<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER: 0-27752
ANALOGY, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0892014
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9205 SW GEMINI DRIVE
BEAVERTON, OREGON 97008
(Address of principal executive offices and zip code)
503-626-9700
(Registrant's telephone number including area code)
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 [ ]
COMMON STOCK, NO PAR VALUE 9,631,911
(Class) (Shares outstanding at November 2, 1999)
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<PAGE>
ANALOGY, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets - September 30, 1999
and March 31, 1999.........................................................................................2
Consolidated Statements of Operations - Three Months and Six Months
ended September 30, 1999 and 1998..........................................................................3
Consolidated Statements of Cash Flows - Six Months
ended September 30, 1999 and 1998..........................................................................4
Notes to Consolidated Financial Statements.................................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................7
Item 3. Quantitative and Qualitative Disclosure About Market Risk........................................15
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K.................................................................16
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 869 $ 2,008
Accounts receivable 5,415 6,738
Prepaid expenses 1,170 1,033
Other assets, net 2,105 2,271
----------- ----------
Total current assets 9,559 12,050
Furniture, fixtures and equipment, net of accumulated
depreciation and amortization of $11,072 and $10,263
at September 30, 1999 and March 31, 1999, respectively 1,714 2,416
Library costs, net 4,529 4,495
Other assets, net 1,716 2,257
----------- ----------
$ 17,518 $ 21,218
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ 1,117 $ 400
Current portion of capital leases 290 403
Accounts payable and accrued expenses 1,746 1,320
Accrued salaries and benefits 1,917 2,709
Unearned revenue 7,318 8,657
----------- ----------
Total current liabilities 12,388 13,489
Non-current portion of capital leases 78 219
Deferred contract revenue 928 1,455
Other liabilities 56 65
Commitments - -
Shareholders' equity:
Common stock, no par value, authorized 35,000 shares;
shares issued and outstanding : 9,631 and 9,521
at September 30, 1999 and March 31, 1999, respectively 18,801 18,569
Accumulated other comprehensive loss -
foreign currency translation (196) (269)
Accumulated deficit (14,537) (12,310)
----------- ----------
Total shareholders' equity 4,068 5,990
----------- ----------
$ 17,518 $ 21,218
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 2,854 $ 4,045 $ 5,841 $ 6,880
Service and other 2,681 2,372 5,156 4,949
------------- ----------- ------------ -------------
Total revenue 5,535 6,417 10,997 11,829
Cost of revenue:
Product licenses 511 393 1,052 913
Service and other 167 220 335 554
------------- ----------- ------------ -------------
Total cost of revenue 678 613 1,387 1,467
------------- ----------- ------------ -------------
Gross profit 4,857 5,804 9,610 10,362
Operating expenses:
Research and development 1,930 2,296 3,857 4,692
Sales and marketing 3,143 3,080 6,451 6,683
General and administrative 496 621 1,083 1,305
Amortization of intangibles 92 92 184 184
Restructuring charges - - - 557
------------- ----------- ------------ -------------
Total operating expenses 5,661 6,089 11,575 13,421
------------- ----------- ------------ -------------
Operating loss (804) (285) (1,965) (3,059)
Other expense, net (87) (30) (70) (232)
------------- ----------- ------------ -------------
Loss before income taxes (891) (315) (2,035) (3,291)
Income tax expense 75 47 192 226
------------- ----------- ------------ -------------
Net loss $ (966) $ (362) $ (2,227) $ (3,517)
============= =========== ============ =============
Basic net loss per share $ (0.10) $ (0.04) $ (0.23) $ (0.37)
============= =========== ============ =============
Diluted net loss per share $ (0.10) $ (0.04) $ (0.23) $ (0.37)
============= =========== ============ =============
Shares used in per share calculations:
Basic 9,601 9,417 9,598 9,388
============= =========== ============ =============
Diluted 9,601 9,417 9,598 9,388
============= =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30,
-----------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,227) $ (3,517)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,813 2,058
Changes in operating assets and liabilities:
Accounts receivable 1,307 (1,610)
Prepaid expenses and other assets 441 (181)
Accounts payable and accrued expenses (306) (956)
Unearned revenue (1,893) (1,070)
-------------- --------------
Net cash used in operating activities (865) (5,276)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for furniture, fixtures and equipment (102) (447)
Capital expenditures for library costs (858) (955)
-------------- --------------
Net cash used in investing activities (960) (1,402)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (254) (317)
Net proceeds from line of credit 717 -
Proceeds from exercise of stock options and warrants 232 437
-------------- --------------
Net cash provided by financing activities 695 120
-------------- --------------
Effect of exchange rate changes on cash and cash equivalents (9) 104
-------------- --------------
Net decrease in cash and cash equivalents (1,139) (6,454)
Cash and cash equivalents at beginning of period 2,008 8,130
-------------- --------------
Cash and cash equivalents at end of period $ 869 $ 1,676
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 77 $ 158
Income taxes 89 138
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Acquisition of equipment under capital lease obligations $ - $ 78
Recognition of deferred and unearned contract revenue - 2,560
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited financial information included herein for the three and six
months ended September 30, 1999 and 1998 was prepared in conformity with
generally accepted accounting principles. The financial information as of
March 31, 1999 is derived from the Analogy, Inc. (the "Company") consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended March 31, 1999. Certain information or footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying consolidated
financial statements include all adjustments necessary (which are of a normal
and recurring nature) for the fair presentation of the results of the interim
periods presented. The accompanying consolidated financial statements should
be read in conjunction with the Company's audited consolidated financial
statements for the year ended March 31, 1999, as included in the Company's
Annual Report on Form 10-K for the year ended March 31, 1999.
Operating results for the three and six months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending March 31, 2000, or any portion thereof.
2. COMPREHENSIVE LOSS
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report
all changes in equity that result from transactions and economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other non-owner changes in equity. The reconciliation of net loss to
comprehensive loss is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Net loss $ (966) $ (362)
Foreign currency translation adjustments 103 24
------------- ------------
Comprehensive loss $ (863) $ (338)
============= ============
Six Months Ended September 30,
--------------------------------
1999 1998
------------- ------------
Net loss $ (2,227) $ (3,517)
Foreign currency translation adjustments 73 33
------------- ------------
Comprehensive loss $ (2,154) $ (3,484)
============= ============
</TABLE>
3. NET LOSS PER SHARE
Basic and diluted net loss per share are computed using the weighted average
number of shares of common stock outstanding for the period. All potential
dilutive securities are excluded from the calculation of diluted net loss per
share as they are antidilutive.
The dilutive effect of stock options outstanding for the purchase of
approximately 1,746,000 shares for the three months and six months ended
September 30, 1999, and approximately 1,523,000 shares for the three months
and six months ended September 30, 1998; and warrants outstanding for the
purchase of 10,000 shares for the three months and six months ended September
30, 1999, and 300,000 shares for the three
5
<PAGE>
months and six months ended September 30, 1998, respectively, were not
included in loss per share calculations, because to do so would have been
antidilutive.
4. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). Based on definitions contained within SFAS 131, the Company has
determined that it operates in one segment.
The Company markets its products in North America and Europe primarily through
its direct sales organization and in Asia primarily through distributors.
Revenue information is based on the location of the customer. The Company's
geographic information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended September
September 30, 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
United States $ 2,525 $ 3,040 $ 5,062 $ 5,801
Germany 1,052 1,254 1,752 2,319
Sweden 354 522 1,224 676
United Kingdom 695 530 1,392 1,072
France 487 704 886 1,214
Other 422 367 681 747
------------ ------------ ----------- ------------
$ 5,535 $ 6,417 $ 10,997 $ 11,829
============ ============ =========== ============
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company develops, markets and supports high-performance software and model
libraries for the top-down design and behavioral simulation of mixed-signal and
mixed-technology systems.
