<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549

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

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 1996 or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from _____________ to

     Commission file number:  0-20923

                                 SUMMIT DESIGN, INC.
               (Exact name of registrant as specified in its charter)


             DELAWARE                                     93-1137888
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

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


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

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


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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March
20, 1997 as reported on the Nasdaq National Market, was approximately
$67,675,972. Shares of Common Stock held by each executive officer and
director and by each entity that owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed affiliates. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.

As of March 20, 1997, the Registrant had outstanding 13,364,592 shares of
Common Stock.  Such number excludes shares of Common Stock to be issued in
connection with the Registrant's acquisition of TriQuest Design Automation,
Inc.  See "Business - Recent Developments"

                        DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference into Part III of this Form 10-K
to the extent stated herein certain sections of its definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders to be held on May 28, 1997.


<PAGE>

                                      PART I

ITEM 1.    BUSINESS

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

The following discussion contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.  Predictions of future events are inherently
uncertain.  Actual events could differ materially from those predicted in the
forward looking statements as a result of the risks set forth in the
following discussion, and, in particular, the risks discussed below and in
Part II, Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations under the subheading "Additional Risk Factors that
Could Affect Operating Results and Market Price of Stock."

GENERAL

Summit Design, Inc. ("Summit" or the "Company")  is a leading provider of
graphical design entry and verification software tools and design to test
software tools. The Company's products assist integrated circuit ("IC" or
"chip") system, design and test engineers in meeting the market demands for
rapid time to market, increased product functionality and lower product cost.
Summit's graphical Systems Level Design Automation ("SLDA") products enable
IC system and design engineers to create and verify IC designs using familiar
graphical paradigms such as block diagrams, state machines, flow charts or
truth tables rather than the less intuitive textual hardware description
language ("HDL") code required by synthesis and simulation tools. The
Company's SLDA products automatically generate optimized HDL descriptions
from graphical designs, eliminating time consuming and error prone manual
entry of HDL code. The Company's Design to Test products provide a graphical
simulation test data creation, graphical simulation results analysis and
automatic manufacturing test program generation.

The Company was incorporated in the State of Delaware on December 29, 1993.
The Company's principal executive offices are located at 9305 SW Gemini
Drive, Beaverton, Oregon 97008 and its telephone number is (503) 643-9281.
Unless the context otherwise requires, the terms "Company" and "Summit" as
used in this report refer to (i) Summit Design, Inc. and its wholly-owned
subsidiaries following the acquisition of SEE Technologies Software
Environment for Engineers Ltd. ("SEE Technologies") and the reorganization of
Test Systems Strategies, Inc. ("TSSI") as a wholly-owned subsidiary of Summit
(collectively, the "Reorganization") and (ii) TSSI prior to the
Reorganization.  SEE Technologies changed its name to Summit Design (EDA)
Ltd. in September 1994.

RECENT DEVELOPMENTS

On February 28, 1997, Summit completed its acquisition of TriQuest Design
Automation, Inc. ("TriQuest"). TriQuest develops hardware description
language analysis and optimization tools for the design of high performance,
deep submicron integrated circuits.  The aggregate consideration for the
acquisition (including shares reserved for issuance upon exercise of TriQuest
options assumed by Summit) was 775,000 shares of Summit Common Stock.

BACKGROUND

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


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<PAGE>

are to reduce time to market and the costs associated with product design and
verification while permitting the development of a greater number of designs
of higher speed and density chips that can be reliably manufactured and
tested.

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

In contrast to the progress in fabrication technology, the productivity of
the average design engineer has not kept pace. For example, an average
engineer would typically design approximately 8 gates per day in the
mid-1970s, approximately 40 gates per day in the early 1980s and nearly 400
gates per day in the late 1980s and early 1990s. As a result, a greater
number of engineering hours are required to produce many of today's more
complex designs, leading to either longer development schedules or the need
for larger design teams. To address this challenge, organizations with IC
design capabilities continue to search for EDA tools that enable them to
increase their productivity and meet the aggressive development schedules
dictated by competitive forces.

ADVANCES IN EDA

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

THE IMPORTANCE OF TEST

Once the IC development process has been completed and verified,
manufacturing can begin. As a part of the manufacturing process, millions of
chips are tested to verify their quality and functionality prior to shipment.
Manufacturing test must be both fast and exhaustive to allow high volume
manufacturing of ICs that approach a zero defect level. Test plays such a
critical role in the manufacturing process that chips are sometimes
re-designed just to optimize testability. Manufacturing test typically
involves multi-million dollar hardware test equipment running a software test
program which utilizes millions of elements of timing and pattern data for
each chip under test. The software test programs are typically produced after
the design process is completed but before manufacturing can begin. Today,
EDA suppliers provide automatic test program generation software tools that
assist test engineers in acquiring vast amounts of timing and pattern data
from gate level simulation tools. These tools then create a manufacturing
test program by combining the data with program templates for specific
hardware test equipment. Significant profits from the sale of ICs and related
systems can be lost as a result of delays in the completion of an adequate
manufacturing test program.

LIMITATIONS OF HLDA AND TEST

HLDA tools have enabled engineers to accelerate IC development schedules and
create more complex chips.  However, these tools have significant
limitations. First, the conventional design flow for IC engineers using HLDA
tools is to represent a design in hand-drawn graphical paradigms such as
block


                                     3
<PAGE>

diagrams, state machines, flow charts or truth tables, and then laboriously
translate their hand-drawn graphical designs into a textual HDL which
resembles software program code. This process is time consuming and error
prone, and requires the engineer to master a complex programming language.
Second, the numerous lines of HDL code that comprise a design are very
difficult for engineering teams to understand and communicate during design
reviews and equally difficult for engineering management to understand and
evaluate. Third, while it would be possible to accelerate time to market by
reusing portions of HDL code where similar functions are needed, reuse of HDL
code is difficult and often avoided because the complex HDL code complicates
understanding the design's functional intent. Fourth, the HLDA methodology is
further limiting because textual HDL code typically must be written in either
Verilog or VHDL and according to strict rules unique to a specific synthesis
tool. This limits the ability of engineers to increase synthesis efficiency
by using various HDL languages and multiple synthesis tools. Finally, the
lack of stylistic restrictions in HDLs often allows designers to express an
IC functional design several different ways. As a result, an HDL design could
comply with HDL programming constraints and yet not be able to be
synthesized. As importantly, the lack of restrictions allows a designer to
produce an HDL description that can be synthesized but that is not as
efficient in terms of the resulting gate count or circuit timing. Further,
the lack of programming consistency between engineers arising from the lack
of stylistic restrictions complicates design team management and design
integration. Primarily as a result of the above shortcomings, adoption of
HLDA tools as of 1995 had been limited to approximately 11% of the estimated
285,000 IC design engineers worldwide.

Although EDA suppliers today provide automatic test program generation
software tools, test engineers are still required to spend substantial time
debugging the test programs and the timing and pattern data on the actual
manufacturing test equipment that will be used to test the ICs. This effort
lengthens time to market and consumes valuable equipment process time that
would otherwise be used for manufacturing test. The timing and pattern data
required by these test programs is either hand coded or converted from the
output of gate level simulators. As a result, the time required to develop a
test program and the related data is often longer than the time required to
complete the IC design. In addition, although the preparation of test data
begins during design simulation, the lack of integration of HLDA and
automatic test program generation tools forces the design process and the
test preparation process to be separate and serial. The separate nature of
design and test preparation often results in duplicative efforts of design
and test engineers which can lead to delayed product introduction. The serial
nature of design and test preparation can delay recognition of unacceptable
testability characteristics of an IC which can result in chip redesign.

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

THE SUMMIT SOLUTION

Summit offers software products to assist design and test engineers in
meeting the market demands for rapid time to market, increased product
functionality and lower product cost. In 1994, Summit introduced Visual HDL
for VHDL, its first graphical SLDA product, which accelerates the
development, verification and documentation of single function ICs as well as
complete systems on a chip. Summit's SLDA products automate manual design
entry and verification by enabling IC systems and design engineers to create
and verify IC designs using familiar graphical paradigms such as block
diagrams, state machines, flow charts and truth tables, rather than less
intuitive textual HDL code. The Company's Design to Test software tools allow
the design or test engineer to graphically create simulation test data and
compare simulation results. The Design to Test software also automatically
generates manufacturing test programs. Visual Testbench integrates the design
and test processes and allows the design engineer and test engineer to
cooperatively develop simulation and manufacturing test programs.

The Company's software products enable organizations to more easily realize
the benefits of HLDA by simplifying and automating IC design entry and
verification and by linking manufacturing test to design.

The Company believes that its products provide the following benefits:


                                         4
<PAGE>

INCREASED DESIGN PRODUCTIVITY

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

DESIGN REUSE, RE-TARGETING AND CONSISTENCY

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

ENSURE CHIP FUNCTIONALITY AND MANUFACTURING TESTABILITY

The Company's Design to Test tools provide design and test engineers with the
capability to graphically develop simulation test pattern and timing data and
assist the engineers in the analysis of the complex and voluminous simulation
results. These graphical tools allow the engineer to check the IC under
development for manufacturing testability prior to release from the design
cycle, minimizing the need to re-design for improved manufacturing
testability. Summit's Design to Test tools automate test program generation,
thus reducing the need to debug test programs on expensive and highly
utilized manufacturing test equipment.

REDUCED TEST DEVELOPMENT TIME

The Company's Visual Testbench product, released in the fourth quarter of
1995, integrates the efforts of design engineers and test engineers to reduce
the time required for manufacturing test development. This product
automatically converts the millions of elements of pattern and timing data
from the graphically prepared simulation input and from simulation results.
The converted information is then combined with tester specific templates to
automatically generate manufacturing test programs. The Company believes that
Visual Testbench can reduce manufacturing test preparation time significantly.

STRATEGY

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

ACCELERATE MARKET ADOPTION OF SLDA

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


                                         5
<PAGE>

emerge. The Company also targets student engineers by introducing them to its
SLDA products through programs with various universities.(1)

INTEGRATE DESIGN TO TEST INTO SLDA METHODOLOGY

The Company is leveraging its test expertise by integrating its Test
Development Series technology into the SLDA design process. This integrated
approach can significantly reduce users' time to market by permitting test
design to occur in parallel with, and as part of, product design. The
Company's first step in implementing this strategy was its introduction of
Visual Testbench, a graphical tool that allows the design and test engineer
to verify designs and automatically generate test programs. The Company
intends to develop additional features and functionality in the areas of
graphical user interface and parallel test development with the goal of
reducing or eliminating manual test development.(1)

LEVERAGE SLDA TECHNOLOGY LEADERSHIP

The Company intends to continue to advance its technological leadership in
graphical design entry and verification to meet the future needs of current
users and to provide compelling reasons for adoption by new users. For
example, the Company's addition of Visual HDL for Verilog in the fourth
quarter of 1995 extended its graphical SLDA methodology to a new group of
users. In the future, the Company intends to expand its support of other
important modeling languages such as C and C++.(1)

BROADEN THE SCOPE OF SLDA

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

PRODUCTS

The Company's SLDA products, Visual HDL for VHDL and Visual HDL for Verilog,
provide system design management, graphical design entry, graphical level
simulation, HDL code generation and high speed compiled simulation. These
products are the result of a focused five-year development effort of
approximately 40 EDA software development experts. The Company's Design to
Test products, Test Development Series ("TDS") provide graphical simulation
test data creation, simulation results analysis and automatic manufacturing
production test program generation. The TDS product has been developed over a
15 year period. Visual Testbench, a merging of the Company's technologies
which is targeted to bring test and testability to the front end of the top
down design process, has been under development since 1994 and was first
released in the fourth quarter of 1995.

The Company's products are constructed using modern software design methods
and programming languages such as C and C++. All of the Company's products
operate on the industry's most popular UNIX workstations, while Visual HDL
for VHDL also operates on PCs running Windows 3.1, Windows 95 and Windows NT.

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

(1) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 33 for a discussion of factors that could affect future performance.


                                         6
<PAGE>

SYSTEM LEVEL DESIGN AUTOMATION

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

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

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

Visual HDL operates in both VHDL and Verilog on UNIX workstations and in VHDL
on PCs. It supports a broad range of HLDA synthesis and simulation products,
including products from Synopsys, Inc. ("Synopsys"), Mentor Graphics
Corporation ("Mentor Graphics"), Cadence Design Systems ("Cadence"),
VIEWlogic, Compass, IBM, Altera, Simplicity and Exemplar. Visual HDL for VHDL
was first shipped in the first quarter of 1994, and Visual HDL for Verilog
was first shipped in the fourth quarter of 1995. As of February 28, 1997, the
Company had licensed over 2000 seats of Visual HDL. The fourth major release
of Visual HDL was released in December 1996.

As of February 28, 1997, Visual HDL's single seat list price ranged from
$12,500 to $30,000. The list price of the UNIX workstation version of Visual
HDL for VHDL is higher than that for PCs. The actual price for a system also
varies depending on the duration of the license and the simulation features
included. For example, because Visual HDL for VHDL generally includes a
Summit simulator, its price is higher than Visual HDL for Verilog, which uses
the Verilog XL simulator sold by Cadence. Finally, the Visual HDL price for a
floating license commands a premium over the node locked version since it
offers multi-user flexibility.

DESIGN TO TEST PRODUCTS

Test Development Series is a vendor-independent test software development
system with a comprehensive portfolio of tools designed to automatically
convert gate-level simulation data to test programs that operate on automatic
manufacturing test equipment. TDS provides simulation analysis, stimulus
generation, simulation rules checking, tester resource checking, automatic
manufacturing test equipment test program generation and test program
conversion. TDS accepts data from more than 30 of


                                         7
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the industry's leading gate level simulators and more than 20 automatic test
pattern generators and produces test programs for more than 80 models of ATE
equipment.

Test development engineers use TDS to convert design simulation data into
optimized and debugged test programs. TDS can reduce test program development
costs and can improve the quality of manufacturing test programs by providing
a graphical environment to view, manage and manipulate the vast amounts of
text-based test data. TDS provides simulation data converters and test
program generators (wavebridges) through a central database. This can help
engineers move test programs from one tester to another, providing greater
flexibility in the use of manufacturing test equipment. In addition, TDS
offers specialized timing data management tools that assist in the
development of test programs that can help IC manufacturers efficiently sort
parts by their operating speed. The ninth major release for TDS was released
in the fourth quarter of 1996.

A typical fully configured TDS system would include graphical wave editors, a
library of simulation data converters and a wavebridge and, had a list price
of approximately $95,000 as of February 28, 1997.  However, the components of
a TDS system can be sold individually. For example, each of the Company's
installed base of customers needs to purchase a new wavebridge for each new
tester which the customer uses in its manufacturing process. As of February
28, 1997, the list prices for components ranged from approximately $5,000 for
a simulation data converter to $39,000 for a wavebridge, excluding any
additional development costs that may be charged to the customer in
connection with customized or special orders.

VISUAL TESTBENCH

Visual Testbench provides a new methodology for creating simulation stimulus,
validating device specifications and tying simulation results directly to
test. Visual Testbench provides a structured solution to a task traditionally
resolved by manually writing lines of HDL code. Visual Testbench is designed
to raise productivity by providing graphical timing diagrams, specification
spreadsheets and flowcharts for simulation stimulus creation. In addition,
this product allows the designer to check that timing requirements have been
met by the simulation. Unique to Visual Testbench is its ability to directly
connect a Verilog simulation to ATE test equipment. In addition, the Company
is currently developing a VHDL version of Visual Testbench. The Company
believes that the market for Visual Testbench will be primarily design teams
and, as a result, the test development function will, to an extent, be
performed during the design phase. Visual Testbench's structured test program
development process should allow design teams to spend less time explaining
their test programs to test engineers or trying to put their devices into
production. The second major release for Visual Testbench completed beta
testing in the fourth quarter of 1996.(1)

As of February 28, 1997, the list price for Visual Testbench ranged from
$42,000 to $102,000 depending on the configuration. Visual Testbench provides
a new methodology for creating IC test programs. The Company anticipates a
lengthy period of test marketing for Visual Testbench. Accordingly, the
Company cannot predict the extent, if any, to which it will realize revenue
from this product.(1)

The Company's revenue is predominantly derived from two product lines, Visual
HDL, which includes Visual HDL for VHDL and Visual HDL for Verilog, and TDS,
and the Company believes that these products will continue to account for a
substantial portion of its revenue in the future. The Company's future
success depends primarily upon the market acceptance of its existing and
future SLDA products. The Company's SLDA products incorporate certain unique
design methodologies and thus represent a departure from industry standards
for design entry and verification. The Company believes that broad market
acceptance of its SLDA products will depend on several factors, including the
ability to significantly

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

(1) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 33 for a discussion of factors that could affect future performance.


                                         8
<PAGE>

enhance design productivity, ease of use, interoperability with existing EDA
tools, price and the customer's assessment of the Company's financial
resources and its technical, managerial, service and support expertise.
Although demand for SLDA products has increased in recent years, the market
for SLDA products is still emerging and there can be no assurance that it
will continue to grow or that, even if the market does grow, businesses will
continue to purchase the Company's SLDA products. A decline in the demand
for, or the failure to achieve broad market acceptance of, the Company's SLDA
products will have a material adverse effect on the Company's business,
financial condition and results of operations.(1)

CUSTOMERS

The Company's end-user customers include companies in a wide range of
industries, including semiconductor devices, semiconductor test equipment,
telecommunications, computer/peripherals, consumer electronics,
aerospace/defense and other electronics entities. As of February 28, 1997,
the Company had installed more than 2000 seats of its SLDA tools in more than
190 companies, of which more than 170 companies had entered into support
contracts. In addition, as of such date, the Company had more than 325 active
installations of its Design to Test products. No single customer represented
more than 10% of the Company's total revenue in 1996. The following table
lists a representative sample of the Company's worldwide end-user customers
that generated at least $25,000 in revenue for the Company in 1995 or 1996.

<TABLE>
<CAPTION>

 SEMICONDUCTOR    SEMICONDUCTOR                           COMPUTER/        CONSUMER        AEROSPACE/
    DEVICES      TEST EQUIPMENT   TELECOMMUNICATIONS     PERIPHERALS      ELECTRONICS        DEFENSE           OTHER
---------------  ---------------  -------------------  ---------------  ---------------  ---------------  ---------------
<S>              <C>              <C>                  <C>              <C>              <C>              <C>
AMD              Advantest        Alcatel              Compaq           Canon            Allied Signal    Anam

I-Cube           Credence         Bay Networks         Fujitsu          Honeywell        E Systems        Fuji/Xerox

ID Technology    Teradyne         Bell Northern        Hewlett-Packard  Matsushita       Hughes Aircraft  InFocus Systems

Level One                         Cabletron            Hitachi          Mitsubishi       Lockheed-Martin  Lucky Goldstar

Microchip.                        Ericsson             IBM              NEC              Rockwell         Sumitomo Metal

Motorola                          General Instruments  OKI              Phillips         TRW              Xerox

National Semi                     Hitachi              Quantum          Sharp                             Zenith

PMC Sierra                        Lucent               Seagate          Sony

SGS-Thomson                       Nippon Denso         Siemens

Texas
  Instruments                     Northern Telecom     Storage Tech

                                  Rohm                 Stratus
</TABLE>


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

A supplier of networking products used Visual HDL to develop a twelve-port
Ethernet switch with an integrated ATM port for backbone or server
connectivity. For this customer, minimizing time-to-market was critical to
meeting market-share and profit objectives. The design team coded the entire
design in Visual HDL. The final chip consisted of graphical constructs
representing 60,000 lines of VHDL code that synthesized into 115,000 gates.
The ability to design and debug the chip using Visual HDL contributed to this
customer meeting its design schedule.

