-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CjvlAXU2/vo7lEdVGa1doYhWVkR/yRQ+kwaudzFuKCZ2TDXwB+SQKySBJXe0hwP4 XW040bK3uja40fBRLOCrSQ== 0000891618-96-002944.txt : 19961203 0000891618-96-002944.hdr.sgml : 19961203 ACCESSION NUMBER: 0000891618-96-002944 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961129 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EPIC DESIGN TECHNOLOGY INC /CA/ CENTRAL INDEX KEY: 0000929457 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 770135608 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-24756 FILM NUMBER: 96674318 BUSINESS ADDRESS: STREET 1: 310 N MARY AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4087338080 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 1996 or / / Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 for the transition period from ________________ to _______________. COMMISSION FILE NUMBER: 0-24756 EPIC DESIGN TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 77-0135608 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 310 NORTH MARY AVENUE, SUNNYVALE, CALIFORNIA 94086 (Address of principal executive office) (zip code) Registrant's telephone number, including area code: (408) 733-8080 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered - ------------------- ------------------- None None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, no par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on November 15, 1996 as reported on the Nasdaq National Market System, was approximately $201,224,952.00. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of November 15, 1996, registrant had outstanding 13,666,752 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The Registrant has incorporated by reference into Part III of this Form 10-K portions of its Proxy Statement for Registrant's Annual Meeting of Shareholders to be held February 12, 1997. 2 PART I. ITEM 1. BUSINESS Certain statements in this Annual Report on Form 10-K (the "Report") are forward-looking statements based on current expectations, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties are set forth in the second and fourth paragraphs under "--Sales, Marketing and Customers," "--Product Development," "--Competition," "--Proprietary Technology," "--Employees," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview," "--Factors Affecting Future Operating Results" "--Liquidity and Capital Resources" and elsewhere in this Report. OVERVIEW EPIC Design Technology, Inc. ("EPIC" or the "Company") develops, markets and supports a family of simulation, analysis, extraction and physical verification software tools that help integrated circuit (IC) designers better manage the timing, power and reliability characteristics of IC designs. The Company also develops, markets, and supports a set of technical services intended for the characterization of transistors and interconnects fabricated on silicon wafers. The Company's tools and services can be used by designers at different stages of IC development to help identify flaws, enhance speed, reduce power consumption and detect the causes of reliability failure. The Company believes that by using EPIC products, IC designers can reduce development time, lower the risk of design failure, avoid lengthy refabrication cycles and improve an IC's performance and value. The Company's tools and services are particularly focused on meeting deep submicron and nanometer IC designers' requirements for (i) static and dynamic timing simulation, analysis, optimization and verification, (ii) power simulation, analysis, optimization and verification, (iii) physical layout extraction, analysis and verification and (iv) simulation, analysis and correction of potential causes of reliability failure in complex ICs. EPIC(R) , PathMill(R) and TimeMill(R) are registered trademarks of the Company and AMPS(TM), Arcadia(TM), PowerMill(TM), and Vertue(TM) are trademarks of the Company. This Report also includes trade names and trademarks of companies other than EPIC. INDUSTRY BACKGROUND There has been substantial growth in the market for sophisticated, portable electronic products such as cellular telephones, laptop computers, camcorders and pagers. Rapid growth in the Internet and multimedia arenas has also fueled growth in the electronic systems necessary to support them. These products have been enabled, in significant part, by improvements in silicon process technologies which have made possible the design and manufacture of increasingly complex, high performance and highly integrated ICs. In the 1970s, a typical IC consisted of a few thousand transistors implemented in five-micron technology. Today, designers are creating ICs consisting of millions of transistors implemented in less than 0.6 micron (deep submicron) technology, and the most advanced designers are creating ICs consisting of tens of millions of transistors implemented in less than 0.35 micron (nanometer) technology. The trends toward portability, multimedia and increased utilization of nanometer technology have placed increasing demands on IC designers to develop ICs that are low cost, low power, high speed and highly reliable. At the same time, competitive pressures are forcing designers to shorten development cycles in order to bring products to market more rapidly. -2- 3 Since the early 1970s, designers have used electronic design automation (EDA) tools to assist in the IC development process. EDA vendors have provided designers with methods, tools and services to develop, simulate and verify ICs. As shown in the diagram below, the IC development cycle has five stages: - Architectural Design. Exploration of design alternatives; - Functional Design. Specification of the desired functionality of the IC; - Logic Implementation. Development of gate and transistor level descriptions that implement this functionality; - Layout and Verification. Geometric layout of the individual components that implement the logic design and verification of the correctness of the design; and - Production. Fabrication of the IC. IC DEVELOPMENT PROCESS Chart depicting the various stages of the IC development process from Architectural Design to Functional Design to Logic Implementation to Layout and Verification and to Production. -3- 4 While EDA products have brought greater efficiency and productivity to the IC development process, advances in EDA software technology have not kept pace with advances in semiconductor process technology. For example, an IC can be described at different levels of detail or hierarchy, ranging from transistors, to gates (which are comprised of several transistors), to functional (i.e., behavioral) blocks (which can represent a large number of gates). Existing EDA tools are primarily focused on providing simulation and analysis capabilities at the gate or behavioral levels and generally do not extend these capabilities down to the transistor level. However, deep submicron and nanometer technologies each introduce new classes of problems in modeling speed, power and other physical circuit behavior along with new problems in managing the integration characteristics of an IC. These problems cannot be addressed as efficiently or effectively at the gate and behavioral levels. - Speed. Advanced technology enables an IC to operate at high speed, but also introduces new challenges in modeling its behavior. At deep submicron and nanometer levels, the physics of silicon leads to complicated electrical phenomena (e.g., short channel effect, mobility saturation and cross-coupling) that make transistor and interconnect behavior difficult to predict. These phenomena cause significant problems in accurately modeling the timing delays inherent in the interconnections between transistors (interconnect delay) and the non-digital behavior of individual transistors on an IC. - Power. Market demands for portability, higher speed and increased levels of integration have placed greater importance on minimizing the power consumed by an IC. Portable applications, which represent a significant market for advanced silicon technology, require that IC power consumption be minimized in order to increase battery life and decrease the cost, size and weight of the system. Reducing power also contributes to increased life and reliability for an IC. - Integration. The dramatic increase in the number of transistors and complexity of IC designs, along with the pressure to reduce design time, create new problems in tracking the interaction between elements. For example, a design group will generally work concurrently on different blocks at different levels of hierarchy, after which the various blocks must be integrated. This integration is more difficult in advanced IC design because of the large number of blocks, gates and transistors and because interconnect delay has a greater impact on the performance of the IC. Highly integrated, advanced silicon ICs also create new problems in ensuring both their manufacturability and their reliability. For example, constraints imposed by the physics involved in characterizing and fabricating nanometer ICs require new solutions to achieve satisfactory chip yields at process corners and to build in dependability by identifying and correcting possible points of metal failure. These design challenges have exposed certain limitations in established EDA methods and tools. For example, traditional design tools do not accurately analyze the power consumption characteristics of an IC prior to fabrication. Therefore, while the designer may have certain power utilization objectives, the power behavior of an IC is not accurately known until after fabrication. This uncertainty may require redesign and refabrication, thereby increasing costs and delaying time-to-market. Furthermore, existing gate level and circuit level (e.g., SPICE) simulators have been used by designers to model the functionality and timing characteristics of an IC. Gate level simulators are fast and have the capacity to simulate an IC with a large number of gates, while SPICE provides accurate results for small transistor level blocks. However, gate level simulators cannot accurately simulate the non-digital behavior and complex interconnect timing inherent in advanced silicon circuits, and SPICE cannot meet the simulation speed and capacity requirements of most IC designers. Finally, existing gate and circuit level EDA design tools do not allow designers to track and manage effectively the interaction between blocks of complex ICs. Consequently, designers need solutions that enable them to optimize speed and power and manage integration in an efficient and accurate manner. -4- 5 EPIC SOLUTIONS EPIC provides IC designers with a family of characterization, simulation, analysis, extraction and physical verification software tools and services to assist in meeting the design challenges created by deep submicron and nanometer technology. The Company's six principal products -- AMPS, Arcadia, PathMill, PowerMill, RailMill and TimeMill--utilize the Company's core technologies to enable a designer to address timing, power and reliability requirements of an IC. In addition, Vertue, a seventh product, enables PowerMill or TimeMill to co-simulate with Verilog-XL, a widely used gate and behavioral level simulation tool in the EDA industry. The Company believes that its products can provide the following benefits: - Shorten time-to-market. The Company's tools have been shown to provide accuracy to within five percent of the accuracy of SPICE, to be significantly faster than SPICE in modeling ICs and to possess the capacity to model circuits in excess of four million transistors. These attributes of accuracy, speed and capacity can shorten time-to-market by reducing the risk of redesign and allowing designers to complete their tasks more rapidly. - Reduce power consumption. The Company believes that PowerMill is uniquely able to detect and highlight design elements that cause excessive power dissipation, thereby permitting designers to modify the circuit to reduce overall power consumption. The Company also believes that AMPS enables designers to produce lower power ICs by handling the complex tradeoffs between power, speed and area in advanced circuits. - Increase levels of design integration. The Company believes that the accuracy of its tools reduces design risk in developing more highly integrated ICs. PathMill provides both critical path analysis and full chip static timing verification. Arcadia provides the capacitance and resistance information necessary to model interconnect between blocks and between individual elements. The ability for PowerMill and TimeMill to simulate with Verilog-XL enables a designer to track the interaction between blocks of a complex IC and to manage them more effectively. - Extend product life and enhance reliability. The Company believes that the analysis capabilities of its products allow designers to detect more causes of circuit failure than existing gate level tools, resulting in improved IC reliability. RailMill enables the designer to detect the potential causes of voltage drop and electromigration (metal migration) which can lead to unreliable operation and early device failure. - Reduce development costs. In addition to development cost savings that may result from decreased design time and fewer prototype iterations, the Company believes that interfaces developed to run between the Company's products and the frameworks from EDA suppliers can streamline the design flow and potentially reduce the complexity and cost of IC design. EPIC STRATEGY The Company's strategy is to become the leading supplier of timing, power and reliability management tools for the design of deep submicron and nanometer ICs. The key elements of this strategy are to: Capitalize On and Maintain Technological Leadership in Advanced IC Design Analysis. The Company intends to continue to invest significant resources to expand its set of core technologies and to enhance and support -5- 6 its products. During fiscal 1996, the Company unveiled several new capabilities reflecting this strategy. The Company introduced AMPS which enables designers to optimize circuit performance by automating the complex simultaneous tradeoff of power, delay and area in the design space. The Company announced Synchronous Matrix Solver technology, a third-generation dynamic simulation technology targeted to provide the underlying "nanometer-ready" capability for all of EPIC's next-generation dynamic simulation tools. The Company also announced Direct Silicon Access, a service that generates technology files (characterized transistor and interconnect data) directly from laboratory measurements of a silicon test chip, enabling the EPIC tools to provide results closer to actual silicon than when SPICE is used. In September 1996, the Company also acquired CIDA Technology, Inc. ("CIDA"). The Company believes that technology from this acquisition will form the foundation of the Company's next-generation hierarchical physical verification tools. In addition, the Company plans to develop new technologies to address future generations of silicon process technology. Provide Comprehensive Tools for Low Power Design. The Company expects increasing demand for portable electronic products to require designers to minimize IC power consumption. The Company has devoted significant effort to meet the requirements of low power IC design. PowerMill provides power analysis and diagnostics enabling designers to identify and reduce IC power consumption. AMPS enables the development of circuits that are optimized for low power performance. The Company intends to enhance its PowerMill and AMPS technology base and to continue to develop tools targeted at the low power IC design market. Provide Open Architecture Design Tools and Support Industry Standards. The Company has entered into major EDA supplier programs to provide more integrated design solutions. The Company is a member of Cadence Design Systems' Connections Program, Synopsys' in-Sync Program and Mentor Graphics Corporation's OpenDoor program. The Company offers interfaces to these and other vendor environments and designs its products to support various widely used EDA formats such as SDF (Standard Delay Format), SPF (Standard Parasitic Format), Verilog" and EDIF (Electronic Data Interchange Format). The Company believes that this strategy will facilitate integration of EPIC tools into designers' preferred development environments. Establish Long-Term Customer Relationships with Major Accounts. The Company will continue to focus its sales and marketing efforts on key accounts worldwide in the consumer electronics, computer, communications and semiconductor industries. The Company provides direct interaction of certain key personnel with these key accounts to ensure successful adoption of the Company's products. These strategic relationships act as highly visible references and provide ongoing technical input into the development of future products and enhancements to existing products. Provide Products which Address the Needs of ASIC Designers. ASIC designers have traditionally used gate level tools to meet their design needs. The Company believes that existing gate level tools, particularly with respect to power consumption and timing calculation, will become increasingly inadequate as IC designs are implemented in nanometer technology and will need to be supplemented with more accurate tools. The Company is currently developing tools, expected to be introduced prior to the end of fiscal 1997, that it believes will provide accurate power analysis and diagnostics and also delay calculation for ASIC designs. Although the ASIC design market is highly competitive, the Company believes that it presents a significant opportunity for the Company. Provide Products which Address the Requirements of Physical Verification. Once a design is completed, it must be verified to assure that no design rules have been broken. This process is called physical verification and includes several procedures, including Design Rule Checking (DRC), Electrical Rule Checking (ERC), Layout Versus Schematic (LVS) which determines whether the circuit laid out actually matches the netlist (schematic), and Layout Parasitic Extraction (LPE) to provide resistance, capacitance and inductance data. The Company believes that existing physical verification tools will become increasingly inadequate as IC designs are implemented in nanometer -6- 7 technology and will need to more fully accommodate hierarchical design methods. Based on the CIDA technology, the Company is presently developing tools, expected to be introduced prior to the end of fiscal 1997, that it believes will provide faster operation, true hierarchy and lower memory requirements for physical verification. Although the physical verification market is highly competitive, the Company believes that it presents a significant opportunity for the Company. TECHNOLOGY AND PRODUCTS The Company's AMPS, PathMill, PowerMill, RailMill and TimeMill products all use the same input files, including netlist, control and technology files. Arcadia uses compatible netlist and back annotation formats but has its own technology file. These technology files can be generated based on data measured directly from silicon using the Direct Silicon Access Laboratory, a new service laboratory established by the Company in fiscal 1996. The Company's products provide a breadth of timing, power and reliability analysis capabilities and are enhanced by the availability of optional features for such specialty needs as analog blocks. Technology The Company's products are based upon the following internally developed and acquired proprietary technologies and innovative software algorithms. - Event driven transistor level simulation. The Company has developed innovative algorithms that effectively partition the design and accurately simulate the non-digital behavior of transistor level circuits common in advanced IC designs. - Mixed transistor models. The Company's products use complex algorithms that analyze a circuit and automatically select the appropriate transistor model in each instance in order to maximize performance of the simulation while maintaining the desired accuracy. - Efficient creation, storage and retrieval of table look-up MOSFET models. This proprietary method utilizes Direct Silicon Access Laboratory data (or the output of SPICE) with user-defined MOSFET models to efficiently create, store and retrieve tabular device characteristics that are referenced during the simulation process. - Synchronous matrix solver and high-performance sparse matrix circuit solver. The Company has developed innovative methods for solving circuit equations to provide detailed and numerically reliable circuit behavior modeling in complex ICs. - Optimum transistor width solver. The Company has developed a unique approach for determining optimum transistor widths in order to meet power, delay and area constraints. - Quasi-3D capacitance analysis. The Company has acquired innovative topology analysis for parasitic capacitance analysis that provides enhanced accuracy with minimized performance degradation. - Accurate resistance topology analysis. The Company has acquired a unique approach to breaking down polygons to ensure accurate parasitic resistance calculation. -7- 8 - Interconnect and transistor characterization from silicon. The Company has invested in a laboratory furnished with state-of-the-art measurement and test equipment which is combined with advanced software technologies to create a semi-automated characterization process. Products The Company's products can be utilized at various stages of the advanced silicon IC development process and provide designers with the following functions and capabilities to address speed, power and integration requirements: Chart depicting the various stages of the IC development process in relation to the Company's products.