The Company's product license revenue consists of license fees for its software
products and template and component model library subscription fees. Service and
other revenue consists of software maintenance fees, training, consulting and
both commercial and governmental contract model development and research and
development contracts. The Company's software products are shipped only after
the Company has an executed software license agreement with a customer. Revenue
from software licenses is recognized upon shipment to the customer. Revenue from
sales to resellers is generally recognized upon shipment to the reseller. In the
case of certain long-term contracts, revenue is recognized on a subscription
basis over the life of the contract. Revenue from library subscription fees is
typically billed annually and the related revenue is recognized ratably over the
life of the contract, usually twelve months. Maintenance is normally billed in
advance and recognized ratably over the life of the contract, which is usually
twelve months. Training, consulting and certain other services revenue is
recognized as the services or portions thereof have been provided. Revenue from
contract model development is generally recognized upon shipment of the
underlying models, or upon compliance with acceptance criteria as agreed to with
the customer.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report, including the following discussion and analysis of financial
condition and results of operations, contains certain statements, trend analysis
and other information that constitute "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, which may
involve risks and uncertainties. Such forward looking statements include, but
are not limited to, statements including the words "anticipate," "believe,"
"estimate," "expect," "plan," "intend" and other similar expressions. These
forward looking statements involve risks and uncertainties that could cause
actual results to differ materially from the forward-looking statements,
including, without limitation, the Company's ability to meet its future capital
needs (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources"), the receipt and
timing of orders for the Company's products, timely collections from customers,
changes in capital spending plans by key customers, the lengthy sales cycles for
the Company's products, the effect of the Asian economic situation, the impact
of expense reductions on the Company, increased adoption of behavioral modeling
design methodologies for mixed-signal and mixed-technology systems design, the
Company's ongoing ability to introduce new products and expand its markets,
customer acceptance of new products, seasonal fluctuations in the Company's
order patterns and competitive initiatives, ability to execute financing
strategies, ability to comply with financing agreement covenants, unanticipated
costs related to the Year 2000 issue, and other risks listed from time to time
in the Company's periodic reports filed with the Securities and Exchange
Commission, or otherwise disclosed by the Company.
Results of operations for the periods discussed below should not be considered
indicative of the results to be expected in any future period, and fluctuations
in operating results may also result in fluctuations in the market price of the
Company's common stock. Like most high technology companies, the Company faces
certain business risks that could have adverse effects on the Company's results
of operations, including those discussed below, and those discussed elsewhere in
this Report.
The Company's quarterly operating results have fluctuated in the past and may
fluctuate in the future as a result of the large percentage of orders that are
not received by the Company until near the end of the quarter. The Company's
expense levels are based, in part, on its expectations as to future revenue. If
revenue levels are below expectations, results of operations may be
disproportionately affected because only a small portion of the Company's
expenses varies with its revenue. As a result, the Company may not learn of, or
be able to confirm, revenue or earnings shortfalls until late in the quarter or
following the end of the quarter. Seasonal
7
<PAGE>
factors, including decreases in revenues in European markets in the second
fiscal quarter resulting from European holidays in July and August, and
cyclical economic patterns in the aerospace, defense, automotive or other
end-user industries also contribute to quarter-to-quarter fluctuations. Any
shortfall in revenue or earnings from expected levels or other failure to
meet expectations of the financial markets regarding results of operations
could have an immediate and significant adverse effect on the trading price
of the Company's common stock in any given period.
The Company has historically derived a significant portion of its revenue from
the automotive industry. The automotive industry is characterized by high
cyclicality, technological change, fluctuations in manufacturing capacity, labor
issues, and pricing and gross margin pressures. This industry has from time to
time experienced significant economic downturns characterized by decreased
product demand, production over-capacity, price erosion, work slowdowns and
layoffs. The Company has also historically derived a significant portion of its
revenue from the aerospace and defense industries, which have been characterized
by significant technological changes, high cyclicality and the potential for
significant downturns in business activity resulting from changes in economic
conditions or governmental resources and spending policies. No assurance can be
given that the industries served by the Company will experience economic growth,
will not experience a downturn or that any downturn will not be severe, or that
such conditions would not have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's operating results have depended, and will continue to depend, upon
designers of mixed-signal and mixed-technology systems adopting methods of
design analysis and simulation which use behavioral modeling techniques. The
design analysis and simulation industry is characterized by 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. The
Company's future success will depend upon its ability to enhance its current
products and to develop or acquire new products that keep pace with
technological developments and emerging industry standards and address the
increasingly sophisticated needs of its customers.
8
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated selected items of the
Company's consolidated statements of operations and such items expressed as a
percentage of total revenue (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------
STATEMENTS OF OPERATIONS DATA: 1999 1998
--------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 2,854 51.6% $ 4,045 63.0%
Service and other 2,681 48.4 2,372 37.0
------- ------- ------- -------
Total revenue 5,535 100.0 6,417 100.0
Cost of revenue:
Product licenses 511 9.2 393 6.1
Service and other 167 3.0 220 3.5
------- ------- ------- -------
Total cost of revenue 678 12.2 613 9.6
------- ------- ------- -------
Gross profit 4,857 87.8 5,804 90.4
Operating expenses:
Research and development 1,930 34.9 2,296 35.8
Sales and marketing 3,143 56.8 3,080 48.0
General and administrative 496 9.0 621 9.7
Amortization of intangibles 92 1.6 92 1.4
------- ------- ------- -------
Total operating expenses 5,661 102.3 6,089 94.9
------- ------- ------- -------
Operating loss (804) (14.5) (285) (4.5)
Other expense, net (87) (1.6) (30) (0.4)
-------- -------- -------- --------
Loss before income taxes (891) (16.1) (315) (4.9)
Income tax expense 75 1.4 47 0.7
------- ------- ------- -------
Net loss $ (966) (17.5)% $ (362) (5.6)%
======= ======= ======= =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------
STATEMENTS OF OPERATIONS DATA: 1999 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 5,841 53.1 % $ 6,880 58.2 %
Service and other 5,156 46.9 4,949 41.8
-------- -------- --------- -------
Total revenue 10,997 100.0 11,829 100.0
Cost of revenue:
Product licenses 1,052 9.6 913 7.7
Service and other 335 3.0 554 4.7
-------- -------- --------- -------
Total cost of revenue 1,387 12.6 1,467 12.4
-------- -------- --------- -------
Gross profit 9,610 87.4 10,362 87.6
Operating expenses:
Research and development 3,857 35.1 4,692 39.7
Sales and marketing 6,451 58.7 6,683 56.5
General and administrative 1,083 9.8 1,305 11.0
Amortization of intangibles 184 1.7 184 1.6
Restructuring charges - - 557 4.7
-------- -------- --------- -------
Total operating expenses 11,575 105.3 13,421 113.5
-------- -------- --------- -------
Operating loss (1,965) (17.9) (3,059) (25.9)
Other expense, net (70) (0.6) (232) (1.9)
-------- -------- --------- -------
Loss before income taxes (2,035) (18.5) (3,291) (27.8)
Income tax expense 192 1.8 226 1.9
-------- -------- --------- -------
Net loss $ (2,227) (20.3) % $ (3,517) (29.7) %
======== ======== ========= =======
</TABLE>
SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL YEARS 2000 AND 1999
REVENUE
Total revenue decreased 13.7% to $5.5 million in the second quarter of fiscal
year 2000 from $6.4 million in the second quarter of fiscal year 1999, and
decreased 7.0% to $11.0 million in the first six months of fiscal year 2000
from $11.8 million in the first six months of fiscal year 1999. The Company
sells its products and services primarily through its wholly-owned
subsidiaries in Europe and primarily through distributors in Asia.
International revenue was $5.9 million (54% of total revenue) in the first
six months of fiscal year 2000 compared to $6.0 million (51% of total
revenue) in the first six months of fiscal year 1999. No one customer
accounted for 10% or more of total revenue in the second quarter or first six
months of fiscal years 2000 or 1999.
Product license revenue decreased 29.4% to $2.8 million in the second quarter
of fiscal year 2000 from $4.0 million in the second quarter of fiscal year
1999, and decreased 15.1% to $5.8 million in the first six months of fiscal
year 2000 from $6.9 million in the first six months of fiscal year 1999. The
Company has recently reorganized its U.S. sales force and hired new employees
in sales positions. This, combined with the long sales cycle for the
Company's products, contributed to the decrease in product license revenue in
the second quarter of fiscal year 2000. The decrease in product license
revenue in the first six months of fiscal year 2000 was primarily a result of
the revenue decrease in the second quarter of fiscal year 2000.
