<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only(as permitted by Rule
14a-6(e)(2))
/X / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ANALOGY, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, no par value per share
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
9,697,260 shares of Analogy Common Stock, no par value per share
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated
<PAGE>
and state how it was determined): $24,000,000 for all of the
outstanding shares of Analogy Common Stock in a cash-out merger
(including payment to holders of certain options and
warrants of the difference between the per share merger consideration
(assuming exercise of such options and warrants) and the exercise
price of each share underlying such options and warrants.
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $24,000,000
- -------------------------------------------------------------------------------
(5) Total fee paid: $4,800.00
- -------------------------------------------------------------------------------
/X / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
ANALOGY, INC.
9205 S.W. GEMINI DRIVE
BEAVERTON, OR 97008
February 11, 2000
To the Shareholders of Analogy, Inc.:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of Analogy, Inc. ("Analogy" or the "Company") to be held
at 10:00 a.m., local time, on March 17, 2000, at the Company's principal
executive offices located at 9205 S.W. Gemini Drive, Beaverton, OR 97008.
As described in the accompanying Proxy Statement, at the Special Meeting
you will be asked to approve the merger of a wholly-owned subsidiary of Avant!
Corporation with and into Analogy (the "Merger") pursuant to an Agreement of
Merger dated December 2, 1999 (the "Merger Agreement").
Pursuant to the Merger Agreement, each outstanding share of Analogy
Common Stock will be converted into the right to receive in cash, without
interest, an amount equal to $24,000,000 (subject to certain possible
adjustments described in the enclosed Proxy Statement) divided by the sum of all
outstanding shares of Analogy Common Stock as of the time the merger takes
effect. As of the date of the accompanying Proxy Statement, based on Analogy's
assumption that fees and expenses of investment bankers, legal counsel and
accountants will not exceed $850,000 and based upon its current projection
concerning the number of shares of Analogy Common Stock to be outstanding on the
effective time of the Merger, the Company expects the Merger Consideration will
be approximately $2.48 per share in cash. As a result of the Merger, Analogy
will become a wholly-owned subsidiary of Avant! Corporation. In addition,
because this is a cash-out merger, upon consummation of the Merger you will no
longer own shares of Analogy Common Stock and you will not acquire any
securities of Avant!
Under Oregon law and Analogy's Articles of Incorporation, the Merger must
be approved by the affirmative vote of the holders of at least sixty-seven
percent (67%) of the outstanding shares of Analogy Common Stock. Analogy's
executive officers and directors, who own 995,450 outstanding shares of Common
Stock, have agreed to vote in favor of the Merger. Given the Company's current
financial situation and the capital requirements necessary to continue operation
of the business, if the Merger is not approved by our shareholders, the
viability of the Company's ongoing business operations will be seriously
jeopardized. The Company could be required to significantly reduce its
operations, seek additional financing, sell additional securities
<PAGE>
on terms that are highly dilutive to existing shareholders or search for an
alternative merger partner. There can be no assurance that additional
financing or sales of additional securities would be available alternatives
and, if available, that the terms would be acceptable to the Company.
Additionally, there can be no assurance that the Company could find an
alternative merger partner. Furthermore, there can be no assurance that any
of these strategies could be executed in a timely manner. In addition, in the
event the Merger is not approved by our shareholders, if we are successful in
finding an alternatives merger partner Analogy will likely be required to pay
Avant! a termination fee.
The Board of Directors of Analogy has received the opinion of its
financial advisor, Broadview Int'l LLC, to the effect that, on the date of such
opinion, and based upon and subject to the matters set forth in the opinion, the
proposed merger consideration to be received by the holders of Analogy Common
Stock in the merger was fair, from a financial point of view, to those holders.
Such opinion is subject to various limitations, qualifications and assumptions
described in Broadview's opinion, which is reprinted as Appendix B to the
enclosed Proxy Statement. You should read Broadview's opinion carefully in its
entirety.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
This letter, the Notice of Special Meeting, the Proxy Statement and
accompanying Form of Proxy are first being mailed to Analogy Shareholders on or
about February 11, 2000.
Detailed information concerning the proposed Merger is set forth in the
accompanying Proxy Statement. I urge you to read the enclosed material carefully
and request that you promptly complete and return the enclosed proxy in the
enclosed return envelope, which requires no postage if mailed in the United
States. If you attend the Special Meeting, you may vote in person even if you
have previously returned your proxy.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
To assure your representation at the Special Meeting, please complete, sign and
date the enclosed proxy card and return it in the enclosed prepaid envelope
marked "Proxy." This will allow your shares to be voted whether or not you
attend the meeting.
On behalf of the Board of Directors, I thank you for your support and
urge you to vote FOR the approval of the Merger.
Sincerely,
/s/ Gary P. Arnold
Chief Executive Officer and President
<PAGE>
ANALOGY, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 17, 2000
To the Shareholders of Analogy, Inc:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders (the "Special
Meeting") of Analogy, Inc. ("Analogy" or the "Company") will be held at 10:00
a.m., local time, on March 17, 2000, at the Analogy's principal executive
offices located at 9205 S.W. Gemini Drive, Beaverton, OR 97008, for the
following purposes:
(1) To approve the merger of AC Acquisition Corp. ("AC"), a wholly-owned
subsidiary of Avant! Corporation ("Avant!"), with and into Analogy (the
"Merger") pursuant to an Agreement of Merger dated as of December 2,
1999, among Avant!, Analogy, and AC; and
(2) To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement describes the proposed Merger in detail.
The Board of Directors of the Company has fixed the close of business on
January 31, 2000 as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. Only shareholders of
record at the close of business on that date will be entitled to notice of and
to vote at the Special Meeting or any adjournments or postponements thereof.
By order of the Board of Directors
/s/ Gary P. Arnold
Chief Executive Officer and President
February 11, 2000
Beaverton, Oregon
THE FORM OF PROXY IS ENCLOSED. TO ASSURE THAT YOUR SHARES WILL BE VOTED
AT THE SPECIAL MEETING, PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES. SENDING A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF
YOU ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER
OF YOUR CERTIFICATES.
<PAGE>
PRELIMINARY COPIES
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
ANALOGY, INC.
9205 S.W. GEMINI DRIVE
BEAVERTON, OR 97008
(503) 626-9700
PROXY STATEMENT
This Proxy Statement is being furnished to the holders of outstanding
shares of Common Stock, no par value per share ("Common Stock"), of Analogy,
Inc. ("Analogy" or the "Company").
This Proxy Statement is being mailed in connection with the solicitation
of proxies by the Analogy Board of Directors to approve the merger of AC
Acquisition Corp. ("AC"), a wholly-owned subsidiary of Avant! Corporation
("Avant!") with and into Analogy (the "Merger") pursuant to an Agreement of
Merger dated December 2, 1999 among Analogy, Avant! and AC (the "Merger
Agreement"). Analogy will be the surviving corporation in the Merger.
If the Merger is completed, Avant! will pay you the Merger Consideration
(as herein defined) for each share of Common Stock you own, and Analogy will
become a wholly-owned subsidiary of Avant!.
Because Analogy's Board of Directors has determined that the terms of the
Merger Agreement and the Merger are fair to, advisable and in the best interests
of the holders of Common Stock, the Board of Directors unanimously approved the
Merger. The Board of Directors considered the opinion of Broadview Int'l LLC
that, as of the date of the opinion, the proposed Merger Consideration to be
received by our shareholders in the Merger was fair from a financial point of
view to those shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
We have scheduled a special meeting (the "Special Meeting") for our
shareholders to vote on the Merger. The Special Meeting will be held at 10:00
a.m., local time, on March 17, 2000 at the Company's principal executive offices
located at 9205 S.W. Gemini Drive, Beaverton, OR 97008.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
Whether or not you plan to attend the Special Meeting, please take the
<PAGE>
time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy without indicating how you want to vote, your
proxy will be counted as a vote FOR the Merger. If you abstain or do not
vote, it will have the effect of a vote against the Merger.
This Proxy Statement provides you with detailed information about the
proposed Merger. In addition, you may obtain information about Analogy and
Avant! from documents each has filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
THIS MERGER TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THE TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
This Proxy Statement, the accompanying notice of Special Meeting and the
accompanying form of proxy are first being mailed to shareholders of Analogy on
or about February 11, 2000.
THE DATE OF THIS PROXY STATEMENT IS FEBRUARY 11, 2000.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHY IS ANALOGY PROPOSING TO MERGE WITH AVANT!?
A. The Board of Directors recommends approval of the Merger based on a wide
variety of factors, including:
- Analogy's current financial situation and the capital requirements which
would be needed to continue its business;
- the need to address certain liquidity concerns of Analogy;
- the premium offered by Avant! over the recent market prices of Analogy
Common Stock;
- the terms and provisions of the Merger Agreement and related agreements;
and
- the opinion of Analogy's financial advisor, Broadview Int'l LLC (a copy of
which is attached as Appendix B), based upon and subject to certain matters
stated in the opinion, as to the fairness, from a financial point of view, of
the consideration to be received by holders of Common Stock in the Merger.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. You will receive in cash, without interest, the Merger Consideration (as such
term is defined in the Agreement of Merger attached hereto as Appendix A) in
exchange for each share of Analogy Common Stock that you own.
Q. HOW IS THE MERGER CONSIDERATION CALCULATED?
A. The Merger Consideration is calculated as the Purchase Price divided by the
sum of all outstanding shares of Analogy Common Stock as of the time the Merger
takes effect. The "Purchase Price" is equal to $24,000,000 minus (i) the fees
and expenses of investment bankers, legal counsel and accountants in excess of
$850,000 incurred by or on behalf of Analogy and its subsidiaries in connection
with the preparation, execution and performance of the Merger Agreement and
related documents or the consummation of the Merger, (ii) the total amount paid
for non-employee stock options under the terms of the Merger Agreement,
(iii) the total amount paid for warrants under the terms of the Merger
Agreement, and (iv) the total amount paid for stock options of former employees
under the terms of the Merger Agreement.
Q. HOW MUCH IS THE MERGER CONSIDERATION PER SHARE?
A. As of the date of this Proxy Statement, based on Analogy's assumption that
fees and expenses of investment bankers, legal counsel and accounts will not
exceed $850,000 and based
<PAGE>
upon its current projection concerning the number of shares of Common Stock
to be outstanding on the effective time of the Merger, the Company currently
expects the Merger Consideration will be approximately $2.48 per share in
cash. This amount may change depending on the actual fees and expenses as
well as the number of outstanding options and warrants exercised prior to the
closing of the Merger.
Q. WHAT WILL OCCUR IF THE MERGER IS NOT CONSUMMATED?
A. If the Merger is not consummated, including as a result of the failure of
Analogy's shareholders to approve the Merger, due to the Company's current
financial situation and the capital requirements necessary to continue operation
of the business, the viability of the Company's ongoing business operations will
be seriously jeopardized. In particular, the Company could be required to
significantly reduce its operations, seek additional financing, sell additional
securities on terms that are highly dilutive to existing shareholders or search
for an alternative merger partner. There can be no assurance that additional
financing or sales of additional securities would be available alternatives and,
if available, that the terms would be acceptable to the Company. Additionally,
there can be no assurance that the Company could find an alternative merger
partner. Furthermore, there can be no assurance that any of these strategies
could be executed in a timely manner.
Q. WHAT DO I NEED TO DO NOW?
A. After you have carefully read this Proxy Statement, just indicate on your
proxy card how you want to vote, and sign and mail it in the enclosed prepaid
return envelope as soon as possible, so that your shares of Common Stock may be
represented at the Special Meeting. The Special Meeting will take place at 10:00
a.m., local time, on March 17, 2000, at Analogy's principal executive offices
located at 9205 S.W. Gemini Drive, Beaverton, OR 97008.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE PROPOSED
MERGER.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A. Pursuant to the Oregon Business Corporation Act and Analogy's Articles of
Incorporation, the Merger must be approved by the affirmative vote of holders of
sixty-seven percent (67%) of the outstanding shares of Analogy Common Stock.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how to
instruct your broker to vote your
<PAGE>
shares. Without instructions, your shares will not be voted, which for
purposes of voting on the Merger, will have the same effect as voting against
the Merger.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways:
- First, you can send a written notice stating that you would like to
revoke your proxy.
- Second, you can complete and submit a new proxy card.
If you choose either of these two methods, you must submit your notice of
revocation or your new proxy card to Analogy at the address on page 10 of this
Proxy Statement prior to the Special Meeting.
- Third, you can attend the special meeting and vote in person. Simply
attending the meeting, however, will not revoke your proxy. You must vote.
If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
Q. WILL I HAVE APPRAISAL OR DISSENTERS' RIGHTS AS A RESULT OF THE MERGER?
A. No. Under the applicable provisions of Oregon law, shareholders do not have
appraisal or dissenters' rights in connection with the Merger.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES WHEN I RETURN MY PROXY FORM?
A. No. Holders of Common Stock should not send in their stock certificates now.
Following the Merger, a separate letter of transmittal will be mailed to the
holders of Common Stock which will enable holders to receive the Merger
Consideration due to them.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working towards completing the Merger as quickly as possible. In
addition to the approval of our shareholders described above, we must also
obtain certain regulatory approval and meet certain conditions prior to the
consummation of the Merger. We presently expect to complete the Merger in March,
2000 although we cannot assure you that we will have obtained the necessary
approvals by that time. To review the necessary regulatory approvals in greater
detail, see page 35 of this Proxy Statement.
<PAGE>
Q. WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A. The receipt of cash by a shareholder of Analogy pursuant to the Merger will
be a taxable transaction for federal income tax purposes and may also be taxable
under applicable state, local and foreign income and other tax laws. For federal
income tax purposes, a shareholder will recognize gain or loss in an amount
equal to the difference between the adjusted tax basis of the Common Stock and
the amount of cash received in exchange for that stock in the Merger. The gain
or loss will generally be a capital gain or loss if the Common Stock is a
"capital asset" in the hands of the shareholder and will be a long-term capital
gain or loss if the holding period exceeds one year. To review the tax
consequences to shareholders in greater detail, see page 33 of this Proxy
Statement. The shareholders of Analogy are urged to consult their own tax
advisors as to the specific tax consequences to them as a result of the Merger.
Q. WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A. We do not expect to ask you to vote on any matter other than the Merger at
the Special Meeting.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the Merger, you should contact:
Analogy, Inc.
9205 S.W. Gemini Drive
Beaverton, OR 97008.
Attention: Gary P. Arnold
Phone Number: (503) 626-9700
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ITEM PAGE
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INFORMATION CONCERNING AVANT!. . . . . . . . . . . . . . . . . . . . . . . . . . 15
MARKET PRICE AND DIVIDEND INFORMATION. . . . . . . . . . . . . . . . . . . . . . 15
Recent Closing Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Number of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . 16
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
General; Date; Place and Time . . . . . . . . . . . . . . . . . . . . . . . . 18
Purpose of the Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . 18
Record Date; Voting Power . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Revocation of Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Expenses of Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Analogy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Avant! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Reasons for the Merger; Recommendation of the Board of Directors . . . . . . . 25
Opinion of Analogy's Financial Advisor . . . . . . . . . . . . . . . . . . . . 26
Certain Federal Income Tax Consequences of the Merger . . . . . . . . . . . . 33
Accounting Treatment of the Merger . . . . . . . . . . . . . . . . . . . . . . 34
Regulatory Filing and Approval . . . . . . . . . . . . . . . . . . . . . . . . 34
Management, Operations and Ownership Structure Following the Merger . . . . . 35
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Public Trading Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
General; Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . 35
Treatment of Stock Options and Warrants. . . . . . . . . . . . . . . . . . . . 36
Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Cancellation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Payment to Other than Registered Holder. . . . . . . . . . . . . . . . . . . . 38
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . 38
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 38
Conditions of the Proposed Merger . . . . . . . . . . . . . . . . . . . . . . 39
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Agreement Not to Solicit Other Offers . . . . . . . . . . . . . . . . . . . . 41
Conduct of Analogy's Business Prior to the Merger . . . . . . . . . . . . . . 42
Certain Other Covenants and Agreements . . . . . . . . . . . . . . . . . . . . 45
Irrevocable Grant of Option. . . . . . . . . . . . . . . . . . . . . . . . . . 46
Waiver and Modification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
INTERESTS OF CERTAIN PERSONS IN THE MERGER . . . . . . . . . . . . . . . . . . . 49
RELATED AGREEMENTS AND TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXPENSES OF THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . 53
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . 54
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . . 55
APPENDIX A - AGREEMENT OF MERGER AND PLAN OF MERGER. . . . . . . . . . .A-1
APPENDIX B - FAIRNESS OPINION OF BROADVIEW INT'L LLC . . . . . . . . . .B-1
APPENDIX C - ANALOGY, INC. ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED MARCH 31, 1999. . . . . . . . . .C-1
APPENDIX D - ANALOGY, INC. QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED
DECEMBER 31, 1999. . . .. . . . . . . . . . . . . . D-1
</TABLE>
<PAGE>
SUMMARY
This summary highlights certain information from this Proxy Statement, is
qualified by reference to the full text of this Proxy Statement and may not
contain all of the information that is important to you. To understand the
Merger more fully and for a more complete description of the legal terms of the
Merger, you should carefully read this entire document, including the Merger
Agreement (attached as Appendix A), the Fairness Opinion of Broadview Int'l LLC
(attached as Appendix B), Analogy's Report on Form 10-K for the year ended
March 31, 1999 (attached as Appendix C) and Analogy's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999 (attached as Appendix D), as well
as the documents referred to in "Incorporation of Certain Documents by
Reference" at page 54 of this Proxy Statement. The summary does not contain a
complete statement of material information relating to the Merger Agreement, the
Merger, or other matters discussed in this document.
THE COMPANIES
Analogy, Inc.
9205 S.W. Gemini Drive
Beaverton, OR 97008.
(503) 626-9700
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.
Avant! Corporation
46871 Bayside Parkway
Fremont, CA
(510) 413-8000
Avant! develops, markets and supports software products that assist
design engineers in the physical layout, design, verification, simulation,
timing and analysis of advanced integrated circuits.
REASONS FOR THE MERGER
The Analogy Board of Directors recommends that shareholders approve the
Merger based on a wide variety of factors, including:
- Analogy's current financial situation and the capital requirements
which would be needed to continue its business;
- the need to address certain liquidity concerns;
9
<PAGE>
- the premium offered by Avant! over the recent market prices of the
Common Stock;
- the terms and provisions of the Merger Agreement and related
agreements; and
- the opinion of Analogy's financial advisor, Broadview Int'l LLC, based
upon and subject to certain matters stated in the opinion, as to the
fairness on the date of such opinion, from a financial point of view, of
the proposed Merger Consideration to be received by holders of Common
Stock pursuant to the Merger.
THE SPECIAL MEETING
GENERALLY. This Proxy Statement is being furnished to the shareholders of
Analogy as part of the solicitation of proxies by the Company's Board of
Directors (the "Board of Directors") from holders of the outstanding shares of
Analogy Common Stock for use at the Company's Special Meeting of Shareholders to
be held at 10:00 a.m. local time, on March 17, 2000, and at any adjournments or
postponements thereof. The Special Meeting will be held at the Company's
principal executive offices at 9205 S.W. Gemini Drive, Beaverton, OR 97008.
PURPOSE OF SPECIAL MEETING. At the Special Meeting, you will be asked to
approve the Merger.
RECORD DATE; VOTING POWER. Holders of Common Stock as of the close of
business on January 31, 2000, the record date, are entitled to notice of and to
vote at the Special Meeting or any adjournment thereof. As of the record date,
there were 9,697,260 outstanding shares of Common Stock. Each share of Common
Stock is entitled to one vote.
VOTE REQUIRED. The affirmative vote of holders of sixty-seven percent
(67%) of the outstanding shares of Common Stock as of the record date is
required to approve the Merger.
REVOCATION OF PROXY. A shareholder may revoke a proxy at any time prior
to its exercise by (i) delivering to Nic Herriges, Corporate Secretary, Analogy,
Inc., 9205 S.W. Gemini Drive, Beaverton, OR 97008, a written notice of
revocation of proxy prior to the Special Meeting, (ii) delivering prior to the
Special Meeting a duly executed proxy bearing a later date or (iii) attending
the Special Meeting and voting in person. The presence of a shareholder at the
Special Meeting will not in and of itself automatically revoke such
shareholder's proxy. If not revoked, the proxy will be voted in accordance with
the instructions indicated on the proxy or, if no instructions are indicated on
a properly executed proxy, such proxy will be voted "FOR" the approval of the
Merger.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES. The required quorum for the
Special Meeting is a majority of votes eligible to be cast by holders of Common
Stock issued and outstanding as of the record date. Both abstentions and broker
non-votes will be included in
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<PAGE>
determining the number of votes present and voting at the Special Meeting for
the purpose of determining the presence of a quorum. Abstentions and broker
non-votes will have the same effect as votes against the Merger. THE ACTIONS
PROPOSED IN THIS PROXY STATEMENT ARE NOT MATTERS THAT CAN BE VOTED ON BY
BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS WITHOUT THE OWNERS' SPECIFIC
INSTRUCTIONS. ACCORDINGLY, ALL BENEFICIAL OWNERS OF COMMON STOCK ARE URGED TO
RETURN THE ENCLOSED PROXY CARD MARKED TO INDICATE THEIR VOTES.
RECOMMENDATION TO SHAREHOLDERS
On November 17, 1999, the Board of Directors (i) determined that the
Merger and the transactions contemplated by the Merger Agreement are fair,
equitable and in the best interests of Analogy and its shareholders, (ii)
approved and adopted the Merger Agreement and (iii) recommended that the
shareholders vote in favor of the Merger. The Board of Directors unanimously
recommends a vote "FOR" approval of the Merger.
OPINION OF FINANCIAL ADVISOR
On November 17, 1999, Broadview Int'l LLC, delivered its opinion to the
Board of Directors that as of such date, and based upon the assumptions and
subject to the limitations set forth therein, the proposed Merger Consideration
to be received by holders of Common Stock in the Merger was fair from a
financial point of view to such holders. The full text of the written opinion of
Broadview, which sets forth assumptions made, matters considered and limitations
on the review undertaken in connection with the opinion are attached hereto as
Appendix B and is incorporated herein by reference. Shareholders are urged to,
and should, read that opinion in its entirety.
THE MERGER AGREEMENT
THE AGREEMENT OF MERGER IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT. THE BOARD OF DIRECTORS ENCOURAGES YOU TO READ THAT AGREEMENT IN ITS
ENTIRETY. IT IS THE LEGAL DOCUMENT GOVERNING THE MERGER.
WHAT ANALOGY SHAREHOLDERS WILL RECEIVE IN THE MERGER. Holders of Common
Stock will receive the Merger Consideration in exchange for each share of Common
Stock that they own. The Merger Consideration is calculated as the Purchase
Price divided by the sum of all outstanding shares of Analogy Common Stock as of
the time the Merger takes effect. The "Purchase Price" is equal to $24,000,000
minus (i) the fees and expenses of investment bankers, legal counsel and
accountants in excess of $850,000 incurred by or on behalf of Analogy and its
subsidiaries in connection with the preparation, execution and performance of
the Merger Agreement and related documents or the consummation of the Merger,
(ii) the total amount paid
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<PAGE>
for non-employee stock options under the terms of the Merger Agreement, (iii)
the total amount paid for warrants under the terms of the Merger Agreement,
and (iv) the total amount paid for stock options of former employees under
the terms of the Merger Agreement.
As of the date of this Proxy Statement, based on Analogy's assumption
that fees and expenses of investment bankers, legal counsel and accountants will
not exceed $850,000 and based upon its current projection concerning the number
of shares of Analogy Common Stock to be outstanding on the effective time of the
Merger, the Company expects the Merger Consideration will be approximately $2.48
per share in cash.
WHAT HOLDERS OF STOCK OPTIONS AND WARRANTS WILL RECEIVE IN THE MERGER.
Each stock option outstanding under Analogy's 1986 Stock Option Plan, 1993
Amended and Restated Stock Incentive Plan and the 1995 Stock Option Plan for
Nonemployee Directors (except for options held by current Analogy employees)
will be converted into the right to receive an amount of cash equal to the
excess, if any, of the Merger Consideration over the exercise price of such
option multiplied by the number of shares of Analogy Common Stock then subject
to such option, net of applicable withholdings.
Each option outstanding under Analogy's 1986 Stock Option Plan and 1993
Amended and Restated Stock Incentive Plan that is held by a current Analogy
employee will be replaced by an option issued under the Avant! 1995 Stock
Option\Stock Issuance Plan .
Each outstanding option issued under the Analogy 1986 Stock Option Plan
or 1993 Amended and Restated Stock Incentive Plan that is held by any former
Analogy employee who has terminated his employment with Analogy (or has had his
employment terminated by Analogy) within 90 days prior to the date the Merger
takes effect and who is eligible to exercise such option in accordance with the
terms of the applicable option plan will be converted into the right to receive
an amount of cash equal to the excess, if any, of the Merger Consideration over
the exercise price of such options multiplied by the number of shares of Analogy
Common Stock then subject to such option, net of applicable withholdings.
Each warrant for the purchase of Common Stock will be converted into the
right to receive an amount of cash equal to the excess, if any, of the Merger
Consideration over the exercise price of such warrant multiplied by the number
of shares of Analogy Common Stock then subject to such warrant, net of
applicable withholdings. Analogy expects that no warrants to purchase its Common
Stock will be outstanding at the effective time of the Merger.
CONDITIONS TO THE MERGER. Consummation of the Merger is subject to
various conditions, including, among others:
- that Avant!'s and Analogy's respective representations and warranties
in the Merger Agreement are true and correct in all material respects and
the parties have performed in all material respects their respective
obligations under the Merger Agreement;
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<PAGE>
- the approval of the Merger by Analogy's shareholders at the Special
Meeting;
- that no governmental agency shall have commenced a proceeding or
investigation that would challenge the validity or legality of the Merger
transaction; and
- that all proper corporate actions have been taken and documents
provided to the reasonable satisfaction of the parties.
TERMINATION. Avant! and Analogy can agree to terminate the Merger
Agreement without completing the Merger, and either of the companies can
terminate the Merger Agreement if any of the following occurs:
- if any closing condition of the Merger is not completed by March 31,
2000;
- the boards of directors of Analogy and Avant! mutually agree to
termination; or
- a court or other governmental authority permanently prohibits the
Merger.
In addition, Avant! can terminate the Merger Agreement if (A) Analogy
enters into a binding agreement for, or recommends to its shareholders, a
business combination with a third party other than Avant! or (B) the Board of
Directors withdraws or adversely modifies its approval or recommendation of the
Merger Agreement.
TERMINATION FEE. The Merger Agreement requires Analogy to pay Avant! a
termination fee of $1 million if the Merger Agreement is terminated under
certain circumstances.
OPTION TO PURCHASE. Under the Merger Agreement, Avant! is granted an
irrevocable option to purchase up to 968,640 shares of Analogy Common Stock at
an exercise price of $2.48 per share if the Merger Agreement is terminated under
certain circumstances or a third party commences a tender offer for 15% or more
of Analogy's stock.
REGULATORY APPROVALS. The Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, prohibits the companies from completing the Merger until
after the companies have furnished certain information and materials to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and a required waiting period has ended. On January 24, 2000, Avant! and Analogy
each furnished that information.
FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash by a shareholder of
Analogy pursuant to the Merger will be a taxable transaction for federal income
tax purposes and may also be taxable under applicable state, local and foreign
income and other tax laws. For federal income tax purposes, a shareholder will
recognize gain or loss in an amount equal to the difference between the adjusted
tax basis of the Common Stock and the amount of cash received
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<PAGE>
in exchange for that stock in the Merger. For federal income tax purposes,
the gain or loss will generally be capital gain or loss if the Common Stock
is a "capital asset" in the hands of the shareholder and will be long-term
capital gain or loss if the holding period exceeds one year. The shareholders
of Analogy are urged to consult their own tax advisors as to specific tax
consequences to them as a result of the Merger. To review the tax
consequences to shareholders in greater detail, see page 33 of this Proxy
Statement.
APPRAISAL RIGHTS. Pursuant to Section 60.554(3) of the Oregon Business
Corporation Act, shareholders do not have a right to dissent from the Merger and
receive the fair value of their shares in connection with the Merger.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of the Board of Directors with regard
to the Merger, Analogy shareholders should be aware that two officers of Analogy
have severance agreements, benefit plans or other agreements that provide them
with interests in the Merger that are different from, and in addition to, the
interests of Analogy shareholders generally. For a description of these
arrangements, see page 50 of this Proxy Statement.
FORWARD LOOKING STATEMENTS MAY PROVE INACCURATE
ANALOGY HAS MADE FORWARD LOOKING STATEMENTS IN THIS DOCUMENT AND IN
DOCUMENTS THAT ARE APPENDED HERETO OR INCORPORATED BY REFERENCE THAT ARE SUBJECT
TO RISKS AND UNCERTAINTIES. FORWARD LOOKING STATEMENTS INCLUDE INFORMATION
CONCERNING POSSIBLE OR ASSUMED FUTURE RESULTS OF OPERATIONS OF ANALOGY. WHEN
WORDS SUCH AS "BELIEVES," "EXPECTS," "INTENDS," "ANTICIPATES" OR OTHER SIMILAR
EXPRESSIONS ARE USED, THEY ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS.
SHAREHOLDERS SHOULD NOTE THAT MANY FACTORS, SOME OF WHICH ARE DISCUSSED
ELSEWHERE IN THIS DOCUMENT AND IN THE DOCUMENTS WHICH ARE APPENDED TO THIS PROXY
STATEMENT OR INCORPORATED IN THIS PROXY STATEMENT BY REFERENCE, COULD AFFECT THE
FUTURE FINANCIAL AND BUSINESS RESULTS OF ANALOGY AND COULD CAUSE THOSE RESULTS
TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD LOOKING STATEMENTS
CONTAINED OR INCORPORATED BY REFERENCE INTO THIS DOCUMENT.
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<PAGE>
INFORMATION CONCERNING AVANT!
All information contained in this Proxy Statement concerning Avant! and
its subsidiaries, including AC Acquisition Corp., has been supplied by Avant!
and has not been independently verified by Analogy.
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock is currently traded on the Nasdaq National Market System
under the symbol "ANLG." The following table sets forth for the calendar
quarters indicated, the high and low closing sales prices per share of the
Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
<S> <C> <C>
LOW HIGH
1998:
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
2000:
First Quarter.................................. $ 2 9/16 $ 3 3/8
Second Quarter................................. 2 3 1/16
Third Quarter.................................. 1 13/16 $ 2 3/8
Fourth Quarter (through February 8, 2000)...... 2 1/8 2 9/32
</TABLE>
RECENT CLOSING PRICES
On November 15, 1999, Analogy announced in a press release and in its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 that it
was actively engaged in negotiations with another party regarding the
acquisition of Analogy by that party. The closing sales price per share of
Common Stock on that date was $2.1875. On December 2, 1999, the last trading
day before the public announcement of the proposed Merger, the closing sales
price per share of Common Stock was $1.875. On February 8, 2000, the latest
practicable trading day before the date of this Proxy Statement, the reported
closing sales price per share of Common
15
<PAGE>
Stock was $ 2.25.
NUMBER OF SHAREHOLDERS
On the Record Date, there were approximately 133 shareholders of
record and approximately 1900 beneficial shareholders.
DIVIDENDS
Analogy has never declared or paid any cash dividends on its Common
Stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data of Analogy as of March 31, 1999 and 1998 and
for the years ended March 31, 1999, 1998 and 1997 presented below has been
derived from the audited consolidated financial statements of Analogy contained
in Analogy's Report on Form 10-K for the year ended March 31, 1999. The selected
financial data as of March 31, 1997, 1996 and 1995 and for the years ended March
31, 1996 and 1995 presented below has been derived from the audited
consolidated financial statements of Analogy not contained in Analogy's Report
on Form 10-K for the year ended March 31, 1999. The selected financial data of
Analogy for the nine months ended December 31, 1999 and 1998 have been derived
from the unaudited consolidated financial statements of Analogy contained in
Analogy's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999.
More comprehensive financial information is included in such reports and other
documents filed by Analogy with the Securities and Exchange Commission (the
"Commission"), and the following summary is qualified in its entirety be
reference to such reports and other documents and all of the financial
information (including any related notes) contained therein. Such reports and
other documents may be inspected and copies may be obtained from the offices of
the Commission. See "Available Information." In addition, copies of the
Company's Annual Report on Form 10-K for the year ended March 31, 1999, and its
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1999
are attached as Exhibits C and D to this Proxy Statement and are incorporated
herein by reference. See "Information Incorporated by Reference."
