(1)
------------------------------------------------------
2000(3) 1999 1998(2) 1997(2) 1996(2)
------------------------------------------------------
Consolidated Statement of Operations Data:
Total revenue $ 89,859 $ 53,499 $ 55,237 $ 63,987 $69,626
Merger-related restructuring costs and
in-process research and development 8,189 6,725
Total costs and operating expenses 98,896 51,317 43,385 65,983 60,770
Income (loss) from operations (9,037) 2,182 11,852 (1,996) 8,856
Net income (loss) (11,168) 259 5,867 (1,199)
Net income (loss) per diluted share (0.40) 0.02 1.08
Number of shares used in computing diluted
earnings (loss) per share 28,252 15,586 5,434
Consolidated Balance Sheet Data:
Working capital (deficit) $ 4,656 $ (7,959) $ (6,509) $(14,719)
Total assets 142,624 31,445 24,892 25,377
Long term debt, less current portion 6,000 14,379 15,873 130
Redeemable convertible preferred stock 0 32,000 32,000 0
Stockholders' equity (deficit) 54,600 (45,399) (47,845) (5,629)
(1) Innoveda was created by the merger of Summit Design, Inc. and
Viewlogic Systems, Inc. which was consummated on March 23, 2000. The
business combination was accounted for as a reverse acquisition as
former shareholders of Viewlogic owned a majority of the outstanding
capital stock of Summit Design subsequent to the business
combination. Therefore, for accounting purposes, Viewlogic is deemed
to have acquired Summit Design. All pre-merger financial information
presented represents the financial results for Viewlogic.
(2) The financial information of Innoveda for the fiscal years presented
prior to December 31, 1997 represent revenue and expenses derived
from the historical financial statements of an entity of which the
Innoveda business was previously a part. Innoveda does not have
balance sheet data for its business prior to December 31, 1997.
(3) Financial information for the fiscal year ended December 30, 2000,
includes the results of Summit Design, Inc. from March 24, 2000 and
PADS Software, Inc. from September 22, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion together with the consolidated
financial statements and related notes appearing elsewhere in this Annual
Report on Form 10-K. This Item contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 that involve risks and uncertainties.
Actual results may differ materially from those included in such
forward-looking statements. Factors which could cause actual results to
differ materially include those set forth under the heading "Additional Risk
Factors That Could Affect Operating Results and Market Price of Stock"
commencing on page 27, as well as those otherwise discussed in this section
and elsewhere in this Annual Report on Form 10-K. See "Important Note About
Forward Looking Statements".
19
OVERVIEW
Innoveda, Inc., a Delaware corporation, was created by the business combination
of Summit Design, Inc. and Viewlogic Systems, Inc., which was consummated on
March 23, 2000. The merger of Summit Design with Viewlogic was accounted for as
a reverse acquisition as former shareholders of Viewlogic owned a majority of
the outstanding stock of Summit subsequent to the business combination. For
accounting purposes, Viewlogic is deemed to have acquired Summit Design. On
September 22, 2000, the Company completed its acquisition of PADS Software, Inc.
Accordingly, all historical financial information presented herein represents
only the financial results for Viewlogic, except that the fiscal 2000 financial
information includes the results of Summit from March 24, 2000 and PADS from
September 22, 2000.
Innoveda operates in the United States and international markets developing,
marketing and providing a comprehensive family of software tools used by
engineers in the design of advanced electronic products and systems, and
technical support and consulting services for those software tools. Innoveda
currently markets and sells its products worldwide through multiple distribution
channels, including independent distributors, value-added resellers, direct
sales and telesales.
RESULTS OF OPERATIONS
The results of operations for the year ended December 31, 1997 represent the
results of the printed circuit board and complete system design tools business
derived from the historical financial statements of Viewlogic Systems, Inc., a
larger EDA company that was acquired by Synopsys, Inc. in 1997 (the "Prior
Viewlogic") and exclude the integrated circuit design tools business of the
Prior Viewlogic. During 1997, the Prior Viewlogic established separate
departments to capture product development, technical support and product
marketing expenses of both the printed circuit board and complete system design
tools business and the integrated circuit design tools business. The printed
circuit board and complete systems business was purchased from Sysnopsys, Inc.
in 1998 and is now part of Innoveda. In addition, the Prior Viewlogic segregated
its revenue and product costs and created income statements for each business.
Prior to December 4, 1997, the Prior Viewlogic centralized many administrative,
marketing and other services. In addition, the Prior Viewlogic distributed both
its integrated circuit design tools and printed circuit board and complete
system design tools products primarily through one combined sales force.
Accordingly, the Prior Viewlogic made allocations of these expenses based on
revenue, personnel, space, estimates of time spent to provide services or other
appropriate bases. Innoveda's management believes that the Prior Viewlogic made
these allocations on a reasonable basis. However, they were not necessarily
indicative of the costs that would have been incurred on a stand-alone basis.
Before 1997, the Prior Viewlogic did not prepare internal income statements for
the integrated circuit design tools and the printed circuit board and complete
systems design tools businesses and therefore did not capture revenue and costs
in the same manner as it did in 1997. To prepare the financial data for the
printed circuit board and complete system design tools business for the year
ended December 31, 1997, the Prior Viewlogic made assumptions in order to
classify revenue as related to either printed circuit board and complete system
design tools or integrated circuit design tools. Where possible, the
identifiable direct costs of printed circuit board and complete system design
tools revenue has been reflected as direct expenses. In additions to these
direct expenses, all expenses which could not be clearly identified as
integrated circuit design tools or printed circuit board and complete system
design tools expenses were allocated on bases which Innoveda's management
believes were appropriate, similar to the manner in which it allocated expenses
in 1997. Based on its methodology, Innoveda's management believes the income
statement for 1996 reasonably approximated the revenue, costs and expenses of
the printed circuit board and complete system design tools business on a
historical basis.
20
The following table sets forth, for the periods indicated, the percentage of
revenue of certain items in Innoveda's consolidated statements of operations:
YEAR ENDED
----------------------------------------------------------
DECEMBER 31,
DECEMBER 30, JANUARY 1, JANUARY 2, -----------------
2000 2000 1999 1997 1996
------------ ---------- ---------- -------- ------
Revenue:
Software...................................... 55% 45% 41% 45% 50%
Maintenance and services...................... 45 55 59 55 50
--- --- --- --- ---
Total Revenue................................. 100 100 100 100 100
--- --- --- --- ---
Cost and expenses:
Cost of software.............................. 9 11 9 5 8
Cost of services and other.................... 10 12 9 12 13
Sales and marketing........................... 37 42 34 39 42
Research and development...................... 25 21 18 23 17
General and administrative.................... 8 7 7 6 8
Amortization.................................. 12 2 -- -- --
Non-recurring charges......................... 9 -- 1 18 --
--- --- --- --- ---
Total cost and expenses....................... 110 95 78 103 88
--- --- --- --- ---
Income (loss) from operations................. (10) 5 22 (3) 12%
===
Other income (expense), net................... 0 (3) (3) 0
Income (loss) before income taxes............. (10) 2 19 (3)
Provision for income taxes.................... 2 1 7 (1)
--- --- --- ---
Net income (loss)............................. (12)% 1% 12% (2)%
=== === === ===
TWELVE MONTHS ENDED DECEMBER 30, 2000 AND JANUARY 1, 2000
REVENUE
For the twelve months ended December 30, 2000, total revenue increased 68% to
$89.9 million from $53.5 million for the twelve months ended January 1, 2000.
The increase in revenue consisted of a 108% increase in software license
revenue to $49.6 million from $23.9 million, an increase of 36% in
maintenance and services revenue to $40.2 million from $29.6 million.
These increases were primarily due to additional sales related to the System
Level Design ("SLD") product line acquired as part of the acquisition of
Summit Design in March 2000, and PCB product sales acquired as part of the
acquisition of PADS Software in September 2000. Additionally, the Company
realized increased revenue from sales of Innoveda's Enterprise and High Speed
System Design product lines as a result of additional customer demand for
these technologies.
As a percentage of total revenue, software license revenue increased to 55% for
the twelve months ended December 30, 2000 from 45% for the twelve months ended
January 1, 2000, maintenance and services revenue decreased to 45% for the
twelve months ended December 30, 2000 from 55% for the twelve months ended
January 1, 2000.
COST OF SOFTWARE
Cost of software revenue consists primarily of cost of product media,
documentation, duplication, packaging, and royalties. Cost of software revenue
increased 30% to $7.8 million for the twelve months ended
21
December 30, 2000 from $6.0 million for the twelve months ended January 1, 2000.
This increase was primarily due to increased salary and related costs of
additional headcount resulting from the acquisitions of Summit Design in March
2000 and PADS Software in September 2000, and to a lesser extent increased
royalty costs related to increased software license revenue.
As a percentage of software license revenue, cost of software decreased to 16%
for the twelve months ended December 30, 2000 from 25% for the twelve months
ended January 1, 2000, primarily due to economies of scale resulting from the
Company's acquisitions of Summit Design and PADS Software.
COST OF SERVICES AND OTHER
Cost of maintenance and services consists primarily of costs of providing
technical support, education and consulting services. Cost of maintenance and
services increased 34% to $8.6 million for the twelve months ended December 30,
2000 from $6.4 million for the twelve months ended January 1, 2000. This was
primarily due to increased salary and related costs of additional headcount
resulting from the acquisitions of Summit Design in March 2000 and PADS Software
in September 2000, as well as increased staffing and related costs in our
consulting organization necessary to build the infrastructure to support
expansion in that area of our business.
As a percentage of maintenance and services revenue, cost of maintenance and
services decreased to 21% for the twelve months ended December 30, 2000 from 22%
for the twelve months ended January 1, 2000.
SALES AND MARKETING
Sales and marketing expenses increased 50% to $33.7 million for the twelve
months ended December 30, 2000 from $22.5 million for the twelve months ended
January 1, 2000. This was primarily due to increased salary and related costs of
additional headcount resulting from the acquisition of Summit Design in March
2000 and PADS Software in September 2000. The Company also incurred increased
costs associated with variable compensation plans as a result of the increase in
revenue year over year. Additionally, discretionary marketing spending for trade
shows, direct mail solicitations and advertising campaigns designed to increase
awareness of the Innoveda name, and marketing of our product lines resulted in
higher sales and marketing expenses.
As a percentage of total revenue, sales and marketing expenses decreased to 37%
for the twelve months ended December 30, 2000 from 42% for the twelve months
ended January 1, 2000.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 100% to $22.6 million for the twelve
months ended December 30, 20000 from $11.3 million for the twelve months ended
January 1, 2000. This was primarily due to increased salary and related costs of
additional headcount resulting from the acquisition of Summit Design in March
2000 and PADS Software in September 2000. The increase was also attributable to
the development of new products, including Visual Elite, a new SLD product that
provides added functionality to existing SLD tools, and Innovate FPGA, a design
environment for high-density field programmable gate arrays.
As a percentage of total revenue, research and development expenses increased to
25% for the twelve months ended December 30, 2000 from 21% for the twelve months
ended January 1, 2000.
The amount of software development costs capitalized for the twelve months ended
December 30, 2000 was approximately $1.0 million or 4% of research and
development for that period, and for the twelve months ended January 1, 2000 was
$1.0 million or 9% of research and development costs for that period.
22
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of the administrative,
finance, human resources, legal, and information systems departments of the
Company. General and administrative expenses increased 82% to $7.1 million for
the twelve months ended December 30, 2000 from $3.9 million for the twelve
months ended January 1, 2000. This increase was primarily a result of Innoveda
building its general and administrative infrastructure to support the growth in
revenue of the Company's products and services and related acquisitions. To a
lesser extent, the increase is due to expenses associated with becoming a
publicly traded company.
As a percentage of total revenue, general and administrative expenses increased
to 8% for the twelve months ended December 30, 2000 from 7% for the twelve
months ended January 1, 2000.
AMORTIZATION OF INTANGIBLES
Amortization expense increased to $10.9 million in the twelve months ended
December 30, 2000 from $1.2 million for the twelve months ended January 1, 2000.
Innoveda had $73.9 million in intangible assets as of December 30, 2000,
consisting primarily of purchased technology, goodwill, and purchased workforce
and customer base, resulting from the Summit Design business combination in
March 2000 and the PADS acquisition in September 2000, and the remaining
intangible assets from the OmniView and Transcendent transactions described
below. Innoveda had $3.5 million in intangible assets as of January 1, 2000,
consisting of purchased technology and workforce from its acquisition of certain
assets from OmniView, Inc. in March 1999, and purchased technology related to
the acquisition of Transcendent Design Technology, Inc. in August 1999.
Innoveda's intangible assets are being amortized to expense over periods ranging
from three to seven years.
INTEREST EXPENSE, NET
Interest expense, net of interest income, decreased to $92,000 for the twelve
months ended December 30, 2000 compared to $1.2 million for the twelve months
ended January 1, 2000. This decrease is primarily a result of an increase in
interest income from cash acquired as part of the Summit Design business
combination. Interest income increased for the twelve months ended December 30,
2000 as compared to the twelve months ended January 1, 2000 due to a higher
average cash balance and higher interest rates. Interest expense decreased for
the twelve months ended December 30, 2000 as compared to the twelve months ended
January 1, 2000 primarily because the Company paid down a portion of its long
term debt obligations.
OTHER INCOME (EXPENSE), NET
Other expense, net consists of foreign currency gains and losses and
amortization of professional fees incurred in connection with Innoveda's credit
facility and the disposal of property and equipment. Other expense was $230,000
for the twelve months ended December 30, 2000 and was $404,000 for the twelve
months ended January 1, 2000.
INCOME TAXES
The provision for income taxes increased to $1.8 million for the twelve months
ended December 30, 2000 from $281,000 for the twelve months ended January 1,
2000. Although the company has a pre-tax loss for reporting purposes for fiscal
2000, a significant amount of this loss is due to non-deductible expenses. The
most significant of these are amortization of goodwill from the Company's
acquisitions and as part of the sale of the VirSim product line to Synopsys,
in-process research and development charges and amortization of stock
compensation.
23
TWELVE MONTHS ENDED JANUARY 1, 2000 AND JANUARY 2, 1999
REVENUE
For the twelve months ended January 1, 2000 and January 2, 1999, total revenue
decreased 3% to $53.5 million from $55.2 million. The decrease in revenue was
primarily due to a 9% decrease in service revenue which was partially offset by
a 5% increase in software license revenue. As a percentage of total revenue,
software license revenue increased to 45% for the twelve months ended January 1,
2000 from 41% for the twelve months ended January 2, 1999. Software license
revenue for the twelve months ended January 1, 2000 and January 2, 1999
increased 5% to $23.9 million from $22.7 million. Service revenue decreased to
$29.6 million for the twelve months ended January 1, 2000 from $32.6 million for
the twelve months ended January 2, 1999, primarily due to decreased maintenance
revenues. This was primarily attributable to several certain customers not
renewing maintenance contracts due to the fact they were using products in
applications related to integrated circuit design tools, which are no longer
fully supported by Innoveda. Additionally, a number of customers migrated their
products from the version based on the Unix operating system to the version
based on the Windows/NT operating system, which have lower maintenance prices.
Services revenues remained relatively unchanged for the twelve months ended
January 1, 2000 and January 2, 1999.
COST OF SOFTWARE
Cost of software revenue increased 18% to $6.0 million for the twelve months
ended January 1, 2000 from $5.1 million for the twelve months ended January 2,
1999, primarily due to increased royalty costs payable to Synopsys resulting
from new licensing agreements. The amortization of capitalized software included
in cost of software revenue for the twelve months ended January 1, 2000 and
January 2, 1999 was approximately $1.0 million in each year.
COST OF SERVICES AND OTHER
Cost of service revenue increased 25% to $6.4 million from $5.1 million and, as
a percentage of service revenue, increased to 22% from 16%, for the twelve
months ended January 1, 2000 and January 2, 1999. The increase was primarily due
to an increase in the consulting staff in anticipation of future growth in this
area.
SALES AND MARKETING
Sales and marketing expenses increased 19% to $22.5 million for the twelve
months ended January 1, 2000 from $18.9 million for the twelve months ended
January 2, 1999. The increase was primarily attributable to higher
personnel-related costs due to an increase in the number of worldwide sales and
marketing personnel in 1999 compared to 1998. Selling and marketing expenses, as
a percentage of total revenue, increased to 42% from 34% for the twelve months
ended January 1, 2000 and January 2, 1999.