Service and other revenue increased 13.0% to $2.7 million in the second
quarter of fiscal year 2000 from $2.4 million in the second quarter of fiscal
year 1999, and increased 4.2% to $5.2 million in the first six
10
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months of fiscal year 2000 from $4.9 million in the first six months of
fiscal year 1999. The increase in the second quarter of fiscal year 2000 was
primarily a result of increased maintenance revenue resulting from growth in
the Company's installed base. The decrease in the first six months of fiscal
year 2000 was the result of the increased maintenance revenue offset by
decreased revenues under the National Institute of Standards and Technology
("NIST") grant and Defense Advanced Research Projects Agency ("DARPA")
contract. Revenues from the NIST grant concluded at the end of the first
quarter of fiscal year 1999 and revenues from the DARPA contract were minimal
in fiscal year 1999, as this contract expired at the end of fiscal year 1999.
There were no revenues from the DARPA contract or the NIST grant in the first
six months of fiscal year 2000.
COST OF REVENUE
Total cost of revenue increased 10.6% to $678,000 in the second quarter of
fiscal year 2000 from $613,000 in the second quarter of fiscal year 1999, and
decreased 5.5% to $1.4 million in the first six months of fiscal year 2000 from
$1.5 million in the first six months of fiscal year 1999.
Cost of product license revenue consists primarily of documentation expense,
media manufacturing costs, supplies, shipping expense, amortization of component
and template model library costs and royalty payments. The Company does not
capitalize development costs for software products since the time between the
establishment of a working model of the software product and its
commercialization is typically of a short duration. Cost of product license
revenue increased to 17.9% of product license revenue in the second quarter of
fiscal year 2000 from 9.7% in the second quarter of fiscal year 1999, and
increased to 18.0% of product license revenue in the first six months of fiscal
year 2000 from 13.3% in the first six months of fiscal year 1999. Costs such as
documentation expense and supplies are expensed as incurred, and development
costs associated with creating the library of component and template models are
capitalized and amortized over the estimated product life, generally five years.
These costs and amortization expenses may not necessarily relate to the number
of product licenses shipped during the period, and in the first six months of
fiscal year 2000 product license revenue was lower than in the same period of
fiscal year 1999.
Cost of service and other revenue consists primarily of maintenance and customer
support expenses (including product enhancements and improvements, bug fixes,
telephone support, installation assistance and on-site support), certain
contract model development costs associated with the DARPA contract and the NIST
grant in fiscal year 1999, and the direct cost of providing services such as
training and consulting. As a percentage of service and other revenue, cost of
service and other revenue decreased to 6.2% of service and other revenue in the
second quarter of fiscal year 2000 from 9.3% in the second quarter of fiscal
year 1999, and decreased to 6.5% of service and other revenue in the first six
months of fiscal year 2000 from 11.2% of service and other revenue in the first
six months of fiscal year 1999. The decrease in second quarter of fiscal year
2000 was primarily a result of work force reductions and attrition, and
continued efforts to reduce operating costs. The decrease in the first six
months of fiscal year 2000 was attributable to decreased activity under the NIST
grant, and the DARPA contract, which had higher costs associated with them than
the Company's other services, the work force reduction which occurred in the
first quarter of fiscal year 1999 and the Company's ongoing cost containment
efforts. There were no costs incurred under the DARPA contract or the NIST grant
in the first six months of fiscal year 2000.
RESEARCH AND DEVELOPMENT
Research and development expense includes all costs associated with development
of new products and technology research. Costs classified in this category
primarily include such items as salaries, fringe benefits and an allocation of
facilities and systems support costs including depreciation of capital equipment
used in research and development. Research and development expenses decreased
15.9% to $1.9 million in the second quarter of fiscal year 2000 from $2.3
million in the second quarter of fiscal year 1999, and decreased 17.8% to $3.9
million in the first six months of fiscal year 2000, from $4.7 million in the
first six months of fiscal year 1999. As a percentage of total revenue, research
and development costs decreased to 34.9% in the second quarter of fiscal year
2000 from 35.8% in the second quarter of fiscal year 1999, and decreased to
35.1% in
11
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the first six months of fiscal year 2000 from 39.7% in the first six months
of fiscal year 1999. The decreases were primarily attributable to the work
force reduction which occurred in fiscal year 1999 and ongoing cost
containment efforts, partially offset in the first quarter of fiscal year
2000 by costs included in research and development expense which were
previously recorded as cost of service and other revenue under the NIST grant
and the DARPA contract.
SALES AND MARKETING
Sales and marketing expense consists primarily of salaries, commissions, travel
and costs of promotional activities. Sales and marketing expense increased
slightly in the second quarter of fiscal year 2000 compared to the second
quarter of fiscal year 1999, and decreased 3.5% to $6.5 million in the first six
months of fiscal year 2000 from $6.7 million in the first six months of fiscal
year 1999. As a percentage of total revenue, sales and marketing expenses
increased to 56.8% in the second quarter of fiscal year 2000 from 48.0% in the
second quarter of fiscal year 1999, and increased to 58.7% in the first six
months of fiscal year 2000 from 56.5% in the first six months of fiscal year
1999, due to decreased revenue in the second quarter and first six months of
fiscal year 2000. The decrease in sales and marketing expense in the first six
months of fiscal year 2000 was primarily the result of the work force reduction
that occurred in the first quarter of fiscal year 1999 and decreased variable
selling costs resulting from a decrease in the level of sales.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include costs associated with the Company's
executive staff, legal, accounting, corporate systems, facilities and human
resources departments. General and administrative expenses decreased 20.1% to
$496,000 in the second quarter of fiscal year 2000 compared to $621,000 in the
second quarter of fiscal year 1999, and decreased 17.0% to $1.1 million in the
first six months of fiscal year 2000 compared to $1.3 million in the first six
months of fiscal year 1999. As a percentage of total revenue, general and
administrative expenses decreased to 9.0% in the second quarter of fiscal year
2000 from 9.7% in the second quarter of fiscal year 1999, and decreased to 9.8%
in the first six months of fiscal year 2000 from 11.0% in the first six months
of fiscal year 1999. The decreases were primarily attributable to declining
depreciation of corporate information systems, the work force reduction which
occurred in the first quarter of fiscal 1999 and attrition.
RESTRUCTURING CHARGES
Results of operations for the first quarter of fiscal year 1999 included a
$557,000 charge for the costs associated with a restructuring plan undertaken to
improve profitability, consisting of a work force reduction primarily in the
marketing and research and development functions of the Company. All of the
restructuring charges were paid in the first quarter of fiscal year 1999.
OTHER EXPENSE, NET
Other expense, net primarily consists of interest expense and the effects of
foreign currency transaction gains and losses. Other expense, net was $87,000
and $30,000 in the second quarters of fiscal years 2000 and 1999, respectively.
Other expense, net was $70,000 and $232,000 in the first six months of fiscal
years 2000 and 1999, respectively. Other expense, net in the first quarter of
fiscal year 1999 included amortization of finance charges from the sale of
approximately $4.0 million of accounts receivable to a financial institution.
Interest expense (other than amortization of finance charges) has increased in
fiscal year 2000 due to increased borrowings.
INCOME TAX EXPENSE
The Company provided for foreign income and withholding taxes of $192,000 and
$226,000 in the first six months of fiscal years 2000 and 1999, respectively The
Company's effective tax rate is sensitive to shifts in income and losses among
the various countries in which the Company does business, since in some
countries
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the Company is in a tax paying position while in other countries the Company
has operating loss carryforwards available to offset taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $865,000 in the first six months of
fiscal year 2000. This resulted primarily from a net loss for the period and a
decrease in unearned revenue, offset by adjustments for depreciation and
amortization and a decrease in accounts receivable. Accounts receivable and
unearned revenue decreased as a result of lower levels of product license
revenue in the first six months of fiscal year 2000.
Net cash used in investing activities was $960,000 in the first six months of
fiscal year 2000, and was primarily associated with the investment in the
Company's component and template model libraries and capital expenditures for
the upgrade of corporate information systems.
Net cash provided by financing activities was $695,000 in the first six months
of fiscal year 2000, which included net borrowings under the Company's line of
credit and proceeds from the exercise of stock options offset by principal
payments on capital lease obligations.
The Company had an operating line of credit with a bank, which allowed the
Company to receive advances based on 80% of eligible foreign and domestic
accounts receivable. At September 30, 1999, $1.1 million was outstanding under
the line of credit. The line of credit was paid off on October 5, 1999 with
proceeds received under the accounts receivable purchase agreement described in
the following paragraph.
