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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: March 31, 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
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(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF
THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
--------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 1, 1999 was $22,498,959 based upon the closing price of
the Registrant's Common Stock on the Nasdaq National Market System on that date.
The number of shares outstanding of the Registrant's Common Stock as of June 1,
1999 was 9,536,357 shares.
--------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement, to be used in connection with the Company's Annual
Meeting of Shareholders to be held on or about July 23, 1999.
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ANALOGY, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
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Item 1 - Business 1
Item 2 - Properties 5
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote
of Security Holders 6
PART II
Item 5 - Market for the Registrant's Common
Equity and Related Stockholder Matters 6
Item 6 - Selected Financial Data 6
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
Item 7A - Quantitative and Qualitative Disclosures About
Market Risk 15
Item 8 - Financial Statements and Supplementary
Data 16
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 10 - Directors and Executive Officers of the
Registrant 17
Item 11 - Executive Compensation 17
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 17
Item 13 - Certain Relationships and Related
Transactions 17
PART IV
Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 17
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PART I
ITEM 1. BUSINESS
GENERAL
Analogy, Inc. (the "Company" or "Analogy") 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 Saber simulator supports top-down design of mixed-signal,
mixed-technology systems using the Company's proprietary analog hardware
description language, MAST. The Saber simulator and its accompanying MAST models
are used in the design of electronic, mechanical, hydraulic and optical
components and systems. This multi-functional simulator provides manufacturers
of products incorporating mixed-signal, mixed-technology systems with
productivity increases similar to those Integrated Circuit ("IC") designers
experienced through the adoption of digital simulators. The Saber simulator is
used in many industries for products as diverse as deep sub-micron ICs, video
recorders, hydraulic presses, engine controls in automobiles, anti-lock brake
systems and avionics systems.
The Company was founded in 1985 and is incorporated under the laws of the State
of Oregon. Its executive offices are located at 9205 SW Gemini Drive, Beaverton,
Oregon, 97008.
PRODUCTS
The Company's primary software products are licensed to customers. The Company's
model libraries are typically provided on an annual subscription basis, under
which the customer receives periodic updates as new models are generated.
Support is provided based on annual or other periodic contracts. A minimum,
single-user configuration would include Saber, SaberScope and either SaberSketch
or a Frameway Integration product. List price of such a minimum configuration
for a single user, plus a one-year subscription to the Company's model
libraries, would start at approximately $38,000. Options can increase the single
user price to over $80,000.
SABER SIMULATOR. The Saber simulator is the core simulation engine for the
Company's product line. It solves the system of equations described in the MAST
models. This information provides the user with the ability to obtain
performance data on circuit or system operation in many areas. Saber runs
independently from the model library. It allows performance modeling from steady
state operating levels to operation over time, under stress, over frequency, and
in a wide variety of analytical modes. MAST is the Company's Hardware
Description Language ("HDL"), and it was the first behavioral modeling HDL
capable of handling both analog and digital components. MAST enables the
modeling of any physical device or technology that can be represented in
mathematical terms. Using MAST, complex mixed-signal, mixed-technology systems
can be modeled and analyzed in a top-down or bottom-up manner, enabling an
iterative design process. The models can be simple in content, as with those
used in a "proof of concept" high-level design, or highly detailed, as would be
required for new deep sub-micron devices developed in the IC industry.
CO-SIMULATION INTERFACES. The Company's co-simulation interface products provide
linkages to digital simulators widely used in the IC design market, such as
Cadence Design Systems, Inc.'s Verilog-XL, Model Technology Inc.'s ModelSim VHDL
and ModelSim PLUS, and Viewlogic Systems, Inc.'s Speedwave, ViewSim and Fusion.
In March 1999, the Company released the industry's first co-simulation product
available on the Windows-NT operating system. This product is based on the Saber
simulator and Model Technology Inc.'s ModelSim products. The co-simulation
interfaces allow customers requiring mixed-signal, mixed-technology simulation
to use models previously developed for one of these digital simulators.
TEMPLATE MODEL LIBRARIES. The Company's template models are mathematical
descriptions of device behavior with built-in flexibility that allows designers
to characterize specific components. Such templates describe the behavior of
devices, such as transistors, hydraulic pumps, valves, motors or fiber optic
cable. Each new template model broadens the applicability of the Saber
simulator.
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COMPONENT MODEL LIBRARIES. The Company's component models are specific
mathematical descriptions of device behavior. Component models represent the
catalog of parts available to the simulator user, and include such things as
specific diodes, transistors, opamps, regulators, analog-to-digital converters,
pulse width modulators, motors, lamps, fuses and many non-electrical components
such as fiber optic devices, hydraulic pumps, hoses and actuators. The Company
has a constantly growing set of component models, with over 20,000 parts in its
various component libraries.
The Company's internal model development team has developed and refined
techniques and special hardware and software that the Company uses to
characterize and to build component models which account for behavioral changes
caused by variations in temperature, frequency, power and by statistical
variation in manufacturing.
SABERDESIGNER ENVIRONMENT. SaberDesigner is a comprehensive graphical design
environment that provides a Windows-style integrated tool set and user interface
for design entry, simulation and analysis. SaberDesigner is a tool set intended
to provide the power and capabilities of Saber simulation to the average or
infrequent user. The SaberDesigner tool set consists of four basic elements:
SaberGuide, a graphical user interface to access and operate the simulator;
SaberScope, a graphical post-processing and waveform display program for
analyzing and viewing simulation results; SaberBook, the on-line documentation
package for Saber that allows guided access to relevant user information on-line
and SaberSketch, a schematic entry and drawing package. SaberGuide and SaberBook
are included with the Saber simulator. These tools are tightly integrated to
enhance user convenience and the speed of the design process, and are available
on both the UNIX and Windows NT platforms.
SABERHARNESS DESIGN ENVIRONMENT. In March 1999, the Company introduced the
SaberHarness product line. SaberHarness is a suite of tools for the design of
complex wire harnesses such as are found in automobiles, aircraft or other large
systems. The SaberHarness product line includes the SaberHarness wire editor,
the SaberBundle editor, a basic simulator, and special component simulation
models for harness design. The system is unique in its single database approach
and simulation orientation. It is compatible with the Saber simulator for
evaluating the performance of an entire system. The SaberHarness environment
also includes interfaces to 3-D mechanical software such as the CATIA products
from Dassault Systems. It is available on both UNIX and Windows NT platforms.
INSPECS ANALYSIS PACKAGE. The InSpecs Analysis Package ("InSpecs") is a set of
tools that helps design engineers analyze the results of their simulations.
Using this package, designers can identify and choose the best combination of
component values, tolerances and ratings to optimize products, reduce costs and
increase yields. This tool set uses stress and sensitivity analyses to identify
the critical parts in the design, comprehensive measurements to acquire and
distill data to assess performance and statistical "Monte Carlo" analysis to
provide insight into the performance variations caused by component and
parameter tolerances experienced in manufacturing.
FRAMEWAY INTEGRATIONS. The Company's Frameway Integrations provide interfaces to
the design frameworks provided by Mentor Graphics Corporation, Cadence Design
Systems, Inc. and Viewlogic Systems, Inc. By using an Analogy Frameway
Integrations product, users of these other UNIX-based Electronic Design
Automation ("EDA") frameworks can obtain the benefits and capabilities of the
Company's products while using their standard design process and the accustomed
look and feel of their host EDA framework. These Frameway Integrations also give
users of the Company's simulation products the advantage of being able to move
models, designs and simulation data between different EDA vendor environments.
If one division or customer is using Mentor Graphics Corporation's tools and
another division or customer is using Cadence Design Systems, Inc.'s tools, they
can both use Saber and, through the Frameway Integrations, share models or
designs across environments. This interoperability is not otherwise easily
accomplished and enables the Company's products to provide a bridge between
competing frameworks. In March 1999, the Company introduced a Frameway for
Viewlogic's Workview Office products on the Windows NT platform.
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TESTIFY. Testify is a product that automates the repetitive process of running
simulations and making performance measurements. It can be used in the top-down
design process to quickly compare the performance of a specific implementation
against a simulated specification. Testify can also be used for Test Program Set
development by the military. Testify can help test engineers improve the
testability of designs, which may reduce test development costs and improve Test
Program Set quality. Testify also has applications in other systems environments
such as automotive and industrial control.
CUSTOMER SERVICE AND SUPPORT
The Company provides services in training, on-site engineering, consulting and
contract model development. The Company maintains six world-wide training
centers: in Beaverton, Oregon; Ann Arbor, Michigan; Frederick, Maryland;
Swindon, England; Paris, France and Munich, Germany. A seventh center is
provided through the Company's distributor in Tokyo, Japan. Classes are taught
regularly at these facilities on the use of the simulation products and on
modeling in the MAST language. The Company also provides specialized component
characterization services to its customers. For large class sizes, the Company
will provide training at the customer's location. Company-trained applications
engineers help develop customer-proprietary models and templates, and the
Company maintains a staff of highly trained and experienced applications
engineers to consult on specialized design and modeling applications in fields
such as electrical, mechanical, ASICs and ICs, power supplies and control
systems.
The Company maintains and supports products through its own operations, those of
its subsidiaries and through its distributors. The Company offers a technical
support hotline to customers and distributors. Support engineers answer the
technical support calls and generally provide same-day responses to questions
that cannot be resolved during the initial call.
SALES AND MARKETING
The Company markets its products worldwide through a staff that, as of March 31,
1999, consisted of 73 Company-employed field sales and support personnel. The
Company manages its worldwide sales operations from its Beaverton, Oregon
headquarters. The Company markets its products in North America and Europe
through a direct sales and support organization. U.S. sales offices are located
in these metropolitan areas: Chicago, Dallas, Detroit, Los Angeles, Rochester
(New York), San Francisco, and Washington, D.C. as well as at the Company's
headquarters in Beaverton, Oregon. In Europe the Company maintains, through
wholly-owned subsidiaries, sales and support offices near Paris, London, Munich
and Stockholm, and through distributors in the Benelux countries and Italy. The
Company sells through distributors in Israel, India, Japan, Korea, the PRC and
Taiwan, and to the government sector in the U.S.
The Company also has a university program for purposes of increasing the number
of engineers trained in the use of the Saber simulator, MAST modeling language
and development of behavioral models. The Company has made its software
available to more than 109 universities worldwide, many of which are conducting
research in such areas as power device modeling, mixed-technology simulation and
design, micro-electro-mechanical systems (MEMs), and failure mode analysis. The
results of this research are then made available to the industrial community,
which enables Saber to be more readily used by these customers.
RESEARCH AND DEVELOPMENT
The Company focuses its research and development efforts in the areas of
simulator development, model development techniques and product accessibility.
Research and development expenditures for fiscal years 1999, 1998 and 1997 were
$8.8 million, $6.3 million and $5.4 million, respectively. SEE ITEM 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
In modeling, the Company continues to expand its model libraries through
internal model development and research and development contracts. The Company
believes that continued enhancement of the depth, breadth
3
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and quality of its model libraries will be critical to achieving and maintaining
technological and market leadership. To further its research and development
efforts in modeling techniques and model development consistent with its
strategic objectives, the Company pursues funded research and development from
governmental entities and corporations and has entered into model development
contracts with selected customers, including government and academic
organizations. As discussed in ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, the Company has completed its
performance under the grant and two contracts it had received from the U.S.
government and there can be no assurance that revenues from the U.S. government
grant and contracts will be replaced.
The Company is continuing to extend the applicability and accessibility of its
products by providing user interfaces that incorporate the vocabulary and
mathematical and display conventions of engineers working in a variety of
technologies. The Company continues to focus resources on maintaining its
framework integration and co-simulation tools, as the products to which these
tools are linked are updated.
No assurance can be given that current research and development efforts,
including those described above, will be successful, or will result in the
introduction of new or enhanced products on any particular timetable, or at all.
In the face of technological change, a failure to introduce new or enhanced
products or a failure to introduce them in a timely manner could have a material
adverse impact on the Company's business, financial condition and results of
operations.
COMPETITION
In the design of ICs, the Company faces competition from many vendors of
simulation tools. However, most available simulators are digital or SPICE-based
(Simulation Program with Integrated Circuit Emphasis) and are highly specialized
to ICs and are therefore not applicable to broader mixed-signal,
mixed-technology systems. In the broader systems markets, the Company does not
believe that it currently experiences significant competition. However, the
design environments of virtually all of the Company's major customers are based
on one or another of the major EDA vendors' design frameworks. This pattern
drives the need for and usefulness of the Company's Frameway Integration
products that permit data interchange between Saber and the products of other
vendors. Such other vendors typically have programs to encourage other companies
to integrate with the vendors' products and the Company participates in these
programs for frameworks it views as strategically important. In the harness
design market, the Company competes against a small number of competitors as
well as customer's proprietary internally developed tools. One of the Company's
competitors, a division of a much larger EDA company, has been in the market for
several years. Some 3-D computer-aided design companies offer products that are
both complementary and competitive with the Company's SaberHarness products.
Many large EDA companies have significant operating histories and significantly
greater financial, technical, and marketing resources, greater name recognition,
larger installed customer bases and longer relationships with many of the
Company's key existing and target customers than does the Company. In addition,
most have introduced simulation products (including some analog and mixed-signal
behavioral modeling simulation products) to serve the IC designer particularly.
In the past year there has been significant progress in the development of
analog and mixed-signal HDL standards based on the existing VHDL and Verilog
standards. The Company is heavily involved in the definition of these standards
and expects to offer products which support these standards. The Company also
expects competitors, including major EDA companies, to introduce analog and/or
mixed-signal simulation products based on one or more of these standards in the
near future.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business, results of
operations and financial condition.
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PROPRIETARY RIGHTS
The Company relies primarily on trade secret and ongoing development efforts to
protect its technology and augments those strategies with patents, copyrights
and trademarks where the Company believes it is useful to do so. The Company has
obtained six U.S. and two Canadian patents on various aspects of its products,
including parameter extraction techniques, Calaveras synchronization techniques
for mixed mode simulation, waveform calculator and behavioral modeling. Other
patent applications are pending or in process. The Company's policy has been to
enter into confidentiality agreements with all employees and signed license
agreements that include nondisclosure provisions with all distributors and
customers. The Company limits access to and distribution of its software,
applicable documentation and other proprietary information. The Company's
software is protected as an unpublished copyrighted work and is shipped with a
software security lock that limits software access to authorized users.
Additionally, access to the software source code is only provided for interface
products and selected models and only to major customers pursuant to license
agreements that include nondisclosure provisions. The Company holds a worldwide,
perpetual, fully paid-up license to use the Saber trademark from its owner,
American Airlines, Inc. The Company has United States registrations for the
following trademarks: Analogy, Analogy HDL, Calaveras Algorithm, Frameway,
Hypermodel, PowerExpress, InSpecs, MODPEX and MAST. The Company has European and
Japanese registrations for certain of these and other trademarks. The Company
asserts other common law trademarks and has a number of registrations pending.
Despite the activities described above, no assurance can be given that the steps
taken by the Company will provide adequate protection of its technology or that
competitors will not be able to develop similar or functionally equivalent
technology. Additionally, copyright and trade secret protection may be limited
in certain foreign countries. The Company believes, however, that because of the
rapid pace of technological change in the EDA industry, the legal intellectual
property protection for its products is a less significant factor in the
Company's success than the knowledge, creative abilities and effectiveness of
its engineering and marketing staff and the timeliness and quality of its
support services. Although the Company does not believe that its products
infringe the proprietary rights of others and has not received any claims of
infringement of the proprietary rights of others, in the future the Company may
receive notice of claims of infringement of other parties' proprietary rights
and there can be no assurance that infringement or invalidity claims (or claims
for indemnification resulting from infringement claims against third parties,
such as customers) will not be asserted against the Company or that any such
assertions will not have a material adverse effect on the Company's business,
financial condition or results of operations.
EMPLOYEES
At March 31, 1999, the Company had 185 employees, including 88 in marketing and
sales, 73 in research, development and engineering and 24 in systems,
administration and finance. The Company believes its future success will depend
on its continued ability to attract and retain highly qualified technical,
management and sales and marketing personnel. The Company's employees are not
subject to a collective bargaining agreement and the Company believes that its
employee relations are good.
ITEM 2. PROPERTIES
The Company's executive offices, as well as its principal engineering and
marketing operations, are located in leased facilities consisting of a total of
approximately 51,000 square feet in two adjacent buildings in Beaverton, Oregon.
The lease for 11,000 square feet of space, which the Company does not plan to
replace, expires on December 31, 1999. The lease for 40,000 square feet expires
on August 31, 2001. The Company also leases office space for seven U.S. field
sales offices located in these metropolitan areas: Chicago, Dallas, Detroit, Los
Angeles, Rochester (New York), San Francisco, and Washington, D.C. Lease
commitments for these facilities vary; some are month to month, and the
remainder have terms of 12 to 36 months. In addition, the Company has leased
office space near London, Munich, Paris and Stockholm, and maintains an office
in Beijing.
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ITEM 3. LEGAL PROCEEDINGS
As of the date of this Report, there were no material legal proceedings to which
the Company or its subsidiaries is a party or to which any of their properties
are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended March 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is quoted on the Nasdaq National Market System under
the symbol "ANLG." The high and low sales prices as reported on the Nasdaq
National Market System for fiscal years 1998 and 1999 were as follows.
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LOW HIGH
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1998
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First Quarter $3 3/4 $4 3/4
Second Quarter 3 13/16 5 7/8
Third Quarter 5 1/2 7
Fourth Quarter 5 1/8 8 1/8
1999
First Quarter 4 3/4 8
Second Quarter 2 1/2 6 1/2
Third Quarter 2 7/8 4 7/16
Fourth Quarter 3 4
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There were 116 shareholders of record and approximately 2,200 beneficial
shareholders at June 1, 1999. The Company has never declared or paid cash
dividends on its common stock. The Company intends to retain earnings from
operations for use in the operation and expansion of its business and does not
anticipate paying cash dividends in the foreseeable future.
There were no sales of unregistered securities by the Company during the fiscal
year ended March 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The Company's Selected Consolidated Financial Data appears on page F-1 of this
Report.
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ITEM 7. 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.
The Company received a modeling contract from the U.S. Air Force in fiscal year
1997. The Company also received a contract from the Defense Advanced Research
Projects Agency ("DARPA") in fiscal year 1997 and a multi-year grant from the
National Institute of Standards and Technology ("NIST") in fiscal year 1996
which provided funding to the Company for research and development. The DARPA
contract contained cost sharing provisions. The final models under the U.S. Air
Force contract were delivered in the fourth quarter of fiscal year 1998,
therefore, no further revenues were received in fiscal year 1999 from this
source. In addition, 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.
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 receipt and timing of orders for the
Company's products, 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,
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.
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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 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.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of the
Company's consolidated statements of operations as a percentage of total
revenue:
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<CAPTION>
YEAR ENDED MARCH 31,
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1999 1998 1997
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Revenue:
Product licenses 60.8 % 55.4 % 60.5 %
Service and other 39.2 44.6 39.5
--------- --------- ---------
Total revenue 100.0 100.0 100.0
Cost of revenue:
Product licenses 7.2 6.9 6.9
Service and other 4.6 11.0 9.2
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Total cost of revenue 11.8 17.9 16.1
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Gross profit 88.2 82.1 83.9
Operating expenses:
Research and development 32.8 24.3 22.6
Sales and marketing 52.4 56.4 52.7
General and administrative 8.9 11.6 11.4
Amortization of intangibles 1.4 1.4 0.5
Restructuring charges 2.1 -- --
Acquired in-process research and development -- -- 7.9
--------- --------- ---------
Total operating expenses 97.6 93.7 95.1
--------- --------- ---------
Operating loss (9.4) (11.6) (11.2)
Other expense, net (1.2) (0.3) (0.1)
--------- --------- ---------
Loss before income taxes (10.6) (11.9) (11.3)
Income tax expense 1.7 1.1 1.4
--------- --------- ---------
Net loss (12.3)% (13.0)% (12.7)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL YEARS 1999 AND 1998
Total revenue increased 3.9% to $26.8 million in fiscal year 1999 from $25.8
million in fiscal year 1998. No one customer accounted for 10% or more of total
revenue in fiscal year 1999 or 1998.
Product license revenue increased 14.2% to $16.3 million in fiscal year 1999
from $14.3 million in fiscal year 1998. Throughout fiscal year 1999, the Company
has experienced increased demand for its products from customers in Europe, and
to a lesser extent the U.S., offset by reduced demand from customers in Asia.
Service and other revenue decreased 8.8% to $10.5 million in fiscal year 1999
from $11.5 million in fiscal year 1998. The decrease was due primarily to
decreased revenues under the NIST grant and U.S. government contracts, offset by
increased demand for the Company's maintenance, consulting and other services
resulting from growth in the Company's installed base. The final models under
the U.S. Air Force contract were delivered in the fourth quarter of fiscal year
1998, therefore, no revenues were received in fiscal year 1999 from this source.
In addition, 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.
Revenues recognized under the NIST grant and the two contracts, in the
aggregate, were not significant in fiscal year 1999 and were approximately $2.8
million and $1.8 million fiscal years 1998 and 1997, respectively.
9
<PAGE>
Total revenues from U.S. government-related sources, including the previously
mentioned specific awards, were not significant as a percentage of total
revenues in fiscal year 1999, and were approximately 10.9% and 18.1% of total
revenues during fiscal years 1998 and 1997, respectively
The Company sells its products and services through its wholly-owned
subsidiaries in Europe and through distributors in Asia. The Company's
international operations accounted for 54.8%, 42.5% and 41.0% of the Company's
total revenue for fiscal years 1999, 1998 and 1997, respectively. Throughout
fiscal year 1999 the Company has experienced reduced demand from customers in
Asia and is continuing to monitor the Asian financial situation and the impact
on its customers.