RESEARCH AND DEVELOPMENT
Research and development costs increased 13% to $11.3 million from $10.0 million
for the twelve months ended January 1, 2000 and January 2, 1999. The increase in
research and development expenses primarily reflects higher personnel-related
costs associated with investment in new product development and enhancement of
existing products. This includes the addition of staff associated with the
purchase of assets from Omniview, which was completed during the first quarter
of 1999, as well as the acquisition of Transcendent Design Technology which was
completed in August 1999. Research and development expense as a percentage of
total revenue was 21% for the twelve months ended January 1, 2000 and 18% for
the twelve months ended January 2, 1999. The amount of software development
costs capitalized for the twelve months ended January 1, 2000 was $1.1 million
or 9% of research and development costs for that period and for the twelve
months ended January 2, 1999 was $1.1 million or 11% of total research and
development costs for that period.
24
GENERAL AND ADMINISTRATIVE
General and administrative expense increased to $3.9 million from $3.7 million
for the twelve months ended January 1, 2000 and January 2, 1999. This was
primarily due to expenses related to building the infrastructure needed to
support future growth. General and administrative expense as a percentage of
total revenue remained unchanged at 7% for the twelve months ended January 1,
2000 and January 2, 1999.
AMORTIZATION OF INTANGIBLES
On March 16, 1999, Innoveda purchased substantially all of the assets and
intellectual property of OmniView. The purchase price consisted of $1.1 million
in cash, 271,712 shares of Innoveda common stock and acquisition expenses and
was allocated to the assets based on their fair value, including $1.2 million of
intangible assets. On August 15, 1999, Innoveda purchased Transcendent Design
Technology through a subsidiary merger in which Innoveda issued 491,799 shares
of common stock and assumed options exercisable into 52,984 additional shares of
Innoveda common stock. The allocation of the purchase price in this transaction
resulted in $2.7 million of intangible assets. The intangibles created in these
two transactions resulted in $670,000 of amortization expense for the twelve
months ended January 1, 2000.
INTEREST EXPENSE, NET
Interest expense, net of interest income, increased to $1.2 million for the
twelve months ended January 1, 2000 compared to $171,000 for the twelve months
ended January 2, 1999, primarily due to the increased borrowings under
Innoveda's credit facility. In addition, during 1999 Innoveda entered into
capital lease agreements to finance the purchases of computer equipment and
software, increasing its capital lease obligation, which also contributed to the
increase in interest expense.
OTHER INCOME (EXPENSE), NET
Other income (expense) consists of gains and losses on the disposal of property
and equipment, foreign currency gains and losses and amortization of
professional fees incurred in connection with Innoveda's credit facility. Other
expense was $404,000 for the twelve months ended January 1, 2000 and was $1.8
million for the twelve months ended January 2, 1999. During 1998 Innoveda's
Japanese subsidiary repaid an amount that had previously been treated as a
long-term investment. The repayment of this amount resulted in a realized
transaction loss of $1.4 million.
INCOME TAXES
The provision for federal and state income taxes decreased to $281,000 for the
twelve months ended January 1, 2000 from $4.1 million for the twelve months
ended January 2, 1999, primarily due to the drop in income before taxes. The
effective tax rate for the twelve months ended January 1, 2000 was 52%, compared
to 41% for the twelve months ended January 2, 1999.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Innoveda finances its operations primarily through cash generated from
operations and short-term borrowings available from a revolving credit line. As
of December 30, 2000, Innoveda had approximately $20.8 million in cash and cash
equivalents and working capital of approximately $4.7 million. Innoveda has a
$6.0 million revolving line of credit with Fleet Bank. As of February 28, 2001,
there was no balance outstanding under this line of credit. Innoveda has a term
loan with Fleet Bank, with approximately $8.4 million outstanding as of February
28, 2001. Borrowings under the credit facility are secured by substantially all
of Innoveda's assets. The credit facility contains limitations on additional
indebtedness and capital expenditures, and includes financial covenants, which
include but are not limited to the maintenance of minimum levels of
profitability, interest and debt service coverage ratios and maximum leverage
ratios and minimum working capital ratios. To avoid default under this credit
facility, Innoveda must remain in
25
compliance with these limitations and covenants and make all required repayments
or Innoveda must obtain replacement financing. Innoveda was in compliance with
all of its debt covenants as of December 30, 2000.
For the twelve months ended December 30, 2000, net cash provided by operating
activities was approximately $4.0 million. This was primarily due to a net loss
of $11.2 million, offset by non-cash depreciation and amortization of
approximately $16.0 million and write-off of in process research and development
expenses of $5.5 million, an increase in accounts receivable of $6.2 million, an
increase in deferred income taxes of $4.7 million and a decrease in accounts
payable of approximately $2.3 million and an increase in accrued liabilities of
$5.0 million.
Net cash provided by investing activities for the twelve months ended December
30, 2000 was approximately $32 million, primarily due to the cash acquired in
the Summit Design and PADS acquisition, and the $7.0 million proceeds from the
Company's sale of its VirSim product line.
The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less when purchased to be cash equivalents. At
December 30, 2000, and January 1, 2000, substantially all of the Company's cash
and cash equivalents were invested in interest-bearing deposits and other
short-term investments with an original maturity of three months or less as of
the date of purchase. By policy, all debt instruments must have quality ratings
no lower than A rating.
Net cash used in financing activities was approximately $15.4 million for the
twelve months ended December 30, 2000, primarily due to the repayment of
principal on debt and the repurchase of common stock as discussed below.
As part of the PADS acquisition, Innoveda repaid approximately $7.4 million of
PADS' debt and made an aggregate cash payment of approximately $2.0 million to
PADS shareholders. Innoveda funded these amounts using cash acquired in the PADS
acquisition, which totaled approximately $4.8 million on the merger date of
September 22, 2000, as well as a portion of the net proceeds from the sale of
the VirSim product line as discussed above.
On October 19, 2000, Innoveda's Board of Directors authorized the Company to
repurchase up to 2,000,000 shares of its common stock during the period ending
October 31, 2001. The repurchased shares will be held as treasury shares and
used in company stock option plans, employee stock purchase plans and for
general corporate purposes. As of March 15, 2001, the Company had purchased
550,606 shares of common stock at an aggregate cost of $1,663,371 under its
stock re-purchase program.
Innoveda believes that its current cash and cash equivalents, combined with cash
generated from operations and amounts available under the revolving line of
credit, will satisfy Innoveda's anticipated working capital and other cash
requirements for at least the next 12 months.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This SFAS
establishes standards for derivative instruments and hedging activities. SFAS
133 requires an entity to recognize all derivatives as either an asset or
liability in the statement of financial position and measure those instruments
at fair value. SFAS 133 requires that changes in the fair value of a derivative
be recognized currently in earnings unless specific hedge accounting criteria
are met and that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. Innoveda is required
to adopt SFAS 133 in the first quarter of fiscal 2001. Management does not
expect the adoption of SFAS 133 to have a material effect on Innoveda's
consolidated financial position or results of operations.
26
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE OF
STOCK
IF INNOVEDA CANNOT SUCCESSFULLY INTEGRATE SUMMIT AND VIEWLOGIC AND/OR THE
ACQUISITION BY INNOVEDA OF PADS, THE ANTICIPATED ADVANTAGES OF THE BUSINESS
COMBINATION BETWEEN SUMMIT AND VIEWLOGIC AND/OR INNOVEDA AND PADS MAY NOT BE
REALIZED, IN FULL, IF AT ALL.
Innoveda was formed by the business combination of Viewlogic Systems, Inc., and
Summit Design, Inc. in March 2000. Innoveda also acquired PADS Software, Inc in
September 2000. The integration of Summit Design and Viewlogic requires the
dedication of Innoveda management resources. This may distract management's
attention from the effort to integrate PADS into Innoveda and from the
management of the day-to-day business of Innoveda. Employee uncertainty and lack
of focus during integration may also disrupt the business of Innoveda. Retention
of key employees by Innoveda has been, and will remain, critical to ensure
continued advancement, development and support of the Company's technologies and
ongoing sales and marketing efforts. During the integration phase, competitors
may intensify their efforts to recruit key employees. The inability to
successfully integrate Summit Design and Viewlogic and/or Innoveda and PADS and
to retain key technical, sales or marketing personnel after the Summit Design
and Viewlogic combination and the merger of Innoveda and PADS would adversely
affect the combined Company's business.
VARIOUS FACTORS WILL CAUSE INNOVEDA'S QUARTERLY RESULTS TO FLUCTUATE AND
FLUCTUATION MAY ADVERSELY AFFECT THE STOCK PRICE OF INNOVEDA COMMON STOCK.
Innoveda's quarterly operating results and cash flows have fluctuated in the
past and have fluctuated significantly in certain quarters. These fluctuations
resulted from several factors, including, among others:
o the size and timing of orders;
o large one-time charges incurred as a result of an acquisition or
consolidation;
o seasonal factors;
o the rate of acceptance of new products;
o product, customer and channel mix;
o lengthy sales cycles; and
o level of sales and marketing staff.
These fluctuations will likely continue in future periods because of the above
factors. Additional factors potentially causing fluctuations include, among
others:
o corporate acquisitions and consolidations and the integration of
acquired entities and any resulting large one-time charges;
o the timing of new product announcements and introductions by
Innoveda and Innoveda's competitors;
o the rescheduling or cancellation of customer orders;
27
o the ability to continue to develop and introduce new products and
product enhancements on a timely basis;
o the level of competition;
o purchasing and payment patterns, pricing policies of competitors;
o product quality issues;
o currency fluctuations; and
o general economic conditions.
Innoveda believes that period-to-period comparisons of Innoveda's operating
results are not necessarily meaningful. As a result, you should not rely on
these comparisons as indications of Innoveda's future performance. In addition,
Innoveda operates with high gross margins, and a downturn in revenue could have
a significant impact on income from operations and net income. Innoveda's
results of operations could be below investors' and market makers' expectations
in future quarters, which could have a material adverse effect on the market
price of Innoveda's common stock.
INNOVEDA'S REVENUE IS DIFFICULT TO FORECAST BECAUSE OF THE TIMING OF REVENUE
RECOGNITION AND UNPREDICTABLE NATURE OF CUSTOMER BEHAVIOR.
Innoveda's revenue is difficult to forecast for several reasons. Innoveda
operates with little product backlog because Innoveda typically ships its
products shortly after it receives orders. Consequently, license backlog at the
beginning of any quarter has in the past represented only a small portion of
that quarter's expected revenue. Correspondingly, license fee revenue in any
quarter is difficult to forecast because it is substantially dependent on orders
booked and shipped in that quarter. Moreover, Innoveda generally recognizes a
substantial portion of its revenue in the last month of a quarter, frequently in
the latter part of the month. Any significant deferral of purchases of
Innoveda's products could have a material adverse affect on its business,
financial condition and results of operations in any particular quarter. If
significant sales occur earlier than expected, operating results for subsequent
quarters may also be adversely affected. Quarterly license fee revenue is
difficult to forecast also because Innoveda's typical sales cycle ranges from
six to nine months and varies substantially from customer to customer. In
addition, Innoveda makes a portion of its sales through indirect channels, and
these sales can be difficult to predict.
SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING RESULTS.
Innoveda establishes its expenditure levels for product development, sales and
marketing and other operating activities based primarily on Innoveda's
expectations as to future revenue. Because a high percentage of Innoveda's
expenses are relatively fixed in the near term, if revenue in any quarter falls
below expectations, expenditure levels could be disproportionately high as a
percentage of revenue and materially adversely affect Innoveda's operating
results.
IF THE SYSTEM DESIGN PORTION OF THE ELECTRONIC DESIGN AUTOMATION INDUSTRY ON
WHICH INNOVEDA PRIMARILY FOCUSES DOES NOT GROW, INNOVEDA'S BUSINESS MAY SUFFER.
Innoveda focuses on the electro-mechanical, printed circuit board and
system-level design automation markets while most major competitors focus their
resources on the application-specific integrated circuit and integrated circuit
design automation markets. Innoveda has adopted this focus because it believes
that the increased complexity of application-specific integrated circuits and
integrated circuit designs, and the resulting increase in design time, will
cause electronic product manufacturers to differentiate their products at the
system level. If the system design portion of the electronic design automation
industry does not grow, it
28
could have a material adverse effect on Innoveda's business, financial
condition, results of operations or cash flows.
INNOVEDA FACES INTENSE COMPETITION IN THE INDUSTRY AND MUST COMPETE SUCCESSFULLY
IN VARIOUS ASPECTS OR ITS BUSINESS MAY SUFFER.
The electronic design automation industry is highly competitive, and Innoveda
expects competition to increase as other electronic design automation companies
introduce products. In the electronic design automation market, Innoveda
principally competes with Mentor Graphics and Cadence and a number of smaller
firms. Indirectly, Innoveda also competes with other firms that offer
alternative products. These other firms could also offer more directly
competitive products in the future. Some of these companies have significantly
greater financial, technical and marketing resources and larger installed
customer bases than Innoveda. Some of Innoveda's current and future competitors
offer a more complete range of electronic design automation products.
Innoveda competes on the basis of various factors including, among others:
o product capabilities;
o product performance;
o price;
o support of industry standards;
o ease of use;
o first to market; and
o customer technical support and service.
Innoveda believes that its products are competitive overall with respect to
these factors. However, in particular cases, Innoveda's competitors may offer
products with functionality sought by Innoveda's prospective customers and which
differs from those Innoveda offers. In addition, some competitors may achieve a
marketing advantage by establishing formal alliances with other electronic
design automation vendors. Further, the electronic design automation industry in
general has experienced significant consolidation in recent years, and the
acquisition of one of Innoveda's competitors by a larger, more established
electronic design automation vendor could create a more significant competitor.
Innoveda may not compete successfully against current and future competitors,
and competitive pressures may have a material adverse effect on Innoveda's
business, financial condition, results of operations, or cash flows. Innoveda's
current and future competitors may develop products comparable or superior to
Innoveda's or more quickly adapt 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 Innoveda's business, financial condition, results of
operations or cash flows.
INNOVEDA'S DEPENDENCE ON THE ELECTRONIC INDUSTRY MAKES IT VULNERABLE TO GENERAL
INDUSTRY-WIDE DOWNTURNS.
Innoveda's future operating results may reflect substantial fluctuations from
period to period as a consequence of industry patterns, general economic
conditions affecting the timing of orders from customers and other factors. The
electronics industry involves:
29
o rapid technological change;
o short product life cycles;
o fluctuations in manufacturing capacity; and
o pricing and margin pressures.
Correspondingly, certain segments, including the computer, semiconductor,
semiconductor test equipment and telecommunications industries, have experienced
sudden and unexpected economic downturns. During these periods, capital spending
often falls, and the number of design projects often decreases. Because
Innoveda's sales depend upon capital spending trends and new design projects,
negative factors affecting the electronics industry could have a material
adverse effect on Innoveda's business, financial condition, results of
operations, or cash flows.
INNOVEDA DEPENDS ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY, AND THAT MAKES
INNOVEDA VULNERABLE IF THESE THIRD PARTIES REFUSE TO COOPERATE WITH INNOVEDA ON
ECONOMICALLY FEASIBLE TERMS.
Because Innoveda's products must interoperate, or be compatible, with electronic
design automation products of other companies, Innoveda must have timely access
to third party software to perform development and testing of products. Although
Innoveda has established relationships with a variety of electronic design
automation vendors to gain early access to new product information, any of these
parties may terminate these relationships with limited notice. In addition,
these relationships are with companies that are Innoveda's current or potential
future competitors, including Synopsys, Mentor Graphics and Cadence. If any of
these relationships terminate and Innoveda were unable to obtain, in a timely
manner, information regarding modifications of third party products, Innoveda
would not have the ability to modify its software products to interoperate with
these third party products. As a result, Innoveda could experience a significant
increase in development costs, the development process would take longer,
product introductions would be delayed, and Innoveda's business, financial
condition, results of operations or cash flows could be materially adversely
affected.
IF INNOVEDA CANNOT DEVELOP NEW PRODUCTS TO KEEP PACE WITH TECHNOLOGICAL CHANGE
AND EVOLVING INDUSTRY STANDARDS, INNOVEDA'S BUSINESS WILL SUFFER.
If Innoveda cannot, for technological or other reasons, develop and introduce
products in a timely manner in response to changing market conditions, industry
standards or other customer requirements, particularly if Innoveda has
pre-announced the product releases, its business, financial condition, results
of operations or cash flows will be materially adversely affected. The
electronic design automation industry is characterized by extremely rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products with new technologies and the emergence
of new industry standards can render existing products obsolete and
unmarketable. In addition, customers in the electronic design automation
industry require software products that allow them to reduce time to market,
differentiate their products, improve their engineering productivity and reduce
their design errors. Innoveda'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 Innoveda's customers. Innoveda may not
succeed in developing and marketing product enhancements or new products that
respond to technological change or emerging industry standards. It may
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products. Innoveda's products may not
adequately meet the requirements of the marketplace and achieve market
acceptance.