On October 1, 1999, the Company entered into an accounts receivable purchase
agreement with a bank under which the Company may sell, from time to time, up to
$2.5 million of accounts receivable, with recourse. The agreement allows for
advances to the Company of 80% of accounts receivable (as approved by the bank),
with a monthly finance charge of 1.75%, computed on outstanding purchased
accounts receivable. Advances under the agreement are collateralized by
substantially all of the assets of the Company. As of November 10, 1999,
outstanding advances under the agreement were $655,000, and the bank has
informed the Company that further advances can not be made under the
agreement until such time as the Company's liquidity position improves.
On October 19, 1999, the Company entered into a Bridge Loan and Security
Agreement and a related Promissory Note (the "Loan Agreements") with a party
with whom the Company is actively engaged in negotiations regarding the
acquisition of the Company by such party. Pursuant to the Loan Agreements, the
Company was advanced $500,000 on October 20, 1999, and will be eligible to draw
an additional $1.5 million upon the execution of a definitive acquisition
agreement with the lending party. Amounts borrowed under the Loan Agreements
bear interest at 10% per annum (13% per annum on any past due payments) and are
collateralized by substantially all of the assets of the Company. All
outstanding principal and interest are due upon the earlier of 180 days from the
date of the Loan Agreements or upon an event of default under the Loan
Agreements.
The Company's future capital needs and the timing of such needs will depend upon
numerous factors which cannot be predicted with certainty, including the
successful negotiation and consummation of the acquisition transaction
referenced above, the Company's results of operations, the amount of revenues
generated from operations, receipt and timing of orders for the Company's
products, timely collections from customers, changes in capital spending plans
by key customers, the impact of expense reductions on the Company, the Company's
ongoing ability to introduce new products and expand its markets, seasonal
fluctuations in the Company's order patterns, ability to execute financing
strategies, ability to access cash balances of its foreign operations in a
timely manner, and unanticipated costs related to the Year 2000 issue.
If the Company is unable to successfully negotiate and consummate an acquisition
transaction, the Company's financial condition and results of operations will be
adversely affected. In particular, the
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Company could be required to significantly reduce its operations, seek
additional financing, sell additional securities on terms that are highly
dilutive to existing shareholders or search for an alternative merger
partner. There can be no assurance that additional financing or sales of
additional securities would be available alternatives and, if available, that
the terms would be acceptable to the Company. Additionally, there can be no
assurance that the Company could find an alternative merger partner. Further,
there can be no assurance that any of these strategies could be executed in a
timely manner.
YEAR 2000 ISSUE
The Company has assessed its computer software programs and operating systems
used in its internal operations including development and accounting systems, to
determine their readiness for the Year 2000. The inability of computer software
programs and operating systems to accurately recognize, interpret and process
date data designating the Year 2000 and beyond could cause systems to yield
inaccurate results or encounter operating problems, including disruption of the
business operations these systems control. The Company has completed its
internal assessment but intends to continue to monitor Year 2000 compliance
matters on an ongoing basis. The Company has replaced or will have replaced by
December 31, 1999, systems that were determined to be deficient.
The cost associated with replacing such systems has not been and will not be
significant.
The Company has completed contacting its major suppliers of products and
services to assess the Year 2000 compliance of each. As the majority of the
Company's major customers are "Fortune 100" companies, the Company has
reviewed Year 2000 public disclosures made by its major customers to
determine whether their operations are Year 2000 compliant. The Company has
not discovered any material deficiencies with respect to its major suppliers or
its major customers based on its contact and review procedures. If the
Company's major suppliers of products and services and its major customers
are not Year 2000 compliant, their noncompliance may cause a material
disruption to their businesses which could negatively impact the Company in
many ways, including the inability to collect payments from customers and the
delay or cessation of deliveries of products or services to its customers.
Additionally, risks associated with parties located outside the U.S. may be
higher as it is generally believed than non-U.S. businesses may not be
addressing their Year 2000 issues on as timely a basis as U.S. businesses.
There can be no assurance that major suppliers of products and services and
major customers will adequately address their Year 2000 issues.
The Company has assessed its products to determine their readiness for the Year
2000. The Company's products do not require date-specific calculations and
therefore the Company believes they will be unaffected by the Year 2000
transition. To the extent that a user of the Company's products does not have
Year 2000 compliant operating systems or development environments, the
Company can give no assurance as to Year 2000 compliance of its products used
on such operating systems or development environments.
Based on the Company's assessment to date, the Company currently believes that
Year 2000 issues will not pose significant risks for the Company. The Company
has not incurred, and does not expect to incur material incremental costs to
ensure Year 2000 compliance of its systems or products. The Company's security
system has been targeted for replacement in December 1999, based on Year 2000
and other technology considerations. This expenditure is not anticipated to be
material. At this time, the Company foresees nominal incremental spending for
the Year 2000 issue. However, if all Year 2000 issues are not properly
identified, or assessment, remediation and testing are not effected timely with
respect to Year 2000 problems that are identified, there can be no assurance
that the Year 2000 issue will not have a material adverse impact on the
Company's business, financial condition or results of operations, or adversely
affect the Company's relationships with customers, vendors or others.
The Company believes its most reasonably likely worst-case Year 2000 scenario
would relate to problems with the systems of third parties rather than with the
Company's internal systems, because the Company has less control over assessing
and remediating the Year 2000 problems of third parties. The Company believes
its risks are greatest with regard to external infrastructure, e.g., electricity
supply, water and sewer
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service and telecommunications. If certain critical third parties, such as
those supplying electricity, water, sewer service and telecommunications
experience difficulties resulting in disruption of service to the Company, a
shutdown of the Company's operations could occur for the duration of the
disruption. The inability of the Company to operate for any significant
period, or any other failure, if not quickly remedied, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
With respect to major external infrastructure, e.g., electricity supply,
water and sewer service and telecommunications, the Company has no
contingency plans that would mitigate the lack of such services. The Company
continues to be in contact with the suppliers of these services to obtain
assurance that there will be no material disruption as a result of Year 2000
issues. The Company is relying on information provided to it by its
infrastructure suppliers to assess their Year 2000 readiness, and therefore
cannot provide assurance that the Company will not be adversely affected by
their Year 2000 issues. Contingency plans will continue to be refined
throughout the remainder of calendar year 1999 as the Company learns more
about the vulnerabilities, if any, of critical third parties regarding year
2000 issues. The Company has not endeavored to evaluate Year 2000 compliance
of external infrastructure suppliers (e.g., suppliers of electricity, water
and sewer service and telecommunications) to its customers. If these
suppliers experience difficulties resulting in disruption of service to the
Company's customers, such disruption could have a material adverse effect on
the Company's business, results of operations and financial condition. There
can be no assurance that the Company will be able to identify, avoid or
develop contingency plans to address all possible worst-case scenarios.
The costs of the Company's Year 2000 assessment, remediation and testing
efforts and the timing and effectiveness of the Company's future product
releases are forward-looking statements that are based upon management's best
estimates. Such estimates were derived using numerous assumptions regarding
future events, including the continued availability of certain resources,
third party remediation plans and compliance assurances, and other factors.
There can be no assurance that these estimates will prove to be accurate and
actual results could differ materially from those currently anticipated.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in results of operations unless specific hedge
accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. The Company does
not expect SFAS No. 133 to have a material impact on its consolidated
financial statements
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not currently use derivative financial instruments for
speculative purposes which expose the Company to market risk. The Company is
exposed to cash flow and fair value risk due to changes in interest rates
with respect to its outstanding debt. Information required by this item is
set forth in ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
Exhibit Number
10.16 Accounts Receivable Purchase Agreement dated
October 1, 1999 between Silicon Valley Bank and
Analogy, Inc., filed herewith
27 Financial Data Schedule, filed herewith
(b) Reports on Form 8-K
A Report on Form 8-K, containing the Company's earnings release for the
quarter ended June 30, 1999, was filed under Item 5, on July 23, 1999.
No other Reports on Form 8-K were filed during the quarter ended September
30, 1999.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANALOGY, INC.