SPEED POWER INTEGRATION Vertue enables TimeMill and Verilog-XL co-simulation to explore architecture options PathMill identifies critical PowerMill or PowerMill PathMill ensures timing paths that drive the with Vertue explores low timing budgets for each design planning power alternatives for key block are consistent design blocks with initial goals PathMill and TimeMill PowerMill verifies that PathMill and TimeMill analyze and improve timing pre-layout power meets power help designers optimize constraints goals transistor level blocks Arcadia provides accurate PowerMill prioritizes PathMill enables post layout parasitics to critical power areas designers to perform full help ensure the accuracy of chip static timing analysis results verification PathMill prioritizes AMPS obtains lowest power PathMill and TimeMill critical timing areas while maintaining timing verify post-layout timing specifications PathMill and TimeMill PowerMill verifies and helps Vertue enables PowerMill validate post-layout timing designers minimize power or TimeMill and consumption Verilog-XL co-simulation to verify the completed IC
-8- 9
SPEED POWER INTEGRATION RailMill identifies voltage RailMill identifies high Arcadia provides drop problems that reduce currents that cause selective net extraction performance electromigration problems. that increases accuracy It can help designers select and reduces runtime to the best network strategy improve the design for optimized performance validation cycle
AMPS. AMPS simultaneously optimizes power, delay and area in digital CMOS circuits. AMPS automatically resizes transistors, making them larger and/or smaller to find the combination that will best meet user-defined power, speed and area goals without changing the functionality of the design. The Company believes that AMPS helps a designer manage the complex relationships between power, speed and area in such a way as to meet or exceed design goals and thereby add value to the design. AMPS can be used on full custom and standard cell designs, and it runs on blocks of 100 to 30,000 transistors. At the back end, AMPS serves as a verification tool, using parasitics extracted from layout to determine whether design performance goals have actually been met and allowing the designer to make further improvements if necessary. AMPS also enables a designer to reuse blocks by automatically resizing the circuits to make them run faster, consume less power and/or minimize area. AMPS carries a list price in the United States of $90,000 for a floating license and was first shipped to customers in January 1996. A floating license allows one use of the product at any given time on any one computer on the customer's network. ARCADIA. Arcadia provides full chip and net-by-net RC extraction. The Company believes that Arcadia achieves a greater combination of accuracy and fast run time than other existing tools. Arcadia is also easy to use and supports a variety of formats that enable simple integration into existing design flows. Arcadia provides the user with multiple extraction modes and allows net-by-net extraction, so that designers can invest analysis time on critical paths and spend less time on the segments that do not require in-depth analysis. Arcadia is specifically designed for the advanced silicon designer working on complex, high-performance custom, structured custom or ASIC projects. Arcadia carries a list price in the United States ranging from $30,500 to $109,500 for a floating license depending on features and functionality and was first shipped to customers in March 1995. PATHMILL. PathMill is a static timing tool that provides a detailed critical path analysis and static timing verification capability. The Company believes that PathMill provides accurate and flexible modeling for mixed level static timing analysis. PathMill's behavioral, gate and transistor level models allow accurate analysis at each level of the design hierarchy, allowing the user to mix top-down design and bottom-up implementation. PathMill has the capability of generating netlists of selected paths for several versions of SPICE. The user can use the netlists directly to run SPICE simulations on the critical paths to fine tune the paths or to verify the results from PathMill. PathMill carries a list price in the United States ranging from $45,500 to $96,750 for a floating license depending on features and was first shipped to customers in June 1989. POWERMILL. PowerMill simulates block and full chip current and power behavior, providing fast and accurate current and power analysis and power diagnostics. PowerMill offers static and dynamic diagnostics to identify design flaws that cause unnecessary power consumption. PowerMill also allows the designer to accurately predict the power consumption of a block and explore different alternatives for minimizing the power consumed by the block. In addition, PowerMill helps to ensure that power problems are caught early in the design cycle and to verify the design -9- 10 prior to layout. The results can then be used to help modify the layout to facilitate minimum power dissipation and optimal power bus sizing. After layout, PowerMill helps designers confirm that power consumption is acceptable before committing the design to silicon. PowerMill carries a list price in the United States ranging from $75,100 to $101,350 for a floating license depending on features and was first shipped to customers in March 1992. RAILMILL. RailMill is an IC reliability analysis tool to detect electromigration and voltage drop problems before silicon. Leveraging the Company's expertise in power and extraction, RailMill addresses problems related to reliability in IC design and verification. RailMill is used during the physical design phase and allows designers to detect and eliminate the causes of intermittent failure and reduced lifetime due to voltage drop and electromigration problems. RailMill brings reliability detection into the design phase, eliminating silicon turns and reducing very expensive and time-consuming post-silicon analysis. RailMill carries a list price in the United States ranging from $166,000 to $236,250 for a floating license depending on features and was first shipped to customers in May 1995. TIMEMILL. TimeMill is a transistor level simulator and dynamic timing analyzer that provides results significantly faster and with greater capacity than SPICE and with more accuracy than gate level simulators. Used interactively in the pre-layout phase, TimeMill helps designers optimize the performance of transistor level blocks, memories and datapaths. TimeMill allows the designer to quickly explore changes in voltage levels, temperature or process parameters to improve design quality. After layout, TimeMill detects problems such as charge sharing and race conditions which are more prevalent in advanced silicon IC design. These problems may be missed by a logic simulator and are generally impractical to find with SPICE. TimeMill provides an extra level of verification which can detect errors or insufficient detail in the gate level library. TimeMill's dynamic timing checks allow designers to specify design margin and automatically flag violations which can be used to check the impact of layout on the critical timing areas. TimeMill carries a list price in the United States ranging from $55,800 to $103,050 for a floating license depending on features and was first shipped to customers in August 1987. VERTUE. Vertue uses technology developed by the Company with SimMatrix developed by Precedence Incorporated ("Precedence") to enable co-simulation of TimeMill or PowerMill with Verilog-XL. The Company has been granted a license to use, market and distribute the interface developed by Precedence in return for certain development fees and royalties. Vertue enables the concurrent use of Verilog-XL and TimeMill or PowerMill allowing the designer to mix behavioral, gate and transistor level blocks as needed. With the use of top-down design, the creation of test sets ("test benches") and system level simulation vectors is performed at the top level. Vertue enables the designer to use the Verilog test benches to drive TimeMill or PowerMill directly, and therefore reduces the need to create additional test vectors. Vertue extends the value of the Verilog environment by enabling accurate timing, non-digital behavior and power to be simulated from within the Verilog environment. Vertue carries a list price in the United States of $24,000 for a floating license and was first shipped to customers in March 1994. OPTIONS. The Company offers a variety of product options. PowerMill and TimeMill have extensions (MSX and BCX) that allow designers to directly simulate mixed-signal and BiCMOS ICs. PathMill has options for dynamic analysis of clock trees (DSX), writing custom routines for tailoring PathMill results directly (PFX), and for writing and reading constraints and models within a Synopsys design flow (SFX). BDC (Block Delay Calculator) works with TimeMill and extracts the timing and drive loading information necessary for pin-to-pin block timing characterization. SNX (Signal Net eXtension) works with RailMill to provide signal net analysis in addition to power and ground nets. Arcadia has a range of configuration options that allow the designer flexibility in using the tool at various places in the design flow. INTERFACES. The Company supports certain platforms available from Sun Microsystems, Inc., Hewlett-Packard Company and IBM. The Company has developed graphical interfaces for Arcadia, PathMill, PowerMill and RailMill and intends to develop other interfaces during fiscal 1997. The Company's OEMs support several products -10- 11 that ease the integration of the Company's products to other environments. The following tables list the interfaces and tools supported by the Company: Interfaces
CADENCE DESIGN VIEWLOGIC MENTOR GRAPHICS SYSTEMS, INC. SYSTEMS, INC. CORPORATION Framework Integration X X X Schematic Capture Interface X X X Waveform Display X X X Co-simulation with Verilog-XL X
Tools - -----
Netlist integration Vector integration Waveform integration - ------------------- ------------------ -------------------- SPICE SPICE TurboWave EDIF Verilog SimWave LSIM Proprietary formats Verilog
SALES, MARKETING AND CUSTOMERS The Company markets its products in North America and Europe primarily through a direct sales organization. EPIC uses a team of sales personnel and field applications engineers working together from the Company's sales and support offices to provide commercial and technical solutions for each customer. Additionally, the Company has a team of product experts based at the Company's headquarters to assist the applications engineers in certain situations where an advanced level of product expertise is required. The Company has domestic sales and support offices in Sunnyvale and Irvine, California, Austin and Dallas, Texas, Framingham, Massachusetts, Upper Saddle River, New Jersey, Research Triangle, North Carolina, Arvada, Colorado, Phoenix, Arizona, Vancouver, Washington and Baltimore, Maryland. Internationally, the Company has sales and support offices in Taipei, Taiwan, Grenoble, France and London, England. As of September 30, 1996, the Company employed 34 sales personnel and 43 applications engineers. The Company participates in industry trade shows and organizes seminars to promote and further expand the adoption of its products and technologies. In Asia, EPIC markets its products primarily through a limited number of independent distributors who license and service the Company's products in this market. The Company also supports these distributors and their customers with technical, sales and management personnel. Marubeni is the Company's exclusive distributor in -11- 12 Japan. C&G Technology distributed the Company's products on a nonexclusive basis in Korea until June 30, 1996. Beginning July 1, 1996, EPIC Associates, Inc. became the Company's nonexclusive distributor in Korea. The Company is currently negotiating with C&G Technology for a new nonexclusive distributor agreement intended to be effective January 1, 1997 and intends to employ some of the employees of EPIC Associates, Inc. to directly support the Company's Korean customers starting January 1, 1997. Future Techno Design distributes the Company's products on a nonexclusive basis in the ASEAN countries (Singapore, Malaysia, Indonesia, Thailand and the Philippines) and in India. The Company has no direct sales force and relies on a single distributor for licensing and support of its products in each of Japan, Korea and the ASEAN countries and India. Accordingly, the Company is dependent upon the continued viability and financial stability of its distributors, and in particular, of Marubeni. Since the Company's products are used by highly skilled professional engineers, effective distributors must possess sufficient technical, marketing and sales resources and must devote these resources to a lengthy sales cycle, customer training and product service and support. Only a limited number of distributors possess these resources. In addition, the Company's distributors generally offer products of several different companies, including in some cases products that are competitive with the Company's products. There can be no assurance that the Company's current distributors will be able to continue to market or service and support the Company's products effectively, that economic conditions or industry demand will not adversely affect these or other distributors, that any distributor that licenses the Company's products will choose to continue to license such products or that these distributors will not devote greater resources to licensing products of other companies. The loss of, or a significant reduction in revenue from, one of the Company's distributors could have a material adverse effect on the Company's business, financial condition and results of operations. In June 1996, the Company entered into a nonexclusive OEM agreement with Cascade Design Automation Corp. ("Cascade"). Under such agreement, Cascade is granted the nonexclusive right of distributing the Company's Arcadia product by bundling it with Cascade's own product. International license and service revenue accounted for 39.7%, 44.3% and 48.5% of the total revenue in fiscal 1996, 1995 and 1994, respectively. The Company expects that international license and service revenue will continue to account for a significant portion of its revenues in the future. These revenues involve a number of inherent risks, including the impact of recessionary environments in economies outside the United States, generally longer receivable collection periods, unexpected changes in regulatory requirements, reduced protection for intellectual property rights in some countries, and tariffs and other trade barriers. There can be no assurance that such factors will not have a material adverse effect on the Company's future international license and service revenue and, consequently, on the Company's business, financial condition and results of operations. Although the Company has attempted to reduce the risk of fluctuations in exchange rates associated with international revenues by licensing its products for United States currency, the Company pays the expenses of its international operations in local currencies and does not engage in hedging transactions with respect to such obligations. Currency exchange fluctuations in countries in which the Company licenses its products could have a material adverse effect on the Company by resulting in pricing that is not competitive with prices denominated in local currencies. In fiscal 1996, 1995 and 1994, licensing and service revenue from Marubeni accounted for 21.9%, 16.6% and 15.6%, respectively, of total revenue. Advanced Micro Devices, Inc. accounted for 10.7% of licensing and service revenue in fiscal 1996. Licensing and service revenue from the C&G Technology, the Company's distributor in Korea, accounted for 11.0% of total revenue in fiscal 1995. No other customer of the Company accounted for greater than 10% of total revenue during fiscal 1996, 1995 or 1994. -12- 13 CUSTOMER SERVICE AND SUPPORT The Company provides its customers with a wide range of support services, including a support hot-line, on-site support and on-site and in-house training for all products. The Company's customer service and support is provided by application engineers who understand the design methodologies of the Company's customers and generally have IC design backgrounds. Pre-sales support is supplied in executing benchmarks, training and providing integration analysis as needed. Post-sales support is provided pursuant to renewable annual maintenance contracts. In addition, customers with maintenance agreements have access to a hot-line and receive periodic product enhancement releases at no additional cost. Initial training is currently included in the license fees, however, customers are charged for specialist consulting or on-site training. Most of the Company's customers currently have maintenance agreements. PRODUCT DEVELOPMENT The Company's future success is dependent in part upon its ability to enhance its current products and to develop and introduce new products on a timely and a cost-effective basis that keep pace with technological developments and evolving industry standards, as well as address the increasingly sophisticated needs of the Company's customers. The Company's research and development staff focuses on the development, enhancement and support of a particular product of the Company or the development and support of product integration and graphical user interfaces. These groups also focus on releasing improved versions of the Company's existing products and developing new products and product options. The Company's product development efforts are currently focused on several new products that the Company currently expects to introduce in fiscal 1997 in the timing, power and reliability areas. With its recent acquisition of CIDA, the Company is continuing the development efforts in the layout verification area. In addition, the Company is modifying its products for the ASIC design market segment. The Company is working with ASIC vendors and designers to develop a tool designed to provide accurate power analysis and diagnostics for ASIC applications. The EDA industry is characterized by extremely rapid technological change, frequent new product introductions, evolving industry standards and changing customer requirements. The Company's future success will depend upon its ability to enhance its current products and to develop and introduce new products on a timely and a cost-effective basis that keep pace with technological developments and evolving industry standards and methodologies, as well as address the increasingly sophisticated needs of the Company's customers. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change, evolving industry standards and changing customer requirements, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products, or that its new products and product enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. Failure of the Company, for technological or other reasons, to develop and introduce new products and product enhancements in a timely and cost-efficient manner would have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The EDA industry is highly competitive. In general, competition in the EDA industry comes from major EDA vendors, each of which has a longer operating history, significantly greater financial, technical and marketing resources, greater name recognition and larger installed customer bases than the Company. These companies also have established relationships with current and potential customers of the Company. Market acceptance of the Company's products will require that IC designers adopt modified methods of design simulation and analysis, for example simulating and analyzing at the transistor level as opposed to the gate level. Designers have historically -13- 14 relied on other methodologies implemented through products supplied by the major EDA vendors, and there can be no assurance that they will be willing to change these established methods of design simulation and analysis. If the market for the Company's products develops, the Company expects competition from the major EDA vendors to increase. In addition, a variety of small companies develop and bring new products to the market, and any of these companies could become a significant competitor in the EDA market in the future. The Company also competes with the internal design groups of its existing and potential customers, many of whom design and develop customized simulation and analysis tools for their particular needs and therefore may be reluctant to purchase products offered by independent vendors. In addition, increased competition could result from vendors of SPICE simulation products which increase the performance of their existing products to match that of the Company's products. Each of the Company's products addresses a different aspect of IC performance optimization and has different competitors. AMPS competes with a tool that Cadence has licensed from Lucent Technology, Inc. Arcadia competes with extraction tools offered by Cadence, Avant! Corp. ("Avant!") and High Level Design Systems, Inc. ("HLDS"). PathMill competes with a static timing analysis product offered by Cadence at the transistor level and there are several gate level analyzers which have historically been used for static timing analysis. Among the leading EDA vendors that currently offer gate level static timing analyzers are Viewlogic, Synopsys, Cadence and Mentor Graphics Corporation ("Mentor"). In addition, the Company is aware of certain transistor level products competitive with PathMill which are offered by smaller EDA companies. PowerMill competes with transistor level products offered by Mentor and Avant! and gate level products offered by Synopsys. TimeMill experiences competition from product offerings of Avant!, Mentor and certain smaller EDA companies. To date, the Company has faced little direct competition for RailMill and Vertue. The Company has also recently established a silicon characterization service laboratory which is competing with a similar service laboratory at Avant!. With the Company entering into the market of physical verification through its acquisition of CIDA, the Company will also be competing with layout verification tools from Cadence, Mentor and Avant!. Several recent consolidations in the EDA industry involving medium to large EDA companies acquiring small technology companies have provided the additional sales distribution channels and customer base access to these smaller companies that otherwise would not have had such resources. For example, as a result of Avant!'s acquisitions of Anagram, Inc., Meta-Software, Inc. and Frontline Design Automation and Cadence's recent announcements of agreements to acquire HLDS and Cooper & Chyan Technology, Inc., the Company believes that its competitive environment has moved toward a small number of competitors with increased competition coming from larger, more diversified EDA companies that possess significantly greater financial, technical and marketing resources and greater name recognition and larger installed customer bases than the Company. The Company competes on the basis of certain factors, including first-to-market product capabilities, product performance, price, support of industry standards, ease of use and customer technical support and service. The Company believes that it currently competes favorably overall with respect to these factors, particularly time-to-market product features, technical support and customer service. However, there can be no assurance that the Company will be able to continue to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially adversely affect its business, financial condition and results of operations. In particular, increased competition could result in price reductions, reduced margins and loss of market share, all of which could materially adversely affect the Company. In addition, there can be no assurance that current competitors or other entities will not develop similar products that have significant advantages over the Company's core technology which could have a material adverse effect on the Company's business, financial condition and results of operations. -14- 15 PROPRIETARY TECHNOLOGY The Company relies primarily upon a combination of copyright and trademark laws to establish and protect proprietary rights in its products. The Company seeks to protect the source code for its products as an unpublished copyrighted work. The Company generally enters into proprietary information and confidentiality agreements with its employees and distributors, and limits access to and distribution of its software, documentation and other proprietary information. The Company does not license or release the source code for its proprietary software to its customers, except in connection with source code escrow arrangements. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's products or technology without authorization, or to develop similar technology independently. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. Because the EDA industry is characterized by rapid technological change, the Company believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are also important to establishing and maintaining a technology leadership position. The Company does not hold any patents and does not anticipate that it will rely in the future on patents to protect its proprietary rights. Although the Company does not believe its products infringe the proprietary rights of any third parties, there can be no assurance that infringement claims will not be asserted against the Company or its customers in the future. Although there are no such pending lawsuits against the Company or notices that the Company is infringing intellectual property rights of others, there can be no assurance that litigation or infringement claims will not occur in the future. The Company could incur substantial costs and diversion of management resources in defending itself and its customers against any such claims. Furthermore, parties making such claims could secure substantial damages, as well as injunctive or other equitable relief which could effectively block the Company's ability to sell its products in the United States and abroad. Such a judgment could have a material adverse effect on the Company's business, financial condition and results of operations. If it appears necessary or desirable, the Company may seek licenses under intellectual property that it is allegedly infringing. There can be no assurance, however, that licenses could be obtained on commercially reasonable terms, if at all, or that the terms of any offered licenses will be acceptable to the Company. The failure to obtain the necessary licenses or other rights could have a material adverse effect on the Company's business, financial condition and results of operations. EMPLOYEES As of September 30, 1996, the Company had a total of 195 employees, including 92 in research and development, 84 in sales, marketing and related customer support services, and 19 in administration. Thirty-four of the Company's employees hold Ph.D. degrees. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company experienced any work stoppage. The Company considers its relations with its employees to be good. The Company is highly dependent upon the continued service of, and on its ability to attract and retain, qualified technical, sales, marketing and managerial personnel. The competition for qualified personnel is intense, and the loss of any such persons, as well as the failure to recruit additional key personnel in a timely manner, would have a material adverse effect on the Company's business, financial condition and results of operations. In particular, there are only a limited number of qualified EDA engineers, and the competition for such individuals is especially intense. There can be no assurance that the Company will be able to continue to attract and retain the qualified technical and other personnel necessary for the development of its business. -15- 16 ITEM 2. PROPERTIES In December 1995, the Company relocated its principal administration, sales, marketing and research and development operations to a facility occupying approximately 53,000 square feet in Sunnyvale, California. The facility is leased through November 2000, at which time the Company has two options to extend the lease for additional periods of two and one-half years each. The Company's lease on its former principal facility expired in February 1996. In addition, the Company also leases sales offices in Irvine, California, Austin and Dallas, Texas, Framingham, Massachusetts, Upper Saddle River, New Jersey, Vancouver, Washington, Taipei, Taiwan, Grenoble, France and London, England. The Company also leases an approximately 3,000 square feet facility in Santa Clara, California, pursuant to a lease assumed in connection with the acquisition of Archer. The Company subleases this facility to a third-party. Additionally, pursuant to a lease assumed in connection with the acquisition of CIDA, the Company leases approximately 2,500 square feet facility in Sunnyvale, California and such lease expires on December 31, 1996. The Company believes that its existing facilities are adequate to meet its current needs and that suitable additional or alternative space will be available in the future on commercially reasonable terms as needed. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. -16- 17 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their ages as of November 15, 1996 are as follows:
Name Age Position - ---------------------------------- --- ---------------------------------------------------- Sang S. Wang, Ph.D. .............. 51 Chief Executive Officer and Chairman of the Board of Directors Bernard Aronson .................. 65 President and Director Gary A. Larsen ................... 63 Vice President, Worldwide Sales Tammy S. Liu ..................... 40 Chief Financial Officer and Secretary
Dr. Wang, a co-founder of the Company, has served as Chief Executive Officer since August 1991 and as Chairman of the Board of Directors since September 1993. From the Company's inception in October 1986, he served as President until August 1991 and as Chief Financial Officer until March 1993. Prior to founding the Company, Dr. Wang was a Manager of Computer Aided Design at AMD, a manufacturer of integrated circuits, responsible for the development of AMD's internal bipolar circuit simulation environment. Mr. Aronson has served as President of the Company since August 1991 and as a Director since March 1992. From March 1990 to August 1991, Mr. Aronson served as Executive Vice President of Zoran Corporation, a semiconductor company. From 1987 to January 1990, he served as President of ICI Array Technology, Inc., a contract assembly company. From 1976 to 1987, Mr. Aronson served as President of Pico Design, Inc., a semiconductor chip design company that he founded and which became a wholly-owned subsidiary of Motorola in 1979. Mr. Larsen has served as Vice President, Worldwide Sales since joining the Company in August 1994. From 1984 to April 1994, he served in a variety of managerial positions at Cadence, most recently as Vice President of the ASIC Solution Group. Ms. Liu has served as Chief Financial Officer since joining the Company in January 1994 and as Secretary since August 1994. From January 1990 to September 1993, she served as Chief Financial Officer at PiE Design Systems, Inc., a manufacturer of system level verification tools. From 1988 to December 1989, she served as Corporate Controller of Plexus Computers, Inc., a manufacturer of image processing computers. Prior to that time, she served in a variety of financial management positions at Cadence and Finnigan Corporation, a manufacturer of mass spectrometers. -17- 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Company has been traded on the Nasdaq National Market under the symbol EPIC since the Company's initial public offering on October 26, 1994. Prior to that time, there was no public market for the Company's Common Stock. The following table sets forth for the periods indicated the high and low sale prices on the Common Stock.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 HIGH LOW ------- ------- Fourth Quarter $ 26.75 $ 17.50 Third Quarter $ 36.00 $ 24.00 Second Quarter $ 36.75 $ 20.50 First Quarter $ 24.25 $ 19.00 FISCAL YEAR ENDED SEPTEMBER 30, 1995 HIGH LOW ------- ------- Fourth Quarter $ 24.25 $ 15.75 Third Quarter $ 18.12 $ 12.63 Second Quarter $ 13.62 $ 9.00 First Quarter (From October 26, 1994) $ 12.37 $ 9.37
As of November 15, 1996, there were approximately 84 holders of record of the Common Stock. The Company has never paid cash dividends on its capital stock. The Company currently expects that it will retain its future earnings for use in the operation of its business and does not anticipate paying any cash dividends in the foreseeable future. -18- 19 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data of the Company are qualified by reference to and shall be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the consolidated financial statement, related notes and other financial information included elsewhere in this Report.