30
INNOVEDA'S SOFTWARE MAY HAVE DEFECTS.
Innoveda's software products may contain errors that may not be detected until
late in the products' life cycles. Innoveda 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. Despite testing by
Innoveda and by current and prospective customers, errors may persist, resulting
in loss of, or delay in, market acceptance and sales, diversion of development
resources, injury to Innoveda's reputation or increased service and warranty
costs, any of which could have a material adverse effect on its business,
financial condition, results of operations or cash flows.
INNOVEDA DEPENDS ON ITS DISTRIBUTORS TO SELL ITS PRODUCTS, ESPECIALLY
INTERNATIONALLY, BUT THESE DISTRIBUTORS MAY NOT DEVOTE SUFFICIENT EFFORTS TO
SELLING INNOVEDA'S PRODUCTS OR THEY MAY TERMINATE THEIR RELATIONSHIPS WITH
INNOVEDA.
DISTRIBUTORS' CONTINUED VIABILITY. If any of Innoveda's distributors
fails, Innoveda's business may suffer. Innoveda relies on distributors for
licensing and support of Innoveda's products, particularly in Japan and other
parts of Asia. Innoveda depends on the relationships with its distributors to
maintain or increase sales. Since Innoveda'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. Accordingly, Innoveda depends on the continued
viability and financial stability of these distributors.
DISTRIBUTORS' EFFORTS IN SELLING INNOVEDA'S PRODUCTS. Innoveda's
distributors may offer products of several different companies, including
Innoveda's competitors. Innoveda's current distributors may not continue to
market or service and support Innoveda's products effectively. Any distributor
may discontinue to sell Innoveda's products or devote its resources to products
of other companies. The loss of, or a significant reduction in, revenue from
Innoveda's distributors could have a material adverse effect on its business,
financial condition, results of operations or cash flows.
JAPAN. Innoveda has exclusive distribution agreements with two
distributors in Japan, which collectively cover a significant portion of
Innoveda's products in Japan. If either of these distributors terminates its
relationship with Innoveda, it could have a material adverse affect on
Innoveda's business, financial condition, results of operations or cash flows.
INNOVEDA FACES THE RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS,
INCLUDING ITS BUSINESS ACTIVITIES IN ISRAEL, EUROPE AND ASIA.
International revenue and expenses represent a significant portion of Innoveda's
total revenue and expenses, and Innoveda expects this trend to continue.
International sales and operations involve numerous risks, including, among
others:
o fluctuations in the value of the dollar relative to foreign
currencies can make Innoveda's products and services more expensive
in foreign markets or increase Innoveda's expenses;
o tariff regulations and other trade barriers;
o requirements for licenses, particularly with respect to the export
of certain technologies;
o collectibility of accounts receivable;
o changes in regulatory requirements; and
o difficulties in staffing and managing foreign operations and
extended payment terms.
31
These factors may have a material adverse effect on Innoveda's future
international sales and operations and, consequently, on its business, financial
condition, results of operations or cash flows. In addition, financial markets
and economies in the Asia Pacific region have been experiencing adverse
conditions, and these adverse economic conditions may worsen. Demand for and
sales of Innoveda's products in this region may decrease.
In order to successfully expand international sales, Innoveda 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 Innoveda's
operating margins. In addition, to the extent that Innoveda cannot effect these
additions in a timely manner, Innoveda can only generate limited growth in
international sales, if any. Innoveda may not maintain or increase international
sales of its products, and failure to do so could have a material adverse effect
on its business, financial condition, results of operations or cash flows.
INNOVEDA MUST MANAGE GROWTH AND ACQUISITIONS EFFECTIVELY, OR ITS FINANCIAL
CONDITION OR RESULTS OF OPERATIONS MAY SUFFER.
Innoveda'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. Innoveda expects
any growth to place a significant strain on its operational resources and
systems. Failure to effectively manage any growth would have a material adverse
effect on Innoveda's business, financial condition, results of operations or
cash flows.
Innoveda regularly evaluates acquisition opportunities. Innoveda's future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities and amortization
expenses related to goodwill and other intangible assets, and large one-time
charges which could materially adversely affect Innoveda's results of
operations. Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concern, risks
of entering markets in which Innoveda has no or limited prior experience and
potential loss of key employees of acquired companies. Innoveda may not
integrate successfully the operations, personnel or products that have been
acquired or that might be acquired in the future, and the failure to do so could
have a material adverse affect on its results of operations.
INNOVEDA FACES THE RISKS ASSOCIATED WITH OPERATIONS IN ISRAEL, INCLUDING
POLITICAL AND COORDINATION RISKS.
POLITICAL RISKS AND GOVERNMENTAL REGULATIONS. Innoveda's research and
development operations related to Visual HDL and Visual Elite products are
located in Israel. Economic, political and military conditions may affect
Innoveda's operations in that country. Hostilities involving Israel, for
example, could materially adversely affect Innoveda's business, financial
condition and results of operations. Innoveda's ability to manufacture or
transfer outside of Israel any technology developed under research and
development grants from the government of Israel is subject to Israeli
government restrictions which may limit Innoveda's ability to extract the full
benefit of that technology.
COORDINATION RISKS. In addition, coordination with and management of the
Israeli operations requires Innoveda to address differences in culture,
regulations and time zones. Failure to successfully address these differences
could disrupt Innoveda's operations.
INNOVEDA DEPENDS ON ITS KEY PERSONNEL, AND FAILURE TO HIRE OR RETAIN QUALIFIED
PERSONNEL COULD CAUSE INNOVEDA'S BUSINESS TO SUFFER.
Innoveda's future success will depend in large part on its key technical and
management personnel and its ability to continue to attract and retain
highly-skilled technical, sales and marketing and management
32
personnel. Innoveda's business could be seriously harmed if it lost the services
of its President and Chief Executive Officer, William J. Herman, or if it fails
to attract and retain other key personnel.
Competition for personnel in the software industry in general, and the
electronic design automation industry in particular, is intense. Innoveda has in
the past experienced difficulty in retaining and recruiting qualified personnel.
Innoveda may fail to retain its key personnel or attract and retain 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 Innoveda'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 Innoveda's business, financial
condition, results of operations or cash flows.
IF INNOVEDA FAILS TO EXPAND AND TRAIN ITS SALES AND MARKETING ORGANIZATIONS, ITS
BUSINESS MAY SUFFER.
Innoveda's success will depend on its ability to build and expand its sales and
marketing organizations. Innoveda's future success will depend in part on its
ability to hire, train 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 Innoveda may not be able to hire, train and retain the number of
sales and marketing personnel needed, which would have a material adverse effect
on its business, financial condition, results of operations or cash flows.
INNOVEDA MUST CONTINUE TO ADD VALUE TO ITS CURRENT PRODUCTS TO SERVE ITS
INSTALLED CUSTOMER BASE OR ITS REVENUE DERIVED FROM MAINTENANCE AGREEMENTS WILL
DECREASE.
A substantial portion of Innoveda's revenue is derived from maintenance
agreements for existing products. In order to maintain that revenue, Innoveda
must continue to offer those customers updates for those products or convert
those customers to new products. Innoveda may not be able to do so.
INNOVEDA HAS SUBSTANTIAL SECURED DEBT, WHICH MAY SUBSTANTIALLY RESTRICT
INNOVEDA'S ABILITY TO REACT TO THE RAPIDLY CHANGING ENVIRONMENT OF THE
ELECTRONIC DESIGN AUTOMATION INDUSTRY, AND WHICH IT MAY NOT BE ABLE TO REPLACE.
As of February 29, 2001, Innoveda had cash and cash equivalents of $20.8 million
and had borrowings of approximately $8.4 million under its credit facility.
Borrowings under the credit facility are secured by substantially all of
Innoveda's assets. The credit facility contains limitations on additional
indebtedness and capital expenditures, and includes financial covenants, which
include but are not limited to the maintenance of minimum levels of profits,
interest and debt service coverage ratios and maximum leverage ratios.
Collectively, these limitations and covenants may substantially restrict the
flexibility of Innoveda's management in quickly adjusting its financial and
operational strategies to react to changing economic and business conditions and
may compromise Innoveda's ability to react to the rapidly evolving environment
of the electronic design automation industry. To avoid default under this credit
facility, Innoveda must remain in compliance with these limitations and
covenants and make all required repayments or Innoveda must obtain replacement
financing. Innoveda may not be able to secure replacement financing on terms
acceptable to it or to its stockholders, or at all. In the event of a default by
Innoveda, Innoveda's lender may enforce its security interest and take
possession of substantially all or some of Innoveda's assets.
33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Innoveda is exposed to interest rate risk primarily through its credit facility.
The Company has a $16,000 credit facility with a commercial bank consisting of a
$6,000 revolving line of credit ("Line of Credit") and $10,000 term loan (the
"Term Loan") (together, the "Credit Facility"). Interest terms on the Line of
Credit and the Term Loan are determined, at the option of the Company, for
varying periods. The Company may elect to have the interest rate based on the
bank's prime rate or based on the LIBOR rate at the time of the election,
depending on the Company's leverage financial ratio as defined in the Credit
Facility. The interest rates on the Line of Credit and the Term Loan at December
30, 2000 was 10.0% and 9.2%, respectively. Payments of principal outstanding
under either the Line of Credit or the Term Loan may be made at any time and
must be repaid in full by September 30, 2003.
As required under the Credit Facility, the Company entered into a no fee
interest rate-swap agreement with a bank to reduce the impact of changes in
interest rates on its floating rate Credit Facility. This agreement effectively
converts a portion of the floating-rate obligation into a fixed-rate obligation
of 7.4% for a period of 60 months, expiring on March 31, 2003. The notional
principal amount of the interest rate-swap agreement is $9,250 as of December
30, 2000. The counter parties to the interest rate-swap agreement expose
Innoveda to credit loss in the event of nonperformance. Open interest rate
contracts are reviewed regularly by Innoveda to ensure that they remain
effective as hedges of interest rate exposure. Management believes that the
rate-swap agreement approximates fair value.
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.
The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less when purchased to be cash equivalents. At
December 30, 2000, and January 1, 2000, substantially all of the Company's cash
and cash equivalents were invested in interest-bearing deposits and other
short-term investments with an original maturity of three months or less as of
the date of purchase. By policy, all debt instruments must have quality ratings
no lower than A rating.
FOREIGN CURRENCY EXCHANGE RATE RISK
Innoveda is also exposed to the impact of foreign currency fluctuations. Since
Innoveda translates foreign currencies into U.S. dollars for reporting purposes,
weakened currencies in its subsidiaries have a negative, though immaterial,
impact on its results. Innoveda also believes that the exposure to currency
exchange fluctuation risk is insignificant because its international
subsidiaries sell to customers, and satisfy their financial obligations, almost
exclusively in their local currencies. Innoveda entered into foreign exchange
contracts as a hedge against certain accounts receivable denominated in foreign
currencies during the twelve months ended December 30, 2000. Realized and
unrealized gains and losses on foreign exchange contracts for the twelve months
ended December 30, 2000 were insignificant. There were no outstanding foreign
exchange contracts as of December 30, 2000.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 30, 2000 and January 1, 2000 F-2
Consolidated Statements of Operations for the Years Ended December 30, 2000,
January 1, 2000 and January 2, 1999 F-3
Consolidated Statements of Comprehensive Income for the Years Ended December 30, 2000,
January 1, 2000 and January 2, 1999 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 30, 2000,
January 1, 2000 and January 2, 1999 F-5
Consolidated Statements of Cash Flows for the Years Ended December 30, 2000,
January 1, 2000 and January 2, 1999 F-6
Notes to Consolidated Financial Statements F-7
35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Innoveda, Inc.:
We have audited the accompanying consolidated balance sheets of Innoveda, Inc.
and subsidiaries as of January 1, 2000 and December 30, 2000, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity (deficiency), and cash flows for each of the three years in the period
ended December 30, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Innoveda, Inc. and subsidiaries as
of January 1, 2000 and December 30, 2000, and the results of their operations,
comprehensive income (loss) and their cash flows for each of the three years in
the period ended December 30, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 1, through October 2, 1998, the Company and the Systems
Business were operated as a subsidiary of Synopsys, Inc. or a component of the
Prior Viewlogic, respectively.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 2, 2001
F-1
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2000 AND JANUARY 1, 2000
(In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
December 30, January 1,
ASSETS 2000 2000
CURRENT ASSETS:
Cash and cash equivalents $ 20,799 $ 531
Accounts receivable (less allowances of $2,034 at
December 30, 2000 and $1,465 at January 1, 2000) 27,260 14,290
Prepaid expenses and other 2,800 3,950
Deferred income taxes 6,626 1,342
-------- --------
Total current assets 57,485 20,113
-------- --------
PROPERTY AND EQUIPMENT:
Equipment 18,887 13,087
Furniture and fixtures 1,394 1,421
-------- --------
Total 20,281 14,508
Less accumulated depreciation 12,639 10,031
-------- --------
PROPERTY AND EQUIPMENT- Net 7,642 4,477
-------- --------
OTHER ASSETS:
Capitalized software costs, net 2,358 2,427
Purchased technology, net 62,198 3,508
Goodwill and other 12,941 920
-------- --------
Total other assets 77,497 6,855
-------- --------
TOTAL $142,624 $ 31,445
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Note payable - current portion $ 3,550 $ 3,125
Current portion of capital lease obligations 548 372
Accounts payable 3,652 2,840
Accrued compensation 8,296 3,542
Accrued expenses 12,269 3,377
Due to related party -- 221
Deferred revenue 24,514 14,595
-------- --------
Total current liabilities 52,829 28,072
-------- --------
LONG-TERM LIABILITIES:
Note payable - long-term portion 5,750 12,125
Line of credit -- 1,700
Deferred tax liability 27,642 2,393
Capital lease obligations 250 554
Other long term liabilities 1,553 --
-------- --------
Total long-term liabilities 35,195 16,772
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
REDEEMABLE, CONVERTIBLE PREFERRED STOCK -- 32,000
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $0.01 par value, 100,000 authorized,
39,347 outstanding at December 30, 2000, $0.001 par value,
35,000 authorized, 7,969 outstanding at January 1, 2000 393 8
Additional paid-in capital 116,047 4,777
Accumulated deficit (59,013) (47,845)
Accumulated other comprehensive income 50 289
Notes from stockholders (932) (927)
Treasury stock, at cost, 341 shares in 2000 (832) --
Deferred compensation (1,113) (1,701)
-------- --------
Total stockholders' equity (deficiency) 54,600 (45,399)
-------- --------
TOTAL $142,624 $ 31,445
======== ========
See notes to consolidated financial statements.
F-2
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999
(In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------
Year Ended
--------------------------------------
December 30, January 1, January 2,
2000 2000 1999
REVENUE:
Software $ 49,618 $ 23,853 $ 22,683
Maintenance and services 40,241 29,646 32,554
-------- -------- --------
Total revenue 89,859 53,499 55,237
-------- -------- --------
COSTS AND EXPENSES:
Cost of software(1) 7,816 5,986 5,112
Cost of services and other(1) 8,592 6,387 5,072
Selling and marketing(1) 33,689 22,479 18,930
Research and development(1) 22,588 11,322 10,028
General and administrative(1) 7,099 3,942 3,675
Amortization of intangibles 10,335 670 --
Amortization of stock compensation 588 531 116
In process research and development 5,453 -- --
Merger costs 2,736 -- --
Transaction costs - recapitalization -- -- 452
-------- -------- --------
Total operating expenses 98,896 51,317 43,385
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS (9,037) 2,182 11,852
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 1,051 101 171
Interest expense (1,143) (1,339) (342)
Other, net, principally foreign exchange losses (230) (404) (1,761)
-------- -------- --------
Other income (expense), net (322) (1,642) (1,932)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (9,359) 540 9,920
PROVISION FOR INCOME TAXES 1,809 281 4,053
-------- -------- --------
NET INCOME (LOSS) $(11,168) $ 259 $ 5,867
======== ======== ========
EARNINGS (LOSS) PER SHARE:
Net income per common share - basic $ (0.40) $ 0.07 $ 2.18
======== ======== ========
Net income per common share - diluted $ (0.40) $ 0.02 $ 1.08
======== ======== ========
Weighted-average shares outstanding - basic 28,252 3,938 2,694
======== ======== ========
Weighted-average shares outstanding - diluted 28,252 15,586 5,434
======== ======== ========
(1) Excludes noncash amortization of stock-based
compensation as follows:
Cost of software $ 5 $ 5 $ 1
Cost of services and other 43 39 8
Selling and marketing 116 105 23
Research and development 212 191 42
General and administrative 212 191 42
See notes to consolidated financial statements.