16
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
----------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenue:
Product licenses $ 9,497 $11,196 $16,307 $14,278 $14,501 $15,562 $11,090
Service and other 7,453 7,891 10,498 11,512 9,459 6,176 5,165
------- ------- ------- ------- ------- ------- -------
Total revenue 16,950 19,087 26,805 25,790 23,960 21,738 16,255
Cost of revenue:
Product licenses 1,563 1,407 1,920 1,776 1,652 1,426 1,255
Service and other 497 988 1,234 2,833 2,202 994 511
------- ------- ------- ------- ------- ------- -------
Total cost of revenue 2,060 2,395 3,154 4,609 3,854 2,420 1,766
------- ------- ------- ------- ------- ------- -------
Gross profit 14,890 16,692 23,651 21,181 20,106 19,318 14,489
Operating expenses:
Research and development 5,688 6,773 8,802 6,260 5,413 4,518 3,735
Sales and marketing 9,400 10,066 14,055 14,559 12,622 10,708 9,332
General and administrative 1,478 1,892 2,378 2,987 2,728 2,373 2,345
Amortization of intangibles 270 276 368 368 136 -- --
Restructuring charges -- 557 557 -- -- -- --
Acquired in-process
research and development -- -- -- -- 1,896 -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses 16,836 19,564 26,160 24,174 22,795 17,599 15,412
------- ------- ------- ------- ------- ------- -------
Operating (loss) income (1,946) (2,872) (2,509) (2,933) (2,689) 1,719 (923)
Other expense, net (91) (246) (340) (86) (11) (523) (408)
------- ------- ------- ------- ------- ------- -------
(Loss) income before income taxes (2,037) (3,118) (2,849) (3,079) (2,700) 1,196 (1,331)
Income tax expense 333 346 455 275 341 370 196
------- ------- ------- ------- ------- ------- -------
Net (loss) income $(2,370) $(3,464) $(3,304) $(3,354) $(3,041) $ 826 $(1,527)
======= ======= ======= ======= ======= ======= =======
Basic net (loss) income per share $(0.25) $(0.37) $(0.35) $(0.37) $(0.35) $0.17 $(0.35)
======= ======= ======= ======= ======= ======= =======
Diluted net (loss) income per share $(0.25) $(0.37) $(0.35) $(0.37) $(0.35) $0.11 $(0.35)
======= ======= ======= ======= ======= ======= =======
Shares used in per share calculations:
Basic 9,617 9,404 9,426 9,188 8,584 4,816 4,378
Diluted 9,617 9,404 9,426 9,188 8,584 7,820 4,378
December 31, March 31,
----------------------- ------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash, cash equivalents, marketable
securities $1,385 $1,226 $2,008 $8,130 $3,524 $10,208 $1,179
Total assets 18,173 19,862 21,218 22,975 22,130 22,294 10,375
Long-term obligations, net of current
position 133 370 284 561 858 578 1,640
Shareholders' equity 3,949 5,688 5,990 8,695 11,317 11,491 27
</TABLE>
17
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THE SPECIAL MEETING
GENERAL; DATE; PLACE AND TIME
This Proxy Statement is being provided by, and the enclosed proxy is
solicited by and on behalf of, the Board of Directors for use at the Special
Meeting.
The Special Meeting is scheduled to be held at 10:00 a.m., local time, on
March 17, 2000, at Analogy's principal executive offices located at 9205 S.W.
Gemini Drive, Beaverton, OR 97008.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon the
approval of the Merger of AC with and into Analogy pursuant to an Agreement of
Merger dated as of December 2, 1999 (the "Merger Agreement") among Analogy,
Avant! and AC, and to transact any other business that is properly brought
before the Special Meeting.
RECORD DATE; VOTING POWER
Only holders of Common Stock at the close of business on January 31, 2000
(the "Record Date") will be entitled to receive notice of and to vote at the
Special Meeting. As of the Record Date, there were 9,697,260 shares of Common
Stock outstanding and entitled to vote at the Special Meeting. Each share of
Common Stock is entitled to one vote.
VOTE REQUIRED
The affirmative vote of the holders of sixty-seven percent (67%) of the
outstanding shares of Common Stock is required to approve the Merger.
Because the required vote of the shareholders to approve the Merger is
based upon the total number of outstanding shares of Common Stock, the failure
to submit a proxy card (or to vote in person at the Special Meeting) or the
abstention from voting by a shareholder will have the same effect as a vote
against approval of the Merger. Brokers holding shares of Common Stock as
nominees will not have discretionary authority to vote such shares in the
absence of instructions from the beneficial owners thereof.
The Oregon Business Corporation Act ("OBCA"), the Analogy Third Restated
Articles of Incorporation, as amended (the "Articles of Incorporation"), the
Analogy Second Restated Bylaws (the "Analogy Bylaws") and the Securities
Exchange Act of 1934 (the "Exchange Act"), contain requirements governing the
actions of Analogy shareholders at the Special Meeting. According to the
Analogy Bylaws, a majority of the votes eligible to be cast by holders of Common
Stock outstanding on the Record Date must be present, either in person or by
proxy, at
18
<PAGE>
the Special Meeting to constitute a quorum. In general, abstentions and
broker non-votes are counted as present or represented at the Special Meeting
for the purpose of determining a quorum for the Special Meeting.
The obligations of Analogy and Avant! to consummate the Merger are
subject, among other things, to the condition that the shareholders approve the
Merger, and the failure to obtain such approval on or before March 31, 2000
would give either Analogy or Avant! the right to terminate the Merger Agreement.
REVOCATION OF PROXY
A shareholder may revoke a proxy at any time prior to its exercise by (i)
delivering to Nic Herriges, Corporate Secretary, Analogy, Inc., 9205 S.W. Gemini
Drive, Beaverton, OR 97008, a written notice of revocation of proxy prior to the
Special Meeting, (ii) by delivering to Analogy a duly executed proxy bearing a
later date prior to the Special Meeting or (iii) by attending the Special
Meeting and voting in person. The presence of a shareholder at the Special
Meeting will not in and of itself automatically revoke such shareholder's proxy.
EXPENSES OF SOLICITATION
Analogy will bear the costs of soliciting proxies from shareholders. In
addition to soliciting proxies by mail, directors, officers and employees of the
Company, without receiving additional compensation therefor, may solicit proxies
by telephone, by facsimile or in person. Arrangements may also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares held of record by such
persons, and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith. See also Expenses of Transaction.
MISCELLANEOUS
It is not expected that any matter other than approval of the Merger will
be presented for action at the Special Meeting. If any other matters are
properly brought before the Special Meeting, the persons named in the proxies
will vote on such matters in accordance with the direction of the majority of
the Board of Directors. The grant of a proxy will also confer discretionary
authority on the persons named in the proxy as proxy appointees to vote in
accordance with the direction of the majority of the Board of Directors on
matters incident to the conduct of the Special Meeting, including (except as
stated in the following sentence) postponement or adjournment for the purpose of
soliciting additional votes. However, shares represented by proxies that have
been voted "AGAINST" the Merger will not be used to vote "FOR" postponement or
adjournment of the Special Meeting for the purposes of allowing additional time
for soliciting additional votes "FOR" the approval of the Merger.
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<PAGE>
Holders of Common Stock should not send their stock certificates with
their proxy cards. If the Merger is consummated, a separate letter of
transmittal will be mailed to the holders of Common Stock which will enable a
holder to receive the appropriate consideration.
THE PARTIES
ANALOGY
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, 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 using Analogy's proprietary modeling
language 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. For additional
information concerning Analogy, please refer to the Annual Report on Form
10-K for the year ended March 31, 1999 and the Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999 attached hereto as Appendix C and D,
respectively, and incorporated herein by reference.
The principal executive offices of Analogy are located at 9205 S.W.
Gemini Drive, Beaverton, OR 97008, and its telephone number is (503) 626-9700.
AVANT!
Avant! develops, markets and supports software products that assist
design engineers in the physical layout, design, verification, simulation,
timing and analysis of advanced integrated circuits. Avant! resulted from the
Merger of ArcCys, Inc. and Integrated Silicon Systems, Inc. on November 27,
1995. Avant! merged with Anagram, Inc. on September 27, 1996, Meta-Software,
Inc. on October 29, 1996, FrontLine Design Automation, Inc. on November 27,
1996, acquired Nexsyn Design Technology Inc. on September 12, 1997 and Datalink
Far East Ltd. on September 30, 1997. Avant! also merged with Technology Modeling
Associates, Inc. on January 16, 1998, acquired interHDL Inc. on November 13,
1998, acquired ACEO Technology on November 19, 1998, merged with Xynetix Design
Systems, Inc. on August 6, 1999 and merged with Chrysalis Symbolic Design, Inc.
on August 20, 1999.
Avant's objective is to establish a significant market position as a
supplier of design software for the integrated circuit design automation market.
To achieve this objective, Avant! has adopted its mission, which is to provide
innovative technology, products and business models that enable customers to
solve the toughest problems in deep submicron (less than 0.5
20
<PAGE>
micron feature size) and very deep submicron (less than 0.35 micron) feature
size IC design, improve their productivity and achieve a high return on their
investment. To effect its mission, Avant! has adopted the strategies of
maintaining focus on technological innovation and creating strategic
relationships with customers. As the 21st century approaches, reusable
silicon libraries, silicon intellectual property ("SIP"), design blocks and
optimized design-flow management are becoming critical to creating complex
new "systems-on-a-chip."
The principal executive offices of Avant! are located at 46871 Bayside
Parkway, Fremont, CA, and its telephone number is (510) 413-8000.
THE MERGER
BACKGROUND OF THE MERGER
In December, 1997, Analogy engaged Broadview International LLC to assist
Analogy in exploring potential strategic partnerships. Beginning in January
1998 through February 1999, representatives of Broadview contacted the
management of several public companies, including Avant!, that might be
interested in a business combination with Analogy. A few of these companies
executed a nondisclosure agreement with Analogy, and Broadview presented each of
them with an executive summary of Analogy's business, organization, strategy and
products.
At different points in time during the period from January 1998 to
February 1999, representatives of Broadview and Analogy met with representatives
of those companies expressing interest in a possible business combination or
strategic business partnership involving Analogy and their respective companies.
Other than Avant!, the companies which engaged in such initial discussions did
not wish to pursue those discussions any further.
Avant! was first approached by Broadview on January 15, 1998 and a
nondisclosure was executed on February 18, 1998. On July 11, 1998,
representatives of Broadview met with Roy Jewell, CEO Staff - Corporate Affairs
at Avant!, to discuss a potential business combination between Analogy and
Avant!.
From July 11, 1998 to September 25, 1998, representatives of Broadview
and Avant! participated in additional conversations regarding a potential
business combination. On September 25, 1998, Gary Arnold, the Chief Executive
Officer of Analogy, met with Gerald Hsu, the Chief Executive Officer of Avant!,
to formally discuss a business
combination and their respective views on the strategic benefits of such a
combination.
From September 25, 1998 to February 10, 1999, representatives of
Broadview and Avant! participated in additional conversations regarding
valuation. On February 10, 1999, Mr. Jewell met with representatives of Analogy
to discuss business strategies and product outlooks.
In February 1999 Mr. Jewell presented to Analogy and Broadview a
non-binding
21
<PAGE>
proposal outlining the terms for a possible business combination. Terms of
that proposal included a no-shop provision limiting Analogy's ability to
solicit alternative proposals. On February 22, 1999, the Board of Directors
of Analogy held a telephonic meeting to discuss the proposal made by Mr.
Jewell. The Board determined that the proposal was inadequate but instructed
management and Broadview to continue discussions with Avant! and other
potential strategic partners. On February 25, 1999, negotiations between
representatives of Broadview and Avant! stalled and the parties decided to
terminate further discussions.
From November 1998 through October 1999, representatives of Broadview
re-opened or held discussions with other companies regarding a potential
business combination between Analogy and those other companies.
On May 5, 1999, representatives of Broadview were contacted by
representatives of the financial advisor to Bidder A, to discuss a potential
strategic partnership or business combination between Analogy and Bidder A.
Bidder A executed a nondisclosure agreement with Analogy on May 6, 1999, and
Broadview presented Bidder A with an executive summary of Analogy's business,
organization, strategy and products.
On May 13, 1999, representatives of Broadview and Analogy met with
representatives of Bidder A and its financial adviser to further discuss a
business combination between Analogy and Bidder A. On June 10, 1999,
representatives of Broadview and Analogy met with representatives of Bidder A
and its financial advisor once again to continue discussions regarding the
products and technology of each company in light of a potential business
combination. From June 10, 1998 to October 6, 1999, representatives of Broadview
and Bidder A's financial adviser participated in additional conversations
regarding valuation.
On June 22, 1999, Mr. Arnold met with the Chief Executive Officer of
Bidder B, to re-open discussions regarding a potential business combination.
On July 27, 1999, representatives of Broadview re-opened discussions with
the management of Avant! regarding a potential business combination between
Analogy and Avant!. From July 27, 1999 to October 1, 1999, representatives of
Broadview and Avant! participated in additional conversations regarding a
potential business combination. On October 1, 1999, Sam Chang, Head of Finance
for Avant!, presented a verbal offer of $25 million in Avant! stock in a pooling
transaction for all of the outstanding common stock of Analogy. Between October
1, 1999 and October 12, 1999, representatives of Broadview and Avant!
participated in additional negotiations regarding terms, valuation and structure
of a potential transaction. On October 12, 1999, Mr. Chang presented a revised
verbal offer of $25 million in cash, a bridge loan of $2 million, a break-up fee
of $1 million, and a lock-up option that allowed Avant! to purchase up to 19.9%
of Analogy common stock.
On October 6, 1999, representatives of Broadview and Analogy met with
representatives of Bidder A and its financial adviser to discuss their
respective view on the strategic benefits of
22
<PAGE>
such a combination.
On October 7, 1999, when Analogy stock was trading at $2.00 per share and
Bidder B stock was trading at less than $8.00 per share, representatives of
Broadview and Analogy met again with representatives of Bidder B to discuss a
potential business combination between Analogy and Bidder B. During this
discussion, Bidder B management presented a verbal offer of 2 million Bidder B
shares for all outstanding shares of Analogy. On October 8, 1999, Bidder B's
CEO presented to Analogy and Broadview a non-binding proposal outlining the
terms for a possible business combination. Terms of that proposal included a
fixed 2 million shares for all of the outstanding shares of Analogy common
stock, a bridge loan of undetermined amount to be negotiated and executed with a
definitive agreement, and a no-shop provision limiting Analogy's ability to
solicit alternative proposals.
On October 14, 1999, when Analogy stock was trading at $2.13 per share,
the Chief Executive Officer of Bidder A, presented to Analogy and Broadview a
non-binding proposal outlining the terms for a possible business combination.
Terms of that proposal included a fixed price of between $2.00 and $2.25 for
each share of Analogy common stock, a bridge loan of up to $1.5 million and a
no-shop provision limiting Analogy's ability to solicit alternative proposals.
On October 14, 1999, there was a regular meeting of the board of
directors of Analogy. Also present at the meeting was William C. Campbell of
Ater Wynne, legal counsel for Analogy, and Anthony J. Aquilina of Broadview.
Mr. Aquilina informed the Analogy board of directors of the three outstanding
proposals from Avant!, Bidder A and Bidder B. Mr. Campbell and Mr. Aquilina
responded to questions regarding the proposals from the Analogy board of
directors. After considering all three proposals, the Analogy board of
directors determined that pursuing the Avant! proposal was the best course of
action.
From October 14, 1999 to October 19, 1999, representatives of Ater Wynne
and McCutchen, Doyle, Brown & Enersen LLP, legal counsel for Avant!, began to
prepare and negotiate a no-shop agreement, bridge loan agreement, and
confidentiality agreement. On October 19, 1999, the non-solicitation agreement,
bridge loan agreement and confidentiality agreement were executed.
From October 19, 1999 to December 2, 1999, legal counsel to Avant!
conducted a legal due diligence review of Analogy. Legal counsel for both
parties prepared and negotiated definitive merger documents.
From October 19, 1999 through November 17, 1999, Analogy's and Avant!'s
executive officers, legal counsel and other representatives held further
discussions to negotiate the terms of the proposed merger agreement and related
documents, including valuation, the terms of the stock option agreement between
Analogy and Avant!, the terms of the proposed voting agreements to be entered
into by certain officers and directors of Analogy, the termination rights
contained in the proposed merger agreement, the conditions upon which any
termination fees
23
<PAGE>
would be payable and the amount of such fees, Analogy's right under the
proposed merger agreement to consider and negotiate other acquisition
proposals in certain circumstances and the representations, warranties and
covenants to be made by Analogy and Avant!. During this period,
representatives of Analogy and Avant! had further discussions regarding
valuation issues, and representatives of Avant! and its legal advisors
conducted further due diligence on Analogy's business, prospects, strategy
and financial condition. In the course of Avant!'s due diligence, Avant!
decreased its verbal cash offer to $23.2 million. After further negotiations
between the parties, Avant! agreed to a cash offer of $24 million. Between
October 25, 1999 and November 12, 1999, the Board of Directors of Analogy met
five times to obtain information from Company management, representatives of
Broadview and representatives of Ater Wynne LLP concerning the status of
negotiations with Avant!
On November 17, 1999, there was a telephonic meeting of the Analogy board
of directors. Also participating in that meeting were Stephen M. Going of Ater
Wynne and Mr. Aquilina of Broadview. Mr. Aquilina informed the Analogy board of
directors of Broadview's oral opinion, subsequently confirmed in writing, that
as of such date the consideration in the merger was fair from a financial point
of view to Analogy stockholders, and responded to various questions raised by
members of the Board of Directors regarding such opinion. The Board of
Directors reviewed a draft of the merger agreement, the plan of merger and
related documents and Mr. Going responded to questions regarding such documents
from the Board of Directors. After considering the terms of the proposed
transaction and the opinion of Broadview, the Board of Directors determined that
the merger was advisable and in the best interests of Analogy shareholders. The
Analogy Board of Directors then unanimously approved the Merger Agreement and
exhibits thereto, including the plan of merger, as well as the Merger and
unanimously recommended that the shareholders of Analogy vote in favor of the
Merger.
Each of the executive officers and directors of Analogy entered into a
Voting and Proxy Agreement with Avant!, pursuant to which those officers and
directors, who hold an aggregate of 995,450 outstanding shares of Analogy Common
Stock, agreed to vote in favor of the Merger and against any third party
transaction. They also agreed not to transfer any record, beneficial or security
interest in their shares of Analogy Common Stock which are subject to the Voting
Agreement prior to the consummation of the Merger.
During the evening of December 2, 1999, following approval of the Merger
Agreement and related matters by the Avant! board of directors, Avant! and
Analogy finalized, executed and delivered the Merger Agreement and related
documents.
Avant! and Analogy issued a joint press release announcing the execution
of the Merger Agreement and the terms of the Merger on the morning of December
3, 1999.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
In reaching its determination to recommend approval of the Merger, the
Board of
24
<PAGE>
Directors consulted with management, as well as Ater Wynne LLP, its legal
advisor, Broadview Int'l LLC, its financial advisor, and considered a number
of factors, including the factors listed below. In view of the wide variety
of factors considered in connection with the Merger, the Board of Directors
did not consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to the specific factors it considered in
reaching its decision.
(1) ANALOGY'S BUSINESS, CONDITION AND PROSPECTS. The Board of Directors
considered information with respect to the financial condition, results
of operations and business of Analogy, on both an historical and
prospective basis, and current industry, economic and market conditions,
including Analogy's market position within its industry. The members of
the Board of Directors were familiar with and knowledgeable about
Analogy's business and affairs and further reviewed these matters in the
course of their deliberations. The Board of Directors considered the
capital requirements necessary to continue its business given its current
financial condition. The Board of Directors noted that there could be no
assurance as to Analogy's access to such capital on acceptable terms.
(2) THE NEED TO ADDRESS CERTAIN LIQUIDITY CONCERNS. The Board of
Directors believed that unless Analogy obtained additional financing,
Analogy would not have the cash available to continue as a viable
company. Significant additional financing would have been required.
(3) RECENT MARKET PRICES COMPARED TO CONSIDERATION TO BE RECEIVED BY
HOLDERS OF COMMON STOCK. The Board of Directors reviewed the recent
market prices and trading information with respect to the Common Stock,
and considered that the Merger Consideration represented (A) a premium of
approximately 10% over the $2.25 closing price of the Common Stock on
November 16, 1999, the last full trading day prior to the November 17,
1999 Board meeting and (B) a premium of approximately 18% over the
average closing price of the Common Stock for the 30 previous trading
days prior to the November 17, 1999 Board of Directors meeting.
(4) TERMS OF THE MERGER. The Board of Directors considered the terms
and provisions of the Merger Agreement and the related agreements. The
Board of Directors considered the terms of the Merger Agreement that
permit the Board of Directors to receive unsolicited inquiries and
proposals from, and negotiate and give information to, third parties. The
Board of Directors further considered that the total amount which could
be payable to Avant! pursuant to the termination fee was limited to $1
million. The Board of Directors found reasonable the views of Broadview
that a $1 million termination fee was within the range of fees payable in
comparable transactions and that the fee would not in and of itself
preclude alternative proposals. The Analogy Board of Directors further
considered that Avant! had stated that it would not enter into a
transaction which did not include provisions similar to the termination
fee.
25
<PAGE>
(5) OPINION OF BROADVIEW INT'L LLC. The Board of Directors considered
the opinion delivered on November 17, 1999 by Broadview Int'l LLC that as
of the date of such opinion, and based upon and subject to certain
matters stated therein, the proposed consideration of approximately $2.48
in cash per share to be received by holders of Common Stock in the Merger
was fair, from a financial point of view to those holders. The Board of
Directors also considered the oral and written presentations made to it
by Broadview. See "The Merger--Opinion of Analogy's Financial Advisor." A
copy of Broadview's written opinion to the Board of Directors, dated
November 17, 1999, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as
Appendix B to this Proxy Statement and is incorporated herein by
reference.
(6) AVANT!'S REPUTATION AND RESOURCES AND TIME NEEDED TO COMPLETE THE
TRANSACTION. The Board of Directors also considered Avant!'s size and
standing within its industry. In addition, the Board of Directors
considered that Avant!'s obligation to close the Merger is not subject to
a financing condition and that, in light of Avant!'s size and resources,
Avant! has sufficient available funds to consummate the Merger.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER, HAS
DETERMINED THAT THE MERGER IS FAIR TO, ADVISABLE AND IN THE BEST INTERESTS OF,
ANALOGY AND ITS HOLDERS OF COMMON STOCK, AND RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE MERGER.
OPINION OF ANALOGY'S FINANCIAL ADVISOR
Broadview Int'l LLC ("Broadview") was retained by Analogy to act as its
financial advisor in connection with the proposed Merger. In connection with
such engagement, Analogy requested that Broadview evaluate the fairness, from a
financial point of view, to holders of Common Stock of the consideration to be
received by such holders pursuant to the terms of the proposed Merger. On
November 17, 1999, at a meeting of the Board of Directors held to evaluate the
Merger contemplated by the Merger Agreement, Broadview delivered an opinion to
the Analogy Board of Directors to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
proposed Merger Consideration proposed at such time to be paid by Avant! to
holders of Common Stock in the Merger was fair, from a financial point of view,
to those holders.
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH THE PROCEDURES FOLLOWED,
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY BROADVIEW IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX B TO
THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE
URGED TO READ
26
<PAGE>
THE OPINION IN ITS ENTIRETY. THE OPINION IS DIRECTED TO THE ANALOGY BOARD AND
RELATES ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW TO HOLDERS OF
COMMON STOCK OF THE CONSIDERATION TO BE RECEIVED IN THE MERGER AND DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER OR CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF THE COMPANY AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER AGREEMENT. REFERENCES TO THE OPINION AND THE SUMMARY OF
THE OPINION CONTAINED HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION.
In conducting its investigation and analysis and in arriving at its
opinion, Broadview reviewed information and took into account financial and
economic factors it deemed relevant under the circumstances. In that connection,
Broadview, among other things:
- reviewed the terms of a draft of the Merger Agreement dated November
12, 1999
- reviewed Analogy's Annual Report on Form 10-K for its fiscal year
ended March 31, 1999, including the audited financial statements included
therein and Analogy's Quarterly Report on Form 10-Q for its quarterly
period ended September 30, 1999, including the unaudited financial
statements included therein;
- reviewed certain internal financial and operating information,
including quarterly projections through March 31, 2001, relating to
Analogy, prepared and furnished by Analogy;
- participated in discussions with Analogy management concerning the
operations, business strategy, current financial performance and
prospects for Analogy;
- discussed with Analogy management its view of the strategic rationale
for the Merger;
- reviewed the recent reported closing prices and trading activity for
Analogy Common Stock;
- compared certain aspects of the financial performance of Analogy with
public companies deemed comparable;
- analyzed available information, both public and private, concerning
other mergers and acquisitions believed to be comparable in whole or in
part to the Merger;
- assisted in negotiations and discussions related to the Merger among
Analogy, the Buyer and their respective financial and legal advisors; and
- conducted other financial studies, analyses and investigations as
deemed appropriate
27
<PAGE>
for purposes of this opinion.
In rendering its opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Merger Agreement) that was publicly available or furnished to
it by Analogy. With respect to the financial projections it examined, Broadview
assumed that they were reasonably prepared, and reflected the best available
estimates and good faith judgments of the management of Analogy as to the future
performance of Analogy. Broadview neither made nor obtained an independent
appraisal or valuation of any of Analogy's assets.
For purposes of its opinion, Broadview assumed that Analogy is not
currently involved in any material transaction other than the Merger and those
activities undertaken in the ordinary course of conducting its business.
Broadview's opinion was necessarily based upon existing market, economic,
financial and other conditions which could be evaluated as of the date of its
opinion. Any change in such conditions may impact Broadview's opinion.
The following is a summary explanation of the various sources of
information and valuation methodologies employed by Broadview in valuing Analogy
in conjunction with rendering its fairness opinion regarding the Merger with
Avant!. Broadview employed analyses based on: (1) public company comparables,
(2) transaction comparables; (3) transaction premiums paid, and (4) historical
stock price performance to determine the fairness of the Merger.
PUBLIC COMPANY COMPARABLES ANALYSIS. Ratios of a company's common stock
share price and Equity Market Capitalization ("EMC"), adjusted for cash and debt
when appropriate, to selected historical and projected operating metrics
indicate the value public equity markets place on companies in a particular
market segment. Several companies are comparable to Analogy based on revenue
growth, revenue size, products offered, business model and management structure.
Broadview reviewed six public company comparables in the High Level Design and
Simulation Software market segments with Trailing Twelve Month ("TTM") revenue
between $25 million and $150 million, from a financial point of view including
each company's: TTM Revenue, TTM Revenue Growth, TTM Earnings Before Interest
and Taxes ("TTM EBIT") Margin, Projected 3/31/2000 ("Projected 3/31/2000")
Revenue, Projected 12/31/2000 ("Projected 12/31/2000") Revenue, Net Cash, Equity
Market Capitalization ("EMC"), Total Market Capitalization ("TMC" defined as EMC
plus debt minus cash)/TTM Revenue ("TTM TMC/R") ratio, TMC /Projected 3/31/2000
Revenue ratio ("Projected 3/31/2000 TMC/R"), TMC/Projected 12/31/2000 Revenue
ratio ("Projected 12/31/2000 TMC/R"), TMC/TTM EBIT ("TTM/TMC EBIT") ratio,
TMC/Projected 3/31/2000 EBIT ratio ("Projected 3/31/2000 TMC/EBIT"),
TMC/Projected 12/31/2000 EBIT ratio ("Projected 12/31/2000 TMC/EBIT"). The
public company comparables were selected from the BROADVIEW BAROMETER, a
proprietary database of publicly-traded IT, communications and media companies
maintained by Broadview and broken
28
<PAGE>
down by industry segment.
In order of descending TTM TMC/R, the public company comparables consist
of:
1. Ansoft Corp.
2. ANSYS, Inc.
3. MacNeal-Schwendler Corp.
4. IKOS Systems, Inc.
5. Summit Design, Inc.
6. Mechanical Dynamics, Inc.
These comparables exhibit the following medians and ranges for the applicable
multiples:
These comparables imply the following medians and ranges for per share value:
<TABLE>
<CAPTION>
Median Multiple Range of Multiples
- -------------------------------------------------------------------------------
<S> <C> <C>
TTM TMC/R 1.07x 0.29x - 2.89x
Projected 3/31/2000 TMC/R 0.95x 0.28x - 2.47x
Projected 12/31/2000 TMC/R 0.91x 0.26x - 2.15x
TTM TMC/EBIT 19.75x 5.39x - 68.14x
Projected 3/31/2000 TMC/EBIT 12.53x 4.72x - 40.64x
Projected 12/31/2000 TMC/EBIT 4.32x 3.85x - 44.92x
</TABLE>
These comparables imply the following medians and ranges for per share value:
<TABLE>
<CAPTION>
Median Implied Value Range of Implied Values
- -------------------------------------------------------------------------------
<S> <C> <C>
TTM TMC/R $2.82 $0.72 - $7.72
Projected 3/31/2000 TMC/R $2.34 $0.66 - $6.22
Projected 12/31/2000 TMC/R $2.40 $0.64 - $5.78
TTM TMC/EBIT NM NM - NM
Projected 3/31/2000 TMC/EBIT NM NM - NM
Projected 12/31/2000 TMC/EBIT NM NM - NM
</TABLE>
TRANSACTION COMPARABLES ANALYSIS. Ratios of Equity Purchase Price,
adjusted for the seller's cash and debt when appropriate, to selected historical
operating metrics indicate the value strategic and financial acquirers have been
willing to pay for companies in a particular market segment. A handful of
companies involved in recent transactions are comparable to Analogy based on
products offered and business model. Broadview reviewed eight comparable merger
and acquisition ("M&A") transactions from January 1, 1997 through November 16,
1999 involving sellers in the High Level Design and Simulation Software market
segments, with revenue between $5 million and $150 million, from a financial
point of view including each transaction's: Adjusted Price (Equity Price plus
debt minus cash), Seller TTM Revenue, Seller TTM EBIT, and Adjusted Price/TTM
Revenue ("P/R") ratio. Transactions were selected from
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<PAGE>
Broadview's proprietary database of published and confidential M&A
transactions in the IT, communications and media industries. In order of
descending P/R multiple, the transactions used are the acquisition of:
1. Speedsim, Inc. by Quickturn Design Systems, Inc.
2. Viewlogic Systems, Inc. by Synopsys, Inc.
3. Quickturn Design Systems, Inc. by Cadence Design Systems, Inc.
4. OrCAD, Inc. by Cadence Design Systems, Inc.
5. Marc Analysis Research Corp. by MacNeal-Schwendler Corp.
6. Compact Software, Inc. by Ansoft Corp.
7. Microsim Corp. by OrCAD, Inc.
8. VLSI Technology, Inc. (Compass Design Automation division) by
Avant! Corp.
These comparables exhibit the following median and range for the applicable
multiple:
<TABLE>
<CAPTION>
Median Multiple Range of Multiples
- -------------------------------------------------------------------------------
<S> <C> <C>
P/R 1.73x 0.66x - 10.92x
</TABLE>
These comparables imply the following medians and range for per share value:
<TABLE>
<CAPTION>
Median Implied Value Range of Implied Values
- -------------------------------------------------------------------------------
<S> <C> <C>
P/R $4.60 $1.71 - $29.38
</TABLE>
In performing its analysis, Broadview took into account the fact that, in
many of the comparable transactions, the seller exhibited greater profitability
than Analogy and that this may have increased the consideration paid to these
companies as a multiple of revenue relative to the consideration to be received
by Analogy shareholders in this proposed Merger.
TRANSACTION PREMIUMS PAID ANALYSIS. Premiums paid above the seller's EMC
indicate additional value, when compared to public shareholders, strategic and
financial acquirers are willing to pay for companies in a particular market
segment. In this analysis, the value of consideration paid in transactions
involving stock is computed using the buyer's last reported closing price (on
the appropriate exchange) prior to announcement. The seller's equity market
capitalization one trading day prior to announcement is calculated using the
seller's last reported closing price (on the appropriate exchange) prior to
announcement. The seller's equity market capitalization twenty trading days
prior to announcement is calculated using the seller's closing price (on the
appropriate exchange) on the first day of that period which: (1) consists of
twenty consecutive days during which the appropriate exchange conducts trading
activity; and (2) ends on the day of the last reported closing price prior to
announcement. Broadview reviewed 40 comparable M&A transactions involving North
American software vendors from January 1, 1997 to November 16, 1999 with equity
consideration between $10 million and $100 million.