YEARS ENDED SEPTEMBER 30, ------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenue: License $ 34,548 $20,732 $ 9,694 $4,808 $ 2,250 Service 9,371 4,271 1,645 724 452 -------- ------- ------- ------ ------- Total revenue 43,919 25,003 11,339 5,532 2,702 -------- ------- ------- ------ ------- Cost and expenses: Cost of license 1,671 1,315 572 161 68 Cost of service 1,681 987 454 235 94 Sales and marketing 13,285 8,771 4,548 2,114 899 Research and development 10,566 5,886 2,908 1,668 1,252 General and administrative 3,380 2,325 1,027 545 362 Purchased in-process technology 18,806 3,261 -- -- -- -------- ------- ------- ------ ------- Total operating expenses 49,389 22,545 9,509 4,723 2,675 -------- ------- ------- ------ ------- Income (loss) from operations (5,470) 2,458 1,830 809 27 Interest income, net 1,153 822 82 24 13 -------- ------- ------- ------ ------- Income (loss) before income taxes (4,317) 3,280 1,912 833 40 Provision for income taxes 5,361 2,290 674 230 65 -------- ------- ------- ------ ------- Net income (loss) $ (9,678) $ 990 $ 1,238 $ 603 $ (25) ======== ======= ======= ====== ======= Net income (loss) per share (1) $ (0.77) $ 0.08 $ 0.13 $ 0.06 $ (0.01) ======== ======= ======= ====== ======= Shares used in per share computation(1) 12,625 13,198 9,864 9,520 4,922 ======== ======= ======= ====== =======
Years Ended September 30, ------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and short term investments $ 39,527 $27,918 $ 3,974 $ 872 $ 965 Working capital 30,763 23,584 1,862 1,521 1,335 Total assets 54,791 35,781 7,907 3,345 2,257 Total shareholders' equity 37,054 26,925 3,637 2,163 1,545
- ----------------------- (1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing net income (loss) per share. -19- 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN FORWARD-LOOKING INFORMATION Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Report are forward-looking statements based on current expectations, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Such risks and uncertainties are set forth below in the second paragraph under "Overview," "Factors Affecting Future Operating Results" and "Liquidity and Capital Resources." These forward-looking statements include the last sentence of the first paragraph under "Overview," the statement relating to future international license and service revenue in the fourth paragraph under "Research and Development," the last sentence of the second paragraph under "Liquidity and Capital Resources" and the statement relating to the period of time through which the Company's resources will be adequate to finance its operations in the last paragraph under "Liquidity and Capital Resources." OVERVIEW The Company develops, markets and supports a family of simulation and analysis software tools that helps IC designers better manage the timing, reliability and power characteristics of IC designs. The Company was founded in 1986 and licensed its first product, TimeMill, in August 1987. The Company began licensing PathMill in June 1989, PowerMill in March 1992, Vertue in March 1994, RailMill in May 1995 and its latest product, AMPS, in January 1996. With the acquisition of Archer Systems, Inc. ("Archer"), the Company also began licensing Arcadia in November 1995. Substantially all of the Company's license revenue to date has been derived from the licensing of Arcadia, PathMill, PowerMill and TimeMill. The Company also derives service revenue primarily from maintenance agreements which provide customers access to product enhancements, training and customer support. Most of the Company's customers have purchased annual maintenance contracts on initial licenses and have renewed such contracts upon expiration. The Company has recently acquired CIDA Technology, Inc. ("CIDA") which is developing a new technology in the area of layout verification. The Company does not expect to generate any substantial revenue from these products until they are formally released and receive market acceptance. Most of the Company's products are based upon a single set of core software technologies, and the licensing and support of all products are expected to account for substantially all of the Company's revenue for the foreseeable future. Market acceptance of the Company's products by existing and new customers and the competitiveness of the products in an ever increasing competitive environment are critical to the Company's future success. There can be no assurance that the markets for which the Company's products are best suited will develop or, if such markets do develop, that the Company's products will achieve the market acceptance required to maintain revenue growth and continued profitability in the future. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain statement of operations data of the Company expressed as a percentage of total revenue. -20- 21
YEARS ENDED SEPTEMBER 30, ------------------------- 1996 1995 1994 ---- ---- ---- Revenue: License 78.7% 82.9% 85.5% Service 21.3 17.1 14.5 ----- ----- ----- Total revenue 100.0 100.0 100.0 ----- ----- ----- Costs and expenses: Cost of license 3.8 5.3 5.0 Cost of service 3.8 3.9 4.1 Sales and marketing 30.2 35.1 40.1 Research and development 24.1 23.6 25.6 General and administrative 7.7 9.3 9.1 Purchased in-process technology 42.8 13.0 -- ----- ----- ----- Total operating expenses 112.4 90.2 83.9 ----- ----- ----- Income (loss) from operations (12.4) 9.8 16.1 Interest income, net 2.6 3.3 0.8 ----- ----- ----- Income (loss) before income taxes (9.8) 13.1 16.9 Provision for income taxes 12.2 9.1 6.0 ----- ----- ----- Net income (loss) (22.0)% 4.0% 10.9% ===== ===== =====
Revenue. Revenue consists primarily of fees for licenses of the Company's software products, maintenance and customer support. The Company recognizes revenue from software licenses after shipment of the products and fulfillment of acceptance terms, if any, and when no significant contractual obligations remain outstanding. When the Company receives payment prior to shipment or fulfillment of significant vendor obligations, such payments are recorded as deferred revenue and customer deposits and are recognized as revenue upon shipment or fulfillment of significant vendor obligations. Costs related to insignificant vendor obligations for post-contract customer support are accrued upon recognition of the license revenue. Maintenance revenue is deferred and recognized ratably over the term of the maintenance agreement, which is typically one year. Revenue from customer training, support and other services is recognized as the service is performed. Total revenue increased by 75.7% to $43.9 million in fiscal 1996 from $25.0 million in fiscal 1995 and increased by 120.5% in fiscal 1995 from $11.3 million in fiscal 1994. The percentage of the Company's total revenue attributable to license fees decreased to 78.7% in fiscal 1996 from 82.9% and 85.5% in fiscal 1995 and 1994, respectively. License revenue increased by 66.6% to $34.5 million in fiscal 1996 from $20.7 million in fiscal 1995 and increased by 113.9% in fiscal 1995 from $9.7 million in fiscal 1994. The increase in revenue in fiscal 1996 was primarily due to increases in number of licenses of Arcadia, PathMill, PowerMill, RailMill and various options for such products. The increase in revenue in fiscal 1995 was primarily due to increases in number of licenses of PathMill, PowerMill, TimeMill and to a lesser extent, various options and third party software products. In May 1995, the Company began licensing its reliability product, RailMill. In July 1995, with the acquisition of Archer, the Company started licensing Arcadia. To date, price increases have not been a material factor in the Company's revenue growth. Service revenue increased by 119.4% to $9.4 million in fiscal 1996 from $4.3 million in fiscal 1995 and increased by 159.6% in fiscal 1995 from $1.6 million in fiscal 1994. The increases in service revenue in each fiscal year were primarily attributable to maintenance contracts in connection with the continued growth of the installed base of customers licensing the Company's products. Most of the Company's customers have purchased annual -21- 22 maintenance contracts on initial licenses and have renewed such contracts upon expiration. The percentage of the Company's total revenue attributable to service revenue increased to 21.3% in fiscal 1996 from 17.1% in fiscal 1995 and from 14.5% in fiscal 1994. Service revenue as a percentage of total revenue increased in fiscal 1996 as a result of the Company generating $1.8 million or 19.1% of service revenue from consulting and training revenues, which had historically been minimal. Service revenue as a percentage of total revenue increased in fiscal 1995 primarily due to the faster growth of maintenance customer base compared to the growth rate of total revenue. International license and service revenue accounted for 39.7%, 44.3% and 48.5% of total revenue in fiscal 1996, 1995 and 1994, respectively. The decreases of international license and service revenue as a percentage of total revenue were primarily due to the increases of volume purchase agreements with major domestic customers. The Company expects that international license and service revenues will continue to account for a significant portion of its revenues in the future. License and service revenue from Marubeni, the Company's exclusive distributor in Japan, accounted for 21.9%, 16.6% and 15.6% of total revenue in fiscal 1996, 1995 and 1994, respectively. License and service revenue from Advanced Micro Devices, Inc. accounted for 10.7% of total revenue in fiscal 1996. License and service revenue from C&G Technology, the Company's distributor in Korea, accounted for 11.0% of total revenue in fiscal 1995. No other customer or distributor accounted for more than 10% of total revenue during any of these periods. Cost of Revenue. Cost of license revenue includes third party software license royalties, documentation and other production costs related to the licensing of the Company's products. Cost of license revenue as a percentage of total revenue decreased to 3.8% in fiscal 1996 from 5.3% in fiscal 1995 and from 5.0% in fiscal 1994. The decreases in cost of license revenue as a percentage of total revenue were primarily due to the cost of license revenue increasing at a slower rate than the growth in total revenue. Cost of service revenue includes personnel and related operating costs allocated to maintenance and other customer support services. Cost of service revenue as a percentage of total revenue remained relatively constant at 3.8%, 3.9% and 4.1% in fiscal 1996, 1995 and 1994, respectively. Sales and Marketing. Sales and marketing expenses consist of salaries, commissions paid to internal sales and marketing personnel and certain distributors, promotional costs and related operating expenses. Sales and marketing expenses increased by 51.5% to $13.3 million in fiscal 1996 from $8.8 million in fiscal 1995 and increased by 92.9% in fiscal 1995 from $4.5 million in fiscal 1994. Sales and marketing expenses increased in each period due to the expansion of the Company's worldwide direct sales and marketing organization, increased commissions associated with increased revenue and, to a lesser extent, participation in domestic and international conferences and trade shows. During the periods, the Company established direct sales and support offices in the United States, Europe and Asia. The number of sales and marketing personnel also increased to 84 persons at the end of fiscal 1996 from 57 and 34 persons at the end of fiscal 1995 and 1994, respectively. As a percentage of total revenue, sales and marketing expenses were 30.2%, 35.1% and 40.1% of total revenue in fiscal 1996, 1995 and 1994, respectively. The decrease of sales and marketing expenses as a percentage of total revenue in fiscal 1996 from fiscal 1995 and 1994 was primarily due to total revenues increasing at a rate faster than the increases in sales and marketing expenses. Research and Development. Research and development expenses include all costs associated with the development of new products and enhancements to existing products. Research and development expenses increased by 79.5% to $10.6 million in fiscal 1996 from $5.9 million in fiscal 1995 and increased by 102.4% in fiscal 1995 from $2.9 million in fiscal 1994. The increases in research and development expenses in each period resulted primarily from the continued investment in the number of research and development personnel, which grew to 92 persons at the end of fiscal 1996 from 58 and 33 persons at the end of fiscal 1995 and 1994, respectively, for the continued development of new software products, as well as enhancements to existing products. As a percentage of -22- 23 total revenue, these expenses were 24.1%, 23.6% and 25.6% of total revenues in fiscal 1996, 1995 and 1994, respectively. To maintain a competitive position in the EDA market, the Company expects to increase its investment in research and development, although such expenses as a percentage of total revenue may fluctuate. General and Administrative. General and administrative expenses increased by 45.4% to $3.4 million in fiscal 1996 from $2.3 million in fiscal 1995 and increased by 126.4% in fiscal 1995 from $1.0 million in fiscal 1994. The increases were primarily attributable to costs associated with new administrative personnel, professional fees such as legal and accounting, and increases in operating expenses associated with being a public company. As a percentage of total revenue, general and administrative expenses were 7.7%, 9.3% and 9.1% of total revenues in fiscal 1996, 1995 and 1994, respectively. The decrease of general and administrative expenses as a percentage of total revenue in fiscal 1996 was a result of total revenue increasing at a rate faster than the increases in general and administrative expenses. Purchased In-Process Technology. As of September 30, 1996, the Company substantially completed its acquisition of CIDA, through a merger of CIDA with and into a wholly-owned subsidiary of EPIC. The Company exchanged a total of 729,454 shares of Common Stock, options to purchase 101,000 shares of Common Stock and cash of $3.4 million for all of the outstanding shares of the common stock and options to purchase common stock of CIDA. The acquisition was accounted for as a purchase. The purchase price of $17.9 million, as well as costs directly attributable to the acquisition, have been allocated to the assets acquired and liabilities assumed. Approximately $18.8 million of the total purchase price represented the value of in-process technology that had not reached technological feasibility and that had no alternative future use and was charged to the Company's operations in the fourth quarter of fiscal 1996. As of June 30, 1995, the Company substantially completed its acquisition of Archer, through a merger of Archer with and into a wholly-owned subsidiary of EPIC. The Company exchanged a total of 260,484 shares of its common stock and options to purchase common stock of EPIC for all of the outstanding shares of the common stock and options to purchase common stock of Archer. The acquisition was accounted for as a purchase. The purchase price of $3.6 million, as well as costs directly attributable to the acquisition, have been allocated to the assets acquired and liabilities assumed. Approximately $3.3 million of the total purchase price represented the value of in-process technology that had not reached technological feasibility and that had no alternative future use and was charged to the Company's operations in the third quarter of fiscal 1995. Income Taxes. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The provision of income taxes as a percentage of pre-tax income, excluding purchased in-process technology which is not tax deductible since the mergers with CIDA and Archer were tax-free reorganizations was 37.0%, 35.0% and 35.3% for fiscal 1996, 1995 and 1994, respectively. These percentages are less than the federal and state combined statutory rate of approximately 40.0% due primarily to tax exempt interest income, the utilization of research and experimentation credits and the establishment of a Foreign Sales Corporation (FSC). See Note 9 of Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations to date through private and public sales of equity securities and with cash from operations. Private sales of equity securities have yielded approximately $2.1 million. In addition, in October 1994, the Company completed its initial public offering raising approximately $17.4 million of cash, net of expenses. Net cash provided by operating activities was $13.3 million, $7.6 million and $4.4 million in fiscal 1996, 1995 and 1994, respectively, and resulted primarily from net income, adjusted by non-cash activities, and increases in accrued liabilities and income taxes payable. Accrued liabilities increased by approximately $6.8 million -23- 24 as of September 30, 1996 from the previous fiscal year end primarily due to costs associated with the mergers of Archer and CIDA, increases in accrued compensation and accruals of various operating expenses as a result of increased level of operations. Deferred revenue and customer deposits increased to $3.8 million at September 30, 1996 from $3.0 million at September 30, 1995 as a result of an increase in the number of maintenance and service contracts, the revenue from which is deferred and recognized ratably over the term of the contract. Cash used in investing activities resulted primarily from the net purchases of short-term investments, additions to property and equipment and increases in other assets. Purchases of short-term investments, net of proceeds from maturity of short term investments, were $9.6 million and $15.4 million in fiscal 1996 and 1995, respectively, and additions to property and equipment, consisting primarily of computer equipment, were $3.9 million, $1.8 million and $1.1 million in fiscal 1996, 1995 and 1994, respectively. As a result of the acquisition of CIDA and Archer, which were accounted for as purchases, the Company recorded a total of $1.1 million and $1.0 million, respectively, in other assets for technology and goodwill which are being amortized over the estimated useful lives of the assets ranging from three to five years. The Company expects to make capital expenditures of approximately $8.0 million in fiscal 1997. Although the Company does not believe its products infringe the proprietary rights of any third parties, there can be no assurance that infringement claims will not be asserted against the Company or its customers in the future. The Company could incur substantial costs and diversion of management resources with respect to the defense of such claims and parties making such claims could secure substantial damages, each of which could have a material adverse effect on the Company's financial condition and results of operations. As of September 30, 1996, the Company had working capital of $30.8 million including cash, cash equivalents and short-term investments of $39.5 million. As of September 30, 1996, the Company had no bank indebtedness and no long term commitments other than minimum capital and operating lease obligations. The Company believes that the existing cash, cash equivalents and short-term investments and funds generated from operations will provide the Company with sufficient funds to finance its operations through at least the next 12 months. Thereafter, the Company may require additional funds to support its working capital requirements or for other purposes and may seek to raise such additional funds through public or private equity financing or from other sources. No assurance can be given that additional financing will be available or that, if available, such financing will be obtainable on terms favorable to the Company or its shareholders. FACTORS AFFECTING FUTURE OPERATING RESULTS Quarterly Operating Results May Fluctuate; Dependence on Semiconductor Industry. The Company's quarterly results may in the future vary significantly due to a number of factors, including the timing of customer design and development projects; the timing of significant orders; the timing of expenditures in anticipation of product releases or increased revenue; the timing of new product announcements by the Company and its competitors; competition and pricing in the semiconductor industry; market acceptance of new and enhanced versions of the Company's products; variations in the mix of products the Company licenses; and variations in product development or operating expenditures. Any unfavorable changes in these or other factors could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's expense levels are based, in part, on its expectations of future revenues. As a result, if anticipated revenue in any quarter does not occur or is delayed, expenditure levels could be disproportionately high as a percentage of revenues, and the Company's operating results for that quarter would be adversely affected. The Company is dependent upon the semiconductor industry and, in particular, new IC design projects. The semiconductor industry is highly volatile due to rapid technological change, short product life cycles, fluctuations in -24- 25 manufacturing capacity, and pricing and gross margin pressures. The semiconductor industry periodically has experienced significant downturns, often in connection with, or in anticipation of, declines in general economic conditions during which the number of new design projects often decreases. The Company's business, financial condition and results of operations may in the future reflect substantial fluctuations from period-to-period as a consequence of semiconductor industry patterns and general economic conditions. Market for Company's Products is Highly Competitive. The EDA industry is highly competitive. In general, competition in the EDA industry comes from major EDA vendors, each of which has a longer operating history, significantly greater financial, technical and marketing resources, greater name recognition and larger installed customer bases than the Company. In addition, a variety of small companies develop and bring new products to the market, and any of these companies could become a significant competitor in the EDA market in the future. The Company also competes with the internal design groups of its existing and potential customers, many of whom design and develop customized simulation and analysis tools for their particular needs and therefore may be reluctant to purchase products offered by independent vendors. There can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not materially adversely affect its business, financial condition and results of operations. In particular, increased competition could result in price reductions, reduced margins and loss of market share, all of which could materially adversely affect the Company. In addition, there can be no assurance that current competitors or other entities will not develop similar products that have significant advantages over the Company's core technology which could have a material adverse affect on the Company's business, financial condition and results of operations. Company's Markets are Subject to Rapid Technological Change. The EDA industry is characterized by extremely rapid technological change, frequent new product introductions, evolving industry standards and changing customer requirements. The Company's future success will depend upon its ability to enhance its current products and to develop and introduce new products on a timely and a cost-effective basis that keep pace with technological development and evolving industry standards and methodologies, as well as address the increasingly sophisticated needs of the Company's customers. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change, evolving industry standards and changing customer requirements, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products, or that its new products and product enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. Failure of the Company, for technological or other reasons, to develop and introduce new products and product enhancements in a timely and cost-efficient manner, would have a material and adverse effect on the Company's business, financial conditions and results of operations. Reliance Upon International Distributors. A substantial portion of the Company's international license and service revenue results from a limited number of distributors. The Company has no direct sales force, and relies on a single distributor for licensing and support of its products, in each of Japan, Korea and the ASEAN countries in India. Accordingly, the Company is dependent upon the continued viability and financial stability of its distributors and in particular of Marubeni. Since the Company's products are used by highly skilled professional engineers, effective 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 member of distributors possess these resources. In addition, the Company's distributors generally offer products of several different companies, including in some cases products that are competitive with the Company's product. There can be no assurance that the Company's current distributors will be able to continue to market or service and support the Company's products effectively, that economic conditions or industry demand will not adversely affect these or other distributors, that any distributor that licenses the Company's products will choose to continue to license such products or that these distributors will not devote greater resources to licensing products of other companies. The loss of, or -25- 26 a significant reduction in revenue from, one of the Company's distributors could have a material adverse effect on the Company's business, financial conditions and results of operations. Risks Associated with International Licensing. International license and service revenue accounted for 39.7% of total revenue in fiscal 1996. The Company expects that international license and service revenue will continue to account for a significant portion of its revenues in the future. These revenues involve a number of inherit risks, including the impact of recessionary environments in economies outside the United States, generally longer receivable collection periods, unexpected changes in regulatory requirements, reduced protection of intellectual property rights in some countries, and tariffs and other trade barriers. There can be no assurance that such factors will not have a material adverse affect on the Company's future international license and service revenue and, consequently, on the Company's business, financial conditions and results of operations. Company is Dependent Upon Proprietary Technology. Despite precautions by the Company, it may be possible for a third party to copy or otherwise obtain and use the Company's products or technology without authorization, or to develop similar technology independently. In addition, effective intellectual property protection may be unavailable or limited in certain foreign countries. In addition, although the Company does not believe its products infringe the proprietary rights of any third parties, there can be no assurance that infringement claims will not be asserted against the Company or its customers in the future. The Company could incur substantial costs and diversion of management resources with respect to the defense of such claims which could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, parties making such claims could secure substantial damages, as well as injunctive or other equitable relief which could effectively block the Company's ability to license its products in the United States or abroad. Such a judgment could have a material adverse affect upon the Company's business, financial condition and results of operations. Future Acquisitions. During each fiscal 1996 and 1995, Company completed acquisitions of other companies. The Company's management frequently evaluates the strategic opportunities available to it and may in the near-term or long-term pursue acquisitions of complimentary businesses, products or technologies. Future acquisitions by the Company may result in the diversion of management's attention from the day-to-day operation of the Company's business and may include numerous other risks, including difficulties in the integration of the operations, products and personnel of the acquired companies. Future acquisitions by the Company have the potential to result in dilutive issuances of equity securities, the incurrence of additional debt and amortization expenses related to goodwill and other intangible assets. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements and the report of independent auditors appear on pages F-1 through F-16 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -26- 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item concerning the Company's directors is incorporated by reference from the section captioned "Election of Directors" contained in the Company's Proxy Statement related to the Annual Meeting of Shareholders to be held February 12, 1997, to be filed by the Company with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the "Proxy Statement"). The information required by this item concerning executive officers is set forth in Part I of this Report. The information required by this item concerning compliance with Section 16(a) of the Exchange Act is incorporated by reference from the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the section captioned "Executive Compensation and Other Matters" contained in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the section captioned "Record Date and Principal Share Ownership" contained in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the sections captioned "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions With Management" contained in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements The financial statements are filed as part of this Report:
Index to Consolidated Financial Statements ............................ F-1 Independent Auditors' Report .......................................... F-2 Consolidated Balance Sheets at September 30, 1996 and 1995 ............ F-3 Consolidated Statements of Operations for the years ended September 30, 1996, 1995 and 1994 ........................................ F-4 Consolidated Statement of Shareholders' Equity for the years ended September 30, 1996, 1995 and 1994 ............................. F-5 Consolidated Statements of Cash Flows for the years ended September 30, 1996, 1995 and 1994 ............................. F-6 Notes to Consolidated Financial Statements ............................ F-7
-27- 28 (a)(2) Financial Statement Schedules
Valuation and Qualifying Accounts ...................................... S-1
Additional schedules are not required under the related schedule instructions or are inapplicable, and therefore have been omitted. (a)(3) Exhibits
3.1(2) Restated Articles of Incorporation of the Registrant, as amended. 3.2(1) Bylaws of the Registrant. 10.1(1) Form of Indemnification Agreement between the Registrant and its officers and directors. 10.2(1) 1990 Stock Option Plan and forms of agreement thereunder. 10.3(1) 1994 Employee Stock Purchase Plan and agreement thereunder. 10.4(1) 1994 Director Stock Option Plan and form of agreement thereunder. 10.5(1) Amended and Restated Registration Rights Agreement dated as of December 20, 1991 by and among Registrant and certain individuals and entities named therein as amended by Amendment No. 1 thereto dated as of August 26, 1994. 10.6(2) Triple Net Lease Agreement between Registrant and ARGOSystems, Inc. dated September 21, 1995. 10.7(1) Exclusive Distributor Agreement between Registrant and Marubeni Hytech co. Ltd. dated January 25, 1988 and Amendments thereof. 10.8*(1) Motorola Corporate Agreement between Registrant and Motorola Semiconductor Products Sector dated August 6, 1993 and related Motorola Software End-User License Agreement dated September 23, 1994 and Amendments thereof. 10.9 1995 Equity Incentive Plan of CIDA Technology, Inc. and form of agreement thereunder. 10.10*(1) Interface Development Agreement between Registrant and Precedence Incorporated dated as of December 11, 1992. 10.11* AMD Volume Purchase Agreement between Registrant and Advanced Micro Devices, Inc. dated January 1, 1995 and Amendments thereof. 10.11.01* Addendum No. 1 effective as of March 30, 1996 and Addendum No. 2 effective as of September 30, 1996 to the AMD Volume Purchase Agreement. 11.1 Computation of net income per share. 22.1 List of subsidiaries of the Registrant. 23.1 Independent Auditors' Consent and Report on Schedule. 24.1 Power of Attorney (See Page 30). 27.1 Financial Data Schedule.