Dated: November 12, 1999
/s/ GARY P. ARNOLD Chairman of the Board, President
- --------------------- and Chief Executive Officer
Gary P. Arnold (Principal Executive Officer)
/s/ DUANE C. FROMHART Vice President and Corporate Controller
- --------------------- (Principal Financial Officer)
Duane C. Fromhart
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EXHIBIT 10.16
SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
This Accounts Receivable Purchase Agreement (the "Agreement") is made
on this FIRST day of OCTOBER 1999, by and among Silicon Valley Bank ("Buyer")
having a place of business at the address specified above and ANALOGY, INC., A
OREGON CORPORATION, AND ITS WHOLLY OWNED SUBSIDIARIES ANALOGY, U.K., ANALOGY
SWEDEN AB, ANALOGY FRANCE S.A. AND ANALOGY, GMBH (individually and collectively
"Seller") having its principal place of business and chief executive office at
9205 SW Gemini Drive, Beaverton, Oregon 97008.
1. DEFINITIONS. When used herein, the following terms shall have the following
meanings.
1.1. "Account Balance" shall mean, on any given day, the gross amount of
all Purchased Receivables unpaid on that day.
1.2. "Account Debtor" shall have the meaning set forth in the California
Uniform Commercial Code and shall include any person liable on any Purchased
Receivable, including without limitation, any guarantor of the Purchased
Receivable and any issuer of a letter of credit or banker's acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor with respect to any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as set forth in Section
3.3 hereof.
1.5. "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8 hereof.
1.7. "Collections" shall mean all good funds received by Buyer from or on
behalf of an Account Debtor with respect to Purchased Receivables.
1.8 "Compliance Certificate" shall mean a certificate, in a form provided
by Buyer to Seller, which contains the certification of the chief financial
officer of Seller that, among other things, the representations and warranties
set forth in this Agreement are true and correct as of the date such certificate
is delivered.
1.9. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.10. "Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.11. "Invoice Transmittal" shall mean a writing signed by an authorized
representative of Seller which accurately identifies the receivables which
Buyer, at its election, may purchase, and includes for each such receivable the
correct amount owed by the Account Debtor, the name and address of the Account
Debtor, the invoice number, the invoice date and the account code.
1.12. "Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or payable by
Seller to Buyer of any kind or nature, present or future, arising under or in
connection with this Agreement or under any other document, instrument or
agreement, whether or not evidenced by any note, guarantee or other instrument,
whether arising on account or by overdraft, whether direct or indirect
(including those acquired by assignment) absolute or contingent, primary or
secondary, due or to become due, now owing or hereafter arising, and however
acquired; including, without limitation, all Advances, Finance Charges,
Administrative Fees, interest, Repurchase Amounts, fees, expenses, professional
fees and attorneys' fees and any other sums chargeable to Seller hereunder or
otherwise.
1.13. "Purchased Receivables" shall mean all those accounts, receivables,
chattel paper, instruments, contract rights, documents, general intangibles,
letters of credit, drafts, bankers acceptances, and rights to payment, and all
proceeds thereof (all of the foregoing being referred to as "receivables"),
arising out of the invoices and other agreements identified on or delivered with
any Invoice Transmittal delivered by Seller to Buyer which Buyer elects to
purchase and for which Buyer makes an Advance.
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1.14. "Refund" shall have the meaning set forth in Section 3.5 hereof.
1.15. "Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.16. "Repurchase Amount" shall have the meaning set forth in Section 4.2
hereof.
1.17. "Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.18. "Reconciliation Period" shall mean each calendar month of every
year.
2. PURCHASE AND SALE OF RECEIVABLES.
2.1. OFFER TO SELL RECEIVABLES. During the term hereof, and provided that
there does not then exist any Event of Default or any event that with notice,
lapse of time or otherwise would constitute an Event of Default, Seller may
request that Buyer purchase receivables and Buyer may, in its sole discretion,
elect to purchase receivables. Seller shall deliver to Buyer an Invoice
Transmittal with respect to any receivable for which a request for purchase is
made. An authorized representative of Seller shall sign each Invoice Transmittal
delivered to Buyer. Buyer shall be entitled to rely on all the information
provided by Seller to Buyer on or with the Invoice Transmittal and to rely on
the signature on any Invoice Transmittal as an authorized signature of Seller.
2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to purchase
any receivable listed on an Invoice Transmittal. Buyer may exercise its sole
discretion in approving the credit of each Account Debtor before buying any
receivable. Upon acceptance by Buyer of all or any of the receivables described
on any Invoice Transmittal, Buyer shall pay to Seller 80 (%) percent of the face
amount of each receivable Buyer desires to purchase. Such payment shall be the
"Advance" with respect to such receivable. Buyer may, from time to time, in its
sole discretion, change the percentage of the Advance. Upon Buyer's acceptance
of the receivable and payment to Seller of the Advance, the receivable shall
become a "Purchased Receivable." It shall be a condition to each Advance that
(i) all of the representations and warranties set forth in Section 6 of this
Agreement be true and correct on and as of the date of the related Invoice
Transmittal and on and as of the date of such Advance as though made at and as
of each such date, and (ii) no Event of Default or any event or condition that
with notice, lapse of time or otherwise would constitute an Event of Default
shall have occurred and be continuing, or would result from such Advance.
Notwithstanding the foregoing, in no event shall the aggregate amount of all
Purchased Receivables outstanding at any time exceed TWO MILLION FIVE HUNDRED
THOUSAND DOLLARS ($2,500,000.00).
2.3. EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyer's payment of an
Advance, and for and in consideration therefor and in consideration of the
covenants of this Agreement, Seller hereby absolutely sells, transfers and
assigns to Buyer, all of Seller's right, title and interest in and to each
Purchased Receivable and all monies due or which may become due on or with
respect to such Purchased Receivable. Buyer shall be the absolute owner of each
Purchased Receivable. Buyer shall have, with respect to any goods related to the
Purchased Receivable, all the rights and remedies of an unpaid seller under the
California Uniform Commercial Code and other applicable law, including the
rights of replevin, claim and delivery, reclamation and stoppage in transit.
2.4. ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall be the
amount by which the face amount of the Purchased Receivable exceeds the Advance
on that Purchased Receivable (the "Reserve"); provided, the Reserve with respect
to all Purchased Receivables outstanding at any one time shall be an amount not
less than 20 (%) percent of the Account Balance at that time and may be set at a
higher percentage at Buyer's sole discretion. The reserve shall be a book
balance maintained on the records of Buyer and shall not be a segregated fund.
3. COLLECTIONS, CHARGES AND REMITTANCES.
3.1. COLLECTIONS. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a daily basis;
provided, that if Seller is in default under this Agreement, Buyer shall apply
all Collections to Seller's Obligations hereunder in such order and manner as
Buyer may
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determine. If an item of collection is not honored or Buyer does not
receive good funds for any reason, the amount shall be included in the Account
Balance as if the Collections had not been received and Finance Charges under
Section 3.2 shall accrue thereon.
3.2. FINANCE CHARGES. On each Reconciliation Date Seller shall pay to Buyer
a finance charge in an amount equal to 1.75 (%) percent per month of the average
daily Account Balance outstanding during the applicable Reconciliation Period
(the "Finance Charges"). Buyer shall deduct the accrued Finance Charges from the
Reserve as set forth in Section 3.5 below.
3.3. ADMINISTRATIVE FEE. On each Reconciliation Date Seller shall pay to
Buyer an Administrative Fee equal to .50 (%) percent of the face amount of each
Purchased Receivable first purchased during that Reconciliation Period (the
"Administrative Fee"). Buyer shall deduct the Administrative Fee from the
Reserve as set forth in Section 3.5 below.
3.4. ACCOUNTING. Buyer shall prepare and send to Seller after the close of
business for each Reconciliation Period, an accounting of the transactions for
that Reconciliation Period, including the amount of all Purchased Receivables,
all Collections, Adjustments, Finance Charges, and the Administrative Fee. The
accounting shall be deemed correct and conclusive unless Seller makes written
objection to Buyer within thirty (30) days after the Buyer mails the accounting
to Seller.
3.5. REFUND TO SELLER. Provided that there does not then exist an Event of
Default or any event or condition that with notice, lapse of time or otherwise
would constitute an Event of Default, Buyer shall refund to Seller by check
after the Reconciliation Date, the amount, if any, which Buyer owes to Seller at
the end of the Reconciliation Period according to the accounting prepared by
Buyer for that Reconciliation Period (the "Refund"). The Refund shall be an
amount equal to:
(A) (1) The Reserve as of the beginning of that Reconciliation Period,
PLUS
(2) the Reserve created for each Purchased Receivable purchased
during that Reconciliation Period, MINUS
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of the
following Reconciliation Period in the minimum percentage set
forth in Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses, as
set forth in Section 12 for which oral or written demand has been
made by Buyer to Seller during that Reconciliation Period to the
extent Buyer has agreed to accept payment thereof by deduction
from the Refund.