COST OF REVENUE
Total cost of revenue decreased 31.6% to $3.2 million in fiscal year 1999 from
$4.6 million in fiscal year 1998.
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 decreased to 11.8% of product license revenue in fiscal year 1999 from
12.4% in fiscal year 1998. 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. These costs and amortization expenses may not
necessarily relate to the number of product licenses shipped during the period.
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 U.S. Air Force and DARPA
contracts and the NIST grant, 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 11.8 % in fiscal year 1999 from 24.6% in
fiscal year 1998. The decrease was primarily attributable to decreased activity
under the NIST grant, and the U.S. Air Force and DARPA contracts, which had
higher costs associated with them than the Company's other services. The final
models under the U.S. Air Force contract were delivered in the fourth quarter of
fiscal year 1998, therefore, no costs were incurred in fiscal year 1999 in
connection with this contract. In addition, the NIST grant concluded at the end
of the first quarter of fiscal year 1999 and costs incurred under the DARPA
contract were minimal in fiscal year 1999 as this contract expired at the end of
fiscal year 1999.
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 increased
40.6% to $8.8 million in fiscal year 1999 from $6.3 million in fiscal year 1998.
As discussed under "Revenue" and "Cost of Revenue" above, the final models under
the U.S. Air Force contract were delivered in the fourth quarter of fiscal year
1998, the NIST grant concluded at the end of the first quarter of fiscal year
1999 and the DARPA contract expired in fiscal 1999. Accordingly, payroll and
overhead related to research and development personnel performing work under
these contracts was matched with related revenues and recorded as cost of
service and other revenue in fiscal year 1998, whereas similar costs in fiscal
year 1999 were recorded as research and development expense, which increased
research and development expense in fiscal year 1999. This increase was
partially offset by the work force reduction which occurred in the first quarter
of fiscal 1999. As a percentage of total revenue, research and development costs
increased to 32.8% in fiscal year 1999 from 24.3% in fiscal year 1998.
10
<PAGE>
SALES AND MARKETING
Sales and marketing expense consists primarily of salaries, commissions, travel
and costs of promotional activities. Sales and marketing expense decreased 3.5%
to $14.1 million in fiscal year 1999 from $14.6 million in fiscal year 1998.
Sales and marketing expenses decreased in fiscal year 1999 primarily as a result
of the work force reduction which occurred in the first quarter of fiscal 1999.
This decrease was offset by increased costs associated with the Company's
corporate image marketing campaign in first quarter of fiscal year 1999, and
costs associated with recruiting new sales employees in the U.S. in the fourth
quarter of 1999. As a percentage of total revenue, sales and marketing expenses
decreased to 52.4% in fiscal year 1999 from 56.4% in fiscal year 1998.
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 20.4% to
$2.4 million in fiscal year 1999 from $3.0 million in fiscal year 1998. The
decreases primarily resulted from work force reductions implemented during the
first quarter of fiscal year 1999. As a percentage of total revenue, general and
administrative expenses decreased to 8.9% in fiscal year 1999 from 11.6% in
fiscal year 1998.
RESTRUCTURING CHARGES
Results of operations for fiscal year 1999 included a $557,000 charge for costs
associated with a restructuring plan undertaken to improve profitability. The
restructuring plan consisted primarily of work force reductions and other cost
control efforts. All of the restructuring charges were paid in fiscal year 1999.
OTHER EXPENSE, NET
Other expense, net primarily consists of interest expense, the effects of
foreign currency transaction gains and losses, and interest income on cash and
cash equivalents. Other expense, net was $340,000 in fiscal year 1999 and
$86,000 in fiscal year 1998. Interest expense increased due to amortization of
finance charges in fiscal year 1999, related to the sale of approximately $4.0
million of accounts receivable to a financial institution in the fourth quarter
of fiscal year 1998. Interest income decreased due to lower levels of cash and
cash equivalents held during the periods. The change in other income (expense)
primarily related to increased foreign currency transaction losses.
INCOME TAX EXPENSE
The Company provided for foreign income and withholding taxes and state income
taxes of $455,000 and $275,000 in the aggregate, in fiscal years 1999 and 1998,
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 the Company is in a tax paying position while in other
countries the Company has operating loss carryforwards available to offset
taxable income.
At March 31, 1999, the Company had federal net operating loss carryforwards of
approximately $11.4 million which expire at various dates beginning in 2009 and
ending in 2019, if not utilized. Utilization of $950,000 of federal net
operating losses is subject to annual limitations due to a change in the
Company's fiscal year in 1994. For financial reporting purposes the Company has
established a valuation allowance against its deferred tax assets because of the
uncertainty relating to the realization of such asset values. SEE NOTE 8 OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
<PAGE>
FISCAL YEARS 1998 AND 1997
REVENUE
Total revenue increased 7.6% to $25.8 million in fiscal year 1998 from $24.0
million in fiscal year 1997. No one customer accounted for 10% or more of total
revenue in fiscal year 1998 or 1997.
Product license revenue decreased 1.5% to $14.3 million in fiscal year 1998 from
$14.5 million in fiscal year 1997.
Service and other revenue increased 21.7% to $11.5 million in fiscal year 1998
from $9.5 million in fiscal year 1997. The change was due primarily to increased
demand for the Company's maintenance and other services, growth in the Company's
installed base, greater revenues from the U.S. Air Force under a $2.0 million
modeling contract awarded during the first quarter of fiscal year 1997 and
greater revenues from DARPA under a $1.3 million contract awarded in September
1996. The final models under the U.S. Air Force contract were delivered in the
fourth quarter of fiscal year 1998. In addition, revenues from the NIST grant
and the DARPA contract declined significantly in the fourth quarter of fiscal
year 1998 as these contracts neared expiration. Revenues recognized under these
contracts, in the aggregate, were approximately $2.8 million and $1.8 million in
fiscal year 1998 and 1997, respectively.
In addition to revenues received under the NIST grant, and under the contracts
with the U.S. Air Force and DARPA, the Company received other revenues from the
U.S. government or its subcontractors during fiscal years 1998 and 1997. Total
revenues from U.S. government-related sources, including the previously
mentioned specific contracts, accounted for approximately 10.9% and 18.1% of
total revenues during fiscal year 1998 and 1997, respectively.
The Company's international operations accounted for 42.5% and 41.0% of the
Company's total revenue for fiscal years 1998 and 1997, respectively. The
majority of the Company's international operations are conducted through the
Company's wholly-owned subsidiaries in Europe. International revenue increased
as a percentage of total revenue primarily as a result of decreased sales in the
United States in fiscal year 1998. The Company sells its products and services
through its wholly-owned subsidiaries in Europe and through distributors in
Asia.
COST OF REVENUE
Total cost of revenue increased 19.6% to $4.6 million in fiscal year 1998 from
$3.9 million in fiscal year 1997.
Cost of product license revenue increased to 12.4% of product license revenue in
fiscal year 1998 from 11.4% in fiscal year 1997, due primarily to increased
amortization of model library costs and royalty payments. In addition, costs
such as documentation expense and supplies are expensed as incurred, which may
not necessarily relate to the number of product licenses shipped during the
period.
Cost of service and other revenue increased to 24.6% of service and other
revenue in fiscal year 1998 from 23.3% of service and other revenue in fiscal
year 1997. The increase was primarily attributable to increased costs associated
with performance under the NIST, U.S. Air Force and DARPA contracts in fiscal
year 1998. In addition, maintenance revenue earned in fiscal year 1998 increased
compared to maintenance revenue earned in fiscal 1997. The NIST grant and the
U.S. Air Force contract were nearing completion during the fourth quarter of
fiscal year 1998, and the DARPA expired in October 1998.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 15.6% to $6.3 million in fiscal year
1998 from $5.4 million in fiscal year 1997, and increased as a percentage of
total revenue to 24.3% in fiscal year 1998 from 22.6% in fiscal year 1997. The
increase was primarily attributable to increases in research and development
personnel and increased salaries.
12
<PAGE>
SALES AND MARKETING
Sales and marketing expense increased 15.3% to $14.6 million in fiscal year 1998
from $12.6 million in fiscal year 1997, and increased as a percentage of total
revenue to 56.4% in fiscal year 1998 from 52.7% in fiscal year 1997. The
increases primarily resulted from increases in personnel, sales commissions,
salaries, travel, the establishment of a new telemarketing function early in
fiscal 1998, and costs associated with the Company's corporate image advertising
campaign, which began in the fourth quarter of fiscal year 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 9.5% to $3.0 million in fiscal
year 1998 from $2.7 million in fiscal year 1997, and increased as a percentage
of total of revenue to 11.6% in fiscal year 1998 from 11.4% in fiscal 1997. The
increases primarily resulted from increased depreciation expense related to the
investment in application software and equipment associated with updating
corporate information systems in fiscal year 1997, increased salaries expense
and the effects of a full year of increased general and administrative expenses
of Symmetry Design Systems, Inc., which was acquired during fiscal year 1997.
OTHER EXPENSE, NET
Other expense, net was $86,000 and $11,000 in fiscal year 1998 and 1997,
respectively. The change was primarily attributable to reduced interest income
resulting from a lower level of cash, cash equivalents and marketable securities
held during the periods, offset by foreign currency transaction gains and
losses.
INCOME TAX EXPENSE
The Company provided for foreign income and withholding taxes of $275,000 and
$341,000 in fiscal years 1998 and 1997, 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 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 $4.1 million in fiscal year 1999,
which included a net loss for the period offset by an adjustment for
depreciation and amortization, as well as changes in operating assets and
liabilities. Accounts payable and accrued expenses decreased due to the timing
of payments. Unearned revenue decreased due to revenue recognized during the
period, partially offset by payments received. Accounts receivable increased
compared to the balance at March 31, 1998 which was net of a March 1998 sale of
approximately $4.0 million of accounts receivable to a financial institution.
Net cash used in investing activities was $2.5 million in fiscal year 1999,
which primarily included expenditures 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 $488,000 in fiscal year 1999,
which included proceeds from the Company's operating line of credit and proceeds
from the exercise of stock options and warrants offset by principal payments on
capital lease obligations.
The Company has an operating line of credit with a bank which allows the Company
to receive advances of up to $5.0 million based on 80% of eligible domestic
accounts receivable, and is secured by accounts receivable, furniture, fixtures
and equipment and general intangibles. Interest is payable monthly at the bank's
prime rate plus 0.5% (8.25% at March 31, 1999). The line of credit facility
requires the Company to maintain certain financial and other covenants including
minimum net worth, results of operations and the
13
<PAGE>
ratio of current assets to current liabilities. The Company was in compliance
with all covenants at March 31, 1999. At March 31, 1999, the Company had
borrowings outstanding under the operating line of $400,000 and additional
borrowing capacity of approximately $1.4 million. The line of credit matures on
April 4, 2000.
In May 1999, to provide a further source of liquidity, the Company negotiated a
non-recourse receivables purchase agreement with a bank, for the sale of up to
$1.5 million of foreign accounts receivable. The agreement allows for the sale
of certain accounts receivable without recourse at a discount rate equal to the
bank's prime rate plus 3%. To date, the Company has not executed sales of
accounts receivable under this agreement.
The Company believes its existing cash and cash equivalents, combined with
amounts available under its operating line of credit and non-recourse
receivables purchase agreement, and cash flows expected to be generated by
operations, will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for the next twelve months. Depending on a
variety of factors which cannot be predicted with certainty, including the
Company's results of operations, receipt and timing of orders for the Company's
products, 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 and unanticipated costs related to the Year 2000 issue, the
Company may need to raise additional funds. Such additional funding could be
more costly than the Company's current line of credit and non-recourse
receivables purchase agreement or, if equity, could be materially dilutive to
existing shareholders. There can be no assurance that additional financing would
be available and, if available, that the terms would be acceptable to the
Company or that such financing could be obtained in a timely manner. If adequate
funds are not available as required, the Company's ability to continue its
research and product development efforts, as well as the Company's financial
condition and results of operations will be adversely affected.
YEAR 2000 ISSUE
The Company is assessing 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 completed contacting its major suppliers of products and
services to assess the Year 2000 compliance of each. The Company is in the
process of developing a plan to address any major deficiencies discovered with
respect to those suppliers contacted. As the majority of the Company's major
customers are "Fortune 100" companies, the Company has begun to review Year 2000
public disclosures made by its major customers to determine whether their
operations are Year 2000 compliant. 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. 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 expects to
complete its assessment of its major customers by September 30, 1999.
Like all businesses, the Company will be at risk from other external
infrastructure failures that could arise from Year 2000 failures. It is not
clear that electrical power, telephone and computer networks, for example, will
be fully functional in the countries in which the Company does business in the
year 2000. Investigation and assessment of infrastructures, like national power
grids, transportation systems, communications systems
14
<PAGE>
or major institutions such as government or banking systems is beyond the scope
and resources of the Company. Investors should use their own awareness of
potential problems regarding infrastructure issues and their potential impact on
the Company's performance.
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. The Company believes that its 5.0 product version, released in March
1999, when used in combination with compliant operating systems and development
environment software of third parties, is Year 2000 compliant. 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.
The Company has not incurred, and does not expect to incur material incremental
costs to ensure Year 2000 compliance of its systems or products. Certain systems
have been targeted for replacement based on Year 2000 and other technology
considerations. The Company anticipates that affected systems will be replaced
prior to September 30, 1999. However, related expenditures are not anticipated
to be material. At this time, the Company foresees nominal incremental spending
for the Year 2000 issue.
Based on the Company's assessment to date, the Company currently believes that
Year 2000 issues will not pose significant risks for the Company. 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 is in the process of developing a contingency plan for dealing with
the most likely worst-case scenario. The Company currently plans to complete
such contingency planning by November 30, 1999.
The costs of the Company's Year 2000 assessment, remediation and testing efforts
and the dates on which the Company believes it will complete such 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 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 7A. 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 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION and in
Note 10 of Notes to Consolidated Financial Statements.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included under QUARTERLY CONSOLIDATED
FINANCIAL DATA on page F-2 of this Report, and as listed below:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of KPMG Peat Marwick F-3
LLP
Consolidated Balance Sheets, March 31, 1999 and 1998 F-4
Consolidated Statements of Operations for the years ended F-5
March 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the years ended F-6
March 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended F-7
March 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements F-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included under the captions ELECTION OF
DIRECTORS and MANAGEMENT in the Company's Proxy Statement for its 1999 Annual
Meeting of Shareholders and is incorporated herein by reference. The information
required by Item 405 of Regulation S-K is included under the caption SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE in the Company's Proxy Statement
for its 1999 Annual Meeting of Shareholders and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption EXECUTIVE
COMPENSATION in the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption STOCK OWNED
BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS in the Company's Proxy Statement for
its 1999 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its
1999 Annual Meeting of Shareholders and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS:
The information required by this item is included beginning on page F-3
of this Report, and as listed in Part II, Item 8 of this Report.
(a) (2) FINANCIAL STATEMENT SCHEDULES:
Schedules not listed under this item have been omitted because the
information required to be set forth therein is not applicable.
17
<PAGE>
(a) (3) EXHIBITS INCLUDED HEREIN:
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger dated as of October 23, 1996, by and
among Analogy, Inc., Analogy Acquisition Corporation and Symmetry
Design Systems, Inc. , incorporated by reference to Exhibits to
the Company's Current Report on Form 8-K, dated November 22, 1996
(the "November 1996 8-K")
2.2 First Amendment to Agreement and Plan of Merger dated as of
November 22, 1996, by and among Analogy, Inc., Analogy
Acquisition Corporation and Symmetry Design Systems, Inc.,
incorporated by reference to Exhibits to the November 1996 8-K
3.1 Third Restated Articles of Incorporation of Analogy, Inc.,
incorporated by reference to Exhibits to the Company's
Registration Statement on Form S-1, as amended, effective March
22, 1996, Commission Registration No. 333-00266 (the
"Registration Statement")
3.2 Second Restated Bylaws of Analogy, Inc., incorporated by
reference to Exhibits to the Registration Statement
4.1 Registration Rights Agreement dated as of November 22, 1996, by
and among Analogy, Inc., Alan B. Grebene, Martin G. Walker,
Chenmin Hu, Xinping He, Yu Liu, Andrew L. Hughes, Wenge Wu, Zheng
Shi, John A. Wilson, Qing Chang and E-Hui Xu incorporated by
reference to Exhibits to the November 1996 8-K
10.1 Form of Indemnity Agreement between Analogy, Inc. and each of its
executive officers and directors incorporated by reference to
Exhibits to the Registration Statement*
10.2 Analogy, Inc. 1986 Stock Option Plan incorporated by reference to
Exhibits to the Registration Statement *
10.3 Amended and Restated 1993 Stock Incentive Plan, as amended,
incorporated by reference to Exhibits to the 1998 Definitive
Proxy Statement as filed with the Commission June 10, 1998 *
10.4 1995 Stock Option Plan for Nonemployee Directors incorporated by
reference to Exhibits to the Registration Statement *
10.5 Form of Stock Option Agreement incorporated by reference to
Exhibits to the Registration Statement *
10.6 Control Change Agreement dated effective August 18, 1995 between
Analogy, Inc. and Gary P. Arnold incorporated by reference to
Exhibits to the Registration Statement *
10.7 Trademark License Agreement between American Airlines, Inc. and
Analogy, Inc. incorporated by reference to Exhibits to the
Registration Statement
10.8 Business Park Lease dated August 30, 1993, between Analogy, Inc.
and Petula Associates Ltd. and Koll Creekside Associates II
incorporated by reference to Exhibits to the Registration
Statement
10.9 U.S. Department of Commerce Financial Assistance Award
incorporated by reference to Exhibits to the Registration
Statement
10.10 1996 Employee Stock Purchase Plan, incorporated by reference to
Exhibits to the Company's Annual Report on Form 10-K for its
fiscal year ended March 31, 1996*
10.11 Non-Recourse Receivables Purchase Agreement dated May 3, 1999
between Silicon Valley Bank and Analogy, Inc., filed herewith
18
<PAGE>
EXHIBIT NO. DESCRIPTION
10.12 Loan and Security Agreement dated March 10, 1997 between Silicon
Valley Bank and Analogy, Inc., filed herewith
10.13 Loan Modification dated March 5, 1998 between Silicon Valley
Bank and Analogy, Inc., filed herewith
10.14 Loan Modification dated June 30, 1998 between Silicon Valley
Bank and Analogy, Inc., filed herewith
10.15 Loan Modification dated March 29, 1999 between Silicon Valley
Bank and Analogy, Inc., filed herewith
21.0 Subsidiaries of Analogy, Inc., filed herewith
23.0 Consent of KPMG Peat Marwick LLP, filed herewith
27.0 Financial Data Schedule, filed herewith
* Denotes management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K:
A Report on Form 8-K, containing the Company's earnings release for the quarter
and nine months ended December 31, 1998, under Item 5, was filed on January 27,
1999. No other Reports on Form 8-K were filed during the quarter ended March 31,
1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 18th day of June
1999.
ANALOGY, INC.
By /s/ Gary P. Arnold
------------------
Gary P. Arnold
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated, on the 18th day of June 1999.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ GARY P. ARNOLD Chairman of the Board, President and Chief
- ---------------------------- Executive Officer (Principal Executive
Gary P. Arnold Officer)
/s/ DUANE C. FROMHART Vice President and Corporate Controller
- ---------------------------- (Principal Financial Officer)
Duane C. Fromhart
/s/ DR. MARTIN VLACH Vice President, Chief Scientist and Director
- ----------------------------
Dr. Martin Vlach
Director
- ----------------------------
Robert L. Cattoi
Director
- ----------------------------
John H. Faehndrich
/s/ NEIL E. GOLDSCHMIDT Director
- ----------------------------
Neil E. Goldschmidt
/s/ FRANK ROEHR Director
- ----------------------------
Frank Roehr
Director
- ----------------------------
Charles Sporck
</TABLE>
20
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product licenses $ 16,307 $ 14,278 $ 14,501 $ 15,562 $ 11,090
Service and other 10,498 11,512 9,459 6,176 5,165
---------- ---------- ---------- --------- -----------
Total revenue 26,805 25,790 23,960 21,738 16,255
Cost of revenue:
Product licenses 1,920 1,776 1,652 1,426 1,255
Service and other 1,234 2,833 2,202 994 511
---------- ---------- ---------- --------- -----------
Total cost of revenue 3,154 4,609 3,854 2,420 1,766
---------- ---------- ---------- --------- -----------
Gross profit 23,651 21,181 20,106 19,318 14,489
Operating expenses:
Research and development 8,802 6,260 5,413 4,518 3,735
Sales and marketing 14,055 14,559 12,622 10,708 9,332
General and administrative 2,378 2,987 2,728 2,373 2,345
Amortization of intangibles 368 368 136 -- --
Restructuring charges 557 -- -- -- --
Acquired in-process
research and development -- -- 1,896 -- --
---------- ---------- ---------- --------- -----------
Total operating expenses 26,160 24,174 22,795 17,599 15,412
---------- ---------- ---------- --------- -----------
Operating (loss) income (2,509) (2,993) (2,689) 1,719 (923)
Other expense, net (340) (86) (11) (523) (408)
---------- ---------- ---------- --------- -----------
(Loss) income before income taxes (2,849) (3,079) (2,700) 1,196 (1,331)
Income tax expense 455 275 341 370 196
---------- ---------- ---------- --------- -----------
Net (loss) income $ (3,304) $ (3,354) $ (3,041) $ 826 $ (1,527)
---------- ---------- ---------- --------- -----------
---------- ---------- ---------- --------- -----------
Basic net (loss) income per share $ (0.35) $ (0.37)$ (0.35) $ 0.17 $ (0.35)
---------- ---------- ---------- --------- -----------
---------- ---------- ---------- --------- -----------
Diluted net (loss) income per share $ (0.35) $ (0.37) $ (0.35) $ 0.11 $ (0.35)
---------- ---------- ---------- --------- -----------
---------- ---------- ---------- --------- -----------
Shares used in per share calculations:
Basic 9,426 9,188 8,584 4,816 4,378
Diluted 9,426 9,188 8,584 7,820 4,378
<CAPTION>
MARCH 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, marketable securities $ 2,008 $ 8,130 $ 3,524 $ 10,208 $ 1,179
Total assets 21,218 22,975 22,130 22,294 10,375
Long-term obligations, net of current portion 284 561 858 578 1,640
Shareholders' equity 5,990 8,695 11,317 11,491 27
</TABLE>
F-1
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
QUARTERLY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
FISCAL YEAR 1999
Total revenue $ 5,412 $ 6,417 $ 7,258 $ 7,718
Gross profit 4,558 5,804 6,330 6,959
Net (loss) income (3,155) (362) 53 160
Basic net (loss) income per share (0.34) (0.04) 0.01 0.02
Diluted net (loss) income per share (0.34) (0.04) 0.01 0.02
<CAPTION>
FISCAL YEAR 1998 As Restated (1)
-----------------------------
<S> <C> <C> <C> <C>
Total revenue $ 5,212 $ 6,742 $ 7,846 $ 5,990
Gross profit 4,077 5,361 6,813 4,930
Net (loss) income (943) 55 347 (2,813)
Basic net (loss) income per share (0.10) 0.01 0.04 (0.30)
Diluted net (loss) income per share (0.10) 0.01 0.04 (0.30)
</TABLE>
(1) In April 1998, the Company determined that revenue from products sold to a
reseller previously recognized in the first and second quarters of fiscal
1998 of $774 and $400, respectively, should more appropriately be
recognized as revenue at the time the product is sold to the ultimate end
user rather than to recognize the revenue when it is sold to the reseller.