F-3
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999
(In Thousands)
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
NET INCOME (LOSS) $(11,168) $ 259 $ 5,867
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (239) 151 1,800
-------- -------- --------
COMPREHENSIVE INCOME (LOSS) $(11,407) $ 410 $ 7,667
======== ======== ========
See notes to consolidated financial statements.
F-4
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999
(In Thousands)
- --------------------------------------------------------------------------------
Retained Accumulated
Stock Additional Earnings Other Notes Due
Common Par Paid-in (Accumulated Comprehensive From
Shares Value Capital Deficit) Income (Loss) Stockholders
BALANCE, JANUARY 1, 1998 AFTER
CORPORATE REORGANIZATION (Note 1) 3,966 $ 4 $ -- $ (3,971) $(1,662) $ --
Compensation related to stock options -- -- 1,918 -- -- --
Amortization of stock compensation -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- 1,800 --
Recapitalization payment to parent -- -- -- (50,000) -- --
Net income -- -- -- 5,867 -- --
------ ----- -------- -------- ------- -----
BALANCE, JANUARY 2, 1999 3,966 4 1,918 (48,104) 138 --
Issuance of common stock 1,124 1 1,482 -- -- --
Compensation related to stock options -- -- 431 -- -- --
Amortization of stock compensation -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- 151 --
Exercise of stock options 2,879 3 946 -- -- (927)
Net income -- -- -- 259 -- --
------ ----- -------- -------- ------- -----
BALANCE, JANUARY 1, 2000 7,969 8 4,777 (47,845) 289 (927)
Exercise of stock options 545 5 737 -- -- --
Issuance of stock under ESPP 86 1 196 -- -- --
Amortization of stock compensation -- -- -- -- -- --
Conversion of preferred shares to common
stock 16,000 160 -- -- -- --
Effect of adjustment to Summit acquisition
exchange ratio (7,715) (77) -- -- -- --
Shares issued in connection with merger
of Innoveda and Summit 15,989 231 80,734 -- -- --
Options granted for Summit merger -- -- 4,882 -- -- --
Options granted under PADS acquisition -- -- 366 -- -- --
Issuance of shares in PADS acquisition 6,473 65 24,355 -- -- --
Shareholder note receivable acquired through
PADS acquisition -- -- -- -- -- (5)
Foreign currency translation adjustment -- -- -- -- (239) --
Repurchase of common stock -- -- -- -- -- --
Net income -- -- -- (11,168) -- --
------ ----- -------- -------- ------- -----
BALANCE, DECEMBER 30, 2000 39,347 $ 393 $116,047 $(59,013) $ 50 $(932)
====== ===== ======== ======== ======= =====
Treasury Deferred
Stock Compensation Total
BALANCE, JANUARY 1, 1998 AFTER
CORPORATE REORGANIZATION (Note 1) $ -- $ -- $ (5,629)
Compensation related to stock options -- (1,918) --
Amortization of stock compensation -- 117 117
Foreign currency translation adjustment -- -- 1,800
Recapitalization payment to parent -- -- (50,000)
Net income -- -- 5,867
----- ------- --------
BALANCE, JANUARY 2, 1999 -- (1,801) (47,845)
Issuance of common stock -- -- $ 1,483
Compensation related to stock options -- (431) --
Amortization of stock compensation -- 531 531
Foreign currency translation adjustment -- -- 151
Exercise of stock options -- -- 22
Net income -- -- 259
----- ------- --------
BALANCE, JANUARY 1, 2000 -- (1,701) (45,399)
Exercise of stock options -- -- $ 742
Issuance of stock under ESPP -- -- 197
Amortization of stock compensation -- 588 588
Conversion of preferred shares to common
stock -- -- 160
Effect of adjustment to Summit acquisition
exchange ratio -- -- (77)
Shares issued in connection with merger
of Innoveda and Summit -- -- 80,965
Options granted for Summit merger -- -- 4,882
Options granted under PADS acquisition -- -- 366
Issuance of shares in PADS acquisition -- -- 24,420
Shareholder note receivable acquired through
PADS acquisition -- -- (5)
Foreign currency translation adjustment -- -- (239)
Repurchase of common stock (832) -- (832)
Net income -- -- (11,168)
----- ------- --------
BALANCE, DECEMBER 30, 2000 $(832) $(1,113) $ 54,600
===== ======= ========
See notes to consolidated financial statements.
F-5
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999
(In Thousands)
- --------------------------------------------------------------------------------
Year Ended
--------------------------------------
December 30, January 1, January 2,
2000 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $(11,168) $ 259 $ 5,867
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 15,333 3,998 3,205
Compensation under stock option agreements 588 531 117
Write-off of in-process research and development 5,453 -- --
Loss on disposal of fixed assets -- -- 820
Change in current assets and current liabilities:
Accounts receivable (6,172) (4,500) (668)
Prepaid and other assets 1,788 (1,532) (213)
Deferred income taxes (4,660) 70 220
Accounts payable (2,250) 1,081 872
Accrued compensation 1,026 207 (2,412)
Accrued expenses 3,969 (1,274) (6,946)
Deferred revenue (545) 1,598 2,005
-------- -------- --------
Net cash provided by operating activities 3,362 438 2,867
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,403) (1,000) (1,257)
Capitalized software costs (1,021) (1,068) (1,111)
Purchase of OmniView -- (1,153) --
Purchase of Transcendent, net of cash acquired -- 285 --
Proceeds from sale of VirSim product 7,000 -- --
Cash acquired in acquisition of PADS, net of purchase costs 2,857 -- --
Cash acquired in acquisition of Summit, net of purchase costs 27,036 -- --
Other -- (300) (449)
-------- -------- --------
Net cash provided by (used in) investing activities 32,469 (3,236) (2,817)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt (15,070) (2,250) (500)
Proceeds from debt -- 1,200 18,500
Recapitalization payment to Synopsys, Inc. -- -- (50,000)
Advances from parent -- -- 3,100
Proceeds from sales of redeemable convertible preferred stock -- -- 32,000
Proceeds from exercise of stock options and stock purchase plan 944 22 --
Repayments of capital lease obligations (460) (169) (64)
Purchase of treasury stock (832) -- --
-------- -------- --------
Net cash provided by (used in) financing activities (15,418) (1,197) 3,036
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (145) 39 1,401
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 20,268 (3,956) 4,487
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 531 4,487 --
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 20,799 $ 531 $ 4,487
======== ======== ========
See notes to consolidated financial statements.
F-6
INNOVEDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business - Innoveda, Inc. (the "Company") operates in the United
States and international markets developing, marketing and providing
technical support for a comprehensive family of software tools used by
engineers in the design of advanced electronic products and systems, and
related services.
Basis of Presentation - Innoveda, Inc., a Delaware corporation, was
created by the business combination of Summit Design, Inc. ("Summit") and
Viewlogic Systems, Inc. ("Viewlogic") which was consummated on March 23,
2000. In addition, the Company subsequently acquired PADS Software, Inc.
("PADS") on September 22, 2000. The business combination of Summit with
Viewlogic was effected by means of the merger of a wholly owned subsidiary
of Summit with and into Viewlogic, with Viewlogic surviving as a wholly
owned subsidiary of Summit. The business combination was accounted for as
a reverse acquisition, as former shareholders of Viewlogic owned the
majority of the outstanding stock of Summit subsequent to the business
combination. Therefore, for accounting purposes, Viewlogic is deemed to
have acquired Summit. The business combination of Innoveda and PADS was
accounted for as a purchase of PADS by Innoveda.
All fiscal 1999 financial information presented herein, with the exception
of pro forma results, represents only the financial results for Viewlogic.
The fiscal 2000 financial information presented in the consolidated
statements of operations, and the consolidated statements of cash flows
represents the results for Viewlogic for the periods stated and includes
the financial results for Summit commencing March 24, 2000, and the
financial results for PADS commencing September 23, 2000.
Prior to December 4, 1997, a company also named Viewlogic Systems, Inc.
(the "Prior Viewlogic") offered two primary product lines, consisting of
software tools used by engineers designing integrated circuits (the "ASIC
Business") and software tools used by engineers designing printed circuit
boards and complete systems (the "Systems Business"). On December 4, 1997,
the Prior Viewlogic became a wholly owned subsidiary of Synopsys, Inc.
("Synopsys") in a transaction accounted for as a pooling of interests. On
January 1, 1998, the Prior Viewlogic transferred the ASIC Business and
certain other assets to Synopsys, leaving only the Systems Business in the
Prior Viewlogic. The Prior Viewlogic operated as the Systems Business
through March 31, 1998 when, in a reorganization for tax purposes, the
Systems Business was transferred to the Viewlogic Systems, Inc. which
would later merge with Summit as described above. The reorganization was
for tax purposes only and there was no substantive change in the
operations of the business.
On October 2, 1998, a group of investors purchased 16,000 shares of
Viewlogic's preferred stock for $32,000 and the Company borrowed $18,000
from a bank. The proceeds of these financings were paid to Synopsys with
the result that Synopsys' interest in Viewlogic was reduced to 19.9% at
the time of the transaction. This transaction was accounted for as a
recapitalization.
F-7
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
The accompanying consolidated financial statements include the operations
of the Prior Viewlogic through March 31, 1998 and of the Company from
April 1, 1998 through January 2, 1999. For the period from January 1, 1998
through the October 2, 1998 recapitalization, certain treasury services
were provided by Synopsys at no charge. The fair value of services was not
significant. The Company charged Synopsys $1,386 for transition services
for the nine months ended October 3, 1998, and $987 and $153 for occupancy
costs for the years ended January 2, 1999 and January 1, 2000,
respectively, related to the transfer of the ASIC Business to Synopsys.
The Company did not charge Synopsys for any additional costs beyond July
3, 1999.
Fiscal Year -The Company's fiscal year is a 52-53-week year ending on the
Saturday closest to December 31.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts and disclosures of certain assets and liabilities at the
balance sheet date. Actual results may differ from such estimates.
Principles of Consolidation - The consolidated financial statements
include the accounts of Innoveda, Inc. and its subsidiaries, all of which
are wholly owned. All significant intercompany balances and transactions
have been eliminated.
Foreign Currency Translation - The functional currency of international
operations is deemed to be the local country's currency. Assets and
liabilities of operations outside the United States are translated into
United States dollars using current exchange rates at the balance sheet
date. Results of operations are translated at average exchange rates
prevailing during each period. Translation adjustments are included in
other comprehensive income. Transaction gains and losses are recorded
in the statements of operations currently. In 1998, as part of the
recapitalization, one of the Company's international subsidiaries repaid
an amount that had been previously treated as a long-term investment.
The repayment of this amount resulted in a realized transaction loss of
$1,400 that is included in other expense.
Revenue Recognition - The Company's revenue recognition policies are in
compliance with Statement of Position (SOP) No. 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, and Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements".
Software revenue is recognized upon the shipment of the product provided
that persuasive evidence of an arrangement exists, the arrangement fee is
fixed and determinable and collection is probable. For arrangements
involving multiple elements, the arrangement fee is allocated to each
element based on vendor-specific objective evidence ("VSOE") of the fair
value of the various elements. VSOE is determined based on the prices at
which the elements are sold separately. If VSOE exists for all undelivered
elements but not for the delivered element, the portion of the arrangement
fee allocated to the delivered element is determined using the residual
method. If VSOE does not exist for all of the undelivered elements, the
arrangement fee is recognized ratably over the term of the arrangement.
For term licenses of one year or less, revenue is recognized ratably over
the term of the agreement, unless the only support provided is telephone
support, in which case the entire arrangement fee is recognized at the
beginning of the term.
Revenue from maintenance and support contracts is deferred and recognized
ratably over the term of the service period. Revenue from training and
consulting is recognized as the related services are provided.
F-8
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Cash Equivalents - The Company considers all short-term, highly liquid
investments purchased with a remaining maturity of three months or less to
be cash equivalents.
Supplemental cash flow information is as follows (in thousands):
Year Ended
--------------------------------------
December 30, January 1, January 2,
2000 2000 1999
Cash paid for interest $ 1,131 $ 1,645 $ 14
Cash paid for income taxes 2,576 1,543 90
Assets acquired under capital leases -- 898 89
Issuance of stock in OmniView acquisition -- 280 --
Acquisition of Transcendent:
Fair value of assets acquired (including intangibles) -- 3,373 --
Fair value of common stock issued -- (1,159) --
Fair value of Transcendent options assumed -- (44) --
Transaction costs -- (354) --
Liabilities assumed -- 1,816 --
Acquisition of Summit Design:
Fair value of assets acquired (including intangibles) 49,842 -- --
Fair value of common stock issued (49,020) -- --
Fair value of Summit Design options assumed (4,882) -- --
Transaction costs (1,136) -- --
Liabilities assumed 25,350 -- --
Acquisition of PADS Software:
Fair value of assets acquired (including intangibles) 54,306 -- --
Fair value of common stock issued (23,870) -- --
Fair value of PADS options assumed (366) -- --
Transaction costs (550) -- --
Liabilities assumed 35,438 -- --
Exercise of stock options through issuance of
stockholders' notes -- 927 --
Property and Equipment - Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the related assets (three to five years). Equipment leased
under capital leases is amortized over the lesser of its useful life or
the lease term.
F-9
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Capitalized Software Costs and Purchased Technology - Certain software
costs for products and product enhancements are capitalized after
technological feasibility has been established. Amortization is provided
over estimated lives of four years on a straight-line basis or based on
the ratio of current revenues to the total expected revenues in a
product's life, if greater. Accumulated amortization was $4,125 and
$3,143 at December 30, 2000 and January 1, 2000, respectively.
Amortization expense for the fiscal years ended December 30, 2000,
January 1, 2000 and January 2, 1999 was $1,013, $966 and $1,057,
respectively. Research and development costs and software development
costs incurred before technological feasibility has been established are
expensed as incurred.
Purchased technology is being amortized over estimated lives ranging
from three to four years. Accumulated amortization was $7,320 and $627
at December 30, 2000 and January 1, 2000, respectively. Amortization
expense for the fiscal years ended December 30, 2000 and January 1,
2000 was $7,031 and $615 respectively.
Goodwill and Other Assets - Goodwill and other assets consist primarily
of goodwill, which represents the excess of the purchase price over
identifiable net assets acquired, and is being amortized over seven
years. Accumulated amortization at December 30, 2000 and January 1,
2000 was $3,085 and $74, respectively. Amortization expense for the
fiscal year ended December 30, 2000 and January 1, 2000 was $3,304 and
$55, respectively. The carrying values of goodwill and other long-lived
assets are reviewed whenever circumstances occur which indicate that
the carrying value may not be recoverable.
Income Taxes - The Company computes deferred income taxes based on the
differences between the financial statement and tax basis of assets and
liabilities using enacted rates in effect in the years in which the
differences are expected to reverse. The Company establishes valuation
allowances to offset temporary deductible differences, net operating loss
carryforwards, and tax credits, which are not likely to be realized.
For the period from January 1, 1998 through October 3, 1998, the Company
was included in the consolidated returns of Synopsys. For financial
statement purposes, the Company has computed the tax provision for the
year ended January 2, 1999 as if it had filed separate returns.
Foreign Exchange Contracts - The Company enters into foreign exchange
contracts as a hedge against certain accounts receivable denominated in
foreign currencies. Market value gains and losses are recognized, and the
resulting credit or debit offsets foreign exchange gains or losses on
those receivables. Realized and unrealized gains and losses on foreign
exchange contracts for the years ended December 30, 2000 and January 1,
2000 were insignificant. There were no outstanding foreign exchange
contracts outstanding as of December 30, 2000.
Fair Value of Financial Instruments - Financial instruments held or used
by the Company include cash and cash equivalents, accounts receivable,
accounts payable, capital lease obligations, notes and line of credit
payables, foreign exchange contracts (if any) and interest rate swap
agreements. The fair values of these instruments, which could change if
market conditions change, are based on management's estimates. Management
believes that the carrying value of these instruments approximates their
fair values.
Interest Rate Swap Agreement - The net differential to be paid or received
under the Company's interest rate swap agreement is accrued as interest
rates change and is recognized over the life of the agreement.
Stock-Based Compensation - The Company uses the intrinsic value-based
method of Accounting Principles Board Opinion No. 25, as permitted by SFAS
No. 123, "Accounting for Stock-Based Compensation," to account for
employee stock-based compensation plans.
F-10
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133, as amended, establishes new standards
of accounting and reporting for derivative instruments and hedging
activities and will be effective for the Company in fiscal 2001.