In the event the formula set forth in this Section 3.5 results in an amount due
to Buyer from Seller, Seller shall make such payment in the same manner as set
forth in Section 4.3 hereof for repurchases. If the formula set forth in this
Section 3.5 results in an amount due to Seller from Buyer, Buyer shall make such
payment by check, subject to Buyer's rights under Section 4.3 and Buyer's rights
of offset and recoupment.
4. RECOURSE AND REPURCHASE OBLIGATIONS.
4.1. RECOURSE. Buyer's acquisition of Purchased Receivables from Seller
shall be with full recourse against Seller. In the event the Obligations exceed
the amount of Purchased Receivables and Collateral, Seller shall be liable for
any deficiency.
4.2. SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer on
demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
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(A) which remains unpaid ninety (90) calendar days after the invoice
date; or
(B) which is owed by any Account Debtor who has filed, or has had filed
against it, any bankruptcy case, assignment for the benefit of
creditors, receivership, or insolvency proceeding or who has become
insolvent (as defined in the United States Bankruptcy Code) or who is
generally not paying its debts as such debts become due; or
(C) with respect to which there has been any breach of warranty or
representation set forth in Section 6 hereof or any breach of any
covenant contained in this Agreement; or
(D) with respect to which the Account Debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or short payment;
together with all reasonable attorneys' and professional fees and expenses and
all court costs incurred by Buyer in collecting such Purchased Receivable and/or
enforcing its rights under, or collecting amounts owed by Seller in connection
with, this Agreement (collectively, the "Repurchase Amount").
4.3. SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE BUYER.
When any Repurchase Amount or other amount owing to Buyer becomes due, Buyer
shall inform Seller of the manner of payment which may be any one or more of the
following in Buyer's sole discretion: (a) in cash immediately upon demand
therefor; (b) by delivery of substitute invoices and an Invoice Transmittal
acceptable to Buyer which shall thereupon become Purchased Receivables; (c) by
adjustment to the Reserve pursuant to Section 3.5 hereof; (d) by deduction from
or offset against the Refund that would otherwise be due and payable to Seller;
(e) by deduction from or offset against the amount that otherwise would be
forwarded to Seller in respect of any further Advances that may be made by
Buyer; or (f) by any combination of the foregoing as Buyer may from time to time
choose.
4.4. SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon and
after the occurrence of an Event of Default, Seller shall, upon Buyer's demand
(or, in the case of an Event of Default under Section 9(B), immediately without
notice or demand from Buyer) repurchase all the Purchased Receivables then
outstanding, or such portion thereof as Buyer may demand. Such demand may, at
Buyer's option, include and Seller shall pay to Buyer immediately upon demand,
cash in an amount equal to the Advance with respect to each Purchased Receivable
then outstanding together with all accrued Finance Charges, Adjustments,
Administrative Fees, attorney's and professional fees, court costs and expenses
as provided for herein, and any other Obligations. Upon receipt of payment in
full of the Obligations, Buyer shall immediately instruct Account Debtors to pay
Seller directly, and return to Seller any Refund due to Seller. For the purpose
of calculating any Refund due under this Section only, the Reconciliation Date
shall be deemed to be the date Buyer receives payment in good funds of all the
Obligations as provided in this Section 4.4.
5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and hereby
authorizes Buyer, regardless of whether there has been an Event of Default, (a)
to sell, assign, transfer, pledge, compromise, or discharge the whole or any
part of the Purchased Receivables; (b) to demand, collect, receive, sue, and
give releases to any Account Debtor for the monies due or which may become due
upon or with respect to the Purchased Receivables and to compromise, prosecute,
or defend any action, claim, case or proceeding relating to the Purchased
Receivables, including the filing of a claim or the voting of such claims in any
bankruptcy case, all in Buyer's name or Seller's name, as Buyer may choose; (c)
to prepare, file and sign Seller's name on any notice, claim, assignment,
demand, draft, or notice of or satisfaction of lien or mechanics' lien or
similar document with respect to Purchased Receivables; (d) to notify all
Account Debtors with respect to the Purchased Receivables to pay Buyer directly;
(e) to receive, open, and dispose of all mail addressed to Seller for the
purpose of collecting the Purchased Receivables; (f) to endorse Seller's name on
any checks or other forms of payment on the Purchased Receivables; (g) to
execute on behalf of Seller any and all instruments, documents, financing
statements and the like to perfect Buyer's interests in the Purchased
Receivables and Collateral; and (h) to do all acts and things necessary or
expedient, in furtherance of any such purposes. If Buyer receives a check or
item which is payment for both a Purchased Receivable and
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another receivable, the funds shall first be applied to the Purchased
Receivable and, so long as there does not exist an Event of Default or an
event that with notice, lapse of time or otherwise would constitute an Event
of Default, the excess shall be remitted to Seller. Upon the occurrence and
continuation of an Event of Default, all of the power of attorney rights
granted by Seller to Buyer hereunder shall be applicable with respect to all
Purchased Receivables and all Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1. RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce
Buyer to buy receivables and to renders its services to Seller, and
with full knowledge that the truth and accuracy of the following are
being relied upon by the Buyer in determining whether to accept
receivables as Purchased Receivables, Seller represents, warrants,
covenants and agrees, with respect to each Invoice Transmittal
delivered to Buyer and each receivable described therein, that:
(A) Seller is the absolute owner of each receivable set forth in the
Invoice Transmittal and has full legal right to sell, transfer and
assign such receivables;
(B) The correct amount of each receivable is as set forth in the
Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any and
all obligations required of the Seller have been fulfilled as of the
date of the Invoice Transmittal;
(D) Each receivable set forth on the Invoice Transmittal is based on
an actual sale and delivery of goods and/or services actually
rendered, is presently due and owing to Seller, is not past due or in
default, has not been previously sold, assigned, transferred, or
pledged, and is free of any and all liens, security interests and
encumbrances other than liens, security interests or encumbrances in
favor of Buyer or any other division or affiliate of Silicon Valley
Bank;
(E) There are no defenses, offsets, or counterclaims against any of
the receivables, and no agreement has been made under which the
Account Debtor may claim any deduction or discount, except as
otherwise stated in the Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the Buyer and
shall be collected by Buyer, but if for any reason it should be paid
to Seller, Seller shall promptly notify Buyer of such payment, shall
hold any checks, drafts, or monies so received in trust for the
benefit of Buyer, and shall promptly transfer and deliver the same to
the Buyer;
(G) Buyer shall have the right of endorsement, and also the right to
require endorsement by Seller, on all payments received in connection
with each Purchased Receivable and any proceeds of Collateral;
(H) Seller, and to Seller's best knowledge, each Account Debtor set
forth in the Invoice Transmittal, are and shall remain solvent as that
term is defined in the United States Bankruptcy Code and the
California Uniform Commercial Code, and no such Account Debtor has
filed or had filed against it a voluntary or involuntary petition for
relief under the United States Bankruptcy Code;
(I) Each Account Debtor named on the Invoice Transmittal will not
object to the payment for, or the quality or the quantity of the
subject matter of, the receivable and is liable for the amount set
forth on the Invoice Transmittal;
(J) Each Account Debtor shall promptly be notified, after acceptance
by Buyer, that the Purchased Receivable has been transferred to and is
payable to Buyer, and Seller shall not take or permit any action to
countermand such notification; and
(K) All receivables forwarded to and accepted by Buyer after the date
hereof, and thereby becoming Purchased Receivables, shall comply with
each and every one of the foregoing representations, warranties,
covenants and agreements referred to above in this Section 6.1.