Accordingly, the results of operations for the first and second quarters of
fiscal year 1998 have been restated.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Analogy, Inc.:
We have audited the accompanying consolidated balance sheets of Analogy, Inc.
and subsidiaries as of March 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Analogy, Inc. and
subsidiaries as of March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 1999, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Portland, Oregon
May 7, 1999
F-3
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------
1999 1998
----------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,008 $ 8,130
Accounts receivable 6,738 3,946
Prepaid expenses 1,033 1,160
Other assets, net 2,271 506
--------- ---------
Total current assets 12,050 13,742
Furniture, fixtures and equipment, net 2,416 3,811
Library costs, net 4,495 3,924
Other assets, net 2,257 1,498
--------- ---------
$ 21,218 $ 22,975
--------- ---------
--------- ---------
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ 400 $ --
Accounts payable and accrued expenses 1,320 1,895
Current portion of capital leases 403 536
Accrued salaries and benefits 2,709 2,726
Unearned revenue 8,657 7,254
--------- ---------
Total current liabilities 13,489 12,411
Non-current portion of capital leases 219 454
Deferred contract revenue 1,455 1,308
Other liabilities 65 107
Commitments
Shareholders' equity:
Common stock, no par value, authorized 35,000 shares;
shares issued and outstanding : 9,521 and 9,330
at March 31, 1999 and 1998, respectively 18,569 17,906
Accumulated other comprehensive loss -
foreign currency translation (269) (205)
Accumulated deficit (12,310) (9,006)
--------- ---------
Total shareholders' equity 5,990 8,695
--------- ---------
$ 21,218 $ 22,975
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
1999 1998 1997
------------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Product licenses $ 16,307 $ 14,278 $ 14,501
Service and other 10,498 11,512 9,459
---------- --------- ---------
Total revenue 26,805 25,790 23,960
Cost of revenue:
Product licenses 1,920 1,776 1,652
Service and other 1,234 2,833 2,202
---------- --------- ---------
Total cost of revenue 3,154 4,609 3,854
---------- --------- ---------
Gross profit 23,651 21,181 20,106
Operating expenses:
Research and development 8,802 6,260 5,413
Sales and marketing 14,055 14,559 12,622
General and administrative 2,378 2,987 2,728
Amortization of intangibles 368 368 136
Restructuring charges 557 -- --
Acquired in-process research
and development -- -- 1,896
---------- --------- ---------
Total operating expenses 26,160 24,174 22,795
---------- --------- ---------
Operating loss (2,509) (2,993) (2,689)
Other income (expense):
Interest income 46 103 302
Interest expense (253) (221) (191)
Other income (expense) (133) 32 (122)
---------- --------- ---------
Other expense, net (340) (86) (11)
---------- --------- ---------
Loss before income
taxes (2,849) (3,079) (2,700)
Income tax expense 455 275 341
---------- --------- ---------
Net loss $ (3,304) $ (3,354) $ (3,041)
---------- --------- ---------
---------- --------- ---------
Basic net loss per share $ (0.35) $ (0.37) $ (0.35)
---------- --------- ---------
---------- --------- ---------
Diluted net loss per share $ (0.35) $ (0.37) $ (0.35)
---------- --------- ---------
---------- --------- ---------
Shares used in per share calculations:
Basic 9,426 9,188 8,584
---------- --------- ---------
---------- --------- ---------
Diluted 9,426 9,188 8,584
---------- --------- ---------
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER ACCUM- TOTAL
-------------------------- COMPREHENSIVE ULATED SHAREHOLDERS'
SHARES AMOUNT LOSS DEFICIT EQUITY
--------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996 8,293 $ 14,180 $(78) $ (2,611) $ 11,491
Exercise of stock options
and warrants 142 207 -- -- 207
Issuance of common stock
in connection with acquisition 650 2,681 -- -- 2,681
Issuance of common stock, net 33 56 -- -- 56
Net loss -- -- -- (3,041) (3,041)
Foreign currency translation -- -- (77) -- (77)
---------- ------------ --------- ------------ -----------
Balance at March 31, 1997 9,118 17,124 (155) (5,652) 11,317
Exercise of stock options
and warrants 212 782 -- -- 782
Net loss -- -- -- (3,354) (3,354)
Foreign currency translation -- -- (50) -- (50)
---------- ------------ --------- ------------ -----------
Balance at March 31, 1998 9,330 17,906 (205) (9,006) 8,695
Exercise of stock options
and warrants 191 663 -- -- 663
Net loss -- -- -- (3,304) (3,304)
Foreign currency translation -- -- (64) -- (64)
---------- ------------ --------- ------------ -----------
Balance at March 31, 1999 9,521 $ 18,569 $ (269) $ (12,310) $ 5,990
---------- ------------ --------- ------------ -----------
---------- ------------ --------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1999 1998 1997
---------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,304) $ (3,354) $ (3,041)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 3,987 3,802 2,983
Acquired in-process research and development -- -- 1,896
Changes in operating assets and liabilities (net of effects of
acquisition):
Accounts receivable (2,884) 5,076 (3,436)
Prepaid expenses and other assets (1,101) (1,140) (888)
Accounts payable and accrued expenses (626) 849 (6)
Unearned revenue (148) 2,920 667
---------- ---------- ----------
Net cash (used in) provided by operating activities (4,076) 8,153 (1,825)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- -- (5,910)
Sales of marketable securities -- -- 3,013
Maturities of marketable securities -- 1,700 1,200
Capital expenditures for furniture, fixtures and equipment (597) (1,261) (2,094)
Capital expenditures for library costs (1,949) (2,379) (1,588)
Net cash acquired in acquisition -- -- 260
---------- ---------- ----------
Net cash used in investing activities (2,546) (1,940) (5,119)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 400 -- --
Payments on subordinated debt -- -- (929)
Principal payments on capital leases (575) (608) (734)
Proceeds from sale of common stock -- -- 56
Proceeds from exercise of stock options and warrants 663 782 207
---------- ---------- ----------
Net cash provided by (used in) financing activities 488 174 (1,400)
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents 12 (84) (37)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (6,122) 6,303 (8,381)
Cash and cash equivalents at beginning of period 8,130 1,827 10,208
---------- ---------- ----------
Cash and cash equivalents at end of period $ 2,008 $ 8,130 $ 1,827
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for: Interest $ 253 $ 132 $ 167
Income taxes 379 338 215
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Acquisition of equipment under capital lease obligations $ 208 $ 532 $ 839
Recording of deferred and unearned contract revenue 4,288 -- --
Acquisition of Symmetry Design Systems, Inc.:
Assets acquired and liabilities assumed, net of cash acquired $ -- $ -- $ (2,421)
Issuance of common stock -- -- 2,681
---------- ---------- ----------
Net cash acquired in acquisition $ -- $ -- $ 260
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999, 1998 AND 1997
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Analogy, Inc. and subsidiaries (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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries, Analogy UK Ltd., Analogy GmbH,
Analogy France SARL, Analogy AB (Sweden) and Symmetry Design Systems, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency in the Company's foreign
subsidiaries. Assets and liabilities of the foreign subsidiaries are translated
to U.S. dollars at current rates of exchange, and revenues and expenses are
translated using weighted average rates during the year. Foreign currency
translation adjustments are included as a separate component of shareholders'
equity. Foreign currency transaction gains and losses are included as a
component of other income and expense.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially expose the Company to concentration of
credit risk consist primarily of accounts receivable. At March 31, 1999 and
1998, European customers accounted for approximately 60% and 50%, respectively,
of accounts receivable. To reduce credit risk, the Company performs ongoing
credit evaluations of its customers' financial condition. The Company does not
generally require collateral.
The Company historically has derived a significant portion of its revenue from
the automotive, aerospace and defense industries. Total revenues from U.S.
government-related sources were not significant in fiscal year 1999, and were
approximately 10.9% and 18.1% of total revenues during fiscal years 1998 and
1997, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short term highly liquid
investments with remaining maturities of three months or less when purchased.
F-8
<PAGE>
ACCOUNTS RECEIVABLE
In March 1998, the Company sold approximately $4.0 million of accounts
receivable on a non-recourse basis. The carrying amount approximated the fair
value and as a result no gain or loss was recognized on the sale.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost. Furniture and equipment
under capital leases are stated at the lower of the present value of minimum
lease payments at the beginning of the lease term or fair value of the leased
assets at the inception of the lease. Depreciation of furniture, fixtures and
equipment is calculated on the straight-line method over estimated useful lives
of five years for office furniture and fixtures and three years for computer
equipment and software. Assets held under capital leases and leasehold
improvements are amortized on the straight-line method over the shorter of the
related lease term or estimated useful life of the leased assets.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred. The Company
does not capitalize software development costs after technological feasibility
has been established since the time period between product release and
establishment of technological feasibility is short.
During fiscal year 1997, the Company entered into a cost-sharing agreement with
DARPA for research and development covering a three year period, pursuant to
which the Company was obligated to provide matching direct and indirect support
costs up to $1.3 million and to deliver progress reports over the same period.
Reimbursed costs under this agreement were $129,000, $774,000 and $348,000 in
fiscal years 1999, 1998 and 1997, respectively. During fiscal year 1996, the
Company was awarded a research grant from NIST which covered a three year
period, pursuant to which the Company was obligated to provide matching indirect
cost of support up to $400,000 and to deliver progress reports over the same
period. Reimbursed costs under this grant were $74,000, $765,000 and $768,000,
in fiscal years 1999, 1998 and 1997, respectively.
LIBRARY COSTS
Development costs associated with creating the library of component and template
models are capitalized and amortized on a straight-line basis over the estimated
product life of five years.
The Company recognized amortization expense of approximately $1,378,000,
$1,184,000 and $975,000 related to its capitalized library costs in fiscal years
1999, 1998 and 1997, respectively.
REVENUE RECOGNITION
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 acceptance criteria
as agreed to with the customer.
F-9
<PAGE>
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
COMPUTATION OF NET LOSS PER SHARE
Basic and diluted loss per share are computed using the weighted average number
of shares of common stock outstanding for the period, since all potential
dilutive securities are excluded from the calculation as they are antidilutive.
The dilutive effect of stock options outstanding for the purchase of
approximately 1.8 million, 1.5 million and 1.3 million shares for fiscal years
1999, 1998 and 1997, respectively, and warrants outstanding for the purchase of
10,000, 340,000 and 400,000 shares for fiscal years 1999, 1998 and 1997,
respectively were not included in loss per share calculations, because to do so
would have been anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short-term nature of
these instruments.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated future cash
flows expected to result from the use of the asset and its eventual disposition
is less than its carrying amount. The Company has not identified any such
impairment losses.
SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("SFAS 131") for the year ended March 31, 1999. Based
on definitions contained within SFAS 131, the Company has determined that it
operates in one segment.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 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 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 133 is effective for fiscal years beginning
after June 15, 2000. The Company does not expect SFAS 133 to have a material
impact on its consolidated financial statements.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with the fiscal
year 1999 presentation.
F-10
<PAGE>
(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 loss is the total of net loss and
all other non-owner changes in equity. The reconciliation of net loss to
comprehensive loss is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------
1999 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net loss $ (3,304) $ (3,354) $ (3,041)
Foreign currency translation adjustments (64) (50) (77)
---------- ------------ ------------
---------- ------------ ------------
Comprehensive net loss $ (3,368) $ (3,404) $ (3,118)
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
(3) RESTRUCTURING
Results of operations for fiscal year 1999 included a $557,000 charge for costs
associated with a restructuring plan undertaken to improve profitability. The
restructuring plan consisted primarily of work force reductions and other cost
control efforts. All of the restructuring charges were paid in fiscal year 1999.
(4) ACQUISITION
In November 1996, the Company acquired Symmetry Design Systems, Inc.,
("Symmetry") a developer of analog and mixed-signal modeling tools and model
libraries. The Company accounted for the acquisition using the purchase method
and valued the transaction at approximately $2.9 million. The excess of the
acquisition cost over the fair value of the net assets acquired is being
amortized over three years using the straight-line method. The accompanying
financial statements include the results of operations of Symmetry from the date
of the acquisition.
In connection with the acquisition, the Company acquired the ongoing research
and development activities of Symmetry resulting in a one-time pre-tax charge of
$1.9 million, in fiscal year 1997, related to the write off of certain
in-process research and development costs. The value assigned to the in-process
research and development represents those research and development efforts in
process at the acquisition date for which technological feasibility had not yet
been established and which had no alternative future uses. Accounting principles
require that such costs be charged to expense as incurred.
In connection with the acquisition and in consideration for non-compete
agreements entered into with certain key employees of Symmetry, the Company
issued warrants to purchase 400,000 shares of the Company's common stock at
$4.125 per share. No warrants were outstanding at March 31, 1999.
F-11
<PAGE>
(5) FURNITURE, FIXTURES AND EQUIPMENT, NET
Furniture, fixtures and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31,
-----------------------------
1999 1998
---------- -----------
<S> <C> <C>
Office furniture $ 946 $ 940
Computer equipment 9,667 8,964
Software 1,818 1,605
Leasehold improvements 248 375
---------- -----------
12,679 11,884
Less: accumulated depreciation
and amortization (10,263) (8,073)
---------- -----------
$ 2,416 $ 3,811
---------- -----------
---------- -----------
</TABLE>
(6) LEASES
The Company has entered into various capital leases for certain furniture and
equipment that expire at various dates during the next three years. Several
capital leases require that the Company remit security deposits as collateral
for the lease. Security deposits are generally released by the leasing company
at the rate of one-half at twelve months and one-half at twenty-four months from
the date of lease inception. In April 1997, in connection with the negotiation
of a lease line of credit the Company issued warrants to purchase 10,000 shares
of its common stock at $7.50 per share which were immediately exercisable and
expire on June 23, 2001.
Furniture, fixtures and equipment, net include the following capital lease
amounts (in thousands):
<TABLE>
<CAPTION>
March 31,
------------------------------
1999 1998
---------- ---------
<S> <C> <C>
Furniture and equipment $ 4,785 $ 4,577
Less accumulated amortization (3,752) (3,193)
---------- ---------
$ 1,033 $ 1,384
---------- ---------
---------- ---------
</TABLE>
The Company also leases its office facilities and certain office equipment under
non-cancelable operating lease agreements.
F-12
<PAGE>
Future minimum lease payments under these leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- ------------
<S> <C> <C>
Year ending March 31,
2000 $ 443 $ 642
2001 225 383
2002 2 287
----------- ------------
Total minimum lease payments 670 $ 1,312
------------
------------
Less amount representing interest (48)
-----------
Present value of net minimum
capital lease payments 622
Less current portion of capital leases (403)
-----------
Non-current portion of capital leases $ 219
-----------
-----------
</TABLE>
Rent expense under operating leases in fiscal years 1999, 1998 and 1997 was
approximately $1,404,000, $1,248,000 and $1,429,000, respectively.
(7) STOCK-BASED COMPENSATION PLANS
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (the "ESPP") which allows
employees of the Company to purchase shares of the Company's common stock
through accumulated payroll deductions. Participating employees may elect to
contribute up to 10% of their eligible compensation during each pay period to
the ESPP. The ESPP provides for two semi-annual offering periods beginning
February 1 and August 1 of each year. Participant funds are accumulated during
the offering period and used to automatically purchase shares of the Company's
common stock at 85% of the lower of the fair market value of such stock at the
beginning of the offering period or the fair market value at the purchase date.
The Company has reserved 300,000 shares of common stock for issuance under the
ESPP and had issued 257,189 shares as of March 31, 1999.
STOCK OPTION PLANS
The Company has a 1986 Stock Option Plan under which 625,000 shares of common
stock are reserved for issuance, and a 1993 Stock Incentive Plan, as amended
(the "1993 Plan") under which 2,077,911 shares of common stock are reserved for
issuance. The 1993 Plan expires in 2003 unless terminated sooner by the Company
or options have been granted and exercised on all shares available under the
plan.
The Board of Directors may grant either incentive stock options with an exercise
price of not less than the fair market value of the common stock at the date of
grant or non-qualified stock options with an exercise price of not less than 85%
of the fair market value of the common stock at the date of grant. The Board of
Directors shall determine the period of each option and the time or times at
which options may be exercised and any restrictions on the transfer of stock
issued upon exercise of any options. The options generally vest over a period of
four years and are exercisable over a period of ten years.
F-13
<PAGE>
The table below summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
------------ --------------
<S> <C> <C>
Outstanding options, March 31, 1996 1,044,432 $ 2.63
Granted 717,750 5.58
Exercised (142,263) 1.46
Canceled (293,311) 7.88
------------
Outstanding options, March 31, 1997 1,326,608 3.74
Granted 248,125 5.53
Exercised (34,647) 3.53
Canceled (56,455) 4.86
------------
Outstanding options, March 31, 1998 1,483,631 3.98
Granted 496,550 4.30
Exercised (33,067) 2.55
Canceled (175,131) 4.96
------------
Outstanding options, March 31, 1999 1,771,983 3.95
------------
------------
</TABLE>
At March 31, 1999, stock options to purchase 1,036,858 shares of common stock,
at a weighted average exercise price of $3.45 per share, were exercisable.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("SFAS 123")
SFAS 123 defines a fair value based method of accounting for employee stock
options and similar equity instruments. As permitted under SFAS 123, the Company
has elected to account for its stock-based compensation plans using APB 25. The
Company has computed, for pro forma disclosure purposes, the value of options
granted during fiscal year 1998 and 1997 using the Black-Scholes pricing model
and the value of options granted during fiscal year 1996 using the minimum value
pricing model.
The following weighted average assumptions were used in the computations:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Risk-free interest rate 5.85% 5.65% 6.0%
Expected dividend yield 0% 0% 0%
Expected volatility 76.9% 66.7% 77.2%
Expected lives 7.56 years 9.72 years 9.96 years
</TABLE>
The total value of options and warrants granted during fiscal years 1999, 1998
and 1997 was approximately $1,428,000, $1,076,000 and $4,929,000, respectively,
which would be amortized on a straight-line basis over the vesting period of the
options or warrants (typically four years). The weighted average fair value of
options and warrants granted during fiscal years 1999, 1998 and 1997 was $2.87,
$4.17 and $4.41 per share, respectively. The Company issued 117,276, 106,536 and
33,377 shares under its Company's Employee Stock Purchase Plan during fiscal
years 1999, 1998 and 1997. The related weighted average purchase price and
weighted average fair value of shares issued were $3.53 and $2.51, respectively
for fiscal year 1999; $3.88 and $2.00, respectively for fiscal year 1998; and
$4.30 and $1.15, respectively for fiscal year 1997.
F-14
<PAGE>
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and net loss per share would
have approximated the pro forma amounts show below:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- -------- -------- -------- -------- --------
Net loss (in thousands) $(3,304) $(4,532) $(3,354) $(5,434) $(3,041) $(4,131)
Diluted net loss per share $ (0.35) $ (0.49) $ (0.37) $ (0.59) $ (0.35) $ (0.48)
</TABLE>
The effect of applying SFAS 123 in this pro forma disclosure is not indicative
of future results. SFAS 123 does not apply to awards prior to April 1, 1995.
Additional awards are anticipated in future years.