30
<PAGE>
Transactions were selected from Broadview's proprietary database of published
and confidential M&A transactions in the IT, communications and media
industries. In order of descending premium paid to seller's equity market
capitalization 20 trading days prior to the date of announcement, the
software transactions used were the acquisition of:
1. FullTime Software, Inc. by Legato Systems, Inc.
2. Marcam Solutions, Inc. by Invensys plc.
3. Sulcus Hospitality Technologies Corp. by Eltrax Systems, Inc.
4. CUSA Technologies, Inc. by Fiserv, Inc.
5. Consilium, Inc. by Applied Materials, Inc.
6. Concentra Corporation by Oracle Corp.
7. Interlink Computer Sciences, Inc. by Sterling Software, Inc.
8. TeleBackup Systems, Inc. by VERITAS Software Corp.
9. National Health Enhancement Systems, Inc. by HBO & Company
10. Effective Management Systems, Inc. by IFS Americas, Inc.
11. Metrowerks Inc. by Motorola, Inc.
12. US Servis, Inc. by HBO & Company
13. C*ATS Software, Inc. by Misys plc
14. Interactive Group, Inc. by DataWorks Corporation
15. Expert Software, Inc. by Activision, Inc.
16. Wall Data Incorporated by NetManage, Inc.
17. FDP Corp. by SunGard Data Systems, Inc.
18. Kurzweil Applied Intelligence, Inc. by Lernout & Hauspie Speech
Products NV
19. Ultradata Corp. by CFI Proservices, Inc.
20. Accugraph Corporation by Architel Systems Corporation
21. Oacis Healthcare Holdings Corp. by Science Applications
International Corporation
22. Globalink, Inc. by Lernout & Hauspie Speech Products NV
23. Maxis, Inc. by Electronic Arts, Inc.
24. Learmonth & Burchett Management Systems, Inc. by PLATINUM
technology, Inc.
25. Xionics Document Technologies, Inc. by Oak Technology, Inc.
26. Simware Inc. by NetManage, Inc.
27. Equitrac Corporation by Cornerstone Equity Investors, LLC
28. Prism Solutions, Inc. by Ardent Software, Inc.
29. Medicus Systems Corp. by Quadramed Corp.
30. IQ Software Corporation by Information Advantage Inc.
31. Voice Control Systems, Inc. by Philips Electronics NV
32. Quarterdeck Corporation by Symantec Corporation
33. Innovative Tech Systems, Inc. by Peregrine Systems, Inc.
34. Interlinq Software Corp. by W.R. Hambrecht & Co.
35. Andyne Computing Ltd. by Hummingbird Communications Ltd.
36. DataWorks Corporation by Platinum Software Corporation
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<PAGE>
37. CompuRAD, Inc. by Lumisys, Inc.
38. Red Brick Systems, Inc. by Informix Corporation
39. FTP Software, Inc. by NetManage, Inc.
40. Cayenne Software, Inc. by Sterling Software, Inc.
These comparables exhibit the following medians and ranges for the applicable
premiums (discounts):
<TABLE>
<CAPTION>
Median Multiple Range of Multiples
- -------------------------------------------------------------------------------
<S> <C> <C>
Premium paid to Seller's EMC 1 30.2% (31.7%) - 186.7%
Trading Day Prior to
Announcement
Premium paid to Seller's EMC 20 46.6% (53.8%) - 326.7%
Trading Days Prior to
Announcement
</TABLE>
These comparables imply the following medians and ranges for per share value:
<TABLE>
<CAPTION>
Median Implied Range of Implied Values
Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Premium Paid to Seller's per $2.93 $1.54 - $6.45
Share Value 1 Trading Day Prior
to Announcement
Premium Paid to Seller's per $3.12 $0.98 - $9.07
Share Value 20 Trading Days
Prior to Announcement
</TABLE>
ANALOGY STOCK PERFORMANCE ANALYSIS. For comparative purposes, Broadview
examined the following:
1. Analogy Common Stock weekly historical volume and trading prices
from 11/20/98 through 11/12/99; and
2. Daily relative closing prices for an index of the public company
comparables vs. Analogy and the S&P 500 from 11/20/98 through
11/12/99.
CONSIDERATION OF THE DISCOUNTED CASH FLOW VALUATION METHODOLOGY. While
discounted cash flow is a commonly used valuation methodology, Broadview did not
employ such an analysis for the purposes of its opinion. Discounted cash flow
analysis is most appropriate for companies which exhibit relatively steady or
somewhat predictable streams of future cash flow. For a company such as Analogy,
a preponderance of the value in a valuation based on discounted cash flow will
be in the terminal value of the entity, which is extremely sensitive to
assumptions about the sustainable long-term growth rate of the company. Given
the
32
<PAGE>
uncertainty in estimating both the future cash flows and a sustainable
long-term growth rate for the Company, Broadview considered a discounted cash
flow analysis inappropriate for valuing Analogy.
SUMMARY OF VALUATION ANALYSES. Taken together, the information and
analyses employed by Broadview lead to Broadview's overall opinion that the
Merger Consideration is fair, from a financial point of view, to Analogy
shareholders.
RELATIONSHIP WITH BROADVIEW. Pursuant to an engagement letter dated
December 4, 1997 between Analogy and Broadview, Analogy agreed to pay Broadview
a fee of approximately $540,000, payable upon consummation of the Merger.
Analogy has also agreed to reimburse Broadview for its reasonable out-of-pocket
expenses. Analogy has also agreed to indemnify Broadview, its affiliates and
their respective directors, officers, employees and agents and controlling
persons against certain liabilities relating to or arising out of its
engagement, including liabilities under the federal securities laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes certain United States federal income
tax consequences of the Merger that are generally applicable to holders of
Common Stock and does not purport to be a complete analysis or listing of all
potential tax effects relevant to a decision whether to vote in favor of the
Merger Agreement and the Merger. The following discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations promulgated thereunder, rulings, administrative
pronouncements and judicial decisions, all as of the date hereof, changes to
which could materially affect the tax consequences described herein and could be
made on a retroactive basis. This discussion does not address all aspects of
federal income taxation that may be important to a shareholder based on such
holder's particular circumstances and does not address any aspect of state,
local or foreign tax laws. The following discussion is generally only applicable
to those holders of Common Stock who hold their shares of Common Stock as
"capital assets" within the meaning of Section 1221 of the Code (generally,
assets held for investment) and may not apply to holders who acquired Common
Stock pursuant to the exercise of employee stock options or other compensation
arrangements with the Company, holders that are subject to special tax treatment
(such as foreign persons, broker-dealers, insurance companies, tax-exempt
organizations, financial institutions, certain holders subject to the
alternative minimum tax provisions of the Code and regulated investment
companies), or holders that hold Common Stock as part of a "straddle," "hedge,"
or "conversion transaction."
CONSEQUENCES TO HOLDERS OF COMMON STOCK. A holder of Common Stock will
recognize gain or loss equal to the difference between the amount of cash
received in the Merger and the holder's adjusted tax basis in the shares of
Common Stock exchanged. Such gain or loss will generally be capital gain or loss
and will be long-term capital gain or loss if at the Effective Time (as
hereinafter defined) the holder has a holding period for the Common Stock of
more
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than one year.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Payments of cash to a
holder surrendering shares of Common Stock may be subject to information
reporting and "backup" withholding at a rate of 31% of the cash payable to the
holder. Backup withholding will not apply, however, to a holder who furnishes a
correct taxpayer identification number and certifies that it is not subject to
backup withholding on the substitute Form W-9 included in the transmittal letter
who provides a certificate of foreign status on Form W-8, or who is otherwise
exempt from backup withholding. Any amounts withheld from payments to a holder
under the backup withholding rules generally will be allowed as a credit against
the holder's United States federal income tax liability.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE
IN FAVOR OF THE MERGER AGREEMENT OR THE MERGER. THUS, ANALOGY SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER APPLICABLE
TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for by Avant! as a purchase.
REGULATORY FILING AND APPROVAL
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger cannot be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. Avant!
and Analogy filed notification and report forms under the HSR Act with the FTC
and the Antitrust Division on January 24, 2000.
At any time before or after consummation of the Merger, the Antitrust
Division or the FTC or any state could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking divestiture of substantial
assets of Avant! or Analogy. Private parties may also seek to take legal action
under the antitrust laws under certain circumstances.
There can be no assurance that the required regulatory approvals
described above will be
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received or, if received, the timing and the terms and conditions of such
approval.
MANAGEMENT, OPERATIONS AND OWNERSHIP STRUCTURE FOLLOWING THE MERGER
Following the Merger, Analogy will continue its operations as a
wholly-owned subsidiary of Avant!. The directors of AC will become the
directors of Analogy. At the Effective Time, the officers of AC will become
the officers of Analogy.
APPRAISAL RIGHTS
Under the OBCA, shareholders are not entitled to dissenters' rights in
connection with the Merger.
PUBLIC TRADING MARKETS
The Common Stock is currently traded on the Nasdaq National Market System
under the symbol "ANLG." Upon consummation of the Merger, the Common Stock will
no longer be traded on the Nasdaq National Market System and will be
deregistered under the Exchange Act.
THE MERGER AGREEMENT
The following describes certain aspects of the proposed Merger, including
material provisions of the Merger Agreement. The following description of the
Merger does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached as Appendix A to this Proxy
Statement and is incorporated herein by reference. Holders of Common Stock are
urged to read the Merger Agreement carefully. Capitalized terms used in this
section or elsewhere in this Proxy Statement but not defined in this Proxy
Statement shall have the meanings attributed to them in the Merger Agreement.
GENERAL; MERGER CONSIDERATION
The terms of the Merger are set forth in the Merger Agreement. The Merger
Agreement was approved by the Analogy Board of Directors on November 17, 1999
and signed by Avant!, AC and Analogy on December 2, 1999. Pursuant to the Merger
Agreement, and on the terms and conditions set forth in it, at the Effective
Time, AC will be merged with and into Analogy. Analogy will be the surviving
corporation in the Merger (the "Surviving Corporation"). The Merger Agreement
provides that, as a result of the Merger, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than Common Stock
owned by Avant! or AC or as treasury stock held by Analogy (the "Excluded
Shares")) shall be converted into the right to receive the Merger Consideration.
The Merger Consideration is calculated as the Purchase Price divided by
the sum of all outstanding shares of Analogy Common Stock as of the time the
Merger takes effect. The
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"Purchase Price" is equal to $24,000,000 minus (i) the fees and expenses of
investment bankers, legal counsel and accountants in excess of $850,000 in
the aggregate incurred by or on behalf of Analogy and its subsidiaries in
connection with the preparation, execution and performance of the Merger
Agreement and related documents or the consummation of the Merger, (ii) the
aggregate Spread Amount paid for outstanding non-employee stock options,
(iii) the aggregate Warrant Spread Amount paid for outstanding warrants, and
(iv) the aggregate Former Employee Spread Amount paid for outstanding
employee stock options held by former employees. See "The Merger Agreement -
Treatment of Stock Options and Warrants."
TREATMENT OF STOCK OPTIONS AND WARRANTS
NON-EMPLOYEE STOCK OPTIONS. At the Effective Time, each option
outstanding under Analogy's 1986 Stock Option Plan, 1993 Amended and Restated
Stock Incentive Plan and the 1995 Stock Option Plan for Nonemployee Directors
(except for options held by current employees of the Company) will be converted
into the right to receive the Spread Amount in cash. The "Spread Amount" is the
excess, if any, of the (1) Merger Consideration over the exercise price of such
option, (2) multiplied by the number of Shares then subject to such option, net
of applicable withholdings.
EMPLOYEE STOCK OPTIONS. Each option outstanding under Analogy's 1986
Stock Option Plan and 1993 Amended and Restated Stock Incentive Plan that is
held by a current employee of the Company shall be replaced by an option issued
under Avant's 1995 Stock Option/Stock Issuance Plan. Each "New Option" will be
exercisable for a number of shares of Common Stock of Avant! equal in value
(based on the average closing prices over the five (5) trading days ending on
the third (3rd) trading day prior to the Effective Time) to the Shares subject
to the option, and each Analogy employee's vesting schedule will be preserved
with no acceleration of the vesting schedule due to the Merger. The per share
exercise price for shares of Avant's Common Stock issuable upon exercise of the
New Option will be equal to the product of the exercise price per share of
Analogy Common Stock at which such Analogy option was exercisable immediately
prior to the Effective Date multiplied by the Conversion Ratio, and rounded up
to the nearest whole cent. The "Conversion Ratio" is equal to the average
closing price per share of Avant's Common Stock over the five (5) trading days
ending on the third (3rd) trading day prior to the Effective Time divided by the
Merger Consideration.
FORMER EMPLOYEE OPTIONS. At the Effective Time, each outstanding option
issued under Analogy's 1986 Stock Option Plan or 1993 Amended and Restated Stock
Incentive Plan that is held by any former Analogy employee who has terminated
his employment with Analogy (or has had his employment with Analogy terminated
by Analogy) within the 90 days prior to the Effective Time and who is eligible
to exercise such option in accordance with the terms of the applicable Analogy
option plan will be converted into the right to receive the Former Employee
Spread Amount in cash. The "Former Employee Spread Amount" is the excess, if
any, of (1) the Merger Consideration over the exercise price of such option, (2)
multiplied by the number of
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Shares then subject to such option, net of applicable withholdings.
WARRANTS. At the Effective Time, each warrant for the purchase of
Analogy Common Stock will be converted into the right to receive in cash the
excess, if any, of (1) the Merger Consideration over the exercise price of such
warrant, (2) multiplied by the number of Shares then subject to such warrant,
net of applicable withholdings. Analogy currently expects that no warrants to
purchase its Common Stock will be outstanding on the Effective Time (as defined
below).
CLOSING; EFFECTIVE TIME
The Closing of the Merger will take place within three business days
following the satisfaction or waiver of the conditions to the Merger set forth
in the Merger Agreement. Concurrently with the Closing, Analogy and Avant! will
cause a Plan of Merger to be executed, acknowledged and filed with the Secretary
of State of the State of Oregon. The Merger will become effective at the time
the Plan of Merger is duly filed with the Secretary or at such later time agreed
to by the parties and established under the Merger Agreement (the "Effective
Time"). See "The Merger Agreement--Conditions of the Proposed Merger" and "The
Merger--Required Regulatory Filing and Approval."
CANCELLATION OF SHARES
At the Effective Time, the Shares will no longer be outstanding and will
be canceled and each certificate (a "Certificate") formerly representing any of
such Shares will thereafter represent only the right to receive the Merger
Consideration.
EXCHANGE OF CERTIFICATES
Prior to the Effective Time, Avant! has agreed to designate a bank or
trust company to act as agent (the "Paying Agent") for the benefit of the
holders of Shares to receive the funds necessary to make payments to holders
upon surrender of the Certificates. Upon surrender of a Certificate to the
Paying Agent together with a signed letter of transmittal, duly executed, the
holder of such Certificate is entitled to receive in exchange therefor the
Merger Consideration that such holder has the right to receive pursuant to the
provisions of the Merger Agreement, and the Certificate will then be canceled.
No interest will be paid or accrued on any amount payable upon due surrender of
the Certificates.
PAYMENT TO OTHER THAN REGISTERED HOLDER
If payment of the Merger Consideration is to be made to a person other
than the registered holders, the surrendered Certificate must be properly
endorsed or must be otherwise in proper form for transfer. Additionally, the
person who is to receive payment must pay any transfer and other taxes required
by reason of the payment of the Merger Consideration to a
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person other than the registered holder of the Certificate surrendered or
shall have established to the satisfaction of the Surviving Corporation that
such tax either has been paid or is not applicable.
TRANSFERS
At the Effective Time, the stock transfer books of Analogy will be closed
and thereafter there will be no further registration of transfers of Shares on
the records of Analogy.
LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Certificate is lost, stolen or destroyed, upon the
making of an affidavit of that fact by the registered shareholder claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such shareholder of a bond in such reasonable amount
as the Surviving Corporation may direct as an indemnity against any claim that
may be made against it, Avant!, AC or Analogy with respect to such Certificate,
the Surviving Corporation or the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the applicable Merger Consideration such
shareholder is entitled to receive pursuant to the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
MUTUAL REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains
various representations and warranties of the parties relating to and including,
among other things: (a) capitalization and organization and similar corporate
matters; (b) authorization, execution, delivery, performance and enforceability
of the Merger Agreement and related matters; and (c) conflicts under governing
documents, required consents or approvals, and violations of any agreements or
law.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ANALOGY. Analogy has made
additional representations relating to: (a) equity interests in third parties;
(b) financial statements and certain changes, obligations or events; (c) the
filing of tax returns and other tax matters; (d) valid title to properties; (e)
sale of inventories; (f) accounts receivable; (g) leases and other rights in
property and equipment; (h) insurance policies; (i) retirement and other
employee plans and matters relating to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"); (j) contracts; (k) officers and directors;
(l) corporate documents; (m) legal proceedings; (n) compliance with legal
requirements; (o) rights in intellectual property; (p) compliance with
environmental regulations; (q) capital expenditures; (r) no illegal payments;
(s) filings with SEC; (t) lack of dissenters' rights; (u) substitution of
options and (v) the employee stock option plan.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF AVANT!. Avant! has made
additional representations relating to information supplied in this Proxy
Statement.
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CONDITIONS OF THE PROPOSED MERGER
MUTUAL CONDITIONS. The obligation of Analogy, Avant! or AC to effect the
Merger is subject to the following:
(a) the other parties' representations and warranties, subject
to certain materiality exceptions, being true and correct as of the date of the
Merger Agreement and as of the Closing Date and the receipt of certificates to
such effect;
(b) the performance in all material respects by the other
parties of their obligations under the Merger Agreement and the receipt of
certificates to such effect;
(c) the approval of the Merger by the requisite vote of the
holders of Common Stock;
(d) no action, suit or proceeding before any Governmental
Agency shall have been commenced, and no investigation by any Governmental
Agency shall have been commenced or overtly threatened, against Analogy, Avant!,
AC or any of their respective principals, officers, directors or shareholders
seeking to restrain, prevent or change the transactions contemplated by the
Merger Agreement or questioning the validity or legality of any of such
transactions or seeking damages in connection with any of such transactions; and
(e) all corporate and other proceedings on the part of the
other parties in connection with the transactions to be consummated at the
Closing, and all documents and instruments incident to such transactions, shall
be reasonably satisfactory in substance and form to the party receiving them.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF AVANT! AND AC. In addition,
the obligations of Avant! and AC under the Merger Agreement are subject to:
(a) this Proxy Statement must materially comply with the
applicable requirements of the Exchange Act and the rules and regulations
promulgated thereunder, and must not, at the time of (i) the first mailing
thereof or (ii) the shareholders' meeting to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that this condition shall not apply with respect to
information supplied by Avant! or any of its affiliates or representatives for
inclusion in the Proxy Statement;
(b) no change in Analogy's executive management will have
occurred from the date of the Merger Agreement, and not less than 80% of certain
specified Analogy employees will have indicated to Avant!'s reasonable
satisfaction, their intention to continue their employment with the Surviving
Corporation or Avant! on substantially their current terms
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following the Merger;
(c) certain designated individuals will have entered into (i)
employment agreements with Avant! to its satisfaction, in replacement of the
employment agreements, if any, currently in effect between each of them and
Analogy as well as (ii) proprietary information and noncompetition agreements
with Avant!;
(d) at least 75% of Analogy's employees who hold options to
acquire Shares as of the date of the Merger Agreement under Analogy's 1986 Stock
Option Plan will have agreed to accept options to acquire shares of Avant!
Common Stock (issued under its 1995 Stock Option/Stock Issuance Plan) in
substitution for such Analogy stock options held by such employees as of the
date of the Merger Agreement;
(e) Analogy shall have obtained the consent of (i) non-employee
option holders to the conversion of such options into the right to receive the
Spread Amount (see Treatment of Stock Options and Warrants; Non-Employee Stock
Options) and (ii) all option holders under the 1995 Stock Option Plan for
Nonemployee Directors to the cancellation of all options under such plan;
(f) Avant! will have received confirmation from its outside
auditors, KPMG LLP, to its reasonable satisfaction, that the Financial
Statements are satisfactory in form for inclusion in Avant!'s SEC filings, both
for reporting the Merger and on a going forward basis;
(g) Analogy shall have canceled its 401(k) Plan effective as of
prior to the Closing. However, Analogy's 401(k) Plan shall remain in effect to
the extent necessary to permit the rollover of all funds held by the Plan's
participants; and
(h) all of Analogy's officers and directors will have submitted
their resignations in writing, effective as of the Effective Time.
TERMINATION
Provided Avant! is not in material default under the terms of the Merger
Agreement, it may terminate any further obligations under that agreement if any
condition of the Closing provided for in the agreement is not satisfied on or
before March 31, 2000, by giving written notice of such termination to Analogy.
If any condition of the Closing provided for in the Merger Agreement is not
satisfied on or before such date, and Analogy is not in material default under
the terms of that agreement, then Analogy may at any time thereafter terminate
any further obligations under the Merger Agreement by giving written notice to
Avant!. The Merger Agreement may also be terminated, or terminated by mutual
agreement of the parties upon the authorization of their respective boards of
directors, notwithstanding approval of the Merger Agreement by the shareholders
of any or all parties. Furthermore, the Merger Agreement may be terminated by
either party if any Governmental Agency shall have issued an injunction or taken
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any other action (which injunction or other action Analogy, Avant! and AC shall
use their reasonable business efforts to lift), which permanently restrains,
enjoins or otherwise prohibits the Merger, and such injunction shall have become
final and non-appealable. Additionally, the Analogy Board may terminate the
Merger Agreement under certain circumstances if, simultaneously with such
termination, Analogy pays to Avant! $1,000,000 by wire transfer of immediately
available funds.
If the Analogy Board withdraws or modifies its approval or recommendation
of the Merger or approves or recommends a Superior Proposal, or the Merger is
voted down by Analogy's shareholders, Avant! may, at any time thereafter, at its
sole option by giving notice to Analogy, terminate any obligation on its or AC's
part to consummate the Merger.
TERMINATION FEE
If the Analogy Board withdraws or modifies its approval or recommendation
of the Merger or approves or recommends a Superior Proposal, or the Merger is
voted down by Analogy's shareholders, or the Merger Agreement is terminated by
Avant! prior to the Effective Time because of Analogy's failure to satisfy
certain conditions specified in the Merger Agreement or the Merger Agreement is
terminated by Analogy prior to the Effective Time because of a failure to
satisfy certain conditions specified in the Merger Agreement, or if the Merger
Agreement is terminated by Avant! due to Analogy's material breach of that
agreement, and in any such case a Third-Party Transaction is announced within 12
months after such withdrawal, modification, approval, recommendation, vote or
termination which is thereafter consummated (or is consummated within such
12-month period, irrespective of any announcement), then Analogy will,
simultaneously with such consummation, pay Avant! $1,000,000 by wire transfer of
immediately available funds.
AGREEMENT NOT TO SOLICIT OTHER OFFERS
Under the Merger Agreement, Analogy has agreed not to directly or
indirectly take any action to (i) encourage, solicit or initiate the submission
of any Acquisition Proposal (as defined below) or any inquiries with respect
thereto, (ii) enter into any agreement for or relating to a Third-Party
Transaction, or (iii) participate in any way in discussions or negotiations
with, or furnish any non-public information to, any Person in connection with
any Acquisition Proposal. Analogy may, however, prior to shareholder approval of
the Merger, in response to an unsolicited BONA FIDE written offer or proposal
made by a third party which is reasonably likely to lead to a Superior Proposal,
provide non-public information to or have discussions or negotiations with such
third party, if and only to the extent that the Analogy Board has determined in
good faith, after receiving the advice of its outside counsel, that such action
is necessary in order for the Analogy Board to comply with its fiduciary duties
to Analogy's shareholders under applicable law. Analogy will immediately
communicate to Avant! the receipt of any third party solicitation, proposal or
BONA FIDE inquiry that Analogy, its subsidiaries or representative may receive
in respect of any such transaction, or of any request for such
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information, including in each case a copy thereof and all other particulars
thereof, and keep Avant! fully apprized of all developments therein on a
current basis, and consider in good faith any counterproposals which Avant!,
in its sole discretion, elects to make.
"Acquisition Proposal" means any proposed Acquisition Transaction.
"Acquisition Transaction" means any (i) merger, consolidation or similar
transaction involving Analogy, (ii) sale, lease or other disposition directly or
indirectly by merger, consolidation, share exchange or otherwise of any assets
of Analogy or its subsidiaries representing 15% or more of its consolidated
assets and its subsidiaries, (iii) issue, sale or other disposition of
(including by way of merger, consolidation, share exchange or any similar
transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 15% or more of the
votes attached to the outstanding securities of Analogy, (iv) transaction in
which any person shall acquire Beneficial Ownership or the right to acquire
Beneficial Ownership, or any Group shall have been formed which has Beneficial
Ownership or has the right to acquire Beneficial Ownership, of 15% or more of
the outstanding shares of Common Stock of Analogy, (v) recapitalization,
restructuring, liquidation, dissolution or other similar type of transaction
with respect to Analogy or any of its subsidiaries, or (vi) transaction which is
similar in form, substance or purpose to any of the foregoing transactions.
"Third-Party Transaction" shall mean an Acquisition Transaction with a party
unrelated to Avant!. "Beneficial Ownership" and "Group" shall have the meanings
stated in Regulation 13D-G under the Securities Exchange Act of 1934, as
amended.
CONDUCT OF ANALOGY'S BUSINESS PRIOR TO THE MERGER
Analogy has agreed that after the date of the Merger Agreement until the
Closing (unless Avant! shall otherwise approve in writing) it will operate its
business consistently with past practice and in the ordinary course of business,
and will not:
(a) merge or consolidate with or agree to merge or consolidate
with, or sell or agree to sell all or substantially all of its Property to, or
purchase or agree to purchase all or substantially all of the Property of, or
otherwise acquire, any other Person or a division thereof, except as provided in
this Agreement;
(b) amend its articles of incorporation or by-laws;
(c) make any changes in its accounting methods, principles or
practices, except as required by GAAP;
(d) sell, consume or otherwise dispose of any Property, except
in the ordinary course of business consistent with past practices;
(e) authorize for issuance, issue, sell or deliver any
additional shares of its capital stock of any class or any securities or
obligations convertible into shares of its capital stock or issue or grant any
option, warrant or other right to purchase any shares of its capital
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stock of any class, other than, in each case, the issuance of Common Stock
pursuant to the exercise of the options outstanding as of the date of the
Merger Agreement;
(f) except as provided in the Plan of Merger, accelerate, amend
or change the period of exercisability of vesting of options or other Stock
Rights granted under its stock option plans or authorize cash payments in
exchange for any options or other Stock Rights granted under any of such plans;
(g) declare any dividend on, make any distribution with respect
to, or redeem or repurchase, its capital stock except under certain existing
repurchase agreements or obligations;
(h) modify, amend or terminate any Benefit Plans, except in
certain limited circumstances;
(i) enter into any material Contract, or violate, amend or
otherwise modify or waive any of the terms of any of its material Contracts
other than amendments or modifications in the ordinary course of business
consistent with past practice;
(j) transfer or license to any Person or otherwise extend,
amend or modify any rights to the Company Intellectual Property other than the
grant of non-exclusive licenses in the ordinary course of business consistent
with past practice;
(k) enter into or amend any Contracts pursuant to which any
other Person is granted exclusive marketing, manufacturing or other exclusive
rights of any type or scope with respect to any of its products or technology;
(l) incur or commit to incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(m) enter into any operating lease requiring annual payments in
excess of $25,000;
(n) pay, discharge or satisfy in an amount in excess of $25,000
in any one case or $50,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in the Financial
Statements;
(o) incur or commit to incur any capital expenditures in excess
of $50,000 in the aggregate;
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(p) materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(q) terminate or waive any right of substantial value, other
than in the ordinary course of business;
(r) take any of the following actions: (i) increase or agree
to increase the compensation payable or to become payable to its officers or
employees, except for increases in salary or wages of non-officer employees in
the ordinary course of business and in accordance with past practices,
(ii) grant any additional severance or termination pay to, or enter into any
employment or severance agreements with, any officer or employee, (iii) enter
into any collective bargaining agreement, or (iv) establish, adopt, enter into
or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees,
except as otherwise provided in the Plan of Merger;
(s) commence a lawsuit or arbitration proceeding other than
(i) for the routine collection of bills, or (ii) in such cases where it in good
faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of the Business, provided that it consults with
Avant! prior to the filing of such suit;
(t) make any material Tax election other than in the ordinary
course of business and consistent with past practice, change any material Tax
election, adopt any Tax accounting method, file any Tax return (other than any
estimated Tax returns, immaterial information returns, payroll Tax returns or
sales Tax returns) or any amendment to a Tax return, enter into any closing
agreement, settle any Tax claim or assessment or consent to any Tax claim or
assessment provided that Avant! shall not unreasonably withhold or delay
approval of any of the foregoing actions;
(u) revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business; or
(v) authorize or enter into an agreement to do any of the
foregoing.
CERTAIN OTHER COVENANTS AND AGREEMENTS
REASONABLE BUSINESS EFFORTS. Analogy and Avant! each agree to use its
reasonable business efforts to cause the conditions over which it has control to
be satisfied on or before the Closing and not to take any action which will
foreseeably result in the nonsatisfaction of any condition set forth in the
Merger Agreement on or before the Closing.
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ACCESS TO INFORMATION. The Merger Agreement provides that from the date
of the Merger Agreement to the Closing of the Merger, Analogy will (i) give
Avant! and its authorized representatives access to its books, records,
properties, officers, attorneys and accountants and permit Avant! to make
inspections and copies of such books and records, and (ii) furnish Avant! with
such financial information and operating data and other information with respect
to its business and properties, and to discuss with Avant! and its authorized
representatives, its affairs, all as Avant! may from time to time reasonably
request. No information furnished to Avant! pursuant to this provision or
otherwise known to Avant! shall affect any representation, warranty or condition
in the Merger Agreement.
NOTIFICATION OF CERTAIN MATTERS. The Merger Agreement provides that
Analogy give prompt notice to Avant!, and Avant! give prompt notice to Analogy,
of (i) receipt of any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with the
transactions contemplated by the Merger Agreement; (ii) receipt of any notice or
other communication from any Governmental Entity in connection with the
transactions contemplated by the Merger Agreement; (iii) receipt of notice that
any action, suit, claim, investigation or proceeding has been commenced or, to
Analogy's knowledge, threatened, against or involving Analogy, any Subsidiary or
Avant!, as applicable, which, if pending on the date of the Merger Agreement,
would have been required to have been disclosed pursuant to or which relates to
the transactions contemplated by the Merger Agreement; (iv) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of it (and, in the case of Avant!
or AC) contained in the Merger Agreement to be untrue or inaccurate; and (v) any
failure of Analogy, Avant! or AC, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under the terms of the Merger Agreement.
TAKEOVER STATUTES. If any Takeover Statute is, becomes or may become
applicable to the Merger or any of the transactions contemplated by it, Avant!,
AC and Analogy, and their respective board of directors, shall grant such
approvals and take such lawful actions as are necessary to ensure that the
Merger and such transactions may be consummated as promptly as practicable on
the terms contemplated by it, and to the extent permitted by law otherwise act
to eliminate the effects of such statute and any regulations promulgated
thereunder on the Merger and such transactions or, if they cannot be eliminated,
to minimize them.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS AND OFFICERS'
INSURANCE. Analogy and then the Surviving Corporation have agreed to indemnify,
defend and hold harmless Analogy's present and former directors, officers,
employees and agents against all losses, claims, damages, costs, expenses
(including reasonable attorney's fees and expenses), liabilities or judgments or
amounts that are paid in settlement with the approval of the indemnifying party
of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of or pertaining to the fact that such person is or was a director
or officer of the Company or any of the Subsidiaries whether pertaining to any
matter existing at or prior to the Effective Time and whether asserted or
45
<PAGE>
claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger Agreement
or the transactions contemplated thereby, in each case to the fullest extent a
corporation may indemnify its own directors or officers, as the case may be, in
compliance with applicable law, under the OBCA as the same exists or may be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits broader rights than such law permitted prior to such amendment
and only to the extent such amendment is not retroactively applicable).