6.2. ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition to
the foregoing warranties, representations and covenants, to induce
Buyer to buy receivables and to render its services to Seller, Seller
hereby represents, warrants, covenants and agrees that:
5
<PAGE>
(A) Seller will not assign, transfer, sell, or grant , or permit any
lien or security interest in any Purchased Receivables or Collateral
to or in favor of any other party, without Buyer's prior written
consent;
(B) The Seller's name, form of organization, chief executive office,
and the place where the records concerning all Purchased Receivables
and Collateral are kept is set forth at the beginning of this
Agreement, Collateral is located only at the location set forth in
the beginning of this Agreement, or, if located at any additional
location, as set forth on a schedule attached to this Agreement, and
Seller will give Buyer at least thirty (30) days prior written
notice if such name, organization, chief executive office or other
locations of Collateral or records concerning Purchased Receivables
or Collateral is changed or added and shall execute any documents
necessary to perfect Buyer's interest in the Purchased Receivables
and the Collateral;
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due,
including without limitation all payroll and withholding taxes and
state sales taxes; (ii) deliver at any time and from time to time at
Buyer's request, evidence satisfactory to Buyer that all such
amounts have been paid to the proper taxing authorities; and (iii)
if requested by Buyer, pay its payroll and related taxes through a
bank or an independent payroll service acceptable to Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an
Invoice Transmittal, or as of the time Seller accepts any Advance
from Buyer, filed a voluntary petition for relief under the United
States Bankruptcy Code or had filed against it an involuntary
petition for relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and
licenses of any of the foregoing, such interest has been disclosed
to Buyer and is specifically listed and identified on a schedule to
this Agreement, and Seller shall immediately notify Buyer if Seller
hereafter obtains any interest in any additional copyrights,
patents, trademarks or licenses that are significant in value or are
material to the conduct of its business;
(F) Seller shall provide Buyer with a Compliance Certificate (I) on
a quarterly basis to be received by Buyer no later than the fifth
calendar day following each calendar quarter, and; (ii) on a more
frequent or other basis if and as requested by Buyer; and
(G) Seller shall provide Buyer with a deferred revenue listing upon
request.
7. ADJUSTMENTS. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall
promptly advise Buyer and shall, subject to the Buyer's approval, resolve
such disputes and advise Buyer of any adjustments. Unless the disputed
Purchased Receivable is repurchased by Seller and the full Repurchase Amount
is paid, Buyer shall remain the absolute owner of any Purchased Receivable
which is subject to Adjustment or repurchase under Section 4.2 hereof, and
any rejected, returned, or recovered personal property, with the right to
take possession thereof at any time. If such possession is not taken by
Buyer, Seller is to resell it for Buyer's account at Seller's expense with
the proceeds made payable to Buyer. While Seller retains possession of said
returned goods, Seller shall segregate said goods and mark them "property of
Silicon Valley Bank."
8. SECURITY INTEREST. To secure the prompt payment and performance to Buyer
of all of the Obligations, Seller hereby grants to Buyer a continuing lien
upon and security interest in all of Seller's now existing or hereafter
arising rights and interest in the following, whether now owned or existing
or hereafter created, acquired, or arising, and wherever located
(collectively, the "Collateral"):
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances,
drafts, checks, cash, securities, and general intangibles
(including, without limitation, all claims, causes of action,
deposit accounts, guaranties, rights in and claims under insurance
policies (including rights to premium refunds), rights to tax
refunds, copyrights, patents, trademarks, rights in and under
license agreements, and all other intellectual property);
(B) All inventory, including Seller's rights to any returned or
rejected goods, with respect to which Buyer shall have all the rights
of any unpaid seller, including the rights of replevin, claim and
delivery, reclamation, and stoppage in transit;
6
<PAGE>
(C) All monies, refunds and other amounts due Seller, including,
without limitation, amounts due Seller under this Agreement
(including Seller's right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures,
tools, supplies and motor vehicles;
(E) All farm products, crops, timber, minerals and the like
(including oil and gas);
(F) All accessions to, substitutions for, and replacements of, all
of the foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or
involuntary disposition, including insurance proceeds.
Seller is not authorized to sell, assign, transfer or otherwise convey any
Collateral without Buyer's prior written consent, except for the sale of
finished inventory in the Seller's usual course of business. Seller agrees to
sign UCC financing statements, in a form acceptable to Buyer, and any other
instruments and documents requested by Buyer to evidence, perfect, or protect
the interests of Buyer in the Collateral. Seller agrees to deliver to Buyer the
originals of all instruments, chattel paper and documents evidencing or related
to Purchased Receivables and Collateral.
9. DEFAULT. The occurrence of any one or more of the following shall constitute
an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
(B) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any
assignment for the benefit of creditors, or appointment of a
receiver or custodian for any of its assets;
(C) Seller shall become insolvent in that its debts are greater than
the fair value of its assets, or Seller is generally not paying its
debts as they become due or is left with unreasonably small capital;
(D) Any involuntary lien, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or any
Collateral;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to
Buyer's satisfaction within ten (10) days after Buyer has given
Seller oral or written notice thereof; provided, that if such breach
is incapable of being cured it shall constitute an immediate default
hereunder;
(F) Seller is not in compliance with, or otherwise is in default
under, any term of any document, instrument or agreement evidencing
a debt, obligation or liability of any kind or character of Seller,
now or hereafter existing, in favor of Buyer or any division or
affiliate of Silicon Valley Bank, regardless of whether such debt,
obligation or liability is direct or indirect, primary or secondary,
joint, several or joint and several, or fixed or contingent,
together with any and all renewals and extensions of such debts,
obligations and liabilities, or any part thereof;
(G) An event of default shall occur under any guaranty executed by
any guarantor of the Obligations of Seller to Buyer under this
Agreement, or any material provision of any such guaranty shall for
any reason cease to be valid or enforceable or any such guaranty
shall be repudiated or terminated, including by operation of law;
(H) A default or event of default shall occur under any agreement
between Seller and any creditor of Seller that has entered into a
subordination agreement with Buyer; or
(I) Any creditor that has entered into a subordination agreement
with Buyer shall breach any of the terms of or not comply with such
subordination agreement.
10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller; (2) all or a
portion of the Obligations shall be, at the option of and upon demand by
Buyer, or with respect to an Event of Default described in Section 9(B),
automatically and without notice or demand, due and payable in full; and (3)
Buyer shall have and may exercise all the rights and remedies under this
Agreement and under applicable law, including the rights and remedies of a
secured party under the California Uniform Commercial Code, all the power of
attorney rights described in
7
<PAGE>
Section 5 with respect to all Collateral, and the right to collect, dispose
of, sell, lease, use, and realize upon all Purchased Receivables and all
Collateral in any commercial reasonable manner. Seller and Buyer agree that
any notice of sale required to be given to Seller shall be deemed to be
reasonable if given five (5) days prior to the date on or after which the
sale may be held. In the event that the Obligations are accelerated
hereunder, Seller shall repurchase all of the Purchased Receivables as set
forth in Section 4.4.
11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid
when due, including, without limitation, amounts due under Section 3.5,
Repurchase Amounts, amounts due under Section 12, and any other Obligations,
such amounts shall bear interest at a per annum rate equal to the per annum
rate of the Finance Charges until the earlier of (i) payment in good funds or
(ii) entry of a final judgment thereof, at which time the principal amount of
any money judgment remaining unsatisfied shall accrue interest at the highest
rate allowed by applicable law.
12. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to Buyer
immediately upon demand all fees, costs and expenses (including fees of
attorneys and professionals and their costs and expenses) that Buyer incurs
or may from time to time impose in connection with any of the following: (a)
preparing, negotiating, administering, and enforcing this Agreement or any
other agreement executed in connection herewith, including any amendments,
waivers or consents in connection with any of the foregoing, (b) any
litigation or dispute (whether instituted by Buyer, Seller or any other
person) in any way relating to the Purchased Receivables, the Collateral,
this Agreement or any other agreement executed in connection herewith or
therewith, (d) enforcing any rights against Seller or any guarantor, or any
Account Debtor, (e) protecting or enforcing its interest in the Purchased
Receivables or the Collateral, (f) collecting the Purchased Receivables and
the Obligations, and (g) the representation of Buyer in connection with any
bankruptcy case or insolvency proceeding involving Seller, any Purchased
Receivable, the Collateral, any Account Debtor, or any guarantor. Seller
shall indemnify and hold Buyer harmless from and against any and all claims,
actions, damages, costs, expenses, and liabilities of any nature whatsoever
arising in connection with any of the foregoing.
13. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any provision
of this Agreement is deemed invalid by reason of law, this Agreement will be
construed as not containing such provision and the remainder of the Agreement
shall remain in full force and effect. Buyer retains all of its rights, even
if it makes an Advance after an Event of Default. If Buyer waives an Event of
Default, it may enforce a later Event of Default. Any consent or waiver
under, or amendment of, this Agreement must be in writing. Nothing contained
herein, or any action taken or not taken by Buyer at any time, shall be
construed at any time to be indicative of any obligation or willingness on
the part of Buyer to amend this Agreement or to grant to Seller any waivers
or consents. This Agreement has been transmitted by Seller to Buyer at
Buyer's office in the State of California and has been executed and accepted
by Buyer in the State of California. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of California.
14. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require or
prefer that all of Seller's receivables be paid to the same address and/or
party, or Seller and Buyer may agree that all receivables with respect to
certain Account Debtors be paid to one party. In such event Buyer and Seller
may agree that Buyer shall collect all receivables whether owned by Seller or
Buyer and (provided that there does not then exist an Event of Default or
event that with notice, lapse or time or otherwise would constitute an Event
of Default, and subject to Buyer's rights in the Collateral) Buyer agrees to
remit to Seller the amount of the receivables collections it receives with
respect to receivables other than Purchased Receivables. It is understood and
agreed by Seller that this Section does not impose any affirmative duty on
Buyer to do any act other than to turn over such amounts. All such
receivables and collections are Collateral and in the event of Seller's
default hereunder, Buyer shall have no duty to remit collections of
Collateral and may apply such collections to the obligations hereunder and
Buyer shall have the rights of a secured party under the California Uniform
Commercial Code.
8
<PAGE>
15. NOTICES. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement
entered into in connection herewith shall be in writing and (except for
financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by a
recognized overnight delivery service, certified mail, postage prepaid,
return receipt requested, or by telefacsimile to Seller or to Buyer, as the
case may be, at its addresses set forth above:
16. SUBROGATION AND SIMILAR RIGHTS. Notwithstanding any other provision of
this Agreement or any other agreement by and among Seller and Buyer, each
Seller irrevocably waives all rights that it may have at law or in equity
(including, without limitation, any law subrogating the Seller to the rights
of Buyer under this Agreement) to seek contribution, indemnification, or any
other form of reimbursement from any other Seller, or any other Person now or
hereafter primarily or secondarily liable for any of the Obligations, for any
payment made by the Seller with respect to the Obligations in connection with
this Agreement or otherwise and all rights that it might have to benefit
from, or to participate in, any security for the Obligations as a result of
any payment made by the Seller with respect to the Obligations in connection
with this Agreement or otherwise. Any agreement providing for
indemnification, reimbursement or any other arrangement prohibited under this
Section shall be null and void. If any payment is made to a Seller in
contravention of this Section, such Seller shall hold such payment in trust
for Buyer and such payment shall be promptly delivered to Buyer for
application to the Obligations, whether matured or unmatured.
17. WAIVERS OF NOTICE. Each Seller waives notice of acceptance hereof; notice
of the existence, creation or acquisition of any of the Obligations; notice
of an Event of Default; notice of the amount of the Obligations outstanding
at any time; notice of intent to accelerate; notice of acceleration; notice
of any adverse change in the financial condition of any other Seller or of
any other fact that might increase the Seller's risk; presentment for
payment; demand; protest and notice thereof as to any instrument; default;
and all other notices and demands to which the Seller would otherwise be
entitled. Each Seller waives any defense arising from any defense of any
other Seller, or by reason of the cessation from any cause whatsoever of the
liability of any other Seller. Buyer's failure at any time to require strict
performance by any Seller of any provision of this Agreement shall not waive,
alter or diminish any right of Buyer thereafter to demand strict compliance
and performance therewith. Nothing contained herein shall prevent Buyer from
foreclosing on the Lien of any deed of trust, mortgage or other security
instrument, or exercising any rights available thereunder, and the exercise
of any such rights shall not constitute a legal or equitable discharge of any
Seller. Each Seller also waives any defense arising from any act or omission
of Buyer that changes the scope of the Seller's risks hereunder. Each Seller
hereby waives any right to assert against Buyer any defense (legal or
equitable), setoff, counterclaim, or claims that such Seller individually may
now or hereafter have against another Seller or any other Person liable to
Seller with respect to the Obligations in any manner or whatsoever.
18. SUBROGATION DEFENSES. Each Seller hereby waives any defense based on
impairment or destruction of its subrogation or other rights against any
other Seller and waives all benefits which might otherwise be available to it
under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848,
2850, 2899 and 3433 and California Code of Civil Procedure Sections 580a,
580b, 580d and 726, as those statutory provisions are now in effect and
hereafter amended, and under any other similar statutes now and hereafter in
effect.
19. RIGHT TO SETTLE, RELEASE. The liability of Sellers hereunder shall not be
diminished by (i) any agreement, understanding or representation that any of
the Obligations is or was to be guaranteed by another Person or secured by
other property, or (ii) any release or unenforceability, whether partial or
total, or rights, if any, which Seller may now or hereafter have against any
other Person, including another Seller, or property with respect to any of
the Obligations.
Without notice to any Seller and without affecting the liability of any
Seller hereunder, Buyer may (i) compromise, settle, renew, extend the time
for payment, change the manner or terms of payment, discharge the performance
of, decline to enforce, or release all or any of the Obligations with respect
to a
9
<PAGE>
Seller, (ii) grant other indulgences to a Seller in respect of the
Obligations, (iii) modify in any manner any documents, relating to the
Obligations with respect to a Seller, (iv) release, surrender or exchange any
deposits or other property securing the Obligations, whether pledged by a
Seller or any other Person, or (v) compromise, settle renew, or extend the
time for payment, discharge the performance of, decline to enforce, or
release all or any obligations of any guarantor, endorser or other Person who
is now or may hereafter be liable with respect to any of the Obligations.
20. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT;
AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS
DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL
COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
21. TERM AND TERMINATION. The term of this Agreement shall be for one (1)
year from the date hereof, and from year to year thereafter unless terminated
in writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer's security interest in
the Collateral and Buyer's ownership of the Purchased Receivables, and this
Agreement shall continue to be effective, and Buyer's rights and remedies
hereunder shall survive such termination, until all transactions entered into
and Obligations incurred hereunder or in connection herewith have been
completed and satisfied in full.
22. TITLES AND SECTION HEADINGS. The titles and section headings used herein
are for convenience only and shall not be used in interpreting this Agreement.
23. OTHER AGREEMENTS. The terms and provisions of this Agreement shall not
adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The
terms of such other documents, instruments and agreements shall remain in
full force and effect notwithstanding the execution of this Agreement. In the
event of a conflict between any provision of this Agreement and any provision
of any other document, instrument or agreement between Seller on the one
hand, and Buyer or any other division or affiliate of Silicon Valley Bank on
the other hand, Buyer shall determine in its sole discretion which provision
shall apply. Seller acknowledges specifically that any security agreements,
liens and/or security interests currently securing payment of any obligations
of Seller owing to Buyer or any other division or affiliate of Silicon Valley
Bank also secure Seller's obligations under this Agreement, and are valid and
subsisting and are not adversely affected by execution of this Agreement.
Seller further acknowledges that (a) any collateral under other outstanding
security agreements or other documents between Seller and Buyer or any other
division or affiliate of Silicon Valley Bank secures the obligations of
Seller under this Agreement and (b) a default by Seller under this Agreement
constitutes a default under other outstanding agreements between Seller and
Buyer or any other division or affiliate of Silicon Valley Bank.
10
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the day
and year above written.
SELLER: ANALOGY, INC.
By Duane Fromhart
Title Vice President/Controller
SELLER: ANALOGY, U.K.
By Duane Fromhart
Title Vice President/Controller
SELLER: ANALOGY SWEDEN AB
By Duane Fromhart
Title Vice President/Controller
SELLER: ANALOGY FRANCE S.A.
By Duane Fromhart
Title Vice President/Controller
SELLER: ANALOGY, GMBH
By Duane Fromhart
Title Vice President/Controller
BUYER: SILICON VALLEY BANK
By Don Chandler
Title Senior Vice President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S REPORT ON FORM 10Q FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 869
<SECURITIES> 0
<RECEIVABLES> 5,415
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,559
<PP&E> 12,786
<DEPRECIATION> 11,072
<TOTAL-ASSETS> 17,518
<CURRENT-LIABILITIES> 12,388
<BONDS> 0
0
0
<COMMON> 18,801
<OTHER-SE> (14,733)
<TOTAL-LIABILITY-AND-EQUITY> 17,518
<SALES> 5,841
<TOTAL-REVENUES> 10,997
<CGS> 1,052
<TOTAL-COSTS> 1,387
<OTHER-EXPENSES> 11,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,035)
<INCOME-TAX> 192
<INCOME-CONTINUING> (2,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,227)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