The following table summarizes the information about stock options and warrants
outstanding at March 31, 1999:
<TABLE>
<CAPTION>
Options and
Options and Warrants Outstanding Warrants Exercisable
- -------------------------------------------------------------------- ---------------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding at Contractual Price Exercisable at Price
Per Share March 31, 1999 Life (Years) Per Share March 31, 1999 Per Share
--------- -------------- ------------ --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$0.30 - $1.20 18,500 1.5 1.15 18,500 1.15
1.40 310,687 3.7 1.40 310,687 1.40
2.40 134,824 4.6 2.40 134,824 2.40
3.00 - 4.00 523,075 7.7 3.69 187,859 4.00
4.01 - 5.00 82,235 7.2 4.79 50,580 4.83
5.01 - 6.00 684,512 7.7 5.49 319,358 5.29
7.50 28,150 4.6 7.50 25,050 7.50
--------------- ---------------
1,781,983 1,046,858
--------------- ---------------
--------------- ---------------
</TABLE>
(8) INCOME TAXES
Loss before income taxes was as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------
1999 1998 1997
---------- ----------- ------------
<S> <C> <C> <C>
United States $ (4,512) $ (5,782) $ (5,880)
Foreign 1,663 2,703 3,180
---------- ----------- ------------
$ (2,849) $ (3,079) $ (2,700)
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
F-15
<PAGE>
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------
1999 1998 1997
--------- ---------- ------------
<S> <C> <C> <C>
Current:
State $ 6 $ 49 $ --
Foreign 449 226 341
--------- ---------- ------------
$ 455 $ 275 $ 341
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
The actual income tax expense differs from the expected tax expense (computed by
applying the U.S. federal corporate income tax rate of 34% to net loss before
income taxes) as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Computed expected income tax
benefit $ (969) $(1,047) $ (918)
Increase (reduction) in income
tax benefit resulting from:
State income tax benefit (175) (124) (27)
Foreign income taxes and withholding 103 125 285
Research and experimentation credits (263) (92) --
Expired foreign tax credits 54 99 --
Increase in valuation allowance 1,697 1,347 323
In-process research and development -- -- 667
Other 8 (33) 11
-------- -------- ---------
-------- -------- ---------
Income tax expense $ 455 $ 275 $ 341
-------- -------- ---------
-------- -------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Unearned library and maintenance revenue $ 674 $ 652
Federal and state net operating loss carryforwards 4,367 2,783
Foreign net operating loss carryforwards 27 172
Research and experimentation credit carryforwards 540 277
Foreign tax credit carryforwards -- 54
Other 673 427
------------- -------------
Total gross deferred tax assets 6,281 4,365
Less valuation allowance (4,557) (2,860)
------------- -------------
Net deferred tax assets 1,724 1,505
Deferred tax liabilities:
Capitalized library costs (1,724) (1,505)
------------- -------------
Total deferred tax liabilities (1,724) (1,505)
------------- -------------
Net deferred taxes $ -- $ --
------------- -------------
------------- -------------
</TABLE>
F-16
<PAGE>
The valuation allowance for deferred tax assets as of March 31, 1999 was
approximately $4.5 million. The net change in the total valuation allowance in
fiscal years 1999, 1998 and 1997 was an increase of approximately $1,697,000
$1,258,000 and $323,000, respectively.
At March 31, 1999, the Company had net operating loss carryforwards for federal
and state income tax purposes which can be used to offset future income subject
to taxes. In addition, there are unused research and experimentation credits
which can be offset against future federal income taxes after the loss
carryforwards. Such loss carryforwards and tax credits are summarized below
(in thousands):
<TABLE>
<CAPTION>
Expiration
Amount Dates
----------- --------------
<S> <C> <C>
Loss carryforwards:
Federal $ 11,351 2009 - 2019
State 11,540 1999 - 2019
Research and experimentation credits
(federal only) 540 2001 - 2019
</TABLE>
In addition, the Company has foreign income tax net operating losses of
approximately $74,000, which expire in various years. Due to the change in the
Company's fiscal year end, federal and state net operating losses of
approximately $950,000 are to be deducted ratably over the six year period from
March 31, 1995 to March 31, 2000.
(9) PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all employees. The
plan has 401(k) provisions whereby employees contribute to the plan through
payroll deductions. The Company may elect to make discretionary contributions to
the plan which are approved by the Board of Directors. The Company's
contributions for fiscal years 1999, 1998 and 1997 were $269,000, $202,000 and
$163,000 respectively.
(10) OPERATING LINE OF CREDIT AND NON-RECOURSE RECEIVABLES PURCHASE AGREEMENT
The Company has an operating line of credit with a bank which allows the Company
to receive advances of up to $5.0 million based on 80% of eligible domestic
accounts receivable, and is secured by accounts receivable, furniture, fixtures
and equipment and general intangibles. Interest is payable monthly at the bank's
prime rate plus 0.5% (8.25% at March 31, 1999). The line of credit facility
requires the Company to maintain certain financial and other covenants including
minimum net worth, results of operations and the ratio of current assets to
current liabilities. The Company was in compliance with all covenants at March
31, 1999. At March 31, 1999, the Company had borrowings outstanding under the
operating line of $400,000 and additional borrowing capacity of approximately
$1.4 million. The line of credit matures on April 4, 2000.
In May 1999, the Company negotiated a non-recourse receivables purchase
agreement for the sale of up to $1.5 million of foreign receivables to a bank.
The agreement allows for the sale of certain receivables without recourse at a
discount rate equal to the bank's prime rate plus 3%. To date, the Company has
not executed sales of receivables under this agreement.
F-17
<PAGE>
(11) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company markets its products in North America and Europe through its direct
sales organization and in Asia 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>
Fiscal Year
-----------------------------------------
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Revenues:
United States $ 12,120 $ 14,830 $ 13,737
Germany 5,209 3,549 3,337
France 2,709 1,585 1,846
United Kingdom 3,189 1,796 2,941
Other 3,578 4,030 2,099
--------- ---------- ---------
$ 26,805 $ 25,790 $ 23,960
--------- ---------- ---------
--------- ---------- ---------
Total assets (in thousands):
United States $ 11,460 $ 16,948
United Kingdom 4,365 1,412
Germany 2,182 1,303
France 2,377 2,556
Other 834 756
--------- ----------
$ 21,218 $ 22,975
--------- ----------
--------- ----------
</TABLE>
No one customer accounted for more than 10% of total revenues for fiscal years
1999, 1998 or 1997.
F-18
<PAGE>
EXHIBIT 10.11
SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
(408) 654-1000 - Fax (408) 980-6410
NON-RECOURSE RECEIVABLES PURCHASE AGREEMENT
(California)
This NON-RECOURSE RECEIVABLES PURCHASE AGREEMENT (the
"Agreement"), dated as of May 3, 1999 is between Silicon Valley Bank ("Buyer")
having a place of business at the address specified above and ANALOGY, INC., AN
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 :
Street Address: 9205 SW Gemini Drive
City: Beaverton
County: Washington
State: Oregon
Zip code: 97005
Fax: 503/643-3361
1. DEFINITIONS. When used herein, the following terms have the following
meanings.
1.1 "Account Debtor" has 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.
1.2 "Adjustments" means 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.
1.3 "Administrative Fee" means a fee payable by the Seller to the Buyer
in an amount equal to 0.50% of the Purchase Price.
1.4 "Discount Rate" means Silicon Valley Bank's Prime Rate plus
3.00% (fixed on date of Purchase.
1.5 "Due Date" means the date which is 60 days after the Purchase
Date for domestic Purchased Receivables and 90 days after the Purchase Date
for foreign Purchased Receivables.
1.6 "Event of Default" has the meaning set forth in Section 9
hereof.
1.7 "Payment in Full" means Buyer has received payments on account of
the Purchased Receivables equal to the Purchased Receivables Amount.
1.8 "Purchase Date" as defined on Exhibit A or Exhibit B Schedules.
1.9 "Purchase Price" which is calculated by discounting the Purchased
Receivables Amount by the Discount Rate for the number of days from the Purchase
Date to the Due Date.
<PAGE>
1.10 "Purchased Receivables" means all those accounts, receivables,
chattel paper, instruments, contract rights, documents, general intangibles,
letters of credit, drafts, bankers acceptances, and other rights to payment, and
all proceeds thereof, arising out of the invoices and other agreements
identified on EXHIBIT A (DOMESTIC) AND EXHIBIT B (FOREIGN) submitted from time
to time.
1.11 "Purchased Receivables Amount" shall not exceed One Million Five
Hundred Thousand Dollars ($1,500,000.00) in aggregate at any one time, which is
the total of the Purchased Receivables as listed in Exhibit A (Domestic) and
Exhibit B (Foreign) submitted from time to time.
1.12 "Related Property" has the meaning as set forth in Section 9
hereof.
1.13 "Repurchase Amount" has the meaning set forth in Section 4.2
hereof.
1.14 "Reserve Amount" means the product of the Discount Rate and the
Purchased Receivables Amount multiplied by a fraction, the numerator of which is
the number of days in the Reserve Period and the denominator of which is 360
days.
1.15 "Reserve Period" means a period commencing on the Due Date and
ending 60 days thereafter for domestic Purchased receivables and 90 days
thereafter for foreign Purchased Receivables.
2. PURCHASE AND SALE OF RECEIVABLES.
2.1 SALE AND PURCHASE. Subject to the terms and conditions of this
Agreement, effective on the Purchase Date, Seller sells to Buyer and Buyer buys
from Seller all right, title, and interest (but none of the obligations with
respect to) of the Seller to the payment of all sums owing or to be owing from
the Account Debtors under the Purchased Receivables.
2.2 PURCHASE PRICE.
(A) PURCHASE PRICE. On the Purchase Date, the Purchase Price,
less the Reserve Amount, Security Deposit and the Administrative Fee, shall be
paid by Buyer to Seller. That portion of the Purchase Price consisting of the
Reserve Amount shall be payable to Seller only to the extent provided below.
(B) INTEREST RESERVE. If Payment in Full occurs on or before
the Due Date, Buyer shall pay the full Reserve Amount to Seller. If Payment in
Full occurs after the Due Date, but before the end of the Reserve Period, Buyer
shall pay a partial refund of the Reserve Amount to Seller in an amount equal to
the Reserve Amount multiplied by a fraction, the numerator of which is the
number of days from the date Payment in Full occurs to the end of the Reserve
Period and the denominator of which is the number of days in the Reserve Period.
If Payment in full occurs on or after the end of the Reserve Period, Seller
shall not be entitled to any refund of the Reserve Amount.
2.3 LATE PAYMENT SETTLEMENT. If Payment in Full does not occur on or
before the end of the Reserve Period, then, at the end of each 30 day period
after the end of the Reserve Period and before Payment in Full occurs, and in
addition to any other obligations of Seller hereunder, Seller shall pay to Buyer
an amount which is equal to (i) the product of the Discount Rate and the average
daily balance of the amounts outstanding on the Purchased Receivables during
such 30 day period MULTIPLIED BY (ii) a fraction the numerator of which is 30
days and the denominator of which is 360 days.
2.4 ADMINISTRATIVE FEE. On the Purchase Date, Seller shall pay to
Buyer the Administrative Fee. Buyer may deduct the Administrative Fee from the
Purchase Price.
<PAGE>
3. COLLECTIONS, CHARGES AND REMITTANCES.
3.1 COLLECTION BY SELLER. In order to facilitate the collection of the
Purchased Receivables in the ordinary course of business, Seller agrees to act
as Buyer's agent for collection. Accordingly, Buyer hereby constitutes the
Seller its attorney-in-fact to ask for, demand, take, collect, sue for and
receive all payments made in respect of the Purchased Receivables and to enforce
all rights and remedies thereunder and designates Seller as Buyer's assignee for
collection; PROVIDED that such appointment of Seller as such attorney-in-fact or
assignee for collection may be revoked by Buyer at any time. Seller, as such
attorney-in-fact, shall use due diligence and reasonable lawful means to collect
all amounts owed by the Account Debtors on each Purchased Receivable when the
same become due. In the enforcement or the collection of Purchased Receivables,
Seller shall commence any legal proceedings only in its own name as an assignee
for collection or enforcement of Buyer or, with Buyer's prior written consent,
in Buyer's name. In no event shall Seller take any action which would make Buyer
a party to any litigation or arbitration proceeding without Buyer's prior
written consent. Seller shall (i) hold in trust for Buyer in a segregated
account and turn over to Buyer forthwith upon receipt all payments made to the
Seller by Account Debtors with respect to Purchased Receivables and not
previously paid to Buyer, and (ii) turn over to Buyer forthwith on receipt all
instruments, chattel paper and other proceeds of the Purchased Receivables.
3.2 COLLECTION BY BUYER. Upon the purchase of the Purchased
Receivables, Buyer shall have full power and authority to ask for, demand, take,
collect, sue for and receive all payments in respect of the obligations which
Seller, except for the execution hereof, could ask for, demand, take, collect,
sue for ad receive for its own use, and to enforce all rights and remedies
thereunder which Seller could enforce if this Agreement had not been made and
Seller hereby ratifies any actions which Buyer shall lawfully take to enforce
its rights hereunder; PROVIDED that Buyer shall not exercise such power or
authority prior to the occurrence of an Event of Default, except on prior
written notice to Seller. Without limiting the foregoing, Buyer may enforce the
payment of each of the Purchased Receivables in its own name or in the name of
Seller, and may endorse the name of the Seller on all checks, drafts, money
orders and other instruments tendered to or received in payment of any such
Purchased Receivables. Seller hereby authorizes Buyer to notify any and all
Account Debtors with respect to such Purchased Receivables of the purchase and
sale contemplated hereby, and to cause all payments in respect thereof to be
made directly to Buyer. Whether or not Buyer shall have so notified any Account
Debtors, upon Buyer's request the Seller shall at its expense so notify the
Account Debtors, cause all payments in respect thereof to be made directly to
Buyer and render all reasonable assistance to Buyer in collecting such items and
in enforcing claims thereof. All sums collected or received and all property
recovered and possessed by Buyer in connection with the Purchased Receivables
shall belong to Buyer absolutely. All sums collected or received and all
property recovered or possessed by the Seller in connection with Purchased
Receivables shall be received and held by the Seller in trust for and on Buyer's
behalf; and upon receipt of any such sum or property, Seller shall forthwith
deliver the same to Buyer, or upon its order. In connection with its obligations
under this SECTION 3.2, Seller agrees to execute such instruments (including
without limitation applications to governmental authorities for the delivery of
mail through an agent) and to adopt such procedures, including the appointment
of trustees of the institution of depositary or collateral account procedures,
as Buyer may from time to time request, to provide for the direct collection by
it of amounts due under the Purchased Receivables.
3.3 NO OBLIGATION TO TAKE ACTION. Buyer shall have no obligation to
perform any of Seller's obligations under any Purchased Receivables or to take
any action or commence any proceedings to realize upon any Purchased Receivables
(including without limitation any defaulted Purchased Receivables), or to
enforce any of its rights or remedies with respect thereto.
4. NON-RECOURSE; REPURCHASE OBLIGATIONS.
4.1 NON-RECOURSE. Except as otherwise set forth in this Agreement
(including Sections 4.2, 7, and 8), Buyer's acquisition of Purchased Receivables
from Seller hereunder shall be without recourse against Seller.
<PAGE>
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: (A) 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 (B) 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, and together with an amount which is equal to (i) the product of the
Discount Rate and the average daily balance of the amounts outstanding on such
Purchased Receivable during the period from the Purchase Date to the date such
Repurchase Amount is paid MULTIPLIED BY (ii) a fraction the numerator of which
is the number of days from the Purchase Date to the date such Repurchase Amount
is paid and the denominator of which is 360 days (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 debiting Seller's line of credit with Buyer, or (c) by any
combination of the foregoing as Buyer may from time to time choose. To insure
that the option set forth in clause (b) of the foregoing sentence remains
available to Buyer, there shall be at all times reserved from the Seller's
borrowing availability on such line of credit an amount equal to the total
outstanding balance of the Purchased Receivables.
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 (h) to do all acts and things necessary or expedient, in
furtherance of any such purposes.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1 SELLER'S WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce Buyer
to purchase the Purchased Receivables and to render 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 purchase the Purchased
Receivables, Seller represents, warrants, covenants and agrees, with respect to
Exhibit A (Domestic) and Exhibit B (Foreign) hereto and each of the Purchased
Receivables described therein, that:
(A) Seller is the absolute owner of each of the Purchased
Receivables set forth in Exhibit A (Domestic) and
Exhibit B (Foreign) (Domestic) and Exhibit B
(Foreign) hereto and has full legal right to sell,
transfer and assign each of the Purchased
Receivables;
(B) The correct amount of each receivable is as set forth
in Exhibit A (Domestic) and Exhibit B (Foreign)
hereto and is not in dispute;
<PAGE>
(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
Purchase Date;
(D) Each receivable set forth on Exhibit (s) A (Domestic)
and B (Foreign) hereto 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 Purchased Receivables, and no
agreement has been made under which the Account
Debtor may claim any deduction or discount with
respect thereto;
(F) Each Purchased Receivable shall be the property of
the Buyer and 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 has the right of endorsement, and also the
right to require endorsement by Seller, on all
payments received in connection with each Purchased
Receivable;
(H) Seller, and to Seller's best knowledge, each Account
Debtor set forth in Exhibit A (Domestic) and Exhibit
B (Foreign), 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 Exhibit A (Domestic) and
Exhibit B (Foreign) hereto 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 such Exhibit A (Domestic) and
Exhibit B (Foreign); and
(J) Upon Buyer's request, 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.
6.2 ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition
to the foregoing warranties, representations and covenants, to induce Buyer to
purchase the Purchased Receivables and to render its services to Seller, Seller
hereby represents, warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant, or
permit any lien or security interest in any Purchased
Receivables 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 are kept is set
forth at 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 30
<PAGE>
days prior written notice if such name, organization,
chief executive office or records concerning
Purchased Receivables is changed or added and shall
execute any documents necessary to perfect Buyer's
interest in the Purchased Receivables;
(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; and
(D) Seller has not filed a voluntary petition for relief
under the United States Bankruptcy Code or had filed
against it an involuntary petition for relief and is
not contemplating or anticipating any such filing.
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 and promptly remit the amount thereof to
Buyer. Buyer shall remain the absolute owner of any Purchased Receivable which
is subject to Adjustment, and, until the amount of such adjustment is paid by
Seller to Buyer, any rejected, returned, or recovered personal property, with
the right to take possession thereof at any time, and 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 and such goods are the property of Buyer, Seller shall segregate
said goods and mark them "property of Silicon Valley Bank."
8. INDEMNIFICATION.
(A) Seller hereby agrees that in the event any Account Debtor
is released from all or any part of its payment obligations with respect to any
Purchased Receivable by reason of: (1) any act or omission of Seller; or (2) the
operation of any of the provisions of the documentation pertaining to such
Purchased Receivables, which result in the termination of the Account Debtor's
obligation to pay all of any part of the Purchased Receivables, then, upon the
happening of any such event, Seller shall thereafter pay to Buyer on the date
when the Account Debtor would otherwise have paid the Purchased Receivable to
Buyer an amount equal to the amount of the Purchased Receivable not payable by
the Account Debtor as a result of such event.
(B) Seller hereby agrees to pay, and to indemnify and hold
harmless Buyer from and against, any taxes which may at any time be asserted in
respect of this transaction or the subject matter thereof (including, without
limitation, any sales, occupational, excise, gross receipts, general
corporation, personal property, privilege or license taxes, but not including
taxes imposed upon the Buyer with respect to its income arising out of this
transaction) and costs, expenses and reasonable counsel fees in defending
against the same, whether arising by reason of the acts to be performed by
Seller hereunder or imposed against Buyer, Seller, the property involved or
otherwise; PROVIDED that with respect to any of the foregoing for which Seller
shall be liable, Seller shall receive reasonably prompt notice from Buyer of
this assertion of any such taxes on Buyer of which Buyer has notice.
9. ADDITIONAL RIGHTS. To secure the prompt payment and performance to Buyer of
all of the Purchased Receivables, 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 (the "Related
Property"): (A) Seller's rights to any returned or rejected goods in respect of
the Purchased Receivables, with respect to which Buyer has all the rights of any
unpaid seller, including the rights of replevin, claim and delivery,
reclamation, and stoppage
<PAGE>
in transit; (B) All books and records pertaining to the Purchased Receivables or
the foregoing goods; and (C) 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 interest in any
Related Property without Buyer's prior written consent. 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 Purchased Receivables and the Related Property.
Seller agrees to deliver to Buyer the originals of all instruments, chattel
paper and documents evidencing or related to Purchased Receivables and Related
Property.
10. 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 Related Property;
(E) Seller shall breach any covenant, agreement,
warranty, or representation set forth herein, and the
same is not cured to Buyer's satisfaction within 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.
11. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, Buyer has
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
<PAGE>
described in Section 5 with respect to all Purchased Receivables and Related
Property, and the right to collect, dispose of, sell, lease. use. and realize
upon all Purchased Receivables and all Related Property.
12. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid when
due shall bear interest from such date until paid at a per annum rate equal to
the Prime Rate plus 5%. The Prime Rate shall mean the per annum rate of interest
from time to time announced and made effective by Buyer as its Prime Rate (which
rate may or may not be the lowest rate available from Buyer at any given time).
13. FEES, COSTS AND EXPENSES. 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 Related Property, this Agreement or any other
agreement executed in connection herewith or therewith, (c) enforcing any rights
against Seller or any guarantor, (e) protecting or enforcing its title to the
Purchased Receivables or its security interest in the Related Property, (f)
collecting any amounts due from Seller or, in the event of any breach of
representation, warranty, or covenant by Seller in connection with a Purchased
Receivable, such Purchased Receivable, and (g) the representation of Buyer in
connection with any bankruptcy case or insolvency proceeding involving Seller 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.
14. 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. If Buyer waives a default it may enforce
a later 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.
15. NOTICES. All notices shall be given to Buyer and Seller at the addresses or
faxes set forth on the first page of this Agreement and shall be deemed to have
been delivered and received: (a) if mailed, three calendar days after deposited
in the United States mail, first class, postage pre-paid, (b) one calendar day
after deposit with an overnight mail or messenger service; or (c) on the same
date of confirmed transmission if sent by hand delivery, telecopy, telefax or
telex.
16. 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.
17. TITLES AND SECTION HEADINGS. The titles and section headings used herein are
for convenience only and shall not be used in interpreting this Agreement.
18. 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
<PAGE>
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.
IN WITNESS WHEREOF, Seller and Buyer have executed this
Agreement on the day and year above written.
SELLER: ANALOGY, INC.