IRREVOCABLE GRANT OF OPTION
Pursuant to the terms of the Merger Agreement, Analogy irrevocably
granted Avant! the right (the "Option"), at Avant!'s election, to purchase from
Analogy up to 968,640 Shares (subject to adjustment) in the aggregate at the
exercise price of $2.48 per share, subject to adjustment (the "Exercise Price"),
as specified by Avant! in its notice or notices of exercise from time to time,
but only after the occurrence of a Triggering Event. A "Triggering Event" means
the first to occur of the following events:
(i) Analogy terminates the Merger Agreement pursuant to certain
sections of that agreement, or
(ii) The Analogy Board withdraws or modifies its approval or
recommendation of the Merger or approves or recommends a Superior Proposal, or
the Merger is voted down by Analogy's shareholders, or the Merger Agreement is
terminated by Avant! prior to the Effective Time because of Analogy's failure to
satisfy certain conditions specified in the Merger Agreement, or the Merger
Agreement is terminated by Analogy prior to the Effective Time because of
Avant!'s failure to satisfy certain conditions specified in the Merger
Agreement, or if the Merger Agreement is terminated by Avant! due to Analogy's
material breach, and in any such case a Third-Party Transaction is announced
within 12 months after such withdrawal, modification, approval, recommendation,
vote or termination which is thereafter consummated (or is consummated within
such 12-month period, irrespective of any announcement). Such consummation
shall constitute the Triggering Event.
(iii) any Person other than an Affiliate of Avant! commences a
tender offer (within the meaning of SEC Rule 14d-2) for 15% of more of Analogy's
outstanding Shares.
Analogy will give Avant! notice of any proposed Triggering Event to which
it is a party at least 20 days prior to the proposed consummation of such event,
and will give Avant! notice of any other such Triggering Event immediately upon
receiving knowledge of such event. The Option may be exercised, at any time and
from time to time, commencing immediately prior to the Triggering Event and
continuing thereafter until 5:00 p.m., California time, on the earlier of
(i) the Effective Time or (ii) the 5th anniversary of the date of the Merger
Agreement, if a
46
<PAGE>
business day, or on the next succeeding business day if it is
not. To exercise the Option, Avant! shall deliver written notice to Analogy
specifying the number of Shares as to which the Option is being exercised,
accompanied by Avant!'s check or wire transfer in payment of the aggregate
Exercise Price. Alternatively, Avant! may pay the Exercise Price by surrender
of this Option with respect to a number of shares whose aggregate Spread Value
equals the aggregate Exercise Price. "Spread Value" means (x) the excess, if
any, of the market value of a Share over the Exercise Price times (y) the number
of Shares so to be surrendered. For this purpose, "market value" shall mean the
average closing price of Shares for the 3 most recent trading days ending with
the 2d trading day prior to any such cashless exercise, if Shares are then
traded on a national securities exchange or the Nasdaq National Market, and will
mean the per-Share value of the transaction associated with the Triggering Event
in all other cases.
Upon any exercise of the Option, Avant! shall immediately be the record
owner of all Shares subject to such exercise for all purposes, without any other
action being necessary. Within 3 trading days after each exercise of the
Option, Analogy shall deliver certificates for the Shares so purchased to
Avant!, but the delivery of such certificates shall not be required in order for
Avant! to exercise any rights as a holder of the Shares to be represented
thereby. Until its exercise, the Option does not confer on Avant! any rights of
an Analogy shareholder.
During the term of the Option, Analogy shall reserve sufficient
authorized but unissued shares of Common Stock or other securities for the full
exercise of the rights represented by the Option. To the extent required for
the lawful exercise of the Option, Analogy will promptly make, at Avant!'s
expense, all filings with Governmental Agencies, including without limitation a
premerger notification under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, requested by Avant! in connection with an intended exercise of
the option.
The Exercise Price and the number of Shares that Analogy must issue upon
exercise of the Option are subject to adjustment from time to time as follows:
(a) If Analogy at any time or from time to time after the date
of the Merger Agreement: (1) declares or pays, without consideration, any
dividend on Shares payable in Shares; (2) creates any right to acquire Shares
for no consideration; or (3) subdivides the outstanding Shares (by stock split,
reclassification or otherwise), Analogy shall increase the number of Shares that
Avant! may purchase upon exercising the Option and decrease the Exercise Price
in proportion to the increase in the number of outstanding Shares that results
from any such action.
(b) If Analogy combines or consolidates the outstanding Shares,
by reclassification or otherwise, into a lesser number of Shares, Analogy shall
decrease the number of Shares that Avant! may purchase upon exercising the
Option and increase the Exercise Price in proportion to the decrease in the
number of outstanding Shares that results from any such combination or
consolidation.
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<PAGE>
(c) If Shares change into shares of any other class or classes
of security or into any other Property for any reason other than a subdivision
or combination of Shares, including without limitation any reorganization,
reclassification, merger or consolidation and any sale of substantially all of
Analogy's properties and assets, Analogy shall make lawful provision for giving
Avant! the right, by exercising the Option, to purchase the kind and amount of
securities or other Property receivable upon any such change by the owner of the
number of Shares subject to this Option immediately before the change.
(d) If Analogy spins off any Subsidiary by distributing to its
shareholders as a dividend or otherwise any stock or other securities of the
Subsidiary, Analogy shall reserve until the end of the term of the Option enough
such shares or other securities for delivery to Avant! upon any exercise of the
rights represented by the Option to the same extent as if Avant! owned of record
all Common Stock or other securities subject to the Option on the record date
for the distribution of the Subsidiary's shares or other securities.
Upon each adjustment or readjustment, Analogy shall promptly compute such
adjustment or readjustment and furnish to Avant! a certificate setting forth
such adjustment or readjustment and showing in detail the facts giving rise to
the adjustment or readjustment. Upon Avant!'s written request, Analogy also
shall furnish to Avant! a similar certificate setting forth (1) such adjustments
and readjustments, (2) the Option Price in effect on the date of the
certificate, and (3) the number of Shares and the amount of any other property
that Avant! would receive upon exercising the Option.
Avant! may not transfer, sell or make any other disposition of the Option
(other than in connection with a succession to or transfer of its business as a
whole), or grant any Lien respecting any of its rights under the Option, without
Analogy's prior consent.
If Analogy proposes to consummate a transaction (however structured,
including without limitation a sale of stock or a merger) to which it is a party
and which involves an acquisition of shares or equity interest in Analogy by a
third Person, and immediately following such transaction such Person together
with its parents and subsidiaries (collectively, the "Acquiring Person") owns a
majority of both the voting power and economic interest represented by the
outstanding stock of Analogy on a fully-diluted basis, then Analogy (x) shall
give Avant! at least 20 days written notice of the proposed consummation,
including a summary of the transaction and a copy of all transaction documents
(which summary and documents shall be kept current by further notices to Avant!)
and (y) if it has complied with clause (x), may at its option, exercised by
notice to Avant! not later than 5 days prior to such consummation, redeem the
Option (in whole and not in part) simultaneously with such consummation for an
amount per share, paid by wire transfer of same-day funds to the account
designated by Avant!, equal to the excess, if any, of the Redemption Price over
the Exercise Price then in effect. The "Redemption Price" is:
(i) if the equity interest the Acquiring Person is acquiring in
such consummation, together with any equity interest acquired by such Acquiring
Person within 180 days prior to such consummation constitutes a majority of both
the voting power and
48
<PAGE>
economic interest represented by the outstanding stock of Analogy on a
fully-diluted basis, the highest price per share paid (or to be paid upon
such consummation) by the Acquiring Person in the course of acquiring such
majority ownership, and
(ii) otherwise, the fair market value of a Share (or the other
Property then subject to the Option) as agreed to by Analogy and Avant! or, in
the absence of such agreement, as determined by an investment bank of national
reputation selected by Analogy from a list of three such banks proposed by
Avant! (on its own initiative or within 15 days after written request by
Analogy), which bank shall not have engaged in a transaction with, or advised
with respect to a transaction, either Analogy or Avant! within the prior three
years. If this clause (ii) is applicable, Analogy will not consummate such
transaction unless and until the fair market value has been agreed or determined
pursuant to this clause (ii).
Any Shares purchased by Avant! upon exercise of the Option shall be
entitled to certain registration rights set forth in the Merger Agreement.
WAIVER AND MODIFICATION
The Merger Agreement may be modified by mutual written agreement of the
parties as authorized by their respective boards of directors, notwithstanding
approval of the Merger by the parties' shareholders.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of Analogy have certain agreements and
incentives which will be affected as a result of the Merger. These agreements
and incentives are discussed below.
CONTROL CHANGE AGREEMENT
The Company and Gary P. Arnold, the Company's President and Chief
Executive Officer, have entered into a Control Change Agreement. Under this
agreement, if, as currently anticipated, Mr. Arnold terminates his employment as
a result of the removal of his title and material change in his duties during
the Control Change Window (defined as the period beginning 60 days before the
date of a letter of intent, term sheet or other similar document is first
presented to the Company and ending one year after the closing of the Merger),
all of Mr. Arnold's stock options will become exercisable prior to the
termination date and the Company must pay Mr. Arnold 2.99 times his average
annual salary during the period of his employment with the Company or during the
immediately preceding five years, whichever is shorter.
BRIGDEN EMPLOYMENT AGREEMENT
Analogy and Christopher Anthony Brigden entered into an employment
agreement on
49
<PAGE>
June 5, 1998. Pursuant to that agreement Mr. Brigden was granted, among other
benefits, an option to purchase 100,000 shares of Analogy Common Stock. The
agreement further provides that, upon an acquisition, merger or sale of
Analogy before June 5, 2000, if Mr. Brigden does not receive an employment
offer from the acquiring company that is acceptable to him, Mr. Brigden is
entitled to full vesting of his stock options, severance pay in the amount of
one year's salary and bonus and moving expenses for relocation back to the
UK. This provision of the agreement may be triggered upon the approval of the
Merger by the shareholders.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND EMPLOYEES
Analogy and then the Surviving Corporation have agreed to indemnify,
defend and hold harmless Analogy's present and former directors, officers,
employees and agents against all losses, claims, damages, costs, expenses
(including reasonable attorney's fees and expenses), liabilities or judgments or
amounts that are paid in settlement with the approval of the indemnifying party
of or in connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of or pertaining to the fact that such person is or was a director
or officer of the Company or any of the Subsidiaries whether pertaining to any
matter existing at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to the Merger Agreement
or the transactions contemplated thereby, in each case to the fullest extent a
corporation may indemnify its own directors or officers, as the case may be, in
compliance with applicable law, under the OBCA as the same exists or may be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits broader rights than such law permitted prior to such amendment
and only to the extent such amendment is not retroactively applicable).
RELATED AGREEMENTS AND TRANSACTIONS
VOTING AND PROXY AGREEMENT
Each of the executive officers and directors of Analogy (the "Voting
Shareholders") have entered into a Voting and Proxy Agreement with Avant! (the
"Voting Agreement") in conjunction with the Merger. Pursuant to the Voting
Agreement, the Voting Shareholders who hold an aggregate of 995,450 outstanding
shares of Analogy Common Stock, have agreed to vote in favor of the Merger and
against any Third Party Transaction. ("Third Party Transactions" is defined
earlier in this Proxy Statement in the section entitled "The Merger Agreement -
Agreement Not to Solicit Other Offers.") The Voting Shareholders also agreed not
to transfer any record, beneficial or security interest in their shares of
Analogy Common Stock which are subject to the Voting Agreement prior to the
consummation of the Merger.
BRIDGE LOAN AGREEMENT
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<PAGE>
On October 19, 1999, the Company entered into a Bridge Loan and Security
Agreement and a related Promissory Note (collectively, the "Loan Agreements")
with Avant!. Analogy has borrowed $2 million under the Loan Agreements, the full
amount of credit provided for under such Loan Agreements. Amounts borrowed
under the Loan Agreements bear interest at 10% per annum (13% per annum on any
past due payments) and are collateralized by substantially all of the assets of
the Company. All outstanding principal and interest are due upon the earlier of
180 days from the date of the Loan Agreements (October 19, 1999) or upon an
event of default under the Loan Agreements, which includes, among other events,
any breach by Analogy of the Merger Agreement, Analogy's accepting an Superior
Proposal, the non-consummation of the Merger due to the failure of Analogy to
receive the required vote of shareholders to approve the Merger, the withdrawal
or modification of the Board of Directors' recommendation of the Merger and the
recommendation by the Board of Directors of an alternative acquisition proposal.
On January 14, 2000, the Company entered into a Second Bridge Loan and Security
Agreement and related Promissory Note providing for an additional loan by Avant!
In the amount of up to $600,000 on the same terms as the initial Loan
Agreements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below sets forth, as of January 31, 2000, certain information
regarding beneficial ownership of Common Stock with respect to (i) each person
or entity known to Analogy who beneficially owns 5% or more of the outstanding
shares of Common Stock , (ii) each director, (iii) Analogy's Chief Executive
Officer and the four other most highly compensated executive officers in fiscal
year 1999 and (iv) all executive officers and directors of Analogy as a group:
51
<PAGE>
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT STOCK
NAME AND BUSINESS ADDRESS OWNED (1) OWNED (2)
<S> <C> <C>
State of Wisconsin Investment Board (2)
121 East Wilson Street
Madison, WI 53707 756,000 7.80%
Gary P. Arnold
9205 SW Gemini Drive 755,917 7.47
Beaverton, OR 97008
Martin Vlach 283,932 2.92
David W. Smith 245,000 2.51
Christopher Brigden 73,500 *
Howard Ko 53,300 *
Robert L. Cattoi 20,000 *
John Faehndrich 157,400 1.62
Neil E. Goldschmidt 20,000 *
Frank Roehr 45,000 *
Charles E. Sporck 47,000 *
All Directors and Executive Officers as 1,710,152 16.40%
a Group
(11 persons)
</TABLE>
(*) Represents beneficial ownership of less than 1% of the outstanding
Common Stock
(1) Beneficial ownership is determined in accordance with rules of the
Commission, and includes voting power and investment power with respect to
shares. Shares issuable upon the exercise of outstanding stock options that are
currently exercisable or become exercisable within 60 days from January 31,
2000, are considered outstanding for the purpose of calculating the percentage
of Common Stock owned by any other person. The number of shares that are
issuable upon the exercise of options that are currently exercisable or
exercisable within 60 days of January 31, 2000, is as follows: Mr. Arnold -
422,917; Mr. Vlach - 35,000; Mr. Brigden - 73,500; Mr. Ko - 50,500; Mr. Smith -
35,000; Mr. Cattoi - 20,000; Mr. Faehndrich - 20,000; Mr. Goldschmidt - 20,000;
Mr. Roehr - 22,500; Mr. Sporck - 20,000; all Executive Officers and Directors as
a group - 728,042.
(2) This information as to beneficial ownership is based on a Schedule
13G/A dated February 2, 1999, filed by the State of Wisconsin Investment Board.
The State of Wisconsin Investment Board has sole voting and dispositive power
for all 756,000 shares.
52
<PAGE>
EXPENSES OF THE TRANSACTION
Whether or not the transactions contemplated by the Merger Agreement are
consummated, Analogy and Avant! shall each pay their own fees and expenses
incident to the negotiation, preparation, execution, delivery and performance
hereof, including, without limitation, the fees and expenses of their respective
counsel, accountants and other experts.
INDEPENDENT ACCOUNTANTS
KPMG LLP, independent certified public accountants, are the independent
accountants for Analogy. A representative of KPMG LLP will be present at the
Special Meeting, will have the opportunity to make a statement if they desire to
do so and will be available to answer questions. The financial statements of
Analogy, Inc., incorporated by reference on Form 10-K for the year ended March
31, 1999 in this proxy statement have been audited by KPMG LLP, independent
certified public accountants, to the extent and for the periods indicated in
their report thereon. Such financial statements have been included in reliance
upon the report of KPMG LLP dated May 7, 1999.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
In the event the Merger is not consummated for any reason, shareholder
proposals intended for inclusion in the proxy statement and form of proxy
relating to the Company's 2000 annual meeting of shareholders must be received
by the Company not later than February 18, 2000, pursuant to the proxy
soliciting regulations of the Commission. In addition, the Company's Bylaws
require that notice of shareholder proposals and nominations for director be
delivered to the Secretary of the Company not less than 60 days, nor more than
90 days, prior to the date of an annual meeting, unless notice or public
disclosure of the date of the meeting occurs less than 60 days prior to the date
of such meeting, in which event, shareholders may deliver such notice not later
than the 10th day following the day on which notice of the date of the meeting
was mailed or public disclosure thereof was made. Nothing in this paragraph
shall be deemed to require the Company to include in its proxy statement and
form of proxy for such meeting any shareholder proposal which does not meet the
requirements of the Commission in effect at the time.
AVAILABLE INFORMATION
Analogy files annual, quarterly and special reports, Proxy Statements and
other information with the Commission. You may read and copy any reports,
statements or other information we file at the Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
Proxy Statement, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information in this Proxy
Statement. This Proxy Statement incorporates by reference the documents set
forth below that we have previously filed with the SEC under file number 0-2192.
These documents contain important information about us and our finances.
(1) Analogy's Annual Report on Form 10-K for the fiscal year ended March
31, 1999;
(2) Analogy Quarterly Report on Form 10-Q for the quarter ended December
31, 1999;
(3) Analogy Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999;
(4) Analogy Quarterly Report on Form 10-Q for the quarter ended June 30,
1999; and
(5) Analogy's Current Report on Form 8-K filed December 6, 1999,
November 16, 1999, July 23, 1999 and May 14, 1999.
We are also incorporating by reference all additional documents that we
file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 between the date of this Proxy Statement and the
date of the Special Meeting. Any statement made in this Proxy Statement or
incorporated by reference into this Proxy Statement will be modified or
superseded to the extent any document subsequently filed by us with the SEC does
so. Copies of any documents (without exhibits) incorporated by reference in this
Proxy Statement are available without charge upon request from Nic Herriges,
Corporate Secretary, Analogy, Inc., 9205 SW Gemini Drive, Beaverton, Oregon
97008, (503)626-9700.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this Proxy Statement. If you would like to request documents from us,
please do so by February 29, 2000 to make sure you receive them before the
Special Meeting.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following are or may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995:
(a) certain statements concerning possible or assumed future results of
operations of
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Analogy contained in "The Merger--Background of the Merger," "The
Merger--Reasons for the Merger" and "The Merger--Opinion of Analogy's
Financial Advisor," including any forecasts or projections referred to
in this Proxy Statement, and certain statements incorporated by
reference from documents filed with the Securities and Exchange
Commission by Analogy, including any statements contained in this
Proxy Statement, or in the documents incorporated by reference,
regarding the development of possible or assumed future results of
operations of Analogy's businesses, the markets for Analogy's services
and products, anticipated capital expenditures, regulatory
developments, competition or the effects of the Merger;
(b) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions
contained in the sections of this Proxy Statement cited above or
incorporated herein; and
(c) other statements contained or incorporated by reference in this
Proxy Statement regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Analogy's shareholders are cautioned not to place
undue reliance on such statements, which speak only as of the date of this
Proxy Statement or, in the case of Analogy's documents incorporated by
reference, the date of such documents.
All subsequent written and oral forward-looking statements attributable
to Analogy or persons acting on its or their behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section. Analogy does not undertake any obligation to release publicly any
revisions to such forward-looking statements to reflect events or circumstances
after the date of this Proxy Statement or to reflect the occurrence of
unanticipated events.
NO PERSON HAS BEEN AUTHORIZED BY ANALOGY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY ANALOGY. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, IMPLY OR
CREATE ANY IMPLICATION THAT THERE HAVE NOT BEEN ANY CHANGES IN THE AFFAIRS OF
ANALOGY OR IN THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN
SUBSEQUENT TO THE DATE HEREOF.
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<PAGE>
APPENDIX A
AGREEMENT OF MERGER
DATED DECEMBER 2, 1999
AMONG
AVANT! CORPORATION,
AC ACQUISITION CORP.
AND
ANALOGY, INC.
A-1
<PAGE>
AGREEMENT OF MERGER
This Agreement of Merger dated December 2, 1999 is entered into by AVANT!
CORPORATION, a Delaware corporation (the "BUYER"), AC ACQUISITION CORP., an
Oregon corporation and wholly owned subsidiary of the Buyer ("BUYER
SUBSIDIARY"), and ANALOGY, INC., an Oregon corporation (the "COMPANY"). The
Company is a developer and marketer of analog and mixed-technology design
systems and model libraries, including without limitation the Saber and Verias
simulator programs (the "BUSINESS").
Capitalized terms used herein have the meanings stated in Section 8.
The Buyer and the Company desire that the Buyer acquire the Company
through a merger of Buyer Subsidiary with and into the Company (the "MERGER"),
and the Company desires to consummate the Merger, under the terms of this
Agreement.
Therefore, in consideration of the mutual agreements contained herein,
the parties hereby agree as follows:
SECTION 1 THE MERGER
1.1 CLOSING. The closing (the "CLOSING") under this Agreement shall
take place at the offices of Ater Wynne LLP within 3 business days after the
satisfaction (or waiver by the party entitled to waive) of all conditions stated
in Sections 4 and 5, or at such other place or on such other date as the parties
may agree in writing.
1.2 EFFECTIVE DATE OF MERGER. The Merger shall take effect upon filing
of articles of merger with respect to the Plan of Merger in the form attached
hereto as EXHIBIT A and incorporated herein by this reference (the "PLAN OF
MERGER") with the Oregon Secretary of State in accordance with Oregon law (the
"EFFECTIVE TIME").
1.3 EFFECTS OF MERGER. The effects of the Merger are set forth in the
Plan of Merger.
SECTION 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise set forth in the Disclosure Schedule attached
hereto and incorporated herein (which Disclosure Schedule shall identify the
section or sections of this Agreement to which such exceptions relate), the
Company hereby represents and warrants to the Buyer as follows:
2.1 CAPITAL STOCK.
(a) The authorized and outstanding capital stock of the Company, as of
December 1, 1999, is as follows:
A-2
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION OF CLASS SHARES SHARES OUTSTANDING
AUTHORIZED
<S> <C> <C>
Common Stock, no par value 35,000,000 9,631,911
Preferred Stock, no par value 5,000,000 0
</TABLE>
There is no capital stock of the Company authorized or outstanding except as
stated in this Section 2.1(a). The outstanding Stock Rights of the Company are
as follows:
<TABLE>
<CAPTION>
DESIGNATION OF STOCK RIGHT CLASS OF STOCK SHARES SUBJECT TO STOCK RIGHT
<S> <C> <C>
Options under 1986 Stock Option Plan Common 24,687
Options under the Amended and Restated 1993
Stock Incentive Plan Common 1,578,724
Options under 1995 Stock Option Plan for
Nonemployee Directors Common 100,000
Warrants issued to Transamerica Business
Credit Corporation Common 10,000
</TABLE>
There are no Stock Rights outstanding with respect to the Company except as set
forth in this Section 2.1(a), and the terms of such Stock Rights are as set
forth in SCHEDULE 2.1. Except as disclosed in SCHEDULE 2.1, the Company is not a
party to any stockholders agreement, registration rights agreement, repurchase
agreement or other Contract with respect to capital stock or Stock Right issued
or to be issued by it.
A-3
<PAGE>
(b) All of the issued and outstanding capital stock of the Company has
been duly and validly authorized and issued and is fully paid and
non-assessable, and has not been issued in violation of any preemptive or
similar rights of any stockholder or any applicable securities law. Except as
disclosed in SCHEDULE 2.1, no Person has any right to require the Company to
redeem, purchase or otherwise reacquire any capital stock issued by the Company
or any Stock Rights with respect to any capital stock issued by the Company.
There are no preemptive or similar rights in respect of any capital stock of the
Company except as set forth in SCHEDULE 2.1.
(c) The Company has never declared or paid any dividend or made any
distribution in respect of any of its capital stock or any Stock Rights with
respect thereto. Since September 30, 1999, except as set forth in SCHEDULE 2.1,
the Company has not directly or indirectly redeemed, purchased or otherwise
acquired any of the capital stock issued by it or any Stock Rights with respect
thereto.
2.2 ORGANIZATION; GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Oregon and
has all requisite corporate power and authority to own, lease and operate its
Properties and to conduct the Business as currently conducted. SCHEDULE 2.2 sets
forth (i) each jurisdiction in which the Company is qualified to do business as
a foreign corporation, (ii) the jurisdiction of incorporation of each Subsidiary
and (iii) each jurisdiction in which a Subsidiary is qualified to do business as
a foreign corporation. The Company and each Subsidiary is in good standing in
each jurisdiction shown in SCHEDULE 2.2, and neither the Company nor any
Subsidiary is required to qualify to do business as a foreign corporation in any
other jurisdiction in which the failure to so qualify would have a Material
Adverse Effect. The Company holds all of the outstanding shares of each
Subsidiary. Neither the Company nor any Subsidiary is a partner in any general
or limited partnership or a member in any limited liability company.
2.3 AUTHORITY; ENFORCEABILITY. The Company has all requisite power and
authority under applicable corporate law to execute and deliver this Agreement
and to perform the transactions contemplated hereby and, subject to approval of
the Plan of Merger by the stockholders of the Company as contemplated hereby
(the "STOCKHOLDER APPROVAL"), to consummate the Merger. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the part
of the Company (subject to the Stockholder Approval), and no other approval on
the part of the Company is necessary under applicable corporate law for the
execution, delivery and performance of this Agreement. This Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to general limitations on the availability of
equitable remedies and the effect of bankruptcy, insolvency, reorganization and
other laws of general application affecting the enforcement of creditors'
rights.
2.4 NO VIOLATION. The execution and delivery of this Agreement and the
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consummation of the transactions contemplated hereby do not and will not violate
or conflict with the articles of incorporation or by-laws of the Company or any
Subsidiary, or, to the knowledge of the Company, violate any Legal Requirement
or Order applicable to the Company or any Subsidiary. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
do not and will not (i) require any Third-Party Action with respect to the
Company or any Subsidiary under, or (ii) conflict with or constitute a default
under, or result in the acceleration or right of acceleration of any
obligations, or any termination or right of termination under, either (x) any
Contract (other than a Designated Contract) where such failure to secure
Third-Party Action, conflict, default, acceleration or termination would have a
Material Adverse Effect or (y) any Designated Contract. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) result in the creation or imposition of any
material Lien, claim, charge, restriction, equity or encumbrance of any kind
upon or give any Person any interest or right in or with respect to any of the
Properties, assets, business or Contracts of the Company or any Subsidiary
otherwise than pursuant to a Designated Contract or (ii) result in the creation
or imposition of any Lien, claim, charge, restriction, equity or encumbrance of
any kind upon or give any Person any interest or right in or with respect to any
of the Properties, assets, business or Contracts of the Company or any
Subsidiary pursuant to a Designated Contract.
2.5 SUBSIDIARIES, OTHER INTERESTS. Except as set forth in SCHEDULE 2.5,
neither the Company nor any Subsidiary beneficially owns, directly or
indirectly, any Equity Interest in or debt obligation (except as a creditor in
the ordinary course of business and except for debt obligations of the Company
or a Subsidiary as specified in SCHEDULE 2.5) of, any Person. The owner shown in
SCHEDULE 2.5 owns the interest shown free and clear of all Third-Party Rights.
2.6 FINANCIAL STATEMENTS.
(a) FINANCIAL STATEMENTS. Except as set forth in SCHEDULE 2.6(A), the
audited consolidated balance sheets and consolidated statements of operations
and retained earnings and of cash flows for the Company at and for each of the
years ended March 31, 1999 (the "LAST FISCAL YEAR-END"), March 31, 1998 and
March 31, 1997 (the "AUDITED STATEMENTS") and the unaudited consolidated balance
sheets and consolidated statements of operations and cash flows for the Company
at and for the period ended September 30, 1999 (the "INTERIM STATEMENTS" and,
together with the Audited Statements, the "FINANCIAL STATEMENTS") fairly present
the consolidated financial condition of the Company at the dates indicated and
the consolidated results of operations and cash flows of the Company for the
periods indicated in accordance with GAAP consistently applied throughout the
periods indicated (except as stated therein and, in the case of the Interim
Statements, the omission of certain footnote disclosures and subject to normal
year-end adjustments).
(b) CERTAIN INDEBTEDNESS. SCHEDULE 2.6(b) sets forth all obligations of
the Company and its Subsidiaries with respect to borrowed money, debt
securities, capitalized leases and the
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deferred payment of the purchase price of property or services over an
original term of 6 months or more, and the Property of the Company, if any,
subject to a Lien to secure any of such obligations.
(c) ABSENCE OF CERTAIN LIABILITIES. Neither the Company nor any
Subsidiary has any liability or obligation of any nature, whether absolute,
accrued, contingent or otherwise, arising out of acts or omissions heretofore
occurring, or circumstances currently or heretofore existing, except: (i) as
expressly set forth in this Agreement (including without limitation disclosures
in the Schedules hereto); (ii) as accrued in the balance sheet included in the
Interim Statements (the "INTERIM BALANCE SHEET"); (iii) for liabilities and
obligations incurred since the date of the Interim Balance Sheet in the ordinary
course of business consistent in nature and amount with past practice; and (iv)
liabilities and obligations of a kind not required to be accrued in a balance
sheet at the date hereof prepared in accordance with GAAP which individually (or
in the aggregate for related events, transactions, defects or circumstances)
will not subject the Company or any Subsidiary to obligations in excess of
$25,000.
(d) ABSENCE OF CERTAIN CHANGES. Since the date of the Interim Balance
Sheet, except as set forth in SCHEDULE 2.6(d):
(i) The Company and each Subsidiary has operated their
consolidated business in the ordinary course.
(ii) There has been no change or changes which, individually
or in the aggregate, has or have had or is or are reasonably likely to
have a Material Adverse Effect.
(iii) There has not been any damage, destruction or
condemnation known to the Company with respect to Property having an
aggregate net book value on the Company's consolidated books in excess
of $25,000, net of any insurance recoveries.
(iv) There has not been any material change in the accounting
methods, practices or principles of the Company.
(v) Neither the Company nor any Subsidiary has sold,
transferred or otherwise disposed of (or agreed or committed to sell,
transfer or otherwise dispose of) any Property other than the sale of
inventory in the ordinary course, or canceled, compromised, released or
assigned any debt or claim in its favor, where the aggregate amount of
such sales, transfers, dispositions, cancellations, compromises,
releases or assignments exceeds $25,000.
(vi) Neither the Company nor any Subsidiary has instituted,
settled or agreed to settle any litigation, action or proceeding before
any Governmental Agency.
(vii) Neither the Company nor any Subsidiary has assumed,
guaranteed, endorsed or otherwise become responsible (or otherwise
agreed to become responsible) for the obligations of any other Person,
except for the endorsement of negotiable instruments in the ordinary
course of business.
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(viii) Neither the Company nor any Subsidiary has granted (or
agreed or committed to grant) any increase in compensation or fringe
benefits other than normal salary increases consistent with prior
periods.
(ix) Neither the Company nor any Subsidiary has entered into
any licensing or other Contract with regard to the acquisition or
disposition of any material Intellectual Property other than
non-exclusive licenses granted in the ordinary course of business
consistent with past practice.
2.7 TAXES. Except as set forth in SCHEDULE 2.7:
(a) The Company and each Subsidiary has properly completed and filed,
within the time and in the manner prescribed by law, all Tax returns and other
documents required to be filed in respect of all Taxes, and all such returns and
other documents are true, correct and complete in all material respects. The
Company has furnished to the Buyer copies of all income Tax returns of the
Company for the past 3 years. The Company and each Subsidiary has, within the
time and in the manner prescribed by law, paid all Taxes that are due and
payable. The Company has established reserves on its consolidated books that are
at least equal to those required by GAAP.
(b) None (i) of such returns contained a disclosure statement under
Section 6662 of the Code or any similar provision of foreign law;
(ii) The Company has not received written notice from any
federal or foreign taxing authority asserting any deficiency against
the Company or any Subsidiary or claim for additional Taxes in
connection therewith, other than any deficiency or claim which has been
previously settled or for which appropriate reserves are included in
the Interim Statements;
(iii) There is no pending action, audit, proceeding or
investigation with respect to the assessment or collection of federal
or foreign Taxes or a claim for refund made by the Company or any
Subsidiary with respect to federal or foreign Taxes previously paid;
(iv) All amounts that are required to be collected or withheld
by the Company and each Subsidiary with respect to federal or foreign
Taxes have been duly collected or withheld, and all such amounts that
are required to be remitted to any federal or foreign taxing authority
have been duly remitted;
(v) No audit has been conducted of any federal or foreign
income tax return filed by the Company or any Subsidiary. The time
during which such returns remain open for examination has expired in
accordance with applicable statute and regulations, except for those
returns for which the normally applicable statutory/regulatory period
has not yet elapsed;
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(vi) Neither the Company nor any Subsidiary has requested nor
been granted any currently effective waiver or extension of any statute
of limitations with respect to the assessment or filing of any federal
or foreign Tax or return with respect thereto;
(vii) No consent has been filed under Section 341(f) of the
Code with respect to the Company or any Subsidiary;
(viii) The Company is not required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar
provisions of foreign laws or regulations) by reason of a change in
accounting method nor does the Company have any knowledge that the
Internal Revenue Service (or other federal or foreign taxing authority)
has proposed, or is considering, any such change in accounting method;
and
(ix) Neither the Company nor any Subsidiary is a party to or
bound by nor has any continuing obligation under any tax sharing or
similar agreement or arrangement with any Person.