Management does not expect the adoption of SFAS 133 to have a material
effect on Innoveda's consolidated financial position or results of
operations.
Reclassification - Certain amounts in the prior year consolidated
financial statements have been reclassified to conform with the current
year presentation.
2. ACQUISITIONS
Acquisition by Innoveda of PADS - On June 2, 2000, Innoveda entered into a
merger agreement with PADS. The merger was consummated on September 22,
2000. The merger agreement provided that a wholly owned subsidiary of
Innoveda would merge with and into PADS, with PADS surviving as a wholly
owned subsidiary of Innoveda following the merger. For the merger,
Innoveda issued 6,473 shares of its common stock and paid approximately
$2.0 million to the PADS stockholders. PADS capital stock outstanding at
the merger date was exchanged for shares of Innoveda common stock at the
rate of approximately 1 to 1.9 per share, plus $.579 per share in cash. In
addition, each outstanding option to purchase shares of PADS common stock
was converted into an option to purchase 2.0355 shares of Innoveda common
stock, and the option exercise prices were adjusted accordingly.
The acquisition was accounted for under the purchase method of
accounting. The operating results of PADS have been included in the
accompanying consolidated financial statements from the date of
acquisition. Under the purchase method of accounting, the acquired
assets and assumed liabilities have been recorded at their estimated
fair values at the date of acquisition. Goodwill and other intangibles
in the amount of approximately $49,069 have been capitalized. As a
result of the acquisition, $3,053 relating to in-process research and
development has been expensed. The goodwill and other intangibles are
being amortized over estimated useful lives of three to seven years.
The valuation of the existing technology and in-process research and
development was determined using the income method. Revenue and expense
projections as well as technology assumptions were prepared through
2009. The projected cash flows were discounted using a 17% to 23% rate.
The valuation of the in-process research and development was determined
separately from all other acquired assets using the percentage of
completion method. The percentage of completion ratio was calculated by
dividing the total expenditures to date for each project by the total
estimated expenditures.
The value assigned to in-process technology relates primarily to three
research projects, Power PCB Next Generation, BlazeDRE and ACT
Manufacturing. During Q1 of 2000, ACT Manufacturing was commercially
released, BlazeDRE is expected to be commercially released during Q4
2001, and Power PCB Next Generation has yet to reach technological
feasibility. The nature of the efforts required to develop the
in-process technologies into commercially viable products principally
relate to the completion of all planning, designing, prototyping,
verification and testing activities that are necessary to establish
that the products can be designed to meet their design specifications,
including function, features and technical performance requirements.
F-11
2. ACQUISITIONS (CONTINUED)
Below is a table of the PADS acquisition costs and the purchase price
allocation:
Purchase price:
Common stock $ 23,870
Stock options 366
Cash payment to PADS stockholders 1,976
Acquisition costs 550
--------
Total purchase price $ 26,762
========
Purchase price allocation:
Tangible net assets acquired $ 657
Assumed debt (7,381)
Deferred income taxes (18,208)
Intangible net assets acquired:
Purchased technology, assembled workforce,
customer base, and trademarks 47,293
Goodwill 1,776
In-process research and development 3,053
Estimated PADS related severance and shutdown costs (428)
--------
Total $ 26,762
========
Pursuant to the PADS merger agreement, Innoveda paid all of the assumed
debt after the closing.
The $428 accrued as estimated severance and shutdown costs include
involuntary employee separations costs and facilities consolidations.
The separations benefits relate to one employee in an administrative
function at PADS' corporate headquarters. The facilities consolidation
amount related primarily to sales offices to be closed as a result of
the acquisition. All such costs are expected to be paid within a year
of the acquisition date.
Innoveda recorded merger costs of approximately $0.5 million in
restructuring charges relating to the PADS merger. This was primarily
comprised of severance payments related to one employee and exit costs
to close Innoveda duplicative facilities as a result of the merger.
F-12
2. ACQUISITIONS (CONTINUED)
Business Combination of Viewlogic and Summit - On March 23, 2000, the
stockholders of Viewlogic and the stockholders of Summit approved an
Agreement and Plan of Reorganization. Summit was a publicly held company
engaged in a business similar to that of Viewlogic. In connection with the
business combination contemplated by the Agreement and Plan of
Reorganization, (1) each share of Viewlogic common stock and preferred
stock issued and outstanding at the effective time of the business
combination was converted into 0.67928 (the "Exchange Ratio") of a share
of Summit common stock, and (2) each option to purchase shares of
Viewlogic Common Stock was converted into an option to purchase Summit
common stock based upon the Exchange Ratio.
The business combination was accounted for under the purchase method of
accounting and was treated as a reverse acquisition, as the stockholders
of Viewlogic received the larger portion of the voting interests in the
combined company. Viewlogic was considered the acquirer for accounting
purposes and recorded Summit's assets and liabilities based upon their
estimated fair values. The operating results of Summit have been included
in the accompanying consolidated financial statements from the date of
acquisition. Under the purchase method of accounting, the acquired assets
and assumed liabilities have been recorded at their estimated fair values
at the date of acquisition. Goodwill and other intangibles in the amount
of approximately $38,137 have been capitalized. As a result of the
business combination, $2,400 relating to in-process research and
development has been expensed. The goodwill and other intangibles are
being amortized over estimated useful lives of three to seven years.
The valuation of the existing technology and in-process research and
development was determined using the income method. Revenue and expense
projections as well as technology assumptions were prepared through
2009. The projected cash flows were discounted using a 25% to 30% rate.
The valuation of the in-process research and development was determined
separately from all other acquired assets using the percentage of
completion method. The percentage of completion ratio was calculated by
dividing the total expected expenditures to date for each project by
the total estimated expenditures for each project by the total
estimated expenditures to achieve technological feasibility.
The value assigned to in-process technology relates primarily to two
research projects, Visual HDL 2000 and Visual SLD. The nature of the
effort required in the development of the in-process technologies into
commercially viable products principally related to the completion of
all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the products can be
designed to meet their design specifications, including function,
features and technical performance requirements. Visual HDL 2000
represented a major rearchitecture of the two existing Visual HDL
products. This new generation product integrates these two existing
products along with a newly developed compiler. The Visual SLD research
project represented the development of an entirely new product targeted
at a customer base not previously approached for the Visual product
line. These technologies were combined and commercially released during
the fourth quarter of 2000 under the product name Visual Elite.
Below is a table of Summit acquisition costs and the purchase price
allocation (in thousands):
Purchase price:
Common stock $ 49,020
Stock options 4,882
Acquisition costs 1,136
--------
Total purchase price $ 55,038
========
Purchase price allocation:
Tangible net assets acquired $ 28,089
Assets impaired by the Merger (750)
Deferred income taxes (11,492)
Intangible net assets acquired:
Purchased technology, assembled workforce,
and customer base 23,200
Goodwill 14,937
In-process research and development 2,400
Estimated Summit related severance and shutdown costs (1,346)
--------
Total $ 55,038
========
F-13
2. ACQUISITIONS (CONTINUED)
The $1.3 million accrued as estimated severance and shutdown costs
include involuntary employee separations costs and facilities
consolidations. The separations benefits relate to approximately 30
employees, concentrated in administrative functions at Summit's
Beaverton corporate headquarters. The facilities consolidation amount
related primarily to Summit's corporate headquarters facility in
Beaverton and other sales offices to be closed as a result of the
acquisition. All such costs are expected to be paid within a year of
the acquisition date.
During the first quarter ended April 1, 2000, Innoveda recorded
approximately $2.2 million in merger costs relating to the Summit
business combination. This primarily included severance and other costs
relating to the consolidation of duplicative facilities as a result of the
business combination between Summit and Viewlogic. Other costs relating to
property and equipment lease contracts (less any applicable sublease
income) after the properties were abandoned, lease buyout costs,
restoration costs associated with certain lease arrangements, and costs to
maintain facilities during the period after abandonment are also included.
Further action was taken to restructure the Innoveda sales and services
business in Japan as a result of an exclusive distributor agreement
executed with Marubeni Solutions Corporation during the first quarter of
fiscal 2000. Charges associated with Japanese reorganization include
severance and benefit continuance for approximately 14 employees, costs
associated with office closings and subsequent lease termination, and
other facility and exit related costs.
The following table presents the components of the merger costs accrued
during the mergers with PADS and Summit and the charges against these
reserves through December 30, 2000. All significant amounts are expected
to be paid within one year from the date of the respective business
combinations.
Total Non-cash Amount December 30, 2000
Charge Write-off Paid Accrual Balance
PADS merger costs:
Severance $ 250 $ -- $ 218 $ 32
Non-cancelable commitments 199 -- 29 170
Capitalized software 44 44 -- --
------ ------ ------ ------
$ 493 $ 44 $ 247 $ 202
====== ====== ====== ======
Summit merger costs:
Severance $ 780 $ -- $ 775 $ 5
Non-cancelable commitments 1,389 -- 707 682
Capitalized software 74 74 -- --
------ ------ ------ ------
$2,243 $ 74 $1,482 $ 687
====== ====== ====== ======
Totals $2,736 $ 118 $1,729 $ 889
====== ====== ====== ======
The unaudited consolidated results of operations shown below are presented
on a pro forma basis and represent the results of Viewlogic, Summit and
PADS had the business combinations of these entities occurred at the
beginning of the periods presented. This schedule includes all
amortization and non-recurring charges for all entities for the periods
shown.
December 30, January 1,
2000 2000
Revenue $115,404 $109,434
Net loss (19,312) (13,010)
Net loss per share
Basic $ (0.50) $ (0.34)
Diluted (0.50) (0.34)
The pro forma financial information is presented for informational
purposes only and is not indicative of the operating results that would
have occurred had the mergers been consummated as of the above dates, nor
are they necessarily indicative of future operating results.
F-14
2. ACQUISITIONS (CONTINUED)
On March 1, 1999, the Company purchased certain assets and intellectual
property of OmniView, Inc. ("OmniView"). The purchase price consisted of
$1,100 in cash, 272 shares of the Company's common stock and acquisition
expenses. The purchase price was allocated to the assets acquired based on
their fair values with $1.2 million to purchased technologies and other
intangibles.
On August 9, 1999, the Company acquired Transcendent Design Technologies
("Transcendent"). Transcendent develops, markets and distributes
electro-mechanical design and analysis software. The acquisition was
accounted for under the purchase method. The purchase price for the
acquisition was 492 shares of Viewlogic common stock, options to purchase
53 shares of Viewlogic common stock and $354 in direct acquisition costs.
The purchase price was allocated to the acquired assets and liabilities
based on their fair values with $2.7 million to purchased technologies and
other intangibles.
3. DEBT
Credit Facility - The Company has a $16,000 credit facility with a
commercial bank consisting of a $6,000 revolving line of credit ("Line
of Credit") and a $10,000 term loan (the "Term Loan") (together, the
"Credit Facility"). Interest terms on the Line of Credit and the Term
Loan are determined, at the option of the Company, for varying periods.
The Company may elect to have the interest rate based on the bank's
prime rate or based on the LIBOR rate at the time of the election,
depending on the Company's leverage financial ratio as defined in the
Credit Facility. The interest rates on the Line of Credit and the Term
Loan at December 30, 2000 and January 1, 2000 were 10.0% and 9.2%,
respectively, and 9.50% and 8.26%, respectively. Payments of principal
outstanding under either the Line of Credit or the Term Loan may be
made at any time and must be repaid in full by September 30, 2003.
As required under the Credit Facility, the Company entered into a no fee
interest rate-swap agreement with a bank to reduce the impact of changes
in interest rates on its floating rate Credit Facility. This agreement
effectively converts a portion of the floating-rate obligation into a
fixed-rate obligation of 7.4% for a period of 60 months, expiring on March
31, 2003. The notional principal amount of the interest rate-swap
agreement is $9,250 as of December 30, 2000. The Company is exposed to
credit loss in the event of nonperformance by the counterparties to the
interest rate-swap agreement.
Certain information with respect to line-of-credit borrowings was as
follows:
Weighted-
Average Maximum Average
Interest Amount Amount
Rate Outstanding Outstanding
Period January 2, 1999 to January 1, 2000 7.5% $1,700 $449
Period January 2, 2000 to December 30, 2000 9.2 3,500 407
F-15
3. DEBT (CONTINUED)
Under all debt agreements, minimum repayments are due as follows (on a
quarterly basis) as of December 30, 2000:
Fiscal Years
2001 $3,550
2002 4,000
2003 1,750
------
$9,300
======
The Credit Facility also calls for other mandatory repayments: (a) after
the end of each fiscal year in the case that cash flow leverage, as
defined in the Credit Facility, is greater than 2.0 times, 50% of the
excess cash flow as defined in the Credit Facility, (b) upon availability
of cash from the net proceeds of any sale of certain of the Company's
assets, and (c) proceeds from settlements for casualty insurance policies
greater than $250.
The Company pays a commitment fee of .50% per annum of the unused portion
of the Line of Credit. Borrowings under the Credit Facility are
collateralized by substantially all of the Company's assets. The Credit
Facility contains certain limitations on additional indebtedness, capital
expenditures, and includes financial covenants which include, but are not
limited to, the maintenance of certain minimum levels of interest, and
debt service coverage ratios and maximum leverage ratios.
Open interest rate contracts are reviewed regularly by the Company to
ensure that they remain effective as hedges of interest rate exposure. The
fair value of the interest rate-swap agreement was approximately $40 as
of December 30, 2000.
Capital Leases - The Company is obligated under capital leases for its
phone system, computer equipment and software that expire at various dates
during the next three years. The recorded value of the assets was $1,232
and $1,201 as of December 30, 2000 and January 1, 2000, respectively. The
related accumulated amortization on these assets was $636 and $318 as of
December 30, 2000 and January 1, 2000, respectively.
F-16
3. DEBT (CONTINUED)
Future aggregate minimum annual lease payments under capital leases at
December 30, 2000 are as follows:
2001 $ 559
2002 301
2003 2
-----
Total minimum payments (excluding taxes, maintenance and insurance) 862
Less amount representing interest (64)
-----
Present value of minimum lease payments 798
Less current maturities (548)
-----
Long-term portion $ 250
=====
4. STOCKHOLDERS' EQUITY
Preferred Stock - Innoveda has 5,000 shares of Preferred Stock authorized,
of which there are no shares outstanding. The Innoveda Board of Directors
has the authority to issue these shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any unissued and undesignated shares of
Preferred Stock and to fix the number of shares constituting any series
and the designations of such series, without any future vote or action by
the stockholders.
Redeemable, Convertible Preferred Stock - Viewlogic had authorized 22,000
shares of $.001 par value, redeemable, convertible preferred stock
("Preferred Stock") of which 17,000 were designated as Series A Voting
Preferred Stock ("Series A") and 5,000 were designated as Non-voting
Series A-1 Preferred Stock ("Series A-1"). At January 1, 2000, 11,382
shares of Series A and 4,618 shares of Series A-1 were issued and
outstanding. Effective with the business combination of Viewlogic and
Summit, all Series A and Series A.1 shares were converted into shares of
the Company's common stock.
Stock Repurchase Program - Under a stock repurchase program announced in
October 2000, the Company is authorized to purchase up to 2 million shares
of its common stock from time to time on the open market or pursuant to
negotiated and block transactions. The repurchased shares will be held as
treasury shares and used under the company stock option plans, employee
stock purchase plans and for general corporate purposes. The authorization
expires in October 31, 2001. The Company had purchased 341 shares of
common stock in 2000 at an aggregate cost of $832.
STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
2000 Stock Incentive Plan - On May 31, 2000 the Board of Directors adopted
the Amended and Restated 2000 Stock Incentive Plan (the "2000 Plan"). On
July 13, 2000, Innoveda's stockholders approved the 2000 Plan. Under the
2000 Plan either shares of the Company's common stock or options to
purchase shares of the Company's stock may be issued at the discretion of
the Company's Board of Directors. The initial 4,500 shares authorized to
be issued under the 2000 Plan increase automatically by 2,000 shares
annually during the Plan's existence. In addition, up to 2,400 shares
which were previously available for issuance under the Summit Design 1994
Stock Plan, the Summit Design 1997 NonStatutory Stock Plan and the
Viewlogic Inc. 1998 Stock Incentive Plan (collectively, the "Prior Plans")
may be issued under the 2000 plan. No more than 500 shares of stock can be
awarded to a
F-17
4. STOCKHOLDERS' EQUITY (CONTINUED)
single employee in any calendar year. Options generally vest over a period
of four years and expire after ten years. Options granted to certain
officers are exercisable when granted; however, the shares are subject to
repurchase rights by the Company at the exercise price. The Company's
right to repurchase the shares generally lapses ratably over four years.