By /s/ Duane C. Fromhart
---------------------
Title Corporate Controller
--------------------
BUYER: SILICON VALLEY BANK
By /s/ Donald J. Chandler
----------------------
Title Vice President
--------------
<PAGE>
EXHIBIT 10.12
"LOAN AND SECURITY AGREEMENT"
<PAGE>
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: Analogy, Inc.
ADDRESS: 9205 S.W. Gemini Drive
Beaverton, OR 97008
DATE: March 10, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date
between SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and the borrower named above (the "Borrower"),
whose chief executive office is located at the above address ("Borrower's
Address").
1. LOANS.
1.1 LOANS. Silicon will make one or more loans to the Borrower (the
"Loans") up to the amounts (the "Credit Limits") shown on the Schedule to
this Agreement (the "Schedule") as the Credit Limit for such loans. The terms
of the Loans are stated in this Agreement and in the Schedule. The terms of
the Schedule are incorporated into this Agreement. The Borrower is
responsible for monitoring the total amount of Loans and other Obligations
outstanding from time to time, and the Borrower shall not permit the amount
of any Loan to exceed at any time the applicable Credit Limit for such Loan.
The Borrower shall not permit the total amount of Loans and all other
obligations to exceed at any time the aggregate Credit Limit for the Loans.
If at any time the total of all outstanding Loans and all other Obligations
exceeds the aggregate Credit Limit, the Borrower shall immediately pay the
amount of the excess to Silicon, without notice or demand.
1.2 INTEREST; DEBIT TO DEPOSIT ACCOUNTS. All Loans and all other
monetary Obligations shall bear interest at the applicable rates shown on the
Schedule. Interest shall be payable monthly, on the due date shown on the
monthly billing from Silicon to the Borrower. The Borrower shall regularly
deposit all funds received from its business activities in accounts maintained
by the Borrower at Silicon. The Borrower hereby requests and authorizes
Silicon to debit any of the Borrower's accounts with Silicon, including
without limitation account no. 3300044729, for payments of interest and
principal due on the Loans and all other obligations owing by the Borrower to
Silicon. Silicon shall promptly notify the Borrower of all debits which
Silicon makes against the Borrower's accounts. Any such debit against the
Borrower's accounts shall in no way be deemed a setoff by Silicon.
Page 1 - LOAN AND SECURITY AGREEMENT
<PAGE>
1.3 FEES. The Borrower shall pay to Silicon at closing a commitment
fee and other fees in the amounts shown on the Schedule. These fees are in
addition to all interest and other sums payable to Silicon and are not
refundable.
1.4 ADDITIONAL COSTS. In case of any law, regulation, treaty or
official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law) which:
(a) subjects Silicon to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by the Borrower
or otherwise with respect to the transactions contemplated hereby (except for
taxes on the overall net income of Silicon imposed by the United States of
America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Silicon; or
(c) imposes upon Silicon any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Silicon,
reduce the income receivable by Silicon or impose any expense upon Silicon
with respect to any loans, Silicon shall notify the Borrower thereof.
Borrower agrees to pay to Silicon the amount of such increase in cost,
reduction in income or additional expense as and when such cost, reduction or
expense is incurred or determined, upon presentation by Silicon of a
statement of the amount and setting forth Silicon's calculation thereof, all
in reasonable detail, which statement shall be deemed true and correct absent
manifest error.
2. GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. The term "Obligations" as used in this Agreement means
the following: the obligation to pay all Loans and all interest on the Loans
when due, and to pay and perform when due all other present and future
indebtedness, liabilities, obligations, guarantees, covenants, agreements,
warranties and representations of the Borrower to Silicon, whether joint or
several, monetary or non-monetary, and whether created pursuant to this
Agreement or any other present or future agreement (such as future agreements
relating to letters of credit issued by Silicon) or otherwise. Silicon may,
in its discretion, require that the Borrower pay monetary Obligations in cash
to Silicon, or charge them to the Borrower's Loan account, in which event they
shall bear interest at the rates applicable to the Loan to which such amounts
are charged.
2.2 COLLATERAL. As security for all Obligations, the Borrower hereby
grants Silicon a continuing security interest in all of the Borrower's
assets, including but not limited to all of the Borrower's interest in the
types of property described below, whether now owned or hereafter acquired,
and wherever located (collectively, the "Collateral"): (a) all accounts,
contract rights,
Page 2 - LOAN AND SECURITY AGREEMENT
<PAGE>
chattel paper, letters of credit, documents, securities, money, and
instruments, and all other obligations now or in the future owing to the
Borrower; (b) all inventory, goods, merchandise, materials, raw materials,
work in process, finished goods, farm products, advertising, packaging and
shipping materials, supplies, and all other tangible personal property which
is held for sale or lease or furnished under contracts of service or consumed
in the Borrower's business, and all warehouse receipts and other documents;
(c) all equipment, including without limitation all machinery, fixtures,
trade fixtures, vehicles, furnishings, furniture, materials, tools, machine
tools, office equipment, computers and peripheral devices, appliances,
apparatus, parts, dies, and jigs; (d) all general intangibles including, but
not limited to, deposit accounts, goodwill, names, trade names, trademarks
and the goodwill of the business symbolized thereby, trademark applications,
trade secrets, drawings, blueprints, customer lists, patents, patent
applications, copyrights, copyright applications, security deposits, loan
commitment fees, federal, state and local tax refunds and claims, all rights
in all litigation presently or hereafter pending for any cause or claim
(whether in contract, tort or otherwise), and all judgments now or hereafter
arising therefrom, all rights to purchase or sell real or personal property,
all rights as a licensor or licensee of any kind, all royalties, licenses,
processes, telephone numbers, proprietary information, purchase orders, and
all insurance policies and claims (including without limitation credit,
liability, property and other insurance), and all other rights, privileges
and franchises of every kind; (e) all books and records, whether stored on
computers or otherwise maintained; (f) all of the Borrower's cash; and (g)
all substitutions, additions and accessions to any of the foregoing, and all
products, proceeds and insurance proceeds of the foregoing, and all
guaranties of and security for the foregoing; and all books and records
relating to any of the foregoing. In addition to the security interest
granted in this Agreement, the Obligations are secured by all liens and
security interests granted by Borrower to Silicon or any affiliate of Silicon
in any other document. Silicon's security interest in any present or future
technology (including patents, trade secrets, and other technology) shall be
subject to any licenses or rights now or in the future granted by the
Borrower to any third parties in the ordinary course of the Borrower's
business; provided that if the Borrower proposes to sell, license or grant
any other rights with respect to any technology in a transaction that, in
substance, conveys a major part of the economic value of that technology,
Silicon shall first be requested to release its security interest, and
Silicon may withhold such release in its discretion. The Borrower shall not,
either directly or through any agent, employee, licensee or designee, (a)
file an application for the *(See Ex. B) registration of any patent,
trademark, or copyright with the U.S. Patent and Trademark Office, the U.S.
Copyright Office, or any similar office or agency in any other country,
state, or any political subdivision (the "Offices"), or (b) file any
assignment of any patent, trademark, or copyright which the Borrower may
acquire from a third party with any one of the Offices unless the Borrower
shall, on or prior to the date of such filing, notify Silicon of such filing,
and, upon request of Silicon, execute and deliver any and all assignments,
agreements, instruments, documents and papers as Silicon may request to
evidence Silicon's interest in such patents, trademarks, or copyrights, as
the case may be, including the goodwill and general intangibles of the
Borrower relating thereto or represented thereby. The Borrower authorizes
Silicon to amend any applicable notice of security interest or assignment
executed pursuant to SECTION 4.9 of this Agreement without first obtaining
the Borrower's approval of or signature to such amendment and to record such
assignment with one or more of the Offices.
Page 3 - LOAN AND SECURITY AGREEMENT
<PAGE>
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants to Silicon as follows, and the
Borrower covenants that the following representations shall continue to be
true, and that the Borrower shall comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. The Borrower is and shall
continue to be duly authorized, validly existing and in good standing under
the laws of the state of its incorporation, as identified on the copy of the
Borrower's Articles of Incorporation delivered to Silicon. The Borrower is
and shall continue to be qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse
effect on the Borrower. The execution, delivery and performance by the
Borrower of this Agreement, and all other documents executed by the Borrower
in connection with the Loans have been duly and validly authorized, are
enforceable against the Borrower in accordance with their terms, and do not
violate any law or any provision of, and are not grounds for acceleration
under, any agreement or instrument that is binding upon the Borrower.
3.2 NAME, TRADE NAMES AND STYLES. The name of the Borrower set forth
in the heading to this Agreement is its correct name. Listed on an Exhibit to
the Schedule are all prior names of the Borrower and all of the Borrower's
present and prior trade names. The Borrower shall give Silicon 15 days' prior
written notice before changing its name or doing business under any other
name. The Borrower has complied, and shall in the future comply, with all
laws relating to the conduct of business under a fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is the chief executive office for the
Borrower. In addition, the Borrower has places of business only at, and
Collateral of the Borrower is located only at, the locations set forth on the
Schedule. The Borrower shall give Silicon at least 15 days' prior written
notice before changing its chief executive office or moving Collateral (other
than inventory sold in the ordinary course of business) to any location other
than a location listed on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. The Borrower is now, and
shall at all times in the future be, the sole owner of all the Collateral,
except for items of equipment that are leased by the Borrower. The Collateral
now is and shall remain free and clear of any and all liens, charges,
security interests, encumbrances and adverse claims, except for the following
("Permitted Liens"): (a) purchase money security interests in specific items
of equipment, other than equipment financed by the Loans; (b) leases of
specific items of equipment; (c) liens for taxes not yet payable; (d)
additional security interests and liens consented to in writing by Silicon in
its sole discretion; and (e) security interests being terminated
substantially concurrently with this Agreement. Silicon shall have the right
to require, as a condition to its consent under subparagraph (d) above, that
the holder of the additional security interest or lien sign an intercreditor
agreement on terms satisfactory to Silicon in its sole discretion,
acknowledge that the holder's security interest is subordinate to Silicon's
security interest. Silicon now has, and shall continue to have, a first
priority, perfected and enforceable security interest in all of the
Collateral. The Collateral shall not be subject to any other liens or
security interests of any type except for the Permitted Liens. The Borrower
shall at all times defend
Page 4 - LOAN AND SECURITY AGREEMENT
<PAGE>
Silicon and the Collateral against all claims of others. None of the
Collateral now is or shall be affixed to any real property in such a manner,
or with such intent, as to become a fixture.
3.5 MAINTENANCE OF COLLATERAL. The Borrower shall maintain the
Collateral in good working condition. The Borrower shall not use the
Collateral for any unlawful purpose. The Borrower shall immediately advise
Silicon in writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. The Borrower has maintained and shall maintain
at the Borrower's Address complete and accurate books and records, comprising
an accounting system in accordance with generally accepted accounting
principles.
3.7 FINANCIAL CONDITION AND STATEMENTS. All financial statements now
or in the future delivered to Silicon have been, and shall be, prepared in
conformity with generally accepted accounting principles and now and in the
future shall completely and accurately reflect the financial condition of the
Borrower, at the times and for the periods therein stated. Since the last
date covered by any such statement, there has been no material adverse change
in the financial condition or business of the Borrower. The Borrower is now
and shall continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. The Borrower has
timely filed, and shall timely file, all tax returns and reports required by
foreign, federal, state and local law. The Borrower has timely paid, and
shall timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by the Borrower. The
Borrower may, however, defer payment of any contested taxes, provided that
the Borrower (a) in good faith contests the Borrower's obligation to pay the
taxes by appropriate proceedings promptly and diligently instituted and
conducted, (b) notifies Silicon in writing of the commencement of, and any
material development in, the proceedings, and (c) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon
any of the Collateral. The Borrower is unaware of any claims or adjustments
proposed for any of the Borrower's prior tax years which could result in
additional taxes becoming due and payable by the Borrower. The Borrower has
paid, and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms. The Borrower has not and shall not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could
result in any liability of the Borrower, including, without limitation, any
liability to the Pension Benefit Guaranty Corporation or its successors or
any other governmental agency.
3.9 COMPLIANCE WITH LAW. The Borrower has complied, and shall comply,
in all material respects, with all provisions of all foreign, federal, state
and local laws and regulations relating to the Borrower, including, but not
limited to, those relating to ownership of real or personal property, conduct
and licensing of the Borrower's business, and environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
the Borrower's knowledge) threatened by or
Page 5 - LOAN AND SECURITY AGREEMENT
<PAGE>
against or affecting the Borrower in any court or before any governmental
agency (or any basis therefor known to the Borrower) which may result, either
separately or in the aggregate, in any material adverse change in the
financial condition or business of the Borrower, or in any material
impairment in the ability of the Borrower to carry on its business in
substantially the same manner as it is now being conducted. The Borrower
shall promptly inform Silicon in writing of any claim, proceeding, litigation
or investigation in the future threatened or instituted by or against the
Borrower involving amounts in excess of $100,000.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes.
3.12 NO PATENTS OR TRADEMARKS. The Borrower does not own, and the
Borrower does not have pending any application for the registration of, any
patent or trademark with the U.S. Patent and Trademark Office or any similar
office or agency of any state of the United States of America or of any
foreign jurisdiction, except as disclosed in the Schedule.
3.13 HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. The Borrower represents and warrants that: (a) the
Borrower has no knowledge of (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance by any prior owners or occupants of any of the real properties
owned or operated by the Borrower, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such matters; (b)
neither the Borrower nor any subtenant, contractor, agent or other user
authorized by Borrower of any of the real properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous waste or
substance on, under, or about any of the real properties owned or operated by
the Borrower except in compliance with all applicable federal, state, and
local laws, regulations, and ordinances, including without limitation those
laws, regulations and ordinances described above. The Borrower authorizes
Silicon and its agents, upon 24 hours prior notice (which need not be in
writing), to enter upon the real properties to make such inspections and
tests as Silicon may deem appropriate to determine compliance of the real
properties owned or operated by the Borrower with this Section of the
Agreement. Any inspections or tests made by Silicon shall be for Silicon's
purposes only and shall not be construed to create any responsibility or
liability on the part of Silicon to the Borrower or to any other person. The
Borrower hereby (a) releases and waives any future claims against Silicon for
indemnity or contribution in the event the Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Silicon against any and all claims, losses, liabilities,
damages, penalties, and expenses which Silicon may directly or indirectly
sustain or suffer resulting from a breach of this Section of the Agreement or
as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to the Borrower's ownership or
interest in real properties, whether or not the same was or should
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have been known to the Borrower. The provisions of this Section of the
Agreement, including the obligation to indemnify, shall survive the payment
of the obligations and the termination or expiration of this Agreement and
shall not be affected by Silicon's acquisition of any interest in any of the
real properties, whether by foreclosure or otherwise.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 FINANCIAL AND OTHER COVENANTS. The Borrower shall at all times
comply with the financial and other covenants set forth in the Schedule.
4.2 OVERADVANCE; PROCEEDS OF ACCOUNTS. If for any reason the total of
all outstanding Loans and all other Obligations exceeds the total Credit
Limit, as stated in the Schedule, without limiting Silicon's other remedies,
and whether or not Silicon declares an Event of Default, the Borrower shall
remit to Silicon all checks and other proceeds of the Borrower's accounts and
general intangibles, in the same form as received by the Borrower, within one
day after the Borrower's receipt of the same, to be applied to the
Obligations in such order as Silicon shall determine in its discretion.
4.3 INSURANCE. The Borrower shall at all times insure all of the
tangible personal property Collateral and carry such other business
insurance, with insurers reasonably acceptable to Silicon, in such form and
amounts as Silicon may reasonably require. All such insurance policies shall
name Silicon as an additional loss payee, and shall contain a lenders loss
payee endorsement in form reasonably acceptable to Silicon. Upon receipt of
the proceeds of any such insurance, Silicon shall apply such proceeds in
reduction of the Obligations as Silicon shall determine in its sole and
absolute discretion, except that, provided no Event of Default has occurred,
Silicon shall release to the Borrower insurance proceeds with respect to
equipment totaling less than $100,000, which shall be utilized by the
Borrower for the replacement of the equipment with respect to which the
insurance proceeds were paid. Silicon may require reasonable assurance that
the insurance proceeds so released shall be so used. If the Borrower fails to
provide or pay for any insurance, Silicon may, but is not obligated to,
obtain the same at the Borrower's expense. The Borrower shall promptly
deliver to Silicon copies of all reports made to insurance companies.
Statutory notice regarding insurance:
WARNING
Unless you provide us with evidence of the insurance coverage as
required by our contract or loan agreement, we may purchase insurance at your
expense to protect our interest. This insurance may, but need not, also
protect your interest. If the collateral becomes damaged, the coverage we
purchase may not pay any claim you make or any claim made against you. You
may later cancel this coverage by providing evidence that you have obtained
property coverage elsewhere.
You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount. The effective
date of coverage may be the date your prior coverage lapsed or the date you
failed to provide proof of coverage.
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This coverage we purchase may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for
property damage coverage or any mandatory liability insurance requirements
imposed by applicable law.
4.4 REPORT. The Borrower shall provide Silicon with such written
reports with respect to the Borrower as Silicon shall from time to time
reasonably specify, including but not limited to the financial reports
required as stated in the Schedule.
4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times,
and upon ten business days' notice, Silicon, or its agents, shall have the
right to inspect the Collateral, and the right to audit and copy the
Borrower's accounting books, records, ledgers, journals, or registers and the
Borrower's books and records relating to the Collateral, provided that no
prior notice is required upon the occurrence and continuation of an Event of
Default. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have
the right to disclose any such information to its auditors, regulatory
agencies and attorneys, and pursuant to any subpoena or other legal process.
The Borrower shall reimburse Silicon for Silicon's actual costs for
conducting two such audits per year. Silicon may debit the Borrower's deposit
accounts with Silicon for the cost of such audits, in which event Silicon
shall send notification thereof to the Borrower.
4.6 NEGATIVE COVENANTS. Except as may be expressly permitted in the
Schedule, the Borrower shall not, without Silicon's prior written consent, do
any of the following: (a) merge or consolidate with another corporation,
except that the Borrower may merge or consolidate with another corporation if
the Borrower is the surviving corporation in the merger and the Borrower's
senior management continues in place after such merger or consolidation; (b)
acquire any assets, including stock of any other entity, outside the ordinary
course of business unless Borrower's senior management continues in place
after such acquisition; (c) enter into any other transaction outside the
ordinary course of business (except as permitted by the other provisions of
this Section); (d) sell or transfer any Collateral, except for the sale of
finished inventory in the ordinary course of the Borrower's business; (e)
make any loans of any money or any other assets to shareholders, employees or
any other person except in the ordinary course of business; (f) incur any
debts that are outside the ordinary course of business or that would have a
material, adverse effect on the Borrower or on the prospect of repayment of
the Obligations; (g) guarantee or otherwise become liable with respect to the
obligations of another party or entity; (h) pay or declare any dividends on
the stock of the Borrower (except for dividends payable solely in stock of
the Borrower; (i) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of the stock of the Borrower; (j) make any change in the
Borrower's capital structure which has a material adverse effect on that
Borrower or on the prospect of repayment of the Obligations; or (k) dissolve
or elect to dissolve. Transactions permitted by the foregoing provisions of
this Section are only permitted if no Event of Default and no event which
(with notice or passage of time or both) would constitute an Event of Default
would occur as a result of such transaction.
4.7 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Silicon with respect to any Collateral or in any
manner relating to the Borrower, the Borrower shall, without expense to
Silicon, make available the Borrower and it officers,
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employees and agents and the Borrower's books and records to the extent that
Silicon may deem them reasonably necessary in order to prosecute or defend
any such suit or proceeding.
4.8 VERIFICATION. Silicon may, from time to time, following prior
notification to the Borrower, verify directly with the respective account
debtors the validity, amount and other matters relating to the Borrower's
accounts, by means of mail, telephone or otherwise, either in the name of the
Borrower or Silicon or such other name as Silicon may reasonably choose,
provided that no prior notification shall be required following an Event of
Default. Silicon shall not be required to obtain the Borrower's consent prior
to any such verification of accounts, whether or not an Event of Default has
occurred.
4.9 EXECUTE ADDITIONAL DOCUMENTATION. The Borrower agrees, at its
expense, on request by Silicon, to execute from time to time all documents in
form satisfactory to Silicon, as Silicon may deem reasonably necessary or
useful in order to perfect and maintain Silicon's perfected security interest
in the Collateral, and in order to fully consummate all of the transactions
contemplated by this Agreement.
4.10 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. The Borrower shall
register or cause to be registered (to the extent not already registered)
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, those intellectual property rights listed on
an exhibit to the Collateral Assignment, Patent Mortgage and Security
Agreement delivered to Silicon by the Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower
shall register or cause to be registered with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
additional intellectual property rights developed or acquired by Borrower
from time to time in connection with any product prior to the sale or
licensing of such product to any third party, including without limitation
revisions or additions to the intellectual property rights listed on such
exhibit to the Collateral Assignment, Patent Mortgage and Security Agreement.
Borrower shall execute and deliver such additional instruments and documents
from time to time as Silicon shall reasonably request to perfect Silicon's
security interest in such additional intellectual property rights.
5. TERM.
5.1 MATURITY DATE. This Agreement shall continue in effect until the
payment in full of the Obligations; provided, however, that the Borrower
shall repay in full each Loan described on the Schedule, with all accrued but
unpaid interest on that Loan, on or before the Maturity Date stated on the
Schedule for such Loan.
5.2 EARLY TERMINATION. Subject to SECTION 5.3, this Agreement may be
terminated, without penalty, prior to the Maturity Date as follows: (a) by
the Borrower, effective three business days after written notice of
termination is given to Silicon; or (b) by Silicon at any time after the
occurrence of an Event of Default, without notice, effective immediately.