A workstation division of a computer supplier used Visual HDL to successfully
re-target an 11,000 gate ASIC for a workstation graphics chip. The primary
engineer had worked on the design for over two months targeting a specific
ASIC process. When the design needed to be re-targeted to a second ASIC

-----------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock"  commencing on
page 33 for a discussion of factors that could affect future performance.


                                         9
<PAGE>

technology, the designer was able to retarget the design in less than one day
using Visual HDL. The same task could have taken the engineer up to a month
to complete using traditional re-targeting methods.

A computer peripheral manufacturer designed a 10,000-gate interrupt/local bus
controller using Visual HDL. The design team had to complete the new design
in three to four months, and had differing levels of design experience. The
engineer working on the most significant parts of the design had very little
knowledge of HDL-based design. The team leader estimated that it would have
taken up to two months to sufficiently familiarize the engineer with the HDL
code. The graphical design environment of Visual HDL enabled the engineer to
effectively communicate with the other team member and familiarize himself
with the HDL code. The design was completed on schedule.

A product line group at a semiconductor manufacturer purchased Test
Development Series products to replace its prior older generation test
manufacturing solution. The group thereafter has used TDS products in
substantially all of its test development. For example, TDS products were
used to create a different test program and translate Verilog scan vectors to
a different environment for a battery pack power management chip. The
translation was functionally correct and required little debug time.

MARKETING AND SALES

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

The Company's sales strategy is to employ its direct sales, independent and
affiliated distributors and telesales distribution channels to efficiently
and effectively target individual customer and product market segments. As of
December 31, 1996, the Company had 34 employees in its sales organization and
seven people in its marketing group.

DIRECT SALES

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

Following the release of Visual HDL for VHDL, the direct sales force
concentrated on promoting that product, and sales efforts related to TDS
products decreased. The Company recently has adopted a strategy of
designating sales personnel as either SLDA or Design to Test specialists in
an effort to ensure that each product line receives focused attention from
members of Summit's direct sales force. The Company's direct sales force
operates in the United States and portions of Europe, with offices in
California, Oregon, Texas, Massachusetts, Florida, Pennsylvania, Arizona,
Minnesota, France, Germany and the United Kingdom. Approximately 54%, 58% and
62% of the Company's revenue for the years ended December 31, 1996, 1995 and
1994, respectively, were generated through Summit's direct sales force.

                                         10
<PAGE>

DISTRIBUTORS

Distributors promote and distribute the Company's products in the
Asia-Pacific region, the United Kingdom, France, Germany, Sweden, Italy and
Israel. Approximately 46%, 42% and 38% of the Company's revenue in the years
ended December 31, 1996, 1995 and 1994, respectively, were attributable to
sales made through distributors. During the fourth quarter of 1995, the
Company entered into a distribution agreement with ATE Services Company, Ltd.
("ATE") pursuant to which ATE was granted exclusive rights to sell,
distribute and support all of Summit's Design to Test products within Japan
until October 1998, subject to the Company's ability to terminate the
relationship if ATE fails to meet quarterly sales objectives. The agreement
may also be terminated by either party for breach. In addition, in the first
quarter of 1996, the Company entered into a three-year, exclusive
distribution agreement for its SLDA products in Japan with Seiko Instruments,
Inc. ("Seiko"). In the event Seiko fails to meet specified quotas for two or
more quarterly periods, exclusivity can be terminated by Summit, subject to
Seiko's right to pay a specified fee to maintain exclusivity. The agreement
is renewable for successive five-year terms by mutual agreement of the
Company and Seiko and is terminable by either party for breach.

In March 1996, to centralize management of the distribution of the Company's
products in the Asia-Pacific region, excluding Japan, the Company entered
into a joint venture with Anam S&T Co., Ltd. ("Anam") pursuant to which the
joint venture corporation (Summit Asia) shall acquire exclusive rights to
sell, distribute and support all of the Company's products in the
Asia-Pacific region, excluding Japan, until June 1997. Summit Asia has acted
in such capacity since April 1, 1996. Prior to that date, Anam was an
independent distributor of the Company's products. The joint venture provides
a direct sales force for the Company's products in Korea and facilitates
management and support of the independent distributors that market the
Company's products in Taiwan, Singapore, Hong Kong, Australia, Malaysia and
India. As of February 28, 1997, Anam owned approximately 80% of the stock of
Summit Asia. However, as payments are made by Summit Asia to Anam for the
repurchase from Anam of certain rights related to the Company's products, and
as stock options are exercised by employees and board members, the Company's
percentage ownership can increase until it is equal to that of Anam. As of
February 28, 1996, the Board of Directors of Summit Asia consisted of two
representatives from Anam, one from Summit Asia and one from Summit. Actions
of the Board require approval of 75% of the directors.

For the year ended December 31, 1996, all sales of the Company's products in
the Asia-Pacific region were made through Summit Asia, ATE and Seiko. There
can be no assurance the new relationships with Summit Asia, ATE and Seiko
will be effective in maintaining or increasing sales relative to the levels
experienced prior to such relationships.

Telesales is currently used to market the renewal of maintenance and
technical support agreements for both SLDA and Design to Test products in
North America, allowing the direct sales force to concentrate its efforts on
new accounts. The Company expects its use of the telesales channel to grow in
the future, in applications such as the marketing of product upgrades and
add-on business.(2)

Approximately 50%, 52% and 39% of the Company's revenue for the years ended
December 31, 1996, 1995 and 1994, respectively, were attributable to sales
made outside of the United States. In order to successfully expand
international sales, the Company may need to establish additional foreign
operations, hire additional personnel and recruit additional international
distributors. This will require significant management attention and
financial resources and could adversely affect the Company's operating
margins. In addition, to the extent that the Company is unable to effect
these additions in a timely manner, the Company's growth, if any, in
international sales will be limited. There can be no assurance that the
Company will be able to maintain or increase international sales of the
Company's products, and failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations.

---------------------------
(2) This statement is a forward-looking statement reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock"  commencing on
page 33 for a discussion of factors that could affect future performance.


                                         11
<PAGE>

The Company's reliance on distributors involves certain risks. For example,
the Company is dependent on the continued viability and financial stability
of its distributors. Since the Company's products are used by skilled design
engineers, distributors must possess sufficient technical, marketing and
sales resources and must devote these resources to a lengthy sales cycle,
customer training and product service and support. Only a limited number of
distributors possess these resources. In addition, Summit Asia, ATE and
Seiko, as well as the Company's other distributors, may offer products of
several different companies, including competitors of the Company. There can
be no assurance that the Company's current distributors will continue to
market or service and support the Company's products effectively, that any
distributor will continue to sell the Company's products or that the
distributors will not devote greater resources to products of other
companies. The loss of, or a significant reduction in, revenue from the
Company's distributors could have a material adverse effect on the Company's
business, financial condition and results of operations.

CUSTOMER SERVICES

Technical support is available to customers on both a pre-sale and post-sale
basis. Pre-sale support involves the Company's application engineers working
with the Company's direct sales force and distributors to provide on-site
support during the end user's evaluation and implementation process.
Post-sale support is provided through annual maintenance contracts which
provide customers with the Company's technical support team via telephone and
as well as all minor enhancements and any major upgrades. This program is
sold for 20% of the list price of the product.  The Company provides its
customers with a 90-day warranty that its products are free from defects.

In addition to its maintenance, technical support and upgrade fees, the
Company also conducts a variety of training programs ranging from
introductory level courses to advanced training on full use of all of its
products. Training is offered at the Company's facilities, at distributors'
facilities and at customer locations worldwide. The Company intends to
further expand its focus on customer training. For the years ended December
31, 1996, 1995 and 1994, maintenance and services provided approximately 21%,
19% and 18% of the Company's total revenue, respectively.

COMPETITION

The EDA industry is highly competitive and the Company expects competition to
increase as other EDA companies introduce SLDA and Design to Test products.
The Company faces different competitive dynamics in the markets for its SLDA
and Design to Test products. In the SLDA market, the Company principally
competes with Mentor Graphics and a number of smaller firms. Indirectly, the
Company also competes with other firms that offer alternatives to SLDA and
could potentially offer more directly competitive products in the future.
Certain of these companies have significantly greater financial, technical
and marketing resources and larger installed customer bases than the Company.
Some of the Company's current and future competitors offer a more complete
range of EDA products and may distribute products that directly compete with
the Company's SLDA products by bundling such products with their core product
line. In addition, the Company's products perform a variety of functions,
certain of which are, and in the future may be, offered as separate products
or discrete point solutions by the Company's existing and future competitors.
For example, certain companies currently offer design entry products without
simulators. There can be no assurance that such competition will not cause
the Company to offer point solutions instead of, or in addition to, the
Company's current software products. Such point solutions would be priced
lower than the Company's current product offerings and could cause the
Company's average selling prices to decrease, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the Design to Test market, the Company competes primarily with
the internal design groups of its existing and potential customers, many of
which to date have designed and developed customized Design to Test tools for
their particular needs. The company also competes with smaller emerging
companies.


                                         12
<PAGE>

The Company competes on the basis of certain factors including product
capabilities, product performance, price, support of industry standards, ease
of use, first to market and customer technical support and service. The
Company believes that it competes favorably overall with respect to these
factors. However, in particular cases, the Company's competitors may offer
SLDA or Design to Test products with functionality which is sought by the
Company's prospective customers and which differs from that offered by the
Company. In addition, certain competitors may achieve a marketing advantage
by establishing formal alliances with other EDA vendors. Further, the EDA
industry in general has experienced significant consolidation in recent
years, and the acquisition of one of the Company's competitors by a larger,
more established EDA vendor could create a more significant competitor. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business,
financial condition and results of operations. There can be no assurance that
the Company's current and future competitors will not be able to develop
products comparable or superior to those developed by the Company or to adapt
more quickly than the Company to new technologies, evolving industry trends
or customer requirements. Increased competition could result in price
reductions, reduced margins and loss of market share, all of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.

PRODUCT DEVELOPMENT

The Reorganization in early 1994 resulted in the joining of SEE Technologies,
a technological leader in graphical design entry and verification, with TSSI,
a technological leader in production test products. Thus, development of SLDA
products has been performed at the Company's offices in Israel and
development of Design to Test products has been conducted at the Company's
principal office in Beaverton, Oregon. As of December 31, 1996, the Company's
research and development team consisted of 65 software developers, including
40 dedicated to the Company's SLDA products and 25 focused on Design to Test
products.

For the years ended December 31, 1996, 1995, and 1994 , the Company's
research and development expenditures were approximately $5.2 million, $5.1
million, and $4.6 million, respectively, which represented approximately 26%,
36%, and 36% of revenue in each such period. The Company has to date expensed
all research and development costs as incurred. In addition, the Company has
received grants from the Israeli Chief Scientist ("Chief Scientist") in the
Israeli Ministry of Industry and Trade.  The Company has recorded these
grants as debt on the consolidated financial statements.

Summit's research and development strategy is to be proactive in determining
customer needs and to develop new SLDA and manufacturing test products to
meet these needs. The Company believes that system-level definition and
design analysis will become increasingly significant bottlenecks in the IC
development process and thus present product development opportunities. The
Company's research and development efforts are focused on creating products
to further increase productivity in the creation, verification, documentation
and production test of both IC and system level designs. Accordingly, in
addition to continued development of SLDA and TDS products, the Company is
continuing to dedicate resources to integrating its TDS technology into the
SLDA design process. Visual Testbench, first shipped in the fourth quarter of
1995, is a product of such efforts(1)

The Company has actively sought to establish cooperative relationships with
certain EDA industry leaders in order to gain early access to new product
information and to better integrate the Company's products with those
supplied by other vendors in the EDA market. For example, the Company
maintains a relationship with Advantest in the Design to Test area through
which the Company receives product information from Advantest from which the
Company is developing a wavebridge for third-party

---------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock"  commencing on
page 33 for a discussion of factors that could affect future performance.


                                         13
<PAGE>

customers. In addition, in the SLDA products area, the Company has a
relationship with Cadence pursuant to which Cadence helps specify the
integration between Summit's Visual HDL for Verilog and Cadence Verilog XL
simulator. The Company believes that these relationships mutually benefit the
Company and the EDA vendors by fostering development and facilitating
interoperability of the Company's and vendors' complimentary products. These
relationships are informal and may be terminated by either party with limited
notice. In addition, such relationships are with companies that are current
or potential future competitors of the Company. If any of these relationships
were terminated and the Company was unable to obtain in a timely manner
information regarding modifications of third party products necessary for
modifying its software products to interoperate with these third party
products, the Company could experience a significant increase in development
costs, the development process would take longer, product introductions would
be delayed and the Company's business, financial condition and results of
operations could be materially adversely affected.

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

The Company's Design to Test products employ the Company's WGL format. The
Company permits others to use this format without charge, and the Company
believes that it has been widely adopted in the industry. An industry group
in which the Company currently participates is formulating a new format,
STIL, that it plans to present as a new industry standard. If this standard
is adopted commercially, the Company would be required to provide products
that operate with the STIL format. Development of such products would require
significant effort and expense. Moreover, any delay in the availability of
such products could materially adversely affect the Company's business,
financial condition and results of operations.

Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. The
Company has in the past discovered software errors in certain of its products
and has experienced delays in shipment of products during the period required
to correct these errors. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found,
resulting in loss of, or delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation or increased
service and warranty costs, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.

PROPRIETARY RIGHTS

The Company's success depends upon its proprietary technology. The Company
relies on a combination of copyright, trademark and trade secret laws,
confidentiality procedures, licensing arrangements and technical means to
establish and protect its proprietary rights. As part of its confidentiality
procedures, the Company generally enters into non-disclosure agreements with
its employees, distributors and corporate partners, and limits access to, and
distribution of, its software, documentation and other proprietary
information. In addition, the Company's products are protected by hardware
locks and software encryption techniques designed to deter unauthorized use
and copying. Despite these precautions, it may be


                                         14
<PAGE>

possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization, or to develop similar
technology independently. In addition, effective protection of intellectual
property rights may be unavailable or limited in certain foreign countries.

The Company provides its SLDA products to end-users primarily under "shrink-
wrap" license agreements included within the packaged software. These
agreements are not negotiated with or signed by the licensee, and thus may
not be enforceable in certain jurisdictions. The Company provides its Design
to Test products to end-users under written license agreements, signed by
each licensee at the time of purchase of a license. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights as
fully as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights in the United States or
abroad will be adequate or that competitors will not independently develop
similar technology.

The Company could be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows,
the functionality of products in its industry segment overlaps and an
increasing number of software patents are granted by the United States Patent
and Trademark Office. Although the Company is not aware of any threatened
litigation or infringement claims, there can be no assurance that a third
party will not claim such infringement by the Company with respect to current
or future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
license agreements, if required, may not be available on terms acceptable to
the Company or at all. Failure to protect its proprietary rights or claims of
infringement could have a material adverse effect on the Company's business,
financial condition and results of operations.

OPERATIONS IN ISRAEL

The Company's research and development operations related to its SLDA
products are located in Israel and may be affected by economic, political and
military conditions in that country. Accordingly, the Company's business,
financial condition and results of operations could be materially adversely
affected if hostilities involving Israel should occur. This risk is
heightened due to the restrictions on the Company's ability to manufacture or
transfer outside of Israel any technology developed under research and
development grants from the government of Israel. In addition, while all of
the Company's sales are denominated in United States dollars, a portion of
the Company's annual costs and expenses in Israel are paid in Israeli
currency. These costs and expenses were approximately $4.3 million, $4.3
million and $2.9 million for the years ended December 31, 1996, 1995 and
1994, respectively. Payment in Israeli currency subjects the Company to
foreign currency fluctuations and to economic pressures resulting from
Israel's generally high rate of inflation, which has been approximately 11%,
8% and 15% during the years ended December 31, 1996, 1995, and 1994,
respectively. The Company's primary expense which is paid in Israeli currency
is employee salaries for research and development activities. As a result, an
increase in the value of Israeli currency in comparison to the U.S. dollar
could increase the cost of research and development expenses and general and
administrative expenses. There can be no assurance that currency
fluctuations, changes in the rate of inflation in Israel or any of the other
aforementioned factors will not have a material adverse effect on the
Company's business, financial condition or results of operations. In
addition, coordination with and management of the Israeli operations requires
the Company to address differences in culture, regulations and time zones.
Failure to successfully address these differences could be disruptive to the
Company's operations.

The Company's Israeli production facility has been granted the status of an
"Approved Enterprise" under the Investment Law. Taxable income of a company
derived from an "Approved Enterprise" is eligible for certain tax benefits,
including significant income tax rate reductions for up to seven years
following the first year in which the "Approved Enterprise" has Israeli
taxable income (after using any available net operating losses). The period
of benefits cannot extend beyond 12 years from the year of commencement of
operations or 14 years from the year in which approval was granted, whichever
is earlier. The tax benefits derived from a certificate of approval for an
"Approved Enterprise" relate only to taxable income attributable to such
"Approved Enterprise" and are conditioned upon fulfillment of the conditions
stipulated


                                         15
<PAGE>

by the Investment Law, the regulations promulgated thereunder and the
criteria set forth in the certificate of approval. In the event of a failure
by the Company to comply with these conditions, the tax benefits could be
canceled, in whole or in part, and the Company would be required to refund
the amount of the canceled benefits, adjusted for inflation and interest. The
Company believes that it operates in compliance with all the "Approved
Enterprise" conditions and criteria applicable to it. However, there can be
no assurance that the Company's Israeli production facility will continue to
operate or qualify as an "Approved Enterprise" or that the benefits under the
"Approved Enterprise" regulations will continue, or be applicable, in the
future. The loss of or any material decrease in these income tax benefits
could have a material adverse effect on the Company's business, financial
condition and results of operations.

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS.