2.8 TITLE TO PROPERTIES.
(a) Neither the Company nor any Subsidiary owns any real Property.
(b) SCHEDULE 2.8(b) is a true and complete summary based on the books
and records of the Company of all items of personal Property owned by the
Company or any Subsidiary with a consolidated net book value at the Last Fiscal
Year-End in excess of $5,000 per item.
(c) Except as set forth in SCHEDULE 2.8(c), the Company and each
Subsidiary has good title to all tangible personal Properties, in each case free
and clear of all Third-Party Rights.
(d) The Company and its Subsidiaries, taken together, own all material
items of non-inventory tangible and intangible personal Property that were owned
as of the Last Fiscal Year-End and used in generating the revenue shown in the
audited consolidated statement of operations of the Company for the fiscal year
ending on the Last Fiscal Year-End, subject to any sales or dispositions of
tangible personal Property since the Last Fiscal Year-End in the ordinary course
of business.
2.9 INVENTORIES. Except as set forth in SCHEDULE 2.9, since the Last
Fiscal Year-End, all sales of inventory by the Company and its Subsidiaries have
been made in the ordinary course of business and no inventory has been pledged
as collateral.
2.10 ACCOUNTS RECEIVABLE. The consolidated accounts receivable of the
Company and its Subsidiaries (i) are bona fide and arose from valid sales in the
ordinary course of business in material conformity with all applicable Legal
Requirements, (ii) are valid and binding obligations of the debtors requiring no
further performance by the Company or any Subsidiary, and (iii) subject to the
allowance for doubtful accounts receivable in the Interim Balance Sheet, are
fully collectible and not subject to any offsets or counterclaims and do not
represent guaranteed sale, sell-or-return transactions or any other similar
understanding. Except as shown
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on SCHEDULE 2.6(b), no accounts receivable have been pledged as collateral to
any Person. The amounts shown for accounts receivable in the Financial
Statements reflect an allowance for doubtful accounts receivable in
accordance with GAAP.
2.11 LEASES. SCHEDULE 2.11 lists all leases, rental agreements,
conditional sales contracts and other similar Contracts under which the Company
or any Subsidiary leases (as lessor or lessee) any real or personal Property
with rental payments exceeding $10,000 per year (collectively, the "DISCLOSABLE
LEASES"). All Disclosable Leases are, in all material respects, valid and
enforceable by the Company in accordance with their terms. Neither the Company
nor any Subsidiary nor, to the knowledge of the Company, any other party to any
Disclosable Lease is in material breach thereof. The Company and each Subsidiary
enjoys peaceable possession of all real estate premises subject to Disclosable
Leases to which it is a party and to all personal Property subject to
Disclosable Leases to which it is a party.
2.12 FACILITIES, EQUIPMENT. The Company owns or leases all material
land, buildings and equipment used in the operation of its business. The Company
has not received any notice of any material violation of any Legal Requirement
or Order relating to the Company's facilities which has not been corrected, and
no facility of the Company is in material violation of any Legal Requirement or
Order.
2.13 INSURANCE. SCHEDULE 2.13 lists and describes briefly all binders
and policies of liability, theft, life, fire and other forms of insurance and
surety bonds, insuring the Company or any Subsidiary or their respective
Properties, assets and business as of the date hereof. Except as noted in
SCHEDULE 2.13, all listed policies and binders insure on an occurrence, rather
than claims-made, basis. All policies and binders listed in SCHEDULE 2.13 are
valid and in good standing and in full force and effect and the premiums have
been paid when due. Except for any claims set forth in SCHEDULE 2.13, there are
no outstanding unpaid claims under such policy or binder, and, except as set
forth in SCHEDULE 2.13, neither the Company nor any Subsidiary has received any
notice of cancellation, general disclaimer of liability or non-renewal of any
such policy or binder.
2.14 EMPLOYMENT AND BENEFIT MATTERS.
(a) SCHEDULE 2.14(a) lists each of the following for each employee of
the Company and each Subsidiary: name, hire date and current salary. None of the
employees listed on SCHEDULE 2.14(a) has given the Company or such Subsidiary
notice of his or her intention to resign his or her position with the Company or
such Subsidiary and neither the Company nor such Subsidiary has any present
intention to terminate such employees.
(b) SCHEDULE 2.14(b) lists all of the following items which are
applicable to the Company or any Subsidiary: (i) employment Contracts with any
employee, officer or director; and (ii) Contracts or arrangements with any
Person providing for bonuses, profit sharing payments,
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deferred compensation, stock options or stock purchase rights (other than
options and warrants granted pursuant to those Stock Rights listed in Section
2.1(a)), retainer, consulting, incentive, severance pay or retirement
benefits, life, medical or other insurance, payments triggered by a change in
control or any other employee benefits or any other payments, "fringe
benefits" or perquisites which are not terminable at will without liability
to the Company or any Subsidiary or which are subject to ERISA. The contracts
or arrangements referred to in the foregoing clause (ii) are herein called
"BENEFIT PLANS."
(c) Neither the Company nor any of its ERISA Affiliates has any union
contracts, collective bargaining, union or labor agreements or other Contract
with any group of employees, labor union or employee representative(s), nor has
the Company or any ERISA Affiliate ever participated in or contributed to any
single employer defined benefit plan or multi-employer plan within the meaning
of ERISA Section 3(37), nor is the Company currently engaged in any labor
negotiations, excepting minor grievances, nor is the Company the subject of any
union organization effort. The Company and each Subsidiary is in material
compliance with applicable Legal Requirements respecting employment and
employment practices and terms and conditions of employment, including without
limitation health and safety and wages and hours. No complaint or other
proceeding by or on behalf of any current or former employee or group of
employees is pending against the Company or any Subsidiary before any
Governmental Agency, and no claim by any current or former employee or group of
employees that the Company or any Subsidiary is not in compliance with any Legal
Requirement relating to employees or employment is pending against the Company
or any Subsidiary. There is no labor dispute, strike, slowdown or work stoppage
pending or threatened against the Company or any Subsidiary.
(d) True and correct copies of each Benefit Plan listed in SCHEDULE
2.14(b) that is subject to ERISA (a "COMPANY ERISA PLAN") and related trust
agreements, insurance contracts, and summary descriptions have been delivered or
made available to the Buyer by the Company. The Company has also delivered or
made available to the Buyer a copy of the most recently filed IRS Form 5500,
with attached financial statements and accountant's opinions, if applicable, for
each Company ERISA Plan. The Company has also delivered or made available to the
Buyer a copy of, in the case of each Company ERISA Plan intended to qualify
under Section 401(a) of the Code, the most recent Internal Revenue Service
letter as to its qualification under Section 401(a) of the Code. Nothing has
occurred prior to or since the issuance of such letters to cause the loss of
qualification under the Code of any of such plans.
(e) With respect to each Company ERISA Plan, (i) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, (ii) each Company ERISA Plan has been administered in
accordance with its terms and in material compliance with all Legal Requirements
(including without limitation ERISA and the Code), (iii) the Company (or, as
appropriate, an ERISA Affiliate) has prepared in good faith and timely filed all
requisite governmental reports in true and correct form and has properly and
timely filed and distributed or posted all notices and reports to participants
and beneficiaries required to be filed, distributed or posted, (iv) no suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of the Company is threatened, against any Company ERISA Plan or
against the Company with respect to any Company ERISA Plan,
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including without limitation any audit or inquiry by the Internal Revenue
Service or United States Department of Labor, (v) the Company and each ERISA
Affiliate have performed all material obligations required to be performed by
them under, and are not in any material respect in default under or in
violation of, and have no knowledge of any material default or violation of,
any Company ERISA Plan, (vi) neither the Company nor any ERISA Affiliate is
subject to any liability or penalty under Sections 4976 through 4980 of the
Code or Title I of ERISA, (vii) all contributions required to be made by the
Company or any ERISA Affiliate have been made on or before their due dates,
(viii) no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the 30-day notice requirement has been
waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred, (ix) no
Company ERISA Plan is covered by, and neither the Company nor any ERISA
Affiliate has incurred or expects to incur any material liability under,
Title IV of ERISA or Section 412 of the Code, and (x) neither the Company nor
any ERISA Affiliate is a party to, or has made any contribution to or
otherwise incurred any obligation under, any "multi-employer plan" as defined
in Section 3(37) of ERISA.
(f) The Company has complied with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder,
(ii) the applicable requirements of the Family and Medical Leave Act of 1993 and
the regulations thereunder, and (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 and the temporary
regulations thereunder. The Company has no material obligations under COBRA with
respect to any former employees or qualifying beneficiaries thereunder.
(g) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or other ERISA Affiliate
relating to, or change in participation or coverage under, any Benefit Plan
which would materially increase the expense of maintaining such Plan above the
level of expense incurred with respect to that Plan for the most recent fiscal
year included in the Audited Statements.
(h) SCHEDULE 2.14(h) contains a true and correct list of each employee,
director or consultant who holds any stock option as of the date hereof,
together with (i) the number of shares of Company Common Stock subject thereto,
(ii) the date of grant, (iii) the extent to which such stock option is currently
vested and, to the extent such stock option is not fully vested, the vesting
schedule, (iv) the exercise price, (v) whether such stock option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code (an "ISO"), and (vi) the expiration date of such stock option. SCHEDULE
2.14(h) also sets forth the aggregate number of ISO's and nonqualified stock
options outstanding as of the date hereof.
(i) Neither the Company nor any Subsidiary is a party to any Contract
or plan, including, without limitation, any stock option plan, stock
appreciation right plan or stock
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purchase plan, as to which any benefits will be increased, or the vesting of
benefits will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any benefits will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(j) Except as disclosed in SCHEDULE 2.14(j), the Company and its ERISA
Affiliates do not maintain any plans providing benefits within the meaning of
Section 3(1) of ERISA (other than group health plan continuation coverage under
Section 601 of ERISA and 4980B(f) of the Code) to former employees or retirees.
(k) All Benefit Plans are in compliance with, and satisfy the
requirements of, the Family and Medical Leave Act of 1993.
2.15 CONTRACTS. Except as shown on SCHEDULES 2.11 and 2.15, and except
for Contracts fully performed or terminable at will without liability to the
Company, neither the Company nor any Subsidiary is a party to any Contract which
contemplates performance by the Company or such Subsidiary during a remaining
period of more than 180 days or involves remaining commitments for sale or
purchase in excess of $25,000. True and complete copies of each Contract
disclosable on SCHEDULE 2.15 (a "DISCLOSABLE CONTRACT") have been delivered to
the Buyer. Each Disclosable Contract is, in all material respects, valid and
enforceable by the Company in accordance with its terms. Neither the Company nor
any Subsidiary nor, to the knowledge of the Company, any other party to any
Disclosable Contract is in material breach thereof.
2.16 OFFICERS AND DIRECTORS. SCHEDULE 2.16 is a true and complete list
of:
(a) the names and addresses of each of the Company's and each
Subsidiaries' officers and directors;
(b) the name of each bank or other financial institution in which the
Company or any Subsidiary has an account, deposit or safe deposit box and the
names of all persons authorized to draw thereon or to have access thereto; and
(c) the name of each bank or other financial institution in which the
Company or any Subsidiary has a line of credit or other loan facility.
2.17 CORPORATE DOCUMENTS. The Company has furnished or made available
to the Buyer or its representatives true, correct and complete copies of (i) the
articles or certificate of incorporation and by-laws of the Company and each
Subsidiary, (ii) the minute books of the Company and each Subsidiary containing
all records required to be set forth of all proceedings, consents, actions and
meetings of the stockholders and board of directors of the Company or such
Subsidiary; and (iii) all material Permits and Orders with respect to the
Company and any Subsidiary.
2.18 LEGAL PROCEEDINGS.
(a) There is no action, suit, proceeding or investigation pending in
any court or before
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any arbitrator or before or by any Governmental Agency against the Company or
any Subsidiary or any of their respective Properties or businesses, and to
the knowledge of the Company, there is no such action, suit, proceeding or
investigation threatened.
(b) Neither the Company nor any Subsidiary has ever been notified in
writing that it has been subject to an audit, compliance review, investigation
or like contract review by the U.S. General Services Administration or any other
Governmental Entity or agent thereof in connection with any government contract
(a "GOVERNMENT AUDIT"). To the Company's knowledge, no Government Audit is
threatened and no basis exists for a finding of noncompliance with any material
provision of any government contract or for a material refund of any amounts
paid or owed to the Company or any Subsidiary by any Governmental Entity
pursuant to such government contract.
2.19 COMPLIANCE WITH INSTRUMENTS, ORDERS AND LEGAL REQUIREMENTS.
Neither the Company nor any Subsidiary is in material violation of, or in
default in any material respect with respect to, any term or provision of its
articles or certificate of incorporation or bylaws, or, to the knowledge of the
Company, any Order or any Legal Requirement applicable to the Company or such
Subsidiary.
2.20 PERMITS. The Company and each Subsidiary holds all Permits
material to the conduct their consolidated business as and where now conducted.
To the knowledge of the Company, there is not pending nor threatened any
proceedings to terminate, revoke, limit or impair any material Permit.
2.21 INTELLECTUAL PROPERTY.
(a) "COMPANY INTELLECTUAL PROPERTY" means Intellectual Property used in
the business of the Company and its Subsidiaries as currently conducted or as
presently planned to be conducted, including without limitation, the
development, licensing and use of the programs and model libraries currently
being marketed (the "PROGRAMS"), other than Third-Party Intellectual Property.
Except as set forth on SCHEDULE 2.21(a) and except for Third-Party Intellectual
Property licensed to the Company or a Subsidiary pursuant to an agreement listed
in SCHEDULE 2.21(c)(ii), the Company or a Subsidiary owns, solely and
exclusively, and free and clear of any Third-Party Right, all title to and
rights in all Intellectual Property that is used in the business of the Company
and its Subsidiaries as currently conducted or as presently planned to be
conducted, including without limitation, the development, licensing and use of
the Programs. "INTELLECTUAL PROPERTY" means patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, copyright
registrations, copyrights, and any applications for any of the foregoing, net
lists, schematics, industrial models, inventions, technology, know-how, trade
secrets, computer software programs or applications (in both source code and
object code form), development documentation, programming tools, data, technical
information, and tangible or intangible proprietary information or material.
"THIRD-PARTY INTELLECTUAL PROPERTY" means
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Intellectual Property owned in whole or in part by any Person other than the
Company or a Subsidiary.
(b) SCHEDULE 2.21(b) lists all patents, patent applications,
trademarks, trade names, service marks and copyrights included in the Company
Intellectual Property which have been registered, issued or applied for and the
jurisdictions in which such Company Intellectual Property right has been issued,
registered or applied for.
(c) SCHEDULE 2.21(c)(i) lists those licenses, sublicenses and other
agreements, written or unwritten, to which the Company or any Subsidiary is a
party pursuant to which any Person is authorized to use, resell, sublicense or
market or distribute any product currently marketed or presently planned to be
marketed by the Company or a Subsidiary or any component or predecessor of any
such product and which have accounted for gross revenue in excess of $500,000 in
the aggregate during the three (3) years ended September 30, 1999. SCHEDULE
2.21(c)(ii) lists all written, and all material unwritten, licenses, sublicenses
and other agreements to which the Company or any Subsidiary is a party and
pursuant to which the Company or any Subsidiary is authorized to use, resell or
distribute any Third-Party Intellectual Property, including without limitation
software, opensource, freeware, shareware and hardware, which are incorporated
in or are a part of any products which the Company or any Subsidiary has sold,
resold, licensed or sublicensed, or which is material to the current operations
of the Company and its Subsidiaries, other than (in the case of Third-Party
Intellectual Property used internally only and not embedded in products shipped
to customers) readily-obtainable standard products. The Company and each
Subsidiary has, and at the relevant times in the past had, all necessary rights
to resell or distribute any hardware and software of a third party which it
resells or distributes or has resold or distributed. Neither the Company nor any
Subsidiary is in material violation of any license, sublicense or agreement
described in SCHEDULE 2.21(c)(i) OR (ii). To the knowledge of the Company,
neither the Company nor any Subsidiary, or any of the products or operations of
either, is in material violation of or materially infringes any Third-Party
Intellectual Property. Except as set forth on SCHEDULE 2.21(c)(i) OR (ii),
neither the Company nor any Subsidiary has received any claim that it has lost
or will lose any rights of the Company or any Subsidiary under any licenses to
Third-Party Intellectual Property to which the Company or such Subsidiary is a
party. The execution and delivery of this Agreement by the Company and, except
as set forth in SCHEDULE 2.21(c)(ii), the consummation of the transactions
contemplated hereby will neither cause the Company or any Subsidiary to be in
violation or default under any such license, sublicense or agreement nor entitle
any other party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement. Except as listed on SCHEDULE
2.21(c)(i) and for the Company's commercially available products and
pre-production and beta products licensed in the ordinary course of business,
neither the Company nor any Subsidiary has assigned or licensed to any third
party any right, title or interest in the Company Intellectual Property. Except
as listed on SCHEDULE 2.21(c)(ii), neither the Company nor any Subsidiary is
contractually obligated to pay any compensation to any third party for the use
of the Company Intellectual Property or the Third-Party Intellectual Property.
(d) To the Company's knowledge there is no material unauthorized use,
disclosure, infringement or misappropriation of any Company Intellectual
Property or any Third-Party Intellectual Property licensed by or through the
Company by any third party, including without
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limitation any employee or former employee of the Company or any Subsidiary.
Neither the Company nor any Subsidiary has entered into any agreement to
indemnify any other person against any charge of infringement of any
Third-Party Intellectual Property, other than indemnification provisions
contained in purchase orders or license agreements arising in the ordinary
course of business.
(e) To the Company's knowledge, all patents, registered trademarks,
registered service marks and registered copyrights held by the Company and its
Subsidiaries are valid and subsisting. To the Company's knowledge, there is no
assertion or claim (or basis therefor) challenging the validity of any Company
Intellectual Property. Neither the Company nor any Subsidiary has been sued in
any suit, action or proceeding, or otherwise notified of any claim, which
involves a claim of infringement of any patent, trademark, service mark,
copyright or violation of any trade secret or other proprietary right of any
third party. Neither the conduct of the business of the Company and its
Subsidiaries as currently conducted nor the manufacture, sale, licensing or use
of any of the products of the Company and its Subsidiaries as now manufactured,
sold or licensed or used, infringes on or conflicts with, in any way, any
trademark, trademark right, trade name, trade name right, service mark or
copyright, or, to the Company's knowledge, any patent, patent right, industrial
model or invention, of any third party that individually or in the aggregate has
or is reasonably likely to have a Material Adverse Effect. To the Company's
knowledge and except as set forth on SCHEDULE 2.21(e), no third party is
challenging the ownership by the Company nor any Subsidiary, or the validity or
effectiveness of, any of the Company Intellectual Property. Neither the Company
nor any Subsidiary has brought any action, suit or proceeding for infringement
of Company Intellectual Property or breach of any license or agreement involving
Company Intellectual Property against any third party. There are no pending, or
to the Company's knowledge, threatened interference, re-examinations,
oppositions or nullities involving any patents, patent rights or applications
therefor of the Company or any Subsidiary. Except as set forth on SCHEDULE
2.21(e), to the Company's knowledge, there is no breach or violation by a third
party of, or actual or threatened, loss of rights under, any licenses to which
the Company is a party.
(f) Except as set forth in SCHEDULE 2.21(f), the Company or a
Subsidiary has secured written assignments from all current and former
consultants and employees who contributed to the creation or development of the
Company Intellectual Property currently being provided or marketed, or presently
planned to be provided or marketed, to customers or currently being used by the
Company or a Subsidiary of the rights to such contributions that the Company or
such Subsidiary does not already own by operation of law, recognizing the
Company's or Subsidiary's ownership of all such Company Intellectual Property
and agreeing to hold such of it as is not protected by patents, patent
applications or copyright ("CONFIDENTIAL INFORMATION") in confidence and not to
use any Confidential Information except in connection with such consultant's or
employee's work for the Company or a Subsidiary. No current or former consultant
or employee has claimed any rights to, interest in or rights to compensation for
use of
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any of the Company Intellectual Property currently marketed or currently
proposed to be marketed, by the Company or any Subsidiary.
(g) The Company and each of its Subsidiaries has taken all commercially
reasonable steps to protect and preserve the confidentiality of all Confidential
Information. Except as set forth on SCHEDULE 2.21(g)(i), all use, disclosure or
appropriation of Confidential Information by or to a third party has been
pursuant to the terms of a written confidentiality or nondisclosure agreement
between the Company or any Subsidiary and such third party. SCHEDULE 2.21(g)(ii)
contains copies of the Company's standard forms of confidentiality and
nondisclosure agreement. Except as disclosed in SCHEDULE 2.21(g)(iii) (which
lists those agreements containing material variations from the standard forms of
confidentiality and nondisclosure agreement), as of the date hereof, the Company
has not entered into any confidentiality and nondisclosure agreement which
contains terms materially different than as set forth in the standard forms of
such agreements contained in SCHEDULE 2.21(g)(ii).
(h) SCHEDULE 2.21(h) lists (including names, addresses, contact names,
telephone numbers and termination date and next renewal date) all Contracts or
other arrangements currently in effect pursuant to which the Company or any
Subsidiary is obligated to provide installation, maintenance or other support
services (collectively, the "SUPPORT AGREEMENTS"). Except for any nonstandard
maintenance agreements specified as such in SCHEDULE 2.21(h), all of the Support
Agreements are in all material respects in the form of the license agreement
identified as the standard maintenance agreement set forth in SCHEDULE 2.21(h).
The versions of the products currently supported by the Company are set forth in
SCHEDULE 2.21(h).
(i) There are no material defects in the Company's products, and there
are no material errors in any documentation, specifications, manuals, user
guides, promotional material, internal notes and memos, technical documentation,
drawings, flow charts, diagrams, source language statements, demo disks,
benchmark test results, and other written materials related to, associated with
or used or produced in the development of the Company's or its Subsidiaries'
products, which defects or errors have or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect. To the Company's
knowledge, the current versions of the Programs, including, without limitation,
any time-and-date-related codes, data entry features and internal subroutines
thereof, (a) automatically accommodate the change in the date from December 31,
1999 to January 1, 2000 without negatively affecting the Programs' performance;
and (b) accurately accept, reflect and calculate all dates that are relevant to
the Programs' performance, when used with products that properly exchange date
data with the Programs.
(j) SCHEDULE 2.21(j) lists, as of the date hereof, all written
agreements or other arrangements under which the Company or any Subsidiary has
provided or agreed to provide source code of any Program or any other Company
Intellectual Property to any third Person, whether pursuant to escrow
arrangements or otherwise.
(k) The Company has made available to the Buyer copies of the Company's
standard
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forms of end-user license. Except as disclosed in SCHEDULE 2.21(k), as of the
date hereof, the Company has not entered into any end-user license in the
last three (3) years involving payments to the Company in excess of $25,000
which contains terms materially different than as set forth in the standard
forms of such agreements made available to the Buyer.
(l) No government funding or university or college facilities were used
in the development of any Program and no Program was developed pursuant to any
contract or other agreement with any person or entity except pursuant to
contracts or agreements listed in SCHEDULE 2.21(l).
(m) The Company has no customer warranty obligations currently if
effect other than as set forth in end-user agreements listed in SCHEDULE
2.21(k). The Company categorizes quality assurance incidents reported by its
Subsidiaries or its Subsidiaries' customers into the following categories:
Priority 1 - an inherently essential product feature or application is not
available or functioning; Priority 2 - problem adversely affects completion of
task, no workaround solution exists; Priority 3 - final output of a process is
correct but other errors exist; and Priority 4 - errors which do not affect the
accuracy of the delivered product or that are cosmetic. SCHEDULE 2.21(m) lists
all currently pending Priority 1 and 2 items related to products currently or
previously marketed by the Company or a Subsidiary and the nature thereof that
are pending or were made within the past twelve months. Except as set forth in
SCHEDULE 2.21(m), to the knowledge of the Company, the Company has not made any
material oral or written representations or warranties with respect to its
products or services.
(n) Except as set forth in SCHEDULE 2.21(n), neither any single
customer of the Company which individually accounted for more than five percent
(5%) or over $1 million of the Company's gross revenue during the thirty-six
(36) months ended September 30, 1999 nor any material supplier of the Company
has cancelled or threatened to cancel its relationship with the Company.
2.22 CAPITAL EXPENDITURES. SCHEDULE 2.22 sets forth, by nature and
amount, all budgeted capital expenditures of the Company and its Subsidiaries
for which commitments have been or are budgeted to be made, or for which
payments or current liabilities have been made or incurred or are budgeted to be
made or incurred, after the Last Fiscal Year-End in excess of $5,000.
2.23 ENVIRONMENTAL MATTERS. There are no Hazardous Materials used or
present at any location used by the Company or a Subsidiary or any predecessor
entity of either in the conduct of the Business, except for any Hazardous
Materials constituting normal office supplies. To the knowledge of the Company,
no location currently or previously used by the Company or a Subsidiary or any
predecessor entity of either is contaminated by any Hazardous Material or was
previously used for any purpose other than office space. There are no
environmental materials or conditions, including on-site or off-site disposal or
releases of Hazardous Materials that could
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reasonably be expected to have a Material Adverse Effect. To the knowledge of
the Company, no event has occurred and no activity has been or is being
conducted by the Company, a Subsidiary or any other Person which has resulted
or could reasonably result in contamination of any location currently or
previously used by the Company or a Subsidiary or any predecessor entity of
either by any Hazardous Material. Neither the Company, any Subsidiary nor any
predecessor entity of either has received any written communication from any
Governmental Entity alleging that the Company, Subsidiary or predecessor
entity or any premises currently or previously occupied by any of such
Persons is contaminated by any Hazardous Materials or in violation of any
Environmental Requirement. To the knowledge of the Company, no Government
Agency has commenced any investigation or proceeding with respect to the
contamination of any location currently or previously used by the Company or
a Subsidiary or any predecessor entity of either by any Hazardous Material.
2.24 ILLEGAL PAYMENTS. To the best knowledge the Company, none of the
Company, any Subsidiary or any director, officer, employee, or agent of the
Company or any Subsidiary has, directly or indirectly, paid or delivered any
fee, commission, or other sum of money or item of property however characterized
to any broker, finder, agent, government official, or other person, in the
United States or any other country, in any manner related to the business or
operations of the Company or any Subsidiary, which the Company, any Subsidiary
or any such director, officer, employee, or agent knows or has reason to believe
to have been illegal under any law.
2.25 SEC INFORMATION. Except as set forth in SCHEDULE 2.25, as of their
respective filing dates (except as thereafter amended) all documents that the
Company has filed with the SEC (the "COMPANY SEC DOCUMENTS") have complied in
all material respects with the applicable requirements of the Act or the
Exchange Act, as the case may be, and none of the Company SEC Documents has
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading except to the extent corrected by a subsequently filed Company SEC
Document filed prior to the date hereof.
2.26 BOARD OF DIRECTORS APPROVAL; FAIRNESS OPINION.
(a) The members of the Board of Directors of the Company present at the
meeting called to discuss the Merger have unanimously approved this Agreement
and the Plan of Merger and unanimously recommended this Agreement and the Plan
of Merger to the Company's stockholders. Such approval and recommendation have
not been modified or withdrawn and are in full force and effect on the date
hereof. The Company's financial adviser, Broadview Int'l LLC, has rendered its
opinion to the Board of Directors of the Company that the consideration to be
received in the Merger is fair to the Company's stockholders from a financial
point of view. Prior to the Company's entry into this Agreement, each of the
Company's officers and directors has entered into a voting agreement with the
Buyer to vote all Shares beneficially owned by such officer or director in favor
of the Merger.
(b) The transactions contemplated by this Agreement (i) are not subject
to the "fair price," "moratorium," "control share acquisition" or other similar
statute (a "TAKEOVER STATUTE")
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of any jurisdiction other than the State of Oregon. The Oregon Control Share
Act is not applicable to the Merger by virtue of ORS 60.801(4)(e)(F), which
exempts a merger effected in compliance with ORS 60.481 to 60.501. The Oregon
Business Combination statute does not apply to the Merger because the Merger
has been approved by the Company's Board of Directors. There are no other
Takeover Statutes of the State of Oregon applicable to the Company or any
Subsidiary.
2.27 NO DISSENTERS' RIGHTS. No stockholder of the Company is entitled
to exercise or obtain any form of dissenters' rights under the Oregon Business
Corporation Act ("OBCA").
2.28 OPTION SUBSTITUTION. No Person holding an option issued under the
Company's Amended and Restated 1993 Stock Incentive Plan may, pursuant to the
terms of such plan, object to the substitution of such options with options of
the Buyer as set forth in Section 3.2 of the Plan of Merger.
2.29 EMPLOYEE STOCK PURCHASE PLAN. The Company has taken all necessary
action to provide that (i) the number of Company common shares available for
issuance under the Company's 1996 Employee Stock Purchase Plan, as amended (the
"STOCK PURCHASE PLAN"), has been increased from 300,000 to 600,000, (ii) the
current offering period under the Stock Purchase Plan shall be terminated as of
the earliest date after the required notice has been provided to each
participant in the Stock Purchase Plan (the "PLAN TERMINATION DATE"), (iii) each
participant in the Stock Purchase Plan on the date hereof shall be deemed to
have exercised his or her Purchase Right (as defined in the Stock Purchase Plan)
on the Plan Termination Date and shall acquire from the Company (a) such number
of whole shares of Company Common Stock as his or her accumulated payroll
deductions on the Plan Termination Date will purchase at the Offering Exercise
Price (as defined in the Stock Purchase Plan)(treating the last business day
prior to the Plan Termination Date as the "Purchase Date" for all purposes of
the Stock Purchase Plan) and (b) cash in the amount of any remaining balance in
such participant's account, and (iv) the Stock Purchase Plan shall be terminated
effective as of the Plan Termination Date.
2.30 TRANSFERS OF TECHNOLOGY. The Company has not licensed or otherwise
transfered any versions of the Verias Simulator to any foreign firms or
institutions, other than those transfers made in executable code form, all of
which will be disclosed to DARPA.
2.31 REPRESENTATIONS. No representation or warranty by the Company in
this Agreement (including without limitation the Schedules and Exhibits attached
hereto), or in any document furnished by the Company at the Closing pursuant
hereto contains any untrue statement of a material fact or omits to state a fact
necessary to make the statements contained in such representation or warranty
not misleading.
SECTION 3 REPRESENTATIONS AND WARRANTIES OF BUYER
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The Buyer hereby represents and warrants to the Company that, on and as
of the date hereof:
3.1 ORGANIZATION, STANDING OF BUYER AND BUYER SUBSIDIARY. The Buyer is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Buyer Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of Oregon. The
Buyer and Buyer Subsidiary have full power and authority under applicable
corporate law to own, lease and operate their Properties and to carry on the
business in which they are engaged.
3.2 AUTHORITY; ENFORCEABILITY. The Buyer and Buyer Subsidiary have all
necessary power and authority under applicable corporate law to execute, deliver
and perform their obligations under this Agreement. The execution, delivery and
performance of this Agreement by the Buyer and Buyer Subsidiary has been duly
authorized by all necessary action under applicable corporate law. This
Agreement constitutes a legal, valid and binding obligation of the Buyer and
Buyer Subsidiary, enforceable in accordance with its terms, subject to general
limitations on the availability of equitable remedies and the effect of
bankruptcy, insolvency, reorganization and other laws of general application
affecting the enforcement of creditors' rights. The execution, delivery and
performance of this Agreement by the Buyer and Buyer Subsidiary and the
consummation by the Buyer and Buyer Subsidiary of all of the transactions
contemplated hereby, (x) do not require any Third-Party Action relating to the
Buyer or Subsidiary except those listed on SCHEDULE 3.2, (y) do not violate any
Legal Requirement or Order applicable to the Buyer or Buyer Subsidiary and (z)
do not conflict with or constitute a default (with or without the giving of
notice or the passage of time or both) under, or result in any acceleration or
right of acceleration of any obligations under, any Contract to which the Buyer
or Buyer Subsidiary is a party, where, in each case, the absence of such
Third-Party Action or such violation, conflict, default or acceleration would in
any way adversely affect the transactions contemplated hereby.
3.3 LITIGATION. There are no claims, actions, suits or other
proceedings pending, or to the knowledge of the Buyer, threatened, at law or in
equity, by or before any Governmental Agency or any arbitrator against the Buyer
which could reasonably be expected to have an adverse effect on the ability of
the Buyer to perform its obligations under this Agreement.