5.3 PAYMENT OF OBLIGATIONS. On the due dates stated in the Schedule,
or on any earlier effective date of termination, the Borrower shall pay and
perform in full all Obligations,
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whether evidenced by installment notes or otherwise, and whether or not all
or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Silicon's security
interests in all of the Collateral and all of the terms and provisions of
this Agreement shall continue in full force and effect until all Obligations
have been paid and performed in full; provided that, without limiting the fact
that Loans are discretionary on the part of Silicon, Silicon may, in its sole
discretion, refuse to make any further Loans after termination. No
termination shall in any way affect or impair any right or remedy of Silicon,
nor shall any such termination relieve the Borrower of any Obligation to
Silicon, until all of the Obligations have been paid and performed in full.
Upon payment and performance in full of all the Obligations and following
written request by Borrower, Silicon shall deliver to the Borrower (within 30
days) termination statements, requests for reconveyances and such other
documents as may be required to fully terminate any of Silicon's security
interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and the Borrower
shall give Silicon immediate written notice thereof: (a) any warranty,
representation, statement, report or certificate made or delivered to Silicon
by the Borrower or any of the Borrower's officers or employees, now or in the
future, shall be untrue or misleading in any material respect; or (b) the
Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation; or (c) the total outstanding balance of any Loan
exceeds the applicable Credit Limit, or the total Loans and other Obligations
outstanding at any time exceed the aggregate Credit Limit for all Loans; or
(d) the Borrower shall fail to comply with any of the financial covenants set
forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or (e) the Borrower shall
fail to pay or perform any other non-monetary Obligation, under this
Agreement or any other agreement or document relating to the Loans; or (f)
any levy, assessment, attachment, seizure, lien or encumbrance is made on all
or any part of the Collateral; or (g) dissolution, termination of existence,
insolvency or business failure of the Borrower, or appointment of a receiver,
trustee or custodian for all or any part of the property of, assignment for
the benefit of creditors by, or the commencement of any proceeding by the
Borrower under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (h) the commencement of any
proceeding against the Borrower or any guarantor of any of the Obligations
under any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, now
or in the future in effect, which is not cured by the dismissal thereof
within 30 days after the date commenced; or (i) revocation or termination of,
or limitation of liability upon, any guaranty of Obligations; or (j)
commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or (k) the Borrower makes any payment on
account of any indebtedness or obligation which has been subordinated to the
Obligations, unless such payment is permitted in the applicable subordination
agreement, or if any person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(l) the Borrower shall generally not pay its debts as they become due; or the
Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay
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or defraud its creditors, or make or suffer any transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law; or (m) either the Borrower or any other party thereto shall
breach any subordination agreement executed in connection with the Loans; or
(n) the current shareholders of the Borrower shall cease to own more than 50%
of the outstanding common stock of the Borrower. If any of the foregoing
defaults, other than a failure to pay money and breach of an financial
covenant set forth in the Schedule, is curable, it may be cured (and no Event
of Default shall have occurred) if the Borrower cures the default within
fifteen days (or within thirty days in the case of clause (h) of this SECTION
6.1). Silicon may cease making any loan advances hereunder during the above
cure periods, and thereafter if an Event of Default has occurred.
6.2 REMEDIES. Upon the occurrence of any Event of Default and the
expiration of any applicable cure period under SECTION 6.1, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by the Borrower), may do any one or
more of the following: (a) cease making Loans or otherwise extending credit
to the Borrower under this Agreement or any other document or agreement; (b)
accelerate and declare all or any part of the Obligations to be immediately
due, payable, and performable, notwithstanding any deferred or installment
payments allowed by any instrument evidencing or relating to any Obligation;
(c) take possession of any or all of the Collateral wherever it may be found,
and for that purpose the Borrower hereby authorizes Silicon without judicial
process to enter onto any of the Borrower's premises without interference to
search for, take possession of, keep, store, or remove any of the Collateral,
and remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof without charge for so long as Silicon deems it
reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should Silicon
seek to take possession of any or all of the Collateral by Court process, the
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii)
any requirement that Silicon retain possession of and not dispose of any such
Collateral until after trial or final judgment; (d) require the Borrower to
assemble any or all of the Collateral and make it available to Silicon at
places designated by Silicon which are reasonably convenient to Silicon and
the Borrower, and to remove the Collateral to such locations as Silicon may
deem advisable; (e) require the Borrower to deliver to Silicon, in kind, all
checks and other payments received with respect to all accounts and general
intangibles, together with any necessary endorsements, within one day after
the date received by the Borrower; (f) complete the processing, manufacturing
or repair of any Collateral prior to a disposition thereof and, for such
purpose and for the purpose of removal, Silicon shall have the right to use
the Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all
other property without charge; (g) sell, lease or otherwise dispose of any of
the Collateral in its condition at the time Silicon obtains possession of it
or after further manufacturing, processing or repair, at any one or more
public and/or private sales, in lots or in bulk, for cash, exchange or other
property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for sale;
Silicon shall have the right to conduct such disposition on the Borrower's
premises without charge, for such time or times as Silicon deems reasonable,
or on Silicon's premises, or elsewhere and the Collateral need not be located
at the place of
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disposition; Silicon may directly or through any affiliated company purchase
or lease any Collateral at any such public disposition, and if permissible
under applicable law, at any private disposition; any sale or other
disposition of Collateral shall not relieve the Borrower of any liability the
Borrower may have if any Collateral is defective as to title or physical
condition or otherwise at the time of sale; (h) demand payment of, and
collect any accounts and general intangibles comprising Collateral and, in
connection therewith, the Borrower irrevocably authorizes Silicon to endorse
or sign the Borrower's name on all collections, receipts, instruments and
other documents, to take possession of and open mail addressed to the
Borrower and remove therefrom payments made with respect to any item of the
Collateral or proceeds thereof, and, in Silicon's sole discretion, to grant
extensions of time to pay, compromise claims and settle accounts and the like
for less than face value; (i) offset against any sums in any general, special
or other deposit accounts maintained by the Borrower with Silicon; and (j)
demand and receive possession of any of the Borrower's federal and state
income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable fees of professionals (including
attorneys' fees), expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of
the Obligations, shall be due on demand, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations.
Without limiting any of Silicon's rights and remedies, from and after the
occurrence of any Event of Default, the interest rate applicable to the
Obligations shall be increased by an additional two percent per annum above
the rate otherwise applicable.
6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. The Borrower
and Silicon agree that a sale or other disposition (collectively, "Sale") of
any Collateral which complies with the following standards shall conclusively
be deemed to be commercially reasonable: (a) notice of the Sale is given to
the Borrower at least seven days prior to the Sale, and, in the case of a
public Sale, notice of the Sale is published at least seven days before the
Sale in a newspaper of general circulation in the county where the Sale is to
be conducted; (b) notice of the Sale describes the Collateral in general,
non-specific terms; (c) the Sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (d) the Sale commences
at any time between 8:00 a.m. and 6:00 p.m; (e) payment of the purchase
price in cash or by cashier's check or wire transfer is required; (f) with
respect to any Sale of any of the Collateral, Silicon may (but is not
obligated to) direct any prospective purchaser to ascertain directly from the
Borrower any and all information concerning the same. Silicon may employ
other methods of noticing and selling the Collateral, in its discretion, if
they are commercially reasonable.
6.4 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, the Borrower hereby irrevocably
appoints Silicon (and any of Silicon's designated officers, or employees) as
the Borrower's true and lawful attorney to: (a) send requests for
verification of accounts or notify account debtors of Silicon's security
interest in the accounts; (b) endorse the Borrower's name on any checks or
other forms of payment or security that may come into Silicon's possession;
(c) sign the Borrower's name on any invoice or bill of lading relating to any
account, drafts against account debtors, schedules and assignments of
accounts, verifications of accounts, and notices to account debtors; (d)
make, settle, and adjust all claims under and decisions with respect to the
Borrower's
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policies of insurance; and (e) settle and adjust disputes and claims
respecting the accounts directly with account debtors, for amounts and upon
terms which Silicon determines to be reasonable; provided Silicon may
exercise such power of attorney to sign the name of the Borrower on any of
the documents described in SECTION 4.9 regardless of whether an Event of
Default has occurred. The appointment of Silicon as the Borrower's attorney
in fact, and each and every one of Silicon's rights and powers, being coupled
with an interest, is irrevocable until all of the Obligations have been fully
repaid and performed and Silicon's obligation to provide advances hereunder
is terminated.
6.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any Sale of the Collateral shall be applied by Silicon first to the costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due
upon any of the Obligations, and third to the principal of the Obligations,
in such order as Silicon shall determine in its sole discretion. Any surplus
shall be paid to the Borrower or other persons legally entitled thereto; the
Borrower shall remain liable to Silicon for any deficiency. If Silicon, in
its sole discretion, directly or indirectly enters into a deferred payment or
other credit transaction with any purchaser at any Sale or other disposition
of Collateral, Silicon shall have the option, exercisable at any time, in its
sole discretion, of either reducing the Obligations by the principal amount
of purchase price or deferring the reduction of the Obligations until the
actual receipt by Silicon of the cash therefor.
6.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Silicon shall have all the other rights and remedies
accorded a secured party under the Uniform Commercial Code of Oregon and each
state in which any Collateral is located, and under all other applicable
laws, and under any other instrument or agreement now or in the future
entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise
by Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
7. GENERAL PROVISIONS.
7.1 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by regular first-class mail,
or certified mail return receipt requested, addressed to Silicon or the
Borrower at the addresses shown in the heading to this Agreement, or at any
other address designated in writing by one party to the other party. In
addition, Borrower shall send a copy of any notice to Silicon to the
following address: 11000 S.W. Stratus, Suite 170, Beaverton, OR 97008-7113,
Attn: Art Hiemstra. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered to the Borrower or to
Silicon, or at the expiration of two business days following the deposit
thereof in the United States mail, with postage prepaid.
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7.2 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in
full force and effect.
7.3 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith (and the
Conditional Assignment for Security Purposes and Security Agreement
previously executed by the Borrower for the benefit of Silicon) are the
final, entire and complete agreement between the Borrower and Silicon and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY SILICON
AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE
NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE
BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED
BY SILICON TO BE ENFORCEABLE.
7.4 WAIVERS. The failure of Silicon at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or
any other present or future agreement between the Borrower and Silicon shall
not waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
Borrower and delivered to Silicon shall be deemed to have been waived by any
act or knowledge of Silicon or its agents or employees, but only by a
specific written waiver signed by an officer of Silicon and delivered to the
Borrower. The Borrower waives demand, protest, notice of protest and notice
of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, general intangible, document or guaranty at any time
held by Silicon on which the Borrower is or may in any way be liable, and
notice of any action taken by Silicon, unless expressly required by this
Agreement.
7.5 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of
its directors, officers, employees, agents, attorneys or any other person
affiliated with or representing Silicon shall be liable for any claims,
demands, losses or damages, of any kind whatsoever, made, claimed, incurred
or suffered by the Borrower or any other party through the ordinary
negligence of Silicon, or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing Silicon.
7.6 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by the Borrower and a duly
authorized officer of Silicon.
7.7 TIME OF ESSENCE. Time is of the essence in the performance by the
Borrower of each and every obligation under this Agreement.
Page 14 - LOAN AND SECURITY AGREEMENT
<PAGE>
7.8 ATTORNEYS' FEES AND COSTS. The Borrower shall reimburse Silicon
for all reasonable attorneys' fees and fees of other professionals, and all
filing, recording, search, title insurance, appraisal, audit, and other
reasonable costs incurred by Silicon, pursuant to, or in connection with, or
relating to this Agreement (whether or not a lawsuit is filed), including,
but not limited to, any reasonable attorneys' fees and costs Silicon incurs
in order to do the following: prepare and negotiate this Agreement and the
documents relating to this Agreement; obtain legal advice in connection with
this Agreement; enforce, or seek to enforce, any of its rights; prosecute
actions against, or defend actions by, account debtors; commence, intervene
in, or defend any action or proceeding (including any appeal or review);
initiate any complaint to be relieved of the automatic stay in bankruptcy;
file or prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; examine, audit, copy, and inspect any of the Collateral or any
of the Borrower's books and records; or protect, obtain possession of, lease,
dispose of, or otherwise enforce Silicon's security interest in, the
Collateral and otherwise represent Silicon in any litigation relating to the
Borrower. If either Silicon or the Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and professionals'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the the enforcement of, execution upon or defense of any order,
decree, award or judgment, and in any appeal or review by an appellate court.
All fees and costs to which Silicon may be entitled pursuant to this Section
shall immediately become part of the Borrower's Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
7.9 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of the parties hereto; provided,
however, that the Borrower may not assign or transfer any of its rights under
this Agreement without the prior written consent of Silicon, and any
prohibited assignment shall be void. No consent by Silicon to any assignment
shall release the Borrower from its liability for the Obligations. The
Borrower agrees and consents to Silicon's sale or transfer, whether now or
later, of one or more participation interests in the Loans to one or more
purchasers, whether related or unrelated to Silicon. Silicon may provide,
without any limitation whatsoever, to any one or more purchasers, or
potential purchasers, any information or knowledge Silicon may have about the
Borrower or about any other matter relating to the Loans and the Borrower
hereby waives any rights to privacy it may have with respect to such matters.
The Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests. The Borrower also agrees that the purchasers of any such
participation interests shall be considered as the absolute owners of such
interests in the Loans and shall have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests.
7.10 SECTION HEADINGS; CONSTRUCTION. Section headings are only used in
this Agreement for convenience. The Borrower acknowledges that the headings
may not describe completely the subject matter of the applicable section, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. This Agreement has been
fully reviewed and negotiated between the parties and no uncertainty or
Page 15 - LOAN AND SECURITY AGREEMENT
<PAGE>
ambiguity in any term or provision of this Agreement shall be construed
strictly against Silicon or the Borrower under any rule of construction or
otherwise.
7.11 MUTUAL WAIVER OF JURY TRIAL. THE BORROWER AND SILICON EACH HEREBY
WAIVE THE RIGHT TO TRAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND THE BORROWER,
OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR THE BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH SILICON OR THE BORROWER, IN ALL OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
7.12 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and construed in accordance with, the laws of
the State of Oregon. Any undefined term used in this Agreement that is
defined in the Oregon Uniform Commercial Code shall have the meaning assigned
to that term in the Oregon Uniform Commercial Code. As a material part of the
consideration to Silicon to enter into this Agreement, the Borrower (i)
agrees that all actions and proceedings relating directly or indirectly
hereto shall at Silicon's option, be litigated in courts located within
Oregon, and that the exclusive venue therefor shall be, at Silicon's option,
Washington County or Multnomah County, Oregon; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (iii) waives any and all rights the Borrower may have
to object to the jurisdiction of any such court, or to transfer or change the
venue of any such action or proceeding.
Borrower:
ANALOGY, INC.
By: /s/ Terrence A. Rixford
-------------------------
Title: Vice President
----------------------
Silicon:
SILICON VALLEY BANK
By: /s/ Tim Hardin
-------------------------
Title: Senior Vice President
----------------------
Page 16 - LOAN AND SECURITY AGREEMENT
<PAGE>
SCHEDULE TO LOAN AND SECURITY AGREEMENT
BORROWER: Analogy, Inc.
SECURED ACCOUNTS RECEIVABLE LINE OF CREDIT
CREDIT LIMIT: An amount not to exceed the lesser of: (i) $3,000,000 at
any one time outstanding; or (ii) the amount of the
"Borrowing Base", as defined below. For purposes of this
Schedule, the "Borrowing Base" shall mean the sum of 50% of
the Net Amount of Borrower's eligible accounts receivable.
With respect to Borrower's accounts, "Net Amount" means the
gross amount of the account, minus all applicable sales, use,
excise and other similar taxes and minus all discounts,
credits and allowances of any nature granted or claimed. The
amount of all letters of credit and foreign exchange
contracts issued by Silicon at the request of Borrower shall
reduce, dollar for dollar, the amount otherwise available to
be borrowed under the formula described in this paragraph.
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following shall not be deemed eligible for
borrowing: accounts outstanding for more than 90 days from
the invoice date and accounts subject to any contingencies.
INTEREST RATE: The interest rate applicable to this Loan shall be a rate
equal to the "Prime Rate" in effect from time to time, plus
1.00% per annum. Interest calculations shall be made on the
basis of a 360-day year and the actual number of days
elapsed. "Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate"; it is a base rate upon
which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on
each date there is a change in the Prime Rate.
COMMITMENT FEE: One-quarter one percent (1/4%) per annum of the maximum
commitment amount of $3,000,000 or $7,500, which is fully
earned and payable at closing. (Any Commitment Fee
previously paid by the Borrower in connection with this loan
shall be credited against this Fee.)
MATURITY DATE: March 9, 1998, at which time all unpaid principal and
accrued but unpaid interest shall be due and payable.
Page 17 - LOAN AND SECURITY AGREEMENT
<PAGE>
LETTERS OF CREDIT: Subject to the terms of this Agreement, as amended from
time to time, Silicon shall issue or cause to be issued under
the Credit Limit standby and commercial letters of credit for
the account of Borrower in an aggregate face amount not to
exceed the Credit Limit. Each such standby letter of credit
shall have an expiry date of no later than the Maturity Date.
All such letters of credit shall be, in form and substance,
acceptable to Silicon in its sole discretion and shall be
subject to the terms and conditions of Silicon's form
application and letter of credit agreement.
FOREIGN EXCHANGE
SUBLIMIT: Borrower may utilize up to the Credit Limit for spot and
future foreign exchange contracts (the "Exchange Contracts").
All Exchange Contracts must provide for delivery of
settlement on or before the Maturity Date. The limit
available at any time shall be reduced by the following
amounts (the "Foreign Exchange Reserve") on each day (the
"Determination date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement
allowed more than two business days from the determination
Date, 20% of the gross amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange Contracts on which delivery
is to be effected or settlement allowed within two business
days after the Determination Date, 100% of the gross amount
of the Exchange Contract, the Borrower may request that
Silicon debit the Borrower's bank account with Silicon for
such amount, provided Borrower has immediately available
funds in such amounts in its bank account.
Whenever Borrower desires an advance, Borrower will notify
Silicon by facsimile transmission or by telephone not later
than 11:00 a.m. California time, two business days before
the advance is to be made. Each such notification shall be
promptly confirmed by a borrowing base certificate. Silicon
shall be entitled to rely on any such telephone notice given
by any person who Silicon reasonably believes to be an
officer of Borrower, and Borrower shall indemnify and hold
Silicon harmless for any damages or loss suffered by Silicon
as a result of such reliance.
Silicon may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or
(b) that there is no sufficient availability under the
Credit Limit and Borrower does not have available funds in
its bank account to satisfy the Foreign Exchange Reserve. If
Silicon terminates the Exchange Contracts, and without
limitation of the FX Indemnity Provisions (as referred to
below), Borrower agrees to reimburse Silicon for any and all
fees, costs and expenses relating thereto or arising in
connection therewith.
Page 18 - LOAN AND SECURITY AGREEMENT
<PAGE>
Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and
settlement allowed in any two business day period to be
more than the Credit Limit, nor shall Borrower permit the
total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any one time, to exceed
the Credit Limit.
The Borrower shall execute all standard form applications and
agreements of Silicon in connection with the Exchange
Contracts, and without limiting any of the terms of such
applications and agreements the Borrower will pay all
standard fees and charges of Silicon in connection with the
Exchange Contracts.
Without limiting any of the other terms of this Agreement or
any such standard form applications and agreement of
Silicon, Borrower agrees to indemnify Silicon and hold it
harmless, from and against any and all claims, debts,
liabilities, demands, obligations, actions, costs and
expenses (including, without limitation, attorneys fees of
counsel of Silicon's choice), of every nature and
description which it may sustain or incur, based upon,
arising out of, or in any way relating to any of the
Exchange Contracts or any transactions relating thereto or
contemplated thereby (collectively referred to as the "FX
Indemnity Provisions").
PRIOR NAMES OF
BORROWER: See attached Exhibit B
TRADE NAMES OF
BORROWER: See attached Exhibit B
TRADEMARKS OF
BORROWER: See attached Exhibit B
OTHER LOCATIONS
AND ADDRESSES: See attached Exhibit B
MATERIAL ADVERSE
LITIGATION: See attached Exhibit B
FINANCIAL
COVENANTS: The Borrower shall at all times comply with all of the
following covenants, all of which shall be determined and
measured on a quarterly basis in accordance with generally
accepted accounting principles, on a consolidated basis with
any subsidiary of Borrower, except as otherwise stated below:
Page 19 - LOAN AND SECURITY AGREEMENT
<PAGE>
TANGIBLE NET
WORTH: Borrower shall at all times maintain a Tangible Net Worth of
not less than $6,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall at all times maintain a ratio of total
liabilities to Tangible Net Worth of not more than 1.00:1.0.
For purposes of this calculation, total liabilities shall
exclude deferred revenues and debt, if any, that has been
subordinated to the Loans in a written subordination
agreement on terms satisfactory to Silicon.
PROFITABILITY: Borrower shall not incur a quarterly loss (as defined below)
in excess of $750,000, shall not incur any loss in two
consecutive quarters in excess of $1,000,000 in the
aggregate, and shall not incur losses in any three
consecutive quarters. For purposes of this paragraph, "loss"
means net income after taxes of less than $0.00, as reported
on Borrower's financial statements.
QUICK RATIO: Borrower shall maintain a ratio of Quick Assets (defined
below) to current liabilities less deferred revenue of not
less than 2.00:1.0.
DEFINITIONS: "Quick Assets" means cash on hand or on deposit in banks,
readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-1" by Standard
& Poor's Corporation (or a similar rating by a similar
rating organization), certificates of deposit and banker's
acceptances, and accounts receivable (net of allowance for
doubtful accounts).
"Tangible Net Worth" means stockholders' equity plus debt,
if any, that has been subordinated to the Loans in a written
subordination agreement on terms satisfactory to Silicon,
and accrued interest thereon, less goodwill, patents,
capitalized software costs, deferred organizational costs,
tradenames, trademarks, and all other assets which would be
classified as intangible assets under generally accepted
accounting principles.