Summit's Israeli subsidiary has obtained research and development grants from
the Chief Scientist in the Israeli Ministry of Industry and Trade of
approximately $232,000 and $608,000 in 1993 and 1995, respectively. As of
December 31, 1996, the Company was obligated to pay back approximately
$232,000 and $541,000 for the 1993 and 1995 grants, respectively. Such
obligations are collateralized by all tangible and intangible assets of the
Israeli subsidiary. The terms of the grants prohibit the manufacture of
products developed under these grants outside of Israel and the transfer of
the technology developed pursuant to these grants to any person, without the
prior written consent of the Chief Scientist. The Company's Visual HDL for
VHDL products have been developed under grants from the Chief Scientist and
thus are subject to these restrictions. If the Company is unable to obtain
the consent of the government of Israel, the Company would be unable to take
advantage of potential economic benefits such as lower taxes, lower labor and
other manufacturing costs and advanced research and development facilities
that may be available if such technology and manufacturing operations could
be transferred to locations outside of Israel. In addition, the Company would
be unable to minimize risks particular to operations in Israel, such as
hostilities involving Israel. Although the Company is eligible to apply for
additional grants from the Chief Scientist, it has no present plans to do so.
The Company also received a Marketing Fund Grant from the Israeli Ministry of
Industry and Trade for an aggregate of $423,000. The grant must be repaid at
the rate of 3% of the increase in exports over the 1993 export level of all
Israeli products, until repaid. As of December 31, 1996, approximately
$364,000 was outstanding under the grant.

MANAGEMENT OF GROWTH AND ACQUISITIONS

Summit's ability to achieve significant growth will require it to implement
and continually expand its operational and financial systems, recruit
additional employees and train and manage current and future employees.
Summit expects any such growth will place a significant strain on its
operational resources and systems.  Failure to effectively manage any such
growth would have a material adverse effect on Summit's business, financial
condition and results of operations.

On February 28, 1997, Summit completed its acquisition of TriQuest.  TriQuest
develops HDL analysis and optimization tools for the design of high
performance, deep submicron integrated circuits.  As a result of the
acquisition, Summit's operating expenses are expected to increase.  There can
be no assurance that the integration of TriQuest's business can be
successfully completed in a timely fashion, or at all, or that the revenues
from TriQuest will be sufficient to support the costs associated with
TriQuest's business, without adversely affecting Summit's operating margins.
Any failure to successfully complete the integration in a timely fashion or
to generate sufficient revenues from the acquired business could have a
material adverse effect on Summit's business and results of operations.  In
addition, Summit regularly evaluates acquisition opportunities.  Future
acquisitions by Summit could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect Summit's results of operations.  Product
and technology acquisitions entail numerous risks, including difficulties in
the assimilation of acquired operations, technologies and products, diversion
of management's attention to other business concerns, risks of entering
markets in which Summit has no or limited prior experience

                                         16
<PAGE>

and potential loss of key employees of acquired companies.  Summit's
management has had limited experience in assimilating acquired organizations
and products into Summit's operations.  No assurance can be given as to the
ability of Summit to integrate successfully any operations, personnel or
products that have been acquired or that might be acquired in the future, and
the failure of Summit to do so could have a material adverse effect on
Summit's results of operations.

EMPLOYEES

As of December 31, 1996, the Company had 124 employees, 65 of whom were
engaged primarily in research and development and related operations, 41 of
whom were engaged primarily in sales and marketing and 18 of whom were
engaged primarily in corporate management and administration. A total of 77
of these employees were located in the United States, 42 in Israel and five
in Europe. The Company's employees are not represented by any collective
bargaining organization and the Company has never experienced a work
stoppage. The Company's future success will depend, in part, on its ability
to continue to attract, retain and motivate highly qualified technical,
marketing and management personnel, who are in great demand.


                                         17
<PAGE>

ITEM 2.    PROPERTIES

The Company's principal facility, located in Beaverton, Oregon, consists of
approximately 31,000 square feet of office space leased pursuant to an
agreement which terminates on December 31, 1999. The rent and common area
fees payable on this facility are currently approximately $28,000 per month.
This space is used for the Company's U.S. research and development,
production, sales and marketing and administration. The Company also leases
approximately 9,800 square feet of office space in Herzlia, Israel for
research and development under a lease with DCL Technologies that expires on
December 31, 1997. The rent payable on this office space is currently $13,750
per month, and increases over the term of the lease based on the Israeli
consumer price index. Additionally, TriQuest leases approximately 4,300
square feet of office space in Campbell, California for research and
development and sales activities.  The rent payable is currently
approximately $6,000 per month which increases to $6,400 over the term of the
lease which expires in April 1999.  The Company expects that its current
facilities will be adequate to serve its needs for the foreseeable future.(2)

ITEM 3.     LEGAL PROCEEDINGS

Not applicable

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

During the quarter ended December 31, 1996, the Company solicited a written
consent (effective October 15, 1996) from its stockholders regarding the
following matters: (i) approval of the amendment and restatement of the
Company's Certificate of Incorporation to (a) increase the number of shares
of authorized Common Stock to 30,000,000, (b) establish the number of shares
of authorized and undesignated Preferred Stock at 5,000,000, (c) provide for
a classified board consisting of three classes, the members of each class to
serve for a term of three years, effective as of the date of the first annual
meeting of stockholders after the Company's initial public offering, (d)
provide that directors may be removed from office only for cause, (e) provide
that vacancies on the Board of Directors may be filled only by a majority of
members of the Board of Directors, (f) eliminate the right of stockholders to
take action by written consent and (g) provide that certain articles of the
Certificate of Incorporation may only be amended by the affirmative vote of
at least two-thirds of the then-outstanding shares of voting stock; (ii)
approval of the amendment and restatement of the Company's Bylaws to (a)
provide that stockholders shall only make director nominations and bring
business before the annual meeting upon prior written notice delivered to the
Company a specified number of days prior to the meeting, (b) provide that no
business other than that specified in the notice of special meeting may be
transacted at the special meeting, (c) provide for a classified board, (d)
decrease the authorized number of directors to seven, (e) delete Article XII
and (f) such other changes as set forth in the Bylaws; (iii) approval of the
adoption of the Company's Employee Stock Purchase Plan and reservation of
150,000 shares of the Company's Common Stock for issuance thereunder; (iv)
approval of the Company's Director Option Plan and the reservation of 150,000
shares of the Company's Common Stock for issuance thereunder; and (v)
approval of the amendment of the 1994 Stock Plan to increase the number of
shares reserved for issuance thereunder to 2,322,000 and to comply with
Section 16(b) of the Securities Exchange Act of 1934.  The written consent
and each matter contained therein was approved by a majority of the
stockholders of the Company, representing 11,318,704 votes for each matter.
The written consent was not distributed to all stockholders of the Company;
however, in accordance with Delaware law, notice of the taking of the
corporate action was duly given to the other stockholders.

---------------------------
(2) This statement is a forward-looking statement reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock"  commencing on
page 33 for a discussion of factors that could affect future performance.


                                         18
<PAGE>

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The executive officers and directors of the Company and their ages as of
March 20, 1997 are as follows:

  Name                 Age                      Position
--------              -----                    ----------
Larry J. Gerhard        56                Chairman of the Board, President
                                          and Chief Executive Officer

C. Albert Koob          42                Vice President-Finance, Chief
                                          Financial Officer and Secretary

Zamir Paz               47                Vice President-Worldwide Engineering
                                          and Operations and Director

Daniel C. Skilken       37                Vice President-Worldwide Marketing

D. Gregory Kott         37                Vice President-Worldwide Sales

Roger A. Bitter         52                General Manager-TSSI Division

Eric Benhayoun          43                Vice President, General
                                          Manager-European Operations

Sharon L. Beelart       49                Corporate Controller

Art Fletcher            32                Treasurer and Director of Financial
                                          Planning

Amihai Ben-David (1)    48                Director

John Grillos (1)(2)     55                Director

Fred L. Hanson (2)      57                Director

Jay B. Morrison         49                Director

Mark Stevens (1)        37                Director

-------------
(1)  Member of the Compensation Committee.
(2)  Member of the Audit Committee.

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

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

Mr. Paz has served as Vice President-Worldwide Engineering and Operations and
Director of the Company since January 1994. From January 1991 to January
1994, Mr. Paz was President and Managing Director of SEE Technologies
Software Environment for Engineers, Ltd. Prior to that time, Mr. Paz was
employed for eight years at Daisy Systems Israel, an EDA provider, where he
served as Director of Design Entry and Technical Marketing.  Mr. Paz has
opted not to stand for reelection and will cease being a Director when his
successor is elected at the Company's 1997 annual meeting.

Mr. Skilken has served as Vice President-Worldwide Marketing since December
1993. From June 1991 to December 1993, Mr. Skilken was the Director of
Corporate Marketing at COMPASS Design Automation, Inc. (a subsidiary of VLSI
Technology) ("COMPASS"), an EDA supplier. From December 1989 to June 1991,
Mr. Skilken was the Director of ASIC Marketing for the IC Group at Mentor
Graphics, an EDA provider. From December 1988 to December 1989, Mr. Skilken
worked at Daisy-Cadnetix, an


                                         19
<PAGE>

EDA supplier, most recently as Director of Semiconductor Industry Marketing.
From January 1983 to December 1988, Mr. Skilken worked at VLSI Technology, a
semiconductor manufacturer, where his last position was Product Marketing
Manager for the ASIC Division.

Mr. Kott has served as Vice President-Worldwide Sales since June 1996 and as
Vice President-North American Sales from August 1994 to June 1996. From June
1994 to August 1994, he served as Director, Major Accounts. From January 1994
to May 1994, Mr. Kott was the Western Area Sales Director for the Logic
Modeling Division of Synopsys, an EDA provider. From January 1987 to January
1994, Mr. Kott held various sales positions at Mentor Graphics, most recently
as Director of IC Sales.

Mr. Bitter has served as General Manager-TSSI Division since March 1996. From
January 1994 to February 1996, Mr. Bitter served as Vice President-Far East
Sales Operations. From August 1991 to January 1994, Mr. Bitter was President
of COMPASS Japan K.K. From August 1986 to June 1990, Mr. Bitter held various
positions at Silicon Compiler Systems, an EDA supplier, where he served most
recently as Vice President of Far East Operations. From October 1985 to
August 1986, Mr. Bitter served as Vice President-Worldwide Sales for SDA, an
EDA company. From August 1983 to October 1985, Mr. Bitter was the Western
Regional Sales Manager for the Western U.S. sales offices of Mentor Graphics.

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

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

Mr. Fletcher has served as Treasurer and Director of Financial Planning since
April 1996. From October 1995 to March 1996, Mr. Fletcher was Director of
Business and Financial Planning. From April 1994 to September 1995, Mr.
Fletcher was Manager of Financial Planning and Systems. From February 1992 to
April 1994, Mr. Fletcher managed the financial planning and analysis function
for TriQuint. Prior to that time, Mr. Fletcher was employed by Industrial
Funding for three years in a finance and accounting position.

Mr. Ben-David has served as a Director of the Company since January 1994. He
has been the founder, Chief Executive Officer and Chairman of DCL
Technologies Ltd., a public company located in Israel and traded on the
Tel-Aviv Stock Exchange, since May 1982. DCL Technologies Ltd. specializes in
the development of high technology companies in the areas of communications,
computer telephony, expert systems and electronic design automation. From
January 1991 until the Reorganization, Mr. Ben-David was Chairman of the
Board of SEE Technologies.

Mr. Grillos has served as a Director of the Company since February 1994. Mr.
Grillos has been employed by Robertson, Stephens & Company LLC, an investment
banking firm, in its venture capital group since August 1988. He is also a
director of CBT Group PLC and of several private companies. Mr. Grillos has
opted not to stand for reelection and will cease being a Director when his
successor is elected at the Company's 1997 annual meeting.

Mr. Hanson has served as a Director of the Company since September 1995. He
has been President and Chief Executive Officer of Information Optics Corp.,
an optical memory company, since October 1995. From October 1994 to December
1995, Mr. Hanson was part owner and Chief Executive Officer of Acquisitions,
Mergers and Reorganizations, Inc., a consulting company. From August 1992 to
April 1993,


                                         20
<PAGE>

He was President and Chief Executive Officer of Burr-Brown Corp., an
electronic components company. He was President and Chief Executive Officer
of Bipolar Integrated Technology, an integrated circuits company, from April
1990 to August 1992. Mr. Hanson started his career with Hewlett-Packard where
his final position was General Manager of the Corvallis Division in
Corvallis, Oregon.

Mr. Morrison has served as a Director of the Company since May 1996. He has
been a General Partner of Newbury Ventures, Inc., a venture capital
investment firm, since January 1992. From July 1990 to December 1991, he was
President of Berkeley International Capital Corp., which was a wholly-owned
subsidiary of Govett & Co. Ltd. that specialized in private equity
investments. Mr. Morrison has opted not to stand for reelection and will
cease being a Director when his successor is elected at the Company's 1997
annual meeting.

Mr. Stevens has served as a Director of the Company since February 1994. He
has been a General Partner of Sequoia Capital VI, a venture capital
investment fund, since March 1993. Prior to that time, beginning in July
1989, Mr. Stevens was an associate at Sequoia Capital. Mr. Stevens currently
serves on the Board of Directors of Aspect Development, a client/server
applications software company, and several private companies. Prior to
working at Sequoia Capital, Mr. Stevens held technical sales and marketing
positions at Intel Corporation.  Mr. Stevens has opted not to stand for
reelection and will cease being a Director when his successor is elected at
the Company's 1997 annual meeting.


                                         21
<PAGE>

                                      PART II

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

The Company's Common Stock commenced trading on the Nasdaq National Market
under the trading symbol SMMT on October 18, 1996. The high and low sales
prices for the Common Stock of the Company as reported on the Nasdaq National
Market for the period from October 18, 1996 to December 31, 1996 were
$12.75 and $8.25, respectively. The price for the Common Stock as of the
close of business on March 20, 1997 was $8.50 per share.

As of March 20, 1997, the Company had approximately 197 stockholders of
record.

The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the
market prices of the stocks of many companies which may not have been
directly related to the operating performance of those companies. Such broad
market fluctuations may adversely affect the market price of the Company's
Common Stock.  In addition, factors such as announcements of technological
innovations or new products by the Company or its competitors, market
conditions in the computer software or hardware industries and quarterly
fluctuations in the Company's operating results may have a significant
adverse effect on the market price of the Company's Common Stock.


From October 1, 1996 to December 31, 1996, the Company issued and sold 6,583
shares of Common Stock that were not registered under the Securities Act of
1933 at prices ranging from $0.50 to $1.75 per share upon exercise of stock
options pursuant to the Company's 1994 Stock Plan. Such issuances were made
in reliance upon the exemption from registration set forth in Rule 701
promulgated under the Securities Act of 1933.

                                         22
<PAGE>

ITEM 6.    SELECTED FINANCIAL DATA

The following selected consolidated statement of operations data for the
years ended December 31, 1996, 1995 and 1994 and the consolidated balance
sheet data at December 31, 1996 and 1995 are derived from the consolidated
financial statements of the Company, which have been audited by Coopers &
Lybrand L.L.P., and are included elsewhere in this report. The consolidated
statement of operations data for the year ended December 31, 1993 and the
consolidated balance sheet data at December 31, 1994 and 1993 have been
derived from audited financial statements not included in this document.  The
consolidated statement of operations data for the year ended December 31,
1992 and the consolidated balance sheet data at December 31, 1992 have been
derived from unaudited financial statements that include all adjustments that
the Company considers necessary for a fair presentation of the financial
information set forth therein.  The selected consolidated financial data
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report.

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                       ---------------------------------------------
                                         1996     1995     1994     1993     1992
                                       -------- -------- -------- -------- ---------
<S>                                    <C>      <C>      <C>      <C>      <C>
                                         (in thousands, except per share data)
Statement of Operations Data (1):
Revenue:
Product licenses                       $15,179  $10,383   $9,143   $4,693   $7,716
 Maintenance and services                4,215    2,637    2,323    2,547        -
 Other                                     567    1,050    1,516        -        -
                                       -------- -------- -------- -------- ---------
  Total revenue                         19,961   14,070   12,982    7,240    7,716
Cost of revenue
 Product licenses                          571      651      681      440      434
 Maintenance and services                  439      400      390      330        -
                                       -------- -------- -------- -------- ---------
  Total cost of revenue                  1,010    1,051    1,071      770      434
                                       -------- -------- -------- -------- ---------
  Gross profit                          18,951   13,019   11,911    6,470    7,282
Operating expenses:
 Research and development                5,204    5,113    4,632    2,381    2,642
 Sales and marketing                     8,622    7,370    5,867    3,673    4,456
 General and administrative              2,821    3,112    2,309    1,919    1,359
 Restructuring expense                       -        -        -        -      300
 In-process technology                       -        -      647        -        -
                                       -------- -------- -------- -------- ---------
  Total operating expenses              16,647   15,595   13,455    7,973    8,757
                                       -------- -------- -------- -------- ---------
Income (loss) from operations            2,304   (2,576)  (1,544)  (1,503)  (1,475)
Other income (expense), net                126     (176)    (100)    (119)    (122)
                                       -------- -------- -------- -------- ---------
Income (loss) before income taxes        2,430   (2,752)  (1,644)  (1,622)  (1,597)
Income tax provision (benefit)            (246)     399      402        -        -
                                       -------- -------- -------- -------- ---------
Net income (loss)                       $2,676  $(3,151) $(2,046) $(1,622) $(1,597)
                                       -------- -------- -------- -------- ---------
                                       -------- -------- -------- -------- ---------
Net income (loss) per share (2)          $0.22   $(0.26   $(0.17) $(0.14)
                                       -------- -------- -------- --------
                                       -------- -------- -------- --------
Number of shares used in per share
 calculation (2)                        12,372   11,900   11,870   11,569

</TABLE>


<TABLE>
<CAPTION>
                                                        December 31,
                                       ---------------------------------------------
                                         1996     1995     1994     1993     1992
                                       -------- -------- -------- -------- ---------
<S>                                    <C>      <C>      <C>      <C>      <C>
                                                       (In thousands)
Balance Sheet Data:
 Cash and cash equivalents             $19,596     $592   $1,193    $429      $267
 Working capital                        17,810     (530)    (444) (2,077)   (1,265)
 Total assets                           28,072    8,903    8,036   2,703     2,670
 Long-term obligations,
  less current portion                     770    1,216      253     302       580
 Total stockholders' equity (deficit)   19,627      592    1,295  (1,304)   (1,178)

</TABLE>

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

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

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


                                         23
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

The following discussion contains forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934.  Predictions of future events are inherently
uncertain.  Actual events could differ materially from those predicted in the
forward looking statements as a result of the risks set forth in the
following discussion, and, in the particular, the risks discussed below under
the subheading "Additional Risk Factors that Could Affect Operating Results
and Market Price of Stock."

OVERVIEW

Summit was founded in December 1993 to act as the holding company for TSSI
and SEE Technologies (now Summit Design (EDA) Ltd.). TSSI was founded in 1979
to develop and market IC manufacturing test products. In January 1993, TSSI
retained a new Chief Executive Officer and began to restructure its senior
management team. Thereafter, the Company broadened its strategy from focusing
primarily on manufacturing test products to include providing graphical SLDA
design entry and verification tools and integrating these with its core
technology. As part of its strategy, in early 1994, TSSI acquired SEE
Technologies, an Israeli company that, through its predecessor, began
operations in 1983 and had operated primarily as a research and development
and consulting company focused on the EDA and SLDA market. As a result of the
Reorganization, TSSI and SEE Technologies became wholly-owned subsidiaries of
Summit in the first quarter of 1994. The results of operations of the Company
prior to January 1, 1994 are those of TSSI and as of and after January 1,
1994 are the combined results of TSSI and SEE Technologies.