- ------------------ * Confidential treatment has been granted or is requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (Reg. No. 33-83550) as declared effective by the Commission on October 26, 1994. (2) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 filed on December 20, 1995. -28- 29 (b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K on November 14, 1996. This Form 8-K was filed to report the Company's acquisition of CIDA Technology, Inc. ("CIDA") consummated on November 7, 1996. The following financial statements of CIDA were filed as part of the Form 8-K: For the period ended September 30, 1995: Independent Auditors' Report Balance Sheet Statement of Operations Statement of Shareholders' Deficiency Statement of Cash Flows Notes to Financial Statements For the periods ended June 30, 1996 and 1995: Unaudited Condensed Balance Sheet Unaudited Condensed Statements of Operations Unaudited Condensed Statements of Cash Flows Notes to Unaudited Condensed Financial Statements The following pro forma financial information was filed as part of the Form 8-K: Unaudited Pro Forma Consolidated Balance Sheet Unaudited Pro Forma Consolidated Statements of Operations Notes to Pro Forma Consolidated Financial Information (c) Exhibits. See Item 14(a)(3) above. (d) Financial Statement Schedules. See Item 14(a)(2) above. -29- 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EPIC DESIGN TECHNOLOGY By: /s/ SANG S. WANG, PH.D. -------------------------- Sang S. Wang, Ph.D. Chief Executive Officer and Chairman of the Board of Directors Date: November 27, 1996 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bernard Aronson and Tammy S. Liu, and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THIS REPORT 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/ SANG S. WANG, PH.D. Chief Executive Officer and Chairman of the Board November 27, 1996 - ----------------------------- of Directors (Principal Executive Officer) (Sang S. Wang, Ph.D.) /s/ BERNARD ARONSON President and Director November 27, 1996 - ----------------------------- (Bernard Aronson) /s/ TAMMY S. LIU Chief Financial Officer and Secretary (Principal November 27, 1996 - ----------------------------- Financial and Accounting Officer) (Tammy S. Liu) Director November 27, 1996 - ----------------------------- (Yen-Son Huang, Ph.D.)
-30- 31
SIGNATURE TITLE DATE --------- ----- ---- /s/ HENRI A. JARRAT Director November 27, 1996 - ----------------------------- (Henri A. Jarrat) /s/ JOSEPH A. PRANG Director November 27, 1996 - ----------------------------- (Joseph A. Prang)
-31- 32 EPIC DESIGN TECHNOLOGY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report......................................................................... F-2 Consolidated Balance Sheets at September 30, 1996 and 1995........................................... F-3 Consolidated Statements of Operations for the Years Ended September 30, 1996, 1995 and 1994.......... F-4 Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 1996, 1995 and 1994..................................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended September 30, 1996, 1995 and 1994.......... F-6 Notes to Consolidated Financial Statements........................................................... F-7
F-1 33 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of EPIC Design Technology, Inc.: We have audited the accompanying consolidated balance sheets of EPIC Design Technology, Inc. and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of EPIC Design Technology, Inc. and subsidiaries at September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP San Jose, California October 11, 1996 F-2 34 EPIC DESIGN TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
SEPTEMBER 30, ------------------------- 1996 1995 -------- -------- Current assets: Cash and equivalents ....................................................... $ 13,259 $ 11,247 Short-term investments ..................................................... 26,268 16,671 Accounts receivable (net of allowances of $216 in 1996 and $79 in 1995)..... 6,300 2,937 Prepaid expenses and other assets .......................................... 1,026 607 Deferred income taxes ...................................................... 1,647 978 -------- -------- Total current assets .............................................. 48,500 32,440 Property and equipment - net ................................................. 4,496 2,337 Other assets ................................................................. 1,795 1,004 -------- -------- TOTAL ........................................................................ $ 54,791 $ 35,781 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................... $ 1,091 $ 878 Income taxes payable ....................................................... 1,538 414 Accrued liabilities ........................................................ 11,336 4,529 Deferred revenue and customer deposits ..................................... 3,772 3,035 -------- -------- Total current liabilities ......................................... 17,737 8,856 -------- -------- Commitments (Note 7) Shareholders' equity: Preferred stock, no par value: 10,000 shares authorized; none outstanding - - Common stock, no par value: 20,000 shares authorized; shares outstanding: 1996 - 13,642; 1995 - 12,134 ......................... 44,608 24,864 Deferred stock compensation ................................................ (110) (203) Retained earnings (accumulated deficit) .................................... (7,424) 2,254 Unrealized gain (loss) on investments, net ................................. (20) 10 -------- -------- Total shareholders' equity ........................................ 37,054 26,925 -------- -------- TOTAL ........................................................................ $ 54,791 $ 35,781 ======== ========
See Notes to Consolidated Financial Statements. F-3 35 EPIC DESIGN TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED SEPTEMBER 30, ----------------------------------------- 1996 1995 1994 -------- -------- -------- Revenue: License ......................................... $ 34,548 $ 20,732 $ 9,694 Service ......................................... 9,371 4,271 1,645 -------- -------- -------- Total revenue ............................. 43,919 25,003 11,339 -------- -------- -------- Costs and expenses: Cost of license ................................. 1,671 1,315 572 Cost of service ................................. 1,681 987 454 Sales and marketing ............................. 13,285 8,771 4,548 Research and development ........................ 10,566 5,886 2,908 General and administrative ...................... 3,380 2,325 1,027 Purchased in-process technology ................. 18,806 3,261 - -------- -------- -------- Total operating expenses .................. 49,389 22,545 9,509 -------- -------- -------- Income (loss) from operations ..................... (5,470) 2,458 1,830 Interest income, net .............................. 1,153 822 82 -------- -------- -------- Income (loss) before income taxes ................. (4,317) 3,280 1,912 Provision for income taxes ........................ 5,361 2,290 674 -------- -------- -------- Net income (loss) ................................. $ (9,678) $ 990 $ 1,238 ======== ======== ======== Net income (loss) per common and equivalent share.. $ (0.77) $ 0.08 $ 0.13 ======== ======== ======== Shares used in per share computation .............. 12,625 13,198 9,864 ======== ======== ========
See Notes to Consolidated Financial Statements. F-4 36 EPIC DESIGN TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
CONVERTIBLE PREFERRED STOCK COMMON STOCK ------------------ ------------------ SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ BALANCES, October 1, 1993 .............. 1,992 $ 1,815 3,641 $ 398 Exercise of stock options .............. 902 142 Deferred stock compensation ............ 365 Amortization of deferred stock compensation.......................... Net income ............................. ------ -------- ------ -------- BALANCES, September 30, 1994 ........... 1,992 1,815 4,543 905 Conversion of preferred stock to common stock ................................ (1,992) (1,815) 3,984 1,815 Initial public offering, net of issuance costs ................................ 3,000 17,380 Issuance of common stock and stock options assumed in connection with acquisition of Archer Systems ........ 184 3,617 Issuance of common stock under stock purchase plan ........................ 79 436 Exercise of stock options .............. 344 288 Tax benefit from employee stock transactions ......................... 423 Amortization of deferred stock compensation ......................... Unrealized gain on investments, net .... Net income ............................. ------ -------- ------ -------- BALANCES, September 30, 1995 ........... - - 12,134 24,864 Issuance of common stock and stock options assumed in connection with acquisition of CIDA .................. 729 14,511 Issuance of common stock under stock purchase plan ........................ 88 863 Exercise of stock options .............. 691 1,204 Tax benefit from employee stock transactions ......................... 3,166 Amortization of deferred stock compensation ......................... Unrealized loss on investments, net .... Net loss ............................... ------ -------- ------ -------- BALANCES, September 30, 1996 ........... - $ - 13,642 $ 44,608 ====== ======== ====== ======== UNREALIZED DEFERRED RETAINED GAIN TOTAL STOCK EARNINGS (LOSS) ON SHAREHOLDERS' COMPENSATION (DEFICIT) INVESTMENTS EQUITY ------------ --------- ----------- ------ BALANCES, October 1, 1993 .............. $ (76) $ 26 $ - $ 2,163 Exercise of stock options .............. 142 Deferred stock compensation ............ (365) Amortization of deferred stock compensation.......................... 94 94 Net income ............................. 1,238 1,238 -------- -------- ------- -------- BALANCES, September 30, 1994 ........... (347) 1,264 - 3,637 Conversion of preferred stock to common stock ................................ - Initial public offering, net of issuance costs ................................ 17,380 Issuance of common stock and stock options assumed in connection with acquisition of Archer Systems ........ 3,617 Issuance of common stock under stock purchase plan ........................ 436 Exercise of stock options .............. 288 Tax benefit from employee stock transactions ......................... 423 Amortization of deferred stock compensation ......................... 144 144 Unrealized gain on investments, net .... 10 10 Net income ............................. 990 990 -------- -------- ------- -------- BALANCES, September 30, 1995 ........... (203) 2,254 10 26,925 Issuance of common stock and stock options assumed in connection with acquisition of CIDA .................. 14,511 Issuance of common stock under stock purchase plan ........................ 863 Exercise of stock options .............. 1,204 Tax benefit from employee stock transactions ......................... 3,166 Amortization of deferred stock compensation ......................... 93 93 Unrealized loss on investments, net .... (30) (30) Net loss ............................... (9,678) - (9,678) -------- -------- ------- -------- BALANCES, September 30, 1996 ........... $ (110) $ (7,424) $ (20) $ 37,054 ======== ======== ======== ========
See Notes to Consolidated Financial Statements. F-5 37 EPIC DESIGN TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED SEPTEMBER 30, ---------------------------------- 1996 1995 1994 -------- -------- -------- Cash flows from operating activities: Net income (loss) ........................................................... $ (9,678) $ 990 $ 1,238 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ............................................. 2,111 997 358 Write-off of in-process technology ........................................ 18,806 3,261 - Deferred income taxes ..................................................... (752) (518) (543) Amortization of deferred stock compensation ............................... 93 144 94 Changes in assets and liabilities: Accounts receivable ..................................................... (3,363) (1,280) 211 Prepaid expenses and other assets ....................................... (401) (64) (144) Accounts payable ........................................................ 202 (95) 251 Income taxes payable .................................................... 4,290 (88) 857 Accrued liabilities ..................................................... 2,270 3,259 556 Deferred revenue and customer deposits .................................. (263) 956 1,521 -------- -------- -------- Net cash provided by operating activities .......................... 13,315 7,562 4,399 -------- -------- -------- Cash flows from investing activities: Purchases of short-term investments ......................................... (42,785) (48,430) (1,245) Proceeds from maturity of short-term investments ............................ 33,158 33,014 - Purchases of property and equipment ......................................... (3,896) (1,792) (1,107) Cash acquired in business acquisition ....................................... 67 64 - Other assets ................................................................ 86 - (318) -------- -------- -------- Cash used in investing activities .................................. (13,370) (17,144) (2,670) -------- -------- -------- Cash flows from financing activities: Payments of capital lease obligations ....................................... - (4) (14) Proceeds from sales of common stock ......................................... 2,067 18,104 142 -------- -------- -------- Net cash provided by financing activities ............................... 2,067 18,100 128 -------- -------- -------- Net increase in cash and equivalents .......................................... 2,012 8,518 1,857 Cash and equivalents, beginning of year ....................................... 11,247 2,729 872 -------- -------- -------- Cash and equivalents, end of year ............................................. $ 13,259 $ 11,247 $ 2,729 ======== ======== ======== Supplemental disclosure of cash flow information Cash paid during the year for: Interest .................................................................... $ - $ 1 $ 1 Income taxes ................................................................ $ 806 $ 3,132 $ 345 Supplemental schedule of noncash investing and financing activities: Conversion of preferred stock to common stock ............................... $ - $ 1,815 $ - Tax benefit from employee stock transactions ................................ $ 3,166 $ 423 $ - Unrealized gain (loss) on investments ....................................... $ (30) $ 10 $ - Effect of acquisitions: Fair value of assets acquired, including in-process technology ............ $ 20,142 $ 4,573 $ - Common shares, stock options issued and cash to be paid in the acquisition (17,869) (3,617) - -------- -------- -------- Liabilities assumed ....................................................... $ 2,273 $ 956 $ - ======== ======== ========
See Notes to Consolidated Financial Statements. F-6 38 EPIC DESIGN TECHNOLOGY, INC. ----------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - EPIC Design Technology, Inc. (the Company) develops, markets and supports advanced simulation and analysis software tools for the design of integrated circuits. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements. Cash Equivalents and Short-Term Investments - All highly liquid debt investments purchased with a remaining maturity of three months or less are classified as cash equivalents. Cash equivalents, consisting primarily of municipal obligations, money market funds and bank savings accounts, are stated at cost which approximates fair value. Short-term investments consist primarily of highly liquid debt instruments purchased with a remaining maturity date of greater than three months. The Company classifies its short-term investments as "available-for-sale securities," and the carrying value of such securities is adjusted to fair market value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. The fair values of marketable debt instruments are based on quoted market prices. Cost is determined by specific identification for purposes of computing realized gains or losses. Property and Equipment - Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, generally three to five years. Leasehold improvements are amortized over their useful life or the lease term, whichever is shorter. Other Assets - Other assets, including $2,113,000 and $1,033,000 at September 30, 1996 and 1995, respectively, of purchased technologies, goodwill and covenants not to compete acquired through acquisitions, are amortized on a straight-line basis over a three- to five-year period. Accumulated amortization equaled $379,000 and $76,000 at September 30, 1996 and 1995, respectively. Revenue Recognition - Revenue consists primarily of fees for licenses of the Company's software products, maintenance and customer support. License Revenue - Revenue from software licenses is recognized after shipment of the products and fulfillment of acceptance terms, if any, and when no significant contractual obligations remain outstanding. When the Company receives payment prior to shipment or fulfillment of significant vendor obligations, such payments are recorded as deferred revenue and customer deposits and are recognized as revenue upon shipment or fulfillment of significant vendor obligations. Costs related to insignificant vendor obligations for post-contract customer support are accrued upon recognition of the license revenue. Service Revenue - Maintenance revenue is deferred and recognized ratably over the term of the maintenance agreement, which is typically one year. Revenue from customer training, support and other services is recognized as the service is performed. F-7 39 Software Development Costs - Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs to complete the products or enhancements would be capitalized. Because the Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility, no costs have been capitalized to date. Income Taxes - Income taxes are provided utilizing an asset and liability approach which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities and net operating loss and tax credit carryforwards. Concentration of Credit Risk - Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and equivalents, short-term investments and accounts receivable. The Company licenses products primarily to customers and distributors in the integrated circuit design industry in North America, Europe and the Far East. To reduce credit risk, management performs ongoing credit evaluations of its customers' financial condition. The Company maintains reserves for potential credit losses, but historically has not experienced significant losses related to individual customers or groups of customers in any particular geographic area. The Company invests its excess cash balances in high-grade instruments which it places for safekeeping with high quality financial institutions. The Company has not experienced any material losses in any of the instruments it has used for excess cash balances. Foreign Currency Translation - The functional currency of the Company's foreign subsidiaries is the U.S. dollar. All monetary assets and liabilities are translated at the current exchange rate at the end of the period, nonmonetary assets and liabilities are translated at historical rates and revenues and expenses are translated at average exchange rates in effect during the period. Translation and transaction gains and losses, which are included in the consolidated statements of operations, have not been material in any of the periods presented. Net Income (Loss) Per Share - Net income per share is based on the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares include outstanding convertible preferred stock and common stock options. All common shares issued and stock options granted by the Company at a price less than the initial public offering price subsequent to September 1, 1993 and prior to the initial public offering (using the treasury stock method for options) have been included in the computation of common and common equivalent shares outstanding for all periods presented prior to the initial public offering. Net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding as including common equivalent shares would be anti-dilutive. Effect of New Accounting Standards - The Company accounts for its stock option plan and its employee stock purchase plan in accordance with provisions of the Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees. In October 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." SFAS 123 provides an alternative accounting method to APB 25 and its disclosure requirements are effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for its employee stock plans in accordance with the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any impact on the Company's financial position or results of operations. 2. INVESTMENTS The following is a summary of available-for-sale securities at September 30 (in thousands):
1996 1995 ------------------------------------------ ------------------------------------------ AMORTIZED GROSS UNREALIZED ESTIMATED AMORTIZED GROSS UNREALIZED ESTIMATED ------------------- ------------------- COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE ---- ----- ------ ---------- ---- ----- ------ ---------- Municipal bonds... $26,288 $- $(20) $26,268 $16,661 $10 $- $16,671
F-8 40 At September 30, 1996 all available-for-sale securities have maturities due in two years or less. Realized gains or losses from the sale of securities were insignificant in fiscal years 1996, 1995 and 1994. 3. ACQUISITIONS In fiscal 1995, the Company acquired Archer Systems, Inc., a company engaged in the design, manufacturing and marketing of an integrated circuit parameter extraction CAD tool. The Company exchanged a total of 184,208 shares of its common stock and options to acquire 76,276 shares of its common stock for all the outstanding shares of the common stock and options to purchase common stock of Archer. The acquisition was accounted for as a purchase. The purchase price of $3.6 million, as well as costs directly attributable to the acquisition, have been allocated to the assets acquired and liabilities assumed. Approximately $3.3 million of the total purchase price represented the value of in-process technology that had not reached technological feasibility and that had no alternative future use and was, therefore, charged to the Company's operations in the third quarter of fiscal 1995. In fiscal 1996, the Company acquired CIDA Technology, Inc. (CIDA), a development stage company formed to develop and market IC verification and extraction tools for use by IC design engineers. The Company exchanged a total of 729,454 shares of its common stock, options to acquire 101,000 shares of its common stock and cash of $3.4 million for all the outstanding shares of the common stock and options to purchase common stock of CIDA. The acquisition was accounted for as a purchase. The purchase price of $17.9 million, as well as costs directly attributable to the acquisition, have been allocated to the assets acquired and liabilities assumed. Approximately $18.8 million of the total purchase price represented the value of in-process technology that had not reached technological feasibility and that had no alternative future use and was, therefore, charged to the Company's operations in the fourth quarter of fiscal 1996. The operating results of Archer and CIDA have been included in the consolidated statements of operations since the dates of acquisition. Pro forma results of operations, assuming the acquisitions had taken place at the beginning of fiscal 1996 or 1995, would be as follows (in thousands):
1996 1995 ---- ---- Revenues ........................................... $ 44,419 $25,483 Net income (loss) .................................. $(11,044) $ 76 Net income (loss) per common and equivalent share... $ (0.83) $ 0.01
The pro forma results of operations give effect to certain adjustments, including amortization of purchased intangibles and goodwill as well as the issuance of common shares as a result of the acquisition. The $18.8 million and $3.3 million charge for purchased in-process technology from the CIDA and Archer acquisitions, respectively, have been reflected in the pro forma results for the years ended September 30, 1996 and 1995, respectively. The pro forma combination of the companies is for presentation purposes only. Actual statements of operations of the companies will be combined from the effective date of the acquisition, with no retroactive restatement. F-9 41 4. PROPERTY AND EQUIPMENT Property and equipment consist of (in thousands):
SEPTEMBER 30, ---------------- 1996 1995 ---- ---- Computers and related software .................. $7,083 $3,633 Other equipment ................................. 351 137 Furniture and fixtures .......................... 462 159 ------ ------ 7,896 3,929 Less accumulated depreciation and amortization... (3,400) (1,592) ------ ------ $4,496 $2,337 ====== ======
5. ACCRUED LIABILITIES Accrued liabilities consist of (in thousands):
SEPTEMBER 30, --------------- 1996 1995 ---- ---- Accrued merger costs ....................... $ 4,433 $ - Accrued compensation and related benefits... 2,979 1,583 Other ...................................... 3,924 2,946 ------- ------ $11,336 $4,529 ======= ======