OTHER COVENANTS: Borrower shall at all times comply with all of the following
additional covenants:
BANKING RELATIONSHIP. Borrower shall at all times maintain
its primary domestic banking relationship with Silicon,
unless it obtains Silicon's prior written consent.
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<PAGE>
FINANCIAL STATEMENTS AND REPORTS. The Borrower shall
provide Silicon: (a) within 50 days after the end of each
quarter, a quarterly financial statement (consisting of a
income statement and a balance sheet) prepared by the
Borrower in accordance with generally accepted accounting
principles; (b) within 20 days after the end of each month,
an accounts receivable aging report and an accounts payable
aging report, in such form as Silicon shall reasonably
specify; (c) within 20 days after the end of each month, a
Borrowing Base Certificate in the form attached to this
Agreement as Exhibit A, as Silicon may reasonably modify such
Certificate from time to time, signed by the Chief Financial
Officer of the Borrower; (d) within 50 days after the end of
each quarter, a Compliance Certificate in such form as
Silicon shall reasonably specify, signed by the Chief
Financial Officer of the Borrower, setting forth calculations
showing compliance (at the end of each such calendar quarter)
with the financial covenants set forth on the Schedule, and
certifying that throughout such quarter the Borrower was in
full compliance with all other terms and conditions of this
Agreement and the Schedule, and providing such other
information as Silicon shall reasonably request; and (e)
within 95 days following the end of the Borrower's fiscal
year, complete annual CPA-audited financial statements, such
audit being conducted by independent certified public
accountants reasonably acceptable to Silicon, together with
an unqualified opinion of such accountants.
CONDITIONS TO
CLOSING: Without in any way limiting the discretionary nature of
advances under this Agreement, before requesting any such
advance, the Borrower shall satisfy each of the following
conditions:
1. LOAN DOCUMENTS:
Silicon shall have received this Agreement, the Schedule,
and such other loan documents as Silicon shall require, each
duly executed and delivered by the parties thereto.
2. DOCUMENTS RELATING
TO AUTHORITY, ETC.:
Silicon shall have received each of the following in form
and substance satisfactory to it:
(a) Certified Copies of the Articles of Incorporation
and Bylaws of the Borrower;
(b) A Certificate of Good Standing issued by the
Secretary of State of the Borrower's state of incorporation
and such other states as Silicon may reasonably request with
respect to the Borrower;
Page 21 - LOAN AND SECURITY AGREEMENT
<PAGE>
(c) A certified copy of a Resolution adopted by the
Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Agreement, and
any other documents or certificates to be executed by the
Borrower in connection with this transaction; and
(d) Incumbency Certificates describing the office and
identifying the specimen signatures of the individuals
signing all such loan documents on behalf of the Borrower.
3. PERFECTION AND
PRIORITY OF SECURITY:
Silicon shall have received evidence satisfactory to it
that its security interest in the Collateral has been duly
perfected and that such security interest is prior to all
other liens, charges, security interests, encumbrances and
adverse claims in or to the Collateral other than Permitted
Liens, which evidence shall include, without limitation, a
certificate from the appropriate state agencies showing the
due filing and first priority of the UCC Financing Statements
to be signed by the Borrower covering the Collateral, and
evidence of the due filing of any Security Agreement in
Copyrighted Works with the U.S. Copyright Office or other
security documents required by Silicon.
4. INSURANCE: Silicon shall have received evidence satisfactory to it
that all insurance required by this Agreement is in full
force and effect, with loss payee designations and additional
insured designations as required by this Agreement.
5. OTHER INFORMATION:
Silicon shall have received such other statements, opinions,
certificates, documents and information with respect to
matters contemplated by this Agreement as it may reasonably
request, all of which must be acceptable to Silicon.
Silicon shall have conducted an examination of the Borrower's
books, records, ledgers, journals, and registers, as Silicon
may deem necessary, and shall be satisfied with the results
of such examination in its sole discretion.
Page 22 - LOAN AND SECURITY AGREEMENT
<PAGE>
Silicon and the Borrower agree that the terms of this Schedule
supplement the Loan and Security Agreement between Silicon and the Borrower
and agree to be bound by the terms of this Schedule.
BORROWER:
ANALOGY, INC.
By: /s/ Terrence A. Rixford
--------------------------
Title: Vice President
-----------------------
SILICON:
SILICON VALLEY BANK
By: /s/ Tim Hardin
--------------------------
Title: Senior Vice President
-----------------------
Page 23 - LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT A
[INSERT BORROWING BASE CERTIFICATE]
Page 24 - LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT B
TRADENAMES
PRIOR NAMES
TRADEMARKS
OTHER LOCATIONS AND ADDRESSES*
MATERIAL ADVERSE LITIGATION
[OTHER DISLCOSURES]
* "Location" for the purposes of Section 3.3 of this Agreement shall mean
any place where Analogy conducts official business, currently, or in the
future.
** Analogy may, from time to time, file for intellectual property protection
of its intangible assets in the normal course of business without
notification to Silicon Valley Bank as required by Section 2.2(a)-page 3
of this Agreement. Upon request by Silicon Valley Bank, Analogy shall
provide a written status report of all intellectual property protection.
Page 25 - LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT 10.13
<PAGE>
LOAN MODIFICATION AGREEMENT
BETWEEN: ANALOGY, INC., an Oregon corporation ("Borrower"), whose
address is 9205 S.W. Gemini Drive, Beaverton, OR 97008;
AND: Silicon Valley Bank ("Silicon"), whose address is 3003 Tasman
Drive, Santa Clara, California 95054;
DATE: March 5, 1998
This Loan Modification Agreement is entered into on the above date by
Borrower and Silicon.
1. BACKGROUND. Borrower entered into a Loan and Security Agreement
with Silicon in March 1997 (as amended from time to time, the "Loan
Agreement"). Capitalized terms used in this Loan Modification Agreement
shall, unless otherwise defined in this Agreement, have the meaning given to
such terms in the Loan Agreement.
Silicon and Borrower are entering into this Agreement to state the
terms and conditions of certain modifications to the Loan Agreement and the
Schedule, as amended prior to the date of this Agreement.
2. MODIFICATIONS TO LOAN AGREEMENT AND SCHEDULE.
2.1. The Schedule to the Loan Agreement is hereby deleted
and replaced by the Amended and Restated Schedule to Loan and Security
Agreement attached to this Agreement.
2.2. Borrower acknowledges and agrees that all Obligations,
including without limitation Borrower's obligation to repay amounts advanced
by Silicon to Borrower on the terms of the Loan Agreement and Schedule as
modified by this Loan Modification Agreement, are secured by all liens and
security interests granted by Borrower to Silicon in the Loan Agreement.
3. CONDITIONS PRECEDENT. This Loan Modification Agreement shall
not take effect until Borrower delivers to Silicon a Certified Resolution of
Borrower and such other documents as Silicon shall reasonably require to give
effect to the terms of this Loan Modification Agreement.
4. NO OTHER MODIFICATIONS. Except as expressly modified by this
Loan Modification Agreement, the terms of the Loan Agreement, as amended
prior to the date of this Loan Modification Agreement, shall remain unchanged
and in full force and effect. Silicon's agreement to modify the Loan
Agreement pursuant to this Loan Modification Agreement shall not obligate
Silicon to make any future modifications to the Loan Agreement or any other
loan document. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of any indebtedness of any Borrower to Silicon. It is the
intention of Silicon and Borrower to retain as liable parties all makers and
endorsers of the Loan Agreement or any other loan document. Except as provided
in the Amended and Restated Schedule to Loan and Security Agreement attached
to this Agreement, no maker, endorser, or guarantor shall be released by
virtue of this Loan Modification Agreement. The terms of this paragraph shall
apply not only to this Loan Modification Agreement, but also to all subsequent
loan modification agreements.
Page 1 - LOAN MODIFICATION AGREEMENT
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
5.1. The Borrower represents and warrants to Silicon that
the execution, delivery and performance of this Agreement are within the
Borrower's corporate powers, and have been duly authorized and are not in
contravention of law or the terms of the Borrower's articles of
incorporation, bylaws or of any undertaking to which the Borrower is a party
or by which it is bound.
5.2. The Borrower understands and agrees that in entering
into this Agreement, Silicon is relying upon the Borrower's representations,
warranties and agreements as set forth in the Loan Agreement and other loan
documents. Borrower hereby reaffirms all representations and warranties in
the Loan Agreement, all of which are true as of the date of this Agreement.
BORROWER:
ANALOGY, INC.
By: /s/ Terrence A. Rixford
--------------------------
Title: Vice President
-----------------------
SILICON:
SILICON VALLEY BANK
By: /s/ Bruce Helberg
--------------------------
Title: Vice President
-----------------------
Page 2 - LOAN MODIFICATION AGREEMENT
<PAGE>
AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
BORROWER: Analogy, Inc.
SECURED ACCOUNTS RECEIVABLE LINE OF CREDIT
CREDIT LIMIT: An amount not to exceed the lesser of: (i) $5,000,000
at any one time outstanding, minus the Cash Management
Services Sublimit; or (ii) the amount of the "Borrowing
Base", as defined below. For purposes of this Schedule,
the "Borrowing Base" shall mean the sum of 50% of the Net
Amount of Borrower's eligible accounts receivable. With
respect to Borrower's accounts, "Net Amount" means the
gross amount of the account, minus all applicable sales,
use, excise and other similar taxes and minus all
discounts, credits and allowances of any nature granted or
claimed. The amount of all letters of credit and foreign
exchange contracts issued by Silicon at the request of
Borrower shall reduce, dollar for dollar, the amount
otherwise available to be borrowed under the formula
described in this paragraph.
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following shall not be deemed eligible for
borrowing: accounts outstanding for more than 90 days from
the invoice date and accounts subject to any contingencies.
In addition, if more than 50% of the accounts owing from an
account debtor are outstanding more than 90 days from the
invoice date or are otherwise not eligible accounts, then all
accounts owing from that account debtor shall be deemed
ineligible for borrowing. Silicon may, in its sole
discretion, extend the 90-day cross-aging period to equal any
extended terms offered by Borrower to an account debtor.
Approval of such extended terms must be obtained from
Silicon in advance, and will only serve to extend the
cross-aging period and not the 90-day eligibility period.
(If more than 50% of such account debtor's outstanding
accounts exceed the approved extended terms, then all of such
account debtor's accounts will be ineligible.) As of the
date of this Amended and Restated Schedule to Loan and
Security Agreement, extended terms of up to 120 days have
been approved for accounts owing from Volvo.
INTEREST RATE: The interest rate applicable to this Loan shall be a rate
equal to the "Prime Rate" in effect from time to time, plus
0.50% per annum. Interest calculations shall be made on the
basis of a 360-day year and the actual number of days
elapsed. "Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate"; it is a base rate upon
which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on
each date there is a change in the Prime Rate.
COMMITMENT FEE: One-fifth of one percent (1/5%) per annum of the maximum
commitment amount of $5,000,000 or $10,000, which is fully
earned and payable at closing. (Any
Page 1 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
Commitment Fee previously paid by the Borrower in connection
with this loan shall be credited against this Fee.)
MATURITY DATE: March 5, 1999, at which time all unpaid principal and
accrued but unpaid interest shall be due and payable.
LETTERS OF CREDIT: Subject to the terms of this Agreement, as amended from
time to time, Silicon shall issue or cause to be issued under
the Credit Limit standby and commercial letters of credit for
the account of Borrower in an aggregate face amount not to
exceed the Credit Limit. Each such standby letter of credit
shall have an expiry date of no later than the Maturity Date.
All such letters of credit shall be, in form and substance,
acceptable to Silicon in its sole discretion and shall be
subject to the terms and conditions of Silicon's form
application and letter of credit agreement.
CASH MANAGEMENT
SERVICES SUBLIMIT: Borrower may utilize up to an aggregate amount not to
exceed $75,000 for Cash Management Services provided by
Silicon, which services will include business credit card
through MBNA America Bank as defined in certain cash
management service agreements provided to Borrower from time
to time in connection herewith (a "Cash Management Service"
or the "Cash Management Services"). All amounts actually
paid by Silicon in respect of a Cash Management Service or
Cash Management Services shall, when paid, constitute an
advance under the Secured Accounts Receivable Line of Credit.
FOREIGN EXCHANGE
SUBLIMIT: Borrower may utilize up to the Credit Limit for spot and
future foreign exchange contracts (the "Exchange Contracts").
All Exchange Contracts must provide for delivery of
settlement on or before the Maturity Date. The limit
available at any time shall be reduced by the following
amounts (the "Foreign Exchange Reserve") on each day (the
"Determination date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement
allowed more than two business days from the Determination
Date, 20% of the gross amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange Contracts on which delivery
is to be effected or settlement allowed within two business
days after the Determination Date, 100% of the gross amount
of the Exchange Contract, the Borrower may request that
Silicon debit the Borrower's bank account with Silicon for
such amount, provided Borrower has immediately available
funds in such amounts in its bank account.
Whenever Borrower desires an advance, Borrower will notify
Silicon by facsimile transmission or by telephone not later
than 11:00 a.m. California time, two business days before
the advance is to be made. Each such notification shall be
promptly confirmed by a borrowing base certificate. Silicon
shall be entitled to rely on any such telephone notice given
by any person who Silicon reasonably believes to be an
officer of Borrower, and Borrower shall indemnify and hold
Silicon harmless for any damages or loss suffered by Silicon
as a result of such reliance.
Page 2 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
Silicon may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or
(b) that there is no sufficient availability under the
Credit Limit and Borrower does not have available funds in
its bank account to satisfy the Foreign Exchange Reserve. If
Silicon terminates the Exchange Contracts, and without
limitation of the FX Indemnity Provisions (as referred to
below), Borrower agrees to reimburse Silicon for any and all
fees, costs and expenses relating thereto or arising in
connection therewith.
Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and
settlement allowed in any two business day period to be
more than the Credit Limit, nor shall Borrower permit the
total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any one time, to exceed
the Credit Limit.
The Borrower shall execute all standard form applications and
agreements of Silicon in connection with the Exchange
Contracts, and without limiting any of the terms of such
applications and agreements the Borrower will pay all
standard fees and charges of Silicon in connection with the
Exchange Contracts.
Without limiting any of the other terms of this Agreement or
any such standard form applications and agreement of
Silicon, Borrower agrees to indemnify Silicon and hold it
harmless, from and against any and all claims, debts,
liabilities, demands, obligations, actions, costs and
expenses (including, without limitation, attorneys fees of
counsel of Silicon's choice), of every nature and
description which it may sustain or incur, based upon,
arising out of, or in any way relating to any of the
Exchange Contracts or any transactions relating thereto or
contemplated thereby (collectively referred to as the "FX
Indemnity Provisions").
PRIOR NAMES OF
BORROWER: See attached Exhibit B
TRADE NAMES OF
BORROWER: See attached Exhibit B
TRADEMARKS OF
BORROWER: See attached Exhibit B
OTHER LOCATIONS
AND ADDRESSES: See attached Exhibit B
MATERIAL ADVERSE
LITIGATION: See attached Exhibit B
FINANCIAL
COVENANTS: The Borrower shall at all times comply with all of the
following covenants, all of which shall be determined and
measured on a quarterly basis in accordance with generally
accepted accounting principles, on a consolidated basis with
any subsidiary of Borrower, except as otherwise stated below:
Page 3 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
TANGIBLE NET
WORTH: Borrower shall at all times maintain a Tangible Net Worth of
not less than $6,500,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall at all times maintain a ratio of total
liabilities to Tangible Net Worth of not more than 1.00:1.0.
For purposes of this calculation, total liabilities shall
exclude deferred revenues and debt, if any, that has been
subordinated to the Loans in a written subordination
agreement on terms satisfactory to Silicon.
PROFITABILITY: Borrower shall not incur a quarterly loss (as defined below)
in excess of $750,000, shall not incur any loss in two
consecutive quarters in excess of $1,000,000 in the
aggregate, and shall not incur losses in any three
consecutive quarters. For purposes of this paragraph, "loss"
means net income after taxes of less than $0.00, as reported
on Borrower's financial statements.
QUICK RATIO: Borrower shall maintain a ratio of Quick Assets (defined
below) to current liabilities less deferred revenue of not
less than 2.00:1.0.
DEFINITIONS: "Quick Assets" means cash on hand or on deposit in banks,
readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-1" by Standard
& Poor's Corporation (or a similar rating by a similar
rating organization), certificates of deposit and banker's
acceptances, and accounts receivable (net of allowance for
doubtful accounts).
"Tangible Net Worth" means stockholders' equity plus debt,
if any, that has been subordinated to the Loans in a written
subordination agreement on terms satisfactory to Silicon,
and accrued interest thereon, less goodwill, patents,
capitalized software costs, deferred organizational costs,
tradenames, trademarks, and all other assets which would be
classified as intangible assets under generally accepted
accounting principles.
OTHER COVENANTS: Borrower shall at all times comply with all of the following
additional covenants:
BANKING RELATIONSHIP. Borrower shall at all times maintain
its primary domestic banking relationship with Silicon,
unless it obtains Silicon's prior written consent.
FINANCIAL STATEMENTS AND REPORTS. The Borrower shall
provide Silicon: (a) within 50 days after the end of each
quarter, a quarterly financial statement (consisting of a
income statement and a balance sheet) prepared by the
Borrower in accordance with generally accepted accounting
principles; (b) within 20 days after the end of each month,
an accounts receivable aging report, in such form as Silicon
shall reasonably specify; (c) within 20 days after the end of
each month, a Borrowing Base Certificate in the form attached
to this Agreement as Exhibit A, as Silicon may reasonably
modify such Certificate from time to time, signed by the
Chief Financial Officer of the Borrower; (d) within 50 days
after the end of each quarter, a Compliance Certificate in
such form as Silicon shall reasonably specify, signed by the
Chief Financial Officer of the Borrower, setting forth
calculations
Page 4 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
showing compliance (at the end of each such calendar
quarter) with the financial covenants set forth on the
Schedule, and certifying that throughout such quarter the
Borrower was in full compliance with all other terms and
conditions of this Agreement and the Schedule, and
providing such other information as Silicon shall
reasonably request; (e) within 5 days after filing, any
10K or 10Q filed by Borrower with the Securities and
Exchange Commission; and (f) within 95 days following the
end of the Borrower's fiscal year, complete annual
CPA-audited financial statements, such audit being
conducted by independent certified public accountants
reasonably acceptable to Silicon, together with an
unqualified opinion of such accountants. Notwithstanding
the foregoing, Borrower will not be required to provide
the reports required in clauses (b) and (c) above unless
the Borrower utilizes the Secured Accounts Receivable Line
of Credit.
CONDITIONS TO
CLOSING: Without in any way limiting the discretionary nature of
advances under this Agreement, before requesting any such
advance, the Borrower shall satisfy each of the following
conditions:
1. LOAN DOCUMENTS:
Silicon shall have received this Agreement, the Schedule,
and such other loan documents as Silicon shall require, each
duly executed and delivered by the parties thereto.
2. DOCUMENTS RELATING
TO AUTHORITY, ETC.:
Silicon shall have received each of the following in form
and substance satisfactory to it:
(a) Certified Copies of the Articles of Incorporation
and Bylaws of the Borrower;
(b) A Certificate of Good Standing issued by the
Secretary of State of the Borrower's state of incorporation
and such other states as Silicon may reasonably request with
respect to the Borrower;
(c) A certified copy of a Resolution adopted by the
Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Agreement, and
any other documents or certificates to be executed by the
Borrower in connection with this transaction; and
(d) Incumbency Certificates describing the office and
identifying the specimen signatures of the individuals
signing all such loan documents on behalf of the Borrower.
Page 5 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
3. PERFECTION AND
PRIORITY OF SECURITY:
Silicon shall have received evidence satisfactory to it
that its security interest in the Collateral has been duly
perfected and that such security interest is prior to all
other liens, charges, security interests, encumbrances and
adverse claims in or to the Collateral other than Permitted
Liens, which evidence shall include, without limitation, a
certificate from the appropriate state agencies showing the
due filing and first priority of the UCC Financing Statements
to be signed by the Borrower covering the Collateral, and
evidence of the due filing of any Security Agreement in
Copyrighted Works with the U.S. Copyright Office or other
security documents required by Silicon.
4. INSURANCE: Silicon shall have received evidence satisfactory to it
that all insurance required by this Agreement is in full
force and effect, with loss payee designations and additional
insured designations as required by this Agreement.
5. OTHER INFORMATION:
Silicon shall have received such other statements, opinions,
certificates, documents and information with respect to
matters contemplated by this Agreement as it may reasonably
request, all of which must be acceptable to Silicon.
Silicon shall have conducted an examination of the Borrower's
books, records, ledgers, journals, and registers, as Silicon
may deem necessary, and shall be satisfied with the results
of such examination in its sole discretion.
Silicon and the Borrower agree that the terms of this Schedule
supplement the Loan and Security Agreement between Silicon and the Borrower
and agree to be bound by the terms of this Schedule.
BORROWER:
ANALOGY, INC.
By: /s/ Terrence A. Rixford
--------------------------
Title: Vice President
-----------------------
SILICON:
SILICON VALLEY BANK
By: /s/ Bruce Helberg
--------------------------
Title: Vice President
-----------------------
Page 6 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT A
[INSERT BORROWING BASE CERTIFICATE]
Page 7 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT B
TRADENAMES
PRIOR NAMES
TRADEMARKS
OTHER LOCATIONS AND ADDRESSES
MATERIAL ADVERSE LITIGATION
[OTHER DISCLOSURES]
Page 8 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT 10.14
<PAGE>
LOAN MODIFICATION AGREEMENT
BETWEEN: ANALOGY, INC., an Oregon corporation ("Borrower"), whose
address is 9205 S.W. Gemini Drive, Beaverton, OR 97008;
AND: Silicon Valley Bank ("Silicon"), whose address is 3003 Tasman
Drive, Santa Clara, California 95054;
DATE: June 30, 1998
This Loan Modification Agreement is entered into on the above date by
Borrower and Silicon.