The Company's ongoing implementation of its strategy has involved significant
expenditures. Following the Reorganization, the Company significantly
increased its research and development expenditures to support the continued
development of SLDA and Design to Test products. To promote its products, the
Company has added sales and marketing staff, increasing its sales and
marketing expenditures by 147% from 1993 to 1996, and has restructured its
key distributor relationships. This concurrent effort to develop products and
promote market awareness and acceptance of its products in a new and evolving
market has contributed to the Company's annual losses. Such losses were
mitigated in part in each of the six quarters following the Reorganization by
revenue from initial stocking orders from distributors and one-time sales of
technology. The Company introduced its first SLDA product, Visual HDL for
VHDL 1.0, in the first quarter of 1994. This product lacked compiled
simulation and operated only on a PC platform. In the third quarter of 1994,
with the release of version 2.5, Summit expanded the simulation capability of
Visual HDL for VHDL and introduced its UNIX-based version of this product.
The Company has experienced increased sales of its SLDA products in each of
the ten quarters in the period ended December 31, 1996.  However, there can
be no assurance that the Company will experience continued growth in revenue
or be profitable in the future.

Prior to the Reorganization, the Company's TDS product and related
maintenance revenue accounted for all of the Company's revenue. Currently,
the Company's revenue is predominantly derived from two product lines, Visual
HDL, which includes Visual HDL for VHDL and Visual HDL for Verilog, and TDS.
The Company believes these products will continue to account for a
substantial portion of its revenue in the future.(2)

Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer training. Revenue from the sale of
software licenses is recognized at the later of the time of

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

(2) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 33 for a discussion of factors that could affect future performance.


                                         24
<PAGE>

shipment or satisfaction of all acceptance terms. Maintenance revenue is
deferred and recognized ratably over the term of the maintenance agreement,
which is typically 12 months. Revenue from customer training is recognized
when the service is performed. The Company sells its products through a
direct sales force in North America and selected European countries and
through distributors in the Company's other international markets. Revenue
from product sales through distributors is recognized net of the associated
distributor discounts. Fees received for granting distribution rights are
deferred and recognized ratably over the term of the distribution agreement.
Although the Company has not adopted a formal return policy, the Company
generally reimburses customers in full for returned products. Estimated sales
returns are recorded upon delivery of the product.

The Company's products have a range of prices which depend on platform, HDL
language, functionality, duration of license and distribution channel. In
addition, the Company's products perform a variety of functions, certain of
which are, and in the future may be, offered as separate products or discrete
point solutions by the Company's existing and future competitors. For
example, certain companies currently offer design entry products without
simulators. There can be no assurance that such competition will not cause
the Company to offer point solutions instead of, or in addition to, the
Company's current software products. Such point solutions would be priced
lower than the Company's current product offerings and could cause the
Company's average selling prices to decrease. Accordingly, based on these and
other factors, the Company expects that average selling prices for its
products will continue to fluctuate in the future.

The Company has entered into a joint venture with Anam, effective April 1,
1996, pursuant to which the joint venture corporation (Summit Asia) shall
acquire exclusive rights to sell, distribute and support all of Summit's
products in the Asia-Pacific region, excluding Japan, until June 1997. Summit
Asia has acted in such capacity since April 1, 1996. Prior to that date, Anam
was an independent distributor of the Company's products. The amount of
revenue from sales through Summit Asia which is remitted to the Company is
fixed by the joint venture agreement at a percentage which approximates the
percentage applicable to sales through Anam prior to the formation of the
joint venture. Excluding one-time sales of technology, sales through Anam
accounted for 2.4% and 3.6% of the Company's total revenue and for 21.7% and
33.8% of the Company's revenue attributable to the Asia-Pacific region
excluding Japan for the years ended December 31, 1995 and 1994, respectively.
 For the year ended December 31, 1996, Anam and Summit Asia together
accounted for 3.8% of the Company's revenue and 31.0% of the Company's
revenue attributable to the Asia-Pacific region excluding Japan.

The Company accounts for its ownership interest in Summit Asia on the equity
method of accounting and, as a result, the Company's pro rata share of the
earnings and losses of Summit Asia will be recognized as income or losses in
the Company's income statement in "Other income, net." The Company does not
expect Summit Asia to recognize a profit for the foreseeable future and thus
does not expect to recognize income from its investment in Summit Asia for
the foreseeable future, if at all.

Approximately 50%, 52% and 39% of the Company's total revenue for the years
ended December 31, 1996, 1995 and 1994, respectively, were attributable to
sales made outside the United States. The Company expects that international
revenue will continue to represent a significant portion of its total
revenue. The Company's international revenue is currently denominated in U.S.
dollars. As a result, increases in the value of the U.S. dollar relative to
foreign currencies could make the Company's products more expensive and,
therefore, potentially less competitive in those markets. The Company pays
the expenses of its international operations in local currencies and does not
engage in hedging transactions with respect to such obligations.
International sales and operations are subject to numerous risks, including
tariff regulations and other trade barriers, requirements for licenses,
particularly with respect to the export of certain technologies,
collectability of accounts receivable, changes in regulatory requirements,
difficulties in staffing and managing foreign operations and extended payment
terms.(1)


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

(1) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 33 for a discussion of factors that could affect future performance.


                                         25
<PAGE>

On February 28, 1997, Summit completed its acquisition of TriQuest.  TriQuest
develops HDL analysis and  optimization tools for the design of high
performance, deep submicron integrated circuits.  TriQuest currently employs
five product engineers and three sales personnel, and the Company plans to
add additional employees throughout 1997.  The Company expect that its
operating expenses (research and development, sales and marketing and general
and administrative) will increase in absolute dollars initially as a result
of the acquisition and thereafter as result of the addition of employees.
The Company expects to record a one-time charge for acquisition costs of
approximately $400,000 in the first quarter of 1997.

RESULTS OF OPERATIONS

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

Income statement data:


                                            Years Ended December 31,
                                       ---------------------------------
                                          1996        1995       1994
                                       ---------------------------------

Revenue:
  Product licenses                       76.1%        73.8%       70.4%
  Maintenance and services               21.1         18.7        17.9
  Other                                   2.8          7.5        11.7
                                       --------    ---------   ---------
    Total revenue                       100.0        100.0       100.0
Cost of revenue:
  Product licenses                        2.9          4.6        5.2
  Maintenance and services                2.2          2.9        3.0
                                       --------    ---------   ---------
    Total cost of revenue                 5.1          7.5        8.2
                                       --------    ---------   ---------
    Gross profit                         94.9         92.5       91.8
Operating expenses:
  Research and development               26.1         36.3       35.7
  Sales and marketing                    43.2         52.4       45.2
  General and administrative             14.1         22.1       17.8
  In-process technology                     -            -        5.0
                                       --------    ---------   ---------
    Total operating expenses             83.4        110.8      103.7
                                       --------    ---------   ---------
Income (loss) from operations            11.5        (18.3)     (11.9)
Other income (expense), net               0.7         (1.3)      (0.8)
                                       --------    ---------   ---------
Income (loss) before income taxes        12.2        (19.6)     (12.7)
Income tax provision (benefit)           (1.2)         2.8        3.1
                                       --------    ---------   ---------
Net income (loss)                        13.4%       (22.4)%    (15.8)%
                                       --------    ---------   ---------
                                       --------    ---------   ---------


YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

TOTAL REVENUE

The Company's revenue is comprised of product licenses revenue, maintenance
and services revenue and other revenue.  Total revenue increased by 42% from
$14.1 million for the year ended December 31, 1995 to $20.0 million for the
year ended December 31, 1996. Sales through Seiko as a distributor, accounted
for 14.7% and 12.7% of the Company's total revenue for the years ended
December 31, 1996 and 1995, respectively.  No customer accounted for more
than 10% of the Company's total revenue for the years ended December 31, 1996
and 1995.

PRODUCT LICENSES REVENUE

The Company's product licenses revenue is derived from license fees from the
Company's SLDA and Design to Test products. Product licenses revenue
increased by 46% from $10.4 million for the year ended December 31, 1995 to
$15.2 million for the year ended December 31, 1996. Revenue from SLDA and
Design to Test products accounted for 58.5% and 41.5%, respectively, of
product licenses revenue for the year ended December 31, 1995 and 72.1% and
27.9%, respectively, of product licenses revenue for the year ended
December 31, 1996.

                                         26
<PAGE>

SLDA revenue increased 80.3 % from $6.1 million for the year ended December
31, 1995 to $10.9 million for the year ended December 31, 1996. The increase
was primarily attributable to the hiring of the SLDA sales force beginning in
late 1994 and early 1995, improved international distribution and thereafter
increased market acceptance of the Company's SLDA products and increased
account penetration at major targeted accounts.

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

MAINTENANCE AND SERVICES REVENUE

The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's SLDA and Design to Test products and
training classes offered to purchasers of the Company's software products.
Maintenance and services revenue increased 59.8% from $2.6 million for the
year ended December 31, 1995 to $4.2 million for the year ended December 31,
1996. The increase was attributable to an increase in maintenance revenue
related to growth in the installed base of SLDA customers and an increase in
domestic Design to Test maintenance revenue due to the Company hiring a
telemarketing salesperson dedicated to sales of maintenance.

OTHER REVENUE

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

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs. Cost of product licenses
revenue decreased 12% from $651,000 for the year ended December 31, 1995 to
$571,000 for the year ended December 31, 1996. The decrease was primarily
attributable to one-time costs incurred in the year ended December 31, 1995
associated with the write-off of prepaid royalties and obsolete inventory and
the production of demonstration and evaluation materials related to the
release of new versions of the Company's SLDA products. As a percentage of
product licenses revenue, the cost of product licenses revenue decreased from
6.3% for the year ended December 31, 1995 to 3.8% for the year ended December
31,1996. This decrease was primarily due to leveraging fixed costs across
increased product licenses revenue.

COST OF MAINTENANCE AND SERVICES REVENUE

Cost of maintenance and services revenue, which consists primarily of
personnel costs for customer support and training classes offered to
purchasers of the Company's products, increased 10% from $400,000 for the
year ended December 31, 1995 to $439,000 for the year ended December 31,
1996. As a percentage of maintenance and services revenue, the cost of
maintenance and services revenue decreased from 15.2% for the year ended
December 31, 1995 to 10.4% for the year ended December 31, 1996.


                                         27
<PAGE>

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses consist of the engineering and operations
support costs of developing new products and enhancements to existing
products and performing quality assurance activities. Research and
development expenses remained relatively unchanged at approximately $5.2
million and $5.1 million for the years ended December 31, 1996 and 1995,
respectively.  As a percentage of total revenue, research and development
expenses decreased from 36.3% for the year ended December 31, 1995 to 26.1%
for the year ended December 31, 1996 due to the increase in total revenue for
1996. The Company believes that significant investment in research and
development is required to remain competitive in its markets, and the
Company, therefore, anticipates that research and development expenses will
increase in absolute dollars in future periods, but may vary as a percentage
of total revenue.(2)

Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which the Company is
required to capitalize software development costs after technological
feasibility has been established. To date, development costs have been
expensed as incurred since technological feasibility generally has not been
established until shortly before the release of a new product, and no
material development costs have been incurred after establishment of
technological feasibility.

SALES AND MARKETING

Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, increased 17% from $7.4 million for the year ended
December 31, 1995 to $8.6 million for the year ended December 31, 1996. The
increase was primarily attributable to increased commissions and travel
expenses. As a percentage of total revenue, sales and marketing expenses
decreased from 52.4% for the year ended December 31, 1995 to 43.2% for the
year ended December 31, 1996. The decrease was primarily attributable to the
increase in total revenue for 1996. In the future, the Company expects sales
and marketing expenses to continue to increase in absolute dollars, in part
due to the hiring of additional sales personnel.(2)

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, legal and
auditing expenses of the Company. General and administrative expenses
decreased 9.4% from $3.1 million for the year ended December 31, 1995 to $2.8
million for the year ended December 31, 1996. During 1995, the Company
wrote-off expenses of approximately $270,000 primarily related to prepaid
expenses deemed to have no future value and costs associated with the
severance of a senior manager. As a percentage of total revenue, general and
administrative expenses decreased from 22.1% for 1995 to 14.1% for 1996.  The
decrease as a percentage of total revenue was primarily attributable to the
increase in total revenue in 1996 and the absence of any one time charges.
The Company expects general and administrative expenses to increase in
absolute dollars to support future sales and operations, including acquired
operations, and the additional costs associated with being a public company.(2)

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

(2) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 33 for a discussion of factors that could affect future performance.


                                         28
<PAGE>

INTEREST EXPENSE

Interest expense decreased from $203,000 for the year ended December 31, 1995
to $97,000 for the year ended December 31, 1996 due to decreased borrowings
under the Company's bank line of credit, long-term debt and capital lease
obligations.

OTHER INCOME, NET

Other income, net consists of interest income associated with available cash
balances and gains or losses from the sale of property and equipment. Other
income was a net of $27,000 for the year ended December 31, 1995 and net of
$223,000 for the year ended December 31, 1996. The increase in other income,
net was primarily due to increased interest earned on the Company's cash
holdings.

INCOME TAX PROVISION

The income tax provision decreased from $399,000 for the year ended December
31, 1995 to a tax benefit of $246,000 for the year ended December 31, 1996.
The decrease was primarily attributable to the Company, as of June 1996, no
longer being required to pay Japanese withholding tax of approximately 10% on
its Japanese sales and the recognition in the fourth quarter of 1996 of a net
deferred tax asset of $500,000. State income tax payments were lower than
statutory limits due to the carryforward of net operating losses.

YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994

TOTAL REVENUE

Total revenue increased by 8% from $13.0 million in 1994 to $14.1 million in
1995. The increase from 1994 to 1995 primarily resulted from increased sales
of the Company's SLDA products. During 1994 and 1995, other than the sale of
certain non-core technology to Credence Systems Corporation ("Credence") in a
one-time transaction in 1994, no customer accounted for more than 10% of the
Company's total revenue. Other than sales through Seiko, which accounted for
15.7% and 12.7% of the Company's total revenue in 1994 and 1995,
respectively, no distributor accounted for more than 10% of the Company's
total revenue during 1994 and 1995.

PRODUCT LICENSES REVENUE

Product licenses revenue increased by 14% from $9.1 million in 1994 to $10.4
million in 1995. Revenue from SLDA and Design to Test products accounted for
49.4% and 50.6%, respectively, of product licenses revenue for 1994, and
58.5% and 41.5%, respectively, of product licenses revenue for 1995.

The Company's first SLDA product, Visual HDL for VHDL, was introduced in the
first quarter of 1994. SLDA revenue increased by 35% from $4.5 million in
1994 to $6.1 million in 1995. The increase was primarily attributable to the
hiring of the SLDA sales force beginning in late 1994 and early 1995 and
increased market acceptance of the product, particularly in the second half
of 1995. The increase was also attributable to follow-on sales in 1995 to
certain key customers that had initially purchased SLDA products in 1994 and
1995.

Design to Test revenue decreased by 7% from $4.6 million in 1994 to $4.3
million in 1995. The decreases were principally due to the focus of the
Company's sales force during 1995 on promotion of the Company's SLDA products.

MAINTENANCE AND SERVICES REVENUE

Maintenance and services revenue increased by 14% from $2.3 million in 1994
to $2.6 million in 1995. The increase was primarily the result of the
addition in mid year of a telemarketing salesperson dedicated to sales of
maintenance contract renewals and increased sales of SLDA maintenance
contracts associated with increased sales of SLDA products.


                                         29
<PAGE>

OTHER REVENUE

Other revenue was $1.5 million in 1994 and $1.1 million in 1995 due to
one-time sales of technology and fees received for granting distribution
rights. Other revenue for 1994 and 1995 included $1.5 million and $850,000,
respectively, attributable to non-core technology sales to Credence and
Soliton, respectively. No material costs were associated with these sales.

COST OF REVENUE

COST OF PRODUCT LICENSES REVENUE

Cost of product licenses revenue decreased by 4.4% from $681,000 in 1994 to
$651,000 in 1995. The decrease was due in part to costs associated with the
introduction of the Company's SLDA product in 1994. As a percentage of
product licenses revenue, the cost of product licenses revenue decreased from
7.4% for 1994 to 6.3% for 1995. Cost of product licenses revenue as a
percentage of product licenses revenue decreased principally due to the
Company's higher margin SLDA products constituting a greater percentage of
the Company's product mix in 1995 and leveraging fixed costs across increased
product licenses revenue.

Cost of product licenses revenue for 1995 includes a one-time write-off of
$107,000 of prepaid royalty fees for software deemed unusable, partially
offset by the reduction of $84,000 of reserves related to the expiration of
training credits.

COST OF MAINTENANCE AND SERVICES REVENUE

Cost of maintenance and services revenue increased slightly from $390,000 in
1994 to $400,000 in 1995. As a percentage of maintenance and services
revenue, the cost of maintenance and services revenue decreased from 16.8% in
1994 to 15.2% in 1995.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

Research and development expenses increased from $4.6 million in 1994 to $5.1
million in 1995. The increase was primarily attributable to an increase in
salaries. As a percentage of total revenue, research and development expenses
increased from 35.7% in 1994 to 36.3% in 1995.

SALES AND MARKETING

Sales and marketing expenses increased from $5.9 million in 1994 to $7.4
million in 1995. The increase from 1994 to 1995 was principally due to the
expansion of the Company's direct sales force. As a percentage of total
revenue, sales and marketing expenses increased from 45.2% in 1994 to 52.4%
in 1995.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased from $2.3 million in 1994 to
$3.1 million in 1995. The increase was primarily due to increases in
personnel, investments in financial information and control systems to
support expanded operations and costs associated with the Company's
international operations. In 1995, the Company also wrote-off expenses of
approximately $270,000 primarily related to prepaid expenses deemed to have
no future value and costs associated with the severance of a senior manager.
As a percentage of total revenue, general and administrative expenses
increased from 17.8% in 1994 to 22.1% in 1995.


                                         30
<PAGE>

IN-PROCESS TECHNOLOGY

The Company expensed $647,000 of acquired in-process technology in the first
quarter of 1994 attendant to the Reorganization. These costs related entirely
to the SLDA products being developed by SEE Technologies.

INTEREST EXPENSE

Interest expense increased from $151,000 for the year ended December 31, 1994
to $203,000 for the year ended December 31, 1995 as a result of an increase
in outstanding bank borrowings.

OTHER INCOME, NET

Other income, net was $51,000 and $27,000 for 1994 and 1995, respectively.
The decrease in other income was primarily a result of a decrease in interest
income.

INCOME TAX PROVISION

Income tax provision was $402,000 for 1994 and $399,000 for 1995. Income tax
expense for 1994 and 1995 was primarily attributable to the payment of
withholding tax on Japanese and other Asian sales. State income tax payments
were lower than statutory limits due to operating losses.