1998 Stock Incentive Plan - The Company has the Viewlogic, Inc. 1998 Stock
Incentive Plan (the "1998 Plan"). Under the 1998 Plan, the Company may
issue stock or options to purchase shares at the discretion of the
Company's Board of Directors. The initial 4,521 shares authorized to be
issued under the 1998 Plan increase automatically by five percent of the
original shares authorized annually during the 1998 Plan's existence. No
more than 883 shares of stock can be awarded to a single employee in any
calendar year. Options generally vest over a period of four years and
expire after ten years. Options granted to certain officers are
exercisable when granted; however, the shares are subject to repurchase
rights by the Company at the exercise price. The Company's right to
repurchase the shares generally lapses ratably over four years.
Other Stock Option Plans - The Company has the Incentive Stock Option Plan
("1994 Plan"), 1996 Director Option Plan (the "Director Plan") and the
1997 Nonstatutory Stock Option Plan ("Nonstatutory Plan") pursuant to
which the Company may grant options to employees and consultants. Under
the terms of the 1994 Plan, the option price is determined as the fair
value of the Company's common stock at the time the option is granted.
Under the 1994 Plan, 3,447 shares of common stock are authorized for
issuance.. Options generally vest 25% twelve months after the date of
grant and the remainder at 1/48th of the grant amount in each successive
month thereafter. Options expire no later than 10 years after the date of
grant. Options granted under the Nonstatutory Plan will be nonstatutory
stock options and are not intended to qualify as incentive stock options
within the meaning of Section 422 of the Internal Revenue Code. Options
generally vest 25% twelve months after the date of grant and the remainder
at 1/48th of the grant amount in each successive month thereafter. Options
expire no later than 10 years after the grant date. In addition, no more
than 25 options may be granted to directors and persons considered
"officers" by the NASDAQ Stock Market. The maximum aggregate number of
shares of common stock authorized for issuance is 1,050 shares.
There were 3,600 shares of common stock reserved for the grant of stock
options under all Plans at December 30, 2000, subject to certain
limitations as discussed above.
F-18
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following is a summary of all option activity under all Plans:
Weighted-
Number Average
of Exercise
Shares Price
Outstanding at January 1, 1998 -- $ --
Granted 3,679 0.49
Exercised -- --
Forfeited (5) 0.49
------ -----
Outstanding at January 2, 1999 3,674 0.49
Granted 469 1.00
Exercised (1,955) 0.49
Assumed Transcendent options 57 2.25
Forfeited (225) 0.60
------ -----
Outstanding at January 1, 2000 2,020 0.65
Granted 3,753 3.42
Exercised (504) 1.35
Assumed options from acquisitions 2,715 4.42
Forfeited (1,286) 3.36
------ -----
Outstanding at December 30, 2000 6,698 $3.17
====== =====
The following are the shares exercisable at the corresponding weighted
average exercise price at December 30, 2000, January 1, 2000, and January
2, 1999, respectively: 1,807 at $3.37, 479 at $0.68, and 2,089 at $0.49.
The weighted-average grant date fair value for options granted for the
years ended December 30, 2000, January 1, 2000 and January 2, 1999 was
$2.28, $1.31, and $0.72, respectively.
At December 30, 2000, 2,809 shares issued upon the exercise of options by
certain officers of the Company were subject to repurchase by the Company
at the exercise price.
F-19
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth information regarding options outstanding
as of December 30, 2000:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted - Weighted -
Average Average Weighted -
Range of Contractual Exercise Average
Exercise Prices Shares Periods in Years Price Shares Exercise Price
0.09 6 7.89 0.09 2 0.09
0.31 - 0.35 6 5.50 0.34 5 0.34
0.49 1,118 7.83 0.49 537 0.49
0.80 - 1.17 134 8.30 0.84 55 0.89
1.75 - 2.63 441 8.60 2.34 191 2.28
2.69 - 4.00 4,014 9.33 3.25 640 3.35
4.06 - 5.57 609 9.12 4.91 107 5.24
6.50 - 9.63 319 7.14 8.48 224 8.74
12.75 - 17.00 51 7.18 14.56 46 14.66
For financial reporting purposes, the deemed fair value of the common
stock at the dates of grants resulted in deferred compensation expense
of $431 for the year ended January 1, 2000 and $1,918 for the year
ended January 2, 1999. These charges are being recognized ratably over
the vesting period. Compensation expense recognized amounted to $588,
$531 and $116 for the years ended December 30, 2000, January 1, 2000 and
January 2, 1999.
2000 Employee Stock Purchase Plan - On May 16, 2000, the Company adopted
the 2000 Employee Stock Purchase Plan ("2000 Purchase Plan"). The 2000
Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue code, permits eligible employees of the Company to
purchase common stock through payroll deductions of up to 10% of their
base salary up to a maximum of $25 of common stock for all purchase
periods ending within any calendar year. The price of common stock
purchased under the 2000 Purchase Plan will be 85% of the lower of the
fair market value of the common stock on the first day of each 24-month
offering period or the last day of the applicable six-month purchase
period. The Company has reserved 700 shares of common stock for issuance
under the 2000 Purchase Plan. The Company has not issued shares of common
stock under the 2000 Purchase Plan as of December 30, 2000.
1996 Employee Stock Purchase Plan - The Company has the 1996 Employee
Stock Purchase Plan ("1996 Purchase Plan") which was replaced by the 2000
Purchase Plan. The 1996 Purchase Plan, which was intended to qualify under
Section 423 of the Internal Revenue code, permitted eligible employees of
the Company to purchase common stock through payroll deductions of up to
10% of their base salary up to a maximum of $25 of common stock for all
purchase periods ending within any calendar year. The price of common
stock purchased under the 1996 Purchase Plan was 85% of the lower of the
fair market value of the common stock on the first day of each 24 month
offering period or the last day of the applicable six-month purchase
period. The Company issued approximately 86 shares of common stock under
the 1996 Purchase Plan during 2000. The Company does not intend to issue
any more shares under this plan.
F-20
4. STOCKHOLDERS' EQUITY (CONTINUED)
Pro Forma Disclosures - As described in Note 1, the Company applies the
intrinsic value method of APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Had
compensation cost been determined based on the fair value at the grant
dates for awards under the Plans and the Prior Viewlogic's stock option
plans consistent with the method required by FASB Statement 123, the
Company's net income (loss) and net income (loss) per share would have
been:
December 30, January 1, January 2,
2000 2000 1999
Net income (loss) $ (11,948) $ 197 $ 5,838
Net income per common share:
Basic (0.42) 0.05 2.17
Diluted (0.42) 0.01 1.07
For purposes of the pro forma disclosures, the fair value of the options
granted under the Company's stock option plans during the years ended
December 30, 2000, January 1, 2000 and January 2, 1999 was estimated on
the date of grant using the Black-Scholes option pricing model. The fair
value of employee purchase rights under the Company's stock purchase plans
was also estimated using the Black-Scholes option pricing model.
Key assumptions used to apply this pricing model are as follows for the
periods presented:
December 30, January 1, January 2,
2000 2000 1999
Risk-free interest rate 5.2% - 6.7% 5.3% - 6.3% 6.0%
Expected life of option grants 4 years 4 years 4 years
Expected volatility of underlying stock 90% 59% 57%
Expected dividend payment rate -- -- --
5. INCOME TAXES
The components of income (loss) before income taxes consisted of the
following:
December 30, January 1, January 2,
2000 2000 1999
Domestic $(8,463) $ 124 $ 9,503
Foreign (876) 416 417
------- ------- -------
Total $(9,339) $ 540 $ 9,920
======= ======= =======
F-21
5. INCOME TAXES (CONTINUED)
The provision for income taxes consisted of the following:
December 30, January 1, January 2,
2000 2000 1999
Current:
Federal $ 6,717 -- $ 3,475
State -- -- 619
Foreign 472 250 75
------- ------- -------
Total 7,189 250 4,169
Deferred:
Federal (5,380) 51 (353)
State -- -- (24)
Foreign -- (20) 261
------- ------- -------
Total provision for income taxes $ 1,809 $ 281 $ 4,053
======= ======= =======
A reconciliation between the statutory U.S. federal income tax and the
Company's effective tax rate for the respective years is as follows:
December 30, January 1, January 2,
2000 2000 1999
U.S. federal statutory rate (35.0)% 35.0% 35.0%
State taxes - net of federal tax benefit (4) -- 2.9
Foreign taxes 5.0 15.6 1.5
Goodwill 21.6 -- --
In-process research and development 22.7 -- --
Amortization of stock compensation 2.4 -- --
Other items 6.6 1.4 1.5
----- ---- ----
Total 19.3% 52.0% 40.9%
===== ==== ====
For the period from December 5, 1997 through October 3, 1998, the Company
was included in the consolidated tax return of Synopsys. For financial
statement purposes, the Company has computed the tax provision for the
year ended January 2, 1999 as if it had filed separate returns.
F-22
5. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consisted of the following:
December 30, January 1, January 2,
2000 2000 1999
Current assets:
Accounts receivable $ 1,871 $ 537 $ 774
Deferred compensation 1,561 504 411
Foreign net operating loss
carryforwards 1,123 301 229
Depreciation 490 -- --
In-process research and development 949 -- --
Amortization of stock compensation 571 -- --
Other items 61 -- 166
-------- -------- --------
Total current assets $ 6,626 $ 1,342 $ 1,580
-------- -------- --------
Noncurrent liabilities:
Purchased technology $ 24,516 $ 993 $ --
Capitalized software costs 2,233 822 891
Depreciation and amortization 230 530 534
Deferred revenues 212 -- --
Other 451 48 93
-------- -------- --------
Total liabilities $ 27,642 $ 2,393 $ 1,518
-------- -------- --------
Total net deferred tax asset (liability) $(21,016) $ (1,051) $ 62
======== ======== ========
No valuation allowance is required as the deferred tax assets are
expected to be fully realized.
6. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases its principal office facilities and certain
computer equipment under noncancelable operating leases expiring on
various dates through 2006. The Company's headquarters office lease is
through 2002. The lease includes three two-year renewal options to extend
the lease through 2008. The lease contains a three-month rental abatement
and a rental escalation clause, the effects of which are being recognized
ratably over the lease term. At December 30, 2000, future minimum lease
payments under these noncancelable leases were approximately as follows:
2001, $5,135; 2002, $4,583; 2003, $2,639; 2004, $2,006; 2005, $1,180; and
thereafter, $154. The Company leases other office facilities under
operating lease agreements for which lease terms are one year or less.
Total rent expense was approximately $1,778, $2,232 and $3,572 for the
years ended January 2, 1999, January 1, 2000 and December 30, 2000,
respectively.
Contingencies - The Company is involved in certain legal proceedings which
have arisen in the ordinary course of business. Management believes the
outcome of these proceedings will not have a material adverse impact on
the Company's consolidated financial condition or operating results.
F-23
7. RELATED PARTY TRANSACTIONS
Sale of VirSim Product Line - On July 28, 2000, Innoveda entered into an
agreement with Synopsys, Inc. By virtue of its ownership interest in
Innoveda, Synopsys may be deemed to be affiliated with Innoveda. Synopsys
agreed to acquire Innoveda's VirSim electronic design software tool and
certain related assets for a purchase price of $7.0 million. The sale was
completed on August 2, 2000. There was no gain or loss on the sale as the
proceeds were offset by a related write-off of goodwill and other
intangible assets that were recorded from the business combination of
Summit and Viewlogic in March 2000. This transaction resulted in an
additional tax provision of approximately $1.5 million in 2000.
Royalty Agreements - On October 2, 1998, the Company entered into two OEM
agreements with Synopsys pursuant to which the Company has the right to
resell certain Synopsys software. The agreements are for two and three
years and are automatically renewed on a year-to-year basis thereafter.
The three-year agreement requires minimum annual payments of $750. Under
these agreements, the Company paid royalties to Synopsys of $2,279,
$1,890, and $0 for the years ended December 30, 2000, January 1, 2000 and
January 2, 1999, respectively. Under a prior agreement, the Company paid
royalties to Synopsys aggregating approximately $713 for the year ended
January 2, 1999.
Minority Stockholders - The minority stockholder in PADS Asia, a
subsidiary of the Company, is entitled to receive annually a performance
bonus based on PADS Asia's operations. The bonus amounted to $72 for the
year ended December 30, 2000. At December 30, 2000, total amounts payable
to minority stockholders amounted to $66. Additionally, PADS Asia had
sales to the minority stockholder of $67 for the year ended December 30,
2000.
Other Related Party Transactions - Expensed fees for contract software
development paid to an employee-owned company amounted to $429 for year
ended December 30, 2000.
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables sets forth selected quarterly financial information:
Quarters Ended
-------------------------------------------------
April 1, July 1, September 30, December 30,
2000 2000 2000 2000
-------------------------------------------------
Revenue $ 7,628 $ 21,560 $ 23,103 $ 30,811
Operating income (loss) (5,199) (944) (2,878) (16)
Net income (loss) (4,442) (669) (4,814) (1,243)
Net income (loss) per share - Basic (0.57) (0.02) (0.14) (0.03)
Net income (loss) per share - Diluted (0.57) (0.02) (0.14) (0.03)
Quarters Ended
-------------------------------------------------
April 3, July 3, October 2, January 1,
1999 2000 1999 2000
-------------------------------------------------
Revenue $ 6,534 $ 13,248 $ 13,585 $ 12,682
Operating income (loss) 1,655 592 700 (765)
Net income (loss) 740 135 192 (808)
Net income (loss) per share - Basic 0.27 0.05 0.04 (0.15)
Net income (loss) per share - Diluted 0.05 0.01 0.01 (0.15)
F-24
9. SEGMENT INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that public companies report profits and losses and
certain other information on its "reportable operating segments" in its
annual and interim financial statements. Management has determined that
the Company has only one "reportable operating segment," given the
financial information provided to and used by the "chief decision maker"
of the Company to allocate and assess the Company's performance. Revenue
consists of software sales, maintenance sales, and services. Summarized
information about the Company's operations by geographic area for the
periods stated are as follows:
North
America Europe Japan Israel Consolidated
December 30, 2000:
Revenue $65,979 $11,740 $12,140 $ 0 $89,859
Long-lived assets 83,123 438 50 1,528 85,139
January 1, 2000:
Revenue $40,225 $ 8,820 $ 4,454 $ 0 $53,499
Long-lived assets 10,455 284 593 0 11,332
January 2, 1999:
Revenue $41,667 $ 8,655 $ 4,915 $ 0 $55,237
Long-lived assets 7,109 344 612 0 8,065
No customer accounted for more than 10% of revenue for the years ended
December 30, 2000, January 1, 2000 and January 2, 1999.
10. RETIREMENT SAVINGS PLAN
In 1988, the Company established a qualified 401(k) retirement savings
plan covering substantially all of the Company's domestic employees. As of
March 1, 1998 and effective through October 2, 1998, the Company adopted
and contributed to the Synopsys' 401(k) retirement savings plan. On
November 1, 1998, the Company established a new 401(k) retirement savings
plan under which domestic employees are allowed to contribute a certain
percentage of their pay. The Company matches 50% of employee elected
pretax contributions, up to an annual maximum. In addition, as part of
PADS and Summit mergers, the Company acquired the former 401(k) retirement
plans from those companies. No further employee contributions were
accepted after the respective merger dates. Employer contributions for all
plans amounted to $235, $286 and $361, respectively, for the years ended
December 30, 2000, January 1, 2000 and January 2, 1999.
11. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number
of common shares outstanding. Diluted earnings per share is computed on
the basis of the weighted average number of common shares outstanding plus
the effect of outstanding stock options using the treasury stock method.
Although Summit is the surviving legal entity after the March 2000
business combination and the legal acquirer, for accounting purposes the
Summit business combination was treated as an acquisition of Summit by
Viewlogic. The weighted average number of common shares outstanding has
been adjusted for all periods reported in the table below to reflect the
Summit exchange ratio of .67928.
F-25
11. EARNINGS PER SHARE (CONTINUED)
Year Ended
--------------------------------------
December 30, January 1, January 2,
2000 2000 1999
Net income (loss) $ (11,168) $ 259 $ 5,867
========= ======= =======
Weighted-average number of common shares - basic 28,252 3,938 2,694
Assumed number of shares issued from:
Dilutive effects of stock options -- 780 --
Assumed conversion of Preferred Stock (Note 1) -- 10,868 2,740
--------- ------- -------
Weighted-average number of common and common
equivalents shares - diluted 28,252 15,586 5,434
========= ======= =======
Net income (loss) per share - basic $ (0.40) $ 0.07 $ 2.18
========= ======= =======
Net income (loss) per share - diluted $ (0.40) $ 0.02 $ 1.08
========= ======= =======
For the years ended December 30, 2000, January 1, 2000 and January 2,
1999, there were 6,698, 1,239 and 3,674 anti-dilutive weighted average
shares, respectively, not included in the table above.