3.4 PROXY MATERIALS. All of the information to be furnished by the
Buyer or Buyer Subsidiary for inclusion in the Proxy Statement will not, on the
date it is first mailed to the Company's stockholders, and on the date of the
Company's stockholders' meeting, contain any statement which is false or
misleading with respect to any material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4 CONDITIONS TO OBLIGATIONS OF BUYER AND BUYER SUBSIDIARY AT CLOSING
The obligations of the Buyer and Buyer Subsidiary hereunder to be
performed at the Closing are subject to the satisfaction at or prior to the
Closing of the following conditions, except for any condition the Buyer may
waive in writing in accordance with Section 7.3.
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4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Section 2 shall have been true in all material respects on the date
of this Agreement and shall be true in all material respects at and as of
immediately prior to the Closing with the same effect as though made at and as
of immediately prior to the Closing. The updating of Schedules to disclose
nonmaterial changes in the underlying matters disclosed therein occurring from
the date hereof to the Effective Time shall not constitute a failure of the
condition set forth in this Section 4.1.
4.2 PROXY STATEMENT. The Proxy Statement shall comply as to form in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations promulgated thereunder, and shall not, at the time of (i)
first mailing thereof or (ii) the stockholders' meeting to be held in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that this condition shall not apply with respect to
information supplied by the Buyer or any affiliates or representatives of the
Buyer for inclusion in the Proxy Statement.
4.3 CLOSING CERTIFICATE. The Company shall have delivered to the Buyer
its certificate dated the date of the Closing that the conditions specified in
Sections 4.1, 4.2 and 4.4 are satisfied. Such certificate shall be deemed a
representation and warranty of the Company under Section 2 for all purposes of
this Agreement.
4.4 PERFORMANCE. The Company shall have performed and complied in all
material respects with all covenants required herein to be performed or complied
with by it on or before the Closing.
4.5 STOCKHOLDER APPROVAL. The Stockholder Approval shall have
been given.
4.6 THIRD-PARTY ACTION. All Third-Party Action required under the
Designated Contracts in order to consummate the Closing on the terms hereof
shall have been taken, and all Third-Party Action required (other than under the
Designated Contracts) in order to consummate the Closing on the terms hereof,
other than any such Third-Party Actions which in the aggregate would not have a
Material Adverse Effect, shall have been taken, and the Hart-Scott waiting
period shall have expired.
4.7 OPINION OF COUNSEL. The Buyer shall have received from Ater Wynne
LLP, counsel to the Company, an opinion dated the date of the Closing, in form
and substance substantially as set forth in EXHIBIT B.
4.8 TRANSACTIONAL LITIGATION. No action, suit or proceeding before any
Governmental Agency shall have been commenced and not dismissed, and no
investigation by any Governmental Agency shall have been commenced or overtly
threatened, against the Company,
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the Buyer, Subsidiary, or any of their respective principals, officers,
directors or shareholders seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of
any of such transactions or seeking damages in connection with any of such
transactions.
4.9 INTERIM EVENTS. None of the events listed in Sections 6.8(a)
through (v) shall have occurred without the Buyer's written consent.
4.10 MANAGEMENT CHANGES, TECHNICAL EMPLOYEES. No change in the
executive management of the Company as listed on SCHEDULE 4.10(a) shall have
occurred from the date hereof, and not less than 80% of the Company's employees
listed on SCHEDULE 4.10(b) shall have indicated to the Buyer, in form reasonably
satisfactory to the Buyer, their intention to continue their employment with the
Company or the Buyer on substantially their current terms following the Merger.
4.11 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. The individuals
designated in SCHEDULE 4.11 shall have entered into (i) employment agreements
with the Buyer in form satisfactory to the Buyer, in replacement of the
employment agreements, if any, currently in effect between each of them and the
Company and (ii) proprietary information and noncompetition agreements with the
Buyer substantially in the form attached as EXHIBIT C.
4.12 OPTION HOLDER APPROVAL. At least 75% of the Company employees who
hold options to acquire Shares as of the date hereof under the Company's 1986
Stock Option Plan shall have agreed to accept options to acquire shares of the
Buyer's common stock (issued under the Buyer's 1995 Stock Option / Stock
Issuance Plan) in substitution for such Company stock options held by such
employees as of the date hereof.
4.13 NONEMPLOYEE OPTION CONSENTS. The Company shall have obtained the
consent (i) of those option holders, if any, described in Section 3.1 of the
Plan of Merger to the conversion of such options into the right to receive the
Spread Amount (as defined in the Plan of Merger) and (ii) of all option holders
under the 1995 Stock Option Plan for Nonemployee Directors to the cancellation
of all options under such plan.
4.14 FINANCIAL STATEMENT COMPLIANCE. The Buyer shall have received
confirmation from its outside auditors, KPMG Peat Marwick LLP, reasonably
satisfactory to the Buyer, that the Financial Statements are satisfactory in
form for inclusion in the Buyer's SEC filings, both for reporting the Merger and
on a going forward basis.
4.15 CORPORATE AND OTHER PROCEEDINGS. All corporate and other
proceedings on the part of the Company in connection with the transactions to be
consummated at the Closing, and all documents and instruments incident to such
transactions, shall be reasonably satisfactory in substance and form to the
Buyer.
4.16 CANCELLATION OF COMPANY 401(k) PLAN. The Company shall have
canceled its 401(k) Plan effective as of prior to the Closing. The Company has
provided the Buyer with a copy of the most recent determination letter issued by
the Internal Revenue Service with regard
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to the Plan. The parties acknowledge and agree that the Company will cancel
its 401(k) Plan as of December 31, 1999 and pay any matching funds due to the
accounts of the 401(k) Plan participants (in accordance with the amounts
accrued in the Financial Statements) at that time. The Company's 401(k) Plan
shall remain in effect to the extent necessary to permit the rollover of all
funds held by the Plan's participants.
4.17 OFFICER AND DIRECTOR RESIGNATIONS. All officers and directors of
the Company shall have submitted their resignations in writing, effective as of
the Effective Time.
4.18 ADVISORY OPINION. The Company shall have received a written
advisory opinion from the United States Department of Commerce, in form
satisfactory to the Buyer in its reasonable discretion, stating that the Saber
Simulator and the Verias Simulator, and all models provided in the Company's
model library, have an ECCN of 3D991. As a result of such ECCN classification,
the Company did not ship either simulator product into any jurisdiction where an
export license was required.
4.19 DARPA LETTER. The Company shall have received a written letter of
assurance from the United States Defense Advanced Research Projects Agency
("DARPA"), in form satisfactory to the Buyer in its reasonable discretion,
stating that (i) any past transfers to foreign firms or institutions by the
Company of any versions of the Verias Simulator in executable code format did
not constitute a breach of the terms of the DARPA Agreement and based on such
transfers DARPA will not assert any rights to a royalty on commercial products
which included the Verias Simulator, (ii) DARPA will not discriminate in
awarding funding to the Buyer in the future as the result of any past transfers
to foreign firms or institutions by the Company of any versions of the Verias
Simulator in executable code format and (iii) no other monetary fines,
reimbursement of funds or rights to royalties will be assessed or demanded by
DARPA against the Company based on facts disclosed to DARPA.
SECTION 5 CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company hereunder to be performed at the Closing
are subject to the satisfaction at or prior to the Closing of the following
conditions, except for any condition the Company may waive in accordance with
Section 7.3.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Buyer contained in Section 3 shall have been true in all material
respects on the date of this Agreement and shall be true in all material
respects at and as of immediately prior to the Closing with the same effect as
though made at and as of immediately prior to the Closing.
5.2 CLOSING CERTIFICATE. The Buyer shall have delivered to the Company
a certificate dated the date of the Closing that the conditions specified in
Sections 5.1 and 5.3 are satisfied. Such certificate shall be deemed a
representation and warranty of the Buyer under Section 3 for
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all purposes of this Agreement.
5.3 PERFORMANCE. The Buyer shall have performed and complied in all
material respects with all covenants required herein to be performed or complied
with by the Buyer on or before the Closing.
5.4 STOCKHOLDER APPROVAL. The Stockholder Approval shall have been
given.
5.5 THIRD-PARTY ACTION. All Third-Party Action required in order to
consummate the Closing on the terms hereof, other than any the absence of which
in the aggregate would not have a material effect on the transactions
contemplated hereby, shall have been taken, and the Hart-Scott waiting period
shall have expired.
5.6 OPINION OF COUNSEL. The Company shall have received from McCutchen,
Doyle, Brown & Enersen LLP, counsel to the Buyer, an opinion dated the date of
the Closing, in form and substance substantially as set forth in EXHIBIT D.
5.7 TRANSACTIONAL LITIGATION. No action, suit or proceeding before any
Governmental Agency shall have been commenced, and no investigation by any
Governmental Agency shall have been commenced or overtly threatened, against the
Company, the Buyer, Buyer Subsidiary or any of their respective principals,
officers, directors or stockholders seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of any
of such transactions or seeking damages in connection with any of such
transactions.
5.8 CORPORATE AND OTHER PROCEEDINGS. All corporate and other
proceedings on the part of the Buyer and Buyer Subsidiary in connection with the
transactions to be consummated at the Closing, and all documents and instruments
incident to such transactions, shall be reasonably satisfactory in substance and
form to the Company.
SECTION 6 COVENANTS OF COMPANY, BUYER SUBSIDIARY AND BUYER
6.1 NON-DISCLOSURE. Each party agrees not to divulge or communicate, or
use for any purpose other than evaluating this transaction or exercising rights
as a party hereto, any information or materials concerning this Agreement, the
negotiation between the parties hereto and the transactions contemplated hereby,
except to the extent that such information (w) is or hereafter becomes lawfully
obtainable from other sources, (x) is required to be disclosed to a Governmental
Agency having jurisdiction over the party or its Affiliates, (y) is otherwise
required by law to be disclosed or (z) is disclosed following a waiver in
writing from the other parties. Promptly after the date hereof and after the
Effective Time, the Buyer and the Company will issue a mutually agreeable press
release concerning the transactions contemplated hereby. The parties hereto will
consult and cooperate with each other and agree upon the terms and substance of
all press releases, announcements and public statements with respect to this
Agreement and the Merger, PROVIDED, HOWEVER, that such consultation and
cooperation shall not interfere with any obligation of either party hereto to
disclose any information as required by applicable law. Any press release or
other announcement by any party with respect to the Merger will be subject to
the consent and approval of the other party, which consent or approval will not
be unreasonably withheld. The parties also hereby ratify and confirm the
confidentiality
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letter dated October 19, 1999, which shall continue in effect.
6.2 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Company set forth in this Agreement or any instrument
delivered pursuant to this Agreement will expire at and shall not survive the
Effective Time, and the Surviving Corporation (as defined in the Plan of Merger)
shall have no liability with respect to any such representation or warranty and
shall not be subject to any contribution, indemnity or similar claims with
respect thereto by any Person. However, nothing in this Section 6.2 will relieve
any Person from liability for his, her or its knowing personal fraud.
6.3 TERMINATION OF THIS AGREEMENT; TERMINATION FEES.
(a) If any condition of the Closing stated in Section 4 is not
satisfied on or before March 31, 2000, then, provided the Buyer is not in
material default hereunder, the Buyer may at any time thereafter terminate any
further obligations under this Agreement by giving written notice thereof to the
Company. If any condition of the Closing stated in Section 5 is not satisfied on
or before such date, then, provided the Company is not in material default
hereunder, the Company may at any time thereafter terminate any further
obligations under this Agreement by giving written notice thereof to the Buyer.
This Agreement may be so terminated, or terminated by mutual agreement of the
parties upon the authorization of their respective boards of directors,
notwithstanding approval of this Agreement by the stockholders of any or all
parties. Furthermore, this Agreement may be terminated by either party if any
Governmental Agency shall have issued an injunction or taken any other action
(which injunction or other action the parties hereto shall use their reasonable
business efforts to lift), which permanently restrains, enjoins or otherwise
prohibits the Merger, and such injunction shall have become final and
non-appealable.
(b) In addition, the Board of Directors of the Company may terminate
this Agreement pursuant to Section 6.6(e) in the circumstances there specified
if, simultaneously with such termination, the Company pays the Buyer $1,000,000
by wire transfer of immediately available funds.
(c) In the event the Board of Directors of the Company withdraws or
modifies its approval or recommendation of the Merger or approves or recommends
a Superior Proposal pursuant to Section 6.6(e), or the Merger is voted down by
the Company's stockholders, or this Agreement is terminated by the Buyer prior
to the Effective Time after the date specified in Section 6.3(a) for failure to
satisfy the conditions specified in Section 4 herein (except for the conditions
specified in Sections 4.6, 4.8 (if the suit or proceeding primarily alleges a
Buyer legal deficiency), 4.10, 4.11, 4.12, 4.14, 4.15, 4.18 or 4.19), or this
Agreement is terminated by the Company prior to the Effective Time after the
date specified in Section 6.3(a) for failure to satisfy the conditions specified
in Sections 5.4, 5.5 or 5.7 (if the suit or proceeding primarily alleges a
Company legal deficiency), or if this Agreement is terminated by the Buyer due
to a
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material breach hereof by the Company, and in any such case a Third-Party
Transaction is announced within 12 months after such withdrawal,
modification, approval, recommendation, vote or termination which is
thereafter consummated (or is consummated within such 12-month period,
irrespective of any announcement), the Company will, simultaneously with such
consummation, pay the Buyer $1,000,000 by wire transfer of immediately
available funds.
(d) In the event the Board of Directors of the Company withdraws or
modifies its approval or recommendation of the Merger or approves or recommends
a Superior Proposal pursuant to Section 6.6(e), or the Merger is voted down by
the Company's stockholders, the Buyer may, at any time thereafter, at its sole
option by notice given to the Company, terminate any obligation on its or the
Buyer Subsidiary's part to consummate the Merger. Any such termination will not
affect the Buyer's rights under Section 6.3(c), or, in the case of breach by the
Company, be in lieu of or adversely affect in any way any right or remedy
otherwise available to the Buyer.
(e) Any termination pursuant to this Section 6.3 will not, however,
terminate or otherwise affect the obligations of the parties under Sections 6.1,
7.1 or 7.2.
6.4 REASONABLE BUSINESS EFFORTS, NO INCONSISTENT ACTION. Each party
will use its reasonable business efforts to cause the conditions over which it
has control to be satisfied on or before the Closing. No party will take any
action which will foreseeably result in the nonsatisfaction of any condition
stated in Section 4 or 5 on or before the Closing.
6.5 ACCESS. Between the date of this Agreement and the Closing or any
earlier termination of this Agreement in accordance with its terms, the Company
will (i) give the Buyer and its authorized representatives access to its books,
records, Properties, officers, attorneys and accountants and permit the Buyer to
make inspections and copies of such books and records, and (ii) furnish the
Buyer with such financial information and operating data and other information
with respect to its business and Properties, and to discuss with the Buyer and
its authorized representative its affairs, all as the Buyer may from time to
time reasonably request for the purposes of this Agreement, during normal office
hours. Any on-site visit shall be subject to reasonable advance notice and to
being accompanied by an officer or designated employee of the Company. No
information furnished to the Buyer pursuant to this Section 6.5 or otherwise
known to the Buyer shall affect any representation, warranty or condition in
this Agreement.
6.6 NO SOLICITATION OR NEGOTIATION.
(a) Until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, neither the Company nor any Subsidiary nor any
representative of the Company or any Subsidiary shall, directly or indirectly,
take any action to (i) encourage, solicit or initiate the submission of any
Acquisition Proposal or any inquiries with respect thereto, (ii) enter into any
agreement for or relating to a Third-Party Transaction, or (iii) participate in
any way in discussions or negotiations with, or furnish any non-public
information to, any Person in connection with any Acquisition Proposal.
Notwithstanding any other provision of this Section 6.6(a), the Company may,
prior to the Stockholder Approval, in response to an unsolicited BONA FIDE
written offer or proposal made by a third party which is reasonably likely to
lead to a
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Superior Proposal, provide non-public information to or have discussions or
negotiations with such third party, if and only to the extent that the Board
of Directors has determined in good faith, after receiving the advice of its
outside counsel, that such action is necessary in order for the Board of
Directors to comply with its fiduciary duties to the Company's stockholders
under applicable law. The Company will immediately communicate to the Buyer
the receipt of any third party solicitation, proposal or BONA FIDE inquiry
that the Company, any Subsidiary or any representative of the Company or any
Subsidiary may receive in respect of any such transaction, or of any request
for such information, including in each case a copy thereof and all other
particulars thereof, and keep the Buyer fully apprised of all developments
therein on a current basis, and consider in good faith any counterproposals
which the Buyer, in its sole discretion, elects to make.
(b) "ACQUISITION PROPOSAL" means any proposed Acquisition Transaction.
"ACQUISITION TRANSACTION" means any (i) merger, consolidation or similar
transaction involving the Company, (ii) sale, lease or other disposition
directly or indirectly by merger, consolidation, share exchange or otherwise of
any assets of the Company or its subsidiaries representing 15% or more of the
consolidated assets of the Company and its subsidiaries, (iii) issue, sale or
other disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 15% or
more of the votes attached to the outstanding securities of the Company, (iv)
transaction in which any person shall acquire Beneficial Ownership or the right
to acquire Beneficial Ownership, or any Group shall have been formed which has
Beneficial Ownership or has the right to acquire Beneficial Ownership, of 15% or
more of the outstanding shares of common stock of the Company, (v)
recapitalization, restructuring, liquidation, dissolution or other similar type
of transaction with respect to the Company or any of its subsidiaries, or (vi)
transaction which is similar in form, substance or purpose to any of the
foregoing transactions. "THIRD-PARTY TRANSACTION" shall mean an Acquisition
Transaction with a party unrelated to the Buyer. "BENEFICIAL OWNERSHIP" and
"GROUP" shall have the meanings stated in Regulation 13D-G under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
(c) The Company will take all action necessary in accordance with
applicable law and its articles of incorporation and by-laws to convene a
meeting of its stockholders as promptly as practicable to consider and vote upon
the Merger and to secure the Stockholder Approval, including without limitation
the preparation of a proxy statement (the "PROXY STATEMENT," which term shall
include all amendments and supplement thereto). The Proxy Statement shall comply
as to form in all material respects with the applicable requirements of the
Exchange Act and the rules and regulations promulgated thereunder, and shall
not, at the time of (i) first mailing thereof or (ii) such stockholders'
meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that
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the Company shall not be responsible for information supplied by the Buyer or
any affiliates or representatives of the Buyer for inclusion in the Proxy
Statement. The Company (i) shall promptly prepare and file with the SEC, use
all reasonable efforts to have cleared by the SEC and thereafter mail to its
stockholders as promptly as practicable the Proxy Statement and all other
proxy materials for such meeting, (ii) shall notify the Buyer of the receipt
of any comments of the SEC with respect to the Proxy Statement and of any
requests by the SEC for any amendment or supplement thereto or for additional
information and shall promptly provide the Buyer copies of all correspondence
between the Company or any representative of the Company and the SEC and
(iii) shall give the Buyer and its counsel the opportunity to review the
Proxy Statement prior to its being filed with the SEC and shall give the
Buyer and its counsel the opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for
additional information and replies to comments prior to their being filed
with, or sent to, the SEC.
(d) The Board of Directors of the Company shall recommend and declare
advisable to its stockholders such approval and the Company shall take all
lawful action to solicit, and use all best efforts to obtain, approval of its
stockholders, and neither the Board of Directors of the Company nor any
committee of such Board of Directors shall, except as otherwise provided in
Section 6.6(e) below, (i) withdraw or modify the approval or recommendation by
such Board of Directors or such committee of the Merger, (ii) approve or
recommend any Acquisition Proposal other than the Merger, or (iii) cause the
Company to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement with respect to any Acquisition Proposal
other than the Merger.
(e) Notwithstanding Section 6.6(d) hereof, the Board of Directors of
the Company may, prior to the Stockholder Approval, withdraw or modify its
approval or recommendation of the Merger, approve or recommend a Superior
Proposal or terminate this Agreement in order to simultaneously enter into a
binding agreement with respect to a Third-Party Transaction that constitutes a
Superior Proposal, but in each case subject to its compliance with Section
6.3(b) or (c), as applicable, if and only to the extent that both (i) the Buyer
has been given at least 5 days written notice of the Company's intent to do so
and (ii) the Board of Directors of the Company has determined in good faith,
after receiving the advice of its outside counsel, that such action is necessary
in order for the Board of Directors to comply with its fiduciary duties to
stockholders under applicable law. A "SUPERIOR PROPOSAL" means any bona fide
written Acquisition Proposal, the terms of which the Board of Directors of the
Company determines in its good faith judgment, based on the advice of its
financial advisor, to be more favorable to the Company's stockholders than the
Merger and to be already financed or readily financeable.
(f) Nothing in this Section 6.6 shall prohibit the Company from taking
and disclosing to its stockholders a position as contemplated by SEC Rule
14e-2(a), provided that neither the Company nor its Board of Directors nor any
committee of its Board of Directors shall approve or recommend any Third-Party
Proposal except as permitted by Section 6.6(e).
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6.7 INTERIM FINANCIAL INFORMATION. The Company will supply to the Buyer
unaudited consolidated monthly financial statements within 30 business days of
the end of each month ending between the date of the Interim Balance Sheet and
the Closing or any earlier termination of this Agreement in accordance with its
terms, prepared on a basis consistent with the unaudited consolidated financial
statements for the preceding months. For purposes of these statements, employee
bonuses and similar expenses may be accrued based on actual results for the year
to date and budgeted results for the balance of the year.
6.8 INTERIM CONDUCT OF BUSINESS. From the date of this Agreement until
the Closing or any earlier termination of this Agreement in accordance with its
terms, unless approved by the Buyer in writing, the Company will operate its
business consistently with past practice and in the ordinary course of business,
and will not:
(a) merge or consolidate with or agree to merge or consolidate
with, or sell or agree to sell all or substantially all of its Property
to, or purchase or agree to purchase all or substantially all of the
Property of, or otherwise acquire, any other Person or a division
thereof, except as provided in this Agreement;
(b) amend its articles of incorporation or by-laws;
(c) make any changes in its accounting methods, principles or
practices, except as required by GAAP;
(d) sell, consume or otherwise dispose of any Property, except
in the ordinary course of business consistent with past practices;
(e) authorize for issuance, issue, sell or deliver any
additional shares of its capital stock of any class or any securities
or obligations convertible into shares of its capital stock or issue or
grant any option, warrant or other right to purchase any shares of its
capital stock of any class, other than, in each case, the issuance of
Common Stock pursuant to the exercise of the options listed in Section
2.1(a);
(f) except as provided in the Plan of Merger, accelerate,
amend or change the period of exercisability of vesting of options or
other Stock Rights granted under its stock option plans or authorize
cash payments in exchange for any options or other Stock Rights granted
under any of such plans;
(g) declare any dividend on, make any distribution with
respect to, or redeem or repurchase, its capital stock except under
existing repurchase agreements or obligations as set forth in SCHEDULE
2.1;
(h) modify, amend or terminate any Benefit Plans, except as
otherwise set forth herein or as required under Legal Requirements or
any Disclosable Contract;
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(i) enter into any material Contract, or violate, amend or
otherwise modify or waive any of the terms of any of its material
Contracts other than amendments or modifications in the ordinary course
of business consistent with past practice;
(j) transfer or license to any Person or otherwise extend,
amend or modify any rights to the Company Intellectual Property other
than the grant of non-exclusive licenses in the ordinary course of
business consistent with past practice;
(k) enter into or amend any Contracts pursuant to which any
other Person is granted exclusive marketing, manufacturing or other
exclusive rights of any type or scope with respect to any of its
products or technology;
(l) incur or commit to incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
(m) enter into any operating leases requiring cumulative
annual payments in excess of $25,000;
(n) pay, discharge or satisfy in an amount in excess of
$25,000 in any one case or $50,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the payment, discharge or satisfaction of
liabilities reflected or reserved against in the Financial Statements;
(o) incur or commit to incur any capital expenditures in
excess of $50,000 in the aggregate;
(p) materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(q) terminate or waive any right of substantial value, other
than in the ordinary course of business;
(r) take any of the following actions: (i) increase or agree
to increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of
non-officer employees in the ordinary course of business and in
accordance with past practices, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance
agreements with, any officer or employee, (iii) enter into any
collective bargaining agreement, or (iv) establish, adopt, enter into
or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other
plan, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees, except as otherwise provided in the
Plan of Merger;
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(s) commence a lawsuit or arbitration proceeding other than
(i) for the routine collection of bills, or (ii) in such cases where it
in good faith determines that failure to commence suit would result in
the material impairment of a valuable aspect of the Business, provided
that it consults with the Buyer prior to the filing of such suit;
(t) make any material Tax election other than in the ordinary
course of business and consistent with past practice, change any
material Tax election, adopt any Tax accounting method, file any Tax
return (other than any estimated Tax returns, immaterial information
returns, payroll Tax returns or sales Tax returns) or any amendment to
a Tax return, enter into any closing agreement, settle any Tax claim or
assessment or consent to any Tax claim or assessment provided that the
Buyer shall not unreasonably withhold or delay approval of any of the
foregoing actions;
(u) revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(v) authorize or enter into an agreement to do any of the
foregoing.
6.9 SECTION 338 ELECTION; TAX STATUS. The parties agree that the Buyer
may make an election under Section 338(a) of the Code with respect to the
Merger. Each party has reviewed the income and other Tax aspects of the
structure of the Merger with its own professional advisers, and no party or
representative of a party shall have any obligation or responsibility to any
other party with respect thereto.
6.10 OPTION TO PURCHASE.
(a) The Company hereby irrevocably grants the Buyer the right (the
"OPTION"), at the Buyer's option, to purchase from the Company up to 968,640
(subject to adjustment as provided in this Section 6.10) Shares in the aggregate
at the exercise price of $2.48 per share, subject to adjustment as provided in
this Section 6.10 (as so adjusted, the "EXERCISE PRICE"), as specified by the
Buyer in its notice or notices of exercise from time to time, but only after the
occurrence of a Triggering Event. A "TRIGGERING EVENT" means the first to occur
of the following events:
(i) the Company terminates this Agreement pursuant to Section
6.6(e), or
(ii) the Board of Directors of the Company withdraws or
modifies its approval or recommendation of the Merger or approves or
recommends a Superior Proposal pursuant to Section 6.6(e), or the
Merger is voted down by the Company's stockholders, or this Agreement
is terminated by the Buyer prior to the Effective Time after the date
specified in Section 6.3(a) for failure to satisfy the conditions
specified in Section 4 herein (except for the conditions specified in
Sections 4.6, 4.8 (if the suit or proceeding primarily alleges
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a Buyer legal deficiency), 4.10, 4.11, 4.12, 4.14, 4.15, 4.18 or
4.19), or this Agreement is terminated by the Company prior to the
Effective Time after the date specified in Section 6.3(a) for
failure to satisfy the conditions specified in Sections 5.4, 5.5 or
5.7 (if the suit or proceeding primarily alleges a Company legal
deficiency), or if this Agreement is terminated by the Buyer due to
a material breach hereof by the Company, and in any such case a
Third-Party Transaction is announced within 12 months after such
withdrawal, modification, approval, recommendation, vote or
termination which is thereafter consummated (or is consummated
within such 12-month period, irrespective of any announcement). Such
consummation shall constitute the Triggering Event within the scope
of this Section 6.10(a)(ii).
(iii) any Person other than an Affiliate of the Buyer
commences a tender offer (within the meaning of SEC Rule 14d-2) for 15%
of more of the Company's outstanding Shares.
(b) The Company will give the Buyer notice of any proposed Triggering
Event under Section 6.10(a)(ii) or (iii) to which it is a party at least 20 days
prior to the proposed consummation thereof, and will give the Buyer notice of
any other such Triggering Event immediately upon receiving knowledge thereof.
The Option may be exercised, at any time and from time to time, commencing
immediately prior to the Triggering Event and continuing thereafter until 5:00
p.m., California time, on the earlier of (i) the Effective Time or (ii) the 5th
anniversary of the date of this Agreement, if a business day, or on the next
succeeding business day if it is not. To exercise the Option, the Buyer shall
deliver written notice to the Company at its address listed in Section 7.4
specifying the number of Shares as to which the Option is being exercised,
accompanied by the Buyer's check or wire transfer in payment of the aggregate
Exercise Price. Alternatively, the Buyer may pay the Exercise Price by surrender
of this Option with respect to a number of shares whose aggregate Spread Value
equals the aggregate Exercise Price. "SPREAD VALUE" means (x) the excess, if
any, of the market value of a Share over the Exercise Price times (y) the number
of Shares so to be surrendered. For this purpose, "market value" shall mean the
average closing price of Shares for the 3 most recent trading days ending with
the 2d trading day prior to any such cashless exercise, if Shares are then
traded on a national securities exchange or the Nasdaq National Market, and will
mean the per-Share value of the transaction associated with the Triggering Event
in all other cases.
(c) Upon any exercise of the Option as set forth above, the Buyer shall
immediately be the record owner of all Shares subject to such exercise for all
purposes, without any other action being necessary. Within 3 trading days after
each exercise of the Option, the Company shall deliver certificates for the
Shares so purchased to the Buyer, but the delivery of such certificates shall
not be required in order for the Buyer to exercise any rights as a holder of the
Shares to be represented thereby. Until its exercise, the Option does not confer
on the Buyer any rights of a stockholder of the Company.
(d) The Company need not issue any fractional shares in connection with
any exercise of the Option. Instead, the Buyer may purchase a whole Share from
the Company at the Exercise Price.
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(e) During the term of the Option, the Company shall reserve sufficient
authorized but unissued shares of Common Stock or other securities for the full
exercise of the rights represented by the Option. To the extent required for the
lawful exercise of the Option, the Company will promptly make, at the Buyer's
expense, all filings with Governmental Agencies, including without limitation a
premerger notification under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, requested by the Buyer in connection with an intended exercise
of the option.
(f) The Exercise Price and the number of Shares that the Company must
issue upon exercise of the Option are subject to adjustment from time to time as
follows:
(1) If the Company at any time or from time to time after the
date hereof: (1) declares or pays, without consideration, any dividend
on Shares payable in Shares; (2) creates any right to acquire Shares
for no consideration; or (3) subdivides the outstanding Shares (by
stock split, reclassification or otherwise), the Company shall increase
the number of Shares that the Buyer may purchase upon exercising the
Option and decrease the Exercise Price in proportion to the increase in
the number of outstanding Shares that results from any such action.
(2) If the Company combines or consolidates the outstanding
Shares, by reclassification or otherwise, into a lesser number of
Shares, the Company shall decrease the number of Shares that the Buyer
may purchase upon exercising the Option and increase the Exercise Price
in proportion to the decrease in the number of outstanding Shares that
results from any such combination or consolidation.
(3) If Shares change into shares of any other class or classes
of security or into any other Property for any reason other than a
subdivision or combination of Shares provided for in Section 6.10(f)(1)
or (2), including without limitation any reorganization,
reclassification, merger or consolidation and any sale of substantially
all of the Company's properties and assets, the Company shall make
lawful provision for giving the Buyer the right, by exercising the
Option, to purchase the kind and amount of securities or other Property
receivable upon any such change by the owner of the number of Shares
subject to this Option immediately before the change.
(4) If the Company spins off any Subsidiary by distributing to
the Company's shareholders as a dividend or otherwise any stock or
other securities of the Subsidiary, the Company shall reserve until the
end of the term of the Option enough such shares or other securities
for delivery to the Buyer upon any exercise of the rights represented
by the Option to the same extent as if the Buyer owned of record all
Common Stock or other securities subject to the Option on the record
date for the distribution of the Subsidiary's shares or other
securities.
Upon each adjustment or readjustment required by this Section 6.10(f), the
Company shall
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promptly compute such adjustment or readjustment and furnish to the Buyer a
certificate setting forth such adjustment or readjustment and showing in
detail the facts giving rise to the adjustment or readjustment. Upon the
Buyer's written request, the Company also shall furnish to the Buyer a
similar certificate setting forth (1) such adjustments and readjustments, (2)
the Option Price in effect on the date of the certificate, and (3) the number
of Shares and the amount of any other property that the Buyer would receive
upon exercising the Option.
(g) The Buyer may not transfer, sell or make any other disposition of
the Option (other than in connection with a succession to or transfer of its
business as a whole), or grant any Lien respecting any of its rights under the
Option, without the Company's prior consent.