VARIABILITY OF OPERATING RESULTS

The Company has experienced significant quarterly fluctuations in operating
results and cash flows and it is likely that these fluctuations will continue
in future periods. These fluctuations have been, and may in the future be,
caused by a number of factors, including the rate of acceptance of new
products, corporate acquisitions and consolidations, product, customer and
channel mix, the size and timing of orders, lengthy sales cycles, the timing
of new product announcements and introductions by the Company and its
competitors, seasonal factors, rescheduling or cancellation of customer
orders, the Company's ability to continue to develop and introduce new
products and product enhancements on a timely basis, the level of
competition, purchasing and payment patterns, pricing policies of the Company
and its competitors, product quality issues, currency fluctuations and
general economic conditions.

The Company has generally recognized a substantial portion of its revenue in
the last month of each quarter, with this revenue concentrated in the latter
part of the month.  For example, in the first quarter of 1997, the Company
will need to recognize significant revenue in the final days of the quarter
to achieve its revenue plan for the quarter.  There can be no assurance that
the Company will ship the quantity of product necessary to achieve such
revenue plan.  Any significant deferral of purchases of the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations in any particular quarter, and
to the extent that significant sales occur earlier than expected, operating
results for subsequent quarters may be adversely affected. The Company's
revenue is difficult to forecast for several reasons. The market for certain
of the Company's software products is evolving. The Company's sales cycle is
typically six to nine months and varies substantially from customer to
customer. The Company operates with little product backlog because its
products are typically shipped shortly after orders are received. In
addition, a significant portion of the Company's sales are made through
indirect channels and can be harder to predict. The Company establishes its
expenditure levels for product development, sales and marketing and other
operating activities based primarily on its expectations as to future
revenue. As a result, if revenue in any quarter falls below expectations,
expenditure levels could be disproportionately high as a percentage of
revenue, and the Company's operating results for that quarter would be
adversely affected. Based upon the factors described above, the Company
believes that its quarterly revenue, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons
of its results of operations are not necessarily meaningful and that, as a
result, such comparisons should not be relied upon as indications of the
Company's future performance. Moreover, although the Company's revenue has
increased in recent periods, there can be no assurance that the Company's
revenue will grow in future periods or that the Company will remain
profitable on a quarterly or annual basis. Due to the foregoing or other
factors, it is likely that the Company's results of operations may be below
investors' and market analysts' expectations in some future quarters, which
could have a severe adverse effect on the market price of the Company's
Common Stock.

EFFECTIVE CORPORATE TAX RATES

The Company is taxed in its jurisdictions of operations based on the extent
of taxable income generated in each jurisdiction. For income tax purposes,
revenue is attributed to the taxable jurisdiction where the sales
transactions generating the revenue were initiated. All sales transactions by
Summit Design (EDA) Ltd., the Company's Israeli subsidiary, to the Company
were recorded as arm's length transactions based on


                                         31
<PAGE>

an intercompany pricing agreement. All sales transactions by the Company are
to unrelated parties and are based upon prevailing market prices. There is no
offset of taxes between the United States and Israel. The Israeli operations
are performed entirely by Summit Design (EDA) Ltd., which is a separate
taxable Israeli entity.

The Company's future effective tax rate depends in part on the availability
of United States and Israeli net operating loss ("NOLs") and credit
carryforwards. As of December 31, 1996, the Company had recorded U.S. federal
and state NOLs of approximately $9.0 million and $5.6 million, respectively
and Israeli NOLs of approximately $4.7 million. Neither the United States nor
the Israeli taxing authorities have verified the accuracy or availability of
the Company's NOLs and credit carryforward amounts. In addition, such amounts
are subject to limitation in certain circumstances, including as a result of
certain changes of ownership or operations. Thus, due to a change in
ownership resulting from the Reorganization and a subsequent preferred stock
financing, a portion of the federal and state NOLs are limited as to the
timing of their availability for use. The portion of affected NOL that is
available for use each year is approximately $1.7 million for federal
purposes and $1.2 million for state purposes. The remaining portion of the
NOLs (including all Israeli NOLs) is not subject to this limitation and is
generally available for use against future taxable income, if any. There can
be no assurance as to the amount of such NOLs or carryforwards that will be
available to the Company, if any, or that the Company will be able to avail
itself of such benefits.(1)

In addition to its NOLs and credit carryforwards, the Company is currently
scheduled to receive tax benefits over the next several years under a tax
holiday in Israel. The Company's existing Israeli production facility has
been granted "Approved Enterprise" status under the Israeli Investment Law,
which entitles the Company to reductions in the tax rate normally applicable
to Israeli companies with respect to the income generated by its "Approved
Enterprise" programs. In particular, the tax holiday covers the seven-year
period beginning the first year in which Summit Design (EDA) Ltd. generates
taxable income from its "Approved Enterprise" (after using any available
NOLs), provided that such benefits will terminate in 2006 regardless of
whether the seven-year period has expired. The tax holiday provides that,
during such seven-year period, a portion of the Company's taxable income from
its Israeli operations will be taxed at favorable tax rates. The termination
or reduction of the Company's Israeli tax benefits would have a material
adverse effect on the Company's overall actual effective tax rate. The
Company has recently applied for "Approved Enterprise" status with respect to
a new project and intends to apply in the future with respect to additional
projects. There can be no assurance that the Company will be granted any
approvals and therefore there can be no assurance the Company will continue
to receive favorable tax status, if at all.

The Company has concluded that a valuation allowance is required to reduce
the net deferred tax asset to $500,000 after taking into consideration the
Company's cumulative losses and the fact that the Company has a limited
history of generating net income on an annual basis and also the fact that
the generation of future taxable income is dependent on many uncertain
factors, including market acceptance of its existing and future SLDA products.

The Company is also subject to the risk that United States and foreign tax
laws and rates may change in a future period or periods, and that any such
changes may materially adversely affect the Company's tax rate. As a result
of the factors described above and other related factors, there can be no
assurance that the Company will maintain a favorable tax rate in future
periods. Any increase in the Company's effective tax rate, or variations in
the effective tax rate from period to period, could have a material adverse
effect on the Company's business, financial condition and results of
operations.

----------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 33 for a discussion of factors that could affect future performance.


                                         32
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company completed its initial public offering in October 1996, raising
$16.2 million, net of offering expenses.  Prior to the IPO, the Company had
financed its operations primarily through the private placement of
approximately $15.4 million of capital stock, as well as capital equipment
leases, borrowings under its bank line of credit, Israeli research and
development grants and cash generated from operations.  As of December 31,
1996, the Company had approximately $19.6 million in cash and cash
equivalents and a $1.0 million bank line of credit with U.S. National Bank of
Oregon. The line of credit expires on April 30, 1997 and borrowings
thereunder accrue interest at specified percentages above the prime lending
rate based on the Company's ratio of debt to tangible net worth. Advances
under the line of credit are limited to a specified percentage of eligible
accounts receivable (as defined in the line of credit). Borrowings under the
line of credit are collateralized by the Company's accounts receivable,
inventory and general intangible assets, including its intellectual property
rights. As of December 31, 1996, the Company had no borrowings outstanding
under this line of credit.

As of December 31, 1996, the Company had working capital of approximately
$17.8 million.

Net cash generated by operating activities was approximately $5.4 million for
the year ended December 31, 1996. Net cash used by operating activities was
approximately $3.0 million and $2.6 million for the years ended December 31,
1995 and 1994 respectively. For the year ended December 31, 1996, cash
generated by operating activities resulted primarily from improved collection
of accounts receivable, a increase in deferred revenues and profitability
during the period. For 1995 and 1994, the use of cash from operations
resulted primarily from the Company's net loss and the increase in accounts
receivable.

Net cash used in investing activities was approximately $750,000, $758,000,
and $552,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Net cash used in investing activities was related primarily to
the acquisition of furniture and equipment.

Net cash provided by financing activities was approximately $14.4 million,
$3.1 million, and $3.9 million for the years ended December 31, 1996, 1995,
and 1994, respectively. The cash provided in 1996 was primarily a result of
the Company's initial public offering, partially offset by the repayment of
$2.1 million of outstanding debt and capital lease obligations.  The cash
provided in 1995 and 1994 was related primarily to the issuance of preferred
stock and short-term borrowings, partially offset by debt payments and
principal payments on capital lease obligations.

The Company presently believes that its current cash and cash equivalent,
together with funds expected to be generated from operations, will satisfy
the Company's anticipated working capital and other cash requirements for at
least the next 12 months.(2)

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

HISTORY OF OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY RESULTS

While the Company has generated net income on an annual basis in 1996, there
can be no assurance that the Company will be profitable in the future. In
addition, the Company has experienced significant quarterly fluctuations in
operating results and cash flows and it is likely that these fluctuations
will continue in future periods. These fluctuations have been, and may in the
future be, caused by a number of factors, including the rate of acceptance of
new products, corporate acquisitions and consolidations, product, customer
and channel mix, the size and timing of orders, lengthy sales cycles, the
timing of new product announcements and introductions by the Company and its
competitors, seasonal factors, rescheduling or cancellation of customer
orders, the Company's ability to continue to develop and introduce new
products and product enhancements on a timely basis, the level of
competition, purchasing and payment patterns, pricing policies of the Company
and its competitors, product quality issues, currency fluctuations and
general economic conditions.

---------------------
(2) This paragraph contains forward-looking statements reflecting current
expectations.  There can be no assurance that the Company's actual future
performance will meet the Company's current expectations.  Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 33 for a discussion of factors that could affect future performance.


                                         33
<PAGE>

The Company has generally recognized a substantial portion of its revenue in
the last month of each quarter, with this revenue concentrated in the latter
part of the month.  For example, in the first quarter of 1997, the Company
will need to recognize significant revenue in the final days of the quarter
to achieve its revenue plan for the quarter.  There can be no assurance that
the Company will ship the quantity of product necessary to achieve such
revenue plan.  Any significant deferral of purchases of the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations in any particular quarter, and
to the extent that significant sales occur earlier than expected, operating
results for subsequent quarters may be adversely affected. The Company's
revenue is difficult to forecast for several reasons. The market for certain
of the Company's software products is evolving. The Company's sales cycle is
typically six to nine months and varies substantially from customer to
customer. The Company operates with little product backlog because its
products are typically shipped shortly after orders are received. In
addition, a significant portion of the Company's sales are made through
indirect channels and can be harder to predict. The Company establishes its
expenditure levels for product development, sales and marketing and other
operating activities based primarily on its expectations as to future
revenue. As a result, if revenue in any quarter falls below expectations,
expenditure levels could be disproportionately high as a percentage of
revenue, and the Company's operating results for that quarter would be
adversely affected. Based upon the factors described above, the Company
believes that its quarterly revenue, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons
of its results of operations are not necessarily meaningful and that, as a
result, such comparisons should not be relied upon as indications of the
Company's future performance. Moreover, although the Company's revenue has
increased in recent periods, there can be no assurance that the Company's
revenue will grow in future periods or that the Company will remain
profitable on a quarterly or annual basis. Due to the foregoing or other
factors, it is likely that the Company's results of operations may be below
investors' and market analysts' expectations in some future quarters, which
could have a severe adverse effect on the market price of the Company's
Common Stock.

PRODUCT CONCENTRATION; UNCERTAINTY OF MARKET ACCEPTANCE OF SLDA AND DESIGN TO
TEST PRODUCTS

The Company's revenue is predominantly derived from two product lines, Visual
HDL, which includes Visual HDL for VHDL and Visual HDL for Verilog, and TDS.
The Company believes that these products will continue to account for a
substantial portion of its revenue in the future. As a result, factors
adversely affecting sales of these products, including increased competition,
inability to successfully introduce enhanced or improved versions of these
products, product quality issues and technological change, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company's future success depends primarily upon the market acceptance of
its existing and future SLDA products. The Company commercially shipped its
first SLDA product, Visual HDL for VHDL, in the first quarter of 1994. For
the years ended December 31, 1996, 1995 and 1994 revenue from SLDA products
and related maintenance contracts represented 60.9%, 43.6% and 34.8%,
respectively, of the Company's total revenue. The Company's SLDA products
incorporate certain unique design methodologies and thus represent a
departure from industry standards for design entry and verification. The
Company believes that broad market acceptance of its SLDA products will
depend on several factors, including the ability to significantly enhance
design productivity, ease of use, interoperability with existing EDA tools,
price and the customer's assessment of the Company's financial resources and
its technical, managerial, service and support expertise. The Company also
depends on its distributors to assist the Company in gaining market
acceptance of its products. There can be no assurance that sufficient
priority will be given by the Company's distributors to marketing the
Company's products or whether such distributors will continue to offer the
Company's products. There can be no assurance that the Company's SLDA
products will achieve broad market acceptance. A decline in the demand for,
or the failure to achieve broad market acceptance of, the Company's SLDA
products will have a material adverse effect on the Company's business,
financial condition and results of operations.


                                         34
<PAGE>

Although demand for SLDA products has increased in recent years, the market
for SLDA products is still emerging and there can be no assurance that it
will continue to grow or that, even if the market does grow, businesses will
continue to purchase the Company's SLDA products. If the market for SLDA
products fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, financial condition and results of
operations would be materially adversely affected.

Traditionally, EDA customers have been risk averse in accepting new design
methodologies. Because many of Summit's tools embody new design
methodologies, this risk aversion on the part of potential customers presents
an ongoing marketing and sales challenge to the Company and makes the
introduction and acceptance of new products unpredictable. The Company's
newest Design to Test product, Visual Testbench, introduced in the fourth
quarter of 1995, provides a new methodology and requires a change in the
traditional design flow for creating IC test programs. The Company
anticipates a lengthy period of test marketing for the Visual Testbench
product. Accordingly, the Company cannot predict the extent, if any, to which
it will realize revenue from Visual Testbench. The failure of Visual
Testbench or any other future Design to Test product to achieve market
acceptance will have a material adverse effect on the Company's business,
financial condition and results of operations.

COMPETITION

The EDA industry is highly competitive and the Company expects competition to
increase as other EDA companies introduce SLDA and Design to Test products.
The Company faces different competitive dynamics in the markets for its SLDA
and Design to Test products. In the SLDA market, the Company principally
competes with Mentor Graphics and a number of smaller firms. Indirectly, the
Company also competes with other firms that offer alternatives to SLDA and
could potentially offer more directly competitive products in the future.
Certain of these companies have significantly greater financial, technical
and marketing resources and larger installed customer bases than the Company.
Some of the Company's current and future competitors offer a more complete
range of EDA products and may distribute products that directly compete with
the Company's SLDA products by bundling such products with their core product
line. In addition, the Company's products perform a variety of functions,
certain of which are, and in the future may be, offered as separate products
or discrete point solutions by the Company's existing and future competitors.
For example, certain companies currently offer design entry products without
simulators. There can be no assurance that such competition will not cause
the Company to offer point solutions instead of, or in addition to, the
Company's current software products. Such point solutions would be priced
lower than the Company's current product offerings and could cause the
Company's average selling prices to decrease, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the Design to Test market, the Company competes primarily with
the internal design groups of its existing and potential customers, many of
which to date have designed and developed customized Design to Test tools for
their particular needs, as well as smaller emerging companies.

The Company competes on the basis of certain factors including product
capabilities, product performance, price, support of industry standards, ease
of use, first to market and customer technical support and service. The
Company believes that it competes favorably overall with respect to these
factors. However, in particular cases, the Company's competitors may offer
SLDA or Design to Test products with functionality which is sought by the
Company's prospective customers and which differs from that offered by the
Company. In addition, certain competitors may achieve a marketing advantage
by establishing formal alliances with other EDA vendors. Further, the EDA
industry in general has experienced significant consolidation in recent
years, and the acquisition of one of the Company's competitors by a larger,
more established EDA vendor could create a more significant competitor. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business,
financial condition and results of operations. There can be no assurance that
the Company's current and future competitors will not be able to develop
products comparable or superior to those developed by the Company or to adapt
more quickly than the Company to new technologies, evolving industry trends
or customer requirements. Increased competition could result in price
reductions, reduced


                                         35
<PAGE>

margins and loss of market share, all of which could have a material adverse
effect on the Company's business, financial condition and results of
operations.

DEPENDENCE ON ELECTRONICS INDUSTRY MARKET

Because the electronics industry is characterized by rapid technological
change, short product life cycles, fluctuations in manufacturing capacity and
pricing and margin pressures, certain segments, including the computer,
semiconductor, semiconductor test equipment and telecommunications
industries, have experienced sudden and unexpected economic downturns. During
these periods, capital spending is commonly curtailed and the number of
design projects often decreases. Because the Company's sales are dependent
upon capital spending trends and new design projects, negative factors
affecting the electronics industry could have a material adverse effect on
the Company's business, financial condition and results of operations. A
number of electronics companies, including customers of the Company, have
recently experienced a slowdown in their businesses. The Company's future
operating results may reflect substantial fluctuations from period to period
as a consequence of such industry patterns, general economic conditions
affecting the timing of orders from customers and other factors.

DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY

Because the Company's products must interoperate with EDA products of other
companies, particularly simulation and synthesis products, the Company must
have timely access to third party software to perform development and testing
of its products. Although the Company has established relationships with a
variety of EDA vendors to gain early access to new product information, these
relationships may be terminated by either party with limited notice. In
addition, such relationships are with companies that are current or potential
future competitors of the Company, including Synopsys, Mentor Graphics and
Cadence. For example, the Company's Visual HDL for Verilog product is
currently designed to work exclusively with the Verilog XL simulator product
sold by Cadence. If any of these relationships were terminated and the
Company was unable to obtain, in a timely manner, information regarding
modifications of third party products necessary for modifying its software
products to interoperate with these third party products, the Company could
experience a significant increase in development costs, the development
process would take longer, product introductions would be delayed and the
Company's business, financial condition and results of operations could be
materially adversely affected.

NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS

The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. In
addition, customers in the EDA industry require software products that allow
them to reduce time to market, differentiate their products, improve their
engineering productivity and reduce their design errors. The Company's future
success will depend upon its ability to enhance its current products, develop
and introduce new products that keep pace with technological developments and
emerging industry standards and address the increasingly sophisticated needs
of its customers. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products
that respond to technological change or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
its new products will adequately meet the requirements of the marketplace and
achieve market acceptance.  If the Company is unable, for technological or
other reasons, to develop and introduce products in a timely manner in
response to changing market conditions, industry standards or other customer
requirements, particularly if such product releases have been pre-announced,
the Company's business, financial condition and results of operations will be
materially adversely affected.

The Company's Design to Test products employ the Company's WGL format. The
Company permits others to use this format without charge, and the Company
believes that it has been widely adopted in the industry. An industry group
in which the Company currently participates is formulating a new format,
STIL, that it plans to present as a new industry standard. If this standard
is adopted commercially, the Company


                                         36
<PAGE>

would be required to provide products that operate with the STIL format.
Development of such products would take significant effort and expense.
Moreover, any delay in the availability of such products could materially
adversely affect the Company's business, financial condition and results of
operations.

Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. The
Company has in the past discovered software errors in certain of its products
and has experienced delays in shipment of products during the period required
to correct these errors. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found,
resulting in loss of, or delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation or increased
service and warranty costs, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.