6. SHAREHOLDERS' EQUITY Employee Stock Purchase Plan - In fiscal 1994, the Company adopted the 1994 Employee Stock Purchase Plan, which permits eligible employees to purchase up to an aggregate of 350,000 shares of common stock of the Company. Under the Company's Employee Stock Purchase Plan, employees may purchase from the Company a designated number of shares through payroll deductions at a price per share equal to 85% of the lesser of the fair value of the Company's common stock as of the first day of each twelve-month offering period or the last day of each six-month purchase period. In 1996 and 1995, approximately 88,000 and 79,000 shares, respectively, were issued under this plan. As of September 30, 1996, the Company has approximately 183,000 shares of common stock available for future purchases under this Plan. Stock Option Plan - The Company's 1990 Stock Option Plan (the Plan) authorizes the issuance of 4,000,000 shares of common stock for the grant of incentive or nonstatutory stock options to employees, directors, contractors and consultants. Under the Plan, options are generally granted at fair value at the date of grant as determined by the Board of Directors. Such options become exercisable generally over four years and expire up to ten years from the grant date. Prior to the adoption of the 1990 Stock Option Plan, the Company granted options to purchase 420,000 shares of common stock. The Company has reserved 200,000 shares of common stock for issuance under the 1994 Director Option Plan, which provides for each outside Director to be granted an option to purchase 20,000 shares of common stock on the date on which such person first becomes an outside Director following the effective date of the Director Option Plan and, annually thereafter, an option to purchase 6,666 shares of common stock. The exercise price of such options will be the fair market value at the date of grant. The initial options vest over four years while the subsequent grants vest over twelve months from the date of grant. Through September 30, 1996, approximately 53,000 shares have been granted under this plan. F-10 42 Stock option activity is summarized as follows (in thousands):
SHARES UNDER OPTION PRICE RANGE ------------ --------------- Outstanding, October 1, 1993 .... 1,838 $ .09 - $ .16 Granted ......................... 882 .16 - 5.00 Canceled ........................ (74) .16 - 5.00 Exercised ....................... (902) .09 - .16 ----- Outstanding, September 30, 1994 . 1,744 .16 - 5.00 Granted or assumed .............. 612 .00 - 22.38 Canceled ........................ (42) .16 - 12.22 Exercised ....................... (344) .16 - 12.63 ----- Outstanding, September 30, 1995 . 1,970 .00 - 22.38 Granted or assumed .............. 1,559 1.00 - 36.00 Canceled ........................ (740) .17 - 35.00 Exercised ....................... (691) .00 - 22.75 ----- Outstanding, September 30, 1996 . 2,098 $ .00 - $36.00 =====
At September 30, 1996, options to purchase 560,000 shares of common stock were exercisable and options to purchase 163,000 and 147,000 shares of common stock were available for future grant under the 1990 Stock Option Plan and the 1995 Director Option Plan, respectively. Deferred Stock Compensation - In connection with the preparation of its initial public offering, the Company determined that certain stock options issued prior to the offering contained a compensatory element which should be recorded for financial reporting purposes. These valuations resulted in a charge to operations for the years ended September 30, 1996, 1995 and 1994 of $93,000, $144,000 and $94,000, respectively, and will result in remaining charges in future periods aggregating $110,000 to be amortized over the vesting period of the related stock options. 7. LEASE COMMITMENTS The Company leases facilities under operating lease agreements which expire through calendar year 2001. Total rent expense for the years ended September 30, 1996, 1995 and 1994 was approximately $696,000, $531,000, $213,000, respectively. Future minimum operating lease commitments as of September 30, 1996 are as follows (in thousands):
YEAR ENDING SEPTEMBER 30, ------------- 1997 .... $ 905 1998 .... 819 1999 .... 661 2000 .... 541 2001 .... 90 ------ $3,016 ======
F-11 43 8. EXPORT SALES AND MAJOR CUSTOMERS The Company sells its products in North America, Asia and Europe. Export revenues as a percentage of net revenues for the years ended September 30 are as follows:
1996 1995 1994 ---- ---- ---- Asia 29% 33% 41% Europe 11 11 8 ---- ---- ---- 40% 44% 49% ==== ==== ====
Approximately 22%, 17% and 16% of revenues were made through a distributor in Japan, which sells the Company's products to various end user customers, in 1996, 1995 and 1994, respectively, and another distributor in Korea accounted for 11% of revenues in 1995. At September 30, 1996, accounts receivable from the Japanese distributor was $728,000. At September 30, 1995, accounts receivable from the two distributors were $922,000. One single end user customer accounted for 11% of revenues in 1996 and had an accounts receivable balance at September 30, 1996 of $1,109,000. 9. INCOME TAXES The provision for income taxes for the years ended September 30 consists of (in thousands):
1996 1995 1994 ---- ---- ---- Current: Federal ...................... $4,002 $1,623 $ 656 State ........................ 1,067 547 216 Foreign ...................... 1,044 638 345 ------ ------ ------ Total current ................. 6,113 2,808 1,217 ------ ------ ------ Deferred: Federal ....................... (582) (415) (451) State ......................... (170) (103) (92) ------ ------ ------ Total deferred ................. (752) (518) (543) ------ ------ ------ Total provision for income taxes $5,361 $2,290 $ 674 ====== ====== ======
Total income tax expense differs from the amounts computed by applying the statutory federal income tax rate to income before income taxes as a result of the following (in thousands):
1996 1995 1994 ---- ---- ---- Provision (benefit) computed at federal statutory rate... $(1,511) $1,148 $669 Change in valuation allowance ........................... 115 67 34 Research and experimentation credit ..................... - (97) (100) State income taxes, net of federal benefit .............. 580 293 81 Tax-exempt interest income .............................. (368) (261) - Nondeductible purchased in-process technology ........... 6,582 1,109 - Other ................................................... (37) 31 (10) ------- ------ ---- Total provision for income taxes ........................ $ 5,361 $2,290 $674 ======= ====== ====
Loss before income taxes attributable to the Company's foreign subsidiary was $330,000, $192,000 and $96,000 in 1996, 1995 and 1994, respectively. F-12 44 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss and credit carryforwards. Significant components of the Company's deferred income tax assets and liabilities as of September 30 are as follows (in thousands):
1996 1995 ---- ---- Deferred tax assets: Conversion to accrual from cash basis ..... $ 421 $ 547 Reserves not recognized for tax purposes... 1,144 486 Net operating loss carryforwards .......... 221 101 State taxes ............................... 40 87 Depreciation and amortization ............. 135 12 Other ..................................... 40 127 Valuation allowance ....................... (216) (101) ------ ------ 1,785 1,259 Deferred tax liabilities - Intangible assets ......................... (138) (281) ------ ------ Net deferred tax asset ...................... $1,647 $ 978 ====== ======
The Company has net operating loss carryforwards as of September 30, 1996 and 1995 of approximately $619,000 and $288,000, respectively, related to its French subsidiary that may be utilized to offset future taxable income of that entity. The valuation allowance as of September 30, 1996 and 1995 of $216,000 and $101,000, respectively, related entirely to these net operating loss carryforwards. 10. EMPLOYEE BENEFIT PLAN Substantially all full-time employees are entitled to participate in the Company's retirement savings plan (401(k) Plan). Employer contributions to the 401(k) Plan were $140,000 and $24,000 for the years ended September 30, 1996 and 1995, respectively (none in 1994). 11. RELATED PARTY TRANSACTION In fiscal 1995 and 1994, the Company received royalties from a shareholder under an OEM software license agreement. Revenues recognized under this agreement were $544,000 and $365,000 for the years ended September 30, 1995 and 1994, respectively. During fiscal 1995, the shareholder sold its investment in the Company and the OEM software license agreement was terminated. * * * * * F-13 45 SCHEDULE II EPIC DESIGN TECHNOLOGY, INC. --------------- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE ALLOWANCES FOR ACCOUNTS RECEIVABLE BEGINNING COSTS AND AT END FOR THE FISCAL YEARS ENDED SEPTEMBER 30, OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD ---------------------------------------- --------- ---------- ------------- --------- 1994 ................................ $ 32 $ 60 $ - $ 92 1995 ................................ 92 49 62 79 1996 ................................ 79 137 - 216
(1) Write-off of accounts, net of recoveries. S-1 46 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 3.1(2) Restated Articles of Incorporation of the Registrant, as amended 3.2(1) Bylaws of the Registrant 10.1(1) Form of Indemnification Agreement between the Registrant and its officers and directors 10.2(1) 1990 Stock Option Plan and forms of agreement thereunder 10.3(1) 1994 Employee Stock Purchase Plan and agreement thereunder 10.4(1) 1994 Director Stock Option Plan and form of agreement thereunder 10.5(1) Amended and Restated Registration Rights Agreement dated as of December 20, 1991 by and among Registrant and certain individuals and entities named therein as amended by Amendment No. 1 thereto dated as of August 26, 1994 10.6(2) Triple Lease Net Agreement between Registrant and ARGOSystems, Inc. dated September 21, 1995 10.7(1) Exclusive Distributor Agreement between Registrant and Marubeni Hytech co. Ltd. dated January 25, 1998 and Amendments thereof 10.8(1) Motorola Corporate Agreement between Registrant and Motorola Semiconductor Products Sector dated August 6, 1993 and related Motorola Software End-User License Agreement dated September 23, 1994 and Amendments thereof 10.9 1995 Equity Incentive Plan of CIDA Technology, Inc. and form of agreement thereunder 10.10*(1) Interface Development Agreement between Registrant and Precedence Incorporated dated as of December 11, 1992 10.11* AMD Volume Purchase Agreement between Registrant and Advanced Micro Devices, Inc. dated January 1, 1995 and Amendments thereof 10.11.01* Addendum No. 1 effective as of March 30, 1996 and Addendum No. 2 effective as of September 30, 1996 to the AMD Volume Purchase Agreement 11.1 Computation of net income per share 22.1 List of subsidiaries of the Registrant 23.1 Independent Auditors' Consent and Report on Schedule 24.1 Power of Attorney (page 30) 27.1 Financial Data Schedule - -------------- * Confidential treatment has been granted or is requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement in Form S-1 (Reg. No. 33-83550) as declared effective by the Commission on October 26, 1994. (2) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1995 on December 20, 1995. EX-10.9 2 1995 EQUITY INCENTIVE PLAN 1 Exhibit 10.9 CIDA TECHNOLOGY, INC. 1995 EQUITY INCENTIVE PLAN As Adopted December 31, 1995 1. PURPOSE. The purpose of the Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent, Subsidiaries and Affiliates, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 23. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to the Plan shall be ____________ Shares. Subject to Sections 2.2 and 18, Shares shall again be available for grant and issuance in connection with future Awards under the Plan that: (a) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option, (b) are subject to an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price, or (c) are subject to an Award that otherwise terminates without Shares being issued. 2.2 Adjustment of Shares. In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under the Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards shall be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent, Subsidiary or Affiliate of the Company; provided such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under the Plan. 4. ADMINISTRATION. 4.1 Committee Authority. The Plan shall be administered by the Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of the Plan, and 2 to the direction of the Board, the Committee shall have full power to implement and carry out the Plan. The Committee shall have the authority to: (a) construe and interpret the Plan, any Award Agreement and any other agreement or document executed pursuant to the Plan; (b) prescribe, amend and rescind rules and regulations relating to the Plan; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination, in tandem with, in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of the Plan. 4.2 Committee Discretion. Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award of, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under the Plan to Participants who are not Insiders of the Company. 4.3 Exchange Act Requirements. If the Company is subject to the Exchange Act, the Company will take appropriate steps to comply with the disinterested director requirements of Section 16(b) of the Exchange Act, including but not limited to, the appointment by the Board of a Committee consisting of not less than two persons (who are members of the Board), each of whom is a Disinterested Person. -2- 3 5. OPTIONS. The Committee may grant Options to eligible persons and shall determine whether such Options shall be Incentive Stock Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under the Plan shall be evidenced by an Award Agreement which shall expressly identify the Option as an ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of the Plan. 5.2 Date of Grant. The date of grant of an Option shall be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of the Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options shall be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement; provided, however, that no Option shall be exercisable after the expiration of ten (10) years from the date the Option is granted, and provided further that no Option granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall be exercisable after the expiration of five (5) years from the date the Option is granted. The Committee also may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines. 5.4 Exercise Price. The Exercise Price shall be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of the Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. -3- 4 5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option shall always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event, no later than the expiration date of the Options. (b) If the participant is terminated because of death or Disability (or the Participant dies within three months of such termination), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter time period as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company or any Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the Options for the first $100,000 worth of Shares to become exercisable in such calendar year shall be ISOs and the Options for the amount in excess of $100,000 that become exercisable in that calendar year shall be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of the Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit shall be automatically incorporated herein and shall apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of Participant, impair any of Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or -4- 5 otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of the Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in the Plan, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee shall determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "Purchase Price"), the restrictions to which the Shares shall be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to the Plan shall be evidenced by an Award Agreement ("Restricted Stock Purchase Agreement") that all be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. The offer of Restricted Stock shall be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer shall terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award shall be determined by the Committee and shall be at least 85% of the Fair Market Value of the Shares on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Shareholder, in which case the Purchase Price shall be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of the Plan. 6.3 Restrictions. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. The Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or part, based on length of service, performance or such other factors or criteria as the Committee may determine. 7. STOCK BONUSES. 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent, Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus -5- 6 Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in Participant's individual Award Agreement (the "Performance Stock Bonus Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent, Subsidiary or Affiliate and/or individual performance factors or upon such other criteria as the Committee may determine. 7.2 Terms of Stock Bonuses. The Committee shall determine the number of Shares to be awarded to the Participant and whether such Shares shall be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee shall determine: (a) the nature, length and starting date of any period during which performance is to be measured (the "Performance Period") for each Stock Bonus; (b) the performance goals and criteria to be used to measure the performance, if any; (c) the number of Shares that may be awarded to the Participant; and (d) the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash, whole Shares, including Restricted Stock, or a combination thereof, either in a lump sum payment or in installments, all as the Committee shall determine. 7.4 Termination During Performance Period. If a Participant is Terminated during a Performance Period for any reason, then such Participant shall be entitled to payment (whether in Shares, cash or otherwise) with respect to the Stock Bonus only to the extent earned as of the date of Termination in accordance with the Performance Stock Bonus Agreement, unless the Committee shall determine otherwise. 8. PAYMENT FOR SHARE PURCHASES. 8.1 Payment. Payment for Shares purchased pursuant to the Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; -6- 7 (b) by surrender of Shares that either (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided, further, that the portion of the Purchase Price equal to the par value of the Shares, if any, must be paid in cash; (d) by waiver of compensation due or accrued to Participant for services rendered; (e) by tender of property; (f) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (g) by any combination of the foregoing. -7- 8 8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. WITHHOLDING TAXES. 9.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 9.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be Withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, then except as provided below, the election shall be irrevocable as to the particular Shares as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Committee; (d) if the Participants is an Insider and if the Company is subject to Section 16(b) of the Exchange Act: (1) the election may not be made within six (6) months of the date of grant of the Award, except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the election to use stock withholding must be irrevocably made at least six (6) months prior to the Tax Date (although such election may be revoked at any time at least six (6) months prior to the Tax Date) or (B) the exercise of the Option or election to use stock withholding must be made in the ten (10) day period beginning on the third day following the release of the Company's quarterly or annual summary statement of sales or earnings; and -8- 9 (e) in the event that the Tax Date is deferred until six (6) months after the delivery of Shares under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the exercise occurs, but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 10. PRIVILEGES OF STOCK OWNERSHIP. 10.1 Voting and Dividends. No Participant shall have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company shall be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant shall have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant's original Purchase Price pursuant to Section 12. 10.2 Financial Statements. The Company shall provide financial statements to each Participant prior to such Participant's purchase of Shares under the Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company shall not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 11. TRANSFERABILITY. Awards granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Award Agreement provisions relating thereto. During the lifetime of the Participant an Award shall be exercisable only by the Participant, and any elections with respect to an Award, may be made only by the Participant. 12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, and/or (b) a right to repurchase a portion of or all Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under the Plan, for cash or cancellation of purchase money indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in the Award Agreement), the higher of: (1) Participant's original Purchase Price, or (2) the Fair Market Value of such Shares on Participant's Termination Date, provided, such right of repurchase terminates when the Company's securities become publicly traded; or (B) with respect to Shares that are not "Vested" (as defined in the Award Agreement), at the Participant's original Purchase Price, provided, that the right to repurchase at the principal Purchase Price lapses at the rate of at least 20% per year over 5 years from the date the -9- 10 Shares were purchased, and if the right to repurchase is assignable, the assignee must pay the Company, upon assignment of the right to repurchase, cash equal to the excess of the Fair Market Value of the Shares over the original Purchase Price. 13. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under the Plan shall be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company shall have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant shall be required to execute and deliver a written pledge agreement in such form as the Committee shall from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant shall agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates for Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any -10- 11 state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 18. CORPORATE TRANSACTIONS. 18.1 Assumption or Replacement of Awards by Successor. In the event of (a) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company and the Awards granted under the Plan are assumed or replaced by the successor corporation, which assumption shall be binding on all Participants), (b) a dissolution or liquidation of the Company, (c) the sale of substantially all of the assets of the Company, or (d) any other transaction which qualifies as a "corporate transaction" under Section 424(a) of the Code wherein the shareholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company), any or all outstanding Awards may be assumed or replaced by the successor corporation (if any), which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Options, as provided above, pursuant to a transaction described in this Subsection 18.1, such Options shall expire on such transaction at such time and on such conditions as the Board shall determine. 18.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction." 18.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in substitution of such other company's award, or (b) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed award would -11- 12 have been eligible to be granted an Award under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award shall remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective on the date that it is adopted by the Board (the "Effective Date"). The Plan shall be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to the Plan; provided, however, that: (a) no Option may be exercised prior to initial shareholder, approval of the Plan; (b) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company; and (c) in the event that shareholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be canceled, any Shares issued pursuant to any Award shall be canceled and any purchase of Shares hereunder shall be rescinded. After the Company becomes subject to Section 16(b) of the Exchange Act, the Company will comply with the requirements of Rule 16b-3 (or its successor), as amended, with respect to shareholder approval. 20. TERM OF PLAN. The Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of shareholder approval. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend the Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to the Plan; provided, however, that the Board shall not, without the approval of the shareholders of the Company, amend the Plan in any manner that requires such shareholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the shareholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings: "Affiliate" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another corporation, where -12- 13 "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise. "Award" means any award under the Plan, including any Option, Restricted Stock or Stock Bonus. "Award Agreement" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee appointed by the Board to administer the Plan, or if no committee is appointed, the Board. "Company" means CIDA Technology, Inc., a corporation organized under the laws of the State of California, or any successor corporation. "Disability" means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. "Disinterested Person" means a director who has not, during the period that person is a member of the Committee and for one year prior to service as a member of the Committee, been granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any Parent, Subsidiary or Affiliate of the Company, except in accordance with the requirements set forth in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is amended from time to time and as interpreted by the SEC. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Price" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "Fair Market Value" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its last reported sale price on the Nasdaq National Market or, if no such reported sale takes place on such date, the average of the closing bid and asked prices; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price or, if no such reported sale takes place on -13- 14 such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or (d) if none of the foregoing is applicable, by the Board of Directors of the Company in good faith. "Insider" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "Option" means an award of an option to purchase Shares pursuant to Section 5. "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Participant" means a person who receives an Award under the Plan. "Plan" means this CIDA Technology, Inc. 1995 Equity Incentive Plan, as amended from time to time. "Restricted Stock Award" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means shares of the Company's Common Stock reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 15, and any successor security. "Stock Bonus" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Termination" or "Terminated" means, for purposes of the Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, consultant, -14- 15 independent contractor or adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "Termination Date"). -15- 16 CIDA TECHNOLOGY, INC. 1995 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made and entered into as of the date of grant set forth below (the "Date of Grant") by and between CIDA Technology, Inc., a California corporation (the "Company"), and the participant named below ("Participant"). Capitalized terms not defined herein shall have the meaning ascribed to them in the Company's 1995 Equity Incentive Plan (the "Plan"). Participant: _________________________________ Social Security Number: _________________________________ Address: _________________________________ _________________________________ Total Option Shares: _________________________________ Exercise Price Per Share: _________________________________ Date of Grant: _________________________________ First Vesting Date: _________________________________ Expiration Date: _________________________________ Type of Stock Option (Check one): [ ] Incentive Stock Option [ ] Nonqualified Stock Option 1. GRANT OF OPTION. The Company hereby grants to Participant an option (the "Option") to purchase the total number of shares of Common Stock of the Company set forth above (the "Shares") at the Exercise Price Per Share set forth above (the "Exercise Price"), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, the Option is intended to qualify as an "incentive stock option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. EXERCISE PERIOD. 2.1 Exercise Period of Option. Provided Participant continues to provide services to the Company or any Subsidiary, Parent or Affiliate of the Company throughout the specified period, the Option shall become exercisable as to portions of the Shares as follows: (a) This Option shall not be exercisable with respect to any of the Shares until the last day of the 12th month after the Date of Grant, which is________________, 199_____(the "First Vesting Date"); (b) on the First Vesting Date the Option shall become exercisable as to twenty-five percent (25%) of the Shares; and (c) thereafter at the end of each full succeeding month the Option shall become exercisable as to two and one-twelfth percent (2.0833%) of the Shares. If application of the vesting percentage causes a fractional Share, such Share shall be rounded down to a whole Share. 17 2.2 Expiration. The Option shall expire on the Expiration Date set forth above and must be exercised, if at all, on or before the Expiration Date. 3. TERMINATION. 3.1 Termination for Any Reason Except Death or Disability. If Participant is Terminated for any reason, except death or Disability, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the date of Termination, may be exercised by Participant no later than three (3) months after the date of Termination, but in any event no later than the Expiration Date. 3.2 Termination Because of Death or Disability. If Participant is Terminated because of death or Disability of Participant, the Option, to the extent that it is exercisable by Participant on the date of Termination, may be exercised by Participant (or Participant's legal representative) no later than twelve (12) months after the date of Termination, but in any event no later than the Expiration Date. 3.3 No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Participant any right to continue in the employ of, or other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company, or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 4. MANNER OF EXERCISE. 4.1 Stock Option Exercise Agreement. To exercise this Option, Participant (or in the case of exercise after Participant's death, Participant's executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Company from time to time (the "Exercise Agreement"), which shall set forth, inter alia, Participant's election to exercise the Option, the number of Shares being purchased, any restrictions imposed on the Shares and any representations, warranties and agreements regarding Participants investment intent and access to information as may be required by the Company to comply with applicable securities laws. If someone other than Participant exercises the Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise the Option. 4.2 LIMITATIONS ON EXERCISE. The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. The Option may not be exercised as to fewer than 100 Shares unless it is exercised as to all Shares as to which the Option is then exercisable. 4.3 PARENT. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check), or where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; -2- 18 (b) by waiver of compensation due or accrued to Participant for services rendered; or (c) by any combination of the foregoing. 4.4 Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Participant must pay or provide for any applicable federal or state withholding obligations of the Company. If the Committee permits, Participant may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld. In such case, the Company shall issue the net number of Shares to the Participant by deducting the Shares retained from the Shares issuable upon exercise. 4.5 Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Participant, Participant's authorized assignee, or Participant's legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto. 5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, and (2) the date one year after transfer of such Shares to Participant upon exercise of the Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation payable to Participant. 6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's Common Stock may be listed at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance. 7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of Participant only by Participant. The terms of the Option shall be binding upon the executors, administrators successors and assigns of Participant. 8. TAX CONSEQUENCES. Set forth below is a brief summary as of the Date of Grant of some of the federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND -3- 19 REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES. 8.1 Exercise of ISO. If the Option qualifies as an ISO, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal income tax purposes and may subject the Participant to the alternative minimum tax in the year of exercise. 8.2 Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular federal and California income tax liability upon the exercise of the Option. Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. The Company will be required to withhold from Participant's compensation or conflict from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 8.3 Disposition of Shares. If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of the Option (and, in the case of an ISO, are disposed of more than two years after the Date of Grant), any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Shares purchased under an ISO are disposed of within one year of exercise or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. The Company will be required to withhold from Participant's compensation or collect from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 9. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of the rights of a shareholder with respect to any Shares until Participant exercises the Option and pays the Exercise Price. 10. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Participant. 11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. This Agreement and the Plan constitute the entire agreement of the parties and supersede all prior undertakings and agreements with respect to the subject matter hereof. 12. NOTICES. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated above or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given -4- 20 or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by rapifax or telecopier. 13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Participant and Participant's heirs, executors, administrators, legal representatives, successors and assigns. 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 15. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement. Participant acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Participant should consult a tax adviser prior to such exercise or disposition. [Remainder of this page left blank intentionally] -5- 21 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Participant has executed this Agreement in duplicate as of the Effective Date. CIDA TECHNOLOGY, INC. PARTICIPANT By:------------------------------ -------------------------- (Signature) - --------------------------------- -------------------------- (Please print name) (Please print name) - --------------------------------- (Please print title) [Signature page to CIDA Technology, Inc. Stock Option Agreement] -6- EX-10.11 3 VOLUME PURCHASE AGREEMENT DATED JANUARY 1, 1995 1 Exhibit 10.11 VOLUME PURCHASE AGREEMENT This Volume Purchase Agreement (the "VPA") number AMD9598 with an effective Date of January 1, 1995, is made by and between EPIC Design Technology, Inc. a company with its principal place of business at 2901 Tasman Drive, Suite 212, Santa Clara, CA 95054, (EPIC) and Advanced Micro Devices, Inc. ("AMD" or "Licensee"), a company with its principal place of business at One AMD Place, Sunnyvale, CA 94088-3453. EPIC and AMD agree that the provisions contained in this VPA shall govern the licensing of EPIC Products (defined in Exhibit A) during the term of this VPA. Software Products are licensed and not sold: any references to the sale or price of any software products or any copy thereof refers to the license or license fee. The following are included by reference and are integral parts of this VPA
- Exhibit A Product and Pricing Schedule - Exhibit B EPIC Software License Agreement and Maintenance Agreement - Exhibit C Purchase and Acquisition Schedule - Exhibit D AMD Maintenance & Total Support Program
EPIC agrees to offer AMD appropriate discounts for software tools purchased as defined in Exhibit C. AMD (CTS) agrees to provide a central pool of EPIC licenses and fund a total agreed to support program which facilitates the successful use of EPIC tools within the AMD standard methodology. 1.0 DEFINITIONS 1.1 PRODUCTS: means EPIC software and applicable support listed in Exhibit A, Product and Pricing Schedule. 1.2 DISCOUNT: means the discount as specified later in the VPA as applied against the applicable Product and Pricing Schedule (Exhibit A). 1.3 DISCOUNT LEVEL: means the discount levels specified in Exhibit A and Exhibit C of this VPA. The Discount Level is valid only during the term and under the conditions of this VPA. 1.4 LIST PRICE: means the list price for the Products and Services specified in Exhibit A. 2 1.5 PEAK DEMAND LICENSES ("PDL"): means a floating license for specific EPIC software. A PDL license has a limited duration of one year. Monthly utilization reports will be provided by the AMD Site Manager. Fees for utilization of the PDL's licenses will be paid on a quarterly basis according to the following formula outlined below. [*] [*] Utilization reports for all products will be produced [*] and submitted to EPIC [*] monthly by the AMD Site Manager. 1.6 PURCHASED SW: means the software that AMD will purchase upon signing this VPA as listed in Exhibit C. 1.7 AMD TOTAL SUPPORT SERVICES PROGRAM: means a set of services EPIC will provide AMD on a yearly basis. The particulars of the ATS program are detailed in Exhibit D. The AMD Total Support program is based on the software already owned by AMD, the software acquired under the VPA and the additional software purchased as described in Section 1.6. 1.8 THREE YEAR PROGRAM: means the payment, discount and acquisition schedule referred to as the Three Year Program in Exhibit C. AMD has the option to acquire Peak Demand Licenses (defined in section 1.5 and Exhibit C). AMD has the option to purchase additional software licenses at any time during the term of this VPA at prices listed in Exhibit A and at discount levels described in Exhibit C. 2.0 SCOPE AND LICENSE GRANT 2.1 SCOPE: This VPA sets forth the terms and conditions for volume discounts for Products and related services off the List Price. No rights are granted to AMD to resell, relicense, sub license, or assign any products purchased under this VPA. 2.2 AGREEMENTS: the Product and all applicable support services shall be licensed to AMD by EPIC in accordance with the - ---------- * Confidential Treatment Requested -2- 3 Computer Software End User License Agreement and the Computer Software Maintenance Agreement, both of which are attached as Exhibit B. 2.3 EPIC-AMD U.S.A. PRICING: The terms of this VPA apply only to AMD sites located in the continental United States of America. 3.0 DISCOUNT LEVELS FOR PRODUCT AND APPLICABLE CONDITIONS 3.1 DISCOUNTS FROM CURRENT LIST PRICE: Discounts and List Prices during the Effective Term are defined in Exhibit C and Exhibit A. EPIC agrees that the amounts charged by it to AMD for product and services purchased hereunder do not currently exceed amounts normally charged by EPIC as referenced in Exhibit A. 3.2 REHOSTING AND RECONFIGURATION FEES: Rehosts and reconfigurations are limited to [*] at [*] and apply only to purchased licenses. 3.3 INITIAL ORDER: Upon execution of this VPA, AMD will submit initial purchase orders for amounts as specified in Exhibit C as well as the AMD Total Support Program and Peak Demand License (PDL). 3.4 PRODUCT ACQUISITIONS SCHEDULE: EPIC shall provide product within thirty (30) days after receipt of the purchase order for the initial order(s). 4.0 PAYMENT TERMS 4.1 SHIPPING AND PAYMENT TERMS: All shipping and payments terms are contained in the Computer Software End-User Agreement and Computer Software Maintenance Agreement between EPIC and AMD. 4.2 U.S.A. CURRENCY: All payments will be made in lawful currency of the United States of America. 4.3 PAYMENT TERMS FOR AMD TOTAL SUPPORT PROGRAM: Payment for the Support Services will be made on a quarterly basis for the term of this VPA. - ---------- * Confidential Treatment Requested -3- 4 4.4 SHIPMENT DESTINATIONS: All media, documentation, and keys will be shipped to a single designated contact at both AMD Sites (Texas and California). EPIC will provide six (6) sets of documentation for each site no later than thirty days after shipment. 4.5 SHIPMENT PRIORITY: AMD understands that EPIC has government customers who submit orders that carry national security rating that by federal law mandate priority shipment before commercial order can be shipped. However, AMD shall be on EPIC "first ship" list for commercial customers for the term of this agreement. 5.0 OTHER PRODUCTS 5.1 EPIC LICENSE PRODUCTS ONLY: It is understood and agreed that the discounts and services offered to AMD under the terms of this VPA apply to EPIC Products only, and only those Products which do not incorporate any third-party Original Equipment's Manufacturer's (OEM) software, firmware, and/or hardware. Such OEM Products and any third-party products sold or sub licensed by EPIC under another manufacturer's label are not included in the Discount Level offered to AMD. Such products will be sold or sub licensed to AMD in accordance with separately negotiated agreements. 5.2 CURRENT/FUTURE PRODUCTS: This VPA applies only to the current EPIC products and services listed on Exhibit A. Future EPIC products and services may be added to this VPA by a written amendment to this VPA and signed by both parties. 6.0 RELEASE OF INFORMATION 6.1 NO RELEASE OF INFORMATION: AMD and EPIC shall not provide, disclose, transfer, or otherwise made available the details of this VPA to any third party without the express prior written consent of EPIC and AMD except: (i) to employees of AMD and EPIC to whom disclosure is necessary in order to effectuate the purposes set forth in this VPA, or (ii) in response to a lawful order of a court of competent jurisdiction. 7.0 ASSIGNMENT -4- 5 7.1 ASSIGNMENT: Neither this VPA nor any rights or obligations of it, in whole or in part, shall be assignable or otherwise transferable by AMD or EPIC. Any unauthorized attempt by AMD and EPIC to assign or transfer this VPA or any rights or obligations of it shall be null and void except where mergers or acquisitions may occur. 8.0 TERM AND TERMINATION 8.1 TERM: This VPA is effective for three years from 1 January 1995 through 31 December 1997. This VPA will be reviewed annually. All orders against the VPA must be received by EPIC before the end of the first calendar quarter of each renewed year (i.e., 3/31/96, 3/31/97 respectively). Delivery of the Product must occur within thirty (30) days from receipt of purchase order(s). 8.2 EXPIRATION: Upon the expiration of this VPA, EPIC and AMD may elect to (i) enter into negotiation for the creation of a new VPA, similar in form and content to this VPA, or (ii) not enter into a future VPA arrangement. 8.3 TERMINATION: In the event of a material breach by AMD of the Computer Software End-User License Agreement or the Computer Software Maintenance Agreement, EPIC may terminate this VPA in whole or in part. 9.0 AMENDMENT AND TERMS 9.1 MODIFICATION OF AGREEMENT: This VPA may not be modified, supplemented, qualified, or interpreted by any trade use or prior dealings which have not been made a part of this Agreement. This VPA may not be modified or amended except in writing and executed by duly authorized representatives of both parties. 9.2 NO OTHER TERMS: The provisions of AMD's purchase order or business forms shall not supersede the provisions of this VPA, the Computer Software End User License Agreement or the Computer Software Maintenance Agreement. 9.3 PRECEDENCE: In event of a conflict among agreements, the order of precedence shall be first the Computer Software End User Agreement and second the Computer Software Maintenance Agreement and last this Volume Pricing Agreement. -5- 6 Both parties acknowledge that they have read this VPA, understand it, and agree to be bound by its Terms and Conditions. EPIC DESIGN TECHNOLOGY, INC. ADVANCED MICRO DEVICES, INC. /s/ Bernard Aronson /s/ S. Hockenbury for A. Brown - ----------------------------- ------------------------------ (Signature) (Signature) Bernard Aronson S. Hockenbury for A.Brown - ----------------------------- ------------------------------ (Printed Name) (Printed Name) President Sr. Site Procurement Mgr. - ----------------------------- ------------------------------ (Title) (Title) December 6, 1995 - ----------------------------- ------------------------------ (Date) (Date) -6- 7 EXHIBIT A PRODUCT AND PRICING SCHEDULE
GROUP A Products Description Price - ---------------------------- --------------------------------- ------------- PathMill Static Timing Analysis [*] TimeMill-AVO Dynamic, Event Driven [*] Timing Simulator Power Mill Dynamic, Event Driven [*] Power Simulator OPTIONS: PFX Programming and [*] Formatting Extension MSX Mixed Signal Extension [*] BCX BICMOS Extension [*] BDC Block Delay Calculator [*] Mentor (Falcon) [*] Interface GROUP B RailMill PowerNet Analysis Tool [*] GROUP C OEM PRODUCT Vertue Co-Simulation [*] SimWave Waveform display for viewing [*] simulation vectors VTRAN Vector-Translator [*] Multi-User Node Locked Rehosting Configuration change [*]
SUPPORT SERVICES [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
See Exhibit C, Section IV for AMD Total Support Services Pricing Schedule - ----------- * Confidential Treatment Requested 8 EXHIBIT B COMPUTER END USER LICENSE AGREEMENT COMPUTER SOFTWARE MAINTENANCE AGREEMENT COMPUTER SOFTWARE END-USER LICENSE AGREEMENT COMPUTER SOFTWARE END-USER LICENSE AGREEMENT ("Agreement") is made and entered into as of this 15th day of October 1995 by and between EPIC DESIGN TECHNOLOGY, INC., a California corporation, having as its principal place of business 2901 Tasman Drive, Suite 212, Santa Clara, California 95054 ("EPIC"), and Advanced Micro Devices a Delaware Corporation having as its principal place of business at One AMD Place, Sunnyvale, California 94088-3453 (the "Customer"). WHEREAS, EPIC is the developer and distributor of the computer software and documentation described in Exhibit A (collectively hereinafter termed the "Licensed Program"); and WHEREAS, the Customer desires to license the Licensed Program; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. License. In consideration of the payment of the license fees set forth herein, EPIC grants Customer a non-exclusive, non-transferable license, without right of sublicense, to use the package of computer software identified in Exhibit A in machine-readable form only, along with related user documentation. The computer software and user documentation together constitute the "Licensed Program." Customer's use of which is subject to the following terms and conditions. 2. Scope of Rights. Customer may: (a) Install the Licensed Program in Customer's own facility at the locations specified in Exhibit A only; (b) Use the Licensed Program in the configurations specified in Exhibit A, but only for purposes of serving the internal needs of Customer's business; and (c) Make one (1) copy of the Licensed Program for nonproductive backup purposes only, provided that all of EPIC's proprietary notices are included. -8- 9 Except as specifically provided herein, EPIC reserves all rights in and to the Licensed Program. Customer may not use or copy the Licensed program, or any copy, adaptation, transcription, or merged portion thereof, except as expressly authorized by this Agreement. Customer may not modify, disassemble or decompile the Licensed Program without the prior written consent of EPIC; provided, however, that if Customer's address set forth above is located within a Member State of the European Community, then such activities shall be permitted solely to the extent, if any, permitted by Article 6 of the Council Directive of May 14, 1991 on the legal protection of computer programs, and implementing legislation thereunder. In addition to the other remedies which may be available to EPIC at law or in equity, any use of the Licensed Program outside the scope of the license granted herein shall automatically terminate the license and this Agreement. 3. Transfer of Rights. Customer's rights to use the Licensed Program may not be transferred except to a successor in interest of Customer's entire business who assumes the obligations of this Agreement in writing. Customer agrees to notify EPIC of any such transfer within thirty (30) days of its occurrence. Any use of the Licensed Program by a transferee outside the scope of the license granted herein shall automatically terminate this Agreement and such license with respect to such transferee. 4. License Fee. In consideration for the rights granted hereunder, upon the Delivery Date, Customer will pay to EPIC the License fee in Untied States dollars for the Licensed Program specified in the Volume Purchase Agreement dated January 1, 1995. 5. Taxes. Customer is solely responsible for payment of any taxes (including sales or use taxes and intangible taxes but excluding taxes on EPIC's income) resulting from Customer's acceptance of this license and Customer's possession and use of the Licensed Program. EPIC reserves the right to have customer pay any such taxes as they fall due to EPIC for remittances to the appropriate authority. Customer agrees to hold EPIC harmless from all claims and liability arising from Customer's failure to report or pay such taxes. 6. Support. 6.1 Support Agreement. The term and conditions of EPIC's support of the Licensed Program is governed by a separate support agreement ("Maintenance Agreement"). EPIC shall have no duties to provide support or maintenance services except as explicitly set forth herein and upon payment of the annual support fees ("Support Fees") set forth in the Maintenance Agreement. 