F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers of the Registrant" in Part I of this Annual Report on
Form 10-K. The information required by Items 401 and 405 of Regulation S-K and
appearing in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on June 15, 2001, which will be filed with the
Securities and Exchange Commission not later than 120 days after December 30,
2000, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K and appearing in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
June 15, 2001, and which will be filed with the Securities and Exchange
Commission not later than 120 days after December 30, 2000, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K and appearing in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
June 15, 2001, and which will be filed with the Securities and Exchange
Commission not later than 120 days after December 30, 2000, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K and appearing in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
June 15, 2001, and which will be filed with the Securities and Exchange
Commission not later than 120 days after December 30, 2000, is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements and the Report of Independent Accountants
therein are filed as part of this Form 10-K:
The consolidated financial statements filed as part of this Annual Report on
Form 10-K are listed on the Index to Consolidated Financial Statements under
Item 8, which Index to Consolidated Financial Statements is incorporated herein
by reference.
36
(a)(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedules for the years ended December 30,
2000, January 1, 2000 and January 2, 1999, filed as part of this Form 10-K
should be read in conjunction with the consolidated financial statements and
related notes thereto and report of independent accountants filed herewith:
Page No.
Schedule II Valuation and Qualifying Accounts S-1
Schedules not listed above have been omitted because the information required to
be set forth therein is not required, not applicable or the information is
otherwise included elsewhere in this Form 10-K.
(a)(3) EXHIBITS
The exhibits filed as a part of this Annual Report on Form 10-K are listed on
the Exhibit Index immediately preceding such exhibits, which Exhibit Index is
incorporated herein by reference. Documents listed on such Exhibit Index, except
for documents identified by footnotes, are being filed as exhibits herewith.
Documents identified by footnotes are not being filed herewith, and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed with the Securities and Exchange Commission.
Innoveda's file number under the Securities Exchange Act of 1934 is 000-20923.
(b) REPORTS ON FORM 8-K
On October 6, 2000, Innoveda filed a Current Report on Form 8-K dated September
22, 2000 (the "Current Report on Form 8-K") reporting: (i) under Item 2 the
acquisition of assets in connection with Innoveda's acquisition of PADS
Software, Inc. ("PADS") and (ii) under Item 7, certain financial statements of
PADS and pro forma financial information of Innoveda and PADS. All of the
following financial statements identified under Item 7 of the Current Report on
Form 8-K, the notes related thereto and, with respect to audited financial
statements, the independent auditors' report thereon had been previously
reported in Innoveda's Registration Statement on Form S-4 (File No. 333-42814),
as amended, and pursuant to General Instruction B.3 of Form 8-K, no additional
audited financial statements of PADS, unaudited financial statements of PADS or
pro forma financial statements were reported in the Current Report on Form 8-K.
A. Audited Consolidated Financial Statements of PADS and subsidiary:
1. balance sheets as of December 31, 1998 and 1999;
2. statements of operations for the years ended December 31,
1997, 1998 and 1999;
3. statements of stockholders' deficiency for the years ended
December 31, 1997, 1998 and 1999; and
4. statements of cash flows for the years ended December 31,
1997, 1998 and 1999.
B. Unaudited Consolidated Financial Statements of PADS and subsidiary:
1. balance sheet as of March 31, 2000;
37
2. statements of operations for the three months ended March 31, 1999
and 2000;
3. statement of stockholders' deficiency for the three months ended
March 31, 2000; and
4. statements of cash flows for the three months ended March 31, 1999
and 2000.
C. Unaudited Pro Forma Combined Condensed Financial Statements of Innoveda
and PADS, along with their respective subsidiaries :
1. balance sheet as of April 1, 2000; and
2. statements of operations for the three months ended April 1, 2000
and for the year ended January 1, 2000.
38
Pursuant to the requirements of Section 13 or 15(d) 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, on this 30th day of March
2001.
INNOVEDA, INC.
By: /s/ Kevin P. O'Brien
Kevin P. O'Brien
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
Signature Title Date
/s/ William J. Herman President and Chief Executive Officer March 30, 2001
- --------------------- and Director (Principal Executive
William J. Herman Officer)
/s/ Kevin P. O'Brien Vice President of Finance and Chief March 30, 2001
- --------------------- Financial Officer (Principal Financial
Kevin P. O'Brien Officer and Principal Accounting Officer)
/s/ William V. Botts Director March 30, 2001
- ---------------------
William V. Botts
/s/ Lorne J. Cooper Director March 30, 2001
- ---------------------
Lorne J. Cooper
/s/ Steven P. Erwin Director March 30, 2001
- ---------------------
Steven P. Erwin
/s/ Keith B. Geeslin Director March 30, 2001
- ---------------------
Keith B. Geeslin
/s/ Hiroshi Hashimoto Director March 30, 2001
- ---------------------
Hiroshi Hashimoto
39
SCHEDULE II
For the Fiscal Years Ended December 30, 2000, January 1, 2000 and January 2,
1999
(In Thousand of Dollars)
Balance at Additions Deductions Balance at
Beginning from End of
of Period Reserves Period
- ----------------------------------------------------------------------------------------------
For the fiscal year ended December 30, 2000
Allowance for doubtful accounts $1,465 $ 831 $ 262 $2,034
====== ====== ====== ======
For the fiscal year ended January 1, 2000
Allowance for doubtful accounts $1,940 $ 454 $ 929 $1,465
====== ====== ====== ======
For the fiscal year ended January 2, 1999
Allowance for doubtful accounts $1,477 $ 584 $ 121 $1,940
====== ====== ====== ======
S-1
EXHIBIT INDEX
Exhibit No.
2.1(1) Agreement and Plan of Merger and Reorganization, dated as of June 2,
2000, by and among the Registrant, Innovative Software, Inc., PADS
Software, Inc. and Kyoden Company, Ltd.
2.2(13) Agreement and Plan of Reorganization dated as of September 16, 1999
by and between between the Registrant, Hood Acquisition Corp. and
Viewlogic Systems Inc.
2.3(13) Form of Viewlogic Voting Agreement.
3.1(2) Amended and Restated Certificate of Incorporation of the
Registrant, as amended.
3.2(3) Amended and Restated By-laws of the Registrant.
4.1(9) Specimen stock certificate representing common stock, $.01 par value
per share, of the Registrant.
4.2(1) Voting and Transfer Restriction Agreement, dated as of June 2, 2000,
by and among the Registrant and certain affiliates of PADS Software,
Inc.
10.1(4) Form of Indemnification Agreement between the Registrant and its
executive officers and directors.
10.2(4)* 1994 Stock Plan, as amended.
10.3(4)* 1996 Director Option Plan.
10.4(5)* Amended and Restated 2000 Stock Incentive Plan.
10.5(5)* 2000 Employee Stock Purchase Plan.
10.6(6)* Employment Agreement between the Registrant and Larry J. Gerhard
dated February 25, 1999.
10.7* Employment Agreement between the Registrant and Guy Moshe dated May
28, 2000.
10.8(3)+ Software OEM License Agreement between the Registrant, Test System
Strategies Inc. and Credence Systems Corporation dated May 19, 1997.
10.9(4)+ Distributor Agreement between the Registrant and Seiko Instruments,
Inc., dated February 1, 1996.
10.10(3)* Loan Agreement between the Registrant and Moshe Guy dated May 20,
1997.
10.11(8) Loan Agreement between the Registrant and Dasys, Inc. dated
July 16, 1997.
10.12(10)* TriQuest Design Automation, Inc. 1995 Stock Option Plan.
10.13(14)* Simulation Technologies Corp. 1994 Stock Option Plan and form of
agreement thereto.
10.14(11)* 1997 NonStatutory Stock Option Plan and form of agreement thereto.
10.15(7)+ Term Sheet Agreement between the Registrant and
Seiko Instruments, Inc.
10.16(6)+ Amendment to Software OEM License Agreement between the Registrant
and Credence Systems Corporation dated December 18, 1998.
10.17(12)* Amendment to Employment Agreement between the Registrant and Larry
J. Gerhard dated April 30, 1999.
40
10.18(1) Software Purchase Agreement and Source Code License Grant-Back
between the Registrant, Innoveda Minnesota Holdings, Inc.,
Synopsys, Inc. and Synopsys International Limited dated July 28,
2000.
10.19(13)* Viewlogic 1998 Stock Incentive Plan, as amended, and form of
agreements thereto.
10.20(13)* Transcendent Design Technology, Inc. Restricted Stock Plan and form
of agreements thereto.
10.21(13)* Transcendent Design Technology, Inc. Stock Option Plan and form of
agreements thereto.
10.22(13)* Employment Agreement between Viewlogic and Richard G. Lucier dated
October 2, 1998.
10.23(13)* Employment Agreement between Viewlogic and William J. Herman dated
October 2, 1998.
10.24(13) Investors' Rights Agreement between Viewlogic and the parties named
therein dated October 2, 1998.
10.25(13) VCS OEM Agreement between Viewlogic and Synopsys dated October 2,
1998.
10.26(13) FPGA OEM Agreement between Viewlogic and Synopsys dated October 2,
1998.
10.27(13) Software Assignment and License Agreement between Viewlogic and
Synopsys dated October 2, 1998.
10.28(13) Patent Assignment and Cross-License Agreement between Viewlogic and
Synopsys dated October 2, 1998.
10.29(13) Blast Software License and Assignment Agreement between Viewlogic
and Synopsys dated October 2,1998.
10.30(1) Amended and Restated Loan Agreement among the Registrant, Viewlogic,
Fleet National Bank, as Agent and a Lender and the other financial
institutions now or hereafter parties hereto, dated July 31, 2000.
10.31(13) Office Lease Agreement between Viewlogic and Rosewood III Associates
Limited Partnership, as amended, dated November 16, 1989.
10.32(13)* Secured Promissory Note by Paula J. Cassidy and John F. Cassidy in
favor of Viewlogic dated August 11, 1999.
10.33(13)* Secured Promissory Note by Peter T. Johnson and Andrea R. Johnson in
favor of Viewlogic dated August 11, 1999.
10.34(13)* Secured Promissory Note by William J. Herman in favor of Viewlogic
dated August 11, 1999.
10.35(13)* Secured Promissory Note by Richard G. Lucier in favor of Viewlogic
dated August 12, 1999.
10.36(13)* Secured Promissory Note by Kevin P. O'Brien in favor of Viewlogic
dated August 11, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included in the signature page of this
Registration Statement).
- -----------------------
(1.) Incorporated by reference to the Registrant's Registration Statement on
Form S-4 (File No. 333-42814) as declared effective by the Securities
and Exchange Commission on August 11, 2000.
(2.) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-06445) as declared effective by the Commission on
October 17, 1996, to the Registrant's Current Report on Form 8-K dated
March 23, 2000 as filed with the Commission on April 7, 2000 and to the
Registrant's Registration Statement on Form S-8 (File No. 333-43582) as
filed with the Commission on August 11, 2000..
41
(3.) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 as filed with the Commission on
August 14, 1997.
(4.) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-06445) as declared effective by the Securities and Exchange
Commission on October 17, 1996.
(5.) Incorporated by reference to the Registrant's Definitive Proxy Statement
on Schedule 14A as filed with the Commission on June 9, 2000.
(6.) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 as filed with the Commission
on March 31, 1999.
(7.) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 as filed with the Commission
on March 31, 1998.
(8.) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 as filed with the
Commission on November 14, 1997.
(9.) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated March 23, 2000 as filed with the Commission on April 7, 2000.
(10.) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-32551) as filed with the Commission on July 31, 1997.
(11.) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-47545) as filed with the Commission on March 9, 1998.
(12.) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 as filed with the Commission
on May 14, 1999.
(13.) Incorporated by reference to the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-89491) as declared effective by the
Commission on February 14, 2000.
(14.) Incorporated by reference to the Registration Statement on Form S-8
(File No. 333-47481) as filed with the Commission on March 6, 1998.
+ Documents for which confidential treatment has been granted.
* Indicates management compensatory plan, contract or arrangement.
42
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
By and Between
Summit Design (EDA) Ltd.
(Co. no. 51-100785-8)
of 8 Ha'Sadnaot Street
Herzlia, Israel
(hereinafter the "Company")
of one side
and
Guy Moshe
(I.D. no. 5043677)
of_______________
_________________
(hereinafter the "Executive")
of the other side
Whereas the Company is willing to employ the Executive in accordance with
the terms and conditions of this Agreement; and
Whereas the Executive desires to be employed by the Company in accordance
with the terms and conditions of this Agreement;
NOW THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. General
1.1 The preamble to this Agreement constitutes an integral part thereof.
1.2 The section headings used in this Agreement shall not be used in its
interpretation.
2. Employment and Duties
2.1 Subject to the terms and conditions set forth in this Agreement, the
Executive will be employed by the Company as General Manager and
hold the position of Senior Vice President of Innoveda, Inc.
(hereinafter - "Innoveda") responsible for Israeli Operations of
Innoveda. The Executive hereby represents that he has the knowledge,
qualifications, capabilities, experience and expertise required in
order to fulfill this position.
2.2. The Executive's authority, scope of responsibility and duties may
undergo changes, as the Board of Directors of the Company
(hereinafter the "Board") shall determine from time to time.
2.3 The Executive undertakes to perform his duties in accordance with
the rules and procedures issued by the Board from time to time.
2.4 The Executive undertakes to perform his duties and functions
skillfully, with the utmost expertise and devotion, faithfully and
honestly, and to act to the best of his ability to safeguard the
interests of the Company and Innoveda. For these purposes, the
Executive shall devote during his work with the Company, all of his
energy, abilities, knowledge and experience to the Company and
Innoveda.
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2.5 The Executive undertakes to inform the Company without delay
regarding any matter or issue in which he has a personal interest
and/or that may create a conflict of interest with his position at
the Company or with Innoveda.
2.6 This Agreement is a personal and special agreement regulating the
relations between the Company and the Executive, and exclusively
determines the terms of the Executive's employment with the Company.
Any collective agreement which applies, if at all, to the Company's
other employees shall not apply to the Executive.
3. Term
3.1 This Agreement shall have binding force and effect following the
closing of the merger (hereinafter - the "Merger") between Viewlogic
Systems, Inc. and Summit Design, Inc. under the Agreement and Plan
of Reorganization by and among Summit Design, Inc., Hood Acquisition
Corp. and Viewlogic Systems Inc. dated March 24, 2000. The term of
this Agreement shall commence immediately following the closing of
the Merger.
3.2 The term of this Agreement shall be for two (2) years from March 23,
2000 unless terminated as provided in sections 3.3 and 3.4 below.
It is agreed upon the parties that the entry into this Agreement
shall in no manner cause discontinuity in the Executive's employment
with the Company, which had initiated on August 15, 1992 and shall
be in effect until the termination of the Executive's employment
under this Agreement or the applicable law.
3.3 Either party to this Agreement may terminate same, thus terminating
the Executive's employment with the Company and his position with
Innoveda, at any time and with or without cause by giving 90
(ninety) days (the "Notice Period") prior written notice to the
other party.
Notwithstanding the above, the Company may elect to terminate the
Executive's employment with the Company and his position with
Innoveda immediately under this section 3.3 provided however, that
the Company shall pay the Executive in advance only his then current
Base Salary and fringe benefits as set forth in sections 4.2.1,
4.2.2, 4.2.3 hereof,
payable to the Executive throughout the Notice Period.
3.4 The Company shall be entitled to terminate the employment of the
Executive with the Company and his position with Innoveda hereunder
forthwith and without any prior notice and without payment of any
kind, in any of the following events:
3.4.1 The Executive was convicted of a criminal offense or unethical
practice connected with his employment or of any other serious
criminal offense, or if the Executive commits an act of moral
turpitude.
3.4.2 The Executive abandons the duties of his position under
section 2 above, other than as a result of illness or
disability.
3.4.3 The Executive materially breached this Agreement or any of his
duties towards the Company or Innoveda, including, without
limitation, a material breach by the Executive of any
employment, consulting, advisory, non-disclosure,
non-competition or other similar agreement between the
Executive and the Company or Innoveda, and failed to rectify
such breach within 48 (forty eight) hours following receipt of
notice regarding the breach, provided that no such curing
period shall be granted regarding a breach which cannot be
rectified, or
44
regarding a breach following a previous breach (whether the
same or not) which was cured following notice thereof.