DEPENDENCE ON DISTRIBUTORS

The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 46%, 42% and 38% of the Company's
revenue for the years ended December 31, 1996, 1995 and 1994, respectively,
were attributable to sales made through distributors. The Company has also
entered into a joint venture with Anam pursuant to which the joint venture
corporation (Summit Design Korea, Inc. ("Summit Asia")) shall acquire
exclusive rights to sell, distribute and support all of the Company's
products in the Asia-Pacific region, excluding Japan, until June 1997. Summit
Asia has acted in such capacity since April 1, 1996. Prior to that date, Anam
was an independent distributor of the Company's products. During the fourth
quarter of 1995, the Company entered into a distribution agreement with ATE
pursuant to which ATE was granted exclusive rights to sell, distribute and
support all of Summit's Design to Test products within Japan until October
1998, subject to the Company's ability to terminate the relationship if ATE
fails to meet quarterly sales objectives. The agreement may also be
terminated by either party for breach. In addition, in the first quarter of
1996, the Company entered into a three-year, exclusive distribution agreement
for its SLDA products in Japan with Seiko.  In the event Seiko fails to meet
specified quotas for two or more quarterly periods, exclusivity can be
terminated by Summit, subject to Seiko's right to pay a specified fee to
maintain exclusivity. The agreement is renewable for successive five-year
terms by mutual agreement of the Company and Seiko and is terminable by
either party for breach. For the year ended December 31, 1996, all sales of
the Company's products in the Asia-Pacific region were through Summit Asia,
ATE and Seiko. There can be no assurance the new relationships with Summit
Asia, ATE and Seiko will be effective in maintaining or increasing sales
relative to the levels experienced prior to such relationships. The Company
also has independent distributors in Europe and is dependent on the continued
viability and financial stability of its distributors. Since the Company's
products are used by skilled design engineers, distributors must possess
sufficient technical, marketing and sales resources and must devote these
resources to a lengthy sales cycle, customer training and product service and
support. Only a limited number of distributors possess these resources. In
addition, Summit Asia, ATE and Seiko, as well as the Company's other
distributors, may offer products of several different companies, including
competitors of the Company. There can be no assurance that the Company's
current distributors will continue to market or service and support the
Company's products effectively, that any distributor will continue to sell
the Company's products or that the distributors will not devote greater
resources to products of other companies. The loss of, or a significant
reduction in, revenue from the Company's distributors could have a material
adverse effect on the Company's business, financial condition and results of
operations.

INTERNATIONAL SALES AND OPERATIONS

Approximately 50%, 52% and 39% of the Company's revenue for the years ended
December 31, 1996, 1995 and 1994, respectively, were attributable to sales
made outside the United States. The Company expects that international
revenue will continue to represent a significant portion of its total
revenue. The Company's international revenue is currently denominated in U.S.
dollars. As a result, increases in the value of the U.S. dollar relative to
foreign currencies could make the Company's products more expensive and,
therefore, potentially less competitive in those markets. The Company pays
the expenses of its international operations in local currencies and does not
engage in hedging transactions with respect to


                                         37
<PAGE>

such obligations. International sales and operations are subject to numerous
risks, including tariff regulations and other trade barriers, requirements
for licenses, particularly with respect to the export of certain
technologies, collectability of accounts receivable, changes in regulatory
requirements, difficulties in staffing and managing foreign operations and
extended payment terms. There can be no assurance that such factors will not
have a material adverse effect on the Company's future international sales
and operations and, consequently, on the Company's business, financial
condition and results of operations.

In order to successfully expand international sales, the Company may need to
establish additional foreign operations, hire additional personnel and
recruit additional international distributors. This will require significant
management attention and financial resources and could adversely affect the
Company's operating margins. In addition, to the extent that the Company is
unable to effect these additions in a timely manner, the Company's growth, if
any, in international sales will be limited. There can be no assurance that
the Company will be able to maintain or increase international sales of the
Company's products, and failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations.

MANAGEMENT OF GROWTH AND ACQUISITIONS

Summit's ability to achieve significant growth will require it to implement
and continually expand its operational and financial systems, recruit
additional employees and train and manage current and future employees.
Summit expects any such growth will place a significant strain on its
operational resources and systems.  Failure effectively to manage any such
growth would have a material adverse effect of Summit's business, financial
condition and results of operations.

On February 28, 1997, Summit completed its acquisition of TriQuest.  As a
result of the acquisition, Summit's operating expenses are expected to
increase.  There can be no assurance that the integration of TriQuest's
business can be successfully completed in a timely fashion, or at all, or
that the revenues from TriQuest will be sufficient to support the costs
associated with TriQuest's business, without adversely affecting Summit's
operating margins.  Any failure to successfully complete the integration in a
timely fashion or to generate sufficient revenues from the acquired business
could have a material adverse effect on Summit's business and results of
operations.  In addition, Summit regularly evaluates acquisition
opportunities.  Future acquisitions by Summit could result in potentially
dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and
other intangible assets, which could materially adversely affect Summit's
results of operations.  Product and technology acquisitions entail numerous
risks, including difficulties in the assimilation of acquired operations,
technologies and products, diversion of management's attention to other
business concern, risks of entering markets in which Summit has no or limited
prior experience and potential loss of key employees of acquired companies.
Summit's management has had limited experience in assimilating acquired
organizations and products into Summit's operations.  No assurance can be
given as to the ability of Summit to integrate successfully any operations,
personnel or products that have been acquired or that might be acquired in
the future, and the failure of Summit to do so could have a material adverse
effect on Summit's results of operations.

OPERATIONS IN ISRAEL

The Company's research and development operations related to its SLDA
products are located in Israel and may be affected by economic, political and
military conditions in that country. Accordingly, the Company's business,
financial condition and results of operations could be materially adversely
affected if hostilities involving Israel should occur. This risk is
heightened due to the restrictions on the Company's ability to manufacture or
transfer outside of Israel any technology developed under research and
development grants from the government of Israel as described in "-Israeli
Research, Development and Marketing Grants." In addition, while all of the
Company's sales are denominated in U.S. dollars, a portion of the Company's
annual costs and expenses in Israel are paid in Israeli currency. These costs
and expenses were approximately $4.3, $4.3 and $2.9 million in 1996, 1995 and
1994, respectively. Payment in Israeli currency subjects the Company to
foreign currency fluctuations and to economic pressures


                                         38
<PAGE>

resulting from Israel's generally high rate of inflation, which has been
approximately 11%, 8% and 15% during 1996, 1995, and 1994, respectively. The
Company's primary expense which is paid in Israeli currency is employee
salaries for research and development activities. As a result, an increase in
the value of Israeli currency in comparison to the U.S. dollar could increase
the cost of research and development expenses and general and administrative
expenses. There can be no assurance that currency fluctuations, changes in
the rate of inflation in Israel or any of the other aforementioned factors
will not have a material adverse effect on the Company's business, financial
condition or results of operations. In addition, coordination with and
management of the Israeli operations requires the Company to address
differences in culture, regulations and time zones. Failure to successfully
address these differences could be disruptive to the Company's operations.

The Company's Israeli production facility has been granted the status of an
"Approved Enterprise" under the Israeli Investment Law for the Encouragement
of Capital Investments, 1959 (the "Investment Law"). Taxable income of a
company derived from an "Approved Enterprise" is eligible for certain tax
benefits, including significant income tax rate reductions for up to seven
years following the first year in which the "Approved Enterprise" has Israeli
taxable income (after using any available net operating losses). The period
of benefits cannot extend beyond 12 years from the year of commencement of
operations or 14 years from the year in which approval was granted, whichever
is earlier. The tax benefits derived from a certificate of approval for an
"Approved Enterprise" relate only to taxable income attributable to such
"Approved Enterprise" and are conditioned upon fulfillment of the conditions
stipulated by the Investment Law, the regulations promulgated thereunder and
the criteria set forth in the certificate of approval. In the event of a
failure by the Company to comply with these conditions, the tax benefits
could be canceled, in whole or in part, and the Company would be required to
refund the amount of the canceled benefits, adjusted for inflation and
interest. There can be no assurance that the Company's Israeli production
facility will continue to operate or qualify as an "Approved Enterprise" or
that the benefits under the "Approved Enterprise" regulations will continue,
or be applicable, in the future. The loss of, or any material decrease in,
these income tax benefits could have a material adverse effect on the
Company's business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends in large part on the continued service
of its key technical and management personnel and its ability to continue to
attract and retain highly-skilled technical, sales and marketing and
management personnel. The Company has entered into employment agreements with
certain of its executive officers, however, such agreements do not guarantee
the services of these employees and do not contain noncompetition provisions.
Competition for personnel in the software industry in general, and the EDA
industry in particular, is intense, and the Company has at times in the past
experienced difficulty in recruiting qualified personnel. There can be no
assurance that the Company will retain its key personnel or that it will be
successful in attracting and retaining other qualified technical, sales and
marketing and management personnel in the future. The loss of any key
employees or the inability to attract and retain additional qualified
personnel may have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not carry
"key person" life insurance on any of its key personnel. Additions of new
personnel and departures of existing personnel, particularly in key
positions, can be disruptive and can result in departures of additional
personnel, which could have a material adverse effect on the Company's
business, financial condition and results of operations.

ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS

Summit's Israeli subsidiary has obtained research and development grants from
the Office of the Chief Scientist (the "Chief Scientist") in the Israeli
Ministry of Industry and Trade of approximately $232,000 and $608,000 in 1993
and 1995, respectively. As of December 31, 1996, the Company was obligated to
pay back approximately $232,000 and $541,000 for the 1993 and 1995 grants,
respectively. Such obligations are collateralized by all tangible and
intangible assets of the Israeli subsidiary. The terms of the grants prohibit
the manufacture of products developed under these grants outside of Israel
and the transfer of the technology developed pursuant to these grants to any
person, without the prior written consent of the Chief Scientist.


                                         39
<PAGE>

The Company's Visual HDL for VHDL products have been developed under grants
from the Chief Scientist and thus are subject to these restrictions. If the
Company is unable to obtain the consent of the government of Israel, the
Company would be unable to take advantage of potential economic benefits such
as lower taxes, lower labor and other manufacturing costs and advanced
research and development facilities that may be available if such technology
and manufacturing operations could be transferred to locations outside of
Israel. In addition, the Company would be unable to minimize risks particular
to operations in Israel, such as hostilities involving Israel. Although the
Company is eligible to apply for additional grants from the Chief Scientist,
it has no present plans to do so. The Company also received a Marketing Fund
Grant from the Israeli Ministry of Industry and Trade for an aggregate of
$423,000. The grant must be repaid at the rate of 3% of the increase in
exports over the 1993 export level of all Israeli products, until repaid. As
of December 31, 1996, approximately $364,000 was outstanding under the grant.

LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company's success depends in part upon its proprietary technology. The
Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures, licensing arrangements and technical means
to establish and protect its proprietary rights. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and corporate partners, and
limits access to, and distribution of, its software, documentation and other
proprietary information. In addition, the Company's products are protected by
hardware locks and software encryption techniques designed to deter
unauthorized use and copying. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the Company's products
or technology without authorization, or to develop similar technology
independently.

The Company provides its SLDA products to end-users primarily under
"shrink-wrap" license agreements included within the packaged software. These
agreements are not negotiated with or signed by the licensee, and thus may
not be enforceable in certain jurisdictions. The Company provides its Design
to Test products to end-users under written license agreements, signed by
each licensee at the time of purchase of a license. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights as
fully as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights in the United States or
abroad will be adequate or that competitors will not independently develop
similar technology.

The Company could be increasingly subject to infringement claims as the
number of products and competitors in the Company's industry segment grows,
the functionality of products in its industry segment overlaps and an
increasing number of software patents are granted by the United States Patent
and Trademark Office. There can be no assurance that a third party will not
claim such infringement by the Company with respect to current or future
products. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product delays or require the Company to
enter into royalty or licensing agreements. Such royalty or license
agreements, if required, may not be available on terms acceptable to the
Company or at all. Failure to protect its proprietary rights or claims of
infringement could have a material adverse effect on the Company's business,
financial condition and results of operations.

CONTROL BY CURRENT STOCKHOLDERS

As of March 20, 1997, Summit's officers, directors and their affiliates, in
the aggregate, beneficially owned approximately 40.4% of Summit's outstanding
shares of Common Stock.  As a result, these stockholders, if acting together,
would be able effectively to control most matters requiring approval by the
stockholders of Summit, including, in most cases, the election of all of the
directors.  Summit has entered into agreements with its officers and
directors indemnifying them against losses they may incur in legal
proceedings arising from their service to Summit.


                                      40
<PAGE>

POSSIBLE VOLATILITY OF STOCK PRICE

The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the
market prices of the stocks of many companies which may not have been
directly related to the operating performance of those companies. Such broad
market fluctuations may adversely affect the market price of the Common
Stock.  In addition, factors such as announcements of technological
innovations or new products by the Company or its competitors, market
conditions in the computer software or hardware industries and quarterly
fluctuations in the Company's operating results may have a significant
adverse effect on the market price of the Company's Common Stock.


                                      41
<PAGE>

ITEM 8.    FINANCIAL STATEMENTS AND SUPPORTING DATA


                        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                   Page
                                                                   ----
Report of Independent Accountants.................................  43

Consolidated Balance Sheets as of December 31, 1996 and 1995......  44

Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994..................................  45

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 ...........................  46

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 .................................  47

Notes to Consolidated Financial Statements .......................  48


                                         42
<PAGE>

                         REPORT OF INDEPENDENT ACCOUNTANTS


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

We have audited the accompanying consolidated balance sheets of Summit
Design, Inc. and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Summit Design,
Inc. and its subsidiaries as of December 31, 1996 and 1995, and the results
of their consolidated operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.

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


Portland, Oregon
January 24, 1997,except for Note 14,
  for which the date is February 28, 1997


                                         43
<PAGE>

                                 SUMMIT DESIGN, INC.

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

                                                               December 31,
                                                         ---------------------
                                                            1996        1995
                                                         ---------------------
                            ASSETS
Current assets:
  Cash and cash equivalents ............................ $  19,596     $  592
  Accounts receivable, less allowance for doubtful
   accounts of $430 and $455 ...........................     5,348      5,521
  Prepaid expenses and other ...........................       474        319
                                                         ---------    --------
    Total current assets ...............................    25,418      6,432

Furniture and equipment, net ...........................     1,741      1,790
Deferred income taxes...................................       500
Deposits and other assets ..............................       413        681
                                                         ---------    --------
    Total assets ....................................... $  28,072   $  8,903
                                                         ---------    --------
                                                         ---------    --------

                         LIABILITIES

Current liabilities:
  Note payable to bank ................................  $       -   $  1,000
  Long-term debt, current portion .....................        462        854
  Capital lease obligation, current portion ...........         65        191
  Accounts payable ....................................      1,407        994
  Accrued liabilities .................................      2,624      2,247
  Deferred revenue ....................................      3,050      1,676
                                                         ---------    --------
    Total current liabilities .........................      7,608      6,962

Long-term debt, less current portion ..................        675      1,065
Capital lease obligations, less current portion .......         95        151
Deferred revenue, less current portion ................         67         83
Other long-term liabilities ...........................          -         50
                                                         ---------    --------
    Total liabilities .................................      8,445      8,311
                                                         ---------    --------

Commitments (Notes 6 and 11)

                     STOCKHOLDERS' EQUITY
Convertible preferred stock, $.01 par value.
 Authorized 5,000 shares in 1996 and 9,334 shares in
 1995; issued and outstanding, no shares in 1996 and
 9,103 shares in 1995 ................................           -         91
Common stock, $.01 par value. Authorized 30,000
 shares in 1996 and 20,000 shares in 1995; issued
 and outstanding 13,353 shares in 1996 and 1,887
 shares in 1995.......................................         134         19
Additional paid-in capital ...........................      31,772     15,437
Accumulated deficit ..................................     (12,279)   (14,955)
                                                         ---------    --------
    Total stockholders' equity .......................      19,627        592
                                                         ---------    --------
    Total liabilities and stockholders' equity .......   $  28,072   $  8,903
                                                         ---------    --------
                                                         ---------    --------


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


                                       44
<PAGE>

                                SUMMIT DESIGN, INC.

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

                                                Years Ended December 31,
                                            ---------------------------------
                                               1996        1995        1994
                                            ----------  ----------  ---------
Revenue:
  Product licenses ......................   $  15,179   $  10,383    $  9,143
  Maintenance and services ..............       4,215       2,637       2,323
  Other .................................         567       1,050       1,516
                                            ----------  ----------  ---------
    Total revenue .......................      19,961      14,070      12,982
Cost of revenue:
  Product licenses ......................         571         651         681
  Maintenance and services ..............         439         400         390
                                            ----------  ----------  ---------
    Total cost of revenue ...............       1,010       1,051       1,071
                                            ----------  ----------  ---------
Gross profit ............................      18,951      13,019      11,911
Operating expenses:
  Research and development ..............       5,204       5,113       4,632
  Sales and marketing ...................       8,622       7,370       5,867
  General and administrative ............       2,821       3,112       2,309
  In-process technology .................           -           -         647
                                            ----------  ----------  ---------
    Total operating expenses ............      16,647      15,595      13,455
                                            ----------  ----------  ---------
Income (loss) from operations ...........       2,304      (2,576)     (1,544)
Interest expense.........................         (97)       (203)       (151)
Other income, net .......................         223          27          51
                                            ----------  ----------  ---------
Income (loss) before income taxes .......       2,430      (2,752)     (1,644)
Income tax provision (benefit) ..........        (246)        399         402
                                            ----------  ----------  ---------
Net income (loss) .......................    $  2,676   $  (3,151)  $  (2,046)
                                            ----------  ----------  ---------
                                            ----------  ----------  ---------
Net income (loss) per share .............     $  0.22    $  (0.26)   $  (0.17)
                                            ----------  ----------  ---------
                                            ----------  ----------  ---------
Number of shares used in per share
 calculation ............................      12,372      11,900      11,870


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


                                         45
<PAGE>

                                 SUMMIT DESIGN, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               for the years ended December 31, 1996, 1995 and 1994
                             (In thousands, except shares)

<TABLE>
<CAPTION>
                                                                                                            Note
                                                                          Additional                      Receivable     Total
                                       Convertible                          Paid-in        Accumulated      from       Stockholders'
                                     Preferred Stock      Common Stock      Capital            Deficit    Stockholder     Equity
                                     ---------------      ------------      -------            -------    -----------     ------
                                    Shares     Amount   Shares     Amount
                                   --------   -------- --------   --------
<S>                                <C>        <C>      <C>        <C>       <C>            <C>            <C>            <C>
Balance, December 31, 1993 ......  5,840,894  $8,359    2,049,777     $102  $    -         $  (9,758)        $  (7)      $  (1,304)
Recapitalization ................ (1,806,973) (8,319)    (841,061)     (89)   8,408               -             -                -
Issuance of Series A preferred
  stock in merger ...............  3,367,000      34           -        -     1,077               -             -            1,111
Conversion of Series C Debentures
  into Series C preferred stock..    375,000       4           -        -       371               -             -              375
Issuance of Series D preferred
  stock, net of issuance costs ..    823,091       8           -        -     3,079               -             -            3,087
Payments from stockholder .......         -        -           -        -        -                -              7               7
Issuance of common stock ........         -        -      188,048        1        4               -             -                5
Exercise of warrants ............         -        -       47,174        1       -                -             -                1
Repurchase of common stock ......         -        -       (3,898)      -        (1)              -             -               (1)
Issuance of common stock under
  stock option plan .............         -        -      528,550        5       55               -             -               60
Net loss ........................         -        -           -        -        -            (2,046)           -           (2,046)
                                   ---------  -------- ------------   ----- --------      -----------       --------     ---------