6.2 Operation by Customer. Customer is responsible for selecting an operator who is qualified to operate the Licensed Program on Customer's own equipment and is familiar with the information, calculations and reports that serve as input and output of the Licensed Program. EPIC reserves the right to refuse support or to charge additional fees if an operator seeks assistance with respect to such basic background information or any other -9- 10 matters not directly related to the operation of the Licensed Program provide that such fees are communicated in writing in advance and agreed to by Customer. 6.3 Hardware and Software. The Licensed Program is designed for use with the hardware and accessories specified in Exhibit A. Except as agreed otherwise in writing, EPIC assumes no responsibility under this Agreement for obtaining such equipment. Customer is also responsible for providing a proper environment and proper utilities for the computer system on which the Licensed Program operates, including an uninterrupted power supply. 6.4 Conversion of Data Files. Customer is responsible for converting its own data files for use with the Licensed Program. 7. Title and Ownership. EPIC and its licensors shall own all right, title and interest in and to the Licensed Program and all modifications and enhancements thereof subject only to the rights and privileges expressly granted hereunder. This Agreement does not provide Customer with title or ownership of the Licensed Program but only a right of limited use. 8. Confidentiality. 8.1 Confidentiality. The Licensed Program is a commercially valuable, proprietary product of EPIC, the design and development of which reflect the effort of skilled development experts and the investment of considerable time and money. "Confidential Information" means (i) the Licensed Program, in object and source code form, and any related technology, idea algorithm or information contained therein, including without limitation design techniques, and any trade secrets related to any of the foregoing; (ii) EPIC's product plans, designs, costs, prices and names; non-published financial information; marketing plans; business opportunities; personnel; research; development or know-how; (iii) any information designated by the disclosing party as confidential at the time of disclosure and reduced to writing and designated as confidential in writing within thirty (30) days; and (iv) the terms and conditions of this Agreement; provided, however, that "Confidential Information" will not include information that: (a) is or becomes generally known or available by publication, commercial use or to otherwise through no fault of the receiving party; (b) is known and has been reduced to tangible form by the receiving party at the time of disclosure and is not subject to restriction; (c) is independently developed by the receiving party without use of the disclosing party's Confidential Information; (d) is lawfully obtained from a third party who has the right to make such disclosure; and (e) is released for publication by the disclosing party. Each party will protect the other's Confidential Information from unauthorized dissemination and use with the same degree of care that each such party uses to protect its own like information. Neither party will use the other's Confidential Information for purposes other than those necessary to directly further the purposes of this Agreement. Neither party will disclose to third parties the other's Confidential information without the prior written consent of the other party. -10- 11 8.2 Restrictions Against Unauthorized Disclosure. Customer may not or allow any third party, at any time, to (i) disclose or disseminate the Licensed Program to any third party, or to any Customer employee or consultant who does not need to obtain access thereto consistent with Customer's rights under this Agreement; (ii) decompile, disassemble, reverse engineer or attempt to reconstruct, identify or discover any source code, underlying ideas, underlying user interface techniques, or algorithms of the Licensed Program; (iii) provide, lease, lend, use for timesharing or service bureau purposes, or otherwise use or allow others to use the Licensed Program for the benefit of third parties; or (iv) modify, incorporate into or with other software, or create a derivative work of any part of the Licensed Program. Customer will devote its reasonable efforts to ensure that all of its employees, consultants, independent contractors and all other persons afforded access to the Licensed Program shall protect it against improper use, dissemination or disclosure. 8.3 Remedies. If either party breaches any of its obligations with respect to confidentiality and unauthorized use of the Licensed Program hereunder, either party shall be entitled to equitable relief to protect its interest therein, including but not limited to injunctive relief, as well as money damages. 9. Limited Warranty. 9.1 Product Warranty. EPIC warrants that the Licensed Program shall be in substantial conformance with EPIC's published specifications for the Licensed Program for a period of ninety (90) days following initial delivery of the Licensed Program to Customer. EPIC does not warrant that the Products will meet all of Customer's or Customer's customer's requirements nor that the use of the Products will be uninterrupted or error free. 9.2 Defects not Covered by Warranty. EPIC's warranty shall not extend to problems in the Licensed Program that result from: (i) Customer's failure to implement any updates, enhancements, error corrections or bug fixes to the Licensed Program which are issued by EPIC during the warranty period; (ii) changes to the operating system or environment which adversely affect the Licensed Program; (ii) any alterations of or additions to the Licensed Program performed by parties other than EPIC; (iv) use of the Licensed Program in a manner for which it was not designed; (v) accident, negligence, or misuse of the Licensed Program by any party other than EPIC personnel; or (vi) operation outside of environmental specifications. 9.3 Exclusive Remedy. EPIC's sole obligation and Customer's exclusive remedy under the above warranties shall be to use its reasonable efforts to correct reproducible errors that render the Licensed Program nonconforming, provided that EPIC shall have no obligation to correct all errors in the Licensed Program. 9.4 Disclaimer. EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTY, EPIC MAKES AND CUSTOMER RECEIVES NO WARRANTIES ON THE LICENSED PROGRAM, EXPRESS, IMPLIED, STATUTORY, OR IN ANY OTHER -11- 12 PROVISION OF [UNREADABLE] OR COMMUNICATION WITH CUSTOMER, AND EPIC SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. 9.5 Patent and Copyright Indemnification. EPIC shall defend any suit or proceeding brought against Customer so far as based on a claim that the Licensed Program, or any portion thereof, furnished by EPIC constitutes an infringement of any patent, trademark, trade secret, copyright or other third party property rights, if notified promptly in writing and given authority, information and assistant (at EPIC's expense) for the defense of same, and EPIC shall pay all damages and costs awarded therein against Customer. In case said Licensed Program, or any portion, thereof in such suit is held to constitute an infringement and the use of said Licensed Program or any portion thereof, is enjoined, EPIC shall at its sole option and own expense, either procure for Customer the right to continue using said Licensed Program, or replace same with non-infringing program or modify it so it becomes non-infringing, or remove said Licensed Program and refund the purchase price and the transportation costs thereof. 10. Limitation of Liability. EXCEPT AS SET FORTH IN SECTION 9.5 ABOVE, IN NO EVENT WILL EPIC'S CUMULATIVE LIABILITY FOR ALL CLAIMS ARISING OUT OF THIS AGREEMENT OR RELATED TO THE LICENSED PROGRAM, UNDER ANY CAUSE OF ACTION, EXCEED THE TOTAL AMOUNT OF ALL AMOUNTS FEES PAID BY CUSTOMER TO EPIC HEREUNDER. IN NO EVENT SHALL EPIC HAVE ANY LIABILITY FOR ANY LOST OPPORTUNITY OR PROFITS, LOSS OF DATA OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT, UNDER ANY CAUSE OF ACTION AND WHETHER OR NOT EPIC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. 11. Term and Termination. 11.1 Term. This Agreement will become effective upon the Delivery Date and continue until terminated as set forth below. 11.2 Termination for Convenience. Customer may terminate this Agreement for any reason or no reason upon sixty (60) days written notice to EPIC. 11.3 Termination for Cause. Either party may terminate this Agreement for cause upon giving sixty (60) days notice of a material breach by the other hereunder, provided that such breach will not have been remedied during such period. -12- 13 11.4 Termination for Insolvency. This Agreement will terminate, without notice, (i) upon the institution by or against either party of insolvency, receivership or bankruptcy proceedings or any other proceedings for the settlement of the party's debts, (ii) upon either party's making an assignment of substantially all of its assets for the benefit of creditors, or (ii) upon either party's dissolution or cessation of business. 11.5 Obligations Upon Termination. Upon termination of this Agreement, all licenses granted to Customer will terminate. Promptly upon termination of this Agreement for any reason or upon discontinuance or abandonment of Customer's possession or use of the Licensed Program, Customer must return, or certify the destruction of, all copies of the Licensed Program in Customer's possession (whether modified or unmodified), and all other materials pertaining to the Licensed Program (including all copies thereof). 11.6 Survival of Certain Terms. The provisions of Sections 7, 8, 10, 11, and 12 will survive the expiration or termination of this Agreement for any reason. In addition, if this Agreement is terminated pursuant to Section 11.4 above due to EPIC's insolvency, the license granted in Section 1 shall survive such termination. All other rights and obligations of the parties will cease upon expiration or termination of this Agreement. 12. General. 12.1 Binding Effect. Except as herein otherwise specifically provided, this agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, heirs, administrators, executors, successors and assigns. 12.2 Captions. Captions contained in this agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this agreement or any provision hereof. 12.3 Severability. In the event that any of the terms of this Agreement is or become or is declared to be invalid or void by any court or tribunal of competent jurisdiction, such term or terms shall be deemed severed from this Agreement, the Agreement shall be interpreted to give as much effect as possible under law to the intention behind such invalid or void term, and all the remaining terms of this Agreement shall remain in full force and effect. 12.4 Waiver. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by law. 12.5 Notice. Unless otherwise provided, any notice to be given hereunder shall be Delivered upon dispatch. Such notice shall be sent by first class mail, postage prepaid and marked for delivery by certified or registered mail, return receipt requested, addressed to -13- 14 the parties listed below at their respective places of business, or at such other addresses of which notice has been given to the addressing party: If to EPIC: If to Customer: EPIC Design Technology, Inc. Barbara Vervenne 2901 Tasman Drive, Suite 212 Advanced Micro Devices Santa Clara, CA 95054 U.S.A. 5204 East Ben White Blvd. Attn: CFO Austin, TX 78741 12.6 Force Majeure. Neither party shall be liable by reason of any failure or delay in the performance of its obligations due to strikes, riots, fires, explosions, acts of God, war, governmental action or any other cause which is beyond the reasonable control of such parties. The performance of such party shall be excused for such reasonable time as may be required to resume performance following cessation of such cause. 12.7 Language. This Agreement is in the English language only, which language shall be controlling in all respects, and all versions hereof in any other language shall not be binding on the parties hereto. All communications and notices to be made or given pursuant to this Agreement shall be in the English language. 12.8 U.S. Export Control. Customer understands and acknowledges that the Licensed Program is subject to regulation by agencies of the U.S. Government, including, but not limited to, the U.S. Department of Commerce, which prohibit export or diversion of certain products and technology to certain countries. Any and all obligations of EPIC to provide the Licensed program, documentation, or any media in which any of the foregoing is contained, as well as any other technical assistance shall be subject in all respects to such United States laws and regulations as shall from time to time govern the license and deliver of technology and products abroad by persons subject to the jurisdiction of the United States, including the Export Administration Act of 1979, as amended, any successor legislation, and the Export Administration Regulations issued by the Department of Commerce, Bureau of Export Administration. Customer agrees to cooperate with EPIC, including, without limitation, providing required documentation, in order to obtain export licenses or exemptions therefrom. Customer warrants that it will comply with the Export Administration Regulations and other United States laws and regulations governing exports in effect from time to time. Without in any way limiting the provisions of this Agreement, Customer agrees that unless prior written authorization is obtained from the Bureau of Export Administration or the Export Administration Regulations explicitly permit the re-export without such written authorization, it will not export, reexport, or transship, directly or indirectly, the Licensed Program or any technical data disclosed, or provided to Customer, or the direct product of such technical data, to country groups Q, S, W, Y, or Z (as defined in the Export Administration Regulations and which currently consist of Albania, Bulgaria, Cambodia, Cuba, the Czech Republic, Estonia, Laos, Latvia, Libya, Lithuania, Mongolian People's Republic, North Korea, Poland, Romania, the geographic area of the former Union of Soviet Socialist -14- 15 Republics, the Slovak Republic and Vietnam), or to the People's Republic of China (excluding Taiwan), Haiti, Iran, Iraq, Syria, Yugoslavia (Serbia and Montenegro), or to military or police entities in South Africa, or to any other country as to which the U.S. Government has placed an embargo against the shipment of products, which is in effect during the term of this Agreement. 12.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of California. 12.10 Jurisdiction. Any dispute arising out of this Agreement shall be brought in, and the parties consent to personal and exclusive jurisdiction of and venue in, the state and federal courts within Santa Clara County, California. 12.11 Amendments. No modification of this Agreement shall be binding unless it is in writing and is signed by an authorized representative of the party against whom enforcement of the modification is sought. 12.12 Assignment. Either party may not assign any rights or delegate any responsibilities hereunder without the prior written consent of either party, except to a successor in ownership of all relevant assets of the assigning party. 12.13 Attorney's Fees. In the event that it become necessary for either party to institute litigation or arbitration proceedings to enforce its rights under this Agreement, either party agrees to any reasonable attorney's fees and other costs. 12.14 Injunctive Relief. EPIC or AMD shall have the right to seek and obtain injunctive and equitable relief to remedy any violations of this Agreement due to the fact that damages would not adequately compensate EPIC or AMD for any resulting loss or injury. 12.15 Third Party Beneficiaries. Customer acknowledges and agrees that the following entities are third party beneficiaries to this Agreement to the extent that this Agreement contains provisions that related to Customer's use of such entities' software licensed hereby, and that such provisions are made expressly for the benefit of such entities and are enforceable by such entities in addition to EPIC: Source III Precedence Incorporated 3958 Cambridge Road, Ste. 247 4675 Stevens Creek Blvd., Ste. 250 Cameron Park, CA 95682 Santa Clara, CA 95051 Data I/O Systems Science P.O. Box 97046 1860 Embarcadero Road, Ste. 260 Redmond, WA 98073-9746 Palo Alto, CA 94303 Archer Systems, Inc. -15- 16 4633 Old Ironside Drive, Suite 240 Santa Clara, CA 95054 12.16 Complete Agreement. THIS AGREEMENT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF EPIC'S OBLIGATIONS AND RESPONSIBILITIES TO CUSTOMER AND SUPERSEDES ANY OTHER PROPOSAL, REPRESENTATION OR OTHER PROPOSAL, REPRESENTATION OR OTHER COMMUNICATION BY OR ON BEHALF OF EPIC RELATING TO THE SUBJECT MATTER HEREOF. CUSTOMER'S LICENSE OF THE LICENSED PROGRAM WILL NOT COMMENCE UNTIL CUSTOMER HAS EXECUTED THIS AGREEMENT, WITHIN 90 DAYS OF THE EXECUTION OF THIS AGREEMENT, EXTENDABLE FOR 90 DAYS, AND AN AUTHORIZED REPRESENTATIVE OF EPIC HAS RECEIVED, APPROVED, AND EXECUTED A COPY OF IT AS WELL. LICENSEE: EPIC DESIGN TECHNOLOGY, INC. Advanced Micro Devices Bernard Aronson - ----------------------------- ----------------------------------- Company Name Signature S. Hockenbury for A. Brown Bernard Aronson, President - ----------------------------- ----------------------------------- Signature Print Name/Title S. Hockenbury for A. Brown, - ----------------------------- Sr. Site Procurement Manager - ----------------------------- Print Name/Title -16- 17 COMPUTER SOFTWARE MAINTENANCE AGREEMENT This Computer Software Maintenance Agreement ("Agreement") is made and entered into as of this 15th day of October 1995 "Effective Date") by and between EPIC DESIGN TECHNOLOGY, INC., a California corporation having its principal office at 2901 Tasman Drive, Suite 212, Santa Clara, CA 95054 ("EPIC") and Advanced Micro Devices, a Delaware Corporation, having its principal office at One AMD Place, Sunnyvale, California 94088-3453 ("Customer"). RECITALS A. Customer has obtain a license from EPIC to use EPIC computer software programs pursuant to a Computer Software End-User License Agreement dated October 15, 1995 ("License Agreement"); and B. Customer desires to obtain certain support services from with respect to such software; and C. EPIC desires to offer such support services on the terms and conditions set forth herein; In consideration of the mutual covenants and promises contained herein, the parties hereby agree as follows: 1. License. 1.1 Agreement Term. The initial term of this Agreement is as described in Exhibit A. Thereafter, the Agreement Term shall be renewed for successive periods of one (1) year upon agreement of the parties. In no event, however, shall the Agreement Term or any renewal thereof extend beyond the term of the License Agreement. 1.2 Equipment. The equipment described in Exhibit B. 1.3 Errors, Malfunctions or Defects. Material deviations of the Software Products from the functional specifications in the documentation furnished from time to time by EPIC for such Software Products. 1.4 Normal Working Hours. The hours between 9:00 a.m. and 5:00 p.m. Pacific Standard (or Daylight, as applicable) Time Monday through Friday, excluding EPIC's regularly scheduled holidays. 1.5 Release. A software product generally offered and expressly designated by EPIC in its sole discretion as a revision and new release of a Software Product. 18 1.6 Software Product. A software program and associated documentation that has been licensed by EPIC to Customer pursuant to the License Agreement and identified in Exhibit B hereto. 1.7 Support Services. The support services described and required to be performed by EPIC under this Agreement. 2. Scope of Services. EPIC shall use reasonable efforts to provide the following services during Normal Working Hours during the Agreement Term: 2.1 [*] 2.2 [*] 2.3 [*] ____________________ * Confidential treatment requested. -2- 19 [*] 2.4 Other Services. EPIC may provide other or different Support Services by describing such services in Exhibit A. Exhibit A shall supersede the Support Services described in this Section 2 to the extent of any contradictions or ambiguity between the two. 3. Fees and Charges. 3.1 Support Fees. As consideration for the Support Services provided hereunder, on or before the Effective Date, Customer shall pay EPIC its fees and charges based on the rate schedule and the payment terms set forth in Exhibit C attached hereto. EPIC reserves the right to change its rate schedule from time to time, provided that no such change will be effective until the beginning of a renewal term subsequent to the announcement of such change. 3.2 Expenses. Customer shall reimburse EPIC for all expenses incurred by EPIC in rendering the services to Customer provided that prior written approval has been obtained from Customer. 3.3 Payment. EPIC shall invoice Customer at the beginning of each calendar month for all fees and charges accrued and all reimbursable expenses incurred during the previous month which are in excess of the fees and charges described in Exhibit C, and Customer shall pay the invoiced amount within thirty (30) days upon receipt of such invoice. Any amount not paid within thirty (30) days after the invoice date shall bear interest at the lesser of one and one half percent (1.5%) per month and the highest rate allowed by applicable law. 4. Customer Responsibilities. 4.1 Interface. Customer shall be responsible for the interface between Software Products for which Support Services are available and all other software used by Customer whether or not such software is licensed to Customer by EPIC or by others, or has been developed by Customer. 4.2 Installation and Operation. Customer is responsible for installing, managing and operating any Support Service elements delivered under this Agreement. 4.3 Software License Limitations. Customer agrees that limitations on the use of a Software product and Customer's responsibilities to prevent the unauthorized disclosure of EPIC confidential and proprietary information, both of which are described in the License Agreement, apply equally to all materials and information supplied to Customer by or on behalf of EPIC hereunder, including without limitation, corrective code and Updates furnished to Customer pursuant to this Agreement. ____________________ * Confidential treatment requested. -3- 20 4.4 Limitations. In no event shall EPIC have any responsibility to correct any errors or damage that result from: (i) Customer's failure to implement all Updates to the Software Products that are made generally available to other licensees of the same Software Products; (ii) changes to the operating system or environment which adversely affect the Software Products; (iii) any alterations of or additions to the Products performed by parties other than EPIC; (iv) use of the Software Products in a manner for which it was not designed; (v) accident, negligence, or misuse of the Software Products by any party other than EPIC personnel; or (vi) operation outside of environmental specifications. 4.5 Other Customer Responsibilities. Customer shall be responsible for procuring, installing, and maintaining all equipment, telephone lines, communications interfaces, and other hardware (other than the hardware constituting the program control center maintained at EPIC's facilities) necessary to operate the Software Products and to obtain from EPIC the Support Services. 5. Disclaimer of Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, EPIC EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES CONCERNING THE SOFTWARE PRODUCTS OR THE SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 6. Limitation of Liability. IN NO EVENT SHALL EPIC'S CUMULATIVE LIABILITY FOR ANY CLAIMS ARISING IN CONNECTION WITH THIS AGREEMENT EXCEED THE TOTAL FEES AND CHARGES PAID TO EPIC BY CUSTOMER PURSUANT TO THIS AGREEMENT WITHIN THE LAST AGREEMENT TERM. IN NO EVENT SHALL EPIC BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY, OR INCIDENTAL DAMAGES OF WHATEVER KIND AND HOWEVER CAUSED, INCLUDING, WITHOUT LIMITATION, LOST PROFITS AND LOSSES STEMMING FROM BUSINESS OPPORTUNITIES FOREGONE AND EFFECTS OF INCOMPLETE DESIGN EFFORTS, WHETHER OR NOT EPIC HAS BEEN ADVISED OF OR IS OTHERWISE ON NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. 7. Termination. 7.1 Term. Unless earlier terminated as set forth below, this Agreement will become effective upon the Effective Date and continue for the Agreement Term. 7.2 Termination for Cause. Either party may terminate this Agreement for cause upon giving sixty (60) days notice of a material breach by the other hereunder, provided that such breach will not have been remedied during such period. -4- 21 7.3 Termination of License Agreement. This Agreement shall immediately terminate upon the termination of the License Agreement. 7.4 Effect of Agreement. Following termination of this Agreement, EPIC shall immediately invoice Customer for all accrued fees and charges and all reimbursable expenses, not in dispute and Customer shall pay the invoiced amount within thirty (30) days upon receipt of such invoice. Customer may continue to use any work supplied to Customer by EPIC for the remaining term of the License Agreement. 7.5 Survival of Certain Terms. The provisions of Sections 5, 6 and 8 will survive the expiration or termination of this Agreement for any reason. All other rights and obligations of the parties will cease upon expiration or termination of this Agreement. 