3.4.4 The Company became entitled to legally dismiss the Executive
without payment of severance pay.
3.4.5 Reasonable determination by the Company or Innoveda of willful
misconduct by the Executive.
3.5 In the event that the Company or Innoveda require (in writing) the
Executive to perform in any role that does not include the
Executive's role of General Manager, as detailed in section 2.1
above and as a result the Executive terminates his employment with
the Company, the unvested portion of the stock option granted to the
Executive on February 25, 1999 exercisable for 100,000 (one hundred
thousand) shares of Innoveda's Common Stock shall automatically
accelerate and such option shall be fully exercisable.
Notwithstanding the foregoing, if it is determined by Innoveda'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.
3.6 It is agreed that the Executive will be entitled to all funds
(including earnings) accrued in the "Managers Insurance Plan" as
defined in section 4.2.1 below, in any event that the Executive's
employment is terminated by the Executive.
3.7 In the event that the Executive's employment with the Company is
terminated by the Company for reasons other than cause, the
Executive shall be entitled to receive (a) severance payments in
accordance with the applicable Law, minus any amount provided for by
"Managers Insurance Plan", as defined in section 4.2.1 below plus
(b) his then current monthly Base Salary and the Fringe Benefits
described in sections 4.2.1, 4.2.2, 4.2.3, both for a period of nine
(9) months.
3.8 In the event that a "change in control" of the Company or Innoveda,
as the case may be, occurs and within 12 (twelve) months after such
change in control, the employment of the Executive under this
Agreement is terminated by the Company, without cause, or by the
Executive for a "good reason(s)" (all as defined below), then:
3.8.1 The Company shall pay the Executive (a) severance payments in
accordance with applicable law, minus any amount provided for
by "Managers Insurance Plan," as defined in section 4.2.1
below plus (b) his his then current monthly Base Salary and
the Fringe Benefits described in sections 4.2.1, 4.2.2 and
4.2.3,each both for a period of nine (9) months., minus any
amount paid to the Executive throughout the Notice Period or
otherwise under section 3.3 above.
3.8.2 In addition, the unvested portion of the stock option granted
to the Executive on September, 1999 exercisable for 150,000
(one hundred and fifty thousand) shares of Innoveda's Common
Stock shall automatically accelerate and such option shall be
fully exercisable. Notwithstanding the foregoing, if it is
determined by Innoveda'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.
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3.9 For purposes of this Agreement, "change in control" shall mean the
occurrence of any of the events or circumstances set forth in
clauses (I) through (IV) hereunder. Pursuant to section 3.8 above,
"Company" in each of clauses (I) through (IV) hereunder, shall mean
the Company or Innoveda respectively:
(I) The acquisition by an individual, entity or group (within the
meaning of section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended) (a "Person") of beneficial
ownership of any capital stock of the Company if, after such
acquisition, such Person beneficially owns 50% or more of
either (A) the then outstanding shares of Common Stock (the
"Outstanding Common Stock") or (B) the combined voting powers
of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"), provided, however, that for
such purposes, the following acquisitions shall not constitute
a Change in Control: (i) any acquisition directly from or by
the Company, (ii) any acquisition by any Employee benefit plan
(or related trust) sponsored or maintained by the Company or
corporation controlled by the Company , or (iii) any
acquisition by any entity that previously held any shares of
any class of preferred stock of Viewlogic Systems, Inc. a
Delaware USA Corporation, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with all
of clauses (A), (B) and (C) of subparagraph (III) of this
section 3.9.
(II) Individuals who, as of the date hereof, constitute the members
of the Company's Board of Directors (the "Incumbent
Directors") ceasing for any reason to constitute at least a
majority of the Company's Board of Directors; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least
a majority of the Incumbent Directors then in office shall be
deemed to be an Incumbent Director (except that this proviso
shall not apply to any individual whose initial election as a
director occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Company's Board of Directors).
(III) The consummation of a reorganization, recapitalization, merger
or consolidation involving the Company or a sale or other
disposition of all or substantially all of the assets of the
Company (a "Business Combination"), unless, immediately
following such Business Combination, each of the following
three conditions is satisfied: (A) all or substantially all of
the individuals and entities who were the beneficial owners of
the Outstanding Common Stock immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than 50% of the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors respectively of the resulting or acquiring
corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such
transaction owns the Company or substantially all of the
Company's assets either directly or through one or more
subsidiaries) (such resulting or acquiring corporation is
referred to herein as the "Acquiring Corporation") in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Common Stock (B) no Person
46
(excluding the Acquiring Corporation or any Executive benefit
plan (or related trust) maintained or sponsored by the Company
or the Acquiring Corporation) beneficially owns, directly or
indirectly, 50% or more of the then outstanding shares of
common stock of the Acquiring Corporation or of the combined
voting power of the then outstanding voting securities of such
corporation (except to the extent that such ownership existed
prior to the Business Combination) and (C) a majority of the
members of the board of directors of the Acquiring Corporation
were Incumbent Directors at the time of the execution of the
initial agreement, or of the action of the Company's Board of
Directors, providing for such Business Combination.
(IV) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding any of the terms provided for in this section 3.9,
"change in control" shall not include any disposition by Innoveda of
all or part of its holdings in the Company or a change in the Board
of Directors of the Company provided however, that Innoveda shall
continue to maintain, directly or indirectly, control over the
Company.
3.10 For purposes of this Agreement, "good reason" shall mean the
occurrence without the Executive's prior written consent, of any of
the events or circumstances set forth in clauses (I) through (V)
hereunder. Notwithstanding the occurrence of any such event or
circumstance, such occurrence shall not be deemed to constitute good
reason if, (i) the Executive terminated his employment yet failed to
give notice to the Company with regard to such event or circumstance
and to provide the Company with the opportunity to cure same within
at least 30 days as of the date of receipt of notice by the Company;
or (ii) prior to the date of termination, such event or circumstance
has been fully corrected and the Executive has been reasonably
compensated for any losses or damages resulting therefrom (provided
that such right of correction by the Company shall only apply to the
first notice of termination at the election of the Executive for
good reason).
(I) Any significant diminution in the Executive's duties,
responsibilities or authority in effect immediately prior to
the earliest to occur of (A) the date on which a change in
control of the Company or Innoveda occurs, (B) the date of the
execution of an initial written agreement or instrument
providing for a change in control of the Company or Innoveda
or (C) the date of the adoption by the Board of a resolution
providing for a change in control of the Company or Innoveda
(with the earliest to occur of such dates referred to herein
as the "Measurement Date").
(II) Any reduction in the Base Salary (as defined below) as in
effect on the Measurement Date or as the same may be increased
from time to time thereafter.
(III) The failure by the Company to (A) continue in effect any
material compensation or benefit plan or program (each, a
"Benefit Plan") in which the Executive participates or which
is applicable to the Executive immediately prior to the
Measurement Date, unless an equitable arrangement (embodied in
an ongoing substitute or alternative plan or reasonable cash
compensation in lieu thereof) has been made with respect to
such plan or program, (B) continue the Executive's
participation in a Benefit Plan (or in such substitute or
alternative plan or make reasonable cash compensation in lieu
thereof) on a
47
basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other employees, than the basis
existing immediately prior to the Measurement Date or (C)
award cash bonuses to the Executive in amounts and in a manner
substantially consistent with past practice in light of the
Company's financial performance.
(IV) The failure by the Company to obtain the agreement, in a form
reasonably satisfactory to the Executive, from any successor
to the Company to assume and agree to perform this Agreement
to the same extent that the Company would be required to
perform it if no such succession had taken place.
(V) Any failure of the Company to pay or provide to the Executive
any portion of the Executive's compensation or benefits due
under any Benefit Plan within 30 (thirty) days of the date
such compensation or benefits are due, or any material breach
by the Company of this Employment Agreement.
3.11 For the purpose of this Agreement "cause" shall mean any of the acts
or events described in section 3.4 hereof. The Executive shall be
considered to have been discharged for cause if the Company or
Innoveda determines within 30 (thirty) days of the Executive's
resignation that discharge for cause was warranted.
3.12 For the removal of all doubt, neither the Merger as defined in
section 3.1 above nor the change in Innoveda's Board of Directors
that resulted therefrom shall be considered as a "change in control"
and/or give rise to any "good reason" for the purposes of this
Agreement and accordingly does not grant the Executive any payments
under sections 3.8.1 and 3.8.2 above.
4. Compensation
During his employment under this Agreement, the Executive shall be
entitled to the salary and benefits as set forth in sections 4.1-4.2
below:
4.1 Salary
Annual base salary at the rate of the gross amount of NIS 937,640
(nine hundred thirty seven thousand six hundred and forty New
Israeli Shekels) ("Base Salary"). (The base salary was equivalent to
$US 220,000.00 on October 4, 1999.)
In addition, the Executive shall be entitled to receive an annual
bonus of up to 50% of his Base Salary, as shall be determined by the
Board from time to time and in accordance with assessment of
personal achievements and Company goals.
4.2 Fringe Benefits
4.2.1 Managers Insurance Plan
The Company shall ensure that the Executive is insured under a
Managers Insurance Plan to be owned by the Company. For this
purpose, the Company shall pay monthly installments in the
amount of 13 1/3 % (thirteen and one third of percent) of the
Executive's monthly Base Salary on account of severance and
pension payments. An additional 5% (five percent) of the
Executive's monthly Base Salary shall be deducted from the
Executive's Base Salary on behalf of the Executive on account
of pension.
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4.2.2 Advanced Studies Fund
The Company shall set aside seven and a half percent (7.5%) of
the Executive's monthly Base Salary, and shall deduct two and
a half percent (2.5%) of the Executive's monthly Base Salary,
for a fund for advanced studies (keren hishtalmut), provided
that in no event shall the amounts set aside be in excess of
the ceiling determined from time to time by law.
4.2.3 Company Car
The Company shall provide the Executive with the use of a car
throughout his employment according to the Company's then
current policy.
4.2.4 Annual Vacation
The Executive shall be entitled to annual vacation leave of 22
(twenty two) days, with maximum accrued up to 2 (two) years
(i.e. 44 days).
4.2.5 Sick Leave
The Executive shall be entitled to sick leave of up to 30
(thirty) days per year.
4.2.6 Convalescence Payments
The Executive shall be entitled to convalescence payments
according to the applicable "extension orders".
4.3 The Base Salary, potential bonus and benefits specified in this
section 4 above constitute the entire compensation to which the
Executive shall be entitled to in respect of his employment
hereunder. The Executive shall bear and pay the tax due on said
salary and benefits.
4.4 The Company shall deduct from the Executive's Base Salary and other
compensation all mandatory payments, including withholding taxes,
National Insurance contributions and National Health Insurance
contributions.
4.5 The Executive confirms that he is aware that his position requires a
special degree of fiduciary duty. Therefore, the provisions of the
Hours of Work and Rest Law, 5711-1951, shall not apply to the
Executive's employment hereunder and the Executive shall not be
entitled to additional payment of any kind in return for the
Executive's work, other than that expressly provided in this
Agreement.
4.6 During the period of the Executive's employment with the Company,
the Executive may not engage in any other work, with or without
remuneration, except with the prior written approval of the Company.
5. Confidentiality
5.1 During the term of the Executive's employment and indefinitely
thereafter, regardless of whether such employment was terminated by
the Company or the Executive and of the reasons for such
termination, the Executive undertakes not to use, communicate,
reveal, divulge or otherwise make available to any person or entity,
other than as required for the Executive to perform his duties under
this Agreement, any of the following:
5.1.1 Any confidential or proprietary information, including
technical, financial, marketing, manufacturing, distribution
or any other information of technical or business nature or
trade secrets of the Company or Innoveda, including, without
limitation, techniques, processes, methods, systems, designs,
cost data, computer
49
programs, formula, development or experimental work, work in
progress, customers and suppliers; and
5.1.2 Any information the Company or Innoveda shall have obtained
from any third party which the Company or Innoveda is obliged
to treat as confidential or proprietary.
5.2 Upon termination of this Agreement, the Executive shall transfer his
duties in an orderly manner and shall deliver to the Company all
papers, drawings, notes, memoranda, manuals, specifications,
designs, devices, documents, diskettes and tapes, and any other
material containing or disclosing any confidential or proprietary
technical or business information.
5.3 For avoidance of all doubt it is hereby clarified that the
confidential information to which this section 5 applies includes
any information, trade secret, patent, process, designs, techniques,
inventions, know-how, copyrights, all other intellectual property
and the like (hereinafter the "Developments") which shall have been
discovered, conceived or developed by the Executive during his
employment with the Company or throughout his position with
Innoveda.
5.4 The Company shall hold all rights to and interests in the
Developments referred to in section 5.3 above, including any patent
or copyright. The Executive agrees to and hereby does assign
exclusively to the Company any and all right, title and interest in
the Developments which, notwithstanding the forgoing, may still be
vested in the Executive under any applicable law. For avoidance of
all doubt, it is hereby clarified that the Executive shall not be
entitled to any compensation regarding the Developments and the
rights related thereto.
6. Non-Competition, Conflict of Interest and Non Solicitation
6.1 The Executive undertakes that during the period of his employment
with the Company, and for a period of 1 (one) year following the
termination thereof, be the cause of termination and the party who
initiated the termination as they may, the Executive shall not
directly or indirectly (whether as employee, consultant, individual,
proprietor, partner, shareholder or otherwise) engage in any
business or technological activity in which the Company or Innoveda
is involved, shall not take part in any activity which might compete
with the Company's or Innoveda's activities or might be in conflict
with the Company's or Innoveda's interests, shall not make any
business contacts with the Company's or Innoveda's customers,
shareholders, suppliers and/or employees and shall not render
services to any person, business or entity which renders services to
the Company's or Innoveda's customers and/or shareholders without
the prior written consent of the Company.
6.2 From the date of this Agreement until 2 (two) years after the later
of the date on which (i) the Executive's employment with the Company
ceases or is terminated (for any reason) or (ii) the Executive
ceases to receive any compensation or benefits from the Company or
Innoveda, whether on account of services rendered as an employee,
officer, director, consultant, advisor, contractor or otherwise, the
Executive shall not directly or indirectly (1) recruit, solicit,
induce or attempt to induce, any employee of the Company or Innoveda
to terminate their employment with the Company or Innoveda; or (2)
recruit or solicit for hire, as an employee, officer, director,
consultant, advisor, contractor or otherwise, any employee of the
Company or Innoveda; or (3) hire, as an employee, officer, director,
consultant, advisor, contractor or otherwise, any person who is, or
who has been an employee of the Company or Innoveda unless (i) such
person has
50
not been an employee, officer, director, consultant, advisor or
contractor of the Company or Innoveda, as the case may be, for more
than six (6) months prior to the date of such hire (directly or
indirectly), or (ii) such person's employment or other relationship
with the Company or Innoveda was terminated by the Company or
Innoveda respectively and not by such person.
If the Executive violates the provisions of either section 6.1 or
6.2 hereof, the Executive shall continue to be bound by the
restrictions set forth in sections 6.1 and 6.2 hereof until a period
of 1 (one) year in the case of section 6.1 and 2 (two) years in the
case of section 6.2, has expired without any violation of such
provision.
7. Injunction
In addition to other legal rights and remedies, Innoveda, the Company and
its subsidiaries and affiliates 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 by the Executive.
8. 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.
9. Limitation of Liability
Upon payment of the amounts required by this Agreement, under the
conditions where such payments are required, neither the Company nor
Innoveda shall have any further obligations or liability to the Executive
in connection with the employment of the Executive by the Company or in
connection with his position with Innoveda, or the termination of such
employment or position for any reason.
10. Miscellaneous
10.1 This Agreement shall constitute the sole and complete agreement
between the parties and shall fully supersede any and all previous
agreement(s) or understandings, written or oral, which may have been
in effect between the parties. Without limiting the generality of
the foregoing, this Agreement supersedes the employment agreement
dated as of February 25, 1999 between the Company and the Executive
and any other employment agreement(s) between the Executive and the
Company or Innoveda
10.2 Any change or amendment to this Agreement shall be effective only if
it is in a written instrument duly executed by the parties.
10.3 The addresses of the parties for the purpose of this Agreement are
as set forth in the preamble to this Agreement.
A notice sent by registered mail to one party according to the
address stated above shall be deemed received by such party 72 hours
after it was delivered at the post office, and a receipt bearing the
postmark shall be conclusive evidence of the date of delivery.
Executed on this ___ day of _________, 2000.
- ---------------------------- -------------------
Summit Design (EDA) Ltd. Guy Moshe
By:___________________
Title:________________ 7709
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