Balance, December 31, 1994 ......  8,599,012       86   1,968,590       20   12,993          (11,804)           -            1,295
Issuance of Series E preferred
 stock ..........................    600,000        6          -        -     2,575               -             -            2,581
Repurchase of Series C preferred
 stock ..........................    (65,000)      (1)         -        -       (64)              -             -              (65)
Repurchase of Series D preferred
  stock .........................    (30,666)      -           -        -      (115)              -             -             (115)
Issuance of common stock under
  stock option plan .............         -        -       71,757        1       49               -             -               50
Repurchase of common stock ......         -        -     (153,705)      (2)      (1)              -             -               (3)
Net loss ........................         -        -           -        -        -            (3,151)           -           (3,151)
                                   ---------  -------- ------------   ----- --------      -----------       --------     ----------

Balance, December 31, 1995 ......  9,103,346       91   1,886,642       19   15,437          (14,955)           -              592
Issuance of common stock in
  initial public offering, net
  of I ssuance posts.............         -        -    2,000,000       20   16,204               -             -           16,224
Issuance of common stock under
   stock option plan and other ..         -        -      375,698        4      133               -             -              137
Conversion of preferred stock
  to common stock................ (9,103,346)     (91)  9,103,346       91       -                -             -               -
Repurchase of common stock ......         -        -      (12,554)      -        (2)              -             -               (2)
Net income ......................         -        -           -        -        -              2,676           -            2,676
                                   ---------  -------- ------------ ------- ---------      -----------       --------     ----------

Balance, December 31, 1996                -     $  -   13,353,132   $  134  $31,772        $  (12,279)       $  -         $  19,627
                                   ---------  -------- ------------ ------- ---------      -----------       --------     ----------
                                   ---------  -------- ------------ ------- ---------      -----------       --------     ----------

              The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>


                                       46
<PAGE>


                                SUMMIT DESIGN, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands)
<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                 -------------------------------
                                                                    1996       1995       1994
                                                                  --------   --------   --------
<S>                                                               <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss) ..................................            $  2,676   $  (3,151) $ (2,046)
  Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
        Depreciation and amortization ................                821         588       457
        (Gain) loss on asset disposition .............                  5          (1)       15
        In-process technology ........................                 -           -        647
        Deferred income taxes ........................               (500)         -         -
        Changes in assets and liabilities:
            Accounts receivable ......................                173     (1,377)    (2,599)
            Prepaid expenses and other ...............               (155)         6       (230)
            Accounts payable .........................                413       (353)       787
            Accrued liabilities ......................                377        751         (2)
            Deferred revenue .........................              1,358        380        357
            Other, net ...............................                214        195        (14)
                                                                  --------   ---------   --------
             Net cash provided by (used in)
               operating activities ..................              5,382     (2,962)    (2,628)
                                                                  --------   ---------   --------
Cash flows from investing activities:
  Additions to furniture and equipment ...............               (656)      (773)      (937)
  Cash acquired in merger ............................                 -          -         212
  Investment in joint venture ........................               (100)        -          -
  Proceeds on asset dispositions .....................                  6         15        173
                                                                  --------   ---------   --------
             Net cash used in investing
               activities ............................               (750)      (758)      (552)
                                                                  --------   ---------   --------
Cash flows from financing activities:
  Issuance of preferred stock ........................                 -        2,581     3,087
  Issuance of common stock, net of issuance costs ....             16,361          50        72
  Proceeds from notes payable and long-term debt .....                 96       3,260     1,052
  Repurchase of preferred stock ......................                 -         (180)       -
  Repurchase of common stock .........................                 (2)         (3)       -
  Principal payments of debt obligations .............             (1,878)     (2,329)      (67)
  Principal payments of capital lease obligations ....               (205)       (260)     (200)
                                                                  --------   ---------   --------
        Net cash provided by financing activities                   14,372       3,119     3,944
                                                                  --------   ---------   --------
        Increase (decrease) in cash and cash equivalents            19,004        (601)      764
Cash and cash equivalents, beginning of year .........                 592       1,193       429
                                                                  --------   ---------   --------
Cash and cash equivalents, end of year ...............             $19,596      $  592  $  1,193
                                                                  --------   ---------   --------
                                                                  --------   ---------   --------
Supplemental disclosure of cash flow information:
  Cash paid during the period for:
    Interest .........................................             $   111      $  195  $    144
    Income taxes .....................................             $   254      $    1  $      3
Supplemental disclosure of noncash investing and
  financing activities:
  Equipment acquired under capital leases ............             $    23      $  170  $    232
  Net assets acquired in merger ......................             $    -       $   -   $  1,111
  Conversion of debt to preferred stock ..............             $    -       $   -   $    375
  Conversion of preferred stock to common stock ......             $    91      $   -   $     -


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

</TABLE>


                                            47
<PAGE>

                                 SUMMIT DESIGN, INC.

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   THE COMPANY:

Summit Design, Inc. (Summit or the Company) is a provider of graphical design
entry and verification software tools and design to test software tools.
North American sales are principally made by the Company's direct sales
force. Sales in Europe and Asia are primarily made through distributors.
Approximately 46%, 42% and 38% of the Company's revenue for the years ended
December 31, 1996, 1995 and 1994, respectively, were attributable to sales
made through distributors.

The Company produces two main product lines-SLDA and Design to Test.  These
product lines contributed approximately 63% and 37%, respectively, to the
Company's total revenue in 1996.

Summit Design (EDA) Ltd., a wholly-owned subsidiary of the Company (formerly
SEE Technologies Software Environment for Engineers Ltd., hereafter SEE
Technologies), provides product research and development as well as sales and
support of certain product lines.

Summit Design, Inc. is headquartered in Beaverton, Oregon. Summit Design
(EDA) Ltd. is located in Herzlia, Israel, near Tel Aviv.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

BASIS OF CONSOLIDATION

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

The Company was formed to accomplish the recapitalization and merger of TSSI
and SEE Technologies (the Reorganization). Under the terms of the merger
agreement which was effective January 1, 1994, all outstanding shares of
stock of TSSI and SEE Technologies were exchanged for approximately 60% and
40% ownership in the Company, respectively. The Series A, B, C and D
preferred stockholders of TSSI received 4,033,921 shares of Summit Series B
preferred stock. Approximately 2 million outstanding shares of TSSI common
stock were converted at the rate of one share of TSSI common stock into
 .5896815 shares of Summit common stock. The stockholders of SEE Technologies
received Summit Series A preferred stock totaling 3,367,000 shares. The
acquisition was accounted for under the purchase method of accounting with
the Company acquiring SEE Technologies for approximately $1.1 million. The
operations of SEE Technologies have been included commencing January 1, 1994.


                                         48
<PAGE>

                               SUMMIT DESIGN, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The approximate fair value of assets and liabilities acquired at the date of
merger are as follows (in thousands):

 Cash ...............................  $  212
 Accounts receivable ................     178
 Prepaids and other assets ..........     663
 Inventories ........................      12
 Marketable securities ..............     101
 Furniture and equipment ............     150
 In-process technology ..............     647
 Accrued and other liabilities ......    (504)
 Chief Scientist grant ..............    (348)
                                       -------
                                       $1,111
                                       -------
                                       -------

The amount allocated to in-process technology was determined based upon known
valuation techniques in the high technology industry. The technological
feasibility of in-process technology had not been established and had no
alternative future use at the time of merger. Accordingly, the entire amount
of approximately $647,000 was charged to operations in the first quarter of
1994.

REVENUE RECOGNITION

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

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

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

RESEARCH AND DEVELOPMENT COSTS

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

CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less when purchased to be cash equivalents.  At
December 31, 1996, substantially all of the Company's cash and cash
equivalents are invested in interest-bearing deposits and other short-term
investments with a major bank.


                                         49
<PAGE>


                                SUMMIT DESIGN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


FURNITURE AND EQUIPMENT

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

INCOME TAXES

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

CONCENTRATION OF CREDIT RISK

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

FOREIGN CURRENCY TRANSLATION

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

ESTIMATES

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


                                           50
<PAGE>

                                   SUMMIT DESIGN, INC.

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

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

COMPUTATION OF NET INCOME (LOSS) PER SHARE

Historical net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding. Common equivalent shares from
stock options are excluded from the computation when their effect is
antidilutive, except that, pursuant to the Securities Exchange Commission
Staff Accounting Bulletins, common and common equivalent shares used for the
computation of net income (loss) per share presented in the consolidated
statements of operations which were issued at prices below the anticipated
public offering price during the twelve months immediately preceding the
initial filing date of the Company's initial public offering, have been
included as if they were outstanding for all periods prior to the initial
public offering using the treasury stock method and the initial public
offering price of $9.50. Net income (loss) per share presented in the
consolidated statement of operations includes common shares issuable upon the
conversion of the outstanding preferred stock (using the if-converted method)
as if they were outstanding for all periods ending prior to the Company's
initial public offering.

The historical net income (loss) per share of the Company and the shares used
in the calculation of historical net income (loss) per share are as follows
(shares in thousands):

                                                December 31,
                                             ------------------
                                               1995      1994
                                             --------  --------

Net income (loss) per share ................. $(1.68)   $(1.11)
                                             --------  --------
Shares used in per share calculation ........  1,873     1,842


3.   FURNITURE AND EQUIPMENT:

Furniture and equipment consists of the following (in thousands):

                                                December 31,
                                             ------------------
                                               1995      1994
                                             --------  --------

Office furniture and equipment .............. $  500    $  460
Computer equipment ..........................  3,006     2,466
Leasehold improvements ......................     38        38
                                             --------  --------
                                               3,544     2,964
Less accumulated depreciation and
  amortization .............................. (1,803)   (1,174)
                                             --------  --------
                                             --------  --------
                                              $1,741    $1,790
                                             --------  --------
                                             --------  --------


                                     51
<PAGE>

                              SUMMIT DESIGN, INC.

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


4.   NOTE PAYABLE TO BANK:

The Company has available a $1 million line of credit with U.S. National Bank
of Oregon, which matures April 30, 1997 and is collateralized by accounts
receivable, inventory, chattel paper, general intangibles, patents,
trademarks, copyrights and products and proceeds of the foregoing. Maximum
borrowings under the line shall not exceed 75% of eligible accounts
receivable. Interest on the unpaid balance accrues at a rate that ranges from
prime to prime plus 0.75%, depending on the debt to tangible net worth ratio
maintained by the Company, and is payable monthly.  The prime rate at
December 31, 1996 was 8.25%. There was no amount outstanding at December 31,
1996.

The line of credit agreement contains financial covenants, including
covenants relating to the working capital, net worth, the ratio of debt to
net worth and dividend restrictions.

5.   ACCRUED LIABILITIES:

Accrued liabilities consists of the following (in thousands):

                                                December 31,
                                             ------------------
                                               1995      1994
                                             --------  --------

Commissions payable .......................   $  113    $  340
Payroll and related benefits ..............    1,567     1,384
Accrued management relocation costs .......       24        47
Accounting and legal ......................      256        80
Sales and state income taxes payable ......       98        42
Other .....................................      566       354
                                             --------  --------
                                              $2,624    $2,247
                                             --------  --------
                                             --------  --------


6.   LEASES:

The Company is obligated under capital leases for equipment that expire at
various dates during the next three years. The leased assets are included in
equipment at a capitalized amount of $662,000 and $682,000 at December 31,
1996 and 1995. Related accumulated amortization of $508,000 and $398,000 at
December 31, 1996 and 1995 is included in accumulated depreciation and
amortization.

The Company has entered into a noncancelable operating lease for the use of a
building. Rental expense was approximately $303,000,  $261,000, and $193,000
for the years ended December 31, 1996, 1995 and 1994, respectively. In
addition, Summit Design (EDA) Ltd. entered into a sublease with a related
party for its premises. The lease expires in 1997. Annual rental is
contingent on the Israeli consumer price index and is approximately $165,000
annually.


                                         52
<PAGE>

                                SUMMIT DESIGN, INC.

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


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

                                                 Capital   Operating
                                                 Leases      Leases
                                                ---------  ----------
1997 ......................................       $  72       $  559
1998 ......................................          50          302
1999 ......................................          49          282
                                                ---------  ----------
  Total minimum lease payments ............         171       $1,143
                                                           ----------
                                                           ----------
Less amount representing interest (at
  rates ranging from 5% to 15%) ...........         (11)
                                                ---------
  Present value of minimum capital
    lease payments ........................         160
  Current portion of capital lease
    obligations ...........................         (65)
                                                ---------
  Capital leases obligations, less
    current portion .......................       $  95
                                                ---------
                                                ---------

7.   LONG-TERM DEBT:

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

<TABLE>
<CAPTION>

                                                                      December 31,
                                                                 ---------------------
                                                                   1996         1995
                                                                 ---------    --------
<S>                                                              <C>          <C>
Equipment note, payable in monthly installments of $14 plus
 interest at the prime rate plus 1% (9.25% at December 31,
 1996), collateralized by the equipment financed, due
 June 1998 ....................................................  $    -       $   381
Note payable to a corporation, payable in monthly installments
 of $19 plus interest at the prime rate plus 1% (9.25% at
 December 31,1996), due September 1997 ........................       -           391
Marketing grant payable to the Israeli government .............     364           298
Chief Scientist grant payable to the Israeli government .......     773           849
                                                                 ---------    --------
                                                                  1,137         1,919
Current portion ...............................................    (462)         (854)
                                                                 ---------    --------
Noncurrent portion ............................................  $  675       $ 1,065
                                                                 ---------    --------
                                                                 ---------    --------

</TABLE>

The Chief Scientist grant represents research and development funding of
approximately $232,000 in 1993 and $608,000 in 1995 received from the Israeli
government which is to be repaid at the rate of 3% to 5% of the sale of
Visual HDL for VHDL until 150% and 100% of the 1993 and 1995 grants,
respectively, are repaid in full. The 1993 grant is reflected at 150% of the
original grant received. The Company has entered into an agreement with the
Israeli government whereby the amount under the 1995 grant will be
unconditionally repaid no later than July 31, 2000.

The Company received a Marketing Fund grant of $423,000 from the Israeli
Ministry of Industry and Trade through December 31, 1996. This grant is to be
repaid at the rate of 3% of the increase in export sales of all Israeli
products over the base year until repaid.

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

   1997 ............................ $  462
   1998 ............................    327
   1999 ............................    263
   2000 ............................     85
                                     ------
                                     $1,137
                                     ------
                                     ------


                                          53
<PAGE>

                                SUMMIT DESIGN, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8.   STOCKHOLDERS' EQUITY:

PREFERRED STOCK

Preferred stock is summarized as follows (dollar amounts in thousands):

<TABLE>
<CAPTION>

                                                                        December 31,
                                                                    ---------------------
                                                                      1996         1995
                                                                    --------     --------
<S>                                                                 <C>          <C>
Series A - $.01 par; 3,367,000 shares authorized, issued and
 outstanding in 1995; liquidation preference of $4,411 at December
 31, 1995...........................................................   $  -        $  34
Series B - $.01 par; 4,033,949 shares authorized and 4,033,921
 shares issued and outstanding in 1995; liquidation preference of
 $7,584 at December 31, 1995 .......................................      -           40
Series C - $.01 par; 400,000 shares authorized, 310,000 shares
 issued and outstanding in 1995; liquidation preference of $310 at
 December 31, 1995 .................................................      -            3
Series D - $.01 par; 933,334 shares authorized, 792,425 shares
 issued and outstanding in 1995; liquidation preference of $2,972
 at December 31, 1995 ..............................................      -            8
Series E - $.01 par; 600,000 shares authorized, issued and
 outstanding in 1995; liquidation preference of $4,038 at December
 31, 1995 ..........................................................      -            6
                                                                    --------     --------
                                                                       $  -        $  91
                                                                    --------     --------
                                                                    --------     --------
</TABLE>

Effective with the initial public offering on October 18, 1996, each share of
preferred stock was converted to one share of common stock.  The Company has
authorized 5 million shares of preferred stock.  There are no preferred
shares outstanding at December 31, 1996.

1994 STOCK PLAN

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

1996 EMPLOYEE STOCK PURCHASE PLAN

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

1996 DIRECTOR OPTION PLAN

Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan )the "Director Plan").  The Director Plan provides for
an automatic grant of an option to purchase 7,500 shares of Common Stock to
each non-employee director on the date on which the Director Plan becomes
effective or, if later, an option to purchase 10,000 shares of Common Stock
on the Date on which the person first becomes a non-employee director and
10,000 shares on the date of the annual meeting of each subsequent year,
provided that he or she is then a non-employee director and, provided
further, that on such date he or she has served


                                          54
<PAGE>

                                 SUMMIT DESIGN, INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


on the Board for at least six months.  Options granted under the Director
Plan generally become vested and exercisable 12 months after the grant date
and are granted at an exercise price equal to 100% of the fair market value
per share on the date of the grant.  The Company granted 37,500 options under
this plan in 1996. The Company has reserved 150,000 shares of Common Stock
for issuance under the 1996 Director Plan.

There were 366,094, 622,915, and 830,026 shares of common stock reserved for
the grant of stock options under the 1994 Stock Plan at December 31, 1996,
1995 and 1994, respectively.

The following are the shares exercisable at the corresponding weighted
average exercise price at December 31, 1996, 1995 and 1994, respectively:
944,210 at $2.9985, 1,146,198 at $1.1045 and 1,060,896 at $0.5662. The
weighted average exercise price per share of options outstanding at December
31, 1996 is $3.77.