8. Notices. Any notice required or permitted hereunder shall be in writing and shall be deemed to have been given upon personal delivery, fax transmission, or three (3) business days after being sent to the other party by U.S. mail return receipt requested at the addresses as listed above, or as one party may from time to time give the other in writing. 9. Miscellaneous. 9.1 Each party acknowledges that it has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this is the complete and exclusive statement of the agreement of the parties with respect to the subject matter hereof and that it supersedes and merges all prior proposals, customer provided brochures and materials, understandings and agreements, whether oral or written, between the parties with respect to the subject matter hereof. This Agreement may not be modified except by a written instrument duly executed by the parties hereto. 9.2 This agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to conflict of laws principles. 9.3 Any dispute arising out of this Agreement shall be brought in, and the parties consent to personal and exclusive jurisdiction of and venue in, the state and federal courts within Santa Clara County, California. 9.4 In the event that any provision of this Agreement is held invalid, illegal, or unenforceable, the remaining provisions shall be enforced to the maximum extent permitted by applicable law. 9.5 The waiver by either party of any term or condition of this Agreement shall not be deemed to constitute a continuing waiver thereof nor of any further or additional right that such party may hold under this Agreement. -5- 22 9.6 Customer acknowledges that Software Products, Updates or other information disclosed in connection with the Agreement may be considered technical data that this subject to compliance with the export control laws and regulations of the United States. Customer hereby agrees to comply with all such laws. 9.7 Use, duplication, or disclosure by the United States Government is subject to restrictions as set forth in subdivisions (b) and (c), Part 252.227-7013 of Title 48 of the United States Code of Federal Regulations (Rights in Technical Data and Computer Software) and any successor statute thereto. 9.8 The parties do not intend that any agency or partnership relationship be created between them by this Agreement. 9.9 Customer may not assign its benefits nor delegate its obligations under this Agreement without first receiving the written consent therefor from EPIC. For the purposes of this paragraph, the merger of Customer with or the sale of Customer or of substantially all the assets of Customer to another entity except an entity which is a competitor of EPIC's, shall not be deemed to be an event requiring EPIC's consent. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as set forth below. LICENSEE: EPIC DESIGN TECHNOLOGY, INC. Advanced Micro Devices Bernard Aronson - ----------------------------- ----------------------------------- Company Name Signature S. Hockenbury for A. Brown Bernard Aronson, President - ----------------------------- ----------------------------------- Signature Print Name/Title S. Hockenbury for A. Brown, - ----------------------------- Sr. Site Procurement Manager - ----------------------------- Print Name/Title -6- 23 EXHIBIT C PURCHASE AND ACQUISITION SCHEDULE I. DISCOUNT SCHEDULE THREE YEAR SCHEDULE [*] II. PEAK DEMAND LICENSE REQUIREMENTS Definition of Peak Demand License (PDL) option: In the spirit of a multi-year agreement and shared risk between both AMD and EPIC, EPIC shall agree to provide one [*] for every owned license of PowerMill TimeMill and PathMill (core product) and the following options: BDC, BCX, MSX, AVO. AMD agrees to commit to the net revenue outlined in Table I with the inclusion of [*] for 1995. The invoicing formula for the Peak Usage Model is defined in Section 1.5 of the VPA. As a condition of the continued use in 1996 and 1997 of the PDL Model, AMD must commit to a minimum purchase of [*] for those products defined in Exhibit A Since EPIC has agreed to expand the PDL to include [*] of software for previously purchased licenses, including product options, the PDL model will be reviewed as to the continued inclusion of options in the Peak Demand License Model at the end of 1995. 1995 SOFTWARE PURCHASE FOR VPA As a condition of the Peak Usage Model, Epic would require a minimum purchase of [*] and whatever desired combination of core products, options and OEM products, provided the total revenue commitment for 1995 is a [*] worth of product. If these requirements are met then EPIC will extend the Peak Usage Model to AMD. The PDL Model is based upon annual revenue dollars beginning January 1st of each year. ____________________ [*] Confidential Treatment Requested. 24 1995 Purchase would be as follows: [*] PEAK DEMAND LICENCE (PDL) OPTION FOR 1996 & 1997 EPIC will extend the Peak Demand License model to AMD for 1996 and 1997 if the total gross dollars spent on an annual basis with EPIC meets [*] purchase for each year. There will be no requirements set forth on [*] of core products for 1996 and 1997. III. PATHMILL [*] USE OPTION EPIC will provide [*] of PathMill to AMD with the commitment of the following criteria: AMD will purchase a [*] and whatever desired combinations of core products, options and OEM products provided the total revenue commitment for 1995 is a [*] worth of product. To obtain [*] PathMill usage in 1996 and 1997, the total gross dollars spent on an annual basis on core products, options and OEM products must meet the same requirements as the PDL model outlined in Table 2. There will be no requirement set forth on [*] in 1996 and 1997. The dollar figures in the [*] Licenses" below assumes that 1995 licenses will be made available for [*] . The dollar figures for 1996 and 1997 are for [*]. AMD will not retain any of the utilized but unpurchased licenses of PathMill on the unrestricted model. -2- 25
- ---------------------------------------------------------------------------------------------- [*] PATHMILL LICENSE PRICE TERMS - ---------------------------------------------------------------------------------------------- [*]
IV. AMD SUPPORT SERVICES PRICING SCHEDULE In Exhibit D, EPIC has outlined the AMD Total support services as (1), [*] as defined in Table 1, Exhibit C (2), [*], (3) [*] IV and (4) [*]. Pricing is as follows:
1995 1996 (EST) 1997 (EST) [*]
Additional support can be provided [*] after AMD informs EPIC of desire to contract for this service. [*] Should AMD exceed the set of services in Exhibit D, AMD shall place additional purchases for services as needed. The total support dollars above do not include product maintenance dollars for years 1996 and 1997. The software product maintenance will be charge at a [*] for all new purchases of Epic written Software after the initial order under the VPA and [*] for all OEM product in 1996 and 1997. -3- 26 IV. AMD TOTAL SUPPORT SERVICES PRICING SCHEDULE (CON'T) The AMD Total Support Program is based on software already owned by AMD, the software initially acquired under the VPA as outlined in Exhibit C and the AMD Support Services as outlined in Exhibit D. The program allows for an additional [*] of software to be acquired with no increase in the maintenance charge. As additional software purchases exceed [*], a maintenance charge of [*] will be added to the ATS program fee due that year. Software added during the middle of the year would incur support fees prorated from date of purchase for that year. EPIC will allow AMD to make quarterly payments for ATS if AMD pays the full prorated amount for incremental purchases of [*] or more on the next quarterly payment following purchase. -4- 27 EXHIBIT D AMD TOTAL SUPPORT SERVICES PROGRAM EPIC shall provide AMD product support in the following areas. It is EPICs' intent to accelerate the successful implementation of EPICs' technology and products in your project development cycles. We recognize the need to provide additional services to demonstrate the effective use of these tools. I. STANDARD MAINTENANCE Updates to New software releases: EPIC will provide AMD with all software updates to licensed products purchased under this VPA. [*] The current EPIC Software Maintenance Agreement will indicate those products to which the customer is entitled software updates. [*] all new software updates will include: [*] o All updates will be shipped via electronic mail (email). II. TECHNICAL SUPPORT AMD, the CTS Site Manager or a key design team contact may phone, email or fax the EPIC Technical Support Group for assistance. The EPIC Technical Support Group is the central entry point for all AMD identified product defect problems or enhancement requests. EPIC's Technical Support Group engineers provide guidance and support for all EPIC products. EPIC Technical Support Group will evaluate the customer's questions and provide an answer or work around if possible. If necessary, the EPIC Technical Support Group will escalate the call to the appropriate factory based Technical Specialist or R & D Engineer for further analysis. The EPIC Technical Support Group will also log the problem in the EPIC `Scopus System. AMD, CTS Site Manager will provide priority of open issues if necessary. In the event of a significant product failure, EPIC will use its best effort to resolve the technical defect. ____________________ * Confidential Treatment Requested. 28 III. ON-SITE APPLICATIONS ENGINEERING SUPPORT EPIC will appoint an on-site Applications Engineer for both TX and CA locations. During the first year of this VPA, the TX AE will be on location [*] and the CA person [*]. Duties of the AE are as follows: [*] IV. TRAINING As a part of the Total Support Program AMD will be entitled to [*] Standard Training Classes or AMD Specific Training Classes for [*] persons in each class. [*] EPIC will provide monthly updates to AMD CTS Site Manager for registered class students. V. ON-SITE METHODOLOGY CONSULTANT The on-site methodology consultant assists the designers to better understand how to effectively deploy EPIC tools to achieve the best possible results. After each consulting project, the EPIC consultant will document a report summarizing any observations, methodology recommendations, design problems and work- around. An electronic mail (email) copy of this report will go the TX and CA AE, Project Leader/Manager and the AMD Site Manager. This AMD Support Program will include [*] weeks per year of the on-site consultant defined above. This Methodology Consultant will not however, participate in any AMD actual design activity outside the scope of the EPIC tools. AMD request design consulting as required at the cost listed on Exhibit A. ____________________ * Confidential Treatment Requested. -2- EX-10.11.01 4 ADDENDUM NO.1 TO AMD AGREEMENT 1 Exhibit 10.11.01 CHANGES AND/OR ADDITIONS TO THE EXHIBITS OF THE VPA --------------------------------------------------- EXHIBIT A - PRODUCT AND PRICING SCHEDULE The following product additions have been made to Group A: - RailMill - RailMill Options - Arcadia - Arcadia Interactive Analysis II Options The following production addition has been made to Group B: - AMPS Replace Exhibit A, Product & Pricing Schedule, with the following two pages. 2 EXHIBIT A PRODUCT AND PRICING SCHEDULE GROUP A -------
PRODUCTS DESCRIPTION PRICE - --------------------------------------- -------------------------------------- --------- PathMill Static Timing Analysis [*] TimeMill-AVO Dynamic, Event Driven Timing Simulator [*] PowerMill Dynamic, Event Driven Power Simulator [*] OPTIONS: PM PFX Programming and Formatting Extension [*] DSX Dynamic Simulation Extension [*] TM (ONLY) BDC Block Delay Calculator [*] TM/PWR MSX Mixed Signal Extension [*] BCX BICMOS Extension [*] RAILMILL IC Reliability [*] RAILMILL OPTIONS CHV Chip Viewer [*] MSX Mixed Signal Extension [*] BCX BICMOS Extension [*] ARCADIA R/C Extraction/Full Chip [*] Interactive Analysis II [*] ARCADIA INTERACTIVE ANALYSIS II OPTIONS C2X Net by Net quasi 3D emp C [*] BCX BICMOS Extension [*] RAPH Raphael Interface [*] LFDF LEF/DEF Interface [*] INTERFACES Mentor Falcon Framework Interface [*] Powerview Powerview Interface [*] TRANSLATORS EDIF EDIF Netlist Reader [*] LSIM LSIM Netlist Reader [*] Verilog Verilog Netlist Reader [*] VCD VCD Vector Reader [*]
- ---------- * Confidential Treatment Requested 3 GROUP B -------
AMPS Perf./Power Optimizer [*] GROUP C ------- OEM PRODUCT: Vertue Co-Simulation [*] SimWave Waveform display for viewing simulation vectors [*] VTRAN Vector-Translator [*] TurboWave Waveform display for viewing simulation vectors [*] Rehosting Configuration Change [*]
SUPPORT SERVICES [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
See Exhibit C, Section IV for AMD Total Support Services Pricing Schedule - ---------- * Confidential Treatment Requested -2- 4 EXHIBIT C - PURCHASE AND ACQUISITION SCHEDULE II. PEAK DEMAND LICENSE REQUIREMENTS Definition of Peak Demand License (PDL) Option: Add the following paragraph after the second paragraph with: "To further support AMD's design requirements and to establish a pattern of usage leading to purchase of the Software Options available for each of the EPIC Core Products, EPIC will provide a Peak Demand License (PDL) for each option of EPIC software at the rate [*]. These licenses will be charged at [*]. These licenses will be [*]. These licenses will expire no later than [*]." 1995 SOFTWARE PURCHASE FOR THE VPA Replace the table title with "1996 SOFTWARE PURCHASE COMMITMENT FOR THE VPA WOULD BE AS FOLLOWS" with: 1996 SOFTWARE PURCHASE COMMITMENT FOR THE VPA WOULD BE AS FOLLOWS:
PRODUCT/OPTION GROSS PRICE DISCOUNT NET PRICE [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] Purchase Total [*] [*]
On or before [*], AMD shall submit to EPIC a purchase order in the total amount of [*] for these products: Arcadia Full Chip [*], Arcadia Interactive [*], RailMill [*], and PathMill [*]. Further AMD shall submit to EPIC additional purchase orders for delivery of additional products as follows:
PO Submittal Date PO Amount Products - ----------------- --------- -------- [*] [*] [*] [*] [*] [*]
- ---------- * Confidential Treatment Requested 5 Thirty (30) days prior to any schedule shipment date, AMD may in its sole discretion, upon written notice to EPIC, reconfigure its order to ensure delivery of products which meet AMD's current requirements, provided the net purchase order amounts set forth herein are maintained. Delivery per EPIC normal delivery schedule. IV. AMD SUPPORT SERVICES PRICING SCHEDULE The last sentence of the last paragraph is replaced with the following: "The software product maintenance will be charged at a rate of [*] for all new purchases of EPIC written software after the initial order under the VPA with exception of the following products which will be charged at [*]: RailMill and RailMill Options, Arcadia, Arcadia Interactive Analysis II Options in Group A and AMPS in Group B. All OEM products contained in Group C will be charged at [*]." - ---------- * Confidential Treatment Requested -2- 6 EXHIBIT D - AMD TOTAL SUPPORT SERVICE PROGRAM III ON-SITE APPLICATIONS ENGINEERING SUPPORT Replace with the following: "EPIC will appoint an on-site Applications Engineer for both TX and CA locations. During 1996 both Applications Engineers will be on location at AMD[*] days each week. Duties of the AE are as follows: [*] [*] [*] [*] [*] [*] IV TRAINING As a part of the Total Support Program, AMD will be entitled to [*] Training Credits for 1996. EPIC will provide monthly updates to AMD CTS Site Manager (or designee) according to published schedule. V ON-SITE METHODOLOGY CONSULTANT Insert the following two sentences after the first sentence of Paragraph 1: [*] Replace the second paragraph with the following: "The 1996 Support Program will include [*] weeks of the on-site consultant defined above." - ---------- * Confidential Treatment Requested 7 EXHIBIT E - EPIC-AMD SINGAPORE PRICING Add Exhibit E following Exhibit D. Exhibit E follows this page. 8 EXHIBIT E EPIC-AMD SINGAPORE PRICING AMD has a design center located in Singapore and has a requirement for EPIC product and services at this design center and is desirous of obtaining a high caliber of support from EPIC. EPIC utilizes a distributor in Singapore and has a resident application engineer who is an EPIC employee. AMD can buy EPIC Software products directly from this distributor. This addendum covers the mechanism which will be used for AMD to acquire software and support from EPIC in a manner consistent with the objective of obtaining a high quality of support. 1. EPIC will honor the same [*] rates for software purchased in Singapore as are in effect for the U.S.: [*]. [*]. The list prices for Singapore will be [*] times the domestic list prices (Standard Singapore distributor list prices are [*] times domestic U.S. prices). 2. Maintenance will be charged at a rate of [*] of the AMD Singapore list price with the exception of the following which will be charged at [*]: RailMill, RailMill Options, Acadia, Arcadia Interactive Analysis II Options from Group A, and AMPS in Group B. All Group C products will be charged at [*]. 3. On-site AE assistance, training and consulting as defined in the domestic VPA will be available to AMD Singapore at a rate of [*] times the domestic prices for use of local Singapore resources. 4. Support, flown from California to Singapore, will also be available at a rate of [*] times the domestic prices. In addition, AMD will cover the cost of reasonable travel and per diem. 5. [*] 6. Requests for quotes for software and/or support services should be directed to EPIC's Asian Director located in Sunnyvale. All POs related to license, support and maintenance for Singapore should be directed to the EPIC Asian Sales Director. Currently, this individual is Andy Huang. - ---------- * Confidential Treatment Requested 9 Both parties acknowledge that they have read this Addendum to the VPA, understand it, and agree to be bound by its Terms and Conditions. EPIC DESIGN TECHNOLOGY, INC. ADVANCED MICRO DEVICES, INC. /s/Tammy Liu /s/ Pat Guerra - ----------------------------------- ----------------------------------- Tammy Liu Pat Guerra - ----------------------------------- ----------------------------------- CFO Director, Corporate Procurement - ----------------------------------- ----------------------------------- Date: 5/09/96 Date: ------------------------------- ------------------------------- -2- 10 AMENDMENT NO. 2 TO THE AMD VOLUME PURCHASE AGREEMENT * * * * * This Amendment No. 2 ("Amendment") by and between EPIC Design Technology, Inc. ("EPIC") and Advanced Micro Devices ("AMD") hereby amends the Volume Purchase Agreement, No. AMD9598 dated January 1, 1995. This Amendment is effective as of September 30, 1996 (the "Amendment Effective Date"). Therefore the parties hereby agree to amend the VPA as follows: CHANGES AND/OR ADDITIONS TO THE EXHIBITS OF THE VPA EXHIBIT A - PRODUCT AND PRICING SCHEDULE The following product additions have been made to Group A: - PathMill Option SFX - PathMill Option PMGA - PowerMill Option PWGA - RailMill Option SNX Replace Exhibit A, Product & Pricing Schedule, with the following two pages. 11 EXHIBIT A PRODUCT AND PRICING SCHEDULE GROUP A -------
PRODUCTS DESCRIPTION PRICE - --------------------------------------- -------------------------------------- ----- PathMill Static Timing Analysis [*] TimeMill Dynamic, Event Driven Timing Simulator [*] PowerMill Dynamic, Event Driven Power Simulator [*] PATHMILL OPTIONS: SFX Synopsys Flow extension [*] PFX Programming and Formatting extension [*] DSX Dynamic Simulation Extension [*] PMGA PathMill Graphical Analyst [*] TIMEMILL OPTIONS AVO Analog Voltage Output [*] MSX Mixed Signal extension [*] BCX BiCMOS extension [*] BDC Block Delay Calculator [*] POWERMILL OPTIONS MSX Mixed Signal extension [*] BCX BiCMOS extension [*] PWGA PowerMill Graphical Analyst [*] RAILMILL IC Reliability [*] RAILMILL OPTIONS CHV Chip Viewer [*] MSX Mixed Signal extension [*] BCX BiCMOS extension [*] SNX Signal Net extension [*] ARCADIA R/C Extraction Full Chip [*] Interactive Analysis II [*] ARCADIA INTERACTIVE ANALYSIS II OPTIONS C2X Net by Net quasi 3D emp C [*] BCX BiCMOS Extension [*] RAPH Raphael Interface [*] LFDF LEF/DEF Interface [*] INTERFACES Mentor Falcon Framework Interface [*] Powerview Powerview Interface [*] TRANSLATORS EDIF EDIF Netlist Reader [*] LSIM LSIM Netlist Reader [*] Verilog Verilog Netlist Reader [*] VCD VCD Vector Reader [*]
- ---------- * Confidential Treatment Requested 12
GROUP B ------- AMPS Performance/Power Optimizer [*] GROUP C ------- OEM PRODUCT: Vertue Co-Simulation [*] SimWave Waveform display for viewing simulation vectors [*] VTRAN Vector-Translator [*] TurboWave Waveform display for viewing simulation vectors [*] Rehosting Configuration Change [*]
SUPPORT SERVICES [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
See Exhibit C, Section IV for AMD Total Support Services Pricing Schedule - ---------- * Confidential Treatment Requested -2- 13 EXHIBIT C - PURCHASE AND ACQUISITION SCHEDULE II. PEAK DEMAND LICENSE REQUIREMENTS Definition of Peak Demand License (PDL) option: Add the following paragraphs: EPIC will provide [*] PathMill, TimeMill and Arcadia and their associated options for the K6 and K7 programs exclusively with the following commitment criteria: AMD will pay a fee of [*] for access [*] and AMD will fund a PDL pool of licenses for [*]. For a total commitment of [*]. This is the summary of the commitment: [*] [*] [*] [*] option fee. This [*] use of the specified products is for the term from [*] for the K6 or K8 programs (not concurrent) and [*], for the K7 program. A condition for the [*] option and extension of the term is [*]. [*] is defined as [*] for the term of the agreement. K8 has the option of participating, but not concurrently with the K6 program. This is a detailed list of the products covered under the [*] option. [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] License Ownership. Upon full payment to EPIC, AMD will own EPIC licenses equivalent [*]. Products may include any EPIC developed products in Group A of Exhibit A of the VPA. Not included are products in Group B and Group C and products [*] - ---------- * Confidential Treatment Requested 14 [*] PDL option fee. The PDL option fee will apply to all other groups outside of those covered under the [*] and for all AMD groups on products that are not specified in the unrestricted option. Payment Schedules [*] option fee. Shipment will consist of [*] of the defined list of [*] products with a key duration of [*] for the respective terms described in the "[*] option fee" section. Payment terms are net 30 days.
Payment Date Payment Amount - ------------ -------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
PDL option pool. PDL option pool is invoiced monthly based on usage report submitted by AMD. Terms and conditions are covered under the AMD VPA Rev 1.8 and subsequent addendums. This offer expires September 30, 1996 and must be accepted and executed by AMD by September 30, 1996. [*] discount on cash payments on any part of the offer made by September 30, 1996. Both parties acknowledge that they have read this Addendum to the VPA, understand it, and agree to be bound by its Terms and Conditions. EPIC DESIGN TECHNOLOGY, INC. ADVANCED MICRO DEVICES, INC. /s/John Yelinek /s/Pat Guerra - ----------------------------------- ---------------------------------- John Yelinek Pat Guerra - ----------------------------------- ---------------------------------- VP Domestic Sales Director, Corporate Procurement - ----------------------------------- ---------------------------------- Date: 9/27/96 Date: 10/2/96 ------------------------------- ------------------------------ - ---------- * Confidential Treatment Requested -2- EX-11.1 5 COMPUTATION OF NET INCOME (LOSS) PER SHARE 1 EXHIBIT 11.1 EPIC DESIGN TECHNOLOGY, INC. --------------- COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED SEPTEMBER 30, --------------------------- 1996 1995 1994 ---- ---- ---- Net income (loss) ................................................... $ (9,678) $ 990 $ 1,238 ======== ======= ======= Weighted average common shares outstanding .......................... 12,625 11,270 3,660 Weighted average convertible preferred stock ........................ - 274 3,984 Common share equivalents related to stock options ................... - 1,654 904 Common shares issued and options granted (using the treasury stock method assuming an initial public offering price of $11.00) between September 1, 1993 and the initial public offering included pursuant to Securities and Exchange Commission rules ....................... - - 1,316 -------- ------- ------- Shares used in per share computation ................................ 12,625 13,198 9,864 ======== ======= ======= Net income (loss) per share ......................................... $ (0.77) $ 0.08 $ 0.13 ======== ======= =======
EX-22.1 6 LIST OF SUBSIDIARIES 1 Exhibit 22.1 LIST OF SUBSIDIARIES Archer Systems, Inc. CIDA Technology, Inc. EPIC International, Inc. EPIC International, F.S.C. EurEPIC S.A.R.L. EX-23.1 7 CONSENT & REPORT ON SCHEDULE 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE We consent to the incorporation by reference in Registration Statements No. 33-87080 and No. 333-09439 on Form S-8 of our report dated October 11, 1996, appearing in this Annual Report on Form 10-K of EPIC Design Technology, Inc. for the year ended September 30, 1996. Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of EPIC Design Technology, Inc., listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP San Jose, California November 27, 1996 EX-27.1 8 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR SEP-30-1996 SEP-30-1996 1 13,259 26,268 6,516 216 0 48,500 4,496 0 54,791 17,737 0 0 0 44,608 (7,554) 54,791 43,919 43,919 3,352 3,352 46,037 137 0 (4,317) 5,361 (9,678) 0 0 0 (9,678) (0.77) (0.77)
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