1. BACKGROUND. Borrower entered into a Loan and Security Agreement
with Silicon in March, 1997, and a Loan Modification Agreement in March, 1998
(as amended and modified from time to time, the "Loan Agreement").
Capitalized terms used in this Loan Modification Agreement shall, unless
otherwise defined in this Agreement, have the meaning given to such terms in
the Loan Agreement.
Silicon and Borrower are entering into this Agreement to state the
terms and conditions of certain modifications to the Loan Agreement and the
Schedule, as amended prior to the date of this Agreement.
2. MODIFICATIONS TO LOAN AGREEMENT AND SCHEDULE.
2.1. The Schedule to the Loan Agreement is hereby deleted
and replaced by the Amended and Restated Schedule to Loan and Security
Agreement attached to this Agreement.
2.2. Borrower acknowledges and agrees that all Obligations,
including without limitation Borrower's obligation to repay amounts advanced
by Silicon to Borrower on the terms of the Loan Agreement and Schedule as
modified by this Loan Modification Agreement, are secured by all liens and
security interests granted by Borrower to Silicon in the Loan Agreement.
3. CONDITIONS PRECEDENT. This Loan Modification Agreement shall
not take effect until Borrower delivers to Silicon a Certified Resolution of
Borrower and such other documents as Silicon shall reasonably require to give
effect to the terms of this Loan Modification Agreement.
4. NO OTHER MODIFICATIONS. Except as expressly modified by this
Loan Modification Agreement, the terms of the Loan Agreement, as amended
prior to the date of this Loan Modification Agreement, shall remain unchanged
and in full force and effect. Silicon's agreement to modify the Loan
Agreement pursuant to this Loan Modification Agreement shall not obligate
Silicon to make any future modifications to the Loan Agreement or any other
loan document. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of any indebtedness of any Borrower to Silicon. It is the
intention of Silicon and Borrower to retain as liable parties all makers and
endorsers of the Loan Agreement or any other loan document. Except as provided
in the Amended and Restated Schedule to Loan and Security Agreement attached
to this Agreement, no maker, endorser, or guarantor shall be released by
virtue of this Loan Modification Agreement. The terms of this paragraph shall
apply not only to this Loan Modification Agreement, but also to all subsequent
loan modification agreements.
Page 1 - LOAN MODIFICATION AGREEMENT
<PAGE>
5. REPRESENTATIONS AND WARRANTIES.
5.1. The Borrower represents and warrants to Silicon that
the execution, delivery and performance of this Agreement are within the
Borrower's corporate powers, and have been duly authorized and are not in
contravention of law or the terms of the Borrower's articles of
incorporation, bylaws or of any undertaking to which the Borrower is a party
or by which it is bound.
5.2. The Borrower understands and agrees that in entering
into this Agreement, Silicon is relying upon the Borrower's representations,
warranties and agreements as set forth in the Loan Agreement and other loan
documents. Borrower hereby reaffirms all representations and warranties in
the Loan Agreement, all of which are true as of the date of this Agreement.
BORROWER:
ANALOGY, INC.
By: /s/ Terrence A. Rixford
--------------------------
Title: Vice President
-----------------------
SILICON:
SILICON VALLEY BANK
By: /s/ Bruce Helberg
--------------------------
Title: Vice President
-----------------------
Page 2 - LOAN MODIFICATION AGREEMENT
<PAGE>
AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
BORROWER: Analogy, Inc.
SECURED ACCOUNTS RECEIVABLE LINE OF CREDIT
CREDIT LIMIT: An amount not to exceed the lesser of: (i) $5,000,000 at
any one time outstanding, minus the Cash Management
Services Sublimit; or (ii) the amount of the "Borrowing
Base", as defined below. For purposes of this Schedule,
the "Borrowing Base" shall mean the sum of 80% of the Net
Amount of Borrower's eligible accounts receivable. With
respect to Borrower's accounts, "Net Amount" means the
gross amount of the account, minus all applicable sales,
use, excise and other similar taxes and minus all
discounts, credits and allowances of any nature granted or
claimed. The amount of all letters of credit and foreign
exchange contracts issued by Silicon at the request of
Borrower shall reduce, dollar for dollar, the amount
otherwise available to be borrowed under the formula
described in this paragraph.
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following shall not be deemed eligible for
borrowing: accounts outstanding for more than 90 days from
the invoice date and accounts subject to any contingencies.
In addition, if more than 50% of the accounts owing from an
account debtor are outstanding more than 90 days from the
invoice date or are otherwise not eligible accounts, then all
accounts owing from that account debtor shall be deemed
ineligible for borrowing. In addition, foreign accounts
receivable, inter-company accounts receivable, government
accounts, and contra accounts shall all be ineligible.
Finally, any account which alone exceeds 25% of total
accounts receivable will be ineligible to the extent said
account exceeds 25% of total accounts without prior written
approval from Bank. Itochu has been pre-approved by Silicon
as an eligible debtor.
INTEREST RATE: The interest rate applicable to this Loan shall be a rate
equal to the "Prime Rate" in effect from time to time, plus
0.50% per annum. Interest calculations shall be made on the
basis of a 360-day year and the actual number of days
elapsed. "Prime Rate" means the rate announced from time to
time by Silicon as its "prime rate"; it is a base rate upon
which other rates charged by Silicon are based, and it is
not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on
each date there is a change in the Prime Rate.
COMMITMENT FEE: $2,000, which is fully earned and payable at closing of
this Loan Modification.
MATURITY DATE: March 4, 1999, at which time all unpaid principal and
accrued but unpaid interest shall be due and payable.
Page 1 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
LETTERS OF CREDIT: Subject to the terms of this Agreement, as amended from
time to time, Silicon shall issue or cause to be issued under
the Credit Limit standby and commercial letters of credit for
the account of Borrower in an aggregate face amount not to
exceed the Credit Limit. Each such standby letter of credit
shall have an expiry date of no later than the Maturity Date.
All such letters of credit shall be, in form and substance,
acceptable to Silicon in its sole discretion and shall be
subject to the terms and conditions of Silicon's form
application and letter of credit agreement.
CASH MANAGEMENT
SERVICES SUBLIMIT: Borrower may utilize up to an aggregate amount not to
exceed $75,000 for Cash Management Services provided by
Silicon, which services will include business credit card
through MBNA America Bank as defined in certain cash
management service agreements provided to Borrower from time
to time in connection herewith (a "Cash Management Service"
or the "Cash Management Services"). All amounts actually
paid by Silicon in respect of a Cash Management Service or
Cash Management Services shall, when paid, constitute an
advance under the Secured Accounts Receivable Line of Credit.
FOREIGN EXCHANGE
SUBLIMIT: Borrower may utilize up to the Credit Limit for spot and
future foreign exchange contracts (the "Exchange Contracts").
All Exchange Contracts must provide for delivery of
settlement on or before the Maturity Date. The limit
available at any time shall be reduced by the following
amounts (the "Foreign Exchange Reserve") on each day (the
"Determination date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement
allowed more than two business days from the determination
Date, 20% of the gross amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange Contracts on which delivery
is to be effected or settlement allowed within two business
days after the Determination Date, 100% of the gross amount
of the Exchange Contract, the Borrower may request that
Silicon debit the Borrower's bank account with Silicon for
such amount, provided Borrower has immediately available
funds in such amounts in its bank account.
Whenever Borrower desires an advance, Borrower will notify
Silicon by facsimile transmission or by telephone not later
than 11:00 a.m. California time, two business days before
the advance is to be made. Each such notification shall be
promptly confirmed by a borrowing base certificate. Silicon
shall be entitled to rely on any such telephone notice given
by any person who Silicon reasonably believes to be an
officer of Borrower, and Borrower shall indemnify and hold
Silicon harmless for any damages or loss suffered by Silicon
as a result of such reliance.
Silicon may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or
(b) that there is no sufficient availability under the
Credit Limit and Borrower does not have available funds in
its bank account to satisfy the Foreign Exchange Reserve. If
Silicon terminates the Exchange Contracts, and without
limitation of the FX Indemnity Provisions (as
Page 2 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
referred to below), Borrower agrees to reimburse Silicon for
any and all fees, costs and expenses relating thereto or
arising in connection therewith.
Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and
settlement allowed in any two business day period to be
more than the Credit Limit, nor shall Borrower permit the
total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any one time, to exceed
the Credit Limit.
The Borrower shall execute all standard form applications and
agreements of Silicon in connection with the Exchange
Contracts, and without limiting any of the terms of such
applications and agreements the Borrower will pay all
standard fees and charges of Silicon in connection with the
Exchange Contracts.
Without limiting any of the other terms of this Agreement or
any such standard form applications and agreement of
Silicon, Borrower agrees to indemnify Silicon and hold it
harmless, from and against any and all claims, debts,
liabilities, demands, obligations, actions, costs and
expenses (including, without limitation, attorneys fees of
counsel of Silicon's choice), of every nature and
description which it may sustain or incur, based upon,
arising out of, or in any way relating to any of the
Exchange Contracts or any transactions relating thereto or
contemplated thereby (collectively referred to as the "FX
Indemnity Provisions").
PRIOR NAMES OF
BORROWER: See attached Exhibit B
TRADE NAMES OF
BORROWER: See attached Exhibit B
TRADEMARKS OF
BORROWER: See attached Exhibit B
OTHER LOCATIONS
AND ADDRESSES: See attached Exhibit B
MATERIAL ADVERSE
LITIGATION: See attached Exhibit B
FINANCIAL
COVENANTS: The Borrower shall at all times comply with all of the
following covenants, all of which shall be determined and
measured on a quarterly basis, except for the Quick Ratio
covenant, in accordance with generally accepted accounting
principles, on a consolidated basis with any subsidiary of
Borrower, except as otherwise stated below:
Page 3 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
TANGIBLE NET
WORTH: Borrower shall at all times maintain a Tangible Net Worth of
not less than zero.
PROFITABILITY: There will be no limitation on Borrower's net loss (as
defined below) for the quarter ending June 30, 1998.
However, Borrower shall not incur a quarterly loss in excess
of $1,000,000 for the quarter ending September 30, 1998, and
shall not incur any loss for the quarter ending December 31,
1998, and in all subsequent periods. For purposes of this
paragraph, "loss" means net income after taxes of less than
$1.00 on Borrower's financial statements.
QUICK RATIO: Borrower shall maintain monthly ratio of Quick Assets
(defined below) to current liabilities less deferred revenue
of not less than 1.75:1.00 for the periods ending June 30,
1998, September 30, 1998, and December 31, 1998 and the
minimum Quick Ratio shall be 1.50:1.00 for all other monthly
periods.
DEFINITIONS: "Quick Assets" means cash on hand or on deposit in banks,
readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-1" by Standard
& Poor's Corporation (or a similar rating by a similar
rating organization), certificates of deposit and banker's
acceptances, and accounts receivable (net of allowance for
doubtful accounts).
"Tangible Net Worth" means stockholders' equity plus debt,
if any, that has been subordinated to the Loans in a written
subordination agreement on terms satisfactory to Silicon,
and accrued interest thereon, less goodwill, patents,
capitalized software costs, deferred organizational costs,
tradenames, trademarks, and all other assets which would be
classified as intangible assets under generally accepted
accounting principles.
OTHER COVENANTS: Borrower shall at all times comply with all of the following
additional covenants:
BANKING RELATIONSHIP. Borrower shall at all times maintain
its primary domestic banking relationship with Silicon,
unless it obtains Silicon's prior written consent.
FINANCIAL STATEMENTS AND REPORTS. The Borrower shall
provide Silicon: (a) within 50 days after the end of each
quarter, a quarterly financial statement (consisting of a
income statement and a balance sheet) prepared by the
Borrower in accordance with generally accepted accounting
principles; (b) within 30 days after the end of each
month, a monthly financial statement (consisting of an
income statement and a balance sheet) prepared by the
Borrower in accordance with generally accepted accounting
principles; (c) within 20 days after the end of each
month, an accounts receivable aging report, in such form
as Silicon shall reasonably specify; (d) within 30 days
after the end of each month, a Borrowing Base Certificate
in the form attached to this Agreement as Exhibit A, as
Silicon may reasonably modify such Certificate from time
to time, signed by the Chief Financial Officer of the
Borrower; (e) within 50 days after the end of each
quarter, a Compliance Certificate in such form as Silicon
shall reasonably specify, signed by the Chief Financial
Officer of the Borrower, setting forth calculations
showing compliance (at the end of each such calendar
quarter) with
Page 4 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
the financial covenants set forth on the Schedule, and
certifying that throughout such quarter the Borrower was in
full compliance with all other terms and conditions of this
Agreement and the Schedule, and providing such other
information as Silicon shall reasonably request; (f)
within 5 days after filing, any 10K or 10Q filed by Borrower
with the Securities and Exchange Commission; and (g) within
95 days following the end of the Borrower's fiscal year,
complete annual CPA-audited financial statements, such audit
being conducted by independent certified public accountants
reasonably acceptable to Silicon, together with an
unqualified opinion of such accountants.
CONDITIONS TO
CLOSING: Without in any way limiting the discretionary nature of
advances under this Agreement, before requesting any such
advance, the Borrower shall satisfy each of the following
conditions:
1. LOAN DOCUMENTS:
Silicon shall have received this Agreement, the Schedule,
and such other loan documents as Silicon shall require, each
duly executed and delivered by the parties thereto.
2. DOCUMENTS RELATING
TO AUTHORITY, ETC.:
Silicon shall have received each of the following in form
and substance satisfactory to it:
(a) Certified Copies of the Articles of Incorporation
and Bylaws of the Borrower;
(b) A Certificate of Good Standing issued by the
Secretary of State of the Borrower's state of incorporation
and such other states as Silicon may reasonably request with
respect to the Borrower;
(c) A certified copy of a Resolution adopted by the
Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Agreement, and
any other documents or certificates to be executed by the
Borrower in connection with this transaction; and
(d) Incumbency Certificates describing the office and
identifying the specimen signatures of the individuals
signing all such loan documents on behalf of the Borrower.
3. PERFECTION AND
PRIORITY OF SECURITY:
Silicon shall have received evidence satisfactory to it
that its security interest in the Collateral has been duly
perfected and that such security interest is prior to all
other liens, charges, security interests, encumbrances and
adverse claims in or to the Collateral other than Permitted
Liens, which evidence shall include,
Page 5 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
without limitation, a certificate from the appropriate state
agencies showing the due filing and first priority of the
UCC Financing Statements to be signed by the Borrower
covering the Collateral, and evidence of the due filing of
any Security Agreement in Copyrighted Works with the U.S.
Copyright Office or other security documents required by
Silicon.
4. INSURANCE: Silicon shall have received evidence satisfactory to it
that all insurance required by this Agreement is in full
force and effect, with loss payee designations and additional
insured designations as required by this Agreement.
5. OTHER INFORMATION:
Silicon shall have received such other statements, opinions,
certificates, documents and information with respect to
matters contemplated by this Agreement as it may reasonably
request, all of which must be acceptable to Silicon.
Silicon shall have conducted an examination of the Borrower's
books, records, ledgers, journals, and registers, as Silicon
may deem necessary, and shall be satisfied with the results
of such examination in its sole discretion.
Silicon and the Borrower agree that the terms of this Schedule
supplement the Loan and Security Agreement between Silicon and the Borrower
and agree to be bound by the terms of this Schedule.
BORROWER:
ANALOGY, INC.
By: /s/ Terrence A. Rixford
--------------------------
Title: Vice President
-----------------------
SILICON:
SILICON VALLEY BANK
By: /s/ Bruce Helberg
--------------------------
Title: Vice President
-----------------------
Page 6 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT A
[INSERT BORROWING BASE CERTIFICATE]
Page 7 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT B
TRADENAMES
PRIOR NAMES
TRADEMARKS
OTHER LOCATIONS AND ADDRESSES*
MATERIAL ADVERSE LITIGATION
[OTHER DISLCOSURES]
Page 8 - AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE>
EXHIBIT 10.15
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 29, 1999, by
and between Analogy, Inc. and Silicon Valley Bank ("Silicon").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Silicon, Borrower is indebted to Silicon pursuant to, among
other documents, a Loan and Security Agreement, (together with all Schedules
attached thereto) dated March 10, 1997, as may be amended from time to time,
(the "Loan Agreement"). The Loan Agreement provided for, among other things, a
Secured Accounts Receivable Line of Credit in the original principal amount of
Three Million Dollars ($3,000,000). The Loan Agreement has been modified
pursuant to, among other documents, a Loan Modification Agreement and Amended
and Restated Schedule to Loan and Security Agreement dated March 5, 1998
pursuant to which, among other things, the principal amount of the Secured
Accounts Receivable Line of Credit was increased to Five Million Dollars
($5,000,000). Defined terms used but not otherwise defined herein shall have the
same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Silicon shall be referred to
as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT (AND SCHEDULE)
1. The paragraph entitled "Maturity Date" is hereby amended to
read as follows:
April 4, 2000, at which time all unpaid principal and
accrued but unpaid interest shall be due and payable.
2. The paragraph entitled "Profitability" is hereby amended to
read as follows:
Borrower shall achieve, on a quarterly basis, at least $1.00
in profits, except that Borrower may suffer quarterly losses
provided such losses shall not exceed $500,000 and shall not
occur for two consecutive quarters.
3. The paragraph entitled "Quick Ratio" is hereby amended to
read as follows:
Borrower shall maintain monthly ratio of Quick Assets to
current Liabilities less deferred revenue of not less than
1.25 to 1.00, increasing at each quarter end to 1.75 to
1.00.
<PAGE>
4. The section (d) of the paragraph entitled "Financial
Statements and reports" is hereby amended to read as
follows:
(d) at such times as there are outstanding balances under
the Credit Limit and prior to an advance when there are no
outstanding balances under the Credit Limit, within 20 days
after the last day of each month, a Borrowing Base
Certificate signed by a Responsible Officer, with aged
listings of accounts receivable.
5. The section (f) of the paragraph entitled "Financial
Statements and reports" is hereby deleted.
6. The section (g) of the paragraph entitled "Financial
Statements and reports" is hereby amended to read as
follows:
(g) as soon as available, but no later than 90 days after
the end of Borrower's fiscal year, audited, consolidated
financial statements prepared under GAAP, consistently
applied, together with an unqualified opinion on the
financial statements from an independent certified public
accounting firm acceptable to Bank.
B. WAIVER OF FINANCIAL COVENANT DEFAULT.
Silicon hereby waives Borrower's existing default under the
Loan Agreement by virtue of Borrower's failure to comply
with the Quick Ratio Covenant as of the month ended February
28, 1999. Silicon's waiver of Borrower's compliance of this
covenant shall apply only to the foregoing period.
Accordingly, for the month ending March 31, 1999, Borrower
shall be in compliance with this covenant.
Silicon's agreement to waive the above-described default (1)
in no way shall be deemed an agreement by the Silicon to
waive Borrower's compliance with the above-described
covenant as of all other dates and (2) shall not limit or
impair the Silicon's right to demand strict performance of
this covenant as of all other dates and (3) shall not limit
or impair the Silicon's right to demand strict performance
of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Silicon a fee in the amount of
Twenty Two Thousand Nine Hundred Seventeen Dollars ($22,917) (the "Loan Fee")
plus all out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below)
understands and agrees that in modifying the existing Indebtedness, Silicon is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Silicon's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Silicon to make any future modifications to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Silicon and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Silicon in writing. No maker,
endorser, or guarantor will be released by virtue of this Loan Modification
Agreement. The terms of this paragraph apply not only to this Loan Modification
Agreement, but also to all subsequent loan modification agreements.
<PAGE>
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: SILICON:
ANALOGY, INC. SILICON VALLEY BANK
By: /s/ DUANE C. FROMHART By: /s/ BRETT MAVER
---------------------- ----------------
Name: Duane C. Fromhart Name: Brett Maver
Title: Corporate Controller Title: Assistant Vice President
<PAGE>
EXHIBIT 21.0
ANALOGY, INC.
SUBSIDIARIES OF THE REGISTRANT
Analogy, UK Ltd. (United Kingdom)
Analogy GmbH (Germany)
Analogy France SARL (France)
Analogy AB (Sweden)
Symmetry Design Systems, Inc. (a California Corporation)
<PAGE>
EXHIBIT 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Analogy, Inc.
We consent to the incorporation by reference in the registration statements on
Forms S-8 (File Numbers 333-27513, 333-27515, 333-09351 and 333-41223), and on
Form S-3 (File Number 333-30687) of Analogy, Inc. of our report dated May 7,
1999 relating to the consolidated balance sheets of Analogy, Inc. and
subsidiaries as of March 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended March 31, 1999, which report appears in the
March 31, 1999 Annual Report on Form 10-K.
KPMG Peat Marwick, LLP
Portland, Oregon
June 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements found in the Company's Annual Report on Form
10K for the year ended March 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,008
<SECURITIES> 0
<RECEIVABLES> 6,738
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,050
<PP&E> 12,679
<DEPRECIATION> 10,263
<TOTAL-ASSETS> 21,218
<CURRENT-LIABILITIES> 13,489
<BONDS> 0
0
0
<COMMON> 18,569
<OTHER-SE> (12,579)
<TOTAL-LIABILITY-AND-EQUITY> 21,218
<SALES> 16,307
<TOTAL-REVENUES> 26,805
<CGS> 1,920
<TOTAL-COSTS> 3,154
<OTHER-EXPENSES> 26,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> (2,849)
<INCOME-TAX> 455
<INCOME-CONTINUING> (3,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,304)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