A summary of the status of the Company's stock option plans as of December
31,1996, 1995 and 1994 and changes during the years ended on those dates is
presented below:

                                                                Exercise
                                                Options        Price Range
                                              -----------     -------------

Balance, December 31, 1993 .................    474,958       $0.01 - $0.51
  Options granted ..........................  1,035,796       $0.02 - $2.50
  Options exercised ........................   (528,550)      $0.02 - $0.51
  Options canceled .........................   (108,747)      $0.01 - $1.75
                                             ------------
Balance, December 31, 1994 .................    873,457       $0.02 - $5.00
  Options granted ..........................    551,187               $1.75
  Options exercised ........................    (71,757)      $0.02 - $0.51
  Options canceled .........................   (192,075)      $0.02 - $2.50
                                             ------------
Balance, December 31, 1995 .................  1,160,812       $0.02 - $2.50
  Options granted ..........................    440,000       $0.50 - $10.50
  Options exercised ........................   (337,208)      $0.02 - $2.50
  Options canceled .........................   (125,274)      $0.02 - $10.50
                                             ------------
Balance, December 31, 1996 .................  1,138,330       $0.02 - $10.50
                                             ------------
                                             ------------

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

The following table summarizes information about stock options outstanding at
December 31,1996:

<TABLE>
<CAPTION>

                          Options Outstanding                  Options Exercisable
                 ---------------------------------------    --------------------------
                                Weighted       Weighted        Weighted      Weighted
                    Shares       Average        Average         Shares       Average
   Range of      Outstanding   Contractual     Exercise      Exercisable     Exercise
Exercise Prices  at 12/31/96  Remaining Life     Price       at 12/31/96       Price
---------------  -----------  --------------   ----------   ------------     ---------
<S>              <C>          <C>              <C>          <C>              <C>
$0.02 to $ 0.51    188,725         6.76        $ 0.4042         188,725      $ 0.4042
$1.50 to $ 1.75    577,605         8.34          1.7310         577,605        1.7310
$5.00 to $ 7.00     96,500         9.54          6.0259          96,500        6.0259
$9.25 to $10.50    275,500         9.88          9.5426               -             -

</TABLE>


                                       55
<PAGE>

                             SUMMIT DESIGN, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

SFAS 123 "Accounting for Stock-Based Compensation" was issued by the
Financial Accounting Standards Board in 1995 and, if fully adopted, changes
the method for the recognition of cost related to stock option plans.
Adoption of SFAS 123 is optional.  As a result, the Company continues to
apply APB No. 25 and related interpretations in accounting for its plans.
However, in accordance with SFAS 123, pro forma disclosures as if the Company
adopted the cost recognition requirements under SFAS 123 in 1996 and 1995 are
presented below.

The fair value of each option granted during the years ended 1996 and 1995 is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used to calculate both 1996 and 1995: (i)
Average dividend yield of 0%, (ii) expected volatility of 46% and (iii)
expected life of 5 years.  The risk-free interest rate (equivalent to the
zero coupon treasury rate) at the date of grant ranged from 5.546% to 6.453%
for 1996 and 5.487% to 7.022% for 1995.

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

                                                            1996       1995
                                                            ----       ----

    Net income (loss) - as reported (in thousands)         $ 2,676    $(3,151)
    Net income (loss) - pro forma (in thousands)           $ 2,383    $(3,240)
    Net income (loss) per common share - as reported       $  0.22    $ (0.26)
    Net income (loss) per common share - pro forma         $  0.19    $ (0.27)


The effect of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.  SFAS 123 does not apply to awards prior to
1995 and additional awards in future years are anticipated.

9.   INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                          --------------------------------
                                                              1996       1995       1994
                                                            --------   -------    --------
<S>                                                         <C>        <C>        <C>
Current:
    Federal . . . . . . . . . . . . . . . . . . . . . . .   $     26   $     -      $    -
    State . . . . . . . . . . . . . . . . . . . . . . . .          3         1           -
    Foreign . . . . . . . . . . . . . . . . . . . . . . .        225       398         402
                                                            --------    ------      ------
                                                                 254       399         402
                                                            --------    ------      ------
Deferred:
    Federal . . . . . . . . . . . . . . . . . . . . . . .      (373)         -           -
    State . . . . . . . . . . . . . . . . . . . . . . . .       (27)         -           -
    Foreign . . . . . . . . . . . . . . . . . . . . . . .      (100)         -           -
                                                            --------    ------      ------
                                                               (500)         -           -
                                                            --------    ------      ------
                                                            $  (246)    $  399      $  402
                                                            --------    ------      ------
                                                            --------    ------      ------

</TABLE>


                                       56
<PAGE>

                          SUMMIT DESIGN, INC.

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


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

<TABLE>
<CAPTION>

                                                                   Years Ended December 31,
                                                              ----------------------------------
                                                                1996         1995        1994
                                                              --------     --------    --------
<S>                                                           <C>          <C>         <C>
Tax provision (benefit) at statutory rate . . . . . . . .     $   826      $(907)      $(334)
Alternative minimum tax . . . . . . . . . . . . . . . . .          26
Foreign withholding taxes . . . . . . . . . . . . . . . .         225        398         402
Deferred taxes:
  Increase (decrease) in valuation allowance. . . . . . .        (964)     1,503         860
  Utilization of net operating losses . . . . . . . . . .        (545)         -           -
  Other . . . . . . . . . . . . . . . . . . . . . . . . .         183       (596)       (526)
State . . . . . . . . . . . . . . . . . . . . . . . . . .           3          1           -
                                                              --------    --------     --------
                                                              $  (246)    $  399       $ 402
                                                              --------    --------     --------
                                                              --------    --------     --------
</TABLE>

At December 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes which can be used to offset future
income subject to taxes. In addition, there are unused research and
experimentation and foreign tax credits which may be available for offset
against future federal income taxes after use of the loss carryforwards. Such
loss carryforwards and tax credits are summarized below (in thousands):

                                                                Expiration
                                                                ----------
                                                       Amount     Dates
                                                       ------    --------
Loss carryforwards:
    Federal . . . . . . . . . . . . . . . . . . . . . $9,027    2001 - 2010
    State . . . . . . . . . . . . . . . . . . . . . .  5,628    2001 - 2010
Research and experimentation credits (federal only) .    263    2001 - 2011
Foreign tax credits (federal only). . . . . . . . . .    711    1998 - 1999


Due to changes in the Company's ownership structure which occurred as a
result of the Reorganization and a subsequent preferred stock financing, a
portion of the federal and state net operating loss carryforwards are limited
in use to approximately $1.7 million and $1.2 million annually, respectively.
The tax credit carryforwards are also subject to limitation due to the change
in ownership.

In addition, the Company has foreign income tax net operating losses of
approximately $4.7 million. These foreign losses were generated in Israel
over several years and have not yet received final assessment from the
Israeli government. Consequently, management is uncertain as to the continued
availability of a substantial portion of such foreign loss carryforwards.

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

<TABLE>
                                                             December 31,
                                                        --------------------
                                                          1996        1995
                                                         -------     -------
<S>                                                      <C>         <C>
Deferred tax assets:
  Federal and state net operating loss carryforwards .   $ 3,037     $ 3,836
  Foreign operating loss carryforwards . . . . . . . .       701       1,134
  Research and experimentation credit carryforwards          263         263
  Foreign tax credit carryforwards . . . . . . . . . .       711         486
  Other deferred tax items . . . . . . . . . . . . . .     1,133         735
                                                         --------    --------
    Total deferred tax assets  . . . . . . . . . . . .     5,845       6,454
  Less valuation allowances  . . . . . . . . . . . . .    (5,018)     (5,982)
                                                         --------    --------
    Net deferred tax assets  . . . . . . . . . . . . .       827         472
                                                         --------    --------
Deferred tax liabilities:
  Other deferred tax items . . . . . . . . . . . . . .      (327)       (472)
                                                         --------    --------
    Total deferred tax liabilities . . . . . . . . . .      (327)       (472)
                                                         --------    --------
    Net deferred taxes . . . . . . . . . . . . . . . .   $   500     $     -
                                                         --------    --------
                                                         --------    --------

</TABLE>


                                       57
<PAGE>

                               SUMMIT DESIGN, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


The Company has established a valuation allowance against a portion of its
deferred tax assets due to the uncertainty surrounding the realization of
such assets. Management evaluates on a quarterly basis the recoverability of
the deferred tax assets and the level of the valuation allowance. The net
change in the valuation allowance for the years ended December 31, 1996 and
1995 was a decrease of approximately $964,000 and an increase of
approximately $1.5 million, respectively.  The decrease in the valuation
allowance for the year ended December 31, 1996 resulted primarily from the
utilization of net operating loss carry forward and management's evaluation
of the future recoverability of net deferred tax assets. As of December 31,
1996, the Company reduced the valuation allowance by $500,000 based upon
management's evaluation.  Approximately $1.1 million of the increase in the
valuation allowance for the year ended December 31, 1995 resulted from the
operating loss generated in such year.

10.   401(k) PLAN:

The Company has a 401(k) plan (the Plan) covering substantially all U.S.
employees meeting minimum service requirements. The Plan allows for the
Company to make discretionary matching contributions as determined by a
committee of the Board of Directors. The Company provided a discretionary
contribution of  $10,000 and $6,000 in 1995 and 1994, respectively. There
were no contributions in 1996.

11.   COMMITMENTS:

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

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

12.   BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:

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

                                        Years Ended December 31,
                                   ----------------------------------
                                    1996          1995          1994
                                   ------        ------        ------
    Europe.....................    $3,091        $1,893        $1,164
    Asia Pacific...............     6,855         5,447         3,850

As a Percentage of Total Revenue:
    Europe.....................      15.5%         13.5%          9.0%
    Asia Pacific...............      34.3%         38.7%         29.6%

 During 1996, 1995, and 1994, other than the purchaser of certain technology
in a one-time transaction, no single customer accounted for more than 10% of
total revenue. Sales through a single distributor accounted for 14.7%, 12.7%
and 15.7% of the Company's total revenue in 1996, 1995 and 1994,
respectively. Foreign operations of Summit Design (EDA) Ltd. accounted for
less than 10% of total revenue of the Company in each of the three years in
the period ended December 31, 1996. Identifiable assets of the Company's
Israeli subsidiary were $1.6 million at December 31, 1996.

                                      58
<PAGE>

                              SUMMIT DESIGN, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

13.   RELATED PARTIES:

At the time of the Reorganization, the Company entered into a one-year
financial services agreement with a significant stockholder pursuant to which
the stockholder provided the Company certain financial consulting services
related to its subsidiary in Israel. The Company entered into an agreement to
pay $100,000 to this stockholder in 1994 in conjunction with this agreement.
Additionally, Summit Design (EDA) Ltd. leases its corporate offices from the
stockholder under a four-year sublease agreement on the same terms and
conditions that the stockholder leases such space.

Effective April 1, 1996, the Company invested $100,000 for a 20% interest in
a joint venture corporation which acquired the exclusive rights to sell,
distribute and support all of the Company's products in the Asia-Pacific
region, excluding Japan.  The joint venture recorded a net loss of $165,000
in 1996.  The Company has recorded its 20% share of that loss ($33,000) in
the consolidated statement of operations. Total product licenses and
maintenance revenue for sales to the joint venture during 1996 totaled
approximately $586,000, total accounts receivable, with payment terms similar
to other customers in the Asia-Pacific region, was $247,000 at December 31,
1996.

14.   SUBSEQUENT EVENTS:

In February 1997, the Company entered into an agreement with TriQuest Design
Automation, Inc. (TriQuest), a privately held software company headquartered
in Campbell, California, under which the Company acquired TriQuest.  The
aggregate acquisition consideration, including shares  reserved for issuance
upon exercise of TriQuest options which were assumed by the Company, is
775,000 shares of the Company's common stock.  The Company intends to account
for this acquisition as a pooling-of-interests. Pro forma unaudited results
of operations as though the merger had occurred at the beginning of each
fiscal year would be approximately as follows:

                                               1996            1995
                                             --------        --------
Total revenue                               $ 20,111        $ 14,070
Net income (loss)                           $  1,251        $ (3,640)
Net income (loss) per share                 $   0.10        $  (0.30)


The pro forma financial information presented above is not necessarily
indicative of either the results of operations that would have occurred had
the acquisition taken place at the beginning of the year or of future
consolidated results of operations.


                                      59
<PAGE>

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

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

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


                                      60
<PAGE>

                                   PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the
information set forth in the sections entitled "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934"
contained in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders, to be filed by the Company with the Securities and Exchange
Commission within 120 days of the end of the Company's fiscal year ended
December 31, 1996, except that the information required by this item
concerning the executive officers and directors of the Company is
incorporated by reference to the information set forth in the section
entitled "Executive Officers and Directors of the Company" at the end of Part
I of this Form 10K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Executive Officer
Compensation" contained in the Company's Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed by the Company with the Securities and
Exchange Commission within 120 days of the end of the Company's fiscal year
ended December 31, 1996.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's Proxy Statement
for its 1997 Annual Meeting of Stockholders and is incorporated herein by
reference to be filed by the Company with the Securities and Exchange
Commission within 120 days of the end of the Company's fiscal year ended
December 31, 1996.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
information set forth in the section entitled "Certain Transactions"
contained in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders to be filed by the Company with the Securities and Exchange
Commission within 120 days of the end of the Company's fiscal year ended
December 31, 1996.


                                       61
<PAGE>

                                    PART IV


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


(a)(1)   FINANCIAL STATEMENTS

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


        Report of Independent Accountants                            43

        Consolidated Balance Sheets as of December 31, 1996
           and 1995                                                  44

        Consolidated Statements of Operations for the years
           ended December 31, 1996, 1995 and 1994                    45

        Consolidated Statements of  Stockholders' Equity for the
           years ended December 31, 1996, 1995 and 1994              46

        Consolidated Statements of Cash Flows for the years
           ended December 31, 1996, 1995 and 1994                    47

        Notes to Consolidated Financial Statements                   48


(a)(2)    FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule for  the years ended December 31,
1994, 1995 and 1996, filed as part of this Form 10K should be read in
conjunction with the consolidated financial statements and related notes
thereto and report of independent accountants filed herewith:

                                                                   Page No.
                                                                   --------
Schedule II                Valuation and Qualifying Accounts          S-1

Report of Independent Accountants on financial statement schedule     S-2


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


                                       62
<PAGE>

(a)(3)    Exhibits

<TABLE>
<CAPTION>

Exhibit No.
-----------
   <S>     <C>
   2.1     Agreement and Plan of Reorganization dated as of February 17, 1997. (2)

   2.2     Agreement and Plan of Merger. (2)

   3.1     Amended and Restated Certificate of Incorporation. (1)

   3.2     Amended and Restated Bylaws. (1)

   4.1     Specimen Common Stock Certificate of Company. (1)

   4.2     Investors' Rights Agreement between the Registrant and the parties
             named therein dated February 10, 1994, as amended. (1)

  10.1     Form of Indemnification Agreement between Registrant and its
             executive officers and directors  (1)

  10.2*    1994 Stock Plan, as amended. (1)

  10.3*    1996 Employee Stock Purchase Plan. (1)

  10.4*    1996 Director Option Plan. (1)

  10.5*    Employment Agreement between the Registrant and Larry J. Gerhard
             dated August 12, 1996.

  10.6*    Employment Agreement between the Registrant and C. Albert Koob dated
             October 21, 1995. (1)

  10.7*    Employment Agreement between the Registrant and Zamir Paz dated
             January 1, 1996. (1)

  10.8*    Employment Agreement between the Registrant and Dan Skilken dated
             November 20, 1993. (1)

  10.9*    Employment Agreement between the Registrant and Roger Bitter dated
             November 22, 1993, as amended. (1)

  10.10*   Employment Agreement between the Registrant and Eric Benhayoun dated
             October 31, 1994.(1)

  10.11*   Employment Agreement between the Registrant and David Greg Kott dated
             March 1, 1995. (1)

  10.12*   Board of Directors Directorship Agreement between the Registrant and
             Fred L. Hanson dated October 9, 1995. (1)

  10.13    Lease Agreement between the Registrant and Petula Associates Ltd. And
             Koll Creekside Associates II dated October 26, 1993, as amended. (1)

  10.14    Sublease Agreement, dated as of January 1993 between DCL
             Technologies, Ltd. and SEE Technologies, Ltd. (1)

  10.15    Bank Line of Credit Agreement between Registrant and U.S. National
             Bank of Oregon dated May 1, 1996. (1)

  10.16+   Joint Venture Agreement between Summit Design Israel, Inc. and Anam
             S&T Co., Ltd. dated March 21, 1996. (1)

  10.17+   Distributor Agreement between the Registrant and Seiko Instruments,
             Inc., dated February 1, 1996. (1)

  10.18+   Distributor Agreement between the Registrant and ATE Service Co.,
             Ltd., dated October 23, 1995, and amended as of April 9, 1996. (1)

  10.19    Amendment to Bank Line of Credit Agreement between Registrant and
             U.S. National Bank of Oregon dated December 30, 1996.

  11.1     Statement regarding computation of the Company's net income (loss) per share.

  16.1     Letter re Change in Certifying Accountant. (1)

  21.1     List of Subsidiaries.

  23.1     Consent of Coopers & Lybrand L.L.P.

  24.1     Power of attorney, see page 65.

  27.1     Financial Data Schedule.

(1)  Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-06445) as declared effective by the
       Securities and Exchange Commission October 17, 1996.
(2)  Incorporated by reference to the Registrant's Current Report on Form 8-K dated February 28, 1997.
 +   Documents for which confidential treatment has been granted.
 *    Indicates management compensatory plan, contract or arrangement.

</TABLE>


                                        63
<PAGE>

(b) REPORTS ON FORM 8-K

No reports on Form 8-K have been filed by the Registrant during the quarter
ended December 31, 1996.

(c) EXHIBITS

       See Item 14(a)(3) above.

(d) FINANCIAL STATEMENT SCHEDULES

      See Item 14(a)(2) above.


                                       64
<PAGE>

                                      SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
this 28th day of March 1997.

                                       SUMMIT DESIGN, INC.

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


                                 POWER OF ATTORNEY

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

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

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

/s/ LARRY J. GERHARD       Chairman of the Board, President     March 28, 1997
--------------------       and Chief Executive Officer
   Larry J. Gerhard        (Principal Executive Officer)

/s/ C. ALBERT KOOB         Vice President - Finance, Chief      March 28, 1997
--------------------       Financial Officer and Secretary
   C. Albert Koob          (Principal Financial and Accounting
                           Officer)

/s/ AMIHAI BEN-DAVID       Director                             March 28, 1997
--------------------
   Amihai Ben-David

/s/ JOHN GRILLOS           Director                             March 28, 1997
--------------------
   John Grillos

/s/ FRED HANSON            Director                             March 28, 1997
--------------------
Fred L. Hanson

/s/ JAY B. MORRISON        Director                             March 28, 1997
--------------------
  Jay B. Morrison

/s/ ZAMIR PAZ              Director                             March 28, 1997
--------------------
   Zamir  Paz

/s/ MARK STEVENS           Director                             March 28, 1997
--------------------
   Mark Stevens


                                               -65-

<PAGE>

                                  SUMMIT DESIGN, INC.

                     Schedule II - Valuation and Qualifying Accounts

                        Years ended December 31, 1994, 1995, 1996

                                       (in thousands)
<TABLE>
<CAPTION>

                                                     Additions
                                     Balance at      charged to                  Balance at
                                     beginning       costs and                     end of
                                     of period       expenses       Deductions     period
                                     -----------     -----------     -----------  -----------
<S>                                    <C>            <C>              <C>           <C>
Year ended December 31, 1994:
   Allowance for doubtful accounts     $  448         $  (36)          $  57         $  355


Year ended December 31, 1995:
   Allowance for doubtful accounts        355            306             206            455

Year ended December 31, 1996:
   Allowance for doubtful accounts        455              -              25            430

</TABLE>


                                             S-1

<PAGE>

                              REPORT OF INDEPENDENT ACCOUNTANTS


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

Our report on the consolidated financial statements of Summit Design, Inc.
and subsidiaries is included on page 43 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 62 of this Form 10-K.

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

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

Portland, Oregon
January 24, 1997


                                               S-2