(h) By accepting the Option, the Buyer agrees that the Option and the
Shares or other securities issuable upon exercise of the Option may be offered
or sold, only in compliance with the Act and all applicable state securities
laws. The Buyer acknowledges that if the Option is exercised, the shares issued
upon such exercise will be "restricted securities" within the meaning of Rule
144 promulgated under the Act. The Buyer hereby agrees to comply with this
Section 6.10(h) with respect to any resale or other disposition of such
securities. The Buyer may offer or sell any such securities only in accordance
with (1) an effective registration statement under the Act; (2) SEC Rule 144; or
(3) another exemption from the registration requirements of the Act and all
applicable state securities laws demonstrated, to the Company's reasonable
satisfaction, by an opinion of securities counsel reasonably acceptable to the
Company. The Company may make a notation on its records, and on the certificates
for any Shares or other securities issued upon the exercise of the Option, to
implement the restrictions set forth in this Section 6.10(h). The Buyer
represents and warrants that it is acquiring the Option, and will acquire the
Shares subject thereto, for its own account and not on behalf of any other
Person, and that it is an "accredited investor," as that term is defined in SEC
Regulation D. By accepting the Option, the Buyer acknowledges that the Company
is granting the Option to the Buyer in reliance on the Buyer's foregoing
representations and warranties and the terms of this Section 6.10(h). Before
allowing any transferee of any of the Buyer's rights under the Option to
exercise this Option, the Company may, in its sole discretion, require the
transferee to execute and deliver representations, warranties and
acknowledgments to the Company substantially similar to those set forth in this
Section 6.10(h).
(i) In the event the Company proposes to consummate a transaction
(however structured, including without limitation a sale of stock or a merger)
to which it is a party and which involves an acquisition of shares or equity
interest in the Company by a third Person, and immediately following such
transaction such Person together with its parents and subsidiaries
(collectively, the "ACQUIRING PERSON") owns a majority of both the voting power
and economic interest represented by the outstanding stock of the Company on a
fully-diluted basis, then the Company (x) shall give the Buyer at least 20 days
written notice of the proposed consummation, including a summary of the
transaction and a copy of all transaction documents (which summary and documents
shall be kept current by further notices to the Buyer) and (y) if it has
complied with clause (x), may at its option, exercised by notice to the Buyer
not later than 5 days prior to such
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consummation, redeem the Option (in whole and not in part) simultaneously
with such consummation for an amount per share, paid by wire transfer of
same-day funds to the account designated by the Buyer, equal to the excess,
if any, of the Redemption Price over the Exercise Price then in effect. The
"REDEMPTION PRICE" is:
(i) if the equity interest the Acquiring Person is acquiring
in such consummation, together with any equity interest acquired by
such Acquiring Person within 180 days prior to such consummation
constitutes a majority of both the voting power and economic interest
represented by the outstanding stock of the Company on a fully-diluted
basis, the highest price per share paid (or to be paid upon such
consummation) by the Acquiring Person in the course of acquiring such
majority ownership, and
(ii) otherwise, the fair market value of a Share (or the other
Property then subject to the Option) as agreed to by the Company and
the Buyer or, in the absence of such agreement, as determined by an
investment bank of national reputation selected by the Company from a
list of 3 such banks proposed by the Buyer (on its own initiative or
within 15 days after written request by the Company), which bank shall
not have engaged in a transaction with, or advised with respect to a
transaction, either the Company or the Buyer within the prior 3 years.
If this clause (ii) is applicable, the Company will not consummate such
transaction unless and until the fair market value has been agreed or
determined pursuant to this clause (ii).
(j) Any Shares purchased by the Buyer upon exercise of the Option shall
be entitled to the registration rights set forth in EXHIBIT E.
6.11 SEC REPORTS. From and after the date of this Agreement until the
earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, the Company will timely file all reports required to be filed by
it under the Exchange Act.
6.12 NOTICE OF CERTAIN EVENTS. The Company shall notify the Buyer, and
the Buyer shall promptly notify the Company, of:
(i) receipt of any notice or other communication from any
Person alleging that the consent of such Person is or may be required
in connection with the transactions contemplated by this Agreement;
(ii) receipt of any notice or other communication from any
Governmental Entity in connection with the transactions contemplated by
this Agreement;
(iii) receipt of notice that any action, suit, claim,
investigation or proceeding
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has been commenced or, to the knowledge of the Company, threatened,
against or involving the Company, any Subsidiary or the Buyer, as
applicable, which, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 2.18
or which relates to the transactions contemplated by this Agreement;
(iv) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of it (and, in the case of the Buyer, of
Buyer Subsidiary) contained in this Agreement to be untrue or
inaccurate; and
(v) any failure of the Company, the Buyer or Buyer Subsidiary,
as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
The delivery of any notice pursuant to this Section 6.12 shall not limit or
otherwise affect the remedies available to the party receiving such notice.
6.13 TAKEOVER STATUTES. If any Takeover Statute is, becomes or may
become applicable to the Merger or any of the transactions contemplated hereby,
each of the Buyer, Buyer Subsidiary and the Company, and their respective Boards
of Directors, shall grant such approvals and take such lawful actions as are
necessary to ensure that the Merger and such transactions may be consummated as
promptly as practicable on the terms contemplated hereby, and to the extent
permitted by law otherwise act to eliminate the effects of such statute and any
regulations promulgated thereunder on the Merger and such transactions or, if
they cannot be eliminated, to minimize them.
6.14 PAY-OFF. The Company will, upon the request of the Buyer,
cooperate with the Buyer in arranging the pay-off or refinancing of any
indebtedness of the Company set forth in SCHEDULE 2.6(b) which the Buyer, in its
business discretion, desires to pay off or refinance in connection with the
consummation of the transactions contemplated hereby.
6.15 OTHER FILINGS. As promptly as practicable, the Company, the Buyer
and Buyer Subsidiary each shall properly prepare and file any other filings
required under the Exchange Act or any other federal or state law relating to
the Merger and the transactions contemplated hereby (including filings, if any,
required under Hart-Scott)(collectively, the "OTHER FILINGS"). Each of the
Company, the Buyer and Buyer Subsidiary shall promptly notify the other of the
receipt of any comments on, or any request for amendments or supplements to, any
of the Other Filings by any Governmental Agency or official, and each of the
Company, the Buyer and Buyer Subsidiary shall supply the other with copies of
all correspondence between it, on the one hand, and members of any Governmental
Agency or any other appropriate governmental official, on the other hand, with
respect to any of the Other Filings. The Company, the Buyer and Buyer Subsidiary
each shall use its respective reasonable best efforts to obtain and furnish the
information required to be included in any of the Other Filings. The Company,
the Buyer and Buyer Subsidiary hereby covenant and agree to use their
commercially reasonable best efforts to secure termination of any waiting
periods under Hart-Scott and obtain the approval of the Federal Trade Commission
or any other Governmental Agency for the transactions contemplated herein.
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6.16 OFFICERS AND DIRECTORS INDEMNIFICATION. The Company shall, and
from and after the Effective Time, the Surviving Corporation shall, indemnify,
defend and hold harmless the present and former directors, officers, employees
and agents of the Company or any Subsidiaries (the "INDEMNIFIED PARTIES")
against all losses, claims, damages, costs, expenses (including reasonable
attorney's fees and expenses), liabilities or judgments or amounts that are paid
in settlement with the approval of the indemnifying party of or in connection
with any threatened or actual claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of or pertaining
to the fact that such person is or was a director or officer of the Company or
any of the Subsidiaries whether pertaining to any matter existing at or prior to
the Effective Time and whether asserted or claimed prior to, or at or after, the
Effective Time ("INDEMNIFIED LIABILITIES"), including all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to this Agreement or the transactions contemplated hereby, in each
case to the fullest extent a corporation may indemnify its own directors or
officers, as the case may be, in compliance with applicable law, under the OBCA
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits broader rights than
such law permitted prior to such amendment and only to the extent such amendment
is not retroactively applicable) . Without limiting the foregoing, in the event
any such claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time), (i)
the Indemnified Parties may retain counsel satisfactory to them and the
Surviving Corporation, and the Company or the Surviving Corporation shall pay
all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received and otherwise advance to such
Indemnified Parties upon request reimbursement of reasonable documented expenses
incurred, in either case to the fullest extent and in the manner permitted by
the OBCA; and (ii) the Company or the Surviving Corporation, and the Indemnified
Party, will use all reasonable efforts to assist in the vigorous defense of any
such matter, provided that neither the Company nor the Surviving Corporation
shall be liable for any settlement effected without its prior written consent.
Any Indemnified Party wishing to claim indemnification under this Section 6.16,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Company (or after the Effective Time, the Surviving
Corporation) (but the failure to so notify shall not relieve a party from any
liability which it may have under this Section 6.16 except to the extent such
failure materially prejudices such party). The Indemnified Parties as a group
may retain only one law firm to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties. The Company, Buyer and Buyer Subsidiary agree that all rights to
indemnification, including provisions relating to advances or expenses incurred
in defense of any action or suit, existing in favor of the Indemnified Parties
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of not less than
three years from the Effective Time; provided, however, that all rights to
indemnification in respect of any Indemnified
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Liabilities asserted or made within such period shall continue until the
disposition of such Indemnified Liabilities. This Section 6.16 is for the
irrevocable benefit of, and to grant third party rights to, the Indemnified
Parties and shall be binding on all successors and assigns of Buyer, Buyer
Subsidiary, the Company and the Surviving Corporation. Each of the
Indemnified Parties shall be entitled to enforce the covenants contained in
this Section 6.16.
SECTION 7 MISCELLANEOUS
7.1 NO BROKERS, FINDERS.
(a) COMPANY. The Company has not engaged any agent, broker, finder or
investment or commercial banker in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated hereby, other
than Broadview Int'l LLC, for whose fees and expenses the Company will be solely
responsible and whose fees and expenses will not exceed $600,000 if the Merger
is consummated. The Company shall indemnify, defend and hold the Buyer harmless
against and in respect of any claim for brokerage fees or other commissions
incurred or owing due to any such engagement or alleged engagement, including
without limitation, any fees and expenses of counsel incurred by the Buyer in
connection with enforcing this Section 7.1(a).
(b) BUYER. The Buyer has not engaged any agent, broker, finder or
investment or commercial banker in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated hereby. The Buyer
shall indemnify, defend and hold the Company and its stockholders harmless
against and in respect of any claim for brokerage fees or other commissions
incurred or owing due to any such engagement or alleged engagement, including
without limitation, any fees and expenses of counsel incurred by the Company or
its stockholders in connection with enforcing this Section 7.1(b).
7.2 EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, the Company and the Buyer shall each pay their own
fees and expenses incident to the negotiation, preparation, execution, delivery
and performance hereof, including, without limitation, the fees and expenses of
their respective counsel, accountants and other experts.
7.3 COMPLETE AGREEMENT; WAIVER AND MODIFICATION; NO THIRD PARTY
BENEFICIARIES. This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the parties other than the
confidentiality letter dated October 19, 1999 between the Buyer and the Company,
which shall continue in effect. There are no representations or warranties by
any party except those expressly stated or provided for herein, any implied
warranties being hereby expressly disclaimed. There are no covenants or
conditions except those expressly stated herein. No amendment, supplement or
termination of or to this Agreement, and no waiver of any of the provisions
hereof, shall be binding on a party unless made in a writing signed by such
party. This Agreement may be modified by mutual agreement of the parties as
authorized by their respective boards of directors, notwithstanding approval
hereof and thereof by the stockholders of the parties. Nothing in this Agreement
shall be construed to give any Person other than the
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express parties hereto any rights or remedies.
7.4 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be given by delivery (by
mail or otherwise) or transmitted to the address or facsimile number listed
below, and will be effective (in all cases) upon receipt. Without limiting the
generality of the foregoing, a mail, express, messenger or other receipt signed
by any Person at such address shall conclusively evidence delivery to and
receipt at such address, and any printout showing successful facsimile
transmission of the correct total pages to the correct facsimile number shall
conclusively evidence transmission to and receipt at such facsimile number.
(a) If to the Buyer or Subsidiary:
46871 Bayside Parkway
Fremont, CA 94538
attention: Sam Chang
facsimile: (510) 413-7793
with copies to:
McCutchen, Doyle, Brown & Enersen, LLP
3150 Porter Drive
Palo Alto, CA 94304
attention: Bartley C. Deamer
(b) If to the Company:
9205 S.W. Gemini Drive
Beaverton, OR 97008
attention: Gary P. Arnold
facsimile: (503) 641-3193
with copies to:
Ater Wynne LLP
222 SW Columbia, Suite 1800
Portland, OR 97201
attention: Stephen M. Going
Any party may change its address or facsimile number for purposes of this
Section 7.4 by giving
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the other party written notice of the new address or facsimile number in
accordance with this Section 7.4, PROVIDED it is a normal street address, or
normal operating facsimile number, in the continental United States.
7.5 LAW GOVERNING. This Agreement shall be interpreted in accordance
with and governed by the laws of the State of California, without regard to
principles of conflicts of laws, except as to matters manditorily governed by
the OBCA.
7.6 HEADINGS; REFERENCES; "HEREOF;" INTERPRETATION. The Section
headings in this Agreement are provided for convenience only, and shall not be
considered in the interpretation hereof. References herein to Sections, Exhibits
or Schedules refer, unless otherwise specified, to the designated Section of or
Exhibit or Schedule to this Agreement. Terms such as "HEREIN," "HERETO" and
"HEREOF" refer to this Agreement as a whole. This Agreement has been negotiated
at arm's length between parties sophisticated and knowledgeable in the matters
addressed in this Agreement. Each of the parties has been represented by
experienced and knowledgeable legal counsel. Accordingly, any rule of law or
legal decision that would require interpretation of any ambiguities in this
Agreement against the party that has drafted it is not applicable and is waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effect the purpose of the parties and this Agreement.
7.7 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the heirs, executors, administrators and successors of
the parties hereto, but no right or liability or obligation arising hereunder
may be assigned by any party hereto.
7.8 COUNTERPARTS, SEPARATE SIGNATURE PAGES. This Agreement may be
executed in any number of counterparts, or using separate signature pages. Each
such executed counterpart and each counterpart to which such signature pages are
attached shall be deemed to be an original instrument, but all such counterparts
together shall constitute one and the same instrument.
7.9 SEVERABILITY. In the event any of the provisions of this Agreement
shall be declared by a court or arbitrator to be void or unenforceable, then
such provision shall be severed from this Agreement without affecting the
validity and enforceability of any of the other provisions hereof, and the
parties shall negotiate in good faith to replace such unenforceable or void
provisions with a similar clause to achieve, to the extent permitted under law,
the purpose and intent of the provisions declared void and unenforceable.
SECTION 8 GLOSSARY
ACQUIRING PERSON - Section 6.10(i).
ACQUISITION PROPOSAL - Section 6.6(b).
ACQUISITION TRANSACTION - Section 6.6(b).
ACT - the Securities Act of 1933, as amended.
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AFFILIATE - a Person who controls, is controlled by or is under common
control with another Person, or who directly or indirectly owns 10% or more of
the voting power in such other Person, or of whose voting power such other
Person (or a Person holding 10% or more of the voting power in such other
Person) owns 10% or more. For purposes of this definition, "CONTROL" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
AGREEMENT - this Agreement of Merger, including the Exhibits and
Schedules hereto.
AUDITED STATEMENTS - Section 2.6(a).
BENEFICIAL OWNERSHIP - Section 6.6(b).
BENEFIT PLANS - Section 2.14(b).
BUSINESS - introductory paragraphs.
BUYER - introductory paragraphs.
BUYER SUBSIDIARY - introductory paragraphs.
CLOSING - Section 1.1.
COBRA - Section 2.14(f).
CODE - the Internal Revenue Code of 1986, as amended.
COMPANY - introductory paragraphs. In the case of any representation or
warranty relating to events or circumstances occurring or existing prior to the
merger of Analogy Acquisition Corporation into Symmetry, Inc., the term
"Company" also includes Symmetry, Inc.
COMPANY ERISA PLAN - Section 2.14(d).
COMPANY INTELLECTUAL PROPERTY - Section 2.21(a).
COMPANY SEC DOCUMENTS - Section 2.25.
CONFIDENTIAL INFORMATION - Section 2.21(g).
CONTRACT - any agreement, written or oral, any license or authorization
by another Person of a contractual nature or any promissory note or other
instrument of a contractual nature, which
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is intended to be enforceable against the Person in question or against any
Property of such Person. Any Person which is, or any of whose Property is,
subject to enforcement of a Contract shall, for purposes of this Agreement,
be deemed a party to it.
DARPA - Section 4.19.
DARPA AGREEMENT - the Cooperative Agreement Under 10 U.S.C. 2358
between the United States of America U.S. Air Force, Air Force Materiel Command
Rome Laboratory/PKPF and Analogy, Inc. (F30602-96-2-0309), with a term from
September 5, 1996 through April 4, 1999.
DESIGNATED CONTRACT - any of the following:
(a) the lease to the Company referred to in SCHEDULE 2.11 for 8705 SW
Nimbus Avenue, Beaverton, Oregon, and for 9205 S.W. Gemini Drive, Beaverton,
Oregon, and
(b) the following agreements:
(i) Tauri OEM Software Agreement between FTL Systems, Inc. and the
Company, dated May 21, 1999;
(ii) Source Code License and Binary Code Distribution License Agreement
between Phase III Logic, Inc. and the Company, dated June 7, 1991, as amended
including Addendum No. 3 effective November 3, 1993;
(iii) Cooperative Agreement under 10 U.S.C. 2358 between the United
States of America U.S. Air Force, air Force Materiel Command Rome
Laboratory/PKPF and the Company, effective as of September 5, 1996;
(iv) Cross-License and Support Agreement between Cadence Design
Systems, Inc. and the Company, dated June 20, 1994;
(v) Connections Partnership Membership Agreement between Cadence Design
Systems, Inc. and Symmetry Design Systems, Inc., dated August 1, 1996;
(vi) Mentor Graphics OpenDoor Loan and Support Agreement for OpenDoor
Integration, Agreement No. OD-1004-LS-8, between Mentor Graphics Corporation and
Analogy, Inc., dated January 12, 1999;
(vii) Joint Marketing Agreement between Viewlogic Systems, Inc. and the
Company, dated September 13, 1993;
(viii) Remarketing and Distribution License Agreement between
Mathworks, Inc. and the Company, dated January 16, 1994;
(ix) Participation Agreement between Model Technology Incorporated and
the Company, dated May 22, 1998;
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(x) Open Access Agreement between GEC Marconi Avionics (Holdings) Ltd.
and Analogy UK, dated April 1, 1997, as amended March 31, 1999 and June 30,
1999;
(xi) Open Access Agreement between GEC Alsthom ERC and Analogy UK,
dated December 19, 1997;
(xii) Open Access Agreement between GEC Alsthom Traction Ltd. and
Analogy UK, dated December 19, 1997;
(xiii) Open Access Agreement between GEC Marconi Radar & Defense
Systems Ltd., Dynamics Division, and Analogy UK, dated January 1998;
(xiv) Open Access Agreement between GEC Marconi Ltd. (MES) and Analogy
UK, dated September 24, 1998 and as renegotiated October 25, 1999;
(xv) Open Access Agreement between Lucas Aerospace and Analogy UK,
dated December 19, 1997, as amended March 31, 1999;
(xvi) Open Access Agreement between Peugeot Sport (PSA) and Analogy
SARL, dated March 20, 1998; and
(xvii) Distribution Agreement between C-Itoh & Co. and the Company,
dated August 16, 1998.
DISCLOSABLE CONTRACT - Section 2.15.
DISCLOSABLE LEASES - Section 2.11.
EAR - the Export Administration Regulations promulgated by the United
States Department of Commerce and set forth in parts 730-774, inclusive, of
Title 15 of the Code of Federal Regulations.
ECCN - Section 2.30.
EFFECTIVE TIME - Section 1.2.
ENVIRONMENTAL REQUIREMENT - any Legal Requirement relating to
pollution, waste, disposal, industrial hygiene, land use or the protection of
human health, safety or welfare, plant life or animal life, natural resources,
wetlands, endangered or threatened species or habitat, the environment or
property, including without limitation those pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of Hazardous Materials, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface
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water, groundwater or land, or relating to the manufacture, generation,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Material, chemical substances, pollutants, contaminants
or toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature.
EQUITY INTEREST - any common stock, preferred stock, partnership
interest, limited liability company interest or ownership interest in any
Person, and any right to acquire any of the foregoing, whether by exercise of an
option, warrant or other right, by conversion, exchange or subscription or
otherwise.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute.
ERISA AFFILIATE - any company which, as of the relevant measuring date
under ERISA, is or was a member of a controlled group of corporations or trades
or businesses (as defined in Sections 414(b), (c), (m) or (o) of the Code) of
which the Company or any Subsidiary or any predecessor of either is or was a
member.
EXCHANGE ACT - Section 6.6(b).
EXERCISE PRICE - Section 6.10(a).
FINANCIAL STATEMENTS - Section 2.6(a).
GAAP - generally accepted accounting principles applied on a consistent
basis, as set forth in authoritative pronouncements which are applicable to the
circumstances as of the date in question. The requirement that such principles
be applied on a "CONSISTENT BASIS" means that accounting principles observed in
the period in question are comparable in all material respects to those applied
in the preceding periods, except as change is permitted or required under or
pursuant to such accounting principles.
GOVERNMENT AUDIT - Section 2.18(b).
GOVERNMENTAL AGENCY - any agency, court, department, board, commission,
district or other public organ, whether federal, state, local or foreign.
GROUP - Section 6.6(b).
HART-SCOTT - the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and regulations issued thereunder.
HAZARDOUS MATERIAL - all or any of the following: (i) any substance the
presence of which requires investigation or remediation under any applicable law
or regulation; (ii) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable laws or regulations as "HAZARDOUS
SUBSTANCES," "HAZARDOUS MATERIALS," "HAZARDOUS WASTES," "TOXIC SUBSTANCES," or
any other formulation intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity,
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reproductive toxicity or "TCLP toxicity;" (iii) any petroleum products,
explosives or radioactive materials; and (iv) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.
INDEMNIFIED LIABILITIES - Section 6.16.
INDEMNIFIED PARTIES - Section 6.16.
INTELLECTUAL PROPERTY - Section 2.21(a).
INTERIM BALANCE SHEET - Section 2.6(c).
INTERIM STATEMENTS - Section 2.6(a).
ISO - Section 2.14(h).
LAST FISCAL YEAR-END - Section 2.6(a).
LEGAL REQUIREMENT - a statute, regulation, ordinance or similar legal
requirement, whether federal, state, local or foreign, or any requirement of a
Permit or other authorization issued by a Governmental Agency.
LIEN - any lien, security interest, mortgage, deed of trust, pledge,
hypothecation, capitalized lease or interest or right for security purposes.
MATERIAL ADVERSE EFFECT - a matter will be deemed to have a "Material
Adverse Effect" if such matter would have a material adverse effect on the
business, condition, assets, liabilities, operations, financial performance or
prospects of the Company and its Subsidiaries taken as a whole.
MERGER - introductory paragraphs.
OBCA - Section 2.27.
OPTION - Section 6.10(a).
ORDER - any judgment, injunction, order or similar mandatory direction
of, or stipulation or agreement filed with, a Governmental Agency, court,
judicial body, arbitrator or arbitral body.
OPTION - Section 6.10(a).
OTHER FILINGS - Section 6.15.
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PERSON - an individual, or a corporation, partnership, limited
liability company, trust, association or other entity of any nature, or a
Governmental Agency.
PLAN OF MERGER - Section 1.2.
PLAN TERMINATION DATE - Section 2.29.
PROGRAMS - Section 2.21(a).
PROPERTY - any interest in any real, personal or mixed property,
whether tangible or intangible.
PROXY STATEMENT - Section 6.6(c).
REDEMPTION PRICE - Section 6.10(i).
SEC - the Securities and Exchange Commission.
SHARES - shares of the Common Stock, no par value, of the Company.
SPREAD VALUE - Section 6.10(b).
STOCK PURCHASE PLAN - Section 2.29.
STOCK RIGHT - any right (including without limitation any option or
warrant or subscription right) to acquire any capital stock or any other Stock
Right or any instrument convertible into or exchangeable for any capital stock
or any other Stock Right.
STOCKHOLDER APPROVAL - Section 2.3.
SUBSIDIARY - any Person which would be included in consolidated
financial statements of the Company prepared in accordance with GAAP, and any
Person in which the Company holds 50% or more of the voting power or 50% or more
of the equity interests, and any former Subsidiary with respect to any of whose
obligations the Company or any current Subsidiary is liable. In the case of any
representation or warranty relating to events or circumstances in the past, the
term "Subsidiary" also includes any Person that at the relevant time was a
Subsidiary, irrespective of such Person's current status as a Subsidiary.
SUPERIOR PROPOSAL - Section 6.6(e).
SUPPORT AGREEMENTS - Section 2.21(h).
TAKEOVER STATUTE - Section 2.26.
TAX - any federal, state, local or foreign tax, assessment, duty, fee
and other governmental charge or imposition of any kind, whether measured by
properties, assets, wages, payroll, purchases, value added, payments, sales,
use, business, capital stock, surplus or income,
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and any addition, interest, penalty, deficiency imposed with respect to any
Tax.
THIRD-PARTY ACTION - any consent, waiver, approval, license or other
authorization of, or notice to, or filing with, any other Person, whether or not
a Governmental Agency, and the expiration of any associated mandatory waiting
period.
THIRD-PARTY INTELLECTUAL PROPERTY - Section 2.21(a).
THIRD-PARTY RIGHT - any Lien on any Property of the Person in question,
or any right (other than the rights of the Buyer hereunder) (i) to acquire,
lease, use, dispose of, vote or exercise any right or power conferred by any
Property of such Person, or (ii) restricting the Person's right to lease, use,
dispose of, vote or exercise any right or power conferred by any Property of
such Person.
THIRD-PARTY TRANSACTION - Section 6.6(b)
TRIGGERING EVENT - Section 2.10(a).
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IN WITNESS WHEREOF, the parties have executed this Agreement of Merger.
BUYER: AVANT! CORPORATION
By: /s/ Gerald C. Hsu
-----------------
Name: Gerald C. HsuTitle: Chairman,
President and CEO
BUYER SUBSIDIARY: AC ACQUISITION CORP.
By: /s/ Gerald C. Hsu
-----------------
Name: Gerald C. HsuTitle:
COMPANY: ANALOGY, INC.
By: /s/ Gary P. Arnold
------------------
Name: Gary P. ArnoldTitle:
Chairman, President and CEO
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APPENDIX B
November 17, 1999
CONFIDENTIAL
Board of Directors
Analogy, Inc.
9205 SW Gemini Drive
P.O. Box 1669
Beaverton, OR 97008
Dear Members of the Board:
We understand that Analogy, Inc. ("Analogy" or the "Company"), Avant!
Corporation (the "Buyer"), and AC Acquisition Corp., a wholly-owned subsidiary
of the Buyer (the "AC"), propose to enter into an Agreement of Merger and a Plan
of Merger (collectively, the "Merger Agreement") pursuant to which the AC will
be merged with and into the Company (the "Merger"). Pursuant to the Merger, all
of the outstanding shares of Analogy Common Stock (the "Analogy Common Stock")
will be converted into the right to receive an aggregate of $24,000,000 in cash
or approximately $2.49 per share (the "Merger Consideration"). The terms and
conditions of the Merger are more fully detailed in the Merger Agreement.
You have requested our opinion as to whether the Merger Consideration to
be received by Analogy shareholders in the Merger is fair, from a financial
point of view, to Analogy shareholders.
Broadview International LLC ("Broadview") focuses on providing merger and
acquisition advisory services to information technology ("IT"), communications
and media companies. In the capacity, we are continually engaged in valuing such
businesses, and we maintain an extensive database of IT, communications and
media mergers and acquisitions for comparative purposes. We are currently acting
as financial advisor to the Analogy Board of Directors and will receive a fee
from Analogy upon the successful conclusion of the Merger.
In rendering our opinion, we have, among other things:
1. reviewed the terms of a draft of the Merger Agreement dated
November 12, 1999 furnished to us by counsel for Analogy management on November
15, 1999 (which, for the purposes of this opinion, we have assumed, with your
permission, to be identical in all material
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respects to the agreement and plan to be executed);
2. reviewed Analogy's Form 10-K for its fiscal year ended March 31,
1999, including the audited financial statements included therein and Analogy's
Form 10-Q for its quarterly period ended September 30, 1999, including the
unaudited financial statements included therein;
3. reviewed certain internal financial and operating information,
including quarterly projections through March 31, 2001, relating to Analogy,
prepared and furnished to us by Analogy management;
4. participated in discussions with Analogy management concerning the
operations, business strategy, current financial performance and prospects for
Analogy;
5. discussed with Analogy management its view of the strategic
rationale for the Merger;
6. reviewed the recent reported closing prices and trading activity
for Analogy Common Stock;
7. compared certain aspects of the financial performance of Analogy
with public companies we deemed comparable;
8. analyzed available information, both public and private,
concerning other mergers and acquisitions we believe to be comparable in whole
or in part to the Merger;
9. assisted in negotiations and discussions related to the Merger
among Analogy, the Buyer and their respective financial and legal advisors; and
10. conducted other financial studies, analyses and investigations as
we deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including without limitation the representations and warranties
contained in the Merger Agreement) that was publicly available or furnished to
us by Analogy. With respect to the financial projections examined by us, we have
assumed that they were reasonably prepared, and reflected the best available
estimates and good faith judgments of the management of Analogy as to the future
performance of Analogy. We have neither made nor obtained an independent
appraisal or valuation of any of Analogy's assets.
Based upon and subject to the foregoing, we are of the opinion that the
Merger Consideration to be received by Analogy shareholders in the Merger is
fair, from a financial
B-2
<PAGE>
point of view, to Analogy shareholders.
For purposes of this opinion, we have assumed that Analogy is not
currently involved in any material transaction other than the Merger and those
activities undertaken in the ordinary course of conducting its business. Our
opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this opinion,
and any change in such conditions may impact this opinion.
This opinion speaks only as of the date hereof. It is understood that
this opinion is for the information of the Board of Directors of Analogy in
connection with its consideration of the Merger and does not constitute a
recommendation to any Analogy shareholder as to how such shareholder should vote
on the Merger. This opinion may not be published or referred to, in whole or
part, without our prior written permission, which shall not be unreasonably
withheld. Broadview hereby consents to references to and the inclusion of this
opinion in its entirety in the Proxy Statement to be distributed to Analogy
shareholders in connection with the Merger.
Sincerely,
/s/ Broadview International LLC
BROADVIEW INTERNATIONAL LLC
B-3
<PAGE>
APPENDIX C
ANALOGY, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED
MARCH 31, 1999
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
--------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: 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
(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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANALOGY, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
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
</TABLE>
<PAGE>
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.
2
<PAGE>
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
<PAGE>
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.
4
<PAGE>
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.
5
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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.
<TABLE>
<CAPTION>
Low High
--- ----
1998
<S> <C> <C>
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
</TABLE>
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.
6
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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.
8
<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
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
--------- --------- ---------
Total cost of revenue 11.8 17.9 16.1
--------- --------- ---------
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
OTHER ACCUM- TOTAL
COMMON STOCK 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)
YEAR ENDED MARCH 31,
<TABLE>
<CAPTION>
--------------------------------------------
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
--------- ---------- ---------
--------- ---------- ---------
<CAPTION>
<S> <C> <C>
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>
APPENDIX D
ANALOGY, INC.
QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED
DECEMBER 31, 1999
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 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
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [ X ] No [ ]
COMMON STOCK, NO PAR VALUE 9,697,260
(Class) (Shares outstanding at February 1, 2000)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ANALOGY, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets - December 31, 1999
and March 31, 1999.............................................................................2
Consolidated Statements of Operations - Three Months and Nine Months
ended December 31, 1999 and 1998...............................................................3
Consolidated Statements of Cash Flows -Nine Months
ended December 31, 1999 and 1998...............................................................4
Notes to Consolidated Financial Statements.....................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................8
Item 3. Quantitative and Qualitative Disclosure About Market Risk.............................16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................17
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,385 $ 2,008
Accounts receivable 6,357 6,738
Prepaid expenses 987 1,033
Other assets, net 2,132 2,271
------------- --------------
Total current assets 10,861 12,050
Furniture, fixtures and equipment, net of accumulated
depreciation and amortization of $11,349 and $10,263
at December 31, 1999 and March 31, 1999, respectively 1,550 2,416
Library costs, net 4,434 4,495
Other assets, net 1,328 2,257
------------- --------------
$ 18,173 $ 21,218
------------- --------------
------------- --------------
Liabilities and shareholders' equity
Current liabilities:
Note payable $ 2,000 $ -
Line of credit - 400
Advances under accounts receivable purchase agreement 385 -
Current portion of capital leases 288 403
Accounts payable and accrued expenses 1,588 1,320
Accrued salaries and benefits 1,991 2,709
Unearned revenue 7,190 8,657
------------- --------------
Total current liabilities 13,442 13,489
Non-current portion of capital leases 87 219
Deferred contract revenue 649 1,455
Other liabilities 46 65
Commitments - -
Shareholders' equity:
Common stock, no par value, authorized 35,000 shares;
shares issued and outstanding : 9,697 and 9,521
at December 31, 1999 and March 31, 1999, respectively 18,936 18,569
Accumulated other comprehensive loss -
foreign currency translation (307) (269)
Accumulated deficit (14,680) (12,310)
------------- --------------
Total shareholders' equity 3,949 5,990
------------- --------------
$ 18,173 $ 21,218
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 3,656 $ 4,316 $ 9,497 $ 11,196
Service and other 2,296 2,942 7,453 7,891
------------- ----------- ------------ -------------
Total revenue 5,952 7,258 16,950 19,087
Cost of revenue:
Product licenses 511 478 1,563 1,407
Service and other 163 450 497 988
------------- ----------- ------------ -------------
Total cost of revenue 674 928 2,060 2,395
------------- ----------- ------------ -------------
Gross profit 5,278 6,330 14,890 16,692
Operating expenses:
Research and development 1,831 2,081 5,688 6,773
Sales and marketing 2,948 3,383 9,400 10,066
General and administrative 395 586 1,478 1,892
Amortization of intangibles 86 92 270 276
Restructuring charges - - - 557
------------- ----------- ------------ -------------
Total operating expenses 5,260 6,142 16,836 19,564
------------- ----------- ------------ -------------
Operating income (loss) 18 188 (1,946) (2,872)
Other expense, net (20) (15) (91) (246)
------------- ----------- ------------ -------------
(Loss) income before income
taxes (2) 173 (2,037) (3,118)
Income tax expense 141 120 333 346
------------- ----------- ------------ -------------
Net (loss) income $ (143) $ 53 $ (2,370) $ (3,464)
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Basic net (loss) income per share $ (0.01) $ 0.01 $ (0.25) $ (0.37)
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Diluted net (loss) income per share $ (0.01) $ 0.01 $ (0.25) $ (0.37)
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Shares used in per share calculations:
Basic 9,639 9,437 9,617 9,404
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
Diluted 9,639 9,674 9,617 9,404
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended December 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,370) $ (3,464)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,598 3,050
Changes in operating assets and liabilities:
Accounts receivable 207 (2,427)
Prepaid expenses and other assets 795 (449)
Accounts payable and accrued expenses (381) (1,014)
Unearned revenue (2,112) (751)
----------- -----------
Net cash used in operating activities (1,263) (5,055)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for furniture, fixtures and equipment (153) (597)
Capital expenditures for library costs (1,163) (1,367)
----------- -----------
Net cash used in investing activities (1,316) (1,964)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under note payable 2,000 --
Advances under accounts receivable purchase agreement 385 --
Net payments on line of credit (400) --
Principal payments on capital lease obligations (340) (431)
Proceeds from exercise of stock options and warrants 367 441
----------- -----------
Net cash provided by financing activities 2,012 10
----------- -----------
Effect of exchange rate changes on cash and cash equivalents (56) 105
----------- -----------
Net decrease in cash and cash equivalents (623) (6,904)
Cash and cash equivalents at beginning of period 2,008 8,130
----------- -----------
Cash and cash equivalents at end of period $ 1,385 $ 1,226
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 149 $ 176
Income taxes 313 348
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Acquisition of equipment under capital lease obligations $ 93 $ 78
Recording of deferred and unearned contract revenue -- 2,560
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
ANALOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited financial information included herein for the three and nine
months ended December 31, 1999 and 1998 was prepared in conformity with
generally accepted accounting principles. The financial information as of March
31, 1999 is derived from the Analogy, Inc. (the "Company") consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended March 31, 1999. Certain information or footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, the accompanying consolidated financial statements include all
adjustments necessary (which are of a normal and recurring nature) for the fair
presentation of the results of the interim periods presented. The accompanying
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended March 31,
1999, as included in the Company's Annual Report on Form 10-K for the year ended
March 31, 1999.
Operating results for the three and nine months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending March 31, 2000, or any portion thereof.
2. COMPREHENSIVE INCOME (LOSS)
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements
for disclosure of comprehensive income. The objective of SFAS 130 is to report
all changes in equity that result from transactions and economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other non-owner changes in equity. The reconciliation of net loss to
comprehensive loss is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net (loss) income $ (143) $ 53
Foreign currency translation adjustments (111) (16)
--------- ---------
Comprehensive (loss) income $ (254) $ 37
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended December 31,
--------------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net loss $ (2,370) $ (3,464)
Foreign currency translation adjustments (38) 17
--------- ---------
Comprehensive loss $ (2,408) $ (3,447)
--------- ---------
--------- ---------
</TABLE>
5
<PAGE>
3. NET (LOSS) INCOME PER SHARE
Basic and diluted net loss per share are computed using the weighted average
number of shares of common stock outstanding for the period. All potential
dilutive securities are excluded from the calculation of diluted net loss per
share, as they are antidilutive.
Diluted net income per share is computed using the weighted average number of
shares of common stock and potential common shares related to stock options and
warrants outstanding during the period. Potential common shares of 237,000 were
used in the calculation of diluted earnings per share for the quarter ended
December 31, 1998.
The dilutive effect of stock options outstanding for the purchase of 1,669,000
shares for the three and nine months ended December 31, 1999, and 1,778,000
shares for the nine months ended December 31, 1998; and warrants outstanding for
the purchase of 10,000 shares for the three and nine months ended December 31,
1999, and 200,000 shares for the nine months ended December 31, 1998 were not
included in loss per share calculations, because to do so would have been
antidilutive.
4. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). Based on definitions contained within SFAS 131, the Company has
determined that it operates in one segment.
The Company markets its products in North America and Europe primarily through
its direct sales organization and in Asia primarily through distributors.
Revenue information is based on the location of the customer. The
Company's geographic information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
United States $ 2,501 $ 3,195 $ 7,564 $ 8,996
Germany 1,166 1,437 2,917 3,756
Sweden 590 326 1,814 1,002
United Kingdom 806 855 2,198 1,927
France 490 917 1,377 2,131
Other 399 528 1,080 1,275
---------- ---------- --------- ----------
$ 5,952 $ 7,258 $ 16,950 $ 19,087
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
5. MERGER WITH AVANT! CORPORATION
In November 1999, the Board of Directors of the Company approved the merger of
the Company into a wholly owned subsidiary of Avant! Corporation (the "Merger").
Pursuant to an Agreement of Merger dated December 2, 1999 (the "Merger
Agreement"), each outstanding share of the Company's Common Stock will be
converted into the right to receive approximately $2.48 per share in cash,
subject to the ultimate amount of certain fees and expenses related to the
Merger and subject to the number of the Company's shares outstanding at the
effective date of the Merger. The Merger must be approved by the affirmative
vote of the holders of at least sixty-seven percent (67%) of the outstanding
shares of the Company's Common Stock, and is subject to other conditions
including certain regulatory approvals. FOR ADDITIONAL DISCLOSURE SEE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
6
<PAGE>
6. BRIDGE LOAN AND SECURITY AGREEMENT
In October 1999, the Company entered into a $2.0 million Bridge Loan and
Security Agreement and a related Promissory Note (the "Loan Agreement") with
Avant! Corporation. As of December 31, 1999, $2.0 million was outstanding under
the Loan Agreement, and is included in the accompanying balance sheet under the
caption "Note Payable." Amounts outstanding under the Loan Agreement bear
interest at 10% per annum (13% per annum on any past due payments) and are
collateralized by substantially all of the assets of the Company. All
outstanding principal and interest are due upon the earlier of 180 days from the
date of the Loan Agreement or upon an event of default under the Loan Agreement.
FOR ADDITIONAL DISCLOSURE SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company develops, markets and supports high-performance software and model
libraries for the top-down design and behavioral simulation of mixed-signal and
mixed-technology systems.
The Company's product license revenue consists of license fees for its software
products and template and component model library subscription fees. Service and
other revenue consists of software maintenance fees, training, consulting and
both commercial and governmental contract model development and research and
development contracts. The Company's software products are shipped only after
the Company has an executed software license agreement with a customer. Revenue
from software licenses is recognized upon shipment to the customer. Revenue from
sales to resellers is generally recognized upon shipment to the reseller. In the
case of certain long-term contracts, revenue is recognized on a subscription
basis over the life of the contract. Revenue from library subscription fees is
typically billed annually and the related revenue is recognized ratably over the
life of the contract, usually twelve months. Maintenance is normally billed in
advance and recognized ratably over the life of the contract, which is usually
twelve months. Training, consulting and certain other services revenue is
recognized as the services or portions thereof have been provided. Revenue from
contract model development is generally recognized upon shipment of the
underlying models, or upon compliance with acceptance criteria as agreed to with
the customer.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report, including the following discussion and analysis of financial
condition and results of operations, contains certain statements, trend analysis
and other information that constitute "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, which may
involve risks and uncertainties. Such forward looking statements include, but
are not limited to, statements including the words "anticipate," "believe,"
"estimate," "expect," "plan," "intend" and other similar expressions. These
forward looking statements involve risks and uncertainties that could cause
actual results to differ materially from the forward-looking statements,
including, without limitation, the approval of the proposed acquisition of the
Company by Avant! by 67% of the outstanding shares of the Company's Common
Stock, the failure to satisfy conditions necessary to consummate the proposed
acquisition of the Company by Avant! Corporation including those which are
outside of the Company's and Avant!'s control, including certain regulatory
approvals, the Company's ability to meet its future capital needs if the
acquisition of the Company by Avant! Corporation is not consummated, (SEE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS LIQUIDITY AND CAPITAL RESOURCES"), the receipt and timing of orders
for the Company's products, timely collections from customers, changes in
capital spending plans by key customers, the lengthy sales cycles for the
Company's products, the impact of expense reductions on the Company, increased
adoption of behavioral modeling design methodologies for mixed-signal and
mixed-technology systems design, the Company's ongoing ability to introduce new
products and expand its markets, customer acceptance of new products, seasonal
fluctuations in the Company's order patterns and competitive initiatives,
ability to execute financing strategies, ability to comply with financing
agreement covenants, and other risks listed from time to time in the Company's
periodic reports filed with the Securities and Exchange Commission, or otherwise
disclosed by the Company.
Results of operations for the periods discussed below should not be considered
indicative of the results to be expected in any future period, and fluctuations
in operating results may also result in fluctuations in the market price of the
Company's common stock. Like most high technology companies, the Company faces
certain business risks that could have adverse effects on the Company's results
of operations, including those discussed below, and those discussed elsewhere in
this Report.
The Company's quarterly operating results have fluctuated in the past and may
fluctuate in the future as a result of the large percentage of orders that are
not received by the Company until near the end of the quarter. The Company's
expense levels are based, in part, on its expectations as to future revenue. If
revenue levels are
8
<PAGE>
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.
9
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated selected items of the
Company's consolidated statements of operations and such items expressed as a
percentage of total revenue (dollars in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
STATEMENT OF OPERATIONS DATA: 1999 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 3,656 61.4 % $ 4,316 59.5 %
Service and other 2,296 38.6 2,942 40.5
-------- -------- -------- --------
Total revenue 5,952 100.0 7,258 100.0
Cost of revenue:
Product licenses 511 8.6 478 6.6
Service and other 163 2.7 450 6.2
-------- -------- -------- --------
Total cost of revenue 674 11.3 928 12.8
-------- -------- -------- --------
Gross profit 5,278 88.7 6,330 87.2
Operating expenses:
Research and development 1,831 30.8 2,081 28.7
Sales and marketing 2,948 49.6 3,383 46.6
General and administrative 395 6.6 586 8.1
Amortization of intangibles 86 1.4 92 1.2
-------- -------- -------- --------
Total operating expenses 5,260 88.4 6,142 84.6
-------- -------- -------- --------
Operating income 18 0.3 188 2.6
Other expense, net (20) (0.3) (15) (0.2)
-------- -------- -------- --------
(Loss) income before income taxes (2) - 173 2.4
Income tax expense 141 2.4 120 1.7
-------- -------- -------- --------
Net (loss) income $ (143) (2.4) % $ 53 0.7 %
-------- -------- -------- --------
-------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NINE MONTHS NINE MONTHS
ENDED ENDED
STATEMENT OF OPERATIONS DATA: DECEMBER 31, DECEMBER 31,
1999 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Product licenses $ 9,497 56.0 % $ 11,196 58.7 %
Service and other 7,453 44.0 7,891 41.3
-------- -------- --------- -------
Total revenue 16,950 100.0 19,087 100.0
Cost of revenue:
Product licenses 1,563 9.2 1,407 7.4
Service and other 497 2.9 988 5.2
-------- -------- --------- -------
Total cost of revenue 2,060 12.1 2,395 12.6
-------- -------- --------- -------
Gross profit 14,890 87.9 16,692 87.4
Operating expenses:
Research and development 5,688 33.6 6,773 35.5
Sales and marketing 9,400 55.5 10,066 52.7
General and administrative 1,478 8.7 1,892 9.9
Amortization of intangibles 270 1.6 276 1.4
Restructuring charges - - 557 2.9
-------- -------- --------- -------
Total operating expenses 16,836 99.4 19,564 102.4
-------- -------- --------- -------
Operating loss (1,946) (11.5) (2,872) (15.0)
Other expense, net (91) (0.5) (246) (1.3)
-------- -------- --------- -------
Loss before income taxes (2,037) (12.0) (3,118) (16.3)
Income tax expense 333 2.0 346 1.8
-------- -------- --------- -------
Net loss $ (2,370) (14.0) % $ (3,464) (18.1) %
-------- -------- --------- -------
-------- -------- --------- -------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL YEARS 1999 AND 1998
REVENUE
Total revenue decreased 18.0% to $6.0 million in the third quarter of fiscal
year 2000 from $7.3 million in the third quarter of fiscal year 1999, and
decreased 11.2% to $17.0 million in the first nine months of fiscal year 2000
from $19.1 in the first nine months of fiscal year 1999. The Company sells its
products and services through its wholly-owned subsidiaries in Europe and
through distributors in Asia. International revenue was $9.4 million (55% of
total revenue) in the first nine months of fiscal year 2000 compared to $10.1
million (53% of total revenue) in the first nine months of fiscal year 1999. No
one customer accounted for 10% or more of total revenue in the third quarter or
first nine months of fiscal years 2000 or 1999.
Product license revenue decreased 15.3% to $3.7 million in the third quarter of
fiscal year 2000 from $4.3 million in the third quarter of fiscal year 1999, and
decreased 15.2% to $9.5 million in the first nine months of fiscal year 2000
from $11.2 million in the first nine months of fiscal year 1999. The Company
recently reorganized its U.S. sales force and hired new employees in sales
positions. This combined with the long sales cycle for the Company's products,
resulted in decreased product license revenue in the fiscal year 2000 periods.
Additionally, the pending acquisition of the Company by Avant! Corporation,
which was announced in early December 1999, has created some short-term
uncertainty in the Company's customer base.
Service and other revenue decreased 22.0% to $2.3 million in the third quarter
of fiscal year 2000 from $2.9 million in the third quarter of fiscal year 1999,
and decreased 5.6% to $7.5 million in the first nine months of
11
<PAGE>
fiscal year 2000 from $7.9 million in the first nine months of fiscal year 1999.
The decrease in the third quarter of fiscal year 2000 is primarily attributable
to a decrease in consulting revenue. In the third quarter of fiscal year 1999,
there was increased consulting revenue in connection with certain contracts
included in service and other revenue. The decrease in the first nine months of
fiscal year 2000 was the result of the decrease in consulting revenue previously
described and decreased revenues under the National Institute of Standards and
Technology ("NIST") grant and Defense Advanced Research Projects Agency
("DARPA") contract. The NIST grant concluded at the end of the first quarter of
fiscal year 1999 and the DARPA contract expired at the end of fiscal year 1999.
There were no revenues from the DARPA contract or the NIST grant in the first
nine months of fiscal year 2000.
COST OF REVENUE
Total cost of revenue decreased 27.4% to $674,000 in the third quarter of fiscal
year 2000 from $928,000 in the third quarter of fiscal year 1999, and decreased
14.0% to $2.1 million in the first nine months of fiscal year 2000 from $2.4
million in the first nine months of fiscal year 1999.
Cost of product license revenue consists primarily of documentation expense,
media manufacturing costs, supplies, shipping expense, amortization of component
and template model library costs and royalty payments. The Company does not
capitalize development costs for software products since the time between the
establishment of a working model of the software product and its
commercialization is typically of a short duration. Cost of product license
revenue increased to 14.0% of product license revenue in the third quarter of
fiscal year 2000 from 11.1% in the third quarter of fiscal year 1999, and
increased to 16.5% of product license revenue in the first nine months of fiscal
year 2000 from 12.6% in the first nine months of fiscal year 1999. The
increases, as a percentage of product license revenue, were primarily a result
of lower product license revenue in the fiscal year 2000 periods. Costs such as
documentation expense and supplies are expensed as incurred, and development
costs associated with creating the library of component and template models are
capitalized and amortized over the estimated product life, generally five years.
These costs and amortization expenses may not necessarily relate to the number
of product licenses shipped during the period.
Cost of service and other revenue consists primarily of maintenance and customer
support expenses (including product enhancements and improvements, bug fixes,
telephone support, installation assistance and on-site support), certain
contract model development costs associated with the DARPA contract and the NIST
grant in fiscal year 1999, and the direct cost of providing services such as
training and consulting. As a percentage of service and other revenue, cost of
service and other revenue decreased to 7.1% of service and other revenue in the
third quarter of fiscal year 2000 from 15.3% in the third quarter of fiscal year
1999, and decreased to 6.7% of service and other revenue in the first nine
months of fiscal year 2000 from 12.5% of service and other revenue in the first
nine months of fiscal year 1999. The decrease in third quarter of fiscal year
2000 was primarily a result of a decrease in outside consulting in connection
with certain contracts, work force reductions and attrition, and continued
efforts to reduce operating costs. In the third quarter of fiscal year 1999,
there was an increased amount of outside consulting included in cost of service
and other revenue. The decrease in the first nine months of fiscal year 2000 was
attributable to the decrease in outside consulting previously described,
decreased activity under the NIST grant, and the DARPA contract, which had
higher costs associated with them than the Company's other services, the work
force reduction which occurred in the first quarter of fiscal year 1999 and the
Company's ongoing cost containment efforts. There were no costs incurred under
the DARPA contract or the NIST grant in the first nine months of fiscal year
2000.
12
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expense includes all costs associated with development
of new products and technology research. Costs classified in this category
primarily include such items as salaries, fringe benefits and an allocation of
facilities and systems support costs including depreciation of capital equipment
used in research and development. Research and development expenses decreased
12.0% to $1.8 million in the third quarter of fiscal year 2000 from $2.1 million
in the third quarter of fiscal year 1999, and decreased 16.0% to $5.7 million in
the first nine months of fiscal year 2000, from $6.8 million in the first nine
months of fiscal year 1999. The decreases were primarily attributable to the
work force reduction which occurred in fiscal year 1999 and ongoing cost
containment efforts, partially offset in the first quarter of fiscal year 2000
by costs included in research and development expense which were previously
recorded as cost of service and other revenue under the NIST grant and the DARPA
contract. As a percentage of total revenue, research and development costs
increased to 30.8% in the third quarter of fiscal year 2000 from 28.7% in the
third quarter of fiscal year 1999, and decreased to 33.6% in the first nine
months of fiscal year 2000 from 35.5% in the first nine months of fiscal year
1999. The increase as a percentage of total revenue in the third quarter of
fiscal year 2000 was a result of lower revenue in that period, as compared to
the same period of fiscal year 1999.
SALES AND MARKETING
Sales and marketing expense consists primarily of salaries, commissions, travel
and costs of promotional activities. Sales and marketing expense decreased 12.9%
to $2.9 million in the third quarter of fiscal year 2000 from $3.4 million in
the third quarter of fiscal year 1999, and decreased 6.6% to $9.4 million in the
first nine months of fiscal year 2000 from $10.1 million in the first nine
months of fiscal year 1999. The decreases in sales and marketing expense in the
fiscal year 2000 periods were primarily the result of the work force reduction
that occurred in the first quarter of fiscal year 1999 and decreased variable
selling costs resulting from a decrease in the level of sales. As a percentage
of total revenue, sales and marketing expenses increased to 49.6% in the third
quarter of fiscal year 2000 from 46.6% in the third quarter of fiscal year 1999,
and increased to 55.5% in the first nine months of fiscal year 2000 from 52.7%
in the first nine months of fiscal year 1999. The increases as a percentage of
total revenue in the fiscal year 2000 periods were a result of a decrease in
revenues in those periods.
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 32.6% to
$395,000 in the third quarter of fiscal year 2000 from $586,000 in the third
quarter of fiscal year 1999, and decreased 21.9% to $1.5 million in the first
nine months of fiscal year 2000 from $1.9 million in the first nine months of
fiscal year 1999. The decreases were primarily attributable to declining
depreciation of corporate information systems, the work force reduction which
occurred in the first quarter of fiscal 1999 and attrition. As a percentage of
total revenue, general and administrative expenses decreased to 6.6% in the
third quarter of fiscal year 2000 from 8.1% in the third quarter of fiscal year
1999, and decreased to 8.7% in the first nine months of fiscal year 2000 from
9.9% in the first nine months of fiscal year 1999.
RESTRUCTURING CHARGES
Results of operations for the first quarter of fiscal year 1999 included a
$557,000 charge for the costs associated with a restructuring plan undertaken to
improve profitability, consisting of a work force reduction primarily in the
marketing and research and development functions of the Company. All of the
restructuring charges were paid in the first quarter of fiscal year 1999.
13
<PAGE>
OTHER EXPENSE, NET
Other expense, net primarily consists of interest expense and the effects of
foreign currency transaction gains and losses. Other expense, net was $20,000
and $15,000 in the third quarters of fiscal years 2000 and 1999, respectively.
Other expense, net was $91,000 and $246,000 in the first nine months of fiscal
years 2000 and 1999, respectively. Other expense, net in the first quarter of
fiscal year 1999 included amortization of finance charges from the sale of
approximately $4.0 million of accounts receivable to a financial institution.
Interest expense (other than amortization of finance charges) has increased in
fiscal year 2000 due to increased borrowings.
INCOME TAX EXPENSE
The Company provided for foreign income and withholding taxes of $333,000 and
$346,000 in the first nine months of fiscal years 2000 and 1999, respectively.
The Company's effective tax rate is sensitive to shifts in income and losses
among the various countries in which the Company does business, since in some
countries the Company is in a tax paying position while in other countries the
Company has operating loss carry forwards available to offset taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.3 million in the first nine months
of fiscal year 2000. This resulted primarily from a net loss for the period and
a decrease in unearned revenue, offset by adjustments for depreciation and
amortization. Unearned revenue decreased as a result of lower levels of product
license revenue in the first nine months of fiscal year 2000.
Net cash used in investing activities was $1.3 million in the first nine months
of fiscal year 2000, and was primarily associated with the investment in the
Company's component and template model libraries.
Net cash provided by financing activities was $2.0 million in the first nine
months of fiscal year 2000, which included proceeds from a note payable to
Avant! Corporation, advances under an accounts receivable purchase agreement and
proceeds from the exercise of stock options, offset by payments on capital lease
obligations and a line of credit.
On October 1, 1999, the Company entered into an accounts receivable purchase
agreement with a bank under which the Company may sell, from time to time, up to
$2.5 million of accounts receivable, with recourse. The agreement allows for
advances to the Company of 80% of accounts receivable (as approved by the bank),
with a monthly finance charge of 1.75%, computed on outstanding purchased
accounts receivable. Advances under the agreement are collateralized by
substantially all of the assets of the Company. As of December 31, 1999,
outstanding advances under the agreement were $385,000, and the bank has
informed the Company that further advances cannot be made under the agreement
until such time as the Company's liquidity position improves.
On October 19, 1999, the Company entered into a $2.0 million Bridge Loan and
Security Agreement and a related Promissory Note with Avant! Corporation, under
which $2.0 million was outstanding at December 31, 1999. On January 14, 2000,
the Company entered into a Second Bridge Loan and Security Agreement and a
related Promissory Note under which an additional $600,000 in the aggregate can
be borrowed from Avant! (These agreements are collectively referred to as the
"Loan Agreements.") As of the date of this filing, $2.5 million was outstanding
under the Loan Agreements. Amounts outstanding under the Loan Agreements bear
interest at 10% per annum (13% per annum on any past due payments) and are
collateralized by substantially all of the assets of the Company. All
outstanding principal and interest are due upon the earlier of 180 days from the
date of the Loan Agreements or upon an event of default under the Loan
Agreements.
14
<PAGE>
The Company's future capital needs and the timing of such needs will depend upon
numerous factors which cannot be predicted with certainty, including the
approval by the Company's shareholders of the Merger and the satisfaction of
other conditions required to complete the Merger, the Company's results of
operations, the amount of revenues generated from operations, receipt and timing
of orders for the Company's products, timely collections from customers, changes
in capital spending plans by key customers, the impact of expense reductions on
the Company, the Company's ongoing ability to introduce new products and expand
its markets, seasonal fluctuations in the Company's order patterns, ability to
execute financing strategies, and ability to access cash balances of its foreign
operations in a timely manner.
MERGER WITH AVANT! CORPORATION
On November 17, 1999, the Board of Directors of the Company approved the merger
of the Company into a wholly owned subsidiary of Avant! Corporation (the
"Merger"). Pursuant to an Agreement of Merger dated December 2, 1999 (the
"Merger Agreement"), each outstanding share of the Company's Common Stock will
be converted into the right to receive approximately $2.48 per share in cash,
subject to the ultimate amount of certain fees and expenses related to the
Merger and subject to the number of the Company's shares outstanding at the
effective date of the Merger. The Merger must be approved by the affirmative
vote of the holders of at least sixty-seven percent (67%) of the outstanding
shares of the Company's Common Stock, and is subject to other conditions
including certain regulatory approvals. A vote of the Company's Shareholders
will be held at a special meeting of shareholders in March 2000. Provided Avant!
Corporation is not in material default under the terms of the Merger Agreement,
it may terminate any further obligations under the Merger Agreement if any
condition of the closing provided for in the Merger Agreement is not satisfied
on or before March 31, 2000.
If the Merger is not consummated for any reason, including if the Company's
shareholders do not approve the Merger, or if other conditions required to
complete the Merger are not satisfied, certain of which are outside the
Company's and Avant!'s control, due to the Company's current financial situation
and the capital requirements necessary to continue operation of the business,
the viability of the Company's ongoing business operations will be seriously
jeopardized. In particular, the Company could be required to significantly
reduce its operations, seek additional financing, sell additional securities on
terms that are highly dilutive to existing shareholders or search for an
alternative merger partner. There can be no assurance that additional financing
or sales of additional securities would be available alternatives and, if
available, that the terms would be acceptable to the Company. Additionally,
there can be no assurance that the Company could find an alternative merger
partner. Further, there can be no assurance that any of these strategies could
be executed in a timely manner.
YEAR 2000 ISSUE
During 1999, the Company assessed its computer software programs and operating
systems used in its internal operations including development and accounting
systems, to determine their readiness for the Year 2000. The inability of
computer software programs and operating systems to accurately recognize,
interpret and process date data designating the Year 2000 and beyond could cause
systems to yield inaccurate results or encounter operating problems, including
disruption of the business operations these systems control. The Company
replaced certain systems, including its security system, that were determined to
be deficient. The cost associated with replacing such systems was not
significant.
During 1999, the Company contacted its major suppliers of products and services
to assess the Year 2000 compliance of each. As the majority of the Company's
major customers are "Fortune 100" companies, the Company reviewed Year 2000
public disclosures made by its major customers to determine whether their
operations are Year 2000 compliant. The Company did not discover any material
deficiencies with respect to its major suppliers or its major customers based on
its contact and review procedures. As of the date of this filing, the Company
has not experienced any Year 2000 disruptions with its major suppliers of
products and services or with its major customers.
15
<PAGE>
During 1999, the Company 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 believed they would be unaffected by the Year 2000
transition. To the extent that a user of the Company's products does not have
Year 2000 compliant operating systems or development environments, the Company
gives no assurance as to Year 2000 compliance of its products used on such
operating systems or development environments. As of the date of this filing,
the Company is not aware of any effects on its products as a result of the Year
2000.
The Company believed its most reasonably likely worst-case Year 2000 scenario
would relate to problems with the systems of third party infrastructure
suppliers, e.g., electricity supply, water and sewer service and
telecommunications. As of the date of this filing, the Company has not
experienced disruptions from its suppliers of electricity, water, sewer or
telecommunications.
The Company has not incurred material incremental costs to ensure Year 2000
compliance of its systems or products. The Company does not expect to incur
additional costs in addressing Year 2000 issues.
While the Company believes its risk is low, it is early in the year 2000 and
there is a possibility that a software program or system Year 2000 compliance
failure related to products, its internal systems and software or those of its
major suppliers and customers could still occur. Lost revenues or the inability
of the Company to operate for any significant period of time that would result
from a software program or system Year 2000 compliance failure, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS No. 133, as amended by SFAS No. 137, is effective for
fiscal years beginning after June 15, 2000. The Company does not expect SFAS No.
133 to have a material impact on its consolidated financial statements
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not currently use derivative financial instruments for
speculative purposes which expose the Company to market risk. The Company is
exposed to cash flow and fair value risk due to changes in interest rates with
respect to its outstanding debt. Information required by this item is set forth
in ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibit filed as part of this report:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
A Report on Form 8-K, containing the Company's earnings release for the quarter
ended September 30, 1999, and announcing that the Company was engaged in
negotiations regarding the acquisition of the Company was filed under Item 5, on
November 16, 1999.
A Report on Form 8-K, containing Avant! Corporation's press release announcing a
definitive agreement under which Avant! Corporation will acquire the Company was
filed under Item 5, on December 6, 1999.
No other Reports on Form 8-K were filed during the quarter ended December 31,
1999.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 8, 2000
ANALOGY, INC.
By:/s/ GARY P. ARNOLD
------------------
Gary P. Arnold
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
(Principal Financial Officer)
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ANALOGY, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE AT THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M., LOCAL TIME, ON MARCH 17, 2000.
The undersigned shareholder of Analogy, Inc., an Oregon corporation (the
"Company"), hereby appoints Gary P. Arnold and Martin Vlach, and each of
them, as proxies, each with full power of substitution, to represent and to
cast all votes which the undersigned is entitled to cast at the Special
Meeting of Shareholders (the "Special Meeting") to be held at 10:00 a.m.,
local time, on March 17, 2000 at the principal executive offices of Analogy,
Inc. located at 9205 SW Gemini Drive, Beaverton, Oregon 97008 or any
adjournment or adjournments thereof upon the following matters:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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(CONTINUED FROM FRONT) Please mark
your votes as /X/
indicated in
this example
FOR AGAINST ABSTAIN
/ / / / / /
PROPOSAL 1. To approve the Merger of AC Acquisition
Corp. ("AC"), a wholly-owned subsidiary
of Avant! Corporation ("Avant!") with and
into the Company pursuant to an Agreement
of Merger dated December 2, 1999 among the
Company, Avant! and AC.
In the discretion of the majority of the Company's Board of
Directors, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
Please check the box if you plan to attend the Special Meeting. / /
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO SUCH DIRECTIONS ARE GIVEN, SUCH
PROXIES WILL BE VOTED "FOR" PROPOSAL 1 AND WITH THE RECOMMENDATION OF THE
MAJORITY OF THE BOARD OF DIRECTORS AS TO ANY OTHER MATTER PROPERLY BROUGHT
BEFORE THE SPECIAL MEETING. THE UNDERSIGNED SHAREHOLDER HEREBY ACKNOWLEDGES
RECEIPT OF THE COMPANY'S PROXY STATEMENT AND HEREBY REVOKES ANY OTHER PROXY
OR PROXIES PREVIOUSLY GIVEN.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE PROXY CARD. IF SHARES ARE
REGISTERED IN MORE THAN ONE NAME, THE SIGNATURES OF ALL SUCH PERSONS ARE
REQUIRED. A CORPORATION SHOULD SIGN IN ITS FULL CORPORATE NAME BY A DULY
AUTHORIZED OFFICER, STATING HIS/HER TITLE. TRUSTEES, GUARDIANS, EXECUTORS AND
ADMINISTRATORS SHOULD SIGN IN THEIR OFFICIAL CAPACITY, GIVING THEIR FULL
TITLES AS SUCH. IF A PARTNERSHIP IS SIGNING, PLEASE SIGN IN THE PARTNERSHIP
NAME BY AUTHORIZED PERSON(S). IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE
SIGN AND RETURN ALL SUCH CARDS IN THE ACCOMPANYING ENVELOPE.
Signature(s) ______________________________________ Dated ______________, 2000
NOTE: Please sign, date and return this proxy card today using the enclosed
envelope.
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